-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PT2Xi9y7B/JqoYsrzZ4Rqz1AxARWUA724ZmLwrFwi2QemwnB9CWubpDAwj9Mx+r5 rKbzlwO9+J8hE8soaew8Ww== /in/edgar/work/0000950124-00-006833/0000950124-00-006833.txt : 20001114 0000950124-00-006833.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950124-00-006833 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20001110 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHELDAHL INC CENTRAL INDEX KEY: 0000089615 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 410758073 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11861 FILM NUMBER: 762248 BUSINESS ADDRESS: STREET 1: 1150 SHELDAHL RD CITY: NORTHFIELD STATE: MN ZIP: 55057 BUSINESS PHONE: 5076638000 MAIL ADDRESS: STREET 1: 1150 SHELDAHL ROAD CITY: NORTHFIELD STATE: MN ZIP: 55057-0170 FORMER COMPANY: FORMER CONFORMED NAME: SCHJELDAHL G T CO DATE OF NAME CHANGE: 19741017 8-K 1 c58431e8-k.txt FORM 8-K 1 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 10, 2000 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 2 Item 1. Changes in Control of Registrant Merger On November 10, 2000, Sheldahl, Inc., a Minnesota corporation ("Sheldahl" or the "Company"), announced it will acquire all of the outstanding securities of International Flex Technologies, Inc. ("IFT") for approximately 7.6 million shares of Sheldahl's common stock, $.25 par value ("Common Stock") under the terms of a definitive merger agreement (the "Merger Agreement") by and among Sheldahl, IFT West Acquisition Company, a newly formed subsidiary of Sheldahl ("West"), International Flex Holdings, Inc., the sole shareholder and operating company of IFT ("Holdings"), and the stockholders of Holdings (the "Stockholders"). Under the terms of the Merger Agreement, West will merge with and into Holdings, with Holdings surviving and becoming a wholly-owned subsidiary of Sheldahl (the "Merger"). After the Merger, Sheldahl will own all of the outstanding shares of IFT. As consideration for the Merger, holders of outstanding shares of Holdings' common stock, Class A Stock, Class B Stock and Series A Preferred Stock will receive shares of Sheldahl Common Stock. Holdings' option holders and warrant holder will receive equivalent options and a warrant to purchase shares of Sheldahl Common Stock. The total number of shares of Sheldahl Common Stock to be issued, including shares to be issued upon exercise of options and warrants, will be approximately 7.6 million. Under the terms of the Merger Agreement, each party's obligations to close the Merger are conditioned upon customary closing conditions, as well as the following: o closing of the Common Stock and Series G Investment (described below) o closing of the Subordinated Notes and Warrant Purchase Investment (described below) o shareholder approval of the transactions or the receipt of an exception therefrom as may be granted by the Nasdaq Stock Market ("Nasdaq") o receipt of approval for the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1930, as amended o execution of the Governance Agreement (described below) o execution of the Registration Rights Agreement (described below) o amendment by Sheldahl of its Rights Agreement (described below) o appointment of a Chief Executive Officer of Sheldahl acceptable to IFT o there being no material adverse affect on (i) the business of either Sheldahl, Holdings or their respective subsidiaries, taken as a whole, and (ii) the business, financial condition or prospects of Sheldahl's Micro Products business taken alone Once all conditions contained in the Merger Agreement have been met, closing of the Merger will occur immediately. The Merger Agreement may be terminated by Holdings or Sheldahl on or after January 5, 2001 if the closing of the Merger has not occurred prior to that date. However, if the Company does not receive an exception to the Nasdaq requirement to seek shareholder approval of the transactions on or prior to December 19, 2000 or Nasdaq refuses to grant such exception, 2 3 Holdings may elect to terminate the Merger Agreement at that time. If the Company does not receive the Nasdaq exception prior to December 19, 2000 and Holdings does not elect to terminate, the termination date set forth in the Merger Agreement automatically extends to March 9, 2001. In certain circumstances, the Company may be required to pay a Termination Fee of $2.4 million if the Merger Agreement is terminated by Holding. In other termination events, the Company may be required to pay the expenses of the Holdings and the parties to the Stock Purchase Agreemnt (defined below) and the Debt Agreement (described below) ranging from $1,325,000 to $1,425,000. The Merger Agreement is incorporated herein by reference as Exhibit 2.0 hereto. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit. Common Stock and Series G Investment Concurrent with entering into the Merger Agreement, Sheldahl executed a stock purchase agreement (the "Stock Purchase Agreement") by and among Sheldahl, and three accredited investors including 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") will collectively invest an aggregate of $25.0 million in equity capital in exchange for approximately 4.9 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 in the aggregate into approximately 4.1 million shares of Sheldahl Common Stock (the "Equity Investment"). The cash used by the Investors to complete the Equity Investment will come from the liquid assets of the Investors. The Series G Stock is convertible into shares of the Company's Common Stock at any time. Each holder of the Series G Stock is entitled to convert each share of Series G Stock into that number of shares of Common Stock that equals $1,000 plus accrued dividends divided by the Conversion Price. The Conversion Price is approximately $2.77 per share and is subject to adjustment from time-to-time under certain customary anti-dilution provisions. The Series G Stock is entitled to 11.06% dividends, payable annually. For a period of twenty-four (24) months from the date of issuance, Sheldahl is obligated to pay the dividend in shares of its Common Stock at a Dividend Conversion Price of approximately $3.54, as adjusted from time-to-time under customary anti-dilution provisions. Thereafter, Sheldahl may pay the dividend in shares of its Common Stock, or, at its option, cash. One year of dividends at the Dividend Conversion Price would equate to approximately 353,000 shares. The Series G Stock is subordinate to the Company's Series D, E and F Convertible Preferred Stock with regard to payment of dividends and proceeds upon liquidation. Upon a liquidation of all of the assets of Sheldahl, the holders of the Series G Stock would be entitled to receive $25.0 million plus any accrued but unpaid dividends less the market value of the shares of Common Stock purchased under the Stock Purchase Agreement and retained by the holders of the Series G Stock following the adoption of a plan of 3 4 liquidation, provided that any shares of Common Stock purchased under the Stock Purchase Agreement may be turned into the Company for cancellation at the election of the holders of the Series G Stock. The Company may require holders of the Series G Stock to convert to Common Stock provided that the Company's Common Stock trades at certain pre-set price levels. Under the terms of the Stock Purchase Agreement, each party's obligations to close the Investment are conditioned upon customary closing conditions, as well as the following: o closing of the Merger (described above) o closing of the Subordinated Notes and Warrant Purchase Investment (described below) o receipt of all required approvals and consents for the Equity Investment o shareholder approval of the transactions or the receipt of an exception therefrom as may be granted by Nasdaq o receipt of approval for the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1930, as amended o execution of the Governance Agreement (described below) o execution of the Registration Rights Agreement (described below) o amendment by Sheldahl of its Rights Agreement (described below) o appointment of a Chief Executive Officer of Sheldahl reasonably acceptable to the Investors o there being no material adverse affect on (i) the business of Sheldahl, its subsidiaries and Holdings, taken as a whole, and (ii) the business, financial condition or prospects of Sheldahl's Micro Products business taken alone Once all conditions contained in the Stock Purchase Agreement have been met, closing of the Investment will occur immediately. The Stock Purchase Agreement may be terminated on or after January 5, 2001 if the closing of the Equity Investment has not occurred prior to that date, or immediately in the event the Merger Agreement is terminated. However, if the Company does not receive an exception to the Nasdaq requirement to seek shareholder approval of the transactions on or prior to December 19, 2000, or Nasdaq refuses to grant such exception, the Investors may elect to terminate the Stock Purchase Agreement at that time. If the Company does not receive the Nasdaq exception prior to December 19, 2000 and the Investors do not elect to terminate, the Stock Purchase Agreement's termination date automatically extends to March 9, 2001. The Stock Purchase Agreement and the Form of Certificate of Designation for the Series G Stock, are incorporated herein by reference as Exhibits 4.0 and 4.1 hereto. The foregoing description of the Stock Purchase Agreement and the Series G Stock does not purport to be complete and is qualified in its entirety by reference to such Exhibits. 4 5 Subordinated Notes and Warrant Purchase Investment Concurrent with entering into the Merger Agreement and Stock Purchase Agreement, Sheldahl executed a subordinated notes and warrant purchase agreement (the "Debt Agreement") by and among Sheldahl, Morgenthaler V, the Ampersand Funds and Molex Incorporated, Sheldahl's largest shareholder ("Molex"). Under the terms of the Debt Agreement, Morgenthaler V, the Ampersand Funds and Molex (the "Purchasers") will purchase up to $15.0 million of 12% Senior Subordinated Notes ("Notes") and related warrants (the "Warrants") (the "Debt Investment"). Initially, the Purchasers will collectively purchase an aggregate of $6.5 million in Notes and receive Warrants to purchase 988,201 shares of Sheldahl Common Stock (the "Initial Closing"). During the nine (9) months period after the Initial Closing, Sheldahl may require up to two subsequent closings of at least $1.0 million each, up to an additional maximum amount of $8.5 million in Notes and Warrants to purchase an additional 1,292,265 shares of Sheldahl Common Stock ("Subsequent Closings"). Sheldahl may only drawn down on this facility twice. If Sheldahl makes no additional draws, Molex has the right to require the sale to it of up to $2,127,877 of Notes and Warrants to purchase 323,503 shares. The Warrants issuable under the Debt Agreement are exercisable at $.01 per share and are exercisable for seven years from the date of issuance. Under the terms of the Debt Agreement, Sheldahl must also use its reasonable best efforts to obtain the consent of its senior lender, Wells Fargo Bank, N.A., and any other lender that has a security interest in assets of the Company to permit the Purchasers to take a security interest in such assets. The cash used by the Purchasers to complete the Debt Investment will come from the liquid assets of the Purchasers. Under the terms of the Debt Agreement, each party's obligations are conditioned upon customary closing conditions, as well as the following: o closing of the Merger (described above) o closing of the Common Stock and Series G Investment (described above) o receipt of all required approvals and consents for the Debt Investment o execution of an Intercreditor Agreement and, if applicable, a Security Agreement and Deed of Trust o receipt of approval for the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1930, as amended o execution of the Registration Rights Agreement (described below) o amendment by Sheldahl of its Rights Agreement (described below) o there being no material adverse affect on (i) the business of Sheldahl, its subsidiaries and Holdings, taken as a whole, and (ii) the business, financial condition or prospects of Sheldahl's Micro Products business taken alone Once all conditions contained in the Debt Agreement have been met, closing will occur immediately. The Debt Agreement may be terminated in the event the Merger Agreement or the Stock Purchase Agreement is terminated. 5 6 The Debt Agreement and the Forms of Note and Warrant issuable thereunder, are incorporated herein by reference as Exhibits 4.3, 4.4, and 4.5 hereto. The foregoing description of the Debt Agreement, the Notes and the Warrants does not purport to be complete and is qualified in its entirety by reference to such Exhibits. Registration Rights Under the Merger Agreement, the Stock Purchase Agreement and the Debt Agreement, the Company granted Morgenthaler V, the Ampersand Funds, the Stockholders of Holdings and Molex certain registration rights. The registration rights cover all shares of Common Stock issued or issuable to the Stockholders of Holdings, the Investors and Purchasers (i) under the Merger Agreement and the Stock Purchase Agreement, (ii) upon conversion of shares of the Series G Stock, (iii) as accrued dividends on the Series G Stock, and (iv) upon exercise of the Warrants. The Company is obligated to file a shelf Registration Statement on or before nine (9) months after the closing date of the Merger, Equity Investment and the Debt Investment and to use its best efforts to have a such Registration Statement declared effective as promptly as possible thereafter, but in any event prior to the first anniversary of the closing date of the Merger, the Equity Investment and the Debt Investment. The Form of Registration Rights Agreement between the Company and the Investors and Purchasers specifying the terms of the registration rights is incorporated herein by reference as Exhibit 4.2 hereto. The foregoing description of the Registration Rights does not purport to be complete and is qualified in its entirety by reference to such Exhibit. Governance Agreement At the time of closing of the Merger, the Equity Investment and the Debt Investment (collectively, the "Transactions"), Sheldahl will enter 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"). Molex will not be 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. 6 7 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 also require that the initial composition of Board of Directors of Sheldahl after the closing of the Transactions is established to 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. 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"). For the first regular meeting of the Company's shareholders subsequent to the closing of the Transactions, the Nominating Committee is to be comprised of one director appointed by Morgenthaler V, the Ampersand Funds and Sound Beach together, one Continuing Director and the Molex Director. 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), subject to an amendment to the Company's Bylaws to reduce the current number of directors from nine (9) to 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. The Form of Governance Agreement between the Company and the Parties is incorporated herein by reference as Exhibit 4.6 hereto. The foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to such Exhibit. Post Transactions Ownership After completion of all the Transactions, Morgenthaler V, the other Stockholders of Holdings and the Ampersand Funds will collectively hold securities representing ownership of approximately 49% of Sheldahl on a fully diluted basis (assuming conversion of all Sheldahl convertible securities). In addition, Molex will increase its ownership of Sheldahl securities and, after participation in these 7 8 transactions and assuming Molex makes its maximum investment permissible under the Debt Agreement, will own approximately 10% of Sheldahl on a fully diluted basis. On a beneficial basis, calculated in conformance with Rule 13d-1 of the Securities Exchange Act of 1934, as amended, the parties will have ownership as follows: o Morgenthaler V will own or have the right to acquire 11,999,886 shares of Sheldahl Common Stock, representing 43.40% of Sheldahl. o The Ampersand Funds will own or have the right to acquire 3,111,796 shares of Sheldahl Common Stock, representing 12.21% of Sheldahl. o Molex will own or have the right to acquire 3,827,069 shares of Sheldahl Common Stock, representing 14.10% of Sheldahl. o Sound Beach will own or have the right to acquire 2,096,213 shares of Sheldahl Common Stock, representing 8.79% of Sheldahl. o Other former Stockholders of Holdings will own or have the right to acquire 747,206 shares of Sheldahl Common Stock, representing 3.09% of Sheldahl. Reference should be made to future filings by such parties for a full description of their holdings of Sheldahl securities. Item 2. Acquisition or Disposition of Assets See description of the Transactions in Item 1. above. Item 5. Other Events Amendment to Rights Agreement In connection with entering into the Merger Agreement, the Stock Purchase Agreement and the Debt Agreement, the Company amended its Rights Agreement in order to prevent the Transactions from triggering the provisions therein. The full text of such amendment to the Rights Agreement is incorporated herein by reference as Exhibit 4.7 hereto. The foregoing description of such amendment is qualified in its entirety by reference to such Exhibit. Amended Molex Agreements 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"). 8 9 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. The LLC Agreement was amended to provide that all past defaults by either party thereto, if any, would be waived currently and that the Transactions would not trigger the Change of Control provisions in the LLC Agreement. The amendments to the Sheldahl Agreement and the LLC Agreement between the Company and Molex are incorporated herein by reference as Exhibits 4.8 and 10.0 hereto. The foregoing description of such amendments does not purport to be complete and is qualified in its entirety by reference to such Exhibits. Investment Banker Warrant As part of its compensation as the Company's investment banker and in connection with its representation of Sheldahl in the consummation of the Transactions, US Bancorp Piper Jaffray is entitled to receive a warrant to purchase 175,000 shares of the Company's Common Stock (the "Piper Warrant"). The Piper Warrant is exercisable for seven years at the price of approximately $2.77 per share. The Piper Warrant is incorporated herein by reference as Exhibit 4.9 hereto. The foregoing description of such amendment does not purport to be complete and is qualified in its entirety by reference to such Exhibit. Amendment to Morgenthaler Note On August 15, 2000, Morgenthaler V invested $2.0 million in the Company and the Company issued to Morgenthaler V a subordinated note due December 31, 2001 (the "Morgenthaler Note"). In connection with execution of the Merger Agreement, Stock Purchase Agreement and Debt Agreement, Morgenthaler V delivered a Letter Agreement to the Company providing for the amendment of the Morgenthaler Note to prevent certain provisions from being triggered thereunder by the Transactions. The amendment to the Morgenthaler Note is incorporated herein by reference as Exhibit 99.0 hereto. The foregoing description of such amendment does not purport to be complete and is qualified in its entirety by reference to such Exhibit. 9 10 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (A) Financial Statements of Business Acquired To be provided by amendment in accordance with Item 7(a)(4) of Form 8-K. (B) Pro Forma Financial Information To be provided by amendment in accordance with Item 7(a)(4) of Form 8-K. (C) Exhibits Exhibit 2.0 Agreement and Plan of Merger dated November 10, 2000 among Sheldahl Inc., IFT West Acquisition Company, International Flex Holdings, Inc., and the stockholders of International Flex Holdings, Inc. Exhibit 4.0 Stock Purchase Agreement dated November 10, 2000 among Sheldahl, Inc. and the individuals and entities listed on Exhibit A thereto. Exhibit 4.1 Form of Certificate of Designation, Preferences and Rights of Series G Convertible Preferred Stock Exhibit 4.2 Form of Registration Rights Agreement among Sheldahl, Inc. and the individuals listed on Exhibit A hereto. Exhibit 4.3 Subordinated Notes and Warrant Purchase Agreement dated November 10, 2000 among Sheldahl, Inc. and the entities listed on Schedule I thereto. Exhibit 4.4 Form of Note to Subordinated Notes and Warrant Purchase Agreement Exhibit 4.5 Form of Warrant to Subordinated Notes and Warrant Purchase Agreement Exhibit 4.6 Form of Governance Agreement among Sheldahl, Inc. and the individuals and entities listed on the signature pages thereto. Exhibit 4.7 Amendment No. 2 to Rights Agreement between Sheldahl, Inc. and Wells Fargo Bank, N.A. incorporated herein by reference as filed on Form 8-A on November 13, 2000. Exhibit 4.8 Amended and Restated Agreement Relating to Sheldahl dated November 10, 2000 by and between Sheldahl, Inc. and Molex, Incorporated. Exhibit 4.9 Form of Piper Jaffray Warrant Exhibit 10.0 First Amendment to Limited Liability Company Agreement of Modular Interconnect Systems, L.L.C. dated November 10, 2000. Exhibit 99.0 Letter Amendment dated November 9, 2000 amending Promissory Note dated August 15, 2000 between the Company and Morgenthaler Venture Partners V, L.P. as filed on Registrants's Form 8-K on August 24, 2000 Exhibit 99.1 Press Release of November 10, 2000. 10 11 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/ Edward L. Lundstrom ----------------------------------------- Edward L. Lundstrom, President and Chief Executive Officer Dated: November 13, 2000 11 EX-2.0 2 c58431ex2-0.txt AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 2.0 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of November 10, 2000, among Sheldahl, Inc., a Minnesota corporation ("Parent"), IFT West Acquisition Company, a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"), International Flex Holdings, Inc., a Delaware corporation (the "Company") and all of the stockholders of the Company (the "Stockholders"). WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company deem it advisable and in the best interests of the shareholders of such corporations to effect the merger of Merger Sub and the Company pursuant to this Agreement; and WHEREAS, the parties intend that the Merger qualify for federal income tax purposes as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, Parent, Merger Sub and the Company agree as follows: ARTICLE I THE MERGER SECTION 1.1 The Merger. Upon the terms and subject to the satisfaction or waiver of the conditions hereof, and in accordance with the applicable provisions of this Agreement and the Delaware General Corporation Law (the "DGCL"), at the Effective Time, Merger Sub shall be merged (the "Merger") with and into the Company. Following the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation"). SECTION 1.2 Effective Time; Closing. No later than the second business day after the satisfaction or waiver (to the extent permitted hereunder) of the conditions set forth in Article VI, the Company shall execute in the manner required by the DGCL and deliver to the Secretary of State of the State of Delaware a Certificate of Merger, and the parties shall take such other and further actions as may be required by law to make the Merger effective. The 2 time the Merger becomes effective in accordance with applicable law is referred to as the "Effective Time." Prior to such filings, a closing (the "Closing") shall be held at the offices of Lindquist & Vennum P.L.L.P., 4200 IDS Center, Minneapolis, Minnesota 55402, or such other place as the parties hereto shall agree, within three business days after the satisfaction or waiver of the conditions set forth in Article VI. The date on which the Closing occurs is referred to herein as the "Closing Date." SECTION 1.3 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. Without limiting the generality of the foregoing, and subject thereto and any other applicable laws, at the Effective Time, all properties, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, restrictions, disabilities and duties of the Company and Merger Sub shall become debts, liabilities, restrictions, disabilities and duties of the Surviving Corporation. SECTION 1.4 Certificate of Incorporation and Bylaws of the Surviving Corporation. (a) The Certificate of Incorporation of Merger Sub as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation, until thereafter amended in accordance with the provisions thereof and hereof and applicable law. (b) The Bylaws of Merger Sub in effect at the Effective Time shall be the Bylaws of the Surviving Corporation, until thereafter amended in accordance with the provisions thereof and hereof and applicable law. SECTION 1.5 Directors. Subject to applicable law, the directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal. SECTION 1.6 Officers. The officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal. -2- 3 SECTION 1.7 Conversion of Shares. (a) At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of the following securities, each share of the Company's Common Stock (as defined herein), Class A Stock (as defined herein), Class B Stock (as defined herein) and Preferred Stock (as defined herein) issued and outstanding immediately prior to the Effective Time (other than any such shares held by Parent, Merger Sub, any wholly-owned subsidiary of Parent or Merger Sub, in the treasury of the Company or by any wholly-owned Subsidiary of the Company, which shares, by virtue of the Merger and without any action on the part of the holder thereof, shall be canceled and retired and shall cease to exist with no payment being made with respect thereto and other than fractional shares) shall be converted into the right to receive the number of shares of Common Stock, $.25 par value, of Parent ("Parent Stock") indicated in the following table.
WILL BE CONVERTED INTO THE FOLLOWING EACH SHARE OF THE FOLLOWING CLASS: NUMBER OF SHARES OF PARENT STOCK: - --------------------------------- ------------------------------------ Common Stock 0.91530965 Class A Stock 0.93643246 Class B Stock 1.02833061 Preferred Stock 0.94780589
(b) The ratio of (i) the number of shares of Parent Stock into which a single share of the Company's Common Stock, Class A Stock, Class B Stock and Preferred Stock are to be converted hereunder to (ii) one share of the Company's Common Stock, Class A Stock, Class B Stock and Preferred Stock, respectively, are respectively referred to herein as the "Common Stock Ratio", the "Class A Ratio", the "Class B Ratio" and the "Preferred Ratio". (c) The shares of Preferred Stock, Class A Stock, Class B Stock and Common Stock are, collectively, the "Shares". The total amount of Parent Stock to be delivered upon conversion of the Shares and the cash in respect of fractional shares to be received pursuant to Section 1.9 hereof shall be referred to herein as the "Merger Consideration." (d) The following table indicates the number of Shares that are issued and outstanding as of the date hereof and that will be issued and outstanding immediately prior to the Effective Time, and the number of shares of Parent Stock into which such Shares will be converted in accordance with this section 1.7 hereof. -3- 4
NUMBER OF SHARES OF NUMBER OF SHARES PARENT STOCK ISSUABLE OUTSTANDING PRIOR IN RESPECT OF THE CLASS OF SHARES: TO EFFECTIVE TIME: INDICATED CLASS OF SHARES: - ---------------- ------------------ -------------------------- Common Stock none none Class A Stock none none Class B Stock 2,038,462 2,096,213 Preferred Stock 5,000,000 4,739,030
SECTION 1.8 Conversion of Merger Sub Common Stock. At the Effective Time, each share of common stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become one validly issued, fully paid and non-assessable share of common stock, par value $.01 per share, of the Surviving Corporation. SECTION 1.9 No Fractional Shares. No certificate representing fractional shares of Parent Stock will be issued in the Merger and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent. In lieu of any such fractional shares, the Stockholders will be entitled to receive from Parent (after aggregating all fractional shares of Parent Stock issuable to such Stockholder) an amount of cash (without interest) determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the average of the closing sales prices of the Parent Stock on the Nasdaq National Market System as reported in The Wall Street Journal for the twenty trading days immediately preceding the fifth trading day prior to the Effective Time. SECTION 1.10 Stock Options and Warrants. (a) At the Effective Time, each option to purchase Shares issued pursuant to any Company Plan (as defined herein) or other agreement or arrangement, including the Nardin option, whether vested or unvested, and outstanding as of the Effective Time (a "Company Stock Option" or collectively "Company Stock Options") shall be converted as of the Effective Time into options to purchase shares of Parent Stock in accordance with the terms of this Section 1.10(a). All plans or agreements described above pursuant to which any Company Stock Option has been issued or may be issued are referred to collectively as the "Company Plans." From and after the Effective Time, but -4- 5 subject to adjustment to avoid dilution in accordance with the terms applicable to such Company Stock Options, each Company Stock Option shall, in accordance with the provisions of sections 4(a)(iv) and 8(b) of the agreement representing such Company Stock Option, represent the right to acquire a number of shares of Parent Stock equal to the product of (i) the number of shares of Common Stock subject to such option immediately prior to the Effective Time, and (ii) the Common Stock Ratio, at an exercise price per share of Parent Stock equal to the exercise price per share applicable to such option in effect immediately prior to the Effective Time divided by the Common Stock Ratio. (b) As soon as practicable after the date hereof, Parent shall deliver to the holders of Company Stock Options appropriate notices setting forth such holders' rights pursuant to the Company Plans and that the agreements evidencing the grants of such options shall continue in effect on substantially the same terms and conditions, including vesting (subject to the adjustments required by this Section 1.10 after giving effect to the Merger). (c) As soon as reasonably practicable after the Effective Time, Parent shall (i) file a Registration Statement on Form S-8 (or any successor or other appropriate forms) with respect to the shares of Parent Stock subject to any Company Stock Options held by persons who are directors, officers, consultants or employees of the Company or its subsidiaries and shall use reasonable commercial efforts to maintain the effectiveness of such Registration Statement or Registration Statements (that maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding; and (ii) cause such shares of Parent Stock to be approved for listing on the Nasdaq National Market, subject to official notice of issuance. (d) From and after the Effective Time, all Company Stock Options assumed by Parent pursuant hereto shall continue in effect and be subject to and governed by Parent's Stock Plan, except where the Parent's Stock Plan is inconsistent with the applicable Company Plan or the terms of such Company Stock Options, in which event such Company Stock Options shall be subject to the applicable Company Plan and/or their own terms to the extent of such inconsistency. The Company Stock Options assumed by Parent may be subject to and governed by Parent's plans pursuant to which options to purchase Parent Stock has been issued or may be issued are referred collectively as the "Parent's Stock Plan." With respect to those individuals, if any, who subsequent to the Merger may be subject to the reporting requirements under section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Parent shall administer the Parent's Stock Plan in a manner that complies with rule 16b-3 promulgated under the Exchange Act to the extent necessary to preserve for such individuals the benefits of rule 16b-3. -5- 6 (e) At the Effective Time, the stock purchase warrant (the "IFT Warrant") dated February 1, 1999 to purchase 404,858 shares of Class A Stock (as hereinafter defined) shall be converted as of the Effective Time into a warrant to purchase shares of Parent Stock in accordance with the terms of this section 1.10(e). From and after the Effective Time, but subject to adjustment to avoid dilution in accordance with the terms applicable to such IFT Warrant, the IFT Warrant shall, in accordance with the provisions of section 4(b) of the Statement of Rights of Warrant Holder incorporated in the agreement representing such IFT Warrant, represent the right to acquire a number of shares of Parent Stock equal to the product of (i) the number of shares of Class A Stock subject to such IFT Warrant immediately prior to the Effective Time; and (ii) the Class A Ratio, at an exercise price per share of Parent Stock equal to the exercise price per share applicable to such IFT Warrant in effect immediately prior to the Effective Time divided by the Class A Ratio. A substitute warrant containing substantially the same terms and conditions as the IFT Warrant shall be delivered to the holder of the IFT Warrant upon surrender thereof to Parent. (f) The following table indicates the number of Shares underlying the Company Stock Options and the IFT Warrant as of the date hereof and immediately prior to the Effective Time, and in each case, the number of shares of Parent Stock that will be underlying the Company Stock Options and the IFT Warrant upon conversion in accordance with this section 1.10:
NUMBER OF SHARES OF NUMBER OF SHARES PARENT STOCK UNDERLING CLASS OF OPTION UNDERLYING THE OPTION THE CONVERTED OPTION OR WARRANT: OR WARRANT: OR WARRANT: - --------------- --------------------- ---------------------- Company Stock Options 302,140 shares of 276,552 Common Stock Nardin Option 100,000 shares of 91,531 Common Stock IFT Warrant 404,858 shares of 379,123 Class A Stock
-6- 7 SECTION 1.11 Restriction on Issuance by Parent of Securities. (a) Anything in this Agreement to the contrary notwithstanding, Parent shall not during the period from the date hereof to the Effective Time, except as set forth in Part 1.11 of the Parent Disclosure Letter, issue (x) any equity securities of Parent or securities convertible into or exchangeable for or exercisable for equity securities of Parent or (y) any debt securities. Anything to the contrary in the preceding sentence notwithstanding: (i) Parent may issue debt securities during that period provided that such debt securities have the same terms, and are issued on the same terms (including attached warrants), as the subordinated notes issued pursuant to the Subordinated Debt Agreement (as hereinafter defined), in an amount yielding in the aggregate for all such issuances not in excess of $5,000,000 of gross proceeds to Parent; and (ii) Parent may borrow funds under loan agreements in place with its bank lenders as of the date hereof to the extent that such borrowings are not otherwise precluded hereunder. (b) Any debt securities issued in accordance with Section 1.11(a)(i) hereof shall reduce, on a dollar to dollar basis, the obligation of the Purchasers under the Subordinated Debt Agreement to purchase up to $15 million principal amount of subordinated debt under the Subordinated Debt Agreement. SECTION 1.12 Shareholders' Meeting. If a vote of the shareholders of Parent shall be required in connection with the transactions contemplated hereby, Parent shall, in accordance with the Minnesota Business Corporation Act (the "MBCA"): (a) duly call, give notice of, convene and hold a special meeting of its shareholders (the "Shareholders' Meeting") as soon as practicable after execution of this Agreement; (b) prepare and file with the SEC a preliminary proxy statement relating to the Merger and this Agreement and use its reasonable best efforts (x) to obtain and furnish the information required to be included by the SEC in the Proxy Statement (as hereinafter defined) and to respond promptly to any comments made by the Securities and Exchange Commission (the "SEC") with respect to the preliminary proxy statement and cause a definitive proxy -7- 8 statement (including any amendment or supplement thereto, the "Proxy Statement") to be mailed to its shareholders; and (y) to obtain any necessary approvals of the Merger, this Agreement, the Stock Purchase Agreement and the Subordinated Debt Agreement referenced in Section 6.2(e) and the transactions contemplated hereunder and thereunder by its shareholders as may be required by the Rules of the Nasdaq Stock Market; and (c) except as otherwise permitted under Section 5.8 hereof, include in the Proxy Statement, if necessary, the recommendation of the Board of Directors of Parent that shareholders of Parent vote in favor of the transactions contemplated hereby. SECTION 1.13 Exchange of Shares. (a) After the Effective Time, each holder of an outstanding certificate or certificates theretofore representing Shares, including shares of Preferred Stock, Class A Stock, Class B Stock and Common Stock (the "Company Stock Certificates"), upon surrender thereof to Norwest Trust, N.A., or such other banking institution as shall be designated by Parent, as exchange agent (the "Exchange Agent"), shall be entitled to receive the Parent Stock and cash in lieu of fractional interests to which such holder is entitled hereunder. Until so surrendered, each outstanding Company Stock Certificate shall be deemed for all purposes, other than as provided below with respect to the payments of dividends or other distributions, if any, in respect to Parent Stock, to represent a right to receive the number of whole shares of Parent Stock into which the Shares theretofore represented thereby shall have been converted, together with payment for fractional shares. Until so surrendered, Parent may, at its option, refuse to pay any dividend or other distribution, if any, payable to the holder of shares of Parent Stock to the holders of Company Stock Certificates; provided, however, that upon surrender and exchange of such Company Stock Certificates, there shall be paid to the record holders of the stock certificate or certificates issued in exchange therefor the amount, without interest, or dividends and other distributions, if any, which have become payable with respect to the number of whole shares of Parent Stock into which the shares theretofore represented thereby shall have been converted and which have not previously been paid, together with any payment for fractional shares required by Section 1.9 hereof. Whether or not a Company Stock Certificate is surrendered, from and after the Effective Time such certificate shall, under no circumstances, evidence, represent or otherwise constitute any stock or other interest whatsoever in the Company, the Surviving Corporation or any other person, firm or corporation other than Parent or its successors. -8- 9 (b) Any shares of Parent Stock deposited with the Exchange Agent that remain unclaimed by the holders of Shares twelve months after the Effective Time shall be returned to Parent upon demand, and any such holder who has not exchanged his Shares for its share of the Merger Consideration prior to that time shall thereafter look only to Parent for his claim for Parent Stock, any cash in lieu of fractional shares of Parent Stock and any dividends or distributions with respect to Parent Stock. Notwithstanding the foregoing, Parent shall not be liable to any holder of shares of Parent Stock for any amount paid to a public official pursuant to applicable abandoned property laws. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Merger Sub, except as set forth in the letter dated the date hereof from the Company to Parent initialed by those parties (the "Company Disclosure Letter"), as follows. Any matter disclosed in the Company Disclosure Letter with respect to a specific section of this Agreement shall be deemed disclosed with respect to all sections of this Agreement to which it reasonably relates, but only to the extent such disclosure is significantly adequate to inform Parent of its relevance to such other section. SECTION 2.1 Organization and Qualification; Subsidiaries. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of the Company's Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each of the Company and its Subsidiaries has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted, and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not have a Company Material Adverse Effect (as hereinafter defined). Part 2.1 of the Company Disclosure Letter lists all of the Company's directly or indirectly owned Subsidiaries. The term "Company Material Adverse Effect," as used in this Agreement with respect to the Company, shall mean any adverse change, circumstance or effect that, -9- 10 would (i) have a material adverse effect on the business, financial condition, assets or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) prevent or materially delay the ability of the Company to consummate the transactions contemplated hereby. SECTION 2.2 Certificate of Incorporation and Bylaws. The Company has heretofore made available to Parent a complete and correct copy of the Certificate of Incorporation and the Bylaws or comparable organizational documents, each as amended as of the date hereof, of the Company and each of its Subsidiaries. SECTION 2.3 Capitalization. (a) (i) As of the date hereof, the authorized capital stock of the Company consists of 10,000,000 shares of common stock, par value $0.01 per share (the "Common Stock"), 404,858 shares of class A common stock, par value $0.01 per share (the "Class A Stock"), 2,038,462 shares of class B common stock, par value $0.01 per share (the "Class B Stock") and 5,000,000 shares of series A convertible preferred stock, par value $2.00 per share (the "Preferred Stock"). (ii) As of the date hereof, no shares of Common Stock, no shares of Class A Stock, 2,038,462 shares of Class B Stock and 5,000,000 shares of Preferred Stock were issued and outstanding. (iii) The Company has no shares reserved for issuance, except that, as of the date hereof, there were 402,140 shares of Common Stock reserved for issuance pursuant to outstanding Company Stock Options or other awards under the Company Plans, 404,858 shares of Class A Stock reserved for issuance pursuant to the IFT Warrant, 414, 201 shares of Common Stock reserved for issuance on conversion of such shares of Class A Stock and 5,177,515 shares of Common Stock reserved for issuance on conversion of such shares of Preferred Stock, and otherwise there is no outstanding subscription, option, warrant, call, right, agreement, commitment, understanding or -10- 11 arrangement relating to the issuance, sale, delivery, transfer or redemption of Shares or any other shares of capital stock of the Company (including any right of conversion or exchange under any outstanding security or other instrument) other than as set forth on Part 2.3 of the Company Disclosure Letter. (iv) All of the outstanding Shares are, and all Shares which may be issued pursuant to the conversion of outstanding Preferred Stock, Class A Stock, Class B Stock, and the exercise of Company Stock Options and the IFT Warrant will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable. (v) There are no bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having such rights) ("Voting Debt") of the Company or any of its Subsidiaries issued and outstanding. (vi) Except as set forth on Part 2.3 of the Company Disclosure Letter, there are no outstanding contractual obligations of the Company or any of its Subsidiaries to (A) repurchase, redeem or otherwise acquire any Shares or the capital stock of the Company or any of its Subsidiaries; or (B) provide funds (other than normal accounts or notes payable) to or make any investment in (in the form of a loan, capital contribution or otherwise) any entity other than a wholly-owned Subsidiary. (b) Each of the outstanding shares of capital stock of each of the Company's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned of record and beneficially by the Company free and clear of any lien, claim, option, charge, security interest, limitation, encumbrance and restriction of any kind (any of the foregoing being a "Lien"). There is no outstanding subscription, option, warrant, call, right, agreement, commitment, understanding or arrangement relating to the issuance, sale, delivery, transfer or redemption of any shares of capital stock of any Subsidiary. (c) All outstanding shares of Common Stock, Preferred Stock, Class A Stock and Class B Stock are owned of record and beneficially by the Stockholders and other holders as set forth on Part 2.3 of the Company Disclosure Letter free and clear of any Liens. Part 2.3 of the Company -11- 12 Disclosure Letter also sets forth the number of Shares issuable upon conversion of the Preferred Stock, Class A Stock and Class B Stock and the number of Shares issuable upon exercise of the IFT Warrant. (d) Except as set forth on Part 2.3 of the Company Disclosure Letter, there are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting of the capital stock of the Company or any of its Subsidiaries. Except as set forth on Part 2.3 of the Company Disclosure Letter, there are no agreements among the Stockholders or between one or more Stockholders related to the Company or any of its Subsidiaries. (e) Each Stockholder has waived any appraisal or dissenter's rights provided pursuant to the DGCL or any resolution, agreement or commitment with respect to the transactions contemplated hereby. Each holder of Preferred Stock, Class A Stock and Class B Stock hereby agrees to receive that part of the Merger Consideration receivable by such holder hereunder in lieu of (and waives any rights to) any of the payments or other benefits (whether or not accrued) provided in the Company's certificate of incorporation, as amended, or in any other document or agreement related to such Stock. SECTION 2.4 Authority Relative to this Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized and approved by the Board of Directors of the Company and its stockholders and no other corporate proceedings on the part of the Company are necessary to authorize or approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of the Stockholders and, upon the due and valid authorization, execution and delivery of this Agreement by Parent and Merger Sub, it constitutes a valid and binding obligation of each of the Company and the Stockholders enforceable against each of them in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws now or hereinafter in effect relating to the enforcement of creditors' rights generally; and (ii) is subject to general principles of equity. -12- 13 SECTION 2.5 No Conflict; Required Filings and Consents. (a) Except as set forth on Part 2.5 of the Company Disclosure Letter, none of the execution, delivery or performance of this Agreement by the Company or any Stockholder, the consummation by the Company or the Stockholders of the transactions contemplated hereby or the compliance by the Company or the Stockholders with any of the provisions hereof will (i) conflict with or violate the Certificate of Incorporation or Bylaws of the Company or the comparable organizational documents of any of its Subsidiaries; (ii) assuming compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), conflict with or violate any statute, ordinance, rule, regulation, order, judgment or decree applicable to the Company or its Subsidiaries, or by which any of them or any of their respective properties or assets may be bound or affected; or (iii) result in a violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any material benefit, or the creation of any Lien on any of the property or assets of the Company or any of its Subsidiaries (any of the foregoing referred to in clause (ii) or this clause (iii) being a "Violation") pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective properties may be bound or affected, except in each case for such conflicts, violations, breaches, defaults, or Liens that would not in the aggregate have a Company Material Adverse Effect. (b) None of the execution, delivery or performance of this Agreement by the Company or any Stockholder, the consummation by the Company or any Stockholder of the transactions contemplated hereby or the compliance by the Company or any Stockholder with any of the provisions hereof will require any material consent, waiver, approval, authorization or permit of, or registration or filing with or notification to (any of the foregoing being a "Consent"), any third party, or any government or subdivision thereof, domestic, foreign or supranational or any administrative, governmental or regulatory authority, agency, commission, tribunal or body, domestic, foreign or supranational (a "Governmental Entity"), except (i) as set forth on Part 2.5 of the Company Disclosure Letter; (ii) for the filing and recordation of the Certificate of Merger pursuant to the DGCL; (iii) notifications required by the DGCL, which have been given; (iv) compliance with the HSR Act; and (v) where failure to obtain such Consents would not in the aggregate have a Company Material Adverse Effect. -13- 14 SECTION 2.6 Permits. Each of the Company and its Subsidiaries is in possession of all material franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for the Company or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"), and, as of the date of this Agreement, no suspension or cancellation of any of the Company Permits is pending or, to the best of the Company's knowledge, threatened. SECTION 2.7 Financial Statements. (a) The audited consolidated financial statements of the Company for the fiscal year ended January 29, 2000 which the Company has provided to Parent present fairly in all material respects the consolidated financial position and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries as of the dates or for the periods presented therein (subject, in the case of unaudited statements, to normal year-end audit adjustments) in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved except (i) as otherwise noted therein, including the related notes, and (ii) that transaction expenses associated with the transaction contemplated hereby and by the Stock Purchase Agreement and Subordinated Debt Agreement will be expensed through the Company at the Closing. (b) The unaudited consolidated interim financial statements of International Flex Technologies, Inc. ("Technologies") for the seven months ended August 26, 2000 which the Company has provided to Parent present fairly in all material respects the consolidated financial position and the consolidated results of operations and cash flows of Technologies and its consolidated subsidiaries as of the dates or for the periods presented therein (subject, in the case of unaudited statements, to normal year-end audit adjustments) in conformity with GAAP applied on a consistent basis during the periods involved except as otherwise noted therein, including the related notes. (c) All financial statements of the Company or its Subsidiaries required to be included in the Proxy will conform to all SEC requirements. SECTION 2.8 Information. None of the information provided or that may be provided by the Company specifically for use in the Proxy Statement shall, at the time filed with the SEC or any other Governmental Entity, at the time -14- 15 mailed to Parent's shareholders, at the time of the Shareholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information provided or that may be provided by Parent or Merger Sub specifically for use in the Proxy Statement. SECTION 2.9 Changes. Since August 31, 2000, except as otherwise disclosed in Part 2.9 of the Company Disclosure Letter: (a) there has been no Company Material Adverse Effect; (b) the Company has not adopted any amendment to its Certificate of Incorporation or Bylaws; (c) other than grants under the Company Plans and issuances upon exercise of options granted under Company Plans, neither the Company nor any Subsidiary has issued, reissued, pledged or sold, or authorized the issuance, reissuance, pledge or sale of (i) additional shares of capital stock of any class, or securities convertible into, exchangeable for or evidencing the right to substitute for, capital stock of any class, or any rights, warrants, options, calls, commitments or any other agreements of any character, to purchase or acquire any capital stock or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, capital stock; or (ii) any other securities in respect of, in lieu of, or in substitution for, Shares or any other shares of capital stock; (d) neither the Company nor any of its Subsidiaries declared, set aside or paid any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock other than between the Company and any of its wholly-owned Subsidiaries; (e) neither the Company nor any of its Subsidiaries has split, combined, subdivided, reclassified or redeemed, purchased or otherwise acquired or proposed to redeem or purchased or otherwise acquired any shares of its capital stock or any of its other securities; -15- 16 (f) the Company and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course; (g) there has not been the loss, damage or destruction of any material property of the Company; and (h) neither the Company nor its Subsidiaries has incurred any liability or provided confidential information to a third party in connection with a potential acquisition transaction by the Company or any Subsidiary of a third party. SECTION 2.10 Compliance with Laws. (i) The Company and its Subsidiaries are in compliance, in all material respects, with any applicable law, rule or regulation of any United States federal, state, local, or foreign government or agency thereof which affects the business, properties or assets of the Company and its Subsidiaries, the non-compliance with which would have a Company Material Adverse Effect; and (ii) no notice, charge, claim, action or assertion has been received by the Company or any of its Subsidiaries or has been filed, commenced or, to the Company's knowledge, threatened against the Company or any of its Subsidiaries alleging any such violation. To the best of the knowledge of the Company, all material licenses, permits and approvals required under such laws, rules and regulations are in full force and effect. SECTION 2.11 Litigation. There are no material suits, claims, actions, proceedings, including arbitration proceedings or alternative dispute resolution proceedings, or investigations pending or, to the best of the knowledge of the Company or any of its Subsidiaries, threatened against the Company or any of its Subsidiaries before any Governmental Entity that would have a Company Material Adverse Effect. SECTION 2.12 Employee Plans and Arrangements. (a) Part 2.12 of the Company Disclosure Letter lists each "employee pension benefit plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (hereinafter a "Pension Plan") and "employee welfare benefit plan" (as defined in Section 3(1) of ERISA, hereinafter a "Welfare Plan"), in each case maintained or contributed to, or required to be maintained or contributed to, by the Company, any of its Subsidiaries or any other person that, together with the Company, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each a "Company Commonly Controlled Entity") for the benefit of any present or former employees of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has maintained, or incurred any liability whatsoever, with respect to a multi-employer plan (as defined in Section 4001(a)(3) of ERISA). -16- 17 The Company has made available to Parent true, complete and correct copies of (i) each Pension Plan and Welfare Plan (collectively, the "Benefit Plans"); (ii) the most recent annual report on Form 5500 as filed with the Internal Revenue Service with respect to each applicable Benefit Plan; (iii) the most recent summary plan description (or similar document) with respect to each applicable Benefit Plan; (iv) the most recent actuarial report or valuation with respect to each plan that is a "defined benefit pension plan" (as defined in Section 3(35) of ERISA); and (v) each trust agreement relating to any Benefit Plan. (b) Each Benefit Plan has been administered in all material respects in accordance with its terms. To the best of the knowledge of the Company and except where a failure would not have a Company Material Adverse Effect, the Company, its Subsidiaries and all the Benefit Plans are in compliance, in all material respects, with the applicable provisions of ERISA, the Code, and all other laws, ordinances or regulations of any Governmental Entities. To the Company's knowledge, there are no investigations by any Governmental Entities, termination proceedings or other claims (except claims for benefits payable in the normal operations of the Benefit Plans), suits or proceedings against or involving any Benefit Plan or asserting any rights to or claims for benefits under any Benefit Plan. (c) All contributions to the Benefit Plans required to be made by the Company or any of its Subsidiaries in accordance with the terms of the Benefit Plans, any applicable collective bargaining agreement and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been made, there has been no application for or waiver of the minimum funding standards imposed by Section 412 of the Code with respect to any Benefit Plan that is a Pension Plan and no Pension Plan had an "accumulated funding deficiency" within the meaning of Section 412(a) of the Code as of the end of the most recently completed plan year. (d) Except as set forth in Part 2.12 of the Company Disclosure Letter, (i) each Pension Plan that is intended to be a tax-qualified plan has been the subject of a determination letter from the Internal Revenue Service to the effect that such Pension Plan and each related trust is qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code; (ii) no such determination letter has been revoked, and revocation has not been threatened; (iii) to the Company's knowledge, no event has occurred and no circumstances exist that would adversely affect the tax-qualification of such -17- 18 Pension Plan; and (iv) such Pension Plan has not been amended since the effective date of its most recent determination letter in any respect that might adversely affect its qualification, increase its cost or require security under Section 307 of ERISA. The Company has made available to Parent a copy of the most recent determination letter received with respect to each Pension Plan for which such a letter has been issued, as well as a copy of any pending application for a determination letter. (e) No non-exempt "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred that involves the assets of any Benefit Plan; no Pension Plan has been terminated or has been the subject of a "reportable event" (as defined in Section 4043 of ERISA and the regulations thereunder) for which the 30-day notice requirement has not been waived by the Pension Benefit Guaranty Corporation ("PBGC"); and none of the Company, any of its Subsidiaries or any trustee, administrator or other fiduciary of any Benefit Plan has engaged in any transaction or acted in a manner that could, or has failed to act so as to, subject the Company, any such Subsidiary or any trustee, administrator or other fiduciary to any liability for breach of fiduciary duty under ERISA or any other applicable law. (f) No Company Commonly Controlled Entity has incurred any liability to a Pension Plan (other than for contributions not yet due) or to the PBGC (other than for the payment of premiums not yet due). (g) No Company Commonly Controlled Entity has (i) engaged in a transaction described in Section 4069 of ERISA that could subject the Company to a liability at any time after the date hereof; or (ii) acted in a manner that could, or failed to act so as to, result in fines, penalties, taxes or related charges under (x) Section 502(c), (i) or (1) of ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Code. (h) The Company and its Subsidiaries comply with the applicable requirements of parts 6 and 7 of subtitle B of Title I of ERISA ((S)(S) 601 et seq.) with respect to each Benefit Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code. (i) Part 2.12 of the Company Disclosure Letter lists (i) all employment agreements between the Company or any of its Subsidiaries and any of their respective directors officers or employees; (ii) all agreements and plans pursuant to which any director, officer or employee of the Company or any of its Subsidiaries is entitled to benefits upon termination of their employment or a change in control of the Company; (iii) all Company Plans; and (iv) all bonus, -18- 19 incentive, deferred compensation, supplemental retirement, health, life or disability insurance, dependent care, severance and other fringe benefit or employee benefit plans, programs or arrangements of the Company or any of its Subsidiaries. (j) Except as disclosed in Part 2.12 of the Company Disclosure Letter, there is no contract, agreement, plan or arrangement covering any employee or former employee of the Company or any of its Subsidiaries that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G or Section 162(m) of the Code. SECTION 2.13 Assets. The Company and each of its Subsidiaries has good, valid and marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, (i) all of its material tangible properties and assets (real and personal), including, without limitation, all the properties and assets reflected in the consolidated balance sheet as of August 26, 2000, except as indicated in the notes thereto and except for properties and assets reflected in the consolidated balance sheet as of August 26, 2000 which have been sold or otherwise disposed of in the ordinary course of business after such date and except where the failure to have such good, valid and marketable title would not have a Company Material Adverse Effect; and (ii) all the tangible properties and assets purchased by the Company and any of its Subsidiaries since August 26, 2000, except for such properties and assets which have been sold or otherwise disposed of in the ordinary course of business and except where the failure to have such good, valid and marketable title would not have a Company Material Adverse Effect; in each case subject to no encumbrance, lien, charge or other restriction of any kind or character, except for (A) liens reflected in or securing obligations reflected in the consolidated balance sheet as of August 26, 2000; (B) liens for current taxes, assessments or governmental charges or levies on property not yet due and delinquent; and (C) exceptions to title set forth in owners' policies of title insurance naming the Company or any of its Subsidiaries as insureds. SECTION 2.14 No Undisclosed Liabilities. Except (a) as disclosed in the Company's consolidated balance sheet as of August 26, 2000 or the schedules thereto or the Company Disclosure Letter; and (b) for liabilities and obligations (i) incurred in the ordinary course of business and consistent with past practice since August 26, 2000; or (ii) pursuant to the terms of this Agreement, neither the Company nor any of its Subsidiaries has any liabilities or -19- 20 obligations of any nature, accrued, contingent or otherwise, required by GAAP to be reflected in, reserved against or otherwise described in the consolidated balance sheet of the Company (including the notes thereto), which, individually or in the aggregate, would have a Company Material Adverse Effect. SECTION 2.15 Intellectual Property. (a) To the best of the knowledge of the Company, the Company and its Subsidiaries own or have the right to use all Intellectual Property (as defined herein) necessary for the Company and its Subsidiaries to conduct their business as it is currently conducted and consistent with past practice and such ownership and right to use shall not be affected by the transactions contemplated by this Agreement. Part 2.15 of the Company Disclosure Letter lists all registered trademarks, patents and patent applications owned by the Company or its Subsidiaries or used in the business and identifies the party from which the same is licensed. (b) Except as set forth in Part 2.15 of the Company Disclosure Letter, to the best of the knowledge of the Company, (i) all of the registered Intellectual Property owned by the Company and its Subsidiaries is subsisting and unexpired, free of all Liens, other than Liens that would not have a Company Material Adverse Effect, has not been abandoned; and (ii) does not infringe the Intellectual Property rights of any third party. (c) Except as set forth in Part 2.15 of the Company Disclosure Letter, (i) none of the Intellectual Property owned by the Company and its Subsidiaries is the subject of any license, security interest or other agreement granting rights therein to any third party (except for contracts relating to data, databases or software licensed to third parties in the ordinary course of Company's or its Subsidiaries' businesses); (ii) no judgment, decree, injunction, rule or order has been rendered by any Governmental Entity which would limit, cancel or question the validity of, or the Company's or its Subsidiaries' rights in and to, any Intellectual Property owned by the Company; (iii) the Company has not received notice of any pending or threatened suit, action or proceeding that seeks to limit, cancel or question the validity of, or the Company's or its Subsidiaries' rights in and to, any Intellectual Property; and (iv) the Company and its Subsidiaries take reasonable steps to protect, maintain and safeguard the Intellectual Property owned by the Company, including any Intellectual Property for which improper or unauthorized disclosure would impair its value or validity, and have caused their employees to execute agreements in connection with the foregoing. -20- 21 (d) The rights granted under that certain Intellectual Property Agreement with International Business Machines Corporation ("IBM") allow the production by the Company or its Subsidiaries of the products currently produced by any of them, including products known as "flip chip" and "multi-layer." (e) For purposes of this Agreement "Intellectual Property" shall mean all material rights, privileges and priorities provided under U.S., state and foreign law relating to intellectual property, including (i) all (A) inventions, discoveries, processes, formulae, designs, methods, techniques, procedures, concepts, developments, technology, new and useful improvements thereof and know-how relating thereto, whether or not patented or eligible for patent protections; (B) copyrights and copyrightable works, including computer applications, programs, software, databases and related items; (C) trademarks, service marks, trade names, and trade dress, the goodwill of any business symbolized thereby, and all common-law rights relating thereto; and (D) trade secrets and other confidential information; and (ii) all registrations, applications, recordings, and licenses or other similar agreements related to the foregoing. SECTION 2.16 Taxes. The Company and each of its Subsidiaries have (i) filed all Tax Returns which they are required to file under applicable laws and regulations; (ii) paid all Taxes which have become due and payable; and (iii) accrued as a liability on the balance sheet included in the Company's financial statements described in Section 2.7 hereof, all Taxes which were accrued but not yet due and payable as of the date thereof. For purposes of this Agreement, "Tax" or "Taxes" shall mean any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, conveyance, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, commercial reit, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax of any kind, including any interest or penalties in respect of the foregoing, and "Tax Returns" shall mean returns, declarations, reports, information returns, or other documents filed or required to be filed in connection with the determination, assessment or collection of Taxes of any person or the administration of any laws, regulations or administrative requirements relating to any Taxes. SECTION 2.17 Environmental Laws and Regulations. Except as disclosed in Part 2.17 of the Company Disclosure Letter: -21- 22 (a) The Company and its Subsidiaries hold and are in compliance in all material respects with all Environmental Permits (as hereinafter defined), and, to the best of the knowledge of the Company, the Company and its Subsidiaries are otherwise in compliance in all material respects with all Environmental Laws (as hereinafter defined). Neither the Company nor any of its Subsidiaries is a "Responsible Party" or responsible for any "Remediation" resulting from any "Tenant Contamination," as each such term is defined in that certain Real Estate Lease Agreement dated January 25, 1999 with IBM, as amended. (b) As of the date hereof, there is no pending Environmental Claim (as hereinafter defined) against the Company or any of its Subsidiaries and, to the best of the Company's knowledge, there is no such threatened Environmental Claim. (c) Neither the Company nor any of its Subsidiaries has entered into any consent decree, consent order or consent agreement under any Environmental Law that would have a Company Material Adverse Effect. (d) To the best of the Company's knowledge, there are no (i) underground storage tanks; (ii) polychlorinated biphenyls; (iii) friable asbestos or asbestos-containing materials; (iv) sumps; (v) surface impoundments; (vi) landfills; or (vii) sewers or septic systems present at any facility currently owned, leased, operated or otherwise used by the Company or any of its Subsidiaries the presence of which would have a Company Material Adverse Effect. (e) To the best of the knowledge of the Company or any of its Subsidiaries, there are no past (including with respect to assets or businesses formerly owned, leased or operated by the Company or any of its Subsidiaries) or present actions, activities, events, conditions or circumstances, including without limitation the release, threatened release, emission, discharge, generation, treatment, storage or disposal of Hazardous Materials, the occurrence of which is in violation of the Environmental Laws. (f) No modification, revocation, reissuance, alteration, transfer, or amendment of the Environmental Permits, or any review by, or approval of, any third party of the Environmental Permits is required in connection with the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby or the continuation of the business of the Company or its Subsidiaries, as currently conducted, following such consummation. -22- 23 (g) To the extent required by GAAP, the Company and its Subsidiaries have accrued or otherwise provided for all damages, liabilities, penalties or costs that they may incur in connection with any claim pending or threatened against them, or any requirement that is or may be applicable to them, under any Environmental Laws, and such accrual or other provision is reflected in the Company's most recent consolidated financial statements. (h) For purposes of this Agreement, the following terms shall have the following meanings: (i) "Environmental Claim" shall mean any written or oral notice, claim, demand, action, suit, complaint, proceeding or other communication by any person alleging liability or potential liability (including liability or potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damage, personal injury, fines or penalties) arising out of, relating to, based on or resulting from (A) the presence, discharge, emission, release or threatened release of any Hazardous Materials at any location, whether or not owned, leased or operated by the Company or any of its Subsidiaries, or (B) circumstances forming the basis of any violation or alleged violation of any Environmental Law or Environmental Permit, or (C) otherwise relating to obligations or liabilities under any Environmental Laws; (ii) "Environmental Permits" shall mean all material permits, licenses, registrations and other governmental authorizations required under Environmental Laws for the Company and its Subsidiaries to conduct their operations and businesses on the date hereof and consistent with past practices; (iii) "Environmental Laws" shall mean all applicable federal, state and local statutes, rules, regulations, ordinances, orders, decrees and common law relating in any manner to contamination, pollution or protection of the environment or the effect of Hazardous Material on human health, including the Comprehensive Environmental Response, Compensation and Liability Act, the Solid Waste Disposal Act, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Occupational Safety and Health Act, the Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water Act, all as amended, and similar state laws, in each case in effect on the date hereof; and (iv) "Hazardous Materials" shall mean all hazardous or toxic substances, wastes, materials or chemicals, petroleum (including crude oil or any fraction thereof) and petroleum products, friable asbestos and asbestos-containing materials, pollutants, contaminants and all other materials, and substances regulated as hazardous or toxic pursuant to any Environmental Law. SECTION 2.18 Contracts; Indebtedness; Bank Accounts. (a) All contracts, agreements, guarantees, leases and executory commitments other than Plans (each, a "Contract") that are material to the Company and its Subsidiaries, taken as a whole (each, a "Material Contract") are -23- 24 valid and binding obligations of the Company and, to the best of the knowledge of the Company and its Subsidiaries, the valid and binding obligation of each other party thereto. Neither the Company nor, to the best of the knowledge of the Company and its Subsidiaries, any other party thereto, is in violation of or in default in any material respect of, nor has there occurred an event or condition which with the passage of time or giving of notice (or both) would constitute a default under or permit the termination of, any such Material Contract unless such violation or default would not have a Company Material Adverse Effect. (b) The Company has made available to Parent and its representatives true, correct and complete copies of all of the following contracts to which Company or any of its Subsidiaries is a party or by which any of them is bound (collectively, the "Specified Contracts"): (i) contracts with any directors, officers, key employees or Affiliates of the Company; (ii) collective bargaining agreements for which the Company or any of its domestic Subsidiaries is a party; (iii) pending contracts (A) for the sale of any of the assets of Company or any of its Subsidiaries, other than contracts entered into in the ordinary course of business or (B) for the grant to any person of any preferential rights to purchase any of its assets, other than in the ordinary course of business; (iv) contracts which restrict, in any material respect, the Company or any of its Subsidiaries from competing in any line of business or with any person in any geographical area; (v) indentures, credit agreements, security agreements, mortgages, guarantees, promissory notes and other contracts relating to the borrowing of money involving indebtedness for borrowed money; (vi) contracts with any stockholders or group of stockholders of Company beneficially owning 5% or more of the Company's outstanding capital stock on the date hereof; (vii) acquisition, merger, asset purchase or sale agreements entered into since the Company's inception (other than agreements for the purchase and sale of materials or products in the ordinary course of business); (viii) contracts relating to any material joint venture, partnership, strategic alliance or other similar agreement; (ix) licenses, whether the Company is licensee or licensor, and material leases; and (x) all other agreements, contracts or instruments entered into which, to the best of the knowledge of the Company, are material to the Company and its Subsidiaries taken as a whole. There are no services or products provided to the Company or any Subsidiary by IBM which cannot be performed or produced internally by the Company or its Subsidiaries or which cannot be purchased from a third party, in each case, without any increase in cost or material delay or adverse consequence to the operations of their respective businesses. -24- 25 (c) Part 2.18 of the Company Disclosure Letter provides accurate and complete information (including amount and name of payee) with respect to all Indebtedness of the Company or any of its Subsidiaries as of August 26, 2000. For purposes hereof, "Indebtedness" of any person shall mean all items of indebtedness of such person for borrowed money and purchase money indebtedness, including, without limitation, capitalized lease obligations which, in accordance with GAAP, would be included in determining liabilities as shown on the liability side of the balance sheet of such person as of the date as of which indebtedness is to be determined, and shall also include all Contingent Obligations. For purposes hereof, "Contingent Obligation" shall mean, as applied to any person, any direct or indirect liability, contingent or otherwise, of that person with respect to any Indebtedness, capital lease (other than as lessor), dividend, letter of credit, surety bond or other obligation of another, including, without limitation, any such obligation, directly or indirectly, guaranteed, endorsed (other than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that person, or in respect of which that person is otherwise, directly or indirectly, liable. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. (d) Part 2.18 of the Company Disclosure Letter provides the account numbers, type of account and names of all individuals authorized to draw on or make withdrawals from each account with respect to each account maintained by or for the benefit of the Company or any of its Subsidiaries at any bank or other financial institution. SECTION 2.19 Non-Competition Agreements. Neither the Company nor any of its Subsidiaries is a party or is otherwise subject to any agreement which (i) purports to restrict or prohibit in any material respect any of them or any corporation affiliated with any of them from, directly or indirectly, engaging in any business currently engaged in by the Company or any of its affiliates; or (ii) would restrict or prohibit, in any material respect, the Company or any of its Subsidiaries from engaging in such business. SECTION 2.20 Interested Party Transactions. No member, manager, officer or affiliate of the Company or any of its Subsidiaries has or has had, directly or indirectly, (i) an economic interest in any person which has furnished or sold or furnishes or sells services or products that the Company or one of its -25- 26 Subsidiaries furnishes or sells or proposes to furnish or sell; (ii) an economic interest in any person that purchases from or sells or furnishes to the Company or any one of its Subsidiaries any goods or services; (iii) any economic interest in any contract or lease with the Company or any one of its Subsidiaries; or (iv) any contractual or other arrangement with the Company or one of its Subsidiaries; provided however, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest" in any "person" for purposes of this Section 2.20. SECTION 2.21 Insurance. All material fire and casualty, general liability, business interruption, product liability and sprinkler and water damage insurance policies maintained by the Company or any of its Subsidiaries are with nationally recognized insurance carriers, provide coverage for all normal risks incident to the business of the Company and its Subsidiaries and their respective properties and assets and are in character and amount appropriate for the business conducted by the Company, except as would not, individually or in the aggregate, have a Company Material Adverse Effect. SECTION 2.22 Brokers. Except as provided in Part 2.22 of the Company Disclosure Letter, none of the Company, any of its Subsidiaries, or any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement or any other transactions which have not been paid in full. SECTION 2.23 No Affiliates. The Company is not an "interested shareholder" of Parent or an "affiliate" or "associate" thereof as such terms are defined in Section 302A.011 of the MBCA resulting from any share purchase, contract, arrangement or understanding, other than this Agreement, the Stock Purchase Agreement or any acquisition of shares approved by a committee of the Board of Directors of Parent as required in Section 302A.673, subdivision 1(d) of the MBCA. SECTION 2.24 Disclosure. The representations, warranties and other statements of the Company and the Stockholders contained in this Agreement and the other certificates furnished to Parent by or on behalf of the Company or the Stockholders pursuant hereto, taken as a whole, do not contain any untrue statement of a material fact or, to the best of the knowledge of the Company and the Stockholders, omit to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances made, not materially misleading as of the date hereof. -26- 27 SECTION 2.25 Knowledge. Whenever a representation or warranty made by the Company herein refers to the best of the knowledge of the Company or its Subsidiaries, such knowledge shall be deemed to consist only of the actual knowledge of the executive officers of the Company or its Subsidiaries and the Stockholders. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each of the Stockholders hereby represents and warrants to Parent, with respect to Sections 3.2, 3.3, 3.5 and 3.6 hereof, severally and not jointly and only to the extent such representations or warranties relate specifically to such Stockholder, and, with respect to Sections 3.1 and 3.4 hereof, jointly and severally, as follows: SECTION 3.1 Capitalization. The representations and warranties set forth in Section 2.3(a), (b), (d) and (e) hereof are true and correct. SECTION 3.2 Title. Each of the Stockholders owns of record and beneficially the shares of Preferred Stock and Class B Stock as set forth on Part 2.3 of the Company Disclosure Letter, free and clear of any Liens. SECTION 3.3 Investment Representations. Each of the Stockholders represents, warrants and acknowledges: (i) that he is acquiring the Parent Stock hereunder for his own account for investment and not with a view to, or for sale or other disposition in connection with, any distribution thereof, nor with any present intention of selling or otherwise disposing of the same; (ii) that he is an "accredited investor" (as that term is defined in Rule 501 promulgated by the SEC under the Securities Act of 1933, as amended (the "Securities Act"); and (iii) that he is fully informed that the shares of Parent Stock sold hereunder are being sold pursuant to a private offering exemption under the Securities Act and are not being registered under the Securities Act or under the securities or Blue Sky laws of any state or foreign jurisdiction, and that such shares must be held indefinitely unless they are subsequently registered under the Securities Act and any applicable state securities or Blue Sky laws, or unless an exemption from registration is available thereunder, and that Parent has no obligation to register such shares (subject to the Registration Rights Agreement referenced in Section 5.10 hereof). Each certificate representing shares of Parent Stock shall bear legends substantially in the following form: -27- 28 "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED." "THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES OF CAPITAL STOCK AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF THE SUBSEQUENT CLASSES OR SERIES." "THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN SHELDAHL, INC. AND NORWEST BANK MINNESOTA, N.A. DATED AS OF JUNE 16, 1996 AND AMENDED ON JULY 25, 1998 AND NOVEMBER 10, 2000, (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF SHELDAHL, INC. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. SHELDAHL, INC. WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS -28- 29 AGREEMENT WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES, RIGHTS ISSUED TO, OR HELD BY, AN ACQUIRING PERSON, OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. SECTION 3.4 No Affiliates. No Stockholder is an "interested shareholder" of Parent or an "affiliate" or "associate" thereof as such terms are defined in Section 302A.011 of the MBCA resulting from any share purchase, contract, arrangement or understanding, other than this Agreement, the Stock Purchase Agreement or any acquisition of shares approved by a committee of the Board of Directors of Parent as required in Section 302A.673, subdivision 1(d) of the MBCA. SECTION 3.5 Beneficial Ownership. At and after the Effective Time, after giving effect to the transactions contemplated by this Agreement, the Stock Purchase Agreement and the Subordinated Debt Agreement, except as provided in Part 3.5 of the Company Disclosure Letter, no Stockholder shall be a Beneficial Owner of fifteen percent (15%) or more of the outstanding shares of Parent Stock. For purposes of this Section 3.5, "Beneficial Owner" shall have the meaning set forth in Section 1(d) of the Rights Agreement dated June 16, 1996, as amended, by and between Parent and Norwest Bank Minnesota, N.A. (the "Rights Agreement"). SECTION 3.6 Disclosure. Each Stockholder represents that such Stockholder has not in bad faith failed to inform Parent that such Stockholder has knowledge that the representations and warranties of the Company are not true and correct in all material respects. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company, except as set forth in the letter dated the date hereof from Parent to the Company initialed -29- 30 by those parties (the "Parent Disclosure Letter"), as follows. Any matter disclosed in the Parent Disclosure Letter with respect to a specific section of this Agreement shall be deemed disclosed with respect to all sections of this Agreement to which it reasonably relates, but only to the extent such disclosure is significantly adequate to inform the Company of its relevance to such other section. SECTION 4.1 Organization and Qualification; Subsidiaries. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Parent's Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization. Except as set forth on Part 4.1 of the Parent Disclosure Letter, each of Parent and its Subsidiaries has the requisite power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted, and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not have a Parent Material Adverse Effect (as hereinafter defined). Part 4.1 of the Parent Disclosure Letter lists all of Parent's directly or indirectly owned Subsidiaries. The term "Parent Material Adverse Effect," as used in this Agreement with respect to Parent, shall mean any adverse change, circumstance or effect that would (i) have a material adverse effect on the business, financial condition, assets or results of operations of Parent and its Subsidiaries, taken as a whole, or (ii) prevent or materially delay the ability of Parent to consummate the transactions contemplated hereby, other than any delays occasioned by SEC review of the Proxy Statement. SECTION 4.2 Certificate of Incorporation and Bylaws. Parent has heretofore made available to the Company a complete and correct copy of the Articles of Incorporation and the Bylaws or comparable organizational documents, each as amended as of the date hereof, of Parent. SECTION 4.3 Capitalization. (a) (i) As of the close of business on November 1, 2000, the authorized capital stock of Parent consists of 50,000,000 Common Shares (the "Common Shares") and 500,000 shares of Preferred Stock, $1.00 par value per share ("Parent Preferred Stock"), -30- 31 consisting of 150,000 shares of Series A Junior Participating Preferred Stock, par value $1.00 per share ("Series A Preferred"), 15,000 shares of Series B Convertible Preferred Stock, $1.00 par value per share ("Series B Preferred"), 32,917 shares of Series D Preferred, 10,000 shares of Series E Preferred and 7,000 shares of Series F Preferred. (ii) As of the close of business on November 1, 2000, 12,069,550 Common Shares, no shares of Series A Preferred, no shares of Series B Preferred, 32,353 shares of Series D Preferred, 8,060 shares of Series E Preferred and 1,800 shares of Series F Preferred were issued and outstanding. (iii) As of the close of business on November 1, 2000, Parent had no shares reserved for issuance except as otherwise disclosed in Part 4.3 of the Parent Disclosure Letter. In addition, as of October 24, 2000,2,023,461 Common Shares were issuable on exercise of outstanding options or other awards under option plans and outstanding warrants and 6,905,709 Common Shares were issuable on conversion of the Series D, E and F Preferred, excluding shares to be issued as dividends pursuant to the terms of such Preferred, and there were 150,000 shares of Series A Preferred reserved for issuance upon exercise of the rights (the "Rights") issued pursuant to the Rights Agreement. (iv) There is no outstanding subscription, option, warrant, call, right, agreement, commitment, understanding or arrangement relating to the issuance, sale, delivery, transfer or redemption of Common Shares or any other shares of capital stock of Parent (including any right of conversion or exchange under any outstanding security or other instrument) other than as set forth on Part 4.3 of the Parent Disclosure Letter. (v) Since September 1, 2000, Parent has not issued any shares of capital stock except pursuant to the exercise of options and warrants outstanding as of such date or conversion of or payment of dividends with respect to Series D, E or F Preferred. -31- 32 (vi) All of the outstanding Common Shares and Series D, E or F Preferred are, and all Common Shares and Series D, E or F Preferred which may be issued pursuant to the exercise of Parent's outstanding options and warrants will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable. (vii) There is no Voting Debt of Parent or any of its Subsidiaries issued and outstanding. (viii) Except as set forth on Part 4.3 of the Parent Disclosure Letter, there are no outstanding contractual obligations of Parent or any of its Subsidiaries to (i) repurchase, redeem or otherwise acquire any Common Shares or the capital stock of Parent or any of its Subsidiaries; or (ii) provide funds (other than normal accounts or notes payable) to or make any investment in (in the form of a loan, capital contribution or otherwise) any entity other than a wholly-owned Subsidiary. (b) Each of the outstanding shares of capital stock of each of Parent's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned of record and beneficially by Parent free and clear of any Lien, other than any security interest therein held by Wells Fargo Bank N.A. There is no outstanding subscription, option, warrant, call, right, agreement, commitment, understanding or arrangement relating to the issuance, sale, delivery, transfer or redemption of any shares of capital stock of any Subsidiary. (c) Except as set forth on Part 4.3 of the Parent Disclosure Letter, there are no voting trusts or other agreements or understandings to which Parent or any of its Subsidiaries is a party with respect to the voting of the capital stock of Parent or any of its Subsidiaries. SECTION 4.4 Authority Relative to this Agreement. Except as set forth on Part 4.4 of the Parent Disclosure Letter, each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub of the transactions contemplated -32- 33 hereby have been duly and validly authorized and approved by the respective Board of Directors of Parent and Merger Sub and by Parent as shareholder of Merger Sub, and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize or approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of Parent and Merger Sub and, upon the due and valid authorization, execution and delivery of this Agreement by the Company and the Stockholders, constitutes a valid and binding obligation of each of Parent and Merger Sub enforceable against each of them in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws now or hereinafter in effect relating to the enforcement of creditors' rights generally; and (ii) is subject to general principles of equity. SECTION 4.5 No Conflict; Required Filings and Consents. (a) Except as set forth on Part 4.5 of the Parent Disclosure Letter, none of the execution, delivery or performance of this Agreement by Parent or Merger Sub, the consummation by Parent or Merger Sub of the transactions contemplated hereby or the compliance by Parent or Merger Sub with any of the provisions hereof will (i) conflict with or violate the organizational documents of Parent, its Subsidiaries or Merger Sub; (ii) except for the matters referred to in clauses (i) through (v) of section 4.5(b) hereof, conflict with or violate any statute, ordinance, rule, regulation, order, judgment or decree applicable to Parent, Merger Sub, or any of their subsidiaries, or by which any of them or any of their respective properties or assets may be bound or affected; or (iii) result in a Violation pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Merger Sub, or any of their Subsidiaries, is a party or by which Parent, Merger Sub or any of their respective Subsidiaries or any of their respective properties may be bound or affected except in each case for such conflicts, violations, breaches, defaults or Liens that would not in the aggregate have a Parent Material Adverse Effect. (b) None of the execution, delivery or performance of this Agreement by Parent and Merger Sub, the consummation by Parent and Merger Sub of the transactions contemplated hereby or the compliance by Parent and Merger Sub with any of the provisions hereof will require any Consent of any Governmental Entity, except for (i) compliance with any applicable requirements of the -33- 34 Exchange Act; (ii) for the filing and recordation of a Certificate of Merger pursuant to the DGCL; (iii) notifications required by the MBCA; (iv) compliance with the HSR Act and the Rules of the Nasdaq Stock Market; and (v) where failure to obtain such Consents would not in the aggregate have a Parent Material Adverse Effect. SECTION 4.6 SEC Reports; Financial Statements. (a) Except as provided in Part 4.6 of the Parent Disclosure Letter, Parent has filed with the SEC all forms, reports, schedules, registration statements and definitive proxy statements required to be filed by Parent with the SEC since January 1, 1998 (the "SEC Reports"). Except as provided in Part 4.6 of the Parent Disclosure Letter, as of their respective dates, the SEC Reports (including any financial statements or schedules included therein) complied in all material respects with the requirements of the Exchange Act or the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder applicable, as the case may be, to such SEC Reports. (b) The audited consolidated financial statements and unaudited consolidated interim financial statements of Parent included in the SEC Reports and the unaudited financial statements for the 12 months ended September 1, 2000, which Parent has provided to the Company, present fairly in all material respects the consolidated financial position and the consolidated results of operations and cash flows of Parent and its consolidated Subsidiaries as of the dates or for the periods presented therein (subject, in the case of unaudited statements, to normal year-end audit adjustments) in conformity with GAAP applied on a consistent basis during the periods involved except as otherwise noted therein, including the related notes. SECTION 4.7 Permits. Except as provided in Part 4.7 of the Parent Disclosure Letter, each of Parent and its Subsidiaries is in possession of all material franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for Parent or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Parent Permits"), and, as of the date of this Agreement, no suspension or cancellation of any of the Parent Permits is pending or, to the best of Parent's knowledge, threatened. SECTION 4.8 Information. None of the information provided or that may be provided by Parent or Merger Sub specifically for use in the Proxy Statement shall, at the time filed with the SEC or any other Governmental Entity, -34- 35 at the time mailed to Parent's shareholders at the time of the Shareholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, neither Parent nor Merger Sub make any representation or warranty with respect to any information provided or that may be provided by the Company specifically for use in such documents. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. SECTION 4.9 Changes. Since September 1, 2000, except as otherwise disclosed in Part 4.9 of the Parent Disclosure Letter: (a) there has been no Parent Material Adverse Effect; (b) Parent has not adopted any amendment to its Articles of Incorporation or Bylaws; (c) other than grants under the Parent's Stock Plans and issuances upon exercise of options granted under Parent's Stock Plans, neither Parent nor any Subsidiary has issued, reissued, pledged or sold, or authorized the issuance, reissuance, pledge or sale of (i) additional shares of capital stock of any class, or securities convertible into, exchangeable for or evidencing the right to substitute for, capital stock of any class, or any rights, warrants, options, calls, commitments or any other agreements of any character, to purchase or acquire any capital stock or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, capital stock; or (ii) any other securities in respect of, in lieu of, or in substitution for, shares or any other shares of capital stock; (d) neither Parent nor any of its Subsidiaries declared, set aside or paid any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock other than between Parent and any of its wholly-owned Subsidiaries; (e) neither Parent nor any of its Subsidiaries has split, combined, subdivided, reclassified or redeemed, purchased or otherwise acquired or proposed to redeem or purchased or otherwise acquired any shares of its capital stock or any of its other securities; -35- 36 (f) Parent and its Subsidiaries have conducted their respective businesses only in the ordinary and usual course; and (g) there has not been the loss, damage or destruction of any material property of Parent. SECTION 4.10 Compliance with Laws. Except as set forth in Part 4.10 of the Parent Disclosure Letter, (i) Parent and its Subsidiaries are in compliance, in all material respects, with any applicable law, rule or regulation of any United States federal, state, local, or foreign government or agency thereof which affects the business, properties or assets of Parent and its Subsidiaries, the non-compliance with which would have a Parent Material Adverse Effect; and (ii) no notice, charge, claim, action or assertion has been received by Parent or any of its Subsidiaries or has been filed, commenced or, to Parent's knowledge, threatened against Parent or any of its Subsidiaries alleging any such violation. To the best of the knowledge of Parent, except as provided in Part 4.7 of the Parent Disclosure Letter, all material licenses, permits and approvals required under such laws, rules and regulations are in full force and effect. SECTION 4.11 Litigation. Except as set forth in the SEC Reports, or Part 4.11 of the Parent Disclosure Letter, as of the date hereof, there are no material suits, claims, actions, proceedings, including arbitration proceedings or alternative dispute resolution proceedings, or investigations pending or, to the best of the knowledge of Parent, threatened against Parent or any of its Subsidiaries before any Governmental Entity that would have a Parent Material Adverse Effect. SECTION 4.12 Employee Plans and Arrangements. (a) Part 4.12 of the Parent Disclosure Letter lists each Pension Plan and Welfare Plan, in each case maintained or contributed to, or required to be maintained or contributed to, by Parent, any of its Subsidiaries or any other person that, together with Parent, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each a "Parent Commonly Controlled Entity") for the benefit of any present or former employees of Parent or any of its Subsidiaries. Neither Parent nor any of its Subsidiaries has maintained, or incurred any liability whatsoever, with respect to a multi-employer plan (as defined in Section 4001(a)(3) of ERISA). Parent has made available to the Company true, complete and correct copies of (i) each Benefit Plan; (ii) the most recent annual report on Form 5500 as filed with the Internal Revenue Service -36- 37 with respect to each applicable Benefit Plan; (iii) the most recent summary plan description (or similar document) with respect to each applicable Benefit Plan; (iv) the most recent actuarial report or valuation with respect to each plan that is a "defined benefit pension plan" (as defined in Section 3(35) of ERISA); and (v) each trust agreement relating to any Benefit Plan. (b) Each Benefit Plan has been administered in all material respects in accordance with its terms. To the best of the knowledge of Parent and except where a failure would not have a Parent Material Adverse Effect, Parent, its Subsidiaries and all the Benefit Plans are in compliance with the applicable provisions of ERISA, the Code, and all other laws, ordinances or regulations of any Governmental Entities. To the best knowledge of Parent, there are no investigations by any Governmental Entities, termination proceedings or other claims (except claims for benefits payable in the normal operations of the Benefit Plans), suits or proceedings against or involving any Benefit Plan or asserting any rights to or claims for benefits under any Benefit Plan. (c) All contributions to the Benefit Plans required to be made by Parent or any of its Subsidiaries in accordance with the terms of the Benefit Plans, any applicable collective bargaining agreement and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been made, there has been no application for or waiver of the minimum funding standards imposed by Section 412 of the Code with respect to any Benefit Plan that is a Pension Plan and no Pension Plan had an "accumulated funding deficiency" within the meaning of Section 412(a) of the Code as of the end of the most recently completed plan year. (d) Except as set forth on Part 4.12 of the Parent Disclosure Letter, (i) each Pension Plan that is intended to be a tax-qualified plan has been the subject of a determination letter from the Internal Revenue Service to the effect that such Pension Plan and each related trust is qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code; (ii) no such determination letter has been revoked, and revocation has not been threatened; (iii) to the best knowledge of Parent, no event has occurred and no circumstances exist that would adversely affect the tax-qualification of such Pension Plan; and (iv) such Pension Plan has not been amended since the effective date of its most recent determination letter in any respect that might adversely affect its qualification, increase its cost or require security under Section 307 of ERISA. Parent has made available to the Company a copy of the -37- 38 most recent determination letter received with respect to each Pension Plan for which such a letter has been issued, as well as a copy of any pending application for a determination letter. (e) No non-exempt "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred that involves the assets of any Benefit Plan; no Pension Plan has been terminated or has been the subject of a "reportable event" (as defined in Section 4043 of ERISA and the regulations thereunder) for which the 30-day notice requirement has not been waived by the PBGC; and none of Parent, any of its Subsidiaries or any trustee, administrator or other fiduciary of any Benefit Plan has engaged in any transaction or acted in a manner that could, or has failed to act so as to, subject Parent, any such Subsidiary or any trustee, administrator or other fiduciary to any liability for breach of fiduciary duty under ERISA or any other applicable law. (f) No Parent Commonly Controlled Entity has incurred any liability to a Pension Plan (other than for contributions not yet due) or to the PBGC (other than for the payment of premiums not yet due). (g) No Parent Commonly Controlled Entity has (i) engaged in a transaction described in Section 4069 of ERISA that could subject Parent to a liability at any time after the date hereof; or (ii) acted in a manner that could, or failed to act so as to, result in fines, penalties, taxes or related charges under (x) Section 502(c), (i) or (1) of ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Code. (h) Parent and its Subsidiaries comply with the applicable requirements of parts 6 and 7 of subtitle B of Title I of ERISA ((S)(S) 601 et seq.) with respect to each Benefit Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code. (i) Part 4.12 of the Parent Disclosure Letter lists (i) all employment agreements between Parent or any of its Subsidiaries and any of their respective directors officers or employees; (ii) all agreements and plans pursuant to which any director, officer or employee of Parent or any of its subsidiaries is entitled to benefits upon termination of their employment or a change in control of Parent; (iii) all Parent's Option Plans, and (iv) all bonus, incentive, deferred compensation, supplemental retirement, health, life or disability insurance, dependent care, severance and other fringe benefit or employee benefit plans, programs or arrangements of Parent or any of its Subsidiaries. -38- 39 (j) Except as set forth on Part 4.12(j) of the Parent Disclosure Letter, there is no contact, agreement, plan or arrangement covering any employee of Parent or any of its Subsidiaries that (i) requires the payment of severance, termination, bonus or other benefits, or accelerated vesting of benefits, for any employee solely as a result of the transactions contemplated by this Agreement, or (ii) could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G or 162(m) of the Code. SECTION 4.13 Assets. Except as set forth in Part 4.13 of the Parent Disclosure Letter, Parent and each of its Subsidiaries has good, valid and marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, (i) all of its material tangible properties and assets (real and personal), including, without limitation, all the properties and assets reflected in the consolidated balance sheet as of August 27, 1999 contained in the SEC Reports, except as indicated in the notes thereto and except for properties and assets reflected in the consolidated balance sheet as of August 27, 1999 contained in the SEC Reports which have been sold or otherwise disposed of in the ordinary course of business after such date and except where the failure to have such good, valid and marketable title would not have a Parent Material Adverse Effect; and (ii) all the tangible properties and assets purchased by Parent and any of its Subsidiaries since August 27, 1999, except for such properties and assets which have been sold or otherwise disposed of in the ordinary course of business and except where the failure to have such good, valid and marketable title would not have a Parent Material Adverse Effect; in each case subject to no encumbrance, lien, charge or other restriction of any kind or character, except for (A) liens reflected in or securing obligations reflected in the consolidated balance sheet as of August 27, 1999 or May 26, 2000 contained in the SEC Reports, (B) liens consisting of zoning or planning restrictions, easements, permits and other restrictions or limitations on the use of real property or irregularities in title thereto which do not materially detract from the value of, or impair the use of, such property by Parent or any of its Subsidiaries in the operation of its respective business, (C) liens for current taxes, assessments or governmental charges or levies on property not yet due and delinquent, and (D) such encumbrances, liens, charges or other restrictions which could not reasonably be expected to have a Parent Material Adverse Effect. SECTION 4.14 No Undisclosed Liabilities. Except (a) as disclosed in Parent's consolidated balance sheet as of September 1, 2000 or the schedules thereto or the Parent Disclosure Letter; and (b) for liabilities and obligations -39- 40 (i) incurred in the ordinary course of business and consistent with past practice since August 27, 1999; or (ii) pursuant to the terms of this Agreement, neither Parent nor any of its Subsidiaries has any liabilities or obligations of any nature, accrued, contingent or otherwise, required by GAAP to be reflected in, reserved against or otherwise described in the consolidated balance sheet of Parent (including the notes thereto) which, individually or in the aggregate, would have a Parent Material Adverse Effect SECTION 4.15 Intellectual Property. Except as provided in Part 4.15 of the Parent Disclosure Letter: (a) To the best of the knowledge of Parent, Parent and its Subsidiaries own or have the right to use all Intellectual Property necessary for Parent and its Subsidiaries to conduct their business as it is currently conducted and consistent with past practice and such ownership and right to use shall not be affected by the transactions contemplated by this Agreement. (b) Except as set forth in Part 4.15 of the Parent Disclosure Letter, to the best of the knowledge of Parent, (i) all of the registered Intellectual Property owned by Parent and its Subsidiaries is subsisting and unexpired, free of all Liens, other than Liens that would not have a Parent Material Adverse Effect, has not been abandoned; and (ii) does not infringe the Intellectual Property rights of any third party. Except as set forth in Part 4.15 of the Parent Disclosure Letter, (i) none of the Intellectual Property owned by Parent and its Subsidiaries is the subject of any license, security interest or other agreement granting rights therein to any third party (except for contracts relating to data, databases or software licensed to third parties in the ordinary course of Parent's or its Subsidiaries' businesses); (ii) no judgment, decree, injunction, rule or order has been rendered by any Governmental Entity which would limit, cancel or question the validity of, or Parent's or its Subsidiaries' rights in and to, any Intellectual Property owned by Parent; (iii) Parent has not received notice of any pending or threatened suit, action or proceeding that seeks to limit, cancel or question the validity of, or Parent's or its Subsidiaries' rights in and to, any Intellectual Property; and (iv) Parent and its Subsidiaries take reasonable steps to protect, maintain and safeguard the Intellectual Property owned by Parent, including any Intellectual Property for which improper or unauthorized disclosure would impair its value or validity, and have caused their employees to execute agreements in connection with the foregoing. -40- 41 SECTION 4.16 Taxes. Parent and each of its Subsidiaries have (i) filed all Tax Returns which they are required to file under applicable laws and regulations; (ii) paid all Taxes which have become due and payable; and (iii) accrued as a liability on the balance sheet included in Parent's financial statements described in Section 4.5 hereof all Taxes which were accrued but not yet due and payable as of the date thereof, except for failures to take any such actions which, individually or in the aggregate, would not have a Parent Material Adverse Effect. Parent has provided the Company with information, that is complete and correct in all material respects, with respect to Parent's net operating loss carry forwards and other tax attributes. SECTION 4.17 Environmental Laws and Regulations. Except as disclosed in Part 4.17 of the Parent Disclosure Letter: (a) Parent and its Subsidiaries hold and are in compliance in all material respects with all Environmental Permits, and, to the best of the knowledge of Parent, Parent and its Subsidiaries are otherwise in compliance in all material respects with all Environmental Laws; (b) As of the date hereof, there is no pending Environmental Claim against Parent or any of its Subsidiaries and, to the best of the knowledge of Parent, there is no such threatened Environmental Claim; (c) Neither Parent nor any of its Subsidiaries has entered into any consent decree, consent order or consent agreement under any Environmental Law that would have a Parent Material Adverse Effect; (d) To the best of the knowledge of Parent, there are no (A) underground storage tanks, (B) polychlorinated biphenyls, (C) friable asbestos or asbestos-containing materials, (D) sumps, (E) surface impoundments, (F) landfills, or (G) sewers or septic systems present at any facility currently owned, leased, operated or otherwise used by Parent or any of its Subsidiaries the presence of which would have a Parent Material Adverse Effect; (e) To the best of the knowledge of Parent or any of its Subsidiaries, there are no past (including with respect to assets or businesses formerly owned, leased or operated by Parent or any of its Subsidiaries) or present actions, activities, events, conditions or circumstances, including without limitation the release, threatened release, emission, discharge, generation, treatment, storage or disposal of Hazardous Materials the occurrence of which would have a Parent Material Adverse Effect; -41- 42 (f) No modification, revocation, reissuance, alteration, transfer, or amendment of the Environmental Permits, or any review by, or approval of, any third party of the Environmental Permits is required in connection with the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby or the continuation of the business of Parent or its Subsidiaries, as currently conducted, following such consummation; (g) To the extent required by GAAP, Parent and its Subsidiaries have accrued or otherwise provided for all damages, liabilities, penalties or costs that they may incur in connection with any claim pending or threatened against them, or any requirement that is or may be applicable to them, under any Environmental Laws, and such accrual or other provision is reflected in Parent's most recent consolidated financial statements included in the SEC Reports filed prior to the date hereof. SECTION 4.18 Contracts; Debt Instruments. (a) All Contracts that are material to Parent and its Subsidiaries, taken as a whole (each, a "Parent Material Contract") are valid and binding obligations of Parent and, to the best of the knowledge of Parent and its Subsidiaries, the valid and binding obligation of each other party thereto. Except as disclosed in Part 4.18 of the Parent Disclosure Letter, neither Parent nor, to the best of the knowledge of Parent and its Subsidiaries, any other party thereto, is in violation of or in default in any material respect of, nor has there occurred an event or condition which with the passage of time or giving of notice (or both) would constitute a default under or permit the termination of, any such Material Contract unless such violation or default would not have a Parent Material Adverse Effect. (b) Parent has made available to the Company and its representatives true, correct and complete copies of all of the following contracts to which Parent or any of its Subsidiaries is a party or by which any of them is bound (collectively, the "Parent Specified Contracts"): (i) contracts with any directors, officers, key employees or Affiliates of Parent; (ii) collective bargaining agreements for which Parent or any of its domestic Subsidiaries is a party; (iii) pending contracts (A) for the sale of any of the assets of Parent or any of its Subsidiaries, other than contracts entered into in the ordinary course of business, or (B) for the grant to any person of any preferential rights to purchase any of its assets, other than in the ordinary course of business; (iv) contracts which restrict, in any material -42- 43 respect, Parent or any of its Subsidiaries from competing in any line of business or with any person in any geographical area; (v) indentures, credit agreements, security agreements, mortgages, guarantees, promissory notes and other contracts relating to the borrowing of money involving indebtedness for borrowed money; (vi) contracts with any stockholders or group of stockholders of Parent beneficially owning 5% or more of Parent's outstanding capital stock on the date hereof; (vii) material acquisition, merger, asset purchase or sale agreements entered into since January 1, 1997 (other than agreements for the purchase and sale of materials or products in the ordinary course of business); (viii) contracts relating to any material joint venture, partnership, strategic alliance or other similar agreement; (ix) licenses, whether Parent is licensee or licensor, and material leases; and (x) all other agreements, contracts or instruments entered into which, to the best of the knowledge of Parent, are material to Parent and its Subsidiaries taken as a whole. (c) Part 4.18 of the Parent Disclosure Letter provides accurate and complete information (including amount and name of payee) with respect to all Indebtedness of Parent or any of its Subsidiaries as of September 1, 2000. SECTION 4.19 Non-Competition Agreements. Except as provided in Part 4.19 of the Parent Disclosure Letter, neither Parent nor any of its subsidiaries is a party or is otherwise subject to any agreement which (i) purports to restrict or prohibit in any material respect any of them or any corporation affiliated with any of them from, directly or indirectly, engaging in any business currently engaged in by Parent or any of its affiliates; or (ii) would restrict or prohibit, in any material respect, Parent or any of its Subsidiaries from engaging in such business. SECTION 4.20 Interested Party Transactions. Except as provided in the SEC Reports or set forth in Part 4.20 of the Parent Disclosure Letter, no member, manager, officer or affiliate of Parent or any of its Subsidiaries has or has had, directly or indirectly, (i) an economic interest in any person which has furnished or sold or furnishes or sells services or products that Parent or one of its Subsidiaries furnishes or sells or proposes to furnish or sell; (ii) an economic interest in any person that purchases from or sells or furnishes to Parent or any one of its Subsidiaries any goods or services; (iii) any economic interest in any contract or lease with Parent or any one of its Subsidiaries; or (iv) any contractual or other arrangement with Parent or one of its Subsidiaries; provided however, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest" in any "person" for purposes of this Section 4.20. -43- 44 SECTION 4.21 Insurance. Except as disclosed in Parent's SEC Reports, all material fire and casualty, general liability, business interruption, product liability and sprinkler and water damage insurance policies maintained by Parent or any of its Subsidiaries are with nationally recognized insurance carriers, provide coverage for all normal risks incident to the business of Parent and its Subsidiaries and their respective properties and assets and are in character and amount appropriate for the business conducted by Parent, except as would not, individually or in the aggregate, have a Parent Material Adverse Effect. SECTION 4.22 Opinion of Financial Advisor. U.S. Bancorp Piper Jaffray (the "Parent Financial Advisor") has delivered to the Board of Directors of Parent its opinion to the effect that, as of the date hereof, the transactions contemplated by this Agreement, the Stock Purchase Agreement and the Subordinated Debt Agreement taken as a whole are fair, from a financial point of view, to Parent and its shareholders. SECTION 4.23 Brokers. No broker, finder, investment banker (other than the Parent Financial Advisor) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Sub. SECTION 4.24 Certain Action by Parent Board. Assuming the accuracy of the representations set forth Section 3.5: (a) Parent has taken all action which may be required under Rights Agreement, so that: the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to this Agreement, the Stock Purchase Agreement or the Subordinated Debt Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and/or (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, alone shall not cause (X) any Purchaser, or any of its "Affiliates" or "Associates" (as such terms are defined in Rule 12b-2 under the Exchange Act), to be deemed an "Acquiring Person" under the Rights Agreement or (Y) a -44- 45 "Distribution Date", a "Stock Acquisition Date" or "Acquisition Event" (as such terms are defined in the Rights Agreement) to occur. (b) the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to this Agreement, the Stock Purchase Agreement or the Subordinated Debt Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, have been approved by a committee of the Board of Directors of Parent, as required in Section 302A.673, subd. 1(d) of the MBCA. SECTION 4.25 Disclosure. The representations, warranties and other statements of Parent and Merger Sub contained in this Agreement and the other certificates furnished to the Company by or on behalf of Parent and Merger Sub pursuant hereto, taken as a whole, do not contain any untrue statement of a material fact or, to the best of the knowledge of Parent and Merger Sub, omit to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances made, not materially misleading as of the date hereof. SECTION 4.26 Knowledge. Whenever a representation or warranty made by Parent refers to the best of the knowledge of Parent or its Subsidiaries, such knowledge shall be deemed to consist only of the actual knowledge of the executive officers of Parent or its Subsidiaries and Merger Sub. ARTICLE V COVENANTS SECTION 5.1 Conduct of Business of Company. Except as expressly contemplated by this Agreement or set forth in the Company Disclosure Letter or with the prior written consent of the other party, during the period from the date of this Agreement to the Effective Time, the Company will, and will cause each of its Subsidiaries to, conduct its operations only in the ordinary and usual course of business consistent with past practice and will use its commercially reasonable efforts, and will cause each of its Subsidiaries to use its commercially reasonable efforts, to preserve intact the business organization of the Company and its Subsidiaries, to keep available the services of its and -45- 46 their present officers and key employees, and to preserve the good will of those having business relationships with it. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement or as set forth in the Company Disclosure Letter, the Company agrees that it will not, and will not permit any of its Subsidiaries to, prior to the Effective Time, without the prior written consent of the other party: (a) adopt any amendment to its Certificate of Incorporation or Bylaws or comparable organizational documents; (b) except for issuances of capital stock of Subsidiaries to itself or its wholly-owned Subsidiary, issue, reissue, pledge or sell, or authorize the issuance, reissuance, pledge or sale of (i) additional shares of capital stock of any class, or securities convertible into, exchangeable for or evidencing the right to substitute for, capital stock of any class, or any rights, warrants, options, calls, commitments or any other agreements of any character, to purchase or acquire any capital stock or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, capital stock, other than the issuance of Shares, pursuant to the exercise of Company Stock Options outstanding on the date hereof; or (ii) any other securities; (c) declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock other than between the Company and any of its wholly-owned Subsidiaries including any dividend required to be declared, set aside or paid pursuant to the Certificates of Designation, Preferences and Rights of the Parent Preferred Stock; (d) split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of its capital stock, or any of its other securities; (e) except for (i) increases in salary and wages granted to officers and employees of the Company or its Subsidiaries in conjunction with promotions or other changes in job status or normal compensation reviews (within the amounts projected in the Company's 2000 operating plan previously provided to Parent) in the ordinary course of business consistent with past practice; or (ii) increases in salary, wages and benefits to employees of the Company pursuant to collective bargaining agreements in effect on the date hereof, increase the compensation -46- 47 or benefits payable or to become payable to its directors, officers or employees (whether from the Company or any of its Subsidiaries), or pay or award any benefit not required by any existing plan or arrangement (including the granting of stock options, stock appreciation rights, shares of restricted stock or performance units pursuant to the Company Plans or otherwise) or grant any additional severance or termination pay to (other than as required by existing agreements or policies, each of which are described in the Company Disclosure Letter) or enter into any employment or severance agreement with, any director, officer or other employee of the Company or any of its Subsidiaries, or establish, adopt, enter into, amend, accelerate any rights or benefits or waive any performance or vesting criteria under any collective bargaining, bonus, profit sharing, thrift, compensation, restricted stock, pension, retirement, savings, welfare, deferred compensation, employment, termination, severance or other employee benefit plan (other than any automatic acceleration of all unvested options as a result of this transaction as provided in the applicable plan), agreement, trust, fund, policy or arrangement for the benefit or welfare of any directors, officers or current or former employees (any of the foregoing being an "Employee Benefit Arrangement"), except in each case to the extent required by applicable law or regulation or existing plan or agreement; (f) acquire, sell, lease or dispose of any assets or securities which are material to and used in the operations of the Company and its Subsidiaries, or acquire any businesses, or enter into any commitment to do any of the foregoing or enter into any material commitment or transaction, in each case outside the ordinary course of business consistent with past practice other than transactions between a wholly owned Subsidiary of the Company and the Company or another wholly owned Subsidiary of the Company; provided, however, that the Company and its Subsidiaries shall not, during the period from the date hereof to the Effective Time, make or commit to make capital expenditures that are not disclosed in Part 5.1(f) of the Company Disclosure Letter that in the aggregate exceed $50,000. Any permitted capital expenditures may be made through leasing arrangements. (g) incur, assume or pre-pay, or modify or amend the terms of, any long-term or short-term debt of the Company or its Subsidiaries, except that the Company and its Subsidiaries may (i) incur or pre-pay debt in the ordinary course of business in amounts and for purposes consistent with past practice under existing lines of credit; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the -47- 48 obligations of any other person in the ordinary course of business consistent with past practice; or (iii) make any loans, advances or capital contributions to, or investments in, any other person but only in the ordinary course of business consistent with past practice and loans, advances, capital contributions or investments between any wholly owned Subsidiary of the Company and the Company or another wholly owned Subsidiary of the Company; (h) settle or compromise any material suit or claim or material threatened suit or claim; (i) other than in the ordinary course of business consistent with past practice, (i) modify, amend or terminate any contract; (ii) waive, release, relinquish or assign any contract (or any of the Company's rights thereunder), right or claim; or (iii) cancel or forgive any indebtedness owed to the Company or any of its Subsidiaries; (j) make any tax election not required by law or settle or compromise any tax liability, in either case that is material to the Company and its Subsidiaries; (k) make any material change, other than in the ordinary course of business and consistent with past practice or as required by applicable law, regulation or change in generally accepted accounting principles, applied by the Company (including tax accounting principles); (l) initiate, solicit, negotiate or discuss any proposal or offer to acquire all or any material part of the business, assets, properties or associated technologies of the Company or any Subsidiary or of any third party; (m) agree in writing or otherwise to take any of the foregoing actions prohibited under Section 5.1 or any action which would cause any representation or warranty in this Agreement to be or become untrue or incorrect in any material respect. SECTION 5.2 Conduct of Business of Parent. Except as expressly contemplated by this Agreement or set forth in the Parent Disclosure Letter or with the prior written consent of the Company, during the period from the date of this Agreement to the Effective Time, Parent will, and will cause each of its Subsidiaries to, conduct its operations only in the ordinary and usual course of business consistent with past practice and will use its commercially reasonable efforts, and will cause each of its Subsidiaries to use its commercially reasonable efforts, to preserve intact the business organization of Parent and each of its -48- 49 Subsidiaries, to keep available the services of its and their present officers and key employees, and to preserve the good will of those having business relationships with it. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement or as set forth in the Parent Disclosure Letter, Parent will not, and will not permit any of its Subsidiaries to, prior to the Effective Time, without the prior written consent of the Company: (a) adopt any amendment to its Articles of Incorporation or Bylaws or comparable organizational documents; (b) except for issuances of capital stock of Parent's Subsidiaries to Parent or a wholly-owned Subsidiary of Parent and except as contemplated by section 1.11 hereof, issue, reissue, pledge or sell, or authorize the issuance, reissuance, pledge or sale of (i) additional shares of capital stock of any class, or securities convertible into, exchangeable for or evidencing the right to substitute for, capital stock of any class, or any rights, warrants, options, calls, commitments or any other agreements of any character, to purchase or acquire any capital stock or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, capital stock, other than the issuance of shares, pursuant to the exercise of options or warrants outstanding on the date hereof or upon conversion of shares of Series D Preferred, Series E Preferred or Series F Preferred outstanding on the date hereof, or (ii) any other securities. Anything herein to the contrary notwithstanding, Parent may, during the period from the date hereof to the Effective Time, and subject to the requirements of section 1.11 hereof, issue additional debt securities of Parent in an amount yielding not in excess of $5,000,000 of gross proceeds to Parent; (c) declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock other than between Parent and any of its wholly-owned Subsidiaries and other than any dividend required to be declared, set aside or paid pursuant to the Certificates of Designation, Preferences and Rights of the Series D Preferred, the Series E Preferred and the Series F Preferred; (d) split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of its capital stock, or any of its other securities; -49- 50 (e) except for (i) increases in salary and wages granted to officers and employees of Parent or its Subsidiaries in conjunction with promotions or other changes in job status or normal compensation reviews (within the amounts projected in Parent's 2000 operating plan previously provided to the Company) in the ordinary course of business consistent with past practice, or (ii) increases in salary, wages and benefits to employees of Parent pursuant to collective bargaining agreements in effect on the date hereof, increase the compensation or benefits payable or to become payable to its directors, officers or employees (whether from Parent or any of its Subsidiaries), or pay or award any benefit not required by any existing plan or arrangement (including the granting of stock options, stock appreciation rights, shares of restricted stock or performance units pursuant to the Option Plans or otherwise) or grant any additional severance or termination pay to (other than as required by existing agreements or policies), or enter into any employment or severance agreement with, any director, officer or other employee of Parent or any of its Subsidiaries or, establish, adopt, enter into, amend, accelerate any rights or benefits or waive any performance or vesting criteria under any collective bargaining, bonus, profit sharing, thrift, compensation, restricted stock, pension, retirement, savings, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any directors, officers or current or former employees (any of the foregoing being an "Employee Benefit Arrangement"), except in each case to the extent required by applicable law or regulation or existing plan or agreement; (f) except as contemplated by section 1.11 hereof, acquire, sell, lease or dispose of any assets or securities which are material to and used in the operations of Parent and its Subsidiaries, or acquire any businesses, or enter into any commitment to do any of the foregoing or enter into any material commitment or transaction, in each case outside the ordinary course of business consistent with past practice other than transactions between a wholly owned Subsidiary of Parent and Parent or another wholly owned Subsidiary of Parent; provided, however, that Parent and its Subsidiaries shall not, during the period from the date hereof to the Effective Time, make or commit to make capital expenditures that are not disclosed in Part 5.2(f) of the Parent Disclosure Letter that in the aggregate exceed $50,000. (g) except as otherwise provided in Part 5.2(g) of the Parent Disclosure Letter, incur, assume or pre-pay, or modify or amend or seek or obtain any consents under or waivers of the terms of, any long-term or short-term debt of Parent or its Subsidiaries, except that Parent and its Subsidiaries may (i) incur or pre-pay debt in the ordinary course of business in -50- 51 amounts and for purposes consistent with past practice under existing lines of credit; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person in the ordinary course of business consistent with past practice; or (iii) make any loans, advances or capital contributions to, or investments in, any other person but only in the ordinary course of business consistent with past practice and loans, advances, capital contributions or investments between any wholly owned Subsidiary of Parent and Parent or another wholly owned Subsidiary of Parent; (h) settle or compromise any material suit or claim or material threatened suit or claim; (i) other than in the ordinary course of business consistent with past practice, (i) modify, amend or terminate any contract; (ii) waive, release, relinquish or assign any contract (or any of Parent's rights thereunder), right or claim; or (iii) cancel or forgive any indebtedness owed to Parent or any of its Subsidiaries; (j) make any tax election not required by law or settle or compromise any tax liability, in either case that is material to Parent and its Subsidiaries; (k) make any material change, other than in the ordinary course of business and consistent with past practice or as required by applicable law, regulation or change in generally accepted accounting principles, applied by Parent (including tax accounting principles); (l) agree in writing or otherwise to take any of the foregoing actions prohibited under Section 5.2 or any action which would cause any representation or warranty in this Agreement to be or become untrue or incorrect in any material respect. SECTION 5.3 Access to Information. (a) From the date of this Agreement until the Effective Time, the Company will, and will cause its Subsidiaries, and each of their respective officers, directors, employees, counsel, advisors and representatives (collectively, the "Company Representatives"), to give Parent and Merger Sub and their respective officers, employees, counsel, advisors and representatives -51- 52 (collectively, the "Parent Representatives") reasonable access, during normal business hours, to the offices and other facilities and to the books and records of the Company and its Subsidiaries and will cause the Company Representatives and the Company's Subsidiaries to furnish Parent, Merger Sub and Parent Representatives to the extent available with such financial and operating data and such other information with respect to the business and operations of the Company and its Subsidiaries as Parent and Merger Sub may from time to time reasonably request. The Company and the Company Representatives will, as soon as practicable, provide all information, including financial information and accountant consents, required in connection with the Proxy Statement and all other required SEC filings to be made in connection with the transactions contemplated hereby. (b) From the date of this Agreement until the Effective Time, Parent will, and will cause its Subsidiaries, and each of their respective Parent Representatives, to give the Company and the Company Representatives reasonable access, during normal business hours, to the offices and other facilities and to the books and records of Parent and its Subsidiaries and will cause the Parent Representatives and Parent's Subsidiaries to furnish the Company and Company Representatives to the extent available with such financial and operating data and such other information with respect to the business and operations of Parent and its Subsidiaries as the Company may from time to time reasonably request. SECTION 5.4 Commercially Reasonable Efforts. Subject to the terms and conditions herein provided and to applicable legal requirements, each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, and to assist and cooperate in good faith with the other parties hereto in doing, as promptly as practicable, all things necessary, proper or advisable under applicable laws and regulations or otherwise to ensure that the conditions set forth in Article VI are satisfied, to remove any injunctions or other impediments or delays, legal or otherwise and to consummate and make effective the transactions contemplated by this Agreement. In addition, if at any time prior to the Effective Time any event or circumstance relating to either the Company or Parent and/or Merger Sub or any of their respective subsidiaries, should be discovered by the Company or Parent, as the case may be, which should be set forth in the Proxy Statement, the discovering party will promptly inform the other parties of such event or circumstance. If at any time after the Effective Time any reasonable further action is necessary or desirable to carry out the purposes of this Agreement, -52- 53 including the execution of additional instruments, the proper officers and directors of each party to this Agreement shall take all such necessary reasonable action. SECTION 5.5 Consents. (a) Each of the Company and Parent will, and will cause its Subsidiaries to, use its commercially reasonable efforts to obtain as promptly as practicable all Consents of any Governmental Entity or any other public or private person required in connection with, and waivers of any Violations that may be caused by, the consummation of the transactions contemplated by this Agreement. (b) Each of the Company and Parent shall use its commercially reasonable efforts to file as soon as practicable notifications under the HSR Act and to respond as promptly as practicable to any inquiries received from the Federal Trade Commission and the Antitrust Division of the Department of Justice for additional information or documentation and to respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other Governmental Entity in connection with antitrust matters. Each of the Company and Parent shall further take all reasonable actions necessary to file any other forms or notifications which may be required by any foreign Governmental Entity and to obtain any approvals which may be required in connection therewith. (c) In furtherance and not in limitation of the foregoing, each of Parent and the Company shall use its commercially reasonable efforts to resolve such objections, if any, as may be asserted with respect to the transactions contemplated by this Agreement under any antitrust, competition or trade regulatory laws, rules or regulations of any domestic or foreign government or Governmental Entity or any multinational authority ("Antitrust Laws"); provided, however, that nothing in this Agreement shall require, or be construed to require, Merger Sub or any of its affiliates to proffer to, or agree to, sell or hold separate and agree to sell, before or after the Effective Time, any material assets, businesses, or interest in any assets or businesses of Merger Sub, the Company or any of their respective affiliates (or to consent to any sale, or agreement to sell, by the Company of any of its material assets or businesses) or to agree to any material changes or restrictions in the operations of any such assets or businesses. -53- 54 (d) Any party hereto shall promptly inform the others of any material communication from the United States Federal Trade Commission, the Department of Justice or any other domestic or foreign government or governmental or multinational authority regarding any of the transactions contemplated by this Agreement. If any party or any affiliate thereof receives a request for additional information or documentary material from any such government or authority with respect to the transactions contemplated by this Agreement, then such party will endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request. Parent will advise the Company promptly in respect of any understandings, undertakings or agreements (oral or written) which Parent proposes to make or enter into with the Federal Trade Commission, the Department of Justice or any other domestic or foreign government or governmental or multinational authority in connection with the transactions contemplated by this Agreement. SECTION 5.6 Public Announcements. The mutual press release with respect to the execution of this Agreement shall be a joint press release acceptable to Parent and the Company. Thereafter, so long as this Agreement is in effect, neither Parent and Merger Sub, on the one hand, nor the Company any of its Subsidiaries or the Stockholders, on the other, shall issue any press release or otherwise make any public statements inconsistent with the press release or the terms of the transactions contemplated hereby with respect to the transactions contemplated by this Agreement without prior consultation with the other party and after using reasonable efforts to agree upon the text of any press release, except as may be required by law (it being understood and agreed that Parent intends to file a Current Report on Form 8-K with respect to the transaction contemplated hereby promptly after the date hereof). Parent shall provide the Company with a copy of its Form 8-K prior to filing the same with the SEC and the ability to comment on the same. SECTION 5.7 Notification of Certain Matters. Parent and the Company shall promptly notify each other of (a) the occurrence or non-occurrence of any fact or event which would be reasonably likely (i) to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Effective Time; or (ii) to cause any material covenant, condition or agreement under this Agreement not to be complied with or satisfied in all material respects; -54- 55 and (b) any failure of the Company or Parent, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder in any material respect; provided, however, that no such notification shall affect the representations or warranties of any party or the conditions to the obligations of any party hereunder. SECTION 5.8 Covenant of Parent; Superior Proposals. (a) Parent agrees that, from and after the date hereof, (i) it will not, its Subsidiaries will not, and it will not authorize or permit any of its or its Subsidiaries' officers, directors, employees, agents and representatives (including without limitation any investment banker, financial adviser, attorney or accountant retained by it or any of its Subsidiaries or any of the foregoing) directly or indirectly to encourage, initiate or solicit (including by way of furnishing information, other than disclosing the terms and conditions of this Agreement in a press release or SEC filing) or take any action designed or that could be reasonably expected to facilitate any inquiries or the making of any proposal or offer (including without limitation any proposal or offer to its shareholders) which constitutes or may reasonably be expected to lead to an Acquisition Proposal (as hereinafter defined) from any Person or engage in any discussion or negotiations concerning, or provide any non-public information or data to make or implement or otherwise in any way cooperate or facilitate the making of, an Acquisition Proposal; and (ii) it will immediately cease and cause to be terminated any existing solicitation, initiation, activity, discussions or negotiations with any parties conducted heretofore with a view to formulating an Acquisition Proposal. (b) Anything herein to the contrary notwithstanding, Parent may at any time prior to the time at which Parent's shareholders approval of this Agreement or the Merger shall have been obtained (or, if no such approval is planned to be obtained, at any time prior to the Effective Time) engage in discussions or negotiation with a third -55- 56 party who (without solicitation in violation of the terms of this Agreement) seeks to initiate such discussions or negotiations and may furnish such third party information concerning Parent and its business, properties and assets if, and only to the extent that, (i) the third party has first made an indication of interest with respect to an Acquisition Proposal that Parent's Board of Directors concludes in good faith may result in a Superior Proposal (as hereinafter defined), (ii) the Board of Directors of Parent concludes in good faith that such actions are necessary for Parent's Board of Directors to act in a manner consistent with its fiduciary duties to shareholders under applicable law, and (iii) prior to furnishing such information to or entering into discussions or negotiations with such Person, Parent: (A) provides at least two business days' prior written notice to the Company to the effect that it intends to furnish information to or enter into discussions or negotiations with such Person, and of the identity of the Person making the Acquisition Proposal; and (B) shall have received from such Person an executed confidentiality agreement containing substantially the same terms and conditions as to confidentiality as the confidentiality agreement which the Company has executed in favor of Parent. (c) Certain defined terms. (i) "Acquisition Proposal" shall mean any proposal or offer, directly or indirectly, to acquire all or a substantial part of the business or assets of Parent or all or a substantial part of the capital stock of Parent, whether by merger, stock issuance, tender offer, exchange offer, sale of assets or similar transaction involving Parent or any significant division or operating or business unit of Parent. -56- 57 (ii) "Superior Proposal" shall mean a bona fide written proposal to Parent relating to any Acquisition Proposal which Parent's Board concludes in good faith, after consulting with a nationally recognized investment banking firm, (A) represents a higher value to Parent's shareholders (in their capacities as shareholders), from a financial point of view, than the Merger; and (B) is reasonably likely to be completed. (d) Except as set forth herein, neither the Board of Directors of Parent nor any committee thereof shall: (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to the Company, the approval or recommendation by the Board of Directors of Parent or any such committee of this Agreement or the Merger; (ii) approve or recommend, or propose to approve or recommend, any Acquisition Proposal; or (iii) enter into any agreement with respect to any Acquisition Proposal. (e) Notwithstanding the foregoing, so long as the requirements of section 5.8(b) hereof have been complied with in response to an Acquisition Proposal (without solicitation in violation of the terms of this Agreement) from a third party, if the Board of Directors of Parent determines in good faith, after consulting with its financial advisor, that the Acquisition Proposal is a Superior Proposal and determines that any of the actions set forth in Section 5.8(d) hereof are required in order for such Board of Directors to comply with its fiduciary obligations to Parent shareholders under applicable law, the Board of Directors of Parent or any committee thereof may withdraw or modify its approval or recommendation of this Agreement or the Merger, approve or recommend the Superior Proposal or cause Parent to enter into an agreement with respect to the Superior Proposal at any time on or after the third business day following the Company's receipt of written notice advising the Company that the Board of Directors of Parent has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal. -57- 58 (f) Nothing in this Agreement will prevent the Board of Directors of Parent from taking and disclosing to Parent's stockholders, a position contemplated by Rules 14d-9 and 14e-2 of the Exchange Act with respect to any publicly announced tender offer or otherwise from making any disclosure if, in its good faith judgment based on the advice of outside legal counsel, failure to do so would be inconsistent with its obligations under applicable law. (g) No action taken in respect of an Acquisition Proposal or a Superior Proposal, to the extent permitted by the provisions of this section 5.8, will constitute a breach of any other provision of this Agreement. SECTION 5.9 General Release. On the Effective Time, each Stockholder (but not any director, officer or employee of the Company, in such capacity) releases the Company and its Subsidiaries and their respective directors, officers, agents and employees and discharges them from any and all obligations and claims which have arisen or might arise out of facts or actions existing or taken on or prior to the Effective Time. SECTION 5.10 Registration Rights Agreement. On or prior to the Effective Time, Parent shall execute and deliver to the Stockholders a registration rights agreement substantially in the form of Exhibit 5.10 hereto (the "Registration Rights Agreement"). SECTION 5.11 Nasdaq Listing. Within thirty (30) days after the Effective Time, Parent shall cause: (a) the shares of Parent Stock to be issued in exchange for the Shares to be approved for listing on the Nasdaq National Market. (b) the shares of Parent Stock to be issued on exercise of Company Stock Options and the IFT Warrant to be approved for listing on the Nasdaq National Market subject to official notice of issuance. ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER SECTION 6.1 Conditions to Each Party's Obligations to Effect the Merger. The respective obligations of each party hereto to effect the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions: -58- 59 (a) The transactions contemplated by this Agreement, the Stock Purchase Agreement and the Subordinated Debt Agreement shall have been approved and adopted by the requisite vote of the shareholders of Parent to the extent required under the circumstances by the Rules of the Nasdaq Stock Market. (b) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any United States federal or state or foreign court or United States federal or state or foreign governmental Entity that prohibits, restrains, enjoins or restricts the consummation of the Merger. (c) Any other governmental or regulatory notices, approvals or other requirements necessary to consummate the transactions contemplated hereby and to operate the Company's and its Subsidiaries' business after the Effective Time in all material respects as it was operated prior thereto and as it is presently contemplated to be conducted in the future shall have been given, obtained or complied with, as applicable. (d) Parent shall have received all state securities laws or "Blue Sky" permits and authorizations necessary to issue shares of Parent Stock in exchange for Shares in the Merger. SECTION 6.2 Conditions to the Obligations of the Company. The obligation of the Company to effect the Merger is subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) The representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct, in all material respects, as of the date hereof and at and as of the Effective Time with the same effect as if made at and as of the Effective Time (except to the extent such representations specifically relate to an earlier date in which case such representations shall be true and correct as of such earlier date) and, at the Closing, Parent and Merger Sub shall have delivered to the Company a certificate to that effect, executed by an executive officer of Parent and Merger Sub. -59- 60 (b) Each of the material covenants and obligations of Parent and Merger Sub to be performed at or before the Effective time pursuant to the terms of this Agreement shall have been duly performed in all material respects at or before the Effective Time and, at the Closing, Parent and Merger Sub shall have delivered to the Company a certificate to that effect, executed by an executive officer of Parent and Merger Sub; provided, however, that in connection with the compliance by Parent or Merger Sub with any applicable law (including the HSR Act) or obtaining the consent or approval of any Governmental Entity whose consent or approval may be required to consummate the transactions contemplated by this Agreement, Parent shall not be (i) required, or be construed to be required, to sell or divest any material assets or business or to restrict in any material respect any business operations in order to obtain the consent or successful termination of any review of any such Governmental Entity regarding the transactions contemplated hereby; or (ii) prohibited from owning, and no material limitation shall be imposed on Parent's ownership of, any material portion of the Company's business or assets. (c) There shall not have occurred since June 1, 2000 any change, circumstance or event (whether or not known by the Company or disclosed in the Parent Disclosure Letter) that has had or may reasonably be expected to have: (i) a material adverse effect on the business, financial condition, assets, results of operations or prospects of Parent, the Company and their respective Subsidiaries, taken as a whole, or (ii) a material adverse effect on the business, financial condition, assets, results of operations or prospects of Parent's Micro Products business taken alone. (d) The Stockholders shall have received an executed Registration Rights Agreement, dated as of the date hereof, in the form of Exhibit 5.10 hereto from Parent. (e) (i) All of the conditions to the obligations of the Purchasers under the Stock Purchase Agreement of even date herewith among Parent and certain Purchasers named therein (the "Stock Purchase Agreement"), other than the conditions related to this Agreement, shall have been satisfied or waived by the parties thereto at or before the Closing. -60- 61 (ii) All of the conditions to the obligations of the Purchasers under the subordinated notes and warrant purchase agreement of even date herewith (the "Subordinated Debt Agreement"), other than the conditions related to this Agreement, shall have been satisfied or waived by the parties thereto at or before the Closing. (f) Parent shall have obtained the consent or approval of each person listed on Part 6.2 of the Parent Disclosure Letter whose consent is designated in Part 6.2 as material. (g) The Stockholders shall have received an executed governance agreement, dated as of the date hereof, among Parent and certain stockholders (the "Governance Agreement"), in the form of Exhibit 6.2(g) hereto from Parent. (h) There shall have been elected or appointed a chief executive officer or interim chief executive officer of Parent reasonably satisfactory to the Company. (i) The individuals designated in Exhibit 1 of the Governance Agreement (or, if any of them is unable or unwilling to serve, other persons acceptable to the Company) shall have been elected to and shall be serving on the Board of Directors of Parent. A director designated by Molex Incorporated shall be serving on the Board of Directors of Parent unless no such individual is able and willing to serve. (j) [intentionally omitted.] (k) The consolidated Net Working Capital (as hereinafter defined) of Parent and its consolidated subsidiaries as of September 1, 2000 (as determined in accordance with GAAP consistently applied) shall have been not less than $250,000 less than $20,000,000. For the purpose of this Section 6.2 (k), "Net Working Capital" shall mean current assets minus current liabilities. For purposes of the preceding sentence, liabilities that by their terms have a maturity date after September 1, 2001 shall be characterized as long-term liabilities rather than short-term liabilities without regard to their characterization as long-term liabilities or short-term liabilities for GAAP purposes. (l) The Total Bank Debt (as hereinafter defined) of Parent and its subsidiaries as of September 1, 2000 shall not have exceeded $35,100,000. For purposes of this Section 6.2 (l), "Total Bank Debt" shall mean all outstanding bank debt included in current liabilities and long term liabilities including but not limited to all outstanding mortgages. -61- 62 (m) The Company and the Stockholders shall have received a legal opinion of Lindquist & Vennum, P.L.L.P., dated the Closing Date, substantially in the form of exhibit 6.2(m) hereto with only such changes therein from such form as are required to reflect changes in facts and circumstances in matters dealt with in any of the representations and warranties of Parent and Merger Sub set forth in Article IV hereof. (n) Assuming the accuracy of the representations set forth Section 3.5 hereof, Parent shall have taken all action which may be required under the Rights Agreement, so that: the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to the this Agreement, the Stock Purchase Agreement or the Subordinated Debt Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, shall not alone cause (X) any Purchaser, or any of its "Affiliates" or "Associates" to be deemed an "Acquiring Person" under the Rights Agreement or (Y) a "Distribution Date" , a "Stock Acquisition Date" or "Acquisition Event" (as such terms are defined in the Rights Agreement) to occur. (o) Assuming the accuracy of the representations set forth Section 3.4 hereof, a committee of the board of directors of Parent shall have approved the the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to this Agreement, the Stock Purchase Agreement or the Subordinated Debt Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, as required in Section 302A.673, subd. 1(d) of the MBCA. (p) [intentionally omitted.] SECTION 6.3 Conditions to the Obligations of Parent and Merger Sub. The respective obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions: -62- 63 (a) The representations and warranties of the Company and the Stockholders contained in this Agreement shall be true and correct in all material respects, in each case as of the date hereof and at and as of the Effective Time with the same effect as if made at and as of the Effective Time (except to the extent such representations specifically relate to an earlier date, in which case such representations shall be true and correct as of such earlier date) and, at the Closing, the Company shall have delivered to Parent and Merger Sub a certificate to that effect, executed by an executive officer of the Company. (b) Each of the material covenants and obligations of the Company to be performed at or before the Effective Time pursuant to the terms of this Agreement shall have been duly performed in all material respects at or before the Effective Time and, at the Closing, the Company shall have delivered to Parent and Merger Sub a certificate to that effect, executed by an executive officer of the Company. (c) There shall not have occurred a Company Material Adverse Effect. (d) The Company shall have obtained the consent or approval of each person listed on Part 6.3 of the Company Disclosure Letter whose consent is designated in Part 6.3 as material. (e) Parent shall have received an executed Governance Agreement, dated as of the date hereof, in the form of Exhibit 6.2(g) hereto, from the other parties named therein. (f) All of the conditions to Parent's obligations under (i) the Stock Purchase Agreement and (ii) the Subordinated Debt Agreement, in each case other than the conditions related to this Agreement, shall have been satisfied or waived by the parties thereto at or before the Closing. (g) The Stockholders agreement referred to in Part 2.3(d) of the Company Disclosure Letter shall have been amended so as to delete therefrom sections 1 through 8 thereof. ARTICLE VII TERMINATION; AMENDMENTS; WAIVER SECTION 7.1 Termination. This Agreement may be terminated and the Merger contemplated hereby may be abandoned at any time prior to the Effective Time, notwithstanding approval thereof by the shareholders of Parent, -63- 64 Merger Sub or the Company (with any termination by Parent also being an effective termination by Merger Sub): (a) by mutual consent of Parent and the Company; (b) by Parent or the Company if (i) any court or Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and non-appealable; or (ii) the Merger is not consummated by the Final Date (as hereinafter defined); provided that no party may terminate this Agreement pursuant to clause (ii) if such party's failure to fulfill any of its obligations under this Agreement shall have been a principal reason that the Effective Time shall not have occurred on or before said date; (c) by Parent (i) in connection with entering into a definitive agreement in accordance with Section 5.8 hereof, provided it has complied with all provisions of such section, including the notice provisions therein, and that it pays the Termination Fee as provided in Section 7.3 hereof; or (ii) if the representations and warranties of the Company and the Stockholders contained in this Agreement shall fail to be true and correct in all material respects, in each case at and as of the Effective Date (except to the extent such representation and warranty specifically relates to an earlier date in which case such representation and warranty shall be true and correct as of such earlier date), or if prior to the Closing, the Company or Stockholders shall have made a material misrepresentation or have breached in any material respect any of their respective representations, covenants or other agreements contained in this Agreement, which breach cannot be or has not been cured, in all material respects, on or prior to the Final Date, provided in any such case that Parent has not breached any of its representations, warranties, covenants or other agreements to an extent that would entitle the Company to terminate this Agreement pursuant to Section 7.1(d) hereof (without regard to the provisos therein); (d) by the Company, if: (i) the representations and warranties of Parent and Merger Sub contained in this Agreement shall fail to be true and correct in all material respects, in each case at and as of the Effective Time (except to the extent such representation and -64- 65 warranty specifically relates to an earlier date in which case such representation and warranty shall be true and correct as of such earlier date), or if, prior to the Closing, Parent shall have made a material misrepresentation or breached in a material respect any representation or warranty contained in this Agreement, which breach cannot be or has not been cured, in all material respects, on or prior to the Final Date, provided in any such case that the Company and the Stockholders have not breached any of their representations, warranties, covenants or other agreements to an extent that would entitle Parent to terminate this Agreement pursuant to Section 7.1(c)(ii) hereof (without regard to the proviso therein); or (ii) prior to the Closing, Parent shall have breached in a material respect any covenant or other agreement (except to the extent of any covenant or other agreement to the effect that the representations and warranties of Parent herein must be true as of the Closing Date) contained in this Agreement, which breach cannot be or has not been cured, in all material respects, on or prior to the Final Date; provided the Company and the Stockholders have not breached any of their representations, warranties, covenants or other agreements to an extent that would entitle Parent to terminate this Agreement pursuant to Section 7.1(c)(ii) hereof (without regard to the proviso therein); or (e) [intentionally omitted.]; (f) by the Company if: (i) Parent has not, on or before December 19, 2000, obtained a waiver from the Nasdaq Stock Market of its requirement that Parent obtain a shareholder vote approving the transactions contemplated hereby and by the Stock Purchase Agreement and Subordinated Debt Agreement (in which event Parent shall immediately give written notice to the Company to that effect), or (ii) Parent at any time has determined to cease pursuing obtaining such a waiver (in which event Parent shall immediately give written notice to the Company to that effect); -65- 66 provided in either case that the Company delivers to Parent written notice of termination of this Agreement within five business days after the date on which the Company becomes aware that it has acquired the right under this section 7.1(f) to terminate this Agreement; or (g) by the Company if any Purchaser under the Stock Purchase Agreement shall have terminated that agreement pursuant to section 5.1(e) thereof. SECTION 7.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 7.1 hereof, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party or its directors, officers or shareholders, other than the provisions of this Section 7.2 and Sections 7.3 and 7.4 hereof, which shall survive any such termination. Nothing contained in this Section 7.2 shall relieve any party from liability for any breach of this Agreement or the Confidentiality Agreement. SECTION 7.3 Termination Fee. (a) If Parent shall terminate this Agreement pursuant to Section 7.1(c)(i) hereof; or (b) If the Board of Directors of Parent shall approve a Superior Transaction; or (c) If Parent shall distribute to its shareholders the Proxy Statement and if the Board of Directors of Parent shall: (i) fail to include in the Proxy Statement the Board's recommendation of the Merger to the shareholders of Parent or (ii) at any time withdraw its recommendation of the Merger; or -66- 67 (d) If: (i) all the conditions set forth in sections 6.1 and 6.3 hereof to the obligation of Parent to close the transactions contemplated hereby shall have been satisfied in all material respects prior to the Final Date, and (ii) the Company shall have terminated this Agreement: (A) pursuant to section 7.1(d)(ii) hereof or (B) pursuant to section 7.1(b)(ii) hereof and not pursuant to section 7.1(f) hereof and by the Final Date any of the following conditions to the obligation of the Company to close the transactions contemplated hereby shall not have been satisfied or waived: sections 6.2(d), 6.2(e)(i) (but only if the conditions to the obligations of the Purchasers under the Stock Purchase Agreement that were not so satisfied or waived included any of the conditions set forth in sections 4.1(b) (except to the extent of any covenant, agreement or condition to the effect that the representations and warranties in the Preferred Stock Agreement must be true as of the Closing Date under the Stock Purchase Agreement), 4.1(f), 4.1(h), 4.1(i), 4.1(m), 4.1(n), 4.1(o) (but only if the Company has not terminated this Agreement pursuant to section 7.1(f) hereof), 4.1(p) or 4.1(r) of the Stock Purchase Agreement), 6.2(e)(ii) (but only if the conditions to the obligations of the Purchasers under the Subordinated Debt Agreement that were not so satisfied or waived included any of the conditions set forth in sections 5.1(b) (except to the extent of any covenant, agreement or condition to the effect that the representations and warranties in the Subordinated Debt Agreement must be true as of the Closing Date under the Subordinated Debt Agreement), 5.1(f), 5.1(h), 5.1(i), 5.1(o), 5.1(p), 5.1(q), 5.1(s) or 5.1(t) of the Subordinated Debt Agreement), 6.2(h), 6.2(i), 6.2(m), 6.2(n) and 6.2(o) hereof, or (e) If Parent shall have held a meeting of its shareholders at which Parent's shareholders were given the opportunity to vote to approve the transactions contemplated hereby and/or by the Stock -67- 68 Purchase Agreement and Subordinated Debt Agreement and such transactions were not approved by the requisite shareholder vote or (f) If the Nasdaq Stock Market shall not have waived its requirement that Parent obtain a stockholder vote approving the transactions contemplated hereby and by the Stock Purchase Agreement and Subordinated Debt Agreement, the Company shall have terminated this Agreement pursuant to section 7.1(b)(ii) hereof and not pursuant to section 7.1(f) hereof and by the Final Date the shareholders of the Company shall not have approved the transactions contemplated hereby and by the Stock Purchase Agreement and Subordinated Debt Agreement by the requisite shareholder vote, then Parent shall pay to the Company an amount equal to the sum of $943,247 (the "Termination Fee") on the earliest to occur of the events described in sections 7.3(a), (b), (c), (d), (e) or (f) which amount shall be payable by wire transfer of same day funds to an account designated by the Company. SECTION 7.4 Expenses. If no Termination Fee shall be payable hereunder and: (a) all the conditions set forth in sections 6.1 and 6.3 hereof to the obligation of Parent to close the transactions contemplated hereby shall have been satisfied in all material respects prior to the Final Date and either: (i) this Agreement shall have been terminated pursuant to section 7.1(b)(ii) hereof and not pursuant to section 7.1(f) hereof and by the Final Date any of the following conditions to the obligation of the Company to close the transactions contemplated hereby shall not have been satisfied or waived: sections 6.2(c), (f), (g), (k) and (l), or (ii) the Company shall have terminated this Agreement pursuant to section 7.1(d)(i) hereof, or (b) the Company shall have terminated this Agreement pursuant to section 7.1(f) or 7.1(g) hereof, or (c) all the conditions set forth in sections 6.1 and 6.3 hereof to the obligation of Parent to close the transactions contemplated hereby shall have been satisfied in all material respects prior to the Final Date and the Company -68- 69 shall have terminated this Agreement pursuant to section 7.1(b)(ii) hereof and not pursuant to section 7.1(f) hereof and by the Final Date any of the following conditions to the obligation of the Company to close the transactions contemplated hereby shall not have been satisfied or waived: sections 6.2(e)(i) (but only if the conditions to the obligations of the Purchasers under the Stock Purchase Agreement that were not so satisfied or waived included any of the conditions set forth in sections 4.1(a), 4.1(d), 4.1(e), 4.1(g)(i), 4.1(j), 4.1(s) or 4.1(t) of the Stock Purchase Agreement) and 6.2(e)(ii) (but only if the conditions to the obligations of the Purchasers under the Subordinated Debt Agreement that were not so satisfied or waived included any of the conditions set forth in sections 5.1(a), 5.1(c), 5.1(e), 5.1(g)(i), 5.1(u) or 5.1(v) of the Subordinated Debt Agreement), then Parent shall pay to the Company and to the Purchasers under the Stock Purchase Agreement the aggregate amount specified in the following sentence on the earliest to occur of the events described in clauses (a), (b) and (c), which amount shall be allocated as agreed among such Purchasers and the Company and shall be paid to each person entitled to payment by wire transfer of same day funds to the accounts designated by each of the persons entitled thereto. The amount payable will be the lesser of: (x) MAI Expenses (as defined in section 9.14 hereof) and (y) whichever of the following is applicable: (i) $1,325,000 if: (A) a waiver from the Nasdaq Stock Market of its requirement that Parent obtain a shareholder vote approving the transactions contemplated hereby and by the Stock Purchase Agreement and Subordinated Debt Agreement is obtained by Parent and Parent does not distribute the Proxy Statement to its shareholders or (B) this Agreement is terminated pursuant to section 7.1(f) hereof, and (ii) $1,425,000 otherwise. -69- 70 SECTION 7.5 Definition of "Final Date." "Final Date" shall mean: (a) March 9, 2001, if the Company acquires the right to terminate this Agreement pursuant to section 7.1(f) hereof and does not deliver to Parent written notice of termination of this Agreement within the period specified in section 7.1(f) hereof, and (b) January 5, 2001, otherwise. SECTION 7.6 Amendment. This Agreement may be amended by Parent and the Company at any time before or after any approval of this Agreement by the shareholders of Parent but, after any such approval, no amendment shall be made which decreases the Merger Consideration or changes the form thereof without the approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of all the Company, Merger Sub and Parent. SECTION 7.7 Extension; Waiver. At any time prior to the Effective Time, any party hereto may (i) extend the time for the performance of any of the obligations or other acts of any other party hereto; (ii) waive any inaccuracies in the representations and warranties contained herein by any other party or in any document, certificate or writing delivered pursuant hereto by any other party; or (iii) waive compliance with any of the agreements of any other party or with any conditions to its own obligations. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE VIII INDEMNIFICATION SECTION 8.1 Indemnity by the Stockholders. (a) Each Stockholder hereby agrees that it shall, from and after the Closing Date, indemnify and hold Parent harmless from and against, and shall defend promptly Parent from and reimburse Parent for, any and all losses, damages, costs, expenses, liabilities, obligations, and claims of any kind (including, without limitation, reasonable attorneys' fees and other costs and expenses) (the "Damages") which Parent may at any time suffer or incur, or become subject to, as a result of or in connection with any breach of the representations and warranties made by such Stockholder in Article III. -70- 71 (b) Parent shall promptly notify the Stockholders (as provided in Section 9.4) of any claim, demand, action or proceeding for which indemnification will be sought under this Agreement and, if such claim, demand, action or proceeding is a third party claim, demand, action or proceeding, the Stockholders shall have the right, at their expense, to assume the defense thereof using counsel reasonably acceptable to Parent. Parent shall have the right to participate, at its own expense, with respect to such third party claim, demand, action or proceeding. In connection with any such third party claim, demand, action or proceeding, the parties shall cooperate with each other and provide each other with access to relevant books and records in their possession. No such third party claim, demand, action or proceeding shall be settled without the prior written consent of the party seeking indemnification, unless such settlement requires no monetary payment by, and imposes no obligation on, the party seeking indemnification. SECTION 8.2 Exclusive Remedy. The enforcement of the agreements of indemnification contained in this Article VIII shall be, after the Effective Time, the exclusive remedy of the parties hereto for any breach of any warranty, representation or term hereof or any certificate delivered pursuant to this Agreement, whether sounding in tort, contract or otherwise, and the parties hereto waive all remedies otherwise available to such parties save only remedies which by law may not be waived; provided that this section shall not limit or restrict any of Parent's remedies for fraud by the Stockholders or the Company or any of the Stockholders' remedies for fraud by Parent. ARTICLE IX MISCELLANEOUS SECTION 9.1 Survival of Representations and Warranties. The representations and warranties made in this Agreement or in any instrument delivered pursuant to this Agreement, shall not survive beyond the Effective Time, except the representations and warranties in Article III shall survive the Effective Time indefinitely. All covenants and agreements shall survive in accordance with their respective terms. SECTION 9.2 Entire Agreement; Assignment. (a) This Agreement, the Stock Purchase Agreement, the Subordinated Debt Agreement, the Governance Agreement, the Registration Right Agreement -71- 72 and the letter agreement dated December 3, 1999 executed by International Flex Technologies, Inc. and U.S. Bancorp Piper Jaffray on behalf of Parent, as modified by letter dated March 13, 2000 and letter dated June 25, 2000 (the "Confidentiality Agreement") (including the documents and the instruments referred to herein) constitutes the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof. (b) Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party (except that Parent may assign its rights and Merger Sub may assign its rights, interest and obligations to any affiliate or direct or indirect subsidiary of Parent without the consent of the Company), provided neither Parent nor Merger Sub shall be released of its obligations hereunder notwithstanding such assignment. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. SECTION 9.3 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. SECTION 9.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by overnight courier, facsimile or e-mail to the respective parties as follows: If to Parent or Merger Sub: Sheldahl, Inc. 1150 Sheldahl Road Northfield, MN 55057 Attention: Edward L. Lundstrom, President Fax number: 507-663-8545 e-mail address: ed.lundstrom@sheldahl.com with a copy to: Lindquist & Vennum P.L.L.P 4200 IDS Center 80 South 8th Street Minneapolis, MN 55402 Attention: Charles P. Moorse Fax number: 612-371-3207 e-mail address: cmoorse@lindquist.com -72- 73 If to the Company or the Stockholders: International Flex Holdings Inc. 2187 Atlantic Street Stamford, CT 06902 Attention: Donald R. Friedman, President and Chief Executive Officer Fax number: (203) 323-7766 e-mail address: drf@internationalflex.com with copies to: Morgenthaler Venture Partners V, L.P. 50 Public Square Suite 2700 Cleveland OH 44113 Attention: John D. Lutsi Fax number: (216) 416-7517 e-mail address: johnl@morgenthaler.com Sound Beach Technology Partners, LLC 4 Vista Avenue Old Greenwich, CT 06870 Attention: Donald R. Friedman Fax number: 203-637-7438 e-mail address: d.r.friedman@worldnett.ett.net Paul, Hastings, Janofsky & Walker LLP 399 Park Avenue New York, NY 10022 Attention: Thomas E. Kruger Fax number: 212-230-7700 e-mail address: tkruger@phjw.com -73- 74 or to such other address, fax number or e-mail address as the person to whom notice is given may have previously furnished to the other in writing in the manner set forth above (provided that notice of any change of address, fax number or e-mail address shall be effective only upon receipt thereof). SECTION 9.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 9.6 Descriptive Headings. The descriptive headings and captions herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 9.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. SECTION 9.8 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement; provided, however, that the Purchasers under the Stock Purchase Agreement and the Purchasers under the Subordinated Debt Agreement are explicitly intended to be third party beneficiaries under Article VII hereof and section 9.14 hereof and otherwise to the extent indicated in the Stock Purchase Agreement and the Subordinated Debt Agreement. SECTION 9.9 Certain Definitions. As used in this Agreement: (a) the term "affiliate," as applied to any person, shall mean any other person directly or indirectly controlling, controlled by, or under common control with, that person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through the ownership of voting securities, by contract or otherwise; -74- 75 (b) the term "Person" or "person" shall include individuals, corporations, partnerships, trusts, other entities and groups (which term shall include a "group" as such term is defined in Section 13(d)(3) of the Exchange Act); and (c) the term "Subsidiary", "Subsidiaries" or "subsidiaries" means, with respect to Parent, the Company or any other person, any corporation, partnership, joint venture or other legal entity of which Parent, the Company or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, stock or other equity interests the holders of which are generally entitled to more than 50% of the vote for the election of the Board of Directors or other governing body of such corporation or other legal entity. SECTION 9.10 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 9.11 Further Actions. Each of the parties hereto agrees that, subject to its legal obligations, it will use its reasonable best efforts to fulfill all conditions precedent specified herein, to the extent that such conditions are within its control, and to do all things reasonably necessary to consummate the transactions contemplated hereby. SECTION 9.12 Severability. If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. SECTION 9.13 Waiver of Jury Trial. Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, -75- 76 proceeding or counterclaim arising out of or relating to this Agreement or the transactions contemplated hereby. SECTION 9.14 Expenses. (a) At the Closing, Parent shall, in accordance with the directions of the Company as to payee, amounts and method of payment, pay the MAI Expenses. For purposes of section 7.4 and this section 9.14(a), "MAI Expenses" shall mean all expenses of the Company and its Subsidiaries and affiliates (including the Stockholders) and Morgenthaler Venture Partners V, L.P., Ampersand IV Limited Partnership and Ampersand IV Companion Fund Limited Partnership related to the transactions contemplated by this Agreement, the Stock Purchase Agreement and the Subordinated Debt Agreement, and all matters reasonably related thereto, which shall include, without limitation, all out-of-pocket costs, fees and expenses of legal counsel, accountants, brokers, consultants, investment bankers, financial advisors and other third parties engaged by any of the Company, its Subsidiaries and affiliates (including the Stockholders), Morgenthaler Venture Partners V, L.P., Ampersand IV Limited Partnership or Ampersand IV Companion Fund Limited Partnership in connection with: (i) their investigation related to the transactions contemplated hereby and thereby; (ii) the preparation and negotiation of the agreements and other documents and their delivery and performance of such agreements and documents; and (iii) closing the transactions contemplated hereby and thereby; provided, however, that only amounts owed to entities designated as MAI Payees on a schedule initialed by the parties and entitled "Permitted Payees" shall qualify as MAI Expenses. (b) At the Closing, Parent shall pay the Sheldahl Expenses. For purposes of this section 9.14(b), "Sheldahl Expenses" shall mean all expenses of Parent related to the transactions contemplated by this Agreement, the Stock Purchase Agreement and the Subordinated Debt Agreement, and all matters reasonably related thereto, which shall include, without limitation, all out-of-pocket costs, fees and expenses of legal counsel, accountants, brokers, consultants, investment bankers, financial advisors and other third parties engaged by Parent in connection with: (i) its investigation related to the transactions contemplated hereby and thereby; (ii) the preparation and negotiation of the agreements and other documents and its delivery and performance of such agreements and documents; and (iii) closing the transactions contemplated hereby and thereby; provided, however, that only amounts owed to entities designated as Sheldahl Payees on a schedule initialed by the parties and entitled "Permitted Payees" shall qualify as Sheldahl Expenses. "Sheldahl Expenses" shall also include all expenses of Molex -76- 77 Incorporated for which Molex Incorporated is entitled to be reimbursed under the Subordinated Debt Agreement. IN WITNESS WHEREOF, each of the parties has caused this Agreement and Plan of Merger to be executed on its behalf by its respective officer thereunto duly authorized, all as of the day and year first above written. SHELDAHL, INC. By: /s/ EDWARD L. LUNDSTROM ---------------------------------------- Name: Edward L. Lundstrom Title: President & CEO IFT WEST ACQUISITION COMPANY By: /s/ EDWARD L. LUNDSTROM ---------------------------------------- Name: Edward L. Lundstrom Title: President & CEO INTERNATIONAL FLEX HOLDINGS, INC. By: /s/ JOHN D. LUTSI ---------------------------------------- Name: John D. Lutsi Title: IFH STOCKHOLDERS: MORGENTHALER VENTURE PARTNERS V, L.P. By: /s/ JOHN D. LUTSI ---------------------------------------- Name: John D. Lutsi Title: SOUND BEACH TECHNOLOGY PARTNERS, LLC By: /s/ DONALD R. FRIEDMAN ---------------------------------------- Name: Donald R. Friedman Title: Managing Partner -77- EX-4.0 3 c58431ex4-0.txt STOCK PURCHASE AGREEMENT 1 EXHIBIT 4.0 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "Agreement"), dated as of November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and the individuals and entities listed on Exhibit A hereto (sometimes referred to herein as a "Purchaser" and collectively as the "Purchasers"). WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Purchasers and the Purchasers desire to acquire (i) shares of the Company's Series G Convertible Preferred Stock, par value $1.00 per share (the "Series G Preferred"), and (ii) shares of the Company's Common Stock, par value $.25 per share (the "Common Stock"). NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Purchasers agree as follows: ARTICLE I PURCHASE AND SALE OF PREFERRED SHARES 1.1 Purchase and Sale. (a) Subject to the terms and conditions set forth herein, at the Closing (as defined below), the Company shall issue and sell to the Purchasers and the Purchasers, severally and not jointly, shall purchase 11,303 shares of Series G Preferred (the "Series G Preferred Shares"). (b) The Series G Preferred Shares shall have the respective rights, preferences and privileges set forth in the Certificate of Designation attached hereto as Exhibit B (the "Certificate of Designation"), which shall be filed on or prior to the Closing Date (as defined below) by the Company with the Secretary of State of Minnesota. (c) Subject to the terms and conditions set forth herein, at the Closing (as defined below), the Company shall issue and sell to the Purchasers and the Purchasers, severally and not jointly, shall purchase 4,944,131 shares of Common Stock (the "Common Shares"). (d) The Series G Preferred Shares and the Common Shares are sometimes collectively referred to herein as the "Shares." The Shares and the Underlying Shares (as defined in Section 2.1(d)) are sometimes collectively referred to herein as the "Securities." 2 1.2 Purchase Price. (a) The purchase price per Series G Preferred Share shall be $1,000. (b) The purchase price per Common Share shall be $2.770355. 1.3 The Closing. (a) The Closing of the purchase and sale of the Shares (the "Closing") shall take place at the offices of Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South 8th Street, Minneapolis, Minnesota simultaneous with the closing of the transactions contemplated by the Agreement and Plan of Merger dated as of the date hereof among the Company, IFT West Acquisition Company, International Flex Holdings, Inc. ("IFH") and its stockholders (the "Merger Agreement"). The date of the Closing is hereinafter referred to as the "Closing Date." (b) At the Closing, the Company shall deliver (A) to each Purchaser, a stock certificate registered in the name of such Purchaser for such number of Series G Preferred Shares set forth opposite such Purchaser's name on Exhibit A; (B) to each Purchaser, a stock certificate registered in the name of such Purchaser for such number of Common Shares set forth opposite such Purchaser's name on Exhibit A; and (C) all other documents, instruments and writings required to have been delivered at or prior to the Closing by the Company to Purchasers pursuant to this Agreement. At the Closing, each Purchaser shall deliver to the Company the aggregate purchase price set forth opposite such Purchaser's name on Exhibit A by wire transfer of same day funds to an account designated by the Company in writing two business days before the Closing except that Morgenthaler Venture Partners V, L.P. ("Morgenthaler") shall also deliver to the Company that certain 8% Convertible Note dated August 15, 2000, as amended (the "8% Note"), made by the Company payable to the order of Morgenthaler Venture Partners V, L.P. and the cash portion of the purchase price payable by Morgenthaler shall be reduced by an amount equal to the principal amount of such 8% Note and accrued interest thereon through the Closing Date. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1 Representations, Warranties and Agreements of the Company. The Company hereby makes the following representations and warranties to the Purchasers, subject to those matters set forth in the letter dated the date hereof from the Company to the Purchasers initialed by those parties (the "Disclosure Letter"): (a) Organization. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Minnesota, with the requisite corporate power 2 3 and authority to own and use its properties and assets and to carry on its business as currently conducted. (b) Authorization; Enforcement. Except as set forth on Part 2.1(b) of the Disclosure Letter, the Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement, the Certificate of Designation, the Registration Rights Agreement (defined in Section 4.1(i)) and the Governance Agreement (defined in Section 4.1(j)) (together, the "Transaction Documents") and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company, other than approval required under Rule 4460(i) of The Nasdaq Stock Market by the holders of shares of Common Stock of the Company. This Agreement has been duly executed by the Company and, when duly executed and delivered by the Purchasers, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. (c) Capitalization. The authorized, issued and outstanding capital stock of the Company as of October 24, 2000 is set forth in Part 2.1(c) of the Disclosure Letter. Except as specifically disclosed in Part 2.1(c) of the Disclosure Letter, no shares of the capital stock or other securities of the Company are entitled to preemptive or similar rights, nor is any holder of shares of the capital stock or other securities of the Company entitled to preemptive or similar rights. Except as disclosed in Part 2.1(c) of the Disclosure Letter, as of October 24, 2000, there are no outstanding options, warrants or commitments of any character whatsoever relating to, or, except as a result of the purchase and sale of the Shares hereunder, securities, rights or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire any shares of Common Stock of the Company, or contracts, commitments, understandings, or arrangements by which the Company is bound to issue additional shares of the Company's Common Stock, or securities or rights convertible or exchangeable into shares of the Company's Common Stock, or any shares of the Company's Common Stock reserved for issuance. Except as disclosed in Part 2.1(c) of the Disclosure Letter, (i) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof, (ii) the Company has no obligation to provide funds (other than normal accounts or notes payable) to or make any investment in (in the form of a loan, capital contribution or otherwise) an entity other than its subsidiaries, (iii) there are no restrictions on the transfer of the Company's capital stock other than those arising from securities laws or contemplated by this Agreement or the other Transaction Documents, and (iv) the issue and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any person 3 4 other than the Purchasers and will not result in a right of any holder of Company's securities to adjust the exercise or conversion or reset price under such securities. (d) Issuance of Shares. The Series G Preferred Shares are duly authorized and, when issued in accordance with the terms hereof and the Certificate of Designation, shall be validly issued, fully paid and non-assessable. The Common Shares are duly authorized and, when issued in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable. As of the Closing Date, the Company will have and, at all times while any Series G Preferred Shares are outstanding will maintain, an adequate reserve of duly authorized shares of its Common Stock to enable it to perform its obligations under this Agreement and the Certificate of Designation with respect to the number of Series G Preferred Shares issued and outstanding at the Closing Date. The shares of Common Stock issuable upon conversion of the Series G Preferred Shares and which may be issued as payment of dividends on the Series G Preferred Shares are collectively referred to herein as the "Underlying Shares." When issued in accordance with the terms hereof and the Certificate of Designation, the Underlying Shares will be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, encumbrances or defects of any kind (collectively, "Liens"), except as set forth in any required legends thereon, including those required under the Governance Agreement. (e) No Conflicts. Except as set forth on Part 2.1(e) of the Disclosure Letter, the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its Articles of Incorporation or Bylaws; (ii) subject to obtaining the consents referred to in Section 2.1(f), conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party; or (iii) subject to obtaining the Required Approvals (as defined herein), result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (other than a violation of any federal and state securities laws requiring filings with such authorities and the delivery of certain information pursuant to Rule 502(b)(1) promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, to the Purchasers who are deemed not to be accredited investors as a result of a failure of the representations and warranties of the Purchasers set forth in Section 2.2(c) to be accurate), or by which any property or asset of the Company is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as could not reasonably be expected to, individually or in the aggregate, have or result in a material adverse effect on the results of operations, assets or financial condition of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"). 4 5 (f) Consents and Approvals. Except as specifically set forth in Part 2.1(f) of the Disclosure Letter, and assuming that the representations and warranties of the Purchasers contained in Section 2.2 are true and correct in all material respects, the Company is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of the Transaction Documents, except for (i) the filings of the Certificate of Designation with respect to the Series G Preferred Shares with the Secretary of State of Minnesota; (ii) the filing of the Registration Statement(s) (as defined in the Registration Rights Agreement) with the Securities and Exchange Commission (the "Commission"); (iii) the application(s) or any letter(s) acceptable to and approved by the National Association of Securities Dealers, Inc. ("NASD") for the designation of the Common Shares and the Underlying Shares for trading on the Nasdaq National Market (and with any other national securities exchange or market on which the Common Stock is then listed); (iv) any filings, notices, registrations or approvals under applicable federal or state securities laws and any filing or approval that may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (v) the filing of such required proxy materials with the Commission to obtain approval of the Company's shareholders of the transactions contemplated by this Agreement, clearance from the Commission to mail such proxy materials to the Company's shareholders and the receipt of such shareholder approval or the filing with the Nasdaq Stock Market for an exemption from the requirement of obtaining such approval of the Company's shareholders and the receipt of such exemption; and (vi) other than, in all other cases, where the failure to obtain such consent, waiver, authorization or order, or to give or make such notice or filing, (x) would not materially impair or delay the ability of the Company to effect the Closing and to deliver to the Purchasers the Shares (and, upon conversion of the Series G Preferred Shares, the Underlying Shares) in the manner contemplated hereby and by the Registration Rights Agreement or (y) would not otherwise have a Material Adverse Effect on the Company (together with the consents, waivers, authorizations, orders, notices and filings referred to in Part 2.1(f), the "Required Approvals"). (g) Litigation; Proceedings. Except as set forth in Part 2.1(g) of the Disclosure Letter, there is no action, suit, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which could reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect. (h) No Default or Violation. Except as set forth in Part 2.1(h) of the Disclosure Letter, neither the Company nor any subsidiary (i) is in default under or in violation of any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound, including, without limitation, the Limited Liability Company Agreement of Modular Interconnect Systems, L.L.C., dated as of July 28, 1998, between Molex Incorporated and the Company (the "Molex Joint Venture Agreement"); or (ii) is in violation of any order of any court, arbitrator or governmental body, except as could not 5 6 reasonably be expected to, in any such case (individually or in the aggregate) have or result in a Material Adverse Effect. (i) SEC Documents. Except as set forth in Part 2.1(i) of the Disclosure Letter, the Company has filed all reports required to be filed by it under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, pursuant to Section 13(a) or 15(d) thereof, for the three years preceding the date hereof (the foregoing materials being collectively referred to herein as the "SEC Documents"), on a timely basis, or has received a valid extension of such time of filing and has filed any such SEC Documents prior to the expiration of any such extension. Except as set forth in Part 2.1(i) of the Disclosure Letter, as of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder. The financial statements of the Company included in the SEC Documents comply in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved, except as may be otherwise indicated in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal year-end audit adjustments. Since the date of the financial statements included in the Company's last filed Quarterly Report on Form 10-Q for the quarter ended May 28, 2000, except as has been specifically disclosed in writing to the Purchasers by the Company or in the Merger Agreement or the Disclosure Letters referenced herein or therein, (i) there has been no event, occurrence or development that has had a Material Adverse Effect (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (x) liabilities incurred in the ordinary course of business consistent with past practice and (y) liabilities not required to be reflected in the Company's financial statements pursuant to United States generally accepted accounting principles ("GAAP") or otherwise required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors and (iv) the Company has not declared or made any payment or distribution of cash or other property to its stockholders or officers or directors (other than in compliance with existing Company stock option and stock purchase plans) with respect to its capital stock, or purchased or redeemed (or made any agreements to purchase or redeem) or split, combined, subdivided or reclassified any shares of its capital stock. (j) Certain Fees. Except as set forth in Part 2.1(j) of the Disclosure Letter, no fees or commissions will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated by this Agreement and the other Transaction Documents. The Purchasers shall have no obligation with respect to any fees incurred by the Company or any other person (other than the Purchasers, if the Purchasers have agreed in writing to pay such fees) or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this Section 2.1(j) 6 7 that may be due in connection with the transactions contemplated by this Agreement and the other Transaction Documents. (k) Listing and Maintenance Requirements. Except as set forth in Part 2.1(k) of the Disclosure Letter, the Company has not, in the two years preceding the date hereof received notice (written or oral) from the Nasdaq National Market, any stock exchange, market or trading facility on which the Common Stock is or has been listed (or on which it has been quoted) to the effect that the Company is not in compliance with the listing or maintenance requirements of such exchange, market or trading facility. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (l) Registration Rights. Except as set forth in Part 2.1(l) of the Disclosure Letter, the Company has not granted or agreed to grant to any person any rights to have any securities of the Company registered with the Commission or any other governmental authority which have not been satisfied. (m) Labor Relations. No labor problem with respect to any of the employees of the Company exists or, to the knowledge of the Company, is imminent that is likely to have or result in a Material Adverse Effect. (n) Rights Agreement. Assuming the accuracy of the representations in Section 2.2(h) and Section 2.2(l), the Company has taken all action which may be required under the Rights Agreement, so that neither the consummation of the transactions contemplated by the Transaction Documents and the Merger Agreement nor the acquisition of (i) shares of Common Stock and the Series G Preferred Shares pursuant to this Agreement, (ii) shares of Common Stock upon conversion of the Series G Preferred Shares and as dividends on the Series G Preferred Shares, (iii) shares of Common Stock pursuant to the Merger Agreement, (iv) warrants pursuant to the Subordinated Notes Purchase Agreement (the "Warrants"), and/or (v) shares of Common Stock upon exercise of the Warrants, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, alone shall cause (x) any Purchaser, or any of its "Affiliates" or "Associates" (as such terms are defined in Rule 12b-2 under the Exchange Act), to be deemed an "Acquiring Person" under the Rights Agreement dated June 16, 1996, as amended, by and between the Company and Norwest Bank Minnesota, N.A. now known as Wells Fargo Bank, N.A., as the same may be amended or modified from time to time (the "Rights Agreement") or (y) a "Distribution Date", a "Stock Acquisition Date" or "Acquisition Event" (as such terms are defined in the Rights Agreement) to occur. (o) Board Approval. Assuming the accuracy of the representations in Section 2.2(h) and Section 2.2(l), the consummation of the transactions contemplated by the Transaction Documents and the Merger Agreement and the acquisition of (i) shares of Common Stock and the Series G Preferred Shares pursuant to this Agreement, (ii) shares of Common Stock upon 7 8 conversion of the Series G Preferred Shares and as dividends on the Series G Preferred Shares, (iii) shares of Common Stock pursuant to the Merger Agreement, (iv) Warrants pursuant to the Subordinated Notes Purchase Agreement, and (v) shares of Common Stock upon exercise of the Warrants, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, have been approved by a committee of the Board of Directors of the Company, as required in Section 302A.673, subd. 1(d) of the Minnesota Business Corporation Act (the "MBCA"). (p) Confidentiality and Inventions Agreements. Except as set forth in Part 2.1(p) of the Disclosure Letter, every current employee of, and consultant to, the Company that has access to Intellectual Property (as defined in Section 2.15(d) of the Merger Agreement) has executed and delivered one of the confidentiality and inventions agreements ("Confidentiality and Inventions Agreements") in substantially the form attached to Part 2.1(p) of the Disclosure Letter. All of such agreements are in full force and effect. (q) Disclosure. All disclosure provided to the Purchasers regarding the Company, its business and the transactions as provided in the Transaction Documents, including the Disclosure Letter, furnished by or on behalf of the Company are true and correct in all material respects and do not contain any untrue statement of a material fact or, to the best of the knowledge of the Company, omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 2.2 Representations and Warranties of the Purchasers. Each Purchaser, severally and not jointly, hereby represents and warrants to the Company as follows: (a) Organization; Authority. Such Purchaser is duly formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization or an individual, in each case, with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by such Purchaser, and the consummation by it of the transactions contemplated hereby, have been duly authorized by all necessary action on the part of such Purchaser. This Agreement has been duly executed and delivered by such Purchaser and constitutes the valid and legally binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. (b) Investment Intent. Such Purchaser is acquiring the Securities for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof or interest therein, without prejudice, however, to such Purchaser's 8 9 right, subject to the provisions of this Agreement and the other Transaction Documents, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration. (c) Purchaser Status. At the time such Purchaser was offered the Shares it was, and at the date hereof it is, and at the Closing Date it will be, an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (4) under the Securities Act. (d) Experience of Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment to its satisfaction. (e) Ability of Purchaser to Bear Risk of Investment. On the Closing Date, such Purchaser is able to bear the economic risk of an investment in the Securities and is able to afford a complete loss of such investment. (f) Access to Information. Each Purchaser acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities, and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to its investment. (g) Reliance. Each Purchaser understands and acknowledges that (i) the Securities are being offered and sold to the Purchaser without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act under Section 4(2) of the Securities Act or Regulation D promulgated thereunder; and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and such Purchaser hereby consents to such reliance. (h) No Affiliation. No Purchaser is an "Affiliate" or "Associate" (as such terms are defined in Rule 12b-2 under the Exchange Act) of any other Purchaser or is acting in concert with any other Purchaser, except (i) that Ampersand IV Limited Partnership and Ampersand IV Companion Fund Limited Partnership may be deemed to be Affiliates or Associates of one another, (ii) to the extent that a member or partner of a Purchaser or a member of a partner of a 9 10 Purchaser is a member or partner of another Purchaser or a member or partner of a member or partner of another Purchaser, (iii) by virtue of the existence of the Governance Agreement and/or the Voting Agreement among Ampersand IV Limited Partnership, Ampersand IV Companion Fund Limited Partnership, Morgenthaler and Sound Beach Technology Partners, LLC relating to voting of the shares of Common Stock in an election of directors to the Company's board of directors (the "Voting Agreement"), and (iv) as otherwise provided in any Transaction Document. No Purchaser beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act) any Securities of any other Purchaser, except (i) Ampersand IV Limited Partnership and Ampersand IV Companion Fund Limited Partnership may be deemed to beneficially own the Securities of one another, (ii) to the extent that a member or partner of a Purchaser or a member of a partner of a Purchaser is a member or partner of another Purchaser or a member or partner of a member or partner of another Purchaser, (iii) by virtue of the existence of the Governance Agreement and/or the Voting Agreement, and (iv) as otherwise provided in any Transaction Document. No Purchaser is an "interested shareholder" of the Company or an "affiliate" or "associate" thereof, as such terms are defined in Section 302A.011 of the MBCA resulting from any share purchase, contract, arrangement or understanding, other than this Agreement, the Merger Agreement, the Governance Agreement, the Voting Agreement or any acquisition of shares approved by a committee of the board of directors of the Company as required in Section 302A.673, subdivision 1(d) of the MBCA. (i) No Conflicts. The execution, delivery and performance of the Transaction Documents by such Purchaser and the consummation by such Purchaser of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its certificate or articles of incorporation, bylaws, partnership agreement or other governing instrument, as applicable (each as amended through the date hereof), or (ii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which such Purchaser is subject (including foreign, federal and state securities laws and regulations). (j) Consents and Approvals. Except for any required Schedule 13D or 13G and Form 3 and 4 filings, and except for any required filing under the HSR Act, such Purchaser is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other foreign, federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by such Purchaser of the Transaction Documents. (k) Litigation; Proceedings. There is no action, suit, notice of violation, proceeding or investigation pending, or to the knowledge of such Purchaser, threatened against or affecting such Purchaser before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which would adversely affect the legality, validity or enforceability of any of the Transaction Documents in any respect or adversely impair such Purchaser's ability to perform fully on a timely basis its obligations under the Transaction Documents. 10 11 (l) Beneficial Ownership of Sheldahl Stock. At and after the Closing, except as provided on Exhibit A and except by virtue of the existence of the Governance Agreement and/or the Voting Agreement, no Purchaser shall be a Beneficial Owner of fifteen percent (15%) or more of outstanding shares of the Company's Common Stock. For purposes of this Section 2.2(l), "Beneficial Owner" shall have the meaning set forth in Section 1(d) of the Rights Agreement. Each Purchaser has been provided, upon its request, with a copy of such definition and has had an opportunity to review it with such Purchaser's legal counsel. (m) Residency. Each Purchaser is a resident of or has a principal place of business in the state set forth opposite its name on Exhibit A attached hereto. 2.3 Additional Representations and Warranties. The representations and warranties of the Company and IFT West Acquisition Company (the "Merger Sub") set forth in Article IV of the Merger Agreement are incorporated herein by reference as though fully set forth herein and each of the Company and the Merger Sub hereby enters into, makes and repeats such representations and warranties in their entirety to the Purchasers. The representations and warranties of IFH set forth in Article II of the Merger Agreement are incorporated herein by reference as though fully set forth herein and IFH hereby enters into, makes and repeats such representations and warranties in their entirety to the Purchasers. The representations and warranties of the stockholders of IFH (the "IFH Stockholders") set forth in Article III of the Merger Agreement are incorporated herein by reference as though fully set forth herein and each of the IFH Stockholders hereby enters into, makes and repeats such representations and warranties in their entirety to the Purchasers. ARTICLE III OTHER AGREEMENTS OF THE PARTIES 3.1 Transfer Restrictions. (a) If any Purchaser should decide to dispose of any of the Securities held by it, such Purchaser understands and agrees that it may do so only pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from the registration requirements of the Securities Act. In connection with any transfer of any Securities other than pursuant to an effective registration statement or to the Company or to an Affiliate of such Purchaser or pursuant to Rule 144 under the Securities Act ("Rule 144"), the Company may require the transferor thereof to provide to the Company a written opinion of counsel experienced in the area of United States securities laws selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred securities under the Securities Act. 11 12 (b) Each Purchaser agrees to the imprinting of the following legends on the Series G Preferred Shares: (i) NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. (ii) SHELDAHL, INC. WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF THE CLASS OF STOCK OR SERIES THEREOF TO WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE ARE A PART AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. (iii) THE SHARES OF COMMON STOCK OF SHELDAHL, INC. INTO WHICH THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE CONVERTIBLE ENTITLE THE HOLDER THEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN SHELDAHL, INC. AND NORWEST BANK MINNESOTA, N.A., NOW KNOWN AS WELLS FARGO BANK, N.A., DATED AS OF JUNE 16, 1996 AND AMENDED ON JULY 25, 1998 AND NOVEMBER 10, 2000 (THE "RIGHTS AGREEMENT"), A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF SHELDAHL, INC. UNDER CERTAIN CIRCUMSTANCES, SUCH RIGHTS ISSUED TO OR HELD BY AN ACQUIRING PERSON, OR AFFILIATE OR ASSOCIATE THEREOF (AS DEFINED IN THE RIGHTS AGREEMENT), AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS, MAY BECOME NULL AND VOID. 12 13 (c) Each Purchaser agrees to the imprinting, so long as is required by this Section 3.1(c), of the following legends on the Common Shares and the Underlying Shares: (i) THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. (ii) SHELDAHL, INC. WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES OF CAPITAL STOCK AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF THE SUBSEQUENT CLASSES OR SERIES. (iii) THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN SHELDAHL, INC. AND NORWEST BANK MINNESOTA, N.A., NOW KNOWN AS WELLS FARGO BANK, N.A., DATED AS OF JUNE 16, 1996 AND AMENDED ON JULY 25, 1998 AND NOVEMBER 10, 2000, (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF SHELDAHL, INC. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. SHELDAHL, INC. WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES, RIGHTS ISSUED TO, OR HELD BY, AN ACQUIRING PERSON, OR AN AFFILIATE OR ASSOCIATE 13 14 THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. The Common Shares and the Underlying Shares issuable upon conversion of the Series G Preferred Shares shall not contain the legend set forth in (i) above (or any other legend other than the legends set forth in (ii) or (iii) above or those required to be contained by the Governance Agreement) if (x) such Shares have been registered under an effective registration statement under the Securities Act filed pursuant to the Registration Rights Agreement, (y) such Shares have been sold pursuant to Rule 144, or (z) in the written opinion of counsel to the Company experienced in the area of United States securities laws such legend is not required under applicable requirements of the Securities Act (including judicial interpretation and pronouncements issued by the staff of the Commission). The Company makes no representation, warranty or agreement as to the availability of any exemption from registration under the Securities Act with respect to any resale of any Securities. 3.2 Use Of Proceeds. The Company shall use the Net Proceeds from the placement of the Shares to enhance the Company's capital structure, provide capital liquidity and repay debt. 3.3 Commercially Reasonable Efforts. Subject to the terms and conditions herein provided and to applicable legal requirements, each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, and assist and cooperate with the other parties hereto in doing, as promptly as practicable, all things necessary, proper or advisable under applicable laws and regulations to ensure that the conditions set forth in Article IV are satisfied. 3.4 Consents. Each of the parties will use its commercially reasonable efforts to obtain as promptly as practicable all Required Approvals, including filing as soon as practicable notifications under the HSR Act and responding as promptly as practicable to any inquiries received from the Federal Trade Commission and the Antitrust Division of the Department of Justice for additional information or documentation. 3.5 Conduct; No publicity; Confidentiality. While this Agreement is in effect, the Company will conduct its business in the usual and ordinary course and in a manner generally consistent with past practice. The mutual press release with respect to the execution of this Agreement and the other Transaction Documents shall be a joint press release acceptable to the Company and the Purchasers. Thereafter, so long as this Agreement is in effect, neither Company, on the one hand, nor the Purchasers, on the other, shall issue any press release or otherwise make any public statements inconsistent with the press release or the terms of the transactions contemplated by this Agreement or by the other Transaction Documents with respect to the transactions contemplated hereby or thereby without prior consultation with the other party and after using reasonable efforts to agree upon the text of any press release, except as may be required by law (it being understood and agreed that the Company intends to file a Current Report on Form 8-K with respect to the transaction contemplated hereby and by the other Transaction Documents promptly after the date hereof). The Company shall provide the Purchasers with a copy of its Form 8-K prior to filing the same with the SEC and the ability to comment on the same. 14 15 3.6 Liability of the Company Upon Certain Events. (a) Termination Fee. In the event that any of the events triggering the payment of a termination fee under Section 7.3 of the Merger Agreement as constituted on the date hereof shall occur, then the Company shall, on the date of such event, pay to each Purchaser an amount that is equal to the product of $1,456,753 multiplied by such Purchaser's Pro Rata Share (as hereinafter defined in this Section 3.6) by wire transfer of same day funds to an account designated by such Purchaser. For purposes of this Agreement, any Purchaser's "Pro Rata Share" shall mean a fraction the numerator of which shall be the number of Shares subscribed for by such Purchaser pursuant to the terms hereto and the denominator of which shall be the total number of Shares issued, or to be issued, by the Company pursuant to the terms hereto. (b) Expenses. In the event that (i) any of the events triggering the payment of expenses under Section 7.4 of the Merger Agreement as constituted on the date hereof shall occur, or (ii) this Agreement shall have been terminated pursuant to Section 5.1(e), then the Company shall, on the earliest to occur of such events described in clauses (i) and (ii) of this Section 3.6(b), pay to the Purchasers and IFH the aggregate amount specified in Section 7.4 of the Merger Agreement which amount shall be allocated as agreed among the Purchasers and IFH and shall be payable by wire transfer of same day funds to an account designated by each such party receiving payment pursuant to this Section 3.6(b). 3.7 Intentionally Omitted 3.8 Amendment to Bylaws. The Company shall use its reasonable best efforts to cause its stockholders to amend the Company's Bylaws as soon as reasonably practical after the Closing Date so that the board of directors of the Company shall consist of seven (7) directors. ARTICLE IV CONDITIONS 4.1 Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares. The obligation of each Purchaser hereunder to acquire and pay for the Shares is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of the Company and the Merger Sub contained or incorporated herein shall be true and correct, in all material respects, as of the date hereof and at and as of the Closing Date with the same effect as if made at and as of the Closing Date (except to the extent such representations specifically relate to an earlier date in which case such representations shall be true and correct as of such earlier date) and, at the Closing, the Company and the Merger Sub shall have delivered to the Purchasers a certificate to that effect, executed by an executive officer of the Company and the Merger Sub. 15 16 (b) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants and agreements required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) No Material Adverse Change. There shall not have occurred since June 1, 2000 any change, circumstance or event (whether or not known by the Purchasers or disclosed in the Disclosure Letter) that has had or may reasonably be expected to have (i) a material adverse effect on the business, financial condition, assets, results of operations or prospects of the Company, and its subsidiaries, and IFH, taken as a whole, (ii) a material adverse effect on the business, financial condition, assets, results of operations or prospects of the Company's MicroProducts business taken alone, or (iii) prevent or materially delay the ability of the Company to consummate the transactions contemplated by this Agreement and the other Transaction Documents. (e) No Suspensions of Trading in Common Stock. The trading in the Common Stock shall not have been suspended by the Commission or on the Nasdaq National Market (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company or any suspension of trading of securities generally). (f) Legal Opinion. The Company shall have delivered to such Purchaser a legal opinion of Lindquist & Vennum, P.L.L.P., dated the Closing Date, substantially in the form of Exhibit C attached hereto, with only such changes therein from such form as are required to reflect changes in facts and circumstances in matters dealt with in any of the representations and warranties of the Company set forth in Section 2.1 hereof or incorporated herein by Section 2.3 hereof. (g) Required Approvals. (i) The Company shall have obtained the consent or approval of each person listed on Part 2.1(f) of the Disclosure Letter; (ii) All other Required Approvals shall have been obtained by the Company; and 16 17 (iii) Any other governmental or regulatory notices, approvals or other requirements necessary to consummate the transactions contemplated hereby and to operate the Company's business after the Closing Date in all material respects as it was operated prior thereto and as it is presently contemplated to be conducted in the future shall have been given, obtained or complied with, as applicable. (h) Delivery of Stock Certificates. The Company shall have delivered to such Purchaser or such Purchaser's designee the stock certificates representing the Series G Preferred Shares and the Common Shares being purchased at the Closing to be received by such Purchaser, registered in the name of such Purchaser, each in form satisfactory to such Purchaser. (i) Registration Rights Agreement. Such Purchaser shall have received an executed Registration Rights Agreement, dated as of the date hereof, in the form of Exhibit D (the "Registration Rights Agreement") from the Company. (j) Governance Agreement. Such Purchaser shall have received an executed Governance Agreement, dated as of the date hereof, in the form of Exhibit E (the "Governance Agreement") from the Company. (k) Subordinated Notes Purchase Agreement. All of the conditions to the obligations of the purchasers under the Subordinated Notes and Warrant Purchase Agreement among the Company and the purchasers listed on Schedule I thereto dated as of the date hereof (the "Subordinated Notes Purchase Agreement"), other than the conditions related to this Agreement, shall have been satisfied or waived by the parties thereto at or before the Closing. (l) Merger. All of the conditions to the Company's, the Merger Sub's and IFH's obligations under the Merger Agreement (other than the conditions related to this Agreement) shall have been satisfied or waived by the parties thereto at or before the Closing and the merger of the Merger Sub into IFH shall have become effective in accordance with the terms of the Merger Agreement. (m) Amendment to Rights Agreement. In reliance upon the accuracy of the representations in Section 2.2(h) and Section 2.2(l), the Company shall have amended the Rights Agreement so that neither the consummation of the transactions contemplated by the Transaction Documents and the Merger Agreement nor the acquisition of (i) shares of Common Stock and the Series G Preferred Shares pursuant to this Agreement, (ii) shares of Common Stock upon conversion of the Series G Preferred Shares and as dividends on the Series G Preferred Shares, (iii) shares of Common Stock pursuant to the Merger Agreement, (iv) Warrants pursuant to the Subordinated Notes Purchase Agreement, and/or (v) shares of Common Stock upon exercise of the Warrants, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, alone without causing (x) any Purchaser, or any of its "Affiliates" or "Associates" (as such terms are defined in Rule 12b-2 under the Exchange Act), to be deemed an "Acquiring Person" under the Rights Agreement or (y) a "Distribution Date", a "Stock Acquisition Date" or "Acquisition Event" (as such terms are defined in the Rights Agreement) to occur. 17 18 (n) Board Approval. In reliance upon the accuracy of the representations in Section 2.2(h) and Section 2.2(l), a committee of the board of directors of the Company shall have approved the consummation of the transactions contemplated by the Transaction Documents, the Merger Agreement and the Subordinated Notes Purchase Agreement and the acquisition of (i) shares of Common Stock and the Series G Preferred Shares pursuant to this Agreement, (ii) shares of Common Stock upon conversion of the Series G Preferred Shares and as dividends on the Series G Preferred Shares, (iii) shares of Common Stock pursuant to the Merger Agreement, (iv) Warrants pursuant to the Subordinated Notes Purchase Agreement, and (v) shares of Common Stock upon exercise of the Warrants, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, as required in Section 302A.673, subd. 1(d) of the MBCA. (o) Shareholder Approval under Nasdaq Stock Market Rules. The transactions contemplated by this Agreement, the other Transaction Documents, the Subordinated Notes Purchase Agreement and the Merger Agreement shall have been approved and adopted by the requisite vote of the holders of shares of Common Stock of the Company to the extent required under any Rule of the Nasdaq Stock Market unless a waiver of such shareholder approval shall have been obtained from the Nasdaq Stock Market. (p) Chief Executive Officer. There shall have been elected or appointed a chief executive officer or interim chief executive officer of the Company reasonably satisfactory to the Purchasers. (q) Intentionally Omitted (r) Board of Directors. The individuals designated in Exhibit 1 of the Governance Agreement (or, if any of them is unable or unwilling to serve, other persons acceptable to the Purchasers) shall have been elected to and shall be serving on the board of directors of the Company. A director designated by Molex shall be serving on the board of directors of the Company unless no such individual is able and willing to serve. (s) Consolidated Net Working Capital. The consolidated Net Working Capital (as hereinafter defined) of the Company and its consolidated subsidiaries as of September 1, 2000 (as determined in accordance with GAAP consistently applied) shall have been not less than $250,000 less than $20,000,000. For the purpose of this Section 4.1(s), "Net Working Capital" shall mean current assets minus current liabilities. For purposes of the preceding sentence, liabilities that by their terms have a maturity date after September 1, 2001 shall be characterized as long-term liabilities rather than short-term liabilities without regard to their characterization as long-term liabilities or short-term liabilities for GAAP purposes. 18 19 (t) Total Bank Debt. The Total Bank Debt (as hereinafter defined) of the Company and its subsidiaries as of September 1, 2000 shall not have exceeded $35,100,000. For purposes of this Section 4.1(t), "Total Bank Debt" shall mean all outstanding bank debt included in current liabilities and long term liabilities including but not limited to all outstanding mortgages. 4.2 Conditions Precedent to the Company's Obligations. The obligations of the Company hereunder are subject to the following conditions: (a) Accuracy of the Representations and Warranties of Purchasers. The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made on and as of such date. (b) Performance by the Purchasers. The Purchasers shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchasers at or prior to the Closing Date. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) Required Approvals. All Required Approvals shall have been obtained. (e) Payment of Purchase Price. Each Purchaser shall have paid the aggregate purchase price set forth opposite the Purchaser's name on Exhibit A. (f) Governance Agreement. The Company shall have received an executed Governance Agreement, dated as of the date hereof, in the form of Exhibit E hereto, from each of the Purchasers. (g) Merger. All of the conditions to the Company's obligations under the Merger Agreement (other than the conditions related to this Agreement) shall have been satisfied or waived by the Company and the Merger is effective at or before the Closing. (h) Subordinated Notes Purchase Agreement. All of the conditions to the Company's obligations under the Subordinated Notes Purchase Agreement (other than the conditions related to this Agreement) shall have been satisfied or waived by the Company at or before the Closing. 19 20 ARTICLE V TERMINATION 5.1 Termination. Notwithstanding any provision to this Agreement to the contrary, this Agreement may be terminated, and the transactions contemplated by this Agreement abandoned, at any time on or prior to the Closing Date: (a) by mutual written consent of the Company and each of the Purchasers; (b) by the Company at any time if any of the conditions set forth in Section 4.2 will not be able to be satisfied on or prior to the Final Date (as defined in Section 7.5 of the Merger Agreement as constituted on the date hereof), through no fault of the Company, unless such condition is waived in writing by the Company; (c) by any of the Purchasers at any time if any of the conditions set forth in Section 4.1 will not be able to be satisfied on or prior to the Final Date (as defined in Section 7.5 of the Merger Agreement as constituted on the date hereof), through no fault of the Purchasers, unless such condition is waived in writing by each of the Purchasers; (d) immediately by any of the Purchasers in the event either the Merger Agreement or the Subordinated Notes Purchase Agreement shall terminate in accordance with its respective terms; or (e) by any of the Purchasers if (i) the Company has not, on or before December 19, 2000 obtained a waiver from the Nasdaq Stock Market of its requirement that the Company obtain shareholder approval of the transactions contemplated hereby and by the Merger Agreement and Subordinated Notes Purchase Agreement (in which event the Company shall immediately give written notice to each of the Purchasers to that effect), or (ii) the Company at any time has determined to cease pursuing obtaining such a waiver from the Nasdaq Stock Market (in which event the Company shall immediately give written notice to each of the Purchasers to that effect); provided in the case of this Section 5.1(e), that the Purchaser delivers to the Company written notice of termination of this Agreement within five business days after the date the Purchasers acquire the right under this Section 5.1(e) to terminate this Agreement. 5.2 Notice of Termination. If the Company or any of the Purchasers desires to terminate this Agreement pursuant to Section 5.1, other than pursuant to Section 5.1(d), that party must give written notice to the other parties. Upon receipt of that notice, this Agreement will terminate without further action by any party. 5.3 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 5.1, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party or its directors, officers or shareholders, other than as provided in Sections 3.6 and 6.1 hereof or in the Merger Agreement. Nothing contained in this Section 5.3 20 21 shall relieve any party from any liability for any breach of this Agreement or impair the right of any party to compel specific performance by another party of its obligations under this Agreement; provided, however, that termination as provided in Sections 5.1(d) and 5.1(e) shall not be deemed a breach of this Agreement. ARTICLE VI MISCELLANEOUS 6.1 Expenses. The Company shall pay by cashier's check or wire transfer at the Closing the MAI Expenses (as defined in Section 9.14(a) of the Merger Agreement as constituted on the date hereof) incurred by the Purchasers, including, without limitation, the legal fees and expenses of their counsel. Each Purchaser shall be responsible for such Purchaser's own tax liability that may arise as a result of the investment hereunder or the transactions contemplated by this Agreement. 6.2 Entire Agreement. This Agreement, together with the Exhibits and Schedules hereto, the Subordinated Notes Purchase Agreement, together with the Exhibits and Schedules thereto, the Registration Rights Agreement, the Governance Agreement, the Certificate of Designation (when filed) and the Merger Agreement, contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters. 6.3 Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back received), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered on a business day after during normal business hours where such notice is to be received); or (b) on the business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: If to the Company: Sheldahl, Inc. 1150 Sheldahl Road Northfield, MN 55057-9444 Attn: Edward L. Lundstrom, President Fax: (507) 663-8326 or (507) 663-8435 21 22 With copies to: Lindquist & Vennum P.L.L.P. 4200 IDS Center 80 South Eighth Street Minneapolis MN 55402 Attn: Charles P. Moorse, Esq. Fax: (612) 371-3207 If to a Purchaser: To the address set forth on Exhibit A or such other address as may be designated in writing hereafter, in the same manner, by such person. 6.4 Amendment; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by both the Company and each Purchaser; or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 6.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. Neither the Company nor any Purchaser may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding anything to the contrary contained herein, each Purchaser may assign its rights hereunder in connection with any sale or transfer of such Purchaser's Securities to any Affiliate or Associate of such Purchaser as long as the transferee Affiliate or Associate agrees in writing to be bound by the applicable provisions of this Agreement, in which case the term "Purchaser" shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. 6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 6.8 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Minnesota without regard to the principles of conflicts of law thereof. 22 23 6.9 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become binding with respect to each Purchaser on the date the acceptance form hereto is executed by such Purchaser and with respect to the Company on the date executed by the Company, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 6.10 Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 6.11 Survival of Representations and Warranties. The representations and warranties made in this Agreement, or in any instrument delivered pursuant to this Agreement, shall not survive beyond the Closing, except the representations and warranties in Section 2.2, which shall survive the Closing indefinitely. Nothing in the forgoing sentence shall be deemed to limit the Purchasers' ability to rely on the representations and warranties contained in Sections 2.1 and 2.3, and the Company's ability to rely on the representations and warranties contained in Section 2.2, in making their respective determinations to consummate the Closing of the purchase and sale of the Shares. All covenants and agreements shall survive in accordance with their respective terms. 23 24 IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its authorized representative and each Purchaser has caused this Agreement to be executed by signing in counterpart the acceptance form attached to this Agreement. COMPANY: SHELDAHL, INC. By: /s/ EDWARD L. LUNDSTROM ----------------------- Name: Edward L. Lundstrom Title: President 24 25 ACCEPTANCE The undersigned hereby accepts the terms and conditions set forth in the Stock Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company") and certain Purchasers listed in Exhibit A thereto as the terms and conditions applicable to the purchase of Shares of Series G Preferred and Common Stock of the Company by the undersigned. By execution of this Acceptance, the undersigned hereby makes each of the representations contained in Section 2.2 of the Stock Purchase Agreement. PURCHASER: MORGENTHALER VENTURE PARTNERS V, L.P. By: /s/ JOHN D. LUTSI --------------------------------- Name: John D. Lutsi, its General Partner 25 26 ACCEPTANCE The undersigned hereby accepts the terms and conditions set forth in the Stock Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company") and certain Purchasers listed in Exhibit A thereto as the terms and conditions applicable to the purchase of Shares of Series G Preferred and Common Stock of the Company by the undersigned. By execution of this Acceptance, the undersigned hereby makes each of the representations contained in Section 2.2 of the Stock Purchase Agreement. PURCHASER: AMPERSAND IV LIMITED PARTNERSHIP BY: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, ITS GENERAL PARTNER By: /s/ STUART A. AUERBACH --------------------------------- Name: Stuart A. Auerbach Title: Managing Member 26 27 ACCEPTANCE The undersigned hereby accepts the terms and conditions set forth in the Stock Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company") and certain Purchasers listed in Exhibit A thereto as the terms and conditions applicable to the purchase of Shares of Series G Preferred and Common Stock of the Company by the undersigned. By execution of this Acceptance, the undersigned hereby makes each of the representations contained in Section 2.2 of the Stock Purchase Agreement. PURCHASER: AMPERSAND IV COMPANION FUND LIMITED PARTNERSHIP BY: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, ITS GENERAL PARTNER By: /s/ STUART A. AUERBACH --------------------------------- Name: Stuart A. Auerbach Title: Managing Member 27 28 LIMITED JOINDER IFH, the Merger Sub and the IFH Stockholders hereby join in the foregoing Agreement for the limited purposes of making the representations and warranties set forth in Section 2.3 of the Agreement to the Purchasers on the date hereof as if they were parties hereto. INTERNATIONAL FLEX HOLDINGS, INC. By: /s/ JOHN D. LUTSI --------------------------------- Name: John D. Lutsi, Title: President IFT WEST ACQUISITION COMPANY By: /s/ EDWARD L. LUNDSTROM --------------------------------- Name: Edward L. Lundstrom Title: President IFH STOCKHOLDERS: MORGENTHALER VENTURE PARTNERS V, L.P. By: /s/ JOHN D. LUTSI --------------------------------- Name: John D. Lutsi, its general partner SOUND BEACH TECHNOLOGY PARTNERS, LLC By: /s/ DONALD R. FRIEDMAN --------------------------------- Name: Donald R. Friedman Title: President and Chief Executive Officer 28 29 EXHIBIT A SCHEDULE OF PURCHASERS
# OF AGGREGATE SERIES G # OF BENEFICIAL PURCHASER PURCHASE PREFERRED COMMON OWNERSHIP STATE OF NAME & ADDRESS PRICE SHARES SHARES PERCENTAGE RESIDENCE - ------------------------------------- ----------- --------- --------- ------------ -------- Ampersand IV Limited Partnership $ 7,350,000 3,323 1,453,539 29.4% MA 55 William Street Suite 240 Wellesley, MA 02481-4003 Ampersand IV Companion Fund $ 150,000 68 29,664 0.6% MA Limited Partnership 55 William Street Suite 240 Wellesley, MA 02481-4003 Morgenthaler Venture Partners V, L.P. $17,500,000 7,912 3,460,928 70.0% OH Terminal Tower 50 Public Square, Suite 2700 Cleveland, OH 44113 TOTAL $25,000,000 11,303 4,944,131 100.0%
EX-4.1 4 c58431ex4-1.txt FORM OF CERTIFICATE OF DESIGNATION SERIES G 1 EXHIBIT 4.1 SHELDAHL, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES G CONVERTIBLE PREFERRED STOCK Pursuant to Section 302A.401 of the Minnesota Business Corporation Act: I, the undersigned officer of Sheldahl, Inc., a Minnesota corporation (the "Company"), in accordance with the provisions of Section 302A.401, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Company, the Board of Directors on ____________, 200_ adopted the following resolution creating a series of Eleven Thousand Three Hundred Three (11,303) shares of preferred stock designated as Series G Convertible Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Company in accordance with the provisions of its Articles of Incorporation, a series of preferred stock known as the Series G Convertible Preferred Stock be, and hereby is, created and that the designation and amount thereof and the rights and preferences of the shares of such preferred stock are as follows: Section 1. Designation, Amount and Par Value. The series of preferred stock shall be designated as the Series G Convertible Preferred Stock (the "Series G Preferred Stock"), and the number of shares so designated shall be 11,303 (which shall not be subject to increase without the prior written consent of all of the holders of Series G Preferred Stock then outstanding). Each share of Series G Preferred Stock shall have a par value of $1.00 per share and a stated value of $1,000 per share (the "Stated Value"). Section 2. Dividends and Redemption. (a) (i) Each Holder of Series G Preferred Stock of record as of the date fifteen calendar days prior to each anniversary of the Original Issue Date (the "Record Date") shall receive annually on such anniversary of the Original Issue Date, or if such date is not a Business Day, the first Business Day following such anniversary of the Original Issue Date, (the "Dividend Payment Date"),with respect to shares held on such Record Date by such holder, cumulative dividends payable in shares of the Company's Common Stock (as defined in Section 6) in an amount equal to a fraction, of which the numerator is 11.0594587% of the Stated Value of the 1 2 shares of the Series G Preferred Stock held on such Record Date by such holder and of which the denominator is the Dividend Conversion Price (as defined in Section 5(c)(i)) on such Record Date or, at the Company's option for dividends accruing after the second anniversary of the Original Issue Date, cash in an amount equal to 11.0594587% of the Stated Value of the Series G Preferred Stock held on such Record Date by such holder. (ii) In connection with any conversion of Series G Preferred Stock, each holder of Series G Preferred Stock that provides a Holder Conversion Notice (as defined below) to the Company in the case of conversion at the holder's option, and each holder of record of Series G Preferred Stock in the case of conversion at the Company's option shall receive, on each Holder Conversion Date (as defined in Section 5(a)(i)), or Company Conversion Date (as defined in Section 5 (a)(ii)), as the case may be, with respect to each share converted, (x) all accrued, but unpaid dividends with respect to each preceding Dividend Payment Date, calculated as provided in Section 2(a)(i), and (y) all accrued, but unpaid dividends with respect to the period commencing with the day after the most recent Dividend Payment Date and ending on the Conversion Date (the "Period"), payable in shares of the Company's Common Stock in an amount equal to a fraction, of which the numerator is 11.0594587% of the Stated Value of the shares of the Series G Preferred Stock held on such Conversion Date by such holder multiplied by the Pro Rata Dividend Amount (as defined below in this Section 2(a)(ii)) and of which the denominator is the Dividend Conversion Price (as defined in Section 5(c)(i)) on such Conversion Date or, at the Company's option for dividends accruing after the second anniversary of the Original Issue Date, cash in an amount equal to 11.0594587% of the Stated Value of the Series G Preferred Stock held on such Conversion Date by such holder multiplied by the Pro Rata Dividend Amount (as defined below in this Section 2(a)(ii)). The "Pro Rata Dividend Amount" shall equal a fraction of which the numerator is the number of days elapsed during the Period and of which the denominator is 360. (iii) Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, shall accrue daily commencing on the Original Issue Date (as defined in Section 6), and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends. (iv) No payment shall be made pursuant to this Section 2 until all accrued and unpaid dividends on the Company's Series D Preferred Stock (the "Series D Preferred Stock") the Company's Series E Preferred Stock (the "Series E Preferred Stock") and on the Company's Series F Preferred Stock (the "Series F Preferred Stock") previously issued by the Company for all past dividend periods shall have been paid and all conversion notices related thereto have been honored to the date of such payment. (b) So long as any Series G Preferred Stock shall remain outstanding, except with respect to the redemption or exchange of "rights" under the Rights Agreement, dated as of June 16, 1996, between the Company and Norwest Bank Minnesota, N.A. (the "Rights Agreement") and the Series A Junior Participating Stock reserved for issuance in connection therewith, neither 2 3 the Company nor any subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities (as defined in Section 6), nor shall the Company directly or indirectly pay or declare any dividend or make any distribution (other than a dividend or distribution described in Section 5) upon, nor shall any distribution be made in respect of, any Junior Securities, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities unless the Company is in compliance with its obligations hereunder. (c) In no circumstances may the Company require redemption of any shares of Series G Preferred Stock without the holder's consent. Section 3. Voting Rights. Except as otherwise provided herein and as otherwise required by law, the Series G Preferred Stock shall have no voting rights. However, so long as any shares of Series G Preferred Stock are outstanding, the Company shall not and shall cause its subsidiaries not to, without the affirmative vote of 75% of the holders of the Series G Preferred Stock then outstanding, alter or change adversely the powers, preferences or rights given to the Series G Preferred Stock; (b) alter or amend this Certificate of Designation in a manner adverse to the holders of Series G Preferred Stock; (c) authorize or create any class of stock ranking as to dividends or distribution of assets upon a Liquidation (as defined in Section 4) or otherwise senior to or pari passu with the Series G Preferred Stock, except for the Series D Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock; (d) amend its articles of incorporation, bylaws or other charter documents so as to affect adversely any rights of any holders of Series G Preferred Stock; (e) increase the authorized number of shares of Series G Preferred Stock; or (f) enter into any agreement with respect to the foregoing. Section 4. Liquidation. (a) Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the holders of Series G Preferred Stock shall receive, out of the assets of the Company, after payment of all amounts due the holders of Series D Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock, but before any distribution or payment shall be made to the holders of any Junior Securities for each share of Series G Preferred Stock, an amount equal to: (i) the Stated Value multiplied by 2.2118022; plus (ii) an amount equal to all accrued but unpaid dividends, whether declared or not; minus (iii) the product of the Per Share Market Value on the Liquidation Adjustment Calculation Date (as defined below in this Section 4) multiplied by the "Share Adjustment Number," which shall initially be 437.41758 (as may be adjusted for any stock splits, reverse 3 4 stock splits or stock dividends on the Common Stock), provided, however, that the Share Adjustment Number for each share of Series G Stock shall be reduced by subtracting a number equal to the number of shares of Common Stock the holder elects to surrender to the Company divided by the number of shares of Series G Preferred Stock held by such holder. The holder shall effect such election by surrendering the certificate or certificates representing the shares of Common Stock the holder wishes to surrender, together with the form of election notice attached hereto as Exhibit C. (b) Any surrender of shares to the Company shall not be deemed effective unless and until all amounts due under this Section 4 have been paid to the holder thereof. (c) If the assets of the Company shall be insufficient to pay in full such amounts as required by this Section 4 after payment of all amounts due the holders of the Series D Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock then the entire assets to be distributed to the holders of Series G Preferred Stock shall be distributed among the holders of Series G Preferred Stock ratably in accordance with the respective amounts that would be payable on to such holders if the maximum amounts payable thereon were paid in full. If, and to the extent that the full amount due to the holders of the Series G Preferred Stock for each share of Series G Preferred Stock held is not paid on Liquidation because the assets of the Company are insufficient to pay such full amount, the amount due to the holders of the Series G Preferred Stock for each share of Series G Preferred Stock shall not be reduced by the Share Adjustment Number. (d) A sale, conveyance or disposition of all or substantially all of the assets of the Company or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of, or a consolidation or merger of the Company with or into any other company or companies shall not be treated as a Liquidation, but instead shall be subject to the provisions of Section 5. (e) The Company shall mail written notice of any such Liquidation after the Board of Directors has adopted a final plan of Liquidation, but not less than 30 days prior to any payment date stated therein, to each record holder of Series G Preferred Stock, stating the "Liquidation Adjustment Calculation Date", which shall be ten business days after the Board of Directors has adopted such plan. Section 5. Conversion. (a) (i) Each share of Series G Preferred Stock is convertible by the holder thereof into shares of Common Stock at the Conversion Ratio (as defined in Section 6) in effect on the Holder Conversion Date (as defined below in this Section (5)(a)(i)), at the option of the holder in whole or in part at any time after the Original Issue Date. The holder shall effect conversions by surrendering the certificate or certificates representing the shares of Series G Preferred Stock to be converted to the Company, together with the form of conversion notice attached hereto as Exhibit A (the "Holder Conversion Notice"), a copy of which, notwithstanding anything herein 4 5 to the contrary, shall also be promptly sent to the Company's transfer agent and the Company's counsel. Each Holder Conversion Notice shall specify the number of shares of Series G Preferred Stock to be converted and the date on which such conversion is to be effected, which date may not be prior to the date on which the holder delivers such Conversion Notice by facsimile (the "Holder Conversion Date"). If no Holder Conversion Date is specified in a Holder Conversion Notice, the Holder Conversion Date shall be the date that the Holder Conversion Notice is deemed delivered pursuant to Section 5(h). If the holder is converting less than all shares of Series G Preferred Stock represented by the certificate or certificates tendered by the holder with the Holder Conversion Notice, or if a conversion hereunder cannot be effected in full for any reason, the Company shall promptly deliver to such holder (in the manner and within the time set forth in Section 5(b)) a certificate for such number of shares as have not been converted. Shares issuable upon conversion at the option of the holder in accordance with this Section 5(a)(i) shall be deemed for all purposes to have been issued on the applicable Holder Conversion Date. Certificates initially issued to represent such shares shall be dated as of such Holder Conversion Date. (ii) If, at any time after eighteen (18) months following the Original Issue Date, (A) the Per Share Market Value (as defined in Section 6) is greater than $12.50 (as adjusted for stock splits, reverse stock splits and stock dividends) for at least 30 consecutive Business Days (as defined in Section 6); (B) the average daily trading volume of the Common Stock on the Nasdaq National Market for such 30 consecutive Business Days exceeds 50,000 shares (as adjusted for stock splits, reverse stock splits and stock dividends); and (C) none of the Shares of the Company's Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, or any other shares of Preferred Stock (other than the Series G Preferred Stock) that have been issued solely to circumvent the automatic conversion of the Series G Preferred Stock pursuant to this Section 5(a)(ii) is outstanding, then the Company may, upon 10 days notice provided thereafter, require the conversion of all but not less than all of the then outstanding and unconverted shares of Series G Preferred Stock at the Conversion Ratio in effect on the Company Conversion Date (as defined below) by delivering to the holders a notice in the form attached hereto as Exhibit B (the "Company Conversion Notice"). Each Company Conversion Notice shall specify the date on which such conversion is to be effected, which date may not be prior to the 10th day after the Company delivers such Company Conversion Notice by facsimile (the "Company Conversion Date"). If no Company Conversion Date is specified in a Company Conversion Notice given under this Section the Company Conversion Date shall be the 11th day after the Company Conversion Notice is deemed delivered pursuant to Section 5(h). Nothing contained herein shall limit a holder's right to convert any or all of the Preferred Stock held by it prior to the Company Conversion Date. Shares issuable upon conversion at the option of the Company in accordance with this Section 5 (a)(ii) shall be deemed for all purposes to have been issued on the applicable Company Conversion Date. Certificates initially issued to represent such Shares shall be dated as of such Company Conversion Date. (iii) In the event of any such conversion of Series G Preferred Stock, holders thereof shall be entitled to receive dividends in accordance with Section 2(a)(ii) hereof. 5 6 A Holder Conversion Date and a Company Conversion Date are sometimes referred to herein as a "Conversion Date" and a Holder Conversion Notice and a Company Conversion Notice are sometimes referred to as a "Conversion Notice." (b) Not later than ten Business Days after the Conversion Date and receipt by the Company of an original share certificate representing the shares of Series G Preferred Stock to be converted, the Company will deliver to the holder (i) a certificate or certificates which shall be free of restrictive legends and trading restrictions (other than those required by Section 3.1(b) of the Purchase Agreement or as may be required by the Rights Agreement) representing the number of shares of Common Stock being acquired upon the conversion of shares of Series G Preferred Stock; (ii) if the Company so elects or is required to pay accrued dividends in Common Stock, an original share certificate representing that number of shares of Common Stock payable in respect of accrued but unpaid dividends; (iii) if the Company so elects and is permitted to pay accrued dividends in cash, a bank check in the amount of the accrued but unpaid dividends; and (iv) one or more certificates representing the number of shares of Series G Preferred Stock not converted; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of any shares of Preferred Stock until certificates evidencing such shares of Series G Preferred Stock are either delivered for conversion to the Company or the transfer agent for the Series G Preferred Stock or Common Stock, or the holder of such Series G Preferred Stock notifies the Company that such certificates have been lost, stolen or destroyed and provides a bond (or other adequate security) reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. (c) (i) The conversion price for each share of Series G Preferred Stock (the "Conversion Price") on any Conversion Date shall be $2.770558 (the "Initial Conversion Price"), as adjusted from time to time as provided in this Section 5(c). The Dividend Conversion Price shall initially be $3.5384827 as adjusted from time to time as provided in this Section 5(c). (ii) If the Company, at any time while any shares of Series G Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Junior Securities payable in shares of Common Stock; (b) subdivide outstanding shares of Common Stock into a larger number of shares; (c) combine outstanding shares of Common Stock into a smaller number of shares; or (d) issue by reclassification of shares of Common Stock any shares of capital stock of the Company, the Conversion Price and the Dividend Conversion Price shall each be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 5(c)(ii) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. 6 7 (iii) If the Company, at any time while any shares of Series G Preferred Stock are outstanding, shall issue rights or warrants to all holders of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Per Share Market Value of Common Stock at the record date mentioned below, the Conversion Price and the Dividend Conversion Price shall each be multiplied by a fraction, of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Per Share Market Value. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. However, upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the Conversion Price and Dividend Conversion Price pursuant to this Section 5(c)(iii), if any such right or warrant shall expire and shall not have been exercised, the Conversion Price and Dividend Conversion Price shall immediately upon such expiration be recomputed and effective immediately upon such expiration be increased to the price which it would have been (but reflecting any other adjustments in the Conversion Price and Dividend Conversion Price made pursuant to the provisions of this Section 5 after the issuance of such rights or warrants) had the adjustment of the Conversion Price and Dividend Conversion Price made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised. (iv) If the Company, at any time while shares of Series G Preferred Stock are outstanding, shall distribute to all holders of Common Stock (and not to holders of Series G Preferred Stock) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Sections 5(c)(ii) and (iii) above), then in each such case the Conversion Price or the Dividend Conversion Price at which each share of Series G Preferred Stock shall thereafter be convertible shall be determined by multiplying the Conversion Price or the Dividend Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Per Share Market Value of Common Stock determined as of the record date mentioned above, and of which the numerator shall be such Per Share Market Value of the Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors in good faith; provided, however, that in the event of a distribution exceeding ten percent (10%) of the net assets of the Company, such fair market value shall be determined by a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) (an "Appraiser") selected in good faith by the holders of a majority in interest of 7 8 the shares of Series G Preferred Stock then outstanding and reasonably acceptable to the Company. In either case the adjustments shall be described in a statement provided to the holders of Series G Preferred Stock of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (v) All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. (vi) Whenever the Conversion Price and the Dividend Conversion Price are adjusted pursuant to Section 5(c)(ii),(iii) or (iv), the Company shall promptly mail to each holder of Series G Preferred Stock, a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (vii) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another person pursuant to which the Company will not be the surviving entity, the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, the holders of Series G Preferred Stock then outstanding shall convert such shares only into the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange, and the holders of the Series G Preferred Stock shall be entitled upon such event to receive such amount of securities, cash or property as the shares of the Common Stock of the Company into which such shares of Series G Preferred Stock could have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange would have been entitled. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the holder of Series G Preferred Stock the right to receive the securities, cash or property set forth in this Section 5(c)(vii) upon any conversion or redemption following such consolidation, merger, sale, transfer or share exchange. This provision shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. (viii) If: A. the Company shall declare a dividend (or any other distribution) on its Common Stock; or B. the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or C. the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or 8 9 D. the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or E. the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Series G Preferred Stock, and shall cause to be mailed to the holders of Series G Preferred Stock at their last addresses as they shall appear upon the stock books of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined; or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. (d) The Company will at all times reserve and keep available out of its authorized and unissued Common Stock solely for the purpose of issuance upon conversion of Series G Preferred Stock and payment of dividends on Series G Preferred Stock, each as herein provided, free from preemptive rights or any other actual or contingent purchase rights of persons other than the holders of Series G Preferred Stock, not less than such number of shares of Common Stock as shall be issuable, upon the conversion of all outstanding shares of Series G Preferred Stock and payment of dividends hereunder. All shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued and fully paid, nonassessable and freely tradable (except as may be required pursuant to Section 3.1(b) of the Purchase Agreement). (e) Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the holder of a share of Preferred Stock shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. 9 10 (f) The issuance of certificates for shares of Common Stock on conversion of Series G Preferred Stock shall be made without charge to the holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the holder of such shares of Series G Preferred Stock so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. (g) Shares of Series G Preferred Stock converted into Common Stock shall be canceled and shall have the status of authorized but unissued shares of undesignated stock. (h) Any and all notices or other communications or deliveries to be provided by the holders of the Series G Preferred Stock hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the attention of the Chief Executive Officer of the Company at the facsimile telephone number or address of the principal place of business of the Company as set forth in the Purchase Agreement. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to each holder of Series G Preferred Stock at the facsimile telephone number or address of such holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 11:59 p.m. (Central Time) on such date of transmission; (ii) four days after deposit in the United States mails; (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service; or (iv) upon actual receipt by the party to whom such notice is required to be given. Section 6. Definitions. For the purposes hereof, the following terms shall have the following meanings: a) "Affiliate" has the meaning set forth in Section 302A.011 of the Minnesota Business Corporation Act. b) "Associate" has the meaning set forth in Section 302A.011 of the Minnesota Business Corporation Act. c) "Appraiser" has the meaning set forth in Section 5(c)(iv). 10 11 d) "Business Day" means any day except a day on which the Nasdaq National Market, the NYSE or the AMEX, as applicable, if the Common Stock is listed for trading or quoted thereon at such time, is closed, and if the Common Stock is not listed for trading or quoted on any of the Nasdaq National Market, the NYSE or the AMEX at such time, then "Business Day" shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of Minnesota generally are authorized or required by law or other government actions to close. e) "Common Stock" means the common stock, $.25 par value per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed. f) "Company Conversion Date" has the meaning set forth in Section 5(a)(ii). g) "Company Conversion Notice" has the meaning set forth in Section 5(a)(ii). h) "Conversion Date" has the meaning set forth in Section 5(a)(iii). i) "Conversion Notice" has the meaning set forth in Section 5(a)(iii). j) "Conversion Price" has the meaning set forth in Section 5(c)(i). k) "Conversion Ratio" with respect to a share of Series G Preferred Stock means, at any time, a fraction, of which the numerator is the Stated Value and the denominator is the Conversion Price at such time. l) "Dividend Conversion Price" has the meaning set forth in Section 5(c)(i). m) "Dividend Payment Date" has the meaning set forth in Section 2(a)(i). n) "Holder Conversion Date" has the meaning set forth in Section 5(a)(i). o) "Holder Conversion Notice" has the meaning set forth in Section 5(a)(i). p) "Initial Conversion Price" has the meaning set forth in Section 5(c)(i). q) "Junior Securities" means the Common Stock and all equity securities (other than the Series D, Series E Preferred Stock and Series F Preferred Stock) of the Company. r) "Liquidation" has the meaning set forth in Section 4. s) "Liquidation Adjustment Calculation Date" has the meaning set forth in Section 4. t) "Original Issue Date" means the date of the first issuance of any shares of the Series G Preferred Stock regardless of the number of transfers of any particular shares of Series G Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock. 11 12 u) "Per Share Market Value" means on any particular date (a) the closing bid price per share of the Common Stock on such date on the Nasdaq National Market or other stock exchange or quotation system on which the Common Stock is then listed or quoted or, if there is no such closing bid price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date for which there is such a closing bid price; or (b) if the Common Stock is not listed or quoted then on the Nasdaq National Market or any stock exchange or quotation system, the closing bid price for a share of Common Stock in the over-the-counter market, as reported by the Nasdaq National Market, Bloomberg, L.P. or in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date; or (c) if closing bid prices for the Common Stock are not then reported by the Nasdaq National Market, Bloomberg, L.P. or in the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the relevant conversion period, as determined in good faith by the holder; or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Appraiser mutually acceptable to the holders and the Company. v) "Period" has the meaning set forth in Section 2(a)(ii). w) "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. x) "Pro Rata Dividend Amount" has the meaning set forth in Section 2(a)(ii). y) "Purchase Agreement" means the Stock Purchase Agreement, dated as of November 10, 2000, among the Company and the original holders of the Series G Preferred Stock. z) "Record Date" has the meaning set forth in Section 2(a)(i). aa) "Rights Agreement" has the meaning set forth in Section 2 (b). ab) "Series G Preferred Stock" has the meaning set forth in Section 1. ac) "Stated Value" has the meaning set forth in Section 1. 12 13 IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this ___ day of _________, 200_. SHELDAHL, INC. By --------------------------- Jill D. Burchill Its Chief Financial Officer 13 14 EXHIBIT A NOTICE OF CONVERSION AT THE ELECTION OF HOLDER (To be Executed by the Registered Holder in order to Convert Shares of Series G Preferred Stock) The undersigned hereby elects to convert the number of shares of Series G Convertible Preferred Stock indicated below, into the number of shares of Common Stock, par value $.25 per share (the "Common Stock"), of Sheldahl, Inc. (the "Company") indicated below, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. Conversion calculations: --------------------------------------------------- Date to Effect Conversion --------------------------------------------------- Number of shares of Series G Preferred Stock to be Converted --------------------------------------------------- Number of shares of Common Stock to be Issued Applicable Conversion Price Signature Name Address 15 EXHIBIT B NOTICE OF CONVERSION AT THE ELECTION OF THE COMPANY Sheldahl, Inc. (the "Company") hereby represents and warrants that the conditions precedent to a Conversion at the option of the Company pursuant to Section 5(a)(ii) have been satisfied and therefore hereby notifies the addressee hereof that the Company hereby elects to exercise its right to convert [ ] shares of its Series G Convertible Preferred Stock (the "Preferred Stock") held by the Holder into shares of Common Stock, par value $.25 per share (the "Common Stock") of the Company according to the terms hereof, as of the date written below. No fee will be charged to the Holder for any conversion hereunder, except for such transfer taxes, if any which may be incurred by the Company if shares are to be issued in the name of a person other than the person to whom this notice is addressed. Conversion calculations: --------------------------------------------------- Date to Effect Conversion Number of shares of Preferred Stock to be Converted Number of shares of Common Stock to be Issued Applicable Conversion Price Name of Holder Address of Holder 16 EXHIBIT C NOTICE OF ELECTION TO SURRENDER COMMON STOCK (To be Executed by the Registered Holder) The undersigned hereby elects to surrender to the Company ____ shares of Common Stock, par value $.25 per share (the "Common Stock"), of Sheldahl, Inc. (the "Company") pursuant to Section 4 of the Series G Convertible Preferred Certificate of Designation. 437.533805 (as may be adjusted for any stock splits, reverse stock splits or stock dividends on the Common Stock occurring after the filing of the Series G Certificate of Designation) minus (_____ shares of Common Stock surrendered divided by _____ shares of Series G Convertible Preferred Stock held) equals the Share Adjustment Number ______. Signature Name Address EX-4.2 5 c58431ex4-2.txt FORM OF REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of __________________, 200_, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and the individuals and entities listed on Schedule I hereto (referred to herein as a "Purchaser" and collectively as the "Purchasers"). This Agreement is made pursuant to the Stock Purchase Agreement, dated as of November 10, 2000 (the "Purchase Agreement") among the Company and certain of the Purchasers (the "Stock Purchasers"), the Agreement and Plan of Merger, dated as of November 10, 2000 (the "Merger Agreement") among the Company, IFT West Acquisition Company, International Flex Holdings, Inc. ("IFH") and the stockholders of IFH (the "IFH Purchasers") and the Subordinated Notes and Warrant Purchase Agreement, dated as of November 10, 2000 (the "Subordinated Notes Purchase Agreement") among the Company and certain of the Purchasers (the "Warrant Purchasers"). The Company and the Purchasers hereby agree as follows: 1. Definitions Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have meaning set forth in Section 3(j). "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated", "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day except a day on which the Nasdaq National Market, the NYSE or the AMEX, as applicable, if the Common Stock is listed for trading or quoted thereon at such time, is closed, and if the Common Stock is not listed for trading or quoted on any of the Nasdaq National Market, the NYSE or the AMEX at such time, then "Business Day" shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of Minnesota generally are authorized or required by law or other government actions to close. "Closing Date" shall have the meaning set forth in the Purchase Agreement. 2 "Commission" means the Securities and Exchange Commission. "Common Stock" means the Company's Common Stock, par value $.25 per share. "Common Shares" means the shares of Common Stock, par value $.25 per share, of the Company issued to the Stock Purchasers pursuant to the Purchase Agreement. "Effectiveness Date" means, with respect to the Shelf Registration Statement to be filed with respect to the Series G Shares, the first anniversary of the Closing Date. "Effectiveness Period" shall have the meaning set forth in Section 2(a). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Filing Date" means the date which is nine months after the Closing Date. "Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities. "Indemnified Party" shall have the meaning set forth in Section 5(c). "Indemnifying Party" shall have the meaning set forth in Section 5(c). "Losses" shall have the meaning set forth in Section 5(a). "Merger Shares" means the shares of Common Stock, par value $.25 per share, of the Company issued to the IFH Purchasers pursuant to the Merger Agreement. "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Preferred Stock" means the Series G Shares. "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means a prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the 2 3 Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Purchase Documents" means the Purchase Agreement, the Merger Agreement, the Subordinated Notes Purchase Agreement and the Warrants. "Registrable Securities" means the (a) the Common Shares, (b) the Merger Shares, and (c) shares of Common Stock issuable upon (i) conversion of the Series G Shares; (ii) payment of dividends in respect of such Preferred Stock; and (iii) exercise of Warrants. "Registration Statement" means any registration statement filed by the Company with the Commission for a public offering and sale of Common Stock (other than (i) a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a similar limited purpose, (ii) any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation, or (iii) any registration statement filed by the Company pursuant to (x) that certain Registration Rights Agreement dated as of July 30, 1998 by and among the Company and certain holders of its Series D Convertible Preferred Stock, (y) that certain Registration Rights Agreement dated as of February 26, 1999 by and among the Company and certain holders of its Series E Convertible Preferred Stock, or (z) that certain Registration Rights Agreement dated as of January 11, 2000 by and among the Company and certain holders of its Series F Convertible Preferred Stock), including (in each such case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Securities Act" means the Securities Act of 1933, as amended. "Series G Shares" means the shares of Series G Preferred Stock, par value $1.00 per share, of the Company issued to the Stock Purchasers pursuant to the Purchase Agreement. "Shelf Registration Statement" shall have the meaning set forth in Section 2(a). 3 4 "Warrants" means the warrants to purchase shares of Common Stock issued to the Warrant Purchasers pursuant to the Subordinated Notes Purchase Agreement. 2. Registration. (a) Shelf Registration. The Company shall, on or prior to the Filing Date, prepare and file with the Commission a Registration Statement covering all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415 (the "Shelf Registration Statement"). The Shelf Registration Statement shall be on Form S-3 (or if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith which form shall be reasonably acceptable to the Holders). The Company shall use its commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Effectiveness Date, and to keep such Shelf Registration Statement continuously effective under the Securities Act until the date which is two years after the date that such Shelf Registration Statement is declared effective by the Commission or such earlier date when all Registrable Securities covered by such Shelf Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect (the "Effectiveness Period"). (b) Incidental Registration. Whenever the Company proposes to file a Registration Statement, prior to such filing it shall give written notice to each Holder of its intention to do so, and upon the written request of any Holder given within 20 days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Securities), the Company shall cause all Registrable Securities which the Company has been requested to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Holder(s). In connection with any offering under this Section 2(b) involving an underwriting, the Company shall not be required to include any Registrable Securities in such underwriting unless the holders thereof accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If in the opinion of the managing underwriter the registration of all, or part of, the Registrable Securities which the Holders have requested to be included would materially and adversely affect such public offering, then the Company shall be required to include in the underwriting only that number of Registrable Securities which the managing underwriter believes may be sold without causing such adverse effect; provided, however, that in no such event shall less than 25% of the aggregate amount of Registrable Securities which the Holders have requested to be included in such registration be included in such public offering. In the event of such a reduction in the number of shares to be included in the underwriting, the 4 5 Holders of Registrable Securities who have requested registration shall participate in the underwriting pro rata based upon their total ownership of Registrable Securities (or in any other proportion as agreed upon by such Holders) and if any of such Holders would thus be entitled to include more shares than such Holder requested to be registered, the excess shall be allocated among such other requesting Holders pro rata based on their ownership of Registrable Securities. No other securities requested to be included in a Registration Statement for the account of anyone other than the Company or the Holders shall be included in a Registration Statement unless all Registrable Securities requested to be included in such Registration Statement are also included. No Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder's Registrable Securities and such Holder's intended method of distribution and any other representation required by law. 3. Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall: (a) Use its commercially reasonable efforts to prepare and file with the Commission, on or prior to the Filing Date, a Registration Statement on Form S-3 (or if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith which Form shall be reasonably acceptable to the Holders) in accordance with the method or methods of distribution thereof as specified by the Holders, and cause such Shelf Registration Statement to become effective and remain effective as provided herein. (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as practicable to any comments received from the Commission with respect to any Registration Statement covering any Registrable Securities or any amendment thereto and promptly provide the Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement; and (iv) comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. 5 6 (c) Notify the Holders of Registrable Securities to be sold: (i)(A) when a Prospectus or Prospectus supplement covering any Registrable Securities or post-effective amendment to a Registration Statement covering any Registrable Securities is proposed to be filed, (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to any such Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus covering any Registrable Securities or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event that makes any statement made in a Registration Statement or Prospectus covering any Registrable Securities or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Registration Statement covering any Registrable Securities or (ii) any suspension of the qualifications (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as reasonably practicable. (e) Furnish to each Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. (f) Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses covering any Registrable Securities (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. 6 7 (g) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject. (h) Upon the occurrence of any event contemplated by Section 3(c)(v), as promptly as practicable, prepare a supplement or amendment, including a post-effective amendment, to such Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither such Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (i) Use its best efforts to cause all Registrable Securities relating to any Registration Statement to be listed on The Nasdaq National Market and any other securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which similar securities issued by the Company are then listed as and when required pursuant to the Purchase Documents. (j) The Company may require each selling Holder to furnish to the Company such information, including information regarding the distribution of such Registrable Securities, as is required by law to be disclosed in a Registration Statement covering such Registrable Securities and the Company may exclude from such registration the Registrable Securities of any such Holder who fails to furnish such information within a reasonable time after receiving such request. The failure by the Company to file the Shelf Registration Statement by the Filing Date, to cause it to become effective by the Effectiveness Date or to maintain its effectiveness for the Effectiveness Period, if due solely to the breach of a Holder's obligations under this Section, shall not be deemed a breach of the Company's obligations to such Holder under this Agreement or the applicable Purchase Document to which such Holder is a party. The rights of Holders that timely supply such information shall not be affected by the preceding sentence and the Company shall remain obligated hereunder to file, and cause and maintain the effectiveness of the Shelf Registration Statement on behalf of such Holders. 7 8 If any Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to such Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Purchaser covenants and agrees that (i) it will not sell any Registrable Securities under any Registration Statement until it has received copies of the Prospectus relating thereto as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that such Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c); and (ii) the Purchaser and its officers, directors or Affiliates, if any, will comply with the Prospectus delivery and any other requirements of the Securities Act applicable to them in connection with sales of Registrable Securities pursuant to such Registration Statement. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v), such Holder will forthwith discontinue disposition of such Registrable Securities under such Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(h), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. 4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, whether or not any Registration Statement covering any Registrable Securities is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to such a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with The Nasdaq National Market and each other securities exchange or market on which Registrable Securities are required hereunder to be listed, and (B) in compliance with state securities or Blue Sky laws; (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses); (iii) messenger, telephone and delivery expenses incurred by the Company; (iv) fees and disbursements of counsel for the Company; (v) Securities Act liability insurance, if the Company so desires such insurance; and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees 8 9 performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder, and the reasonable fees and expenses of one legal counsel retained by the Holders. 5. Indemnification (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus covering any Registrable Shares or in any amendment or supplement thereto or in any preliminary prospectus covering any Registrable Shares, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder or such Holder's proposed method of distribution of Registrable Securities furnished to the Company by such Holder expressly for use therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, the directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of or based solely upon any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus covering Registrable Shares, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus and that such information was reasonably relied upon by the Company for use in such Registration Statement, such Prospectus or such form of prospectus. In no event shall the liability of any selling Holder hereunder be greater in amount 9 10 than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party); provided that if more than one Indemnified Party is seeking indemnification with respect to the same Proceeding, the Indemnifying Party shall not be required to pay for more than one separate counsel for all such Indemnified Parties as a group. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. (d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in 10 11 such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), the Purchaser shall not be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by the Purchaser from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that the Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 6. Rule 144. The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, they will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales of its securities pursuant to Rule 144. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. 11 12 7. Miscellaneous (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of at least eighty percent (80%) of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (c) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 4:30 p.m. (Minneapolis time) on a Business Day; (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in the Purchase Documents later than 4:30 p.m. (Minneapolis time) on any date and earlier than 11:59 p.m. (Minneapolis time) on such date; (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service; or (iv) upon actual receipt by the party to whom such notice is required to be given. If to the Company: Sheldahl, Inc. 1150 Sheldahl Road Northfield, MN 55057-9444 Attn: Edward L. Lundstrom Fax: (507) 663-8326 or (507) 663-8435 12 13 With copies to: Lindquist & Vennum P.L.L.P. 4200 IDS Center 80 South Eighth Street Minneapolis MN 55402 Attn: Charles P. Moorse, Esq. Fax: (612) 371-3207 or such other address as may be designated in writing hereafter, in the same manner, by such Person. (d) Successors and Assigns. This Agreement shall more to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall more to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Purchaser may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Documents. (e) Assignment of Registration Rights. The rights of each Purchaser hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by the Purchaser to any assignee or transferee of all or a portion of the shares of Preferred Stock, the Warrants or the Registrable Securities if: (i) the Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (A) the name and address of such transferee or assignee, and (B) the securities with respect to which such registration rights are being transferred or assigned; (iii) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws to the extent required by the Purchase Documents; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement; and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Documents. The rights to assignment shall apply to the Purchaser's (and to subsequent) successors and assigns. (f) Counterparts. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. 13 14 (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota, without regard to principles of conflicts of law. (h) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (k) Shares Held by The Company and its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than the Purchasers or transferees or successors or assigns thereof if such Persons are deemed to be Affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 14 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SHELDAHL, INC. By: ---------------------------------------- Name: Edward L. Lundstrom Its: President PURCHASERS: MORGENTHALER VENTURE PARTNERS V, L.P. By: ---------------------------------------- Name: John D. Lutsi, its General Partner AMPERSAND IV LIMITED PARTNERSHIP BY: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, ITS GENERAL PARTNER By: ---------------------------------------- Name: Stuart A. Auerbach Title: Managing Member AMPERSAND IV COMPANION FUND LIMITED PARTNERSHIP BY: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, ITS GENERAL PARTNER By: ---------------------------------------- Name: Stuart A. Auerbach Title: Managing Member 15 16 SOUND BEACH TECHNOLOGY PARTNERS, LLC By: ---------------------------------------- Name: Donald R. Friedman Title: President and Chief Executive Officer MOLEX INCORPORATED By: ________________________________ Name: Title: 16 17 SCHEDULE I List of Purchasers Morgenthaler Venture Parnters V, L.P. Ampersand IV Limited Partnership Ampersand IV Companion Fund Limited Partnership Sound Beach Technology Partners, LLC Molex Incorporated 17 EX-4.3 6 c58431ex4-3.txt SUBORDINATED NOTES & WARRANT PURCHASE AGREEMENT 1 EXHIBIT 4.3 SUBORDINATED NOTES AND WARRANT PURCHASE AGREEMENT This Subordinated Notes and Warrant Purchase Agreement (this "Agreement"), dated as of November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and the purchasers listed on Schedule I attached hereto (sometimes referred to herein as a "Purchaser" and collectively as the "Purchasers"). PRELIMINARY STATEMENT Subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Purchasers and the Purchasers severally desire to purchase from the Company 12% Senior Subordinated Notes in an aggregate principal amount of up to $15,000,000 (the "Notes"). In consideration for the agreement of the Purchasers to purchase the Notes, the Company desires to issue to the Purchasers and the Purchasers desire to acquire from the Company warrants (the "Warrants") to purchase in the aggregate 2,280,466 shares of common stock, par value $.25 per share, of the Company ("Common Stock"), all subject to the terms and conditions in this Agreement and the other Transaction Documents (as hereinafter defined). Accordingly, the Company and the Purchasers agree as follows: ARTICLE I ISSUANCE OF THE NOTES AND THE WARRANTS 1.1 Authorization of Issuance. (a) The Company has authorized the issuance of Notes in the aggregate principal amount of $15,000,000, such Notes to be substantially in the form of Exhibit A attached hereto. (b) The Company has authorized the issuance of Warrants to purchase an aggregate of 2,280,466 shares of Common Stock, such Warrants to be substantially in the form of Exhibit B attached hereto. (c) Each Purchaser shall be entitled to receive Warrants at the rate of 152,031.0667 Warrants per $1,000,000 principal amount of Notes actually purchased. (d) The Notes and the Warrants are sometimes collectively referred to herein as the "Securities." As used herein, the term "Warrant" refers to a warrant to purchase one share of Common Stock (or such other number of shares of Common Stock as a result of any adjustments made pursuant to the anti-dilution provisions of the Warrants) and a designated number of Warrants refers to warrants to purchase the same number of shares of Common Stock (or such other number of shares of Common Stock as a result of any adjustments made pursuant to the anti-dilution provisions of the Warrants). 2 1.2 Purchase Commitments. (a) Morgenthaler Venture Partners V, L.P. ("Morgenthaler") agrees to purchase in accordance with and subject to the terms and conditions hereof Notes in the aggregate principal amount of $10,250,000 less: (1) the principal amount of any Notes sold by the Company to Ampersand IV Limited Partnership ("Ampersand LP"), Ampersand IV Companion Fund Limited Partnership ("Ampersand CFLP") and Molex Incorporated ("Molex") pursuant to Section 1.4 hereof, and (2) the principal amount of any Notes sold by the Company to third party purchasers pursuant to Section 4.6(iv) hereof, and a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof. (b) Ampersand LP agrees to purchase in accordance with and subject to the terms and conditions hereof Notes in the aggregate principal amount of $735,000 and a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof. (c) Ampersand CFLP agrees to purchase in accordance with and subject to the terms and conditions hereof Notes in the aggregate principal amount of $15,000 and a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof. (d) Molex agrees to purchase in accordance with and subject to the terms and conditions hereof Notes in the aggregate principal amount of $4,000,000 and a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof. 1.3 The Initial Closing. (a) The initial closing of the purchase and sale of the Securities (the "Initial Closing") shall take place at the offices of Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South 8th Street, Minneapolis, Minnesota simultaneous with the closing of the transactions contemplated by the Agreement and Plan of Merger, of even date herewith, among the Company, IFT West Acquisition Company (the "Merger Sub"), International Flex Holdings, Inc. ("IFH") and the shareholders of IFH (the "Merger Agreement") and the Stock Purchase Agreement (the "Stock Purchase Agreement"), of even date herewith, among the Company and the purchasers named therein. The date of the Initial Closing is hereinafter referred to as the "Initial Closing Date." 2 3 (b) At the Initial Closing: (1) the Company shall deliver to each Purchaser, (A) Notes in the principal amount set forth below the name of such Purchaser on Schedule I attached hereto, dated the Initial Closing Date and duly executed by the Company; (B) the number of Warrants set forth below the name of such Purchaser on Schedule I attached hereto, dated the Initial Closing Date and duly executed by the Company; and (C) all other documents, instruments and writings required to have been delivered at or prior to the Initial Closing by the Company to the Purchasers pursuant to this Agreement, and (2) each Purchaser shall deliver to the Company the purchase price set forth below the name of such Purchaser on Schedule I attached hereto by wire transfer of same day funds to an account designated by the Company in writing two business days before the Initial Closing. 1.4 Subsequent Closings. (a) If the Company shall desire to sell all or a portion of the Securities authorized in accordance with Section 1.1 hereof but not sold on the Initial Closing Date nor sold by the Company to third party purchasers pursuant to Section 4.6(iv) hereof, it shall, on not more than two occasions, deliver written notice to that effect to each Purchaser, indicating the amount of Securities it desires to sell (which amount shall include not less than $1,000,000 principal amount of Notes) and the date (the "Subsequent Closing Date") on which the closing (the "Subsequent Closing") of such sale shall take place. Each such notice shall be delivered at least 30 business days prior to the Subsequent Closing Date and the Subsequent Closing Date shall occur no later than the date which is nine months after the Initial Closing Date (the "Nine-Month Anniversary Date"). Each such notice shall be irrevocable. (b) Molex shall have the right to purchase Notes and a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof at Subsequent Closings, provided it delivers written notice to the Company and the other Purchasers within 10 business days of receipt of the Company's notice delivered pursuant to Section 1.4(a) hereof in connection with any Subsequent Closing, specifying the aggregate principal amount of Notes and number of Warrants to be purchased at such Subsequent Closing; provided that the principal amount of Notes purchased by Molex at all Subsequent Closings shall not exceed $2,127,877 in the aggregate. Such notice of Molex shall be irrevocable. If Molex delivers such a notice to the Company pursuant to this section 1.4(b), the Company shall, within three business days after receipt by the Company of such notice from Molex, deliver written notice to the other Purchasers to that effect, disclosing the contents of Molex's notice. If Molex fails timely to deliver such notice to the Company and the other Purchasers, it shall be deemed to have elected not to purchase any Securities at such Subsequent Closing and the Company shall, within three business days of the end of such 10 business day period, deliver notice to that effect to the other Purchasers. 3 4 (c) If the amount of Securities indicated by the Company in the notice delivered pursuant to Section 1.4(a) hereof in connection with any Subsequent Closing exceeds the amount Molex has elected to purchase pursuant to Section 1.4(b) hereof, Ampersand LP and Ampersand CFLP shall collectively have the right to purchase up to thirty percent (30%) of such excess, provided that each Ampersand entity intending to purchase Securities pursuant to this Section 1.4(c) delivers written notice to that effect to the Company and Morgenthaler within five business days of receipt of the Company's notice delivered to the Ampersand entities pursuant to Section 1.4(b) hereof. Such notice of the Ampersand entity (or entities) intending to purchase Securities pursuant to this Section 1.4(c) shall be irrevocable and shall specify the aggregate principal amount of Notes and number of Warrants to be purchased at such Subsequent Closing. If either or both of the Ampersand entities delivers such a notice to the Company pursuant to this section 1.4(c), the Company shall, within three business days after receipt by the Company of such notice from either or both of the Ampersand entities, deliver written notice to Morgenthaler to that effect, disclosing the contents of the Ampersand entities' notice. If either or both of the Ampersand entities fails timely to deliver such notice to the Company and Morgenthaler, such Ampersand entity or entities shall be deemed to have elected not to purchase any Securities at such Subsequent Closing and the Company shall, within three business days of the end of such 10 business day period, deliver notice to that effect to Morgenthaler. (d) If the amount of Securities indicated by the Company in the notice delivered pursuant to Section 1.4(a) hereof in connection with any Subsequent Closing exceeds the amount Molex has elected to purchase pursuant to Section 1.4(b) hereof and the amount Ampersand LP and Ampersand CFLP collectively have elected to purchase pursuant to Section 1.4(c) hereof, Morgenthaler shall purchase such excess on the Subsequent Closing Date indicated in the notice delivered by the Company pursuant to section 1.4(a) hereof. In no event shall Morgenthaler be required to purchase Securities under this Agreement in excess of the maximum commitment of Morgenthaler set forth in Section 1.2(a) hereof. (e) Any Subsequent Closing shall take place at a location agreed upon by the Company and each Purchaser participating in such Subsequent Closing. (f) At each Subsequent Closing: (1) the Company shall deliver to each Purchaser participating in such Subsequent Closing, (A) Notes to be purchased by such Purchaser at such Subsequent Closing, dated such Subsequent Closing Date and duly executed by the Company and (B) a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof, dated such Subsequent Closing Date and duly executed by the Company, and (2) each Purchaser participating in such Subsequent Closing shall deliver to the Company the purchase price for the Securities being purchased at such 4 5 Subsequent Closing by wire transfer of same day funds to an account designated by the Company in writing two business days before such Subsequent Closing Date. (g) If the Company elects not to exercise its option to sell additional Securities as provided in Section 1.4(a) hereof, Molex shall have the right, 20 business days after the Nine-Month Anniversary Date, to purchase Notes in an aggregate principal amount to be determined by Molex up to $2,127,877 and a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof, upon written notice delivered to the Company no later than 10 business days after such Nine-Month Anniversary Date. Such notice shall be irrevocable. The terms of any sale of Securities pursuant to this Section 1.4(g), including closing procedures, shall be in conformity with the provisions relating to a sale of Securities at any Subsequent Closing contained herein. (h) If the Company elects to exercise its option to sell additional Securities as provided in Section 1.4(a) hereof but sells Notes in an aggregate principal amount less than $2,127,877, Molex shall have the right, 20 business days after the Nine-Month Anniversary Date, to purchase (A) Notes in an aggregate principal amount to be determined by Molex up to (x) $2,127,877 minus (y) the aggregate principal amount of Notes that Molex had the opportunity to purchase pursuant to Section 1.4(b) hereof and (B) a corresponding number of Warrants determined in accordance with Section 1.1(c) hereof, upon written notice delivered to the Company no later than 10 business days after such Nine-Month Anniversary Date. Such notice shall be irrevocable. The terms of any sale of Securities pursuant to this Section 1.4(h), including closing procedures, shall be in conformity with the provisions relating to a sale of Securities at any Subsequent Closing contained herein. ARTICLE II PROVISIONS OF THE NOTES AND THE WARRANTS 2.1 The Notes. Subject to the provisions for optional prepayment in Section 2.5 hereof and Article VIII hereof, the aggregate principal amount of the Notes (whether issued on the Initial Closing Date or on a Subsequent Closing Date) together with all accrued interest thereon shall be due and payable in immediately available United States dollars on the fifth anniversary of the Initial Closing Date (the "Maturity Date"). 2.2 Interest Payments. The Company shall pay interest on the outstanding principal balance of the Notes at a rate equal to 12% per annum, payable quarterly in arrears and computed on the basis of a 360-day year of twelve months. Interest on the outstanding principal balance of the Notes shall be payable quarterly on March 31, June 30, September 30 and December 31 of each year. At the option of the Company, interest may be paid by the Company in the form of cash or additional Notes (the "Additional Notes") until the first anniversary of the Initial Closing Date unless an Event of Default (as defined in Section 8.1 hereof) has occurred and is continuing as of such 5 6 interest payment date, in which case, interest payable on such interest payment date shall be payable only in cash. Thereafter, interest may only be paid in cash. The term "Notes" as used herein shall include each Note and each Additional Note. In the event the interest rate payable on the Notes exceeds the maximum rate of interest permissible under any applicable law (the "Maximum Legal Rate") at any time, the interest rate payable on the Notes shall be equal to the Maximum Legal Rate at such time. 2.3 Default Interest. If the Company defaults in the payment of the principal of, premium, if any, or accrued interest on the Notes, or on any other amount due hereunder, the Company shall, on or upon demand from time to time, pay interest on such overdue amount from the date when due up to and including the date of actual payment (before as well as after judgment) at a rate equal to the lower of 15% per annum or the Maximum Legal Rate. 2.4 Payments. The aggregate principal amount of the Notes shall be due and payable on the Maturity Date. The Company shall make payment of principal of and premium, if any, or accrued interest on the Notes, or any other amount due to the Purchasers under this Agreement, as provided herein or in the Notes. All payments hereunder shall be in United States dollars by wire transfer of same day funds. Whenever any payment hereunder shall become due, or otherwise would occur, on a day that is not a business day, such payment shall be made on the next succeeding business day and such extension of time shall in such case be included in the computation of such interest payable, or other amount, if applicable. If at any time any payment made by the Company hereunder is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, such payment obligations of the Company hereunder shall be reinstated as though such payment had been due but not made when due. 2.5 Optional Redemption of the Notes. Upon notice given as provided below, the Company, at its option, may redeem the Notes as a whole, or from time to time in part (in a minimum amount and otherwise in multiples of $100,000), in each case at the principal amount so to be prepaid, together with interest accrued thereon to the date fixed for such prepayment, plus a premium based on the principal amount being redeemed as follows:
Date of Prepayment Premium ------------------ ------- Prior to the first anniversary of the Initial Closing Date 4% Prior to the second anniversary of the Initial Closing Date 3% Prior to the third anniversary of the Initial Closing Date 2% Prior to the fourth anniversary of the Initial Closing Date 1% Prior to the fifth anniversary of the Initial Closing Date 0%
6 7 2.6 Mandatory Redemption. (a) Except as otherwise provided in Section 2.8 hereof, concurrently with the receipt by the Company or any of its subsidiaries of the cash proceeds from (i) the issuance of any shares, interests, participations or other equivalents of corporate stock or membership interests ("Capital Stock") of any of the Company's subsidiaries or options or warrants to acquire Capital Stock of any of the Company's subsidiaries or (ii) any sale or other disposition of assets by the Company or any of its subsidiaries (excluding granting any Permitted Liens), the Company shall apply such cash proceeds (net of expenses payable by the Company or any of its subsidiaries to any person other than an affiliate of the Company in connection with the issuance thereof and net of accrued interest as a result of such redemption) to the redemption of Notes in accordance with Section 2.5 hereof; provided, however, that the Company may first apply such cash proceeds to repay Senior Debt (as hereinafter defined) and any excess proceeds remaining thereafter shall be applied to redeem the Notes as provided in Section 2.5 hereof and provided, further, that the Company shall have no obligation to apply to such redemption (x) the first $1,000,000 of net cash proceeds received by the Company or any subsidiary from all such issuances subsequent to the Initial Closing Date and (y) the first $1,000,000 of net cash proceeds received by the Company or any subsidiary from all sales or other dispositions of assets subsequent the Initial Closing Date. (b) Notwithstanding the foregoing, if the Company or any of its subsidiaries sells or disposes of equipment in the ordinary course of business, the Company shall not be obligated to use such cash proceeds to redeem the Notes pursuant to this Section 2.6. (a) If the Company requests by written notice delivered to the holders of outstanding Notes any waiver, amendment or modification of the terms of Article VII hereof and the holders of sixty six and two-thirds percent (66-2/3%) of the outstanding Notes have not given approval of such waiver, amendment or modification within 30 days of delivery of such written request, the Company shall have the right to redeem all but not less than all of the outstanding Notes pursuant to Section 2.5 hereof without payment of any redemption premium, provided that such redemption has been completed within 60 days of delivery of such written request. 2.7 Notice of Redemption. The Company shall give the holder of each Note irrevocable written notice of any redemption pursuant to Section 2.5 or 2.6 hereof not less than 5 days nor more than 20 days prior to the date specified for such redemption, specifying such date and the principal amount of the Notes held by such holder to be redeemed on such date and stating that such redemption is to be made pursuant to Section 2.5 or 2.6 hereof. Notice of redemption having been given as aforesaid, the principal amount of the Notes specified in such notice, together with accrued and unpaid interest (if any) thereon through the redemption date with respect thereto, shall become due and payable on such redemption date. 2.8 Change in Control. (a) In the event of any Change in Control (as hereinafter defined), each holder of 7 8 Notes shall have the right, at its option, to require the Company to purchase all or any portion of such holder's Notes on the date (the "Change in Control Payment Date") which is 20 business days after the date the Change in Control Notice (as hereinafter defined) is required to be mailed at the redemption price that would be applicable were such Notes redeemed in accordance with Section 2.5 hereof on such date. (b) For purposes of this Agreement, the term "Change in Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any "person" or "group" (as such terms are used in Section 13(d)(3) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than Morgenthaler and its affiliates, Ampersand LP and its affiliates, Ampersand CFLP and its affiliates or Molex and its affiliates (collectively, the "Permitted Holders"); (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) any person or group (as defined above), other than the Permitted Holders, becomes the "beneficial owner" of 35% or more of the voting power of the voting stock of the Company; or (iv) during any consecutive two-year period, individuals, who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by the Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office. For so long as the Permitted Holders hold a majority of the outstanding shares of the Company's Series G Preferred Stock, those directors elected by the holders of the Company's Series G Preferred Stock shall not be considered in applying clause (iv) above. In addition, any change in the identity of a person occupying a board seat resulting from the loss by the holders of the Series G Preferred Stock of the right to elect one or more directors shall not be considered in applying clause (iv) above. (c) The Company shall send all holders of the Notes, within 5 business days after the occurrence of any Change in Control, a notice of the occurrence of such Change in Control (the "Change in Control Notice") and each holder of Notes who wishes to have its Notes repurchased pursuant to this Section 2.8 shall so indicate by written notice delivered to the Company within 10 business days of receipt of the Change in Control Notice. Each Change in Control Notice shall state: (1) the Change in Control Payment Date; (2) the date by which the right to have Notes purchased must be exercised; (3) that such right is conditioned on receipt of notice from the holders; (4) the purchase price, if the right to have Notes purchased is exercised; 8 9 (5) a description of the procedure which the holders of Notes must follow to exercise the right to have Notes purchased; (6) that the purchase is being made pursuant to this Section 2.8; (7) that any Note not tendered will continue to accrue interest if interest is then accruing; and (8) that, unless the Company defaults in making payment therefor, any Note purchased shall cease to accrue interest after the Change in Control Payment Date. (d) No failure of the Company to give the foregoing notice shall limit any holder's right to exercise a right to have Notes purchased. (e) If any Senior Debt is outstanding, or any amounts are owing thereunder or in respect thereof, at the time of the occurrence of a Change in Control, prior to the mailing of the notice to holders of the Notes, but in any event within 10 business days after the date the Change in Control Notice is required to be mailed, the Company shall (i) repay or cause the borrowers thereunder to repay in full all obligations and terminate all commitments under or in respect of such Senior Debt or (ii) cause such borrowers to obtain the requisite consents under such Senior Debt to permit the repurchase of the Notes as described above. The Company must first comply with the covenant described in the preceding sentence before it shall be required to purchase Notes pursuant to this Section 2.8 in the event of a Change in Control; provided, however, that the Company's failure to timely comply with the covenant described in the preceding sentence shall constitute an Event of Default as described in Section 8.1(c) hereof. (f) The Company shall not be required to purchase all or any portion of the Notes under subparagraph (a) of this Section 2.8 if a third party offers to purchase the Notes in the manner, at the time and otherwise in compliance with the requirements set forth in this Section 2.8, and timely purchases all Notes or portions thereof validly tendered and not withdrawn under this Section 2.8. 2.9 Partial Redemptions Pro Rata. Upon any partial redemption of the Notes pursuant to Section 2.5 or 2.6 hereof, the principal amount so redeemed shall be allocated to all Notes at the time outstanding in proportion to the respective outstanding principal amounts thereof. 2.10 Retirement of the Notes. The Company shall not redeem or otherwise retire in whole or in part prior to their stated final maturity (other than by redemption pursuant to Section 2.5, 2.6 or 2.8 hereof or upon acceleration of such final maturity pursuant to Section 8.1 hereof), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company shall have offered to redeem or otherwise retire, purchase or acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each holder of Notes at the time outstanding upon 9 10 the same terms and conditions. Any Notes so redeemed or otherwise retired, purchased or acquired by the Company shall not be deemed to be outstanding for any purpose under this Agreement. 2.11 Subordination. The Purchasers agree to subordinate their interest in and to the unpaid principal amount of and interest on the Notes to the interest of lenders of the Company existing as of the date hereof and banks or other lending institutions providing debt financing to the Company after the date hereof (collectively, the "Senior Lenders"); provided however, that the holders of the Notes will not be obligated to subordinate their interests to more than an aggregate of $45,000,000 of Indebtedness owed to such Senior Lenders ("Senior Debt"). The Purchasers agree that they will enter into an Intercreditor Agreement with the Senior Lenders on or prior to the Initial Closing Date that will contain customary terms and that is acceptable to the Purchasers and the Senior Lenders. Notwithstanding the foregoing, the Intercreditor Agreement to be entered into by the holders of the Notes pursuant to this Section 2.11 must provide the holders of the Notes with cross-acceleration rights (subject to any standstill agreements), the ability to vote their interests in a bankruptcy of the Company, no pay-over in a bankruptcy and a maximum standstill provision of 180 days that cannot be exercised more than once in any 365 day period. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations, Warranties and Agreements of the Company. The Company hereby makes the following representations and warranties to the Purchasers, subject to those matters set forth in the letter dated the date hereof from the Company to the Purchasers initialed by those parties (the "Disclosure Letter"). Any matter disclosed in the Disclosure Letter with respect to a specific section of this Agreement shall be deemed disclosed with respect to all sections of this Agreement to which it reasonably relates, but only to the extent such disclosure is significantly adequate to inform the Purchasers of its relevance to such other section. For the purposes of this Article III, any reference to the subsidiaries of the Company as of the Initial Closing Date shall exclude IFH. The Company hereby agrees to deliver to the Purchasers an updated Disclosure Letter within 30 days after the Initial Closing Date to reflect the merger of the Merger Sub with and into IFH (the "Merger"). (a) Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. Each of the Company's subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization. Except as set forth in Part 3.1(a) of the Disclosure Letter, each of the Company and its subsidiaries has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted, and is duly qualified or licensed to do business, and is in good standing, in each 10 11 jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority, or the failure to be so qualified, licensed or in good standing, would not have a Material Adverse Effect (as hereinafter defined) on the Company. Part 3.1(a) of the Disclosure Letter lists all of the Company's directly or indirectly owned subsidiaries. The term "subsidiary" or "subsidiaries" means, with respect to the Company, any person, corporation, partnership, joint venture or other legal entity of which the Company (either alone or through or together with any other subsidiary), owns, directly or indirectly, stock or other equity interests the holders of which are generally entitled to more than 50% of the vote for the election of the Board of Directors or other governing body of such corporation or other legal entity. The term "Material Adverse Effect," as used in this Agreement with respect to the Company, shall mean any adverse change, circumstance or effect that, would (i) have a material adverse effect on the business, financial condition, assets or results of operations of the Company and its subsidiaries, taken as a whole, or (ii) prevent or materially delay the ability of the Company to consummate the transactions contemplated hereby, other than any delays occasioned by review by the Securities and Exchange Commission (the "Commission") of the preliminary proxy statement or the definitive proxy statement (including any amendment or supplement thereto, the "Proxy Statement") relating to the Merger. (b) Authorization; Enforcement. Except as set forth on Part 3.1(b) of the Disclosure Letter, the Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement, the Notes, the Warrants, the Registration Rights Agreement (defined in Section 5.1(i) hereof) and the Security Agreement (defined in Section 4.8 hereof), if any, and the Deed of Trust (defined in Section 4.8 hereof), if any (the "Transaction Documents"), and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company. This Agreement has been duly and validly executed by the Company and, when duly executed and delivered by the Purchasers, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. On the Initial Closing Date, each of the Transaction Documents will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. 11 12 (c) Capitalization. (1) The authorized, issued and outstanding capital stock of the Company as of October 24, 2000 is set forth in Part 3.1(c) of the Disclosure Letter. Each of the outstanding shares of capital stock of the Company is duly authorized, validly issued, full paid and nonassessable. Except as specifically disclosed in Part 3.1(c) of the Disclosure Letter, no shares of the capital stock or other securities of the Company are entitled to preemptive or similar rights, nor is any holder of shares of the capital stock or other securities of the Company entitled to preemptive or similar rights. Except as disclosed in Part 3.1(c) of the Disclosure Letter, as of October 24, 2000, there are no outstanding options, warrants or commitments of any character whatsoever relating to, or, except as a result of the purchase and sale of the Warrants hereunder and the shares of Common Stock issuable upon the exercise thereof (the "Warrant Shares"), securities, rights or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company is bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock, or any shares of Common Stock reserved for issuance. Except as disclosed in Part 3.1(c) of the Disclosure Letter, (i) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof, (ii) the Company has no obligation to provide funds (other than normal accounts or notes payable) to or make any investment in (in the form of a loan, capital contribution or otherwise) an entity other than its subsidiaries, (iii) there are no restrictions on the transfer of the Company's capital stock other than those arising from securities laws or contemplated by this Agreement or the other Transaction Documents, and (iv) the issue and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any person other than the Purchasers and will not result in a right of any holder of the Company's securities to adjust the exercise or conversion or reset price under such securities. (2) Each of the outstanding shares of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned of record and beneficially by the Company free and clear of any liens, claims, encumbrances or defects of any kind (collectively, "Liens") other than any security interest held by Wells Fargo Bank N.A. There is no outstanding subscription, option, warrant, call, right, agreement, commitment, understanding or arrangement relating to the issuance, sale, delivery, transfer or redemption of any shares of capital stock of any subsidiary. (3) Except as set forth on Part 3.1(c) of the Disclosure Letter, there are no voting trusts or other agreements or understandings to which the Company or any of its subsidiaries is a party with respect to the voting of the capital stock of the Company or any of its subsidiaries. 12 13 (d) Issuance of Shares. The maximum number of Warrant Shares has been duly authorized and reserved for issuance upon exercise of the Warrants, and, when issued as provided in the Warrants against payment therefor in accordance with the terms of the Warrants, such Warrant Shares will be duly authorized, validly issued, fully paid and nonassessable and free from any and all restrictions, including, without limitation, preemptive rights, restrictions with respect to the voting, transfer and other rights exercisable by a holder of shares of Common Stock and any Liens, except as set forth in any required legends thereon, including those required under the Governance Agreement between the Company and certain of the Purchasers (the "Governance Agreement"). (e) No Conflicts. Except as specifically set forth in Part 3.1(e) of the Disclosure Letter, the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Articles of Incorporation or Bylaws of the Company or its subsidiaries; (ii) subject to obtaining the consents referred to in Section 3.1(f) hereof, conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party; or (iii) subject to obtaining the Required Approvals (as hereinafter defined), result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or any of its subsidiaries is subject (other than a violation of any federal and state securities laws requiring filings with such authorities and the delivery of certain information pursuant to Rule 502(b)(1) promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, to the Purchasers who are deemed not to be accredited investors as a result of a failure of the representations and warranties of the Purchasers set forth in Section 3.2(c) hereof to be accurate), or by which any property or asset of the Company or any of its subsidiaries is bound or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not in the aggregate have a Material Adverse Effect on the Company. (f) Consents and Approvals. Except as specifically set forth in Part 3.1(f) of the Disclosure Letter, and assuming that the representations and warranties of the Purchasers contained in Section 3.2 hereof are true and correct in all material respects, the Company is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of the Transaction Documents, except for (i) the filing of the Registration Statement(s) (as defined in the Registration Rights Agreement) with the Commission; (ii) the application(s) or any letter(s) acceptable to and approved by the National Association of Securities Dealers, Inc. ("NASD") for the designation of the Warrant Shares for trading on the Nasdaq Stock Market (and with any other national 13 14 securities exchange or market on which the Common Stock is then listed); (iii) any filings, notices, registrations or approvals under applicable federal or state securities laws and any filing or approval that may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (iv) the filing of the Proxy Statement with the Commission to obtain approval to mail to the Company's shareholders of the transactions contemplated by the Merger Agreement and the Stock Purchase Agreement, clearance from the Commission to mail such Proxy Statement to the Company's shareholders and the receipt of such shareholder approval or the filing with the Nasdaq Stock Market for an exemption from the requirement of obtaining such approval of the Company's shareholders and the receipt of such exemption; (v) the filing of any UCC Financing Statements or other documents as may be required by the Purchasers to perfect the security interests created by the Security Agreement and the Deed of Trust; and (vi) other than, in all other cases, where the failure to obtain such consent, waiver, authorization or order, or to give or make such notice or filing, (x) would not materially impair or delay the ability of the Company to effect the Initial Closing and to deliver the Securities (and, upon conversion of the Warrants, the Warrant Shares) to the Purchasers in the manner contemplated hereby and by the Registration Rights Agreement or (y) would not otherwise have a Material Adverse Effect on the Company (together with the consents, waivers, authorizations, orders, notices and filings referred to in Part 3.1(f) of the Disclosure Letter, the "Required Approvals"). (g) Litigation; Proceedings. Except as set forth in the SEC Documents (as hereinafter defined), or Part 3.1(g) of the Disclosure Letter, as of the date hereof, there are no material suits, claims, actions, proceedings, including arbitration proceedings or alternative dispute resolution proceedings, or investigations pending or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries or any of their properties before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) that could have a Material Adverse Effect on the Company. (h) No Default or Violation. Except as set forth in Part 3.1(h) of the Disclosure Letter, neither the Company nor any subsidiary (i) is in default under or in violation of any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound, including, without limitation, the Limited Liability Company Agreement of Modular Interconnect Systems, L.L.C., dated as of July 28, 1998, between Molex and the Company (the "Molex Joint Venture Agreement"); or (ii) is in violation of any order of any court, arbitrator or governmental body, except as could not reasonably be expected to, in any such case (individually or in the aggregate) have or result in a Material Adverse Effect. (i) SEC Documents; Financial Statements. Except as set forth in Part 3.1(i) of the Disclosure Letter, the Company has filed all reports required to be filed by it under the Exchange Act, including, pursuant to Section 13(a) or 15(d) thereof, for the three years preceding the date hereof (the foregoing materials being collectively referred to herein 14 15 as the "SEC Documents"), on a timely basis, or has received a valid extension of such time of filing and has filed any such SEC Documents prior to the expiration of any such extension. Except as provided in Part 3.1(i) of the Disclosure Letter, as of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder. The financial statements of the Company included in the SEC Documents comply in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved, except as may be otherwise indicated in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal year-end audit adjustments. Since the date of the financial statements included in the Company's last filed Quarterly Report on Form 10-Q for the quarter ended May 28, 2000, except as has been specifically disclosed in writing to the Purchasers by the Company or in the Merger Agreement or the Disclosure Letter referenced herein or therein, (i) there has been no event, occurrence or development that has had a Material Adverse Effect (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (x) liabilities incurred in the ordinary course of business consistent with past practice and (y) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or otherwise required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors and (iv) the Company has not declared or made any payment or distribution of cash or other property to its stockholders or officers or directors (other than in compliance with existing Company stock option and stock purchase plans) with respect to its capital stock, or purchased or redeemed (or made any agreements to purchase or redeem) or split, combined, subdivided or reclassified any shares of its capital stock. (j) Changes. Since September 1, 2000, except as otherwise disclosed in Part 3.1(j) of the Disclosure Letter: (1) there has been no Material Adverse Effect on the Company; (2) the Company has not adopted any amendment to its Articles of Incorporation or Bylaws; (3) other than grants under the Company's stock plans and issuances upon exercise of options granted under the Company's stock plans, neither the Company nor any subsidiary has issued, reissued, pledged or sold, or authorized the issuance, reissuance, pledge or sale of (i) additional shares of capital stock of any class, or securities convertible into, exchangeable for or evidencing the right to substitute for, capital stock of any class, or any rights, warrants, options, 15 16 calls, commitments or any other agreements of any character, to purchase or acquire any capital stock or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, capital stock; or (ii) any other securities in respect of, in lieu of, or in substitution for, shares or any other shares of capital stock; (4) neither the Company nor any of its subsidiaries declared, set aside or paid any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of its capital stock other than between the Company and any of its wholly-owned subsidiaries; (5) neither the Company nor any of its subsidiaries has split, combined, subdivided, reclassified or redeemed, purchased or otherwise acquired or proposed to redeem or purchased or otherwise acquired any shares of its capital stock or any of its other securities; (6) the Company and its subsidiaries have conducted their respective businesses only in the ordinary and usual course; and (7) there has not been the loss, damage or destruction of any material property of the Company. (k) Compliance with Laws. Except as set forth in Part 3.1(k) of the Disclosure Letter, (i) the Company and its subsidiaries are in compliance, in all material respects, with any applicable law, rule or regulation of any United States federal, state, local, or foreign government or agency thereof which affects the business, properties or assets of the Company and its subsidiaries, the non-compliance with which would have a Material Adverse Effect on the Company; and (ii) no notice, charge, claim, action or assertion has been received by the Company or any of its subsidiaries or has been filed, commenced or, to the Company's knowledge, threatened against the Company or any of its subsidiaries alleging any such violation. To the best of the knowledge of the Company, except as provided in Part 3.1(k) of the Disclosure Letter, all material licenses, permits and approvals required under such laws, rules and regulations are in full force and effect. (l) ERISA. (1) Part 3.1(l) of the Disclosure Letter lists each "employee pension benefit plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (hereinafter a "Pension Plan") and "employee welfare benefit plan" (as defined in Section 3(1) of ERISA, hereinafter a "Welfare Plan"), in each case maintained or contributed to, or required to be maintained or contributed to, by the Company, any of its subsidiaries or any other person that, together with the Company, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "Code") (each a "Commonly Controlled Entity") for the benefit of 16 17 any present or former employees of the Company or any of its subsidiaries. Neither the Company nor any of its subsidiaries has maintained, or incurred any liability whatsoever, with respect to a multi-employer plan (as defined in Section 4001(a)(3) of ERISA). The Company has made available to the Purchasers true, complete and correct copies of (i) each Pension Plan and Welfare Plan (collectively, the "Benefit Plans"); (ii) the most recent annual report on Form 5500 as filed with the Internal Revenue Service with respect to each applicable Benefit Plan; (iii) the most recent summary plan description (or similar document) with respect to each applicable Benefit Plan; (iv) the most recent actuarial report or valuation with respect to each plan that is a "defined benefit pension plan" (as defined in Section 3(35) of ERISA); and (v) each trust agreement relating to any Benefit Plan. (2) Each Benefit Plan has been administered in all material respects in accordance with its terms. To the best of the knowledge of the Company and except where a failure would not have a Material Adverse Effect on the Company, the Company, its subsidiaries and all the Benefit Plans are in compliance with the applicable provisions of ERISA, the Code, and all other laws, ordinances or regulations of any governmental entities. To the best knowledge of the Company, there are no investigations by any governmental entities, termination proceedings or other claims (except claims for benefits payable in the normal operations of the Benefit Plans), suits or proceedings against or involving any Benefit Plan or asserting any rights to or claims for benefits under any Benefit Plan. (3) All contributions to the Benefit Plans required to be made by the Company or any of its subsidiaries in accordance with the terms of the Benefit Plans, any applicable collective bargaining agreement and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been made, there has been no application for or waiver of the minimum funding standards imposed by Section 412 of the Code with respect to any Benefit Plan that is a Pension Plan and no Pension Plan had an "accumulated funding deficiency" within the meaning of Section 412(a) of the Code as of the end of the most recently completed plan year. (4) Except as set forth in Part 3.1(l) of the Disclosure Letter, (i) each Pension Plan that is intended to be a tax-qualified plan has been the subject of a determination letter from the Internal Revenue Service to the effect that such Pension Plan and each related trust is qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code; (ii) no such determination letter has been revoked, and revocation has not been threatened; (iii) to the best knowledge of the Company, no event has occurred and no circumstances exist that would adversely affect the tax-qualification of such Pension Plan; and (iv) such Pension Plan has not been amended since the effective date of its most recent determination letter in any respect that might 17 18 adversely affect its qualification, increase its cost or require security under Section 307 of ERISA. The Company has made available a copy of the most recent determination letter received with respect to each Pension Plan for which such a letter has been issued, as well as a copy of any pending application for a determination letter. (5) No non-exempt "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred that involves the assets of any Benefit Plan; no Pension Plan has been terminated or has been the subject of a "reportable event" (as defined in Section 4043 of ERISA and the regulations thereunder) for which the 30-day notice requirement has not been waived by the Pension Benefit Guaranty Corporation ("PBGC"); and none of the Company, any of its subsidiaries or any trustee, administrator or other fiduciary of any Benefit Plan has engaged in any transaction or acted in a manner that could, or has failed to act so as to, subject the Company, any such subsidiary or any trustee, administrator or other fiduciary to any liability for breach of fiduciary duty under ERISA or any other applicable law. (6) No Commonly Controlled Entity has incurred any liability to a Pension Plan (other than for contributions not yet due) or to the PBGC (other than for the payment of premiums not yet due). (7) No Commonly Controlled Entity has (i) engaged in a transaction described in Section 4069 of ERISA that could subject the Company to a liability at any time after the date hereof; or (ii) acted in a manner that could, or failed to act so as to, result in fines, penalties, taxes or related charges under (x) Section 502(c), (i) or (1) of ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Code. (8) The Company and its subsidiaries comply with the applicable requirements of parts 6 and 7 of subtitle B of Title I of ERISA ((S)(S) 601 et seq.) with respect to each Benefit Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code. (9) Part 3.1(l) of the Disclosure Letter lists (i) all employment agreements between the Company or any of its subsidiaries and any of their respective directors, officers or employees; (ii) all agreements and plans pursuant to which any director, officer or employee of the Company or any of its subsidiaries is entitled to benefits upon termination of their employment or a Change in Control of the Company; (iii) all option plans of the Company; and (iv) all bonus, incentive, deferred compensation, supplemental retirement, health, life or disability insurance, dependent care, severance and other fringe benefit or employee benefit plans, programs or arrangements of the Company or any of its subsidiaries. (10) Except as set forth on Part 3.1(l) of the Disclosure Letter, there is no contract, agreement, plan or arrangement covering any employee of the 18 19 Company or any of its subsidiaries that (i) requires the payment of severance, termination, bonus or other benefits, or accelerated vesting of benefits, for any employee solely as a result of the transactions contemplated by this Agreement, or (ii) could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G or 162(m) of the Code. (m) Assets. Except as set forth in Part 3.1(m) of the Disclosure Letter, the Company and each of its subsidiaries has good, valid and marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, (i) all of its material tangible properties and assets (real and personal), including, without limitation, all the properties and assets reflected in the consolidated balance sheet as of August 27, 1999 contained in the SEC Documents, except as indicated in the notes thereto and except for properties and assets reflected in the consolidated balance sheet as of August 27, 1999 contained in the SEC Documents which have been sold or otherwise disposed of in the ordinary course of business after such date and except where the failure to have such good, valid and marketable title would not have a Material Adverse Effect on the Company; and (ii) all the tangible properties and assets purchased by the Company and any of its subsidiaries since August 27, 1999, except for such properties and assets which have been sold or otherwise disposed of in the ordinary course of business and except where the failure to have such good, valid and marketable title would not have a Material Adverse Effect on the Company; in each case subject to no encumbrance, Lien, charge or other restriction of any kind or character, except for (A) Liens reflected in or securing obligations reflected in the consolidated balance sheet as of August 27, 1999 or May 26, 2000 contained in the SEC Documents, (B) Liens consisting of zoning or planning restrictions, easements, permits and other restrictions or limitations on the use of real property or irregularities in title thereto which do not materially detract from the value of, or impair the use of, such property by the Company or any of its subsidiaries in the operation of its respective business, (C) Liens for current taxes, assessments or governmental charges or levies on property not yet due and delinquent, and (D) such encumbrances, Liens, charges or other restrictions which could not reasonably be expected to have a Material Adverse Effect on the Company. The Company has good and marketable title to all of its properties and assets (including real property and tangible and intangible personal property), in each case free and clear of all Liens other than Permitted Liens. (n) No Undisclosed Liabilities. Except (i) as disclosed in the Company's consolidated balance sheet as of September 1, 2000 or the schedules thereto or the Disclosure Letter; and (ii) for liabilities and obligations (1) incurred in the ordinary course of business and consistent with past practice since August 27, 1999; or (2) pursuant to the terms of this Agreement, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature, accrued, contingent or otherwise, required by GAAP to be reflected in, reserved against or otherwise described in the consolidated balance sheet of the Company (including the notes thereto) which, individually or in the aggregate, would have a Material Adverse Effect on the Company. 19 20 (o) Intellectual Property. Except as provided in Part 3.1(o) of the Disclosure Letter: (1) To the best of the knowledge of the Company, the Company and its subsidiaries own or have the right to use all Intellectual Property (as hereinafter defined) necessary for the Company and its subsidiaries to conduct their business as it is currently conducted and consistent with past practice and such ownership and right to use shall not be affected by the transactions contemplated by this Agreement. (2) Except as set forth in Part 3.1(o) of the Disclosure Letter, to the best of the knowledge of the Company, (i) all of the Intellectual Property used by the Company and its subsidiaries is subsisting and unexpired, free of all Liens, other than Liens that would not have a Material Adverse Effect on the Company, and has not been abandoned; and (ii) does not infringe the Intellectual Property rights of any third party. Except as set forth in Part 3.1(o) of the Disclosure Letter, (i) none of the Intellectual Property owned by the Company and its subsidiaries is the subject of any license, security interest or other agreement granting rights therein to any third party (except for contracts relating to data, databases or software licensed to third parties in the ordinary course of the Company's or its subsidiaries' businesses); (ii) no judgment, decree, injunction, rule or order has been rendered by any governmental entity which would limit, cancel or question the validity of, or the Company's or its subsidiaries' rights in and to, any Intellectual Property owned by the Company; (iii) the Company has not received notice of any pending or threatened suit, action or proceeding that seeks to limit, cancel or question the validity of, or the Company's or its subsidiaries' rights in and to, any Intellectual Property; and (iv) the Company and its subsidiaries take reasonable steps to protect, maintain and safeguard the Intellectual Property owned by the Company, including any Intellectual Property for which improper or unauthorized disclosure would impair its value or validity, and have caused their employees to execute agreements in connection with the foregoing. (3) For purposes of this Agreement "Intellectual Property" shall mean all material rights, privileges and priorities provided under U.S., state and foreign law relating to intellectual property, including (i) all (A) inventions, discoveries, processes, formulae, designs, methods, techniques, procedures, concepts, developments, technology, new and useful improvements thereof and know-how relating thereto, whether or not patented or eligible for patent protections; (B) copyrights and copyrightable works, including computer applications, programs, software, databases and related items; (C) trademarks, service marks, trade names, and trade dress, the goodwill of any business symbolized thereby, and all common-law rights relating thereto; and (D) trade secrets and other confidential information; and (ii) all registrations, applications, recordings, and licenses or other similar agreements related to the foregoing. 20 21 (p) Taxes. The Company and each of its subsidiaries have (i) filed all Tax Returns (as hereinafter defined) which they are required to file under applicable laws and regulations; (ii) paid all Taxes (as hereinafter defined) which have become due and payable; and (iii) accrued as a liability on the balance sheet included in the Company's financial statements described in Section 3.1(i) hereof, all Taxes which were accrued but not yet due and payable as of the date thereof, except for failures to take any such actions which, individually or in the aggregate, would not have a Material Adverse Effect on the Company. The Company has provided the Purchasers with information, that is complete and correct in all material respects, with respect to the Company's net operating loss carry forwards and other tax attributes. For purposes of this Agreement, "Tax" or "Taxes" shall mean any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, conveyance, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, commercial reit, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax of any kind, including any interest or penalties in respect of the foregoing, and "Tax Returns" shall mean returns, declarations, reports, information returns, or other documents filed or required to be filed in connection with the determination, assessment or collection of Taxes of any person or the administration of any laws, regulations or administrative requirements relating to any Taxes. (q) Environmental Laws and Regulations. Except as disclosed in Part 3.1(q) of the Disclosure Letter: (1) The Company and its subsidiaries hold and are in compliance in all material respects with all Environmental Permits (as hereinafter defined), and, to the best of the knowledge of the Company, the Company and its subsidiaries are otherwise in compliance in all material respects with all Environmental Laws (as hereinafter defined); (2) As of the date hereof, there is no pending Environmental Claim (as hereinafter defined) against the Company or any of its subsidiaries and, to the best of the knowledge of the Company, there is no such threatened Environmental Claim; (3) Neither the Company nor any of its subsidiaries has entered into any consent decree, consent order or consent agreement under any Environmental Law that would have a Material Adverse Effect on the Company; (4) To the best of the knowledge of the Company, there are no (A) underground storage tanks, (B) polychlorinated biphenyls, (C) friable asbestos or asbestos-containing materials, (D) sumps, (E) surface impoundments, (F) landfills, or (G) sewers or septic systems present at any facility currently owned, leased, operated or otherwise used by the Company or any of its subsidiaries the presence of which would have a Material Adverse Effect on the Company; 21 22 (5) To the best of the knowledge of the Company or any of its subsidiaries, there are no past (including with respect to assets or businesses formerly owned, leased or operated by the Company or any of its subsidiaries) or present actions, activities, events, conditions or circumstances, including without limitation the release, threatened release, emission, discharge, generation, treatment, storage or disposal of Hazardous Materials (as hereinafter defined) the occurrence of which would have a Material Adverse Effect on the Company; (6) No modification, revocation, reissuance, alteration, transfer, or amendment of the Environmental Permits, or any review by, or approval of, any third party of the Environmental Permits is required in connection with the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby or the continuation of the business of the Company or its subsidiaries, as currently conducted, following such consummation; and (7) To the extent required by GAAP, the Company and its subsidiaries have accrued or otherwise provided for all damages, liabilities, penalties or costs that they may incur in connection with any claim pending or threatened against them, or any requirement that is or may be applicable to them, under any Environmental Laws, and such accrual or other provision is reflected in the Company's most recent consolidated financial statements included in the SEC Documents filed prior to the date hereof. For purposes of this Agreement, the following terms shall have the following meanings: (i) "Environmental Claim" shall mean any written or oral notice, claim, demand, action, suit, complaint, proceeding or other communication by any person alleging liability or potential liability (including liability or potential liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, property damage, personal injury, fines or penalties) arising out of, relating to, based on or resulting from (A) the presence, discharge, emission, release or threatened release of any Hazardous Materials at any location, whether or not owned, leased or operated by the Company or any of its subsidiaries, or (B) circumstances forming the basis of any violation or alleged violation of any Environmental Law or Environmental Permit, or (C) otherwise relating to obligations or liabilities under any Environmental Laws; (ii) "Environmental Permits" shall mean all material permits, licenses, registrations and other governmental authorizations required under Environmental Laws for the Company and its subsidiaries to conduct their operations and businesses on the date hereof and consistent with past practices; (iii) "Environmental Laws" shall mean all applicable federal, state and local statutes, rules, regulations, ordinances, orders, decrees and common law relating in any manner to contamination, pollution or protection of the environment or the effect of Hazardous Material on human health, including the Comprehensive Environmental Response, Compensation and Liability Act, the Solid Waste Disposal Act, the Clean Air Act, the 22 23 Clean Water Act, the Toxic Substances Control Act, the Occupational Safety and Health Act, the Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water Act, all as amended, and similar state laws, in each case in effect on the date hereof; and (iv) "Hazardous Materials" shall mean all hazardous or toxic substances, wastes, materials or chemicals, petroleum (including crude oil or any fraction thereof) and petroleum products, friable asbestos and asbestos-containing materials, pollutants, contaminants and all other materials, and substances regulated as hazardous or toxic pursuant to any Environmental Law. (r) Contracts; Debt Instruments. (1) All contracts, agreements, guarantees, leases and executory commitments other than Plans (each, a "Contract") that are material to the Company and its subsidiaries, taken as a whole (each, a "Material Contract") are valid and binding obligations of the Company and, to the best of the knowledge of the Company and its subsidiaries, the valid and binding obligation of each other party thereto. Except as disclosed in Part 3.1(r) of the Disclosure Letter, neither the Company, nor to the best of the knowledge of the Company and its subsidiaries, any other party thereto, is in violation of or in default in any material respect of, nor has there occurred an event or condition which with the passage of time or giving of notice (or both) would constitute a default under or permit the termination of, any such Material Contract unless such violation or default would not have a Material Adverse Effect on the Company. (2) The Company has made available true, correct and complete copies of all of the following contracts to which the Company or any of its subsidiaries is a party or by which any of them is bound (collectively, the "Specified Contracts"): (i) contracts with any directors, officers, key employees or affiliates of the Company; (ii) collective bargaining agreements for which the Company or any of its domestic subsidiaries is a party; (iii) pending contracts (A) for the sale of any of the assets of the Company or any of its subsidiaries, other than contracts entered into in the ordinary course of business, or (B) for the grant to any person of any preferential rights to purchase any of its assets, other than in the ordinary course of business; (iv) contracts which restrict, in any material respect, the Company or any of its subsidiaries from competing in any line of business or with any person in any geographical area; (v) indentures, credit agreements, security agreements, mortgages, guarantees, promissory notes and other contracts relating to the borrowing of money involving Indebtedness for borrowed money; (vi) contracts with any stockholders or group of stockholders of the Company beneficially owning 5% or more of the Company's outstanding capital stock on the date hereof; (vii) material acquisition, merger, asset purchase or sale agreements entered into since January 1, 1997 (other than agreements for the purchase and sale of materials or products in the ordinary course of business); (viii) contracts relating to any material joint venture, partnership, strategic alliance or other similar agreement; (ix) licenses, whether the Company is licensee or 23 24 licensor and material leases; and (x) all other agreements, contracts or instruments entered into which, to the best of the knowledge of the Company, are material to the Company and its subsidiaries taken as a whole. (3) Part 3.1(r) of the Disclosure Letter provides accurate and complete information (including amount and name of payee) with respect to all Indebtedness of the Company or any of its subsidiaries as of September 1, 2000. For purposes hereof, "Indebtedness" of any person shall mean all items of indebtedness of such person for borrowed money and purchase money indebtedness, including, without limitation, capitalized lease obligations which, in accordance with GAAP, would be included in determining liabilities as shown on the liability side of the balance sheet of such person as of the date as of which indebtedness is to be determined, but excluding accounts payable arising within the ordinary course of business consistent with past practice, and shall also include all Contingent Obligations. For purposes hereof, "Contingent Obligation" shall mean, as applied to any person, any direct or indirect liability, contingent or otherwise, of that person with respect to any Indebtedness, capital lease (other than as lessor), dividend, letter of credit, surety bond or other obligation of another, including, without limitation, any such obligation, directly or indirectly, guaranteed, endorsed (other than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that person, or in respect of which that person is otherwise, directly or indirectly, liable. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. (s) Non-Competition Agreements. Except as provided in Part 3.1(s) of the Disclosure Letter, neither the Company nor any of its subsidiaries is a party or is otherwise subject to any agreement which (i) purports to restrict or prohibit in any material respect any of them or any corporation affiliated with any of them from, directly or indirectly, engaging in any business currently engaged in by the Company or any of its affiliates; or (ii) would restrict or prohibit, in any material respect, the Company or any of its subsidiaries from engaging in such business. (t) Interested Party Transactions. Except as provided in the SEC Documents or set forth in Part 3.1(t) of the Disclosure Letter, no member, manager, officer or affiliate of the Company or any of its subsidiaries has or has had, directly or indirectly, (i) an economic interest in any person which has furnished or sold or furnishes or sells services or products that the Company or one of its subsidiaries furnishes or sells or proposes to furnish or sell; (ii) an economic interest in any person that purchases from or sells or furnishes to the Company or any one of its subsidiaries any goods or services; (iii) any economic interest in any contract or lease with the Company or any one of its subsidiaries; or (iv) any contractual or other arrangement with the Company or one of its subsidiaries; provided however, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest" in any "person" for purposes of this subsection (t). 24 25 (u) Insurance. Except as disclosed in the SEC Documents, all material fire and casualty, general liability, business interruption, product liability and sprinkler and water damage insurance policies maintained by the Company or any of its subsidiaries are with nationally recognized insurance carriers, provide coverage for all normal risks incident to the business of the Company and its subsidiaries and their respective properties and assets and are in character and amount appropriate for the business conducted by the Company, except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (v) Investment Company Act and Public Utility Holding Company Act. The Company is neither an "investment company" nor an "affiliate" of an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended. The Company is neither a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. (w) Solvency. The fair value of the aggregate assets of the Company exceeds, and immediately following the issue of the Notes and Warrants on the Initial Closing Date or a Subsequent Closing Date, as applicable, and giving effect to the obligations of the Company under the same, will exceed its total liabilities (including subordinated, unmatured, unliquidated, disputed and contingent liabilities). Neither the assets of the Company are, nor immediately following the sale of the Notes and Warrants on the date of the Initial Closing or any Subsequent Closing hereunder will they be, unreasonably small in relation to any business or transaction in which such corporation is or is about to be engaged. The Company does not intend to, nor believes that it will, nor should it reasonably believe it will, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by the Company and the amounts to be payable on or in respect of its obligations). (x) Use of Proceeds; Margin Stock. None of the proceeds of the sale of the Securities will be used for the purpose of purchasing or carrying any "margin stock" as defined in Regulations U, T, X, or N of the Board of Governors of the Federal Reserve System, or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry "margin stock," or for any other purpose which might constitute transactions contemplated by this Agreement a "purpose credit" within the meaning of Regulations U, T, X or N. The Company is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stocks. The Company has not taken and will not take any action which might cause any violation of Regulations U, T, X, N or any other regulations of the Board of Governors of the Federal Reserve System or any violation of Section 7 of the Exchange Act or any rule or regulation promulgated thereunder, in each case as now in effect or as the same may hereinafter be in effect. (y) The Security Documents. If required to be executed and delivered in accordance with the provisions hereof, the provisions of the Security Agreement and 25 26 the Deed of Trust will be effective to create in favor of the holders of the Notes a legal, valid and enforceable security interest in all right, title and interest of the collateral described therein (the "Collateral") to the extent that a security interest can be created therein under the Uniform Commercial Code, and, on the date of the Initial Closing, the holders of the Notes will have a fully perfected lien on, and security interest in the Collateral described therein (to the extent such security interest can be perfected by filing a UCC-1 financing statement or, to the extent required by the Security Agreement, by taking possession of the Collateral, or by filing such Deed of Trust), subject to no other Liens other than Permitted Liens. (a) Certain Fees. Except as set forth in Part 3.1(z) of the Disclosure Letter, no fees or commissions will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated by this Agreement, the other Transaction Documents, the Merger Agreement and the Stock Purchase Agreement. The Purchasers shall have no obligation with respect to any fees incurred by the Company or any other person (other than IFH) or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this Section 3.1(z) that may be due in connection with the transactions contemplated by this Agreement, the other Transaction Documents, the Merger Agreement and the Stock Purchase Agreement. (aa) Listing and Maintenance Requirements. Except as set forth in Part 3.1(aa) of the Disclosure Letter, the Company has not, in the two years preceding the date hereof received notice (written or oral) from the Nasdaq Stock Market, any stock exchange, market or trading facility on which the Common Stock is or has been listed (or on which it has been quoted) to the effect that the Company is not in compliance with the listing or maintenance requirements of such exchange, market or trading facility. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (ab) Registration Rights. Except as set forth in Part 3.1(bb) of the Disclosure Letter, the Company has not granted or agreed to grant to any person any rights to have any securities of the Company registered with the Commission or any other governmental authority which have not been satisfied. (ac) Labor Relations. No labor problem with respect to any of the employees of the Company exists or, to the knowledge of the Company, is imminent that is likely to have or result in a Material Adverse Effect. (ad) Permits. Except as provided in Part 3.1(dd) of the Disclosure Letter, each of the Company and its Subsidiaries is in possession of all material franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any governmental entity necessary for the Company or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"), and, as of 26 27 the date of this Agreement, no suspension or cancellation of any of the Company Permits is pending or, to the best of the Company's knowledge, threatened. (ae) Disclosure. The representations, warranties and other statements of the Company contained in this Agreement and the other certificates furnished to the Purchasers by the Company pursuant hereto, taken as a whole, do not contain any untrue statement of a material fact or, to the best of the knowledge of the Company, omit to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances made, not materially misleading as of the date hereof. (af) Knowledge. Whenever a representation or warranty made by the Company refers to the best of the knowledge of the Company or its subsidiaries, such knowledge shall be deemed to consist only of the actual knowledge of the executive officers of the Company or its subsidiaries and the Merger Sub. (ag) Rights Agreement. Assuming the accuracy of the representations in Sections 3.2 (h) and (l) hereof: (1) The Company has taken all action which may be required under Rights Agreement, so that: the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to the Merger Agreement, the Stock Purchase Agreement or this Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and/or (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments alone shall not cause (X) any Purchaser, or any of its "Affiliates" or "Associates" (as such terms are defined in Rule 12b-2 under the Exchange Act), to be deemed an "Acquiring Person" under the Rights Agreement or (Y) a "Distribution Date" , a "Stock Acquisition Date" or "Acquisition Event" (as such terms are defined in the Rights Agreement) to occur. (2) the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to this Agreement, the Stock Purchase Agreement or the Subordinated Debt Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, have been approved by a committee of the Board of Directors of the Company, as required in Section 302A.673, subd. 1(d) of the MBCA. (ah) Board Approval. Assuming the accuracy of the representations in Section 3.2(h) hereof, the consummation of the transactions contemplated by the Transaction 27 28 Documents, the Stock Purchase Agreement and the Merger Agreement and the issuance of the Warrants and the Warrant Shares has been approved by a committee of the Board of Directors of the Company, as required in Section 302A.673, subdivision 1(d) of the Minnesota Business Corporation Act (the "MBCA"). (ai) Opinion of Financial Advisor. U.S. Bancorp Piper Jaffray has delivered to the Board of Directors of the Company its opinion to the effect that, as of the date hereof, the transactions contemplated by this Agreement, the Merger Agreement and the Stock Purchase Agreement taken as a whole are fair, from a financial point of view, to the Company and its shareholders. 3.2 Representations and Warranties of the Purchasers. Each Purchaser, severally and not jointly, hereby represents and warrants to the Company as follows: (a) Organization; Authority. Such Purchaser is a duly formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization or an individual, in each case, with the requisite power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by such Purchaser, and the consummation by it of the transactions contemplated hereby, have been duly authorized by all necessary action on the part of such Purchaser. This Agreement has been duly executed and delivered by such Purchaser and constitutes the valid and legally binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. (b) Investment Intent. Such Purchaser is acquiring the Securities for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof or interest therein, without prejudice, however, to such Purchaser's right, subject to the provisions of this Agreement and the Registration Rights Agreement, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration. (c) Purchaser Status. At the time such Purchaser was offered the Securities it was, and at the date hereof it is, and at the Initial Closing Date and any Subsequent Closing Date it will be, an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (4) under the Securities Act. (d) Experience of Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment to its satisfaction. 28 29 (e) Ability of Purchaser to Bear Risk of Investment. On the Initial Closing Date and any Subsequent Closing Date, such Purchaser is able to bear the economic risk of an investment in the Securities and is able to afford a complete loss of such investment. (f) Access to Information. Each Purchaser acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities, and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to its investment. (g) Reliance. Each Purchaser understands and acknowledges that (i) the Securities are being offered and sold to the Purchaser without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act under Section 4(2) of the Securities Act or Regulation D promulgated thereunder; and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and such Purchaser hereby consents to such reliance. (h) No Affiliation. No Purchaser is an "Affiliate" or "Associate" (as such terms are defined in Rule 12b-2 under the Exchange Act) of any other Purchaser or is acting in concert with any other Purchaser, except (i) that Ampersand LP and Ampersand CFLP may be deemed to be Affiliates or Associates of one another, (ii) to the extent that a member or partner of a Purchaser or a member of a partner of a Purchaser is a member or partner of another Purchaser or a member or partner of a member or partner of another Purchaser, (iii) by virtue of the existence of the Governance Agreement and/or the Voting Agreement among Ampersand LP, Ampersand CFLP and Morgenthaler relating to voting of the shares of the Series G Preferred Stock being issued and sold pursuant to the Stock Purchase Agreement in an election of directors to the Company's Board of Directors (the "Voting Agreement"), and (iv) as otherwise provided in any Transaction Document. No Purchaser beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act) any securities of any other Purchaser, except (A) Ampersand LP and Ampersand CFLP may be deemed to beneficially own the securities of one another, (B) to the extent that a member or partner of a Purchaser or a member of a partner of a Purchaser is a member or partner of another Purchaser or a member or partner of a member or partner of another Purchaser, (C) by virtue of the existence of the Governance Agreement and/or the Voting Agreement, and (D) as otherwise provided in any Transaction Document. No Purchaser is an "interested shareholder" of the Company or an "affiliate" or "associate" thereof, as such terms are 29 30 defined in Section 302A.011 of the MBCA resulting from any share purchase, contract, arrangement or understanding, other than this Agreement, the Merger Agreement or any acquisition of shares approved by a committee of the Board of Directors of the Company as required in Section 302A.673, subdivision 1(d) of the MBCA. (i) No Conflicts. The execution, delivery and performance of the Transaction Documents by such Purchaser and the consummation by such Purchaser of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of its certificate or articles of incorporation, bylaws, partnership agreement or other governing instrument, as applicable (each as amended through the date hereof), or (ii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which such Purchaser is subject (including foreign, federal and state securities laws and regulations). (j) Consents and Approvals. Such Purchaser is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other foreign, federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by such Purchaser of the Transaction Documents. (k) Litigation; Proceedings. There is no action, suit, notice of violation, proceeding or investigation pending, or to the knowledge of such Purchaser, threatened against or affecting such Purchaser before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which would adversely affect the legality, validity or enforceability of any of the Transaction Documents in any respect or adversely impair such Purchaser's ability to perform fully on a timely basis its obligations under the Transaction Documents. (l) Beneficial Ownership of Sheldahl Stock. At and after the Initial Closing Date, except as provided on Schedule II attached hereto and except by virtue of the existence of the Governance Agreement and/or the Voting Agreement, no Purchaser shall be a Beneficial Owner (as hereinafter defined) of fifteen percent (15%) or more of outstanding shares of Common Stock. For purposes of this Section 3.2(l), "Beneficial Owner" shall have the meaning set forth in Section 1(d) of the Rights Agreement. Each Purchaser has been provided, upon its request, with a copy of such definition and has had an opportunity to review it with such Purchaser's legal counsel. (m) Residency. Each Purchaser is a resident of or has a principal place of business in the state set forth below its name on Schedule I attached hereto. (n) Certain Fees. Except as set forth in Schedule 3.2(n) attached hereto, the Purchasers have not incurred any fees or commissions which would obligate the Company to pay any fees or commissions to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated by this Agreement, the other Transaction Documents, the Merger Agreement and the Stock Purchase Agreement. 30 31 ARTICLE IV OTHER AGREEMENTS OF THE PARTIES 4.1 Transfer Restrictions. (a) If any Purchaser should decide to dispose of any of the Securities held by it, such Purchaser understands and agrees that it may do so only pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from the registration requirements of the Securities Act. In connection with any transfer of any Securities other than pursuant to an effective registration statement or to the Company or to an affiliate of such Purchaser or pursuant to Rule 144 under the Securities Act ("Rule 144"), the Company may require the transferor thereof to provide to the Company a written opinion of counsel experienced in the area of United States securities laws selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred securities under the Securities Act. (b) (1) Each Purchaser agrees to the imprinting, so long as is required by this Section 4.1(b), of the following legend on the Notes: THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. (2) Each Purchaser agrees to the imprinting, so long as is required by this Section 4.1(b), of the following legend on the Warrants: NEITHER THESE SECURITIES NOR THE SECURITIES UNDERLYING THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 31 32 SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. (3) Each Purchaser agrees to the imprinting, so long as is required by this Section 4.1(b), of the following legend on the Warrant Shares: THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES OF CAPITAL STOCK AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF THE SUBSEQUENT CLASSES OR SERIES. The shares of Common Stock of Sheldahl, Inc. into which the securities represented by this certificate are convertible entitle the holder thereof to certain Rights as set forth in the Rights Agreement between Sheldahl, Inc. and Wells Fargo Bank, N.A., dated as of June 16, 1996 and amended on July 25, 1998 and November 10, 2000 (the "Rights Agreement"), a copy of which is on file at the principal offices of Sheldahl, Inc. Under certain circumstances, such Rights issued to or held by an Acquiring Person, or Affiliate or Associate thereof (as defined in the Rights Agreement), and any subsequent holder of such Rights, may become null and void. 32 33 The Warrants and the Warrant Shares shall not contain any other legend (other than those legends that identify the existence of the Rights Agreement) if the Warrants and the Warrant Shares have been sold pursuant to Rule 144, or if in the written opinion of counsel to the Company experienced in the area of United States securities laws such other legend is not required under applicable requirements of the Securities Act (including judicial interpretation and pronouncements issued by the staff of the Commission). The Company makes no representation, warranty or agreement as to the availability of any exemption from registration under the Securities Act with respect to any resale of any Securities. 4.2 Use Of Proceeds. The Company shall use the net proceeds from the issuance of the Securities for general corporate purposes, including the retirement of existing Indebtedness. 4.3 Commercially Reasonable Efforts. Subject to the terms and conditions herein provided and to applicable legal requirements, each of the parties hereto agrees to use its commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, and assist and cooperate with the other parties hereto in doing, as promptly as practicable, all things necessary, proper or advisable under applicable laws and regulations to ensure that the conditions set forth in Article V hereof are satisfied. 4.4 Consents. Each of the parties will use its commercially reasonable efforts to obtain as promptly as practicable all Required Approvals. 4.5 No Publicity; Confidentiality. The mutual press release with respect to the execution of this Agreement, the Merger Agreement, the Stock Purchase Agreement and the other Transaction Documents shall be a joint press release acceptable to the Company and the Purchasers. Thereafter, so long as this Agreement is in effect, neither the Company, on the one hand, nor the Purchasers, on the other, shall issue any press release or otherwise make any public statements inconsistent with the mutual press release or the terms of the transactions contemplated by this Agreement, the Merger Agreement, the Stock Purchase Agreement or by the other Transaction Documents with respect to the transactions contemplated hereby or thereby without prior consultation with the other party and after using reasonable efforts to agree upon the text of any press release, except as may be required by law (it being understood and agreed that the Company intends to file a Current Report on Form 8-K with respect to the transactions contemplated hereby and by the Merger Agreement, the Stock Purchase Agreement and the other Transaction Documents promptly after the date hereof). The Company shall provide the Purchasers with a copy of its Form 8-K prior to filing the same with the Commission and the ability to comment on the same. 4.6 Conduct of Business. Except as expressly contemplated by this Agreement or set forth in the Disclosure Letter or with the prior written consent of the Purchasers, during the period from the date of this Agreement to the time the Merger becomes effective in accordance with applicable law (the "Effective Time"), the Company will, and 33 34 will cause each of its subsidiaries to, conduct its operations only in the ordinary and usual course of business consistent with past practice and will use its commercially reasonable efforts, and will cause each of its subsidiaries to use its commercially reasonable efforts, to preserve intact the business organization of the Company and each of its subsidiaries, to keep available the services of its and their present officers and key employees, and to preserve the good will of those having business relationships with it. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement or as set forth in the Disclosure Letter, the Company will not, and will not permit any of its subsidiaries to, prior to the Effective Time, without the prior written consent of the Purchasers, except as otherwise provided in Part 4.6 of the Disclosure Letter, incur, assume or pre-pay, or modify or amend or seek or obtain any consents under or waivers of the terms of, any Indebtedness of the Company or its subsidiaries, except that the Company and its subsidiaries may (i) incur or pre-pay Indebtedness in the ordinary course of business in amounts and for purposes consistent with past practice under existing lines of credit; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person in the ordinary course of business consistent with past practice; (iii) make any loans, advances or capital contributions to, or investments in, any other person but only in the ordinary course of business consistent with past practice and loans, advances, capital contributions or investments between any wholly owned subsidiary of the Company and the Company or another wholly owned subsidiary of the Company; or (iv) issue and sell 12% Senior Subordinated Notes in the aggregate principal amount up to $5,000,000 on terms identical to those contained herein, provided that the Company (A) keeps the Purchasers apprised of discussions relating to the issuance and sale of such additional notes, (B) notifies the Purchasers upon obtaining a firm commitment for the sale of such additional notes and (C) provides the Purchasers with any closing documentation relating to the sale of such additional notes. 4.7 [Intentionally omitted.] 4.8 Consent of Secured Lenders. The Company shall use its reasonable best efforts to obtain the consent of its Senior Lenders that have a security interest in its or its subsidiaries assets to permit the Purchasers to have a subordinate lien on the assets secured by such Senior Lenders. To the extent the Company is able to obtain such consents, the Company and the Purchasers will enter into a security agreement (the "Security Agreement") and/or deed of trust (the "Deed of Trust") in form and substance substantially the same as the security agreements and/or deeds of trust that the Company is a party to as of the date of this Agreement, with such changes as are necessary to reflect the Purchasers' subordinate interest in such assets. The Purchasers acknowledge that the Company has advised them that Wells Fargo Bank N.A. has indicated that it will not consent to the granting to the holders of the Notes any security interest in the assets of the Company. 34 35 4.9 Financial Covenants. During the period from the date of this Agreement to the Initial Closing Date, the Company and the Purchasers shall in good faith negotiate financial covenants of the Company and its subsidiaries relating to capital expenditures and the maintenance of a total debt service coverage ratio and minimum EBITDA from the Initial Closing Date going forward. To the extent agreement on such financial covenants is not reached by the Initial Closing Date, such financial covenants shall be substantially similar to those contained in any documentation between the Company and the Senior Lenders in place on the Initial Closing Date. 4.10 Expenses of Molex. (a) On the earlier of the Initial Closing Date and the date on which this agreement is terminated in accordance with section 9.1 hereof, the Company shall pay the reasonable expenses and disbursements incurred by Molex, including the fees and out-of-pocket expenses and disbursements of legal counsel to Molex, in connection with the negotiation and execution of this Agreement and any other document executed in connection herewith and the Initial Closing. (b) On any Subsequent Closing Date on which Molex purchases Securities, the Company shall pay the reasonable expenses and disbursements incurred by Molex, including the fees and out-of-pocket expenses and disbursements of legal counsel to Molex, in connection with such Subsequent Closing. ARTICLE V CONDITIONS 5.1 Conditions Precedent to the Obligation of the Purchasers to Purchase the Securities on the Initial Closing Date. The obligation of each Purchaser hereunder to acquire and pay for the Securities is subject to the satisfaction or waiver by such Purchaser, at or before the Initial Closing, of each of the following conditions (it being understood that for purposes of this Section 5.1, any reference to the subsidiaries of the Company as of the Initial Closing Date shall exclude IFH): (a) Accuracy of the Company's Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct, in all material respects, as of the date hereof and at and as of the Initial Closing Date with the same effect as if made at and as of the Initial Closing Date (except to the extent such representations specifically relate to an earlier date in which case such representations shall be true and correct as of such earlier date). (b) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants and agreements required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Initial Closing Date. 35 36 (c) No Material Adverse Change. There shall not have occurred since June 1, 2000 any change, circumstance or event (whether or not known by the Purchasers or disclosed in the Disclosure Letter) that has had or may reasonably be expected to have (i) a material adverse effect on the business, financial condition, assets, results of operations or prospects of Company, IFH and their respective subsidiaries, taken as a whole, (ii) a material adverse effect on the business, financial condition, assets, results of operations or prospects of the Company's MicroProducts business taken alone or (iii) prevent or materially delay the ability of the Company to consummate the transactions contemplated by this Agreement and the other Transaction Documents. (d) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (e) No Suspensions of Trading in Common Stock. The trading of shares of Common Stock shall not have been suspended by the Commission or on the Nasdaq Stock Market (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company or any suspension of trading of securities generally). (f) Legal Opinion. The Company shall have delivered to such Purchaser a legal opinion of Lindquist & Vennum, P.L.L.P., dated the Initial Closing Date, substantially in the form of Exhibit C attached hereto, with only such changes therein from such form as are required to reflect changes in facts and circumstances in matters dealt with in any of the representations and warranties of the Company set forth in Section 3.1 hereof. (g) Required Approvals. (i) The Company shall have obtained the consent or approval of each person listed on Part 3.1(f) of the Disclosure Letter; (ii) All other Required Approvals shall have been obtained by the Company; and (iii) Any other governmental or regulatory notices, approvals or other requirements necessary to consummate the transactions contemplated hereby and to operate the Company's business after the Initial Closing Date in all material respects as it was operated prior thereto and as it is presently contemplated to be conducted in the future shall have been given, obtained or complied with, as applicable. (h) Delivery of Notes and Warrants. The Company shall have delivered to such Purchaser or such Purchaser's designee duly executed Notes and Warrants at the Initial Closing to be received by each Purchaser, registered in the name of such Purchaser, each in form satisfactory to such Purchaser. (i) Registration Rights Agreement. The Purchasers shall have received an executed Registration Rights Agreement, dated as of the date hereof, in the form of Exhibit D (the "Registration Rights Agreement") attached hereto from the Company. 36 37 (j) Stock Purchase Agreement. All of the conditions to the Purchasers' obligation under the Stock Purchase Agreement (other than the conditions related to this Agreement) shall have been satisfied or waived by the parties thereto at or before the Initial Closing Date. (k) Merger. All of the conditions to IFH's obligations under the Merger Agreement (other than the conditions related to this Agreement) shall have been satisfied or waived by the parties thereto at or before the Initial Closing Date and the Merger of the Merger Sub into IFH shall have become effective in accordance with the terms of the Merger Agreement. (l) Secretary's Certificate and Other Documents. The Purchasers shall have received from the Company on the Initial Closing Date (i) a copy of its certificate of incorporation, including all amendments thereto, certified by the Secretary of State of its jurisdiction of incorporation and a certificate as to the good standing of the Company in such jurisdiction as of the Initial Closing Date, (ii) a certificate of an officer of the Company dated as of the Initial Closing Date and certifying to the Purchasers that the Purchasers have received (A) a correct and complete copy of the Company's certificate of incorporation and bylaws as in effect on the Initial Closing Date and at all times subsequent to the date of the resolutions described in the following clause (B), (B) a correct and complete copy of resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of the Transaction Documents, the sale of the Notes and Warrants hereunder, and the other transactions contemplated hereby and thereby, as applicable, and (C) as to the incumbency and specimen signature of each officer of the Company who shall execute any Transaction Document or any other document delivered in connection therewith; and (iii) such other documents as the Purchasers and their counsel may reasonably request. (m) Officer's Certificate. The Company shall have delivered to the Purchasers on the Initial Closing Date a certificate signed on its behalf by its President, Chief Executive Officer or Chief Financial Officer certifying that the conditions specified in Sections 5.1(a) and (b) hereof have been fulfilled. (n) Intercreditor Agreement. The Purchasers and the Senior Lenders shall have executed an Intercreditor Agreement on terms consistent with those contained herein and in form and substance satisfactory to the Purchasers and the Senior Lenders. (o) Security Agreement. On the date of the Initial Closing, if the Company has received the consents referred to in Section 4.8 hereof, the Company shall have duly authorized, executed and delivered the Security Agreement, together with such UCC Financing Statements as may be required by the Purchasers to perfect the security interests created by the Security Agreement. 37 38 (p) Deed of Trust. On the date of the Initial Closing, if the Company has received the consents referred to in Section 4.8 hereof, the Company shall have duly authorized, executed and delivered the Deed of Trust. (q) Expenses. All closing fees and expenses associated with the filing and recording of any documents necessary under the Security Agreement and the Deed of Trust owing by the Company to the Purchasers or otherwise, under the terms of this Agreement, the other Transaction Documents or any other document executed in connection herewith or therewith shall be paid to the Purchasers or other party to which owed on the date of the Initial Closing. (r) Intentionally Omitted. (s) Amendment to Rights Agreement. In reliance upon the accuracy of the representations in Sections 3.2(h) and (l) hereof, the Company shall have amended the Rights Agreement to allow for the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to the Merger Agreement, the Stock Purchase Agreement or this Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and/or (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments alone without causing (X) any Purchaser, or any of its "Affiliates" or "Associates" (as such terms are defined in Rule 12b-2 under the Exchange Act), to be deemed an "Acquiring Person" under the Rights Agreement or (Y) a "Distribution Date" , a "Stock Acquisition Date" or "Acquisition Event" (as such terms are defined in the Rights Agreement) to occur. (t) Board Approval. In reliance upon the accuracy of the representations in Sections 3.2(h) and (l) hereof, a committee of the board of directors of the Company shall have approved the acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (1) pursuant to the Merger Agreement, the Stock Purchase Agreement or this Agreement, (2) upon conversion of shares of Series G Preferred Stock, (3) upon exercise of the Warrants and (4) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalizations and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments, as required in Section 302A.673, subd. 1(d) of the MBCA. (u) Consolidated Net Working Capital. The consolidated Net Working Capital (as hereinafter defined) of the Company and its consolidated subsidiaries as of September 1, 2000 (as determined in accordance with GAAP consistently applied) shall have been not less than $250,000 less than $20,000,000. For the purpose of this Section 5.1(u), "Net Working Capital " shall mean current assets minus current liabilities. For purposes of the preceding sentence, liabilities that by their terms have a maturity date after September 1, 2001 shall be characterized as long-term liabilities rather than short-term liabilities without regard to their characterization as long-term liabilities or short-term liabilities for GAAP purposes. 38 39 (v) Total Bank Debt. The Total Bank Debt (as hereinafter defined) of the Company and its subsidiaries as of September 1, 2000 shall not have exceeded $35,100,000. For purposes of this Section 5.1(v), "Total Bank Debt" shall mean all outstanding bank debt included in current liabilities and long term liabilities including but not limited to all outstanding mortgages. 5.2 Conditions Precedent to the Company's Obligations on the Initial Closing Date. The obligations of the Company to consummate the Initial Closing hereunder are subject to the following conditions: (a) Accuracy of the Representations and Warranties of the Purchasers. The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects as of the date when made and as of the Initial Closing Date, as though made on and as of such date. (b) Performance by the Purchasers. The Purchasers shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchasers at or prior to the Initial Closing Date. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) Required Approvals. All Required Approvals shall have been obtained. (e) Payment of Purchase Price. Each Purchaser shall have paid the purchase price set forth below the Purchaser's name on Schedule I attached hereto for the Securities being purchased at the Initial Closing. (f) Merger. All of the conditions to the Company's and the Merger Sub's obligations under the Merger Agreement (other than the conditions related to this Agreement) shall have been satisfied or waived by the parties thereto at or before the Initial Closing Date and the Merger of the Merger Sub into IFH shall have become effective in accordance with the terms of the Merger Agreement. (g) Stock Purchase Agreement. All of the conditions to the Company's obligations under the Stock Purchase Agreement (other than the conditions related to this Agreement) shall have been satisfied or waived by the parties thereto at or before the Initial Closing Date. (h) Security Agreement. If the Company has received the consents referred to in Section 4.8 hereof, the Purchasers shall have duly executed and delivered the Security Agreement. 39 40 (i) Deed of Trust. If the Company has received the consents referred to in Section 4.8 hereof, the Purchasers shall have duly executed and delivered the Deed of Trust. 5.3 Conditions Precedent for Subsequent Closings. (a) The obligations of the Purchasers to consummate the transactions contemplated at a Subsequent Closing hereunder are subject to the following conditions: (1) There shall not exist a default or an Event of Default under this Agreement or the other Transaction Documents. (2) There shall not exist any facts or circumstances of which the Company is aware which with the passage of time or giving of notice (or both) could reasonably be expected to result in, constitute or cause there to be a default or an Event of Default under this Agreement or the other Transaction Documents. (3) The Company shall deliver to the Purchasers a certificate signed on its behalf by its President, Chief Executive Officer or Chief Financial Officer certifying that, to the best of the knowledge of the Company, the conditions specified in Sections 5.3(a)(1) and (2) hereof have been satisfied. (4) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by such Subsequent Closing. (5) The Company shall have delivered to such Purchaser or such Purchaser's designee duly executed Notes and Warrants at such Subsequent Closing to be received by each such Purchaser, registered in the name of such Purchaser, each in form satisfactory to such Purchaser. (6) The trading of shares of Common Stock shall not have been suspended by the Commission or on the Nasdaq Stock Market (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company or any suspension of trading of securities generally). (7) All closing fees and expenses associated with the filing and recording of any documents necessary under the Security Agreement and the Deed of Trust owing by the Company to the Purchasers or otherwise, under the terms of this Agreement, the other Transaction Documents or any other document executed in connection herewith or therewith shall be paid to the Purchasers or other party to which owed on the date of such Subsequent Closing. 40 41 (8) No event shall have occurred nor any condition shall exist or fail to occur or exist if the effect of such occurrence, existence or failure is to permit the holder of any Indebtedness of the Company or any of its subsidiaries in a principal amount in excess of $500,000 (or a trustee on behalf of such holder) to cause such Indebtedness to become due prior to the stated maturity thereof and such occurrence, existence or failure shall not have been remedied within any applicable period of grace before such holder (or such trustee) is able to accelerate such Indebtedness. (b) The obligations of the Company to consummate the transactions contemplated at a Subsequent Closing hereunder are subject to the following conditions: (1) The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects as of such Subsequent Closing Date. (2) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by such Subsequent Closing. (3) Each Purchaser shall have paid the purchase price for the Securities to be purchased and sold at such Subsequent Closing. ARTICLE VI AFFIRMATIVE COVENANTS The Company hereby covenants and agrees with the Purchasers that, immediately after the Initial Closing Date and for so long as any Note or any monetary obligation under this Agreement remains outstanding, the Company shall, except to the extent waived by the holders of at least sixty six and two-thirds percent (66-?%) of the outstanding principal amount of the Notes, comply with the covenants set forth in this Article VI: 6.1 Payment of Principal, Premium and Interest. The Company shall duly and punctually pay the principal of (and premium, if any) and interest on the Notes in accordance with the terms of the Notes, this Agreement and the other Transaction Documents. 6.2 Corporate Existence. The Company shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its corporate existence and any necessary state or other qualifications (other than any qualifications the absence of which, in the aggregate, would not result in a Material Adverse Effect). 41 42 6.3 Obligations and Taxes. The Company shall pay or discharge, or cause to be paid or discharged, before the same shall become delinquent (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its business or property unless such taxes, assessments or governmental charges are being paid in accordance with the terms of an agreement with the applicable taxing authority, (b) all lawful claims for labor, materials and supplies, (c) all required payments under any Indebtedness and (d) all other obligations; provided however, that, in each case, it shall not be required to pay or discharge or to cause to be paid or discharged any such amount so long as the validity or amount thereof shall be contested in good faith in an appropriate manner and appropriate reserves and accruals have been made with respect thereto. 6.4 Performance under Agreements. The Company shall perform its obligations under this Agreement, each other Transaction Document, and each other contract to which it is a party; provided however, that the Company shall not be required to so perform its obligations under any contract (other than the Stock Purchase Agreement, the Merger Agreement, this Agreement and any other Transaction Document) to the extent it is reasonably contesting such obligations in good faith and in an appropriate manner and, if required by GAAP, it has made appropriate reserves and accruals with respect thereto. 6.5 Access to Properties and Inspections. The Company shall maintain financial records in accordance with accounting practices and controls sufficient to allow the Company to prepare the financial statements, certificates and reports required by Section 6.10 hereof; and, upon written notice, at all reasonable times and as often as the Purchasers may reasonably request, permit any authorized representative or agent of any Purchaser to visit and inspect its physical properties and reports and permit any authorized representative or agent of any Purchaser to discuss its affairs, finances and condition with such officers, key employees and independent chartered accountants acting as auditors as the Purchasers shall deem appropriate. Delivery of a copy of this Agreement to the respective independent accountants acting as auditors shall constitute instructions to such accountants to discuss the financial condition of the Company with the Purchasers and their representatives, and to permit the Purchasers and their representatives to inspect, copy and make extracts from all financial statements, analyses, work papers and other documents and information (including electronically stored documents and information) prepared by such accountants with respect to the Company. 6.6 Defense of Claims. The Company shall diligently defend itself and its properties from and against any lawsuits or claims. 6.7 Notice of Litigation, Claims, Etc. The Company shall promptly upon obtaining notice of the occurrence thereof (but in no event more than 10 days after obtaining 42 43 notice of the occurrence thereof), provide the Purchasers with written notice of any of the following events: (a) the issuance by any governmental authority of any injunction, order or decision involving the Company or any of its properties; (b) the filing or commencement or any action, suit or proceeding against or affecting the Company or the properties of the Company, whether at law or in equity or by or before any court if such event might reasonably be interpreted to have a Material Adverse Effect, or any United States, state, or other governmental authority; (c) the imposition of any Lien which is not a Permitted Lien; (d) any claim, demand or action impairing title to any of the properties or assets of the Company; (e) any other adverse action by or notice from a governmental authority with respect to the Company or any of its respective properties; (f) any default by the Company under any contract of Indebtedness in excess of $250,000 other than a lease or conditional sales contract for immaterial amounts; and (g) any development in the business or affairs of the Company which is likely, in the reasonable judgment of the Company, to have a Material Adverse Effect. Each notice shall specify, as applicable, (i) the nature and extent thereof, (ii) any rights of any other parties thereto with respect to termination, acceleration or similar provisions and (iii) any corrective action taken or proposed to be taken with respect thereto. 6.8 Proceeds. The Company shall use the net proceeds from the issuance of the Securities for general corporate purposes, including the retirement of existing Indebtedness. 6.9 Compliance. The Company shall comply in all material respects with all applicable laws and maintain all required clearances, consents, permits and approvals of governmental authorities. 6.10 Financial Statements and Reports. The Company shall furnish to the Purchasers: (a) as soon as available but in any event within ninety (90) days after the end of each fiscal year (commencing with the fiscal year ending September 1, 2000) balance sheets, income statements and cash flow statements of the Company, showing its financial condition as at the end of such fiscal year and the results of its operations for such fiscal year, all the foregoing financial statements (other than any consolidating schedules) to be audited by independent chartered accountants of nationally- 43 44 recognized standing reasonably acceptable to the Purchasers and prepared in accordance with GAAP. (b) as soon as available but in any event within 45 days after the end of each fiscal quarter, commencing with the fiscal quarter including the Initial Closing Date, the unaudited balance sheets, income statements and cash flow statements (along with comparisons to budget), showing the financial condition as at the end of such fiscal quarter, and the results of operations for such fiscal quarter and for the then elapsed portion of the fiscal year, for the Company in each case prepared in accordance with GAAP, subject to normal year-end adjustments (none of which alone or in the aggregate would result in a Material Adverse Effect) and the absence of notes thereto; (c) as soon as received, copies of any notice of potential liability or charge or complaint received by the Company from any governmental authority which could reasonably cause the Company or any of its subsidiaries to incur liabilities in excess of $250,000; (d) concurrently with the statements provided pursuant to clauses (a) and (c) a certificate of the Chief Financial Officer of the Company containing a narrative management discussion and analysis of the financial condition and results of operations of the Company for the periods covered by such statements; (e) promptly upon their becoming available, copies of any statements, reports and other communications, if any, which the Company shall have generally provided to its stockholders, or to the Senior Lenders, or material statements, reports and other communications to particular stockholders or to the Company's directors; (f) promptly upon receipt thereof, copies of all financial and management reports submitted to the Company by its independent auditors in connection with each annual audit of the books of the Company; (g) promptly, from time to time, such other information (in writing if so requested) regarding the assets and properties (including the collateral) and operations, business affairs and financial condition of the Company as the Purchasers may reasonably request; and (h) all filings with the Commission. Each certificate of the financial officer of the Company (and, in the case of year-end financial statements and reports, the independent auditors of the Company) delivered under this Section 6.10 shall certify that the statement or report to which such certificate relates fairly presents in all material respects the financial position and results of operations of the Company at the dates thereof and for the periods then ended and has been prepared in accordance with GAAP, in the case of unaudited financial statements, subject to normal year-end audit adjustments (none of which alone or in the aggregate would result in a Material Adverse Effect) and the absence of notes thereto, 44 45 no Event of Default has occurred and is continuing and to the best of the financial officer's knowledge no event or condition has occurred which would have a Material Adverse Effect on the Company. The audit report with respect to the financial statements referred to in clause (a) (excluding the financial statements for the fiscal year ending September 1, 2000) shall not contain a "going concern" or like qualification or exception or any qualification arising out of the scope of the audit. 6.11 Insurance. The Company shall maintain insurance on its business and properties to such extent and against such risks, including fire and other risks insured against by extended coverage, and workers' compensation insurance and public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with, the use of any properties owned, occupied or controlled by the Company, in each case as is customary with companies similarly situated and in the same or similar businesses, and shall provide evidence to the Purchasers of such insurance upon their request. 6.12 Notification of Event of Default. The Company shall immediately notify the Purchasers in writing of (a) the occurrence of any default or any Event of Default hereunder or under its Senior Debt of which it becomes aware and (b) any event or condition which has or could reasonably be expected to have a Material Adverse Effect and specify what steps, if any, are being taken to cure the same. 6.13 Fiscal Year. The Company shall maintain its current fiscal year for financial reporting purposes; provided, however, that the Company may without the consent of the Purchasers change its fiscal year as may be approved by its Board of Directors so long as the Company delivers written notice to the Purchasers of such change within 30 days of Board approval of such change. 6.14 Further Assurances. The Company shall duly execute and deliver, or cause to be duly executed and delivered, at its own cost and expense, such further instruments and documents and take or cause to be taken all such action, in each case as may be necessary or proper in the reasonable judgment of the Purchasers, to carry out the provisions and purposes of this Agreement and the other Transaction Documents and to better assure and confirm unto the Purchasers, its rights and remedies under this Agreement and the other Transaction Documents. 6.15 Maintenance of Properties. The Company shall keep and maintain all property material to the conduct of its business as in good working order and condition, ordinary wear and tear excepted, as such property is in as of the date hereof. ARTICLE VII NEGATIVE COVENANTS The Company hereby covenants and agrees with the Purchasers that, immediately after the Initial Closing Date and for so long as any Note or any monetary 45 46 obligation under this Agreement remains outstanding, the Company shall, except to the extent waived by the holders of at least sixty six and two-thirds percent (66-?%) of the outstanding principal amount of the Notes, comply with the covenants set forth in this Article VII: 7.1 Indebtedness. The Company shall not and shall cause its subsidiaries to not incur, create, assume or suffer or permit to exist any Indebtedness, except (a) Indebtedness under and pursuant to the terms of this Agreement and the other Transaction Documents (including the issuance of the Additional Notes) and (b) Senior Debt in an amount not to exceed $45,000,000 in the aggregate. 7.2 Liens. The Company shall not incur, create, assume or suffer or permit to exist any Lien on any of its property or assets or on any income or rights in respect of any thereof, except (the "Permitted Liens"): (a) Liens incurred and arising out of surety bonds, appeal bonds, statutory obligations, bids, performance and return of money and similar obligations and pledges or deposits made in the ordinary course of business in connection with worker compensation, unemployment insurance, old age pensions and other social security benefits; (b) Liens imposed by law, including carriers', warehousemen's, mechanics', materialmen's and vendors' Liens incurred in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings, and in any such case as to which it shall have set aside adequate cash reserves in accordance with GAAP; (c) Liens securing the payment of taxes, assessments and governmental charges or levies, either not yet due and payable or being contested in good faith by appropriate legal or administrative proceedings, and in any such case as to which it shall have set aside adequate cash reserves in accordance with GAAP; (d) zoning restrictions, easements, licenses, reservations, provisions, covenants, conditions, waivers, restrictions on the use of property or minor irregularities of title which do not in the aggregate impair the use of any parcel of property material to the operation of the business of the Company or the value of such property for the purpose of the business of the Company; (e) Liens securing purchase money Indebtedness; provided, however, that each such Lien does not secure any other Indebtedness and does not encumber any property other than that property acquired with the proceeds of such Indebtedness; (f) extensions and renewals of Liens permitted hereunder; provided, however, that the Indebtedness secured thereby is not increased and the Lien does not encumber any property not encumbered by the Lien so extended or renewed; 46 47 (g) Liens existing on the date hereof or the Initial Closing Date and listed on Part 7.2 of the Disclosure Letter; (h) Liens securing capital or operating leases within the ordinary course of business consistent with past practice; (i) Liens securing Senior Debt; and (j) Liens securing the Notes. 7.3 Restricted Payments. The Company and its subsidiaries shall not declare or make (a) any dividend or other distribution on any shares of the capital stock of the Company (other than stock splits, stock dividends or the distribution of shares of capital stock of the Company pursuant to the exercise of the Warrants and dividends payable in the form of Common Stock to holders of the Company's Series D, E, F and G Convertible Preferred Stock) or its subsidiaries (other than distributions to the Company), or (b) any payment on account of the purchase, redemption, retirement or acquisition of (i) any shares of capital stock of the Company or its subsidiaries or (ii) any option, warrant or other right to acquire shares of the capital stock of the Company or its subsidiaries. 7.4 Nature of Business; Place of Business. The Company and its subsidiaries shall not conduct any business or operations other than the business or operations conducted on the date hereof and on the Initial Closing Date; provided, however, that the Company and its subsidiaries may engage in business or operations which are complementary to the business and operations of the Company and its subsidiaries. The Company and it subsidiaries shall not change their corporate structure nor their principal place of business. The Company shall not change its state of incorporation without providing notice to the Purchasers. 7.5 Charter, Bylaw and Transaction Document Amendment. The Company shall not amend, modify or supplement its articles of incorporation or bylaws (except as provided for in section 3.8 of the Stock Purchase Agreement) in any manner that the Purchasers deem will adversely affect the rights of the Purchasers under this Agreement or any other Transaction Document or their ability to enforce the same or amend, modify or supplement the Transaction Documents without the consent of the Purchasers. 7.6 Transactions with Affiliates. The Company will not, and will not permit any of its subsidiaries to, enter into any transaction, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, the purchase or sale of any security, the borrowing or lending of any money, or the rendering of any service, with any person or entity affiliated with the Company or any of its subsidiaries (including officers, directors and shareholders owning 3% (three percent) or more of the Company's outstanding capital stock (other than the purchasers of the Series G Preferred Stock)), except in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms not less favorable 47 48 than would be obtained in a comparable arms-length transaction with any other person or entity not affiliated with the Company, without the prior written consent of the holders of sixty six and two-thirds percent (66-2/3%) of the outstanding principal of the Notes. 7.7 Mergers. The Company shall not, nor shall it permit any of its subsidiaries to, in a single transaction or through a series of related transactions, merge or consolidate with another corporation or other business entity, except that any wholly-owned subsidiary of the Company may merge with another wholly-owned subsidiary of the Company or with the Company (so long as the Company is the surviving corporation). 7.8 Asset Sales. The Company shall not, and shall not permit any of its subsidiaries to, directly or indirectly, in a single transaction or a series of related transactions, sell, lease, transfer or otherwise dispose of or suffer to be sold, leased, transferred, abandoned or otherwise disposed of, all or any part of its assets except: (i) inventory sold in the ordinary course of business, (ii) equipment sold or disposed of in the ordinary course of business and (iii) assets in transactions not otherwise permitted by subsections (i) and (ii) so long as (A) the Company or applicable subsidiary receives consideration at the time of such transaction equal to at least the fair market value of the assets sold; (B) not less than 80% of the consideration received by the Company or such subsidiary was in the form of cash or cash equivalents; and (C) the sale of such assets would not have a Material Adverse Effect. 7.9 Use of Proceeds. The Company shall not use the net proceeds from the issuance of the Securities to purchase or carry "margin securities." 7.10 Contracts. The Company shall prohibit its subsidiaries from entering into any contract, commitment, understanding, or arrangement by which the subsidiaries are restricted from making distributions or other payments to the Company. The Company will not, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement (other than this Agreement or an agreement with a Senior Lender) that prohibits, restricts or imposes any condition upon the ability of the Company to create, incur or permit to exist any Lien upon any of its property or assets (other than Permitted Liens); provided that the foregoing shall not apply to customary provisions in capital or operating leases but solely with respect to the property being leased, and restrictions and conditions imposed by law or by this Agreement or any other agreement relating to Senior Debt permitted by this Agreement. ARTICLE VIII EVENTS OF DEFAULT 8.1 Events. In case of the happening of any of the following events (each, an "Event of Default"): (a) the Company shall fail to make any payment on principal of the Notes when and as the same shall become due and payable including at the due date thereof, by acceleration or otherwise; or 48 49 (b) the Company shall fail to pay any premium, interest or other obligation due hereunder when and as the same shall become due and payable, whether at the due date thereof, by acceleration or otherwise; or (c) the Company shall fail timely to perform its obligations under Section 2.8(e) hereof; or (d) default shall be made in the due observance or performance by the Company of any covenant or agreement contained in Section 6.1or 6.2 or Article VII of this Agreement, and such default shall continue unremedied for thirty (30) days after written notice thereof to the Company by the Purchasers; or (e) a material breach by the Company of its obligations under the Warrants shall have occurred; or (f) default shall be made in the due observance or performance by the Company of any other covenant or agreement to be observed or performed under this Agreement or any other Transaction Document, and such default shall continue unremedied for thirty (30) days (or such lesser period as may be required as a result of such default) after written notice thereof to the Company by the Purchasers; or (g) any representation or warranty made by the Company contained in this Agreement or in any other Transaction Document or in any certificate, financial statement or other instrument furnished by or on behalf of the Company pursuant to this Agreement or such other Transaction Document shall prove to have been false or misleading in any material respect when made or furnished; or (h) the Company or any of its subsidiaries shall (i) voluntarily commence any proceeding or file any petition or proposal or any notice of its intent to commence or file any such proceeding, petition or proposal seeking relief under the U.S. Bankruptcy Code or any other federal, state bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition or proposal, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for any such Person or for any substantial part of its property or assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) fail generally to pay its debts as they become due or (vii) take any corporate or stockholder action in furtherance of any of the foregoing; or (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any of its subsidiaries or of any substantial part of the property or assets thereof, under Title 11 of the United States Code or any other federal, state bankruptcy, insolvency or 49 50 similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Company or any of its subsidiaries or for any substantial part of their property or (iii) the winding-up or liquidation of the Company or any of its subsidiaries, and such proceeding, petition or order shall continue unstayed and in effect for a period of 60 consecutive days; or (j) a final judgment for the payment of money in an amount in excess of $500,000 shall be rendered by a court or other tribunal against the Company or any of its subsidiaries and shall remain undischarged for a period of 60 consecutive days during which such judgment and any levy or execution thereof shall not have been effectively stayed or vacated; or (k) any event shall occur or condition shall exist or fail to occur or exist if the effect of such occurrence, existence or failure is to accelerate the maturity of any Indebtedness of the Company or any of its subsidiaries in a principal amount in excess of $500,000 or any such Indebtedness shall not be paid when due, whether at maturity, by acceleration or otherwise, or the holder of any Lien upon property of the Company shall commence foreclosure of such Lien; or (l) any Transaction Document shall cease to be in full force and effect and enforceable against the Company in accordance with its terms; or (m) there shall have occurred with respect to the Company a Change in Control; or (n) to the extent a Security Agreement or Deed of Trust is executed in connection with this Agreement, either of the Security Agreement or Deed of Trust shall cease to be, in any material respect, in full force and effect, or shall cease, in any material respect, to give the holders of the Notes the Liens, rights, powers and privileges purported to be created thereby in favor of such holders, or the Company shall default in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant to either of the Security Agreement or Deed of Trust and such default shall continue for 30 or more days after written notice to the Company; or (o) the Company or an ERISA Affiliate (as defined therein) shall fail to pay when due an amount or amounts aggregating in excess of $500,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Benefit Plan shall be filed under Title IV of ERISA by any ERISA Affiliate, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Benefit Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Benefit Plan must be terminated; or there shall occur a complete or partial withdrawal from or a default, within the meaning of Section 4219 (c) (5) of ERISA, with respect to, one or more multi-employer plans which could cause one or more ERISA Affiliates to incur a payment obligation in excess of $500,000; or 50 51 (p) there shall have occurred any event which would constitute a Material Adverse Effect; then, and in any such event, and at any time thereafter during the continuance of such event, subject to the terms of the Intercreditor Agreement, the Purchasers may, by notice to the Company, take any of the following actions at the same or different times: (i) terminate forthwith the commitment hereunder to purchase the Notes and (ii) declare the Notes (if outstanding) to be forthwith due and payable, whereupon the entire unpaid principal of the Notes, together with accrued interest thereon, the then applicable redemption premium, if any, and all other obligations, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Company, anything contained herein or in the Notes or the other Transaction Documents to the contrary notwithstanding (except for the Intercreditor Agreement), and (iii) exercise any and all other remedies provided under any Transaction Document upon the occurrence and continuance of an Event of Default. Notwithstanding the foregoing, in the case of an Event of Default arising under subsections (g) or (h) of Section 8.1 hereof with respect to the Company or any subsidiary of the Company, all outstanding Notes will ipso facto become due and payable without further action or notice. All rights and remedies of the Purchasers under this Agreement and all covenants and obligations of the Company hereunder, are subject to the terms and conditions of the Intercreditor Agreement. In the event of any conflict between the terms of this Agreement and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall control. ARTICLE IX TERMINATION 9.1 Termination. Notwithstanding any provision in this Agreement to the contrary, this Agreement may be terminated, and the transactions contemplated by this Agreement abandoned, at any time on or prior to the Initial Closing Date: (i) by mutual written consent of the Company and each of the Purchasers; (ii) by the Company at any time if any of the conditions set forth in Section 5.2 hereof will not be able to be satisfied on or prior to the Final Date (as defined in Section 7.5 of the Merger Agreement as constituted on the date hereof), through no fault of the Company, unless such condition is waived in writing by the Company; (iii) by any of the Purchasers at any time if any of the conditions set forth in Section 5.1 hereof will not be able to be satisfied on or prior to the Final Date (as defined in Section 7.5 of the Merger Agreement as constituted on the date hereof), through no fault of the Purchasers, unless such conditions are waived in writing by each of the Purchasers; or (iv) immediately by any of the Purchasers in the event either the Merger Agreement or the Stock Purchase Agreement shall terminate in accordance with its respective terms. 51 52 9.2 Notice of Termination. If the Company or any of the Purchasers desires to terminate this Agreement pursuant to Section 9.1 hereof, other than pursuant to Section 9.1(iv) hereof, that party must give written notice to the other parties. Upon receipt of that notice, this Agreement will terminate without further action by any party. 9.3 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 9.1 hereof, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party or its directors, officers or shareholders, other than as provided in the Merger Agreement and Stock Purchase Agreement. Nothing contained in this Section 9.3 shall relieve any party from any liability for any breach of this Agreement or impair the right of any party to compel specific performance by another party of its obligations under this Agreement; provided, however, that termination as provided in Section 9.1(iv) hereof shall not be deemed a breach of this Agreement. ARTICLE X AMENDMENTS The Company and the holders of the Notes may amend or supplement this Agreement and the Notes with the written consent of the holders of Notes of at least eighty-five (85%) percent in aggregate principal amount of the Notes then outstanding, and any existing Event of Default and its consequences or compliance with any provision of this Agreement or the Notes may be waived with the consent of the holders of sixty six and two-thirds percent (66-2/3%) in principal amount of the then outstanding Notes. Notwithstanding the foregoing, without the consent of each holder of the Notes affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder of Notes): (i) reduce the aggregate principal amount of the Notes held by any holder; (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes; (iii) reduce the rate of or change the time for payment of interest on any Note; (iv) waive an Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the holders of at least sixty six and two-thirds percent (66-2/3%) in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (v) make any Note payable in money other than that stated in the Notes; 52 53 (vi) make any change in the provisions of this Agreement relating to waivers of past Events of Default or the rights of holders of Notes to receive payments of principal of or interest on the Notes; (vii) waive a payment of a redemption premium or mandatory redemption with respect to any Note; or (viii) make any change in the foregoing amendment and waiver provisions. ARTICLE XI MISCELLANEOUS 11.1 Entire Agreement. This Agreement, together with the Exhibits and Schedules attached hereto, the other Transaction Documents, the Merger Agreement, the Stock Purchase Agreement and the Governance Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters. 11.2 Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back received), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered on a business day after during normal business hours where such notice is to be received); or (b) on the business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: If to the Company: Sheldahl, Inc. 1150 Sheldahl Road Northfield, MN 55057-9444 Attn: Edward L. Lundstrom, President Fax: (507) 663-8326 or (507) 663-8435 With copies to: Lindquist & Vennum P.L.L.P. 4200 IDS Center 80 South Eighth Street Minneapolis MN 55402 Attn: Charles P. Moorse, Esq. Fax: (612) 371-3207 If to a Purchaser: To the address set forth on Schedule I attached hereto. 53 54 or such other address as may be designated in writing hereafter, in the same manner, by such person. 11.3 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 11.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. Neither the Company nor any Purchaser may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding anything to the contrary contained herein, each Purchaser may assign its rights hereunder in connection with any sale or transfer of such Purchaser's Securities to any Affiliate or Associate of such Purchaser as long as the transferee Affiliate or Associate agrees in writing to be bound by the applicable provisions of this Agreement, in which case the term "Purchaser" shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. 11.5 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 11.6 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. 11.7 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become binding with respect to each Purchaser on the date the acceptance form hereto is executed by such Purchaser and with respect to the Company on the date executed by the Company, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 11.8 Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 11.9 Survival of Representations and Warranties. The representations and warranties made in this Agreement, or in any instrument delivered pursuant to this Agreement, shall not survive beyond the Initial or any Subsequent Closing, except the 54 55 representations and warranties in Section 3.2 hereof, which shall survive the Initial or any Subsequent Closing indefinitely. Nothing in the forgoing sentence shall be deemed to limit the Purchasers' ability to rely on the representations and warranties contained in Section 3.1 hereof or in any updated Disclosure Letter, and the Company's ability to rely on the representations and warranties contained in Section 3.2 hereof, in making their respective determinations to consummate the Initial or any Subsequent Closing of the purchase and sale of the Securities. All covenants and agreements shall survive in accordance with their respective terms. 55 56 IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its authorized representative and each Purchaser has caused this Agreement to be executed by signing in counterpart the acceptance form attached to this Agreement. COMPANY: SHELDAHL, INC. By: /s/ EDWARD L. LUNDSTROM ------------------------- Name: Edward L. Lundstrom Title: President 56 57 ACCEPTANCE The undersigned hereby accepts the terms and conditions set forth in the Subordinated Notes and Warrant Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and certain Purchasers listed in Schedule I attached thereto as the terms and conditions applicable to the purchase of Notes and Warrants of the Company by the undersigned. By execution of this Acceptance, the undersigned hereby makes each of the representations contained in Section 3.2 thereof of the Subordinated Notes and Warrant Purchase Agreement. PURCHASER: MORGENTHALER VENTURE PARTNERS V, L.P. By: /s/ JOHN D. LUTSI --------------------------------- Name: John D. Lutsi Title: General Partner 57 58 ACCEPTANCE The undersigned hereby accepts the terms and conditions set forth in the Subordinated Notes and Warrant Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and certain Purchasers listed in Schedule I attached thereto as the terms and conditions applicable to the purchase of Notes and Warrants of the Company by the undersigned. By execution of this Acceptance, the undersigned hereby makes each of the representations contained in Section 3.2 thereof of the Subordinated Notes and Warrant Purchase Agreement. PURCHASER: AMPERSAND IV LIMITED PARTNERSHIP By: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, Its general partner By: /s/ STUART A. AUERBACH ---------------------------- Name: Stuart A. Auerbach Title: Managing Member 58 59 ACCEPTANCE The undersigned hereby accepts the terms and conditions set forth in the Subordinated Notes and Warrant Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and certain Purchasers listed in Schedule I attached thereto as the terms and conditions applicable to the purchase of Notes and Warrants of the Company by the undersigned. By execution of this Acceptance, the undersigned hereby makes each of the representations contained in Section 3.2 thereof of the Subordinated Notes and Warrant Purchase Agreement. PURCHASER: AMPERSAND IV COMPANION FUND LIMITED PARTNERSHIP By: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, Its general partner By: /s/ STUART A. AUERBACH ---------------------------- Name: Stuart A. Auerbach Title: Managing Member 59 60 ACCEPTANCE The undersigned hereby accepts the terms and conditions set forth in the Subordinated Notes and Warrant Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and certain Purchasers listed in Schedule I attached thereto as the terms and conditions applicable to the purchase of Notes and Warrants of the Company by the undersigned. By execution of this Acceptance, the undersigned hereby makes each of the representations contained in Section 3.2 thereof of the Subordinated Notes and Warrant Purchase Agreement. PURCHASER: MOLEX INCORPORATED By: /s/ THOMAS S. LEE ---------------------------- Name: Thomas S. Lee Title: Vice President New Ventures & Acquisitions 60 61 SCHEDULE I SCHEDULE OF PURCHASERS
PURCHASER NAME AND ADDRESS -------------------------- Morgenthaler Venture Ampersand IV Limited Ampersand IV Companion Molex Incorporated Partners V, L.P. Partnership Fund Limited Partnership 2222 Wellington Court Terminal Tower 55 William Street 55 William Street Lisle, Illinois 60532 50 Public Square Suite 240 Suite 240 Suite 2700 Wellesley, MA 02481 Wellesley, MA 02481 Cleveland, OH 44113 PRINCIPAL AMOUNT OF NOTES PURCHASED AT INITIAL CLOSING $1,750,000 $735,000 $15,000 $4,000,000 WARRANTS PURCHASED AT INITIAL CLOSING 266,054 111,743 2,280 608,124 INITIAL CLOSING PURCHASE PRICE $1,750,000 $735,000 $15,000 $4,000,000 STATE OF RESIDENCE OH MA MA IL
61 62 SCHEDULE II BENEFICIAL OWNERSHIP OF SHELDAHL STOCK IN EXCESS OF 15% At and after the Initial Closing, Morgenthaler will be the Beneficial Owner of 15% or more of outstanding shares of Common Stock. Immediately prior to the Initial Closing, Molex will be the Beneficial Owner of 15% or more of outstanding shares of Common Stock. 62 EX-4.4 7 c58431ex4-4.txt FORM OF NOTE TO SUBORDINATED NOTES & WARRANT AGMT. 1 EXHIBIT 4.4 EXHIBIT A THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. SHELDAHL, INC. NOTE $____________ __________ , 2000 FOR VALUE RECEIVED, Sheldahl, Inc., a Minnesota corporation (the "Company"), hereby promises to pay to the order of ________________ (the "Holder"), the principal sum of _______________ DOLLARS ($_________), together with interest (computed on the basis of a 360 day year, so that 1/360th of the annualized interest will accrue for each day that principal is outstanding) from the date hereof until the earlier of (i) the Maturity Date (as defined in the Purchase Agreement referred to below), or (ii) the date this Note and all amounts payable in connection herewith have been paid to the Holder on the unpaid balance hereof at the rate of interest set forth in the Purchase Agreement, payable quarterly in arrears, on the last day of each March, June, September and December, commencing December 31, 2000, and on the Maturity Date (each such date an "Interest Payment Date").(2) Payments of principal of, and prepayment fees, if any, in connection with this Note are to be made in lawful money of the United States of America except as provided in the immediately following sentence. Payments of interest on this Note 2 until ____________, 200_(1) may be made by issuing additional notes in aggregate principal amounts equal to the amount of interest then due. Payments shall be made to the Holder at such place and by such means as provided in the Purchase Agreement. This Note is one of a series of notes issued pursuant to a Subordinated Notes and Warrant Purchase Agreement, dated as of November 10, 2000 (as from time to time amended, the "Purchase Agreement"), among the Company, as issuer, and the Purchasers signatory thereto. This Note may be subject to redemption prior to Maturity Date, as provided in the Purchase Agreement. [This Note is secured pursuant to the "Security Agreement" and the "Deed of Trust" (as such terms are defined in the Purchase Agreement).]2/ In case an Event of Default (as defined in the Purchase Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Purchase Agreement. The Company hereby waives presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK. SHELDAHL, INC. By: ----------------------- Name: Title: - -------- (1) Insert date that is first anniversary of the Initial Closing Date. (2) Delete this reference if consents are not obtained. EX-4.5 8 c58431ex4-5.txt FORM OF WARRANT 1 EXHIBIT 4.5 EXHIBIT B NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. WARRANT FOR COMMON STOCK OF SHELDAHL, INC. WARRANT NO. ________ THIS CERTIFIES that, for value received, ____________________, or its permitted assigns (collectively, the "Holder"), is entitled to purchase from Sheldahl, Inc., a Minnesota corporation (the "Company"), at any time, and from time to time, during the exercise period referred to in Section 1 hereof ________________ fully paid, validly issued and nonassessable shares (the "Warrant Shares") of common stock of the Company, par value $0.25 (the "Common Stock"), at the exercise price of $0.01 per share (the "Warrant Price"). Securities issuable upon exercise of this Warrant and the exercise price payable therefor are subject to adjustment from time to time as hereinafter set forth. As used herein, the term "Warrant" shall include any warrant or warrants hereafter issued in consequence of the exercise of this Warrant in part or transfer of this Warrant in whole or in part. This Warrant is being issued pursuant to that certain Subordinate Notes and Warrant Purchase Agreement dated as of November 10, 2000 between the Company, and the Holders and other parties named therein (the "Purchase Agreement"). 2 1. Exercise; Payment for Ownership Interest. (a) Upon the terms and subject to the conditions set forth herein, this Warrant may be exercised in whole or in part by the Holder hereof at any time, or from time to time, on or after the Closing (as defined in the Purchase Agreement) and prior to 5 p.m. Minneapolis time on the seventh anniversary of the date of the Closing, by presentation and surrender of this Warrant to the principal offices of the Company, or at the office of its Transfer Agent (as hereinafter defined), if any, together with the Purchase Form annexed hereto, duly executed, and accompanied by payment to the Company of an amount equal to the Warrant Price multiplied by the number of Warrant Shares as to which this Warrant is then being exercised. The Holder of this Warrant shall be deemed to be a shareholder of the Warrant Shares as to which this Warrant is exercised in accordance herewith effective immediately after the close of business on the date on which the Holder shall have delivered to the Company this Warrant in proper form for exercise and payment of the Warrant Price for the number of Warrant Shares as to which the exercise is being made, notwithstanding that the stock transfer books of the Company shall be then closed or that certificates representing such Warrant Shares shall not then be physically delivered to the Holder. (b) All or any portion of the Warrant Price may be paid by surrendering Warrants effected by presentation and surrender of this Warrant to the Company, or at the office of its Transfer Agent, if any, with a Cashless Exercise Form annexed hereto duly executed (a "Cashless Exercise"). Such presentation and surrender shall be deemed a waiver by the Company of the Holder's obligation to pay all or any portion of the aggregate Warrant Price. Except as provided in Section 3(b) below, in the event of a Cashless Exercise, the Holder shall exchange its Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares for which the Holder desires to exercise this Warrant by a fraction, the numerator of which shall be the difference between the then current market price per share of the Common Stock and the Warrant Price, and the denominator of which shall be the then current market price per share of Common Stock. For purposes of any computation under this Section 1(b), the then current market price per share of Common Stock at any date shall be deemed to be the average for the ten consecutive business days immediately prior to the Cashless Exercise of the daily closing prices of the Common Stock on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the closing prices as reported by the Nasdaq National Market or, if applicable, the Nasdaq SmallCap Market, or if not then included for quotation on the Nasdaq National Market or the Nasdaq SmallCap Market, the average of the highest reported bid and lowest reported asked prices as reported by the OTC Bulletin Board or the - 2 - 3 National Quotations Bureau, as the case may be, or if not then publicly traded, the fair market price, not less than book value thereof, of the Common Stock as determined in good faith by the independent members of the Board of Directors of the Company. (c) If this Warrant shall be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder as to which the Warrant has not been exercised. If this Warrant is exercised in part, such exercise shall be for a whole number of Warrant Shares. Upon any exercise and surrender of this Warrant, the Company (i) will issue and deliver to the Holder a certificate or certificates in the name of the Holder for the largest whole number of Warrant Shares to which the Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of any fractional Warrant Share to which the Holder otherwise might be entitled, cash in an amount equal to the fair value of such fractional Warrant Share (determined in such reasonable and equitable manner as the Board of Directors of the Company shall in good faith determine), and (ii) will deliver to the Holder such other securities, properties and cash which the Holder may be entitled to receive upon such exercise, or the proportionate part thereof if this Warrant is exercised in part, pursuant to the provisions of this Warrant. 2. Anti-Dilution Provisions. The Warrant Price in effect at any time and the number and kind of securities issuable upon exercise of this Warrant shall be subject to adjustment from time to time upon happening of certain events as follows: 2.1 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization, reclassification or any other change of capital stock of the Company, or any consolidation or merger of the Company with another person, or the sale or transfer of all or substantially all of its assets to another person shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for their shares of Common Stock, then provision shall be made by the Company, in accordance with this Section 2.1, whereby the Holder hereof shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in this Warrant and in addition to or in exchange for, as applicable, the Warrant Shares subject to this Warrant immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such securities or assets as would have been issued or payable with respect to or in exchange for the aggregate Warrant Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby if exercise of the Warrant had occurred immediately prior to such reorganization, reclassification, consolidation, merger or sale. The Company will not effect any - 3 - 4 such consolidation, merger, sale, transfer or lease unless prior to the consummation thereof the successor entity (if other than the Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument (i) the obligation to deliver to the Holder such securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and (ii) all other obligations of the Company under this Warrant; provided, however, that the failure to comply with the foregoing shall not affect the validity or legality of such consolidation, merger, sale, transfer or lease. The provisions of this Section 2.1 shall similarly apply to successive consolidations, mergers, exchanges, sales, transfers or leases. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or transfer, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 2.2 hereof. 2.2 Stock Dividends and Securities Distributions. If, at any time or from time to time after the date of this Warrant, the Company shall distribute to the holders of shares of Common Stock (i) securities (including rights, warrants, options or another form of convertible securities), (ii) property, other than cash, or (iii) cash, without fair payment therefor, then, and in each such case, the Holder, upon the exercise of this Warrant, shall be entitled to receive such securities, property and cash which the Holder would hold on the date of such exercise if, on the date of the distribution, the Holder had been the holder of record of the shares of Common Stock issued upon such exercise and, during the period from the date of this Warrant to and including the date of such exercise, had retained such shares of Common Stock and the securities, property and cash receivable by the Holder during such period, subject, however, to the Holder agreeing to any conditions to such distribution as were required of all other holders of shares of Common Stock in connection with such distribution. 2.3 Other Adjustments. In addition to those adjustments set forth in Sections 2.1 and 2.2, but without duplication of the adjustments to be made under such Sections, if the Company: (i) declares or pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (ii) subdivides or reclassifies its outstanding shares of Common Stock into a greater number of shares; (iii) combines or reclassifies its outstanding shares of Common Stock into a smaller number of shares; - 4 - 5 (iv) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; and/or (v) issues, by reclassification of its Common Stock, any shares of its capital stock; then the number and kind of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted so that the Holder upon exercise hereof shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company that the Holder would have owned or have been entitled to receive after the happening of any of the events described above had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Section 2.3 shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or issuance. If, as a result of an adjustment made pursuant to this Section 2.3, the Holder of this Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and any other class of capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to all holders of Warrants promptly after such adjustment) shall determine the allocation of the adjusted Warrant Price between or among shares of such classes of capital stock or shares of Common Stock and such other class of capital stock. The adjustment to the number of Warrant Shares purchasable upon the exercise of this Warrant described in this Section 2.3 shall be made each time any event listed in paragraphs (i) through (v) of this Section 2.3 occurs. Simultaneously with all adjustments to the number and/or kind of securities, property and cash under this Section 2.3 to be issued in connection with the exercise of this Warrant, the Warrant Price will also be appropriately and proportionately adjusted. In the event that at any time, as a result of an adjustment made pursuant to this Section 2.3, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 2.1 and 2.2 above. - 5 - 6 2.4 Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Warrant Price pursuant to this Section 2, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment, including a statement of the adjusted Warrant Price or adjusted number of Warrant Shares, if any, issuable upon exercise of each Warrant, describing the transaction giving rise to such adjustments and showing in detail the facts upon which such adjustment or readjustment is based. The Company will forthwith mail, by first class mail, postage prepaid, a copy of each such certificate to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, and to its Transfer Agent. 2.5 Other Notices. If at any time: (a) the Company shall (i) offer for subscription pro rata to the holders of shares of the Common Stock any additional equity in the Company or other rights; (ii) pay a dividend in additional shares of the Common Stock or distribute securities or other property to the holders of shares of the Common Stock (including, without limitation, evidences of indebtedness and equity and debt securities) (other than dividends payable in the form of the Company's Common Stock to holders of the Company's Series D, E, F and G Convertible Preferred Stock or other series of preferred stock); or (iii) issue securities convertible into, or rights or warrants to purchase, securities of the Company; (b) there shall be any capital reorganization or reclassification or consolidation or merger of the Company with, or sale, transfer or lease of all or substantially all of its assets to, another entity; or (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least 15 days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such subscription rights, dividend, distribution or issuance, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days' prior written notice of the date when the same shall take place if no stockholder vote is required and at least 15 days' prior written notice of the record date for stockholders entitled to vote upon such matter if a stockholder vote is required. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such subscription rights, the date on which the holders of shares of Common Stock shall be entitled to exercise their rights with respect thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of shares of Common - 6 - 7 Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Failure to give the notice referred to herein shall not affect the validity or legality of the action which should have been the subject of the notice. 2.6 No adjustment in the Warrant Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this Section 2.6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 3. No Voting Rights. This Warrant shall not be deemed to confer upon the Holder any right to vote or to consent to or receive notice as a stockholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a stockholder, prior to the exercise hereof. 4. Warrants Transferable. This Warrant and all rights hereunder are transferable, in whole or in part, at the principal offices of the Company by the Holder hereof, upon surrender of this Warrant properly endorsed; provided, that this Warrant and all rights hereunder may be transferred only (i) in a transaction exempt from registration under the 1933 Act, provided that the Company receives an opinion of counsel that such transfer may be effected without registration under the 1933 Act; or (ii) pursuant to the registration of this Warrant or the Warrant Shares under the 1933 Act or subsequent to one year from the date hereof pursuant to an available exemption from such registration. It shall be a condition to transfer of this Warrant that the transferee agrees to be bound by the restrictions on transfer contained in this Section 4. 5. Warrants Exchangeable; Assignment; Loss, Theft, Destruction, Etc. This Warrant is exchangeable, without expense, upon surrender hereof by the Holder hereof at the principal offices of the Company, or at the office of its Transfer Agent, if any, for new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the Warrant Shares which may be subscribed for and purchased hereunder, each such new Warrant to represent the right to subscribe for and purchase such Warrant Shares as shall be designated by such Holder hereof at the time of such surrender. Upon surrender of this Warrant to the Company at its principal office, or at the office of its Transfer Agent, if any, with an instrument of assignment duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants which carry the same rights upon presentation hereof at the principal office of the Company, or at the office of its Transfer Agent, if any, - 7 - 8 together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of a bond or indemnity satisfactory to the Company, or, in the case of any such mutilation, upon surrender or cancellation of this Warrant, the Company will issue to the Holder hereof a new Warrant of like tenor, in lieu of this Warrant, representing the right to subscribe for and purchase the Warrant Shares which may be subscribed for and purchased hereunder. Any such new Warrant executed and delivered shall constitute an additional contractual obligation of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. 6. Legend. Any certificate evidencing the securities issued upon exercise of this Warrant shall bear a legend in substantially the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES OF CAPITAL STOCK AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF THE SUBSEQUENT CLASSES OR SERIES. THE SHARES OF COMMON STOCK OF SHELDAHL, INC. INTO WHICH THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE CONVERTIBLE ENTITLE THE HOLDER THEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN SHELDAHL, INC. AND WELLS FARGO BANK, N.A. DATED AS OF JUNE 16, 1996 AND AMENDED ON JULY 25, 1998 AND NOVEMBER 10, 2000 (THE "RIGHTS AGREEMENT"), A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF SHELDAHL, INC. UNDER CERTAIN CIRCUMSTANCES, SUCH RIGHTS ISSUED TO OR HELD BY AN ACQUIRING PERSON, OR AFFILIATE OR ASSOCIATE THEREOF (AS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS, MAY BECOME NULL AND VOID. - 8 - 9 7. Modifications and Waivers. The terms of the Warrants may be amended, modified or waived only by the written agreement of the Company and the Holder. 8. Miscellaneous. The Company shall pay all expenses and other charges payable in connection with the preparation, issuance and delivery of this Warrant and all substitute Warrants. The Holder shall pay all taxes (other than any issuance taxes, including, without limitation, documentary stamp taxes, transfer taxes and other governmental charges, which shall be paid by the Company) in connection with such issuance and delivery of this Warrant and the Warrant Shares. The Company shall maintain, at the office or agency of the Company maintained by the Company, books for the registration and transfer of the Warrant. 9. Reservation of Warrant Shares. The Company will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury, solely for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of this Warrant, the maximum number of shares of Common Stock which may then be deliverable upon the exercise of this Warrant. The Company or, if appointed, the Transfer Agent for the Common Stock (the "Transfer Agent") and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Warrant on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by this Warrant. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to the Holder pursuant to Section 2.5 hereof. The Company covenants that all Warrant Shares which may be issued upon exercise of this Warrant will, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. - 9 - 10 10. Registration. The Holder shall be entitled to demand and "piggyback" registration rights with respect to the Warrant Shares, as set forth in a Registration Rights Agreement, dated as of _________, 200_, among the Company and the other signatories thereto. 11. Descriptive Headings and Governing Law. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with the laws of the State of Minnesota, and the rights of the parties shall be governed by, the law of such State. - 10 - 11 IN WITNESS WHEREOF, this Warrant has been executed as of the ___ day of __________________, 200_. SHELDAHL, INC. By: ------------------------------ Name: Title: 12 PURCHASE FORM Dated:__________, ____ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ Warrant Shares and hereby makes payment of $_____________ in payment of the exercise price thereof. -------------------------------- 13 CASHLESS EXERCISE Dated:__________, ____ The undersigned irrevocably elects to exercise the within Warrant for _____ Warrant Shares and hereby makes payment pursuant to the Cashless Exercise provision of the within Warrant, and directs that the payment of the Warrant Price be made by cancellation as of the date of exercise of a portion of the within Warrant in accordance with the terms and provisions of Section 1(b) of the within Warrant. -------------------------------- EX-4.6 9 c58431ex4-6.txt FORM OF GOVERNANCE AGREEMENT 1 EXHIBIT 4.6 GOVERNANCE AGREEMENT This Governance Agreement (this "Agreement"), dated as of ______, 200_ among Sheldahl, Inc., a Minnesota corporation (the "Company"), and the individuals and entities listed on the signature page of this Agreement under the caption "Stockholders" (the "Stockholders"). WHEREAS, (i) certain of the Stockholders have acquired from the Company pursuant to the Stock Purchase Agreement 4,944,132 shares of Common Stock and 11,303 shares of Series G Preferred Stock convertible into 4,079, 682 shares of Common Stock, (ii) certain Stockholders and Molex have acquired from the Company pursuant to the Subordinated Notes and Warrant Purchase Agreement $6,500,000 principal amount of the Company's 12% subordinated debt due on the fifth anniversary of the Closing Date and Warrants to purchase 988,202 shares of Common Stock, and certain Stockholders and other parties may acquire from the Company up to an additional $8,500,000 principal amount of the Company's 12% subordinated debt due on the fifth anniversary of the Closing Date and Warrants to purchase 1,292,264 shares of Common Stock, and (iii) certain Stockholders have acquired from the Company pursuant to the Merger Agreement 6,835,243 shares of Common Stock; and WHEREAS, certain Stockholders have sought Board approval of their acquisition of shares of Common Stock, Series G Preferred Stock and/or Warrants (i) pursuant to the Merger Agreement, the Stock Purchase Agreement or the Subordinated Notes and Warrant Purchase Agreement, (ii) upon conversion of shares of Series G Preferred Stock, (iii) upon exercise of the Warrants and (iv) as dividends on the Series G Preferred Stock, in all cases as adjusted for stock splits, dividends, recapitalization and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments (collectively, the "Shares") for purposes of Section 302A.673 of the Minnesota Business Corporation Act and under the Rights Agreement dated June 16, 1996, as amended, by and between the Company and Norwest Bank Minnesota, N.A. (the "Rights Agreement") and have requested that the Company amend the Rights Agreement so that neither IFT nor any of the Stockholders shall become an Acquiring Person (as such term is defined in the Rights Agreement) and so that none of a Distribution Date, a Stock Acquisition Date or an Acquisition Event (as such terms are defined in the Rights Agreement) shall occur as a result of the transactions contemplated by the Merger Agreement, the Subordinated Notes and Warrant Purchase Agreement and the Stock Purchase Agreement; and WHEREAS, as a condition to such approval, a special committee formed by the Board and the Board (i) have required that certain arrangements be put in place relating to the acquisition and disposition of Securities by the Stockholders and related provisions concerning the Stockholders' relationship with the Company, (ii) have 2 negotiated the terms of this Agreement, (iii) have concluded that, subject to execution and delivery of this Agreement, giving its approval under Section 302A.673 of the Minnesota Business Corporation Act, amending the Rights Agreement as provided above and implementing the arrangements contemplated by this Agreement are in the best interests of the Company and its stockholders and (iv) subject to execution and delivery of this Agreement, have given such approval and put such amendment into effect; and WHEREAS, in consideration of such approvals, the Stockholders desire to establish in this Agreement certain terms and conditions concerning the acquisition and disposition of Securities by the Stockholders and their Affiliates and Associates, and related provisions concerning the Stockholders' relationship with the Company; and WHEREAS, the Stockholders required as a condition to their willingness to enter into and consummate the transactions contemplated by the Merger Agreement, the Stock Purchase Agreement and the Subordinated Notes and Warrant Purchase Agreement that the Company agree to the provisions of sections 2 and 4 hereof; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the Company and the Stockholders hereby agree as follows: 1. STANDSTILL AND VOTING. a. Acquisition of Securities. i. Each Stockholder covenants and agrees that, until the Standstill Termination Date, it will not, and will not permit its Affiliates or Associates (other than its partners or members) to, Beneficially Own any Securities in excess of the Number of Permitted Shares applicable to such Stockholder; provided that: (1) this Agreement shall not restrict any acquisition of Securities in a transaction directly with the Company and approved in accordance with the provisions of Section 2(c) hereof (including, without limitation, the acquisition of Securities by any director serving at the direction or request of a Stockholder by reason of the grant of stock options by the Company); and (2) if a Business Combination Proposal is made by any Person (other than the Company, a Stockholder or an Affiliate of a 2 3 Stockholder, or any Person acting in concert with a Stockholder or any Affiliate thereof), then any Stockholder may make a Business Combination Proposal and this Agreement shall not prohibit the making of such Business Combination Proposal, the acquisition of Securities pursuant to such Business Combination Proposal or any other action reasonably connected therewith; provided, however, that, if a Person who has not theretofore communicated a Business Combination Proposal to the Company makes a Business Combination Proposal to the to the Board, however communicated, and the Board unconditionally rejects such Business Combination Proposal by written notice delivered to the proposing party (with a copy to each Stockholder) within five business days of the date on which the Business Combination Proposal was first communicated to the Board, the restrictions of this section 1(a)(i) shall again apply to the Stockholders and provided, further, that the preceding proviso will cease to apply if such Person delivers to the Board any further Business Combination Proposal or modification of any earlier Business Combination Proposal. If any Business Combination Proposal made by any Stockholder in accordance with this section 1(a)(i)(2) is not consummated prior to nine months after the Business Combination Proposal made by such other Person has been effectively withdrawn, the restrictions of this section 1(a)(i) shall again be applicable to the Stockholders, subject to any further Business Combination Proposal being made by any Person. ii. Subject to the proviso in Section 1(a)(i) hereof and any waiver or approval in accordance with the provisions of Section 2(c) hereof, if at any time on or prior to the Standstill Termination Date any Stockholder, alone or as part of any group acting together, Beneficially Owns more than the Number of Permitted Shares applicable to such Stockholder, inadvertently or otherwise, then such Stockholder shall promptly take action not inconsistent with applicable law to reduce the amount of Securities Beneficially Owned by such Persons to an amount not greater than the Number of Permitted Shares applicable to such Stockholder. iii. No Stockholder shall, on or prior to the Standstill Termination Date, permit any Affiliate thereof to Beneficially Own any Securities 3 4 unless such Affiliate becomes a Stockholder party to this Agreement, which any such Affiliate may unilaterally do by delivering to the Company an instrument executed by or on behalf of such Affiliate pursuant to which such Affiliate assumes the obligations of a Stockholder hereunder; provided that any partner or member of a Stockholder who becomes a Beneficial Owner of Securities after the date that is one year from the date of this Agreement shall not be obligated to become a party to this Agreement. b. Restrictions on Transfer. For a period of one year from the date of this Agreement, each Stockholder agrees not to Transfer any of the Shares, unless such Transfer is to an Affiliate or Associate and is in compliance with the terms of this Agreement, or is to be effected for the Stockholder's personal estate planning purposes and is in compliance with the terms of this Agreement. After the one-year period, any Stockholder may distribute its Shares to its partners or members. In addition, except as allowed under the immediately preceding sentence, prior to the Standstill Termination Date, the Stockholders, and each Affiliate thereof which acquires Securities in accordance with the terms of this Agreement, will not Transfer Beneficial Ownership of any Securities to any of their Affiliates (other than a partner or member of such Stockholder) unless each such Person becomes a signatory to this Agreement as a "Stockholder" hereunder as provided in section 1(a)(iii) hereof. Each Stockholder agrees to inclusion of the following legend on certificates representing its Shares: The shares represented by this certificate and any transfer thereof are subject to a restriction on transfer as set forth in a Governance Agreement between the holder and the Company dated as of __________________, 200_, a copy of which is on file at the principal executive office of the Company. Such legend shall be placed on all certificates held by a Stockholder during the continuance of this Agreement. c. Further Restrictions on Conduct. Unless waived or approved in advance in accordance with Section 2(c) hereof, and except for a Business Combination Proposal made by a Stockholder in conformity with the requirements of Section 1(a)(i)(2) hereof and any action taken by such Stockholder that is reasonably connected therewith, each Stockholder covenants and agrees that, until the Standstill Termination Date, neither the Stockholder nor any Affiliate or Associate thereof shall: 4 5 i. initiate, propose, make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" to vote, or seek to influence any Person with respect to the voting of, any Voting Securities, or become a "participant" in a "solicitation" or "election contest" (as such terms are defined or used in Regulation 14A under the Exchange Act, as in effect on the date hereof), in any election contest with respect to the election or removal of any director whose name appears in Exhibit 2 hereof or any replacement thereof, any director of the Board proposed by the specified committee in accordance with Section 2 (other than any individual whose name appears on exhibit 1 hereof or any replacement thereof) or the Molex Director; ii. solicit, offer, seek or propose to any other Person (including without limitation the Company) any form of merger with, tender or exchange offer for securities of, sale or liquidation of assets of, or similar business combination transaction with or involving the Company or its Affiliates or Associates; provided, however, that the foregoing shall not restrict any such action relating to a merger or similar business combination with the purpose and effect of the Company or its Affiliates and Associates acquiring the business, voting securities or assets of another Person; or iii. take any other action inconsistent with the foregoing or this Agreement; provided, however, that nothing in this Section 1(c) shall inhibit the free exercise of judgment by any member of the Board in his capacity as such. d. Reports. Until the Standstill Termination Date, each Stockholder shall deliver to the Company, promptly after any acquisition or Transfer of Securities, an accurate written report specifying the amount and class of Securities acquired or Transferred in such transaction and the amount of each class of Securities owned by the Stockholder or any Affiliate or Associate thereof after giving effect to such transaction; provided, however, that no such report need be delivered with respect to any such acquisition or Transfer of Securities by the Stockholder that is reported in a statement on Schedule 13D filed with the Commission and delivered to the Company by the Stockholder or any Affiliate or Associate thereof in accordance with Section 13(d) of the Exchange Act and the rules 5 6 thereunder. The Company shall be entitled to rely on such reports and statements on Schedule 13D for all purposes of this Agreement. 2. BOARD OF DIRECTORS. a. Initial Composition of Board of Directors. i. The number of directors comprising the Board of Directors, effective upon Closing, shall be seven. ii. The Company shall use its best efforts to cause the by-laws of the Company to be amended at the next meeting of stockholders of the Company so as to set the size of the board of directors of the Company at seven. iii. Concurrently with the Closing, the Board shall take such action as is required under applicable law to cause to be elected to the Board, effective upon the Closing, the individuals whose names are set forth on Exhibit 1 hereto. iv. The remaining directors comprising the Board, effective upon the Closing, shall consist of the Molex Director and the individuals whose names are listed on Exhibit 2 hereto. v. The Company shall use its best efforts to cause the individuals serving as directors of the Company prior to the effective date of the Merger whose names are not listed on Exhibit 2 hereto to resign as of the effective date of the Merger. b. Board Representation; Nominating Committee of the Board. Sections 2(b)(i) and (ii) shall apply until the Applicable Number is zero. i. Board Representation. At least fifteen (15) days prior to each meeting of the Board at which the Board intends to take action to approve nominees for election to the Board at the next annual meeting of shareholders of the Company, the Company shall provide each of the Stockholders with a notice of such meeting, which notice shall indicate that the Board will take such action at such meeting . Prior to the date of each such Board meeting, the Stockholders shall give the nominating committee of the Board, in writing, the names of the Applicable Number of director candidates. The Company will cause such individual or individuals to be 6 7 nominated for election as directors at the next annual meeting of the shareholders of the Company, will include such individual or individual's names as nominees in the proxy or consent statement prepared by the Company in connection with such annual meeting, indicating that the election as directors of such individual or individuals has been recommended by the Board, and will solicit proxies for the election of such individual or individuals as members of the Board at such annual meeting of shareholders. At the first meeting of the Board after the date of this Agreement, three designees of the Stockholders shall be appointed by the Board as Board members. If, at any time that the Applicable Number is greater than zero, any individual so designated by the Stockholders is unable to serve or ceases to serve as a director for any reason, the Company will cause another individual designated by the Stockholders to be appointed to fill the resulting vacancy. Anything herein to the contrary notwithstanding, after termination of this Agreement pursuant to Section 4, the Company shall no longer be obligated to nominate and solicit proxies for the election of such designees of the Stockholders as directors of the Company and such nominees shall, if requested by the Board, resign from the Board. ii. Nominating Committee of the Board. Subject to the rights of Molex and the Stockholders to designate individuals to serve as directors, the identity of directors to stand for election to the Board at each annual meeting of stockholders following the Closing and until the Standstill Termination Date or to fill a vacancy on the Board, as the case may be, shall be determined by the actions of a nominating committee of the Board. The nominating committee shall have three members and, for purposes of the first annual meeting of the Company's stockholders held after Closing, shall be initially comprised of one director whose name appears on Exhibit 1 hereto, one director whose name appears on Exhibit 2 hereto and the Molex Director. c. Voting. Until the Applicable Number is zero: i. the Company shall not enter into any Stockholder Interested Transaction unless such Stockholder Interested Transaction has been approved by the affirmative vote of a majority of the members of the Board other than any director or directors who is or are employed by or a partner or a member of the Stockholder or 7 8 Affiliate or Associate of the Stockholder who is a party to such Stockholder Interested Transaction, in addition to any other approvals required by applicable law or the Company's articles of incorporation or by-laws. ii. each Stockholder agrees that such Stockholder shall not, and shall not take any action which would cause the Company or its Board to, enter into or participate in any Stockholder Interested Transaction which has not been so approved. 3. REPRESENTATIONS AND WARRANTIES. a. Representations and Warranties of the Company. The Company represents and warrants to the Stockholders that: i. the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Minnesota and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder; ii. the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or any of the transactions contemplated hereby; and iii. this Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, and, assuming this Agreement constitutes a valid and binding obligation of the Stockholders, is enforceable against the Company in accordance with its terms. b. Representations and Warranties of the Stockholders. Each of the Stockholders represents and warrants to the Company that: i. it is an individual and has the power and authority to enter into this Agreement and to carry out its obligations hereunder, or it is an entity and is duly organized, validly existing and in good standing under the laws of the state of its organization and incorporation, and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder; 8 9 ii. the execution and delivery of this Agreement by such Stockholder and the consummation by such Stockholder of the transactions contemplated hereby have been duly authorized by all necessary action on the part of such Stockholder and no other proceedings on the part of such Stockholder are necessary to authorize this Agreement or any of the transactions contemplated hereby; and iii. this Agreement has been duly executed and delivered by such Stockholder and constitutes a valid and binding obligation of such Stockholder, and, assuming this Agreement constitutes a valid and binding obligation of the Company, is enforceable against such Stockholder in accordance with its terms. 4. NEGATIVE COVENANTS. So long as Morgenthaler, Ampersand, Ampersand Companion and Sound Beach and all Affiliates, Associates, partners and members thereof hold, in aggregate, at least 15% of the Common Stock Equivalents acquired on the Closing Date by Morgenthaler, Ampersand, Ampersand Companion and Sound Beach pursuant to the Merger Agreement, the Stock Purchase Agreement and the Subordinated Notes and Warrant Purchase Agreement, the Company shall not and shall cause its Subsidiaries not to, without the consent of whichever of Morgenthaler, Ampersand and Ampersand Companion (the two Ampersand entities being considered for this purpose as a single entity), and any Affiliates, Associates, partners or members thereof, respectively, holds more than 15% of the number of Common Stock Equivalents acquired by it, on the Closing Date, pursuant to the Merger Agreement, Stock Purchase Agreement and Subordinated Notes and Warrant Purchase Agreement: a. authorize any reclassification of the Common Stock, any merger, consolidation, recapitalization or reorganization of the Company or approve or effect any plan of liquidation or dissolution whether statutory or otherwise; b. authorize, agree to or consummate any sale, lease, exchange or disposition of all or substantially all of the property or assets of the Company or the effectuation by the Company of a transaction or series of related transactions in which more that 50% of the voting power of the Company is disposed of; 9 10 c. increase the number of directors constituting the Board or, after such time as the Company's shareholders take such action as is required to reduce the size of the Board from nine to seven, set the number of directors constituting the Board at a number other than seven; d. repurchase or redeem any equity securities or retire any other equity capital of the Company or of any of its direct of indirect Subsidiaries (except for the repurchases of Common Stock under restricted stock agreements between employees and the Company previously approved by the Board); or e. enter into any agreement with respect to the foregoing. 5. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: a. Affiliate" or "Associate" shall mean an affiliate or associate of a person, as such terms are defined in Section 302A.011, subdivisions 43 and 45, respectively, of the Minnesota Business Corporation Act. b. Agreement" shall have the meaning set forth in the preamble to this Agreement. c. "Ampersand" shall mean Ampersand IV Limited Partnership, a Delaware limited partnership. d. "Ampersand Companion" shall mean Ampersand IV Companion Fund Limited Partnership, a Delaware limited partnership. e. "Applicable Number" shall mean the following: i. three, so long as Morgenthaler, Ampersand, Ampersand Companion and Sound Beach and any Affiliate, Associate, partner or member thereof own, in aggregate, at least 69% of the Common Stock Equivalents acquired by them on the Closing Date pursuant to the Merger Agreement, Stock Purchase Agreement and Subordinated Notes and Warrant Purchase Agreement. ii. two, so long as Morgenthaler, Ampersand, Ampersand Companion and Sound Beach and any Affiliate, Associate, partner or member thereof own, in aggregate, at least 50% but less than 69% of the Common Stock Equivalents acquired by them on the Closing Date pursuant to the Merger Agreement, Stock Purchase Agreement and Subordinated Notes and Warrant Purchase Agreement. 10 11 iii. one, so long as Morgenthaler, Ampersand, Ampersand Companion and Sound Beach and any Affiliate, Associate, partner or member thereof own, in aggregate, at least 15% but less than 50% of the Common Stock Equivalents acquired by them on the Closing Date pursuant to the Merger Agreement, Stock Purchase Agreement and Subordinated Notes and Warrant Purchase Agreement. iv. zero, so long as Morgenthaler, Ampersand, Ampersand Companion and Sound Beach and any Affiliate, Associate, partner or member thereof own, in aggregate, less than 15% of the Common Stock Equivalents acquired by them on the Closing Date pursuant to the Merger Agreement, Stock Purchase Agreement and Subordinated Notes and Warrant Purchase Agreement. f. "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; but shall not include any securities that would otherwise be Beneficially Owned pursuant to this definition solely by virtue of the existence of this Agreement and/or any voting agreement solely among the Stockholders with respect to the election of directors of the Company. g. "Board" shall mean the board of directors of the Company. h. "Business Combination Proposal" shall mean: i. any bona fide business combination proposal however communicated, including without limitation a "bear hug" letter or other similar communication directed to the Board or any member of the Board, any merger proposal involving the Company or any Subsidiary, any purchase of all or a material portion of the assets of the Company or any Subsidiary, or any tender or exchange offer directed to security holders of the Company, and ii. any proposal to purchase more than 25% of the Total Voting Power; but shall not include any proposal that intentionally has been induced, in whole or in part and directly or indirectly, by one or more Stockholders in order to cause the termination of the restrictions set forth in section 1(a)(i) hereof. 11 12 i. "Closing" shall mean the closing of the transactions contemplated by the Merger Agreement. j. "Closing Date" shall mean the Closing Date as defined in the Merger Agreement. k. "Commission" shall mean the Securities and Exchange Commission. l. "Common Stock" shall mean the Common Stock, par value $0.25 per share, of the Company. m. "Common Stock Equivalent" shall mean the following: i. with respect to shares of Common Stock, each share of Common Stock shall be one Common Stock Equivalent. ii. with respect to Series G Preferred Stock, each share of Series G Preferred Stock shall be a number of Common Stock Equivalents equal to the number of shares of Common Stock issuable on conversion of such share of Series G Preferred Stock as of the date of determination. iii. with respect to Warrants, each Warrant shall be a number of Common Stock Equivalents equal to the number of shares of Common Stock issuable on exercise of such Warrant as of the date of determination. n. "Company" shall have the meaning set forth in the preamble of this Agreement. o. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. p. "IFH" shall mean International Flex Holdings, Inc., a Delaware corporation. q. "Merger Agreement" shall mean the agreement and plan of merger, dated as of November 10, 2000 among the Company, IFT West Acquisition Company, a wholly owned Subsidiary of the Company, IFH and all of the stockholders of IFH. 12 13 r. "Merger" shall mean the merger effected pursuant to the Merger Agreement. s. "Molex" shall mean Molex Incorporated, a Delaware corporation. t. "Molex Director" shall mean the individual nominated by Molex under the terms of the Agreement Relating to Sheldahl, dated as of November 18, 1998, between the Company and Molex, as amended as of November 10, 2000. u. "Morgenthaler" shall mean Morgenthaler Venture Partners V, L.P., a Delaware limited partnership. v. "Number of Permitted Shares" applicable to any Stockholder shall mean the number of shares of Common Stock, shares of Series G Preferred Stock and/or Warrants (i) received by such Stockholder pursuant to the Merger Agreement, the Stock Purchase Agreement or the Subordinated Notes and Warrant Purchase Agreement, (ii) issuable upon conversion of the shares of Series G Preferred Stock acquired by such Stockholder on the Closing Date, (iii) issuable on exercise of the Warrants acquired by such Stockholder on the Closing Date and (iv) received as dividends on the Series G Preferred Stock held by such Stockholder, in all cases as adjusted for stock splits, dividends, recapitalization and the like and any other events requiring adjustment under the anti-dilution provisions of applicable governing instruments. w. "Person" shall mean any individual, partnership, joint venture, corporation, trust, unincorporated organization, government or department or agency of a government. x. "Rights Agreement" shall have the meaning set forth in the recitals of this Agreement. y. "Securities" shall mean at any time shares of any class of capital stock of the Company, including, without limitation, securities convertible into such shares. z. "Series G Preferred Stock" shall mean the shares of Series G Preferred Stock, par value $1.00 per share, of the Company. aa. "Shares" shall have the meaning set forth in the recitals of this Agreement. 13 14 bb. "Sound Beach" shall mean Sound Beach Technology Partners, LLC, a Delaware limited liability company. cc. "Standstill Termination Date" shall mean the third anniversary of the Closing. dd. "Stockholders" shall have the meaning set forth in the preamble of this Agreement. ee. "Stockholder Interested Transaction" shall mean: i. any transaction between the Company or any of its Subsidiaries and any Stockholder or any Affiliates or Associates of a Stockholder, or ii. any amendment, modification, consent or waiver to, of or under, or the enforcement of the terms of this Agreement, the Stock Purchase Agreement, the Subordinated Notes and Warrant Purchase Agreement or the Merger Agreement, other than any amendment or modification to the Merger Agreement to affect adjustments to the conversion ratios set forth therein. ff. "Stock Purchase Agreement" shall mean the stock purchase agreement, dated as of November 10, 2000 among the Company and certain Stockholders. gg. "Subordinated Notes and Warrant Purchase Agreement" shall mean the Subordinated Notes and Warrant Purchase Agreement, dated as of November 10, 2000 among the Company, certain Stockholders and Molex. hh. "Subsidiary" shall mean, as to any Person, any corporation at least a majority of the shares of stock of which having general voting power under ordinary circumstances to elect a majority of the Board of such corporation (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency) is, at the time as of which the determination is being made, owned by such Person, or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. 14 15 ii. "Total Voting Power" at any time shall mean the total combined voting power in the general election of directors of all the Voting Securities then outstanding. jj. "Transfer" shall mean any sale, transfer, pledge, encumbrance or other disposition, and to "Transfer" shall mean to sell, transfer, pledge, encumber or otherwise dispose of. kk. "Voting Securities" shall mean at any time any Securities (other than the shares of Series G Preferred Stock) which are entitled to vote generally in the election of directors of the Company. ll. "Warrants" shall mean the warrants issued to certain Stockholders under the Subordinated Notes and Warrant Purchase Agreement. 6. MISCELLANEOUS. a. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including telecopy) and shall be given, if to the Company, to: If to the Company: Sheldahl, Inc. 1150 Sheldahl Road Northfield, MN 55057-9444 Attn: Edward L. Lundstrom, President Fax: (507) 663-8326 or (507) 663-8435 With copies to: Lindquist & Vennum P.L.L.P. 4200 IDS Center 80 South Eighth Street Minneapolis MN 55402 Attn: Charles P. Moorse, Esq. Fax: (612) 371-3207 or such address or telecopy number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective when delivered personally, telegraphed or telecopied, or, if mailed, five business days after the date of the mailing. b. Amendments; No Waivers. i. Any provision of this Agreement may be amended or waived if, and 15 16 only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Stockholders and the Company, or in the case of a waiver, by the party against whom the waiver is to be effective. ii. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. c. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that no party may assign this Agreement without the other party's prior written consent; and provided further that the rights of the Stockholders under sections 2 and 4 hereof shall not be assignable other than to Affiliates and Associates of the assigning Person. d. Governing Law. This Agreement shall he construed in accordance with and governed by the internal laws of the State of Minnesota. e. Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts thereof signed by the other party hereto. f. Specific Performance. The Company and the Stockholders each acknowledge and agree that the parties' respective remedies at law for a breach or threatened breach of any of the provisions of this Agreement would be inadequate and, in recognition of that fact, agrees that, in the event of a breach or threatened breach by the Company or the Stockholders of the provisions of this Agreement, in addition to any remedies at law, the Stockholders and the Company, respectively, without posting any bond shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. 16 17 g. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated, provided that the parties hereto shall negotiate in good faith to attempt to place the parties in the same position as they would have been in had such provision not been held to be invalid, void or unenforceable. h. Termination. This Agreement shall terminate on the later of: i. the first date as of which the Applicable Number is zero, and ii. the Standstill Termination Date. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first referred to above. SHELDAHL, INC. By: --------------------------------------- Name: Edward L. Lundstrom Title: President STOCKHOLDERS: MORGENTHALER VENTURE PARTNERS V, L.P. By: --------------------------------------- Name: Title: AMPERSAND IV LIMITED PARTNERSHIP By: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, its General Partner By: --------------------------------------- Name: Stuart A. Auerbach Title: Managing Member 17 18 AMPERSAND IV COMPANION FUND LIMITED PARTNERSHIP By: AMP-IV MANAGEMENT COMPANY LIMITED LIABILITY COMPANY, its General Partner By: --------------------------------------- Name: Stuart A. Auerbach Title: Managing Member 18 19 SOUND BEACH TECHNOLOGY PARTNERS, LLC By: --------------------------------------- Name: Title: 19 20 EXHIBIT 1 NAMES OF INDIVIDUALS DESIGNATED BY THE HOLDERS OF THE SERIES G PREFERRED STOCK TO BE ELECTED TO THE COMPANY'S BOARD OF DIRECTORS Stuart A. Auerbach Donald R. Friedman John D. Lutsi 20 21 EXHIBIT 2 NAMES OF INDIVIDUALS WHO HAVE SERVED ON THE COMPANY'S BOARD OF DIRECTORS PRIOR TO THE EFFECTIVE DATE OF THE MERGER AND WHO ARE TO CONTINUE TO SERVE ON THE COMPANY'S BOARD OF DIRECTORS FOLLOWING THE EFFECTIVE DATE OF THE MERGER Kenneth J. Roering William B. Miller John G. Kassakian 21 EX-4.8 10 c58431ex4-8.txt AMENDED & RESTATED AGREEMENT 1 EXHIBIT 4.8 AMENDED AND RESTATED AGREEMENT RELATING TO SHELDAHL This Amended and Restated Agreement Relating to Sheldahl ("Agreement"), dated as of November 10, 2000, by and between Sheldahl, Inc., a Minnesota corporation ("Sheldahl"), and Molex Incorporated, a Delaware corporation ("Molex"). PRELIMINARY STATEMENT Sheldahl and Molex entered into an Agreement Relating to Sheldahl dated as of November 18, 1998 (the "Original Sheldahl Agreement"). Under the terms of an Agreement and Plan of Merger, dated the dated hereof, among Sheldahl, IFT West Acquisition Company ("IFT"), a Delaware corporation and wholly-owned subsidiary of Sheldahl, International Flex Holdings, Inc., a Delaware corporation ("IFH"), and the stockholders of IFH (the "Merger Agreement"), Sheldahl has proposed to issue shares of its common stock, par value $.25 per share ("Sheldahl Common Stock"), to the stockholders of IFH in exchange for all outstanding equity securities of IFH. Under the terms of a Stock Purchase Agreement, dated the date hereof, among Sheldahl and the purchasers listed on Exhibit A thereto (the "Stock Purchase Agreement"), Sheldahl has proposed to issue shares of Sheldahl Common Stock and its Series G Convertible Preferred Stock ("Series G Preferred Stock") to the purchasers party thereto. Under the terms of a Subordinated Notes and Warrant Purchase Agreement, dated the date hereof, among Sheldahl and the purchasers listed on Exhibit A thereto (the "Subordinated Debt Agreement"), Sheldahl has proposed to issue subordinated notes and warrants to purchase shares of Sheldahl Common Stock ("Warrants") to the purchasers party thereto. As an inducement to the foregoing transactions, the parties hereto desire to amend and restate in its entirety the Sheldahl Agreement as set forth below. NOW THEREFORE, the parties hereto agree that effective as of the Effective Time (as such term is defined in the Merger Agreement), the Sheldahl Agreement shall, without any further action by any party, be amended as follows: 2 2 SECTION 1 RIGHT OF FIRST REFUSAL 1.1 Definitions "Acquisition" shall mean shall mean (i) a transaction including a merger, consolidation, acquisition, financing transaction, tender offer or exchange offer involving Sheldahl (other than transactions solely between Sheldahl and its wholly-owned subsidiaries or between Sheldahl and Molex) following which any person (as such term is used in Rule 13d-5 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "1934 Act"), or group (as such term is defined in Section 13(d) of the 1934 Act) becomes or would become the "Beneficial Owner" (as such term is defined in Rule 13d-3 of the 1934 Act) of (x) a majority of the Sheldahl Common Stock, or (y) securities representing a majority of the combined voting power of all Voting Securities of Sheldahl, or following which persons who were Beneficial Owners of the Sheldahl Common Stock and Voting Securities of Sheldahl immediately before such transaction do not, after such transaction, beneficially own, directly or indirectly, a majority of the issued and outstanding shares of Sheldahl Common Stock and combined voting power of the Voting Securities of Sheldahl or (ii) the disposition, by sale, lease, exchange, contribution or otherwise, of all or substantially all of the assets of Sheldahl. Anything herein to the contrary notwithstanding, the execution, delivery or performance under the Merger Agreement, the Stock Purchase Agreement and the Subordinated Debt Agreement will not constitute an Acquisition, as that term is used herein. "Voting Securities" shall mean securities issued by Sheldahl entitled to vote in the election of directors of Sheldahl. "Convertible Securities" shall mean equity securities or debt securities convertible into, or exercisable or exchangeable for, shares of Sheldahl Common Stock, including options and warrants. "Identified Party" shall mean (i) any of the parties listed on Schedule I, (ii) any person (as such term is used in Rule 13d-5 of the rules promulgated by the Securities and Exchange Commission under the 1934 Act, group (as such term is defined in Section 13(d) of the 1934 Act) or affiliate or associate (as such terms are defined in Section 302A.011, subdivisions 43 and 45, respectively, of the Minnesota Business Corporation Act) of any party listed on Schedule I; and (iii) any acquiror of, or successor-in-interest to, any person set forth in (i) above. 3 3 1.2 In the event the Board of Directors of Sheldahl receives a bona fide offer (which the Board of Directors of Sheldahl is willing to accept) from an Identified Party for an Acquisition, Sheldahl will advise Molex in writing of the terms and conditions of such offer (the "Notice"). 1.3 Molex shall, within ten (10) business days following its receipt of the Notice, advise Sheldahl in writing whether it is willing to consummate the Acquisition with Sheldahl upon substantially the same terms and conditions described in the Notice (but in any event on terms not less favorable to Sheldahl than those described in the Notice), and shall provide Sheldahl evidence of its ability to finance the Acquisition. 1.4 If Molex advises Sheldahl that it is willing to consummate the Acquisition with Sheldahl upon substantially the same terms and conditions described in the Notice (but in any event on terms not less favorable than those described in the Notice), Sheldahl and Molex shall, subject to the fiduciary duties of the Board of Directors of Sheldahl determined in consultation with Sheldahl's counsel, proceed in good faith to execute a definitive agreement with respect to the Acquisition within forty-five (45) business days after it advises Sheldahl that it is willing to consummate the Acquisition and consummate the Acquisition within ninety (90) days of the date on which Molex advised Sheldahl that it was willing to consummate the Acquisition upon substantially the same terms and conditions described in the Notice. 1.5 If Molex advises Sheldahl that it is not willing to consummate the Acquisition with Sheldahl upon substantially the same terms and conditions described in the Notice, or fails to advise Sheldahl of its intentions within the 10-business day period referred to in Section 1.3 above, or Molex fails to execute a definitive agreement with respect to the Acquisition within the 45-business day period referred to in Section 1.4 above or Molex fails to proceed in good faith to consummate the Acquisition within the 90-day period referred to in Section 1.4 above, Sheldahl shall be free to consummate an Acquisition with the Identified Party upon terms and conditions that are not more favorable to the Identified Party than those described in the Notice. 1.6 If Sheldahl wishes to solicit interests for an Acquisition by any Identified Party, Sheldahl shall advise Molex in writing of the terms and conditions upon which it is willing to consummate the Acquisition ("Sheldahl Notice"). 1.7 Molex shall, within ten (10) business days following its receipt of the Sheldahl Notice, advise Sheldahl in writing whether it is willing to consummate an 4 4 Acquisition with Sheldahl upon substantially the same terms and conditions described in the Sheldahl Notice (but in any event on terms not less favorable to Sheldahl than those described in the Sheldahl Notice) and shall provide Sheldahl with evidence of its ability to finance the Acquisition. 1.8 If Molex advises Sheldahl that it is willing to consummate an Acquisition with Sheldahl upon substantially the same terms and conditions described in the Sheldahl Notice (but in any event on terms not less favorable to Sheldahl than those described in the Sheldahl Notice), Sheldahl and Molex shall, subject to the fiduciary duties of the Board of Directors of Sheldahl determined in consultation with Sheldahl's counsel, proceed in good faith to execute a definitive agreement with respect to the Acquisition within forty-five (45) business days after it advises Sheldahl that it is willing to consummate the Acquisition and to consummate the Acquisition within ninety (90) days of the date on which Molex advised Sheldahl that it was willing to consummate the Acquisition upon substantially the same terms and conditions described in the Sheldahl Notice. 1.9 Subject to Sections 1.2, 1.3, 1.4 and 1.5, if Molex advises Sheldahl that it is not willing to consummate the Acquisition with Sheldahl upon substantially the same terms and conditions described in the Sheldahl Notice, or fails to advise Sheldahl of its intentions within the 10-business day period referred to in Section 1.7 above, or Molex fails to execute a definitive agreement with respect to the Acquisition within the 45-business day period referred to in Section 1.8 above or Molex fails to proceed in good faith to consummate the Acquisition within the 90-day period referred to in Section 1.8 above, Sheldahl shall be free to solicit for and consummate the Acquisition with an Identified Party upon terms and conditions that are not more favorable to an Identified Party than those described in the Sheldahl Notice, subject to the terms of Section 1.11. 1.10 In the event any Identified Party advises Sheldahl, after the date Molex receives a Notice or a Sheldahl Notice, as the case may be, that such Identified Party is willing to enter into an Acquisition with Sheldahl on terms and conditions at least as favorable to Sheldahl as those described in the Notice or the Sheldahl Notice (the "Second Offer"), Sheldahl shall provide Molex with a written notice that sets forth the terms and conditions of such Second Offer and the identity of the Identified Party (the "Second Notice"). Following receipt of the Second Notice, Molex shall, within five (5) business days (provided such date is at least 30 days after the date of the Notice or the Sheldahl Notice, as the case may be) advise Sheldahl in writing whether it is willing to consummate an Acquisition with Sheldahl upon substantially the same terms and conditions described in the Second Notice (but in any event on terms not less favorable 5 5 to Sheldahl than those described in the Second Notice) and shall provide Sheldahl with evidence of its ability to finance the Acquisition. If Molex advises Sheldahl that it is willing to consummate the Acquisition with Sheldahl upon substantially the same terms and conditions described in the Second Notice (but in any event on terms not less favorable to Sheldahl than those described in the Second Notice), Sheldahl and Molex shall, subject to the fiduciary duties of the Board of Directors of Sheldahl determined in consultation with Sheldahl's counsel, proceed in good faith to consummate the Acquisition within ninety (90) days of the date on which Molex advised Sheldahl that it was willing to consummate the Acquisition upon substantially the same terms and conditions of the Second Notice. If Molex advises Sheldahl that it is not willing to consummate the Acquisition upon substantially the same terms and conditions of the Second Notice, or fails to advise Sheldahl of its intentions within the five (5) business day period referred to in this section, or Molex fails to proceed in good faith to consummate the Acquisition within ninety (90) days, Sheldahl shall be free to consummate the Acquisition with the Identified Party identified in the Second Notice upon terms and conditions that are not more favorable to the Identified Party than those described in the Second Notice. 1.11 If Sheldahl shall receive offers from (i) any Identified Party as provided in Section 1.9; or (ii) any Identified Party subsequent to the date of the Second Offer that are more favorable to Sheldahl or its shareholders than the Second Offer, Sheldahl shall advise Molex in writing of the terms and conditions of such additional offers prior to accepting any such further offer and, with respect to clause (i) above, Molex shall receive such notice at least five business days prior to Sheldahl accepting any such offer. However, in light of the fiduciary duties of the Board of Directors of Sheldahl in such a situation, Sheldahl shall be free to accept that offer which the Board of Directors of Sheldahl determines is most favorable to Sheldahl or its shareholders. Sheldahl's decision as to which party's terms are most favorable shall be final and binding. 1.12 If the Acquisition contemplates payment of consideration (including any tax deferral benefits and other non-cash items) to Sheldahl or its shareholders other than cash, and Molex is not able to pay or deliver to Sheldahl or its shareholders the same form of non-cash consideration, Molex shall, in its notice to Sheldahl to express its intention to consummate an Acquisition, set forth in detail the form of consideration Molex is offering in the Acquisition (the "Substitute Consideration"). Such Substitute Consideration shall be substantially equivalent in value from a financial point of view to Sheldahl or its shareholders when compared to the original consideration offered to Sheldahl by a third party or solicited by Sheldahl from a third party, as the case may be. If Molex and Sheldahl disagree whether the Substitute Consideration offered by Molex 6 6 is "substantially equivalent in value from a financial point of view," the final determination shall be made by a reputable investment bank mutually acceptable to Sheldahl and Molex which has not performed services for either Sheldahl or Molex in the past twelve (12) months, which determination shall be binding upon Molex and Sheldahl; provided, however, that the Board of Directors of Sheldahl, after consultation with its counsel, shall be satisfied in good faith that it has fulfilled its fiduciary duties by accepting the determination of the investment bank. In the event it is determined that Molex's Substitute Consideration is not "substantially equivalent in value from a financial point of view," Sheldahl shall provide written notice to Molex reasonably describing such deficiency (the "Deficiency Notice"), in which event Molex may provide a modified offer providing Substitute Consideration which is "substantially equivalent in value from a financial point of view" in writing within five (5) business days of Sheldahl's Deficiency Notice. In the event Molex does not provide the modified offer as provided above within the time period provided above, Sheldahl shall be entitled to accept the third party offer free of any rights of Molex under this Agreement. 1.13 Notwithstanding any other provision contained in this Agreement, Molex's rights under this Section 1 shall be terminated on the earlier of (a) the date which is the thirty (30) month anniversary of the Effective Date; or (b) the date on which Molex and Sheldahl execute a mutually acceptable supply and technology agreement (Molex and Sheldahl acknowledge and agree that nothing contained in this Agreement shall require Molex and Sheldahl to enter into to such supply and technology agreement). 1.14 So long as Sheldahl shall have satisfied all of its obligations under the Amended Supply Agreement, arising after the Effective Time, it shall be a condition to Sheldahl's obligations under section 1 hereof that Molex have satisfied all of its obligations under the Amended Supply Agreement arising after the Effective Time. "Amended Supply Agreement" shall mean the Sheldahl and Molex Agreement, dated January 2, 1997, between Sheldahl and Molex, as amended as of the date hereof. "Effective Time" shall mean the Effective Time as defined in the Merger Agreement. SECTION 2 PREEMPTIVE RIGHTS 2.1 Preemptive Rights. If Sheldahl proposes to issue additional Sheldahl Common Stock or Convertible Securities other than (i) grants of options to acquire Sheldahl Common Stock under Sheldahl's employee and consultant benefit plans 7 7 adopted by Sheldahl and except for Sheldahl Common Stock issued upon exercise of such options granted pursuant to such plans; (ii) shares of Sheldahl Common Stock issued upon conversion of the (a) 15,000 shares of Series B Convertible Preferred Stock; (b) 32,917 shares of Series D Convertible Preferred Stock; (c) 10,000 shares of Series E Convertible Preferred; (d) 7,000 shares of Series F Convertible Preferred; and (e) 25,000 shares of Series G Convertible Preferred of Sheldahl and upon payment of dividends with respect to such shares set forth in clauses (a) through (e); (iii) shares of preferred stock, Sheldahl Common Stock or rights of Sheldahl issued pursuant to Sheldahl's Rights Agreement dated June 16, 1996 with Norwest Bank Minnesota, N.A., as amended (the "Rights Agreement"); (iv) shares issued upon exercise of warrants outstanding (including all warrants issued or to be issued with respect to the Series D Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F Convertible Preferred Stock) or issued pursuant to the Subordinated Debt Agreement; or (v) shares issued pursuant to the transactions contemplated by the Merger Agreement and the Stock Purchase Agreement, Sheldahl will give Molex written notice of its intention to issue such Common Stock or Convertible Securities in a private or public equity or debt offering. Molex shall have the right to purchase a portion of such Sheldahl Common Stock or Convertible Securities in such number which when combined with the Sheldahl Common Stock owned beneficially by Molex on the effective date of issuance will equal the percentage of the issued and outstanding Sheldahl Common Stock after such issuance which Molex beneficially owned immediately prior to the issuance of such additional Sheldahl Common Stock or Convertible Securities. Notwithstanding the foregoing, in no event shall (i) Molex's ownership following any purchase under this Section 2.1 exceed 10% of the issued and outstanding Sheldahl Common Stock (as determined pursuant to Section 4.1); or (ii) Molex's Beneficial Ownership (as defined in the Rights Agreement) following such purchase result in Molex being an "Acquiring Person" (as defined in the Rights Agreement). Sheldahl covenants that it will amend the Rights Agreement if necessary in a form reasonably acceptable to Molex to ensure that the issuance of securities to Molex pursuant to the Subordinated Debt Agreement will not result in Molex becoming an Acquiring Person (as such term is defined the Rights Agreement) and will not cause the Rights Agreement to be amended in such a manner as to cause Molex to be an Acquiring Person. 2.2 Exercise of Preemptive Rights. In order to exercise its purchase rights hereunder, Molex must within ten (10) business days after receipt of written notice from Sheldahl describing in reasonable detail the Sheldahl Common Stock or Convertible Securities being offered, the purchase price thereof, the payment and other terms and conditions thereof and Molex's percentage allotment, deliver a written notice to Sheldahl describing its election hereunder. 8 8 2.3 Expiration of Offering Period. Upon the expiration of the ten (10) day period described above, Sheldahl shall be entitled to sell such Sheldahl Common Stock or Convertible Securities which Molex has not elected to purchase for a period of 90 days following such expiration on substantially the same terms and conditions as those offered to Molex. 2.4 No Rights in Certain Transactions. Notwithstanding the foregoing but subject to the following, Molex shall not be entitled to the preemptive rights set forth in Section 2.1 above in connection with an issuance by Sheldahl of Sheldahl Common Stock or Convertible Securities in an acquisition of assets or the business of a third party where Sheldahl is the continuing or surviving entity, but where such transaction is not an Acquisition, provided however, Molex shall have the right to purchase a number of shares of Sheldahl Common Stock necessary to allow Molex to beneficially own, after giving effect to such transaction described in this Section 2.4, the lesser of (i) the percentage of issued and outstanding Sheldahl Common Stock which Molex beneficially owned on the date immediately prior to such transaction; or (ii) 5% of the issued and outstanding Sheldahl Common Stock (as determined pursuant to Section 4.1). The purchase price for such shares shall be at a price equivalent to the value of the Sheldahl Common Stock received by the third party or shareholders of the third party to such transaction. Molex shall exercise this right within ten (10) business days after receipt of written notice from Sheldahl and, notwithstanding clause (ii) in the first sentence of Section 4.1, this Agreement shall not terminate in the event Molex has exercised such right prior to the termination of such ten business day period. Notwithstanding clause (ii) in the first sentence of Section 4.1, this Agreement shall not terminate in the event an issuance of Sheldahl Common Stock or Convertible Securities resulting from an event described in this Section 2.4 that causes Molex to beneficially own less than five percent (5%) of the issued and outstanding Sheldahl Common Stock (a "Termination Event") if either (i) Sheldahl provides Molex with the right to purchase shares of Sheldahl Common Stock or Convertible Securities in an amount necessary to allow Molex to beneficially own five percent (5%) of the issued and outstanding Sheldahl Common Stock after such issuance and Molex exercises such purchase rights within ten business days after receipt of written notice from Sheldahl describing the stock or securities to be offered and the purchase price thereof; or (ii) Molex purchases shares in the market to increase its beneficial ownership of Sheldahl Common Stock to five percent (5%) or more within 90 days of the Termination Event. 9 9 SECTION 3 BOARD REPRESENTATION 3.1 Board Representation. At least fifteen (15) days prior to the meeting of the Board of Directors of Sheldahl establishing the slate of directors for the next scheduled Annual Meeting of Shareholders of Sheldahl, Sheldahl shall provide Molex with a notice of such meeting. Prior to the date of such directors' meeting, Molex shall give the nominating committee of Sheldahl's Board of Directors, in writing, the names of two director candidates selected from Molex's current or past executive management team. Sheldahl will nominate and solicit proxies for the election of one such candidate submitted by Molex as a member of the Board of Directors of Sheldahl at that Annual Meeting of Shareholders and at each succeeding Annual Meeting of Shareholders of Sheldahl; provided, however, that after termination of this Agreement pursuant to Section 4, Sheldahl shall no longer be obligated to nominate and solicit proxies for the election of such designee of Molex as a director of Sheldahl and such nominee shall, if requested by the Board of Directors of Sheldahl, resign from the Sheldahl Board of Directors. At the first meeting of the Board of Directors after the date of this Agreement, Molex's designee (as described above) shall be appointed by the Board of Directors as a Board member. SECTION 4 MISCELLANEOUS 4.1 Term and Termination. This Agreement shall terminate and Molex shall have no further rights under this Agreement on the earliest to occur of the following: (i) when Molex first ceases to beneficially own at least 75% of the number of shares of Sheldahl Common Stock owned beneficially by Molex as of July 30, 1998, as indicated on Exhibit A; (ii) subject to Section 2.4,when Molex first ceases to beneficially own at least 5% of the issued and outstanding Sheldahl Common Stock; or (iii) completion of an Acquisition falling within the scope of the definition of Acquisition above. For purposes of this Agreement, when determining the issued and outstanding Sheldahl Common Stock or the Sheldahl Common Stock owned beneficially by Molex, (i) all issued and outstanding shares of Series B Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series F Convertible Preferred Stock and Series G Convertible Preferred Stock shall be deemed converted to Common Stock; (ii) all warrants outstanding (including all warrants issued or to be issued with respect to the Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series F Convertible Preferred Stock, and Series G Convertible Preferred Stock) or issued pursuant to that certain Subordinated Debt Agreement by 10 10 and among Sheldahl; and (iii) all subsequently issued and outstanding Convertible Securities (other than options granted to employees or directors and Convertible Securities that are out of the money) shall be deemed converted to Common Stock. With respect to (i) and (iii) immediately above, the number of shares of Sheldahl Common Stock to be issued upon conversion shall be determined as of the date a determination is to be made pursuant to this Agreement. 4.2 Governing Law. This Agreement as amended and restated shall be governed in all respects by the laws of the State of Minnesota as applied to contracts entered into solely between residents of, and to be performed entirely within, such state. 4.3 Successors and Assigns. This Agreement as amended and restated shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement as amended and restated may not be assigned by a party without the prior written consent of the other party. 4.4 Effectiveness of Agreement. This Agreement as amended and restated hereby shall become a binding agreement effective upon execution and delivery by the parties hereto, but the provisions hereof shall not take effect until the Effective Time and this Agreement shall be deemed null, void and without effect without any further action on the part of either party hereto if any of the Merger Agreement, Stock Purchase Agreement or the Subordinated Debt Agreement is terminated or the terms thereof are amended or waived in any respect which will result in a material adverse economic impact on Molex. Anything in this Agreement or the Original Sheldahl Agreement to the contrary notwithstanding, the execution, delivery and performance of the Merger Agreement, the Stock Purchase Agreement and Subordinated Debt Agreement or any agreement contemplated thereby shall not constitute an "Acquisition," as that term is used herein or in the Original Sheldahl Agreement, whether or not this Agreement continues in effect. 4.5 Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof and supersedes all prior agreements and understandings among the parties relating to the subject matter hereof. Neither this Agreement as amended and restated nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against which enforcement of any such amendment, waiver, discharge or termination is sought. 11 11 4.6 Notices and Dates. Any notice or other communication given under this Agreement shall be sufficient if in writing and sent by registered or certified mail, return receipt requested, postage prepaid, by facsimile, by hand delivery or overnight mail to a party at its address set forth below (or at such other address as shall be designated for such purpose by such party in a written notice to the other party hereto): If to Sheldahl: Sheldahl, Inc. 1150 Sheldahl Road Northfield MN 55057 Attention: Edward L. Lundstrom Fax: 507-663-8326 With a copy to: Lindquist & Vennum P.L.L.P. 4200 IDS Center 80 South 8th Street Minneapolis MN 55042 Attention: Charles P. Moorse Fax: 612-371-3207 7 If to Molex: Molex Incorporated 2222 Wellington Court Lisle IL 60532 Attention: Frederick A. Krehbiel Fax: 630-512-8632 With a copy to: Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago IL 60603 Attention: Michael Froy Fax: 312-876-7934 All such notices and communications shall be effective when received by the addressee. In the event that any date provided for in this Agreement falls on a Saturday, Sunday or legal holiday, such date shall be deemed extended to the next business day. 12 12 4.7 Severability. If any term, provision, covenant or restriction of this Agreement as amended and restated is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restriction of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 4.8 Costs and Expenses. Sheldahl shall pay its own costs and expenses and the costs and expenses of Molex, including the fees and out-of-pocket expenses of legal counsel to Molex, incurred in connection herewith, whether or not the transactions contemplated herein are consummated. 4.9 No Third Party Rights. Nothing in this Agreement shall create or be deemed to create any rights in any person or entity not a party to this Agreement as amended and restated. 4.10 Remedies. Sheldahl and Molex acknowledge that a breach of this Agreement by one party could cause the other party damage that may not be adequately compensated by damages at law. Therefore, Sheldahl and Molex agree that, in addition to other relief afforded by law, seeking an injunction for specific performance shall be a proper mode of relief for violations of this Agreement. [Signature page to follow] 13 13 IN WITNESS WHEREOF, the parties have caused this Agreement as amended and restated to be executed by their respective authorized officers as of the date aforesaid. SHELDAHL, INC. By: /s/ EDWARD L. LUNDSTROM --------------------------------------------- Name: Edward L. Lundstrom Title: President MOLEX INCORPORATED By: /s/ THOMAS S. LEE --------------------------------------------- Name: Thomas S. Lee Title: Vice President New Ventures & Acquisitions 14 14 EXHIBIT A Issued and Outstanding Sheldahl Common Stock as of July 30, 1998
NUMBER OF SHARES OF SHELDAHL TYPE OF SECURITY COMMON STOCK ---------------- ------------ Common Shares Issued and Outstanding 9,660,615 Series B Preferred (including dividends converted at $6.01 through 7/30/98) 1,330,795 Outstanding Warrants 167,812 Series D Warrants 329,170 Series D Preferred (converted at $6.15) 5,352,358 --------- Total Sheldahl Common Stock (per Section 3.1) 16,840,750 ========== Molex Incorporated 340,000 Series D Warrants 120,000 Series D Preferred $12.0M 1,951,219 --------- Molex Incorporated Ownership 2,411,219 ========= Molex Incorporated Percentage Ownership 14.32%
15 15 Schedule I 1. Tyco International, Ltd./AMP 2. Hon Hai/FoxConn 3. Framatome Group/FCI 16 EX-4.9 11 c58431ex4-9.txt FORM OF PIPER JAFFRAY WARRANT 1 EXHIBIT 4.9 NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. WARRANT FOR COMMON STOCK OF SHELDAHL, INC. WARRANT NO. ____ THIS CERTIFIES that, for value received, ____________________, or its permitted assigns (collectively, the "Holder"), is entitled to purchase from Sheldahl, Inc., a Minnesota corporation (the "Company"), at any time, and from time to time, during the exercise period referred to in Section 1 hereof ________________ fully paid, validly issued and nonassessable shares (the "Warrant Shares") of common stock of the Company, par value $0.25 (the "Common Stock"), at the exercise price of $2.770559 per share (the "Warrant Price"). Securities issuable upon exercise of this Warrant and the exercise price payable therefor are subject to adjustment from time to time as hereinafter set forth. As used herein, the term "Warrant" shall include any warrant or warrants hereafter issued in consequence of the exercise of this Warrant in part or transfer of this Warrant in whole or in part. This Warrant is being issued pursuant to that certain Engagement Letter, dated as of November 22, 1999, as amended on October 20, 2000, between the Company, and U.S. Bancorp Piper Jaffray (the "Engagement Letter"). 1. Exercise; Payment for Ownership Interest. (a) Upon the terms and subject to the conditions set forth herein, this Warrant may be exercised in whole or in part by the Holder hereof at any time, or from time to time, on or after the Closing (as defined in the Purchase Agreement) and prior to 5 p.m. Minneapolis time on the seventh anniversary of the date of the Closing, by presentation and surrender of this Warrant to the principal offices of the Company, or at the office of its Transfer Agent (as hereinafter defined), if any, together with the Purchase Form annexed hereto, duly executed, and accompanied by payment to the Company of an 2 amount equal to the Warrant Price multiplied by the number of Warrant Shares as to which this Warrant is then being exercised. The Holder of this Warrant shall be deemed to be a shareholder of the Warrant Shares as to which this Warrant is exercised in accordance herewith effective immediately after the close of business on the date on which the Holder shall have delivered to the Company this Warrant in proper form for exercise and payment of the Warrant Price for the number of Warrant Shares as to which the exercise is being made, notwithstanding that the stock transfer books of the Company shall be then closed or that certificates representing such Warrant Shares shall not then be physically delivered to the Holder. (b) All or any portion of the Warrant Price may be paid by surrendering Warrants effected by presentation and surrender of this Warrant to the Company, or at the office of its Transfer Agent, if any, with a Cashless Exercise Form annexed hereto duly executed (a "Cashless Exercise"). Such presentation and surrender shall be deemed a waiver by the Company of the Holder's obligation to pay all or any portion of the aggregate Warrant Price. Except as provided in Section 3(b) below, in the event of a Cashless Exercise, the Holder shall exchange its Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares for which the Holder desires to exercise this Warrant by a fraction, the numerator of which shall be the difference between the then current market price per share of the Common Stock and the Warrant Price, and the denominator of which shall be the then current market price per share of Common Stock. For purposes of any computation under this Section 1(b), the then current market price per share of Common Stock at any date shall be deemed to be the average for the ten consecutive business days immediately prior to the Cashless Exercise of the daily closing prices of the Common Stock on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the closing prices as reported by the Nasdaq National Market or, if applicable, the Nasdaq SmallCap Market, or if not then included for quotation on the Nasdaq National Market or the Nasdaq SmallCap Market, the average of the highest reported bid and lowest reported asked prices as reported by the OTC Bulletin Board or the National Quotations Bureau, as the case may be, or if not then publicly traded, the fair market price, not less than book value thereof, of the Common Stock as determined in good faith by the independent members of the Board of Directors of the Company. (c) If this Warrant shall be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder as to which the Warrant has not been exercised. If this Warrant is exercised in part, such exercise shall be for a whole number of Warrant Shares. Upon any exercise and surrender of this Warrant, the Company (i) will issue and deliver to the Holder a certificate or certificates in the name of the Holder for the largest whole number of Warrant Shares to which the Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of any fractional Warrant Share to which the Holder otherwise might be entitled, cash in an amount equal to the fair value of such 2 3 fractional Warrant Share (determined in such reasonable and equitable manner as the Board of Directors of the Company shall in good faith determine), and (ii) will deliver to the Holder such other securities, properties and cash which the Holder may be entitled to receive upon such exercise, or the proportionate part thereof if this Warrant is exercised in part, pursuant to the provisions of this Warrant. 2. Anti-Dilution Provisions. The Warrant Price in effect at any time and the number and kind of securities issuable upon exercise of this Warrant shall be subject to adjustment from time to time upon happening of certain events as follows: 2.1 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization, reclassification or any other change of capital stock of the Company, or any consolidation or merger of the Company with another person, or the sale or transfer of all or substantially all of its assets to another person shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for their shares of Common Stock, then provision shall be made by the Company, in accordance with this Section 2.1, whereby the Holder hereof shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in this Warrant and in addition to or in exchange for, as applicable, the Warrant Shares subject to this Warrant immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such securities or assets as would have been issued or payable with respect to or in exchange for the aggregate Warrant Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby if exercise of the Warrant had occurred immediately prior to such reorganization, reclassification, consolidation, merger or sale. The Company will not effect any such consolidation, merger, sale, transfer or lease unless prior to the consummation thereof the successor entity (if other than the Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument (i) the obligation to deliver to the Holder such securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and (ii) all other obligations of the Company under this Warrant; provided, however, that the failure to comply with the foregoing shall not affect the validity or legality of such consolidation, merger, sale, transfer or lease. The provisions of this Section 2.1 shall similarly apply to successive consolidations, mergers, exchanges, sales, transfers or leases. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or transfer, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 2.2 hereof. 2.2 Stock Dividends and Securities Distributions. If, at any time or from time to time after the date of this Warrant, the Company shall distribute to the holders of shares of Common Stock (i) securities (including rights, warrants, options or another form of convertible securities), (ii) property, other than cash, or (iii) cash, without fair payment 3 4 therefor, then, and in each such case, the Holder, upon the exercise of this Warrant, shall be entitled to receive such securities, property and cash which the Holder would hold on the date of such exercise if, on the date of the distribution, the Holder had been the holder of record of the shares of Common Stock issued upon such exercise and, during the period from the date of this Warrant to and including the date of such exercise, had retained such shares of Common Stock and the securities, property and cash receivable by the Holder during such period, subject, however, to the Holder agreeing to any conditions to such distribution as were required of all other holders of shares of Common Stock in connection with such distribution. 2.3 Other Adjustments. In addition to those adjustments set forth in Sections 2.1 and 2.2, but without duplication of the adjustments to be made under such Sections, if the Company: (i) declares or pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (ii) subdivides or reclassifies its outstanding shares of Common Stock into a greater number of shares; (iii) combines or reclassifies its outstanding shares of Common Stock into a smaller number of shares; (iv) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; and/or (v) issues, by reclassification of its Common Stock, any shares of its capital stock; then the number and kind of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted so that the Holder upon exercise hereof shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company that the Holder would have owned or have been entitled to receive after the happening of any of the events described above had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Section 2.3 shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or issuance. If, as a result of an adjustment made pursuant to this Section 2.3, the Holder of this Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and any other class of capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to all holders of Warrants promptly after such adjustment) shall determine the allocation of the adjusted Warrant Price between or among shares of such classes of capital stock or shares of Common Stock and such other class of capital stock. 4 5 The adjustment to the number of Warrant Shares purchasable upon the exercise of this Warrant described in this Section 2.3 shall be made each time any event listed in paragraphs (i) through (v) of this Section 2.3 occurs. Simultaneously with all adjustments to the number and/or kind of securities, property and cash under this Section 2.3 to be issued in connection with the exercise of this Warrant, the Warrant Price will also be appropriately and proportionately adjusted. In the event that at any time, as a result of an adjustment made pursuant to this Section 2.3, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 2.1 and 2.2 above. 2.4 Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Warrant Price pursuant to this Section 2, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment, including a statement of the adjusted Warrant Price or adjusted number of Warrant Shares, if any, issuable upon exercise of each Warrant, describing the transaction giving rise to such adjustments and showing in detail the facts upon which such adjustment or readjustment is based. The Company will forthwith mail, by first class mail, postage prepaid, a copy of each such certificate to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, and to its Transfer Agent. 2.5 Other Notices. If at any time: (a) the Company shall (i) offer for subscription pro rata to the holders of shares of the Common Stock any additional equity in the Company or other rights; (ii) pay a dividend in additional shares of the Common Stock or distribute securities or other property to the holders of shares of the Common Stock (including, without limitation, evidences of indebtedness and equity and debt securities) (other than dividends payable in the form of the Company's Common Stock to holders of the Company's Series D, E, F and G Convertible Preferred Stock or other series of preferred stock); or (iii) issue securities convertible into, or rights or warrants to purchase, securities of the Company; (b) there shall be any capital reorganization or reclassification or consolidation or merger of the Company with, or sale, transfer or lease of all or substantially all of its assets to, another entity; or (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; 5 6 then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least 15 days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such subscription rights, dividend, distribution or issuance, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days' prior written notice of the date when the same shall take place if no stockholder vote is required and at least 15 days' prior written notice of the record date for stockholders entitled to vote upon such matter if a stockholder vote is required. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such subscription rights, the date on which the holders of shares of Common Stock shall be entitled to exercise their rights with respect thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of shares of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Failure to give the notice referred to herein shall not affect the validity or legality of the action which should have been the subject of the notice. 2.6 No adjustment in the Warrant Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this Section 2.6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 3. No Voting Rights. This Warrant shall not be deemed to confer upon the Holder any right to vote or to consent to or receive notice as a stockholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a stockholder, prior to the exercise hereof. 4. Warrants Transferable. This Warrant and all rights hereunder are transferable, in whole or in part, at the principal offices of the Company by the Holder hereof, upon surrender of this Warrant properly endorsed; provided, that this Warrant and all rights hereunder may be transferred only (i) to affiliates, officers, or employees of the holder; (ii) in a transaction exempt from registration under the 1933 Act, provided that the Company receives an opinion of counsel that such transfer may be effected without registration under the 1933 Act; or (iii) pursuant to the registration of this Warrant or the Warrant Shares under the 1933 Act or subsequent to one year from the date hereof pursuant to an available exemption from such registration. It shall be a condition to transfer of this Warrant that the transferee agrees to be bound by the restrictions on transfer contained in this Section 4. 5. Warrants Exchangeable; Assignment; Loss, Theft, Destruction, Etc. This Warrant is exchangeable, without expense, upon surrender hereof by the Holder hereof at the 6 7 principal offices of the Company, or at the office of its Transfer Agent, if any, for new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the Warrant Shares which may be subscribed for and purchased hereunder, each such new Warrant to represent the right to subscribe for and purchase such Warrant Shares as shall be designated by such Holder hereof at the time of such surrender. Upon surrender of this Warrant to the Company at its principal office, or at the office of its Transfer Agent, if any, with an instrument of assignment duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants which carry the same rights upon presentation hereof at the principal office of the Company, or at the office of its Transfer Agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of a bond or indemnity satisfactory to the Company, or, in the case of any such mutilation, upon surrender or cancellation of this Warrant, the Company will issue to the Holder hereof a new Warrant of like tenor, in lieu of this Warrant, representing the right to subscribe for and purchase the Warrant Shares which may be subscribed for and purchased hereunder. Any such new Warrant executed and delivered shall constitute an additional contractual obligation of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. 6. Legend. Any certificate evidencing the securities issued upon exercise of this Warrant shall bear a legend in substantially the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES OF CAPITAL STOCK AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, 7 8 AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF THE SUBSEQUENT CLASSES OR SERIES. THE SHARES OF COMMON STOCK OF SHELDAHL, INC. INTO WHICH THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE CONVERTIBLE ENTITLE THE HOLDER THEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN SHELDAHL, INC. AND WELLS FARGO BANK, N.A., DATED AS OF JUNE 16, 1996 AND AMENDED ON JULY 25, 1998 AND NOVEMBER 10, 2000 (THE "RIGHTS AGREEMENT"), A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF SHELDAHL, INC. UNDER CERTAIN CIRCUMSTANCES, SUCH RIGHTS ISSUED TO OR HELD BY AN ACQUIRING PERSON, OR AFFILIATE OR ASSOCIATE THEREOF (AS DEFINED IN THE RIGHTS AGREEMENT), AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS, MAY BECOME NULL AND VOID. 7. Modifications and Waivers. The terms of the Warrants may be amended, modified or waived only by the written agreement of the Company and the Holder. 8. Miscellaneous. The Company shall pay all expenses and other charges payable in connection with the preparation, issuance and delivery of this Warrant and all substitute Warrants. The Holder shall pay all taxes (other than any issuance taxes, including, without limitation, documentary stamp taxes, transfer taxes and other governmental charges, which shall be paid by the Company) in connection with such issuance and delivery of this Warrant and the Warrant Shares. The Company shall maintain, at the office or agency of the Company maintained by the Company, books for the registration and transfer of the Warrant. 9. Reservation of Warrant Shares. The Company will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury, solely for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of this Warrant, the maximum number of shares of Common Stock which may then be deliverable upon the exercise of this Warrant. The Company or, if appointed, the Transfer Agent for the Common Stock (the "Transfer Agent") and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Warrant on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the 8 9 rights of purchase represented by this Warrant. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to the Holder pursuant to Section 2.5 hereof. The Company covenants that all Warrant Shares which may be issued upon exercise of this Warrant will, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. 10. Registration. The Holder shall be entitled to demand and "piggyback" registration rights with respect to the Warrant Shares, as set forth in a Registration Rights Agreement, dated as of _______________, 200_, among the Company and the other signatories thereto. 11. Descriptive Headings and Governing Law. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with the laws of the State of Minnesota, and the rights of the parties shall be governed by, the law of such State. IN WITNESS WHEREOF, this Warrant has been executed as of the ___ day of _______________, 200_. SHELDAHL, INC. By: ------------------------------- Name: Title: 9 10 PURCHASE FORM Dated:__________, ____ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ Warrant Shares and hereby makes payment of $_____________ in payment of the exercise price thereof. ----------------------------------- 10 11 CASHLESS EXERCISE Dated:__________, ____ The undersigned irrevocably elects to exercise the within Warrant for Warrant Shares and hereby makes payment pursuant to the Cashless Exercise provision of the within Warrant, and directs that the payment of the Warrant Price be made by cancellation as of the date of exercise of a portion of the within Warrant in accordance with the terms and provisions of Section 1(b) of the within Warrant. ----------------------------------- 11 EX-10.0 12 c58431ex10-0.txt AMENDMENT TO LIABILITY COMPANY AGREEMENT 1 EXHIBIT 10.0 FIRST AMENDMENT TO LIMITED LIABILITY COMPANY AGREEMENT OF MODULAR INTERCONNECT SYSTEMS, L.L.C. FIRST AMENDMENT, dated as of November 10, 2000, to Limited Liability Company Agreement of Modular Interconnect Systems, L.L.C., dated as of July 28, 1998, between Sheldahl, Inc., a Minnesota corporation ("Sheldahl") and Molex Incorporated, a Delaware corporation ("Molex"). PRELIMINARY STATEMENT Sheldahl and Molex entered into a limited liability company agreement relating to Modular Interconnect Systems, L.L.C. ("Company"), dated July 28, 1998 (the "Joint Venture Agreement"). Under the terms of an Agreement and Plan of Merger among Sheldahl, IFT Acquisition Corp., a wholly-owned subsidiary of Sheldahl, International Flex Holdings, Inc. ("IFH") and the stockholders of IFH (the "Merger Agreement"), Sheldahl has proposed to issue shares of its common stock to the stockholders of IFH in exchange for all outstanding equity securities of IFT. Under the terms of a Stock Purchase Agreement among Sheldahl and the purchasers listed on exhibit A thereto (the "Stock Purchase Agreement"), Sheldahl has proposed to issue shares of its Series G Convertible Preferred Stock and common stock to the purchasers party thereto. Under the terms of a Subordinated Notes and Warrant Purchase Agreement among Sheldahl and the purchasers listed on exhibit A thereto (the "Subordinated Debt Agreement"), Sheldahl has proposed to issue subordinated notes and warrants to purchase shares of Sheldahl's common stock to the purchasers party thereto. As an inducement to the foregoing transactions, the parties hereto desire to amend the Joint Venture Agreement as set forth below. Accordingly, the parties hereto agree as follows: 1 The following terms, when used herein, shall have the indicated meanings: a. "Effective Time" shall have the meaning given to such term in the Merger Agreement. b. "Governance Agreement" shall mean the governance agreement among the purchasers party to the Stock Purchase Agreement, Sound Beach and certain other stockholders of Sheldahl. 2 c. "Joint Venture Agreement" shall have the meaning given that term in the preliminary statement to this First Amendment. d. "Merger Agreement" shall have the meaning given that term in the preliminary statement to this First Amendment. e. "Sound Beach" shall mean Sound Beach Technology Partners, LLC, a Delaware limited liability company. f. "Stock Purchase Agreement" shall have the meaning given that term in the preliminary statement to this First Amendment. g. "Subordinated Debt Agreement" shall have the meaning given that term in the preliminary statement to this First Amendment. h. "Voting Agreement" shall mean the voting agreement entered into among the Purchasers under the Stock Purchase Agreement and Sound Beach relating to election of the directors of Sheldahl. 2 Capitalized terms defined in the Joint Venture Agreement shall have the same meanings herein. 3 Each of Sheldahl and Molex agrees and confirms that no defaults have occurred and are continuing as of the date hereof under the Joint Venture Agreement and hereby agree to waive all defaults by the other party hereto, if any, which have occurred from the inception date of the Joint Venture Agreement and up to and through the Effective Time. 4 Molex agrees that no Change of Ownership of Sheldahl or any default under the Joint Venture Agreement shall be deemed to have occurred by reason of the parties thereto having entered into the Merger Agreement, the Stock Purchase Agreement, the Subordinated Debt Agreement, the Governance Agreement and the Voting Agreement, or having consummated the transactions and arrangements contemplated thereby. 5 Molex hereby waives its right, if any, to exercise any rights or remedies under section 9.10 of the Joint Venture Agreement with respect to the Company's failure to meet its business goals as specified in Exhibit 9.10 thereto in all material respects for the periods ending June 30, 1999 and June 30, 2000. 2 3 6 Except as herein expressly amended, the Joint Venture Agreement is ratified and confirmed in all respects and shall remain in full force and effect in accordance with its terms. 7 From and after the Effective Time, all references to the Joint Venture Agreement in the Joint Venture Agreement and any ancillary documents in connection therewith shall mean the Joint Venture Agreement as amended hereby. 8 From and after the Effective Time, the Joint Venture Agreement, as amended hereby, shall constitute the entire agreement of the parties with respect to the subject matter hereof. 9 This First Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original of this First Amendment. 10 Notwithstanding anything is this First Amendment to the contrary, none of the foregoing shall take effect and this First Amendment shall be deemed terminated, null, void and without effect without any further action on the part of either party hereto if the Merger Agreement, the Stock Purchase Agreement or the Subordinated Debt Agreement is terminated for any reason pursuant to the terms thereof. 3 4 IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed by their respective authorized officers as of the date aforesaid. SHELDAHL, INC. By: /s/ EDWARD L. LUNDSTROM --------------------------------------------- Name: Edward L. Lundstrom Title: President MOLEX INCORPORATED By: /s/ THOMAS S. LEE --------------------------------------------- Name: Thomas S. Lee Title: Vice President New Ventures & Acquisitions 4 EX-99.0 13 c58431ex99-0.txt LETTER AMENDMENT 1 EXHIBIT 99.0 [letterhead of Morgenthaler Venture Partners V, L.P.] [date] Edward L. Lundstrom President and CEO Sheldahl, Inc. 1150 Sheldahl Road Northfield, MN 55057 Dear Ed: Reference is made to the 8.0% Note (the "Note"), dated August 15, 2000, made by Sheldahl, Inc. ("Sheldahl") and payable to the order of Morgenthaler Venture Partners V, L.P. This letter will confirm the following: 1. "Maturity Date," shall mean the earlier of: a. the "Final Date," as defined in the Agreement and Plan of Merger (the "Merger Agreement"), dated as of November 9, 2000, among Sheldahl, Inc., IFT West Acquisition Company, International Flex Holdings, Inc. ("IFH") and the stockholders of IFH, and b. the date on which the Merger Agreement shall have been terminated pursuant to section 7.1 thereof. 2. No statement made in any submissions by or on behalf of Sheldahl to the Nasdaq Stock Market pursuant to and in connection with the transactions contemplated by the Merger Agreement, the Stock Purchase Agreement (as defined in the Merger Agreement) and the Subordinated Debt Agreement (as defined in the Merger Agreement) shall be deemed to be an Event of Default under section 8(a) of the Note. Very truly yours, Morgenthaler Venture Partners V, L.P. By: /s/ JOHN D. LUTSI --------------------------------- Name: John D. Lutsi Title: General Partner EX-99.1 14 c58431ex99-1.txt PRESS RELEASE 1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE Contacts: Jill Burchill Chief Financial Officer November 10, 2000 507/663-8294 Sheldahl, Inc. jill.burchill@sheldahl.com 1150 Sheldahl Road Northfield, MN 55057 Jennifer Weichert for Sheldahl Weichert Financial Relations, Inc. 651/261-5330 weichertfr@aol.com Troy McCombs for IFT Coltrin and Associates 212/221-1616 Troy_McCombs@Coltrin Com SHELDAHL SIGNS DEFINITIVE MERGER AGREEMENT WITH INTERNATIONAL FLEX TECHNOLOGIES New Equity Infusion Will Provide Opportunity for Company Growth Northfield, MN, -- November 10, 2000 -- Sheldahl Inc. (NasdaqNM: SHEL) and International Flex Technologies Inc. announced today that they have entered into a definitive Merger Agreement under which Sheldahl will acquire International Flex Technologies ("IFT") for approximately 7.6 million shares of common stock. Concurrent with the closing of the acquisition, Morgenthaler Partners ("Morgenthaler"), IFT's majority shareholder, and Ampersand Ventures ("Ampersand") will invest $25.0 million in equity capital in exchange for approximately 4.9 million shares of Sheldahl common stock and shares of a new series of Sheldahl preferred stock that is convertible into approximately 4.1 million shares of Sheldahl common stock. In addition, Molex Inc. ("Molex"), a Sheldahl customer and joint venture partner, has agreed to join with Morgenthaler and Ampersand in committing to purchase up to an aggregate of $15.0 million of Sheldahl subordinated debt and warrants. If Sheldahl issues the full $15.0 million of notes, it will issue warrants to the note holders to purchase approximately 2.3 million shares of Sheldahl common stock. As a result of these transactions, Morgenthaler, other IFT stockholders and Ampersand will collectively hold securities representing ownership of approximately 49% of Sheldahl on a fully diluted basis (assuming conversion of all Sheldahl convertible securities). In addition, Molex will increase its ownership of Sheldahl securities and, after participation in these transactions, will own approximately 10% of Sheldahl on a fully diluted basis. "We are pleased that Molex, Sheldahl's largest shareholder, has decided to participate in this transaction," said John Lutsi, general partner at Morgenthaler. -more- 2 SHELDAHL SIGNS DEFINITIVE MERGER AGREEMENT WITH INTERNATIONAL FLEX TECHNOLOGIES Page Two. Upon completion of the merger, the combined company will operate under the Sheldahl name as a publicly traded concern, with IFT operating as a wholly owned subsidiary of Sheldahl. The new Board of Directors will include three of the current directors of Sheldahl, three designees of Morgenthaler, Ampersand and IFT and one representative from Molex. "We are delighted that Sheldahl and IFT are joining forces. This new company will combine the mature product lines of Sheldahl's core business, the newer packaging products of IFT, Sheldahl's Micro Products and Sheldahl's emerging products in plastic displays and wireless communication devices," said Sheldahl President Edward L. Lundstrom. "In particular, we have preserved the upside potential from chip packaging and other new products for our shareholders. Our employees and shareholders will also benefit from IFT's highly competent organization with proven talent, technology and operating strength." "The improved liquidity afforded by our investment partners clearly paves the road for us to finish the development and commercialization of our new products while we simultaneously grow the core business and improve profitability," Lundstrom continued. "Sheldahl's Board and I fully support these transactions. We believe this is in our shareholders' best interests and provides for exciting opportunities for growth and advancement for our employees." "The combined company will be a major force in the marketplace, offering world-class technology," said Donald R. Friedman, President and Chief Executive Officer of IFT. "Further, we can better provide for all of our customers with the expanded capacities that Longmont offers, which clearly compliments our Endicott location. We believe that customers, shareholders and employees of IFT and Sheldahl will benefit from this combination." The transactions are subject to a number of customary closing conditions, including regulatory approvals, as well as compliance with Nasdaq regulations that require either shareholder approval or advance notice to shareholders. International Flex Technologies Inc. is a leading producer of fine-line, high quality flexible circuits for sale to the electronics, data communications and medical markets. The Company, headquartered in Endicott, New York, has operations in Stamford, Connecticut and sales offices worldwide. Information on IFT can be found on the World Wide Web at http://www.internationalflex.com. -more- 3 SHELDAHL SIGNS DEFINITIVE MERGER AGREEMENT WITH INTERNATIONAL FLEX TECHNOLOGIES Page Three. Morgenthaler Partners is a private equity investment firm with offices in Cleveland, Ohio and Menlo Park, California, with approximately $1.0 billion under management. Information on Morganthaler can be found on the World Wide Web at http://www.morganthaler.com. Ampersand Ventures is a private equity investment firm with offices in Wellesley, Massachusetts and San Diego, California, with approximately $350 million in capital under management. Molex Incorporated is a 62-year-old manufacturer of electronic, electrical and fiber optic interconnection products and systems; switches; value-added assemblies; and application tooling. Based in Lisle, Illinois, USA, the Company operates 52 manufacturing facilities in 19 countries and employs approximately 17,650 people. For more information please go to http://www.molex.com. Sheldahl, Inc. is a leading producer of high-density substrates, high-quality flexible printed circuitry, and flexible laminates primarily for sale to the automotive electronics and data communications markets. The Company, which is headquartered in Northfield, Minnesota, has operations in Northfield; Longmont, Colorado; South Dakota; Toronto, Ontario, Canada; and Chihuahua, Chih., Mexico. Its sales offices are located in Detroit, Michigan, Hong Kong, China; Singapore; and Mainz, Germany. As of September 1, 2000, Sheldahl employed approximately 800 people. Sheldahl's common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol: SHEL. Sheldahl news and information can be found on the World Wide Web at http://www.sheldahl.com. The discussion above contains statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements by their nature involve substantial risks and uncertainties as described by Sheldahl's periodic filings. Actual results may differ materially depending on a variety of factors, including, but not limited to the following: the achievement of Sheldahl's projected operating results, the ability of Sheldahl to successfully obtain waivers from its lenders for defaults on its debt covenants, the achievement of efficient volume production and related sales revenue results at Longmont, the ability of Sheldahl to identify and successfully pursue other business opportunities and Sheldahl not completing the transaction as described above. Additional information with respect to the risks and uncertainties faced by Sheldahl may be found in, and the prior discussion is qualified in its entirety by, the Risk Factors contained in the Company's filings with the Securities and Exchange Commission including Sheldahl's Annual Report, Form 10-K for the fiscal year ended August 27, 1999, Forms 10-Q for the quarters ending November26, 1999, February 25, 2000 and May 26, 2000, and other SEC filings. Sheldahl does not undertake any obligation to update any such factors or to publicly announce developments or events relating to the matters described herein. # # # # # # -----END PRIVACY-ENHANCED MESSAGE-----