-----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, EesIESCcvB4GOGDNgNYZ0yJIUY8Bzl4N5HFuHmrAtjPqKhUVArq+tlbVTQp37zDj QqeeJ8n9g7D3ejTobGg5OA== 0000950131-95-002840.txt : 19951220 0000950131-95-002840.hdr.sgml : 19951220 ACCESSION NUMBER: 0000950131-95-002840 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19950901 FILED AS OF DATE: 19951012 DATE AS OF CHANGE: 19951219 SROS: NASD 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: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00045 FILM NUMBER: 95580206 BUSINESS ADDRESS: STREET 1: 1150 SHELDAHL RD CITY: NORTHFIELD STATE: MN ZIP: 55057 BUSINESS PHONE: 5076638000 FORMER COMPANY: FORMER CONFORMED NAME: SCHJELDAHL G T CO DATE OF NAME CHANGE: 19741017 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- FORM 10-K --------------------------------- (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED SEPTEMBER 1, 1995 COMMISSION FILE NUMBER: 0-45 --------------------------------- SHELDAHL, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-0758073 --------------------------------- --------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1150 SHELDAHL ROAD NORTHFIELD, MN 55057 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (507) 663-8000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE OF $.25 PER SHARE (Title of Class) --------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ ____ Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of shares held by non-affiliates was approximately $91,443,696 on October 9, 1995, when the last sales price of the Registrant's Common Stock, as reported in the Nasdaq National Market System, was $15.75. As of October 9, 1995, the Company had outstanding 6,833,926 shares of Common Stock. --------------------------------- DOCUMENTS INCORPORATED BY REFERENCE None PART I ITEM 1. BUSINESS GENERAL Sheldahl is a leading producer of high quality flexible printed circuitry and flexible laminates principally for sale to the automotive electronics and datacommunication markets. Flexible circuitry is used to provide electrical connection between components and electronic systems and also as a substrate to support electronic devices. Flexible circuits consist of polyester or polyimide film to which copper foil is laminated and processed through various imaging, etching and plating processes. Flexible circuits can be further processed by surface mount attachment of electronic components to produce an interconnect assembly. Flexible circuits provide advantages over rigid printed circuit boards by accommodating packaging contour and motion and reducing size and weight. According to industry sources, the worldwide market for flexible circuitry is estimated to increase from $1.7 billion in 1995 to $2.2 billion by 1998. The Company recently introduced three high performance products based on proprietary thin film technology: Novaclad, ViaGrid and high density substrates. These emerging products provide substantial benefits compared to traditional flexible circuits, including the capability for very fine circuit traces (down to 1 mil, or .001") as well as greater heat tolerance and dissipation. The Company has designed its Novaclad and ViaGrid products to be used as a base material for high performance printed circuits. The Company has developed its high density substrates to enable integrated circuit ("IC") manufacturers to package future generations of ICs economically by attaching the silicon die to a high density substrate manufactured by the Company or other circuitry manufacturers using the Company's Novaclad or ViaGrid products. As ICs are becoming increasingly powerful, they produce more heat and require a greater number of connections to attach the silicon die, placing substantially greater demands on IC packaging materials. The Company believes the growth of the IC market, together with increasing silicon die connection densities, will provide an attractive market opportunity for its emerging products. The Company is investing approximately $38 million in an advanced production facility ("New Production Facility") to produce its emerging products in commercial volumes. This New Production Facility, located in Longmont, Colorado, is scheduled to be operational in April 1996. In 1989, management developed a new business strategy focused on achieving a leading position supplying flexible circuits to the automotive electronics market and sales to automotive customers have increased at a compound annual rate of 24.6% since fiscal 1989. Industry sources estimate that the average electronic content per automobile has grown from approximately $1,200 in 1990 to approximately $1,700 in 1995 and is projected to grow to approximately $2,400 in 2000. Based on the Company's historical growth in sales to automotive customers, as well as product design work already completed for the 1996 and 1997 model years, the Company believes that automotive demand for flexible circuits is likely to grow at a greater rate than overall demand for automotive electronics. The Company's flexible circuits and flexible laminates are incorporated into vehicles manufactured by Chrysler, Ford, General Motors, Honda and Toyota. RECENT DEVELOPMENTS The Company has recently initiated various strategic relationships to further position itself to achieve its goal of being the leading worldwide supplier of high quality flexible printed circuitry, flexible laminates and high density substrates serving the needs of the datacommunication and automotive electronics markets. These recent strategic relationships include: Texas Instruments Semiconductor Program. In August 1995, the Company began a program with Texas Instruments Corporation ("Texas Instruments") to develop an advanced IC package using "Ball Grid Array" technology in which the silicon die is attached to the Company's high density substrate which in turn is placed on an array of small solder balls forming the base of the package. In addition to providing increased performance, the Ball Grid Array replaces the fragile leads which extend from the perimeter of current IC packages, resulting in improved assembly yields and reduced size. See "--Business Strategy" and "--Sales and Customer Support--Emerging Products." Mentor Graphics Agreement. In June 1995, the Company signed a joint marketing agreement with Mentor Graphics Corporation ("Mentor Graphics"), a worldwide leader in providing electronic design automation tools and professional services for use in designing printed circuits. The Company believes that many potential purchasers of the Company's new ViaGrid product already use Mentor Graphics' design tools and that the Company's relationship with Mentor Graphics will facilitate the Company's ability to market ViaGrid to these customers. Mentor Graphics has developed software specifically for designing advanced packaging and other printed circuitry solutions incorporating ViaGrid and will offer this MCM Station(R) software, together with training and customer support, to printed circuit manufacturers. Mentor Graphics will also offer contract design services, using the MCM Station(R) software, to printed circuit manufacturers. The Company expects this relationship to provide printed circuit manufacturers with access to comprehensive design solutions to enable them to manufacture custom designed circuits using ViaGrid as a base material. See "-- Business Strategy" and "--Sales and Customer Support--Emerging Products." Joint Venture With Morton International, Inc. In August 1995, the Company signed a letter of intent with the Electronic Materials Group of Morton International, Inc. ("Morton"), a worldwide leader in supplying specialty chemicals and equipment to the printed circuit and photochemical machining industries. Under the terms of the letter of intent, Morton and the Company would form a joint venture in which each party would have a 50% ownership interest. The joint venture would have exclusive worldwide rights to market the Company's new ViaGrid product to printed circuit manufacturers through Morton's direct sales force. The Company would retain the right to use ViaGrid in the manufacture of high density substrates. The letter of intent contemplates that the joint venture would be obligated to purchase certain minimum quantities of ViaGrid from the Company on a take-or-pay basis, with the joint venture having a royalty bearing license to establish separate manufacturing capacity if certain sales volumes are exceeded. The Company believes that its access to Morton's direct sales force through the joint venture, together with the design software and services offered pursuant to the Company's joint marketing agreement with Mentor Graphics, will enable the Company to offer ViaGrid and the design capabilities necessary to utilize ViaGrid to a significantly larger number of printed circuit manufacturers than the Company would be able to reach independently. There can be no assurance that the Company will sign a definitive joint venture agreement with Morton, or that the terms of any definitive agreement will be as contemplated by the letter of intent. See "-- Business Strategy" and "--Sales and Customer Support--Emerging Products." ViaGrid Beta-Test Sites. In June 1995, the Company established ViaGrid beta-test sites with two manufacturers that design and fabricate printed circuits. The beta-test sites have been established to allow these manufacturers to test processes and equipment necessary to design and manufacture circuitry utilizing ViaGrid materials. The Company's objective is to establish these circuit manufacturers as examples for other potential customers of the feasibility and advantages of converting their manufacturing processes to use ViaGrid and thereby generate more customers and more demand for the Company's emerging ViaGrid product. See "--Sales and Customer Support-- Emerging Products." ARPA Programs. In September 1995, the Advanced Research Projects Agency of the U.S. Government ("ARPA") agreed to extend its commitment to a consortium (the "ARPA Consortium") managed by the Company and formed in fiscal 1994 to develop a high density, low-cost, Multi-Chip Module (a high performance IC package containing more than one silicon die) using Novaclad as the base material. Pursuant to its original commitment to the ARPA Consortium, ARPA provided $13.8 million in funding to the ARPA Consortium (of which $7.4 million was received by the Company) and has agreed to fund an additional $2.7 million (of which $2.1 million would be received by the Company), subject to the completion of certain milestones. In connection with its extension of the ARPA Consortium project, ARPA has agreed to recommend for funding an additional approximately $2.0 million to the ARPA Consortium (of which approximately $1.4 million would be received by the Company) for the development of multi-layer circuits made from the Company's high density substrates. In fiscal 1995, the Company was chosen to supply high-density substrates for consortia managed by National Semiconductor Corporation and formed to develop (i) low-cost plastic packaging and (ii) an IC attachment technique for a silicon die without using wires, known as a "flip chip". ARPA has agreed to provide $9.6 million in funding for these consortia (of which $1.1 million would be received by the Company), subject to the completion of certain milestones. See "--Business Strategy" and "--Research and Development." Coors Electronic Ceramic Packaging Program. In March 1995, the Company began a joint program with Coors Electronic Packaging Company ("Coors Electronic"), one of the leading producers of high-performance ceramic packages for ICs. The Company and Coors Electronic plan to develop ceramic packages in which a silicon die is attached to the Company's high density substrate and then placed on a ceramic base. These new IC packages are designed to combine the performance of the Company's high density substrates with the durability and other advantages of a ceramic base. The new IC packages would be marketed by Coors Electronic for use in packaging many different semiconductor devices, such as memory chips and microprocessors, with increased density, speed, durability and cost savings. See "--Business Strategy" and "--Sales and Customer Support-- Emerging Products." 2 INDUSTRY BACKGROUND Electronics Industry Trends. Over the past decade, consumers and original equipment manufacturers have demanded electronic products providing dramatically increased performance accompanied by significantly reduced size, weight and cost. These factors have forced electronic systems manufacturers to produce smaller, lighter and higher performing components while reducing their costs in order to remain competitive. Flexible circuitry contributes to the ability of electronic systems manufacturers to accomplish these objectives. Flexible Circuitry. Flexible circuits and interconnect assemblies are used to provide electrical connection between components and electronic systems and also as a substrate to support electronic devices. The electronics industry has historically relied upon rigid printed circuit boards as the predominant interconnect substrate due to their relatively low cost and widespread availability. However, electronics systems manufacturers are increasingly demanding flexible circuits and interconnect assemblies. Due to their mechanical flexure, flexible circuits provide advantages over rigid printed circuit boards by readily accommodating packaging contour and motion. In addition, flexible circuits can be used to reduce or eliminate the size, weight and expense of (i) rigid circuit boards when the flexible circuit serves as the primary substrate to which components are attached and (ii) connectors, cables and other components when flexible circuits are directly attached to other substrates or subsystems within the system. Flexible printed circuits are manufactured from a base of polyester or polyimide film to which copper is laminated. This laminate is then processed through various imaging, etching and plating processes to produce a flexible printed circuit. The flexible circuit can be further modified by processes such as surface mount assembly, wave soldering, connector and terminal staking, custom folding and stiffening to produce an interconnect assembly. The worldwide interconnect market in 1995 is estimated by BPA (Technology and Management) Ltd. ("BPA"), an independent research organization, to be $26.3 billion, of which $1.7 billion represents the flexible circuitry market. BPA estimates that the flexible circuitry portion of the market will grow to $2.2 billion by 1998. Currently, a new generation of thin film flexible circuitry is emerging which offers higher circuit density (with very fine circuit traces down to 1 mil, or .001") and greater heat resistance and dissipation than traditional flexible circuits. These new high density substrates are fabricated from thin film laminates formed by depositing copper directly to a polyimide film, without the use of an adhesive, using vacuum, sputtering or other deposition techniques. The greater circuit density and thermal properties of these high density substrates are well suited to demanding applications including IC packaging and harsh under-the-hood automotive environments. Datacommunication Market. The datacommunication market includes components for such product applications as wireless communications, computers, digital telephones, facsimile machines and high frequency data transmission. The Company is focusing on the IC packaging portion of the datacommunication market, believing that market trends in IC packaging will lead to significant demand for emerging high density substrates. ICs have historically been packaged by connecting the silicon die to a lead frame or by bonding the silicon die to an interconnect substrate using fine wires. As ICs are becoming increasingly powerful, they produce more heat and require a significantly greater number of connections to attach the silicon die, placing substantially greater demands on the IC packaging materials. For instance, a typical IC five years ago required up to approximately 80 connections to the silicon die, whereas typical ICs today require up to approximately 250 connections, and five years from now industry sources project that ICs may require over 1,000 connections. Further IC packaging demands arise when multiple silicon dies are integrated into one powerful package, known as a "Multi-Chip Module." Based on discussions with IC manufacturers as well as industry studies, the Company believes that the traditional lead frame and wire bonding techniques in many cases cannot meet the increased connection density requirements of the future generations of ICs, and that IC manufacturers are currently seeking new packaging technologies which provide high connection densities and heat tolerance at an economical cost per connection. The Company believes that the high connection density and heat dissipation characteristics of its emerging high density substrates will enable IC manufacturers to package powerful ICs at an economical cost per connection. Other technologies currently available for high density IC packaging, including ceramic and deposited substrates, are generally available only at substantially greater costs than high density substrates fabricated from thin film flexible laminates. According to VLSI Research Inc., the number of high density IC packages requiring more than 256 connections to the silicon die has 3 increased from an estimated 240 million in 1990 to an estimated 777 million in 1995, and is projected to increase to 3.7 billion in 2000, representing a compound annual growth rate of 36.9% between 1995 and 2000. Automotive Electronics Market. The Economist Intelligence Unit Ltd. ("EIU") estimates that the average electronic content per automobile has grown from approximately $1,200 in 1990 to approximately $1,700 in 1995 and is projected to grow to approximately $2,400 in 2000. These increases result as automobile manufacturers use electronics to increase vehicle performance while reducing size, weight and overall vehicle manufacturing and assembly costs. Within the automotive electronics market, flexible circuitry provides cost effective solutions for a wide variety of applications including dashboard instrumentation, electronic control units, steering wheel controls, power distribution, sensors, anti-lock brakes and other electronic systems, many of which are increasingly being designed into vehicle models. Based on the Company's historical 24.6% compound annual growth rate in sales to automotive customers since fiscal 1989, as well as product design work already completed for the 1996 and 1997 model years, the Company believes that automotive demand for flexible circuits is likely to grow at a greater rate than overall demand for automotive electronics. In addition to the growing demand for flexible circuitry in the automotive electronics market, automotive production cycles generally last three to five years, providing a relatively predictable source of demand once a flexible circuit is designed into a specific vehicle model or vehicle platform. BUSINESS STRATEGY The Company's goal is to be the leading worldwide supplier of high quality flexible printed circuitry, flexible laminates and high density substrates serving the needs of the datacommunication and automotive electronics markets. To meet this goal, the Company has developed a business strategy focused on the following elements: . Capitalize on Emerging Products and Market Opportunities. The Company is focused on effectively commercializing and achieving market acceptance of its emerging Novaclad, ViaGrid and high density substrate products. Based on the evolution of IC packaging, the Company believes there are significant market opportunities for its emerging products, which provide for high-density, high-performance and low-cost packaging solutions. The Company currently has over 40 designs utilizing its high density substrates in process, of which approximately 10 have been developed through the prototype stage, with such customers as Texas Instruments, ASAT, Motorola, Coors Electronic and National Semiconductor. The Company's objective is to achieve market acceptance and validation of its high density substrates, which it believes will lead to market demand for direct sales of its Novaclad and ViaGrid products to the printed circuit industry. The Company also believes that its alliances with Morton and Mentor Graphics will accelerate market acceptance of ViaGrid by assisting printed circuit manufacturers in implementing the design and manufacturing processes to incorporate ViaGrid into their products. See "--Recent Developments," "--Emerging Products" and "--Sales and Customer Support --Emerging Products." . Leverage Strategic Relationships to Increase Market Penetration. The Company has developed a number of strategic alliances and intends to continue to leverage its technical, marketing and financial resources through strategic relationships. The Company believes these strategic relationships allow the Company to shorten new product development cycles, facilitate marketing efforts and benefit from the extensive resources of the Company's strategic partners, such as those developed through the ARPA Consortium. See "--Recent Developments," "--Emerging Products" and "--Sales and Customer Support--Emerging Products." . Increase Penetration of Growing Automotive Electronics Market. The Company intends to build upon its position as a leading supplier of flexible circuits and interconnects to the growing automotive electronics industry. Since fiscal 1989, the Company's sales of automotive component products have increased at a compound annual rate of 24.6%. The Company believes it will continue to increase its sales to automotive customers, on the basis that its leadership position, manufacturing capabilities and established relationships will enable it to increase the number of component product applications in each vehicle and the number of vehicle models and vehicle platforms utilizing its products. See "--Current Products." 4 . Focus on Advanced Manufacturing Capabilities and Product Quality. The Company has made significant investments to enhance its manufacturing capacity and product quality and will continue to invest in advanced manufacturing capabilities to meet the anticipated demands for its products at a competitive cost. Since fiscal 1992, the Company has doubled the manufacturing capacity of its existing products, and by April 1996 the Company expects to have invested approximately $38 million in the New Production Facility in Longmont, Colorado. In addition, the Company believes that its roll-to-roll manufacturing processes allow it to produce a large volume of high quality flexible laminates and circuits at a competitive cost. See "--Manufacturing." . Emphasize Product and Process Improvements and New Product Applications. The Company believes its ability to develop improved products and processes and new product applications will enhance the Company's growth opportunities. Sheldahl's 38-person research and development team focuses its efforts on proprietary flexible materials and processes that have a broad range of applications and offer superior performance, quality and cost. The Company has focused its recent development efforts on its Novaclad, ViaGrid and high density substrate products and the associated manufacturing processes. Although these products are targeted primarily for the datacommunication market, the Company has also integrated Novaclad into electronic component products for the automotive electronics market. See "--Research and Development." EMERGING PRODUCTS The Company has recently introduced three new proprietary products to achieve a technical and competitive advantage and create new sales opportunities, especially in the datacommunication market. The Company currently is equipping its New Production Facility in Longmont, Colorado to manufacture these products in commercial quantities. These products are summarized below. Novaclad. Novaclad is a thin and flexible adhesiveless copper laminate used in the design and manufacture of flexible interconnects and high density substrates. Novaclad consists of a polyimide film onto which copper has been deposited on both sides, in a vacuum, without an adhesive. After the vacuum deposition process, additional copper is plated onto the laminate to achieve a desired thickness of copper ranging from 5 microns to 35 microns (a micron is one-millionth of a meter). Novaclad provides a number of important benefits when compared to traditional adhesive-based laminates, including the capability for finer circuit traces (down to 1 mil, or .001") and corresponding higher circuit density, greater heat tolerance and dissipation, improved signal speed and impedance control, increased dimensional stability, resistance to chemicals and greater durability. Because of these characteristics, the Company believes that Novaclad is a cost-effective, high-performance solution for a broad range of interconnect systems, especially high density substrates for IC packages and Multi-Chip Modules. Since fiscal 1993, the Company has produced Novaclad in limited quantities at its Northfield, Minnesota facility. In fiscal 1995, the Company sold $6.3 million of Novaclad-based flexible circuits, primarily for harsh, under-the-hood automotive applications where Novaclad's heat tolerance and chemical resistance characteristics provide superior performance. ViaGrid. ViaGrid is a higher-value-added form of Novaclad with pre-drilled small holes, or vias, measuring down to 1 mil (.001") in diameter. ViaGrid is designed to be sold in rolls or sheets to printed circuit manufacturers as a base material for the manufacture of high density substrates. The vias, which are plated through with copper, enable the transmission of electrical currents between the two sides of the laminate. The combination of thin copper traces and very small vias permits the design of circuits that are up to six times more dense than current flexible circuitry technology. Because of its adhesiveless character, ViaGrid provides all of the benefits of Novaclad. Additionally, ViaGrid is pre-coated with a photoresist. The combination of these characteristics allow circuit fabricators the opportunity to eliminate several costly processing steps in the manufacture of printed circuits. The Company will market ViaGrid in both standard and custom via arrays. Design software has been developed with Mentor Graphics through the ARPA Consortium. This software, in addition to Mentor Graphics' professional design services, will allow printed circuit manufacturers to design the layout of their circuitry around the standard via array, thus providing a less expensive solution than a custom via array. Custom via arrays can be designed using Mentor Graphics' MCM Station(R) software and manufactured with the Company's laser via generation process. The Company believes ViaGrid provides solutions for a variety of applications, including high density interconnects, IC packages and Multi-Chip Modules. The Company believes there is also an opportunity for rigid printed circuit 5 manufacturers to mount ViaGrid-based circuits to rigid circuit boards and to use ViaGrid as an interlayer in multi-layer circuit boards, in a cost effective manner for applications requiring dense circuitry. High Density Substrates. The Company uses ViaGrid in the manufacture of high density substrates primarily for IC packages. The material properties of ViaGrid allow for the design of very dense circuitry patterns which enable IC designers to improve the processing capabilities of ICs by increasing the number of connections to the silicon die in a similar or reduced amount of physical space, while reducing the cost per connection. The Company's high density substrates enhance signal speed as traces are very smooth and fine while the dimensional stability of the substrate is maintained. These features allow the Company's high density substrates to be designed into Ball Grid Array, pin grid array and other high density IC packages. The Company's strategy is to target the high density segment of the market for IC packaging and Multi-Chip Module applications where circuit densities using ViaGrid can be reduced to as small as 1 mil ( .001") traces and vias. As the market for high density substrates develops and creates a demand for alternate manufacturing capacities, the Company will consider licensing the manufacturing process of its high density substrates to leverage the market demand for its ViaGrid product. The Company currently has over 40 high density substrate designs in process, of which approximately 10 have been developed through the prototype stage, with such customers as Texas Instruments, ASAT, Motorola, Coors Electronic and National Semiconductor. Other Emerging Products. The Company produces a proprietary Z-Link adhesive product that interconnects two electrical layers and is used in the fabrication of multi-layer circuits. The Z-Link adhesive conducts electricity in only one direction, the "Z" or vertical direction. The Company, through the ARPA Consortium, is working to further develop the Z-Link technology for use in Multi-Chip Modules. See "--Research and Development." 6 CURRENT PRODUCTS The Company's current products include flexible printed circuitry and interconnect systems, flexible laminates and miscellaneous fabricated products. The following table summarizes representative customers and representative applications for the Company's primary current products:
REPRESENTATIVE REPRESENTATIVE PRODUCT CUSTOMERS APPLICATIONS - - ------------------------------------------------------------------------------------------------- Flexible Printed Circuitry and Ford, General Motors Dashboard instrumentation, sound Interconnect Systems systems, other automotive controls - - ------------------------------------------------------------------------------------------------- Molex, Motorola Automotive electronic control units - - ------------------------------------------------------------------------------------------------- Saturn Industries, Siemens Power distribution units - - ------------------------------------------------------------------------------------------------- Honeywell Microswitch Automotive sensors - - ------------------------------------------------------------------------------------------------- ITT Teves Anti-lock brake systems - - ------------------------------------------------------------------------------------------------- Polaroid Instant cameras - - ------------------------------------------------------------------------------------------------- Hewlett Packard, Texas Printers Instruments - - ------------------------------------------------------------------------------------------------- Key Tronic Corp., Texas Notebook computers Instruments - - ------------------------------------------------------------------------------------------------- Northern Telecom Telecommunications equipment - - ------------------------------------------------------------------------------------------------- Flexible Laminates Methode, Morton, TRW Air bags - - ------------------------------------------------------------------------------------------------- Parlex, AMP Flexible circuits and cable assemblies - - ------------------------------------------------------------------------------------------------- 3M, Norton Abrasive belt tape - - ------------------------------------------------------------------------------------------------- Lockheed Satellite insulation - - -------------------------------------------------------------------------------------------------
Flexible Printed Circuitry and Interconnect Systems. The Company manufactures flexible printed circuitry and interconnect systems using traditional adhesive-based and emerging Novaclad laminates. The Company's flexible printed circuitry is typically manufactured in an efficient roll-to- roll process from polyester or polyimide film to which copper is laminated. The laminate is processed through various imaging, etching and plating processes and then selectively protected with a dielectric covering to produce a flexible printed circuit. Automated screen printing and photo imaging processes produce single-sided and double-sided flexible circuits, with lines and spaces down to 8 mils (.008") in width. The Company uses its emerging Novaclad laminate to produce high performance flexible circuits primarily for demanding under-the- hood automotive applications which require greater circuit density, enhanced heat and chemical resistance and dimensional stability. In fiscal 1995, Novaclad-based products represented approximately $6.3 million, or 6.6%, of the Company's net sales. All of the Company's flexible printed circuits are electronically tested prior to shipping. Additionally, the Company offers value-added processing, including surface mount assembly, wave soldering, connector and terminal staking, custom folding, stiffening, application of pressure-sensitive adhesive and hand soldering, in order to deliver a ready-to-use interconnect system to the end customer. The Company targets applications where increased performance, reduced size and weight, ability to accommodate packaging contours or a reduction in the number of assembly steps is desired to reduce the customer's overall cost. Flexible printed circuitry and interconnect systems, including Novaclad-based products, accounted for $64.4 million, or 67.6%, of the Company's net sales for fiscal 1995. 7 Flexible Laminates. The Company's flexible laminate products consist of adhesive-based tapes and other flexible laminates used in a variety of applications in the datacommunication market, moisture barrier tape and flat cable tape used in automobile air bag systems, splicing tape used in the manufacture of commercial and industrial sandpaper belts and thermal insulating blankets used primarily in the aerospace/defense market for satellites. The Company produces its flexible laminates using coating, laminating and vacuum metalizing processes. Coating involves applying chemicals or adhesives to a thin flexible material while laminating consists of combining two or more materials through application of heat and pressure. Vacuum metalizing typically involves placing a metal onto a thin film, foil or fabric, by evaporation, sputtering or pattern deposition. The Company's flexible laminates provide extended flexibility, strength, conductivity, durability and heat dissipation. The Company consumes approximately one-half of the flexible laminates it produces in the manufacture of flexible printed circuitry and interconnect systems. Flexible laminates accounted for $24.0 million, or 25.2%, of the Company's net sales for fiscal 1995. Miscellaneous Fabricated Products. Based on the Company's historical expertise in developing unique applications for a variety of materials, the Company also designs and manufactures special fabrications employing technical capabilities of thermoforming, embossing, sealing, slitting and sheeting. The Company's fabricated products include static shielding materials, insulation blankets, environmental closures, space inflatibles and multi-layer insulation and are primarily for use in the aerospace/defense and datacommunication markets. Miscellaneous fabricated products accounted for $3.1 million, or 3.3%, of the Company's net sales for fiscal 1995. SALES AND CUSTOMER SUPPORT The Company's sales and customer support efforts are directed by three lead product managers who are responsible for defining target markets and customers, strategic product planning and new product introduction. These product managers supervise a sales force of 16 account managers and over 60 engineers, technicians and customer support personnel. The Company employs a team approach led by account managers who work extensively with the Company's customers at the design stage, seeking to influence product designs and applications, particularly in the automotive and emerging datacommunication products areas. The Company believes that its close ties with customers at all stages of a project distinguish it from many competitors who manufacture products according to customer specifications without providing significant design, technical or consulting services. Account managers also coordinate appropriate design, research and development, engineering, order fulfillment and other personnel to support customer needs. To supplement its direct sales efforts, the Company uses domestic and international distributors. The cornerstone of the Company's sales and customer support strategy is to provide superior customer service, from prompt and efficient technical support to rapid processing and delivery of prototype and production orders through its electronic data interchange and just-in-time delivery capabilities. Emerging Products. To gain market acceptance of its Novaclad, ViaGrid and high density substrates, the Company's strategy is to (i) develop the market by educating customers as to the advantages of these products, (ii) provide customers with design capabilities to use the products and (iii) partner with significant IC packaging manufacturers to prove the capabilities of the products, as summarized below: . Market Development. The Company's initial efforts to develop the market for its emerging products involved the formation in fiscal 1994 of the ARPA Consortium, which has been managed by the Company. The Company has also established ViaGrid beta-test sites with manufacturers that design and fabricate printed circuits. In August 1995, the Company signed a letter of intent to form a joint venture with Morton, under which the joint venture would market ViaGrid to printed circuit manufacturers through Morton's direct sales force. The Company expects this joint venture to accelerate market acceptance of ViaGrid by utilizing Morton's industry presence, extensive customer network and process expertise in the printed circuit board industry. The Company is marketing Novaclad to manufacturers that convert flexible materials into interconnect systems through the Company's direct sales force and to U.S. and European distributor networks. The Company also intends to seek distribution arrangements for Novaclad in Asia. See "--Recent Developments" and "--Research and Development." . Design Support. In June 1995, the Company signed a joint marketing agreement with Mentor Graphics, a leader in worldwide electronic design automation tools and professional services for use in designing printed circuits, pursuant to which Mentor Graphics will offer the Company's customers 8 Mentor Graphics' MCM Station(R) software, customer support and contract design services. To the extent such services contribute to ViaGrid sales, Mentor Graphics will be entitled to a royalty based on such sales under the terms of the agreement. The Company expects this relationship to provide circuit manufacturers with access to comprehensive design solutions to enable them to manufacture custom designed, high density substrates using the Company's ViaGrid product as a base material. See "--Recent Developments." . IC Packaging Partners. The Company has entered into strategic alliances with Texas Instruments and Coors Electronic to develop IC packages incorporating the Company's high density substrates. The Company and Texas Instruments have agreed to jointly develop Ball Grid Array IC packages using the Company's high density substrates. Under the Company's development initiative with Coors Electronic, the parties will develop ceramic packages for ICs using the Company's high density substrate. The Company currently has over 40 high density substrate designs in process with Texas Instruments, Coors Electronics and other customers, including Motorola, National Semiconductor and ASAT. Approximately 10 of these designs have been developed through the prototype stage. The Company believes that successful applications of its high-density substrates will, in turn, increase demand for its Novaclad and ViaGrid products. See "--Recent Developments." Automotive Electronics. In the automotive electronics market, the Company has enjoyed increasing sales through its strategy of working very closely with its customers beginning at the design stage. In 1989, the Company opened a technical design and sales office in Detroit, Michigan which is currently staffed with 15 engineers, designers and sales personnel in order to provide automotive customers with comprehensive support. In fiscal 1995, 15.9%, 6.6% and 4.3% of the Company's net sales went to multiple sourcing locations of Ford Motor Company, Motorola, Inc. and Delco Electronics Corporation (a division of General Motors Corporation), respectively. The Company also provides products, through first-tier suppliers, to Chrysler and the U.S. operations of Honda and Toyota. International. The Company works with European manufacturers and suppliers and has had a sales presence in Europe since February 1992, including its current sales office in Paris, France. The Company supplements its direct sales efforts with independent manufacturers' representatives and distributors in Europe and Asia, principally for flexible laminates. The Company's export sales during fiscal years 1993, 1994 and 1995 were $7.8 million, $7.6 million, and $11.1 million, respectively. MANUFACTURING The Company manufactures and assembles its products in Northfield, Minnesota, Aberdeen and Britton, South Dakota, and is in the process of implementing operations in the New Production Facility in Longmont, Colorado. The Company focuses on quality in its manufacturing efforts, and believes that its vertically-integrated manufacturing capabilities enhance its ability to control product quality. The Company has been a qualified supplier to various automotive manufacturers for many years and has commenced ISO 9001 certification, targeting completion of the accreditation process by early 1996. Current Products. The Company uses a continuous roll-to-roll manufacturing process to produce a large volume of high-quality flexible laminates efficiently using coating, laminating and vacuum metalizing techniques. The Company consumes approximately one-half of the flexible laminates it produces for the manufacture of printed circuitry and interconnect systems. The Company converts flexible laminates into printed circuitry principally by screen printing and etching an image onto a flexible laminate and by photoimaging and developing circuit patterns onto flexible laminates. The Company believes its flexible circuit manufacturing equipment at its Northfield, Minnesota facilities has the capacity to support substantial production increases with only selective incremental capital investment. The Company processes certain of its flexible printed circuitry into interconnect systems. Process capabilities include surface mount assembly, wave soldering, connector and terminal staking, custom folding, stiffening, application of pressure-sensitive adhesive and hand soldering. Substantially all of these interconnect assembly functions are performed at the Company's facilities in Aberdeen and Britton, South Dakota. Emerging Products. To manufacture its emerging products, the Company is constructing and equipping the New Production Facility in Longmont, Colorado, based on the results of its testing and production activities at a pilot 9 plant in Longmont established in July 1994. In August 1995, the Company completed construction of the 102,000 square foot building for the New Production Facility. The manufacturing process at the New Production Facility will include a series of integrated roll-to-roll processes consisting of metalization, via generation, plating, photoimaging, developing, selective etching and electrical testing. The Company has ordered each critical piece of production equipment and has scheduled delivery, installation and process validation testing to enable the facility to be operational in April 1996. The initial annual production capacity of the new facility is expected to be approximately 2.0 million square feet of Novaclad, approximately 250,000 square feet of ViaGrid and approximately 500,000 square feet of high density substrates. The facility has been designed to allow for expansion in increments of approximately 500,000 square feet of finished product, consisting of varying amounts of ViaGrid and high density substrates. The Company's investment in the New Production Facility, including the site, building and equipment purchased or leased by the Company, is expected to total approximately $38 million. In connection with its proposed joint venture with Morton, the Company has agreed to increase its annual capacity of ViaGrid for sale to the joint venture by 750,000 square feet upon payment by the joint venture of a non-refundable fixed license fee. The Company has also agreed to grant the joint venture a royalty bearing license to manufacture ViaGrid at such time as the joint venture requires additional capacity. See "--Recent Developments." China Joint Venture. The Company currently has no foreign manufacturing or assembly operations. However, in August 1995, the Company entered into various agreements to form a joint venture in Jiujiang Jiangxi, China with Jiangxi Changjiang Chemical Plant and Hong Kong Wah Hing (China) Development Co., Ltd. Under the agreements, the Company will license certain technology to the joint venture, provide certain technical support, receive a 20% ownership interest in the joint venture, receive cash payments totaling up to $900,000 upon completion of certain milestones, and receive a royalty on products sold by the joint venture. The joint venture is being established to manufacture flexible adhesive-based laminates and associated cover film tapes in China. Under the terms of the agreements, the joint venture will market these products in China, Taiwan, Hong Kong and Macau and the Company will market the products produced by the joint venture in all other markets. The Company does not expect manufacturing under this joint venture to commence until fiscal 1999. Formation of the joint venture is subject to approvals from government agencies which, as of the date of this Prospectus, are in progress but have not yet been obtained. RESEARCH AND DEVELOPMENT Sheldahl's recent research and development efforts, through its 38-person research and development team, have focused on opportunities presented by the demand for higher density and thinner packaging for electronic devices. The Company has also identified within its core technologies other opportunities for participation in the trend towards miniaturization within the electronics industry and has pursued these opportunities independently and through various consortia. In fiscal 1994, the ARPA Consortium was organized to develop a high- density, low-cost Multi-Chip Module utilizing Novaclad as the base material. The ARPA Consortium is comprised of a vertically-integrated team of non-competing companies, including four systems integrators (Silicon Graphics, Inc., Wireless Access, Inc., Hughes Missile Systems Company and Delco Electronics), a computer- aided design company (Mentor Graphics), a prototype company (Litronic Industries), a materials manufacturer (Sheldahl) and an assembly company (Jabil Circuit, Inc.). The ARPA Consortium has achieved various milestones, including validation of each of the essential processes for production of the Company's high-density substrates as a base material for low-cost Multi-Chip Modules. Due, in part, to the rapid development of very high density IC packages and Multi- Chip Modules, advanced multi-layering technology is being increasingly demanded by the market. In September 1995, ARPA agreed to extend its commitment to the consortium for the expansion of development of this technology using the Company's Z-Link adhesive or other multi-layering technologies. In addition to the ARPA Consortium, the Company also participates in various other consortia, including consortia managed by National Semiconductor and formed to develop (i) low-cost plastic packaging and (ii) an IC attachment technique for a silicon die without using wires, known as a "flip chip." See "--Recent Developments," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 9 of Notes to Consolidated Financial Statements. The Company seeks to expand its resources and knowledge base through technical alliances with other companies. Pursuant to a cross license agreement, Sheldahl and Sumitomo Bakelite Co., Ltd. ("Sumitomo") have exchanged research and development personnel during the past eight years, and Sumitomo fabricates certain circuits for 10 the Company. Sumitomo and the Company have also conducted joint material design experiments and Sumitomo has introduced the Company to potential suppliers and customers. In addition, in August 1994, Sheldahl acquired a significant minority ownership interest in Sidrabe Joint Stock Company ("Sidrabe"), a newly privatized vacuum deposition developmental company located in Riga, Latvia for an investment of $453,000. Sidrabe historically was a developmental agency for the former Soviet Union's military and aerospace programs, specializing in the design and production of vacuum deposition equipment. With the Company's ownership position in Sidrabe, the Company received worldwide rights to some key elements of Sidrabe technology and the Company has access to Sidrabe's scientific and technical personnel with extensive product and process expertise. The Company has also purchased certain manufacturing equipment from Sidrabe. SUPPLIERS The Company qualifies strategic suppliers through a Vendor Certification Program which limits the number of suppliers to those who provide the Company with the best total value and quality. The Company closely monitors product quality and delivery schedules. During the last five years, the Company has not experienced significant shortages of raw materials. The Company currently depends, however, on one supplier for the polyimide film which serves as a base for the Company's Novaclad, ViaGrid and high density substrate products. This supplier currently manufactures this polyimide film at a single manufacturing facility. In addition, the Company has experienced delays in delivery of certain laser via generation equipment currently available from only one supplier. Certain other materials and plating processes used by the Company in the manufacture of its products are currently obtained from single sources. COMPETITION The Company's business is highly competitive with principal competitive factors being product quality, performance, price and service. The Company believes its vertical integration, which allows it to control product quality and manufacturing efficiencies better than many of its competitors, is a competitive advantage. Sheldahl's competitors include materials suppliers, flexible and rigid circuit manufacturers, as well as electronics manufacturers who produce their own materials and interconnect systems. Some of the Company's competitors have substantially greater financial and other resources than the Company. The Company's primary competitors with respect to its flexible printed circuitry and interconnect systems include Pressac Limited (a U.K. company) and Parlex Corp. in the automotive electronics market and Mektec Corp., Fujikura Ltd. (a Japanese company) and ADFlex Solutions, Inc. in the datacommunication market. The Company's primary competition for its flexible laminate products include Rogers Corporation and GTS Flexible Materials, Ltd. (a U.K. company). The Company's Novaclad, ViaGrid and high density substrates compete with substrates produced through several alternative processes. These competing products include single-sided, polyimide-based, etched copper laminates produced using various methods of production by Minnesota Mining and Manufacturing, Inc., International Business Machines Corporation and several Japanese companies. The Company believes the production processes required for each of these competing substrates, which include copper sputtering, manual drilling and traditional etching techniques, are inherently more expensive than the Company's method of production and result in products that are not as easily utilized as the Company's emerging products in the design and production of higher-density IC packages. The Company's emerging products also compete with ceramic packaging products produced by companies such as Coors Electronic and Kyocera of Japan, although the Company believes these products are more expensive than the Company's substrate products, and with BT resin-based substrates supplied by companies such as produced by Amkor Electronics and Tessera, which the Company believes are limited in their ability to accommodate increased circuit densities beyond current levels. The Company expects these and other competitors will continue to refine their processes or develop new products that will compete on the basis of cost and performance with the Company's emerging products. BACKLOG The Company's backlog consists of those orders for which the Company has delivery dates. Automotive customers typically provide for four to six weeks of committed shipments while datacommunication customers generally provide for up to eight weeks of committed shipments. The Company's backlog of unshipped orders as of September 1, 1995 and September 2, 1994 was approximately $26.2 million and $17.1 million, respectively. Generally, most orders 11 in backlog are shipped during the following three months. Because of the Company's quick turn of orders to work-in-process, the timing of orders, delivery intervals, customer and product mix and the possibility of customer changes in delivery schedules, the Company's backlog at any particular date may not be representative of actual sales for any succeeding period. PROPRIETARY TECHNOLOGY The Company owns three United States patents for Novaclad and the processes for making Novaclad and five additional applications are pending. Applications are pending for foreign patents on Novaclad in Japan, Canada and the European Patent Office. In addition, the Company has one United States patent and one Canadian patent relating to its Z-Link adhesive product and has been informed that two additionial United States patents relating to Z-Link have been allowed. Federal trademark registrations have been obtained on Novaclad(R), ViaGrid(R), Flexbase(R), Novaflex(R) and Z-Link(R). Sheldahl also relies on internal security and secrecy measures and on confidentiality agreements for protection of trade secrets and proprietary know-how. There can be no assurance that Sheldahl's efforts to protect its intellectual property will be effective to prevent misappropriation or that others may not independently develop similar technology. The Company believes that it possesses adequate proprietary rights to the technology involved in its products and that its products, trademarks and other intellectual property rights do not infringe upon the proprietary rights of third parties. The Company was named as a defendant in a patent infringement matter regarding its Novaclad products which was dismissed for lack of jurisdiction in January 1994 and which has not been commenced elsewhere. There can be no assurance that this plaintiff or others will not bring other actions against the Company. The Company is also aware of a patent which may cover certain plated through holes of double sided circuits made of the Company's Novaclad materials. Although no claims have been made against the Company under this patent, the owner of the patent may attempt to construe the patent broadly enough to cover certain Novaclad products manufactured currently or in the future by the Company. The Company believes that prior commercial art and conventional technology, including certain patents of the Company, exist which would allow the Company to prevail in the event any such claim is made under this patent. Any action commenced by or against the Company could be time consuming and expensive and could result in requiring the Company to enter into a license agreement or cease manufacture of any products ultimately determined to infringe such patent. ENVIRONMENTAL REGULATIONS Sheldahl is subject to various federal, state and local environmental laws relating to the Company's operations. The Company's manufacturing and assembly facilities are registered with the U.S. Environmental Protection Agency and are licensed, where required, by state and local authorities. The Company has agreements with licensed hazardous waste transportation and disposal companies for transportation and disposal of its hazardous wastes generated at its facilities. The New Production Facility in Longmont, Colorado has been specifically designed to reduce water usage in the manufacturing process and employs a sophisticated waste treatment system intended to substantially reduce discharge streams. Compliance with federal and state environmental laws and regulations did not have a material effect on the Company's capital expenditures, earnings or competitive position during fiscal 1995. Similarly, fiscal 1996 capital expenditures to comply with such laws and regulations are not expected to be material. The Company believes it is in material compliance with federal and state environmental laws and regulations. EMPLOYEES As of September 15, 1995, the Company employed approximately 1,020 people in the United States and Europe, including 851 in production, 84 in sales, marketing, application engineering and customer support, 38 in research and development and 47 in administration. The production staff consists principally of full-time workers employed in the Company's four currently operating manufacturing and assembly plants. In Northfield, Minnesota, production workers (approximately 406) are represented by the Union of Needletrade, Industrial and Textile Employees, formerly the Amalgamated Clothing and Textile Workers Union (the "Union"), which has been the bargaining agent since 1963. The Company has a three-year collective bargaining agreement with the Union which expires in November 1997. The Company has never experienced a work stoppage and believes that its employee relations are good. ITEM 2. PROPERTIES 12 The Company owns two manufacturing facilities totaling 305,000 square feet and a 20,000 square foot administration and sales support office in Northfield, Minnesota. The Company also owns the 102,000 square foot New Production Facility in Longmont, Colorado and is leasing a 34,000 square foot pilot plant in Longmont, Colorado under a lease that expires in May 1996. The Company leases a 30,000 square foot assembly facility in Aberdeen, South Dakota and owns a 30,000 square foot assembly facility in Britton, South Dakota. The Company also leases a 3,000 square foot technical sales and design office in Detroit, Michigan and a 900 square foot sales and marketing office in Paris, France. Management believes that all facilities currently in use are generally in good condition, well-maintained and adequate for their current operations. The Company also leases a production facility in Irvine, California which it has subleased to the purchaser of its aviation lighting product line. ITEM 3. LEGAL PROCEEDINGS The Company was one of several defendants in four related actions venued in the U.S. District Court for the Central District of California and the Superior Court, Orange County, California ("Olen Litigation"). Two of these actions were commenced on November 26, 1992 and June 4, 1992, by Olen Properties Corp., the owner of a building occupied by the Company from 1986 to 1990 (the "Olen Property"), alleging environmental contamination, miscellaneous damage to the facility and loss of rental income. The other two actions were commenced on October 7, 1992 by Donald Investment Co., a defendant in the Olen Litigation and the owner of property adjacent to the Olen Property, alleging that contamination on the Olen Property had migrated onto its property. A separate but related action was commenced March 21, 1994 in District Court, Ramsey County, Minnesota in which the Company and BMC Industries, Inc. ("BMC"), a defendant in the Olen Litigation, each alleged rights of indemnification against the other party relative to certain expenses and damages in the Olen Litigation. Each of these actions was settled and dismissed with prejudice in July 1995 under the terms of an Agreement of Compromise, Settlement and Release (the "Settlement Agreement"). Under the terms of the Settlement Agreement, Sheldahl paid $525,000 in full release of all claims related to the subject matter of the actions. In addition, the Company's operations expose it to the risk of certain legal and environmental claims in the normal course of business. The Company believes that these matters will not have a material adverse effect on the Company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the Nasdaq National Market under the symbol "SHEL." The following table sets forth the high and low sales prices of the Common Stock for the periods indicated, as reported on the Nasdaq National Market.
HIGH LOW ------- ------- FISCAL YEAR ENDED SEPTEMBER 2, 1994: First quarter......................... $13-3/4 $ 7-1/2 Second quarter........................ 12-1/4 9-1/4 Third quarter......................... 14-3/4 11 Fourth quarter........................ 13 8-3/4 FISCAL YEAR ENDED SEPTEMBER 1, 1995: First quarter......................... 14 10-1/4 Second quarter........................ 15-1/2 11-1/2 Third quarter......................... 15-1/4 10-1/2 Fourth quarter........................ 19-1/4 11-3/4
On October 9, 1995, the last reported sales price of the Common Stock was $15.75. At October 1, 1995, there were approximately 1,355 record holders of the Company's Common Stock and an estimated additional 2,650 shareholders who held beneficial interests in shares of Common Stock registered in nominee names of banks and brokerage houses. Pursuant to its current credit agreement, the Company is restricted from declaring or paying cash dividends without the consent of the Company's lenders. The Company has never declared or paid any dividends on its Common Stock. The Company currently intends to retain any earnings for use in its operations and expansion of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto included elsewhere herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The consolidated statements of operations data presented below as of and for the fiscal years ended August 27, 1993, September 2, 1994 and September 1, 1995 and the consolidated balance sheet data as of September 2, 1994 and September 1, 1995 have been derived from the Company's Consolidated Financial Statements included elsewhere in this Prospectus, which have been audited by Arthur Andersen LLP, independent public accountants. The statements of operations data set forth below for the years ended August 30, 1991 and August 28, 1992 and the balance sheet data set forth below at August 30, 1991, August 28, 1992 and August 27, 1993 are derived from audited financial statements not included herein. 14
FISCAL YEAR ENDED ------------------------------------------------------------------ AUGUST 30, AUGUST 28, AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1991 1992 1993 1994 1995 ----------- ---------- ---------- ----------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net sales........................................... $ 86,753 $83,977 $82,102 $88,346 $95,216 Cost of sales....................................... 68,189 68,476 66,360 69,273 74,752 -------- ------- ------- ------- -------- Gross profit........................................ 18,564 15,501 15,742 19,073 20,464 -------- ------- ------- ------- -------- Expenses: Sales and marketing................................ 6,356 7,648 7,274 8,014 9,090 General and administrative......................... 3,835 4,090 4,029 4,153 3,895 Research and development........................... 1,828 2,171 1,929 2,366 2,270 Interest........................................... 1,262 1,366 1,023 946 875 -------- ------- ------- ------- -------- Total expenses.................................... 13,281 15,275 14,255 15,479 16,130 -------- ------- ------- ------- -------- Income from continuing operations before provision for income taxes.................. 5,283 226 1,487 3,594 4,334 Provision for income taxes.......................... 1,000 52 50 800 1,200 -------- ------- ------- ------- -------- Income from continuing operations................... 4,283 174 1,437 2,794 3,134 Cumulative effect of change in method of accounting for income taxes (1).................... 571 -- -- 1,422 -- Cumulative effect of change in method of accounting for post retirement benefits (2)..... -- -- -- (875) -- Loss from discontinued operation (3)................ (11,459) -- -- (525) -- -------- ------- ------- ------- -------- Net income (loss)................................... $ (6,605) $ 174 $ 1,437 $ 2,816 $ 3,134 ======== ======= ======= ======= -------- Income (loss) per share: Continuing operations.............................. $.90 $.04 $.29 $.52 $.45 Effect of accounting changes for income taxes (1).. .12 -- -- .26 -- Effect of accounting change for post-retirement benefits (2)..................................... -- -- -- (.16) -- Discontinued operation (3)......................... (2.40) -- -- (.10) -- -------- ------- ------- ------- -------- Net income (loss) per share........................ $(1.38) $.04 $.29 $.52 $.45 ======== ======= ======= ======= ======== Weighted average common shares and common share equivalents outstanding........... . 4,774 4,829 4,950 5,418 6,925 ======== ======= ======= ======= ======== AUGUST 30, AUGUST 28, AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1991 1992 1993 1994 1995 ---------- ---------- ---------- ------------ ------------ (IN THOUSANDS) BALANCE SHEET DATA: Working capital..................................... $13,287 $10,708 $11,314 $15,942 $16,332 Total assets........................................ 51,480 42,425 44,783 60,320 94,186 Long-term debt, excluding current portion........... 14,322 9,960 11 433 7,963 33,864 Total shareholders' investment...................... 17,661 17,937 19,448 36,482 40,952
______________________ (1) Effective September 1, 1990, the Company adopted Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes." Effective August 28, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." See Note 6 of Notes to Consolidated Financial Statements. (2) Effective August 28, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting For Post Retirement Benefits Other Than Pensions." See Note 7 of Notes to Consolidated Financial Statements. (3) In fiscal 1994, the Company increased its reserve for discontinued operation by $525,000, net of income tax benefits. See Note 8 of Notes to Consolidated Financial Statements. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a leading producer of high quality flexible printed circuitry and flexible laminates, primarily for sale to the automotive electronics and datacommunication markets. The Company's basic materials technology was originally developed for the United States Space Program. In the late 1960's, the Company entered the emerging flexible circuitry segment of the printed circuit industry. Prior to 1989, the Company's products were sold primarily to datacommunication, aerospace/defense and automotive customers, as well as for miscellaneous industrial and consumer product applications. In 1989, the Company developed a new business strategy focused on achieving a leading position supplying the automotive electronics market with flexible circuits based on the Company's core materials technologies. Management believed the automotive market provided growth opportunities due to increasing electronic content of automobiles as manufacturers focused on increasing vehicle performance while reducing weight and overall vehicle costs. The Company established a technical design and sales office in Detroit, Michigan in 1989 and targeted specific automotive customers that it identified as leaders in the drive to increase the electronic content of automobiles. As a result of this strategic shift, the Company's sales to automotive customers increased from $13.9 million in fiscal 1989 to $51.9 million in fiscal 1995, a compound annual growth rate of 24.6%, while the Company's sales to other markets declined from $57.0 millon in fiscal 1989 to $43.3 million in fiscal 1995. Concurrent with the Company's strategic shift to focus on the automotive electronics market in 1989, the Company began to focus its research and development expenditures on other opportunities. As a result, in 1992 the Company patented its Novaclad high performance adhesiveless flexible laminate. The features of Novaclad allow designers to increase circuit density for IC packaging and other interconnect solutions. In fiscal 1994, the ARPA Consortium was established, consisting of eight companies co-sponsored by ARPA to develop and commercialize high density substrates made from Novaclad for incorporation into low cost Multi-Chip Modules. ARPA provided a total of $13.8 million to the ARPA Consortium in fiscal years 1994 and 1995 (of which $7.4 million was received by the Company) and has agreed to fund an additional $2.7 million (of which $2.1 million is expected to be received by the Company in fiscal 1996), subject to completion of certain milestones. The results of the efforts made by the Company and the ARPA Consortium led the Company to begin construction of the New Production Facility in Longmont, Colorado, which is scheduled to begin production of Novaclad, ViaGrid and high density substrates in commercial quantities in April 1996. In September 1995, ARPA agreed to recommend for funding an additional approximately $2.0 million to the ARPA Consortium (of which approximately $1.4 million is expected to be received by the Company in fiscal 1996), subject to completion of certain milestones. Sheldahl accounts for funding received from ARPA as a reimbursement of expenses. The Company has made and expects to continue to make substantial investments in production capabilities to support its strategy of increasing penetration of the automotive electronics market and commercializing its emerging Novaclad, ViaGrid and high density substrate products for the datacommunication market. During fiscal years 1993, 1994 and 1995, the Company made capital expenditures totaling $23.7 million to increase the production capabilities of its current operations, and through fiscal 1995 the Company made capital expenditures of $26.7 million in connection with the New Production Facility. By the time the New Production Facility is scheduled to be operational in April 1996, the Company expects to have made a total investment of approximately $38 million, including the site, the construction of the building and the production equipment purchased and leased. The Company capitalizes expenditures related to constructing, equipping and financing the New Production Facility; however, costs to operate the pilot operation, net of ARPA funding, have been expensed since the start-up in fiscal 1994. The Company's results of operations to date have not been materially affected by the pilot operation. When the New Production Facility is operational, the Company expects that, initially, it is not likely to produce sufficient sales volume or profit contribution to offset the depreciation and other expenses related to its operation. The start-up of the New Production Facility is therefore likely to have a material adverse effect on the Company's results of operations unless sales of products from the New Production Facility increase sufficiently to cover expenses. In September 1995, the Company sold its aviation lighting product line to a subsidiary of The B.F.Goodrich Company for approximately $2.6 million, enabling the Company to focus on its emerging products, flexible circuitry and flexible laminates operations. This product line generated sales of $3.6 million in fiscal 1995. 16 RESULTS OF OPERATIONS The following table sets forth the percentage of net sales represented by certain items for the Company's consolidated statements of operations for the periods indicated.
FISCAL YEAR ENDED ----------------------------------------- AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1993 1994 1995 ----------- ------------- ------------- Net sales............................ 100.0% 100.0% 100.0% Cost of sales........................ 80.8 78.4 78.5 ----- ----- ----- Gross profit......................... 19.2 21.6 21.5 ----- ----- ----- Expenses: Sales and marketing................ 8.9 9.1 9.5 General and administrative......... 4.9 4.7 4.1 Research and development........... 2.3 2.6 2.4 Interest........................... 1.2 1.1 .9 ----- ----- ----- Total expenses................... 17.3 17.5 16.9 ----- ----- ----- Income from continuing operations before provision for income taxes.. 1.9 4.1 4.6 Provision for income taxes........... .1 1.0 1.3 ----- ----- ----- Income from continuing operations.... 1.8% 3.1% 3.3% ===== ===== =====
FISCAL YEARS ENDED SEPTEMBER 1, 1995, SEPTEMBER 2, 1994, AND AUGUST 27, 1993 Net Sales. The table below sets forth, for the periods indicated, the Company's net sales to various markets.
FISCAL YEAR ENDED -------------------------------------------------------------- AUGUST 27, 1993 SEPTEMBER 2, 1994 SEPTEMBER 1, 1995 ---------------- ----------------- ------------------ AMOUNT % AMOUNT % AMOUNT % -------- ------ -------- ----- --------- ---- Automotive $35,242 42.9% $46,737 52.9% $51,919 54.5% Datacommunications 20,052 24.4 18,380 20.8 16,860 17.7 Aerospace and defense 14,329 17.5 10,452 11.8 12,150 12.8 Industrial 7,268 8.9 7,438 8.4 8,221 8.6 Consumer 5,211 6.3 5,339 6.0 6,066 6.5 ------- ----- ------- ----- ------- ----- Total $82,102 100.0% $88,346 100.0% $95,216 100.0% ======= ===== ======= ===== ======= =====
The Company's net sales increased $6.9 million, or 7.8%, in fiscal 1995 and $6.2 million, or 7.6%, in fiscal 1994. These increases resulted primarily from increased sales to automotive customers partially offset by decreased sales to datacommunication and aerospace/defense customers. The Company's increased sales to automotive customers were the result of a successful effort to further penetrate the automotive electronics market through the use of the Company's flexible circuits and flexible laminates in power distribution, electronic control units, air bags and dashboard instrumentation. The rate of growth of automotive-related sales declined in 1995 from previous years, as the Company's customers delayed production of certain new automotive components, causing the Company to delay production start-up of certain major new flexible circuit products. Declining sales to the datacommunication market in each of the last three years were primarily due to the Company's efforts to focus more of its sales and marketing efforts on automotive applications. Aerospace and defense sales, while up $1.7 million, or 16.2%, in fiscal 1995, have also declined from fiscal 1993 levels as a result of reduced demand for multi-layer insulation blankets and flexibile circuitry for use in satellite and defense applications, respectively. The Company's increased net sales in fiscal years 1995 and 1994 reflected increased sales of flexible printed circuitry (sales of which increased to $64.4 million in fiscal 1995 from $61.6 million in fiscal 1994 and $55.3 million in fiscal 1993) as well as flexible laminates (sales of which increased to $24.0 million in fiscal 1995 from $21.3 million in fiscal 1994 and $17.9 million in fiscal 1993). Sales of miscellaneous fabricated products and aviation lighting increased to $6.8 million in fiscal 1995 after declining to $5.5 million in fiscal 1994 from $8.8 million in fiscal 1993. 17 Gross Profit. The Company's gross profit increased $1.3 million, or 6.9%, in fiscal 1995 and $3.3 million, or 21.2%, in fiscal 1994. As a percentage of net sales, gross profit for fiscal years 1995, 1994 and 1993 was 21.4%, 21.5% and 19.2%, respectively. The increase in gross profit in fiscal years 1994 and 1995 is related to increased net sales, as well as material yield and labor productivity improvements made possible by the Company's substantial capital investments in fiscal years 1992, 1993 and 1994. However, operating costs not funded by the ARPA Consortium for the Company's pilot operation for high density substrates increased in fiscal 1995 by approximately $1.0 million, partially offsetting the increase in gross profit. The start-up of the New Production Facility for the manufacture of Novaclad, ViaGrid and high density substrates will negatively impact gross profit during the initial start-up period in fiscal 1996 . Sales and Marketing Expenses. Sales and marketing expenses increased $1.1 million, or 13.4%, in fiscal 1995 and $740,000, or 10.2%, in fiscal 1994. The increased sales and marketing expenses resulted from increased labor, travel and advertising costs incurred to promote the Company's emerging Novaclad, Viagrid and high density substrate products and to focus sales and design support for the capture of future automotive applications. Fiscal 1994 sales and marketing expenses increased as a result of expanded efforts to secure current and future automotive market sales, as well as new product promotion efforts, including travel. As a percentage of net sales, sales and marketing expenses were 9.5% in fiscal 1995, 9.1% in fiscal 1994 and 8.9% in fiscal 1993. General and Administrative Expenses. Gross general and administrative expenses decreased $25,000, or 0.5%, to $4.6 million in fiscal 1995 and increased $554,000, or 13.8%, to $4.6 million in fiscal 1994 from $4.0 million in fiscal 1993. ARPA credits applied to general and adminstrative expenses were $663,000, $430,000 and $0 in fiscal years 1995, 1994 and 1993, respectively, resulting in net general and administrative expenses of $3.9 million, $4.2 million and $4.0 million in fiscal years 1995, 1994 and 1993, respectively. See Note 9 of Notes to Consolidated Financial Statements for additional information regarding ARPA. The increase in gross general and administrative expenses in fiscal 1994 reflected increased professional services, computer hardware and software expenses and training and education costs. Net general and administrative expenses as a percentage of net sales decreased to 4.1% in fiscal 1995 from 4.7% in fiscal 1994 and 4.9% in fiscal 1993. Research and Development Expenses. Gross research and development expenses decreased $237,000, or 7.6%, in fiscal 1995 to $2.9 million, and increased $1.2 million, or 61.6%, to $3.1 million in fiscal 1994 from $1.9 million in fiscal 1993. ARPA credits applied to research and development expenses were $611,000, $752,000 and $0 during fiscal years 1995, 1994 and 1993, respectively, resulting in net research and development expenses of $2.3 million, $2.4 million and $1.9 million in fiscal years 1995, 1994 and 1993, respectively. The decrease in gross research and development expenses in fiscal 1995 was principally due to the temporary allocation of technical resources to manufacturing support and reduced use of external consulting services. The increase in gross research and development expenses in fiscal 1994 resulted from additional staffing, material testing and consulting and professional costs primarily supporting the Company's Novaclad, Viagrid and high density substrate products and achieving ARPA Consortium objectives. As a percentage of sales, net research and development expenses were 2.4% in fiscal 1995, 2.6% in fiscal 1994 and 2.3% in fiscal 1993. Interest Expense. Gross interest expenses increased to $2.3 million in fiscal 1995 from $1.4 million in fiscal 1994 and $1.1 million in fiscal 1993, as the Company's borrowings to support capital expenditures increased substantially. Capitalized interest increased from $66,000 in fiscal 1993 to $405,000 in fiscal 1994 due to the Company's significant capital investment programs to expand its production in existing facilities. In 1995, the Company capitalized interest costs of $1.3 million related to capital investments for production equipment and construction of the New Production Facility in Longmont, Colorado. The resulting net interest expense was $875,000 in fiscal 1995, $946,000 in fiscal 1994 and $1,000,000 in fiscal 1993. Income Taxes. The Company's effective tax rate was 27.7%, 22.3% and 3.4% for fiscal years 1995, 1994 and 1993, respectively. These rates differed from the federal statutory rate primarily because of state income taxes and benefits from research and development credits and foreign sales corporation benefits. DISCONTINUED OPERATION On May 27, 1994, the Company sold its idle Nashua, New Hampshire facility for an amount less than the recorded value. In addition, the Company revised its estimate of the costs it expected to incur related to the abandonment of leased facilities 18 in Orange County, California. The consolidated statement of operations for fiscal 1994 reflects a charge of $525,000, net of income tax benefits of $175,000, to reserve for the losses related to these events. As of September 1, 1995, there are no remaining obligations with respect to the Company's discontinued operation. See Note 8 of Notes to Consolidated Financial Statements. EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), effective August 28, 1993. The adoption of SFAS No. 109 resulted in a cummulative one-time favorable adjustment of $1.4 million. The Company also adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". The Company provides certain medical and other postretirement benefits to qualified employees. The adjustment made in the first quarter of fiscal 1994 resulted in a cummulative one-time charge against income of $875,000, net of income tax benefits of $525,000. Effective September 3, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"). The effect of adoption of SFAS No. 112 did not have a significant impact on the Company's results of operations or fianancial condition. See Notes 6 and 7 of Notes to Consolidated Financial Statements. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). The Company will be required to adopt SFAS No. 121 in fiscal 1997 and expects that its ultimate adoption will not have a significant impact on the Company's results of operations or financial condition. See Note 2 of Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES Net capital expenditures in fiscal years 1995, 1994 and 1993 were $32.2 million, $13.8 million and $4.4 million, respectively, of which $26.7 million was for building and equipping the New Production Facility in Longmont, Colorado. The remaining capital expenditures were used to expand manufacturing capacity for the Company's current products. Over the past three fiscal years, the Company has financed its capital expenditures through equity proceeds of $15.6 million from a public offering of Common Stock and stock option exercises, debt financing of $26.9 million and cash flow from operations of $10.9 million. The Company expects its capital expenditures in fiscal 1996 to be approximately $25.0 million. The Company believes that its cash flow from operations, funds available under its revolving credit agreement and proceeds from this offering will be sufficient to meet the Company's working capital and capital expenditure requirements at least through fiscal 1997. During fiscal 1995, the Company amended and restated its revolving credit agreement with Norwest Bank Minnesota, N.A., Harris Trust and Savings Bank and NBD Bank, N.A. The amended and restated credit agreement provides the Company a $15.0 million revolving note. The revolving note is based on the Company's inventories and accounts receivable and accrues interest at the prime rate plus up to 1.5% depending on the Company's net worth. At September 1, 1995, the interest rate was 9.75%. The credit agreement also increased the Company's term note from $10.0 million to $20.0 million, which is collateralized by equipment and accrues interest at the prime rate plus up to 2.0%, depending on the Company's net worth. At September 1, 1995, the interest rate was 10.25%. Borrowings under the note and term note are due December 31, 1997. The term note provides for quarterly principal installments of $1.3 million beginning January 1, 1996. On September 1, 1995, the Company had $10.5 million in outstanding borrowings under the revolving note and credit available of $3.6 million, and outstanding borrowings of $20 million under the term note. During the last quarter of fiscal 1995, the Company obtained a $5.7 million mortgage from Northern Life Insurance Company, collateralized by the Company's land and building in Longmont, Colorado. The note bears interest at 8.32%, with equal monthly principal and interest payments of $52,000, with the remaining unpaid principal balance due September 1, 2002. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements are listed under Item 14 of this report. Unaudited quarterly financial data for fiscal 1994 and 1995 is set forth in Note 12 to the Consolidated Financial Statements included with this report. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and directors of the Company are as follows:
NAME AGE POSITION - - ---- --- -------- James S. Womack 67 Chairman of the Board and Director James E. Donaghy 61 President, Chief Executive Officer and Director Edward L. Lundstrom 45 Executive Vice President John V. McManus 48 Vice President - Finance and Assistant Secretary Beverly M. Brumbaugh 60 Vice President - Human Resources & Corporate Excellence Keith L. Casson 56 Vice President - Research & Development Gregory D. Closser 43 Vice President - Flexible Interconnects Roger D. Quam 49 Vice President - Composite Materials Ronald P. Rumpsa 60 Vice President - Materials Gerald E. Magnuson 64 Secretary and Director John G. Kassakian 52 Director William B. Miller 63 Director Kenneth J. Roering 53 Director Richard S. Wilcox 66 Director Beekman Winthrop 54 Director
James S. Womack joined the Company in 1956 and served as President of the Company from 1971 to 1988 and as Chief Executive Officer from 1971 to 1991. He became a director of the Company in 1968 and was elected Chairman of the Board in 1988. Mr. Womack is a director of General Securities, Inc. and Zytec Corp. James E. Donaghy joined the Company in 1988 as its President and Chief Operating Officer. He has served as President and Chief Executive Officer since 1991, and has been a director of the Company since 1988. Between 1958 and 1988, Mr. Donaghy held various positions at Dupont Company, most recently as Director of Planning and Development for Dupont Electronics Group. Mr. Donaghy's experiences with Dupont Company included worldwide responsibility for its connector and electronic materials business. Mr. Donaghy is a director of Hutchinson Technology, Incorporated and the Institute of Printed Circuitry. Edward L. Lundstrom joined the Company in 1976 and has served in several capacities since that time, including Vice President, Treasurer, General Manager of Circuit Division and Vice President - Sales and Marketing. He has been Executive Vice President since September 1995, with responsibilities for corporate marketing, core process redesign, information systems and new business development, with particular emphasis on geographic areas outside the United States. 20 John V. McManus joined the Company in 1972 and has served as Vice President-Finance and Assistant Secretary since 1991. From 1987 to 1991, he served as Corporate Controller. Beverly M. Brumbaugh joined the Company in 1961 and has served in several capacities since that time, including Director of Human Resources and Industrial Relations. He has been Vice President-Human Resources & Corporate Excellence since 1989. Mr. Brumbaugh is Chairman of the American Electronics Association Minnesota Council for Quality. Keith L. Casson joined the Company in 1968 and has served as Vice President-Research and Development since September 1993, with responsibility since September 1995 for deployment of the emerging products in the New Production Facility. Prior to September 1993, he held various positions with the Company, including Automotive/Consumer Market Manager, Director of Business Development and Director of Interconnect Systems Research and Development. Mr. Casson is a member of the Institute of Printed Circuitry. Gregory D. Closser joined the Company in 1978 and has served as Vice President-Flexible Interconnects since September 1995. From 1983 to 1989, he held the position of Quality Director. From 1989 to 1993, he was the General Manager of Interconnect Manufacturing. From 1993 to 1995 he was Vice President-Interconnect Operations. Roger D. Quam joined the Company in 1969 and has served in several capacities since that time, including Business Manager of Engineered Products and Vice President of Engineered Products. He has served as Vice President- Composite Materials since September 1995, previously serving as Vice President- Materials Operations and Aviation Products beginning in 1988. Ronald P. Rumpsa joined the Company in 1989 and has served as Vice President-Materials since September 1993. From 1989 to 1993, he held the position of Corporate Director of Materials. Gerald E. Magnuson has served as Secretary of the Company since 1962 and a director since 1975. Mr. Magnuson is Of Counsel to the law firm of Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota, and a director of Munsingwear, Inc., Research, Incorporated and Washington Scientific Industries, Inc. John G. Kassakian has served as a director of the Company since 1985. Mr. Kassakian is Professor of Electrical Engineering and Director, Laboratory for Electromagnetic and Electronic Systems, Massachusetts Institute of Technology, Cambridge, Massachusetts. He is also a director of Ault Incorporated. William B. Miller has served as director of the Company since 1991. Mr. Miller is a consultant with Miller & Company, Maybole, Scotland, a business consulting firm. Prior to 1991, he was Managing Director and Chairman of Prestwick Holdings plc, Ayr, Scotland, an electronic component manufacturer and assembler. Kenneth J. Roering has served as a director of the Company since 1988. Mr. Roering is a Professor, School of Management, at the University of Minnesota, Minneapolis, Minnesota. He is a director of TSI, Inc., Mountain Parks Financial Group and Transport Corporation of America, Inc. Richard S. Wilcox has been a director of the Company since 1972. Mr. Wilcox is a private investor and a director of Computer Identics Corporation. Beekman Winthrop has been a director of the Company since 1992. Mr. Winthrop is a private investor and President of Woodwin Management, Inc., an investment advisory firm. He is also President and a director of Central Coal & Coke Corporation, Kansas City, Missouri, a manager of interests in coal, gas and oil properties. ITEM 11. EXECUTIVE COMPENSATION The following table shows, for the fiscal years ending September 1, 1995, September 2, 1994 and August 27, 1993, the cash compensation paid by the Company, as well as certain other compensation paid or accrued for those years, to James E. Donaghy, the Company's President and Chief Executive Officer, and to each of the four other most highly compensated executive officers of the Company in office at the end of fiscal year 1995, whose total cash 21 compensation exceeded $100,000 during fiscal year 1995 (together with Mr. Donaghy, the "Named Executive Officers") in all capacities in which they served:
SUMMARY COMPENSATION TABLE Long Term Compensation -------------- Annual Compensation Awards --------------------------------------------- Name and Securities All Other Principal Position Underlying Compen- - - ----------------------- Year Salary Bonus Options sation(1) ---- ----------- ------- ------------ ---------- James E. Donaghy 1995 $256,203 - 7,719 $ 8,998 President and Chief 1994 247,722 - 10,548 10,718 Executive Officer 1993 231,014 - 0 8,680 Edward L. Lundstrom 1995 131,053 - 3,985 6,348 Executive Vice 1994 122,324 - 11,134 6,116 President 1993 106,538 - 10,654 4,433 Roger D. Quam 1995 124,577 - 3,762 6,071 Vice President- 1994 121,540 - 11,267 5,470 Composite Materials 1993 109,512 - 10,951 4,340 Gregory D. Closser 1995 113,278 - 3,428 5,630 Vice President- 1994 108,161 - 9,972 5,341 Flexible Interconnect 1993 96,325 - 9,633 4,009 John V. McManus 1995 121,378 - 3,671 5,172 Vice President- 1994 107,272 - 9,830 4,817 Finance 1993 94,557 - 9,456 3,935 - - --------------
(1) These amounts represent Company basic and matching contributions to the Company's 401(k) plan on behalf of such employees. 22 OPTION GRANTS IN LAST FISCAL YEAR The following table contains information concerning the grant of stock options under the Company's stock option plans to the Named Executive Officers during the last fiscal year:
INDIVIDUAL GRANTS - - -------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE NUMBER VALUE AT ASSUMED OF % OF TOTAL ANNUAL RATES OF SECURITIES OPTIONS STOCK PRICE UNDER- GRANTED TO APPRECIATION LYING EMPLOYEES EXERCISE FOR OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION NAME GRANTED YEAR PER SHARE DATE 5% 10% - - -------------------------------------------------------------------------------------------- James E. Donaghy 7,719 9.9% $16.50 08/24/05 $80,098 $202,985 Edward L. Lundstrom 3,985 5.1% 16.50 08/24/05 41,351 104,793 Roger D. Quam 3,762 4.8% 16.50 08/24/05 39,037 98,928 Gregory D. Closser 3,428 4.4% 16.50 08/24/05 35,572 90,145 John V. McManus 3,671 4.7% 16.50 08/24/05 38,093 96,535
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth information with respect to the Named Executive Officers, concerning the exercise of options during the last fiscal year and unexercised options held as of the end of the fiscal year:
Number of Securities Value of Unexercised Underlying In-the-Money Unexercised Options at Options at Fiscal Year-End Year-End (1) _________________________ _________________________ Shares Acquired on Value Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - - ---- -------- -------- ----------- ------------- ----------- ------------- James E. Donaghy 27,090(2) $253,969 22,548 107,719 $202,110 $1,119,298 Edward L. Lundstrom 12,353 72,574 27,322 3,985 304,177 9,963 Roger D. Quam 12,959 89,093 27,906 3,762 311,329 9,405 Gregory D. Closser 9,962 75,960 24,391 3,428 272,084 8,570 John V. McManus 9,482 65,189 23,147 3,671 258,824 9,178 - - ------------------
(1) Based on a per share price of $19.00, which is the average of the bid and asked prices for the Company's Common Stock on September 1, 1995, the last day of the Company's fiscal year. (2) Reflects the net number of shares acquired upon exercise of options taking into account shares transferred to the Company in payment of the option exercise price. Director Compensation. Directors who are not employees of the Company (currently all directors except Mr. Donaghy) were paid during fiscal year 1995 an annual retainer of $12,000 and a fee of $800 for each day of meetings of the Board of Directors or any committee. Mr. Wilcox has elected to defer his director fees pursuant to the Company's Supplemental Executive Retirement Plan that allows the deferral of directors fees. Each non-employee member of the Board of Directors receives at the time of election or re-election to the Board by the shareholders an option to purchase 1,000 shares of the Company's Common Stock at a purchase price equal to the fair market value of the Company's 23 Common Stock on the date of such election or re-election. Each director option is exercisable as to all or part of the shares subject to the option during a term of five years but will expire 30 days after a director's departure from the Board. Mr. Womack, who retired as an employee of the Company during fiscal year 1992, receives, in addition to the director fees noted above, a $10,000 annual retainer for serving as the Chairman of the Board. Mr. Womack also received health insurance benefits through the Company until he reached age 65, and the terms of certain options to purchase 94,911 shares granted to Mr. Womack as an employee under the 1987 Stock Option Plan (13,750 of which have since expired and 74,018 of which were subsequently exercised) were extended to their original expiration dates. Finally, the Company and Mr. Womack entered into a Consulting Agreement during fiscal year 1988 which provides that the Company will retain Mr. Womack as an independent consultant from the date immediately following his termination of employment until his 75th birthday, unless another date is agreed upon by the parties. Mr. Womack is to receive as annual compensation under the Consulting Agreement 50% of the average of his annual cash compensation for the five calendar years preceding termination of employment (but not less than $125,000), less an amount equal to an annual annuity that could be purchased with the principal in his retirement accounts at the date of retirement provided from all retirement contributions by the Company. The Consulting Agreement also restricts Mr. Womack from competitive employment and disclosure of trade secrets and confidential information. Mr. Miller received $12,863 during fiscal year 1995 representing fees relating to international consulting work performed on behalf of the Company. Mr. Roering received $2,193 during fiscal year 1995 representing fees relating to certain management consulting work performed on behalf of the Company. Mr. Magnuson received $5,000 during fiscal year 1995 for his services as Secretary of the Company. Lindquist & Vennum P.L.L.P., of which Mr. Magnuson is Of Counsel, was paid for legal services rendered to the Company during fiscal year 1995. It is anticipated that Lindquist & Vennum P.L.L.P. will continue to perform legal services for the Company. In fiscal year 1982, the Company established a retirement program for directors not covered by another retirement plan of the Company which provides for the payment of an annual benefit equal to the annual retainer paid to directors during the full fiscal year preceding retirement. The retirement benefit, which is payable to directors who have served five years or more, will commence at the later of the time of retirement or when the director becomes 65 years old and will be subject to proportionate reduction if the director has served the Company less than 15 years. The maximum number of years that the benefit is payable is ten years. Employment Agreements. The Company has entered into employment agreements with certain of its executive officers, including each of the Named Executive Officers. The employment agreements provide, among other things, for a lump sum cash severance payment to such individuals equal to approximately three times the individual's average annual compensation over the preceding five years plus certain fringe benefits under certain circumstances following a "change in control" of the Company. In general, a change in control would occur when there has been any change in the controlling persons reported in the Company's proxy statements, when 20% or more of the Company's outstanding voting stock is acquired by any person, or when current members of the Board of Directors or their successors elected or nominated by such members cease to be a majority of the Board of Directors. However, a "change in control" would not occur if any of these events is authorized, approved, or recommended by the Board of Directors. If a change in control had occurred at the end of fiscal year 1995, the following individuals would have received the approximate payment indicated pursuant to the employment agreements: Mr. Donaghy, $683,857; Mr. Lundstrom, $327,781; Mr. Quam, $332,992; Mr. Closser, $240,055; Mr. McManus, $280,407; all current executive officers as a group, $2,497,158. The employment agreement referred to above with Mr. Donaghy also requires the Company to pay Mr. Donaghy a salary of not less than $185,600 annually, certain portions of which may be deferred. In addition, if Mr. Donaghy's employment is terminated other than voluntarily by him or for cause by the Company and no change in control has occurred, Mr. Donaghy will receive as a severance payment an amount equal to one and one-half times his annual cash compensation for the preceding year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of October 1, 1995, the number of shares of the Company's Common Stock beneficially owned (i) by each director, (ii) by certain executive officers, (iii) by each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock and (iv) by all officers and directors as a group. Unless otherwise indicated, each person has sole voting and dispositive power over such shares. 24
PERCENTAGE OF OUTSTANDING NUMBER SHARES OF SHARES ------------- BENEFICIALLY BEFORE AFTER NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(1) - - ------------------------ ------------ -------- ----------- Peter B. Cannell and Co., Inc.(2) 647,200 9.47% 7.54% 919 Third Avenue New York, NY 10022 Sumitomo Bakelite Co., Ltd.(2) 414,400 6.07% 4.83% Mita-Nitto-Osaka Bldg. 11-36, 3-Chome Mita Minato-Ku, Tokyo 108, Japan Regan Money Managers(2) 371,600 5.44% 4.33% 7600 Parklawn Avenue, Suite 300 Edina, MN 55435 James E. Donaghy(3)(4)(5) 86,237 1.26% 1.00% James S. Womack(3) 80,801 1.18% * John G. Kassakian(3) 9,997 * * Gerald E. Magnuson(3) 18,188 * * William B. Miller(3) 4,000 * * Kenneth J. Roering(3) 18,000 * * Richard S. Wilcox(3)(6) 106,155 1.55% 1.24% Beekman Winthrop(3) 273,800 4.01% 3.19% Gregory D. Closser(3) 37,997 * * Edward L. Lundstrom(3) 32,155 * * John V. McManus(3) 52,037 * * Roger D. Quam(3) 51,225 * * All Officers and Directors as 815,715 11.59% 9.28% a Group (15 persons)(3)(4)(6)
- - ------------------------------------------------------------ * Less than one percent. (1) Assumes no exercise of the Underwriters' over-allotment option. (2) Based upon information contained in a Schedule 13G or Schedule 13D filed with the Securities and Exchange Commission. (3) Includes shares which may be purchased within 60 days of October 1, 1995 upon exercise of outstanding stock options in the amounts of 22,548 shares for Mr. Donaghy, 11,143 shares for Mr. Womack, 5,000 shares for each of Messrs. Kassakian, Magnuson, Roering and Wilcox, 4,000 shares for Mr. Miller, 3,000 shares for Mr. Winthrop, 24,391 shares for Mr. Closser, 27,322 shares for Mr. Lundstrom, 23,147 shares for Mr. McManus, 27,906 shares for Mr. Quam and 202,138 shares for all officers and directors as a group. 25 (4) Includes shares held by the Company's Employee Savings Plan for the benefit of the person or group named herein. (5) Excludes options to acquire 107,719 shares of Common Stock, which options are not currently exercisable. (6) Includes 35,400 shares held by a trust for the benefit of Mr. Wilcox's daughter, for which he is trustee. Mr. Wilcox disclaims beneficial ownership of these 35,400 shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not Applicable. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as a part of the report: 1. Consolidated Financial Statements FORM 10-K PAGE REFERENCE -------------- Report of Independent Public Accountants............... F-2 Consolidated Balance Sheets as of September 2, 1994 and September 1, 1995.................................. F-3 Consolidated Statements of Operations for the Fiscal Years Ended August 27, 1993, September 2, 1994 and September 1, 1995...................................... F-4 Consolidated Statements of Changes in Shareholders' Investment for the Fiscal Years Ended August 27, 1993, September 2, 1994, and September 1, 1995............... F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended August 27, 1993, September 2, 1994 and September 1, 1995.................................. F-6 Notes to Consolidated Financial Statements............. F-7 2. Consolidated Financial Statement Schedules FORM 10-K PAGE REFERENCE -------------- DESCRIPTION - - ----------- Schedule II - Valuation and Qualifying Accounts........ S-1 (b) Reports on Form 8-K None. (c) Exhibits and Exhibit Index Exhibit No. Description - - ----------- ----------- 3.1 Amended and Restated Articles of Incorporation, incorporated by reference from Exhibit 3.1 of the Registrant's Form 10-Q for the quarter ended December 2, 1994. 3.2 Bylaws, as amended, incorporated by reference from Exhibit 3.2 of the Registrant's Registration Statement on Form S-2 (File No. 33-79266). 4.1 Stock Purchase Agreement Relating to Purchase of Sheldahl Stock dated March 12, 1987 between the Registrant and Sumitomo Bakelite Co., Ltd., as amended through January 9, 1991, incorporated by reference from Exhibit C(4) of Registrant's Form 8-K filed January 22, 1991. 4.2 Amendment No. 4 to Stock Purchase Agreement Relating to Purchase of Sheldahl Stock dated January 3, 1994, incorporated by reference from Exhibit 4.2 of the Registrant's Registration Statement on Form S-2 (File No. 33-79266). 27 10.1 1987 Stock Option Plan, incorporated by reference from Exhibit 10.1 of the Registrant's Form 10-K for the fiscal year ended August 27, 1993. 10.2 1994 Stock Option Plan, incorporated by reference from Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended December 2, 1994. 10.3 Consulting Agreement dated August 17, 1988 between James S. Womack and Sheldahl, Inc., incorporated by reference from Exhibit 10.2 of the Registrant's Form 10-K for the fiscal year ended August 27, 1993. 10.4 Form of Employment Agreement for Executive Officers of the Registrant, incorporated by reference from Exhibit C(1) of the Registrant's Form 8-K filed August 23, 1985. 10.5 Employment Agreement between James E. Donaghy and the Registrant dated March 1, 1988, as amended August 17, 1988, incorporated by reference from Exhibit 10.4 of the Registrant's Form 10-K for the fiscal year ended August 27, 1993. 10.6 Sales Agreement Relating to Japanese Sales dated March 12, 1987 between the Registrant and Sumitomo Bakelite Co., Ltd., incorporated by reference from Exhibit C(2) of the Registrant's Form 8-K filed March 25, 1987. 10.7 Sales Agreement Relating to United States Sales dated March 12, 1987 between the Registrant and Sumitomo Bakelite Co., Ltd., incorporated by reference from Exhibit C(3) of the Registrant's Form 8-K filed March 25, 1987. 10.8 Amendment Number One to Sales Agreement Relating to Japanese Sales dated January 9, 1991 between the Registrant and Sumitomo Bakelite Co., Ltd., incorporated by reference from Exhibit C(2) of the Registrant's Form 8-K filed January 22, 1991. 10.9 Amendment Number One to Sales Agreement Relating to United States Sales dated January 9, 1991 between Sheldahl, Inc. and Sumitomo Bakelite Co., Ltd., incorporated by reference from Exhibit C(3) of the Registrant's Form 8-K filed January 22, 1991. 10.10 Amended and Restated Cross License Agreement dated November 1, 1993 between the Registrant and Sumitomo Bakelite Co., Ltd., incorporated by reference from Exhibit 10.5 of the Registrant's Form 10-K for the fiscal year ended September 2, 1994. 10.11 Lease dated June 15, 1989 between Aberdeen Development Corporation and the Registrant, incorporated by reference from Exhibit 10.13 of the Registrant's Form 10-K for the fiscal year ended August 27, 1993. 10.12 Lease Agreement dated May 1, 1994 between 345 Partnership and the Registrant, incorporated by reference from Exhibit 10.13 of the Registrant's Registration Statement on Form S-2 (File No. 33-79266). 10.13 Amended and Restated Credit and Security Agreement dated November 24, 1993 among the Registrant, Norwest Bank Minnesota, N.A., and Harris Trust and Savings Bank, incorporated by reference from Exhibit 4.1 of the Registrant's Form 10-K for the fiscal year ended August 27, 1993. 10.14 Second Amendment to Amended and Restated Credit and Security Agreement dated May 12, 1994 among the Registrant, Norwest Bank Minnesota, N.A., Harris Trust and Savings Bank, incorporated by reference from Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended March 3, 1995. 28 10.15 Third Amendment to Amended and Restated Credit and Security Agreement dated January 24, 1995 among the Registrant, Norwest Bank Minnesota, N.A., Harris Trust and Savings Bank and NBD Bank, N.A., incorporated by reference from Exhibit 10.2 of the Registrant's Form 10-Q for the quarter ended March 3, 1995. 10.16 Loan Authorization dated October 1, 1994 between the South Dakota Board of Economic Development Registrant, incorporated by reference from Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended February 25, 1994. 10.17 Agreement Relating to Employment dated October 1, 1994 between the South Dakota Board of Economic Development and the Registrant, incorporated by reference from Exhibit 10.2 of the Registrant's Form 10-Q for the quarter ended February 25, 1994. 10.18 Promissory Note dated October 4, 1993 due to the South Dakota Board of Economic Development, incorporated by reference from Exhibit 10.3 of the Registrant's Form 10-Q for the quarter ended February 25, 1994. 10.19 Note Purchase Agreement dated as of August 31, 1995 between the Registrant and Northern Life Insurance Company. 10.20 Agreement dated January 10, 1994 between the MCM-L Consortium and the Advanced Projects Research Agency, incorporated by reference from Exhibit 10.4 of the Registrant's Form 10-Q for the quarter ended February 25, 1994. 10.21 Articles of Collaboration dated November 30, 1993 for the MCM-L Consortium, incorporated by reference from Exhibit 10.5 of the Registrant's Form 10-Q for the quarter ended February 25, 1994. 10.22 Joint Marketing Agreement dated June 14, 1995 between the Registrant and Mentor Graphics Corporation. 10.23 Agreement Relating to Joint Venture dated August 1, 1995 between Registrant, Jiangxi Changjiang Chemical Plant, Hong Kong Wah Hing (China) Development Co. Ltd. and Jiujiang Flex Co. Ltd. 10.24 Agreement Relating to Payments dated August 1, 1995 between Registrant and Jiangxi Changjiang Chemical Plant, Hong Kong Wah Hing (China) Development Co. Ltd. and Jiujiang Flex Co. Ltd. 10.25 Manufacturing Agreement dated August 1, 1995 between Registrant and Jiujiang Flex Co., Ltd. 10.26 Marketing and License Agreement dated August 1, 1995 between Registrant and Jiujiang Flex Co., Ltd. 10.27 Technology Development Agreement dated August 15, 1995 between Low Cost Flip Chip Consortium and the Advanced Projects Research Agency. 10.28 Articles of Collaboration dated July 10, 1995 for the Low Cost Flip Chip Consortium. 10.29 Technology Development Agreement dated March 23, 1995 between Plastic Packaging Consortium and the Advanced Projects Research Agency. 10.30 Articles of Collaboration dated March 17, 1995 for the Plastic Packaging Consortium. 10.31 License Agreement dated June 20, 1994 between Sidrabe and Registrant. 29 10.32 Amendment One to License Agreement dated September 14, 1994 between Sidrabe and Registrant. 11 Statement Regarding Computation of Per Share Earnings. 22 Subsidiary of Registrant. 24 Consent of Independent Public Accountants. 27 Financial Data Schedule. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: October 12, 1995 SHELDAHL, INC. By: /s/ James E. Donaghy ------------------------------ James E. Donaghy, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant on October 12, 1995 and in the capacities indicated. (POWER OF ATTORNEY) Each person whose signature appears below constitutes and appoints James E. Donaghy and John V. McManus as such person's true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities, to sign any of all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or such person's substitute or substitutes may lawfully do or cause to be done by virtue thereof. By /s/ James S. Womack Chairman of the Board and Director -------------------- James S. Womack By /s/ James E. Donaghy President, Chief Executive Officer and --------------------- Director James E. Donaghy (principal executive officer) By /s/ John V. McManus Vice President Finance -------------------- John V. McManus (principal financial and accounting officer) By /s/ John G. Kassakian Director ---------------------- John G. Kassakian By /s/ Gerald E. Magnuson Director ----------------------- Gerald E. Magnuson By /s/ William B. Miller Director ---------------------- William B. Miller By /s/ Kenneth J. Roering Director ----------------------- Kenneth J. Roering By /s/ Richard S. Wilcox Director ---------------------- Richard S. Wilcox By /s/ Beekman Winthrop Director --------------------- Beekman Winthrop 31 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................................. F-2 Consolidated Balance Sheets as of September 2, 1994 and September 1, 1995. F-3 Consolidated Statements of Operations for the Fiscal Years Ended August 27, 1993, September 2, 1994 and September 1, 1995.................................. F-4 Consolidated Statements of Changes in Shareholders' Investment for the Fiscal Years Ended August 27, 1993, September 2, 1994 and September 1, 1995................. F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended August 27, 1993, September 2, 1994 and September 1, 1995.................................. F-6 Notes to Consolidated Financial Statements................................ F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Sheldahl, Inc.: We have audited the accompanying consolidated balance sheets of Sheldahl, Inc. (a Minnesota corporation) and Subsidiary as of September 1, 1995 and September 2, 1994, and the related consolidated statements of operations, changes in shareholders' investment and cash flows for each of the three fiscal years in the period ended September 1, 1995. These financial statements and schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sheldahl, Inc. and Subsidiary, as of September 1, 1995 and September 2, 1994, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 1, 1995 in conformity with generally accepted accounting principles. As discussed in Notes 6 and 7 to the financial statements, effective August 28, 1993, the Company changed its methods of accounting for income taxes and postretirement benefits. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index to consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Minneapolis, Minnesota, October 12, 1995 F-2 SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 2, SEPTEMBER 1, ASSETS 1994 1995 ------ ------------ ------------ Current assets: Cash and cash equivalents.......................... $ 2,008 $ 1,045 Accounts receivable, net of allowances for doubtful accounts of $200 in 1994 and $267 in 1995......... 14,463 17,637 Inventories........................................ 10,568 12,509 Deferred tax assets................................ 1,429 849 Prepaid expenses and other current assets.......... 478 732 ------- ------- Total current assets............................. 28,946 32,772 ------- ------- Plant and equipment: Land and buildings ................................ 14,963 15,924 Machinery and equipment............................ 41,166 52,748 Construction in progress .......................... 11,972 32,654 Accumulated depreciation .......................... (37,832) (41,471) ------- ------- Net plant and equipment ......................... 30,269 59,855 ------- ------- Other assets......................................... 924 1,559 Deferred tax assets ................................. 181 -- ------- ------- $60,320 $94,186 ======= ======= LIABILITIES AND SHAREHOLDERS' INVESTMENT ---------------------------------------- Current liabilities: Current maturities of long-term debt .............. $ 2,021 $ 4,179 Accounts payable .................................. 6,589 9,113 Accrued salaries and commissions .................. 1,324 1,262 Other accrued liabilities.......................... 2,431 1,886 Reserves for discontinued operation................ 489 -- Income taxes payable .............................. 150 -- ------- ------- Total current liabilities ....................... 13,004 16,440 Long-term debt....................................... 7,963 33,864 Other non-current liabilities ....................... 2,871 2,683 Deferred taxes....................................... -- 247 ------- ------- Commitments and contingencies (Notes 5 and 7) Shareholders' investment: Preferred stock, $1.00 par value, 500,000 shares authorized, none outstanding...................... -- -- Common stock, $.25 par value, 20,000,000 shares authorized; 6,590,369 and 6,831,576 shares outstanding ...................................... 1,648 1,708 Additional paid-in capital ........................ 21,035 22,311 Retained earnings.................................. 13,799 16,933 ------- ------- Total shareholders' investment .................... 36,482 40,952 ------- ------- $60,320 $94,186 ======= =======
The accompanying notes are an integral part of these consolidated balance sheets. F-3 SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEAR ENDED ------------------------------------ AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1993 1994 1995 ---------- ------------ ------------ Net sales................................. $82,102 $88,346 $95,216 Cost of sales............................. 66,360 69,273 74,752 ------- ------- ------- Gross profit ............................. 15,742 19,073 20,464 ------- ------- ------- Expenses: Sales and marketing .................... 7,274 8,014 9,090 General and administrative.............. 4,029 4,153 3,895 Research and development................ 1,929 2,366 2,270 Interest................................ 1,023 946 875 ------- ------- ------- Total expenses ....................... 14,255 15,479 16,130 ------- ------- ------- Income from continuing operations before provision for income taxes and cumulative effect of changes in methods of accounting .............................. 1,487 3,594 4,334 Provision for income taxes ............... 50 800 1,200 ------- ------- ------- Income from continuing operations before cumulative effect of changes in methods of accounting ........................... 1,437 2,794 3,134 Cumulative effect of change in method of accounting for income taxes (Note 6) .... -- 1,422 -- Cumulative effect of change in method of accounting for post retirement benefits (Note 7) ................................ -- (875) -- Loss from discontinued operation (Note 8). -- (525) -- ------- ------- ------- Net income ............................... $ 1,437 $ 2,816 $ 3,134 ======= ======= ======= Income per share: Continuing operations .................. $ .29 $ .52 $ .45 Accounting change--income taxes......... -- .26 -- Accounting change--post retirement benefits............................... -- (.16) -- Discontinued operation.................. -- (.10) -- ------- ------- ------- Net income per share ..................... $ .29 $ .52 $ .45 ======= ======= ======= Weighted average common shares and common share equivalents outstanding ........... 4,950 5,418 6,925 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-4 SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT FOR THE FISCAL YEARS ENDED AUGUST 27, 1993, SEPTEMBER 2, 1994, AND SEPTEMBER 1, 1995 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL ---------------- PAID-IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS INVESTMENT --------- ------ ---------- -------- ------------- Balance August 28, 1992..... 4,773,536 $1,193 $ 7,198 $ 9,546 $17,937 Net income................ -- -- -- 1,437 1,437 Stock options exercised... 37,459 10 64 -- 74 --------- ------ ------- ------- ------- Balance August 27, 1993..... 4,810,995 1,203 7,262 10,983 19,448 Net income................ -- -- -- 2,816 2,816 Stock options exercised... 83,124 21 333 -- 354 Net proceeds from common stock offering........... 1,696,250 424 13,440 -- 13,864 --------- ------ ------- ------- ------- Balance September 2, 1994 .. 6,590,369 1,648 21,035 13,799 36,482 Net income................ -- -- -- 3,134 3,134 Stock options exercised... 241,207 60 1,276 -- 1,336 --------- ------ ------- ------- ------- Balance September 1, 1995 .. 6,831,576 $1,708 $22,311 $16,933 $40,952 ========= ====== ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE FISCAL YEAR ENDED ------------------------------------ AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1993 1994 1995 ---------- ------------ ------------ Operating activities: Net income.............................. $1,437 $ 2,816 $ 3,134 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......... 3,875 4,014 4,845 Cumulative effect of accounting changes.............................. -- (547) -- Deferred income tax provision......... -- 565 1,008 Loss from discontinued operation...... -- 525 -- Net change in other operating activities: Accounts receivable................... (2,428) (1,029) (3,174) Inventories........................... 716 (1,246) (1,941) Prepaid expenses and other current assets............................... (64) (175) (254) Other assets.......................... 124 (533) (635) Accounts payable and accrued liabilities.......................... (34) 216 (331) Income taxes payable.................. -- 150 (150) Other non-current liabilities......... 47 156 (188) ------ ------- ------- Net cash provided by operating activities............................. 3,673 4,912 2,314 ------ ------- ------- Investing activities: Capital expenditures, net............... (4,388) (13,841) (32,182) Net cash flow used in discontinued operation.............................. (893) (1,044) (489) ------ ------- ------- Net cash used in investing activities... (5,281) (14,885) (32,671) ------ ------- ------- Financing activities: Net borrowings (repayments) under revolving note......................... 2,703 (9,233) 10,533 Proceeds from long-term debt............ -- 11,000 23,466 Repayments of long-term debt............ (1,225) (4,446) (5,941) Proceeds from stock offering, net....... -- 13,864 -- Proceeds from stock option exercises.... 74 354 1,336 ------ ------- ------- Net cash provided by financing activities............................. 1,552 11,539 29,394 ------ ------- ------- Net increase (decrease) in cash and cash equivalents............................ (56) 1,566 (963) ------ ------- ------- Cash and cash equivalents at beginning of year..................................... 498 442 2,008 ------ ------- ------- Cash and cash equivalents at end of year.. $ 442 $ 2,008 $ 1,045 ====== ======= ======= Supplemental cash flow information: Interest paid........................... $1,167 $ 1,266 $ 2,204 ====== ======= ======= Income taxes paid....................... $ 50 $ 60 $ 114 ====== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-6 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BUSINESS DESCRIPTION AND FISCAL YEAR: The Company is a leading producer of high quality flexible printed circuitry and flexible laminates, primarily for sale to the automotive electronics and datacommunication markets. The Company primarily sells to original equipment manufacturers in the United States and also to those in Europe and the Pacific Rim. The Company's fiscal year ends on the Friday closest to August 31. Fiscal year 1994 consisted of 53 weeks. Fiscal years 1995 and 1993 consisted of 52 weeks. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation-- The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. Significant Customers-- The Company's largest customer accounted for sales of $15,053,000 in 1995; $13,771,000 in 1994; and $12,326,000 in 1993. No other customer accounted for greater than 10% of net sales. Export Sales-- The Company had export sales of $11,100,000 in 1995; $7,592,000 in 1994; and $7,809,000 in 1993. Revenue Recognition-- The Company recognizes revenue principally as products are shipped. In addition, the Company grants credit to customers and generally does not require collateral or any other security to support amounts due. Inventories-- The components of inventories are as follows (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 1994 1995 ------------ ------------ Raw material ................................... $ 4,403 $ 4,267 Work-in-process................................. 5,245 5,649 Finished goods ................................. 1,835 3,663 LIFO reserve ................................... (915) (1,070) ------- ------- Total......................................... $10,568 $12,509 ======= =======
The Company values its inventories at the lower of last-in, first-out (LIFO) cost or market. If the first-in, first-out method of valuing inventories had been used in place of LIFO, reported earnings per share would have been $.02 higher in 1995, $.01 higher in 1994 and $.04 higher in 1993. Plant and Equipment-- Plant and equipment are stated at cost and include expenditures which increase the useful lives of existing plant and equipment. The cost of major plant and equipment additions includes interest capitalized during the acquisition period. Interest capitalized totaled $1,328,000 in 1995, $405,000 in 1994, and $66,000 in 1993. Maintenance, repairs and minor renewals are charged to operations as incurred. When plant and equipment are disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is reflected in the results of operations. F-7 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For financial reporting purposes, plant and equipment are depreciated principally on a straight-line basis over the estimated useful lives of 20 to 40 years for buildings and 3 to 15 years for machinery and equipment. For income tax reporting purposes, straight-line and accelerated depreciation methods are used. Income Taxes-- Deferred income taxes are provided for temporary differences between the financial reporting basis and tax basis of the Company's assets and liabilities at currently enacted tax rates. Earnings Per Share-- Earnings per share is computed based on the weighted average number of common and equivalent shares outstanding during each period presented. New Accounting Pronouncement-- In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for Impairment Of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). The Company will be required to adopt SFAS No. 121 in fiscal 1997 and expects that its ultimate adoption will not have a significant impact on the Company's results of operations or financial condition. (3)FINANCING: Long-term debt consisted of the following (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 1994 1995 ------------ ------------ Revolving credit agreement........................... $7,920 $30,533 Note payable to insurance company, secured by real estate mortgage, interest at 8.32% with monthly payments of $52, including principal and interest, remaining balance due September 2002................ -- 5,700 Note payable to Economic Development Agency, secured by $825 standby letter of credit, interest at 2.0% with monthly payments of $9, including principal and interest, remaining balance due October 1998........ 916 833 Note payable to a bank, secured by a real estate mortgage, interest at 8.0% with monthly payments of $9, including principal and interest through February 1999 ...................................... 406 326 Other ............................................... 742 651 ------ ------- 9,984 38,043 Less-current maturities ............................. (2,021) (4,179) ------ ------- $7,963 $33,864 ====== =======
During fiscal 1995, the Company renegotiated its revolving credit agreement. The resulting amended and restated revolving credit agreement consists of a $15 million revolving note (revolver), based on and secured by the Company's inventories and accounts receivable, and a $20 million term note collateralized by equipment. Commitment fees on the revolver are charged at 0.5% on the unused portion. Interest on the revolver and term note accrues at prime plus up to 1.5% and 2.0%, respectively, depending on the Company's net worth, as defined. As of September 1, 1995, outstanding borrowings under the revolver were $10,533,000, with $3,642,000 available, and borrowings under the term note were $20,000,000. The term note requires quarterly principal installments of $1,250,000 beginning January 1, 1996. At September 1, 1995, the interest rates were 9.75% on the revolver and 10.25% for the term note. The entire credit agreement expires December 31, 1997. F-8 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's debt agreements contain various restrictive covenants which, among other things, require the Company to maintain defined consolidated net worth levels, financial ratios and minimum coverage ratios, and call for the pledging of certain assets. These agreements also restrict additional indebtedness, capital expenditures and cash dividends. The Company was in compliance with these covenants as of September 1, 1995. Future maturities of long-term debt are as follows (in thousands): Fiscal 1996 ..................... $ 4,179 Fiscal 1997 ..................... 5,466 Fiscal 1998 ..................... 22,173 Fiscal 1999 ..................... 781 Fiscal 2000 ..................... 220 Thereafter....................... 5,224 ------- $38,043 =======
(4)STOCK OPTIONS: The shareholders of the Company have approved stock option plans (the Plans) for officers, other full-time key salaried employees and non-employee directors of the Company to reward outstanding performance and enable the Company to attract and retain key personnel. Under the Plans, options are granted at an exercise price equal to the fair market value of the Company's common stock at the date of grant and are generally exercisable for five or ten years. The Plans also provide for automatic grants of 1,000 non-qualified stock options to each non-employee director of the Company on the date that each such director is elected or re-elected to the Board of Directors, and expire, to the extent not already exercised, thirty days after termination of service as a Director. As of September 1, 1995, the Plans authorize the future granting of options to purchase up to 583,015 shares of common stock. Stock option transactions during 1993, 1994 and 1995 are summarized as follows:
SHARES PRICE PER SHARE -------- ------------------ Outstanding at August 28, 1992............... 624,311 $4.875 to $8.750 Granted ................................... 214,468 $5.000 to $7.625 Exercised ................................. (81,982) $5.000 to $7.125 Lapsed..................................... (56,155) $5.250 to $8.750 -------- Outstanding at August 27, 1993............... 700,642 $4.875 to $8.750 Granted ................................... 205,777 $9.000 to $12.000 Exercised ................................. (150,442) $5.000 to $7.625 -------- Outstanding at September 2, 1994............. 755,977 $4.875 to $12.000 Granted ................................... 84,777 $13.000 to $16.500 Exercised ................................. (271,046) $5.000 to $12.000 -------- Outstanding at September 1, 1995............. 569,708 $4.875 to $16.500 ========
Options exercisable were 600,642 as of August 27, 1993, 655,977 as of September 2, 1994 and 391,931 as of September 1, 1995. F-9 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The options outstanding as of September 1, 1995 expire five or ten years after the grant date as follows:
NUMBER OF OPTIONS FISCAL YEARS THAT EXPIRE ------------ ----------------- 1996.................. 12,780 1997.................. 37,182 1998.................. 7,000 1999.................. 7,000 2000.................. 7,000 2001.................. 63,840 2002.................. 100,000 2003.................. 89,683 2004.................. 167,446 2005.................. 77,777 ------- 569,708 =======
(5)COMMITMENTS AND CONTINGENCIES: Lease Commitments-- The Company has noncancelable operating lease commitments for certain manufacturing facilities and equipment which expire at various dates through fiscal 1999. Minimum rent commitments under operating leases are $1,782,000 in 1996, $442,000 in 1997, $292,000 in 1998 and 1999 and $37,000 in 2000. In accordance with the terms of the lease agreements, the Company is required to pay maintenance and property taxes related to the leased property. Operating lease expense relating to continuing operations was $2,394,000 in 1995, $2,128,000 in 1994, and $2,032,000 in 1993. Employment Agreements-- The Company has employment agreements with various officers which are renewable in successive one-year terms and require minimum severance benefits following a change in control of the Company, as defined. Litigation-- The Company's operations expose it to the risk of certain legal and environmental claims in the normal course of business. The Company believes that these matters will not have a material adverse effect on the Company's results of operations or financial condition. (6) INCOME TAXES: Effective August 28, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), under which deferred income tax assets and liabilities are recognized for the differences between financial and income tax reporting basis of assets and liabilities and valued based on enacted tax rates and laws. Net income for 1994 was increased by $1,422,000, or $0.26 per share, for the cumulative effect of this accounting change. The effect of adopting SFAS No. 109 increased the Company's 1994 tax provision by $565,000 when compared to the previous method used. The provision for income taxes from continuing operations consisted of the following (in thousands):
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1993 1994 1995 ---------- ------------ ------------ Currently payable.................... $50 $235 $ 192 Deferred............................. -- 565 1,008 --- ---- ------ Provision for income taxes......... $50 $800 $1,200 === ==== ======
F-10 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A reconciliation from the provision for income taxes using the statutory federal income tax rate to the provision for income taxes is as follows (in thousands):
AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1993 1994 1995 ---------- ------------ ------------ Federal statutory rates ............ $505 $1,222 $1,474 Research and development tax credits............................ -- (210) (200) Tax benefit of foreign sales corporation........................ -- (133) (222) Recognition of previously unrecorded deferred tax assets................ (505) -- -- State income taxes, net of federal benefit............................ -- 42 37 Other .............................. 50 (121) 111 ---- ------ ------ $ 50 $ 800 $1,200 ==== ====== ======
As of September 1, 1995, the Company had net operating loss carryforwards of approximately $2,400,000 which expire through 2008. Temporary differences and carryforwards which result in net deferred income tax assets were as follows (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 1994 1995 ------------ ------------ Deferred tax assets (liabilities) Net operating loss carryforwards.............. $ 1,186 $ 1,246 Income tax credits carryforwards.............. 950 1,138 Post retirement benefits...................... 532 494 Inventories .................................. 378 433 Deferred compensation ........................ 270 349 Medical reserves.............................. -- 131 Vacation reserve.............................. 188 120 Reserve for discontinued operation............ 184 -- Bad debts reserve ............................ 75 99 Other ........................................ 402 423 ------- ------- Deferred tax assets......................... 4,165 4,433 ------- ------- Depreciation ................................. (1,887) (3,376) Medical reserves ............................. (68) -- ------- ------- Deferred tax liabilities ................... (1,955) (3,376) ------- ------- Valuation allowance......................... (600) (455) ------- ------- Total deferred tax assets................. $ 1,610 $ 602 ======= =======
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. The Company has established a valuation allowance for a portion of the net operating loss and income tax credit carryforwards and other items due to the uncertainty related to their ultimate realization. The reduction in the valuation allowance was due to the expiration of certain state tax credit carryforwards. F-11 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (7) PENSION AND POST RETIREMENT BENEFITS: Defined Benefit Plan-- The Company sponsors a defined benefit pension plan covering substantially all hourly employees of the Company's Northfield, Minnesota, facility (the Northfield Plan). Pension costs are funded in compliance with the Employee Retirement Income Security Act of 1974. Net periodic pension cost is as follows (in thousands):
1993 1994 1995 ----- ---- ----- Service cost ......................................... $ 170 $163 $ 164 Interest cost on projected benefit obligation......... 240 262 286 Return on plan assets................................. (278) (89) (232) Net amortization and deferral......................... 142 (81) 45 ----- ---- ----- Net periodic pension cost........................... $ 274 $255 $ 263 ===== ==== =====
Funding information with respect to the Northfield Plan is as follows (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 1994 1995 ------------ ------------ Actuarial present value of - Vested benefit obligation .................... $3,557 $4,200 ====== ====== Accumulated benefit obligation................ $3,617 $4,281 ====== ====== Projected benefit obligation.................. $3,617 $4,552 ====== ====== Plan assets at fair value .................... $2,933 $3,556 ====== ====== Projected benefit obligation in excess of plan assets........................................ $ 684 $ 996 Unrecognized transition amount................. (80) (70) Unrecognized prior service cost ............... (524) (760) Unrecognized net loss ......................... 178 100 ------ ------ Accrued pension cost........................... 258 266 Additional minimum liability................... 426 459 ------ ------ Net pension liability........................ $ 684 $ 725 ====== ======
The accumulated benefit obligation is the actuarial present value of all vested and non-vested benefits for employee service before July 1, 1995. The projected benefit obligation is the accumulated benefit obligation increased to include expected increases in the plan's flat dollar benefit. The projected benefit obligation is determined using an assumed discount rate of 7.5%. The assumed long-term rate of return for assets is 7.5%. Plan assets consist principally of cash equivalents, bonds and common stock. An additional minimum liability is included in other non-current liabilities in the accompanying consolidated balance sheets. This additional liability is an estimate of cash contributions required to be made to the plan in the future. An intangible asset of $459,000 related to this liability is included in other assets in the accompanying consolidated balance sheets. Employee Savings Plan-- The Company has an employee savings plan covering all employees who meet certain age and service requirements and who are not participants in the Northfield Plan. F-12 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's contribution to the employee savings plan equals 2% of the participant's salary. The Company also matches participants' voluntary contributions to the plan. This matching contribution is subject to Company earnings on a quarterly basis and is limited to 4% of each participant's salary. The Company's expense related to the employee savings plan was $900,000 in 1995, $674,000 in 1994, and $661,000 in 1993. Postretirement Benefits-- In December 1990, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" (SFAS No. 106). SFAS No. 106 requires that the expected cost of these benefits be charged to expense during the years that the employees render service. The Company adopted SFAS No. 106 on August 28, 1993 and recorded a one-time charge of $875,000, or $.16 per share, net of income tax benefits of $525,000 in the accompanying statement of operations. The Company's plan, which is unfunded, provides medical and life insurance benefits for select employees. These employees, who retire after age 40 with 20 years or more of service, have access to the same medical plan as active employees. Net periodic postretirement benefit cost is as follows (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 1994 1995 ------------ ------------ Service cost.................................... $137 $30 Interest cost on accumulated benefit obligation. 47 54 ---- --- Net periodic postretirement benefit cost...... $184 $84 ==== ===
Funding information related to the Company's plan is as follows (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 1994 1995 ------------ ------------ Accumulated benefit obligation................. $1,418 $1,364 Plan assets at fair value...................... -- -- ------ ------ Projected benefit obligation in excess of plan assets................................. 1,418 1,364 Unrecognized net gain.......................... 13 28 ------ ------ Accrued postretirement benefits.............. $1,405 $1,336 ====== ======
A 12% annual rate of increase in the health care cost trend rate was assumed with rates decreasing gradually to 5.5% at 2006 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rate assumption by one percentage point would increase accumulated postretirement benefit obligation by 5.7% and the net periodic postretirement benefit cost by 10.4% each year. The discount rate used in determining the accumulated postretirement benefit obligation was 8% in 1994 and 7.5% in 1995. (8) DISCONTINUED OPERATION: On May 27, 1994, the Company sold its idle Nashua, New Hampshire, facility for an amount less than the recorded value. In addition, the Company revised its estimate of the costs it will incur related to the abandonment of leased facilities in Orange County, California. The statement of operations for 1994 reflects a charge of $525,000, net of income tax benefits of $175,000, to reserve for the losses related to these events. As of September 1, 1995, there are no remaining obligations with respect to the Company's discontinued operation. F-13 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (9) CONSORTIUM FOR THE DEVELOPMENT OF MULTI-CHIP MODULE LAMINATES (MCM-L): On January 10, 1994, the Company entered into a Consortium Agreement sponsored by the Advanced Research Projects Agency (ARPA), a United States Government Agency. The purpose of the Consortium is to accelerate the development and commercialization of the multi-chip module laminate (MCM-L). As a Consortium member, the Company expects to receive approximately $9,500,000 in funding over two and one-half years from ARPA to further test, design and develop the manufacturing processes for the Company's Novaclad(R) and Z-Link(R) products which are to be used in constructing multi-chip modules. The Company incurred $5,030,000 in fiscal 1995 and $3,079,000 in fiscal 1994 in costs related to this project, of which $7,392,000 have been reimbursed by the ARPA Consortium with the remaining $717,000 included in accounts receivable in the accompanying consolidated balance sheet as of September 1, 1995. (10)JOINT VENTURE: In August 1995, the Company entered into various agreements to form a joint venture in Juijiang Jiangxi China with Jiangxi Changjiang Chemical Plant and Hong Kong Wah Hing (China) Development Co., Ltd. Under the agreements, the Company will license certain technology to the joint venture and will provide certain technical support. In return, the Company will receive a 20% ownership interest in the joint venture, a $900,000 payment, subject to completion of certain milestones, and a royalty on products sold by the joint venture. The joint venture is being established to manufacture flexible adhesive-based copperclad laminates and associated cover film tapes in China. Under the terms of the agreements, the joint venture will market these products in China, Taiwan, Hong Kong and Macau and the Company will market the products produced by the joint venture in all other markets. Formation of the joint venture is subject to approvals from government agencies which are in progress but which have not yet been obtained. (11)SUBSEQUENT EVENTS: On September 5, 1995, the Company sold its Hoskins Aviation Lighting Product Line division to a subsidiary of The B.F. Goodrich Company. The value of the transaction was approximately $2.6 million. The transaction did not have a material effect on the results of operations or financial position of the Company. On October 12, 1995, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission to register 1,750,000 shares of common stock (excluding an over-allotment option of 262,500 shares to be granted to the underwriters). F-14 SHELDAHL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (12)QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): The consolidated results of operations for the four quarters of 1995 and 1994 are as follows (in thousands, except per share data):
FISCAL 1995 --------------------------------------- FIRST SECOND THIRD FOURTH TOTAL ------- ------- ------- ------- ------- Net sales .......................... $21,088 $21,960 $25,203 $26,965 $95,216 Cost of sales and expenses.......... 20,377 21,782 24,123 24,600 90,882 ------- ------- ------- ------- ------- Income from continuing operations before provision for income taxes.. 711 178 1,080 2,365 4,334 Provision for income taxes.......... 192 43 300 665 1,200 ------- ------- ------- ------- ------- Net income.......................... $ 519 $ 135 $ 780 $ 1,700 $ 3,134 ======= ======= ======= ======= ======= Net income per share................ $ .08 $ .02 $ .11 $ .24 $ .45 ======= ======= ======= ======= =======
FISCAL 1994 ---------------------------------------- FIRST SECOND THIRD FOURTH TOTAL ------- ------- ------- ------- ------- Net sales......................... $20,169 $21,739 $23,902 $22,536 $88,346 Cost of sales and expenses........ 19,935 20,843 22,661 21,313 84,752 ------- ------- ------- ------- ------- Income from continuing operations before provision for income taxes and accounting changes........... 234 896 1,241 1,223 3,594 Provision for income taxes........ 65 224 311 200 800 ------- ------- ------- ------- ------- Income from continuing operations before accounting changes........ 169 672 930 1,023 2,794 Accounting changes................ 547 -- -- -- 547 Loss from discontinued operation.. -- -- (525) -- (525) ------- ------- ------- ------- ------- Net income........................ $ 716 $ 672 $ 405 $ 1,023 $ 2,816 ======= ======= ======= ======= ======= Income per share: --Continuing operations......... $ .03 $ .13 $ .18 $ .16 $ .52 --Accounting changes............ .11 -- -- -- .10 --Discontinued operation........ -- -- (.10) -- (.10) ------- ------- ------- ------- ------- Net income per share.............. $ .14 $ .13 $ .08 $ .16 $ .52 ======= ======= ======= ======= =======
F-15 SHELDAHL, INC. AND SUBSIDIARY SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS ---------------------------------------------- Allowance for Doubtful Accounts: - - ------------------------------- The transactions in the allowance for doubtful accounts for the fiscal years ending August 27, 1993, September 2, 1994 and September 1, 1995 were as follows: 1993 1994 1995 ---- ---- ---- Balance, Beginning of year $287,138 $194,521 $200,000 Additions, Charged to Operations - 99,585 - Recoveries (accounts charged off), net (92,617) (94,106) 67,412 -------- -------- -------- Balance, End of Year $194,521 $200,000 $267,412 ======== ======== ======== S-1 EX-10.19 2 NOTE PURCHASE AGREEMENT Exhibit 10.19 SHELDAHL, INC. NOTE PURCHASE AGREEMENT Dated as of August 31, 1995 TO NORTHERN LIFE INSURANCE COMPANY: Dear Sirs: The undersigned, Sheldahl, Inc., a Minnesota corporation (herein called the "Company"), hereby confirms its agreements set forth below with Northern Life Insurance Company (herein called the "Purchaser"). Reference is made to paragraph 15 hereof for definitions of capitalized terms used herein and not otherwise defined. 1. Purchase and Sale of Notes. (a) The Notes. Subject to the terms and conditions herein, the Company will sell to the Purchaser on such date on or prior to September 1, 1995, as may be fixed by the Purchaser on at least three days' prior written notice to the Company, or as may be mutually agreed upon with the Purchaser (the date of sale being herein called the "Closing Date"), and the Purchaser will purchase from the Company on the Closing Date, at 100% of the principal amount thereof, a promissory note of the Company (which, together with any note or notes issued in substitution therefor, are herein collectively called the "Notes" and individually a "Note"), in the principal amount of $5,700,000, dated the Closing Date. The principal amount of and interest on the Notes shall be due in eighty- three (83) consecutive, combined monthly installments of principal and interest (at the rate hereinafter set forth), each in an aggregate amount equal to $52,293.16, payable on the first day of each month, commencing October 1, 1995 (each such installment to be applied first to the payment of accrued interest on the unpaid principal amount of the Notes and the remainder to be applied to principal), with a final installment on September 1, 2002, in an amount equal to the unpaid principal amount of the Notes, plus accrued interest thereon. The Notes shall bear interest from the Closing Date until payment in full of the principal amount thereof at the rate of 8.32% per annum (provided that solely for the purposes of determining the portion of annual interest allocable to any interest payment period, it shall be assumed that a year is comprised of 360 days and 12 30-day months), subject to adjustment as set forth in paragraph 1(b). The Notes shall be subject to optional prepayment as hereinafter provided, shall in all respects be subject to the terms of this Agreement, and shall be substantially in the form of Exhibit A hereto. (b) Adjustment of Interest Rate. The interest rate on the Notes shall be reduced by .25% upon satisfaction of all of the following conditions: (i) The Company is rated NAIC 2 or higher; (ii) the Company raises at least $10,000,000 of Net Equity Proceeds after the Closing Date; and (iii) on or prior to December 31, 1999, the Company's Net Income for the period from January 1, 1995 to the date of determination, determined on a cumulative basis, exceeds 80% of the projected Net Income of the Company for such period, determined on a cumulative basis, as set forth in the projections dated January 31, 1995 delivered to the Purchaser and attached hereto as Exhibit B. Any such interest rate adjustment shall become effective as of the first principal and interest payment date occurring after the satisfaction of all of the foregoing conditions. The aggregate amount of each remaining combined monthly installment of principal and interest shall be recalculated accordingly to provide for the payment of all principal of and interest on the Notes in level monthly installments, with the final installment on September 1, 2002. The Company and the holders of the Notes shall execute an addendum to each outstanding Note or, at the request of the holder of any Note, the Company shall issue a new Note in exchange for the Notes held by such noteholder, reflecting the principal and interest payable on the Notes following adjustment of the interest rate. (c) Security. Payment of the Notes shall be secured by a deed of trust, in substantially the form of Exhibit C hereto (the "Deed of Trust"), subject to no other liens or encumbrances other than Permitted Encumbrances (as defined in the Deed of Trust), on the real property described in Exhibit D hereto, together with all improvements now or hereafter located thereon (the "Mortgaged Property"). (d) Late Payments. Any payment of principal or (to the extent permitted by applicable law) interest on the Notes not paid within ten (10) days after the date when such payment was due, whether by regular installment, upon prepayment, by acceleration, at maturity or otherwise, shall thereafter bear interest at a rate per annum equal to the greater of (i) 2% in excess of the rate then applicable to the Notes or (ii) the prime rate as publicly announced by Norwest Bank Minnesota, National Association, provided that in no event shall such rate exceed the maximum rate permitted by applicable law. (e) Manner of Payment. The Purchaser will pay the purchase price of the Notes by wire transfer of immediately available Federal funds to such accounts as shall be specified by the Company, or in such other funds or in such other manner as may be mutually agreed upon by the Purchasers and the Company, against delivery to the Purchasers of the Notes. (f) Payment on Non-Business Days. Whenever any payment to be made hereunder or under the Notes shall be stated to be due on a Saturday, Sunday or holiday for banks under the laws of the State of Minnesota, such payment may be made on the next succeeding business day. 2. Prepayments of the Notes. (a) Voluntary Prepayments With Premium. The Company may, at its option, on any interest payment date, prepay the Notes in whole or in part (but if in part only in the aggregate amount of $100,000 or integral multiples thereof), upon 30 days' prior written notice to the holders of the Notes, and upon payment of a prepayment premium equal to the excess, if any, of (i) the amount equal to the present value of all installments of principal and interest which are avoided by such prepayment, determined by discounting such payments of principal and interest at a rate per 2 annum equal to .50% plus the Treasury Yield Percentage, over (ii) the principal amount to be prepaid. In no event shall such prepayment premium be less than zero. (b) Manner of Effecting Voluntary Prepayment. In the event the Company shall give notice of any prepayment in accordance with paragraph 2(a) above, such notice shall specify the principal amount of the Notes to be prepaid and the date of proposed prepayment, and thereupon such principal amount, together with accrued and unpaid interest thereon to the prepayment date and together with the applicable premium, if any, shall become due and payable on the prepayment date. In the event any prepayment shall be less than the entire unpaid principal amount of the Notes, the amount of such prepayment shall be applied pro rata on all Notes on the last maturing required installment or installments of principal in inverse order of their maturity. The amount of all other remaining installments of principal and interest shall not be changed, but the portions of each installment applicable to principal and to interest shall be recalculated based upon the remaining unpaid principal amount of the Notes. (c) Mandatory Prepayment. The Notes are subject to mandatory prepayment at par (plus all accrued and unpaid interest) in accordance with paragraphs 9 and 10 of this Agreement, as applicable, subject to the terms and conditions set forth therein. 3. Representations and Warranties. The Company represents and warrants to the Purchaser as follows: (a) Corporate Organization. The Company and its Subsidiaries are corporations organized and existing and in good standing under the laws of the States of their incorporation, and are duly qualified to do business and are in good standing under the laws of each State where the nature of the business done or property owned require such qualification. The Company is organized under the laws of the State of Minnesota. Exhibit E hereto correctly sets forth the name of each Subsidiary, its state of incorporation and the percentage of the outstanding capital stock of such Subsidiary owned by the Company or another Subsidiary. Except as set forth on Exhibits E and G, the Company does not own, directly or indirectly, more than 1% of the total outstanding capital stock of any class of any other corporation. (b) Conflicting Agreements and Other Matters. Neither the execution and delivery by the Company of this Agreement, the Notes and the Deed of Trust, nor the performance or observance by the Company or any Subsidiary of any of the terms or conditions of this Agreement, the Notes or the Deed of Trust, will (i) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any lien upon any of the properties or assets of the Company or any Subsidiary pursuant to, the Articles of Incorporation or Bylaws of the Company or any Subsidiary, any award of any arbitrator, or any indenture, contract or agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law rule or regulation to which the Company or any Subsidiary is subject, or (ii) require any registration or filing with, or any consent or approval of, any Federal, state or local governmental agency or authority. (c) Due Authorization. The execution and delivery of this Agreement, and of the Notes and of the Deed of Trust have been duly authorized by all necessary corporate action of the Company and its Subsidiaries. 3 (d) Legal Proceedings. There are no actions, suits, or proceedings pending or, to the best knowledge of the Company, threatened against the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries in any court or before any federal, state, municipal or other governmental agency, which, if decided adversely to the Company or any of its Subsidiaries, would have a materially adverse effect upon the Company or any of its Subsidiaries or upon the business or properties of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is in default with respect to any order of any court or governmental agency. (e) Financial Statements. The Company has furnished to the Purchaser a consolidated balance sheet, statement of income and retained earnings and statement of cash flows of the Company and its Subsidiaries for the fiscal year ended September 2, 1994, certified by Arthur Andersen LLP, independent certified public accountants, and unaudited consolidated balance sheets, statements of income and retained earnings and statements of cash flows of the Company and its Subsidiaries for the nine months ended June 2, 1995. Said financial statements fairly present the financial condition of the Company and its Subsidiaries at the date(s) thereof and the results of operations of the Company and its Subsidiaries for the period(s) indicated, all in conformity with generally accepted accounting principles consistently followed through the period(s) involved. There have been no material adverse changes in the condition, financial or otherwise, of the Company and its Subsidiaries since the latest balance sheet referred to. (f) Title to Assets. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good title to all personal property they purport to own, including (except as they have been affected by transactions in the ordinary course of business) all properties and assets reflected in the most recent balance sheet referred to in paragraph 3(e) hereof. In the case of property used in their trades or businesses but not owned by them, the Company and its Subsidiaries have a valid, binding and enforceable right to use such property pursuant to a written lease, license or other agreement. All of the assets of the Company and its Subsidiaries are free and clear of all mortgages, liens, pledges, charges and encumbrances (other than liens permitted by paragraph 5(i) hereof). (g) Securities Matters. Neither the Company nor any of its Subsidiaries nor any agent acting on the behalf of the Company or any of its Subsidiaries has offered the Notes, or any part thereof, or any similar obligation for sale to, or solicited any offers to buy such Notes, or any part thereof, or any similar obligation from, any person or persons so as to bring the issue or sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended, and neither the Company nor any of its Subsidiaries will sell or offer for sale any note or any similar obligation of the Company or any Subsidiary to, or solicit any offer to buy any similar obligation of the Company or any Subsidiary from, any person or persons so as to bring the issue or sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. (h) Licenses and Permits. The Company and its Subsidiaries have procured and are now in possession of all material licenses or permits required by federal, state or local laws for the operation of the business of the Company and its Subsidiaries in each jurisdiction wherein the Company or any Subsidiary is now conducting or proposes to conduct business. (i) No Defaults on Indebtedness. Neither the Company nor any of its Subsidiaries is in default in the payment of the principal of or interest on any indebtedness for borrowed money nor is in default under any instrument or agreement under and subject to which any indebtedness for 4 borrowed money has been issued, and no event has occurred under the provisions of any such instrument or agreement which with or without the passing of time or the giving of notice, or both, constitutes or would constitute an event of default thereunder. (j) Tax Returns. The Company and its Subsidiaries have filed all federal and state income tax returns which, to the knowledge of the officers of the Company, are required to be filed, and have paid all taxes shown on said returns and all assessments received by them to the extent that they have become due. The federal income tax returns of the Company have been finally determined by the Internal Revenue Service to be satisfactory (or have been closed by the applicable statute of limitations) for all years prior to and including the year ended 1988. No claims have been asserted against the Company in respect of Federal income tax returns for any subsequent year. (k) No Margin Stock. Neither the Company nor any of its Subsidiaries owns any Margin Stock and none of the proceeds received by the Company or any Subsidiary from the sale of the Notes will be used for the purpose of purchasing or carrying a Margin Stock or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase a Margin Stock or for any other purpose not permitted by Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System, as amended from time to time. (l) ERISA Matters. Each Plan of the Company and each ERISA Affiliate in which any employees of the Company or any ERISA Affiliate participate that is subject to any provisions of ERISA is being administered substantially in accordance with the documents and instruments governing such Plan, and such documents and instruments are consistent with those provisions of ERISA and the Internal Revenue Code which have become effective and operative with respect to such Plan as of the date of this Agreement. No such Plan has incurred any material accumulated funding deficiency within the meaning of Section 302 of ERISA (whether or not waived), and neither the Company nor any ERISA Affiliate has incurred any material liability (including any material contingent liability) to the PBGC in connection with any such Plan. No such Plan nor any trust created thereunder nor any trustee or administrator thereof has engaged in a "prohibited transaction" within the meaning of ERISA or Section 4975 of the Internal Revenue Code and the issuance and sale of the Notes as contemplated hereby will not constitute a "prohibited transaction". No such Plan nor any trust created thereunder has been terminated, nor have there been any "reportable events" within the meaning of Section 4043 of ERISA with respect to any such Plan. Neither the Company nor any ERISA Affiliate contributes to or has any employees who are covered by any "multiemployer plan," as such term is defined in Section 3(37) of ERISA, and neither the Company nor any ERISA Affiliate has incurred any withdrawal liability with respect to any such multiemployer plan. (m) Brokers and Finders. Neither the Company, any agent acting on its behalf nor any person controlling, controlled by or under common control with the Company has taken any action the effect of which would be to cause the Purchaser to be liable for any broker's, finder's or agent's fee or commission in connection with the placement of the Notes or any other transactions contemplated by this Agreement. The Company has retained United Mortgage Company as its agent for placement of the Notes and is solely responsible for any fees and expenses payable to such agent. (n) Use of Proceeds. The Company will use the proceeds of the Notes to repay the existing Deed of Trust loan used to pay a portion of the costs associated with construction of the Mortgaged Property and for general corporate purposes. 5 (o) Investment Company Act. Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). (p) Full Disclosure. Neither this Agreement, the financial statements referred to in paragraph 3(e) hereof, nor any other document, certificate or instrument delivered to the Purchaser on behalf of the Company or any Subsidiary in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. 4. Affirmative Covenants. The Company covenants and agrees that, so long as any amount shall remain unpaid on any of the Notes, it will: (a) Payment. Duly and punctually pay or cause to be paid the principal of and interest on the Notes and will duly and punctually perform or cause to be performed all things on its part or on the part of any Subsidiary to be done or performed under this Agreement and the Deed of Trust. (b) Maintenance of Books and Records. At all times keep and cause each Subsidiary to keep proper books of record and account in which full, true and correct entries will be made of their transactions in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved. (c) Inspection of Books and Records. At all reasonable times and upon reasonable notice permit and cause each Subsidiary to permit Washington Square Capital, Inc. ("WSC"), as representative of the holders of the Notes, at the expense of the holders of the Notes, to inspect its books and records and to make extracts therefrom and to inspect its properties and operations; provided, however, that if an Event of Default occurs and is continuing, the Company shall pay all fees and expenses of WSC in connection with such examination of its and its Subsidiaries' books and records. (d) Financial Information. From time to time furnish and cause each Subsidiary to furnish the holders of the Notes with such information and statements as the holders of the Notes may reasonably request concerning performance by it of the covenants and agreements contained in this Agreement and the Deed of Trust, and with copies of all financial statements and reports that it shall send or make available to its stockholders; and in the event that written notice of the occurrence of an Event of Default shall have been given to the Company, and the Company shall have notified the holders of the Notes that such Event of Default has been corrected, the Company shall, upon request of the holders of at least 66-2/3% of the unpaid principal amount of the Notes at the time outstanding, for the purpose of showing that such Event of Default has been corrected, furnish to the holders of the Notes a signed copy of an audit report or, if such matter may be covered in a special report, a special report prepared and certified by an independent certified public accountant selected by the Company and satisfactory to the holders of the Notes, confirming that such Event of Default has been corrected. All expenses incurred in connection with such report shall be borne by the Company. Nothing in this paragraph 4(d), however, shall diminish, defer, postpone or otherwise limit the right of the holders of the Notes to take any action permitted by paragraph 7 hereof. (e) Quarterly Financial Statements. Furnish to the holders of the Notes, within 45 days after the close of each of the first three quarterly fiscal periods in each fiscal year of the Company and its Subsidiaries, consolidated balance sheets and consolidated statements of income and retained 6 earnings and consolidated statements of cash flows reflecting the financial condition of the Company and its Subsidiaries at the end of each such quarterly period and the results of operations during such period in accordance with generally accepted accounting principles, all in reasonable detail, and setting forth comparable figures for the same accounting period in the preceding fiscal year. (f) Annual Financial Statements. Furnish to the holders of the Notes, as soon as available, but in any event within 120 days after the close of each fiscal year of the Company, signed copies of an audit report prepared and certified (without qualification as to the scope of the audit) by Arthur Andersen LLP or another firm of independent certified public accountants of national standing selected by the Company and reasonably satisfactory to the holders of the Notes, which report shall include a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and consolidated statements of income and retained earnings of the Company and its Subsidiaries and consolidated statements of cash flows of the Company and its Subsidiaries reflecting the operations during said year, all in reasonable detail and setting forth comparable figures for the preceding fiscal year, which report shall be accompanied by a statement by such accounting firm certifying that in making the examination upon which such report was based, no information came to its attention which to its knowledge indicated a default under this Agreement had occurred or specifying any such default. (g) Financial Certification. At the time of the delivery to the holders of the Notes of the reports referred to in paragraphs 4(e) and 4(f) hereof, deliver to the holders of the Notes a certificate signed by its chief financial officer, certifying that he has reviewed the provisions of this Agreement and stating, in his opinion, if such be the fact, that the Company and its Subsidiaries have not been and are not in default as to any of the provisions contained in this Agreement, or, in the event the Company or any Subsidiary is or was in default, setting forth the details of such default. Such certificate shall set forth the computations upon which such officer based the conclusion that the Company and its Subsidiaries are and have been in compliance with paragraphs 4(o), (p), (q) and (r), and 5(a), (b), (c), (e), (i), (j) and (k) hereof. (h) Copies of Management Letters, Etc. Furnish to the holders of the Notes, promptly after the receipt thereof by the Company, copies of all management letters or similar documents submitted to the Company, if any, by independent certified public accountants in connection with each annual audit and any interim audit, if any, of the accounts of the Company or any of its Subsidiaries. (i) Copies of Regulatory Reports. Furnish to the holders of the Notes, within fifteen (15) days after transmittal or filing thereof by the Company, copies of all proxy statements, notices and reports as it shall send to its stockholders, copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission or any other regulatory agency, other than routine reports filed with respect to employee benefit plans (excepting those annual reports with respect to each such plan requested by the holders of the Notes in writing pursuant to paragraph 4(v) hereof). (j) Corporate Existence. Maintain and cause each Subsidiary to maintain its corporate existence in good standing (except that the corporate existence of any Subsidiary may be terminated pursuant to a merger or consolidation permitted under paragraph 5(f) of this Agreement), maintain all licenses and permits necessary for the conduct of their business and comply with all applicable 7 laws, rules and regulations of the United States and of each state thereof and of each political subdivision thereof and of any and all other governmental authorities. (k) Payment of Taxes and Claims. Pay and cause each Subsidiary to pay before they become delinquent (a) all taxes, assessments and governmental charges or levies imposed on the Company, any Subsidiary or upon the property of the Company or any Subsidiary, (b) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might result in the creation of a lien or charge upon any property of the Company or any Subsidiary; and (c) all claims, assessments or levies required to be paid by the Company or any Subsidiary pursuant to any agreement, contract, law, ordinance or governmental rule or regulation governing any pension, retirement, profit-sharing or any similar plan of the Company or any Subsidiary; provided, however, that the Company or such Subsidiary shall have the right to contest in good faith, by appropriate proceedings promptly initiated and diligently conducted which will prevent the forfeiture or sale of any property of the Company or such Subsidiary or any material interference with the use thereof by the Company or such Subsidiary, the validity, amount or imposition of any of the foregoing and upon such good faith contest to delay or refuse payment thereof, if such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor and if such claim would not have a material adverse effect on the Company or its Subsidiaries. (l) Maintenance of Properties. Maintain and cause each Subsidiary to maintain and keep its properties in good repair, working order and condition (subject to normal wear and tear and other customary exceptions), and from time to time make all needful and proper repairs, renewals and replacements so that the business carried on in connection therewith may be properly and advantageously conducted at all times. (m) Insurance. In addition to the insurance required to be maintained under paragraph 8 hereof, maintain and cause each Subsidiary to maintain, in insurance companies of recognized standing, insurance of types and in amounts as may be consistent with sound business practices. (n) Remuneration. Pay and cause each Subsidiary to pay compensation, whether by way of salaries, bonuses, participations in pension or profit sharing plans, fees under management contracts or for professional services, to any of its officers, directors, employees or stockholders only in amounts which are not in excess of reasonable compensation paid for similar services by similar businesses. (o) Minimum Consolidated Tangible Net Worth. Maintain during each period designated below Consolidated Tangible Net Worth, calculated as at the end of each fiscal month of the Company, at or above the level set forth opposite each such period: 8
Fiscal Year Minimum Consolidated Tangible - - ----------- ----------------------------- Net Worth --------- ============================================================== 1995 35,500,000 ============================================================== 1996 39,500,000 ============================================================== 1997 44,500,000 ============================================================== 1998 and thereafter 50,500,000 ==============================================================
provided, however, that each amount specified in the right hand column above shall be increased by the aggregate of all increases in the Company's Consolidated Tangible Net Worth resulting from Net Equity Proceeds. (p) Maximum Consolidated Debt to Consolidated Tangible Net Worth Ratio. Maintain during each period designated below the ratio of Consolidated Debt to Consolidated Tangible Net Worth, calculated as at the end of each fiscal month of the Company, at not more than the ratio set forth below opposite each such period:
Fiscal Year Maximum Consolidated Debt to - - ----------- ---------------------------- Consolidated Tangible Net Worth ------------------------------- ============================================================== 1995 1.75 to 1.00 ============================================================== 1996 1.70 to 1.00 ============================================================== 1997 1.50 to 1.00 ============================================================== 1998 and thereafter 1.25 to 1.00 ==============================================================
(q) Minimum Consolidated Interest and Rent Coverage Ratio. Maintain at all times its Consolidated Interest and Rent Coverage Ratio, calculated as at the end of each fiscal quarter of the Company and based upon the previous four fiscal quarters (including such fiscal quarter), at not less than 1.5 to 1.0 in fiscal year 1995, and 2.0 to 1.0 in each fiscal year thereafter. (r) Minimum Consolidated Fixed Charge Coverage Ratio. Maintain its Consolidated Fixed Charge Coverage Ratio, calculated as at the end of each fiscal quarter of the Company and based upon the cumulative Cash Flow available for Fixed Charges and cumulative Debt Service (including such fiscal quarter) at not less than 1.00 to 1.00. (s) Notice of Default. Give the holders of the Notes prompt notice in writing of any condition or event which constitutes an Event of Default under paragraph 7 hereof, or which, after notice or lapse of time, or both, would constitute such an Event of Default. 9 (t) Exchange of Notes. At any time, upon written request of the holder of a Note and surrender of the Note for such purpose, issue new Notes in exchange therefor in such denominations of at least $250,000 as shall be specified by the holder of such Note, in an aggregate principal amount equal to the then unpaid principal amount of the Note surrendered and substantially in the form of Exhibit A, with appropriate insertions and variations, and bearing interest from the date to which interest has been paid on the Note surrendered. The Company will not charge the holders of the Notes for any costs or expenses incurred by the Company in connection with the issuance of any new Notes. (u) Maintenance of Deed of Trust. Take all action necessary in order to perfect and to protect and maintain the lien of the Deed of Trust. (v) Qualified Retirement Plans. Cause each Plan of the Company and any ERISA Affiliate in which any employees of the Company or any ERISA Affiliate participant that is subject to the provisions of ERISA or the Internal Revenue Code and the documents and instruments governing each such Plan to be conformed to when necessary, and to be administered in a manner consistent with those provisions of ERISA or the Internal Revenue Code which may, from time to time, become effective and operative with respect to such Plans; if requested by the holders of the Notes in writing from time to time, furnish to the holders of the Notes a copy of any annual report with respect to each such plan that the Company files with the Internal Revenue Service pursuant to ERISA. The Company will not, and will not permit any ERISA Affiliate to (i) engage in any "prohibited transaction," (ii) incur any "accumulated funding deficiency," whether or not waived, (iii) terminate any Plan in a manner which could result in the imposition of a lien on any property of the Company or any ERISA Affiliate, or (iv) incur any withdrawal liability in connection with any "multiemployer plan." (w) Rule 144A. Upon the request of the holder of any Note, the Company will provide such holder such financial and other information as such holder may reasonably determine to be necessary to be delivered to a qualified institutional buyer in order to permit compliance with the information requirements of Rule 144A(d)(4) under the Securities Act of 1933, as amended, in connection with the resale of the Notes. 5. Negative Covenants. The Company covenants and agrees that so long as any amount shall remain unpaid on the Notes, it will not and will not permit any Subsidiary to: (a) Limitation on Funded Debt. Create, assume, incur, guarantee or otherwise be or become liable for any Funded Debt other than (i) the Notes, (ii) Funded Debt outstanding pursuant to the Norwest Bank Agreement, and any extensions, renewals or replacements thereof in an aggregate principal amount not to exceed $35,000,000, (iii) other existing Funded Debt of the Company as set forth in Exhibit F hereto, provided that all such Funded Debt shall be repaid in accordance with its terms and the schedule set forth in Exhibit F with no extension, renewal or other modification, and (iv) Funded Debt of the Company incurred after the date hereof, provided that after giving effect to the incurrence of such Funded Debt and the application of the proceeds thereof, the aggregate unpaid principal amount of all Funded Debt of the Company does not exceed the Applicable Percentage of Total Capitalization. 10 (b) Limitation on Subsidiary Debt. Permit its Subsidiaries to create, assume, incur, guarantee or otherwise become liable for any Debt, except for trade accounts payable arising in the ordinary course of business. (c) Permitted Investments. Purchase, or permit to exist investments in, stock or securities of, or make or permit to exist loans or advances to, or other investments in, or guarantee, endorse or otherwise become contingently liable for the obligations of any Person (including investments in or loans or advances to any corporation proposed to be acquired or created as a Subsidiary), except: (i) investments in direct obligations of the United States government maturing within one year from the date of issue thereof and repurchase agreements of commercial banks having capital stock and surplus aggregating not less than $100,000,000 to repurchase any such obligations within 90 days of the acquisition thereof; (ii) certificates of deposit issued by banks having capital and surplus aggregating not less than $100,000,000; (iii) commercial paper rated A-1 or A-2 or P-1 or P-2 by recognized rating services; (iv) if so permitted by law, savings deposits in national banks and federal savings and loan associations having capital stock and surplus aggregating not less than $100,000,000, provided that the aggregate of all such savings deposits at any one bank or savings and loan association shall not exceed $150,000 at any time; (v) existing equity investments in Subsidiaries; (vi) travel and expense advances of the Company and its Subsidiaries to their respective officers and employees in the ordinary course of business; (vii) the endorsement of negotiable instruments by the Company for deposit or collection or similar transactions in the ordinary course of business; (viii) existing investments, guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on the date hereof and listed in Exhibit G hereto; and (ix) other loans, advances or investments not otherwise permitted by this paragraph 5(c) made after the Closing Date, provided that the aggregate amount of all such investments at any time outstanding shall not exceed 5% of Consolidated Tangible Net Worth. (d) Subordination of Claims. Subordinate or permit to be subordinated any claim against, or obligation of another person, firm or corporation held or owned by it to any other claim against, or obligation of, such other person, firm or corporation. 11 (e) Sale of Assets. Sell, lease or otherwise dispose of all or any part of its assets, provided that (i) any Subsidiary may sell, lease or otherwise dispose of all or any part of its assets to the Company or other Subsidiary, (ii) the Company and any Subsidiary may sell inventory in the ordinary course of business, (iii) the Company and any Subsidiary may sell or otherwise dispose of assets which are obsolete, worn out or no longer useful in the conduct of their respective businesses, and (iv) the Company and any Subsidiary may sell or otherwise dispose of assets provided that the aggregate book value of all such assets sold or otherwise disposed of in any fiscal year of the Company shall not exceed 5% of the consolidated total assets of the Company and its Subsidiaries as of the end of the immediately proceeding fiscal year. (f) Merger and Consolidation. Merge or consolidate with any corporation, provided that any Subsidiary may be merged or consolidated with the Company (if the Company is the surviving corporation) or with another Subsidiary. The Company shall not sell, transfer or otherwise dispose of, or permit any Subsidiary to sell, transfer or otherwise dispose of, the shares of any Subsidiary to any person other than another Subsidiary, provided, however, that the Company or any Subsidiary may sell, transfer or otherwise dispose of the shares of any Subsidiary if the book value of such sale, transfer or disposition would be permitted pursuant to clause (iv) of paragraph 5(e) hereof. (g) Maintenance of Present Business. Engage in any business, if as a result, when taken as a whole, the effect would be substantially to alter the nature of the business in which it is presently engaged, nor purchase or invest, directly or indirectly, in any substantial amount of assets or property other than assets or property useful and to be used in its business as presently conducted. (h) Transactions with Affiliates. Except on terms no less favorable to the Company than would be obtainable in a comparable arms' length transaction, purchase, acquire or lease any property from, or sell, transfer or lease any property to, loan or advance money to, or otherwise deal with (i) any director, officer or employee of the Company or any Subsidiary or (ii) any person who, directly or indirectly either individually or together with his spouse, his lineal descendants and ascendants and brothers and sisters by blood or adoption or spouses of such descendants, ascendants, brothers and sisters, beneficially owns 5% or more of the voting stock of the Company or (iii) any spouse, lineal descendant or ascendant, brother or sister, by blood, adoption or marriage, of any person listed in clause (i) or (ii) above, and spouses of such ascendants, descendants, brothers and sisters or (iv) any company in which any person described in clause (i), (ii) or (iii) above owns a 5% or greater equity interest. (i) Permitted Liens. Create, assume, or suffer to exist any mortgage, pledge, encumbrance, lien, security interest or charge of any kind whether presently effective, springing, conditional or contingent (including any charge upon property purchased under conditional sales contracts, title retention agreements or other purchase money security interests or under leases which constitute Capitalized Lease Obligations) upon any of its property or assets, whether now owned or hereafter acquired, except liens securing the Notes, and: (i) presently existing liens described in Exhibit F securing existing indebtedness permitted by paragraph 5(a)(ii) and (iii) hereof; (ii) liens for taxes not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted in accordance with paragraph 4(k) hereof; 12 (iii) other liens, charges, or encumbrances incidental to the conduct of its business or the ownership of its property which were not incurred in connection with borrowing of money or the obtaining of advances or credit and which do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of the business; (iv) liens imposed by law in favor of mechanics, repairmen, carriers or warehousemen for sums not yet due or which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted, if such reserve or other appropriate provision, if any, as required by generally accepted accounting principles shall been made therefor; (v) encumbrances in the nature of zoning restrictions, easements, and rights and restrictions on the use of real property, none of which materially impairs the use by the Company or any Subsidiary of the property subject thereto; (vi) liens existing on property at the time of its acquisition by the Company or any Subsidiary or on the property of any corporation at the time such corporation becomes a Subsidiary, and extensions, renewals or replacements of any of the foregoing; provided that the (a) incurrence of Debt secured by any such lien is not prohibited by any other covenant or limitation of this Agreement, and (b) such lien does not extend to any other property of the Company or its Subsidiaries; and (vii) liens securing Purchase Money Obligations or Capitalized Lease Obligations provided that (A) the Debt secured by any such lien does not exceed 100% of the cost of the property acquired subject thereto, (B) such liens shall not encumber any other property of the Company or its Subsidiaries other than the property acquired subject thereto, and (C) the incurrence of the Debt secured by any such lien is not prohibited by any other covenant or limitation of this Agreement. (j) Dividend Restrictions. Pay Dividends, except that any Subsidiary may pay Dividends to the Company or another Subsidiary. (k) Capital Expenditures. Expend or contract to expend Capital Expenditures in excess of (i) the Capital Expenditure Annual Limit during any fiscal year of the Company, or (ii) together with all Capital Expenditures from and after August 28, 1993, the Capital Expenditure Cumulative Limit. 6. Conditions Precedent. The obligation of the Purchaser to purchase the Notes, as provided in paragraph 1 hereof, shall be subject to the satisfaction, on or before the Closing Date, of the following conditions. (a) The representations and warranties contained in paragraph 3 hereof shall be true and correct as of the Closing Date; the Company shall not be in default with respect to any of the provisions hereof, and there shall exist no event which, with the passage of time or the giving of 13 notice, or both, would constitute such a default; and the Company shall have delivered to the Purchaser a certificate signed by a responsible officer of the Company to such effects. (b) The Purchaser shall have received from Lindquist & Vennum, counsel for the Company, a favorable opinion in form and substance satisfactory to the Purchaser as to all matters specified in Exhibit H hereto and such other matters incident to the transaction herein contemplated as the Purchaser may reasonably request. (c) The Purchaser shall have received from its special counsel, Faegre & Benson, a favorable opinion in form and substance satisfactory to the Purchaser, as to such matters incident to the transaction herein contemplated as the Purchaser may reasonably request. (d) The Company shall have provided to the Purchaser a commitment by an insurer satisfactory to the Purchaser to issue a mortgagee's policy of title insurance on 1970 ALTA Loan Policy Form B in an amount not less than the aggregate principal amount of the Notes covering each parcel of Mortgaged Property, provided that such commitment or the latest endorsement thereof shall show the status of title to the Mortgaged Property as of the Closing Date, and provided further that in no event shall such commitment for title insurance (i) reflect any easements, restrictions, claims, encumbrances or title defects other than encumbrances permitted by paragraph 5(i), (ii) contain any proration or coinsurance clause which has the effect of reducing the actual amount of coverage as a result of the amount of coverage being less than the principal amount of the secured debt, or (iii) except from coverage of the policy any (A) lien, or right to a lien for services, labor or material furnished on or to the Mortgaged Property (regardless of whether such lien has been recorded prior to the date of issuance of the title insurance policy), (B) easements, restrictions or other encumbrances which a survey would show or (C) rights of parties in possession. (e) The Company shall have provided to the Purchaser a survey of the Mortgaged Property, including real estate owned in fee and all appurtenant easements, certified to the Purchaser within thirty days prior to the Closing Date by a surveyor or land engineer licensed in Colorado, showing the location of all points and lines referred to in the legal description, the location of any existing improvements in compliance with all set back requirements, and the location of all utilities and easements, which survey shall reflect no easements, restrictions, claims, encumbrances or title defects other than encumbrances permitted by paragraph 5(i). (f) The Company shall have provided to the Purchaser a Phase I environmental report for the Mortgaged Property prepared in accordance with ASTM standards by an environmental consultant reasonably acceptable to the Purchaser, which report shall disclose no recognized environmental conditions. (g) The Purchaser shall have received Uniform Commercial Code, tax and judgment lien searches against the Company and its Subsidiaries from the States of Minnesota and Colorado and every other state as the Purchaser may request, as of a date no more than fifteen days prior to the Closing Date, certified by a reporting service satisfactory to the Purchaser, and disclosing no security interests other than those permitted under paragraph 5(i) of this Agreement. (h) Neither the Company nor any Subsidiary shall have suffered a material adverse change in financial condition, nor shall there exist any material action, suit or proceeding pending, or to the knowledge of the Company threatened, against the Company nor any of its Subsidiaries. 14 (i) All proceedings to be taken in connection with the transaction contemplated by this Agreement and all documents incident thereto shall be satisfactory in form and substance to the Purchaser and its counsel and the Purchaser shall have received copies of all documents which the Purchaser may reasonably request. 7. Defaults. (a) Events of Default. Any one or more of the following shall constitute an Event of Default as such term is used herein: (i) default shall have been made in the punctual payment of the principal of, premium, if any, or any interest on any of the Notes when due, whether by regular installment, upon prepayment, by acceleration, at maturity or otherwise, and such default shall have continued for a period of ten (10) business days; or (ii) the Company or any Subsidiary defaults in any payment of principal of or interest on any other obligation for borrowed money beyond any period of grace provided with respect thereto or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created if the effect of such default is to cause, or permit the holder or holders of any obligation or obligations of the Company in excess of $500,000 in the aggregate (or a trustee on behalf of such holder or holders) to cause, such obligation or obligations to become due prior to their stated maturity; or (iii) an order for relief shall be entered in any Federal Bankruptcy proceeding in which the Company or any Subsidiary is the debtor; or bankruptcy, receivership, insolvency, reorganization, relief, dissolution, liquidation or other similar proceedings shall be instituted by or against the Company or any Subsidiary or all or any part of the property of the Company or any Subsidiary under the Federal Bankruptcy Code or any other law of the United States or any bankruptcy or insolvency law of any state of competent jurisdiction unless, if such proceedings are instituted against the Company or any Subsidiary, such proceedings are dismissed or discharged within 60 days after they are instituted; or (iv) the Company or any Subsidiary shall have become insolvent or unable to pay its debts as they mature, cease doing business as a going concern, make an assignment for the benefit of creditors, admit in writing its inability to pay its debts as they become due, or if a trustee, receiver or liquidator shall be appointed for the Company or any Subsidiary or for any substantial portion of the assets of the Company or any Subsidiary and such appointment shall not be vacated within 60 days; or (v) default shall be made in the performance or observance of any other of the terms, covenants or conditions of this Agreement and such default shall 15 continue for a period of thirty days after written notice thereof shall have been given by the holders of Notes to the Company; or (vi) final judgments or orders for the payment of money in excess of $300,000 in the aggregate shall be rendered against the Company or any Subsidiary and such judgments or orders shall remain unsatisfied, unstayed and unbonded for a period of 60 days after the date such judgments or orders are required to be paid; or (vii) there shall occur any Event of Default under the Deed of Trust; or (viii) if any representation or warranty contained in this Agreement or in any other document supplied to the holders of Notes by the Company in connection with this transaction proves to be false in any material respect as of the time this Agreement was made. (b) Acceleration of Maturities. When any Event of Default described in clause (i) of paragraph 7(a) has occurred and is continuing, any holder of a Note may, by notice to the Company, declare the entire principal and all interest accrued on the Notes held by such holder to be, and the Notes held by such holder shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. In addition to and not in limitation of the foregoing, when any Event of Default described in clauses (i), (ii), (v), (vi), (vii) or (viii) of said paragraph 7(a) has occurred and is continuing, the holder or holders of more than 50% of the principal amount of Notes at the time outstanding may, by notice to the Company, declare the entire principal and all interest accrued on all Notes to be, and all Notes shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in clauses (iii) or (iv) of paragraph 7(a) has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind. Upon any Notes becoming due and payable as a result of any Event of Default as aforesaid, the Company will forthwith pay to the holders of the Notes then due and payable the entire principal and interest accrued on the Notes and, to the extent not prohibited by applicable law, an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the premium specified in paragraph 2(a) hereof, if any, determined as of the date on which the Notes shall so become due and payable. No course of dealing on the part of the holder or holders of the Notes nor any delay or failure on the part of any holder to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. The Company further agrees, to the extent permitted by law, to pay to the holder or holders of the Notes all costs and expenses incurred by them in the collection of any Notes upon any default hereunder or thereon, including reasonable compensation to such holder's or holders' attorneys for all services rendered in connection therewith. (c) Rescission of Acceleration. The provisions of paragraph 7(b) are subject to the condition that if the principal of and accrued interest on all or any outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in clauses (i), (ii), (v), (vi), (vii) or (viii) of paragraph 7(a), the holders of 68% in aggregate principal amount of the Notes then outstanding may, by written instrument filed with the Company, rescind 16 and annul such declaration and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (i) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; (ii) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under paragraph 7(b)) shall have been duly paid; and (iii) each and every other Event of Default shall have been made good, cured or waived pursuant to paragraph 13(c); and provided, further, that no such rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereto. 8. Insurance. (a) Risks to be Insured. In addition to the insurance required to be maintained under paragraph 4(m) of this Agreement, the Company will at its expense maintain with insurers satisfactory to the holders of Notes (i) insurance with respect to the Mortgaged Property against physical loss (including without limitation loss resulting from fire, lightning, wind and hail, sprinkler leakage, explosion and smoke), written on an "all risks" replacement cost basis, in amounts sufficient to prevent the holders of Notes or the Company from becoming a co-insurer of any partial loss under the applicable policies, (ii) public liability, including personal injury and property damage, insurance applicable to the Mortgaged Property in such amounts as are usually carried by persons operating similar properties in the same general locality but in any event with a combined single limit of not less than $3,000,000 per occurrence and $5,000,000 in the aggregate, (iii) appropriate workers' compensation insurance with respect to any work on or about the Mortgaged Property to the extent required by the law of the states in which the Mortgaged Property is located and to the extent necessary to protect the Company or the Purchaser against workers' compensation claims, (iv) at any time when the improvements portion of any parcel of Mortgaged Property is being constructed, repaired, replaced, rebuilt or restored, builder's risk insurance (in completed value nonreporting form) in an amount not less than the actual replacement value of such improvements, exclusive of foundations and excavations, (v) business interruption insurance covering a period not less than six months and (vi) such other insurance, in such amounts and against such risks, as is commonly obtained in the case of property similar to the Mortgaged Property and located in the states in which the Mortgaged Property or the is located, or is reasonably requested by the holders of the Notes. The Company will comply with such other requirements as the holders of Notes may reasonably request for the protection by insurance of their interest. Such insurance shall be written by companies of nationally recognized financial standing legally qualified to issue insurance and reasonably acceptable to the holders of the Notes. (b) Policy Provisions. All insurance maintained by the Company pursuant to subparagraphs (a)(i), (a)(ii), (a)(iv), (a)(v) and (a)(vi) of this paragraph 8 shall (i) name the Company and the holders of Notes as insured, as their respective interests may appear, (ii) provide, except in the case of public liability insurance, that all insurance proceeds for losses of less than $250,000 shall be 17 adjusted with and payable to the Company and that all insurance proceeds for losses of $250,000 or more shall be adjusted with the Company and the holders of Notes jointly, but shall be payable to the holders of Notes, (iii) include effective waivers by the insurer of all claims for insurance premiums against the holders of Notes, (iv) provide that any losses shall be payable notwithstanding (A) any act of negligence of the holders of Notes or the Company, (B) any foreclosure or other proceedings or notice of sale relating to the Mortgaged Property, or (C) any change in the title to or ownership of the Mortgaged Property, (v) provide that no cancellation thereof shall be effective until at least 30 days after receipt by the holders of Notes of written notice thereof, and (vi) be reasonably satisfactory to the holders of Notes in all other respects. (c) Delivery of Insurance Certificates. The Company will deliver to the holders of Notes certificates evidencing the existence of all insurance policies with respect to the Mortgaged Property which the Company is required to maintain or cause to be maintained pursuant to subparagraph (a) hereof together with evidence as to the payment of all premiums then due thereon. 9. Damage to or Destruction of Mortgaged Property. (a) Notice. In case of any material damage to or destruction of the Mortgaged Property or any part thereof, the Company will promptly give written notice thereof to the holders of Notes, generally describing the nature and extent of such damage or destruction. (b) Restoration. Except as otherwise provided in paragraph 9(d) hereof, in case of any damage to or destruction of the Mortgaged Property or any part thereof, the Company, whether or not the insurance proceeds, if any, on account of such damage or destruction shall be sufficient for the purpose, at its expense, will promptly commence and complete the repair, replacement, rebuilding or restoration of the Mortgaged Property as nearly as possible to its value, condition and character, immediately prior to such damage or destruction, with such alterations and additions as may be made at the Company's election. (c) Application of Insurance Proceeds in the Event of Restoration. Except as otherwise provided in paragraph 9(d), all insurance proceeds received by or payable to the holders of Notes on account of any damage to or destruction of all or any part of the Mortgaged Property (less the actual cost, fees and expenses incurred in the collection thereof) shall be applied or dealt with by the holders of Notes as follows: (i) All such proceeds actually received by the holders of Notes on account of any such damage or destruction shall, unless there is an uncured Event of Default or event which with the passing of time or the giving of notice, or both, would constitute such an Event of Default, be made available for purposes of repairing, replacing, rebuilding or restoring the Mortgaged Property, subject to deposit by the Company with the holders of Notes of the amount in excess of insurance proceeds necessary to effect the restoration. (ii) The holders of the Notes shall permit the application of the net proceeds to payment of the costs of repair, replacement, rebuilding or restoration upon request made by the Company to the holders of Notes no more often than monthly accompanied by lien waivers through the last previous request. If the net proceeds are not sufficient to pay such costs in full, the Company will 18 nonetheless complete the same and will pay the portion of the cost thereof in excess of the amount of the net proceeds. So long as there is no Event of Default or event which with the passing of time or the giving of notice, or both, would constitute such an Event of Default, any balance of net proceeds remaining after payment of all costs of any repair, rebuilding, replacement or restoration shall be remitted to the Company within 5 days after evidence is given by the Company to the holders of the Notes of complete and full payment of such costs. (d) Prepayment in the Event the Mortgaged Property is Not Restored. In case all or any part of the Mortgaged Property is destroyed or damaged (A) so as to render such property, in the reasonable judgment of the holders of Notes, incapable of being repaired, replaced, rebuilt or restored for purposes of normal operation of the Company's business on the property within six months after its damage or destruction, or (B) to such an extent that the Company determines that it is uneconomic to repair, replace, rebuild or restore; then in either such event the Company shall have no obligation to repair, replace, rebuild or restore the Mortgaged Property and no right to have the net proceeds of the insurance claim applied to such repair, replacement, rebuilding or restoration, and whether or not the net proceeds of any applicable insurance claim are sufficient for such purpose, the Company shall, on the first interest payment date occurring at least 30 days after such damage or destruction, in addition to making the regular payment on the Notes due on such date, prepay the Notes, without premium, in an amount equal to the then unpaid principal amount of the Notes, plus accrued interest thereon. Any such prepayment shall be applied on the last maturing required installment or installments of principal in inverse order of their maturity. The net proceeds of any insurance claim shall be applied to any such prepayment. So long as there is no Event of Default or event which with the passing of time or the giving of notice, or both, would constitute such an Event of Default, any insurance proceeds remaining after prepayment pursuant to this paragraph 9(d) shall be remitted by the holder of the Note to the Company within five days after such prepayment. 10. Taking of Mortgaged Property. (a) Notice; Assignment of Awards. In case of a taking as a result of or in lieu of or in anticipation of the exercise of the right of condemnation or eminent domain of all or any part of the Mortgaged Property, or the commencement of any proceedings or negotiations that might result in any such taking, the Company will promptly give written notice thereof to the holders of Notes, generally describing the nature and extent of such taking or the nature of such proceedings or negotiations and the nature and extent of the taking that might result therefrom, as the case may be. The Company hereby irrevocably assigns, transfers and sets over to the holders of Notes all its rights to any award or payment on account of any taking of the Mortgaged Property (excluding any award for relocation expenses). The Company will in good faith and with due diligence file and prosecute what would otherwise be its claims for any such award or payment and cause the same to be collected and paid over to the holders of Notes, and irrevocably authorizes and empowers the holders of Notes, in the name of the Company, to collect and to receipt for any such award or payment and, in the event the Company fails so to act or is otherwise in default hereunder, to file and prosecute such claim. The Company will pay all costs, fees and expenses reasonably incurred by the holders of the Notes in connection with any taking and seeking and obtaining any award or payment on account thereof. 19 (b) Restoration. Except as provided in paragraph 10(d) hereof, in case of a taking of the Mortgaged Property, the Company will, whether or not the awards or payments, if any, on account of such taking shall be sufficient for the purpose, at the Company's expense, promptly commence and complete restoration of the Mortgaged Property as nearly as possible to its value, condition and character immediately prior to such taking, except to the extent made impossible or in the reasonable judgment of the Company uneconomical by any reduction in area caused by such taking, provided that in case of a taking for temporary use the Company shall not be required to effect restoration until such taking is terminated. (c) Application of Awards in the Event of Restoration. Except as otherwise provided in paragraph 10(d) hereof, all awards and payments received by or payable to the holders of Notes on account of a taking of all or any part of the Mortgaged Property (less the actual costs, fees and expenses incurred in the collection thereof) shall be applied to pay the cost of restoring of the portion of the Mortgaged Property remaining after such taking, such application to be effected substantially in the same manner and subject to the same conditions as provided in paragraph 9(c)(ii) hereof with respect to insurance proceeds. (d) Prepayment in the Event the Mortgaged Property is Not Restored. In the event a parcel of Mortgaged Property is not restored pursuant to paragraph 10(b) hereof the Company shall prepay the Notes, such prepayment to be effected substantially in the same manner and subject to the same conditions as provided in paragraph 9(d) hereof with respect to prepayment in the event of destruction or damage of the Mortgaged Property. The net proceeds of any awards or payments shall be applied to any such prepayment. So long as there is no Event of Default or event which with the passing of time or the giving of notice, or both, would constitute such an Event of Default, any proceeds remaining after prepayment pursuant to this paragraph 10(d) shall be remitted by the holder of the Note to the Company within five days after such prepayment. 11. Payments on and Registration and Transfer of Notes. The Company agrees that it will make payment of the principal of, premium, if any and interest on the Notes by wire transfer of immediately available federal funds with sufficient information to identify the source and application of funds to the Purchaser in accordance with the wire transfer instructions set forth in Appendix I hereto, or to such other accounts or in such other manner as may from time to time be designated by the holder of a Note, without presentment of the Notes and without the rendering of any bills therefor. The Company shall keep at its principal office a register in which the Company shall provide for the registration of the Notes and of transfers of the Notes (the "Note Register"). Upon surrender of any Note for transfer at the office of the Company, the Company shall execute and deliver, in the name of the designated transferee a new Note in a principal amount equal to the unpaid principal amount of, and dated the date to which interest has been paid on, the Note so surrendered. When a Note shall be presented or surrendered for transfer it shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder thereof or his attorney duly authorized in writing. The Company may treat the person in whose name the Note is registered on the Note Register as the owner of the Note for the purpose of receiving payment of principal of and interest on the Note and for all other purposes and the Company shall not be affected by notice to the contrary. 12. Expenses. The Company agrees, whether or not the purchase of the Notes herein contemplated shall be consummated, to pay and save the Purchaser harmless against liability for the payment of all out-of-pocket expenses arising in connection with this transaction including any 20 documentary stamp taxes (and including interest and penalties, if any), which may be determined to be due and payable with respect to the execution and delivery of the Notes, and the reasonable fees and expenses of counsel to the Purchaser. The Company also agrees to pay, and to save the Purchaser harmless against liability for the payment of, the reasonable fees and expenses of counsel to the Purchaser in connection with any documentation and related services arising after the Closing Date in connection with the preparation of waivers or amendments of any provisions of this Agreement, the Notes or the Deed of Trust. In addition, the Company agrees to pay, and to save the holders of the Notes harmless against, all brokerage or finders fees incurred in the transaction contemplated by this Agreement. 13. Delivery of Documents; Pro Rata Payments; Amendments and Consents. (a) Delivery of Documents. All notices, certificates, requests, statements and other documents required or permitted to be delivered to the Purchaser or the holders of Notes by any provision hereof shall also be delivered to each holder of a Note whose address has been provided to the Company, except that financial statements and other documents provided for in paragraphs 4(e) and 4(f) need not be delivered to any holder, other than the Purchaser, holding less than 10% of the aggregate principal amount of Notes from time to time outstanding. (b) Pro Rata Payments. All interest payments and payments or prepayments of principal shall be made and applied pro rata on all Notes outstanding in accordance with the respective unpaid principal amounts thereof. (c) Amendments and Consents. The registered holder or holders of more than fifty percent (50%) of the unpaid principal amount of the Notes at the time outstanding may by agreement with the Company amend this Agreement, and any consent, notice, request or demand required or permitted to be given by the Purchaser or the holders of the Notes by any provision hereof shall be sufficient if given by the holder or holders of more than fifty (50%) of the unpaid principal amount of Notes at the time outstanding except that, without the written consent of the holders of all Notes at the time outstanding, no amendment to this Agreement shall extend the maturity of any Note, or alter the rate of interest or any premium payable with respect to any Note, or affect the amount or timing of any required payments or prepayments, or reduce the proportion of the principal amount of the Notes required with respect to any consent. 14. Investment Purpose. The Purchaser represents that the acquisition of the Notes by it will be for investment and not with a view to resale in connection with any distribution thereof, it being understood, however, that the disposition of the property of the Purchaser shall at all times be within its control. 15. Definitions. For purposes of this Agreement the following terms shall have the following meanings: "Applicable Percentage" shall mean (i) 55% at all times after the date of this Agreement until the Company shall have completed a public offering of its capital stock, and (ii) 50% at all times thereafter. "Capital Expenditure" means an expenditure by the Company or any Subsidiary for the lease, purchase or other acquisition of any capital asset; provided that with respect to the lease of any 21 capital asset (whether pursuant to a capitalized lease or an operating lease), the principal amount thereof shall be the fair market value of the capital asset so leased. "Capital Expenditure Annual Limit" means $41,000,000 for the fiscal year ending September 1, 1995, $19,000,000 for the fiscal year ending August 30, 1996, $20,000,000 for the fiscal year ending August 29, 1997, and $10,000,000 for each fiscal year thereafter. "Capital Expenditure Cumulative Limit" means, during the period commencing on August 28, 1993 and ending on the date of determination, cumulative (A) Net Income (or loss), plus (B) Non-Cash Charges, plus (C) Term Debt Proceeds, plus (D) Net Equity Proceeds, less (E) scheduled principal payments on Funded Debt, less (F) non-scheduled prepayments on Funded Debt, in each case of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. "Capitalized Lease Obligations" shall mean lease payment obligations under leases that are required to be capitalized under generally accepted accounting principles. "Cash Flow Available for Fixed Charges" means, with respect to the applicable period of computation, (i) Net Income of the Company and its Subsidiaries, plus (ii) Interest Expense of the Company and its Subsidiaries, plus (iii) Non-Cash Charges of the Company and its Subsidiaries, plus (iv) Term Debt Proceeds of the Company and its Subsidiaries, plus (v) Net Equity Proceeds of the Company and its Subsidiaries, less (vi) cash expenditures by the Company and its Subsidiaries for the purchase of capital assets and less (vii) cash expenditures by the Company and its Subsidiaries with respect to the principal portion of any Capitalized Lease Obligation, all determined on a consolidated basis in accordance with generally accepted accounting principles. "Cash Flow Available for Interest and Rent" of a Person shall mean, with respect to the applicable period of computation, such Person's Pre-Tax Earnings, plus Interest Expense, plus Rent Expense. "Closing Date" shall have the meaning set forth in paragraph 1(a). "Company" shall have the meaning set forth in the preamble. "Consolidated Debt" shall mean all Debt of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. "Consolidated Fixed Charge Coverage Ratio" shall mean, with respect to the applicable period of computation, the ratio of the consolidated Cash Flow Available for Fixed Charges of the Company and its Subsidiaries to the consolidated Debt Service of the Company and its Subsidiaries. "Consolidated Interest and Rent Coverage Ratio" shall mean, with respect to the applicable period of determination, the ratio of (i) the Cash Flow Available for Interest and Rent of the Company and its Subsidiaries to (ii) the sum of Interest Expense and Rent Expense of the Company and its Subsidiaries. "Consolidated Tangible Net Worth" shall mean the aggregate amount of stockholders' equity of the Company and its Subsidiaries on a consolidated basis determined in accordance with generally 22 accepted accounting principles consistent with those followed in preparation of the financial statements referred to in paragraph 3(e), less the purchase price of acquired businesses in excess of the fair market value of tangible net assets, other items of goodwill, patents, trademarks, trade names, copyrights, organization expense, treasury stock, unamortized debt discount and expense, any write-up of the value of any assets and other like intangibles, or any securities or Debt of the Company or any Subsidiary or any other securities unless the same are readily marketable in the United States of America or entitled to be used as a credit against Federal income tax liabilities which (in the aggregate) exceed $1,000,000, all determined on a consolidated basis in accordance with generally accepted accounting principles consistent with those followed in the preparation of the financial statements referred to in paragraph 3(e). "Debt" of any Person shall mean (i) all items of indebtedness or liability which in accordance with generally accepted accounting principles would be included in determining total liabilities as shown on the liabilities side of a balance sheet of that Person as at the date as of which Debt is to be determined, (ii) the face amount of all letters of credit issued for the account of any person and, without duplication all drafts thereunder, (iii) any indebtedness for borrowed money or the deferred purchase price of property or services secured by a lien on any property of any Person, whether or not such indebtedness has been assumed, and (iv) guaranties or other contingent obligations for any indebtedness described in clauses (i) through (iii). "Debt Service" means, with respect to the applicable period of computation, the aggregate of (i) all scheduled payments of principal on all Funded Debt, (ii) Interest Expense, and (iii) all scheduled payments of rent under Capitalized Lease Obligations (determined in accordance with generally accepted accounting principles). "Deed of Trust" shall have the meaning set forth in paragraph 1(c). "Dividends" shall mean any payment in cash, property or other assets upon or in respect of any shares of any class of capital stock including, without limiting the foregoing, payments as dividends and payments for the purpose of redeeming, purchasing, or otherwise acquiring any shares of any class of its capital stock, including in the term "stock" any warrant or option or other right to purchase such stock, or making any other distribution in respect of any such shares of stock; excluding, however, any distribution which may be payable solely in common stock of the corporation making the distribution. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and the regulations adopted pursuant thereto. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which, together with the Company, would be deemed to be a single employer within the meaning of Section 4001(b)(1) of ERISA. "Event of Default" shall have the meaning set forth in paragraph 7. "Funded Debt" shall mean any obligation for borrowed money or for the acquisition of property or any obligation evidenced by a promissory note or similar instrument, payable more than one year from the date of its creation (or which is renewable at the option of the obligor to a date more than one year from the date of its creation), including the current portion thereof, which under 23 generally accepted accounting principles is shown on the balance sheet as a liability, including but not limited to the Notes and any Capitalized Lease Obligations. Notwithstanding the foregoing sentence, the term "Funded Debt" shall in any event include any obligation incurred under a revolving credit facility or similar arrangement, whether or not payable on a date (or renewable to a date) more than one year from the date of its creation. "Interest Expense" shall mean, for any period, the total gross interest expense during such period, and shall in any event include, without limitation, (i) interest expensed (whether or not paid) on all Debt, (ii) the amortization of debt discounts, (iii) the amortization of all fees payable in connection with the incurrence of Debt to the extent included in interest expense, (iv) the portion of any Capitalized Lease Obligation allocable to interest expense. "Margin Stock" shall have the meaning ascribed to that term in Section 207.2(i) of Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve Board. "Mortgaged Property" shall have the meaning set forth in paragraph 1(c). "Net Equity Proceeds" shall mean the net cash proceeds actually received by the Company from the sale of additional common or preferred stock in the Company on or after November 24, 1993, including cash received from the exercise of stock options. "Net Income" of any person shall mean, with respect to the applicable period of computation, such person's after tax Net Income determined in accordance with generally accepted accounting principles, excluding any extraordinary or non-recurring items. "Non-Cash Charges" shall mean depreciation, amortization, deferred taxes and other non-cash charges which have the effect of reducing the Pre-Tax Earnings or Net Income, as the case may be, all as determined in accordance with generally accepted accounting principles. "Norwest Bank Agreement" shall mean that certain Amended and Restated Credit and Security Agreement dated as of November 24, 1993, among the Company, as borrower, Norwest Bank Minnesota, National Association and Harris Trust and Savings Bank, as lenders, and Norwest Bank Minnesota, National Association, as agent, as amended by the First Amendment dated as of December 2, 1993, the Second Amendment dated as of May 12, 1994, and the Third Amendment dated as of January 24, 1995. "Note Register" shall have the meaning set forth in paragraph 8. "Note" or "Notes" shall have the meaning set forth in paragraph 1(a). "PBGC" shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Person" shall mean an individual, partnership, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof. "Plan" shall mean any employee pension benefit plan within the meaning of Section 3(2) of ERISA. 24 "Pre-Tax Earnings" of a Person means, with respect to any applicable period of computation, such Person's Net Income, plus any income taxes and extraordinary or non-cash losses paid or incurred by such Person, less any extraordinary or non-cash gains claimed or earned by such Person, all as determined in accordance with generally accepted accounting principles. "Purchase Money Obligations" shall mean Debt incurred in connection with the acquisition of machinery and equipment, which Debt is secured by conditional sales contracts, title retention agreements and other purchase money security interests. "Purchaser" shall have the meaning set forth in the preamble. "Rent Expense" mean, with respect to the applicable period of computation, all scheduled payments of rent under operating leases. "Subsidiary" or "Subsidiaries" shall mean the corporations listed on Exhibit D hereto, and any other corporation or corporations more than 50% of the outstanding capital stock of every class of which is hereafter owned, directly or indirectly, by the Company. "Term Debt Proceeds" means all proceeds obtained by the Company from (i) term advances under that certain Amended and Restated Credit and Security Agreement dated as of November 24, 1993 between the Company and Norwest Bank Minnesota, National Association and Harris Trust and Savings Bank, or (ii) other term indebtedness permitted pursuant to paragraph 5(a). "Total Capitalization" shall mean as of the date of any determination thereof, the sum of (i) the aggregate principal amount of all outstanding Funded Debt of the Company and its Subsidiaries, plus (ii) Consolidated Tangible Net Worth. "Treasury Yield Percentage" shall mean the yield, as reported by Bloomberg Financial Markets, determined as of 10:00 a.m. Minneapolis, Minnesota time on the second Business Day prior to the date fixed for prepayment, of those actively traded "On The Run" United States Treasury securities having a then- remaining maturity equal to the then-remaining maturity of an actively traded "On The Run" United States Treasury security, such yield shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the yields, as reported by Bloomberg Financial Markets, of actively traded "On The Run" Treasury securities having then-remaining maturities closest to the remaining average life of the Notes. If such market data for any reason ceases to be available through Bloomberg Financial Markets, the holders of the Notes may, in their reasonable discretion, select any other publicly available source of similar market data. For purposes hereof, "On The Run" United States Treasury securities refers to those United States Treasury securities which are most recently auctioned as of the date in question. 16. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by the Company in connection herewith shall survive the execution and delivery of this Agreement and of the Notes. 17. Successors and Assigns. All covenants and agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. 25 18. Notices. All communications provided for hereunder shall be sent by first class mail and, if to the Purchasers, addressed to the Purchasers at the notice address listed on Appendix I hereto, and if to the Company, addressed to Sheldahl, Inc., 1150 Sheldahl Road, Northfield, MN 55057, attention Chief Financial Officer or to such other address with respect to any party as such shall notify the other parties in writing. 19. Governing Law. This Agreement is being delivered and is intended to be performed in the State of Minnesota, and shall be construed and enforced in accordance with the laws of such State. 20. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be an original, but all of which shall constitute but one agreement. 21. Captions. The captions in this Agreement are for convenience only and shall not be considered in the interpretation of any of the provisions hereof. 26 If the Purchasers are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the undersigned. Upon acceptance by all the Purchasers, this letter shall become a binding agreement between the Purchasers and the undersigned. Very truly yours, SHELDAHL, INC. By /s/ John McManus ------------------------ Its Vice President Finance The foregoing Agreement is accepted as of the date first above written NORTHERN LIFE INSURANCE COMPANY By /s/ Frank P. Pintens ---------------------- Its Assistant Treasurer 27 EX-10.22 3 JOINT MARKETING AGREEMENT Exhibit 10.22 JOINT MARKETING AGREEMENT This JOINT MARKETING AGREEMENT is entered into this 14th day of June, 1995 ("Effective Date") by and between SHELDAHL, INC., a Minnesota corporation ("SHELDAHL"), and MENTOR GRAPHICS CORPORATION, an Oregon corporation ("MENTOR GRAPHICS"). RECITALS -------- 1. SHELDAHL has developed and is currently testing and producing materials known as ViaGrid/TM/. 2. MENTOR GRAPHICS is a world leader in computer-aided design of electronic circuitry. 3. The parties wish to work together to develop electronic packaging designs on standard ViaGrid/TM/ and custom ViaGrid/TM/ materials produced by SHELDAHL. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties agree as follows: Section 1. Definitions. 1.1 "Approved Account" means those companies designated on Exhibit A as approved accounts and such other companies agreed to by SHELDAHL and MENTOR GRAPHICS in writing. 1.2 "Excluded Account" means those companies designated on Exhibit A as Excluded Accounts which shall be excluded from the application of the terms of this Agreement unless agreed by SHELDAHL in writing. 1.3 "Production Units" means those non-Prototype ViaGrid/TM/ units accepted by the Approved Account to be used in a product. 1.4 "Program" means production using ViaGrid/TM/ with a design tested and accepted by the Approved Account under the terms of this Agreement. 1.5 "Prototype" means those ViaGrid/TM/ units that are produced for an Approved Account's internal verification engineering and/or manufacturing to prove the design and manufacturing processes associated with a product. 1.6 "Royalty Product" means any construction of ViaGrid/M/ that is produced for an Approved Account by SHELDAHL utilizing a design tested and accepted by the Approved Account during the term of this Agreement or a derivative of such design for the same part, purpose and platform and pursuant to the same Program with the Approved Account, provided MENTOR GRAPHICS has contributed to the establishment of the Approved Account and its relationship with SHELDAHL pursuant to the terms of this Agreement by (a) establishing ViaGrid/TM/ in the specifications of the design and the design results in a ViaGrid/TM/ solution; (b) designing a Prototype and the design results in a ViaGrid/TM/ solution; (c) converting a Prototype design to a Production Unit design; or (d) any combination of the above. 1.7 "ViaGrid/TM/" means a dielectric, polymeric film material carrying one or more copper conductive layers and one or more resist layers with vias. Supply of ViaGrid/TM/ with vias smaller than 3 mil will be limited by SHELDAHL's capacity and other commitments. Section 2. COOPERATION. 2.1 The parties will work together to develop electronic packaging designs on standard ViaGrid/TM/ and custom ViaGrid/TM/ materials during the term of this Agreement. 2.2 To assure a continuous and free exchange of information regarding design opportunities, the parties hereby establish a Joint Review Board of equal members from each party at least one technically trained and experienced employee from each party ("Joint Review Board"). The Joint Review Board shall meet as often as appropriate to review and approve design opportunities, identify and agree on additional Approved Accounts and carry out its other obligations specified in this Agreement. Action by the Joint Review Board shall be unanimous. Each party shall bear its own costs and expenses in connection with the meetings of the Joint Review Board. The Marketing Liaisons identified in Section 2.3 may designate other company representatives from time to time to act as Joint Review Board members by written notice to the other party. 2.3 Ellen McCoy shall be SHELDAHL's designated person responsible for marketing and G. White, as well as additional people designated by SHELDAHL, shall be the designated persons responsible for the manufacturing process and design implementation. The designated account manager of MENTOR GRAPHICS and Armagan Akar, as well as additional people designated by MENTOR GRAPHICS, will be the designated persons responsible for fulfilling MENTOR GRAPHICS' obligations under this Agreement. In the event of changes in any responsible person designated by either party under this Section 2.3 ("Marketing Liaisons"), such party shall promptly notify the other party of the change and identify a replacement. Section 3. Mentor Graphics' Responsibilities. 3.1 MENTOR GRAPHICS shall use reasonable efforts to (a) recommend ViaGrid/TM/ to Approved Accounts for applicable design 2 solutions and (b) deliver design expertise to the Approved Accounts to develop electronic packaging designs on ViaGrid/TM/ materials which satisfy the Approved Account's specifications. 3.2 MENTOR GRAPHICS shall use reasonable efforts to produce and submit for publication three articles for trade publications that describe the relationship between SHELDAHL and MENTOR GRAPHICS and the application successes both parties have achieved together. 3.3 MENTOR GRAPHICS shall focus its efforts under this Agreement on designers and design services for application in PCMCIA, disk drive, and density patch products for memory devices and may pursue designs in any other segment for which ViaGrid/TM/ and the subject matter of this Agreement may have application. Section 4. Sheldahl's Responsibilities. 4.1 SHELDAHL shall manage the production and assembly and material delivery channels to produce the ViaGrid/TM/ product utilizing the Approved Account's design. 4.2 SHELDAHL shall coordinate sales between MENTOR GRAPHICS and SHELDAHL's electronic packaging partner and delivery of Prototypes to the Approved Accounts. 4.3 SHELDAHL and MENTOR GRAPHICS agree that any Approved Account may use the design kit developed by them through the ARPA Consortium for standard ViaGrid/TM/. MENTOR GRAPHICS shall use its current tool systems for all other designs (i.e., MCM station). 4.4 SHELDAHL will refer customer interest in tools for design to MENTOR GRAPHICS. 4.5 SHELDAHL shall use reasonable efforts to promote and position Mentor Graphics with the Approved Accounts as its primary design vendor for ViaGrid/TM/ solutions. Section 5. Design Services. 5.1 MENTOR GRAPHICS shall, upon its acceptance of an engagement for services, provide design assistance to the Approved Accounts to the extent requested in a written statement of work ("SOW") from SHELDAHL or a SOW developed by a MENTOR GRAPHICS professional services representative with an Approved Account. The Joint Review Board shall review and approve the design services targeting the ViaGrid/TM/ material, including the costs of such services. A major criteria for determining the costs is the mutual desire of the parties to present a price point that enables the Approved Account to bring its product implemented in ViaGrid/TM/ to market quickly and affordably. As of the Effective Date, the parties have identified a rate for design 3 services of $135 per hour as meeting this criteria. This targeted rate, however, may be changed by the Joint Review Board consistent with the major criteria above, for reasons such as (a) existing business arrangements with a customer; (b) then current market conditions; (c) changes in MENTOR GRAPHICS' cost structure; or (d) the likelihood of resulting royalties. MENTOR GRAPHICS shall provide the Joint Review Board with an estimate of total fees and expenses to be incurred for the design services. Services shall start subsequent to approval by the Joint Review Board, execution of applicable agreements, and receipt and acceptance of a purchase order. Services shall be provided by MENTOR GRAPHICS to Approved Accounts under terms similar to the MENTOR GRAPHICS Professional Services Agreement and SOW attached as Exhibits B and C, respectively. All such design services shall be on standard or custom ViaGrid/TM/ materials. 5.2 If the Approved Account contracts with SHELDAHL directly, SHELDAHL and MENTOR GRAPHICS shall sign an SOW in the form of Exhibit C. SHELDAHL shall pay MENTOR GRAPHICS $135 per hour plus reasonable travel-related expenses incurred in connection with such design services. MENTOR GRAPHICS shall invoice SHELDAHL for such services on a monthly basis. Payment terms shall be net 30 days after receipt by SHELDAHL of MENTOR GRAPHICS' invoice. The services specified in the SOW shall be subject to the terms of this Agreement and the terms of Exhibit B to the extent consistent with this Agreement. In the event of any conflict in such terms, the terms of this Agreement shall control. 5.3 SERVICES AND THE RESULTS ARE PROVIDED "AS IS" AND MENTOR GRAPHICS MAKES NO WARRANTY WITH REGARD TO SERVICES OR RESULTS, EITHER EXPRESS OR IMPLIED. MENTOR GRAPHICS SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. MENTOR GRAPHICS IS NOT OBLIGATED TO SUPPORT ANY SOFTWARE OR OTHER MATERIAL THAT IT PROVIDES UNDER THIS AGREEMENT. 5.4 EXCEPT AS PROVIDED IN SECTION 5.5, (A) NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY CLAIMS AGAINST IT BY ANY PARTY NOT A PARTY TO THIS AGREEMENT, (B) NEITHER PARTY SHALL BE LIABLE FOR LOSS OF PROFITS, INTERRUPTION OF SERVICE, OR FOR ANY OTHER SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES AND (C) IN NO EVENT SHALL MENTOR GRAPHICS' LIABILITY TO SHELDAHL FOR DAMAGES EXCEED THE FEES AND ROYALTIES PAID UNDER THIS AGREEMENT FOR SERVICES PROVIDED HEREUNDER. 5.5 Each party shall indemnify and hold the other party harmless from and against all loss, claims, costs, expenses, damages and liabilities, including reasonable attorneys' fees, which the other party may suffer or be required to pay arising out of injuries to persons (including death) or damage to tangible property solely and directly caused by the negligence or 4 willful misconduct of the indemnifying party's agents or employees. 5.6 The provisions of Sections 2 and 3 of Exhibit B apply to the ownership and licensing of any Intellectual Property developed under this Agreement (as Intellectual Property is defined in Section 2.1 of Exhibit B), with the following three exceptions. Any Intellectual Property which is embodied in ViaGrid/TM/ or its manufacture ("ViaGrid/TM/ Technology") shall be the sole property of SHELDAHL and shall be transferred to SHELDAHL pursuant to the assignment provisions of Section 2.2 of Exhibit B. Intellectual Property which is embodied in MENTOR GRAPHICS' software, tool set or related design services (other than the design kit developed by MENTOR GRAPHICS and SHELDAHL under the ARPA Consortium, which is jointly owned) or in development processes, training and documentation associated with such software, tool set and related design services ("MG Technology") shall be the sole property of MENTOR GRAPHICS and shall be subject to the licensing provisions of Exhibit B. Intellectual Property which is not ViaGrid/TM/ Technology or MG Technology shall be jointly owned. With respect to such jointly owned Intellectual Property either party may utilize, use or exercise its undivided rights without the consent of the other party and without accounting to the other party, provided that the parties shall cooperate in the pursuit of any patent applications related to such jointly owned Intellectual Property. If the patent application is pursued, the parties shall agree upon the details for filing such protection and any enforcement issues thereof at the given time. Section 6. Royalty Payments and Reports. 6.1 As additional consideration for MENTOR GRAPHICS' services hereunder, SHELDAHL agrees to pay MENTOR GRAPHICS a royalty of $1.50 per square foot for each design on custom ViaGrid/TM/ and $3.50 per square foot for each design on standard ViaGrid/TM/ for each Royalty Product sold to an Approved Account during a period, whichever is shorter, of (a) 5 years from initial production of the Royalty Product; (b) the date this Agreement is terminated pursuant to Section 10.2 as a result of a breach by MENTOR GRAPHICS of a material provision of this Agreement; or (c) the completion of the Program for the Royalty Product between SHELDAHL and the Approved Account. Royalties for Royalty Products shall begin to accrue after SHELDAHL or its subcontracted manufacturers begins shipping Royalty Products to the Approved Account regardless of the date that the design is initiated. All royalty payments shall be made on a quarterly basis as set forth in Section 6.2 below. 6.2 Within 30 days after the end of each calendar quarter, SHELDAHL shall furnish MENTOR GRAPHICS with a written report setting forth the square footage of each Royalty Product with respect to which any royalty payments are payable under Section 6.1 and the amount of royalty payment payable with respect to that Royalty Product; and the aggregate amount of all royalty 5 payments payable under Section 6.1. SHELDAHL shall use all reasonable efforts to provide a preliminary report of royalty payments by the end of each calendar quarter. The cut-off date for royalty data to be provided to MENTOR GRAPHICS will be the 15th day of the last month of a quarter. 6.3 Notwithstanding anything contained herein to the contrary, no royalty payment shall be due or payable under this Section 6 on Royalty Products which are Prototypes that do not become Production Units, or Royalty Products which are not accepted by the Approved Account within 90 days of the date of sale or are returned by the Approved Account or Royalty Products which, after acceptance, are recalled but not replaced by SHELDAHL. 6.4 SHELDAHL shall keep accurate records in sufficient detail to permit MENTOR GRAPHICS to determine the amount of royalty payments payable hereunder. On reasonable written notice from MENTOR GRAPHICS, SHELDAHL shall permit such records to be inspected by a MENTOR GRAPHICS' certified public accountant during normal business hours, but only to the extent necessary to verify the amount of royalty payments payable or accrued hereunder. 6.5 Except as provided in Section 6.1(b), this Section 6 shall survive any termination or expiration of the Agreement. Section 7. Confidentiality. To assist in their performance under this Agreement the parties may exchange certain information, including technical and marketing information, which the disclosing party deems confidential. All confidential information disclosed under this Agreement will be disclosed and treated in accordance with the Confidential Information Exchange Agreement (CIEA) attached as Exhibit D. Section 8. Non-Exclusivity. 8.1 Notwithstanding anything to the contrary herein, in the event (a) MENTOR GRAPHICS fails to meet its obligations under this Agreement, any work order with SHELDAHL or SOW; (b) MENTOR GRAPHICS declines an engagement for services proposed by SHELDAHL or an Approved Account or (c) an Approved Account has specified a design company other than MENTOR GRAPHICS after each party has asserted reasonable efforts in converting such account, then SHELDAHL may contract with other design companies and shall have no liability to MENTOR GRAPHICS with respect to any resulting design and no royalty obligation hereunder. 8.2 In the event the SHELDAHL members of the Joint Review Board do not approve a design opportunity proposed by MENTOR GRAPHICS after discussion of all relevant issues by the Joint Review Board and approval of such design opportunity by the MENTOR GRAPHICS members of the Joint Review Board, SHELDAHL shall not independently solicit such design opportunity during the term of this Agreement without allowing MENTOR GRAPHICS to participate 6 in such opportunity under the terms of this Agreement including Section 8.1 above. Section 9. Publicity. 9.1 SHELDAHL and MENTOR GRAPHICS will jointly share products and literature at the Design Show, IPC Show and SAE Show. A joint press release announcing this Agreement will be approved by both parties and promptly released by both parties. 9.2 SHELDAHL shall publicly refer to MENTOR GRAPHICS as its EDA and design partner. MENTOR GRAPHICS shall refer to SHELDAHL as its materials and design partner on high performance materials. Section 10. Term and Termination. 10.1 The term of this Agreement shall be for a period of 24 months from the Effective Date, subject to earlier termination as provided below. The parties may extend the term of this Agreement by subsequent written agreement. 10.2 If either party defaults on or breaches any material provision of this Agreement, the party not in default or breach shall have the right to cancel this Agreement upon written notice provided the defaulting party does not correct the default or breach within the applicable cure period. In the event of a breach of the obligations of a party under this Agreement, the nonbreaching party shall provide written notice to the breaching party setting forth, in sufficient detail, a description of the breach and the applicable cure period. If the breach is either party's breach of the confidentiality provisions, the notice of breach shall provide for a cure period of not less than five days. For all other types of breach, including without limitation the failure to pay any amounts due in a timely manner, the notice of breach shall provide for a cure period of not less than 30 days. 10.3 Either party may terminate this Agreement in the event that proceedings for a reorganization, liquidation, bankruptcy or receivership are filed or instituted against the other party. 10.4 At the end of the term of this Agreement, neither party will have any liability to the other except with respect to any breach of any obligations under this Agreement and except for any obligations under this Agreement which by their terms continue after termination of this Agreement. 10.5 Termination or expiration of this Agreement shall have no effect on SHELDAHL's obligations to make payment for services performed under this Agreement or to pay royalties to the extent required under Section 6. Section 11. Independent Parties. Nothing in this Agreement is intended to create a joint venture, partnership, corporation or other association between SHELDAHL and MENTOR GRAPHICS. Neither party to this Agreement 7 has authority to act on behalf of the other or to incur any financial obligations or liability on behalf of the other; if, despite such intention, a claim arises against one of the parties based on actions of the other, the party responsible for such actions will fully indemnify the party against whom such claim is made. The provisions of this Section 11 shall survive termination of this Agreement for any reason. Section 12. Arbitration. Any dispute between the parties arising out of or concerning the subject matter of, or the respective rights or obligation of the parties under, this Agreement shall be submitted to arbitration if it cannot be resolved by the parties. If arbitration is requested by SHELDAHL, the arbitration proceedings shall be conducted in Wilsonville, Oregon in accordance with the rules of the American Arbitration Association then in effect. If arbitration is requested by MENTOR GRAPHICS, the arbitration proceeding shall be conducted in Minneapolis, Minnesota, in accordance with the rules of the American Arbitration Association then in effect. The arbitrator's award shall be final and binding and may be enforced in any court of competent jurisdiction. The non-prevailing party shall pay the prevailing party's costs and expenses (including reasonable attorneys' fees) incurred in enforcing any such arbitration award. Section 13. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the laws of the State of Oregon. Section 14. Force Majeure. Both parties to this Agreement shall be excused from the performance of their obligations hereunder, and shall be excused for so long as such condition continues, if such performance is prevented by conditions beyond the control of the parties, such as acts of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, strike, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. Section 15. Notice Provisions. Any notice required or permitted to be given hereunder shall be in writing and any notice shall be deemed to have been given when delivered in person, by fax, or three (3) days after the date upon which it is mailed, postage prepaid, by certified or registered airmail, properly addressed to the addresses written below: If to SHELDAHL: Sheldahl, Inc. 1150 Sheldahl Road Northfield, MN 55057 Attn: James E. Donaghy Fax No.: 507-663-8435 8 If to MENTOR GRAPHICS: Mentor Graphics Corporation 8005 S.W. Boeckman Road Building 04118 Wilsonville, OR 97070 Attn: General Counsel Fax No.: 503-685-1485 Section 16. Assignments. This Agreement is binding upon shall inure to the benefit of the parties and their successors and assigns; provided that neither the rights nor the obligations hereunder may be assigned by either party without the prior written consent of the other party except to the assigning party's parent, subsidiary, or other enterprise fifty percent or more of the voting power of which is owned by such party. Section 17. Modification. No modification or any claimed waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by a duly authorized officer of the party against whom such modification or waiver is sought. Section 18. Entire Agreement; Exhibits. 18.1 This Agreement shall constitute the entire agreement of the parties with respect to the subject matter of this Agreement and supersedes all prior agreements between the parties related to the subject matter hereof. 9 18.2 The following documents are attached to and made a part of this Agreement: Exhibit A Approved Accounts and Excluded Accounts Exhibit B Mentor Graphics Professional Services Agreement Exhibit C Mentor Graphics Statement of Work Exhibit D Confidential Information Exchange Agreement Section 19. Counterparts. This Agreement may be signed in any one or more counterparts, each of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, each party has caused a duly authorized representative to execute this Agreement. SHELDAHL, INC. By /s/ James E. Donaghy --------------------------------- Its President --------------------------- MENTOR GRAPHICS CORPORATION Professional Services Division By /s/ Russell F. Henke -------------------------------- Its V.P./General Manager --------------------------- MENTOR GRAPHICS CORPORATION Corporate Contracts By /s/ Charles Tryon --------------------------------- Its Director of Contracts --------------------------- 10 EX-10.23 4 AGREEMENT RELATING TO JOINT VENTURE Exhibit 10.23 AGREEMENT RELATING TO JOINT VENTURE ----------------------------------- This AGREEMENT RELATING TO JOINT VENTURE is made and entered into this 1st day of August, 1995, by and between SHELDAHL, INC., a corporation established and existing under the laws of the State of Minnesota having its principal place of business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A. ("SHELDAHL"), JIANGXI CHANGJIANG CHEMICAL PLANT, a corporation established and existing under the laws of China, having its principal place of business at 1 Qianjin Road (E), Jiujiang Jiangxi China 332006 ("JCCP"), HONG KONG WAH HING (CHINA) DEVELOPMENT CO., LTD., a corporation established and existing under the laws of Hong Kong having its principal place of business at 14 Westlands Road, 3/F C, Aik San Factory Building, Quarry Bay, Hong Kong ("WAH HING"), and JIUJIANG FLEX CO., LTD., a corporation established and existing under the laws of China, having its principal place of business at 1 Qianjin Road (E), Jiujiang Jiangxi China 332006 ("SNW"). Jiujiang Wahhing Norinco Electronics Industry Co. Ltd. is an enterprise with foreign investment (a limited liability company) established by JCCP and WAH HING to manufacture and to sell flexible copper laminates and associated coverfilms and tapes. Jiujiang Wahhing Norinco Electronics Industry Co. Ltd. was registered and approved by the city government of Jiujiang in Jiangxi province in China on August 18, 1994. During the establishment of Jiujiang Wahhing Norinco Electronics Industry Co. Ltd., SHELDAHL expressed its interest in participating as an equity owner of Jiujiang Wahhing Norinco Electronics Industry Co. Ltd. after assessing its strategic planning and technical competitive advantages. After a series of discussions, both JCCP and WAH HING have agreed to have SHELDAHL participate as an equity owner of Jiujiang Wahhing Norinco Electronics Industry Co. Ltd. BACKGROUND: A. JCCP is actively engaged in the business of developing, manufacturing and marketing various kinds of electronic material in China and the international markets. B. SHELDAHL is actively engaged in the business of developing, manufacturing and marketing flexible copperclad laminates and associated coverfilm tapes throughout the world. C. Wah Hing is actively engaged in the businesses of manufacturing and marketing toys, real estate development, construction contracting and investment development. D. The following additional agreements ("Additional Agreements") are being entered into this date: (i) Manufacturing 1 Agreement; (ii) Marketing and License Agreement; and (iii) Agreement Relating to Payments. E. All three parties desire to establish a long-term business relationship through investment in SNW. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties agree as follows: 1. Purpose, Scope, Duration. 1.1 JCCP, SHELDAHL and WAH HING have decided to jointly form a limited liability company in Jiujiang, Jiangxi China under the name Jiujiang Flex Co., Ltd. The formation of the company is based on principles of shared risk, shared management and shared profit. The duration of SNW shall be thirty (30) years, unless extended by mutual agreement of the parties. 1.2 The total investment of SHELDAHL, WAH HING and JCCP in SNW is approximately $5,000,000. SNW is expected to have the capability to produce 600,000 square meters of flexible copperclad laminates and 600,000 square meters of associated coverfilm tapes. 1.3 The purpose and scope of SNW shall be to manufacture and sell flexible copperclad laminates and associated coverfilm tapes through SNW's distribution channels in China (including Taiwan, Hong Kong and Macau) and to SHELDAHL for resale in all other markets. 1.4 Neither JCCP nor WAH HING shall, while it owns shares in SNW and for a period of three years after it sells its shares in SNW, manufacture or market, directly or indirectly, for sale anywhere in the world, products which are competitive with products manufactured or marketed by SNW. Neither JCCP nor WAH HING shall, directly or indirectly pursue business opportunities related to the technology licensed to SNW by SHELDAHL except through SNW. 1.5 Except for SHELDAHL's obligations under the Manufacturing Agreement and the Marketing and License Agreement, SHELDAHL shall be free to pursue other business opportunities outside of SNW. SHELDAHL may grant a license under the Technical Information and the Industrial Property Rights of SHELDAHL to manufacture Licensed Products in any country in Asia other than third parties which would manufacture the Licensed Products in mainland China, Taiwan, Hong Kong or Macau. In such event, SHELDAHL agrees to purchase, in replacement of its 120,000 square meter commitment under the Manufacturing Agreement, a total of 150,000 square meters of Licensed Products which are flexible copperclad laminates each year during the period beginning with 2 such license granted and ending the tenth (10th) Royalty Year. In the event SHELDAHL desires to grant such a license, it agrees to inform the Board of Directors of SNW six (6) months before the license grant and discuss and consider with the SNW Board of Directors SNW's participation. If SNW desires to participate, SHELDAHL shall give special consideration to such request. 2. Formation and Capitalization. 2.1 The name of the company is Jiujiang Flex Co., Ltd. JCCP shall cause the joint venture to be approved under the laws of China and in connection therewith, shall cause Articles of Association to be filed and approved as required by China law. 2.2 The total investment of SHELDAHL, WAH HING and JCCP in SNW is approximately $5,000,000 which is equal to 100% equity ownership interest. JCCP will contribute to SNW the manufacturing facilities, the secondary equipment inside mainland China, the supporting infrastructure of the factory and the right to use the land and will receive 40% ownership in SNW. WAH HING will contribute to SNW certain imported equipment and capital and will receive 40% ownership interest in SNW. All equipment and facilities shall be free and clear of any rights of third parties and title to such items shall be transferred to SNW. SHELDAHL will provide SNW with licensed technology valued at $900,000 and technical assistance valued at $100,000 (as specified in both the Marketing and License Agreement and the Manufacturing Agreement) and will receive 20% ownership interest in SNW valued at $1,000,000 and the payments required under the Additional Agreements. Each party shall provide SNW with a clear and separate list of all investment items from each party with such items verified by the parties. SNW will submit the complete list of all investment items to the China Business Registration Agency which will verify the investment and issue the legal binding verification report. The parties will utilize this Agency report as the basis to determine the exact value of the contribution from each party to calculate the ownership interest of each party. 2.3 All expenses related to the formation and organization of SNW shall be paid by SNW. Other than those costs, each party shall pay their respective costs and expenses of finalizing the transactions contemplated by this Agreement. 3. Management of SNW. 3.1 The Board of Directors of SNW shall become effective the date when SNW receives governmental approval. 3.2 The Board of Directors consists of 8 Board members, out of which JCCP shall have 3 members; WAH HING shall have 3 members; and SHELDAHL shall have 2 members. The Chairman 3 of the Board is from WAH HING. The Vice Chairmen are from JCCP and SHELDAHL. The term of the Chairman of the Board, Vice Chairman of the Board and each Board member is four (4) years. Board members' terms may be renewed after approval by the party which they represent. Each party shall notify the Board in writing when it decides to replace its designated Board member. 3.3 The overall management and control of the business and affairs of SNW shall be vested in the Board of Directors. Each member of the Board of Directors shall be entitled to one vote. Each party shall be entitled to remove and replace its designated directors. Five directors shall be required for all meetings of the Board of Directors; provided, that no meeting shall be held unless one director designated by each party is present. The initial President of SNW responsible for its day-to-day operations shall be Mr. Guo You-Wi. All successors to Mr. Guo You-Wi, and all other officers of SNW shall be appointed and removed by the Board of Directors. 3.4 JCCP, WAH HING and SHELDAHL, as shareholders, will cause SNW to be operated and managed in a manner that is fair to all shareholders of SNW. 4. Consents. The written consent of the Board of Directors and JCCP, WAH HING and SHELDAHL must be obtained prior to SNW: a. authorizing, issuing or acquiring any capital stock, warrants, options or other rights in or for capital stock of SNW other than those to be issued under Sections 2.2 or 5.2; b. entering into any transaction with JCCP, WAH HING or SHELDAHL (other than those contemplated by the Additional Agreements), or any of their affiliates; c. changing the purpose or scope of SNW's business in a manner inconsistent with Section 1.3 or otherwise engaging in activities outside said scope; or d. entering into any transaction for the merger, consolidation, sale, lease or transfer of substantially all of the assets or dissolution or liquidation of SNW. 5. Initial Capital; SHELDAHL Option. 5.1 The capital contributions in Section 2.2 shall be supplemented by debt financing as the Board of Directors deem appropriate to fund SNW's cash requirements for working capital 4 and additional equipment necessary to establish and finance the operations of a manufacturing plant capable of producing the Licensed Products described in the Marketing and License Agreement. The debt financing will be secured by the assets of SNW to the extent allowed by law. If additional security is required to obtain necessary working capital, the three parties shall assist SNW. JCCP and WAH HING shall assist by providing any required guarantees to lenders. Sheldahl shall assist by providing flexible payment terms for products or materials which SNW may purchase from Sheldahl and advance payments for products purchased by Sheldahl from SNW (as determined by the SNW Board of Directors and Sheldahl at the time JCCP and WAH HING provide guarantees), but such assistance shall be required only if and when JCCP or WAH HING are called upon to perform their obligations under their guarantees. 5.2 SHELDAHL shall have the right and option, at any time and from time to time during the option periods described below, to purchase additional ownership interests in SNW; provided that SHELDAHL's total ownership interest in SNW shall not exceed 30% as a result of such purchases under this Section 5.2. SHELDAHL shall receive a 1% ownership interest in SNW for each $50,000 of funding during the first option period which shall begin on the fourth month after the Licensed Products manufactured by SNW meet the performance and quality standards of such products manufactured by SHELDAHL and shall end two years thereafter. SHELDAHL shall receive a 1% ownership interest in SNW for each $60,000 of funding during the second option period which shall begin at the end of the first option period and shall end two years thereafter. 6. Facilities, Equipment and Personnel. 6.1 JCCP will take the leadership role, in working with SHELDAHL and WAH HING, to develop a comprehensive plan for the project, to design the layout and specifications of the facilities and the schedule. JCCP will provide SNW the facility, land and secondary equipment. 6.2 SHELDAHL will take the leadership role, in working with JCCP and WAH HING, to plan the production equipment specifications and schedule and optimal process flow techniques. 5 6.3 JCCP, SHELDAHL and WAH HING shall work together to complete construction of the manufacturing plant and begin operations at the earliest possible date. 6.4 All investment from each party, be it tangible or intangible, shall be clearly stated as provided in Section 2.2. 6.5 JCCP shall identify and select the initial employees of SNW, subject to approval of the Board of Directors of SNW. All employee benefits shall be approved by the Board of Directors. 7. Accounting and Tax Matters. 7.1 Within three (3) months after the end of each fiscal year, the President shall cause to be prepared and shall submit to the directors the balance sheet, statement of income and loss and a distribution plan. 7.2 Three months prior to the end of each fiscal year, the President shall cause to be prepared and shall submit to the directors for consideration a business plan and budget of SNW for the next fiscal year ("Annual Plan and Budget"). When approved by the directors, the Annual Plan and Budget shall be SNW's operational and spending plan. 7.3 The books of account of SNW shall be kept and maintained at SNW's offices in accordance with the approved international standards. All parties shall have the right at all reasonable times to audit, examine, makes copies of and extracts from, the books of account of SNW. All documents will be written in Chinese. 7.4 The President shall cause such financial statements and tax returns and statements to be prepared and furnished to the parties as requested by the Board of Directors or required by the laws of China. Financial statements shall be distributed to the parties at least twice a year. SNW shall provide SHELDAHL with an English version of the statements. 8. Distributions. Within ninety (90) days following the end of each fiscal year, the Board of Directors shall determine the reasonable working capital requirements of SNW for the next fiscal year, including any required reserves. The Board of Directors shall approve all distributions which shall be made in proportion to each parties equity ownership in SNW. 6 9. Representations of Parties. 9.1 In order to induce the other to enter into and perform this Agreement, JCCP, WAH HING and SHELDAHL (each constituting a "Representing Party" for purposes of this Section 9) each hereby represents and warrants to the others as follows: a. The Representing Party is a corporation duly organized and validly existing under the laws of its jurisdiction of organization. b. The Representing Party has taken all corporate actions necessary for the authorization, execution, delivery and performance of this Agreement, and when accepted by the other parties this Agreement will constitute a valid and binding obligation, enforceable against it in accordance with the terms hereof. c. Except as provided in Section 14.2(b), no consent, approval or authorization of, or exemption by, or filing with, any governmental body is required in connection with the execution, delivery and performance by the Representing Party of this Agreement or the taking of any other action contemplated hereby, except SHELDAHL is currently applying for all necessary licenses required by the government of the United States. d. There are no undisclosed facts of which the Representing Party is aware that could materially effect the operations, business or financial condition of SNW after the date hereof or its ability to perform its obligations under this Agreement. 9.2 JCCP and WAH HING represent and warrant to SHELDAHL that SNW has no debts or liabilities and has incurred no obligations since its formation on August 18, 1994. To the extent SNW has debts, liabilities or other obligations, JCCP and WAH HING shall provide additional funds to SNW to eliminate them or shall assume and become responsible for them. 10. Pre-Emptive Rights. In the case of issuance of new shares by SNW other than under Section 5.2, JCCP, WAH HING and SHELDAHL shall have the right to subscribe for such number of shares to maintain their respective ownership percentage in SNW. 7 11. Co-Sale Right. Neither party shall sell or otherwise transfer any interest in its shares in SNW without allowing the other parties to participate on the same terms in the contemplated transfer in proportion to the number of shares each party holds. 12. First Refusal Right. No party will sell, transfer or otherwise dispose of any of the shares of SNW at any time (other than to majority owned subsidiaries of that party) unless the other parties shall have been given the opportunity, in the following manner, to purchase (or cause a corporation, entity, person or group designated by them to purchase) such shares: a. The selling party shall notify the other parties in writing of such intention, specifying the shares proposed to be disposed of and the proposed terms thereof. b. The other parties shall have the right, exercisable by written notice given by them to the selling party within 30 days after receipt of such notice of intention, to purchase (or to cause a corporation, entity, person or group designated by them to purchase) all or any part of the shares specified in such notice of intention on the terms and at the price set forth therein. c. If the other parties exercise their right of first refusal hereunder, the closing of the purchase of the shares with respect to which such right has been exercised shall take place within 60 days after the other parties give notice of such exercise. d. If the other parties do not exercise their right of first refusal hereunder within the time specified for such exercise, the selling party shall be free during the period of 60 days following the expiration of such time for exercise to sell the shares to the purchaser specified in such notice of intention at the price specified therein or at any price in excess thereof. Any shares not sold by the selling party within said 60 day period shall continue to be subject to the provisions of this Section 12. e. If the other parties shall designate another corporation, entity, person or group as the purchaser pursuant to this Section 12, the giving 8 of notice of acceptance of the right of first refusal by the other parties shall constitute a legally binding obligation of the other parties to complete such purchase if such other corporation, entity, person or group shall fail to do so. f. The right of any party to sell its shares to a third party shall be subject to the condition that any such purchaser agree in writing to be bound by all of the terms and conditions of this Agreement. 13. Confidentiality. Neither JCCP nor WAH HING shall have access to confidential information of SNW or SHELDAHL exchanged or pursuant to the Marketing and License Agreement and the Manufacturing Agreement. In the event either JCCP or WAH HING receives such information, it agrees to keep such information strictly secret and confidential and not to disclose it to any third persons or use it The obligations of this Section 13 shall survive any termination of this Agreement. 14. Closing and Conditions. 14.1 The Closing of the transactions provided for in Section 2 shall take place at a place to be agreed by the parties on or before December 31, 1995 (the "Closing"). At the Closing, the parties shall execute and deliver such documents and instruments, together with the cash required by Section 2.2, as required to effect the intents and purposes of this Agreement. 14.2 The obligations of the parties hereunder and under the Additional Agreements are subject to the fulfillment, prior to or at Closing, of the following conditions: (a) The representations of the parties in this Agreement shall be true and correct; (b) JCCP shall have obtained all authorizations, consents, waivers and approvals from the government of China and any agencies thereof as may be necessary to form SNW, to enable SNW to conduct its business as contemplated herein and to allow SNW and JCCP to satisfy their obligations in this Agreement and the Additional Agreements; and (c) SHELDAHL shall have obtained all licenses required from the government of the United States to allow it to satisfy its obligations in this Agreement and the Additional Agreements. 9 (d) SHELDAHL's Board of Directors shall have approved the terms of this Agreement and the Additional Agreements. 15. Term and Termination. 15.1 The term of this Agreement shall commence on the date hereof and continue for a period of thirty (30) years unless terminated in accordance with the provisions of this Agreement or by force of law. The term of this Agreement may be extended by mutual agreement of all parties. 15.2 This Agreement shall terminate in any one of the following circumstances: a. Failure of the parties to satisfy the conditions set forth in Section 14.2; b. Receivership, bankruptcy, other insolvency proceedings, liquidation, or dissolution of SNW; c. The sale or transfer of all or substantially all of the assets or shares of capital stock of SNW; d. The voluntary agreement of all parties to this Agreement; or e. SHELDAHL fails to agree to its final ownership interest if such interest is more or less than 20%. 16. Arbitration. Any dispute between the parties arising out of or concerning the subject matter of, or the respective rights and obligations of the parties under, this Agreement shall be submitted to arbitration if it cannot be resolved by the parties. The arbitration proceeding shall be conducted in the place where the party against which the arbitration is requested has its principal office and in accordance with the rules of the Commercial Arbitration Association then in effect at such place. 17. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the laws of China. 18. Force Majeure. Both parties to this Agreement shall be excused from the performance of their obligations hereunder, and shall be 10 excused for so long as such condition continues, if such performance is prevented by conditions beyond the control of the parties, such as acts of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, strike, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. 19. Notice Provisions. Any notice required or permitted to be given hereunder shall be in writing and any notice shall be deemed to have been given when delivered in person or seven (7) days after the date upon which it was mailed, postage prepaid, by certified or registered air mail properly addressed to the addresses on page 1 of this Agreement; provided, however, that the presumption of actual receipt shall be subject to rebuttal by probative evidence showing that such notice was not actually received. 20. Modification. No modification or any claimed waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by a duly authorized officer of the party against whom such modification or waiver is sought. 21. Entire Agreement. This Agreement and the Additional Agreements shall constitute the entire agreement of the parties with respect to the subject matter of this Agreement and this Agreement will be attached to the Joint Venture Contract and Articles of Association. 22. Translation. The parties acknowledge that a Chinese translation of this Agreement is being executed by the parties on the date hereof. In interpreting this Agreement, the English version and the Chinese version shall be given equal weight. There shall be signed four (4) copies of this Agreement in Chinese and four (4) copies in English. Each party shall receive one (1) copy in English and one (1) copy in Chinese. 11 IN WITNESS WHEREOF, the parties have caused their respective representatives to sign and execute this Agreement in counterpart and each party holds one copy. JIANGXI CHANGJIANG CHEMICAL HONG KONG WAH HING (CHINA) PLANT OF CHINA DEVELOPMENT CO., LTD. By /s/ Rong-Zhong Rui By /s/ William C.H. Ma -------------------------- --------------------------- Its President Its Managing Director ---------------------- ----------------------- SHELDAHL, INC. JIUJIANG FLEX CO., LTD. By /s/ Edward Lundstrom By /s/ Edward Lundstrom -------------------------- --------------------------- Its V.P./Sales & Marketing Its Vice Chairman ---------------------- ----------------------- By /s/ Rong-Zhong Rui --------------------------- By /s/ William C.H. Ma --------------------------- 12 EX-10.24 5 AGREEMENT RELATING TO PAYMENTS Exhibit 10.24 AGREEMENT RELATING TO PAYMENTS ------------------------------ This AGREEMENT RELATING TO PAYMENTS is made and entered into this 1st day of August, 1995, by and between SHELDAHL, INC., a corporation established and existing under the laws of the State of Minnesota having its principal place of business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A. ("SHELDAHL"), JIANGXI CHANGJIANG CHEMICAL PLANT, a corporation established and existing under the laws of China, having its principal place of business at 1 Qianjin Road (E), Jiujiang Jiangxi China 332006 ("JCCP"), HONG KONG WAH HING (CHINA) DEVELOPMENT CO., LTD., a corporation established and existing under the laws of Hong Kong having its principal place of business at 14 Westlands Road, 3/F C, Aik San Factory Building, Quarry Bay, Hong Kong ("WAH HING"), and JIUJIANG FLEX CO., LTD., a corporation established and existing under the laws of China having its principal place of business at 1 Qianjin Road (E), Jiujiang, Jiangxi China 332006 ("SNW"). BACKGROUND: A. JCCP, WAH HING and SHELDAHL wish to establish a limited liability company in Jiujiang, Jiangxi China. Its name is Jiujiang Flex Co., Ltd. The purpose of the company is to manufacture and sell flexible copperclad laminates and associated coverfilm tapes. B. The following additional agreements ("Additional Agreements") are being entered into this date: (i) Manufacturing Agreement; (ii) Marketing and License Agreement; and (iii) Agreement Relating to Joint Venture. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties agree as follows: 1. SNW agrees to pay, and JCCP and WAH HING agree to cause SNW to pay, SHELDAHL the following amounts upon completion of each of the following milestones: Milestone Payment --------- ------- Approval by the Chinese $270,000 Government Agency of Joint Venture Contract and Related Agreements Within 45 days of approval $180,000 by the Chinese Government Agency of Joint Venture Contract and Related Agreements Completion of Phase 2 $ 90,000 (Equipment Performance Specifications) Completion of Phase 4 $ 90,000 (Personnel Training) Completion of Phase 5 $180,000 (Equipment verification) Completion of Phase 7 $ 90,000 -------- (Start-up of production) TOTAL $900,000 ======== Each phase is more fully described in Schedule B to the Marketing and License Agreement. All payments shall be made in United States dollars. 2. SHELDAHL has agreed to assist SNW in establishing a manufacturing line using technology licensed by SHELDAHL to SNW. SHELDAHL will receive a total of $900,000 for such assistance which shall be paid upon completion of certain milestones listed in Section 1 above. The $900,000 will be loaned to SNW by JCCP and WAH HING and will be repaid within 3-1/2 years after SNW begins production and the products meet the technical specifications by using dividends retained by SNW under Section 3 below and otherwise by SNW. 3. Dividends which are otherwise distributable to SHELDAHL by SNW shall be retained by SNW until the earlier of (a) the date SNW has retained an amount equal to the payments described in Section 1 above; or (b) 3 1/2 years after SNW begins production, provided SHELDAHL has satisfied all contractual commitments then due to SNW under the Marketing and License Agreement and Manufacturing Agreement; or (c) the date SHELDAHL fulfills the commitments described in clause (b) above which have not been satisfied prior to the end of the period set forth in clause (b) above. SHELDAHL shall fully participate in all distributions after the earliest of the periods described in this Section 3. 4. This Agreement shall be effective only upon approval by the Chinese Government Agency of the terms of this Agreement and the Additional Agreements, to the extent such approval is required. This Agreement shall terminate in the event the Agreement Relating to Joint Venture terminates under Section 15.2(e) or the Closing under that agreement does not occur. 5. This Agreement will be executed in Chinese and English. Each party shall have one copy in Chinese and one in English. 2 6. This Agreement shall be attached to the Joint Venture Contract and Articles of Association. IN WITNESS WHEREOF, the parties have caused their respective representatives to sign and execute this Agreement in counterpart and each party holds one copy. JIANGXI CHANGJIANG CHEMICAL HONG KONG WAH HING (CHINA) PLANT OF CHINA DEVELOPMENT CO., LTD. By /s/ Rong-Zhong Rui By /s/ William C.H. Ma -------------------------- --------------------------- Its President Its Managing Director ---------------------- -------------------- SHELDAHL, INC. JIUJIANG FLEX CO., LTD. By /s/ Edward Lundstrom By /s/ Edward Lundstrom -------------------------- --------------------------- Its V.P./Sales & Marketing Its Vice Chairman ---------------------- ----------------------- By /s/ Rong-Zhong Rui --------------------------- By /s/ William C.H. Ma --------------------------- 3 EX-10.25 6 MANUFACTURING AGREEMENT Exhibit 10.25 MANUFACTURING AGREEMENT ----------------------- This MANUFACTURING AGREEMENT is made and entered into as of the 1st day of August, 1995, by and between SHELDAHL, INC., a corporation established and existing under the laws of the State of Minnesota having its principal place of business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A. ("SHELDAHL"), and JIUJIANG FLEX CO., LTD., a corporation established and existing under the laws of China having its principal place of business at 1 Qianjin Road (E), Jiujiang Jiangxi China 332006 ("SNW"). BACKGROUND: A. SHELDAHL is actively engaged in the business of developing, manufacturing and marketing flexible copperclad laminates and associated coverfilm tapes (coverlay) throughout the world. B. SNW has been established in Jiujiang, Jiangxi China to manufacture flexible copperclad laminates and associated coverfilm tapes. C. Both parties desire to establish a long-term business relationship through technical assistance, sales of copperclad laminates and associated coverfilm tapes and investment by SHELDAHL and others in the SNW and are entering into or have entered into the following agreements (the "Additional Agreements") in addition to this Agreement: (i) Agreement Relating to Joint Venture; (ii) Marketing and License Agreement and (iii) Agreement Relating to Payments. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties agree as follows: 1. Definitions. Terms used in this Agreement which are not defined in this Agreement shall have the meanings given such terms in the Marketing and License Agreement. 2. Manufacture of Licensed Products. 2.1 SNW agrees to manufacture and sell to SHELDAHL, and SHELDAHL agrees to purchase from SNW, 120,000 square meters of Licensed Products which are flexible copperclad laminates each year for three (3) consecutive years beginning the fourth month after the Licensed Products manufactured at the SNW Plant meet the performance and quality standards of such products manufactured by SHELDAHL. In the event SHELDAHL grants a license during such three-year period as provided in Section 2.2 of the Marketing and License Agreement, SHELDAHL's 120,000 square meter 1 commitment shall be replaced by the commitment provided in that agreement. 2.2 In addition to the Licensed Products sold by the SNW to SHELDAHL under Section 2.1 above, the SNW shall manufacture and sell to SHELDAHL up to 200,000 square meters of Licensed Products each year during the term of this Agreement beginning the month SHELDAHL's minimum purchases start under Section 2.1 above. SHELDAHL shall give SNW six (6) months' advance notice of its intended purchases and the Board of Directors of the SNW must approve such purchases, which approval shall not be unreasonably withheld. 2.3 During the three-year period in which SHELDAHL is required to purchase Licensed Products under Section 2.1 of this Agreement, or until such earlier time, if any, as a license is granted by SHELDAHL to a third party as provided in Section 2.2 of the Marketing and License Agreement, SHELDAHL agrees to purchase from the SNW all of SHELDAHL's requirements for Licensed Products in Asia to the extent the SNW can timely deliver Licensed Products to SHELDAHL which meet the performance and quality standards of such products manufactured by SHELDAHL. After the three-year period in which SHELDAHL is required to purchase Licensed Products under Section 2.1 above, until such time, if any, as a license is granted by SHELDAHL as provided in Section 2.2 of the Marketing and License Agreement, SHELDAHL shall present its estimate of the demand for Licensed Products in Asia and agrees that SNW shall be SHELDAHL's primary supplier of such products in Asia provided SNW can timely deliver Licensed Products to SHELDAHL which meet the performance and quality standards of such products manufactured by SHELDAHL. 2.4 After the Licensed Products meet the performance and quality standards of such products manufactured by SHELDAHL, SNW shall not change the Licensed Products or the manufacturing process for the Licensed Products without the written consent of SHELDAHL. 3. Price and Terms. 3.1 The price of each of the Licensed Products shall be equal to 80% of the price of such products to the world high volume market as agreed to annually by SHELDAHL and the Board of Directors of the SNW based on information available to the parties. All payments shall be made in United States dollars. 3.2 The terms of payment for the Licensed Products purchased by SHELDAHL under this Agreement shall be net 30 days from invoice date unless the parties agree to other payment terms prior to product shipment. 2 3.3 SNW shall deliver the Licensed Products F.O.B. point of destination as designated in SHELDAHL's purchase order. The purchaser of the Licensed Products shall be responsible for shipping charges. 3.4 Each of the Licensed Products sold to SHELDAHL shall conform with the performance and quality specifications for such product. Replacement of defective Licensed Products will be made without charge by SNW within thirty (30) days of receipt by SNW of notice that the Licensed Products are defective. 3.5 SHELDAHL may, upon reasonable notice, visit the SNW Plant and review its production and quality control procedures. SNW shall deliver to SHELDAHL test samples of the Licensed Products produced by it on reasonable notice by SHELDAHL. SHELDAHL shall pay for the testing of the product samples requested by SHELDAHL from the SNW. 3.6 SNW shall indemnify and hold SHELDAHL harmless for all liabilities incurred by SHELDAHL related to products manufactured by the SNW and sold by SHELDAHL. 3.7 SHELDAHL shall order Licensed Products by submitting written purchase orders to SNW at least 30 days prior to shipment and shall specify the quantity, price, delivery date, method of shipment and product specifications, however, SHELDAHL shall provide SNW a six-month rolling forecast of estimated purchases and shall provide SNW with a monthly update of such forecast. In the event SHELDAHL's actual purchases materially exceed its forecast, the parties shall work together to resolve the difference. 4. Confidentiality. The confidentiality provisions contained in Section 11 of the Marketing and License Agreement shall apply to any Technical Information and other confidential information acquired from the other party under this Agreement. 5. Term and Termination. 5.1 The initial term of this Agreement shall be for a period of ten (10) years from the date the government of China approves this Agreement and the Additional Agreements; provided that if a written notice of termination shall not be received by either party from the other party at least six months prior to the expiration of the initial term or any renewal term, the term of this agreement shall be automatically renewed for successive two year terms beyond the initial term until such written notice of termination is timely received. 3 5.2 If either party defaults on or breaches a material provision of this Agreement or any Additional Agreement, the party not in default or breach shall have the right to cancel this Agreement upon sixty (60) days' written notice; provided, however, that if the defaulting party corrects the default or breach within the sixty (60) day period, this Agreement shall continue in full force and effect. 5.3 Either party may terminate this Agreement in the event that proceedings for reorganization, liquidation, bankruptcy or receivership are filed or instituted against or by the other party. 5.4 This Agreement shall terminate in the event the Agreement Relating to Joint Venture is terminated under Section 15.2(e) or the Closing under that agreement does not occur. 6. Force Majeure. Both parties to this Agreement shall be excused from the performance of their obligations hereunder, other than obligations to pay for goods sold and delivered under this Agreement, and shall be excused for so long as such condition continues, if such performance is prevented by conditions beyond the control of the parties, such as acts of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, strike, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. If such event occurs, SHELDAHL's annual minimum purchase obligations in Section 2.1 shall be reduced proportionately for the time during the year in which such condition continues. 7. Arbitration. Any dispute between the parties arising out of or concerning the subject matter of, or the respective rights and obligations of the parties under, this Agreement shall be submitted to arbitration if it cannot be resolved by the parties. If arbitration is requested by SHELDAHL, the arbitration proceeding shall be conducted in Jiujiang, Jiangxi China in accordance with the rules of the Commercial Arbitration Association then in effect in China; if arbitration is requested by SNW, the arbitration proceeding shall be conducted in Minneapolis, Minnesota, U.S.A. in accordance with the rules of the American Arbitration Association then in effect. 4 8. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the laws of China. 9. Assignment. Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the prior written consent of the other party. Notwithstanding the foregoing, SHELDAHL may assign all of its rights and obligations under this Agreement to any entity which acquires SHELDAHL by merger, consolidation or purchase of substantially all of the assets or business of SHELDAHL related to the Licensed Products. 10. Entire Agreement. This Agreement and the Additional Agreements shall constitute the entire agreement of the parties with respect to the subject matter of this Agreement and this Agreement shall be attached to the Joint Venture Contract and Articles of Association. 11. Translation. The parties acknowledge that a Chinese translation of this Agreement is being executed by the parties on the date hereof. In interpreting this Agreement, the English version and Chinese version shall be given equal weight. There shall be signed four (4) copies of this Agreement in Chinese and four (4) copies in English. Each party to the Agreement Relating to Joint Venture including SNW shall receive one copy in English and one copy in Chinese. 12. Government Approval. This Agreement shall be effective only upon approval by the Chinese Government Agency of the terms of this Agreement and the Additional Agreements, to the extent such approval is required. 5 IN WITNESS WHEREOF, the parties have caused their respective representatives to sign and execute this Agreement in counterpart and each party holds one copy. JIUJIANG FLEX CO., LTD. By /s/ Edward Lundstrom -------------------- Its Vice Chairman ----------------- By /s/ Rong-Zhong Rui -------------------- By /s/ William C.H. Ma -------------------- SHELDAHL, INC. By /s/ Edward Lundstrom -------------------- Its V.P./Sales & Marketing ----------------------- 6 EX-10.26 7 MARKETING AND LICENSE AGREEMENT Exhibit 10.26 MARKETING AND LICENSE AGREEMENT This MARKETING AND LICENSE AGREEMENT is made and entered into as of the 1st day of August, 1995, by and between SHELDAHL, INC., a corporation established and existing under the laws of the State of Minnesota having its principal place of business at 1150 Sheldahl Road, Northfield, MN 55057-0170, U.S.A. ("SHELDAHL"), and JIUJIANG FLEX CO., LTD., a corporation established and existing under the laws of China having its principal place of business at 1 Qianjin Road (E), Jiujiang Jiangxi China 332006 ("SNW"). BACKGROUND: A. SHELDAHL is actively engaged in the business of developing, manufacturing and marketing flexible copperclad laminates and associated coverfilm tapes (coverlay) throughout the world. B. SNW has been established in Jiujiang Jiangxi China to manufacture flexible copperclad laminates and associated coverfilm tapes. C. Both parties desire to establish a long-term business relationship through technical assistance, sales of copperclad laminates and associated coverfilm tapes and investment by SHELDAHL and others in the SNW and are entering into or have entered into the following agreements (the "Additional Agreements") in addition to this Agreement: (i) Agreement Relating to Joint Venture; (ii) Manufacturing Agreement; and (iii) Agreement Relating to Payments. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties agree as follows: 1. Definitions. 1.1 "Excluded Products" shall mean SHELDAHL's product offerings not listed on Schedule A attached hereto. 1.2 "Industrial Property Rights" shall mean any and all patents and other industrial property rights of SHELDAHL with respect to the Licensed Products (as defined below) and related technology thereof excluding, however, any such rights related to Excluded Products. 1.3 "SNW Plant" shall mean the SNW's manufacturing plant in Jiujiang Jiangxi China. 1.4 "Licensed Products" shall mean the flexible polyimide and polyester- based laminates and associated polyester and polyimide coverfilm tapes listed on Schedule A and any 1 Improvements thereof by SHELDAHL or SNW as defined in Section 9.2 excluding, however, the Excluded Products. Other polyimide and polyester-based laminates and associated coverfilm tapes of SHELDAHL may be added as Licensed Products if the SNW and SHELDAHL agree and a reasonable technology transfer fee is determined. 1.5 "Net Sales" shall mean the full amount collected on the sale of Licensed Products after deduction of (a) any collected tax or other governmental charge on the sale, transportation, use or delivery of the Licensed Product, (b) any amounts repaid or credited by reason of returns or rejections, and (c) any amount paid to the Chinese government on account of royalty payments to be made to SHELDAHL for such sales. 1.6 "Royalty Product" shall mean any Licensed Product sold by the SNW, excluding Licensed Products sold to SHELDAHL. 1.7 "Royalty Year" shall mean a period of four consecutive calendar quarters beginning with the calendar quarter which includes the date on which the SNW first manufactures and sells Royalty Products and each period of four consecutive calendar quarters thereafter. 1.8 "Technical Information" shall mean all areas of technology related to the Licensed Products, whether patentable or not, relating to the manufacture of the Licensed Products, including without limitation manufacturing processes, equipment specifications, product design standards, computer aided design systems, training and education programs, and any other controls, processes, systems, equipment and related technology which would be of assistance in development of the Licensed Products by the SNW, excluding however any such confidential Technical Information related to Excluded Products. 1.9 "Industrial Property Rights" and "Technical Information" as used in this Agreement shall not include any such right or information acquired by SHELDAHL under agreements entered into by SHELDAHL with unrelated third parties or developed jointly with any such unrelated third party, unless specifically authorized in writing by any such third party. 2. Grant of License. 2.1 SHELDAHL hereby grants to the SNW an exclusive license under the Technical Information and the Industrial Property Rights of SHELDAHL to manufacture Licensed Products in China at the SNW Plant using a roll-to-roll process. SHELDAHL also grants to the SNW the right to sell the Licensed Products produced by the SNW solely under the terms of Section 4 below. SHELDAHL has the right to grant the licenses granted in this 2 Section 2. The SNW shall manufacture the Licensed Products and formulate and mix adhesives only at the SNW Plant unless SHELDAHL agrees otherwise. SHELDAHL retains all other rights under the Technical Information and Industrial Property Rights, including the right to license such rights to third parties, other than third parties which would manufacture the Licensed Products in mainland China, Taiwan, Hong Kong or Macau. 2.2 In the event SHELDAHL grants, after the date of this Agreement, to any third party other than SNW a license under the Technical Information and the Industrial Property Rights of SHELDAHL to manufacture Licensed Products in any country in Asia, SHELDAHL agrees to purchase, in replacement of its 120,000 square meter commitment under the Manufacturing Agreement, a total of 150,000 square meters of Licensed Products which are flexible copperclad laminates each year during the period beginning with such license grant and ending the tenth (10th) Royalty Year. In the event SHELDAHL desires to grant such a license, it agrees to inform the Board of Directors of SNW six months before the license grant and discuss and consider with the SNW Board of Directors SNW's participation. If SNW desires to participate, SHELDAHL shall give special consideration to such request. 2.3 The SNW may not sublicense the rights granted hereunder except with the prior written consent of SHELDAHL. 3. Royalty Payment and Reporting. 3.1 In consideration of the licenses granted under Section 2, SNW shall pay to SHELDAHL a running royalty for each Royalty Year at the rates set forth below of Net Sales of Royalty Products:
Royalty Rate Aggregate Net Sales -------------- of all Royalty Products Royalty Years Royalty Years Each Royalty Year 1-3 4-10 - - ------------------------------- --- ---- First $2,000,000 5% 3.5% Next $2,000,001 to $4,000,000 4% 2.5% Next $4,000,001 to $8,000,000 3% 1.5% In excess of $8,000,000 2% 1.0%
For example, if the SNW sells $4,000,000 of Royalty Products during the second Royalty Year, the royalty shall equal $180,000. Sales by the SNW for currency other than United States dollars shall be converted to dollars using an internationally accepted exchange rate on the payment due date. 3.2 SHELDAHL shall receive a minimum royalty of $100,000 each Royalty Year payable within 30 days of the end of each Royalty Year. The minimum royalty payment shall be reduced 3 by amounts paid to SHELDAHL by the SNW under Section 3.1 for the Royalty Year. 3.3 Royalties shall be paid quarterly within 30 days after the end of each calendar quarter during the period for which any royalty shall be due, and shall be accompanied by a written report detailing the quantity and Net Sales Price of Royalty Products sold by SNW during the calendar quarter in which royalties are due under Section 3 and the aggregate dollar volume of Royalty Products sold during the Royalty Year. 3.4 No royalties shall be paid for Royalty Products sold after the tenth (10th) Royalty Year under either Section 3.1 or 3.2 above. 3.5 SNW shall keep full and accurate books of account containing all information necessary to compute the royalties due SHELDAHL under this Agreement. Such books of account shall be kept at the SNW Plant, and shall be available upon reasonable notice for inspection and audit by financial representatives of SHELDAHL from time to time during regular business hours. 4. Marketing of Licensed Products. 4.1 The Licensed Products produced by the SNW may be sold only pursuant to the terms of this Section 4. 4.2 The SNW shall be primarily responsible for managing and shall have ultimate control over sales of Licensed Products produced at the SNW Plant in mainland China, Hong Kong and Macau. Sales to Taiwan are governed by Section 4.4 below. 4.3 Subject to SHELDAHL's purchase obligations in the Manufacturing Agreement, SHELDAHL shall be primarily responsible for managing and shall have ultimate control over sales of the Licensed Products produced at the SNW Plant in all markets other than mainland China, Taiwan, Hong Kong and Macau. 4.4 Subject to SHELDAHL's purchase obligations in the Manufacturing Agreement, SHELDAHL shall be primarily responsible for managing and shall have ultimate control over sales of the Licensed Products produced at the SNW Plant in Taiwan until December 31, 1998. Prior to December 31, 1998, the SNW and SHELDAHL shall agree upon the distribution method in Taiwan. After December 31, 1998, the SNW shall be primarily responsible for managing and shall have ultimate control over sales of the Licensed Products produced at the SNW Plant in Taiwan under the distribution method agreed to by SHELDAHL and the SNW. 4 5. Trademark. 5.1 SNW shall have the exclusive right to use SHELDAHL's trademark "Flexbase(TM)" only on Licensed Products which meet the performance and quality standards of such products manufactured by SHELDAHL and only for selling Licensed Products produced at the SNW Plant in mainland China, Taiwan, Hong Kong and Macau under the terms of Section 4 of this Agreement; subject to SHELDAHL's right to use the trademark "Flexbase(TM)" in its sales of Licensed Products under the terms of Section 4 of this Agreement and without restriction anywhere in the world with respect to the sale of its own products. The SNW shall identify SHELDAHL as the owner of the Flexbase(TM) trademark. Until such trademarks are issued, SHELDAHL makes no warranty as to validity or use of such trademarks. 5.2 The SNW shall use and refer to the name of SHELDAHL as a licensor of the Technical Information and the Industrial Property Rights in an appropriate manner; provided the SNW shall obtain the prior written consent of SHELDAHL to such use and reference. 6. Temporary Supply of Products. 6.1 Until the earlier of December 31, 1998 or the date the SNW begins producing Licensed Products which meet the performance and quality standards of such products manufactured by SHELDAHL, SHELDAHL shall sell to the SNW flexible laminates and associated coverfilm tapes with the same specifications as the Licensed Products solely for resale by the SNW in mainland China. During such period, SNW shall work with SHELDAHL in developing a marketing plan for such products in mainland China. SNW shall update SHELDAHL periodically with respect to sales in China and suggest modifications to such marketing plan. After such period, SNW shall have the rights provided in Section 4.2 above. 6.2 SNW shall use tradenames and trademarks of SHELDAHL in the sale or distribution of SHELDAHL's products in mainland China unless otherwise authorized by SHELDAHL from time to time. 6.3 SHELDAHL shall provide to SNW necessary promotional materials which are available, it being understood that such materials will be in the English language. 7. Price and Terms of SHELDAHL Sales. 7.1 The price of each of the products sold by SHELDAHL to the SNW under Section 6 above shall be equal to 80% of the price of such products to the world high volume market as agreed 5 to annually by SHELDAHL and the Board of Directors of the SNW based on information available to the parties. 7.2 The terms of payment for the products sold by SHELDAHL to the SNW under this Agreement shall be net 30 days from invoice date unless the parties agree to other payment terms prior to product shipment. 7.3 SHELDAHL shall deliver such products to the SNW F.O.B. SHELDAHL plant. 7.4 Each of such products sold to the SNW shall conform with the performance and quality specifications for such products. Replacement of defective products will be made without charge by SHELDAHL within thirty (30) days of receipt by SHELDAHL of notice that the products sold by SHELDAHL to the SNW are defective. 7.5 SNW shall order products from SHELDAHL by submitting written purchase orders to SHELDAHL at least 30 days prior to shipment and shall specify the quantity, price, delivery date, method of shipment and product specifications. All sales by SHELDAHL to the SNW shall be subject to SHELDAHL's general terms and conditions of sale to the extent consistent with this Section 7. 8. Technical Assistance to SNW by SHELDAHL. 8.1 Immediately after the execution of this Agreement, SHELDAHL shall provide technical assistance to SNW for the SNW Plant based on the Technical Information of SHELDAHL in the manner prescribed in Schedule B attached hereto. 8.2 The subjects of the technology for the technical assistance provided for in Section 8.1 are detailed in Schedule B as "deliverables." 8.3 The technical assistance to SNW by SHELDAHL shall be made through technical instruction by SHELDAHL's personnel and technical materials to be provided by SHELDAHL. SNW shall provide, at its expense, technical interpreters at SHELDAHL's facilities and the SNW Plant. If SNW so requests, SHELDAHL shall disclose and deliver such Technical Information by documentation such as drawings, specifications, bills and materials, designs, etc., which is available to SHELDAHL, it being understood that such materials will be in the English language. 8.4 The documentation delivered by SHELDAHL under Section 8.3 of this Agreement shall be complete and accurate in all material respects. SHELDAHL shall receive certain payments for its technical assistance under the terms of the Agreement 6 Relating to Payments upon completion of certain milestones set forth in that agreement. Promptly after completion of Phase 2 as set forth in Schedule B, SHELDAHL's technical group will work with the technical people from SNW to finalize the time schedule for the technical assistance. If SHELDAHL does not meet its obligations under Schedule B in accordance with the agreed-upon schedule (and such delay does not occur because of force majeure or the failure of SNW or any third party under contract with SNW to perform its obligations), SHELDAHL shall pay SNW for such delay an amount equal to SNW's actual direct expenses occasioned by such delay, less any amounts required to be paid by equipment suppliers or vendors under contract with SNW for failure to timely fulfill their contractual obligations to SNW. 8.5 SHELDAHL shall provide SNW technical assistance under Section 8.1 by accepting SNW's engineers at its plants, and by dispatching its engineers to the SNW Plant as detailed in Schedule B. SNW shall bear all travel, living and other expenses of SNW's engineers and personnel for such technical assistance. SHELDAHL shall bear all travel and living expenses of SHELDAHL's engineers and personnel for the time periods detailed in Schedule B. If additional engineer and personnel time of SHELDAHL is necessary for training (Phase 4), equipment installation (Phase 6) or start-up (Phase 7), SNW shall pay SHELDAHL an agreed per diem rate, plus all additional travel and living expenses. 9. Joint Technical Advisory Board; Improvements. 9.1 Subject to the provisions of this Agreement, to assure a continuous and free interchange of Technical Information and technology developments between the SNW and SHELDAHL, the parties hereby establish a Joint Technical Advisory Board made up of at least two technically trained and experienced employees from each party. The Joint Technical Advisory Board shall meet at such times as may be agreed by the parties. Subject to the provisions of this Agreement, at those meetings the parties shall advise each other thoroughly of the Technical Information relating to all technical developments and technology improvements related to the Licensed Products since the time of the last meeting. Travel, living and salary expenses of the representatives of the parties who serve on the Joint Technology Advisory Board shall be paid by the SNW. 9.2 In the event the SNW or SHELDAHL should develop any enhancement, modification, design, concept or technique related to any of the Licensed Products or the Technical Information licensed under this Agreement ("Improvements"), the other party shall be granted a non-exclusive right and license to use such Improvement. Any such Improvement by SNW or SHELDAHL shall be included in the license granted hereunder and shall be subject to all of the terms and conditions of this Agreement 7 related to such license. Any license granted to SHELDAHL under this Section 9.2 shall be royalty free. 10. Patent. 10.1 Any rights to apply for patent in any country in the world with respect to Improvements conceived by SHELDAHL shall belong to SHELDAHL; provided that in the event SHELDAHL determines not to apply for a patent within China, SNW may apply for such patent with respect to such Improvement in China after a full consultation with SHELDAHL. 10.2 Any rights to apply for patent in any country in the world with respect to Improvements conceived by SNW shall belong to SNW; provided that in the event SNW determines not to apply for a patent within the U.S.A., SHELDAHL may apply for such patent with respect to such Improvement in the U.S.A. after a full consultation with SNW. 11. Confidentiality. 11.1 Each of the parties hereto agrees to keep strictly secret and confidential any and all Technical Information and other confidential information acquired from the other party hereunder and not to disclose it to any third persons or use it except as permitted by this Agreement. 11.2 The obligation imposed by this Section 11 shall not apply to any information: (a) which at the time of disclosure is in the public domain; or (b) which after disclosure becomes part of the public domain, by publication or otherwise, through no fault of the recipient party; or (c) which at the time of disclosure is already in the recipient party's possession, and such possession can be properly demonstrated by it; or (d) which is rightfully made available to one party from sources independent of the other party, or (e) the disclosure of which is agreed in writing by the other party. The obligations of this Section 11 shall survive for a period of five (5) years after the termination of this Agreement for any reason. 8 12. Term and Termination. 12.1 The initial term of this Agreement shall begin the date the government of China approves this Agreement and the Additional Agreements and end after the tenth (10th) Royalty Year; provided that if a written notice of termination shall not be received by either party from the other party at least six months prior to the expiration of the initial Term or any renewal Term, the Term of this Agreement shall be automatically renewed for successive two year Terms beyond the initial Term until such written notice of termination is timely received. 12.2 If either party defaults on or breaches a material provision of this Agreement or any Additional Agreement, the party not in default or breach shall have the right to cancel this Agreement upon sixty (60) days' written notice; provided, however, that if the defaulting party corrects the default or breach within the sixty (60) day period, this Agreement shall continue in full force and effect. 12.3 Either party may terminate this Agreement in the event that proceedings for reorganization, liquidation, bankruptcy or receivership are filed or instituted against or by the other party. 12.4 This Agreement shall terminate in the event the Agreement Relating to Joint Venture is terminated under Section 15.2(e) or the Closing under that agreement does not occur. 13. Perpetual Right. SNW shall have the perpetual non-exclusive right to make, have made, use and sell the Licensed Products only in mainland China, Taiwan, Hong Kong and Macau under the Industrial Property Rights or the Technical Information of SHELDAHL after any termination of this Agreement; provided that in case of the termination by reason of the SNW's breach or default or a termination under Section 12.4, the SNW shall have no further rights under this Agreement. 14. Payments. All payments to be made under this Agreement shall be in United States dollars. 9 15. Arbitration. Any dispute between the parties arising out of or concerning the subject matter of, or the respective rights and obligations of the parties under, this Agreement shall be submitted to arbitration if it cannot be resolved by the parties. If arbitration is requested by SHELDAHL, the arbitration proceeding shall be conducted in Jiujiang, Jiangxi China in accordance with the rules of the Commercial Arbitration Association then in effect in China; if arbitration is requested by SNW, the arbitration proceeding shall be conducted in Minneapolis, Minnesota, U.S.A. in accordance with the rules of the American Arbitration Association then in effect. 16. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the laws of China. 17. Force Majeure. Both parties to this Agreement shall be excused from the performance of their obligations hereunder, and shall be excused for so long as such condition continues, if such performance is prevented by conditions beyond the control of the parties, such as acts of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, strike, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. This Section 17 shall not apply to either party's obligations to make payment for products sold and delivered under this Agreement or to make royalty payments for Licensed Products sold by SNW. This Section 17 also does not apply to the SNW's inability to get exchange of currency to fulfill its payment obligations under this Agreement. If exchange of currency is blocked for more than one year, SHELDAHL may terminate this Agreement or request payment in other currency. 18. Notice Provisions. Any notice required or permitted to be given hereunder shall be in writing and any notice shall be deemed to have been given when delivered in person or seven (7) days after the date upon which it was mailed, postage prepaid, by certified or registered air mail properly addressed to the addresses written on the first page of this Agreement; provided, however, that the presumption of actual receipt shall be subject to rebuttal by 10 probative evidence showing that such notice was not actually received. 19. Assignment. Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the prior written consent of the other party. Notwithstanding the foregoing, SHELDAHL may assign all of its rights and obligations under this Agreement to any entity which acquires SHELDAHL by merger, consolidation or purchase of substantially all of the assets or business of SHELDAHL related to the Licensed Products. 20. Entire Agreement. This Agreement and the Additional Agreements shall constitute the entire agreement of the parties with respect to the subject matter of this Agreement and this Agreement shall be attached to the Joint Venture Contract and Articles of Association. 21. Translation. The parties acknowledge that a Chinese translation of this Agreement is being executed by the parties on the date hereof. In interpreting this Agreement, the English version and the Chinese version shall be given equal weight. There shall be signed four (4) copies of this Agreement in Chinese and four (4) copies in English. Each party to the Agreement Relating to Joint Venture, including the SNW, shall receive one copy in English and one copy in Chinese. 22. Government Approvals. This Agreement shall be effective only upon approval by the Chinese Government Agency of the terms of this Agreement and the Additional Agreements, to the extent such approval is required. 11 IN WITNESS WHEREOF, the parties have caused their respective representatives to sign and execute this Agreement in counterpart and each party holds one copy. JIUJIANG FLEX CO., LTD. By /s/ Edward Lundstrom -------------------- Its Vice Chairman ---------------- By /s/ Rong-Zhong Rui -------------------- By /s/ William C.H. Ma -------------------- SHELDAHL, INC. By /s/ Edward Lundstrom -------------------- Its V.P./Sales & Marketing ----------------------- 12 EX-10.27 8 AGREEMENT Exhibit 10.27 TECHNOLOGY REINVESTMENT PROJECT TECHNOLOGY DEVELOPMENT AGREEMENT BETWEEN LOW COST FLIP CHIP CONSORTIUM c/o NATIONAL SEMICONDUCTOR CORPORATION 1120 KIFER ROAD SUNNYVALE, CA 94086-3737 AND THE ADVANCED RESEARCH PROJECTS AGENCY 3701 NORTH FAIRFAX DRIVE ARLINGTON, VA 22203-1714 CONCERNING DIRECT ATTACHMENT OF FLIP CHIPS ON LAMINATE SUBSTRATES Agreement No.: MDA972-95-3-0031 ARPA Order No.: C326/01 Total Amount of the Agreement: $21,097,981 Total Estimated Government Funding of the Agreement: $9,829,610 Funds Obligated: $6,794,728 Authority: 10 U.S.C. (S) 2371 & (S) 2511 Line of Appropriation: AA 9740400 1320 C326 P4VIO 2525 DPAC 4 5271 503733 $6,794,728 This Agreement is entered into between the United States of America, hereinafter called the Government represented by The Advanced Research Projects Agency (ARPA), and the Low Cost Flip Chip Consortium pursuant to and under U.S. Federal law. FOR LOW COST FLIP CHIP CONSORTIUM FOR THE UNITED STATES OF AMERICA NATIONAL SEMICONDUCTOR CORPORATION THE ADVANCED RESEARCH PROJECTS AGENCY /s/ Dennis W. Ralston /s/ R. H. Register - - ------------------------------ --------------------------- (Signature) (Signature) Dennis W. Ralston Ron H. Register Manager, Business Operations 8/8/95 Deputy Director for Management 8/15/95 - - ------------------------------------ -------------------------------------- (Name, Title) (Date) (Name, Title) (Date) AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 2 TABLE OF CONTENTS ARTICLES PAGE ARTICLE I Scope of the Agreement 3 ARTICLE II Term 6 ARTICLE III Management of the Project 6 ARTICLE IV Agreement Administration 8 ARTICLE V Obligation and Payment 9 ARTICLE VI Disputes 10 ARTICLE VII Patent Rights 11 ARTICLE VIII Data Rights 14 ARTICLE IX Foreign Access to Technology 16 ARTICLE X Pre-Agreement Costs 17 ARTICLE XI Officials Not to Benefit 17 ARTICLE XII Civil Rights Act 17 ARTICLE XIII Order of Precedence 17 ARTICLE XIV Execution 17 ATTACHMENTS ATTACHMENT 1 Statement of Work ATTACHMENT 2 Report Requirements ATTACHMENT 3 Schedule of Payments and Payable Milestones ATTACHMENT 4 Funding Schedule ATTACHMENT 5 List of Government and Consortium Representatives 2 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 3 ARTICLE I: SCOPE OF THE AGREEMENT A. BACKGROUND 1. This Agreement is a Defense Dual-Use Critical Technology Partnership awarded under the Congressionally funded Technology Reinvestment Project (TRP). The mission of the TRP is to stimulate the transition to a growing, integrated, national industry capability that provides the most advanced, affordable, military systems and the most competitive commercial products. Within the general Technology Development area of Low Cost Electronic Packaging, this Agreement focuses specifically on advancing the technology and enhancing the United States (U.S.) production capabilities of flip-chip Direct Chip Attach (DCA) assembly for integrated microcircuits with the goal of enhancing both military and commercial customers to employ flip-chip assembled integrated circuits (ICs) in a wide variety of applications. 2. Aptos Corporation (Aptos), Delco Electronics Corporation (Delco), Hughes Missile Systems Company (Hughes), Jabil Circuit, Inc. (Jabil), Litronic Industries, Inc. (Litronic), National Semiconductor Corporation (Nationa), Sheldahl, Inc. (Sheldahl), and SunDisk Corporation (SunDisk) have formed a partnership to emplace a domestic infrastructure for the manufacture of low-cost flip-chip assemblies, from wafer fabrication to final product assembly. This initiative springs from the growing recognition that the evolution of electronic products toward lower cost, smaller form factor, lower weight and higher performance can best be realized at chip level by eliminating the IC package. 3. To succeed in this goal, bare die flip-chip must supplant the current benchmark for low-cost packaging, the industry standard molded plastic package. Over 90% of IC packages are encapsulated in plastic. There are extensive infrastructures in place to support production of packages such as Plastic Quad Flat Pack (PQFP), Plastic Leaded Chip Carrier (PLCC) and Small Outline Integrated Circuit (SOIC). Although these manufacturing technologies are well understood, they also possess significant limitations in today's marketplace. They are large compared to the die they house resulting in board areas up to twenty times the area of the die. The larger package dimension also can result in parasitics that are up to 10 times greater than bumped die. 4. There is consequently a growing desire to eliminate the package altogether, and move to DCA of bare die substrate. Of the three technologies that currently exist for bare die attach, chip and wire, chip-on-glass, and solder bump flip-chip, only the last is a valid approach to the wide spectrum of electronic products designed and manufactured in the U.S. military and commercial markets. However, the only broadly established solder bumped flip- chip technology in the U.S. to date is the controlled collape chip connection (C4) process of International Business Machines Corporation. It is indeed highly performance-effective, but not cost-effective for most commodity applications. Moreover, the high lead content of the bumps does not permit reflow at Surface Mount Assembly (SMA) temperatures. 5. A major goal of this Consortium, therefore, is to develop a cost- effective alternative to high-temperature evaporated solders. Wafer and die bumping process cost is, however, only one component of a successful low-cost DCA product infrastructure. Only if the TOTAL COST OF OWNERSHIP to the end product manufacturer, military or commercial, is lower than that of a fully packaged part will the goal of the Consortium be met and widespread adoption of this interconnect process succeed. Therefore, this Consortium explicitly addresses most of the objectives essential to providing a complete low-cost flip-chip DCA product. 6. The Consortium partners will address the complete delivery chain, from chip design and wafer fabrication through wafer bumping, handling and shipping to rapid prototyping and high volume board assembly. The Consortium shall develop the processes, tools and cost modeling approaches essential to 3 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 4 establishing the validity of the infrastructure. The end result of this two- year program will be: (a) the creation of domestic capabilities for high-volume, low-cost solder bumping; (b) design rule sets and industry standards for area array pad layouts and wafer bumping; (c) low-cost fine-line substrates for bare die chip attach; (d) SMA processes and design rules for board attach of these chips; and (e) reliability standards and test matrices for environmental qualification. Some of these capabilities exist today in a few proprietary locations; almost none are available as part of a widely accessible industry infrastructure. 7. The manufacturing infrastructure resulting from this Consortium must address the often disparate requirements of dual-use military customers who often require small numbers of a variety of IC's rather than large volumes of a few products. Cost-effective approaches to this market mandate individual die bumping and small lot substrate fabrication and board assembly. The Consortium has provided for this process flow and has identified deliverables which address the situation. Another set of parameters is required for high-volume, low-cost product drivers. Here, the program will stress total cost of ownership, high- volume wafer bumping, shipping media such as tape and reel, and IC design methodologies that minimize silicon area. 8. Of perhaps equal importance to the infrastructure processes, the Consortium shall also generate new product applications which will demonstrate the cost-effectiveness and reliability of our solder-bumped flip-chips. Specifically, the Consortium shall generate at least four new products in the course of the two-year program. These products will graphically demonstrate the superiority of DCA across a wide range of applications. They will include: (a) improved electronics for the Stinger missile, which will provide an order of magnitude increase in functionality without increase in volume, weight or cost; (b) a personal computer memory card international association (PCMCIA) card flash memory module, comprising 128 mega bit (Mb) in flash random access memory (RAM) chips plus a 120-pin memory management chip; (c) a field-configured multi-chip module (MCM) comprising four high pincount field programmable gate array's (FPGA's) flip-chipped into a plastic ball grid array (BGA) MCM package format; and (d) a high-volume consumer market product currently being defined. 9. These new capabilities and products will improve the performance and cost-effectiveness of both consumer and advanced microelectronic technologies. They will advance U.S. competence in IC packaging, a domain in which the U.S. has traditionally been outshone by foreign competition. The Consortium team will be a strong force to exploit this technology for job creation potential in both defense and commercial applications. 10. Without government funding, the development of a manufacturing infrastructure for low-cost flip-chip technology will take considerably longer and have less widespread military and commercial distribution. Many smaller corporations lack the financial and engineering resources to carry out development or to access proprietary systems developed by major industry sources. A further advantage to Government involvement lies in its ability to aid in industry and institute networking, promoting and assisting the Consortium in collaborating with other agencies engaged in complementary development. The synergy will leverage the program's efforts, broadening and strengthening the resulting infrastructure which is the goal. 4 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 5 11. The dual-use applications of this technology are numerous. In addition to the specific objectives of the program listed above, low-cost flip- chip interconnect will become a valuable capability for all military applications that require light weight, restricted form factor, or very high performance circuitry. This includes aircraft avionics, all space applications, missiles and smart munitions, cockpit display systems, electronic warfare target recognition, image processing, portable navigation equipment such as battlefield global positioning system (GPS), and many other applications. Commercially, the intensifying drive toward low-power, light weight portable equipment in the telecommunications, computing, data storage and display/printing markets alone guarantees rapid adoption of this technology in multibillion dollar product markets, once the preeminent goal of low total cost of ownership is achieved and conclusively demonstrated and a widely accessible infrastructure emplaced. 12. At the completion of this program, there will be existence proof of the effectiveness of low-cost flip-chip DCA and first-generation infrastructure for the manufacture of flip-chip components and their assembly on product boards will be in place. To further propagate the technology, major U.S. firms must adopt or develop design tools and libraries for area array pad design and must either support contract wafer bumping throughout the industry, or bring up internal capability. Success on the part of the Consortium combined with active collaboration with those domestic agencies and institutes promoting standards and design methodologies will greatly accelerate progress toward widespread utilization of Solder Bumped DCA as the standard methodology for interconnecting ICs. 13. The new low-cost, flip-chip technology and infrastructure developed under this program will create a new standard for high Input/Output (I/O) IC assembly. Flip-chip technology adoption will increase dramatically for devices with more than 500 I/O. In addition, the developments from this program will be applicable to lower lead count applications. The total market for flip-chip die is expected to reach over one billion by the year 2000 according to TechSearch International. This will equate to over $1 billion in IC shipments. Major market segments served will include Computers, Automotive, Telecom, and PCMCIA Cards. In addition to these commercial markets, these technologies will serve military markets by replacing a portion of the existing military ceramic market flip-chip DCA, resulting in a reduction in cost on the order of three to five times current military IC packaging cost. B. DEFINITIONS 1. CONSORTIUM - The group of companies or individual companies collaborating to accomplish the objectives of this Agreement. 2. CONSORTIUM MEMBER - A single company operating under the Articles of Collaboration referred to in this Agreement. 3. PARTY OR PARTIES - As the context requires, either the Government, represented by ARPA, or the Consortium, or both. 4. PROGRAM - The effort described in the proposal submitted in response to Solicitation No. SOL94-27, Defense Technology Conversion, Reinvestment, and Assistance, entitled, "Low Cost Flip Chip", and more particularly defined in the Statement of Work, Attachment 1 hereto. 5 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 6 C. SCOPE 1. The Consortium shall perform a coordinated research and development program (Program) designed to address a complete delivery chain of low-cost flip-chip assembly. The research shall be carried out in accordance with the Statement of Work incorporated in this Agreement as Attachment 1. The Consortium shall submit or otherwise provide all documentation required by Attachment 2, Report Requirements. 2. The Consortium shall be paid for each Payable Milestone accomplished in accordance with the Schedule of Payments and Payable Milestones set forth in Attachment 3 and the procedures of Article V. Both the Schedule of Payments and the Funding Schedule set forth in Attachments 3 and 4 respectively may be revised or updated in accordance with Article III. 3. The Government and the Consortium (Parties) estimate that the Statement of Work of this Agreement can only be accomplished with the Consortium aggregate resource contribution of $11,268,371 from the effective date of this Agreement through twenty-four (24) months thereafter. The Consortium intends and, by entering into this Agreement, undertakes to cause to be provided these funds. Consortium contributions will be provided as detailed in the Funding Schedule set forth in Attachment 4. If either ARPA or the Consortium is unable to provide its respective total contribution, the other party may reduce its project funding by a proportional amount. D. GOALS/OBJECTIVES 1. The goal of this Agreement is to attain a cost for direct flip-chip attachment of bare ICs on laminate substrates that is equal to or better than the current industry standard practice of wire bonding the ICs to leadframes, encapsulating them in plastic, and soldering the leadframes to a board. 2. The Government will have continuous involvement with the Consortium. The Government will also obtain access to research insults and certain rights in data and patents pursuant to Articles VII and VIII. ARPA and the Consortium are bound to each other by a duty of good faith and best reasonable research effort in achieving the goals of the Consortium. This Agreement reflects the collaborative document identified as "Articles of Collaboration for Low Cost Flip Chip Consortium," which document binds Consortium Members. 3. This Agreement is an "other transaction" pursuant to 10 U.S.C. (S) 2371. The Parties agree that the principal purpose of this Agreement is for the Government to support and stimulate the Consortium to provide its best reasonable efforts in advanced research and technology development and not for the acquisition of property or services for the direct benefit or use of the Government. The Federal Acquisition Regulation (FAR) and Department of Defense FAR Supplement (DFARS) apply only as specifically referenced herein. This Agreement is not a procurement contract or grant agreement for purposes of FAR Subpart 31.205-18. This Agreement is not intended to be, nor shall it be construed as, by implication or otherwise, a partnership, a corporation, or other business organization. 6 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 7 ARTICLE II: TERM A. THE TERM OF THIS AGREEMENT The Program commences upon the date of the last signature hereon and continues for twenty-four (24) months. If all funds are expended prior to the twenty-four (24)-month duration, the Parties have no obligation to continue performance and may elect to cease development at that point. Provisions of this Agreement, which, by their express terms or by necessary implication, apply for periods of time other than specified herein, shall be given effect, notwithstanding this Article. B. TERMINATION PROVISIONS Subject to a reasonable determination that the program will not produce beneficial results commensurate with the expenditure of resources, either Party may terminate this Agreement by written notice to the other Party, provided that such written notice is preceded by consultation between the Parties. In the event of a termination of the Agreement, it is agreed that disposition of Data developed under this Agreement shall be in accordance with the provisions set forth in Article VIII, Data Rights. The Government, acting through the Agreements Administrator, and the Consortium, acting through its Consortium Management Committee, will negotiate in good faith a reasonable and timely adjustment of all outstanding issues between the Parties as a result of termination. Failure of the Parties to agree to a reasonable adjustment will be resolved pursuant to Article VI, Disputes. The Government has no obligation to reimburse the Consortium beyond the last completed and paid milestone if the Consortium, acting through its Consortium Management Committee, decides to terminate. C. EXTENDING THE TERM The Parties may extend by mutual written agreement the term of this Agreement if funding availability and research opportunities reasonably warrant. Any extension shall be formalized through modification of the Agreement by the Agreements Administrator and the Consortium Administrator. ARTICLE III: MANAGEMENT OF THE PROJECT A. CONSORTIUM MEMBERS Consortium Members, as set forth in the Articles of Collaboration of the Consortium, are: Aptos Corporation Delco Electronics Corporation Hughes Missile Systems Company Jabil Circuit, Inc. Litronic Industries, Inc. National Semiconductor Corporation Sheldahl, Inc. SunDisk Corporation 7 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 8 B. CONSORTIUM MANAGEMENT COMMITTEE (CMC) 1. The CMC shall be comprised of one voting representative from each Consortium Member, and in accordance with the Consortium Articles of Collaboration, bind the Consortium Members. The following CMC decisions are subject to ARPA approval: (a) Changes to the Articles of Collaboration if such changes substantially alter the relationship of the Parties as originally agreed upon when the Agreement was executed; (b) Changes to, or elimination of, any ARPA funding allocation to any Consortium Member as technically and/or financially justified; (c) Technical and/or funding revisions to the Agreement; and (d) Admission of additional or replacement Consortium Members. 2. The CMC, is responsible for establishing a schedule of regular technical meetings, to be held on a quarterly basis. The CMC shall notify all Consortium Members and the ARPA Program Manager of the established meeting schedule and, in the event of changes to this schedule, shall notify all Consortium Members and the ARPA Program Manager thirty (30) calendar days prior to the next scheduled meeting. 3. A simple majority of the Program Managers (or designees) representing the Consortium Members and the ARPA Program Manager (or designee) will constitute a quorum at quarterly technical meetings. All technical decisions shall be made by majority vote of the CMC and the ARPA Program Manager. C. MANAGEMENT AND PROGRAM STRUCTURE Technical and program management of the coordinated research program established under this Agreement shall be accomplished through the management structure and processes detailed in this Article. 1. Subject to the terms and conditions of the Articles of Collaboration of the Consortium, the CMC shall be responsible for the overall management of the Consortium including technical, programmatic, reporting, financial and administrative matters. 2. The ARPA Program Manager shall fully participate in all meetings of the CMC. Other Government personnel as deemed appropriate by the ARPA Program Manager may also participate in the technical portion of these meetings. D. PROGRAM MANAGEMENT PLANNING PROCESS The program management and planning process shall be subject to quarterly and annual reviews with inputs and review from the CMC and the ARPA Program Manager. 1. Initial Program Plan: The Consortium will follow the initial program plan that is contained in the Statement of Work (Attachment 1), and the Schedule of Payments and Payable Milestones (Attachment 3). 2. Overall Program Plan Annual Review 8 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 9 (a) The CMC, with ARPA Program Manager participation and review, will prepare an overall Annual Program Plan in the first quarter of each Agreement year. (For this purpose, each consecutive twelve (12) month period from (and including) the month of execution of this Agreement during which this Agreement shall remain in effect shall be considered an "Agreement Year.") The Annual Program Plan will be presented and reviewed at an annual site review concurrent with the appropriate quarterly meeting of the CMC which will be attended by the Consortium Members, the ARPA Program Manager, Senior ARPA management or other ARPA program managers and personnel as appropriate. The CMC, with ARPA participation and review, will prepare a final Annual Program Plan. (b) The Annual Program Plan provides a detailed schedule of research activities, commits the Consortium to use its best efforts to meet specific performance objectives, includes forecasted expenditures and describes the Payable Milestones. The Annual Program Plan will consolidate all prior adjustments in the research schedule, including revisions/modifications to payable milestones. Recommendations for changes, revisions or modifications to the Agreement which result from the Annual Review shall be made in accordance with the provisions of Article III, Section E. E. MODIFICATIONS 1. As a result of quarterly meetings, annual reviews, or at any time during the term of the Agreement, research progress or results may indicate that a change in the Statement of Work and/or the Payable Milestones, would be beneficial to program objectives. Recommendations for modifications, including justifications to support any changes to the Statement of Work and/or the Payable Milestones, will be documented in a letter and submitted by the CMC to the ARPA Program Manager with a copy to the ARPA Agreements Administrator. This documentation letter will detail the technical, chronological, and financial impact of the proposed modification to the research program. The CMC shall approve any Agreement modification. The Government is not obligated to pay for additional or revised Payable Milestones until the Payable Milestones Schedule (Attachment 3) is formally revised by the ARPA Agreements Administrator and made part of this Agreement. 2. The ARPA Program Manager shall be responsible for the review and verification of any recommendations to revise or otherwise modify the Agreement Statement of Work, Schedule of Payments or Payable Milestones, or other proposed changes to the terms and conditions of this Agreement. 3. For minor or administrative Agreement modifications (e.g. changes in the paying office or appropriation data, changes to Government or Consortium personnel identified in the Agreement, etc.) no signature is required by the Consortium. ARTICLE IV. AGREEMENT ADMINISTRATION Unless otherwise provided in this Agreement, approvals permitted or required to be made by ARPA may be made only by the ARPA Agreements Administrator. Administrative and contractual matters under this Agreement shall be referred to the following representatives of the parties: ARPA: Scott R. Ulrey (Agreements Administrator) (703) 696-2434 CONSORTIUM: Dennis W. Ralston (Consortium Administrator) (408) 721-2812 9 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 10 Technical matters under this Agreement shall be referred to the following representatives: ARPA: Nicholas J. Naclerio (Program Manager) (703) 696-2216 CONSORTIUM: Jim Dunham (Program Manager) (408) 721-6140 Each party may change its representatives named in this Article by written notification to the other party. ARTICLE V: OBLIGATION AND PAYMENT A. OBLIGATION 1. The Government's liability to make payments to the Consortium is limited to only those funds obligated under this Agreement or by amendment to the Agreement. ARPA may incrementally fund this Agreement. 2. If modification becomes necessary in performance of this Agreement, pursuant to Article III, paragraph E, the ARPA Agreements Administrator and Consortium Administrator shall execute a revised Schedule of Payable Milestones consistent with the then current Program Plan. B. PAYMENTS 1. In addition to any other financial reports provided or required, the CMC shall notify the ARPA Agreements Administrator immediately if any contribution from a Consortium Member is not made as required. 2. Prior to the submission of invoices to ARPA by the Consortium Administrator, the Consortium shall have and maintain an established accounting system which complies with Generally Accepted Accounting Principles, and with the requirements of this Agreement, and shall ensure that appropriate arrangements have been made for receiving, distributing and accounting for Federal funds. The Parties recognize that as a conduit, the Consortium does not incur nor does it allocate any indirect costs of its own to the Consortium Member cost directly incurred pursuant to this Agreement. Consistent with this, an acceptable accounting system will be one in which all cash receipts and disbursements are controlled and documented properly. 3. The CMC shall document the accomplishments of each Payable Milestone by submitting or otherwise providing the Payable Milestones Report required by Attachment 2, Part E. The Consortium shall submit an original and one (1) copy of all invoices to the Agreements Administrator for payment approval. After written verification of the accomplishment of the Payable Milestone by the ARPA Program Manager, and approval by the Agreements Administrator, the invoices will be forwarded to the payment office within fifteen (15) calendar days of receipt of the invoices at ARPA. Payments will be made by DAO/DE, Attn: Sandra Schwartz, Bolling AFB/FS, BUilding 5681 - Suite 280, 170 Luke Avenue, Washington, DC 20332-5113 within fifteen (15) calendar days of ARPA's transmittal. Subject to change only through written Agreement modification, payment shall be made to the address of the Consortium Administrator set forth below. 4. Address of Payee: National Semiconductor Corporation 2900 Semiconductor Drive 10 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 11 P.O. Box 2900 Santa Clara, CA 95052-8090 Electronic Funds Transfer: Bank of America 1850 Gateway Blvd. Concord, CA 94520 TRANS/ABA Number 121000358 Account Number 1233203690 5. Payments shall be made in the amounts set forth in the Attachment No. 3, provided the ARPA Program Manager has verified the accomplishment of the Payable Milestones. It is recognized that the quarterly accounting of current expenditures reported in the "Quarterly Business Status Report" submitted in accordance with Attachment No. 2 is not necessarily intended or required to match the Payable Milestones until submission of the Final Report; however, payable milestones shall be revised during the course of the program to reflect current and revised projected expenditures. 6. Limitation of Funds: In no case shall the Government's financial liability exceed the amount obligated under this Agreement. 7. Financial Records and Reports: The Consortium and Consortium Members shall maintain adequate records to account for Federal funds received under this Agreement and shall maintain adequate records to account for Consortium Participant funding provided under this Agreement. Upon completion or termination of this Agreement, whichever occurs earlier, the Consortium Administrator shall furnish to the Agreements Administrator a copy of the final report required by Attachment 2, Part F. The Consortium's and Consortium Members' relevant financial records are subject to examination or audit on behalf of ARPA by the Government for a period not to exceed three (3) years after expiration of the term of this Agreement. The Agreements Administrator or designee shall have direct access to sufficient records and information of the Consortium and Consortium Members, to ensure full accountability for all funding under this Agreement. Such audit, examination, or access shall be performed during business hours on business days upon written notice received by the audited party no less than five (5) working days prior to the requested audit date and shall be subject to the security requirements of the audited party. Notwithstanding the foregoing, it is recognized that many Consortium Members are commercial firms whose accounting systems may not contain the level of detail that is normally required by the FAR. Accordingly, the evaluating the Consortium Members' contributions, the Government agrees to rely on the principles of price analysis and value analysis to the maximum extent possible, provided that the level of detail is reasonable to account fo the expenditure of funds. ARTICLE VI: DISPUTES A. GENERAL Parties shall communicate with one another in good faith and in a timely and cooperative manner when raising issues under this Article. 11 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 12 B. DISPUTE RESOLUTION PROCEDURES 1. Any disagreement, claim or dispute between ARPA and the Consortium concerning questions of fact or law arising from or in connection with this Agreement, and, whether or not involving an alleged breach of this Agreement, may be raised only under this Article. 2. Whenever disputes, disagreements, or misunderstandings arise, the Parties shall attempt to resolve the issue(s) involved by discussion and mutual agreement as soon as practicable. In no event shall a dispute, disagreement or misunderstanding which arose more than three (3) months prior to the notification made under subparagraph B.3 of this article constitute the basis for relief under this article unless the Director of ARPA in the interests of justice waives this requirement. 3. Failing resolution by mutual agreement, the aggrieved Party shall document the dispute, disagreement, or misunderstanding by notifying the other Party (through the ARPA Agreements Administrator or Consortium Administrator, as the case may be) in writing of the relevant facts, identify unresolved issues, and specify the clarification or remedy sought within five (5) working days after providing notice to the other Party, the aggrieved Party may, in writing, request a joint decision by the ARPA Deputy Director for Management and the SEMATECH General Counsel and Secretary as appointed by the CMC of the Consortium. The other Party shall submit a written position on the matter(s) in dispute within thirty (30) calendar days after being notified that a decision has been requested. The Deputy Director for Management and the Consortium Representative shall conduct a review of the matter(s) in dispute and render a decision in writing within thirty (30) calendar days of receipt of such written position. Any such joint decision is final and binding unless a Party shall within thirty (30) calendar days request further review as provided in this Article. 4. Upon written request to the Director of ARPA, made within thirty (30) calendar days or upon unavailability of a joint decision under subparagraph B.3 above, the dispute shall be further reviewed. The Director of ARPA may elect to conduct this review personally or through a designee or jointly with the SEMATECH General Counsel and Secretary as appointed by the CMC of the Consortium. Following the review, the Director of ARPA or designee will resolve the issue(s) and notify the Parties in writing. Such resolution is not subject to further administrative review and, to the extent permitted by law, shall be final and binding. 5. Subject only to this article and 41 U.S.C. (S) 321-322, if not satisfied with the results of completing the above process, either Party may within thirty (30) calendar days of receipt of the notice in subparagraph B.3 above pursue any right and remedy in a court of competent jurisdiction. C. LIMITATION OF DAMAGES Claims for damages of any nature whatsoever pursued under this Agreement shall be limited to direct damages only up to the aggregate amount of ARPA funding disbursed as of the time the dispute arises. In no event shall ARPA be liable for claims for consequential, punitive, special and incidental damages, claims for lost profits, or other indirect damages. ARPA agrees that there is no joint and several liability within the Consortium. The Consortium disclaims any liability for consequential, indirect or special damages, except when such damages are caused by the willful misconduct of Consortium Managerial personnel. In no event shall the liability of a Consortium Member or any other entity performing research activities under this Agreement exceed the funding it has received up to the time of incurring such liability. 12 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 13 ARTICLE VII: PATENT RIGHTS A. DEFINITIONS 1. "Invention" means any invention or discovery which is or may be patentable or otherwise protectable under Title 35 of the United States Code. 2. "Made" when used in relation to any invention means the conception or first actual reduction to practice of such invention. 3. "Practical application" means to manufacture, in the case of a composition of product; to practice, in the case of a process or method, or to operate, in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is capable of being utilized and that its benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms. 4. "Subject invention" means any invention of a Consortium Member conceived or first actually reduced to practice in the performance of work under this Agreement. B. ALLOCATION OF PRINCIPAL RIGHTS Unless the Consortium shall have notified ARPA (in accordance with subparagraph C.2 below) that the Consortium does not intend to retain title, the Consortium shall retain the entire right title, and interest throughout the world to each subject invention consistent with the provisions of the Articles of Collaboration, this Article, and 35 U.S.C. (S) 202. With respect to any subject invention in which the Consortium retains title, ARPA shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on behalf of the United States the subject invention throughout the world for United States Government purposes only. Notwithstanding the above, the Consortium may elect as defined in its Articles of Collaboration to provide full or partial rights that it has retained to Consortium Members or other parties. C. INVENTION DISCLOSURE, ELECTION OF TITLE, AND FILING OF PATENT APPLICATION 1. The Consortium shall disclose each subject invention to ARPA within four (4) months after the inventor discloses it in writing to his company personnel responsible for patent matters. The disclosure to ARPA shall be in the form of a written report and shall identify the Agreement under which the invention was made and the identity of the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, sale, or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. 2. If the Consortium determines that it does not intend to retain title to any such invention, the Consortium shall notify ARPA, in writing, within eight (8) months of disclosure to ARPA. However, in any case where publication, sale, or public use has initiated the one (1)-year statutory period wherein valid patent protection can still be obtained in the United States, the period for such notice may be shortened by ARPA to a date that is no more than sixty (60) calendar days prior to the end of the statutory period. 3. The Consortium shall file its initial patent application on a subject invention to which it elects to retain title within one (1) year after election of title or, if earlier, prior to the end of the statutory period 13 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 14 wherein valid patent protection can be obtained in the United States after a publication, or sale, or public use. The Consortium may elect to file patent applications in additional countries (including the European Patent Office and the Patent Cooperation Treaty) within either ten (10) months of the corresponding initial patent application or six (6) months from the date permission is granted by the Commissioner of Patents and Trademarks to file foreign patent applications, where such filing has been prohibited by a Secrecy Order. 4. Requests for extension of the time for disclosure election, and filing under Article VII, paragraph C, may, at the discretion of ARPA, and after considering the position of the Consortium, be granted. D. CONDITIONS WHEN THE GOVERNMENT MAY OBTAIN TITLE Upon ARPA's written request the Consortium shall convey title to any subject invention to ARPA under any of the following conditions: 1. If the Consortium fails to disclose or elects not to retain title to the subject invention within the times specified in paragraph C of this Article; provided, that ARPA may only request title within sixty (60) calendar days after learning of the failure of the Consortium to disclose or elect within the specified times. 2. In those countries in which the Consortium fails to file patent applications within the times specified in paragraph C of this Article; provided, that if the Consortium has filed a patent application in a country after the times specified in paragraph C of this Article, but prior to its receipt of the written request by ARPA, the Consortium shall continue to retain title in that country; or 3. In any country in which the Consortium decides not to continue the prosecution of any application for, to pay the maintenance fees on, or defend in reexamination or opposition proceedings on, a patent on a subject invention. E. MINIMUM RIGHTS TO THE CONSORTIUM AND PROTECTION OF THE CONSORTIUM'S RIGHT TO FILE 1. The Consortium shall retain a non-exclusive, royalty-free license throughout the world in each subject invention to which the Government obtains title, except if the Consortium fails to disclose the invention within the times specified in paragraph C of this Article. The Consortium license extends to the domestic (including Canada) subsidiaries and affiliates, if any, of the Consortium Members within the corporate structure of which the Consortium Member is a party and includes the right to grant licenses of the same scope to the extent that the Consortium was legally obligated to do so at the time the Agreement was awarded. The license is transferable only within the approval of ARPA, except when transferred to the successor of that part of the business to which the invention pertains. ARPA approval for license transfer shall not be unreasonably withheld. 2. The Consortium domestic license may be revoked or modified by ARPA to the extent necessary to achieve expeditious practical application of the subject invention pursuant to an application for an exclusive license submitted consistent with appropriate provisions at 37 CFR Part 404. This license shall not be revoked in that field of use or the geographical areas in which the Consortium has achieved practical application and continues to make the benefits of the invention reasonably accessible to the public. The license in any foreign country may be revoked or modified at the discretion of ARPA to the extent the Consortium, its licensees, or the subsidiaries or affiliates have failed to achieve practical application in that foreign country. 14 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 15 3. Before revocation or modification of the license, ARPA shall furnish the Consortium a written notice of its intention to revoke or modify the license, and the Consortium shall be allowed thirty (30) calendar days (or such other time as may be authorized for good cause shown) after the notice to show cause why the license should not be revoked or modified. F. ACTION TO PROTECT THE GOVERNMENT'S INTEREST 1. The Consortium agrees to execute or to have executed and promptly deliver to ARPA all instruments necessary to (i) establish or confirm the rights the Government has throughout the world in those subject inventions to which the Consortium elects to retain title, and (ii) convey title to ARPA when requested under paragraph D of this Article and to enable the Government to obtain patent protection throughout the world in that subject invention. 2. The Consortium agrees to require, by written agreement, that employees of the Members of the Consortium working on the Consortium, other than clerical and nontechnical employees, agree to disclose promptly in writing, to personnel identified as responsible for the administration of patent matters and in a format acceptable to the Consortium, each subject invention made under this Agreement in order that the Consortium can comply with the disclosure provisions of paragraph C of this Article. The Consortium shall instruct employees, through employee agreements or other suitable educational programs, on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. or foreign statutory bars. 3. The Consortium shall notify ARPA of any decisions not to continue the prosecution of a patent application, pay maintenance fees, or defend in a reexamination or opposition proceedings on a patent, in any country, not less than thirty (30) calendar days before the expiration of the response period required by the relevant patent office. 4. The Consortium shall include, within the specification of any United States patent application and any patent issuing thereon covering a subject invention, the following statement: "This invention was made with Government support under Agreement No. MDA972-95-3-0031 awarded by ARPA. The Government has certain rights in the invention." G. LOWER TIER AGREEMENTS 1. The Consortium shall include this Article, suitably modified, to identify the Parties, in all subcontracts or lower tier agreements, regardless of tier, for experimental, developmental, or research work. 2. In the case of a lower tier agreement with a vendor, at any tier, ARPA, the vendor, and the Consortium agree that the mutual obligations of the parties created by this Article flow down to the vendor and constitute an agreement between the vendor and ARPA with respect to the matters covered by this Article. H. REPORTING ON UTILIZATION OF SUBJECT INVENTIONS The Consortium agrees to submit during the term of the Agreement, periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization of a subject invention or on efforts at obtaining such utilization that are being made by the Consortium or licensees or assignees of the inventor. Such reports shall include information regarding the status of development, date of first commercial sale or use, gross royalties received by the Consortium subcontractor(s), and such other 15 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 16 data and information as the agency may reasonably specify. The Consortium also agrees to provide additional reports as may be requested by ARPA in connection with any march-in proceedings undertaken by ARPA in accordance with paragraph J of this Article. Consistent with 35 U.S.C. (S) 202(c)(5), ARPA agrees it shall not disclose such information to persons outside the Government without permission of the Consortium. I. PREFERENCE FOR AMERICAN INDUSTRY Notwithstanding any other provision of this clause, the Consortium agrees that it shall not grant to any person the exclusive right to use or sell any subject invention in the United States or Canada unless such person agrees that any product embodying the subject invention or produced through the use of the subject invention shall be manufactured substantially in the United States or Canada. However, in individual cases, the requirements for such an agreement my be waived by ARPA upon a showing by the Consortium that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that, under the circumstances, domestic manufacture is not commercially feasible. J. MARCH-IN RIGHTS The Consortium agrees that with respect to any subject invention in which it has retained title, ARPA has the right to require the Consortium, an assignee, or exclusive licensee of a subject invention to grant a non-exclusive license to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the Consortium assignee, or exclusive licensee refuses such a request, ARPA has the right to grant such a license itself if ARPA determines that: 1. Such action is necessary because the Consortium or assignee has not taken effective steps, consistent with the intent of this Agreement to achieve practical application of the subject invention; 2. Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Consortium, assignee, or their licensees; 3. Such action is necessary to meet requirements for public use and such requirements are not reasonably satisfied by the Consortium, assignee, or licensees; or 4. Such action is necessary because the agreement required by paragraph (I) of this Article has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of such Agreement. K. ALTERNATE PROCEDURES FOR PATENT RIGHTS Notwithstanding the provisions of subparagraph C.1. above, the Consortium may elect to follow the procedures in this paragraph (which may be referred to as "alternate" subparagraph C.1.): 1. The Consortium shall disclose each subject invention to ARPA within eight (8) months after the inventor discloses it in writing to his company personnel responsible for patent matters. The Consortium invention shall be disclosed to ARPA in writing in the form of a summary written report (Invention Summary Report) identifying the Agreement under which the invention was made, the identity of the inventor(s), and the Consortium Member company. The Invention Summary Report shall outline the nature, purpose, and operation of the invention. A copy of the patent application shall be on file in the Consortium Document Repository located at National Semiconductor Corporation in Sunnyvale, California for Government review. 16 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 17 Detailed technical information excluded for the Invention Summary Report shall also be on file in the Consortium Document Repository. The Invention Summary Report shall also identify any publication, sale, or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. ARTICLE VIII: DATA RIGHTS A. DEFINITIONS 1. "Government Purpose Rights", as used in this article, means rights to use, duplicate, or disclose Data, in whole or in part and in any manner, for Government purposes only, and to have or permit others to do so for Government purposes only. 2. "Unlimited Rights", as used in this article, means rights to use, duplicate, release, or disclose, Data in whole or in part, in any manner and for any purposes whatsoever, and to have or permit others to do so. 3. "Data", as used in this article, means recorded information, regardless of form or method of recording, which includes but is not limited to, technical data, software, trade secrets, and mask works. The term does not include financial, administrative, cost, pricing or management information and does not include subject inventions included under Article VII. B. ALLOCATION OF PRINCIPAL RIGHTS 1. This Agreement shall be performed with mixed Government and Consortium funding. The Parties agree that in consideration for Government funding, the Consortium intends to reduce to practical application items, components and processes developed under this Agreement. 2. The Consortium agrees to retain and maintain in good condition until five (5) years after completion or termination of this Agreement, all Data necessary to achieve practical application. In the event of exercise of the Government's March-in Rights as set forth under Article VII or subparagraph B.3 of this article, the Consortium acting through its CMC, agrees, upon written request from the Government, to deliver at no additional cost to the Government, all Data necessary to achieve practical application within sixty (60) calendar days from the date of the written request. The Government shall retain Unlimited Rights, as defined in paragraph A above, to this delivered Data. 3. The Consortium agrees that, with respect to Data necessary to achieve practical application, ARPA has the right to require the Consortium to deliver all such Data to ARPA in accordance with its reasonable directions if ARPA determines that: (a) Such action is necessary because the Consortium or assignee has not taken effective steps, consistent with the intent of this Agreement to achieve practical application of the technology developed during the performance of this Agreement; (b) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Consortium, assignee, or their licensees; or 17 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 18 (c) Such action is necessary to meet requirements for public use and such requirements are not reasonably satisfied by the Consortium, assignee, or licensees. 4. With respect to Data delivered pursuant to Attachment 2, the Government shall receive Government Purpose Rights, as defined in paragraph A above. With respect to all Data delivered, in the event of the Government's exercise of its right under subparagraph B.2 of this article, the Government shall receive Unlimited Rights. C. MARKING OF DATA Pursuant to paragraph B above, any Data delivered under thus Agreement shall be marked with the following legend: Use, duplication, or disclosure is subject to the restrictions as stated in Agreement MDA972-95-3-0031 between the Government and the Consortium. D. LOWER TIER AGREEMENTS The Consortium shall include this Article, suitably modified to identify the Parties, in all subcontracts or lower tier agreements, regardless of tier, for experimental, developmental, or research work. ARTICLE IX: FOREIGN ACCESS TO TECHNOLOGY This Article shall remain in effect during the term of the Agreement and for three (3) years thereafter. A. DEFINITION "Foreign Firm or Institution" means a firm or institution organized or existing under the laws of a country other than the United States, its territories, or possessions. The term includes, for purposes of this Agreement, any agency or instrumentality of a foreign government; and firms, institutions or business organizations which are owned or substantially controlled by foreign governments, firms, institutions, or individuals. "Know-How" means all information including, but not limited to discoveries, formulas, materials, inventions, processes, ideas, approaches, concepts, techniques, methods, software, programs, documentation, procedures, firmware, hardware, technical data, specifications, devices, apparatus and machines. "Technology" means discoveries, innovations, Know-How and inventions, whether patentable or not, including computer software, recognized under U.S. law as intellectual creations to which rights of ownership accrue, including, but not limited to, patents, trade secrets, maskworks, and copyrights developed under this Agreement. B. GENERAL The Parties agree that research findings and technology developments arising under this Agreement may constitute a significant enhancement to the national defense, and to the economic vitality of the United States. Accordingly, access to important technology developments under this Agreement by Foreign Firms or Institutions must be carefully controlled. The controls contemplated in this Article are in addition to, and are 18 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 19 not intended to change or supersede, the provisions of the International Traffic in Arms Regulation (22 CFR pt. 121 et seq.), the DoD Industrial Security Regulation (DoD 5220.22-R) and the Department of Commerce Export Regulation (15 CFR pt. 770 et seq.) C. RESTRICTIONS ON SALE OR TRANSFER OF TECHNOLOGY TO FOREIGN FIRMS OR INSTITUTIONS 1. In order to promote the national security interests of the United States and to effectuate the policies that underlie the regulations cited above, the procedures stated in subparagraphs C.2, C.3, and C.4 below shall apply to any transfer of Technology. For purposes of this paragraph, a transfer includes a sale of the company, and sales or licensing of Technology. Transfers do not include: (a) sales of products or components, or (b) licenses of software or documentation related to sales of products or components, or (c) transfer to foreign subsidiaries of the Consortium participants for purposes related to this Agreement, or (d) transfer which provides access to Technology to a Foreign Firm or Institution which is an approved source of supply or source for the conduct of research under this Agreement provided that such transfer shall be limited to that necessary to allow the firm or institution to perform its approved role under this Agreement 2. The Consortium shall provide timely notice to ARPA of any proposed transfers from the Consortium of Technology developed under this Agreement to Foreign Firm or Institutions. If ARPA determines that the transfer may have adverse consequences to the national security interests of the United States, the Consortium, its vendors, and ARPA shall jointly endeavor to find alternatives to the proposed transfer which obviate or mitigate potential adverse consequences of the transfer but which provide substantially equivalent benefits to the Consortium. 3. In any event, the Consortium shall provide written notice to the ARPA Program Manager and Agreements Administrator of any proposed transfer to a foreign firm or institution at least sixty (60) calendar days prior to the proposed date of transfer. Such notice shall cite this Article and shall state specifically what is to be transferred and the general terms of the transfer. Within thirty (30) calendar days of receipt of the Consortium's written notification, the ARPA Agreements Administrator shall advise the Consortium whether it consents to the proposed transfer. In cases where ARPA does not concur or sixty (60) calendar days after receipt and ARPA provides no decision, the Consortium may utilize the procedures under Article VI, Disputes. No transfer shall take place until a decision is rendered. 4. Except as provided in subparagraph C.1 above and in the event the transfer of Technology to Foreign Firms or Institutions is approved by ARPA, the Consortium shall negotiate a license with the Government to the Technology under terms that are reasonable under the circumstances. D. LOWER TIER AGREEMENTS The Consortium shall include this Article, suitably modified, to identify the Parties, in all subcontracts or lower tier agreements, regardless of tier, for experimental, developmental, or research work. 19 AGREEMENT NUMBER: MDA972-95-3-0031 PAGE 20 ARTICLE X: PRE-AGREEMENT COSTS Costs incurred on or after November 21, 1994 by the Consortium to accomplish the Tasks set forth in the Statement of Work, Attachment 1 hereto, shall be allowable contributions and credited toward the Consortium's contribution to the Agreement. ARTICLE XI: OFFICIALS NOT TO BENEFIT No member of Congress shall be admitted to any share or part of any contract or agreement made, entered into, or accepted by or on behalf of the United States, or to any benefit to arise thereupon. ARTICLE XII: CIVIL RIGHTS ACT This Agreement is subject to the compliance requirements of Title VI of the Civil Rights Act of 1964 as amended (42 U.S.C. 2000-d) relating to nondiscrimination in Federally assisted programs. Each Consortium Member company has signed an Assurance of Compliance with the nondiscriminatory provisions of the Act. The Parties recognize that since the Consortium has no employees, that compliance is the responsibility of each Consortium Member. ARTICLE XIII: ORDER OF PRECEDENCE In the event of any inconsistency between the terms of this Agreement and language set forth in the Consortium's Articles of Collaboration, the inconsistency shall be resolved by giving precedence in the following order (1) The Agreement (2) Attachments to the Agreement, (3) Consortium Articles of Collaboration. ARTICLE XIV: EXECUTION This Agreement constitutes the entire agreement of the Parties and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions among the Parties, whether oral or written, with respect to the subject matter hereof. This Agreement may be revised only by written consent of the CMC and ARPA Agreements Administrator. This Agreement or modifications thereto, may be executed in counterparts each of which shall be deemed as original, but all of which taken together shall constitute one and the same instrument. 20 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 1 STATEMENT OF WORK (INITIAL PROGRAM PLAN) The Low-Cost Flip-Chip Program will establish enabling technologies and the infrastructure required to manufacture Direct Flip Chip Attach assemblies in four key Focus Areas. The benefits gained in these related Focus Areas will establish a comprehensive delivery chain for the manufacture of military and commercial flip chip assemblies. The four key areas are: 1. Low-Cost Wafer Bumping, 2. Low-Cost Laminate Substrate Design and Fabrication, 3. Flip Chip Assembly on Laminate Substrates, and 4. Process verification through End Product Demonstration. The first task for the Consortium will be to develop a baseline execution plan for the program. This plan will consist of a detailed program schedule in Gantt chart form, a revised SOW (if necessary) and a current status report. This status report will detail the accomplishments of the Consortium and provide details of the planned activities of the group for the coming months. 1.0 Low-Cost Wafer Bumping - (Focus Area 1) This area will investigate and develop wafer and die bumping technologies to reduce the cost of ownership and enhance reliability of Direct Flip Chip Attach assemblies. Work will include development of routing redistribution metalization and dielectric, alternative bump alloys, and bumping costs lower than that available today. 1.1 Description of Problem Direct Flip Chip Attach of ICs holds some inherent advantages over conventional packaging, such as smaller form factor and higher performance. However, the key to widespread adoption of flip-chip technology in high volume lies in reducing the total cost of ownership of the product chip below that of competing package technologies. The benchmark for the highest volume components is the plastic package, (PQFP, SOIC, or PLCC) and its delivery chain. In order to compete, flip-chip product chips must have low component cost, high reliability, and possess maximum compatibility with existing SMA processes. Obviously, the most important single step in the fabrication process of flip- chips is wafer bumping operation. This must be optimized for cost, reliability and downstream assembly process compatibility. For low-volume manufacturing and prototyping which are frequently encountered in military applications, other approaches must be sought which lend themselves to both wafer and individual die bumping. 1.2 Key Metrics 1.2.1 Mainstream infrastructure process: . Solder bump compatible with SMT temperatures (230C reflow) . 4 mil peripheral pitch redistribution to 10 mil area pad pitch . Cost modeling - Cost Target less than $25 for bumping and less than $100 for redistribution and bumping. . Process Design rules 1 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 2 . Qualification to Mil Std specification / Q100 . Bump process yields of 99%+ 1.2.2 Technical Extensions Projects: . Fine pitch - 6 mil peripheral bumping capability . Single die bumping - cost to be modeled - cost target less than wire bond assembly for equivalent product . Solder jet - fine pitch capability - target cost less than $20/6" wafer . Solder wire - fine pitch capability - cost to be modeled . Pb free process cost comparable to Eutectic . 5/95 Sn/Pb process - cost comparable to Eutectic . High Fatigue Life Alloy - 2X eutectic performance . Electrolyze Ni Under Bump Metal process - Prove manufacturability / uniformity . Technology Extensions bumping processes will be Qualified to Mil Std specification / Q100. 1.3 Technical Approach To achieve these deliverables, the following major tasks will be addressed: 1. Development of underbump and redistribution metallization processes; 2. Deposition of Eutectic Sn/Pb and other alloy solder bumps; 3. Development of single die bumping processes; and 4. Process Qualification through the use of test chips and live product demonstrations. 1.3.1 Underbump and redistribution metallization process development Underbump metalization processes using both vacuum technology and electroless plating will be developed. In addition, an econondcal redistribution layer (metalization and dielectric) will be developed to allow redistribution of peripheral pads to area array pads giving system designer increased flexibility. These processes will have the following characteristics: . Compatible with IC conductor metal surface passivation process and compatible with SMA processes. . Competitive with or lower in cost than existing vacuum deposition processes . Exhibit good adhesion to SnPb eutectic solder - High shear strength . Exhibit superior electrical performance - Low resistance . Electrolyze Nickel plating process that provides consistent shear strength and solderability. 1.3.2 Deposition of Solder Bumps The Consortium will develop a new generation of solder bump processes for flip-chip packaging, that will result in technologies of greater density and lower cost than the current manufacturing state of the art. These new technologies will be logical extensions of current processes and will offer substantial advancement of flip-chip interconnect. The enhanced technologies will be characterized and design rules generated as follows: 2 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 3 . Fine Pitch Flip-Chip: Develop a process capable of 6 mil pitch peripheral bonding. This process will also provide a barrier metal sealing off the pads thus reducing the susceptibility of product corrosion. . Solder Jetting approach will be developed for deposition of eutectic Sn/Pb solder using the principles of ink jet printing. In this technique, a piezoelectric transducer generates an impulse which drives the displacement of a molten droplets of solder from a reservoir. Goal is to deposit on a 10 mil pitch at 10 bumps/sec. This process cost will be compared to full wafer bumping to determine when it is cost effective. . Solder wire bonding approach will be developed to attach solder directly on the aluminum IC pads. This would eliminate the use of UMB and could using the conventional wire bonding equipment currently used in IC Au wire assembly. This process cost will also be compared to full wafer bumping to determine when it is cost effective. . Pb free bump metallurgy and deposition process will be developed with reflow temperatures compatible with SMA processes. . 5/95 Sn/Pb reflow process will be developed. . High fatigue life alloys will be developed that will improve temperature cycling performance by 2X. The new alloys to be investigated will be reflowable at 230C and compatible with SMA processes. 1.3.3 Single Die Bumping Processes will be evaluated and developed that will allow for bumping of a single die. Single die bumping will allow the user a greater degree of flexibility especially in low volume market areas. This technique may also provides advantages in the rework of individual sights and also may have some cost advantages over full wafer bumping. . The pad preparation processes will be established for the deposition of solder on bare aluminum die pad. . Solder jetting and solder wire techniques will be developed and characterized. 1.3.4 Process Qualification Characterization and quaHficaLion of the UBM and bumping processes will be carried out at both the component and board level by the wafer bumping Consortium Members and by the end users. The full array of standard tests will be defined to be used on all of the process options. The qualification will include but is not limited too: . Component level tests the assess bump/UBM/chip mechanical strength, electrical connection and environmental stability. . Board level tests will be carried out with underfill. These tests will focus on mechanical and thermomechanical stability such as power cycling and board flexure. . Test chips will be obtained and developed to allow for process development and characterization. Several of the Members will use their own existing test chips. In addition, them will be mechanical and functional test chips made available to allow for common qualification methods where feasible. . Mil Std qualification testing methods will be used. 3 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 4 2.0 Low-Cost Laminate Substrate Design and Fabrication (Focus Area 2) This focus area will concentrate on the development of high-density, low- cost laminate substrates. Depending on design complexity, today's cost of laminate substrate can be over $10/sq in. This program will leverage the technology advances made by the MCM-L Consortium. 2.1 Description of the Problem Direct flip-chip assembly puts exacting requirements on laminated substraies. The small solder ball size on flip-chips requires substrate flatness better than 0.0005" across the assembly sites, and must be maintained at assembly reflow temperatures. This dictates CTE compatible and high Tg materials. Soldermask registration needs to be don nwd to be improved to better than +/-0.0005" as well. Multiple row and area I/O on chip require the development of laminate via technology that can interconnect 0.005" diameter pads and maintain system impedance requirements. New types of surface metallization needs to be developed to support flip-chip assembly. In addition, testing of PCB with flip-chip sites requires enhanced membrane type test heads. All of these requirements must of be met at the lowest possible cost. 2.2 Key Metrics . Substrate surface metallization suitable for flip-chip assembly. . Laminate system with glass transition temperature (Tg) higher than 210C and CTE matched to produce assembly site flatness better than 0.0005". . 2 mil Via structures that support interconnecting 0.005" diameter pads. . Membrane test heads capable of testing flip-chip sites . Soldermask registration better than +/- 0.0005" . 10 mil pad pitch grid; wiring density = die size + 100 mil apron . Cost Modeling will be performed - Cost targets: . 2 layer - $.25 / in sq . Multilayer - $.25 / in sq / layer . Membrane test head capable of testing 6 mil pad pitch . Mil Std qual capability 2.3 Technical Approach To achieve these metrics, the Consortium will develop new technologies as well as enhancements to the MCM-L technology currently under development. The following 7 major tasks will be addressed: 1. Optimize surface metallization 2. Develop High Tg bond ply materials and selective via process 3. Soldermask Development 4. Using the bond ply and basic substrate processes, develop 10 mil pitch routing grid. 5. Develop a set of comprehensive design rules and process outline. 6. Develop membrane test head 7. Mil std qualification 2.3.1 Substrate surface metallization 4 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 5 The Consortium will define the optimal substrate pad metalization system and install capability for production. This surface will be surface mount compatible with the various bump technologies being used. 2.3.2 Bond Ply and Via Structure New high Tg snap-cure B-stage adhesive material and process will be selected for CTE match to the substrate system. This will help to meet the sight flatness requirement. This anisotropic bond ply will be capable of producing 2 mil vias with 5 mil pads. 2.3.3 Soldermask Develop flush soldermask chip sites. 2.3.4 10 mil grid pitch The critical parameter of the substrate is the routing density. The Consortium will use the materials and processes developed for bond ply adhesive and via structures to create high density routing designs. The target is 10 mil pitch or less and the process will be characterized to determine capability. 2.3.5 Design Rules In additional to the pad pitch of 10 mils, all design rules for the final process will be verified and characterized to ensure manufacturability. 2.3.6 Membrane test head Test head and optical alignment systems will be developed to enable electrical testing of substrates down to a 6 mil pitch. This will involve design and fabrication of prototypes and final product. Qualification be performed to prove production capability. 2.3.7 Mil qualification The Consortium will perform qualification testing on the final substrate technology to relevant Mil std environmental reliability conditions. 3.0 Flip Chip Assembly on Laminate Substrates (Focus area #3) This focus area will develop and install capability to assembly flip-chip devices and other surface mount components in a single pass. 3.1 Description of Problem The availability of flip-chip devices and advanced substrates for their use will require a development and demonstration of low-cost processes for their assembly and rework. To compete, these processes must be compatible with current SMA methods and practices while achieving component placement capabilities of 10 mil pitch and finer on laminate substrates. 5 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 6 3.2 Key Metrics The key metrics for success are: 1. Product integration on a standard SMA assembly line. 2. Materials compatibility for assembly of eutectic-type solder bumped chips on industry standard laminates. 3. Cost modeling will be performed. Target is less than 90% of similar QFP assembly cost 4. Successful prototype product assembly (see focus area 4) 3.3 Technical Approach To achieve these metrics, eight major tasks will be addressed. 1. Design Guidelines 2. Materials and substrate selection 3. Assembly methods 4. Underfill process development 5. Repair/rework process development 6. Component and board handling 7. Equipment selection and characterization 8. Prototype product assembly (see focus area 4) 3.3.1 Design Guidelines Design guidelines to support the development of flip-chip assembly shall define the variables necessary for fabrication of test substrates and prototype products. The major ones are: . Pad and via location and dimensions based on chip pad ring, ball size and pitch. . Vision system alignment requirements. . Component keepouts and clearances. . Soldermask dimensional tolerances. . Pad finish and plating thickness. . Test access. . Tooling holes. . Polarity/silkscreen identifiers 3.3.2 Materials Selection A variety of materials will be reviewed and characterized for process compatibility. The major tasks are: 1. Establish flip-chip critical characteristics of polyamide and alternative substrates. 2. Fabricate test substrates. 3. Characterize fluxes and other materials for assembly compatibility with the solders used for chip bumping. 4. Develop and document material and substrate combinations that enable flip-chip assembly that conforms to key metrics outlined above. 6 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 7 3.3.3 Assembly Methods Development of SMA compatible assembly methods for flip chip components will require: . Process experimentation with selected materials and substrates from 3.3.2 above focusing on key variables of time, temperature profile, atmosphere and line loading. . Assembly and test of flip-chip components using appropriate test chips. . Board-level environmental testing to establish process robustness. 3.3.4 Underfill Process Development An underfill for flip-chips mounted on laminate substrates is required to reduce the stress on solder joints. This stress can be extreme due to the thermal coefficient of expansion mismatch of silicon chip (3.6 ppm) and substrate (15-22 ppm). Materials will be evaluated for: . Adhesion. . Flow Properties . Cure Time. . Thermal Conductivity. . Reworkability. . Environmental stability. 3.3.5 Repair/Rework Process Development The repair and rework of flip-chip assemblies is critical to low-cost implementation of the flip-chip technology. Several methods will be investigated by the Consortium. . Establish inspection and rework process prior to underfill. . Extend rework process with the necessary modifications to the post-underfill stage. . Repair of chip sights. 3.3.6 Component and Board Handling Handling of flip-chip components and small substrates such as flex circuits will require modifications to standard methods. vKey issues to be resolved: . Handling of flex circuit. . Handling equipment for flip-chips such as nozzle sizes and materials selection. . Tray/tape-and-reel standards and chip orientation. 3.3.7 Equipment Selection The investigation and selection of equipment for the above flip-chip handling steps will be a major task. The Consortium will address: . Sourcing of equipment options and vendors. . Establish criteria/metrics for selection and characterization. . Assess, buyoff and install equipment. 7 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 8 3.3.8 Prototype Product Assembly The focus of this phase of the program is to develop and emplace a manufacturing process compatible with current SMA practices. Ultimate demonstration of this capability will be carried out through the assembly in low to moderate volume of prototypes of new products from the Consortium Members products. Assembly of these will take place at a number of sites as described in focus area #4. 4.0 Product Demonstration and Process Verification The production worthiness of the infrastructure will be demonstrated by the Consortium Members product drivers. Prototypes of four Consortium products will be assembled using solder bumped, DCA components. 4.1 Key Metrics . Fully functional working prototype products. . Performance meeting design and engineering specifications. . Manufacturing cost in line with market considerations and goals of the Consortium. 4.2 Technical Approach To achieve these metric, product prototypes will be designed, built, and tested. 4.2.1 Hughes - Stinger Missile Module The project will consist of design, fabrication, testing and cost assessment of "Stinger" memory modules. The major problem to be solved in the Stinger is area, circuit functionality must increase in while the space available stays the same. The memory module will utilize a multi-chip module laminate (MCM-L) and flip-chip attachment approach in place of a seven-hybrid stack of VLSI circuits. The major deliverables are: . Electrical design. . Product design. . Test development and implementation. . Wafer bumping. . Fabrication of test board and substrate. . Rework and repair process development. . Prototype assembly at Hughes and at Jabil. . Prototype testing and reliability performance report. 4.2.2 SunDisk - Solid state storage device SunDisk will develop a new, reduced form factor, solid state flash storage device for very high density embedded applications such as cameras, telephones, pagers, and other similar consumer electronics. SunDisk will design and fabricate prototypes using a board design in which the flash memory devices are mounted with bare dies and eutectic solder bumped flip chip in place of the chip and wire method currently being employed. The major deliverables of this project are: 8 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 1, PAGE 9 . Design and fabrication of test board for solder bumped flash storage device. . Board level characterization of SunDisk solder bumped flash storage devices. . Board level qualification of flash storage devices. . Environmental testing of the flash memory devices and final reliability performance report. 4.2.3 National Semiconductor - CLAy FCMCM National's CLAy product is based on a 4 chip array of Field Programmable Gate Array (FPGA) that can be reconfigures in real time while operating in the system. Currently, the design optimization of the FCMCM is being funded through ARPA contract DABT63-93-C-0071. This contract modifies the CLAy chip periphery to 224 I/O's per side for 896 I/O's per chip. Each chip has 1028 bumps on 0.009" pitch with four CLAy chips mounted on a 625 I/O BGA. The current cost-less-die for the ceramic BGA is currently over $100 each. By use of the MCM-L substrate technology being enhanced and developed in this Low Cost Flip Chip program, plus the use of overmolded packaging in place of ceramic, the Consortium expects to reduce the cost by an order of magnitude and reduce the cost barrier to commercialization. The major deliverables of this project are: . Evaluation of bumping technology. . Evaluation of MCM-L substrate technology. . Assembly of CLAy FCMCM in PBGA packages at National Semiconductor. . Reliability and cost assessment of CLAy samples assembled in the Consortium. 4.2.4 National Semiconductor - ProductDriver #2 A fourth product driver is currently being investigated by the Consortium. The Consortium are working with two other corporations to define a product that fits the intent of this program as well as other National products and will make a decision by the end of the 1st quarter of the project. This project will use the Consortium infrastructure to develop and demonstrate a flip-chip assembly and will include the reliability and cost assessment reports. 9 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 2, PAGE 1 REPORT REQUIREMENTS A. MONTHLY TECHNICAL STATUS REPORT On or before thirty (30) calendar days after the effective date of the Agreement and monthly thereafter throughout the term of the Agreement, the Consortium Management Committee (CMC) shall submit a monthly technical report to the Consortium Members and ARPA. The report should be approximately one (1) to three (3) pages in length and shall be distributed via e-mail and printed copy. Two (2) copies shall be submitted to the ARPA Program Manager, one (1) copy shall be submitted to the ARPA Agreements Administrator and one (1) copy shall be submitted to ARPA/ESTO, Attn: Assistant Director for Program Management The technical status report will review the previous month's accomplishments, highlight potential problems, and estimate progress toward the Payable Milestones. The technical status report will include a review of the status of consortium collaborative activities during the reporting period. B. QUARTERLY BUSINESS STATUS REPORT On or before ninety (90) calendar days after the effective date of the Agreement and quarterly thereafter throughout the term of the Agreement, the CMC shall submit a quarterly business status report. Two (2) copies shall be submitted to the ARPA Program Manager, one (1) copy shall be submitted to the ARPA Agreements Administrator and one (1) copy shall be submitted to ARPA/ESTO, Attn: Assistant Director for Program Management The business status report shall provide summarized details of the resource status of this Agreement, including the status of the contributions by the Consortium Members. This report will include a quarterly accounting of current expenditures as outlined in the Annual Program Plan. Any major deviations shall be explained along with discussions of the adjustment actions proposed. C. ANNUAL PROGRAM PLAN DOCUMENT The CMC shall submit or otherwise provide to the ARPA Program Manager one (1) copy of a report which describes the Annual Program Plan as described in Article III, Section D. This document shall be submitted not later than thirty (30) calendar days following the Annual Site Review as described in Article III, Section D. D. SPECIAL TECHNICAL REPORTS As agreed to by the Consortium and the ARPA Program Manager, the CMC shall submit or otherwise provide to the ARPA Program Manager one (1) copy of special reports on 1 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 2, PAGE 2 significant events such as significant target accomplishments by Consortium Members, significant tests, experiments, or symposia. E. PAYABLE MILESTONES REPORTS The CMC shall submit or otherwise provide to the ARPA Program Manager, documentation describing the extent of accomplishment of Payable Milestones. This information shall be as required by Article V, paragraph B and shall be sufficient for the ARPA Program Manager to reasonably verify the accomplishment of the milestone of the event in accordance with the Statement of Work. F. FINAL REPORT 1. The CMC shall submit or otherwise provide a Final Report making full disclosure of all major developments by the Consortium within sixty (60) calendar days of completion or termination of this Agreement. With the approval of the ARPA Program Manager, reprints of published articles may be attached to the Final Report. Two (2) copies shall be submitted or otherwise provided to the ARPA Program Manager and one (1) copy shall be submitted or otherwise provided to ARPA/ESTO, Attn: Assistant Director for Program Management. One (1) copy shall be submitted to the Defense Technical Information Center (DTIC) addressed to Bldg. 5/Cameron Station, Alexandria, VA 22314. 2. The Final Report shall be marked with a distribution statement to denote the extent of its availability for distribution, release, and disclosure without additional approvals or authorizations. The Final Report shall be marked on the front page in a conspicuous place with the following marking: "DISTRIBUTION STATEMENT B. Distribution authorized to U.S. Government agencies only to protect information not owned by the U.S. Government and protected by a contractor's "limited rights" statement, or received with the understanding that it not be routinely transmitted outside the U.S. Government. Other requests for this document shall be referred to ARPA/S&IO (Attn: Technical Information Officer)." 2 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 3, PAGE 1 SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
SOW ARPA CONSORTIUM TASK MONTH REF PAYABLE MILESTONES PAYMENT PAYMENT ---- ----- --- ------------------------------------------------------- ---------- ----------- 1 1 Intro Deliver baseline execution plan to include detailed $ 400,000 $ 450,000 program schedule in Gantt chart form. Status report describing work performed to date. 2 3 2.3.5 Deliver substrate design simulation report for each $ 880,250 $ 910,250 of the Consortium Members' products and required design rules. 3 6 1.3.4 Deliver the Consortium test chip plans. Deliver a $1,464,400 $1,465,530 design report on mechanical test chip C' (CLAy simulation mechanical test chip). Test chip "C" will have completed fab and initial assembly. Deliver the Consortium plans for obtaining and using a functional test chip for process qualification. 4.2.3 Deliver design review report on CLAy substrate package 4 9 3.3.7 Consortium assembly infrastructure will select and $1,790,600 $1,790,600 install flip chip assembly and handling equipment. Deliver a report describing the equipment selection criteria and verification of installation. 1.3.2 Demonstrate capability to produce 5/95 Sn/Pb solder bumps. Deliver a report describing the process and cost model to date. 5 12 3.3.8 Demonstrate the infrastructure prototype capability $1,410,600 $1,757,600 4.2.2 by assembling 300 Sun Disk memory modules. Deliver sample parts and assembly report. 2.3.2 Demonstrate high density substrate prototype capability. 2.3.3 Deliver Substrate materials and process design 2.3.4 report and initial test substrate evaluation report. The report will demonstrate bond ply process and material capable of 2 mil via, 5 mil pads and 10 mi area array grid. 6 15 1.3.1 Demonstrate capability to produce a redistribution / $1,280,650 $1,657,023 dielectric layer process for area array bumping. Deliver initial process characterization report, cost model and reliability report. 1.3.3 Demonstrate and qualify a single die bumping process. Deliver a report describing process characterization, cost modeling, and reliability testing.
1 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 3, PAGE 2
SOW ARPA CONSORTIUM TASK MONTH REF PAYABLE MILESTONES PAYMENT PAYMENT ---- ----- ----- ------------------------------------------------------- ------- ----------- 7 18 4.2.1 Demonstrate manufacturing capability for the $1,064,750 $ 1,391,250 Stinger missile product driver assembled at 2 Consortium Members' facilities. Deliver a product report including characterization, reliability and cost model and comparison to wire bond cost. 4.2.2 Deliver final qualification report for SunDisk memory module. 2.3.5 Demonstrate volume manufacturing capability for 2.3.7 high density substrate at the production facility. Deliver samples and manufacturability qualification report. 8 21 1.2.2 Deliver process characterization, reliability, cost $ 915,370 $ 1,134,726 model and manufacturing report on the bumping technology extension projects (Pb free process, Electroless Ni UBM process, Solder jet process, Solder wire process) 2.3.6 Demonstrate fine pitch substrate test head capability. Deliver characterization and cost report. 9 24 4.2.3 Deliver final qualification report on the CLAy $ 622,990 $ 711,392 product driver including reliability, electrical characterization and cost report. 1.3.2 Deliver process characterization, reliability, cost model and manufacturing report on the bumping technology extensions (fine pitch - 6 mil process and high fatigue life process). TOTAL: $9,829,610 $11,268,371
2 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 4 FUNDING SCHEDULE
A. PROJECTED PROGRAM FUNDING COMMITMENTS ------------------------------------- ARPA Consortium Funding Contribution ---------- ------------ AY* 95 $6,794,728 $ 6,373,980 AY 96 $3,034,882 $ 4,894,391 TOTALS $9,829,610 $11,268,371 ---------- ----------- *Agreement Year
B. CONSORTIUM MEMBER CONTRIBUTIONS -------------------------------
MEMBER CONTRIBUTION CASH** IN-KIND*** ------ ------------ ----------- ---------- Aptos $ 1,277,773 $ 1,277,773 $ 0 Delco $ 711,176 $ 670,676 $ 40,500 Hughes $ 625,000 $ 582,000 $ 43,000 Jabil $ 1,550,000 $ 973,400 $ 576,600 Litronic $ 1,305,530 $ 826,780 $ 478,750 National $ 4,422,949 $ 4,422,949 $ 0 Sheldahl $ 650,943 $ 650,943 $ 0 SunDisk $ 725,000 $ 725,000 $ 0 ----------- ----------- ---------- TOTALS $11,268,371 $10,129,521 $1,138,850
**Cash contributions consist of fully-burdened labor exclusive of cost of money and fee, Government IR&D expenditures, and cash expenditures for consumable equipment, travel, supplies, construction (costs associated with equipment installation), software, direct materials, and other direct costs. ***In kind contributions consist of depreciation expenses allocated on a percentage basis for equipment used on the program and the lease equivalent of an R&D Lab allocated on a percentage basis. 1 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 5, PAGE 1 LIST OF GOVERNMENT AND CONSORTIUM REPRESENTATIVES GOVERNMENT: SCOTT R. ULREY ARPA/CMO 3701 N. Fairfax Drive Arlington, VA 22203-1714 phone: (703) 696-2434 FAX: (703) 696-2208 Email: sulrey@arpa.mil NICHOLAS J. NACLERIO ARPA/ESTO 3701 N. Fairfax Drive Arlington, VA 22203-1714 phone: (703) 696-2216 FAX: (703) 696-2203 Email: nnaclerio@arpa.mil CONSORTIUM: DENNIS RALSTON NATIONAL SEMICONDUCTOR CORPORATION M/S 10-225 2900 Semiconductor Drive Santa Clara, CA 95052 phone: (408) 721-2812 FAX: (408) 721-4860 Email: tdersc@tevm2.nsc.com JIM DUNHAM NATIONAL SEMICONDUCTOR CORPORATION 2900 Semiconductor Drive Santa Clara, CA 95052 phone: (408) 721-6140 FAX: (408) 721-6142 Email: tjrdsc@tevm2.nsc.com SCOTT GRAHAM APTOS CORPORATION 1557 Centre Pointe Drive Milpitas, CA 95035 phone: (408) 956-7988 X3006 FAX: (408) 956-7979 1 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 5, PAGE 2 CONSORTIUM: MICHELLE A. WILKES DELCO ELECTRONICS CORPORATION One Corporate Center P.O. Box 9005 Mail Station CT50B Kokomo, IN 46904-9005 phone: (317) 451-5532 FAX: (317) 451-5520 MICHAEL J. VARNAU DELCO ELECTRONICS CORPORATION 2033 East Boulevard Mail Station 6060 Kokomo, IN 46904-9005 phone: (317) 451-7136 FAX: (317) 451-8564 Email: mvarnau@kocpk01.delcoelect.com MARLENE TOMPKINS HUGHES MISSILE SYSTEMS COMPANY P.O. Box 11337 Tucson, AZ 85252 phone: (602) 794-4040 FAX: (602) 794-2460 Email: 0067-18@ccmail.emis.hac.com PAUL H. BITTNER JABIL CIRCUIT, INC. 2220 Lundy Ave San Jose, CA 95131 phone: (408) 943-0196 FAX: (408) 943-0589 Email: paul_bittner@jabil.com MARTY NEESE JABIL CIRCUIT, INC. 2220 Lundy Ave San Jose, CA 95131 phone: (408) 943-0196 FAX: (408) 943-0589 Email: marty_neese@jabil.com DICK POMMER LITRONIC INDUSTRIES 2950 Red Hill Ave Costa Mesa, CA 92626 phone: (714) 545-6649 FAX: (714) 545-7616 Email: dick.pommer@litronic.com 2 AGREEMENT NUMBER: MDA972-95-3-0031 ATTACHMENT NO. 5, PAGE 3 CONSORTIUM: KRIS SHAW LITRONIC INDUSTRIES 2950 Red Hill Ave Costa Mesa, CA 92626 phone: (714) 545-6649 FAX: (714) 545-7616 WILLIAM M. BAKER SHELDAHL, INC. 1150 Sheldahl Road P.O. Box 170 Northfield, MN 55057 phone: (303) 651-2880 FAX: (303) 651-2265 THOMAS A. OLSON SHELDAHL, INC. 1150 Sheldahl Road P.O. Box 170 Northfield, MN 55057 phone: (507) 663-8000 Ext. 546 or 300 FAX: (507) 663-8435 BOB WALLACE SUNDISK CORPORATION 3270 Jay St. Santa Clara, CA 95054 phone: (408) 562-0500 FAX: (408) 562-0503 Email: bwallace@tsundisk.com 3 EX-10.28 9 ARTICLES OF COLLABORATION Exhibit 10.28 ARTICLES OF COLLABORATION FOR LOW COST FLIP CHIP CONSORTIUM This Agreement is entered into by and among the following parties: National Semiconductor Corporation Aptos Corporation Delco Electronics Corporation Hughes Missile Systems Company Jabil Circuit, Inc. Litronic Industries Sheldahl, Inc. SunDisk Corporation WHEREAS the Parties have complementary research interests and wish to form a cooperative research consortium (hereinafter Consortium) to engage in cooperative research in the area of low cost solder-bumped flip chip assemblies in order to develop and emplace a domestic manufacturing capability for design, solder-bumping and board assembly of integrated circuit (IC) wafers and die; (hereinafter scope of research); and WHEREAS the Parties anticipate receiving funding from a government agency; and WHEREAS the Parties wish to be bound together in the Consortium by these Articles of Collaboration (Articles hereinafter) in the form of a Joint Research and Development Venture as such term is defined in the National Cooperative Research Act of 1984 through a Cooperative Agreement as such term is defined in 31 U.S.C. 6305; and WHEREAS terms not otherwise defined in this Agreement shall have the meaning set forth in the ARPA Agreement between the Consortium and the Advanced Research Projects Agency (ARPA). Hereinafter the following definitions apply: Each of National Semiconductor Corporation, Aptos Corporation, Delco Electronics Corporation, Hughes Missile Systems Company, Jabil Circuit, Inc., Litronic Industries, Sheldahl, Inc. and SunDisk Corporation once having executed these Articles is a Consortium Member. Each Consortium Member is a Party. All Consortium Members are collectively identified as Parties. SEMATECH is an Advisor to the Consortium. Due to legal constraints placed upon these entities, they are unable to sign these Articles of Collaboration, but agree to support the Consortium's goals and objectives. As an Advisor to the program, these entities shall not have any voting authority within the Consortium. Page 1 of 21 Each U.S. governmental department or agency thereof providing funding to the Consortium as a whole is in an Agency during the period such funding is available or being used. NOW THEREFORE, the Parties agree as follows: 1. (a) The Parties hereby establish a joint research and development venture to engage in a collaborative research effort of limited duration to gain further knowledge and understanding of such technologies for the purposes and within the Scope of Research set forth herein. (b) Subject to the availability of Agency funding, the Parties individually agree to expend best reasonable efforts to achieve the goals assigned to them as defined in the Program Plan (including milestone payment plan), attached hereto and incorporated herein. By execution of this Agreement each Party authorizes the Consortium Management Committee (CMC) or its designee to enter into with an Agency a single Other Transaction (hereinafter Funding Agreement) as defined in 10 U.S.C. 2371 and consistent with the Project Statement to fund the Consortium. In the course of the Consortium, the Consortium Administrator shall disburse to each Party the funds associated with the completion of each milestone established in the Detailed Milestone Payment Plan upon receipt of appropriate documentation from the Party. Milestone payments to each Party will be made within 15 working days after receipt of a certification of milestone completion, assuming such funds are available from the Agency and unless the CMC shall direct the Consortium Administrator to the contrary in accordance with Article 4. (c) This Agreement shall not preclude any Party from developing at its own expense technology based upon Consortium technology but apart from the Project Statement, provided that the proprietary information and other rights of other Parties hereunder are not violated. The developing Party under this subparagraph reserves all intellectual property rights in its so developed technology. (d) The Parties agree to empower the Consortium Administrator to officially execute the ARPA-Consortium Agreement No. MDA972-95-3-0031 on behalf of all of the individual Consortium Member companies. This authority is granted only after each individual company has had adequate time to review the Agreement and have provided written authorization to the Consortium Administrator to execute the document on behalf of their respective company. 2. (a) Subject to the terms and conditions stated herein, the Consortium will be managed and governed by the Consortium Management Committee. The CMC is empowered to determine all policy, business, financial, legal, and technical issues of the Consortium. The CMC is authorized to represent the Consortium in reporting progress, in negotiating, and in transacting business with respect to the Page 2 of 21 scope of the Agreement with ARPA or other persons. Specifically and without limitation, except as otherwise provided in this Agreement, the CMC is empowered to redirect the research, redefine the tasks and goals of the Parties, and to proportionally change to all Parties the amount of funding provided by an Agency concerning the program. (b) Each Consortium Member will appoint one voting representative to comprise the CMC, who shall have the power to designate an alternate voting representative from time to time. The CMC will meet in regular committee meetings, approximately every three months, at locations chosen on a rotating basis by the CMC or as is mutually acceptable among the Consortium Members. Each representative may be accompanied by other employees of the Party or Agency, including without limitation financial, business, and legal personnel. Each Party and Agency will limit its attendees to three, with the exception of National Semiconductor employees providing overall support to the Consortium. Other parties may attend the committee meetings at the invitation of the CMC, but only after agreeing in writing to appropriate disclosure limitations. The CMC may exclude from a portion of the non-technical committee meetings the representatives of the Agencies or other third persons. (c) The National Semiconductor representative to the CMC will act as chairperson of the committee meetings, keep the other members of the CMC informed of developments, and deliver notification regarding meetings of the CMC. Any Consortium Member may call a special meeting of the CMC. (d) Subject to CMC approval National Semiconductor will appoint a Consortium Administrator to the Consortium who will attend all CMC meetings and who will provide a single point of contact to the Contracting Officers of Parties and the Agencies or their designees. (e) National Semiconductor will ensure that minutes of the meetings of the CMC are recorded and distributed to the Consortium Members and, as requested, to ARPA. (f) Each Consortium Member will be responsible for hosting both CMC meetings and Technical Management Committee (TMC) meetings on a rotating basis. The schedule for hosting meetings will be published by the Consortium Administrator within 30 days after execution of these Articles. 3. a. A simple majority of CMC members will constitute a quorum at a CMC meeting. The CMC will attempt to reach a consensus decision of all representatives present at each committee meeting. However, if demanded by one Consortium Member, a decision may be determined by a vote of the CMC after the concerns of affected Parties and Agencies present at the meeting are heard. Except Page 3 of 21 as provided in sections 4, 5 and 7, a majority vote of the voting representatives present rules. b. Any Consortium Member company may request the convening of the CMC. Requests must be made directly to the Chairman of the CMC. A request to convene an unscheduled meeting of the CMC must allow at least 15 working days to convene the meeting. c. CMC meetings will be held quarterly. Locations for the meetings will be rotated among the Consortium Members. Each Consortium Member is responsible for providing the necessary facilities to host a CMC meeting. The Consortium Administrator will notify all member companies of the date and location of the regularly scheduled CMC meetings at least 30 days in advance. If an unscheduled CMC meeting is called by any of the member companies, the Consortium Administrator will endeavor to provide as much notice as practical. 4. A supermajority vote, as required, is a vote of all but one of the Consortium Members. For purposes of a supermajority vote, the vote of a representative of a Consortium Member either not attending the CMC meeting or not participating will be counted as an opposing vote. With a supermajority vote, the CMC is empowered to: (a) Revise the Articles of Collaboration; (b) Revise or terminate any funding agreements with an Agency; (c) Delegate authority of CMC to the Consortium Administrator or Consortium Chairman; (d) Substantially change or eliminate any Agency funding allocated to any Party as technically and/or financially justified by the CMC. A Party experiencing any reduction in Agency funding may pro rata reduce its internally funded participation in the Consortium; (e) Act on any issue declared reasonably, in writing by a Consortium Member, to be of critical importance; (f) Appoint and remove the Consortium Administrator or any other officer; and (g) Approve Annual Program Plan for Funds and adjusting funding to all parties subject to section 6. 5. (a) The CMC by unanimous vote may admit a new member to the Consortium. The membership of a new member shall become effective and such new member shall become a Party upon its execution of this Agreement. The CMC will consider new members on a non-discriminatory basis, but only if the new Members technical contributions can be justified and only on relatively comparable financial terms as the existing Parties, recognizing the risk of their original investment. The consideration will include without limitation whether the new member would bring to Page 4 of 21 the Consortium technology otherwise unavailable on the time scale of the program or would allow the technology to be developed by members of the Consortium to be applied to new markets. Other conditions of its admission are that the entry of the new member would not substantially adversely affect the intellectual property rights of the original Consortium Members, that the added effort would not substantially change the ongoing Consortium program, and that the new Member could participate without diminishing Agency funding provided to existing Members. Notwithstanding the above, the representatives of the CMC may consider any reasonable factor in addition to those above, and their decision on admitting new Members is discretionary and final. (b) If a member is unable to attend a CMC or TMC meeting, the member may vote via written proxy. The proxy vote must be received by the Chairman of the CMC at least one (1) working day prior to the CMC or TMC meeting. The proxy vote must be in writing from the CMC voting representative of the Party or his designee. A FAX or EMAIL proxy is acceptable. (c) If a member is absent from a CMC or TMC meeting, that Party's vote will be counted as a negative vote on all issues brought forth to a vote. 6. A Party may reject an expansion of its scope of responsibility within the Consortium, a modification of its rights in Intellectual Property, or a reduction of its Agency funding not accompanied by a reduction in the scope of its responsibilities. 7. (a) Any Party may resign at will from the Consortium after it has provided written notice to the CMC 30 days in advance of the effective date of the resignation. During the 30 day period, the resigning Party shall wind down its effort in an orderly fashion. The CMC shall reasonably determine whether to provide any further Agency funding to the resigning member after its notice of resignation. (b) The resigning Party shall make a reasonable best effort to transfer its portion of Consortium work to other members of the Consortium, this reasonable best effort extending beyond the 30 day period if reasonably required and at the resigning Party's own cost (which shall not exceed the payment due to the resigning party at the next payable milestone payment date following the date notice of resignation is given). The resigning Party must provide a reasonable, royalty-bearing, non-exclusive, perpetual, sub-licensable license in its Consortium Intellectual Property as defined in Paragraph 8 (b), restricted to the field of use defined in the SOW to the Party or Parties designated by the CMC to replace the resigning Party in performing its assigned tasks. (c) The CMC may, by unanimous vote, except for the resigning Party, force a Party to resign if that Party is not adequately performing the tasks assigned to it or is not reasonably cooperating with the Consortium and its Parties. For purposes Page 5 of 21 of the unanimous vote, the representative of a Consortium Member not attending the CMC meeting or not voting will defeat the unanimity, except for the resigning party. The CMC will provide at least 30 days notice to the offending Party to resolve nonperformance issues prior to the issue coming to a vote before the CMC. All appropriate efforts and communications will be made prior to forcing a Party to resign. All of the requirements and responsibilities of a resigning party described in 7(a) and 7(b) apply to a party forced to resign. 8. (a) As to intellectual property made in the Consortium, each Party retains title to inventions, technical data rights, and other intellectual property made solely by its employees in performance of the Consortium work. Inventions or technical data jointly developed by employees of more than one Party are jointly owned by the respective employing Parties. (b) Consortium Intellectual Property is that intellectual property developed by and in the course of identified tasks assigned to and performed by the member Party, whether performed under Agency funding or funding provided by the Party as agreed to in the Funding Agreement and/or in this Agreement for cost sharing. The identified tasks shall be those tasks i) agreed to by the Party in a separate agreement between the Consortium and ARPA, ii) agreed to by the Party with other Parties of the Consortium, and (iii) assigned to the Party by the CMC subject to the restrictions of section 6. However, Consortium Intellectual Property does not include (1) background: (2) concurrently developed intellectual property that is independently funded apart from Consortium: or (3) continuation (improvement or subsequent) intellectual property (including so-defined processes) of the respective Party(ies). All Parties agree to perform the tasks assigned to them in the attached Statement of Work, to which the CMC is empowered to redirect these efforts. (c) All Parties neither receive from nor are required to grant to the other Consortium Members any royalty-free licenses in its Consortium intellectual property, but all Parties agree to grant to any other Consortium Member a reasonable, royalty-bearing license for the sole purpose of continuing the Consortium. The cost of this license will not be counted towards the overall cost of the Low Cost Flip Chip Consortium program. Further, all Parties will license its Consortium intellectual property to other Parties only under commercially reasonable terms. (d) In the event of a dispute concerning the reasonableness of a proposed royalty resulting from Consortium Intellectual Property, all Parties agree to submit to binding arbitration to determine the reasonableness of the proposed royalty agreement between Parties. All Parties agree that the arbitrator's decision will be binding. (e) One Party may exercise march-in rights against the Consortium Intellectual Property of another Party to the extent specified in this paragraph. March-- Page 6 of 21 in rights become available if the Party originally holding title to the Consortium Intellectual Property has failed to adequately commercialize within a reasonable time, the technology of the Consortium related to that Consortium Intellectual Property. The reasonable time shall be no less than 3 years from the date these Articles are terminated. Any Consortium Member may exercise march-in rights upon any Member either on the Member's behalf or on the behalf of its licensees irrespective of whether an Agency has exercised similar march- in rights. The title holder shall be entitled to commercially reasonable licensing fees and a reasonable license agreement from the Member exercising march-in rights. (f) Each Party is subject to the licensing and march-in rights of subparagraph (e), but the Consortium may not bind any Party without its approval for the conveyance of its intellectual property to any Agency. (g) The Consortium favors, subject to Agency requirements, an open-publication policy to promote commercial acceptance of the technologies developed for flip chip packaging of integrated circuits, but simultaneously desires to protect the proprietary information of the Parties developed both within and without the Consortium. However, successful commercialization of aspects of the technology by some of the Parties may depend on the proprietary nature of the information. Each Party will individually decide whether to publish its own technical data or maintain it as proprietary. However, in the performance of the Consortium, proprietary information, software or hardware of one Party may necessarily be disclosed to or used by another Party. A non- disclosure agreement separately executed by all the Members, attached as Exhibit 1, is incorporated herein by reference, and the Members will assure that their employees participating in the Consortium conform to its terms. (h) Notwithstanding the separately executed non-disclosure agreement attached hereto, when one Party's Consortium related work depends on the proprietary information of another Party, the technical data may be published to the extent that such data: (i) is required for a description of the Member's work, (ii) does not disclose proprietary materials, hardware, formulations or software, and (iii) relates primarily to system or material performance and characteristics. However, publication of proprietary technical data may be delayed by its owner for a time period of not more than six (6) months enabling the filing of patent applications. In the event that a Party's work depends on proprietary materials, hardware, software or processes developed by another Party in tasks outside the Consortium, the system performance and characteristics may be published, but only after the delay period for patent filings. In no event shall such disclosure in any way reveal the proprietary information of the implementation necessary to achieve the system performance. (i) Each Party will select its inventions for which it applies for patents. The Party is further responsible for prosecuting those applications and maintaining the resulting patents, both in the U.S. and in foreign countries. A Party jointly owning an Page 7 of 21 invention may file a patent application for it and the co-owning Parties will cooperate in the filing and prosecution. (j) Any patent application filed claiming a Consortium invention covered by an agreement with an Agency shall include a Government interest paragraph. The Party will report a patent application claiming any Consortium Intellectual Property to the CMC within one month and provide to the CMC a copy of the application, without claims. The CMC will report the invention in a timely manner including a short abstract to all Parties and to any Agency funding the invention, as required by the Agency. Any Member or the funding Agency may obtain copies of the application from the CMC. However, any such patent information shall be covered by the non-disclosure agreement and shall not be disclosed by the Agency to non-governmental personnel until the respective patents have been issued. All Parties agree to retain and maintain in good condition until five (5) years after completion or termination of these Articles, all data necessary to achieve practical application of all Consortium and/or Government funded inventions. (k) The funding agreement for the Project Statement may provide for the government to obtain certain rights in the Consortium Intellectual Property. Each Party agrees to such government rights in its Consortium Intellectual Property subject to the Agreement between the Consortium and ARPA. The intellectual property rights provided to the Consortium by Agreement shall be provided in turn to the Parties according to the terms of this Agreement. The Parties will cooperate with the CMC in performing any reporting, election, and rights predetermination to the Agency regarding intellectual property as required by the funding agreement and to provide the required information to the CMC before such information is required by the Funding Agreement. (l) All Parties agree to respect the Intellectual Property rights of all other Parties. During the term of the Agreement, no Party may attempt to reverse engineer, analyze, recreate, or duplicate the specific technology developed by another Party as a result of this Collaboration Agreement. Such efforts may result in termination of membership in the Consortium, forfeiture of all funds assigned to the milestones to be performed by the offending Party, and any legal action deemed appropriate. (m) Notwithstanding the above limitations in this paragraph 8, a basic intent for the formation of this consortium is to share information freely or by license to the maximum extent possible without disclosing or otherwise compromising another Parties proprietary data. This is necessary to assure the formation of a viable market for the advanced low cost flip chip technology. 9. (a) National Semiconductor Corporation will receive funds from the funding Agency and disperse such funds available to the Consortium as specified in Page 8 of 21 the attached Consortium Funding Agreement or as directed by the CMC. Milestone payments will be distributed within fifteen (15) working days after receipt of a document certifying completion of the milestone, providing funds have been made available by ARPA. (b) The funding agreement for the Project Statement may provide for certain rights of the Government to audit the financial records of the Consortium. Each Party agrees that it will reasonably cooperate with a Government audit of the Consortium and a Government audit of their individual financial records related directly to the costs incurred during the performance of the ARPA Agreement in accordance with Generally Accepted Accounting Principles (GAAP) only. No Federal Acquisition Regulations or Cost Accounting Standards apply to the accounting and financial records and systems of the members. 10. (a) The Consortium Administrator will set up a document repository (Consortium Data Repository), wherein all pertinent documents and data generated by the Consortium and its Members will be archived. All Parties agree to provide to the Consortium Administrator copies of pertinent documentation, drawings, photographs and data. Data will be maintained for a period of up to five (5) years after completion or termination of these Articles. Such data shall not include proprietary information previously developed at prior expense by any Party prior to entering into this Agreement. (b) A copy of all patent abstracts resulting from Consortium Intellectual Property will be provided to the Consortium Administrator within 30 days after filing. (c) All press releases, publicity, technical papers and other such data shall be provided to the Consortium Administrator for archiving in the Consortium Data Repository within 30 days of submittal for publication. 11. a. THE PARTIES DISCLAIM ANY WARRANTY INCLUDING WITHOUT LIMITATION AN IMPLIED WARRANTY FOR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, TO EACH OTHER, TO ANY AGENCY, AND TO THIRD PARTIES FOR ACTIONS, OMISSIONS, PRODUCTS, NON-CONFORMITIES, DEFECTS, LIABILITIES, OR INFRINGEMENT ARISING OUT OF THE CONSORTIUM. THE PARTIES DISCLAIM ANY LIABILITY FOR CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES. IN NO EVENT SHALL A PARTY'S LIABILITY UNDER THIS AGREEMENT EXCEED THE FUNDING IT HAS RECEIVED UP TO THE TIME OF INCURRING SUCH LIABILITY. b. The Parties are bound to each other and to the Agency entering into this agreement with the Consortium by a duty of only good faith and best reasonable research effort in achieving the goals of the Consortium. Joint and several Page 9 of 21 liability will not attach to the Parties of the Consortium so that no Party is responsible for the actions of another Party, but is responsible only for those tasks specified to it and to which it agrees to perform in the separately executed ARPA funding agreement. Any Party may waive any right, breach or default which such Party has the right to waive, provided that such waiver shall not be effective against the waiving Party unless it is in writing, is signed by such Party, and specifically refers to this Agreement. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. 12. No Party has the obligation to, nor will it disclose to, another Party proprietary information not required for the research purposes in the Program, and specifically will not exchange with another Party in connection with this Agreement any market data or plans for other services or market products or any information relating to flip chip IC packaging of microcircuits, except as such information is made publicly available. 13. (a) These Articles are not intended to form, nor shall they be construed to form, by implication or otherwise, a partnership or other formal business organization, nor should they be construed as a contract or a grant as defined for purposes of federal procurement law. No Party can be bound by another Party acting as its agent except as specifically stated in this Agreement. (b) No Party shall be obligated to provide any capital contribution, loan, guarantee, or other financing commitment for the benefit of the Consortium, unless required for such Party's portion of the Project Statement or such Party agrees in writing herein or otherwise. 14. Except and to the extent as specifically set forth herein, nothing in these Articles shall be construed by implication, estoppel or otherwise to grant any license or right under any patent, copyright, trade secret, trademark or proprietary right of any Party. 15. This Agreement does not bar the Parties from singly or jointly planning, designing, or entering manufacturing, subject to the rights of all Parties, outside the Consortium. 16. No Party shall identify any other Party and its association with this Consortium in advertising, publicity, or otherwise, except with the formal written approval of such other Party. However, the Parties agree that notification of the establishment of this Joint Research and Development Venture shall be filed by National Semiconductor Corporation on behalf of the Parties with the Attorney General and the Federal Trade Commission in accordance with the provisions of the National Cooperative Research Act of 1984 within 90 days of execution of this Agreement and Page 10 of 21 after adequate review by the legal departments of all Parties. 17. (a) These Articles and the Consortium shall continue after execution of this agreement for 24 months thereafter or earlier under any provision of sub-section (b) hereof. It may be renewed at any time prior to the expiration of the term of this Agreement by letter agreement signed by the authorized representatives of all the Parties who are Parties at that time. (b) This Agreement shall terminate upon the earliest occurrence of: (i) disapproval by the Attorney General or the Federal Trade Commission of the notification of Section (15); (ii) termination of the funding of the first Project Statement by an Agency unless each Party has agreed to extend the Consortium for subsequent funding; or (iii) no funding is provided by an Agency by March 31, 1995. (c) The obligations of confidentiality set forth in Article 8 hereof shall survive termination of these Articles for a period of 36 months. 18. The Funding Agreement from an Agency may impose certain requirements upon the Consortium or its Participants regarding reporting accounting, civil rights, intellectual property, and technology transfer information or transferring of intellectual property generated with funds provided by the Agency. A Participant by acceptance of such funds agrees to conform to such requirements and to reasonably cooperate with the Consortium in conforming to such requirements. 19. Any notices or other communications required or permitted hereunder shall be sufficiently given if sent by telecopier or by registered or certified mail, postage prepaid, addressed as follows: Primary Alternate Jim Dunham Dennis W. Ralston National Semiconductor Corporation National Semiconductor Corporation 3707 Tahoe Way, MS 19-100 1130 Kifer Road, MS 10-225 Santa Clara, CA 95051 Sunnyvale, CA 94086 (408) 721-6140 (408) 721-2812 Ed Johnson Aptos Corporation 1557 Centre Pointe Drive Milpitas, CA 95035 (408) 956-7988 Page 11 of 21 Curt Erickson Mathew Venteicher Delco Electronics Corporation Delco Electronics Corporation 700 East Firmin Road One Corporate Center Kokomo, IN 46904-9005 Kokomo, IN 46904-9005 (317) 451-9389 (317) 451-5264 Marlene Tompkins Hughes Missile Systems Company 1150 East Herman Road P.0. Box 11337 Tucson, AZ 85706 (520) 794-4040 Paul H. Bittner Marty Neese Jabil Circuit, Inc. Jabil Circuit, Inc. 2220 Lundy Avenue 2220 Lundy Avenue San Jose, CA 95131 San Jose, CA 95131 (408) 943-0196 (408) 943-0196 Dick Pommer Kris Shaw Litronic Industries, Inc. Litronic Industries, Inc. 2950 Red Hill Avenue 2950 Red Hill Avenue Costa Mesa, CA 92626 Costa Mesa, CA 92626 (714) 545-6649 (714) 545-6649 William M. Baker Thomas A. Olsen Sheldahl, Inc. Sheldahl, Inc. 345-C South Francis Street 1150 Sheldahl Road Longmont, CO 80501 Northfield, MN 55057 (303) 651-2880 (507) 663-8000 Bob Wallace SunDisk Corporation 3270 Jay Street Santa Clara, CA 95054 (408) 562-0500 or such other addresses or telecopier numbers as shall be furnished by like notice by such party. Any such notice or communication given by mail shall be deemed to have been given three (3) business days after the date so mailed, and any such notice or communication given by telecopier shall be deemed to have been given when sent by telecopier and the appropriate answer back received. Page 12 of 21 20. Neither this Agreement nor any rights hereunder, in whole or in part, shall be assignable or otherwise transferable without the prior written consent of all other Parties, except the Party's wholly owned subsidiaries, its ultimate parent company, and to any company wholly owned by its parent company. The above is subject to ARPA approval. 21. (a) These Articles shall first become effective on the date all Consortium Members have signed these Articles and such Articles will be effective only as to such Parties who have signed these Articles by such date. These Articles shall be effective as to any other Party on the date such other Party executes these Articles. (b) This Agreement may be executed in counterparts each of which shall be deemed an original, but taken together shall constitute one and the same instrument. 22. The Parties Shall further execute, sign or do or procure to be executed, signed and done all such further deeds and documents and acts as may be reasonably required to enable the Parties freely and fully to pursue their agreed objective provided hereunder. 23. These Articles shall be governed by the laws of the United States and the State of California except principles of conflict of laws. 24. This Agreement constitutes the entire agreement of the Parties and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions among the Parties, whether oral or written, with respect to the subject matter hereof. IN WITNESS WHEREOF, each of the parties has caused these Articles to be executed by its duly authorized representatives, on the respective dates entered below. Page 13 of 21 LOW COST FLIP CHIP CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME NATIONAL SEMICONDUCTOR CORPORATION -------------------------------------- ADDRESS: 1130 KIFER ROAD, MS 10-225 ------------------------------ SUNNYVALE, CA 94086 ------------------------ By /s/ RICHARD B. CASSIDY, III ------------------------------ (AUTHORIZED SIGNATURE) RICHARD B. CASSIDY, III -------------------------- (PRINT NAME) V.P., GENERAL MANAGER - MILITARY/AEROSPACE DIVISION ------------------------------------------------------ (TITLE) 6-28-95 ------- (DATE OF EXECUTION) Page 14 of 21 LOW COST FLIP CHIP CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME APTOS CORPORATION --------------------- ADDRESS: 1557 CENTRE POINTE DRIVE ---------------------------- MILIPITAS, CA 95035 ------------------------ By /s/ PAUL LIN ---------------- (AUTHORIZED SIGNATURE) PAUL LIN ------------ (PRINT NAME) PRESIDENT ------------- (TITLE) JULY 7, 1995 ------------ (DATE OF EXECUTION) Page 15 of 21 LOW COST FLIP CHIP CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME DELCO ELECTRONICS CORPORATION ---------------------------------- ADDRESS: ONE CORPORATE CENTER ------------------------ KOKOMO, IN 46904-9005 -------------------------- By /s/ MICHELLE A. WILKES ------------------------- (AUTHORIZED SIGNATURE) MICHELLE A. WILKES --------------------- (PRINT NAME) CONTRACTS MANAGER -------------------- (TITLE) 7-10-95 ------- (DATE OF EXECUTION) Page 16 of 21 LOW COST FLIP CHIP CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME HUGHES MISSILE SYSTEMS COMPANY ---------------------------------- ADDRESS: P.O. BOX 11337 ------------------ TUCSON, AZ 85734-1337 -------------------------- By /s/ JOHN T. McKNIFF ----------------------- (AUTHORIZED SIGNATURE) JOHN T. McKNIFF ------------------- (PRINT NAME) CONTRACTS MANAGER, ADVANCED PROGRAMS --------------------------------------- (TITLE) 6-28-95 ------- (DATE OF EXECUTION) Page 17 of 21 LOW COST FLIP CHIP CONSORTIUM CONFIDENTIAL DISCLOSURE STATEMENT CONSORTIUM MEMBER COMPANY NAME JABIL CIRCUIT, INC. ------------------------ ADDRESS: 2220 LUNDY AVE ------------------ SAN JOSE, CA 95131 ----------------------- By /s/ PAUL H. BITTNER ----------------------- (AUTHORIZED SIGNATURE) PAUL H. BITTNER ------------------- (PRINT NAME) V.P. ADV. ENG ----------------- (TITLE) 6/27/95 ------- (DATE OF EXECUTION) Page 18 of 21 LOW COST FLIP CHIP CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME LITRONIC INDUSTRIES ------------------------ ADDRESS: 2950 REDHILL AVE. --------------------- COSTA MESA, CA 92626 ------------------------- By /s/ RICHARD J. POMMER ------------------------- (AUTHORIZED SIGNATURE) RICHARD J. POMMER -------------------- (PRINT NAME) DIRECTOR, ADVANCED PACKAGING ------------------------------- (TITLE) 27 JUNE 1995 ------------ (DATE OF EXECUTION) Page 19 of 21 LOW COST FLIP CHIP CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME SHELDAHL, INC. ------------------- ADDRESS: 1150 SHELDAHL ROAD ---------------------- NORTHFIELD, MN 55057-0170 ------------------------------ By /s/ KEITH CASSON ------------------- (AUTHORIZED SIGNATURE) KEITH CASSON --------------- (PRINT NAME) VICE PRESIDENT, RESEARCH & DEVELOPMENT ----------------------------------------- (TITLE) JULY 7, 1995 ------------ (DATE OF EXECUTION) Page 20 of 21 LOW COST FLIP CHIP CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME SUNDISK CORPORATION ----------------------- ADDRESS: 3270 JAY STREET ------------------- SANTA CLARA, CA 95054 -------------------------- By /s/ ROBERT WALLACE --------------------- (AUTHORIZED SIGNATURE) ROBERT WALLACE ----------------- (PRINT NAME) VICE PRESIDENT MANUFACTURING ------------------------------- (TITLE) 27 JUNE 1995 ------------ (DATE OF EXECUTION) Page 21 of 21 EX-10.29 10 AGREEMENT Exhibit 10.29 TECHNOLOGY REINVESTMENT PROJECT TECHNOLOGY DEVELOPMENT AGREEMENT BETWEEN PLASTIC PACKAGING CONSORTIUM c/o NATIONAL SEMICONDUCTOR CORPORATION 1120 KIFER ROAD SUNNYVALE, CA 94086-3737 AND THE ADVANCED RESEARCH PROJECTS AGENCY 3701 NORTH FAIRFAX DRIVE ARLINGTON, VA 22203-1714 CONCERNING LOW COST PLASTIC PACKAGING RESEARCH AND DEVELOPMENT Agreement No.: MDA972-95-3-0024 ARPA Order No.: C326/00 Total Amount of the Agreement: $19,192,716 Total Estimated Government Funding of the Agreement: $9,578,005 Funds Obligated: $7,445,949 Authority: 10 U.S.C. (S) 2371 & (S) 2511 Line of Appropriation: AA 9740-400 1320 C326 P4V10 2525 DPAC 4 5270 503733 $7,445,949 This Agreement is entered into between the United States of America, hereinafter called the Government represented by The Advanced Research Projects Agency (ARPA), and the Plastic Packaging Consortium pursuant to and under U.S. Federal law. FOR PLASTIC PACKAGING CONSORTIUM FOR THE UNITED STATES OF AMERICA NATIONAL SEMICONDUCTOR CORPORATION THE ADVANCED RESEARCH PROJECTS AGENCY /s/ Dennis W. Ralston /s/ Ron H. Register - - ---------------------------- ---------------------------- (Signature) (Signature) Dennis W. Ralston Ron H. Register Manager, Business Operations 3/17/95 Deputy Director for Management 3/23/95 - - ------------------------------------ -------------------------------------- (Name, Title) (Date) (Name, Title) (Date) 1 AGREEMENT NUMBER: MDA972-95-3-0042 PAGE 2 TABLE OF CONTENTS
ARTICLES PAGE ARTICLE I Scope of the Agreement 3 ARTICLE II Term 6 ARTICLE III Management of the Project 6 ARTICLE IV Agreement Administration 8 ARTICLE V Obligation and Payment 8 ARTICLE VI Disputes 10 ARTICLE VII Patent Rights 11 ARTICLE VIII Data Rights 14 ARTICLE IX Foreign Access to Technology 16 ARTICLE X Pre-Agreement Costs 17 ARTICLE XI Officials Not to Benefit 17 ARTICLE XII Civil Rights Act 17 ARTICLE XIII Order of Precedence 17 ARTICLE XIV Execution 17 ATTACHMENTS ATTACHMENT 1 Statement of Work ATTACHMENT 2 Report Requirements ATTACHMENT 3 Schedule of Payments and Payable Milestones ATTACHMENT 4 Funding Schedule ATTACHMENT 5 List of Government and Consortium Representatives
2 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 3 ARTICLE I: SCOPE OF THE AGREEMENT A. BACKGROUND 1. This Agreement is a Defense Dual-Use Critical Technology Partnership awarded under the Congressionally funded Technology Reinvestment Project (TRP). The mission of the TRP is to stimulate the transition to a growing, integrated, national industry capability that provides the most advanced, affordable, military systems and the most competitive commercial products. Within the general Technology Development area of Low Cost Electronic Packaging, this Agreement focuses specifically on advancing the technology and enhancing the United States (U.S.) production capabilities of plastic packaging for integrated microcircuits with the goal of enhancing both commercial and military customers to employ plastic encapsulated integrated circuits (ICs) in a wide variety of applications. 2. National Semiconductor Corporation (National), Amoco Chemical Company (Amoco), Plaskon Electronic Materials, Inc. (Plaskon), The Dexter Corporation (Dexter), Olin Corporation (Olin), Leading Technologies, Inc. (Leading Technologies), Integrated Packaging Assembly Corporation (IPAC), Delco Electronics Corporation (Delco), Sheldahl Inc. (Sheldahl), and Sandia National Laboratories (Sandia), subcontractor to National have formed a partnership to establish the infrastructure and competencies to manufacture low-cost, high- density, and high-performance plastic packages on-shore. This initiative comes from a growing need to improve complexity, performance and reliability of plastic packages for military and commercial use while lowering the total cost to allow for full commercialization. At the end of the two (2)-year program, the on-shore infrastructure will be developed and plastic packaging technology will be revolutionized. All plastic ICs will migrate to this technology. 3. The basic material and construction technology used in the manufacture of plastic ICs has not changed in ten (10) years. During this time period IC complexity, power, and speed requirements have increased significantly. This trend in ICs characteristics and requirements will continue. In order to address the future package demands for density, performance, cost, and reliability, major changes in material and technology must be made. 4. The Plastic Packaging Consortium will develop the total supply chain from packaging materials supply to a final low-cost on-shore assembly source. The program will focus on three areas for improvements: plastic package ruggedization plastic package thermal dissipation enhancement, and development of high density plastic packages. Improvements will be achieved through enhancements of molding compounds, die attach materials, leadframe materials/design, and reliability characterization. The end result of this two (2)-year program will be to introduce plastic package processes and material which eliminate drybagging, eliminate popcorning, increase thermal conductivity, increase operating temperature, decrease manufacturing process time, introduce low-cost (stamped) fine-pitch leadframes, and introduce low-cost substrate/interposer processes to be used on high-density packaging. These improvements in environmental and quality levels will open up many new product opportunities such as high-density multi-chip modules (MCMs), high-power amplifiers, computer peripheral products and the military use of plastic ICs. 5. The Plastic Package Consortium team members were selected, with the above expected results in mind, based on assessment of needs and core competencies of candidates. A brief description of the capabilities of the team members is listed as follows: (a) Amoco is an energy company with sales of $40 billion. Amoco will develop and supply epoxy molding compound resins for the three focus areas of the TRP; 3 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 4 (b) Leading Technologies, Inc. is a U.S.-based leadframe supplier with a combination of tooling, stamping, photo-etching and plating capabilities. Leading Technologies will develop and supply fine pitch leadframe designs, tooling and finished samples; heat sink designs, tooling and finished samples; leadframe adhesives; and treatment processes for unproved molding compound to frame adhesives; (c) Delco is the largest manufacturer of automotive electronics in the world. Delco will study and characterize epoxy molding compound properties and die attach material and perform leadframe to epoxy adhesion analysis; (d) Dexter is a $900 million polymer company which manufactures polymer compounds, electronic materials and structural adhesives. Dexter will develop and supply enhanced epoxy molding compounds for unproved thermal performance, improved adhesion, reduced moisture absorption, and lower stress. Dexter will also develop and supply enhanced die attach and underfill materials; (e) IPAC is a U.S.-based subcontracting assembly house. IPAC will install 160 lead and 304 lead Plastic Quad Flat Pack (PQFP) and 625 lead Ball Grid Array (BGA) manufacturing capability and provide test samples for all focus areas; (f) National is the second largest supplier of military ICs and the fourth largest U.S. manufacturer of ICs. National will supply product drivers for all three (3) focus areas and provide screening and an analysis of EMC, die attach (D/A), leadframes materials, sample assembly and a final technology demonstration; (g) Olin is a manufacturer of chemical and metal products. Olin will develop and supply new leadframe materials as well as an analysis of adhesion characteristics to the Consortium; (h) Plaskon will develop and supply epoxy molding compounds for unproved stress and moisture performance, unproved adhesion and higher thermal conductivity; (i) Sheldahl is the largest U.S. supplier of flexible printed circuits. Sheldahl will design and supply interposers and substrates for PQFP and BGA packages; and (j) Sandia will supply assembly test chips for all focus areas of the TRP. 6. A critical aspect of this program will be the commercialization of the new technologies. Many companies, including NationaL supply dual-use products that could employ these technologies. Currently, many IC products are manufactured in unique, costly ceramic packages. As the size of the military market declines, the economics of producing these ceramic encapsulated ICs will become increasingly unfavorable. This program will enable improvements in plastic package quality and reliability to levels that meet military environmental and quality requirements. These improvements will make products available directly from commercial suppliers and eliminate the need for separate backend processing. National's strategy will be to introduce these technologies into semiconductor products which have dual-uses (e.g. military, commercial and avionics Other Equipment Manufacturers (OEMs)) first. This strategy will leverage the low military volume with high commercial volume. Examples of National's semiconductor products that could be selected include the Super I/O, Precision Amplifiers and CLAy products. 4 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 5 7. These technological advances in plastic packaging will be applied to both military and commercial products. The future direction of the DoD is to use an installed IC manufacturing infrastructure for military system applications. This program will allow this to be achieved through the use of on-shore assembly infrastructure. IC companies will have the choice of using this infrastructure to produce products for the DoD without the threat of foreign intervention. 8. The Plastic Package Consortium will create capabilities for world- class manufacturing in the U.S. through the use of the Consortium's unique teaming arrangement. This arrangement will accelerate market introduction of distinctive packaging technologies and competencies and position the IC industry to conduct more package production of leading-edge products in the U.S. 9. The new ruggedized packages and technology developed under this program will create a new quality standard for all high-density plastic ICs. The total U.S. market for high-lead count applications addressed by these technologies is forcasted to be in excess of $7 billion by 1997 and growing according to Dataquest, Inc. Many of the developments expected from this program are also applicable to low-lead count applications, thereby increasing the potential market for these products by a factor of three. In addition to the existing commercial market, these technologies will serve military markets by replacing a portion of the existing military ceramic market with plastic packages, resulting in a reduction in cost on the order of three to five times the current military IC package cost. B. DEFINITIONS 1. Consortium - The group of companies or individual companies collaborating to accomplish the objectives of this Agreement. 2. Consortium Member - A single company operating under the Articles of Collaboration referred to in this Agreement. 3. Party or Parties - As the context requires, either the Government, represented by ARPA, or the Consortium, or both. 4. Program - The effort described in the proposal submitted in response to Solicitation No. SOL94-27, Defense Technology Conversion, Reinvestment, and Assistance, entitled, "Low-Cost Plastic Packaging", and more particularly defined in the Statement of Work, Attachment 1 hereto. C. SCOPE 1. The Consortium shall perform a coordinated research and development program (Program) designed to develop improved technology for plastic packages for ICs and to enhance the U.S. plastic packaging assembly capabilities. The research shall be carried out in accordance with the Statement of Work incorporated in this Agreement as Attachment 1. The Consortium shall submit or otherwise provide all documentation required by Attachment 2, Report Requirements. 2. The Consortium shall be paid for each Payable Milestone accomplished in accordance with the Schedule of Payments and Payable Milestones set forth in Attachment 3 and the procedures of Article V. Both the Schedule of Payments and the Funding Schedule set forth in Attachments 3 and 4 respectively may be revised or updated in accordance with Article III. 5 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 6 3. The Government and the Consortium (Parties) estimate that the Statement of Work of this Agreement can only be accomplished with the Consortium aggregate resource contribution of $9,614,711 from the effective date of this Agreement through twenty-four (24) months thereafter. The Consortium intends and, by entering into this Agreement, undertakes to cause to be provided these funds. Consortium contributions will be provided as detailed in the Funding Schedule set forth in Attachment 4. If either ARPA or the Consortium is unable to provide its respective total contribution, the other party may reduce its project funding by a proportional amount. D. GOALS/OBJECTIVES 1. The goal of this Agreement is to advance the development of low-cost advanced plastic packaging infrastructure and core competencies, which can be employed by U.S. IC manufacturers for both military and commercial uses. 2. The Government will have continuous involvement with the Consortium. The Government will also obtain access to research insults and certain rights in data and patents pursuant to Articles VII and VIII. ARPA and the Consortium are bound to each other by a duty of good faith and best reasonable research effort in achieving the goals of the Consortium. This Agreement reflects the collaborative document identified as "Articles of Collaboration for Plastic Packaging Consortium," which document binds Consortium Members. 3. This Agreement is an "other transaction" pursuant to 10 U.S.C. (S) 2371. The Parties agree that the principal purpose of this Agreement is for the Government to support and stimulate the Consortium to provide its best reasonable efforts in advanced research and technology development and not for the acquisition of property or services for the direct benefit or use of the Government. The Federal Acquisition Regulation (FAR) and Department of Defense FAR Supplement (DFARS) apply only as specifically referenced herein. This Agreement is not a procurement contract or grant agreement for purposes of FAR Subpart 31.205-18. This Agreement is not intended to be, nor shall it be construed as, by implication or otherwise, a partnership, a corporation, or other business organization. ARTICLE II: TERM A. THE TERM OF THIS AGREEMENT The Program commences upon the date of the last signature hereon and continues for twenty-four (24) months. If all funds are expended prior to the twenty-four (24)-month duration, the Parties have no obligation to continue performance and may elect to cease development at that point. Provisions of this Agreement, which, by their express terms or by necessary implication, apply for periods of time other than specified herein, shall be given effect, notwithstanding this Article. B. TERMINATION PROVISIONS Subject to a reasonable determination that the program will not produce beneficial results commensurate with the expenditure of resources, either Party may terminate this Agreement by written notice to the other Party, provided that such written notice is preceded by consultation between the Parties. In the event of a termination of the Agreement, it is agreed that disposition of Data developed under this Agreement shall be in accordance with the provisions set forth in Article VIII, Data Rights. The Government, acting through the Agreements Administrator, and the Consortium, acting through its 6 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 7 Consortium Management Committee, will negotiate in good faith a reasonable and timely adjustment of all outstanding issues between the Parties as a result of termination. Failure of the Parties to agree to a reasonable adjustment will be resolved pursuant to Article VI, Disputes. The Government has no obligation to reimburse the Consortium beyond the last completed and paid milestone if the Consortium, acting through its Consortium Management Committee, decides to terminate. C. EXTENDING THE TERM The Parties may extend by mutual written agreement the term of this Agreement if funding availability and research opportunities reasonably warrant. Any extension shall be formalized through modification of the Agreement by the Agreements Administrator and the Consortium Administrator. ARTICLE III: MANAGEMENT OF THE PROJECT A. CONSORTIUM MEMBERS Consortium Members, as set forth in the Articles of Collaboration of the Consortium, are: Amoco Chemical Company Leading Technologies, Inc. Delco Electronics Corporation The Dexter Corporation Integrated Packaging Assembly Corporation National Semiconductor Corporation Olin Corporation Plaskon Electronic Materials, Inc. Sheldahl, Inc. B. CONSORTIUM MANAGEMENT COMMITTEE (CMC) 1. The CMC shall be comprised of one voting representative from each Consortium Member, and in accordance with the Consortium Articles of Collaboration, bind the Consortium Members. The following CMC decisions are subject to ARPA approval: (a) Changes to the Articles of Collaboration if such changes substantially alter the relationship of the Parties as originally agreed upon when the Agreement was executed; (b) Changes to, or elimination of, any ARPA funding allocation to any Consortium Member as technically and/or financially justified; (c) Technical and/or funding revisions to the Agreement; and (d) Admission of additional or replacement Consortium Members. 2. The CMC, is responsible for establishing a schedule of regular technical meetings, to be held on a quarterly basis. The CMC shall notify all Consortium Members and the ARPA Program Manager of the established meeting schedule and, in the event of changes to this schedule, shall notify all 7 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 8 Consortium Members and the ARPA Program Manager thirty (30) calendar days prior to the next scheduled meeting. 3. A simple majority of the Program Managers (or designees) representing the Consortium Members and the ARPA Program Manager (or designee) will constitute a quorum at quarterly technical meetings. All technical decisions shall be made by majority vote of the CMC and the ARPA Program Manager. C. MANAGEMENT AND PROGRAM STRUCTURE Technical and program management of the coordinated research program established under this Agreement shall be accomplished through the management structure and processes detailed in this Article. 1. Subject to the terms and conditions of the Articles of Collaboration of the Consortium, the CMC shall be responsible for the overall management of the Consortium including technical, programmatic, reporting, financial and administrative matters. 2. The ARPA Program Manager shall fully participate in all meetings of the CMC. Other Government personnel as deemed appropriate by the ARPA Program Manager may also participate in the technical portion of these meetings. D. PROGRAM MANAGEMENT PLANNING PROCESS The program management and planning process shall be subject to quarterly and annual reviews with inputs and review from the CMC and the ARPA Program Manager. 1. Initial Program Plan: The Consortium will follow the initial program plan that is contained in the Statement of Work (Attachment 1), and the Schedule of Payments and Payable Milestones (Attachment 3). 2. Overall Program Plan Annual Review (a) The CMC, with ARPA Program Manager participation and review, will prepare an overall Annual Program Plan in the first quarter of each Agreement year. (For this purpose, each consecutive twelve (12) month period from (and including) the month of execution of this Agreement during which this Agreement shall remain in effect shall be considered an "Agreement Year.") The Annual Program Plan will be presented and reviewed at an annual site review concurrent with the appropriate quarterly meeting of the CMC which will be attended by the Consortium Members, the ARPA Program Manager, Senior ARPA management or other ARPA program managers and personnel as appropriate. The CMC, with ARPA participation and review, will prepare a final Annual Program Plan. (b) The Annual Program Plan provides a detailed schedule of research activities, commits the Consortium to use its best efforts to meet specific performance objectives, includes forecasted expenditures and describes the Payable Milestones. The Annual Program Plan will consolidate all prior adjustments in the research schedule, including revisions/modifications to payable milestones. Recommendations for changes, revisions or modifications to the Agreement which result from the Annual Review shall be made in accordance with the provisions of Article III, Section E. 8 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 9 E. MODIFICATIONS 1. As a result of quarterly meetings, annual reviews, or at any time during the term of the Agreement, research progress or results may indicate that a change in the Statement of Work and/or the Payable Milestones, would be beneficial to program objectives. Recommendations for modifications, including justifications to support any changes to the Statement of Work and/or the Payable Milestones, will be documented in a letter and submitted by the CMC to the ARPA Program Manager with a copy to the ARPA Agreements Administrator. This documentation letter will detail the technical, chronological, and financial impact of the proposed modification to the research program. The CMC shall approve any Agreement modification. The Government is not obligated to pay for additional or revised Payable Milestones until the Payable Milestones Schedule (Attachment 3) is formally revised by the ARPA Agreements Administrator and made part of this Agreement. 2. The ARPA Program Manager shall be responsible for the review and verification of any recommendations to revise or otherwise modify the Agreement Statement of Work, Schedule of Payments or Payable Milestones, or other proposed changes to the terms and conditions of this Agreement. 3. For minor or administrative Agreement modifications (e.g. changes in the paying office or appropriation data, changes to Government or Consortium personnel identified in the Agreement, etc.) no signature is required by the Consortium. ARTICLE IV. AGREEMENT ADMINISTRATION Unless otherwise provided in this Agreement, approvals permitted or required to be made by ARPA may be made only by the ARPA Agreements Administrator. Administrative and contractual matters under this Agreement shall be referred to the following representatives of the parties: ARPA: Scott R. Ulrey (Agreements Administrator) (703) 696-2434 CONSORTIUM: Dennis W. Ralston (Consortium Administrator) (408) 721-2812 Technical matters under this Agreement shall be referred to the following representatives: ARPA: Nicholas J. Naclerio (Program Manager) (703) 696-2216 CONSORTIUM: Jim Dunham (Program Manager) (408) 721-6140 Each party may change its representatives named in this Article by written notification to the other party. ARTICLE V: OBLIGATION AND PAYMENT A. OBLIGATION 1. The Government's liability to make payments to the Consortium is limited to only those funds obligated under this Agreement or by amendment to the Agreement. ARPA may incrementally fund this Agreement. 9 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 10 2. If modification becomes necessary in performance of this Agreement, pursuant to Article III, paragraph E, the ARPA Agreements Administrator and Consortium Administrator shall execute a revised Schedule of Payable Milestones consistent with the then current Program Plan. B. PAYMENTS 1. In addition to any other financial reports provided or required, the CMC shall notify the ARPA Agreements Administrator immediately if any contribution from a Consortium Member is not made as required. 2. Prior to the submission of invoices to ARPA by the Consortium Administrator, the Consortium shall have and maintain an established accounting system which complies with Generally Accepted Accounting Principles, and with the requirements of this Agreement, and shall ensure that appropriate arrangements have been made for receiving, distributing and accounting for Federal funds. The Parties recognize that as a conduit, the Consortium does not incur nor does it allocate any indirect costs of its own to the Consortium Member cost directly incurred pursuant to this Agreement. Consistent with this, an acceptable accounting system will be one in which all cash receipts and disbursements are controlled and documented properly. 3. The CMC shall document the accomplishments of each Payable Milestone by submitting or otherwise providing the Payable Milestones Report required by Attachment 2, Part E. The Consortium shall submit an original and one (1) copy of all invoices to the Agreements Administrator for payment approval. After written verification of the accomplishment of the Payable Milestone by the ARPA Program Manager, and approval by the Agreements Administrator, the invoices will be forwarded to the payment office within fifteen (15) calendar days of receipt of the invoices at ARPA. Payments will be made by AFDW/FW, Attn: Commercial Services, 170 Luke Avenue, Suite 280, Bolling Air Force Base, Washington, DC 20332-5113 within fifteen (15) calendar days of ARPA's transmittal. Subject to change only through written Agreement modification, payment shall be made to the address of the Consortium Administrator set forth below. 4. Address of Payee: Plastic Packaging Consortium c/o National Semiconductor Corporation 2900 Semiconductor Drive P.O. Box 2900 Santa Clara, CA 95052-8090 Electronic Funds Transfer: Bank of America 1850 Gateway Blvd. Concord, CA 94520 TRANS/ABA Number 121000358 Account Number 123320369 5. Payments shall be made in the amounts set forth in the Attachment No. 3, provided the ARPA Program Manager has verified the accomplishment of the Payable Milestones. It is recognized that the quarterly accounting of current expenditures reported in the "Quarterly Business Status Report" submitted in accordance with Attachment No. 2 is not necessarily intended or required to match the Payable Milestones until submission of the Final Report; however, payable milestones shall be revised during the course of the program to reflect current and revised projected expenditures. 10 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 11 6. Limitation of Funds: In no case shall the Government's financial liability exceed the amount obligated under this Agreement. 7. Financial Records and Reports: The Consortium and Consortium Members shall maintain adequate records to account for Federal funds received under this Agreement and shall maintain adequate records to account for Consortium Participant funding provided under this Agreement. Upon completion or termination of this Agreement, whichever occurs earlier, the Consortium Administrator shall furnish to the Agreements Administrator a copy of the final report required by Attachment 2, Part F. The Consortium's and Consortium Members' relevant financial records are subject to examination or audit on behalf of ARPA by the Government for a period not to exceed three (3) years after expiration of the term of this Agreement. The Agreements Administrator or designee shall have direct access to sufficient records and information of the Consortium and Consortium Members, to ensure full accountability for all funding under this Agreement. Such audit, examination, or access shall be performed during business hours on business days upon written notice received by the audited party no less than five (5) working days prior to the requested audit date and shall be subject to the security requirements of the audited party. Notwithstanding the foregoing, it is recognized that many Consortium Members are commercial firms whose accounting systems may not contain the level of detail that is normally required by the FAR. Accordingly, the evaluating the Consortium Members' contributions, the Government agrees to rely on the principles of price analysis and value analysis to the maximum extent possible, provided that the level of detail is reasonable to account fo the expenditure of funds. ARTICLE VI: DISPUTES A. GENERAL Parties shall communicate with one another in good faith and in a timely and cooperative manner when raising issues under this Article. B. DISPUTE RESOLUTION PROCEDURES 1. Any disagreement, claim or dispute between ARPA and the Consortium concerning questions of fact or law arising from or in connection with this Agreement, and, whether or not involving an alleged breach of this Agreement, may be raised only under this Article. 2. Whenever disputes, disagreements, or misunderstandings arise, the Parties shall attempt to resolve the issue(s) involved by discussion and mutual agreement as soon as practicable. In no event shall a dispute, disagreement or misunderstanding which arose more than three (3) months prior to the notification made under subparagraph B.3 of this article constitute the basis for relief under this article unless the Director of ARPA in the interests of justice waives this requirement. 3. Failing resolution by mutual agreement, the aggrieved Party shall document the dispute, disagreement, or misunderstanding by notifying the other Party (through the ARPA Agreements Administrator or Consortium Administrator, as the case may be) in writing of the relevant facts, identify unresolved issues, and specify the clarification or remedy sought within five (5) working days after providing notice to the other Party, the aggrieved Party may, in writing, request a joint decision by the ARPA Deputy Director for Management and the SEMATECH General Counsel and Secretary as appointed by the CMC of the Consortium. The other Party shall submit a written position on the matter(s) in dispute within thirty (30) calendar days after being notified that a decision has been requested. 11 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 12 The Deputy Director for Management and the Consortium Representative shall conduct a review of the matter(s) in dispute and render a decision in writing within thirty (30) calendar days of receipt of such written position. Any such joint decision is final and binding unless a Party shall within thirty (30) calendar days request further review as provided in this Article. 4. Upon written request to the Director of ARPA, made within thirty (30) calendar days or upon unavailability of a joint decision under subparagraph B.3 above, the dispute shall be further reviewed. The Director of ARPA may elect to conduct this review personally or through a designee or jointly with the SEMATECH General Counsel and Secretary as appointed by the CMC of the Consortium. Following the review, the Director of ARPA or designee will resolve the issue(s) and notify the Parties in writing. Such resolution is not subject to further administrative review and, to the extent permitted by law, shall be final and binding. 5. Subject only to this article and 41 U.S.C. (S) 321-322, if not satisfied with the results of completing the above process, either Party may within thirty (30) calendar days of receipt of the notice in subparagraph B.3 above pursue any right and remedy in a court of competent jurisdiction. C. LIMITATION OF DAMAGES Claims for damages of any nature whatsoever pursued under this Agreement shall be limited to direct damages only up to the aggregate amount of ARPA funding disbursed as of the time the dispute arises. In no event shall ARPA be liable for claims for consequential, punitive, special and incidental damages, claims for lost profits, or other indirect damages. ARPA agrees that there is no joint and several liability within the Consortium. The Consortium disclaims any liability for consequential, indirect or special damages, except when such damages are caused by the willful misconduct of Consortium Managerial personnel. In no event shall the liability of a Consortium Member or any other entity performing research activities under this Agreement exceed the funding it has received up to the time of incurring such liability. ARTICLE VII: PATENT RIGHTS A. DEFINITIONS 1. "Invention" means any invention or discovery which is or may be patentable or otherwise protectable under Title 35 of the United States Code. 2. "Made" when used in relation to any invention means the conception or first actual reduction to practice of such invention. 3. "Practical application" means to manufacture, in the case of a composition of product; to practice, in the case of a process or method, or to operate, in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is capable of being utilized and that its benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms. 4. "Subject invention" means any invention of a Consortium Member conceived or first actually reduced to practice in the performance of work under this Agreement. 12 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 13 B. ALLOCATION OF PRINCIPAL RIGHTS Unless the Consortium shall have notified ARPA (in accordance with subparagraph C.2 below) that the Consortium does not intend to retain title, the Consortium shall retain the entire right title, and interest throughout the world to each subject invention consistent with the provisions of the Articles of Collaboration, this Article, and 35 U.S.C. (S) 202. With respect to any subject invention in which the Consortium retains title, ARPA shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on behalf of the United States the subject invention throughout the world for United States Government purposes only. Notwithstanding the above, the Consortium may elect as defined in its Articles of Collaboration to provide full or partial rights that it has retained to Consortium Members or other parties. C. INVENTION DISCLOSURE, ELECTION OF TITLE, AND FILING OF PATENT APPLICATION 1. The Consortium shall disclose each subject invention to ARPA within four (4) months after the inventor discloses it in writing to his company personnel responsible for patent matters. The disclosure to ARPA shall be in the form of a written report and shall identify the Agreement under which the invention was made and the identity of the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, sale, or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. 2. If the Consortium determines that it does not intend to retain title to any such invention, the Consortium shall notify ARPA, in writing, within eight (8) months of disclosure to ARPA. However, in any case where publication, sale, or public use has initiated the one (1)-year statutory period wherein valid patent protection can still be obtained in the United States, the period for such notice may be shortened by ARPA to a date that is no more than sixty (60) calendar days prior to the end of the statutory period. 3. The Consortium shall file its initial patent application on a subject invention to which it elects to retain title within one (1) year after election of title or, if earlier, prior to the end of the statutory period wherein valid patent protection can be obtained in the United States after a publication, or sale, or public use. The Consortium may elect to file patent applications in additional countries (including the European Patent Office and the Patent Cooperation Treaty) within either ten (10) months of the corresponding initial patent application or six (6) months from the date permission is granted by the Commissioner of Patents and Trademarks to file foreign patent applications, where such filing has been prohibited by a Secrecy Order. 4. Requests for extension of the time for disclosure election, and filing under Article VII, paragraph C, may, at the discretion of ARPA, and after considering the position of the Consortium, be granted. D. CONDITIONS WHEN THE GOVERNMENT MAY OBTAIN TITLE Upon ARPA's written request the Consortium shall convey title to any subject invention to ARPA under any of the following conditions: 13 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 14 1. If the Consortium fails to disclose or elects not to retain title to the subject invention within the times specified in paragraph C of this Article; provided, that ARPA may only request title within sixty (60) calendar days after learning of the failure of the Consortium to disclose or elect within the specified times. 2. In those countries in which the Consortium fails to file patent applications within the times specified in paragraph C of this Article; provided, that if the Consortium has filed a patent application in a country after the times specified in paragraph C of this Article, but prior to its receipt of the written request by ARPA, the Consortium shall continue to retain title in that country; or 3. In any country in which the Consortium decides not to continue the prosecution of any application for, to pay the maintenance fees on, or defend in reexamination or opposition proceedings on, a patent on a subject invention. E. MINIMUM RIGHTS TO THE CONSORTIUM AND PROTECTION OF THE CONSORTIUM'S RIGHT TO FILE 1. The Consortium shall retain a non-exclusive, royalty-free license throughout the world in each subject invention to which the Government obtains title, except if the Consortium fails to disclose the invention within the times specified in paragraph C of this Article. The Consortium license extends to the domestic (including Canada) subsidiaries and affiliates, if any, of the Consortium Members within the corporate structure of which the Consortium Member is a party and includes the right to grant licenses of the same scope to the extent that the Consortium was legally obligated to do so at the time the Agreement was awarded. The license is transferable only within the approval of ARPA, except when transferred to the successor of that part of the business to which the invention pertains. ARPA approval for license transfer shall not be unreasonably withheld. 2. The Consortium domestic license may be revoked or modified by ARPA to the extent necessary to achieve expeditious practical application of the subject invention pursuant to an application for an exclusive license submitted consistent with appropriate provisions at 37 CFR Part 404. This license shall not be revoked in that field of use or the geographical areas in which the Consortium has achieved practical application and continues to make the benefits of the invention reasonably accessible to the public. The license in any foreign country may be revoked or modified at the discretion of ARPA to the extent the Consortium, its licensees, or the subsidiaries or affiliates have failed to achieve practical application in that foreign country. 3. Before revocation or modification of the license, ARPA shall furnish the Consortium a written notice of its intention to revoke or modify the license, and the Consortium shall be allowed thirty (30) calendar days (or such other time as may be authorized for good cause shown) after the notice to show cause why the license should not be revoked or modified. F. ACTION TO PROTECT THE GOVERNMENT'S INTEREST 1. The Consortium agrees to execute or to have executed and promptly deliver to ARPA all instruments necessary to (i) establish or confirm the rights the Government has throughout the world in those subject inventions to which the Consortium elects to retain title, and (ii) convey title to ARPA when requested under paragraph D of this Article and to enable the Government to obtain patent protection throughout the world in that subject invention. 14 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 15 2. The Consortium agrees to require, by written agreement, that employees of the Members of the Consortium working on the Consortium, other than clerical and nontechnical employees, agree to disclose promptly in writing, to personnel identified as responsible for the administration of patent matters and in a format acceptable to the Consortium, each subject invention made under this Agreement in order that the Consortium can comply with the disclosure provisions of paragraph C of this Article. The Consortium shall instruct employees, through employee agreements or other suitable educational programs, on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. or foreign statutory bars. 3. The Consortium shall notify ARPA of any decisions not to continue the prosecution of a patent application, pay maintenance fees, or defend in a reexamination or opposition proceedings on a patent, in any country, not less than thirty (30) calendar days before the expiration of the response period required by the relevant patent office. 4. The Consortium shall include, within the specification of any United States patent application and any patent issuing thereon covering a subject invention, the following statement: "This invention was made with Government support under Agreement No. MDA972-95-3-0024 awarded by ARPA. The Government has certain rights in the invention." G. LOWER TIER AGREEMENTS 1. The Consortium shall include this Article, suitably modified, to identify the Parties, in all subcontracts or lower tier agreements, regardless of tier, for experimental, developmental, or research work. 2. In the case of a lower tier agreement with a vendor, at any tier, ARPA, the vendor, and the Consortium agree that the mutual obligations of the parties created by this Article flow down to the vendor and constitute an agreement between the vendor and ARPA with respect to the matters covered by this Article. H. REPORTING ON UTILIZATION OF SUBJECT INVENTIONS The Consortium agrees to submit during the term of the Agreement, periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization of a subject invention or on efforts at obtaining such utilization that are being made by the Consortium or licensees or assignees of the inventor. Such reports shall include information regarding the status of development, date of first commercial sale or use, gross royalties received by the Consortium subcontractor(s), and such other data and information as the agency may reasonably specify. The Consortium also agrees to provide additional reports as may be requested by ARPA in connection with any march-in proceedings undertaken by ARPA in accordance with paragraph J of this Article. Consistent with 35 U.S.C. (S) 202(c)(5), ARPA agrees it shall not disclose such information to persons outside the Government without permission of the Consortium. I. PREFERENCE FOR AMERICAN INDUSTRY Notwithstanding any other provision of this clause, the Consortium agrees that it shall not grant to any person the exclusive right to use or sell any subject invention in the United States or Canada unless such person agrees that any product embodying the subject invention or produced through the use of the subject invention shall be manufactured substantially in the United States or Canada. However, in 15 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 16 individual cases, the requirements for such an agreement my be waived by ARPA upon a showing by the Consortium that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that, under the circumstances, domestic manufacture is not commercially feasible. J. MARCH-IN RIGHTS The Consortium agrees that with respect to any subject invention in which it has retained title, ARPA has the right to require the Consortium, an assignee, or exclusive licensee of a subject invention to grant a non-exclusive license to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the Consortium assignee, or exclusive licensee refuses such a request, ARPA has the right to grant such a license itself if ARPA determines that: 1. Such action is necessary because the Consortium or assignee has not taken effective steps, consistent with the intent of this Agreement to achieve practical application of the subject invention; 2. Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Consortium, assignee, or their licensees; 3. Such action is necessary to meet requirements for public use and such requirements are not reasonably satisfied by the Consortium, assignee, or licensees; or 4. Such action is necessary because the agreement required by paragraph (I) of this Article has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of such Agreement. K. ALTERNATE PROCEDURES FOR PATENT RIGHTS Notwithstanding the provisions of subparagraph C.1. above, the Consortium may elect to follow the procedures in this paragraph (which may be referred to as "alternate" subparagraph C.1.): 1. The Consortium shall disclose each subject invention to ARPA within eight (8) months after the inventor discloses it in writing to his company personnel responsible for patent matters. The Consortium invention shall be disclosed to ARPA in writing in the form of a summary written report (Invention Summary Report) identifying the Agreement under which the invention was made, the identity of the inventor(s), and the Consortium Member company. The Invention Summary Report shall outline the nature, purpose, and operation of the invention. A copy of the patent application shall be on file in the Consortium Document Repository located at National Semiconductor Corporation in Sunnyvale, California for Government review. Detailed technical information excluded for the Invention Summary Report shall also be on file in the Consortium Document Repository. The Invention Summary Report shall also identify any publication, sale, or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. 16 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 17 ARTICLE VIII: DATA RIGHTS A. DEFINITIONS 1. "Government Purpose Rights", as used in this article, means rights to use, duplicate, or disclose Data, in whole or in part and in any manner, for Government purposes only, and to have or permit others to do so for Government purposes only. 2. "Unlimited Rights", as used in this article, means rights to use, duplicate, release, or disclose, Data in whole or in part, in any manner and for any purposes whatsoever, and to have or permit others to do so. 3. "Data", as used in this article, means recorded information, regardless of form or method of recording, which includes but is not limited to, technical data, software, trade secrets, and mask works. The term does not include financial, administrative, cost, pricing or management information and does not include subject inventions included under Article VII. B. ALLOCATION OF PRINCIPAL RIGHTS 1. This Agreement shall be performed with mixed Government and Consortium funding. The Parties agree that in consideration for Government funding, the Consortium intends to reduce to practical application items, components and processes developed under this Agreement. 2. The Consortium agrees to retain and maintain in good condition until five (5) years after completion or termination of this Agreement, all Data necessary to achieve practical application. In the event of exercise of the Government's March-in Rights as set forth under Article VII or subparagraph B.3 of this article, the Consortium acting through its CMC, agrees, upon written request from the Government, to deliver at no additional cost to the Government, all Data necessary to achieve practical application within sixty (60) calendar days from the date of the written request. The Government shall retain Unlimited Rights, as defined in paragraph A above, to this delivered Data. 3. The Consortium agrees that, with respect to Data necessary to achieve practical application, ARPA has the right to require the Consortium to deliver all such Data to ARPA in accordance with its reasonable directions if ARPA determines that: (a) Such action is necessary because the Consortium or assignee has not taken effective steps, consistent with the intent of this Agreement to achieve practical application of the technology developed during the performance of this Agreement; (b) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Consortium, assignee, or their licensees; or (c) Such action is necessary to meet requirements for public use and such requirements are not reasonably satisfied by the Consortium, assignee, or licensees. 4. With respect to Data delivered pursuant to Attachment 2, the Government shall receive Government Purpose Rights, as defined in paragraph A above. With respect to all Data delivered, in the event of the Government's exercise of its right under subparagraph B.2 of this article, the Government shall receive Unlimited Rights. 17 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 18 5. Notwithstanding the above, the Government shall have no rights to and shall not require delivery of Olin Corporation's trade secret and know-how information developed at private expense prior to the effective date of the Agreement or prior to the incurrence of any pre-agreement costs as set forth in Article X that relates to equipment specifications and designs, maintenance practices and procedures and engineering practices and procedures for melting, casting, hot rolling, cold rolling, annealing, and cleaning and slitting processes. C. MARKING OF DATA Pursuant to paragraph B above, any Data delivered under thus Agreement shall be marked with the following legend: Use, duplication, or disclosure is subject to the restrictions as stated in Agreement MDA972-95-3-0024 between the Government and the Consortium. D. LOWER TIER AGREEMENTS The Consortium shall include this Article, suitably modified to identify the Parties, in all subcontracts or lower tier agreements, regardless of tier, for experimental, developmental, or research work. ARTICLE IX: FOREIGN ACCESS TO TECHNOLOGY This Article shall remain in effect during the term of the Agreement and for three (3) years thereafter. A. DEFINITION "Foreign Firm or Institution" means a firm or institution organized or existing under the laws of a country other than the United States, its territories, or possessions. The term includes, for purposes of this Agreement, any agency or instrumentality of a foreign government; and firms, institutions or business organizations which are owned or substantially controlled by foreign governments, firms, institutions, or individuals. "Know-How" means all information including, but not limited to discoveries, formulas, materials, inventions, processes, ideas, approaches, concepts, techniques, methods, software, programs, documentation, procedures, firmware, hardware, technical data, specifications, devices, apparatus and machines. "Technology" means discoveries, innovations, Know-How and inventions, whether patentable or not, including computer software, recognized under U.S. law as intellectual creations to which rights of ownership accrue, including, but not limited to, patents, trade secrets, maskworks, and copyrights developed under this Agreement. B. GENERAL The Parties agree that research findings and technology developments arising under this Agreement may constitute a significant enhancement to the national defense, and to the economic vitality of the United States. Accordingly, access to important technology developments under this Agreement by Foreign Firms or Institutions must be carefully controlled. The controls contemplated in this Article are in addition to, 18 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 19 and are not intended to change or supersede, the provisions of the International Traffic in Arms Regulation (22 CFR pt. 121 et seq.), the DoD Industrial Security Regulation (DoD 5220.22-R) and the Department of Commerce Export Regulation (15 CFR pt. 770 et seq.) C. RESTRICTIONS ON SALE OR TRANSFER OF TECHNOLOGY TO FOREIGN FIRMS OR INSTITUTIONS 1. In order to promote the national security interests of the United States and to effectuate the policies that underlie the regulations cited above, the procedures stated in subparagraphs C.2, C.3, and C.4 below shall apply to any transfer of Technology. For purposes of this paragraph, a transfer includes a sale of the company, and sales or licensing of Technology. Transfers do not include: (a) sales of products or components, or (b) licenses of software or documentation related to sales of products or components, or (c) transfer to foreign subsidiaries of the Consortium participants for purposes related to this Agreement, or (d) transfer which provides access to Technology to a Foreign Firm or Institution which is an approved source of supply or source for the conduct of research under this Agreement provided that such transfer shall be limited to that necessary to allow the firm or institution to perform its approved role under this Agreement 2. The Consortium shall provide timely notice to ARPA of any proposed transfers from the Consortium of Technology developed under this Agreement to Foreign Firm or Institutions. If ARPA determines that the transfer may have adverse consequences to the national security interests of the United States, the Consortium, its vendors, and ARPA shall jointly endeavor to find alternatives to the proposed transfer which obviate or mitigate potential adverse consequences of the transfer but which provide substantially equivalent benefits to the Consortium. 3. In any event, the Consortium shall provide written notice to the ARPA Program Manager and Agreements Administrator of any proposed transfer to a foreign firm or institution at least sixty (60) calendar days prior to the proposed date of transfer. Such notice shall cite this Article and shall state specifically what is to be transferred and the general terms of the transfer. Within thirty (30) calendar days of receipt of the Consortium's written notification, the ARPA Agreements Administrator shall advise the Consortium whether it consents to the proposed transfer. In cases where ARPA does not concur or sixty (60) calendar days after receipt and ARPA provides no decision, the Consortium may utilize the procedures under Article VI, Disputes. No transfer shall take place until a decision is rendered. 4. Except as provided in subparagraph C.1 above and in the event the transfer of Technology to Foreign Firms or Institutions is approved by ARPA, the Consortium shall negotiate a license with the Government to the Technology under terms that are reasonable under the circumstances. D. LOWER TIER AGREEMENTS The Consortium shall include this Article, suitably modified, to identify the Parties, in all subcontracts or lower tier agreements, regardless of tier, for experimental, developmental, or research work. 19 AGREEMENT NUMBER: MDA972-95-3-0024 PAGE 20 ARTICLE X: PRE-AGREEMENT COSTS Costs incurred on or after November 21, 1994 by the Consortium to accomplish the Tasks set forth in the Statement of Work, Attachment 1 hereto, shall be allowable contributions and credited toward the Consortium's contribution to the Agreement. ARTICLE XI: OFFICIALS NOT TO BENEFIT No member of Congress shall be admitted to any share or part of any contract or agreement made, entered into, or accepted by or on behalf of the United States, or to any benefit to arise thereupon. ARTICLE XII: CIVIL RIGHTS ACT This Agreement is subject to the compliance requirements of Title VI of the Civil Rights Act of 1964 as amended (42 U.S.C. 2000-d) relating to nondiscrimination in Federally assisted programs. Each Consortium Member company has signed an Assurance of Compliance with the nondiscriminatory provisions of the Act. The Parties recognize that since the Consortium has no employees, that compliance is the responsibility of each Consortium Member. ARTICLE XIII: ORDER OF PRECEDENCE In the event of any inconsistency between the terms of this Agreement and language set forth in the Consortium's Articles of Collaboration, the inconsistency shall be resolved by giving precedence in the following order (1) The Agreement (2) Attachments to the Agreement, (3) Consortium Articles of Collaboration. ARTICLE XIV: EXECUTION This Agreement constitutes the entire agreement of the Parties and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions among the Parties, whether oral or written, with respect to the subject matter hereof. This Agreement may be revised only by written consent of the CMC and ARPA Agreements Administrator. This Agreement or modifications thereto, may be executed in counterparts each of which shall be deemed as original, but all of which taken together shall constitute one and the same instrument. 20 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 1, PAGE 1 STATEMENT OF WORK (INITIAL PROGRAM PLAN) The Plastic Packaging program will establish the required infrastructure and enabling technologies in three key Focus Areas. Benefits gained from these interdependent, and yet individual areas, are sufficiently broad-based to be widely applicable to the entire packaging industry. The three key Focus Areas are: 1. Plastic Package Ruggedization, 2. Plastic Package Thermal Dissipation, and 3. High-Density Plastic Packaging These interrelated Focus Areas offer synergistic solutions for cost-effective, high-volume packaging with improved reliability and performance. 1.0 Plastic Package Ruggedization - (Focus Area 1) This area will develop enabling technologies to reduce cost and enhance the reliability of plastic packages during assembly and field operation. Reliability issues applicable to plastic ICs include interfacial delamination, package cracking ("popcorning'), and stress induced failures. 1.1 Description of Problem Die interfacial delamination occurs due to excessive shear strength breaking the interfacial bond between the die or die coating and the molding compound. Factors governing delamination include the net thermal displacement during thermal excursion, the gap between the epoxy and the device surface after separation, the topography of the device, and the adhesion strength of the molding compound. The resultant effect of these factors can be device failure. Package cracking, or popcorning, occurs during assembly operations. In this case the hygroscopic molding compound absorbs moisture when exposed to typical manufacturing conditions. If moisture has accumulated past a package- dependent critical concentration the solder reflow conditions (230-260 deg C) cause water to vaporize. Pressure builds up inside the package and eventually, steam is released along the path of least resistance causing cracking of the compound. To avoid popcorning today, packages are baked and then shipped in drybags which is very costly. Stress-induced failures are equally damaging to devices. The thermal mismatch between silicon and the materials inside the package causes stresses and induces defects ranging from cosmetic passivation cracking to metal line shift, dielectric cracking, and even die fracture. "Ruggedization" of the packages will enhance the package reliability during board assembly and adverse field conditions. In turn, mean-time-to-failure, will increase the cost-effectiveness of packaging. The enabling technologies proposed in this Focus Area will address these major reliability issues plaguing plastic packaging. 1 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 1, PAGE 2 1.2 Key Metrics The key metrics for success for Focus Area 1 are to obtain: * No interfacial delamination (e.g., between molding compound and die surface, molding compound and leadframe, and, die attach (d/a) and leadframe), * An unlimited shelf life at 30 deg. C/90% RH without drybagging, ("Anti-popcorning") * No sum-induced device failures (e.g., metal line shift, passivation cracking, dielectric cracking, and die cracking), and * A team cost target improvement over SIA roadmap of 50% to a cost of $0.005/lead up to 300-lead PQFP. 1.3 Technical Approach To achieve these four metrics, five major components will be addressed: 1. Molding Compound Enhancement, 2. Die Attach Enhancement, 3. Leadframe Enhancement, 4. Reliability Characterization, and 5. Technology Demonstration 1.3.1 Molding Compound Enhancement New resin formulations and additives will be developed to provide properties for enhanced reliability. The metric improvements listed below use the current low- stress molding compounds as benchmark. The metric improvements: * Reduce water uptake by 50% for unproved leadframe adhesion and better anti-popcorning, * Increase the hot strength at 240 deg C by a factor of 2, * Lower the stress index by at least 25%, * Increase the Tg of the anti-popcorning compound from 140 deg C to > 160 deg., * Decrease the cure time by 25%, and * Lower compound viscosity by 25%. 1.3.2 Die Attach Enhancement Using the epoxy-based die attach material as a benchmark, development of die attach formulations will aim at: * Eliminating voiding in the die attach, * Increasing the adhesion strength between the molding compound and the die attach surface by 50% at 240 deg C, * Decreasing cure time by 50% at 160 deg C, * Reducing water uptake by 50% for improved leadframe adhesion and better anti-popcorning, and * Developing new cyanate ester-based materials with: 2 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 1, PAGE 3 **Hot strength superior to epoxies at 260 deg C by 50%, **Stress index lower by at least 25%, and **Unique stable moisture-resistant properties. 1.3.3 Leadframe Enhancement Key reliability issues affecting the interface between leadframe, the molding compound, and the die attach are: * Increasing the interfacial adhesion to the molding compound and the die attach media. * Optimizing or replacing the polyamide tape on the leadframe to improve adhesion, and * Developing and characterizing a new lead frame alloy with higher strength for fine pitch stamping and in process handling. 1.3.4 Reliability Characterization The test methodology, processing, and material properties of key materials of construction in IC packaging will be fully characterized. The following will be accomplished: * Materials screening - Various combinations of materials will be evaluated through design of experiments which will include evaluating the different choices for synergistic interaction; * The evaluation of adhesion and stress characteristics of die coatings; * The characterization of mold compounds to include manufacturability assessment (e.g. curing kinetics, rheology, and moldability) and mechanical characteristics (coefficient of thermal expansion, modulus, fracture strength, and adhesion); * Assembly Test Chips (ATCs) will be obtained for use in the evaluation of package properties; and * Reliability testing of the test ICs and product vehicles will be performed. 1.3.5 Technology Demonstration The enabling technologies for ruggedizing the packages will be validated with commercial product vehicles. The reliability test will follow mil-approved standards. Products could include but will not be limited to National's Super I/O and CLAy chips. 2.0 Plastic Package Thermal Dissipation (Focus Area 2) The objective of this Focus Area is to develop enabling technologies which will enhance the thermal dissipation characteristics of the plastic packages. 2.1 Description of Problem Devices are operating at increasingly faster speeds and frequencies, and generating more heat. Thus, to keep up with the speed performance curve, improved thermal dissipation becomes a necessity. The typical thermal path available for plastic packages mounted on boards is through the molding compound, along 3 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 1, PAGE 4 the leadframe, and to the metal traces on the board. This path can be enhanced with the use of heat spreaders imbedded into the package and with improved thermal characteristics of the materials. 2.2 Key Metrics The key metrics for success for Focus Area 2 are: * High temperature operation (175 deg C), * High thermal dissipation (Theta-ja improvement by 505 on 160 PQFP to 20 deg. C / Watt), * High Temperature Reliability, * Fine Pitch stamped leadframes with heat spreaders of heat slugs, and * A cost target for the thermally enhanced package of $0.002 / lead over the standard package of $0.007 / lead. 2.3 Technical Approach To achieve these metrics, five major components will be addressed, 1. Molding Compound Thermal Enhancement, 2. Die Attach Thermal Enhancement, 3. Leadframe / Heat Sink Enhancement 4. Reliability Characterization, and 5. Technology Demonstration. 2.3.1 Molding Compound Enhancement The molding compound must satisfy two functional requirements, high thermal dissipation and high thermal performance. The goals are to: * increase thermal conductivity from the current 0.4.05 W/m K, * Evaluate new resin materials and fillers for enhanced thermal dissipation and thermal performance, and * Promote good interfacial adhesion to all components, including heat spreaders and heat slugs. 2.3.2 Die Attach Thermal Enhancement The die attach material is a thermal barrier between the die and the leadframe. Poor thermal conductivity is usually die to either voiding or inadequate die attach material. The d/a must satisfy two functional requirements, good thermal conductivity and no voiding. Development work will focus on: * Increasing thermal dissipation of the die attach by a least 25%, and * Eliminating voiding in the die attach for good thermal conductivity. 2.3.3 Leadframe / Heat Sink Enhancement 4 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 1, PAGE 5 The low-cost requirement of plastic packages dictates that any thermal enhancement structure attached to either the leadframe of the package must not add significantly to the total package cost. Development work will focus on: * Designing and modeling the attachment of heat slugs to the package, * Designing and building automated equipment to tape, downsetting and attaching the heat spreader to the leadframe, and * Developing and evaluating high thermal conductivity material leadframes. 2.3.4 Reliability Characterization Materials screening and characterization similar to section 1.3.4 on ruggedization must be performed. The following will be accomplished: * The characterization of thermally enhanced molding compounds and die attach materials, * The development of thermal test chips for use in screening materials, * The assembly of 160 PQFP which will be done by IPAC and National, and * Reliability testing of test vehicles and product drivers will be performed. 2.3.5 Technology Demonstration The enabling technologies for thermally enhanced packages will be validated with commercial product vehicles. Reliability test will follow mil-approved standards. Two products will be selected based on market needs. 3.0 High-Density Packaging (Focus Area 3) This Focus Area aims at developing the enabling technologies to increase the I/O density of plastic packages. Two packaging form factors will be considered, the PQFP and the Plastic Ball Grid Array packages (PBGA). Efforts in this area can be broken up into three interrelated areas: 1. The development of fine pitch leadframe stamping technology, 2. The development of fine pitch PQFP with interposer attached, and 3. The development of a 625-pin Plastic BGA for use with flip chip. Efforts will aim at developing fine pitch stamped leadframes for high lead count PQFPs, evaluating high-density interposer substrates for PQFPs, attaching interposers to the PQFP leadframes, and devising high-density, low-cost substrates for PBGAs. The Consortium will be evaluating different molding compounds for the two package types but there is a common development effort on the high-density substrates. The commercial cross over point from QFP to BGA from a cost and handling standpoint is expected to be at about 300 pins. Specific packages addressed in this program are 160 to 304 or 240-lead QFP and the 625-pin BGA with flip-chip. The flip-chip BGA portion of this focus area will augment the work in the Low Cost Flip Chip Program in that both programs will lead up to the development of the 4 chip CLAy product assembled in the plastic BGA package. 3.1 Key Metrics The key metrics for success for Focus Area 3 are: 5 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 1, PAGE 6 * To obtain fine pitch, stamped, low-cost leadframes. Two packages are addressed: 1. 160-lead QFP with 6.0 mil internal pitch and 4.0 mil lead flat, and 2. 304 or 240-lead QFP with 7.0 mil internal pitch and 4.0 mil lead flat; * The establishment of on-shore capability for high lead count package assembly (160 and 240 or 304 or 240-lead QFP and 625 BGA); * The development of high-density and low-cost substrates with **Interposer cost adder $0.10 for 160-lead PQFP, and **Substrate cost less than $0.40/sq in.; * To have minimal or zero-warpage of BGA; * To have reworkable, low-stress underfill for flip-chip in Plastic BGA; and * To accomplish the integration of interposer to leadframe. 3.2 Technical Approach To achieve the previous key metrics, the following major components will be addressed: 1. Molding Compound for BGAs, 2. Flip-Chip Underfill Development 3. Leadframe Enhancement 4. Substrate / Interposer Enhancement 5. Reliability Characterization, and 6. Technology Demonstration. 3.2.1 Molding Compound For BGAs Molding compounds formulated for large chips in high lead count PQFPs and BGAs need to have enhanced properties. Efforts will focus on: * Lowering stress by 50%, * Lowering molding viscosity for molding thin packages, * Raising Tg and lowering shrinkage by 50%, * Reducing moisture absorption by 50%, * Having no delamination, and * Achieving prolonged pot life. 3.2.2 Flip-Chip Underfill Development In this program the Consortium will focus on development of an underfill to be used with flip-chips mounted on substrates in plastic BGA packages. Underfill of flip-chip structures can significantly increase solder joint life. The improvement level depends on the substrates material since thermal mismatch dictates the stress level on the joints. Key development efforts aim at high Tg (> 160 deg C) resins with: * Improved wetting characteristics, * Narrower filler size distribution for small chip gaps, * Faster cure by at least 50%, * Better adhesion to polyamide or other substrates and substrate coatings, * Lower stress by at least 25%, * Longer pot life for ease of processing, * Higher thermal conductivity than current underfill resins by 50%, and 6 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 1, PAGE 7 * Reworkability capability. 3.2.3 Leadframe Enhancement Fine pitch leadframes are currently manufactured by expensive etch technique. Stamping of higher lead count fine pitch leadframes will require looking at different materials. Key development tasks required are: * Developing a process for stress reduction in C7025 alloy prior and after stamping, * Evaluating high strength materials form punches, and * Designing and fabricating tooling for stamping two leadframes which are: **160-lead PQFP with a 6.0 mil internal pitch and 4.0 mil lead flat, and **304-lead PQFP with a 7.0 mil internal pitch and 4.0 mil lead flat or 240 lead PQFP. 3.2.4 Substrate/Interposer Enhancement Two types of packages are considered for this area, 160-lead PQFP and 625-pin BGA. The PQFP requires an interposer to be bonded to the leadframe while the BGA involves flip-chip mounting. Development tasks will include: * Developing a 160-lead PQFP interposer based on NSC Super I/O chip family, * Developing the methodology and process for attaching the interposer to the leadframe by thermocompression bonding and by conductive adhesives, and * Developing a 625-pin BGA substrate based on test chips and CLAy. 3.2.5 Reliability Characterization Once again, Tasks similar to the previous two areas will be performed. Tasks specific to high-density packaging will include: * Characterizing the interposer mounting technology, * Providing redistributed and bumped test chips for flip-chip bonding, * Evaluating the effectiveness of the reworkable underfill resin, * Assembling 160-lead PQFP and 625 BGA which will be handled by IPAC and National, and * Performing reliability testing of the test vehicles and product drivers. 3.2.6 Technology Demonstration The enabling technologies for stamped fine pitch leadframes, interposer integration to the leadframe, and high-density low-cost substrates will be validated with product vehicles. The final vehicles will be selected from the Super I/O, LAN, and CLAy product families from National. 7 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 2, PAGE 1 REPORT REQUIREMENTS A. MONTHLY TECHNICAL STATUS REPORT On or before thirty (30) calendar days after the effective date of the Agreement and monthly thereafter throughout the term of the Agreement, the Consortium Management Committee (CMC) shall submit a monthly technical report to the Consortium Members and ARPA. The report should be approximately one (1) to three (3) pages in length and shall be distributed via e-mail and printed copy. Two (2) copies shall be submitted to the ARPA Program Manager, one (1) copy shall be submitted to the ARPA Agreements Administrator and one (1) copy shall be submitted to ARPA/ESTO, Attn: Assistant Director for Program Management The technical status report will review the previous month's accomplishments, highlight potential problems, and estimate progress toward the Payable Milestones. The technical status report will include a review of the status of consortium collaborative activities during the reporting period. B. QUARTERLY BUSINESS STATUS REPORT On or before ninety (90) calendar days after the effective date of the Agreement and quarterly thereafter throughout the term of the Agreement, the CMC shall submit a quarterly business status report. Two (2) copies shall be submitted to the ARPA Program Manager, one (1) copy shall be submitted to the ARPA Agreements Administrator and one (1) copy shall be submitted to ARPA/ESTO, Attn: Assistant Director for Program Management The business status report shall provide summarized details of the resource status of this Agreement, including the status of the contributions by the Consortium Members. This report will include a quarterly accounting of current expenditures as outlined in the Annual Program Plan. Any major deviations shall be explained along with discussions of the adjustment actions proposed. C. ANNUAL PROGRAM PLAN DOCUMENT The CMC shall submit or otherwise provide to the ARPA Program Manager one (1) copy of a report which describes the Annual Program Plan as described in Article III, Section D. This document shall be submitted not later than thirty (30) calendar days following the Annual Site Review as described in Article III, Section D. 1 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 2, PAGE 2 D. SPECIAL TECHNICAL REPORTS As agreed to by the Consortium and the ARPA Program Manager, the CMC shall submit or otherwise provide to the ARPA Program Manager one (1) copy of special reports on significant events such as significant target accomplishments by Consortium Members, significant tests, experiments, or symposia. E. PAYABLE MILESTONES REPORTS The CMC shall submit or otherwise provide to the ARPA Program Manager, documentation describing the extent of accomplishment of Payable Milestones. This information shall be as required by Article V, paragraph B and shall be sufficient for the ARPA Program Manager to reasonably verify the accomplishment of the milestone of the event in accordance with the Statement of Work. F. FINAL REPORT 1. The CMC shall submit or otherwise provide a Final Report making full disclosure of all major developments by the Consortium within sixty (60) calendar days of completion or termination of this Agreement. With the approval of the ARPA Program Manager, reprints of published articles may be attached to the Final Report. Two (2) copies shall be submitted or otherwise provided to the ARPA Program Manager and one (1) copy shall be submitted or otherwise provided to ARPA/ESTO, Attn: Assistant Director for Program Management. One (1) copy shall be submitted to the Defense Technical Information Center (DTIC) addressed to Bldg. 5/Cameron Station, Alexandria, VA 22314. 2. The Final Report shall be marked with a distribution statement to denote the extent of its availability for distribution, release, and disclosure without additional approvals or authorizations. The Final Report shall be marked on the front page in a conspicuous place with the following marking: "DISTRIBUTION STATEMENT B. Distribution authorized to U.S. Government agencies only to protect information not owned by the U.S. Government and protected by a contractor's "limited rights" statement, or received with the understanding that it not be routinely transmitted outside the U.S. Government. Other requests for this document shall be referred to ARPA/S&IO (Attn: Technical Information Officer)." 2 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 3, PAGE 1 SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
ARPA CONSORTIUM TASK MONTH PAYABLE MILESTONES PAYMENT PAYMENT - - ---- --------- ---------------------------------------------------------------- ---------- ---------- 1 MAR `95 DELIVER BASELINE EXECUTION PLAN $ 403,062 $ 275,113 . Deliver baseline execution plan to include detailes program schedule in Gantt chart form and an updated program status report including a preliminary product design review analysis. 2 MAY `95 INITIAL PRODUCT DESIGN REVIEW $1,185,731 $1,155,376 . Specify critical initial design considerations for Interposer and flip-chip vehicles in Focus Area 3. (SOW 3.2.4) . Evaluate leadframe to molding compound interfacial adhesion for first sample of enhanced treated leadframes for Focus Area 1. (SOW 1.3.3) 3 AUG `95 DELIVER SAMPLES OF FUNDAMENTAL COMPONENTS $1,249,657 $1,349,183 . The Consortium will demonstrate capability to produce new blend resin to be utilized in enhanced molding compound formulation. (SOW 1.3.1) . Complete design and manufacture sample of test vehicle interposer for 160-lead PQFP. (SOW 3.2.4) 4 NOV `95 EPOXY MOLDING COMPOUND $1,638,158 $1,835,444 . Demonstrate mechanical and manufacturability properties of screening level molding compounds such as curing kinetics, rheology, Tg, coefficient thermal expansion. (SOW 1.3.1, 2.3.1 & 3.3.1) 5 FEB `96 MANUFACTURE EPOXY MOLDING COMPOUNDS TO TEST VEHICLES $1,530,039 $1,515,914 SPECIFICATIONS . Demonstrate successful assembly of high lead count (160- lead and 304 or 204-lead) PQFP packages. (SOW 3.1) . The Consortium will evaluate and characterize the mechanical connection of the interposer to the leadframe for 160-lead PQFP. (SOW 3.2.5) 6 MAY `96 VALIDATION OF METALLIC PROPERTIES $1,242,326 $1,274,449 . Complete characterization of the leadframe alloy design for higher strength to give improved stamping and handling characteristics. (SOW 1.3.3) . Demonstrate capability of producing stamped heat sinks for enhanced thermal dissipation. (SOW 2.3.3)
1 AGREEMENT NUMBER: MDA972-95--3-0024 ATTACHMENT NO. 3, PAGE 2 SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
ARPA CONSORTIUM TASK MONTH PAYABLE MILESTONES PAYMENT PAYMENT - - ---- --------- ---------------------------------------------------------------- ---------- ---------- 7 AUG `96 COMPLETE DEVELOPMENT OF FUNDAMENTAL MATERIALS VOLUME $1,038,986 $ 989,138 PRODUCTION CAPABILITIES . The Consortium will complete development of optimized molding compound formulations for all focus areas. (SOW 1.3.1, 2.3.1, & 3.2.1) . Demonstrate on-shore volume production capability of high lead count PQFPs (SOW 3.1) . Complete characterization of flip chip underfill mechanical and manufacturability properties. (SOW 3.2.2) 8 NOV `96 SELECTION OF OPTIMIZED MATERIAL COMBINATIONS TEST VEHICLE $ 827,022 $ 733,143 ASSEMBLY . Select optimized material combinations (molding compound, die attach material, leadframe treatment, leadframe alloy, substrate/interposer materials, etc). Use this set of final optimized materials for technology demonstration product builds in all focus areas. (SOW 1.3.5, 2.3.5, & 3.2.6) . Issue final mechanical and manufacturability report for epoxy molding compounds for all focus areas. (SOW 1.3.1, 2.3.1, & 3.2.1) 9 FEB `97 FINAL REPORT $ 463,024 $ 486,951 . Issue final report illustrating the capabilities achieved vs. the initial targets of the program. TOTAL $9,578,005 $9,614,711
2 AGREEMNET NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 4 FUNDING SCHEDULE A. PROJECTED PROGRAM FUNDING COMMITMENTS -------------------------------------
ARPA Consortium Funding Contribution ----------------- ------------------ CY* `95 $7,445,949 $4,615,116 CY `96 $2,132,056 $4,512,644 CY `97 $ 0 $ 486,951 TOTALS $9,578,005 $9,614,711 ---------- ---------- *CY - Calendar Year
B. CONSORTIUM MEMBER CONTRIBUTIONS -------------------------------
MEMBER CONTRIBUTION CASH** IN-KIND*** - - ---------------------- ------------ ---------- ---------- Amoco $ 411,347 $ 324,797 $ 86,550 Delco $ 340,613 $ 320,338 $ 20,275 Dexter $ 482,000 $ 416,000 $ 66,000 IPAC $1,051,800 $ 796,800 $ 255,000 Leading Technologies $2,979,600 $1,892,190 $1,087,410 National $2,470,947 $2,156,747 $ 314,200 Olin $ 901,257 $ 901,257 $ 0 Plaskon $ 484,554 $ 411,754 $ 72,800 Sheldahl $ 492,593 $ 492,593 $ 0 ---------- ---------- ---------- TOTALS $9,614,711 $7,712,476 $1,902,235
**Cash contributions consist of fully-burdened labor exclusive of fee; cash expenditures for program specific equipment allocated on a percentage basis; equipment leasing charges; and cash expenditures for equipment components, consumable equipment, travel, supplies, subcontracts, construction (costs associated with equipment installation), software, direct materials, and other direct costs. ***In kind contributions consist of depreciation expenses allocated on a percentage basis for equipment used on the program, the leased equivalent of fully depreciated equipment, and in-house commercially available software. 1 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 5 PAGE 1 LIST OF GOVERNMENT AND CONSORTIUM REPRESENTATIVES GOVERNMENT: SCOTT R. ULREY -------------- ARPA/CMO -------- 3701 N. Fairfax Drive Arlington, VA 22203-1714 phone: (703) 696-2434 FAX: (703) 696-2208 Email: sulrey@arp.mil NICHOLAS J. NACLERO ------------------- ARPA/ESTO --------- 3701 N. Fairfax Drive Arlington, VA 22203-1714 phone: (703) 696-2216 FAX: (703) 696-2203 Email: nnaclerio@arpa.mil CONSORTIUM: JOHN HOBACK ----------- AMOCO CHEMICAL COMPANY ---------------------- Mail Code E2F 150 East Warrenville Road P.O. Box 3011 Naperville, IL 60566-7011 phone: (708) 420-3154 FAX: (708) 420-4479 Email: jthoback@amoco.com LEX KOSOWSKY ------------ LEADING TECHNOLOGIES, INC. ------------------------- 101 Route 38OW Apollo, PA 15613-9656 phone: (412) 727-3466 FAX: (412) 727-3788 (973-8065) Email: lkosowsky@ltek.com MICHAEL VARNAU -------------- DELCO ELECTRONICS CORPORATION ----------------------------- 2033 East Boulevard Mail Station 6060 Kokomo, IN 46904-9005 phone: (317) 451-7136 FAX: (317) 451-8564 Email: mvarnau@kocpk01.delcoelect.com 1 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 5 PAGE 2 CONSORTIUM: LEE FEHR --------- DEXTER ELECTRONIC MATERIALS - NEW YORK OFFICE --------------------------------------------- 211 Franklin Olean, NY 14760-1297 phone: (716) 372-6300 FAX: (716) 372-6864 GERALD K. FEHR -------------- IPAC ---- 2221 Old Oakland Road San Jose, CA 95131-1402 phone: (408) 321-3600 FAX: (408) 321-3603 (973-8065) Email: gfehr@ipac.com DENNIS RALSTON -------------- NATIONAL SEMICONDUCTOR CORPORATION ---------------------------------- 1120 Kifer Road Sunnyvale, CA 94086-3737 phone: (408) 721-2812 FAX: (408) 721-4860 Email: tdersc@tevm2.nsc.com JIM DUNHAM ---------- NATIONAL SEMICONDUCTOR CORPORATION ---------------------------------- 2900 Semiconductor Drive Santa Clara, CA 95052 phone: (408) 721-6140 FAX: (408) 721-6142 Email: tjrdsc@tevm2.nsc.com DEEPAK MAHULIKAR ---------------- OLIN CORPORATION ---------------- METALS RESEARCH LABORATORY -------------------------- 91 Shelton Avenue New Haven, CT 06511 phone: (203) 495-8550 Ext. 5652 FAX: (203) 495-8525 NICK ROUNDS ----------- PLASKON ELECTRONIC MATERIALS, INC, ---------------------------------- ROHM AND HAAS COMPANY --------------------- 727 Norristown Road P.O. Box 904 Spring House, PA 19477-0904 phone: (215) 641-7985 FAX: (215) 641-7520 2 AGREEMENT NUMBER: MDA972-95-3-0024 ATTACHMENT NO. 5 PAGE 3 CONSORTIUM: THOMAS A. OLSON --------------- SHELDAHL, INC. -------------- 1150 Sheldahl Road P.O. Box 170 Northfield, MN 55057 phone: (507) 663-8000 Ext. 280 FAX: (507) 663-8326 JAMES N. SWEET -------------- SANDIA NATIONAL LABORATORIES* ---------------------------- Dept. 1333 Mail Station 1082 Albuquerque, NM 87185-1082 phone: (505) 845-8242 FAX: (505) 844-2991 Email: sweetjn@smtplink.mdl.sandia.gov *Subcontractor to National Semiconductor Corporation 3 EX-10.30 11 ARTICLES OF COLLABORATION Exhibit 10.30 ARTICLES OF COLLABORATION FOR PLASTIC PACKAGING CONSORTIUM This Agreement is entered into by and among the following parties: National Semiconductor Corporation Amoco Chemical Company Leading Technologies, Inc. Delco Electronics Corporation Dexter Corporation Integrated Packaging Assembly Corporation (IPAC) Olin Corporation Plaskon Electronic Materials, Inc. Sheldahl, Inc. WHEREAS the Parties have complementary research interests and wish to form a cooperative research consortium (hereinafter Consortium) to engage in cooperative research in the area of low cost plastic encapsulated microcircuits to better understand package ruggedization, thermal dissipation and high density plastic packaging including, without limitation, prototype fabrication for the experimental demonstration of such technology; (hereinafter scope of research); and WHEREAS the Parties anticipate receiving funding from a government agency; and WHEREAS the Parties wish to be bound together in the Consortium by these Articles of Collaboration (Articles hereinafter) in the form of a Joint Research and Development Venture as such term is defined in the National Cooperative Research Act of 1984 through a Cooperative Agreement as such term is defined in 31 U.S.C. 6305" and WHEREAS terms not otherwise defined in this Agreement shall have the meaning set forth in the ARPA Agreement between the Consortium and the Advanced Research Projects Agency (ARPA). Hereinafter the following definitions apply: Each of National Semiconductor Corporation, Amoco Chemical Company, Leading Technologies Inc., Delco Electronics Corporation, Dexter Corporation, integrated Packaging Assembly Corporation (IPAC), Olin Corporation, Plaskon Electronic Materials, Inc., Sheldahl, Inc. once having executed these Articles is a Consortium Member. Each Consortium Member is a Party. All Consortium Members are collectively identified as Parties. Each of Sandia National Laboratories and SEMATECH are Advisors to the Consortium. Sandia will be a subcontractor to National Semiconductor Corporation. Due to legal constraints placed upon these entities, they are unable to sign these Articles of Collaboration, but agree to support the Consortium's goals and objectives. As Advisors to the program, these entities shall not have any voting authority within the Consortium. Each U.S. governmental department or agency thereof providing funding to the Consortium as a whole is in an Agency during the period such funding is available or being used. NOW THEREFORE, the Parties agree as follows: 1 (a) The Parties hereby establish a joint research and development venture to engage in a collaborative research effort of limited duration to gain further knowledge and understanding of such technologies for the purposes and within the Scope of Research set forth herein. (b) Subject to the availability of Agency funding, the Parties individually agree to expend best reasonable efforts to achieve the goals assigned to them as defined in the Program Plan (including milestone payment plan), attached hereto and incorporated herein. By execution of this Agreement each Party authorizes the Consortium Management Committee (CMC) or its designee to enter into with an Agency a single Other Transaction (hereinafter Funding Agreement) as defined in 1 0 U.S. C. 2371 and consistent with the Project Statement to fund the Consortium. In the course of the Consortium, the Consortium Administrator shall disburse to each Party the funds associated with the completion of each milestone established in the Funding Agreement upon receipt of appropriate documentation from the Party. Milestone payments to each Party will be made within 15 working days after receipt of a certification of milestone completion, assuming such funds are available from the Agency and unless the CMC shall direct the Consortium Administrator to the contrary in accordance with Article 4. (c) This Agreement shall not preclude any Party from developing at its own expense technology based upon Consortium technology but apart from the Project Statement, provided that the proprietary information and other rights of other Parties hereunder are not violated. The developing Party under this subparagraph reserves all intellectual property rights in its so developed technology. (d) The Parties agree to empower the Consortium Administrator to officially execute the ARPA-Consortium Agreement No. MDA972-95-3-0024 on behalf of all of the individual Consortium Member companies. This authority is granted only after each individual company has had adequate time to review the Agreement and have 2 provided written authorization to the Consortium Administrator to execute the document on behalf of their respective company. 2. (a) Subject to the terms and conditions stated herein, the Consortium will be managed and governed by the Consortium Management Committee. The CMC is empowered to determine all policy, business, financial, legal, and technical issues of the Consortium. The CMC is authorized to represent-the Consortium in reporting progress, in negotiating, and in transacting business with respect to the scope of the Agreement with ARPA or other persons. Specifically and without limitation, except as otherwise provided in this Agreement, the CMC is empowered to redirect the research, redefine the tasks and goals of the Parties, and to proportionally change to all Parties the amount of funding provided by an Agency concerning the program. (b) Each Consortium Member will appoint one voting representative to comprise the CMC, who shall have the power to designate an alternate voting representative from time to time. The CMC will meet in regular committee meetings, approximately every three months, at locations chosen on a rotating basis by the CMC or as is mutually acceptable among the Consortium Members. Each representative may be accompanied by other employees of the Party or Agency, including without limitation financial, business, and legal personnel. Each Party and Agency will limit its attendees to three, with the exception of National Semiconductor employees providing overall support to the Consortium. Other parties may attend the committee meetings at the invitation of the CMC, but only after agreeing in writing to appropriate disclosure limitations. The CMC may exclude from a portion of the non-technical committee meetings the representatives of the Agencies or other third persons. (c) The National Semiconductor representative to the CMC will act as chairperson of the committee meetings, keep the other members of the CMC informed of developments, and deliver notification regarding meetings of the CMC. Any Consortium Member may call a special meeting of the CMC. (d) Subject to CMC approval National Semiconductor will appoint a Consortium Administrator to the Consortium who will attend all CMC meetings and who will provide a single point of contact to the Contracting Officers of Parties and the Agencies or their designees. (e) National Semiconductor will ensure that minutes of the meetings of the CMC are recorded and distributed to the Consortium Members and, as requested, to ARPA. (f) Each Consortium Member will be responsible for hosting 3 both CMC meetings and Technical Management Committee (TMC) meetings on a rotating basis. The schedule for hosting meetings will be published by the Consortium Administrator within 30 days after execution of these Articles. 3. (a) A simple majority of CMC members will constitute a quorum at a CMC meeting. The CMC will attempt to reach a consensus decision of all representatives present at each committee meeting. However, if demanded by one Consortium Member, a decision may be determined by a vote of the CMC after the concerns of affected Parties and Agencies present at the meeting are heard. Except as provided in sections 4, 5 and 7, a majority vote of the voting representatives present rules. (b) Any Consortium Member company may request the convening of the CMC. Requests must be made directly to the Chairman of the CMC. A request to convene an unscheduled meeting of the CMC must allow at least 15 working days to convene the meeting. (c) CMC meetings will be held quarterly. Locations for the meetings will be rotated among the Consortium Members. Each Consortium Member is responsible for providing the necessary facilities to host a CMC meeting. The Consortium Administrator will notify all member companies of the date and location of the regularly scheduled CMC meetings at least 30 days in advance. If an unscheduled CMC meeting is called by any of the member companies, the Consortium Administrator will endeavor to provide as much notice as practical. 4. A supermajority vote, as required, is a vote of all but one of the Consortium Members. For purposes of a supermajority vote, the vote of a representative of a Consortium Member either not attending the CMC meeting or not participating will be counted as an opposing vote. With a supermajority vote, the CMC is empowered to: (a) Revise the Articles of Collaboration-, (b) Revise or terminate any funding agreements with an Agency; (c) Delegate authority of CMC to the Consortium Administrator or Consortium Chairman; (d) Substantially change or eliminate any Agency funding allocated to any Party as technically and/or financially justified by the CMC. A Party experiencing any reduction in Agency funding may pro rata reduce its internally funded participation in the Consortium; (e) Act on any issue declared reasonably, in writing by a Consortium Member, to be of critical importance; (f) Appoint and remove the Consortium Administrator or any other officer; and 4 (g) Approve Annual Program Plan for Funds and adjusting funding to all parties subject to section 6. 5. (a) The CMC by unanimous vote may admit a new member to the Consortium. The membership of a new member shall become effective and such new member shall become a Party upon its execution of this Agreement. The CMC will consider new members on a non-discriminatory basis, but only if the new Member's technical contributions can be justified and only on relatively comparable financial terms as the existing Parties, recognizing the risk of their original investment. The consideration will include without limitation whether the new member would bring to the Consortium technology otherwise unavailable on the time scale of the program or would allow the technology to be developed by members of the Consortium to be applied to new markets. Other conditions of its admission are that the entry of the new member would not substantially adversely affect the intellectual property rights of the original Consortium Members, that the added effort would not substantially change the ongoing Consortium program, and that the new Member could participate without diminishing Agency funding provided to existing Members. Notwithstanding the above, the representatives of the CMC may consider any reasonable factor in addition to those above, and their decision on admitting new Members is discretionary and final. (b) If a member is unable to attend a CMC or TMC meeting, the member may vote via written proxy. The proxy vote must be received by the Chairman of the CMC at least one (1) working day prior to the CMC or TMC meeting. The proxy vote must be in writing from the CMC voting representative of the Party or his designee. A FAX or EMAIL proxy is acceptable. (c) If a member is absent from a CMC or TMC meeting, that Party's vote will be counted as a negative vote on all issues brought forth to a vote. 6. A Party may reject an expansion of its scope of responsibility within the Consortium, a modification of its rights in Intellectual Property, or a reduction of its Agency funding not accompanied by a reduction in the scope of its responsibilities. 7. (a) Any Party may resign at will from the Consortium after it has provided written notice to the CMC 30 days in advance of the effective date of the resignation. During the 30 day period, the resigning Party shall wind down its effort in an orderly fashion. The CMC shall reasonably determine whether to provide any further Agency funding to the resigning member after its notice of resignation. 5 (b) The resigning Party shall make a reasonable best effort to transfer its portion of Consortium work to other members of the Consortium, this reasonable best effort extending beyond the 30 day period if reasonably required and at the resigning Party's own cost (which shall not exceed the payment due to the resigning party at the next payable milestone payment date following the date notice of resignation is given). The resigning Party must provide a reasonable, royalty-bearing, non-exclusive, perpetual, sub-licensable license in its Consortium Intellectual Property as defined in Paragraph 8 (b), restricted to the field of use defined in the SOW to the Party or Parties designated by the CMC to replace the resigning Party in performing its assigned tasks. (c) The CMC may, by unanimous vote, except for the resigning Party, force a Party to resign if that Party is not adequately performing the tasks assigned to it or is not reasonably cooperating with the Consortium and its Parties. For purposes of the unanimous vote, the representative of a Consortium Member not attending the CMC meeting or not voting will defeat the unanimity, except for the resigning party. The CMC will provide at least 30 days notice to the offending Party to resolve nonperformance issues prior to the issue coming to a vote before the CMC. All appropriate efforts and communications will be made prior to forcing a Party to resign. All of the requirements and responsibilities of a resigning party described in 7(a) and 7(b) apply to a party forced to resign. 8. (a) As to intellectual property made in the Consortium, each Party retains title to inventions, technical data rights, and other intellectual property made solely by its employees in performance of the Consortium work. Inventions or technical data jointly developed by employees of more than one Party are jointly owned by the respective employing Parties. (b) Consortium Intellectual Property is that intellectual property developed by and in the course of identified tasks assigned to and performed by the member Party, whether performed under Agency funding or funding provided by the Party as agreed to in the Funding Agreement and/or in this Agreement for cost sharing. The identified tasks shall be those tasks i) agreed to by the Party in a separate agreement between the Consortium and ARPA, ii) agreed to by the Party with other Parties of the Consortium, and (iii) assigned to the Party by the CMC subject to the restrictions of section 6. However, Consortium Intellectual Property does not include (1) background: (2) concurrently developed intellectual property that is independently funded apart from Consortium: or (3) continuation (improvement or subsequent) intellectual property (including so-defined processes) of the respective Party(ies). All Parties agree to perform the tasks assigned to them in the attached Statement of Work, to which the CMC is empowered to redirect these 6 efforts. (c) All Parties neither receive from nor are required to grant to the other Consortium Members any royalty-free licenses in its Consortium intellectual property, but all Parties agree to grant to any other Consortium Member a reasonable, royaltybearing license for the sole purpose of continuing the Consortium. The cost of this license will not be counted towards the overall cost of the Plastic Packaging Consortium program. Further, all Parties will license its Consortium intellectual property to other Parties only under commercially reasonable terms. Consortium members Amoco, Dexter and Plaskon, being direct competitors, are limited to reasonable licenses among themselves only for the purpose of aiding the Consortium program. They are not required to license each other for general molding compound commercial usage. (d) In the event of a dispute concerning the reasonableness of a proposed royalty resulting from Consortium Intellectual Property, all Parties agree to submit to binding arbitration to determine the reasonableness of the proposed royalty agreement between Parties. All Parties agree that the arbitrator's decision will be binding. (e) One Party may exercise march-in rights against the Consortium Intellectual Property of another Party to the extent specified in this paragraph. Marchin rights become available if the Party originally holding title to the Consortium Intellectual Property has failed to adequately commercialize within a reasonable time, the technology of the Consortium related to that Consortium Intellectual Property. The reasonable time shall be no less than 3 years from the date these Articles are terminated. Any Consortium Member may exercise march-in rights upon any Member either on the Member's behalf or on the behalf of its licensees irrespective of whether an Agency has exercised similar march-in rights. The title holder shall be entitled to commercially reasonable licensing fees and a reasonable license agreement from the Member exercising march-in rights. (f) Each Party is subject to the licensing and march-in rights of subparagraph (e), but the Consortium may not bind any Party without its approval for the conveyance of its intellectual property to any Agency. (g) The Consortium favors, subject to Agency requirements, an open- publication policy to promote commercial acceptance of the technologies developed for plastic packaged integrated circuits, but simultaneously desires to protect the proprietary information of the Parties developed both within and without the Consortium. However, successful commercialization of aspects of the technology 7 by some of the Parties may depend on the proprietary nature of the information. Each Party will individually decide whether to publish its own technical data or maintain it as proprietary. However, in the performance of the Consortium, proprietary information, software or hardware of one Party may necessarily be disclosed to or used by another Party. A non-disclosure agreement separately executed by all the Members, attached as Exhibit 1, is incorporated herein by reference, and the Members will assure that their employees participating in the Consortium conform to its terms. (h) Notwithstanding the separately executed non-disclosure agreement attached hereto, when one Party's Consortium related work depends on the proprietary information of another Party, the technical data may be published to the extent that such data: (i) is required for a description of the Member's work, (ii) does not disclose proprietary materials, hardware, formulations or software, and (iii) relates primarily to system or material performance and characteristics. However, publication of proprietary technical data may be delayed by its owner for a time period of not more than six (6) months enabling the filing of patent applications. In the event that a Party's work depends on proprietary materials, hardware, software or processes developed by another Party in tasks outside the Consortium, the system performance and characteristics may be published, but only after the delay period for patent filings. In no event shall such disclosure in any way reveal the proprietary information of the implementation necessary to achieve the system performance. (i) Each Party will select its inventions for which it applies for patents. The Party is further responsible for prosecuting those applications and maintaining the resulting patents, both in the U.S. and in foreign countries. A Party jointly owning an invention may file a patent application for it and the co-owning Parties will cooperate in the filing and prosecution. (j) Any patent application filed claiming a Consortium invention covered by an agreement with an Agency shall include a Government interest paragraph. The Party will report a patent application claiming any Consortium Intellectual Property to the CMC within one month and provide to the CMC a copy of the application, without claims. The CMC will report the invention in a timely manner including a short abstract to all Parties and to any Agency funding the invention, as required by the Agency. Any Member or the funding Agency may obtain copies of the application from the CMC. However, any such patent information shall be covered by the nondisclosure agreement and shall not be disclosed by the Agency to non-governmental personnel until the respective patents have been issued. All Parties agree to retain and maintain 8 in good condition until five (5) years after completion or termination of these Articles, all data necessary to achieve practical application of all Consortium and/or Government funded inventions. (k) The funding agreement for the Project Statement may provide for the government to obtain certain rights in the Consortium Intellectual Property. Each Party agrees to such government rights in its Consortium Intellectual Property subject to the Agreement between the Consortium and ARPA. The intellectual property rights provided to the Consortium by Agreement shall be provided in turn to the Parties according to the terms of this Agreement. The Parties will cooperate with the CMC in performing any reporting, election, and rights predetermination to the Agency regarding intellectual property as required by the funding agreement and to provide the required information to the CMC before such information is required by the Funding Agreement. (l) All Parties agree to respect the Intellectual Property rights of all other Parties. During the term of the Agreement, no Party may attempt to reverse engineer, analyze, recreate, or duplicate the specific technology developed by another Party as a result of this Collaboration Agreement. Such efforts may result in termination of membership in the Consortium, forfeiture of all funds assigned to the milestones to be performed by the offending Party, and any legal action deemed appropriate. (m) Notwithstanding the above limitations in this paragraph 8, a basic intent for the formation of this consortium is to share information freely or by license to the maximum extent possible without disclosing or otherwise compromising another Parties proprietary data. This is necessary to assure the formation of a viable market for the advanced plastic packaging technology. 9. (a) National Semiconductor Corporation will receive funds from the funding Agency and disperse such funds available to the Consortium as specified in the attached Consortium Funding Agreement or as directed by the CMC. Milestone payments will be distributed within fifteen (15) working days after receipt of a document certifying completion of the milestone, providing funds have been made available by ARPA. (b) The funding agreement for the Project Statement may provide for certain rights of the Government to audit the financial records of the Consortium. Each Party agrees that it will reasonably cooperate with a Government audit of the Consortium and a Government audit of their individual financial records related directly to the costs incurred during the performance of the ARPA Agreement in accordance with Generally Accepted Accounting Principles (GAAP) only. No Federal Acquisition Regulations or Cost 9 Accounting Standards apply to the accounting and financial records and systems of the members. 10. (a) The Consortium Administrator will set up a document repository (Consortium Data Repository), wherein all pertinent documents and data generated by the Consortium and its Members will be archived. All Parties agree to provide to the Consortium Administrator copies of pertinent documentation, drawings, photographs and data. Data will be maintained for a period of up to five (5) years after completion or termination of these Articles. Such data shall not include proprietary information previously developed at prior expense by any Party prior to entering into this Agreement. (b) A copy of all patent abstracts resulting from Consortium Intellectual Property will be provided to the Consortium Administrator within 30 days after filing. (c) All press releases, publicity, technical papers and other such data shall be provided to the Consortium Administrator for archiving in the Consortium Data Repository within 30 days of submittal for publication. 11. (a) THE PARTIES DISCLAIM ANY WARRANTY INCLUDING WITHOUT LIMITATION AN IMPLIED WARRANTY FOR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, TO EACH OTHER, TO ANY AGENCY, AND TO THIRD PARTIES FOR ACTIONS, OMISSIONS, PRODUCTS, NONCONFORMITIES, DEFECTS, LIABILITIES, OR INFRINGEMENT ARISING OUT OF THE CONSORTIUM. THE PARTIES DISCLAIM ANY LIABILITY FOR CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES. IN NO EVENT SHALL A PARTY'S LIABILITY UNDER THIS AGREEMENT EXCEED THE FUNDING IT HAS RECEIVED UP TO THE TIME OF INCURRING SUCH LIABILITY. (b) The Parties are bound to each other and to the Agency entering into this agreement with the Consortium by a duty of only good faith and best reasonable research effort in achieving the goals of the Consortium. Joint and several liability will not attach to the Parties of the Consortium so that no Party is responsible for the actions of another Party, but is responsible only for those tasks specified to it and to which it agrees to perform in the separately executed ARPA funding agreement. Any Party may waive any right, breach or default which such Party has the right to waive, provided that such waiver shall not be effective against the waiving Party unless it is in writing, is signed by such Party, and specifically refers to this Agreement. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. 10 12. No Party has the obligation to nor will it disclose to another Party proprietary information not required for the research purposes in the Program, and specifically will not exchange with another Party in connection with this Agreement any market data or plans for other services or market products or any information relating to procurement of plastic encapsulated microcircuits, except as such information is made publicly available. 13. (a) These Articles are not intended to form, nor shall they be construed to form, by implication or otherwise, a partnership or other formal business organization, nor should they be construed as a contract or a grant as defined for purposes of federal procurement law. No Party can be bound by another Party acting as its agent except as specifically stated in this Agreement. (b) No Party shall be obligated to provide any capital contribution, loan, guarantee, or other financing commitment for the benefit of the Consortium, unless required for such Party's portion of the Project Statement or such Party agrees in writing herein or otherwise. 14. Except and to the extent as specifically set forth herein, nothing in these Articles shall be construed by implication, estoppel or otherwise to grant any license or right under any patent, copyright, trade secret, trademark or proprietary right of any Party. 15. This Agreement does not bar the Parties from singly or jointly planning, designing, or entering manufacturing, subject to the rights of all Parties, outside the Consortium. 16. No Party shall identify any other Party and its association with this Consortium in advertising, publicity, or otherwise, except with the formal written approval of such other Party. However, the Parties agree that notification of the establishment of this Joint Research and Development Venture shall be filed by National Semiconductor Corporation on behalf of the Parties with the Attorney General and the Federal Trade Commission in accordance with the provisions of the National Cooperative Research Act of 1984 within 90 days of execution of this Agreement and after adequate review by the legal departments of all Parties. 17. (a) These Articles and the Consortium shall continue after execution of this agreement for 24 months thereafter or earlier under any provision of sub- section (b) hereof. It may be renewed at any time prior to the expiration of the term of this Agreement by letter agreement signed by the authorized representatives of all the Parties who are Parties at that time. (b) This Agreement shall terminate upon the earliest 11 occurrence of: (i) disapproval by the Attorney General or the Federal Trade Commission of the notification of Section (1 5); (ii) termination of the funding of the first Project Statement by an Agency unless each Party has agreed to extend the Consortium for subsequent funding; or (iii) no funding is provided by an Agency by March 31, 1995. (c) The obligations of confidentiality set forth in Article 8 hereof shall survive termination of these Articles for a period of 36 months. 18. The Funding Agreement from an Agency may impose certain requirements upon the Consortium or its Participants-regarding reporting accounting civil rights, intellectual property, and technology transfer information or transferring of intellectual property generated with funds provided by the Agency. A Participant by acceptance of such funds agrees to conform to such requirements and to reasonably cooperate with the Consortium in conforming to such requirements. 19. Any notices or other communications required or permitted hereunder shall be sufficiently given if sent by telecopier or by registered or certified mail, postage prepaid, addressed as follows Primary Alternate - - ------- --------- John Hoback David R. Nethro Amoco Chemical Company Amoco Chemical Company Mail Code E2F Mail Code 4406 150 East Warrenville Road 200 East Randolph P.0. Box 3011 Chicago, Ill 60601 Naperville, IL 60566-7011 (312)856-6617 (708)420-5454 Lex Kosowsky John Wohlin Leading Technologies, Inc. Leading Technologies, Inc. P.0. Box 628 131 West Pittsburgh St. 3 Parks Bend Industrial Road Greensburg, PA 15601 Leechburg, PA 15656 (412) 837-6993 (412) 842-3420 Michael Varnau Mathew J. Venteicher Delco Electronics Corporation Delco Electronics Corporation 2033 East Boulevard One Corporate Center Mail Station 6060 Mail Station CT 50B Kokomo, IN 46904-9005 Kokomo, IN 46904-9005 (317) 451-7136 (317) 451-5264 Lee Fehr Tony Gallo Dexter Electronic Materials Dexter Electronic Materials 12 21 1 Franklin Street 21 1 Franklin St. Olean, NY 14760 Olean, N.Y. (716) 372-6300 (716) 372-6300 James N. Sweet David Palmer Sandia National Laboratories Sandia National Laboratories Dept. 1333 Dept. 1333 P.O. Box 5800 P.O. Box 5800 Albuquerque, NM 87185-1082 Albuquerque, N.M. 87185-1082 (505) 845-8242 (505) 844-2138 Gerald. K. Fehr Victor Batinovich IPAC IPAC 2221 Old Oakland Road 2221 Old Oakland Road San Jose, CA 95131-1402 San Jose, CA 95131-1402 (408) 321-3668 (408) 321-3600 Jim Dunham Dennis W. Ralston National Semiconductor Corporation National Semiconductor Corporation M/S 19-100 M/S 10-225 2900 Semiconductor Drive 2900 Semiconductor Drive Santa Clara, CA 95052 Santa Clara, CA 95052 (408) 721-6140 (408) 721-2812 Deepak Mahulikar John Brendis Olin Corporation Olin Corporation Metals Research Laboratory Metals Research Laboratory 91 Shelton Avenue 91 Shelton Avenue New Haven, Connecticut 06511 New Haven, Connecticut 06511 (203) 495-8550 (203) 495-8550 ext. 5719 Johanna Murray Nick Rounds Plaskon Electronic Materials, Inc. Plaskon Electronic Materials, Inc. Rohm and Haas Company Rohm and Haas Company 727 Norristown Road 727 Norristown Road P. O. Box 904 P. O. Box 904 Spring House, PA 19477-0904 Spring House, PA 19477-0904 (215) 641-7366 (215) 641-7985 William Baker Thomas Olson Sheldahl, Inc. Sheldahl, Inc. 345-C S. Francis Street 1150 Sheldahl Road Longmont, CO 80501 Northfield, MN 55057 (303) 651-2880 (507) 663-8000 Ext. 280 or such other addresses or telecopier numbers as shall be furnished by like notice by such party. Any such notice or communication given by mail shall be deemed to have been given three (3) business 13 days after the date so mailed, and any such notice or communication given by telecopier shall be deemed to have been given when sent by telecopier and the appropriate answer back received. 20. Neither this Agreement nor any rights hereunder, in whole or in part, shall be assignable or otherwise transferable without the prior written consent of all other Parties, except the Party's wholly owned subsidiaries, its ultimate parent company, and to any company wholly owned by its parent company. The above is subject to ARPA approval. 21. (a) These Articles shall first become effective on the date all Consortium Members have signed these Articles and such Articles will be effective only as to such Parties who have signed these Articles by such date. These Articles shall be effective as to any other Party on the date such other Party executes these Articles. (b) This Agreement may be executed in counterparts each of which shall be deemed an original, but taken together shall constitute one and the same instrument. 22. The Parties Shall further execute, sign or do or procure to be executed, signed and done all such further deeds and documents and acts as may be reasonably required to enable the Parties freely and fully to pursue their agreed objective provided hereunder. 23. These Articles shall be governed by the laws of the United States and the State of California except principles of conflict of laws. 24. This Agreement constitutes the entire agreement of the Parties and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions among the Parties, whether oral or written, with respect to the subject matter hereof. IN WITNESS WHEREOF, each of the parties has caused these Articles to be executed by its duly authorized representatives, on the respective dates entered below. 14 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME NATIONAL SEMICONDUCTOR CORPORATION --------------------------------------------------- ADDRESS: 2900 Semiconductor Drive ----------------------------------------------------- --------------------------------------------------- ------------------------------------------------------ By /s/ Dennis W. Ralston ----------------------------------------------------- (AUTHORIZED SIGNATURE) Dennis W. Ralston ---------------------------------------------------- (PRINT NAME) Manager Business Operations ------------------------------------------------------------ (TITLE) 3-2-95 ---------------------------------------------------- (DATE OF EXECUTION) 15 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME AMOCO CHEMICAL COMPANY --------------------------------------------------- ADDRESS: 200 East Randolph Drive --------------------------------------------------- Chicago, IL 60601-7125 -------------------------------------------------- ---------------------------------------------------- By /s/ Stephen F. Gates ---------------------------------------------------- (AUTHORIZED SIGNATURE) STEPHEN F. GATES ----------------------------------------------------- (PRINT NAME) VICE PRESIDENT --------------------------------------------------- (TITLE) March 3, 1995 ------------------------------------------------------------ (DATE OF EXECUTION) 16 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME LEADING TECHNOLOGIES, INC. --------------------------------------------------- ADDRESS: PO BOX 628 ---------------------------------------------------- Leechburg PA 15656 -------------------------------------------------- ----------------------------------------------------- By /s/ Len Kosowsky ---------------------------------------------------- (AUTHORIZED SIGNATURE) Len Kosowksy --------------------------------------------------- (PRINT NAME) President ----------------------------------------------------------- (TITLE) 3-3-95 --------------------------------------------------- (DATE OF EXECUTION) 17 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME DELCO ELECTRONICS CORPORATION --------------------------------------------------- ADDRESS: ONE CORPORATE CENTER ---------------------------------------------------- P.O. BOX 9005 -------------------------------------------------- KOKOMO, IN 46904-9005 ---------------------------------------------------- By /s/ Lesterson Wilkinson ---------------------------------------------------- (AUTHORIZED SIGNATURE) LESTER WILKINSON --------------------------------------------------- (PRINT NAME) DIRECTOR, IC DELCO ----------------------------------------------------------- (TITLE) March 2, 1995 --------------------------------------------------- (DATE OF EXECUTION) 18 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME DEXTER CORPORATION ------------------------------------------------------ ADDRESS: 211 Franklin Street ------------------------------------------------------- Olean, NY 14760 -------------------------------------------------- ---------------------------------------------------- By /s/ Lee R. Fehr ----------------------------------------------------- (AUTHORIZED SIGNATURE) Lee R. Fehr ----------------------------------------------------- (PRINT NAME) Director of Research & Development --------------------------------------------------------------- (TITLE) 3-2-95 ----------------------------------------------------- (DATE OF EXECUTION) 19 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME IPAC --------------------------------------------------- ADDRESS: --------------------------------------------------- -------------------------------------------------- ---------------------------------------------------- /s/ Victor A. Batinovich By --------------------------------------------------- (AUTHORIZED SIGNATURE) VICTOR A. BATINOVICH -------------------------------------------------- (PRINT NAME) President CEO ----------------------------------------------------------- (TITLE) 3-1-95 -------------------------------------------------- (DATE OF EXECUTION) 20 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME OLIN CORPORATION --------------------------------------------------- ADDRESS: 91 Shelton Avenue ---------------------------------------------------- New Haven, CT 06511 -------------------------------------------------- ---------------------------------------------------- By /s/ Derek E. Tyler ---------------------------------------------------- (AUTHORIZED SIGNATURE) Derek E. Tyler --------------------------------------------------- (PRINT NAME) Vice President, Metals Research Lab ------------------------------------------------------------ (TITLE) March 17, 1995 --------------------------------------------------- (DATE OF EXECUTION) 21 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME PLASKON ELECTRONIC MATERIALS, INC. --------------------------------------------------- ADDRESS: 100 INDEPENDENCE MALL WEST ---------------------------------------------------- PHILADELPHIA, PA 19106-2399 -------------------------------------------------- --------------------------------------------------- By /s/ Lawrence E. Hoffman, Jr. --------------------------------------------------- (AUTHORIZED SIGNATURE) LAWRENCE E. HOFFMAN, JR. --------------------------------------------------- (PRINT NAME) PRESIDENT ---------------------------------------------------------- (TITLE) March 2, 1995 --------------------------------------------------- (DATE OF EXECUTION) 22 PLASTIC PACKAGING CONSORTIUM ARTICLES OF COLLABORATION CONSORTIUM MEMBER COMPANY NAME SHELDAHL, INC. --------------------------------------------------- ADDRESS: 1150 Sheldahl Road ---------------------------------------------------- Northfield, MN 55057 ------------------------------------------------- --------------------------------------------------- By /s/ Richard J. Slater --------------------------------------------------- (AUTHORIZED SIGNATURE) Richard J. Slater -------------------------------------------------- (PRINT NAME) Senior Vice President, Technology --------------------------------------------------------- (TITLE) March 1, 1995 -------------------------------------------------- (DATE OF EXECUTION) 23 Agreement Number: MDA972-95-3-0024 Attachment No. 4 Page 1 SCHEDULE OF PAYMENTS AND PAYABLE MILESTONES
A. SCHEDULE OF PAYMENTS -------------------- QUARTER ARPA PAYMENT CONSORTIUM PAYMENT ------- ------------ ------------------ FIRST $ 375,000 $ 247,060 SECOND $1,185,731 $1,155,376 THIRD $1,249,658 $1,349,183 FOURTH $1,638,158 $1,835,444 FIFTH $1,530,039 $1,595,914 SIXTH $1,242,326 $1,274,449 SEVENTH $1,038,986 $ 989,138 EIGHTH $ 827,022 $ 733,143 NINTH $ 463,024 $ 486,951 TOTAL $9,549,944 $9,666,658
B. DETAILED SCHEDULE OF PAYABLE MILESTONES ---------------------------------------
ARPA TASK MONTH PAYABLE MILESTONES PAYMENT CONSORTIUM PAYMENT - - ---- ----- ------------------ ------- ------------------ 1 FEB '95 DELIVER INITIAL PROGRAM PLAN $ 375,000 $ 247,060 . Deliver initial program plan. 2 APR '95 INITIAL PRODUCT DESIGN REVIEW $1,185,731 $1,155,376 . Specify critical initial design considerations for Interposer an flip-chip vehicles in Focus Area 3 (SOW 3.2.4) . Evaluate leadframe to molding compound interfacial adhesion for first sample of enhanced treated leadframes for Focus Area 1. (SOW 1.3.3) 3 JULY '95 DELIVER SAMPLES OF FUNDAMENTAL $1,249,657 $1,349,183 COMPONENTS . The consortium will demonstrate capability to produce new blend resin to be utilized in enhanced molding compound formulation. (SOW 1.3.1) . Complete design and manufacture samples of test vehicle interposer for 160-lead PQFP. (SOW 3.2.4) 4 OCT '95 EPOXY MOLDING COMPOUND $1,638,158 $1,835,444 . Demonstrate mechanical and manufacturability properties of screening level molding compounds such as curing kinetics, rheology, Tg, coefficient thermal expansion. (SOW 1.3.1, 2.3.1 & 3.3.1)
24 ATTACHMENT 1 25
Agreement Number: MDA972-95-3-0024 Attachment No. 4 Page 2 ================================================================================================ ARPA CONSORTIUM TASK MONTH PAYABLE MILESTONES PAYMENT PAYMENT - - ------------------------------------------------------------------------------------------------ 5 JAN '96 MANUFACTURE EXPOXY MOLDING COMPOUNDS TO TEST $1,530,039 $1,595,914 VEHICLES SPECIFICATIONS . Demonstrate successful assembly of high lead count (160-lead and 304 or 204-lead) PQFP packages. (SOW 3.1) . The Consortium will evaluate and characterize the mechanical connection of the interposer to the leadframe for 160-lead PFP. (SOW 3.2.5) - - ------------------------------------------------------------------------------------------------ 6 APR '96 VALIDATION OF METALLIC PROPERTIES $1,242,326 $1,274,449 . Complete characterization of the leadframe alloy designed for higher strength to give improved stamping and handling characteristics. (SOW 1.3.3) . Demonstrate capability of producing stamped heat sinks for enhanced thermal dissipation. (SOW 2.3.3) - - ------------------------------------------------------------------------------------------------ 7 JULY COMPLETE DEVELOPMENT OF FUNDAMENTAL MATERIALS $1,038,986 $ 989,138 '96 AND VERIFY VOLUME PRODUCTION CAPABILITIES . The Consortium will complete development of optimized molding compound formulations for all focus areas. (SOW 1.3.1, 2.3.1, & 3.2.1) . Demonstrate on-shore volume production capability of high lead count PQFPs. (SOW 3.1) . Complete characterization of flip chip underfill mechanical and manufacturability properties. (SOW 3.2.2) - - ------------------------------------------------------------------------------------------------ 8 OCT '96 SELECTION OF OPTIMIZED MATERIAL COMBINATIONS $ 827,022 $ 733,143 AND TEST VEHICLE ASSEMBLY . Select optimized material combinations (molding compound die attach material, leadframe treatment, leadframe alloy, substrate/interposer materials, etc.) Use this set of final optimized materials for technology demonstration product builds in all focus areas. (SOW 1.3.5, 2.3.5, & 3.2.6) . Issue final mechanical and manufacturability report for epoxy molding compounds for all focus areas. (SOW 1.3.1, 2.3.1, & 3.2.1) - - ------------------------------------------------------------------------------------------------ 9 JAN '97 FINAL REPORT $ 463,024 $ 486,951 . Issue final report illustrating the capabilities achieved vs. the initial targets of the program. - - ------------------------------------------------------------------------------------------------ TOTAL $9,549,944 $9,666,658 ================================================================================================
26 Agreement Number: MDA972-95-3-0024 Attachment No. 4 Page 3 FUNDING SCHEDULE A. PROJECTED PROGRAM FUNDING COMMITMENTS -------------------------------------
YEAR ARPA FUNDING CONSORTIUM CONTRIBUTION ---- ------------ ----------------------- CY '95 $4,448,546 $4,587,063 CY '96 $4,638,373 $4,592,644 CY '97 $ 463,024 $ 486,951 ---------- ---------- TOTALS $9,549,943 $9,666,658
B. CONSORTIUM MEMBER CONTRIBUTIONS ------------------------------- MEMBER CONTRIBUTION ------ ------------ Amoco Chemical Company $ 411,348 Delco Electronics $ 340,616 The Dexter Corporation $ 482,000 Integrated Packaging Assembly Corp. $1,051,800 Leading Technologies, Inc. 3,059,601 National Semiconductor Corp. 2,442,675 Olin Corporation $ 901,225 Plaskon Electronic Materials, Inc. $ 484,800 Sheldahl $ 492,593 ---------- TOTAL $9,666,658
27 Plastic Packaging Statement of Work ----------------------------------- The Plastic Packaging Program will establish the required infrastructure and enabling technologies in three key Focus Areas. Benefits gained from these interdependent, and yet individual areas, are sufficiently broad-based to be widely applicable to the entire packaging industry. The three key Focus Areas are: 1. Plastic Package Ruggedization 2. Plastic Package Thermal Dissipation 3. High Density Plastic Packaging These interrelated Focus Areas offer synergistic solutions for cost- effective, high volume packaging with improved reliability and performance. 1.0 Plastic Package Ruggedization - (Focus Area 1) This area will develop enabling technologies to reduce cost and enhance the reliability of plastic packages during assembly and field operation. Reliability issues applicable to plastic ICs include interfacial delamination, package cracking ("popcorning"), and stress induced failures. 1.1 Description of Problem Die interfacial delamination occurs due to excessive shear strength breaking the interfacial bond between the die or die coating and the molding compound. Factors governing delamination include, the net thermal displacement during thermal excursion, the gap between the epoxy and the device surface after separation, the topography of the device and the adhesion strength of the molding compound. The resultant effect of these factors can be device failure. Package cracking, or popcorning, occurs during assembly operations. In this case the hygroscopic molding compound absorbs moisture when exposed to typical manufacturing conditions. If moisture has accumulated past a package- dependent critical concentration, the solder reflow conditions (230-260 deg C) cause water to vaporize. Pressure builds up inside the package and eventually, steam is released along the path of least resistance causing cracking of the compound. To avoid popcorning today, Packages are baked and then shipped in drybags which is very costly. Stress-induced failures are equally damaging to devices. The thermal mismatch between silicon and the materials inside the package causes stresses and induces defects ranging form cosmetic passivation cracking to metal line shift, dielectric cracking, and even die fracture. "Ruggedization" of the packages will enhance the package reliability during board assembly and adverse field conditions. In turn, mean-time-to-failure will increase the cost effectiveness of packaging. The enabling technologies proposed in this Focus Area will address these major reliability issues plaguing plastic packaging. 1.2 Key Metrics The key metrics for success for Focus Area 1 are: * No interfacial delamination (e.g., between molding compound and die surface, molding compound and leadframe, and, die attach (d/a) and leadframe). * Unlimited shelf life at 30 deg. C/90% RH without drybagging. ("Anti-popcorning") * No stress-induced device failures (e.g., metal line shift, passivation cracking, dielectric cracking; and die cracking). * Team cost target improvement over SIA roadmap is 50% to a cost of $0.005/lead up to 300-lead PQFP. 1.3 Technical Approach To achieve these four metrics, five major components will be addressed: 1. Molding Compound Enhancement 2. Die Attach Enhancement 3. Leadframe Enhancement 4. Reliability Characterization 5. Technology Demonstration 1.3.1 Molding Compound Enhancement New resin formulations and additives will be developed to provide properties for enhanced reliability. The metric improvements listed use the current low-stress molding compounds as benchmark. * Reduce water uptake by 50% for improved leadframe adhesion and better anti-popcorning * Increase the hot strength at 240 deg C by a factor of 2. * Lower the stress index by at least 25% * Increase the Tg of the anti-popcorning compound from 140 deg C to 160 deg 28 * Decrease the cure time by 25% * Lower compound viscosity by 25% 1.3.2 Die Attach Enhancement ---------------------- Using the epoxy-based die attach material as a benchmark, development of die attach formulations will aim at: * Eliminating voiding in the die attach * Increase the adhesion strength between the molding compound and the die attach surface by 50% at 240 deg C * Decrease cure time by 50% at 160 deg C * Reduce water uptake by 50% for improved leadframe adhesion and better anti-popcorning * Develop new cyanate ester-based materials with: ** Hot strength superior to epoxies at 260 deg C by 50% ** Stress index lower by at least 25%. ** Unique stable moisture-resistant properties 1.3.3 Leadframe Enhancement Key reliability issues affecting the interface between leadframe, the molding compound, and the die attach are: * Increase the interfacial adhesion to the molding compound and the die attach media. * Optimize or replace the polyamide tape on the leadframe to improve adhesion. * Develop and characterize a new leadframe alloy with higher strength for fine pitch stamping and in-process handling 1.3.4 Reliability Characterization The test methodology, processing, and material properties of key materials of construction in IC packaging will be fully characterized: * Materials screening - Various combinations of materials will be evaluated through design of experiments. This will include evaluating the different choices for synergistic interaction * Evaluate adhesion and stress characteristics of die coatings * Characterize mold compounds. Include manufacturability assessment (e.g. curing kinetics, rheology, moldability) and mechanical characteristics (coefficient of thermal expansion, modulus, fracture strength, adhesion). * Obtain Assembly Test Chips (ATCs) for use in the evaluation of package properties. * Reliability testing of the test ICs and product vehicles will be performed. 1.3.5 Technology Demonstration The enabling technologies for ruggedizing the packages will be validated with commercial product vehicles. Reliability tests will follow mil-approved standards. Products could include but will not be limited to National's Super I/O and CLAy chips. 2.0 Plastic Package Thermal Dissipation (Focus Area 2) The objective of this Focus Area is to develop enabling technologies which will enhance the thermal dissipation characteristics of the plastic packages. 2.1 Description of Problem Devices are operating at increasingly faster speeds and frequencies, and generating more heat. Thus, to keep up with the speed performance curve, improved thermal dissipation becomes a necessity. The typical thermal path available for plastic packages mounted on boards is through the molding compound, along the leadframe, and to the metal traces on the board. This path can be enhanced with the use of heat spreaders imbedded into the package and with improved thermal characteristics of the materials. 2.2 Key Metrics The key metrics for success for Focus Area 2 are: * High temperature operation (175 deg C) * High thermal dissipation (Theta-ja improvement by 50% on 160 PQFP to 20 deg. C/Watt) * High Temperature Reliability * Fine Pitch stamped leadframes with heat spreaders or heat slugs * Cost target for the thermally enhanced package is $0.02/lead over the standard package of $0.007/lead 2.3 Technical Approach To achieve these metrics, five major components will be addressed: 1. Molding Compound Thermal Enhancement 2. Die Attach Thermal Enhancement 3. Leadframe/Heat Sink Enhancement 4. Reliability Characterization 5. Technology Demonstration 29 2.3.1 Molding Compound Enhancement The molding compound must satisfy two functional requirements, high thermal dissipation and high thermal performance. The goals are to: * Increase thermal conductivity from the current 0.4-0.5 W/m K * Evaluate new resin materials and fillers for enhanced thermal dissipation and thermal performance. * Promote good interfacial adhesion to all components, including heat spreaders and heat slugs 2.3.2 Die Attach Thermal Enhancement The die attach material is a thermal barrier between the die and the leadframe. Poor thermal conductivity is usually due to either voiding or inadequate die attach material. The d/a must satisfy two functional requirements, good thermal conductivity and no voiding. Development work will focus on: * Increase thermal dissipation of the die attach by at least 25% * Eliminate voiding in the die attach for good thermal conductivity 2.3.3 Leadframe/Heat Sink Enhancement The low-cost requirement of plastic packages dictates that any thermal enhancement structure attached to either the leadframe of the package must not add significantly to the total package cost. Development work will focus on: * Design and model the attachment of heat slugs to the package * Design and build automated equipment to tape, downset and attach the heat spreader to the leadframe * High thermal conductivity material leadframes will be developed and evaluated 2.3.4 Reliability Characterization Materials screening and characterization similar to section 1.3.4 on ruggedization must be performed: * Characterize thermally enhanced molding compounds and die attach materials * Develop thermal test chips for use in screening materials * Assembly of 160 PQFP will be done by IPAC and National * Reliability testing of test vehicles and product drivers will be performed 2.3.5 Technology Demonstration The enabling technologies for thermally enhanced packages will be validated with commercial product vehicles. Reliability tests will follow mil-approved standards. Two products will be selected based on market needs. 3.0 High Density Packaging (Focus Area 3) This Focus Area aims at developing the enabling technologies to increase the I/O density of plastic packages. Two packaging form factors will be considered, the PQFP and the Plastic Ball Grid Array packages (PBGA). Efforts in this area can be broken up into 3 interrelated areas: 1. Develop fine pitch leadframe stamping technology 2. Develop fine pitch PQFP with interposer attached 3. Develop a 625-pin Plastic BGA for use with flip chip Efforts will aim at developing fine pitch stamped leadframe for high lead count PQFPs, evaluating high density interposer substrates for PQFPs, attaching interposers to the PQFP leadframes, and devising high density, low-cost substrates for PBGAs. We will be evaluating different molding compounds for the two package types but there is a common development effort on the high density substrates. We expect that the commercial cross over point from QFP to BGA from a cost and handling standpoint is at about 300 pins. Specific packages addressed in this program are 160 to 304 or 240-lead QFP and the 625-pin BGA with flip chip. The flip-chip BGA portion of this focus area will augment the work in the Low Cost Flip Chip Program in that both programs will lead up to the development of the 4 chip CLAy product assembled in the plastic BGA package. 3.1 Key Metrics ----------- The key metrics for success for Focus Area 3 are: * Fine pitch, stamped, low-cost leadframes. Two packages are addressed: 1. 160-lead QFP with 6.0 mil internal pitch and 4.0 mil lead flat 2. 304 or 240-lead QFP with 7.0 mil internal pitch and 4.0 mil lead flat * Establish on-shore capability for high lead count package assembly. (160 and 240 or 304-lead QFP and 625 BGA) * High density and low-cost substrates 30 ** Interposer cost adder $0.10 for 160-lead PQFP ** Substrate cost $0.40/sq in. * Minimal or zero-warpage of BGA * Reworkable, low stress underfill for flip chip in Plastic BGA. * Integration of interposer to leadframe 3.2 Technical Approach To achieve the previous key metrics, the following major components will be addressed: 1. Molding Compound for BGAs 2. Flip Chip Underfill Development 3. Leadframe Enhancement 4. Substrate/Interposer Enhancement 5. Reliability Characterization 6. Technology Demonstration 3.2.1 Molding Compound for BGAs Molding compounds formulated for large chips in high lead count PQFPs and BGAs need to have enhanced properties. Efforts will focus on: * Lower stress by 50% * Lower molding viscosity for molding thing packages * Higher Tg and lower shrinkage by 50% * Reduce moisture absorption by 50% * No delamination * Prolonged pot life 3.2.2 Flip-Chip Underfill Development In this program we will focus on development of an underfill to be used with flip-chips mounted on substrates in plastic GBA packages. Underfill of lip-chip structures can significantly increase solder joint life. The improvement level depends on the substrate material since thermal mismatch dictates the stress level on the joints. Key development efforts aim at high Tg ( 160 deg C) resins with: * Improved wetting characteristics * Narrower filler size distribution for small chip gaps * Faster cure by at least 50% * Better adhesion to polyamide or other substrates and substrate coatings * Lower stress by at least 25% * Longer potlife for ease of processing * Higher thermal conductivity than current underfill resins by 50% 31 * Reworkability capability 3.2.3 Leadframe Enhancement Fine pitch leadframes are currently manufactured by expensive etch techniques. Stamping of higher lead count fine pitch leadframes will require looking at different materials. Key development tasks required are: * Develop a process for stress reduction in C7025 alloy prior and after tamping * Evaluate high strength materials form punches * Design and fabricate tooling for stamping two leadframes ** 160-lead PQFP with a 6.0 mil internal pitch and 4.0 mil lead flat ** 304-lead PQFP with a 7.0 mil internal pitch and a 4.0 mil lead flat or 240 lead PQFP 3.2.4 Substrate/Interposer Enhancement Two types of packages are considered for this area, 160-lead PQFP and 625-pin BGA. The PQFP requires an interposer to be bonded to the leadframe while the BGA involves flip-chip mounting. Development tasks will include: * Develop a 160-lead PQFP interposer based on NSC Super I/O chip family * Develop the methodology and process for attaching the interposer to the leadframe by thermocompression bonding and by conductive adhesives * Develop a 625-pin BGA substrate based on test chips and CLAy. 3.2.5 Reliability Characterization Once again, Tasks similar to the previous two area will be performed. Tasks specific to high density package will include: * Characterize the interposer mounting technology * Provide redistributed and bumped test chips for flip-chip bonding * Evaluate the effectiveness of the reworkable underfill resin * Assembly of 160-lead PQFP and 625 BGA will be handled by IPAC and National * Reliability testing of the test vehicles and product drivers will be performed 3.2.6 Technology Demonstration The enabling technologies for stamped fine pitch leadframes, interposer integration to the leadframe, and high density low-cost substrates will be validated with product vehicles. The final vehicles will be selected from the Super I/O, LAN and CLAy product families from National Semiconductor. 32 EX-10.31 12 LICENSE AGREEMENT Exhibit 10.31 LICENSE AGREEMENT PARTIES This Agreement with its appendices, exhibits and schedules, (the "Agreement") is made as of 20 June, 1994 (the "Execution Date") between SIDRABE; a Latvian corporation, having a principle place of business at Riga, Latvia, (the "Licensor"), and SHELDAHL INC., a Minnesota corporation, having a principal place of business at Northfield, Minnesota, (the "Licensee"). RECITALS A. The Licensor, has over a period of years developed and patented valuable technology for depositing various metals onto metal foils, films and fabrics in a vacuum. The Licensor's patented technology being described in EXHIBIT I. The Licensor desires the further commercial development and marketing of products resulting from this technology. The Licensee, a leading maker and supplier of ceramics and metal coated foils, films, and fabrics desires to be licensed under the Licensor's patented technology for depositing various metals on metal foils and on polyester film in a vacuum in order to further develop the technology and to market products generated by this technology according to the terms of this Agreement. B. The Licensee has developed its own technology for depositing metals on metal foils and on polyester film in a vacuum. The Licensee is also interested in licensing the similar patented technology of Licensor to manufacture and sell metal coated foils and films which incorporate the Licensor's technology in whole or in part, into its own technology according to the terms of this Agreement. C. This Recital is provided for the convenience of the parties and shall not be used in the interpretation or construction of the Terms of this Agreement. ARTICLE I: DEFINITIONS SECTION 1.0 DEFINED TERMS. Terms defined in this Article I and elsewhere, parenthetically, in this Agreement, shall have the same meaning throughout the Agreement. Defined terms may be used in the singular or plural. SECTION 1.1. "PARTY" means the Licensee and/or the Licensor. SECTION 1.2. "TECHNICAL INFORMATION" means any technical facts, data, or advice, written or oral (in the form of reports, letters, drawings, specifications, training and operational manuals, bills of materials, photographs and the like) relating to compositions, product designs, machine designs, molds, inspection equipment, methods, techniques, processes, accounting procedures, plant layouts, factory and administrative management and computer programs owned or, if owned by another, freely licensable by the Licensor, or access to associated computer services available from or through the Licensor, utilized by the Licensor prior to the Execution Date in the manufacture, processing, inspecting, testing, packaging, marketing, distribution and sale of Licensed Products. SECTION 1.3. "LICENSED PATENT." The subject matter of this License is Soviet Union Patent No. 1410566 A1 and Soviet Union Patent No. 1483976 A2 which describe the construction and use of metal source boats employed in the production of metal coated foils, films, and fabrics (SEE EXHIBIT II) and all corresponding foreign patents now issued or issued during the term of this Agreement together with all reissues and continuations in part. This means, including but not limited to, any European Community (EC) Asian, Commonwealth of independent States (CIS) United States (US) or other patent or patent application owned or acquired by the Licensor before the Execution Date pertaining to Licensed Products, and whether or not based on or incorporating any items of Technical information. SECTION 1.4 "LICENSED PRODUCTS." Metal source boats currently being used by the licensor including without limitation, metal source boats covered by licensed patents and used in the production of metal coated foils, films, and fabrics as well as such other products as may, from time to time, be added to this definition by the parties' mutual consent. SECTION 1.5 "LICENSOR IMPROVEMENTS" shall mean all modifications, revisions, and new models of the Licensed Products, or any part thereof, as well as all processes, machines, manufactures or compositions of matter which the Licensor or any affiliate may conceive, develop, acquire or otherwise obtain rights to during the term of this Agreement and which relate to the Licensed Products, or any of their parts, in any of the following ways: (a) improve the Licensed Products' performance; (b) reduce production costs of the Licensed Products; (c) increase the service life of the Licensed Products; (d) broaden the Licensed Products' applicability; (e) increase the marketability of the Licensed Products; or, (f) replace or displace the Licensed Products in the marketplace. Provided nothing in these sections shall be construed to convey any rights in nonlicensed products in the current or future product lines of the Licensor. 2 SECTION 1.6 "LICENSEE IMPROVEMENTS" shall mean all modification, revisions, and new models of the Licensed Products, or any part thereof, as well as all processes, machines, manufactures or compositions of matter which the Licensee or any affiliate may conceive, develop, acquire or otherwise obtain rights to during the term of this Agreement and which relate to the Licensed Products, or any of their parts, in any of the following ways: (a) improve the Licensed Products' performance; (b) reduce production costs of the Licensed Products; (c) increase the service life of the Licensed Products; (d) broaden the Licensed Products' applicability; (e) increase the marketability of the Licensed Products; or, (f) replace or displace the Licensed Products in the marketplace. Provided nothing in these sections shall be construed to convey any rights in nonlicensed products in the current or future product lines of the Licensee. SECTION 1.7 "TERRITORY." The world. The Territory may be reduced by Licensor's giving notice to Licensee that Licensor proposes to build a plant of a stated capacity, having a stated approximate capital cost, to make the Products in some specified country in the Territory in which Licensee shall not then be manufacturing the products, which country, however, shall not be the United States of America, Canada, United States of Mexico, Central and South America, any member or associated member of the European Economic Community, or Asia, to include but not be limited to Japan, Indonesia, the Philippines, Vietnam, Thailand, Taiwan, Republic of China, Malaysia, Singapore, Hong Kong, Cambodia and Korea. If, within six months of said notice Licensee or an Affiliate shall not have irrevocably committed to practice the license conferred in section 2.1 in said specified country by there building (within twenty-four months from such commitment), and operating a plant of substantially the same stated capacity and having an estimated capital cost as the plant proposed by the Licensor, and if Licensor or an Affiliate shall build such a plant there within thirty months of its notice to Licensee of its intention to do so, then the Territory shall cease to include that country. Section 1.8 "Affiliate." Any entity the voting stock of which is at least 80% controlled by a party to this Agreement. 3 ARTICLE II: EXCLUSIVE LICENSE GRANTS SECTION 2.1 LICENSE GRANT. The Licensor hereby grants to the Licensee a nontransferable, exclusive, perpetual license to use and sell Licensed Products employed in the production of metal coated foils, films, and fabrics whether or not within the Territory. In this regard, the Licensor shall not have the right to sublicense or subcontract any work involving any licensed Technical Information, or Licensed Patents, without prior written approval of the Licensee. SECTION 2.2 SUBLICENSING AND SUBCONTRACTING RIGHTS. The Licensor's license to the Licensee under section 2.1 shall include the right to sublicense or subcontract to any subsidiary of the Licensee listed in its annual report that operates in such other country agreed upon by the Parties, provided that such sublicense or subcontract is subject to the safeguards provided in this Agreement to protect the confidentiality of, and the proprietary rights in, all Technical Information and Licensed Trade Secrets. ARTICLE III: DISCLOSURE OF TECHNICAL INFORMATION SECTION 3.0 INITIAL DOCUMENTATION. Within one month after this Agreement becomes effective, the Licensor shall provide to the Licensee an initial package of Technical Information containing drawings, manuals, specifications, bills of materials and photographs, but only to the extent that the Licensor shall have prepared such material for its own use or for the use of third parties. The Licensor shall use reasonable efforts to fully disclose the metal source boat technology as it has been practiced by the Licensor. Such initial package shall be furnished by the Licensor in the form of one copy in the English language at the Licensee's manufacturing facility in Northfield, Minnesota. The cost of additional copies and translation shall be borne by the licensee. Nothing in this agreement shall be construed to require the Licensor to engage in special engineering or technical studies on behalf of the Licensee, nor to provide any information that was not utilized by the Licensor. SECTION 3.1 FUTURE DELIVERY OF TECHNICAL INFORMATION. During the term of this Agreement, the Licensor shall have its management representatives meet from time to time, and whenever reasonably requested by the Licensee, with representatives of the Licensee to review the scope and content of any Technical Information of interest to the Licensee and to work out practical procedures for promptly disclosing any item of Technical Information to the Licensee. The Licensor shall, during the term of this Agreement, upon prior written request of the Licensee disclose to the Licensee's designated representatives, without unjustified delay, any Technical Information requested by them. 4 Such requests shall, in each case, be for specific items of such Technical Information. The obligation of the Licensor to answer such requests shall be limited: (a) to supplying drawings, training and operational manuals, specifications, bills of materials and photographs, but only to the extent that the Licensor shall have prepared such material for its own use or for the use of third parties, and (b) as to all Technical Information, to cause each such request to be fully and fairly answered to the best of the ability of the Licensor. Upon receipt of invoices from the Licensor, from time to time, the Licensee shall promptly reimburse the Licensor for any expenses, at the Licensor's normal internal costs, which the Licensor shall incur, including freight, shipping expenses and reproduction of documents, in information requested by the Licensee pursuant to this paragraph, but excluding personnel costs. SECTION 3.2 VISITS TO LICENSOR'S FACILITIES. The Licensor shall, during the term of this Agreement, upon prior written request of the Licensee, arrange for duly authorized representatives of the Licensee to visit factories, laboratories, or other facilities of the Licensor where the Licensor employs metal source boats to produce, and/or process, metal coated foils, films, and fabrics, and to inspect at such factories, laboratories, or other facilities, all such operations that utilize Technical Information. The Licensor shall not be obligated to arrange for visits to an extent that by reason of the number of visits, or the number of representatives, such visits shall interfere with the operation of any of the Licensor's facilities so visited. SECTION 3.3 LICENSOR'S TECHNICAL PERSONNEL. The Licensor shall, during the term of this Agreement, upon prior written request of the Licensee, make available to the Licensee, at offices, factories, laboratories, or other facilities of the Licensee in the United Sates of America, the services of personnel of the Licensor who are familiar with the manufacture of Licensed Products, for consultation and advice concerning the Licensee's operations relating to Licensed Products and the evaluation and/or purchase by the Licensee of any machines or devices offered by third parties which were used or have been considered in any advanced fashion by the Licensor in connection with the production of metal coated foils, films, and fabrics utilizing metal source boats, the Licensor shall not be required under this paragraph to provide more than 10 man days of such services in any calendar year. The Licensee shall pay the Licensor, in United States Dollars, or the currency in which the expense is incurred, or the salary paid, the amount of (a) the reasonable travel and subsistence expense incurred by any such Licensor employee in traveling from his place of regular employ to, visiting, and returning to his place of regular employ from the plants of the Licensee, and (b) the allowances for any such employee, on a per-diem basis, for the entire period such 5 employee is engaged away from his place of regular employ in providing services to the Licensee and in traveling to and returning from the Licensee's plant or plants, the total of such allowances not varying unreasonably from an estimate thereof provided by the Licensor prior to the rendering of such services. After the return of such employee, the Licensor will advise the Licensee of the actual amounts of items (a) and (b) above, and the Licensee shall pay such total within 30 days after receipt of the Licensor's invoice. The Licensee shall pay all salaries, travel and subsistence expenses of the Licensee's representatives in availing itself of the Licensor's facilities or assistance under any provision of this Article III. SECTION 3.4 LICENSOR'S APPLICATION PERSONNEL. The Licensor shall, during the term of this Agreement, upon prior written request of the Licensee, make available to the Licensee, at any of its plants, the services of one or more employees of the Licensor who are familiar with Technical Information for the following tasks: (a) consultation and advice concerning the Licensee's utilization of the Technical Information; and the Licensee's utilization of the Technical Information; and (b) the training of the Licensee's personnel, provided that the Licensor shall not furnish more than two qualified personnel at a time, no more than two weeks at a time, and no more than twice in any calendar year. The Licensee shall pay the Licensor, in United States Dollars, or the currency in which the expense is incurred, or the salary paid, the amount of (a) the reasonable travel and subsistence expense incurred by any such Licensor employee in traveling from his place of regular employ to, visiting, and returning to his place of regular employ from the plants of the Licensee, and (b) the allowances for any such employee, on a per-diem basis, for the entire period such employee is engaged away from his place of regular employ in providing services to the Licensee and in traveling to and returning from the Licensee's plant or plants, the total of such allowances not varying unreasonably from an estimate thereof provided by the Licensor prior to the rendering of such services. After the return of such employee, the Licensor will advise the Licensee of the actual amounts of items (a) and (b) above, and the Licensee shall pay such total within 30 days after receipt of the Licensor's invoice. The Licensee shall pay all salaries, travel and subsistence expenses of the Licensee's representatives in availing itself of the Licensor's facilities or assistance under any provision of this Article III. SECTION 3.5 COMPUTER SERVICES. Design and analytical computer services will be available for the Licensee's use but only at a Licensor facility under the control and supervision of Licensor personnel to help solve problems, the design and analytical computer programs themselves not being an item of Technical Information to be disclosed. Administrative, financial, process control and topography computer programs 6 (excluding all material relating to source software and source material which are specifically excluded) shall be disclosed to the Licensee, but any costs incurred by the Licensor in documentation and computer language conversions or modifications performed in order to transfer the program and place the program in a form usable by the Licensee, shall be paid for at an hourly rate which approximates the then current Latvian rate for such services by the Licensee within 45 days after receipt of an invoice for this work from the Licensor. SECTION 3.6 EXCLUSION OF CERTAIN THIRD PARTY INFORMATION. The Licensor shall not be required to furnish to the Licensee any information that the Licensor receives or has received from third parties which information the Licensor may not lawfully disclose, or the utilization of which requires the payment of royalties by the Licensor to third parties, except when such utilization is permissible with the payment of an appropriate royalty by the Licensee. Nor shall the Licensor be required to furnish to the Licensee any information that the Licensor develops for, or developed in cooperation with third parties, and which information may not be lawfully disclosed by the Licensor. Notwithstanding the above, the Licensor shall promptly disclose to Licensee any prior and subsequent discussions Licensor has with third parties regarding the licensing or sublicensing of the source boat patents which are the subject of this agreement. SECTION 3.7 INCLUSION OF DEFINED FUTURE INVENTIONS. If, during the term of this Agreement, the Licensor shall conceive, make or acquire any inventions relating to Licensed Products, or useful in their manufacture, processing, testing, inspecting or packaging, and shall file, or decide to file any patent application thereon, the Licensor shall, with reasonable promptness, advise the Licensee, in writing, concerning such invention. The Licensor further agrees to notify the Licensee in writing of any patent of any country of the world that the Licensor owns or acquires during the term of this Agreement, and that claims an invention relating to Licensed Products, or is useful in their manufacture, processing, testing, inspecting or packaging. The Licensor shall grant to the Licensee a royalty-free, exclusive, nontransferable right and license under any such patent or resulting patent. Such license shall be limited according to the terms set forth in section 2.1. Any license granted pursuant to this section 3.7 shall continue for the unexpired term of the patent licensed. SECTION 3.8 PERIODIC TECHNICAL REPORTS. From time to time during the term of this Agreement, the Licensor shall provide to the Licensee copies of technical reports and evaluations relating to the manufacture of Licensed Products which the Licensor, in its sole discretion, shall deem to be of interest to the Licensee. During any meeting of representatives of the Licensee and the Licensor, or in response to any subsequent written 7 request of the Licensee, the Licensor shall transmit to the Licensee any requested specific item of technical data at its disposal, relating to the manufacture of Licensed Products, including the design of machines and equipment employed in such manufacture. Subject to the Licensee's obligations under Article VII, the Licensor hereby grants to the Licensee an exclusive, unrestricted right and license to use such information transmitted to the Licensee in the manufacture, sale and use of metal source boats which are employed in the production of metal coated foils, films, and fabrics subject to the limitations of the license set forth in Article II. ARTICLE IV: LICENSE PAYMENTS SECTION 4.0 LUMP SUM PAYMENT. In consideration of the Licensor's furnishing the Technical Information and services to the Licensee as set forth in Article III and for the licenses granted to the Licensee under Article II and as may be granted pursuant to section 3.7, the Licensee shall pay to the Licensor an annual licensing fee of $50,000. For the year of 1994 this fee shall be payable at the rate of $10,000 per week for five weeks, the first payment of $10,000 being made upon the execution date of this Agreement with all subsequent annual payments of $50, 000 being paid in a lump-sum on each subsequent January 15, beginning on January 15, 1995, and continuing throughout the term of this Agreement. However, the entire License Fee will become immediately due and payable upon the Licensor's termination of this Agreement under Article IX. Such License Fees shall be paid in United States currency by money transfer to the following account of the Licensor: LTNIBANC A/S, Stannings Plads 1-3, Copenhagen, DK-1786 Copenhagen V, DENMARK for RIGA Bank Account No. 5005568953 in favor of A/P "SIDRABE" Account No. 07000311. SECTION 4.1 LATE PAYMENTS. If the Licensee shall fail or refuse to make any payment hereunder on or before the date on which such payment is due, the Licensee shall Pay to the Licensor, at the time such payment is actually made, an administrative fee equal to 3% of the amount of such payment for each month, or fraction of a month, that such payment is overdue. SECTION 4.2 NET OF DEFINED TAXES. No taxes or other charges imposed with respect to or based upon such payments by or under the authority of any government, treaty organization or subdivision of either, other than the United States or a subdivision thereof, shall be deducted from such payments to the Licensor, except income tax which is fully creditable by the Licensor against United States income tax under the foreign tax credit provisions of the Internal Revenue Code of the United States ("Creditable Income Tax"). The Licensee shall deduct Creditable Income Tax from payments made hereunder and withhold and pay it to the relevant tax authority, and shall provide to 8 the Licensor such receipts and documentation as the Licensor may reasonably request for the Licensor to receive full credit for such withheld payment. Except for the Creditable Income Tax, the Licensee shall reimburse the Licensor for any such taxes and charges that the Licensor may be required to pay in connection with this Agreement and/or that the Licensee is require--d by law to deduct from payments made hereunder. ARTICLE V: INFORMATION FROM THE LICENSEE SECTION 5.0 LICENSEE REPORTS AND DOCUMENTATION. To permit both parties to obtain the full benefit of a free exchange of pertinent technical information, the Licensee shall transmit to the Licensor, from time to time during the term of this Agreement, copies to the Licensee's technical reports and evaluations relating to the manufacture of Licensed Products which the Licensee, in its sole discretion, shall deem to be of interest to the Licensor. During any meeting of representatives of the Licensee and the Licensor, or in response to any subsequent written request of the Licensor, the Licensee shall transmit to the Licensor any requested specific item of technical data at its disposal, relating to the manufacture of Licensed Products, including the design of machines and equipment employed in such manufacture. Subject to the Licensor's obligations under section 5.2, the Licensee hereby grants to the Licensor a nonexclusive, unrestricted right and license to use such information transmitted to the Licensor in the manufacture, sale, and use of Licensed Products employed in the production of metal coated foils, films, and fabrics as incorporated in equipment sold by the Licensor. SECTION 5.1 LICENSEE'S FUTURE INVENTIONS. If, during the term of this Agreement, the Licensee shall conceive, make or acquire any inventions relating to Licensed Products which are useful in their manufacture, processing, testing, inspecting, or packaging, and shall file, or decide to file any patent application thereon, the Licensee shall, with reasonable promptness, advise the Licensor, in writing, concerning such invention. If such proposed patent application shall contain any information that is confidential under section 6.1, the Licensee shall obtain the Licensor's written approval before filing the application to disclose such confidential information. The Licensor will respond to the Licensee's request for approval with reasonable promptness and its approval shall not be unreasonably withheld. The Licensee shall further notify the Licensor in writing of any patent of any country of the world that the Licensee owns or acquires during the term of this Agreement, and that claims an invention relating to Licensed Products, or is useful in their manufacture, processing, testing, .inspecting or packaging. The Licensee shall grant to the Licensor a royalty-free, exclusive, nontransferable right and license under any such patent or 9 resulting patent, limited, however, to the use of processes, machines, and compositions, and to the making, using and selling of metal coated foils, films and fabrics utilizing metal source boats defined by such patent. Any license granted under this section 5.1 shall continue for the unexpired term of the patent licensed subject to the condition that this license shall be subject to termination. SECTION 5.2 LICENSOR'S DUTY OF CONFIDENCE. During the term of this Agreement, and for five (5) years thereafter, the Licensor agrees to take all reasonable care to keep confidential any and all information acquired in any manner from the Licensee, including such information disclosed under section 5.0, and all other information which might be exposed to the Licensor while on the premises of the Licensee, and shall not disclose it to third parties, provided that such information is in written or other tangible form and clearly marked or identified as being confidential at the time of disclosure or, if disclosed orally, such information shall be identified as confidential at the time of disclosure with subsequent confirmation to the Licensor in writing within 30 days after disclosure identifying the date and type of information disclosed. This obligation shall not apply to any information that: (a) is disclosed by, or readily ascertainable through ordinary disassembly, inspection, measurement and analysis of, products sold by the Licensee; (b) is publicly available at the time of disclosure; (c) is lawfully obtained by the Licensor from a third party who shall not have improperly derived such information, directly or indirectly, from the Licensee; (d) is lawfully in the possession of the Licensor, in any recorded form, before the time of disclosure and such recorded form is produced by the Licensor; (e) is disclosed by the Licensor with the permission of the Licensee on a nonconfidential basis; or (f) is developed by or on behalf of the Licensor by individuals who have not developed or received information under this Agreement. ARTICLE VI: INFORMATION FROM LICENSOR SECTION 6.0 LICENSEE'S RETENTION OF TECHNICAL INFORMATION IN CONFIDENCE. During the term of this Agreement and for five (S) years thereafter, (such period to begin from the signature of this Agreement) the Licensee shall take all reasonable care to keep confidential all Technical Information acquired in any manner from the Licensor and all other information which might be exposed to the Licensee while on the premises of the Licensor, and shall not disclose it to third parties, provided that such Technical Information and other information is in written or other tangible form and clearly marked or identified as being confidential at the time of disclosure or, if disclosed orally, such information shall be identified as confidential at the time of disclosure with subsequent confirmation to the Licensee in 10 writing within 30 days after disclosure identifying the date and type of information disclosed. SECTION 6.1 EXCEPTIONS TO CONFIDENTIALITY. The obligations set forth in section 6.0 shall not apply to any information that: (a) is disclosed by Licensed Products sold by the Licensor; (b) is publicly available at the time of disclosure; (c) is lawfully obtained by the Licensee from a third party who has not illegally derived such information, directly or indirectly, from the Licensor; (d) is lawfully in the possession of the Licensee, in any recorded form, before the time of disclosure and such recorded form is produced by the Licensee; (e) is disclosed by the Licensee with the permission of the Licensor on a nonconfidential basis; (f) is disclosed in a patent application filed by the Licensee with prior written approval from the Licensor pursuant to the provisions of section 5.1; or (g) is developed by or on behalf of the Licensee by individuals who have not developed or received information under this Agreement. ARTICLE VII: REPRESENTATIONS AND LIMITATIONS SECTION 7.0 NO KNOWLEDGE OF INFRINGEMENT. The Licensor represents that the technology for the production and use of metal source boats employed in the production of coating metal foils, films, and fabrics was developed internally at the Licensor or acquired by the Licensor, and was not misappropriated from another, and further represents that, to the best of its knowledge the Licensor's production and use of Licensed Products employed in the coating of metal foils, films, and fabrics does not now infringe patents owned by another. Except for such representations of origin and non-infringement as provided for in the immediately preceding sentence, the Licensor makes no warranty or representation that the Licensee's utilization of information received from the Licensor will not infringe patents owned by anyone other than the Licensor, nor any warranty or representation as to the validity or scope of any patent under which a license is granted. The obligations between the Parties shall in no way be affected, and no obligation shall be created, as a result of (a) an adjudication or determination of any court, administrative agency, tribunal or other governmental body that a claim of any Licensed Patent is invalid, or (b) a claim that the utilization of Technical Information might infringe the patent rights of others. The Licensee assumes all risks of liability to any third person by reason of infringement of patents owned by such third persons. SECTION 7.1 LICENSEE'S DISCLAIMER OF INFRINGEMENT REPRESENTATION. The Licensee makes no warranty or representation that the Licensor's utilization of information furnished, or patent license granted by the Licensee to the Licensor under this Agreement will not infringe patents owned by parties other than 11 the Licensee, nor any warranty or representation as to the validity or scope of any patent under which a license is granted. The obligations between the parties shall in no way be affected, and no obligation shall be created as a result of (a) an adjudication of determination of any court, administrative agency, tribunal or other governmental body that a claim of any licensed patent is invalid, or (b) a claim that the utilization of any information furnished to the Licensor by the Licensee might infringe the patent rights of others. The Licensor assumes all risks of liability to any third person by reason of infringement of patents owned by such third persons. SECTION 7.2 DISCLAIMER OF WARRANTIES. Nothing in this Agreement shall be construed as: (a) a warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents of third persons; or (b) a requirement that either party shall file any patent application, secure any patent, or maintain any patent in force; or (c) an obligation to bring or prosecute actions or suits against third parties for infringement of any patent; or (d) an obligation to furnish any Technical Information beyond that identified in Article III, or any information concerning pending patent applications; or (e) granting by implication, estoppel, or otherwise, any licenses or rights under patents other than the Licensed Patents. Except for those representations set forth in section 7.0, the Licensor does not make any representations, extend any warranties of any kind, either express or implied including but not limited to warranties of fitness for a particular purpose or of merchantability or otherwise, or assume any responsibilities whatever with respect to use, sale, or other disposition by the Licensee or its vendees or transferees of products incorporating or made by use of any information, including Technical Information, Licensed Trade Secrets and Licensed Patents, licensed under this Agreement. ARTICLE VIII: GOVERNMENTAL AUTHORIZATION SECTION 8.0 EXPORT AUTHORIZATION. This Agreement, and any Technical Information provided under it, may be subject to restrictions concerning the export of products or Technical Information from the Government of Latvia or any other competent authority. Accordingly, the Parties agree that they shall not export or re-export, directly or indirectly, any Technical Information acquired under this Agreement or any products utilizing any such Technical Information to any country for which the Government of Latvia or other competent authority at the time of export requires an export license or other approval, without first obtaining the written consent to do so from the Government of Latvia or other competent authority when required by a applicable statute or regulation. The Licensor shall provide to 12 the Licensee reasonable assistance for determining the need for, and the procuring of, such consent. SECTION 8.1 OTHER AUTHORIZATION. Promptly after the signature of this Agreement, the Licensor, at its own expense, shall procure any authorization required by the Government of Latvia and the jurisdictions in which the Licensor has a place of business and where activity and government approval may be needed for the entry into or performance of this Agreement. The Licensor shall furnish to the Licensee a copy of such approval promptly after receiving it, or shall deliver it to the Licensee along with this Agreement upon signing by the Licensor if such approval shall have been obtained before that time. If any such authorization is necessary is and shall not have been obtained within 90 days after the execution date, the negotiations for this Agreement shall be deemed unsuccessfully concluded unless a later date for obtaining such authorization shall be agreed to in writing by the Licensee. If no such authorization is required, the Licensor shall so advise the Licensee upon signing this Agreement, in which case this Agreement shall become effective as otherwise provided herein without regard to such authorization. Throughout the term of this Agreement, the Licensor shall comply with all the requirements imposed by such government as a condition of permitting full compliance with the provisions of this Agreement and the Licensor shall register and/or file the license before any governmental authority, if such filing or registering is necessary in order for this Agreement to be valid and binding upon the Licensor, and to permit payments to be remitted to the Licensee under the terms of this Agreement. ARTICLE IX: TERM AND TERMINATION SECTION 9.0 EFFECTIVENESS. Subject to the provisions of Article VIII, this Agreement shall become effective on the latter of the date on which the parties sign the Agreement or the date of approval by the Latvian government, and, unless terminated earlier in accordance with section 9.1, shall remain in effect for ten (10) years from the Effective Date of this Agreement. SECTION 9.1 DEFAULTS. During the continuance of any one of the following defaults, this Agreement may be terminated by serving notice of such termination as follows: (a) if either Party shall default in the performance observance of any of its obligations under Article VI and section 5.2, and such default shall not be cured within seven days after notice specifying such default has been served upon the defaulting party; or (b) if either Party shall default in the performance or observance of any of its obligations under this Agreement, 13 excluding obligations under Article VII and section 6.2, and such default shall continue for 90 days after notice specifying such default has been served upon the defaulting Party; or (c) if either Party shall discontinue business or become bankrupt or insolvent, or apply for or consent to the appointment of a trustee, receiver, or liquidator of its assets, or seek relief under any law for the aid of debtors, or take or permit any action under U.S. and/or Latvian laws similar to the foregoing. Such right to termination shall not be exclusive, and exercise by either Party shall not preclude the exercise by such Party of any other right or remedy that it may have by law against the defaulting Party on account of any default by the defaulting Party. SECTION 9.2 SURVIVAL. Except as expressly otherwise provided in this Agreement, its termination shall not relieve any party of any obligation or liability accrued hereunder prior to such termination, nor affect or impair the rights of any Party arising under this Agreement prior to such termination. Without limiting the foregoing Articles II, VI and VII and section 5.2 shall survive termination or expiration of this Agreement. ARTICLE X: GENERAL TERMS AND CONDITIONS SECTION 10.0 MARKS AND PUBLICITY. Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trade name, trademark, or other designation (including any contraction, abbreviation, or simulation of any of the foregoing). Without the express written approval of the other Party, no Party shall use any designation of the other Party in any promotional activity associated with this Agreement or the Licensed Product. Neither Party shall issue any press release or make any public statement in regard to this Agreement without the prior written approval of the other Party. SECTION 10.1 FORCE MAJEURE. Neither the Licensor nor the Licensee shall be held responsible for any delay or failure in the performance of this Agreement to the extent such delay or failure is caused by fire, flood, explosion, war, embargo, governmental action or failure to act, the act of any civil or military authority, acts of God, inability to secure transportation facilities, acts or omissions of carriers, power outages, or by any other causes beyond its control whether or not similar to the foregoing, provided that the hindered Party (a) notifies the other Party of such cause, (b) exercises reasonable effort to cure such delay or failure and resume performance, and (c) 14 excuses performance by the other Party during the period of such delay or failure. SECTION 10.2 NOTICES. All notices given under this Agreement shall be delivered by hand, by facsimile or registered mail, to the facsimile address below listed, or, if by mail, to the address below given to the attention of the Headquarters of the signing party or to any other address or to the attention of any other person which may be designated in the future by the party affected. Notice will be deemed given when received by the addressee's facsimile machine, the addressee's answerback code to constitute evidence, thereof or when mailed, properly addressed with sufficient postage affixed. Copies of all notices shall be given. 10.2.1 in the case of Licensor, to with a copy of ail notices, however sent, to: CEO SHELDAHL, Inc. 1150 Sheldahl Road Northfield, MN 55057 10.2.2 in the case of Licensee, to with a copy of all notices, however sent, to: President SIDRABE A/S 17 Krustpils Str. RIGA, LV-1073 Latvia SECTION 10.3 RIGHT TO CONTINUE WORK WITH THIRD PARTIES. Subject to the terms of this Agreement, each Party shall be free to engage in other work, alone or with others, and to furnish information to and receive information from others. SECTION 10.4 LIMITATION OF RIGHTS. Except as expressly provided in this Agreement, nothing contained herein shall be construed as conferring any license or other rights by implication, estoppel or otherwise, under any patent or patent applications, or any copyrights, trademarks, trade names or trade dress. SECTION 10.5 LIMITATION OF LIABILITY. Neither Party will be liable to the other for any indirect, special or consequential damages whatsoever, whether grounded in tort (including negligence) , strict liability or contract, and neither party's liability under any circumstances shall exceed the contract price hereunder. SECTION 10.6 INDEPENDENT CONTRACTOR. In the performance of this Agreement, the status of the parties, including its 15 employees and agents, shall be that of independent contractors and not as employees or agents, or fiduciaries of the other Party, and as such, neither Party shall have the right to make commitments for or on behalf of the other Party. SECTION 10.7 GENERAL INDEMNIFICATION. Each Party shall be responsible for (a) the safety of its own employees and agents while engaged in work under the Agreement, and (b) any liability for damages or personal injuries, including death, resulting from work under the Agreement, without any warranty, liability, or indemnification on the part of the other Party. SECTION 10.8 NO WAIVER. Failure at any time to require performance of any of the provisions herein shall not waive or diminish a Party's right thereafter to demand compliance therewith or with any other provision. Waiver of any default shall not waive any other default. A party shall not be deemed to have waived any rights hereunder unless such waiver is in writing and signed by a duly authorized officer of the party making such waiver. SECTION 10.9 SEVERABILITY. If one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable, the remaining provisions shall not in any way be affected or impaired thereby. In the event any provision is held, illegal or unenforceable, the parties shall use reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as is practical, implements purposes of the section held invalid, illegal and unenforceable. SECTION 10.10 ASSIGNMENT. This Agreement or any rights hereunder shall not be assigned or transferred, in whole or in part, by either party without the prior written consent of the other Party and any assignment without such consent shall be invalid. SECTION 10.11 APPLICABLE LAW. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of Minnesota, United States of America, and in accordance with the English language text in the form executed by the Parties. SECTION 10.12 INTERPRETATION; DISPUTES. In interpreting this Agreement the singular shall be read as the plural in each instance as sense shall require. Any dispute, controversy or claim arising out of or relating to this Agreement, or a breach thereof (except a dispute, controversy or claim involving United States antitrust or antimonopoly laws or the validity or alleged infringement of any patent) shall be finally settled by arbitration in accordance with the Rules of the American Arbitration Association. Any such arbitration shall be conducted in the English language by a sole neutral arbitrator. The 16 arbitration, including the rendering of the award, shall take place in Minneapolis, Minnesota if commenced by Licensor, and Riga, Latvia if commenced by Licensee. Any dispute arising hereunder shall be resolved promptly. The arbitrator shall interpret this Agreement in accordance with the governing substantive law and shall have the power of a court of law and equity, and by order such discovery prior to hearings as to him shall seem appropriate. He shall have the power to enter legal and equitable relief and to award, equally or otherwise, the costs of the arbitration. His award shall be final, binding and nonappealable. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction over the party adversely affected by the award. SECTION 10.13 AMENDMENTS. No addition to, deletion from or modification of any of the provisions of this Agreement shall be binding upon the Parties unless made in writing and signed by a duly authorized representative of each Party. SECTION 10.14 ENTIRE AGREEMENT. This Agreement and the attached Exhibit (s) constitute the entire agreement between the Parties with respect to its subject matter, and supersede all previous discussions, representations and understandings. EXECUTION In consideration of the foregoing terms and conditions, the Licensor and the Licensee have executed this Agreement as of the date first written above. /s/ Edgar Yadin 20 June 1994 - - ------------------------ ----------------------------- Edgar Yadin, Ph.D. Attest: President, SIDRABE /s/ Ross P. Miller 20 June 1994 - - ------------------------ ----------------------------- Ross P. Miller Attest: Vice President Europe, SHELDAHL 17 EXHIBIT I GENERAL DESCRIPTION OF TECHNOLOGY --------------------------------- SIDRABE has developed technology for the deposition of various metals on metal foils and onto films. This technology which employs innovative equipment developed by SIDRABE can be used in the production of copper laminates and foils. 18 EX-10.32 13 AMEND. ONE TO LICENSE AGREEMENT Exhibit 10.32 AMENDMENT ONE TO LICENSE AGREEMENT This is an Amendment to an Agreement (the "Agreement") made as of 20 June, 1994 between SIDRABE, a Latvian corporation, having a principal place of business at Riga, Latvia, (the "Licensor"), and SHELDAHL, INC., a Minnesota corporation, having a principal place of business at Northfield, Minnesota, (the "Licensee") and is entered into as of September 14, 1994 by Licensor and Licensee. 1. Article II of the Agreement is amended by adding the following sections: "SECTION 2.3 FURTHER LICENSE GRANT. The Licensor further hereby grants to Licensee a nontransferable, exclusive, perpetual license to use Licensor's technical information and other technology existing at the date hereof to put metals with a thickness of 0.1 microns to 5 microns on flexible polymeric substrates in order to produce and sell products, including without limitation the ability to put active and passive electronic components on thin substrates. "Metals" as used in this Section 2.3 include, without limitation, copper, aluminum, chrome and lithium, and composites of one or more metals. "Products" as used in this Section 2.3 include, without limitation, flexible composites of metals and films, flexible printed circuits, Multichip Modules, single and several chip packages, batteries and displays for use within the electrical interconnect industry. SECTION 2.4 FUTURE DEVELOPMENTS. If Licensor shall develop new technical information and technology of the kind described in Section 2.3 (as distinguished from modifications and improvements of such technical information and technology existing at the date hereof), Licensor will first offer the right to License such technical information and technology to Licensee for use in the production and sale of products within the electrical interconnect industry. If within 90 days after Licensor has notified Licensee in writing of the new development Licensee advises Licensor of Licensee's interest in the further license, the parties will negotiate in good faith to agree upon a commercially reasonable License Agreement covering the new technical information and technology. 1 SECTION 2.5 INTERCHANGE OF INFORMATION. To assure a continuous and free interchange of information concerning Licensor Improvements, Licensee Improvements and new technical information and technology developments, the parties hereby establish a Joint Technical Advisory Board made up of two technically trained and experienced employees from each party. The Joint Technical Advisory Board shall meet not less than two times each year. At those meetings the parties shall advise each other thoroughly regarding Licensor Improvements, Licensee Improvements and new technical information and technology improvements since the preceding meeting. Neither party shall be obligated to disclose information to the other party if (i) the information was provided by an independent third party subject to a nondisclosure or confidentiality agreement or (ii) restrictions on disclosure of the information exist by virtue of other agreements to which the party having the information is bound." 2. Section 4.0 of the Agreement is amended to read as follows: "SECTION 4.0 LUMP SUM PAYMENTS. In consideration of the Licensor's furnishing the Technical Information and services to the Licensee relating to the Licensed Products as set forth in Article III and for the licenses granted to the Licensee under Section 2.1 and as may be granted pursuant to Section 3.7, the Licensee shall pay to the Licensor an annual licensing fee of $50,000. For the year of 1994 this fee shall be payable at the rate of $10,000 per week for five weeks, the first payment of $10,000 being made upon the execution date of this Agreement with all subsequent annual payments of $50,000 being paid in a lump sum on each subsequent January 15, beginning on January 15, 1995, and continuing throughout the term of this Agreement. However, the entire License Fee will become immediately due and payable upon the Licensor's termination of this agreement under Article IX. In consideration of the Licensor's furnishing technical information and services to the Licensee relating to technical information and technology described in Section 2.3 and for the license granted to the Licensee under Section 2.3, the Licensee shall pay to Licensor the following licensing fees: $100,000 at the execution of this Amendment, receipt of which is acknowledged by Licensor; $50,000 on February 1, 1995; $50,000 on August 1, 1995; and 2 An amount equal to 3% of the sales by Sheldahl of materials manufactured by Licensee using Licensor's technology described in Section 2.3, up to a maximum of $10,000,000 of such sales (a maximum of $300,000 in additional licensing fees). Payment of such amount shall be made annually on or before March 1 for sales made during the preceding calendar year. That license fees provided in this Section 4.0 shall be paid in United States currency by money transfer to the following account of the Licensor: UNIBANC A/S, STAUNINGS PLADS 1-3, COPENHAGEN, DK-1786 COPENHAGEN V, DENMARK FOR RIGA BANK ACCOUNT NO. 5005568953 IN FAVOR OF A/P "SIDRABE" ACCOUNT NO. 0700311." 3. The rights, obligations, representations and commitments of the parties relating to the Technical Information and Licensed Products set forth in Articles III, V, VI, VII and VIII of the Agreement shall in all respects extend to and be applicable to the license granted in, and the technical information and technology described in, Section 2.3. 4. Except as set forth in this Amendment, the Agreement shall continue in full force and effect. EXECUTION --------- In consideration of the foregoing terms and conditions, Licensor and Licensee have executed this Amendment as of the date first written above. SIDRABE By /s/ Edgar Yadin --------------------------- Its President -------------------------- SHELDAHL, INC. By /s/ Ross P. Miller --------------------------- Its Vice President - Europe -------------------------- 3 EX-11 14 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 SHELDAHL, INC. AND SUBSIDIARY STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE FISCAL YEARS ENDED -------------------------------------- AUGUST 27, SEPTEMBER 2, SEPTEMBER 1, 1993 1994 1995 ---------- ------------ ------------ Primary Earnings Per Share Weighted average number of issued shares outstanding 4,787 5,155 6,692 Effect of exercise of stock options under the treasury stock method 163 263 233 ------ ------ ------ Weighted average shares outstanding used to compute primary earnings per share 4,950 5,418 6,925 ====== ====== ====== Net income $1,437 $2,816 $3,134 ====== ====== ====== Net income per share $0.29 $0.52 $0.45 ===== ===== ===== Fully Diluted Earnings Per Share Weighted average number of issued shares outstanding 4,787 5,155 6,692 Effect of exercise of stock options under the treasury stock method 197 278 279 ------ ------ ------ Weighted average shares outstanding used to compute fully diluted earnings per share 4,984 5,433 6,971 ====== ====== ====== Net income $1,437 $2,816 $3,134 ====== ====== ====== Net income per share $0.29 $0.52 $0.45 ===== ===== ===== EX-22 15 SUBSIDIARY OF REGISTRANT Exhibit 22 Subsidiary of Registrant ------------------------ Sheldahl International Sales, Inc., a corporation organized under the laws of the Virgin Islands (Wholly-owned subsidiary of Sheldahl, Inc.) EX-24 16 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-22154, 33-33703, 33-40729, 33-57888 and 33-58549. /s/ ARTHUR ANDERSEN LLP Minneapolis, Minnesota October 12, 1995 EX-27 17 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SHELDAHL, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS SEP-01-1995 SEP-01-1995 1045 0 17637 0 12509 32772 101326 41471 94186 16440 0 1708 0 0 0 94186 95216 0 74752 15255 0 0 875 4334 1200 3134 0 0 0 3134 .45 .45
-----END PRIVACY-ENHANCED MESSAGE-----