Document:

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                                                                     EXHIBIT 4.0

                            STOCK PURCHASE AGREEMENT

         This Stock Purchase Agreement (the "Agreement"), dated as of November
10, 2000, among Sheldahl, Inc., a Minnesota corporation (the "Company"), and the
individuals and entities listed on Exhibit A hereto (sometimes referred to
herein as a "Purchaser" and collectively as the "Purchasers").

         WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to acquire (i) shares of the Company's Series G Convertible
Preferred Stock, par value $1.00 per share (the "Series G Preferred"), and (ii)
shares of the Company's Common Stock, par value $.25 per share (the "Common
Stock").

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, the Company and the Purchasers agree as follows:

                                    ARTICLE I

                      PURCHASE AND SALE OF PREFERRED SHARES

         1.1 Purchase and Sale.

         (a) Subject to the terms and conditions set forth herein, at the
Closing (as defined below), the Company shall issue and sell to the Purchasers
and the Purchasers, severally and not jointly, shall purchase 11,303 shares of
Series G Preferred (the "Series G Preferred Shares").

         (b) The Series G Preferred Shares shall have the respective rights,
preferences and privileges set forth in the Certificate of Designation attached
hereto as Exhibit B (the "Certificate of Designation"), which shall be filed on
or prior to the Closing Date (as defined below) by the Company with the
Secretary of State of Minnesota.

         (c) Subject to the terms and conditions set forth herein, at the
Closing (as defined below), the Company shall issue and sell to the Purchasers
and the Purchasers, severally and not jointly, shall purchase 4,944,131 shares
of Common Stock (the "Common Shares").

         (d) The Series G Preferred Shares and the Common Shares are sometimes
collectively referred to herein as the "Shares." The Shares and the Underlying
Shares (as defined in Section 2.1(d)) are sometimes collectively referred to
herein as the "Securities."

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         1.2 Purchase Price.

         (a) The purchase price per Series G Preferred Share shall be $1,000.

         (b) The purchase price per Common Share shall be $2.770355.

         1.3 The Closing.

         (a) The Closing of the purchase and sale of the Shares (the "Closing")
shall take place at the offices of Lindquist & Vennum P.L.L.P., 4200 IDS Center,
80 South 8th Street, Minneapolis, Minnesota simultaneous with the closing of the
transactions contemplated by the Agreement and Plan of Merger dated as of the
date hereof among the Company, IFT West Acquisition Company, International Flex
Holdings, Inc. ("IFH") and its stockholders (the "Merger Agreement"). The date
of the Closing is hereinafter referred to as the "Closing Date."

         (b) At the Closing, the Company shall deliver (A) to each Purchaser, a
stock certificate registered in the name of such Purchaser for such number of
Series G Preferred Shares set forth opposite such Purchaser's name on Exhibit A;
(B) to each Purchaser, a stock certificate registered in the name of such
Purchaser for such number of Common Shares set forth opposite such Purchaser's
name on Exhibit A; and (C) all other documents, instruments and writings
required to have been delivered at or prior to the Closing by the Company to
Purchasers pursuant to this Agreement. At the Closing, each Purchaser shall
deliver to the Company the aggregate purchase price set forth opposite such
Purchaser's name on Exhibit A by wire transfer of same day funds to an account
designated by the Company in writing two business days before the Closing except
that Morgenthaler Venture Partners V, L.P. ("Morgenthaler") shall also deliver
to the Company that certain 8% Convertible Note dated August 15, 2000, as
amended (the "8% Note"), made by the Company payable to the order of
Morgenthaler Venture Partners V, L.P. and the cash portion of the purchase price
payable by Morgenthaler shall be reduced by an amount equal to the principal
amount of such 8% Note and accrued interest thereon through the Closing Date.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

         2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers, subject to those matters set forth in the letter dated the date
hereof from the Company to the Purchasers initialed by those parties (the
"Disclosure Letter"):

         (a) Organization. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Minnesota,
with the requisite corporate power

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and authority to own and use its properties and assets and to carry on its
business as currently conducted.

         (b) Authorization; Enforcement. Except as set forth on Part 2.1(b) of
the Disclosure Letter, the Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Agreement, the Certificate of Designation, the Registration Rights Agreement
(defined in Section 4.1(i)) and the Governance Agreement (defined in Section
4.1(j)) (together, the "Transaction Documents") and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized
by all necessary action on the part of the Company, other than approval required
under Rule 4460(i) of The Nasdaq Stock Market by the holders of shares of Common
Stock of the Company. This Agreement has been duly executed by the Company and,
when duly executed and delivered by the Purchasers, will constitute the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.

         (c) Capitalization. The authorized, issued and outstanding capital
stock of the Company as of October 24, 2000 is set forth in Part 2.1(c) of the
Disclosure Letter. Except as specifically disclosed in Part 2.1(c) of the
Disclosure Letter, no shares of the capital stock or other securities of the
Company are entitled to preemptive or similar rights, nor is any holder of
shares of the capital stock or other securities of the Company entitled to
preemptive or similar rights. Except as disclosed in Part 2.1(c) of the
Disclosure Letter, as of October 24, 2000, there are no outstanding options,
warrants or commitments of any character whatsoever relating to, or, except as a
result of the purchase and sale of the Shares hereunder, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock of the Company, or
contracts, commitments, understandings, or arrangements by which the Company is
bound to issue additional shares of the Company's Common Stock, or securities or
rights convertible or exchangeable into shares of the Company's Common Stock, or
any shares of the Company's Common Stock reserved for issuance. Except as
disclosed in Part 2.1(c) of the Disclosure Letter, (i) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof, (ii) the Company has no
obligation to provide funds (other than normal accounts or notes payable) to or
make any investment in (in the form of a loan, capital contribution or
otherwise) an entity other than its subsidiaries, (iii) there are no
restrictions on the transfer of the Company's capital stock other than those
arising from securities laws or contemplated by this Agreement or the other
Transaction Documents, and (iv) the issue and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
person

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other than the Purchasers and will not result in a right of any holder of
Company's securities to adjust the exercise or conversion or reset price under
such securities.

         (d) Issuance of Shares. The Series G Preferred Shares are duly
authorized and, when issued in accordance with the terms hereof and the
Certificate of Designation, shall be validly issued, fully paid and
non-assessable. The Common Shares are duly authorized and, when issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable. As of the Closing Date, the Company will have and, at all times
while any Series G Preferred Shares are outstanding will maintain, an adequate
reserve of duly authorized shares of its Common Stock to enable it to perform
its obligations under this Agreement and the Certificate of Designation with
respect to the number of Series G Preferred Shares issued and outstanding at the
Closing Date. The shares of Common Stock issuable upon conversion of the Series
G Preferred Shares and which may be issued as payment of dividends on the Series
G Preferred Shares are collectively referred to herein as the "Underlying
Shares." When issued in accordance with the terms hereof and the Certificate of
Designation, the Underlying Shares will be duly authorized, validly issued,
fully paid and non-assessable, free and clear of all liens, claims, encumbrances
or defects of any kind (collectively, "Liens"), except as set forth in any
required legends thereon, including those required under the Governance
Agreement.

         (e) No Conflicts. Except as set forth on Part 2.1(e) of the Disclosure
Letter, the execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of its
Articles of Incorporation or Bylaws; (ii) subject to obtaining the consents
referred to in Section 2.1(f), conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party; or (iii) subject to obtaining the Required Approvals (as defined
herein), result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (other than a violation of any federal and state
securities laws requiring filings with such authorities and the delivery of
certain information pursuant to Rule 502(b)(1) promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), and applicable state securities
laws, to the Purchasers who are deemed not to be accredited investors as a
result of a failure of the representations and warranties of the Purchasers set
forth in Section 2.2(c) to be accurate), or by which any property or asset of
the Company is bound or affected, except in the case of each of clauses (ii) and
(iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not reasonably be expected to,
individually or in the aggregate, have or result in a material adverse effect on
the results of operations, assets or financial condition of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect").

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         (f) Consents and Approvals. Except as specifically set forth in Part
2.1(f) of the Disclosure Letter, and assuming that the representations and
warranties of the Purchasers contained in Section 2.2 are true and correct in
all material respects, the Company is not required to obtain any consent,
waiver, authorization or order of, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, except for (i) the filings of the Certificate of
Designation with respect to the Series G Preferred Shares with the Secretary of
State of Minnesota; (ii) the filing of the Registration Statement(s) (as defined
in the Registration Rights Agreement) with the Securities and Exchange
Commission (the "Commission"); (iii) the application(s) or any letter(s)
acceptable to and approved by the National Association of Securities Dealers,
Inc. ("NASD") for the designation of the Common Shares and the Underlying Shares
for trading on the Nasdaq National Market (and with any other national
securities exchange or market on which the Common Stock is then listed); (iv)
any filings, notices, registrations or approvals under applicable federal or
state securities laws and any filing or approval that may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (v) the filing of such required proxy materials with the Commission to
obtain approval of the Company's shareholders of the transactions contemplated
by this Agreement, clearance from the Commission to mail such proxy materials to
the Company's shareholders and the receipt of such shareholder approval or the
filing with the Nasdaq Stock Market for an exemption from the requirement of
obtaining such approval of the Company's shareholders and the receipt of such
exemption; and (vi) other than, in all other cases, where the failure to obtain
such consent, waiver, authorization or order, or to give or make such notice or
filing, (x) would not materially impair or delay the ability of the Company to
effect the Closing and to deliver to the Purchasers the Shares (and, upon
conversion of the Series G Preferred Shares, the Underlying Shares) in the
manner contemplated hereby and by the Registration Rights Agreement or (y) would
not otherwise have a Material Adverse Effect on the Company (together with the
consents, waivers, authorizations, orders, notices and filings referred to in
Part 2.1(f), the "Required Approvals").

         (g) Litigation; Proceedings. Except as set forth in Part 2.1(g) of the
Disclosure Letter, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its properties before or by any court,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which could reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect.

         (h) No Default or Violation. Except as set forth in Part 2.1(h) of the
Disclosure Letter, neither the Company nor any subsidiary (i) is in default
under or in violation of any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, including, without limitation, the Limited Liability
Company Agreement of Modular Interconnect Systems, L.L.C., dated as of July 28,
1998, between Molex Incorporated and the Company (the "Molex Joint Venture
Agreement"); or (ii) is in violation of any order of any court, arbitrator or
governmental body, except as could not

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reasonably be expected to, in any such case (individually or in the aggregate)
have or result in a Material Adverse Effect.

         (i) SEC Documents. Except as set forth in Part 2.1(i) of the Disclosure
Letter, the Company has filed all reports required to be filed by it under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including,
pursuant to Section 13(a) or 15(d) thereof, for the three years preceding the
date hereof (the foregoing materials being collectively referred to herein as
the "SEC Documents"), on a timely basis, or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. Except as set forth in Part 2.1(i) of the Disclosure
Letter, as of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder. The
financial statements of the Company included in the SEC Documents comply in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved, except as
may be otherwise indicated in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal year-end audit adjustments. Since the date of the financial statements
included in the Company's last filed Quarterly Report on Form 10-Q for the
quarter ended May 28, 2000, except as has been specifically disclosed in writing
to the Purchasers by the Company or in the Merger Agreement or the Disclosure
Letters referenced herein or therein, (i) there has been no event, occurrence or
development that has had a Material Adverse Effect (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements pursuant to United States generally accepted accounting principles
("GAAP") or otherwise required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting or the
identity of its auditors and (iv) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option and stock purchase plans) with respect to its capital stock, or purchased
or redeemed (or made any agreements to purchase or redeem) or split, combined,
subdivided or reclassified any shares of its capital stock.

         (j) Certain Fees. Except as set forth in Part 2.1(j) of the Disclosure
Letter, no fees or commissions will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment banker,
bank or other person with respect to the transactions contemplated by this
Agreement and the other Transaction Documents. The Purchasers shall have no
obligation with respect to any fees incurred by the Company or any other person
(other than the Purchasers, if the Purchasers have agreed in writing to pay such
fees) or with respect to any claims made by or on behalf of other persons for
fees of a type contemplated in this Section 2.1(j)

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that may be due in connection with the transactions contemplated by this
Agreement and the other Transaction Documents.

         (k) Listing and Maintenance Requirements. Except as set forth in Part
2.1(k) of the Disclosure Letter, the Company has not, in the two years preceding
the date hereof received notice (written or oral) from the Nasdaq National
Market, any stock exchange, market or trading facility on which the Common Stock
is or has been listed (or on which it has been quoted) to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such exchange, market or trading facility. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

         (l) Registration Rights. Except as set forth in Part 2.1(l) of the
Disclosure Letter, the Company has not granted or agreed to grant to any person
any rights to have any securities of the Company registered with the Commission
or any other governmental authority which have not been satisfied.

         (m) Labor Relations. No labor problem with respect to any of the
employees of the Company exists or, to the knowledge of the Company, is imminent
that is likely to have or result in a Material Adverse Effect.

         (n) Rights Agreement. Assuming the accuracy of the representations in
Section 2.2(h) and Section 2.2(l), the Company has taken all action which may be
required under the Rights Agreement, so that neither the consummation of the
transactions contemplated by the Transaction Documents and the Merger Agreement
nor the acquisition of (i) shares of Common Stock and the Series G Preferred
Shares pursuant to this Agreement, (ii) shares of Common Stock upon conversion
of the Series G Preferred Shares and as dividends on the Series G Preferred
Shares, (iii) shares of Common Stock pursuant to the Merger Agreement, (iv)
warrants pursuant to the Subordinated Notes Purchase Agreement (the "Warrants"),
and/or (v) shares of Common Stock upon exercise of the Warrants, in all cases as
adjusted for stock splits, dividends, recapitalizations and the like and any
other events requiring adjustment under the anti-dilution provisions of
applicable governing instruments, alone shall cause (x) any Purchaser, or any of
its "Affiliates" or "Associates" (as such terms are defined in Rule 12b-2 under
the Exchange Act), to be deemed an "Acquiring Person" under the Rights Agreement
dated June 16, 1996, as amended, by and between the Company and Norwest Bank
Minnesota, N.A. now known as Wells Fargo Bank, N.A., as the same may be amended
or modified from time to time (the "Rights Agreement") or (y) a "Distribution
Date", a "Stock Acquisition Date" or "Acquisition Event" (as such terms are
defined in the Rights Agreement) to occur.

         (o) Board Approval. Assuming the accuracy of the representations in
Section 2.2(h) and Section 2.2(l), the consummation of the transactions
contemplated by the Transaction Documents and the Merger Agreement and the
acquisition of (i) shares of Common Stock and the Series G Preferred Shares
pursuant to this Agreement, (ii) shares of Common Stock upon

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conversion of the Series G Preferred Shares and as dividends on the Series G
Preferred Shares, (iii) shares of Common Stock pursuant to the Merger Agreement,
(iv) Warrants pursuant to the Subordinated Notes Purchase Agreement, and (v)
shares of Common Stock upon exercise of the Warrants, in all cases as adjusted
for stock splits, dividends, recapitalizations and the like and any other events
requiring adjustment under the anti-dilution provisions of applicable governing
instruments, have been approved by a committee of the Board of Directors of the
Company, as required in Section 302A.673, subd. 1(d) of the Minnesota Business
Corporation Act (the "MBCA").

         (p) Confidentiality and Inventions Agreements. Except as set forth in
Part 2.1(p) of the Disclosure Letter, every current employee of, and consultant
to, the Company that has access to Intellectual Property (as defined in Section
2.15(d) of the Merger Agreement) has executed and delivered one of the
confidentiality and inventions agreements ("Confidentiality and Inventions
Agreements") in substantially the form attached to Part 2.1(p) of the Disclosure
Letter. All of such agreements are in full force and effect.

         (q) Disclosure. All disclosure provided to the Purchasers regarding the
Company, its business and the transactions as provided in the Transaction
Documents, including the Disclosure Letter, furnished by or on behalf of the
Company are true and correct in all material respects and do not contain any
untrue statement of a material fact or, to the best of the knowledge of the
Company, omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.

         2.2 Representations and Warranties of the Purchasers. Each Purchaser,
severally and not jointly, hereby represents and warrants to the Company as
follows:

         (a) Organization; Authority. Such Purchaser is duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization or an individual, in each case, with the requisite
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents to which it is a party and otherwise
to carry out its obligations hereunder and thereunder. The execution and
delivery of this Agreement by such Purchaser, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by all necessary
action on the part of such Purchaser. This Agreement has been duly executed and
delivered by such Purchaser and constitutes the valid and legally binding
obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.

         (b) Investment Intent. Such Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to such Purchaser's

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right, subject to the provisions of this Agreement and the other Transaction
Documents, at all times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration.

         (c) Purchaser Status. At the time such Purchaser was offered the Shares
it was, and at the date hereof it is, and at the Closing Date it will be, an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (4) under the
Securities Act.

         (d) Experience of Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment to its satisfaction.

         (e) Ability of Purchaser to Bear Risk of Investment. On the Closing
Date, such Purchaser is able to bear the economic risk of an investment in the
Securities and is able to afford a complete loss of such investment.

         (f) Access to Information. Each Purchaser acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities, and the merits and risks
of investing in the Securities; (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to its
investment.

         (g) Reliance. Each Purchaser understands and acknowledges that (i) the
Securities are being offered and sold to the Purchaser without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder; and (ii) the availability
of such exemption depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and such Purchaser
hereby consents to such reliance.

         (h) No Affiliation. No Purchaser is an "Affiliate" or "Associate" (as
such terms are defined in Rule 12b-2 under the Exchange Act) of any other
Purchaser or is acting in concert with any other Purchaser, except (i) that
Ampersand IV Limited Partnership and Ampersand IV Companion Fund Limited
Partnership may be deemed to be Affiliates or Associates of one another, (ii) to
the extent that a member or partner of a Purchaser or a member of a partner of a

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Purchaser is a member or partner of another Purchaser or a member or partner of
a member or partner of another Purchaser, (iii) by virtue of the existence of
the Governance Agreement and/or the Voting Agreement among Ampersand IV Limited
Partnership, Ampersand IV Companion Fund Limited Partnership, Morgenthaler and
Sound Beach Technology Partners, LLC relating to voting of the shares of Common
Stock in an election of directors to the Company's board of directors (the
"Voting Agreement"), and (iv) as otherwise provided in any Transaction Document.
No Purchaser beneficially owns (as determined pursuant to Rule 13d-3 under the
Exchange Act) any Securities of any other Purchaser, except (i) Ampersand IV
Limited Partnership and Ampersand IV Companion Fund Limited Partnership may be
deemed to beneficially own the Securities of one another, (ii) to the extent
that a member or partner of a Purchaser or a member of a partner of a Purchaser
is a member or partner of another Purchaser or a member or partner of a member
or partner of another Purchaser, (iii) by virtue of the existence of the
Governance Agreement and/or the Voting Agreement, and (iv) as otherwise provided
in any Transaction Document. No Purchaser is an "interested shareholder" of the
Company or an "affiliate" or "associate" thereof, as such terms are defined in
Section 302A.011 of the MBCA resulting from any share purchase, contract,
arrangement or understanding, other than this Agreement, the Merger Agreement,
the Governance Agreement, the Voting Agreement or any acquisition of shares
approved by a committee of the board of directors of the Company as required in
Section 302A.673, subdivision 1(d) of the MBCA.

         (i) No Conflicts. The execution, delivery and performance of the
Transaction Documents by such Purchaser and the consummation by such Purchaser
of the transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of its certificate or articles of incorporation,
bylaws, partnership agreement or other governing instrument, as applicable (each
as amended through the date hereof), or (ii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which such Purchaser is subject
(including foreign, federal and state securities laws and regulations).

         (j) Consents and Approvals. Except for any required Schedule 13D or 13G
and Form 3 and 4 filings, and except for any required filing under the HSR Act,
such Purchaser is not required to obtain any consent, waiver, authorization or
order of, or make any filing or registration with, any court or other foreign,
federal, state, local or other governmental authority or other person in
connection with the execution, delivery and performance by such Purchaser of the
Transaction Documents.

         (k) Litigation; Proceedings. There is no action, suit, notice of
violation, proceeding or investigation pending, or to the knowledge of such
Purchaser, threatened against or affecting such Purchaser before or by any
court, governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) which would adversely affect the legality,
validity or enforceability of any of the Transaction Documents in any respect or
adversely impair such Purchaser's ability to perform fully on a timely basis its
obligations under the Transaction Documents.

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         (l) Beneficial Ownership of Sheldahl Stock. At and after the Closing,
except as provided on Exhibit A and except by virtue of the existence of the
Governance Agreement and/or the Voting Agreement, no Purchaser shall be a
Beneficial Owner of fifteen percent (15%) or more of outstanding shares of the
Company's Common Stock. For purposes of this Section 2.2(l), "Beneficial Owner"
shall have the meaning set forth in Section 1(d) of the Rights Agreement. Each
Purchaser has been provided, upon its request, with a copy of such definition
and has had an opportunity to review it with such Purchaser's legal counsel.

         (m) Residency. Each Purchaser is a resident of or has a principal place
of business in the state set forth opposite its name on Exhibit A attached
hereto.

         2.3 Additional Representations and Warranties. The representations and
warranties of the Company and IFT West Acquisition Company (the "Merger Sub")
set forth in Article IV of the Merger Agreement are incorporated herein by
reference as though fully set forth herein and each of the Company and the
Merger Sub hereby enters into, makes and repeats such representations and
warranties in their entirety to the Purchasers. The representations and
warranties of IFH set forth in Article II of the Merger Agreement are
incorporated herein by reference as though fully set forth herein and IFH hereby
enters into, makes and repeats such representations and warranties in their
entirety to the Purchasers. The representations and warranties of the
stockholders of IFH (the "IFH Stockholders") set forth in Article III of the
Merger Agreement are incorporated herein by reference as though fully set forth
herein and each of the IFH Stockholders hereby enters into, makes and repeats
such representations and warranties in their entirety to the Purchasers.

                                   ARTICLE III

                         OTHER AGREEMENTS OF THE PARTIES

         3.1 Transfer Restrictions.

         (a) If any Purchaser should decide to dispose of any of the Securities
held by it, such Purchaser understands and agrees that it may do so only
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from the registration requirements
of the Securities Act. In connection with any transfer of any Securities other
than pursuant to an effective registration statement or to the Company or to an
Affiliate of such Purchaser or pursuant to Rule 144 under the Securities Act
("Rule 144"), the Company may require the transferor thereof to provide to the
Company a written opinion of counsel experienced in the area of United States
securities laws selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act.

                                       11
<PAGE>   12

         (b) Each Purchaser agrees to the imprinting of the following legends on
the Series G Preferred Shares:

                  (i)      NEITHER THESE SECURITIES NOR THE SECURITIES INTO
                           WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
                           REGISTERED WITH THE SECURITIES AND EXCHANGE
                           COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
                           IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
                           THE SECURITIES ACT OF 1933, AS AMENDED (THE
                           "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
                           OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
                           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
                           PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
                           TRANSACTION NOT SUBJECT TO, THE REGISTRATION
                           REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
                           WITH APPLICABLE STATE SECURITIES LAWS.

                  (ii)     SHELDAHL, INC. WILL FURNISH WITHOUT CHARGE TO EACH
                           SHAREHOLDER WHO SO REQUESTS A STATEMENT OF THE
                           POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
                           PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF
                           THE CLASS OF STOCK OR SERIES THEREOF TO WHICH THE
                           SHARES REPRESENTED BY THIS CERTIFICATE ARE A PART AND
                           THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
                           SUCH PREFERENCES AND/OR RIGHTS.

                  (iii)    THE SHARES OF COMMON STOCK OF SHELDAHL, INC. INTO
                           WHICH THE SECURITIES REPRESENTED BY THIS CERTIFICATE
                           ARE CONVERTIBLE ENTITLE THE HOLDER THEREOF TO CERTAIN
                           RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT BETWEEN
                           SHELDAHL, INC. AND NORWEST BANK MINNESOTA, N.A., NOW
                           KNOWN AS WELLS FARGO BANK, N.A., DATED AS OF JUNE 16,
                           1996 AND AMENDED ON JULY 25, 1998 AND NOVEMBER 10,
                           2000 (THE "RIGHTS AGREEMENT"), A COPY OF WHICH IS ON
                           FILE AT THE PRINCIPAL OFFICES OF SHELDAHL, INC. UNDER
                           CERTAIN CIRCUMSTANCES, SUCH RIGHTS ISSUED TO OR HELD
                           BY AN ACQUIRING PERSON, OR AFFILIATE OR ASSOCIATE
                           THEREOF (AS DEFINED IN THE RIGHTS AGREEMENT), AND ANY
                           SUBSEQUENT HOLDER OF SUCH RIGHTS, MAY BECOME NULL AND
                           VOID.

                                       12
<PAGE>   13

         (c) Each Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(c), of the following legends on the Common Shares and the
Underlying Shares:

                  (i)      THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
                           SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
                           COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
                           FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
                           AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
                           MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
                           EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
                           ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
                           A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
                           REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
                           WITH APPLICABLE STATE SECURITIES LAWS.

                  (ii)     SHELDAHL, INC. WILL FURNISH TO ANY SHAREHOLDER UPON
                           REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE
                           DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE
                           RIGHTS OF THE SHARES OF EACH CLASS OR SERIES OF
                           CAPITAL STOCK AUTHORIZED TO BE ISSUED, SO FAR AS THEY
                           HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD
                           TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF
                           THE SUBSEQUENT CLASSES OR SERIES.

                  (iii)    THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE
                           HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE
                           RIGHTS AGREEMENT BETWEEN SHELDAHL, INC. AND NORWEST
                           BANK MINNESOTA, N.A., NOW KNOWN AS WELLS FARGO BANK,
                           N.A., DATED AS OF JUNE 16, 1996 AND AMENDED ON JULY
                           25, 1998 AND NOVEMBER 10, 2000, (THE "RIGHTS
                           AGREEMENT"), THE TERMS OF WHICH ARE HEREBY
                           INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH
                           IS ON FILE AT THE PRINCIPAL OFFICES OF SHELDAHL, INC.
                           UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
                           RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY
                           SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED
                           BY THIS CERTIFICATE. SHELDAHL, INC. WILL MAIL TO THE
                           HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS
                           AGREEMENT WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A
                           WRITTEN REQUEST THEREFOR. UNDER CERTAIN
                           CIRCUMSTANCES, RIGHTS ISSUED TO, OR HELD BY, AN
                           ACQUIRING PERSON, OR AN AFFILIATE OR ASSOCIATE

                                       13
<PAGE>   14

                           THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
                           AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS
                           MAY BECOME NULL AND VOID.

         The Common Shares and the Underlying Shares issuable upon conversion of
the Series G Preferred Shares shall not contain the legend set forth in (i)
above (or any other legend other than the legends set forth in (ii) or (iii)
above or those required to be contained by the Governance Agreement) if (x) such
Shares have been registered under an effective registration statement under the
Securities Act filed pursuant to the Registration Rights Agreement, (y) such
Shares have been sold pursuant to Rule 144, or (z) in the written opinion of
counsel to the Company experienced in the area of United States securities laws
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretation and pronouncements issued by the staff of the
Commission). The Company makes no representation, warranty or agreement as to
the availability of any exemption from registration under the Securities Act
with respect to any resale of any Securities.

         3.2 Use Of Proceeds. The Company shall use the Net Proceeds from the
placement of the Shares to enhance the Company's capital structure, provide
capital liquidity and repay debt.

         3.3 Commercially Reasonable Efforts. Subject to the terms and
conditions herein provided and to applicable legal requirements, each of the
parties hereto agrees to use its commercially reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, and assist and
cooperate with the other parties hereto in doing, as promptly as practicable,
all things necessary, proper or advisable under applicable laws and regulations
to ensure that the conditions set forth in Article IV are satisfied.

         3.4 Consents. Each of the parties will use its commercially reasonable
efforts to obtain as promptly as practicable all Required Approvals, including
filing as soon as practicable notifications under the HSR Act and responding as
promptly as practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation.

         3.5 Conduct; No publicity; Confidentiality. While this Agreement is in
effect, the Company will conduct its business in the usual and ordinary course
and in a manner generally consistent with past practice. The mutual press
release with respect to the execution of this Agreement and the other
Transaction Documents shall be a joint press release acceptable to the Company
and the Purchasers. Thereafter, so long as this Agreement is in effect, neither
Company, on the one hand, nor the Purchasers, on the other, shall issue any
press release or otherwise make any public statements inconsistent with the
press release or the terms of the transactions contemplated by this Agreement or
by the other Transaction Documents with respect to the transactions contemplated
hereby or thereby without prior consultation with the other party and after
using reasonable efforts to agree upon the text of any press release, except as
may be required by law (it being understood and agreed that the Company intends
to file a Current Report on Form 8-K with respect to the transaction
contemplated hereby and by the other Transaction Documents promptly after the
date hereof). The Company shall provide the Purchasers with a copy of its Form
8-K prior to filing the same with the SEC and the ability to comment on the
same.

                                       14
<PAGE>   15

         3.6 Liability of the Company Upon Certain Events.

         (a) Termination Fee. In the event that any of the events triggering the
payment of a termination fee under Section 7.3 of the Merger Agreement as
constituted on the date hereof shall occur, then the Company shall, on the date
of such event, pay to each Purchaser an amount that is equal to the product of
$1,456,753 multiplied by such Purchaser's Pro Rata Share (as hereinafter defined
in this Section 3.6) by wire transfer of same day funds to an account designated
by such Purchaser. For purposes of this Agreement, any Purchaser's "Pro Rata
Share" shall mean a fraction the numerator of which shall be the number of
Shares subscribed for by such Purchaser pursuant to the terms hereto and the
denominator of which shall be the total number of Shares issued, or to be
issued, by the Company pursuant to the terms hereto.

         (b) Expenses. In the event that (i) any of the events triggering the
payment of expenses under Section 7.4 of the Merger Agreement as constituted on
the date hereof shall occur, or (ii) this Agreement shall have been terminated
pursuant to Section 5.1(e), then the Company shall, on the earliest to occur of
such events described in clauses (i) and (ii) of this Section 3.6(b), pay to the
Purchasers and IFH the aggregate amount specified in Section 7.4 of the Merger
Agreement which amount shall be allocated as agreed among the Purchasers and IFH
and shall be payable by wire transfer of same day funds to an account designated
by each such party receiving payment pursuant to this Section 3.6(b).

         3.7 Intentionally Omitted

         3.8 Amendment to Bylaws. The Company shall use its reasonable best
efforts to cause its stockholders to amend the Company's Bylaws as soon as
reasonably practical after the Closing Date so that the board of directors of
the Company shall consist of seven (7) directors.

                                   ARTICLE IV

                                   CONDITIONS

         4.1 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation of each Purchaser hereunder to acquire and
pay for the Shares is subject to the satisfaction or waiver by such Purchaser,
at or before the Closing, of each of the following conditions:

         (a) Accuracy of Representations and Warranties. The representations and
warranties of the Company and the Merger Sub contained or incorporated herein
shall be true and correct, in all material respects, as of the date hereof and
at and as of the Closing Date with the same effect as if made at and as of the
Closing Date (except to the extent such representations specifically relate to
an earlier date in which case such representations shall be true and correct as
of such earlier date) and, at the Closing, the Company and the Merger Sub shall
have delivered to the Purchasers a certificate to that effect, executed by an
executive officer of the Company and the Merger Sub.

                                       15
<PAGE>   16

         (b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants and
agreements required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.

         (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

         (d) No Material Adverse Change. There shall not have occurred since
June 1, 2000 any change, circumstance or event (whether or not known by the
Purchasers or disclosed in the Disclosure Letter) that has had or may reasonably
be expected to have (i) a material adverse effect on the business, financial
condition, assets, results of operations or prospects of the Company, and its
subsidiaries, and IFH, taken as a whole, (ii) a material adverse effect on the
business, financial condition, assets, results of operations or prospects of the
Company's MicroProducts business taken alone, or (iii) prevent or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement and the other Transaction Documents.

         (e) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on the Nasdaq
National Market (except for any suspension of trading of limited duration solely
to permit dissemination of material information regarding the Company or any
suspension of trading of securities generally).

         (f) Legal Opinion. The Company shall have delivered to such Purchaser a
legal opinion of Lindquist & Vennum, P.L.L.P., dated the Closing Date,
substantially in the form of Exhibit C attached hereto, with only such changes
therein from such form as are required to reflect changes in facts and
circumstances in matters dealt with in any of the representations and warranties
of the Company set forth in Section 2.1 hereof or incorporated herein by Section
2.3 hereof.

         (g) Required Approvals.

                  (i)      The Company shall have obtained the consent or
approval of each person listed on Part 2.1(f) of the Disclosure Letter;

                  (ii)     All other Required Approvals shall have been obtained
by the Company; and

                                       16
<PAGE>   17

                  (iii) Any other governmental or regulatory notices, approvals
or other requirements necessary to consummate the transactions contemplated
hereby and to operate the Company's business after the Closing Date in all
material respects as it was operated prior thereto and as it is presently
contemplated to be conducted in the future shall have been given, obtained or
complied with, as applicable.

         (h) Delivery of Stock Certificates. The Company shall have delivered to
such Purchaser or such Purchaser's designee the stock certificates representing
the Series G Preferred Shares and the Common Shares being purchased at the
Closing to be received by such Purchaser, registered in the name of such
Purchaser, each in form satisfactory to such Purchaser.

         (i) Registration Rights Agreement. Such Purchaser shall have received
an executed Registration Rights Agreement, dated as of the date hereof, in the
form of Exhibit D (the "Registration Rights Agreement") from the Company.

         (j) Governance Agreement. Such Purchaser shall have received an
executed Governance Agreement, dated as of the date hereof, in the form of
Exhibit E (the "Governance Agreement") from the Company.

         (k) Subordinated Notes Purchase Agreement. All of the conditions to the
obligations of the purchasers under the Subordinated Notes and Warrant Purchase
Agreement among the Company and the purchasers listed on Schedule I thereto
dated as of the date hereof (the "Subordinated Notes Purchase Agreement"), other
than the conditions related to this Agreement, shall have been satisfied or
waived by the parties thereto at or before the Closing.

         (l) Merger. All of the conditions to the Company's, the Merger Sub's
and IFH's obligations under the Merger Agreement (other than the conditions
related to this Agreement) shall have been satisfied or waived by the parties
thereto at or before the Closing and the merger of the Merger Sub into IFH shall
have become effective in accordance with the terms of the Merger Agreement.

         (m) Amendment to Rights Agreement. In reliance upon the accuracy of the
representations in Section 2.2(h) and Section 2.2(l), the Company shall have
amended the Rights Agreement so that neither the consummation of the
transactions contemplated by the Transaction Documents and the Merger Agreement
nor the acquisition of (i) shares of Common Stock and the Series G Preferred
Shares pursuant to this Agreement, (ii) shares of Common Stock upon conversion
of the Series G Preferred Shares and as dividends on the Series G Preferred
Shares, (iii) shares of Common Stock pursuant to the Merger Agreement, (iv)
Warrants pursuant to the Subordinated Notes Purchase Agreement, and/or (v)
shares of Common Stock upon exercise of the Warrants, in all cases as adjusted
for stock splits, dividends, recapitalizations and the like and any other events
requiring adjustment under the anti-dilution provisions of applicable governing
instruments, alone without causing (x) any Purchaser, or any of its "Affiliates"
or "Associates" (as such terms are defined in Rule 12b-2 under the Exchange
Act), to be deemed an "Acquiring Person" under the Rights Agreement or (y) a
"Distribution Date", a "Stock Acquisition Date" or "Acquisition Event" (as such
terms are defined in the Rights Agreement) to occur.

                                       17
<PAGE>   18

         (n) Board Approval. In reliance upon the accuracy of the
representations in Section 2.2(h) and Section 2.2(l), a committee of the board
of directors of the Company shall have approved the consummation of the
transactions contemplated by the Transaction Documents, the Merger Agreement and
the Subordinated Notes Purchase Agreement and the acquisition of (i) shares of
Common Stock and the Series G Preferred Shares pursuant to this Agreement, (ii)
shares of Common Stock upon conversion of the Series G Preferred Shares and as
dividends on the Series G Preferred Shares, (iii) shares of Common Stock
pursuant to the Merger Agreement, (iv) Warrants pursuant to the Subordinated
Notes Purchase Agreement, and (v) shares of Common Stock upon exercise of the
Warrants, in all cases as adjusted for stock splits, dividends,
recapitalizations and the like and any other events requiring adjustment under
the anti-dilution provisions of applicable governing instruments, as required in
Section 302A.673, subd. 1(d) of the MBCA.

         (o) Shareholder Approval under Nasdaq Stock Market Rules. The
transactions contemplated by this Agreement, the other Transaction Documents,
the Subordinated Notes Purchase Agreement and the Merger Agreement shall have
been approved and adopted by the requisite vote of the holders of shares of
Common Stock of the Company to the extent required under any Rule of the Nasdaq
Stock Market unless a waiver of such shareholder approval shall have been
obtained from the Nasdaq Stock Market.

         (p) Chief Executive Officer. There shall have been elected or appointed
a chief executive officer or interim chief executive officer of the Company
reasonably satisfactory to the Purchasers.

         (q) Intentionally Omitted

         (r) Board of Directors. The individuals designated in Exhibit 1 of the
Governance Agreement (or, if any of them is unable or unwilling to serve, other
persons acceptable to the Purchasers) shall have been elected to and shall be
serving on the board of directors of the Company. A director designated by Molex
shall be serving on the board of directors of the Company unless no such
individual is able and willing to serve.

         (s) Consolidated Net Working Capital. The consolidated Net Working
Capital (as hereinafter defined) of the Company and its consolidated
subsidiaries as of September 1, 2000 (as determined in accordance with GAAP
consistently applied) shall have been not less than $250,000 less than
$20,000,000. For the purpose of this Section 4.1(s), "Net Working Capital" shall
mean current assets minus current liabilities. For purposes of the preceding
sentence, liabilities that by their terms have a maturity date after September
1, 2001 shall be characterized as long-term liabilities rather than short-term
liabilities without regard to their characterization as long-term liabilities or
short-term liabilities for GAAP purposes.

                                       18
<PAGE>   19

         (t) Total Bank Debt. The Total Bank Debt (as hereinafter defined) of
the Company and its subsidiaries as of September 1, 2000 shall not have exceeded
$35,100,000. For purposes of this Section 4.1(t), "Total Bank Debt" shall mean
all outstanding bank debt included in current liabilities and long term
liabilities including but not limited to all outstanding mortgages.

         4.2 Conditions Precedent to the Company's Obligations. The obligations
of the Company hereunder are subject to the following conditions:

         (a) Accuracy of the Representations and Warranties of Purchasers. The
representations and warranties of the Purchasers contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing Date, as though made on and as of such date.

         (b) Performance by the Purchasers. The Purchasers shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing Date.

         (c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

         (d) Required Approvals. All Required Approvals shall have been
obtained.

         (e) Payment of Purchase Price. Each Purchaser shall have paid the
aggregate purchase price set forth opposite the Purchaser's name on Exhibit A.

         (f) Governance Agreement. The Company shall have received an executed
Governance Agreement, dated as of the date hereof, in the form of Exhibit E
hereto, from each of the Purchasers.

         (g) Merger. All of the conditions to the Company's obligations under
the Merger Agreement (other than the conditions related to this Agreement) shall
have been satisfied or waived by the Company and the Merger is effective at or
before the Closing.

         (h) Subordinated Notes Purchase Agreement. All of the conditions to the
Company's obligations under the Subordinated Notes Purchase Agreement (other
than the conditions related to this Agreement) shall have been satisfied or
waived by the Company at or before the Closing.

                                       19
<PAGE>   20

                                    ARTICLE V

                                   TERMINATION

         5.1 Termination. Notwithstanding any provision to this Agreement to the
contrary, this Agreement may be terminated, and the transactions contemplated by
this Agreement abandoned, at any time on or prior to the Closing Date:

         (a) by mutual written consent of the Company and each of the
Purchasers;

         (b) by the Company at any time if any of the conditions set forth in
Section 4.2 will not be able to be satisfied on or prior to the Final Date (as
defined in Section 7.5 of the Merger Agreement as constituted on the date
hereof), through no fault of the Company, unless such condition is waived in
writing by the Company;

         (c) by any of the Purchasers at any time if any of the conditions set
forth in Section 4.1 will not be able to be satisfied on or prior to the Final
Date (as defined in Section 7.5 of the Merger Agreement as constituted on the
date hereof), through no fault of the Purchasers, unless such condition is
waived in writing by each of the Purchasers;

         (d) immediately by any of the Purchasers in the event either the Merger
Agreement or the Subordinated Notes Purchase Agreement shall terminate in
accordance with its respective terms; or

         (e) by any of the Purchasers if (i) the Company has not, on or before
December 19, 2000 obtained a waiver from the Nasdaq Stock Market of its
requirement that the Company obtain shareholder approval of the transactions
contemplated hereby and by the Merger Agreement and Subordinated Notes Purchase
Agreement (in which event the Company shall immediately give written notice to
each of the Purchasers to that effect), or (ii) the Company at any time has
determined to cease pursuing obtaining such a waiver from the Nasdaq Stock
Market (in which event the Company shall immediately give written notice to each
of the Purchasers to that effect); provided in the case of this Section 5.1(e),
that the Purchaser delivers to the Company written notice of termination of this
Agreement within five business days after the date the Purchasers acquire the
right under this Section 5.1(e) to terminate this Agreement.

         5.2 Notice of Termination. If the Company or any of the Purchasers
desires to terminate this Agreement pursuant to Section 5.1, other than pursuant
to Section 5.1(d), that party must give written notice to the other parties.
Upon receipt of that notice, this Agreement will terminate without further
action by any party.

         5.3 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 5.1, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party or its
directors, officers or shareholders, other than as provided in Sections 3.6 and
6.1 hereof or in the Merger Agreement. Nothing contained in this Section 5.3

                                       20
<PAGE>   21

shall relieve any party from any liability for any breach of this Agreement or
impair the right of any party to compel specific performance by another party of
its obligations under this Agreement; provided, however, that termination as
provided in Sections 5.1(d) and 5.1(e) shall not be deemed a breach of this
Agreement.

                                   ARTICLE VI

                                  MISCELLANEOUS

         6.1 Expenses. The Company shall pay by cashier's check or wire transfer
at the Closing the MAI Expenses (as defined in Section 9.14(a) of the Merger
Agreement as constituted on the date hereof) incurred by the Purchasers,
including, without limitation, the legal fees and expenses of their counsel.
Each Purchaser shall be responsible for such Purchaser's own tax liability that
may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement.

         6.2 Entire Agreement. This Agreement, together with the Exhibits and
Schedules hereto, the Subordinated Notes Purchase Agreement, together with the
Exhibits and Schedules thereto, the Registration Rights Agreement, the
Governance Agreement, the Certificate of Designation (when filed) and the Merger
Agreement, contains the entire understanding of the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
oral or written, with respect to such matters.

         6.3 Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered on a business day after
during normal business hours where such notice is to be received); or (b) on the
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

         If to the Company:  Sheldahl, Inc.
                             1150 Sheldahl Road
                             Northfield, MN 55057-9444
                             Attn: Edward L. Lundstrom, President
                             Fax:  (507) 663-8326 or
                                   (507) 663-8435

                                       21
<PAGE>   22

         With copies to:     Lindquist & Vennum P.L.L.P.
                             4200 IDS Center
                             80 South Eighth Street
                             Minneapolis MN 55402
                             Attn:  Charles P. Moorse, Esq.
                             Fax:   (612) 371-3207

         If to a Purchaser:  To the address set forth on Exhibit A

or such other address as may be designated in writing hereafter, in the same
manner, by such person.

         6.4 Amendment; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and each Purchaser; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.

         6.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

         6.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor any Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding anything to the contrary contained herein, each Purchaser may
assign its rights hereunder in connection with any sale or transfer of such
Purchaser's Securities to any Affiliate or Associate of such Purchaser as long
as the transferee Affiliate or Associate agrees in writing to be bound by the
applicable provisions of this Agreement, in which case the term "Purchaser"
shall be deemed to refer to such transferee as though such transferee were an
original signatory hereto.

         6.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

         6.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Minnesota
without regard to the principles of conflicts of law thereof.

                                       22
<PAGE>   23

         6.9 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become binding with respect to each Purchaser on the
date the acceptance form hereto is executed by such Purchaser and with respect
to the Company on the date executed by the Company, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

         6.10 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.

         6.11 Survival of Representations and Warranties. The representations
and warranties made in this Agreement, or in any instrument delivered pursuant
to this Agreement, shall not survive beyond the Closing, except the
representations and warranties in Section 2.2, which shall survive the Closing
indefinitely. Nothing in the forgoing sentence shall be deemed to limit the
Purchasers' ability to rely on the representations and warranties contained in
Sections 2.1 and 2.3, and the Company's ability to rely on the representations
and warranties contained in Section 2.2, in making their respective
determinations to consummate the Closing of the purchase and sale of the Shares.
All covenants and agreements shall survive in accordance with their respective
terms.

                                       23
<PAGE>   24

         IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its authorized representative and each Purchaser has caused this
Agreement to be executed by signing in counterpart the acceptance form attached
to this Agreement.

                                          COMPANY:

                                          SHELDAHL, INC.

                                          By: /s/ EDWARD L. LUNDSTROM
                                              -----------------------
                                          Name:  Edward L. Lundstrom
                                          Title: President

                                       24
<PAGE>   25

                                   ACCEPTANCE

         The undersigned hereby accepts the terms and conditions set forth in
the Stock Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a
Minnesota corporation (the "Company") and certain Purchasers listed in Exhibit A
thereto as the terms and conditions applicable to the purchase of Shares of
Series G Preferred and Common Stock of the Company by the undersigned. By
execution of this Acceptance, the undersigned hereby makes each of the
representations contained in Section 2.2 of the Stock Purchase Agreement.

                                          PURCHASER:

                                          MORGENTHALER VENTURE PARTNERS V, L.P.

                                          By: /s/ JOHN D. LUTSI
                                              ---------------------------------
                                          Name: John D. Lutsi,
                                          its General Partner

                                       25
<PAGE>   26

                                   ACCEPTANCE

         The undersigned hereby accepts the terms and conditions set forth in
the Stock Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a
Minnesota corporation (the "Company") and certain Purchasers listed in Exhibit A
thereto as the terms and conditions applicable to the purchase of Shares of
Series G Preferred and Common Stock of the Company by the undersigned. By
execution of this Acceptance, the undersigned hereby makes each of the
representations contained in Section 2.2 of the Stock Purchase Agreement.

                                          PURCHASER:

                                          AMPERSAND IV LIMITED PARTNERSHIP

                                          BY: AMP-IV MANAGEMENT COMPANY
                                              LIMITED LIABILITY COMPANY,
                                              ITS GENERAL PARTNER

                                          By: /s/ STUART A. AUERBACH
                                              ---------------------------------
                                          Name:  Stuart A. Auerbach
                                          Title: Managing Member

                                       26
<PAGE>   27

                                   ACCEPTANCE

         The undersigned hereby accepts the terms and conditions set forth in
the Stock Purchase Agreement, dated November 10, 2000, among Sheldahl, Inc., a
Minnesota corporation (the "Company") and certain Purchasers listed in Exhibit A
thereto as the terms and conditions applicable to the purchase of Shares of
Series G Preferred and Common Stock of the Company by the undersigned. By
execution of this Acceptance, the undersigned hereby makes each of the
representations contained in Section 2.2 of the Stock Purchase Agreement.

                                          PURCHASER:

                                          AMPERSAND IV COMPANION FUND
                                          LIMITED PARTNERSHIP

                                          BY: AMP-IV MANAGEMENT COMPANY
                                              LIMITED LIABILITY COMPANY,
                                              ITS GENERAL PARTNER

                                          By: /s/ STUART A. AUERBACH
                                              ---------------------------------
                                          Name:  Stuart A. Auerbach
                                          Title: Managing Member

                                       27
<PAGE>   28

                                 LIMITED JOINDER

         IFH, the Merger Sub and the IFH Stockholders hereby join in the
foregoing Agreement for the limited purposes of making the representations and
warranties set forth in Section 2.3 of the Agreement to the Purchasers on the
date hereof as if they were parties hereto.

                                          INTERNATIONAL FLEX HOLDINGS, INC.

                                          By: /s/ JOHN D. LUTSI
                                              ---------------------------------
                                          Name: John D. Lutsi,
                                          Title: President

                                          IFT WEST ACQUISITION COMPANY

                                          By: /s/ EDWARD L. LUNDSTROM
                                              ---------------------------------
                                          Name:  Edward L. Lundstrom
                                          Title: President

                                          IFH STOCKHOLDERS:

                                          MORGENTHALER VENTURE PARTNERS V, L.P.

                                          By: /s/ JOHN D. LUTSI
                                              ---------------------------------
                                          Name: John D. Lutsi,
                                          its general partner

                                          SOUND BEACH TECHNOLOGY PARTNERS, LLC

                                          By: /s/ DONALD R. FRIEDMAN
                                              ---------------------------------
                                          Name:  Donald R. Friedman
                                          Title: President and Chief
                                                 Executive Officer

                                       28
<PAGE>   29
                                                                       EXHIBIT A

                             SCHEDULE OF PURCHASERS

<TABLE>
<CAPTION>
                                                            # OF
                                           AGGREGATE      SERIES G        # OF        BENEFICIAL
            PURCHASER                      PURCHASE       PREFERRED      COMMON       OWNERSHIP         STATE OF
         NAME & ADDRESS                      PRICE         SHARES        SHARES       PERCENTAGE        RESIDENCE
-------------------------------------     -----------     ---------     ---------     ------------      --------
<S>                                       <C>             <C>           <C>           <C>               <C>
Ampersand IV Limited Partnership          $ 7,350,000       3,323       1,453,539         29.4%             MA
55 William Street
Suite 240
Wellesley, MA  02481-4003

Ampersand IV Companion Fund               $   150,000          68          29,664          0.6%             MA
Limited Partnership
55 William Street
Suite 240
Wellesley, MA  02481-4003

Morgenthaler Venture Partners V, L.P.     $17,500,000       7,912       3,460,928         70.0%             OH
Terminal Tower
50 Public Square, Suite 2700
Cleveland, OH  44113

TOTAL                                     $25,000,000      11,303       4,944,131         100.0%
</TABLE><PAGE>   1
                                                                     EXHIBIT 4.1

                                 SHELDAHL, INC.
                     CERTIFICATE OF DESIGNATION, PREFERENCES
                             AND RIGHTS OF SERIES G
                           CONVERTIBLE PREFERRED STOCK

         Pursuant to Section 302A.401 of the Minnesota Business Corporation Act:

         I, the undersigned officer of Sheldahl, Inc., a Minnesota corporation
(the "Company"), in accordance with the provisions of Section 302A.401, DO
HEREBY CERTIFY:

         That pursuant to the authority conferred upon the Board of Directors
by the Articles of Incorporation of the Company, the Board of Directors on
____________, 200_ adopted the following resolution creating a series of Eleven
Thousand Three Hundred Three (11,303) shares of preferred stock designated as
Series G Convertible Preferred Stock:

         RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Company in accordance with the provisions of its Articles of
Incorporation, a series of preferred stock known as the Series G Convertible
Preferred Stock be, and hereby is, created and that the designation and amount
thereof and the rights and preferences of the shares of such preferred stock are
as follows:

         Section 1. Designation, Amount and Par Value. The series of preferred
stock shall be designated as the Series G Convertible Preferred Stock (the
"Series G Preferred Stock"), and the number of shares so designated shall be
11,303 (which shall not be subject to increase without the prior written consent
of all of the holders of Series G Preferred Stock then outstanding). Each share
of Series G Preferred Stock shall have a par value of $1.00 per share and a
stated value of $1,000 per share (the "Stated Value").

         Section 2. Dividends and Redemption.

         (a) (i) Each Holder of Series G Preferred Stock of record as of the
date fifteen calendar days prior to each anniversary of the Original Issue Date
(the "Record Date") shall receive annually on such anniversary of the Original
Issue Date, or if such date is not a Business Day, the first Business Day
following such anniversary of the Original Issue Date, (the "Dividend Payment
Date"),with respect to shares held on such Record Date by such holder,
cumulative dividends payable in shares of the Company's Common Stock (as defined
in Section 6) in an amount equal to a fraction, of which the numerator is
11.0594587% of the Stated Value of the

1
<PAGE>   2

shares of the Series G Preferred Stock held on such Record Date by such holder
and of which the denominator is the Dividend Conversion Price (as defined in
Section 5(c)(i)) on such Record Date or, at the Company's option for dividends
accruing after the second anniversary of the Original Issue Date, cash in an
amount equal to 11.0594587% of the Stated Value of the Series G Preferred Stock
held on such Record Date by such holder.

                  (ii) In connection with any conversion of Series G Preferred
Stock, each holder of Series G Preferred Stock that provides a Holder Conversion
Notice (as defined below) to the Company in the case of conversion at the
holder's option, and each holder of record of Series G Preferred Stock in the
case of conversion at the Company's option shall receive, on each Holder
Conversion Date (as defined in Section 5(a)(i)), or Company Conversion Date (as
defined in Section 5 (a)(ii)), as the case may be, with respect to each share
converted, (x) all accrued, but unpaid dividends with respect to each preceding
Dividend Payment Date, calculated as provided in Section 2(a)(i), and (y) all
accrued, but unpaid dividends with respect to the period commencing with the day
after the most recent Dividend Payment Date and ending on the Conversion Date
(the "Period"), payable in shares of the Company's Common Stock in an amount
equal to a fraction, of which the numerator is 11.0594587% of the Stated Value
of the shares of the Series G Preferred Stock held on such Conversion Date by
such holder multiplied by the Pro Rata Dividend Amount (as defined below in this
Section 2(a)(ii)) and of which the denominator is the Dividend Conversion Price
(as defined in Section 5(c)(i)) on such Conversion Date or, at the Company's
option for dividends accruing after the second anniversary of the Original Issue
Date, cash in an amount equal to 11.0594587% of the Stated Value of the Series G
Preferred Stock held on such Conversion Date by such holder multiplied by the
Pro Rata Dividend Amount (as defined below in this Section 2(a)(ii)). The "Pro
Rata Dividend Amount" shall equal a fraction of which the numerator is the
number of days elapsed during the Period and of which the denominator is 360.

                  (iii) Dividends on the Preferred Stock shall be calculated on
the basis of a 360-day year, shall accrue daily commencing on the Original Issue
Date (as defined in Section 6), and shall be deemed to accrue from such date
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.

                  (iv) No payment shall be made pursuant to this Section 2 until
all accrued and unpaid dividends on the Company's Series D Preferred Stock (the
"Series D Preferred Stock") the Company's Series E Preferred Stock (the "Series
E Preferred Stock") and on the Company's Series F Preferred Stock (the "Series F
Preferred Stock") previously issued by the Company for all past dividend periods
shall have been paid and all conversion notices related thereto have been
honored to the date of such payment.

         (b) So long as any Series G Preferred Stock shall remain outstanding,
except with respect to the redemption or exchange of "rights" under the Rights
Agreement, dated as of June 16, 1996, between the Company and Norwest Bank
Minnesota, N.A. (the "Rights Agreement") and the Series A Junior Participating
Stock reserved for issuance in connection therewith, neither

2
<PAGE>   3

the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 6),
nor shall the Company directly or indirectly pay or declare any dividend or make
any distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities unless the
Company is in compliance with its obligations hereunder.

         (c) In no circumstances may the Company require redemption of any
shares of Series G Preferred Stock without the holder's consent.

         Section 3. Voting Rights.

         Except as otherwise provided herein and as otherwise required by law,
the Series G Preferred Stock shall have no voting rights. However, so long as
any shares of Series G Preferred Stock are outstanding, the Company shall not
and shall cause its subsidiaries not to, without the affirmative vote of 75% of
the holders of the Series G Preferred Stock then outstanding, alter or change
adversely the powers, preferences or rights given to the Series G Preferred
Stock; (b) alter or amend this Certificate of Designation in a manner adverse to
the holders of Series G Preferred Stock; (c) authorize or create any class of
stock ranking as to dividends or distribution of assets upon a Liquidation (as
defined in Section 4) or otherwise senior to or pari passu with the Series G
Preferred Stock, except for the Series D Preferred Stock, the Series E Preferred
Stock and the Series F Preferred Stock; (d) amend its articles of incorporation,
bylaws or other charter documents so as to affect adversely any rights of any
holders of Series G Preferred Stock; (e) increase the authorized number of
shares of Series G Preferred Stock; or (f) enter into any agreement with respect
to the foregoing.

         Section 4. Liquidation.

         (a) Upon any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary (a "Liquidation"), the holders of Series G
Preferred Stock shall receive, out of the assets of the Company, after payment
of all amounts due the holders of Series D Preferred Stock, the Series E
Preferred Stock and the Series F Preferred Stock, but before any distribution or
payment shall be made to the holders of any Junior Securities for each share of
Series G Preferred Stock, an amount equal to:

                  (i) the Stated Value multiplied by 2.2118022; plus

                  (ii) an amount equal to all accrued but unpaid dividends,
whether declared or not; minus

                  (iii) the product of the Per Share Market Value on the
Liquidation Adjustment Calculation Date (as defined below in this Section 4)
multiplied by the "Share Adjustment Number," which shall initially be 437.41758
(as may be adjusted for any stock splits, reverse

3
<PAGE>   4

stock splits or stock dividends on the Common Stock), provided, however, that
the Share Adjustment Number for each share of Series G Stock shall be reduced by
subtracting a number equal to the number of shares of Common Stock the holder
elects to surrender to the Company divided by the number of shares of Series G
Preferred Stock held by such holder. The holder shall effect such election by
surrendering the certificate or certificates representing the shares of Common
Stock the holder wishes to surrender, together with the form of election notice
attached hereto as Exhibit C.

         (b) Any surrender of shares to the Company shall not be deemed
effective unless and until all amounts due under this Section 4 have been paid
to the holder thereof.

         (c) If the assets of the Company shall be insufficient to pay in full
such amounts as required by this Section 4 after payment of all amounts due the
holders of the Series D Preferred Stock, the Series E Preferred Stock and the
Series F Preferred Stock then the entire assets to be distributed to the holders
of Series G Preferred Stock shall be distributed among the holders of Series G
Preferred Stock ratably in accordance with the respective amounts that would be
payable on to such holders if the maximum amounts payable thereon were paid in
full. If, and to the extent that the full amount due to the holders of the
Series G Preferred Stock for each share of Series G Preferred Stock held is not
paid on Liquidation because the assets of the Company are insufficient to pay
such full amount, the amount due to the holders of the Series G Preferred Stock
for each share of Series G Preferred Stock shall not be reduced by the Share
Adjustment Number.

         (d) A sale, conveyance or disposition of all or substantially all of
the assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5.

         (e) The Company shall mail written notice of any such Liquidation after
the Board of Directors has adopted a final plan of Liquidation, but not less
than 30 days prior to any payment date stated therein, to each record holder of
Series G Preferred Stock, stating the "Liquidation Adjustment Calculation Date",
which shall be ten business days after the Board of Directors has adopted such
plan.

         Section 5. Conversion.

         (a) (i) Each share of Series G Preferred Stock is convertible by the
holder thereof into shares of Common Stock at the Conversion Ratio (as defined
in Section 6) in effect on the Holder Conversion Date (as defined below in this
Section (5)(a)(i)), at the option of the holder in whole or in part at any time
after the Original Issue Date. The holder shall effect conversions by
surrendering the certificate or certificates representing the shares of Series G
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (the "Holder Conversion Notice"),
a copy of which, notwithstanding anything herein

4
<PAGE>   5

to the contrary, shall also be promptly sent to the Company's transfer agent and
the Company's counsel. Each Holder Conversion Notice shall specify the number of
shares of Series G Preferred Stock to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date on which
the holder delivers such Conversion Notice by facsimile (the "Holder Conversion
Date"). If no Holder Conversion Date is specified in a Holder Conversion Notice,
the Holder Conversion Date shall be the date that the Holder Conversion Notice
is deemed delivered pursuant to Section 5(h). If the holder is converting less
than all shares of Series G Preferred Stock represented by the certificate or
certificates tendered by the holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such holder (in the manner and within the time set
forth in Section 5(b)) a certificate for such number of shares as have not been
converted. Shares issuable upon conversion at the option of the holder in
accordance with this Section 5(a)(i) shall be deemed for all purposes to have
been issued on the applicable Holder Conversion Date. Certificates initially
issued to represent such shares shall be dated as of such Holder Conversion
Date.

         (ii) If, at any time after eighteen (18) months following the Original
Issue Date, (A) the Per Share Market Value (as defined in Section 6) is greater
than $12.50 (as adjusted for stock splits, reverse stock splits and stock
dividends) for at least 30 consecutive Business Days (as defined in Section 6);
(B) the average daily trading volume of the Common Stock on the Nasdaq National
Market for such 30 consecutive Business Days exceeds 50,000 shares (as adjusted
for stock splits, reverse stock splits and stock dividends); and (C) none of the
Shares of the Company's Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock, or any other shares of Preferred Stock (other than the
Series G Preferred Stock) that have been issued solely to circumvent the
automatic conversion of the Series G Preferred Stock pursuant to this Section
5(a)(ii) is outstanding, then the Company may, upon 10 days notice provided
thereafter, require the conversion of all but not less than all of the then
outstanding and unconverted shares of Series G Preferred Stock at the Conversion
Ratio in effect on the Company Conversion Date (as defined below) by delivering
to the holders a notice in the form attached hereto as Exhibit B (the "Company
Conversion Notice"). Each Company Conversion Notice shall specify the date on
which such conversion is to be effected, which date may not be prior to the 10th
day after the Company delivers such Company Conversion Notice by facsimile (the
"Company Conversion Date"). If no Company Conversion Date is specified in a
Company Conversion Notice given under this Section the Company Conversion Date
shall be the 11th day after the Company Conversion Notice is deemed delivered
pursuant to Section 5(h). Nothing contained herein shall limit a holder's right
to convert any or all of the Preferred Stock held by it prior to the Company
Conversion Date. Shares issuable upon conversion at the option of the Company in
accordance with this Section 5 (a)(ii) shall be deemed for all purposes to have
been issued on the applicable Company Conversion Date. Certificates initially
issued to represent such Shares shall be dated as of such Company Conversion
Date.

         (iii) In the event of any such conversion of Series G Preferred Stock,
holders thereof shall be entitled to receive dividends in accordance with
Section 2(a)(ii) hereof.

5
<PAGE>   6

         A Holder Conversion Date and a Company Conversion Date are sometimes
referred to herein as a "Conversion Date" and a Holder Conversion Notice and a
Company Conversion Notice are sometimes referred to as a "Conversion Notice."

         (b) Not later than ten Business Days after the Conversion Date and
receipt by the Company of an original share certificate representing the shares
of Series G Preferred Stock to be converted, the Company will deliver to the
holder (i) a certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by Section 3.1(b) of
the Purchase Agreement or as may be required by the Rights Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Series G Preferred Stock; (ii) if the Company so elects
or is required to pay accrued dividends in Common Stock, an original share
certificate representing that number of shares of Common Stock payable in
respect of accrued but unpaid dividends; (iii) if the Company so elects and is
permitted to pay accrued dividends in cash, a bank check in the amount of the
accrued but unpaid dividends; and (iv) one or more certificates representing the
number of shares of Series G Preferred Stock not converted; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion of any shares of Preferred Stock
until certificates evidencing such shares of Series G Preferred Stock are either
delivered for conversion to the Company or the transfer agent for the Series G
Preferred Stock or Common Stock, or the holder of such Series G Preferred Stock
notifies the Company that such certificates have been lost, stolen or destroyed
and provides a bond (or other adequate security) reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith.

         (c) (i) The conversion price for each share of Series G Preferred Stock
(the "Conversion Price") on any Conversion Date shall be $2.770558 (the "Initial
Conversion Price"), as adjusted from time to time as provided in this Section
5(c). The Dividend Conversion Price shall initially be $3.5384827 as adjusted
from time to time as provided in this Section 5(c).

                  (ii) If the Company, at any time while any shares of Series G
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of Common Stock; (b) subdivide outstanding shares of Common Stock into
a larger number of shares; (c) combine outstanding shares of Common Stock into a
smaller number of shares; or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Conversion Price and the
Dividend Conversion Price shall each be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.

6
<PAGE>   7

                  (iii) If the Company, at any time while any shares of Series G
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Conversion Price and the Dividend
Conversion Price shall each be multiplied by a fraction, of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock
the issuance of which resulted in an adjustment in the Conversion Price and
Dividend Conversion Price pursuant to this Section 5(c)(iii), if any such right
or warrant shall expire and shall not have been exercised, the Conversion Price
and Dividend Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price and Dividend Conversion Price made pursuant to the provisions
of this Section 5 after the issuance of such rights or warrants) had the
adjustment of the Conversion Price and Dividend Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.

                  (iv) If the Company, at any time while shares of Series G
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to holders of Series G Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security
(excluding those referred to in Sections 5(c)(ii) and (iii) above), then in each
such case the Conversion Price or the Dividend Conversion Price at which each
share of Series G Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price or the Dividend Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as of
the record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the holders of a majority in interest of

7
<PAGE>   8

the shares of Series G Preferred Stock then outstanding and reasonably
acceptable to the Company. In either case the adjustments shall be described in
a statement provided to the holders of Series G Preferred Stock of the portion
of assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date mentioned above.

                  (v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.

                  (vi) Whenever the Conversion Price and the Dividend Conversion
Price are adjusted pursuant to Section 5(c)(ii),(iii) or (iv), the Company shall
promptly mail to each holder of Series G Preferred Stock, a notice setting forth
the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.

                  (vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant to
which the Company will not be the surviving entity, the sale or transfer of all
or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, the holders of Series G Preferred Stock then outstanding shall
convert such shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the holders of the Series G Preferred Stock shall be entitled upon
such event to receive such amount of securities, cash or property as the shares
of the Common Stock of the Company into which such shares of Series G Preferred
Stock could have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have been
entitled. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the holder of
Series G Preferred Stock the right to receive the securities, cash or property
set forth in this Section 5(c)(vii) upon any conversion or redemption following
such consolidation, merger, sale, transfer or share exchange. This provision
shall similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.

                  (viii)   If:

                           A.       the Company shall declare a dividend (or any
                                    other distribution) on its Common Stock; or

                           B.       the Company shall declare a special
                                    nonrecurring cash dividend on or a
                                    redemption of its Common Stock; or

                           C.       the Company shall authorize the granting to
                                    all holders of the Common Stock rights or
                                    warrants to subscribe for or purchase any
                                    shares of capital stock of any class or of
                                    any rights; or

8
<PAGE>   9

                           D.       the approval of any stockholders of the
                                    Company shall be required in connection with
                                    any reclassification of the Common Stock of
                                    the Company, any consolidation or merger to
                                    which the Company is a party, any sale or
                                    transfer of all or substantially all of the
                                    assets of the Company, or any compulsory
                                    share exchange whereby the Common Stock is
                                    converted into other securities, cash or
                                    property; or

                           E.       the Company shall authorize the voluntary or
                                    involuntary dissolution, liquidation or
                                    winding up of the affairs of the Company;

then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Series G Preferred Stock, and shall cause to be
mailed to the holders of Series G Preferred Stock at their last addresses as
they shall appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined; or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.

         (d) The Company will at all times reserve and keep available out of its
authorized and unissued Common Stock solely for the purpose of issuance upon
conversion of Series G Preferred Stock and payment of dividends on Series G
Preferred Stock, each as herein provided, free from preemptive rights or any
other actual or contingent purchase rights of persons other than the holders of
Series G Preferred Stock, not less than such number of shares of Common Stock as
shall be issuable, upon the conversion of all outstanding shares of Series G
Preferred Stock and payment of dividends hereunder. All shares of Common Stock
that shall be so issuable shall, upon issue, be duly authorized, validly issued
and fully paid, nonassessable and freely tradable (except as may be required
pursuant to Section 3.1(b) of the Purchase Agreement).

         (e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.

9
<PAGE>   10

         (f) The issuance of certificates for shares of Common Stock on
conversion of Series G Preferred Stock shall be made without charge to the
holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificates, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Series G
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.

         (g) Shares of Series G Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
undesignated stock.

         (h) Any and all notices or other communications or deliveries to be
provided by the holders of the Series G Preferred Stock hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to the attention of the Chief Executive Officer of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to each holder of Series G Preferred
Stock at the facsimile telephone number or address of such holder appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 11:59 p.m. (Central Time) on such date of transmission; (ii)
four days after deposit in the United States mails; (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service; or (iv) upon actual receipt by the party to whom such notice is
required to be given.

         Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:

         a) "Affiliate" has the meaning set forth in Section 302A.011 of the
         Minnesota Business Corporation Act.

         b) "Associate" has the meaning set forth in Section 302A.011 of the
         Minnesota Business Corporation Act.

         c) "Appraiser" has the meaning set forth in Section 5(c)(iv).

10
<PAGE>   11

         d) "Business Day" means any day except a day on which the Nasdaq
         National Market, the NYSE or the AMEX, as applicable, if the Common
         Stock is listed for trading or quoted thereon at such time, is closed,
         and if the Common Stock is not listed for trading or quoted on any of
         the Nasdaq National Market, the NYSE or the AMEX at such time, then
         "Business Day" shall mean any day except Saturday, Sunday and any day
         which shall be a legal holiday or a day on which banking institutions
         in the State of Minnesota generally are authorized or required by law
         or other government actions to close.

         e) "Common Stock" means the common stock, $.25 par value per share, of
         the Company and stock of any other class into which such shares may
         hereafter have been reclassified or changed.

         f) "Company Conversion Date" has the meaning set forth in
         Section 5(a)(ii).

         g) "Company Conversion Notice" has the meaning set forth in
         Section 5(a)(ii).

         h) "Conversion Date" has the meaning set forth in Section 5(a)(iii).

         i) "Conversion Notice" has the meaning set forth in Section 5(a)(iii).

         j) "Conversion Price" has the meaning set forth in Section 5(c)(i).

         k) "Conversion Ratio" with respect to a share of Series G Preferred
         Stock means, at any time, a fraction, of which the numerator is the
         Stated Value and the denominator is the Conversion Price at such time.

         l) "Dividend Conversion Price" has the meaning set forth in
         Section 5(c)(i).

         m) "Dividend Payment Date" has the meaning set forth in
         Section 2(a)(i).

         n) "Holder Conversion Date" has the meaning set forth in
         Section 5(a)(i).

         o) "Holder Conversion Notice" has the meaning set forth in
         Section 5(a)(i).

         p) "Initial Conversion Price" has the meaning set forth in
         Section 5(c)(i).

         q) "Junior Securities" means the Common Stock and all equity securities
         (other than the Series D, Series E Preferred Stock and Series F
         Preferred Stock) of the Company.

         r) "Liquidation" has the meaning set forth in Section 4.

         s) "Liquidation Adjustment Calculation Date" has the meaning set forth
         in Section 4.

         t) "Original Issue Date" means the date of the first issuance of any
         shares of the Series G Preferred Stock regardless of the number of
         transfers of any particular shares of Series G Preferred Stock and
         regardless of the number of certificates which may be issued to
         evidence such Preferred Stock.

11
<PAGE>   12

         u) "Per Share Market Value" means on any particular date (a) the
         closing bid price per share of the Common Stock on such date on the
         Nasdaq National Market or other stock exchange or quotation system on
         which the Common Stock is then listed or quoted or, if there is no such
         closing bid price on such date, then the closing bid price on such
         exchange or quotation system on the date nearest preceding such date
         for which there is such a closing bid price; or (b) if the Common Stock
         is not listed or quoted then on the Nasdaq National Market or any stock
         exchange or quotation system, the closing bid price for a share of
         Common Stock in the over-the-counter market, as reported by the Nasdaq
         National Market, Bloomberg, L.P. or in the National Quotation Bureau
         Incorporated or similar organization or agency succeeding to its
         functions of reporting prices) at the close of business on such date;
         or (c) if closing bid prices for the Common Stock are not then reported
         by the Nasdaq National Market, Bloomberg, L.P. or in the National
         Quotation Bureau Incorporated (or similar organization or agency
         succeeding to its functions of reporting prices), then the average of
         the "Pink Sheet" quotes for the relevant conversion period, as
         determined in good faith by the holder; or (d) if the Common Stock is
         not then publicly traded the fair market value of a share of Common
         Stock as determined by an Appraiser mutually acceptable to the holders
         and the Company.

         v) "Period" has the meaning set forth in Section 2(a)(ii).

         w) "Person" means a corporation, an association, a partnership,
         organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

         x) "Pro Rata Dividend Amount" has the meaning set forth in
         Section 2(a)(ii).

         y) "Purchase Agreement" means the Stock Purchase Agreement, dated as of
         November 10, 2000, among the Company and the original holders of the
         Series G Preferred Stock.

         z) "Record Date" has the meaning set forth in Section 2(a)(i).

         aa) "Rights Agreement" has the meaning set forth in Section 2 (b).

         ab) "Series G Preferred Stock" has the meaning set forth in Section 1.

         ac) "Stated Value" has the meaning set forth in Section 1.

12
<PAGE>   13

         IN WITNESS WHEREOF, I have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury this ___ day of
_________, 200_.

                                                SHELDAHL, INC.

                                                By
                                                    ---------------------------
                                                    Jill D. Burchill
                                                    Its Chief Financial Officer

13
<PAGE>   14

                                    EXHIBIT A

                              NOTICE OF CONVERSION
                            AT THE ELECTION OF HOLDER

(To be Executed by the Registered Holder
in order to Convert Shares of Series G Preferred Stock)

The undersigned hereby elects to convert the number of shares of Series G
Convertible Preferred Stock indicated below, into the number of shares of Common
Stock, par value $.25 per share (the "Common Stock"), of Sheldahl, Inc. (the
"Company") indicated below, as of the date written below. If shares are to be
issued in the name of a person other than undersigned, the undersigned will pay
all transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.

Conversion calculations:
                             ---------------------------------------------------
                             Date to Effect Conversion

                             ---------------------------------------------------
                             Number of shares of Series G Preferred Stock
                             to be Converted

                             ---------------------------------------------------
                             Number of shares of Common Stock to be Issued

                             Applicable Conversion Price

                             Signature

                             Name

                             Address

<PAGE>   15

                                    EXHIBIT B

                             NOTICE OF CONVERSION AT

                           THE ELECTION OF THE COMPANY

Sheldahl, Inc. (the "Company") hereby represents and warrants that the
conditions precedent to a Conversion at the option of the Company pursuant to
Section 5(a)(ii) have been satisfied and therefore hereby notifies the addressee
hereof that the Company hereby elects to exercise its right to convert [ ]
shares of its Series G Convertible Preferred Stock (the "Preferred Stock") held
by the Holder into shares of Common Stock, par value $.25 per share (the "Common
Stock") of the Company according to the terms hereof, as of the date written
below. No fee will be charged to the Holder for any conversion hereunder, except
for such transfer taxes, if any which may be incurred by the Company if shares
are to be issued in the name of a person other than the person to whom this
notice is addressed.

Conversion calculations:
                             ---------------------------------------------------
                             Date to Effect Conversion

                             Number of shares of Preferred Stock to be Converted

                             Number of shares of Common Stock to be Issued

                             Applicable Conversion Price

                             Name of Holder

                             Address of Holder

<PAGE>   16

                                    EXHIBIT C

                               NOTICE OF ELECTION

                            TO SURRENDER COMMON STOCK

(To be Executed by the Registered Holder)

The undersigned hereby elects to surrender to the Company ____ shares of Common
Stock, par value $.25 per share (the "Common Stock"), of Sheldahl, Inc. (the
"Company") pursuant to Section 4 of the Series G Convertible Preferred
Certificate of Designation.

437.533805 (as may be adjusted for any stock splits, reverse stock splits or
stock dividends on the Common Stock occurring after the filing of the Series G
Certificate of Designation)

         minus

(_____ shares of Common Stock surrendered

         divided by

_____ shares of Series G Convertible Preferred Stock held)

         equals the Share Adjustment Number ______.

                                            Signature

                                            Name

                                            Address

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