UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File No. 0-795
BADGER PAPER MILLS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0143840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 West Front Street
Peshtigo, Wisconsin 54157
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (715) 582-4551
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes. |_| No.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 1,967,028 as of August 6, 1999.
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Interim Statement of Income
Three Months and Six Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Balance Sheet
June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Cash Flow
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8K 13
SIGNATURES 14
2
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BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
For Three Months For Six Months
Ended June 30 Ended June 30
-------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales $ 16,668 $ 17,462 $ 31,994 $ 35,722
Cost of Sales 14,557 15,720 27,982 32,146
--------------- ---------------- ----------------- -----------------
Gross Margin 2,111 1,742 4,012 3,576
Selling and Administrative Expenses 1,363 1,040 2,491 2,246
--------------- ---------------- ----------------- -----------------
Operating Income 748 702 1,521 1,330
Interest Expense (264) (305) (536) (617)
Interest Income 21 65 57 125
Other Income 50 87 80 243
Non Recurring Life Insurance Proceeds 391 - 391 -
Non Recurring Gain on Lodge Sale - 611 - 611
Non Recurring Executive Termination Expense - (286) - (286)
--------------- ---------------- ----------------- -----------------
Income Before Income Taxes 946 874 1,513 1,406
Income Tax Expense 321 297 514 477
--------------- ---------------- ----------------- -----------------
Net Income $ 625 $ 577 $ 999 $ 929
=============== ================ ================= =================
Net Earnings Per Share - Basic $ 0.32 $ 0.29 $ 0.51 $ 0.48
Net Earnings Per Share - Diluted $ 0.32 $ 0.51
Average Shares Outstanding - Basic 1,964,852 1,955,994 1,962,927 1,953,323
Average Shares Outstanding - Diluted 1,964,852 1,962,927
- - -
Cash Dividends - - - -
See Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) June 30 December 31,
1999 1998
---------------------- -----------------------
<S> <C> <C>
Current Assets:
Cash & Cash Equivalents $ 1,932 $ 2,229
Certificates of Deposit 500 996
Marketable Securities 148 1,361
Accounts Receivable, Net 6,000 5,262
Deferred Income Taxes 1,170 1,220
Inventories 8,243 6,201
Refundable Income Taxes 27 27
Other Current Assets 625 558
---------------------- ------------------------
Total Current Assets 18,645 17,854
Property, Plant, Equipment & Timberlands 65,985 65,089
Less: Allowance for Depreciation & Depletion (39,223) (37,798)
---------------------- ------------------------
Total Property, Plant, Equipment & Timberlands, Net 26,762 27,291
Trade Credits 657 696
Other Assets 1,872 2,158
---------------------- ------------------------
TOTAL ASSETS $47,936 $47,999
====================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt $ 2,783 $ 3,068
Accounts Payable 5,122 3,913
Accrued Liabilities 3,317 3,357
Income Taxes Payable 245 170
---------------------- ------------------------
Total Current Liabilities 11,467 10,508
Deferred Income Taxes 1,649 1,700
Long-Term Debt 14,356 16,126
Other Liabilities 1,162 1,408
---------------------- ------------------------
TOTAL LIABILITIES 28,634 29,742
Stockholders' Equity:
Common Stock, No Par Value
4,000,000 Shares Authorized
2,160,000 Shares Issued 2,700 2,700
Additional Paid-in Capital 203 200
Retained Earnings 18,296 17,296
Less Treasury Shares at Cost:
201,618 Shares at 6/30/99 and 199,278 Shares at 12/31/98 (1,897) (1,939)
TOTAL STOCKHOLDERS' EQUITY 19,302 18,257
---------------------- ------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $47,936 $47,999
====================== ========================
See Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
For Six Months
Ended June 30
----------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 999 $ 929
Adjustments to Reconcile to Net Cash
Provided By Operating Activities:
Depreciation 1,425 1,399
Director's Fees Paid in Stock 46 33
Deferred Income Taxes (1) -
Gain on Sale of Lodge - (611)
Changes in Assets and Liabilities:
Increase in Accounts Receivable, Net (738) (774)
(Increase) Decrease in Inventories (2,042) 329
Decrease in Accounts Payable 1,209 (262)
Decrease in Accrued Liabilities (40) (873)
Refundable (Payable) Income Taxes (75) 442
Increase in Other (229) (81)
--------------- ----------------
Net Cash Provided by Operating Activities 554 531
--------------- ----------------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment, Net (896) (1,061)
Net Acquisition of Certificates of Deposit 496 70
Purchase of Marketable Securities - (263)
Proceeds from Sales of Marketable Securities 1,213 226
Proceeds from Refund of Prepaid Leased Assets - 1,572
Proceeds from Sales of Lodge - 725
Proceeds from Life Insurance Policy 391 -
--------------- ----------------
Net Cash Provided by Investing Activities 1,204 1,269
--------------- ----------------
Cash Flows from Financing Activities:
Payments on Long-Term Debt (1,955) (28)
Decrease in Revolving Credit Borrowings (100) (2,100)
--------------- ----------------
Net Cash Used in Financing Activities (2,055) (2,128)
--------------- ----------------
Net (Decrease) Increase in Cash and Cash Equivalents (297) (328)
Cash and Cash Equivalents:
Beginning of Period 2,229 1,302
--------------- ----------------
End of Period $1,932 $ 974
=============== ================
See Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying condensed financial statements, in the opinion of
management, include all adjustments which are normal and recurring in
nature and are necessary for a fair statement of results for each
period shown. Some adjustments involve estimates, which may require
revision in subsequent interim periods or at year-end. In all regards,
the financial statements have been presented in accordance with
generally accepted accounting principles. The accounting policies which
are pertinent to these statements are described in the financial
statement notes in the Company's Form 10K and Annual Report for the
year ended December 31, 1998.
Note 2. Income Taxes
The provision for income tax expense has been computed by applying an
estimated annual effective tax rate. This rate was 34% for the three
and six months periods ended June 30, 1999 and 1998.
Note 3. Earnings per Share
Basic earnings per share amounts are computed based on the weighted
average number of shares outstanding during each period. Diluted per
share amounts equals net earnings divided by common shares outstanding
after giving effect to dilutive stock options granted under the stock
option plan approved by shareholders at the May 11, 1999 annual meeting
of shareholders. The stock options deemed outstanding beginning in the
second quarter of 1999 had an immaterial effect on the weighted average
number of shares outstanding and therefore basic and diluted per share
amounts are the same.
Note 4. Stock Option Plan
Badger Paper Mills, Inc. has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock issued to Employees (APB 25)
and related interpretations in accounting for its stock option plan.
Under APB 25, because the exercise price of the stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recorded. Badger Paper is subject to the
disclosure rules of SFAS 123, Accounting for Stock Based Compensation.
Management has determined that the impact of SFAS 123 on net income and
stockholders' equity was not material as of and for the quarter ended
June 30, 1999.
Note 5. Inventories
The major components of inventories were as follows:
(In thousands of dollars) June 30, December 31,
1999 1998
--------------------------
Raw Materials $ 3,345 $ 2,586
Finished Goods and Work in Process 8,999 7,565
------- -------
Subtotal 12,344 10,151
Less: LIFO Reserve (4,101) (3,950)
------- -------
Total Inventories $ 8,243 $ 6,201
======= =======
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Note 6. Contingencies
The Company operates in an industry which is subject to laws and
regulations at both federal and state levels relating to the protection
of the environment. The Company undergoes continued environmental
testing and analysis, and the prcise cost of compliance with
environmental requirements has not been determined.
In addition, the Company is subject to various claims, the ultimate
outcomes of which management cannot predict. Management believes,
however, that the outcomes will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
Note 7. Operating Segments
Badger Paper adopted SFAS 131 (Disclosures about Segments of an
Enterprise and Related Information) in 1998. Prior years' information
has been restated to present segment information for the Company's two
business segments, paper products and printing and converting. The
paper products segment produces a variety of paper products including
fine paper, business paper, colored paper, waxed paper, specialty
coated base papers and twisting papers. The printing and converting
segment prints and converts flexible packaging materials for the paper
products segment as well as films and non-woven materials from other
customers.
The following provides information on the Company's operating segments
for the three month and six month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in thousands)
PAPER PRODUCTS PRINTING & CONVERTING TOTAL
-------------------------- ------------------------------ -----------------------------
For Three Months For Three Months For Three Months
Ended June 30 Ended June 30 Ended June 30
-------------------------- ------------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
------------ ------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $15,356 $16,548 $2,347 $1,654 $17,703 $18,202
Intersegmental revenues 660 197 375 543 1,035 740
Segment income before tax 789 768 157 106 946 874
Segment assets 42,311 41,664 5,625 4,783 47,936 46,447
<CAPTION>
-------------------------- ------------------------------ -----------------------------
For Six Months For Six Months For Six Months
Ended June 30 Ended June 30 Ended June 30
-------------------------- ------------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
------------ ------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $29,672 $33,666 $4,664 $3,038 $34,336 $36,704
Intersegmental revenues 1,398 212 944 770 2,342 982
Segment income before tax 1,176 1,183 337 223 1,513 1,406
Segment assets 42,311 41,664 5,625 4,783 47,936 46,447
</TABLE>
7
<PAGE>
The following is a reconciliation of segment information to
consolidated information:
<TABLE>
<CAPTION>
-------------------------------- ------------------------------
For Three Months For Six Months
Ended June 30 Ended June 30
-------------------------------- ------------------------------
1999 1998 1999 1998
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Total revenues for segment $17,703 $18,202 $34,336 $36,704
Elimination of intersegment revenues (1,035) (740) (2,342) (982)
=============== ============== ============== =============
Total consolidated revenues $16,668 $17,462 $31,994 $35,722
=============== ============== ============== =============
</TABLE>
Total segment income, assets and other significant items are the same as
the consolidated information. All operations of the Company are located in
the United States. Revenues from foreign countries are primarily from
Canada and Mexico and are immaterial to total revenues.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Statement Regarding Forward-Looking Information
This Form 10-Q may include one or more "forward-looking statements" within the
meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934 as enacted in the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). In making forward-looking statements within the
meaning of the Reform Act, the Company undertakes no obligation to publicly
update or revise any such statement.
Forward-looking statements of the Company are based on information available to
the Company as of the date of such statements and reflect the Company's
expectations as of such date, but are subject to risks and uncertainties that
may cause actual results to vary materially. In addition to specific factors
which may be described in connection with any of the Company's forward-looking
statements, factors which could cause actual results to differ materially
include, but are not limited to the following:
o Increased competition from either domestic or foreign paper producers
or providers of alternatives to the Company's products, including
increases in competitive production capacity, resulting in sales
declines from reduced shipment volume and/or lower net selling prices
in order to maintain shipment volume.
o Changes in demand for the Company's products due to overall economic
activity affecting the rate of consumption of the Company's paper
products, growth rates of the end markets for the Company's products,
technological or consumer preference changes or acceptance of the
products by the markets served by the Company.
o Changes in the price of pulp, the Company's main raw material. All of
the Company's pulp needs are purchased on the open market and price
changes for pulp have a significant impact on the Company's costs. Pulp
price changes can occur due to worldwide consumption levels of pulp,
pulp capacity additions, expansions or curtailments affecting the
supply of pulp, inventory building or depletion at pulp consumer
8
<PAGE>
levels which affect short-term demand, and pulp producer cost changes
related to wood availability, environmental issues, or other variables.
o Unforeseen operational problems at any of the Company's facilities
causing significant lost production and/or cost issues.
o Changes in laws or regulations which affect the Company.
Results of Operations
Net Sales
Net sales for the second quarter ended June 30, 1999 were $16,668,000, down 5%
from the net sales for the same three month period ended in 1998. Shipping
volumes in the second quarter of 1999 declined 9% from 1998 because of the
continued weak market conditions in the industry, especially the commodity
markets. The average selling price for the second quarter increased slightly at
3% despite the volume decreases.
Net sales for the six month period ended June 30, 1999 were $31,994,000, down
10% from the net sales for the same six month period ended in 1998. The
industry's weak market conditions have resulted in a decline of 16% in shipping
volume of our products. The average selling price for the six month period of
1999 increased 9%, despite the volume decreases.
Net sales for the paper products segment were $15,356,000 for the three months
ending June 30, 1999, which is a $1,191,000 or 7% reduction from the same period
in 1998. Year to date net sales were $29,672,000 in 1999, compared to
$33,666,000 for the same period last year. Shipping volumes for the company's
paper products declined from both second quarter and year to date levels of 1998
by 9% and 16% respectively. Despite the volume decreases, the average selling
prices increased 3% for the second quarter and 5% year to date 1999 over
comparable periods in 1998. The higher selling prices are the result of
increased sales of our higher margin specialty products and decreased sales of
our lower margin commodity products. We are continuing our efforts to sell a
larger portion of the higher margin specialty products, while maintaining our
commodity products business when the margins are acceptable. The net sales of
the paper products segment represent 88% of the consolidated net sales for the
three months and six month periods ended June 30, 1999.
Net sales for the printing and converting segment were $2,347,000 for the three
months ending June 30, 1999, which is a $693,000 or 42% improvement over the
same period in 1998. Year to date net sales improved 54% to $4,664,000 in 1999
compared to $3,038,000 for the same period last year. The dramatic increase in
net sales is a direct result of production associated with the Chadwick printing
press installed in the second quarter of 1998. The net sales of the printing and
converting segment represent 12% of the consolidated net sales for the three
months and six month periods ended June 30, 1999.
Gross Profit
Gross profit for the second quarter ended June 30, 1999 was $2,111,000 or 13% of
net sales, compared to gross profit for the same period in 1998 of $1,742,000 or
10%. Year to date gross profit was $4,012,000 or 13% for 1999 and $3,576,000 or
10% for 1998.
Gross profit for the paper products segment was $1,819,000 for the three months
ending June 30, 1999, a $287,000 or 19% improvement over the same period in
1998. Year to date gross profit increased 9% to $3,420,000 in 1999 from
$3,135,000 for the same period last year. The improvement in gross profit can be
attributed to our strategy of taking downtime versus producing low margin
commodity products and our
9
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emphasis on replacing our commodity business with higher margin specialty
products. Even though we reported a reduction in net sales we have substantially
improved our gross margin due to product mix changes toward the specialty
products. Production on the paper machines was down 11% due to weak market
conditions. Pulp prices for the first six months of 1999 were lower than the
same period in 1998, but began to escalate during the second quarter of 1999. As
pulp prices continue to rise, we will be challenged to maintain our current
gross profit level.
Gross profit for the printing and converting segment was $291,000 for the three
months ending June 30, 1999, a $81,000 or 38% improvement over the same period
in 1998. Year to date gross profit increased 34% to $592,000 in 1999 from
$442,000 for the same period last year. The dramatic increase in gross profit
can be attributed to the increased capacity provided by the new Chadwick
printing press.
Selling and Administration
Selling and administration expenses were $2,491,000 for the first six months of
1999 compared to $2,246,000 for the same period of 1998. A majority of the
increased expenses for the paper products segment was the reorganization of
staffing from manufacturing to provide for a product development function within
the sales department and expenses associated with Year 2000 compliance.
Additionally, the printing and converting segment experienced increased salaries
and associated fringe benefits to support the additional capacity provided by
the new Chadwick printing press.
Other Income and Expense
In the second quarter of 1999 Badger Paper received $622,000 of life insurance
proceeds as beneficiary upon the death of a former President on March 23, 1999.
The proceeds include $231,000 of cash surrender value carried as other assets on
our balance sheet and $391,000 of non-recurring income. The funds were used for
debt reduction.
The Company recorded a non-recurring capital gain of $611,000 in the second
quarter of 1998 on the sale of the Company's offsite training facility.
Non-recurring executive termination expenses of $286,000 associated with the
early retirement of the former President and a Vice President was also booked in
the second quarter of 1998.
Other income (expense) for the six-month period ended June 30, 1998 included
$200,000 of realized gains on trade credits contracts that expired in 1998. We
have negotiated new contracts with several vendors and have begun utilizing
trade credits in April 1999.
Net Income
Net earnings for the three months ended June 30, 1999 were $625,000, which is
$48,000 or an 8% increase over the same period of 1998. Year to date net
earnings was $999,000 compared to $929,000 for the same period last year.
The net income of the paper products segment was $545,000 for the three months
ended June 30, 1999 and represents 87% of the consolidated net income. This
compares to $532,000 net income for the same period in 1998. Net income for the
six-month period ended June 30, 1999 was $826,000 or 83% of consolidated net
income. Prior year net income for the same period was $831,000.
The net income of the printing and converting segment was $80,000 for the three
months ended June 30, 1999 and represents 13% of the consolidated net income.
This compares to $45,000 net income for the same period in 1998. Net income for
the six-month period ended June 30, 1999 was $173,000 or 17% of consolidated net
income. Prior year net income for the same period was $98,000.
10
<PAGE>
Capital Resources and Liquidity
Capital Resources
As of June 30, 1999 the Company's capital resources for funding ongoing
operations include $2,580,000 of cash and marketable securities and a refinanced
$12,000,000 revolving credit facility put in place in January 1999. Borrowings
under this facility totaled $10,100,000 as of June 30, 1999. Pursuant to the
terms of the refinanced revolving credit facility, the Company made a special
payment of $1,885,000 on March 1, 1999, is making quarterly payments of $140,000
for the next three years and made an annual payment of $495,000 on July 1, 1999
on the Company's outstanding industrial development revenue bonds.
Cash provided by operations and the revolving credit facility are expected to
meet current and anticipated working capital needs, as well as fund the
company's planned capital expenditures.
Capital Expenditures
Capital expenditures during the first six months of 1999 were $896,000, compared
to $1,061,000 for the same period in 1998. Major projects in 1999 for the paper
products segment include the completion of a ramp and enclosure to our wax plant
warehouse, a rewinder for the wax department and a spare couch roll for the
Yankee paper machine. In early July 1999, the Company completed the installation
of an ABB process control system on the Fourdrinier paper machine. A new motor
control center for the paper mill was approved in the second quarter of 1999 and
it is anticipated the project will be completed by the end of 1999. Projects at
the printing and converting segment included improvements to the Chadwick press.
Cash Flows
Cash provided by operations was $554,000 for the six months ended June 30, 1999
compared to $531,000 for the same period in 1998. Increased inventories for the
six-month period ended June 30, 1999 were the result of a finished goods
stocking program initiated in the first quarter of 1999 and a build-up of
finished goods in anticipation of a one-week maintenance shutdown of the paper
machines on June 27, 1999. Escalating pulp prices, higher priced raw materials
for specialty products and increased inventories has increased accounts
payables. Accrued liabilities in 1998 were reduced for post retirement benefits
because of a reduced workforce due to restructuring in early 1998.
Net cash provided by investing activities was $1,204,000 for the six-month
period ended June 30, 1999, compared to $1,269,000 for the same period in 1998.
A majority of the funds were the proceeds of sales of marketable securities used
to make payments on the Company's industrial development revenue bonds.
Year 2000
Badger Paper Mills has established a Year 2000 Committee assigned the task of
assuring Year 2000 compliance for all information technology (IT) and non -IT
systems. The committee's goal is to achieve Year 2000 compliance by October 1,
1999.
State of Readiness - Information Technology
Our internal information technology staff has been assigned the responsibility
of assuring Year 2000 compliance for the Peshtigo and Oconto Falls facilities
for all information technology systems. This includes the main frame computer,
all personal computers, network servers, telephone system and all related
software. The staff has identified and tested all hardware and software that
must be tested for Year 2000 compliance.
11
<PAGE>
The main frame computer in Peshtigo is Year 2000 compliant for its hardware and
operating system. We have completed an estimated 10 to 15 percent of necessary
programming changes to the business systems to become Year 2000 compliant. We
have contracted with outside resources to review, test and complete required
programming changes on our business systems software. It is anticipated that
they will complete the programming changes by October 1, 1999.
The network servers at Peshtigo and Oconto Falls have been replaced, and a
majority of related hardware and software is Year 2000 compliant. We have
completed the upgrade or replacement of all but one of the twelve personal
computers at the Peshtigo facility that originally needed to be upgraded or
replaced due to Year 2000 compliance issues. The PC's at the Oconto Falls
facility are Y2K compliant.
State of Readiness - Non-Information Technology
Our internal engineering staff has assigned two employees the responsibility of
assuring Year 2000 compliance for all manufacturing aspects of the Peshtigo and
Oconto Falls facilities for all non-information technology systems. All
manufacturing equipment that have computerized process controllers or any date
sensitive data in computer chips have be reviewed. This includes the paper
machines, converting equipment, boilers, waste treatment facilities, printing
presses, lab equipment, and all related software. The staff has identified all
hardware and software that must be tested for Year 2000 compliance and have
completed the testing on 90% of them.
The most critical manufacturing equipment is the two paper machines and the
boilers. In 1998 we replaced the process computer on the Yankee paper machine
and a new process computer on the Fourdrinier paper machine was installed in
July 1999. Both process computers are Year 2000 compliant. The boilers are
capable of operating on natural gas or fuel oil and are Year 2000 compliant.
The engineering staff has reviewed all programmable logic controllers (PLC's) at
the Peshtigo facility and is upgrading the software or replacing the PLC's as
necessary. We estimate that approximately 95 percent of the PLC's have been
upgraded or replaced and are now Year 2000 compliant. The highest priority is
being assigned to manufacturing equipment that is critical to our operations or
has time sensitive components.
All non-technology systems at the Oconto Falls facility have been tested for
Year 2000 compliance and are considered compliant.
Costs
The costs of achieving Year 2000 compliance have not been material to date and
we do not expect the total costs to be more than $200,000. A majority of the
costs incurred are normal wages and benefits of our IT and engineering staffs.
Additional costs will be incurred for contract programming and system upgrades
and/or replacement. Cost estimates for contract programming of our business
systems have been received and are within the budgeted amount.
Contingency Plan
The Company's contingency plan for Year 2000 compliance problems is in the
process of being completed. A detail outline has been written and a contingency
checklist is being developed. We expect to finalize the contingency plan during
the third quarter 1999.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in interest on its long-term
debt. Interest rates are disclosed in the Company's annual report on Form 10-K
for the year-ended December 31, 1998, have not materially changed.
Even though a majority of the Company's debt is at variable interest rates, it
is felt the Company's exposure to interest rate fluctuations is immaterial to
the Company.
The Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Badger Paper Mills, Inc.
was held on Tuesday, May 11, 1999, at 10:00 a.m. at the Best
Western Riverfront Inn, 1821 Riverside Avenue, Marinette,
Wisconsin 54143.
(b) Two directors, whose terms expire at the 2002 Annual Meeting,
were elected at the May 11, 1999 Annual Meeting by a vote of
at least 1,458,785 shares "for", and at least 312,847 shares
withheld. The elected directors were Mark D. Burish and James
L. Kemerling. The directors continuing in office are L. Harvey
Buek and Thomas W. Cosgrove, whose terms expire at the Annual
Meeting in 2000, and Thomas J. Kuber and John R. Peterson,
whose terms expire at the Annual Meeting in 2001.
(c) The shareholders voted to approve the Badger Paper Mills, Inc.
1998 Stock Option Plan. The vote tallied was 1,062,856 shares
"for", and 452,968 shares "against" the Plan, with 6,100
shares abstaining.
(d) The shareholders voted against a shareholder proposal
requesting that the Company provide a written report of all
activities conducted by the Board and management with respect
to the consideration of strategic options. The vote tallied
was 434,183 shares "for", and 1,088,294 shares "against" such
proposal, with 22,726 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10.1) Badger Paper Mills, Inc. 1998 Stock Option Plan
(10.2) Form of Badger Paper Mills, Inc. 1998 Stock Option
Agreement
(27) Financial Data Schedules
(b) Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BADGER PAPER MILLS, INC.
(Company)
DATE: August 6, 1999 By /s/Thomas W. Cosgrove
----------------------------------
Thomas W. Cosgrove
President
(Chief Executive Officer)
DATE: August 6, 1999 By /s/George J. Zimmerman
---------------------------------
George J. Zimmerman
Treasurer
(Principal Financial Officer)
14
Exhibit 10.1
BADGER PAPER MILLS, INC.
1998 STOCK OPTION PLAN
Section 1. Purpose
The purpose of the Badger Paper Mills, Inc. Stock Option Plan (the
"Plan") is to promote the best interests of Badger Paper Mills, Inc. (together
with any successor thereto (the "Company"), its holders and its Subsidiaries as
defined in the Internal Revenue Code of 1986, as amended (the "Code"), and any
entities of which at least 20% of the equity interest is held directly or
indirectly by the Company (together "Affiliates"), by encouraging and providing
for the acquisition of an equity interest in the success of the Company by
officers and key employees and by enabling the Company and its Affiliates to
attract and retain the services of officers and key employees upon whose
judgment, interest, skills, and special effort the successful conduct of their
operations is largely dependent.
Section 2. Effective Date
The Plan shall become effective on May 12, 1998 subject, however,
to the approval of the Plan by the stockholders of the Company at the next
annual meeting of stockholders within twelve months following the date of
adoption of the Plan by the Board of Directors of the Company (the "Board").
Section 3. Administration
The Plan shall be administered by a committee (the "Committee") of
the Board, consisting of not less than two directors, each of whom shall qualify
as a "non-employee director" within the meaning of Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
as an "outside director" under Section 162(m)(4)(C) of the Code or any successor
provisions thereto. If at any time the Committee shall not be in existence, the
Board shall administer the Plan. To the extent permitted by applicable law, the
Board may delegate to another committee of the Board or to one or more senior
officers of the Company any or all of the authority and responsibility of the
Committee with respect to the Plan, other than with respect to participants who
are subject to Section 16 of the Exchange Act ("Section 16 participants"). To
the extent that the Board has delegated to such other committee or one or more
officers the authority and responsibility of the Committee, all references to
the Committee herein shall include such other committee or one or more officers.
Subject to the terms of the Plan and applicable law, the Committee
shall have full power and authority to interpret and administer the Plan and any
instrument or agreement relating to, or made under, the Plan, establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan, and make any other
determination and take any other action that the Committee
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<PAGE>
deems necessary or desirable for the administration of the Plan. The Committee's
decisions and determinations under the Plan need not be uniform and may be made
selectively among participants, whether or not they are similarly situated. A
majority of the members of the Committee shall constitute a quorum and all
determinations of the Committee shall be made by a majority of its members. Any
determination of the Committee under the Plan may be made without notice or
meeting of the Committee by a writing signed by a majority of the Committee
members.
Section 4. Eligibility and Participation
Participants in the Plan shall be selected by the Committee from
among those officers and other key employees of the Company and its Affiliates,
as the Committee may designate from time to time. The Committee shall consider
such factors as it deems appropriate in selecting participants and in
determining the type and amount of their respective benefits. The Committee's
designation of a participant in any year shall not require the Committee to
designate such person to receive a benefit in any other year.
Section 5. Stock Subject to Plan
5.1 Number. Subject to adjustment as provided in Section 5.3, the
total number of shares of Common Stock of the Company, no par value (the
"Stock"), which may be issued under the Plan shall be 130,000. The shares to be
delivered under the Plan may consist, in whole or in part, of authorized but
unissued Stock or treasury Stock. No participant shall be granted benefits under
the Plan that could result in such participant (i) receiving in any single
fiscal year of the Company options for more than 70,000 shares of Stock; or (ii)
receiving benefits in any single fiscal year of the Company relating to more
than 20,000 shares of Stock as restricted stock. Such number of shares of Stock
as specified in the preceding sentence shall be subject to adjustment in
accordance with the terms of Section 5.3 hereof. In all cases, determinations
under this Section 5 shall be made in a manner that is consistent with the
exemption for performance-based compensation provided by Section 162(m) of the
Code (or any successor provision thereto) and any regulations promulgated
thereunder.
5.2 Unused Stock: Unexercised Rights. If, after the effective date
of the Plan, any shares of Stock covered by an award granted under the Plan, or
to which any award relates, are forfeited or if an award otherwise terminates,
expires or is canceled prior to the delivery of all of the shares of Stock or of
other consideration issuable or payable pursuant to such award, then the number
of shares of Stock counted against the number of shares available under the Plan
in connection with the grant of such award, shall again be available for the
granting of additional awards under the Plan to the extent determined to be
appropriate by the Committee.
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<PAGE>
5.3 Adjustment in Capitalization. In the event that the Committee
shall determine that any dividend or other distribution (whether in the form of
cash, Stock, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Stock or other securities of the Company,
issuance of warrants or other rights to purchase Stock or other securities of
the Company, or other similar corporate transaction or event affects the Stock
such that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee may, in such
manner as it may deem equitable, adjust any or all of (i) the number and type of
shares of Stock subject to the Plan and which thereafter may be made the subject
of awards under the Plan; (ii) the number and type of shares of Stock subject to
outstanding awards; and (iii) the grant, purchase or exercise price with respect
to any award, or, if deemed appropriate, make provision for a cash payment to
the holder of an outstanding award; provided, however, in each case, that with
respect to awards of incentive stock options no such adjustment shall be
authorized to the extent that such authority would cause such options to cease
to be treated as incentive stock options; and provided further, however, that
the number of shares of Stock subject to any award payable or denominated in
Stock shall always be a whole number.
Section 6. Term of the Plan
No award shall be granted under the Plan after May 1, 2008.
However, unless otherwise expressly provided in the Plan or in an applicable
award agreement, any award theretofore granted may extend beyond such date and,
to the extent set forth in the Plan, the authority of the Committee to amend,
alter, adjust, suspend, discontinue or terminate any such award, or to waive any
conditions or restrictions with respect to any such award, and the authority of
the Board to amend the Plan, shall extend beyond such date.
Section 7. Stock Options
7.1 Grant of Options. Options may be granted to participants at any
time and from time to time as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number, terms and
conditions of options granted to a participant. The Committee also shall
determine whether an option is to be an incentive stock option within the
meaning of Section 422 of the Code or a nonqualified stock option.
7.2 Incentive Stock Options. Incentive stock options will be
exercisable at purchase prices of not less than One Hundred percent (100%) of
the fair market value of the Stock on the date of grant, as such fair market
value is determined by such methods or procedures as shall be established from
time to time by the Committee ("Fair Market Value"). Incentive stock options
will be exercisable over not more than ten (10) years after date of grant and
shall terminate not later than three (3) months after termination of employment
for any reason other than death or disability, except as otherwise provided by
the Committee. If the participant should die or become disabled within the
meaning of Code Section 22(e)(3) while employed, then the right of the
participant's successor in interest to exercise an incentive stock
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<PAGE>
option shall terminate not later than twelve (12) months after the date of death
or the date of termination due to disability, except as otherwise provided by
the Committee. In all other respects, the terms of any incentive stock option
granted under the Plan shall comply with the provisions of Section 422 of the
Code (or any successor provision thereto) and any regulations promulgated
thereunder.
7.3 Nonqualified Stock Options. Nonqualified stock options will be
exercisable at purchase prices of not less than One Hundred percent (100%) of
the Fair Market Value of the Stock on the date of grant, unless otherwise
determined by the Committee. Nonqualified stock options will be exercisable as
determined by the Committee over not more than ten (10) years after the date of
grant and shall terminate at such time as the Committee shall determine.
7.4 Award Agreement. Each option shall be evidenced by an award
agreement that shall specify the type of option granted, the option price, the
duration of the option, the number of shares of Stock to which the option
pertains and such other provisions as the Committee shall determine.
7.5 Fair Market Value. The Fair Market Value of the Stock shall be
determined by such methods or procedures as shall be established from time to
time by the Committee; provided, however, that the Fair Market Value shall not
be less than the par value of the Stock; and provided further, that so long as
the Stock is traded on a public market, Fair Market Value means the average of
the high and low prices of a share of Stock on the relevant date as reported on
the composite list used by the Wall Street Journal for reporting stock prices,
or if no such sale shall have been made on that day, on the last preceding day
on which there was such a sale.
7.6 Payment. The Committee shall determine the methods and the
forms for payment of the purchase price of options, including (a) by delivery of
cash or other shares or securities of the Company having a then Fair Market
Value equal to the purchase price of such shares; or (b) by delivery (including
by fax) to the Company or its designated agent of an executed irrevocable option
exercise form together with irrevocable instructions to a broker-dealer to sell
or margin a sufficient portion of the Stock and deliver the sale or margin loan
proceeds directly to the Company to pay the purchase price.
Section 8. Restricted Stock
8.1 Awards. The Committee is hereby authorized to issue restricted
stock to participants, with or without payment therefor, as additional
compensation, or in lieu of other compensation, for their services to the
Company and/or any Affiliate. Restricted stock shall be subject to such terms
and conditions as the Committee determines appropriate, including, without
limitation, restrictions on sale or other disposition and rights of the Company
to reacquire such restricted stock upon termination of the Participant's
employment within specified periods, as prescribed by the Committee.
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<PAGE>
8.2 Other Restrictions. Without limitation, such terms and
conditions may provide that restricted stock shall be subject to forfeiture if
the Company or the participant fails to achieve certain goals established by the
Committee over a designated period of time. The goals established by the
Committee may relate to any one or more of the following: revenues, earnings per
share, return on shareholder equity, return on average total capital employed,
return on net assets employed before interest and taxes, economic value added
and/or such other goals as may be established by the Committee in its
discretion. In the event the minimum goal established by the Committee is not
achieved at the conclusion of a period, all shares of restricted stock shall be
forfeited. In the event the maximum goal is achieved, no shares of restricted
stock shall be forfeited. Partial achievement of the maximum goal may result in
forfeiture corresponding to the degree of nonachievement to the extent specified
in writing by the Committee when the grant is made. The Committee shall certify
in writing as to the degree of achievement after completion of the performance
period.
8.3 Registration. Any restricted stock granted under the Plan to a
participant may be evidenced in such manner as the Committee may deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of restricted stock granted under the Plan to a
participant, such certificate shall be registered in the name of the participant
and shall bear an appropriate legend (as determined by the Committee) referring
to the terms, conditions and restrictions applicable to such restricted stock.
8.4 Other Rights. Unless otherwise determined by the Committee,
during the period of restriction, participants holding shares of restricted
stock granted hereunder may exercise full voting rights with respect to those
shares and shall be entitled to receive all dividends and other distributions
paid or made with respect to those shares while they are so held; provided,
however, that the Committee may provide in any grant of shares of restricted
stock that payment of dividends thereon may be deferred until termination of the
period of restriction and may be made subject to the same restrictions regarding
forfeiture as apply to such shares of restricted stock. If any such dividends or
distributions are paid in shares of Stock, the shares shall be subject to the
same restrictions on transferability as the shares of restricted stock with
respect to which they were paid.
8.5 Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment of a participant with the Company (as determined
under criteria established by the Committee) for any reason during the
applicable period of restriction, all shares of restricted stock still subject
to restriction shall be forfeited by the participant to the Company; provided,
however, that the Committee may, when it finds that a waiver would be in the
best interests of the Company, waive in whole or in part any or all remaining
restrictions with respect to shares of restricted stock held by a participant.
Section 9. Transferability
Each award granted under the Plan shall not be transferable other
than by will or the laws of descent and distribution, except that a participant
may, to the extent allowed by
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<PAGE>
the Committee and in a manner specified by the Committee (a) designate in
writing a beneficiary to exercise the award after the participant's death; or
(b) transfer any award; provided, however, that in no event may incentive stock
options be transferred other than by will or the laws of descent and
distribution.
Section 10. Rights of Employees
Nothing in the Plan shall interfere with or limit in any way the
right of the Company or any Affiliate to terminate any participant's employment
at any time nor confer upon any participant any right to continue in the employ
of the Company or any Affiliate.
Section 11. Change of Control
(a) In the event of a "Change of Control" (as hereinafter defined):
(i) each holder of an option (A) shall have the right
at any time thereafter to exercise the option in full whether or
not the option was theretofore exercisable; and (B) shall have the
right, exercisable by written notice to the Company within 60 days
after the Change of Control, to receive, in exchange for the
surrender of the option or any portion thereof to the extent the
option is then exercisable in accordance with clause (A), the
highest of (1) an amount of cash equal to the difference between
the Fair Market Value of the Stock covered by the option or portion
thereof that is so surrendered on the date of the Change of Control
and the purchase price of such Stock under the option, (2) an
amount of cash equal to the difference between the highest price
per share of Stock paid in the transaction giving rise to the
Change of Control and the purchase price per share of Stock under
the option multiplied by the number of shares of Stock covered by
the Option, or (3) an amount of cash equal to the difference
between the Fair Market Value of the Stock covered by the option or
portion thereof that is so surrendered, calculated on the date of
surrender, and the purchase price of such Stock under the option;
provided that the right described in this clause (B) shall be
exercisable only if a positive amount would be payable to the
holder pursuant to the formula specified in this clause (B); and
(ii) Restricted stock that is not then vested shall
vest upon the date of the Change of Control and each holder of such
restricted stock shall have the right, exercisable by written
notice to the Company within sixty (60) days after the Change of
Control, to receive, in exchange for the surrender of such
restricted stock, an amount of cash equal to the highest of (A) the
Fair Market Value of such restricted stock on the date of
surrender, (B) the highest price per share of Stock paid in the
transaction giving rise to the Change of Control multiplied by the
number of shares of restricted stock surrendered, or (C) the Fair
Market Value of such restricted stock on the effective date of the
Change of Control.
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<PAGE>
(b) A "Change of Control" of the Company shall be deemed to have
occurred for purposes of this Section 11 if the event set forth in any one of
the following paragraphs shall have occurred:
(i) any "Person" (as such term is defined in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that for purposes of this Section 11, the
term "Person" shall not include (1) the Company or any of its
subsidiaries, (2) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its
subsidiaries, (3) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (4) a corporation
owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock
in the Company) is or becomes the "Beneficial Owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly
from the Company or its affiliates) representing 30% or more of
either the then outstanding shares of Stock of the Company or the
combined voting power of the Company's then outstanding voting
securities; or
(ii) the shareholders of the Company approve a merger
or consolidation of the Company with any other corporation or
approve the issuance of voting securities of the Company in
connection with a merger or consolidation of the Company (or any
direct or indirect subsidiary of the Company) pursuant to
applicable stock exchange requirements, other than (1) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 30% of the
combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (2) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its
Affiliates) representing 30% or more of either the then outstanding
shares of common stock of the Company or the combined voting power
of the Company's then outstanding voting securities; or
(iii) the shareholders of the Company approve a plan
of complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (in one transaction or a
series of related transactions within any period of 24 consecutive
months), other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
75% of the combined
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<PAGE>
voting power of the voting securities of which are owned by Persons
in substantially the same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed to have
occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the Stock of the
Company immediately prior to such transaction or series of transactions continue
to have substantially the same proportionate ownership in an entity which owns
all or substantially all of the assets of the Company immediately following such
transaction or series of transactions.
(c) The Committee may, in its sole and absolute discretion, amend,
modify or rescind the provisions of this Section 11 if it determines that the
operation of this Section 11 may prevent a transaction in which the Company or
any Affiliate is a party from being accounted for on a pooling-of-interests
basis.
Section 12. Amendment, Modification and Termination of Plan
12.1 Amendments and Termination. The Board may at any time amend,
alter, suspend, discontinue or terminate the Plan; provided, however, that
stockholder approval of any amendment of the Plan shall be obtained if otherwise
required by (i) the Code or any rules promulgated thereunder (in order to allow
for incentive stock options to be granted under the Plan or to enable the
Company to comply with the provisions of Section 162(m) of the Code so that the
Company can deduct compensation in excess of the limitation set forth therein),
or (ii) the listing requirements of the principal securities exchange or market
on which the Stock is then traded (in order to maintain the listing or quotation
of the Stock thereon). To the extent permitted by applicable law, the Committee
may also amend the Plan, provided that any such amendments shall be reported to
the Board. Termination of the Plan shall not affect the rights of participants
with respect to awards previously granted to them, and all unexpired awards
shall continue in force and effect after termination of the Plan except as they
may lapse or be terminated by their own terms and conditions.
12.2 Waiver of Conditions. The Committee may, in whole or in part,
waive any conditions or other restrictions with respect to any award granted
under the Plan.
Section 13. Taxes
The Company shall be entitled to withhold the amount of any tax
attributable to any amount payable or shares of Stock deliverable under the Plan
after giving the person entitled to receive such amount or shares of Stock
notice as far in advance as practicable, and the Company may defer making
payment or delivery if any such tax may be pending unless and until indemnified
to its satisfaction. The Committee may, in its discretion and subject to such
rules as it may adopt, permit a participant to pay all or a portion of the
federal, state and local withholding taxes arising in connection with an award
under the plan by electing to (i) have the Company withhold shares of Stock,
(ii) tender back shares of Stock received in
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<PAGE>
connection with such benefit, or (iii) deliver other previously owned shares of
Stock, having a Fair Market Value equal to the amount to be withheld; provided,
however, that the amount to be withheld shall not exceed the participant's
estimated total federal, state and local tax obligations associated with the
transaction. The election must be made on or before the date as of which the
amount of tax to be withheld is determined and otherwise as required by the
Committee. The Fair Market Value of fractional shares of Stock remaining after
payment of the withholding taxes shall be paid to the participant in cash.
Section 14. Miscellaneous
14.1 Stock Transfer Restrictions.
(a) Shares of Stock purchased under the Plan may not be sold or
otherwise disposed of except (i) pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Act"), or in a transaction
which, in the opinion of counsel for the Company, is exempt from registration
under the Act; and (ii) in compliance with state securities laws. The Committee
may waive the foregoing restrictions, in whole or in part, in any particular
case or cases or may terminate such restrictions whenever the Committee
determines that such restrictions afford no substantial benefit to the Company.
(b) All certificates for shares delivered under the Plan pursuant
to any award or the exercise thereof shall be subject to such stock transfer
orders and other restrictions as the Committee may deem advisable under the Plan
and any applicable federal or state securities laws, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
references to such restrictions.
14.2 Other Provisions. The grant of any award under the Plan may
also be subject to other provisions (whether or not applicable to the benefit
awarded to any other participant) as the Committee determines appropriate,
including, without limitation, provisions for (a) one or more means to enable
participants to defer recognition of taxable income relating to awards or cash
payments derived therefrom, which means may provide for a return to a
participant on amounts deferred as determined by the Committee (provided that no
such deferral means may result in an increase in the number of shares of Stock
issuable hereunder); (b) the purchase of Stock under options in installments;
(c) the financing of the purchase of Stock under the options in the form of a
promissory note issued to the Company by a participant on such terms and
conditions as the Committee determines; (d) restrictions on resale or other
disposition; and (e) compliance with federal or state securities laws and stock
exchange or market requirements.
14.3 Award Agreement. No person shall have any rights under any
award granted under the Plan unless and until the Company and the participant to
whom the award was granted shall have executed an award agreement in such form
as shall have been approved by the Committee.
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<PAGE>
Section 15. Legal Construction
15.1 Requirements of Law. The granting of awards under the Plan and
the issuance of shares of Stock in connection with an award, shall be subject to
all applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
15.2 Governing Law. The Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of
Wisconsin.
15.3 Severability. If any provision of the Plan or any award
agreement or any award is or becomes or is deemed to be invalid, illegal or
unenforceable in any jurisdiction, or as to any person or award, or would
disqualify the Plan, any award agreement or any award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan, any award agreement or the award, such provision shall be stricken
as to such jurisdiction, person or award, and the remainder of the Plan, any
such award agreement and any such award shall remain in full force and effect.
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Exhibit 10.2
FORM OF
BADGER PAPER MILLS, INC.
1998 STOCK OPTION AGREEMENT
THIS AGREEMENT made and entered into as of the ___ day of ______, ____
(the "Grant Date"), by and between Badger Paper Mills, Inc., a Wisconsin
corporation (the "Company"), and ______________________, an employee of the
Company ("Participant").
R E C I T A L S
WHEREAS, the Company has in effect the Badger Paper Mills, Inc. 1998
Stock Option Plan (the "Plan"), which permits options to purchase shares of the
Company's common stock, no par value ("Stock"), to be granted to employees of
the Company, among others.
WHEREAS, the Company believes it to be in the best interests of the
Company and its shareholders for employees to obtain or increase their stock
ownership interest in the Company in order that they will have a greater
incentive to work for and manage the Company's affairs.
WHEREAS, the Participant is an employee of the Company and has been
selected by a committee of the Board of Directors of the Company appointed
pursuant to the Plan (the "Board") to receive an option under the Plan.
A G R E E M E N T
NOW, THEREFORE, in consideration of the promises and of the covenants
and agreements herein set forth, the parties hereby mutually covenant and agree
as follows:
1. Grant. Subject to the terms and conditions of the Plan, a copy of
which is made a part hereof, and this Agreement, the Company hereby grants to
Participant an option to purchase from the Company all or any part of an
aggregate number of __________ shares of Stock (hereinafter such shares of Stock
are referred to as the "Optioned Shares", and the option to purchase the
Optioned Shares is referred to as the "Option"). The Option is intended to
qualify as an "Incentive Stock Option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Vesting. The Option shall vest and become exercisable by Participant
during the period of his continuous employment by the Company with respect to
33-1/3 percent of the Optioned Shares on ________ __, _____, as to an additional
33-1/3 percent of the Optioned Shares on the first anniversary hereof in ______,
as to the remaining 33-1/3 percent of the Optioned Shares on the second
anniversary hereof in ______. If the Participant's employment with the Company
changes from full-time to part-time status or is interrupted by a leave of
absence, the Board, in its discretion, may delay the vesting of the Option
pursuant to this paragraph 2 for such period as it reasonably deems appropriate.
<PAGE>
3. Price. The price to be paid for the Optioned Shares shall be $______
per share. The price shall represent not less than one hundred percent (100%) of
the Fair Market Value of the Optioned Shares on the Grant Date if such Option is
an Incentive Stock Option.
4. Term; Exercise. Subject to the terms and conditions of the Plan and
this Agreement, the Option may be exercised by the Participant while in the
employ of the Company, in whole or in part, from time to time with respect to
any shares for which the right to exercise shall have accrued pursuant to
paragraph 2 hereof, but only during the period beginning on the date of this
Agreement and ending on the seventh anniversary hereof.
5. Limit on Incentive Stock Options. If the Option is an Incentive
Stock Option, to the extent that the aggregate fair market value, as determined
by the Board, of the Stock with respect to which Incentive Stock Options are
first exercisable by the Participant during any calendar year (under the Plan
and all other plans of the Company and its Subsidiaries) exceeds One Hundred
Thousand Dollars ($100,000), such Option as to the excess shall be treated as a
non-qualified stock option.
6. Method of Exercise.
(a) The Option may be exercised only by written notice,
delivered or mailed by postpaid registered or certified mail, addressed
to the treasurer of the Company at the Company's principal executive
offices specifying the number of Optioned Shares being purchased. Such
notice shall be accompanied by payment of the entire Option price of
the Optioned Shares being purchased: (i) in cash or its equivalent;
(ii) with the consent of the Board, by tendering previously acquired
shares of Stock valued at their Fair Market Value at the time of
exercise; or (iii) with the consent of the Board, by any combination of
(i) and (ii). For purposes of this paragraph, Fair Market Value shall
be determined in the same manner as the Fair Market Value of the Stock
on the Grant Date was determined pursuant to paragraph 3 hereof.
(b) Shares of Stock tendered shall be duly endorsed in blank
or accompanied by stock powers duly endorsed in blank. Upon receipt of
the payment of the entire purchase price of the Optioned Shares so
purchased, certificates for such Optioned Shares shall be issued to the
Participant. The Optioned Shares so purchased shall be fully paid and
nonassessable.
(c) If the Option is an Incentive Stock Option, the
requirements for incentive stock options under Section 422 of the Code
include minimum holding period requirements that require the Stock
acquired upon exercise of the Option to be held for at least two years
from the date of grant and one year from the date of exercise.
7. Termination of Employment.
(a) Except as otherwise provided by the Board, if the
Participant ceases to be an employee of the Company for any reason
other than for cause or due to death or disability (as defined below),
then the Participant may exercise the Option, to the extent
-2-
<PAGE>
vested and exercisable as of the date of the Participant's termination,
for a period of ninety (90) days after such termination of employment,
but in no event beyond the expiration date of the Option as specified
in paragraph 4 hereof (the "Expiration Date").
(b) If the Participant ceases to be an employee of the Company
by reason of death or disability as defined in Section 22(e)(3) of the
Code, then, notwithstanding the provisions of paragraph 2, the Option
shall be 100% vested on the date of death or disability and the
Participant (or the Participant's beneficiary or estate in the event of
the Participant's death) may exercise the Option for a period of one
(1) year following the date of death or disability, but in no event
beyond the Expiration Date.
(c) If the Participant's employment is terminated for "cause",
as determined by the Board, the Option shall terminate immediately upon
such termination of employment.
8. No Rights as a Shareholder. The Participant shall not be deemed for
any purposes to be a shareholder of the Company with respect to any shares that
may be acquired hereunder except to the extent that the Option shall have been
exercised with respect thereto and a stock certificate issued therefor.
9. Nontransferability; Collateral. The Option shall not be transferable
by the Participant otherwise than by will or the laws of descent and
distribution, and may be exercised during the life of the Participant only by
the Participant. The Option may not be assigned, mortgaged or pledged as any
type of security or collateral.
10. Restrictions on Transfers of Stock. The Participant agrees for
himself and his heirs, legatees and legal representatives, with respect to all
shares of Stock acquired pursuant to the terms and conditions of this Agreement
(or any shares of Stock issued pursuant to a stock dividend or stock split
thereon or any securities issued in lieu thereof or in substitution or exchange
therefor), that he and his heirs, legatees and legal representatives will not
sell or otherwise dispose of such shares except pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
or except in a transaction that, in the opinion of counsel for the Company, is
exempt from registration under the Act. As further conditions to the issuance of
the Optioned Shares, the Participant agrees for himself, and his heirs, legatees
and legal representatives, prior to such issuance, to execute and deliver to the
Company such investment representations and warranties, and to take such other
actions, as counsel for the Company determines may be necessary or appropriate
for compliance with the Act and any applicable securities laws. Unless otherwise
determined by the Board, the Participant agrees that any certificate
representing shares of Stock acquired upon exercise of the Option shall bear the
following legend:
-3-
<PAGE>
The shares of Stock represented by this certificate are restricted
securities as that term is defined under Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Act"). These shares may not be
sold, transferred or disposed of unless they are registered under the
Act, or sold in a transaction that is exempt from registration under
the Act and any applicable state securities laws.
11. Adjustments. If the Company shall at any time change the number of
shares of its Stock without new consideration to the Company (such as by stock
dividend, stock split or similar transaction), or in the event there shall be
any other change in the number or kind of outstanding shares of Stock or of any
stock or other securities into which such Stock shall have been changed or for
which it shall have been exchanged, then the number or kind of shares subject to
the Option and the Option price shall be subject to adjustment in accordance
with Section 5.3 of the Plan.
12. Powers of Company Not Affected. The existence of the Option herein
granted shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issuance of
bonds, debentures, preferred, or prior preference stock ahead of or affecting
the Stock or the rights thereof, or dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
13. Interpretation. As a condition of the granting of the Option, the
Participant agrees for himself and his legal representatives, that any dispute
or disagreement which may arise under or as a result of or pursuant to this
Agreement shall be determined by the Board in its sole discretion, and any
interpretation by the Board of the terms of this Agreement shall be final,
binding and conclusive. Without derogation of the foregoing, whenever the
context requires, the gender of all words used herein shall not be restrictive,
and the singular shall include the plural and vice versa.
14. Amendment or Modification. No term or provision of this Agreement
may be amended, modified or supplemented orally, but only by an instrument in
writing signed by the party against whom or which the enforcement of the
amendment, modification or supplement is sought.
15. Governing Law. This Agreement shall be governed by the internal
laws of the State of Wisconsin as to all matters, including, but not limited to,
matters of validity, construction, effect, performance and remedies.
16. Terms of Plan Govern. All parties acknowledge that this option is
granted under and pursuant to the Plan, which shall govern all rights,
interests, obligations and undertakings of both the Company and the Participant.
All capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Plan.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officers and its corporate seal hereunto
affixed, and the Participant has hereunto affixed his hand the day and year
first above written.
BADGER PAPER MILLS, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
PARTICIPANT:
__________________________________________
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF BADGER PAPER MILLS, INC. AS OF AND FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,932
<SECURITIES> 500
<RECEIVABLES> 6,000
<ALLOWANCES> 0
<INVENTORY> 8,243
<CURRENT-ASSETS> 18,645
<PP&E> 65,985
<DEPRECIATION> 39,223
<TOTAL-ASSETS> 47,936
<CURRENT-LIABILITIES> 11,467
<BONDS> 0
2,700
0
<COMMON> 0
<OTHER-SE> 203
<TOTAL-LIABILITY-AND-EQUITY> 47,936
<SALES> 31,994
<TOTAL-REVENUES> 31,994
<CGS> 27,982
<TOTAL-COSTS> 30,473
<OTHER-EXPENSES> (528)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 536
<INCOME-PRETAX> 1,513
<INCOME-TAX> 514
<INCOME-CONTINUING> 999
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 999
<EPS-BASIC> .51
<EPS-DILUTED> .51
</TABLE>
