<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30,1998
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 Number: 0-20967
UFP TECHNOLOGIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2314970
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
172 East Main Street, Georgetown, Massachusetts 01833
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(978) 352-2200
--------------
(Registrant's telephone number, including area code)
-----------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
Yes X No
----- -----
As of July 23, 1998, 4,677,354 shares of registrant's Common Stock, $.01 par
value, were outstanding.
<PAGE>
UFP TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997............................... 1
Consolidated Statements of Operations
Three Months and Six Months Ended
June 30, 1998 and 1997............................................ 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997........................... 3
Notes to Consolidated Financial Statements........................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 5
PART II - OTHER INFORMATION............................................................ 8
SIGNATURES............................................................................. 9
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
UFP TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
30-Jun-98 31-Dec-97
---------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 880,316 $ 233,452
Receivables, net 6,406,889 6,413,251
Inventories 3,372,395 3,053,299
Prepaid expenses and other current assets 82,298 146,800
---------------- ----------------
Total current assets 10,741,898 9,846,802
---------------- ----------------
Property, plant and equipment 20,764,294 20,110,727
Less accumulated depreciation and amortization (9,743,911) (8,920,621)
---------------- ----------------
Net property, plant and equipment 11,020,383 11,190,106
---------------- ----------------
Goodwill, net 2,455,366 2,539,367
Other assets 1,576,574 1,618,492
---------------- ----------------
Total assets $ 25,794,221 $ 25,194,767
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,500,000 $ 2,500,000
Current installments of long-term debt 53,721 111,888
Current installments of capital lease obligations 943,692 913,170
Accounts payable 1,806,786 1,540,377
Accrued expenses and payroll withholdings 2,268,534 2,202,817
---------------- ----------------
Total current liabilities 7,572,733 7,268,252
Long-term debt, excluding current installments 600,038 624,641
Capital lease obligations, excluding current installments 2,144,992 2,608,768
Retirement liability 689,896 559,896
---------------- ----------------
---------------- ----------------
Total liabilities 11,007,659 11,061,557
---------------- ----------------
Stockholders equity
Preferred stock 0 0
Common stock 57,664 46,664
Additional paid-in capital 9,532,019 9,499,019
Retained earnings 5,196,879 4,587,527
---------------- ----------------
Total stockholders equity 14,786,562 14,133,210
---------------- ----------------
Total liabilities and stockholders' equity $ 25,794,221 $ 25,194,767
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
30-Jun-98 30-Jun-97 30-Jun-98 30-Jun-97
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 11,318,065 11,208,766 22,068,025 22,160,315
Cost of sales 8,169,212 8,170,061 16,074,464 16,395,827
------------ ----------- ----------- -----------
Gross profit 3,148,853 3,038,705 5,993,561 5,764,488
Selling, general and administrative expenses 2,392,644 2,350,229 4,711,240 4,620,036
------------ ----------- ----------- -----------
Operating income 756,209 688,476 1,282,321 1,144,452
Interest expense 134,839 174,154 278,884 310,688
Other (income) (2,494) 0 (35,914) 0
------------ ----------- ----------- -----------
Income before income taxes 623,864 514,322 1,039,351 833,764
Income taxes 256,000 216,000 430,000 350,000
------------ ----------- ----------- -----------
Net income $ 367,864 298,322 609,351 483,764
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Basic net income per share $ 0.08 0.06 0.13 0.10
Diluted net income per share $ 0.08 0.06 0.13 0.10
Weighted average number of shares used in computation of per share data:
Basic 4,677,354 4,653,024 4,671,854 4,641,359
Diluted 4,888,265 4,844,715 4,857,922 4,882,947
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
30-Jun-98 30-Jun-97
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 609,351 $ 483,764
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 907,292 839,455
Equity in net income (loss) of unconsolidated affiliate and partnership (17,984) 8,590
Deferred income taxes 523 0
Stock issued in lieu of compensation 44,000 33,750
Changes in operating assets and liabilities:
Receivables, net 6,362 (70,960)
Inventories (319,096) (596,582)
Prepaid expenses and other current assets 64,502 130,216
Accounts payable 266,409 (134,496)
Accrued expenses and payroll withholdings 65,717 52,082
Retirement liability 130,000 30,000
----------- -----------
Net cash provided by operating activities 1,757,076 775,819
Cash flows from investing activities:
Additions to property, plant and equipment (653,567) (541,550)
Acquisition of Foam Cutting Engineers, net of cash acquired 0 (1,512,879)
Change in other assets 59,379 3,161
----------- -----------
Net cash used in investing activities (594,188) (2,051,268)
Cash flows from financing activities:
Net borrowings under notes payable 0 2,000,000
Principal repayments of long-term debt (82,770) (91,046)
Principal repayments of capital lease obligations (433,254) (355,018)
Net proceeds from sale of common stock 0 39,412
----------- -----------
Net cash provided by financing activities (516,024) 1,593,348
----------- -----------
Net change in cash and cash equivalents 646,864 317,899
Cash and cash equivalents, at beginning of period 233,452 143,531
----------- -----------
Cash and cash equivalents, at end of period 880,316 461,430
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
UFP TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The interim consolidated financial statements of UFP Technologies,
Inc. (the Company) presented herein, without audit, have been prepared
pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q and do not include all the information and
note disclosures required by generally accepted accounting principles.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31,
1997, included in the Company's 1997 Annual Report on Form 10-K as
provided to the Securities and Exchange Commission.
The condensed consolidated balance sheet as of June 30, 1998, the
consolidated statements of operations for the three and six months ended
June 30, 1998 and 1997, and the consolidated statements of cash flows for
the six months ended June 30, 1998 and 1997, are unaudited but, in the
opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for fair presentation of results for
these interim periods.
The results of operations for the six months ended June 30, 1998, are
not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1998.
(2) Inventory
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
30-Jun-98 31-Dec-97
----------- -----------
<S> <C> <C>
Raw materials $ 2,137,666 $ 1,933,740
Work-in-process 448,460 395,592
Finished goods 786,269 723,967
----------- -----------
Total Inventory 3,372,395 3,053,299
----------- -----------
----------- -----------
</TABLE>
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
(3) Common Stock
At December 31, 1997, 697,500 options were outstanding under the
Company's 1993 Employee Stock Option Plan ("1993 Plan"). The purpose of
these options is to provide long-term rewards and incentives to the
Company's key employees, officers, employees, directors, consultants and
advisors. There were 95,000 options issued and zero options exercised in
the first six months of 1998 under the 1993 Plan, and zero options
expired. At June 30, 1998, 792,500 options were outstanding under the
plan.
4
<PAGE>
At December 31, 1997, 40,000 options were outstanding under the
Company's 1993 Non-Employee Director Plan ("1993 Director's Plan"). There
were 2,500 options issued and no options were exercised or expired in the
first six months of 1998. At June 30, 1998, 42,500 options were
outstanding under the 1993 Director's Plan.
(4) Earnings per share
The Company has adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share
with a calculation of basic and diluted earnings per share. Basic
earnings per share is computed based on the weighted average number of
shares of common stock outstanding. Diluted earnings per share is based
upon the weighted average of common shares and dilutive common stock
equivalent shares outstanding during each period. All earnings per share
amounts for all periods have been restated to conform to SFAS No. 128
requirements. The weighted average number of shares used to compute
diluted income per share consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
30-Jun-98 30-Jun-97 30-Jun-98 30-Jun-97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 4,677,354 4,653,024 4,671,854 4,641,359
Weighted average common equivalent shares due
to stock options 210,911 191,691 186,068 241,588
--------- --------- --------- ---------
4,888,265 4,844,715 4,857,922 4,882,947
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Sales
Net sales for the three month period ended June 30, 1998 were $11.3 million or
1% above sales of $11.2 million in the same period last year. Sales for the six
month period ended June 30, 1998 decreased slightly from $22.2 million a year
ago to $22.1 million. Both sales patterns primarily reflect general volume
increases offset by volume slowdowns at two large electronics customers affected
by the Asian crisis.
Gross Profit
Gross Profit as a percentage of sales improved in both the three and six month
periods ended June 30, 1998 from 27.1% and 26.0% to 27.8% and 27.2%,
respectively. The improvements are primarily
5
<PAGE>
attributable to continued business mix improvements and favorable overhead
absorption in certain plants.
Selling General and Administrative Expenses
Selling, General and Administrative expenses ("SG&A") for the three month period
ended June 30, 1998 were $2,393,000 or 1.8% higher than SG&A of $2,350,000 in
the same period a year ago. SG&A for the six month period was $4,711,000 or 2.0%
higher than SG&A of $4,620,000 last year. Both increases are primarily
attributable to additions to the management team as well as to the
implementation of new information software systems.
Other
Interest expense for the three month periods ended June 30, 1998 and 1997 were
$135,000 and $174,000, respectively. Interest for the six month periods ended
June 30, 1998 and 1997 were $279,000 and $311,000, respectively. The decline in
both periods is primarily attributable to lower average borrowings.
The Company's effective tax rate for the three and six month periods ended June
30, 1998 was 41% and 41.4% respectively, compared to 42% in both periods a year
ago.
Liquidity and Capital Resources
The Company funds its operating expenses, capital requirements and growth plan
through internally generated cash, bank credit facilities and long-term capital
leases.
At June 30, 1998 and December 31, 1997 the Company's working capital was
approximately $3,402,000 and $2,579,000, respectively. The increase in working
capital was primarily attributable to an increase in cash and inventory of
approximately $647,000 and $319,000, respectively. During the six month periods
ended June 30, 1998 and 1997, operating activities of the Company provided
approximately $1,757,000 and $776,000 in cash, respectively. The increase was
primarily attributable to improved profits of $126,000, a smaller increase in
inventory of approximately $277,000 and a change in accounts payable deviation
of approximately $401,000. Net cash used in investing activities during the six
month periods ending June 30, 1998 and 1997, was approximately $594,000 and
$2,051,000, respectively. The primary use of funds for investing activities in
the current six month period was to purchase fixed assets. The decline in usage
of cash for investing activities from 1997 to 1998 primarily reflects the impact
in 1997 of the acquisition of Foam Cutting Engineers, Inc. Net cash used in
financing activities for the six month period ended June 30, 1998 was
approximately $516,000 compared to cash provided by financing activities of
approximately $1,593,000 in 1997. The change reflects differences in net
borrowing activity between the two periods primarily as a result of the prior
year acquisition of Foam Cutting Engineers, Inc.
While the Company does not have any significant capital commitments, it intends
to continue to invest in capital equipment to support its operations. The
Company is also engaged in discussions with certain parties regarding potential
strategic acquisitions, but presently does not have any
6
<PAGE>
agreements to enter into any such acquisitions. The Company intends to fund any
such acquisitions with working capital and bank financing. There can be no
assurances that such financing would be available on favorable terms, if at all.
The Company has a $7,500,000 revolving bank loan facility, of which $2,500,000
was outstanding at June 30, 1998. This facility expires on June 30, 1999.
Borrowings through this credit facility are unsecured, and bear interest at
LIBOR plus 1.75% or prime. In addition, at June 30, 1998, the Company had
capitalized equipment lease debt and other notes payable of approximately
$3,089,000 and $654,000, respectively. At June 30, 1998 the current portion of
all debt obligations was $3,264,000.
The Company believes that its existing resources, including its revolving loan
facility, together with cash generated from operations and funds expected to be
available to it through any necessary equipment financing and additional bank
borrowings, will be sufficient to fund its cash flow requirements through at
least the end of 1998. However, there can be no assurances that such financing
will be available at favorable terms, if at all.
Year 2000 Data Conversion
The Company is in the process of implementing comprehensive computer systems
which are prepared for the year 2000. The implementation schedule anticipates a
complete conversion prior to January 1, 2000. The Company presently believes
that, with the conversion to new software, the year 2000 problem will not pose a
significant operational problem to the Company. However, there can be no
assurance that the systems of other parties upon which the Company's businesses
also rely, including but not limited to the Company's customers and suppliers,
will be converted on a timely basis. The Company's business, financial
condition, or results of operations could be materially adversely affected by
the failure of its systems or those of other parties to operate or properly
manage dates beyond 1999.
* * * * *
7
<PAGE>
PART II - OTHER INFORMATION
UFP TECHNOLOGIES, INC.
Item 1 Legal Proceedings: No material litigation.
Item 2 Changes in Securities: None
Item 3 Defaults Upon Senior Securities: None
Item 4 Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on June 3,
1998. There were two proposals before the stockholders at the
Annual Meeting. First, the stockholders elected the members of the
Board of Directors of the Company. The votes for such matter were
as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
William H. Shaw 3,739,855 3,500
Richard L. Bailly 3,739,855 3,500
R. Jeffrey Bailly 3,739,810 3,545
William C. Curry 3,739,855 3,500
T. Gordon Roddick 3,739,855 3,500
Kenneth L. Gestal 3,739,855 3,500
Peter R. Worrell 3,739,855 3,500
</TABLE>
There were no abstentions nor broker nonvotes in connection with
the election of Directors.
Second, the stockholders approved the adoption of the Company's
1998 Employee Stock Purchase Plan by a vote of 3,718,368 for and
16,545 against. There were 8,442 abstentions and no broker
nonvotes for the proposal.
Item 5 Other Information: None
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(4.5) 1998 Director Stock Option Incentive Plan
(incorporated herein by reference to the
Company's Registration Statement of Form S-8
Registration No. 333-56741)
(10.19) 1993 Combined Stock Option Plan, as amended.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file a report on Form 8-K for the
reporting period.
8
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UFP TECHNOLOGIES, INC.
(Registrant)
August 10, 1998 /s/ R. Jeffrey Bailly
- --------------- ------------------------------------------------
Date R. Jeffrey Bailly
President, Chief Executive Officer
and Director
August 10, 1998 /s/ Ronald J Lataille
- --------------- ------------------------------------------------
Date Ronald J. Lataille
Vice President, Chief Financial Officer
9
<PAGE>
UFP TECHNOLOGIES, INC.
(a Delaware Corporation)
1993 STOCK OPTION PLAN
(As Amended on April 16, 1998)
1. Statement of Purpose. The purpose of this Stock Option Plan (the
"Plan") is to benefit UFP TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), through the maintenance and development of its businesses by
offering certain present and future key individuals a favorable opportunity to
become holders of stock in the Company over a period of years, thereby giving
them a permanent stake in the growth and prosperity of the Company and
encouraging the continuance of their involvement with the Company and/or its
subsidiaries.
2. Administration. The Plan shall be administered by the Stock Option
Committee (the "Committee") of the Board of Directors or any other committee of
the Board of Directors selected by the Board of Directors. If no Committee shall
be appointed, this Plan shall be administered by the full Board of Directors,
which Board shall be deemed the Committee for purposes of this Plan. The
Committee shall have full and plenary authority to interpret the terms and
provisions of the Plan.
3. Eligibility. Options shall be granted only to key employees of the
Company and its subsidiaries (including officers, and including directors of the
Company and its subsidiaries who are also employees), and consultants and
advisors of the Company and its subsidiaries (where bona fide services were
rendered and such services were not in connection with the offer and sale of
securities in a capital raising transaction), but excluding the Directors of the
Company who are not employees of the Company, selected initially and from time
to time thereafter by the Committee on the basis of their importance to the
business of the Company or its subsidiaries.
4. Granting of Options. The Committee may grant options under which a
total of not in excess of 1,050,000 Shares of the $.01 par value Common Stock of
the Company ("Common Stock") may be purchased from the Company, subject to
adjustment as provided in Section 12 hereof. The Committee may, in its
discretion grant under the Plan either non-qualified stock options or incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986
(the "Code"), provided, however, that incentive stock options may only be
granted to employees of the Company or its subsidiaries. A maximum of 525,000
shares (subject to adjustment as provided in Section 12 hereof) may be subject
to options granted to Directors of the Company and/or its subsidiaries who also
serve as employees. The grant of a non-qualified stock option shall be evidenced
by a written Non-Qualified Stock Option Agreement, executed by the Company and
the holder of a
<PAGE>
non-qualified stock option, stating the number of shares of Common Stock subject
to such non-qualified stock option evidenced thereby and in such form as the
Committee may from time to time determine. The grant of an incentive stock
option shall be evidenced by a written Incentive Stock Option Agreement,
executed by the Company and the holder of the incentive stock option, stating
the number of shares of Common Stock subject to such incentive stock option
evidenced thereby and in such form as the Committee may from time to time
determine.
In the event that an option expires or is terminated or cancelled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a cancelled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock.
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued in the employment of
the Company or any subsidiary of the Company, or interfere in any way with the
right of the Company or its subsidiaries to terminate an employee's employment
at any time, or interfere in any way with the right of the Company or its
subsidiaries to terminate any consulting or other compensation arrangement
between the Company or any subsidiary of the Company, and any consultant or
advisor of the Company or such subsidiary.
5. Exercise Price. The exercise price shall be determined by the
Committee in its discretion, and may be greater than, or less than the fair
market value, at the time the option is granted, of the shares of Common Stock
subject to the option, provided, however, that the exercise price of an
incentive stock option shall be not less than the fair market value, at the time
the option is granted, of the shares of Common Stock subject to the option. If
one or more incentive stock options are granted to an employee who, at the time
of grant, owns more than ten percent (10%) of the total voting power of all
classes of stock of the Company (a "10% Owner"), the exercise price under such
incentive stock option shall be not less than 110% of said fair market value.
Such fair market value shall be deemed to be the last trading price of the
Common Stock on the trading day next preceding the date of the grant of the
option except that if the Common Stock is then listed on any national exchange,
fair market value shall be the mean between the high and low sales price on the
trading day next preceding the date of grant of the option. If shares of the
Common Stock shall not have been traded on any national exchange or interdealer
quotation system for more than 10 days immediately preceding the date of grant
of such option or if deemed appropriate by the Committee for any other reason,
the fair market value of shares of Common Stock shall be determined by the
Committee in such other manner as it may deem appropriate. In no event shall the
exercise price of any share of Common Stock be less than its par value.
- 2 -
<PAGE>
6. Duration of Options, Increments, and Extensions. Subject to the
provisions of Section 8 hereof, each option shall be for a term of not more than
ten years, provided, however, that incentive stock options granted to employees
who, at the time of the grant, are 10% Owners shall be for a term of not more
than five years. Each option shall become exercisable with respect to 25% of the
total number of shares subject to the option twelve months after the date of its
grant and, with respect to each additional 25%, at the end of each twelve-month
period thereafter during the succeeding three years. Notwithstanding the
foregoing, the Committee may, in its discretion (i) specifically provide at the
date of grant of another time or times of exercise; (ii) accelerate the
exercisability of such option subject to such terms as the Committee deems
necessary and appropriate to effectuate the purpose of the Plan, including,
without limitation, a requirement that the optionee grant to the Company an
option to repurchase all or a portion of the number of shares acquired upon
exercise of the accelerated option for their fair market value on the date of
grant; or (iii) at any time prior to the expiration or termination of any
non-qualified stock option previously granted, extend the term of any such
option (including such non-qualified stock options held by officers or
directors) for such period as the Committee in its discretion shall determine.
In no event, however, shall the aggregate option period with respect to any
option, including the original term of the option and any extensions thereof,
exceed ten years. Subject to the foregoing, all or any part of the shares to
which the right to purchase has accrued may be purchased at the time of such
accrual or at any time or times thereafter during the option period.
7. Exercise of Option. Each stock option agreement shall set forth the
procedure governing the exercise of the stock option granted thereunder, and
shall provide that, upon such exercise in respect of any shares of common Stock
subject thereto, the optionee shall pay the Company, in full, the option price
for such shares with cash or its equivalent or with previously owned Common
Stock, or by a combination of these methods of payment. In the discretion of the
Committee, payment may also be made by delivery (including delivery by facsimile
transmission) to the Company or its designated agent of an executed irrevocable
option exercise form together with irrevocable instructions to a broker-dealer
to sell a sufficient portion of the shares and deliver the sale proceeds
directly to the Company to pay for the exercise price, or by any other means
which the Committee determines to be consistent with the Plan's purpose and
applicable law. Alternatively the option may provide that the optionee may elect
to direct the Company to withhold such number of shares issuable upon exercise
of the option as is necessary to fund the exercise price. For the purpose of
this paragraph, the per share value of the Common Stock of the Company shall be
the fair market value on the date of exercise. Any optionee holding two or more
options that are partially or wholly exercisable at the same time may exercise
said options (to the extent they are then
- 3 -
<PAGE>
exercisable) in any order the optionee chooses, regardless of the order in which
said options were granted.
At the time of exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the optionee (or his
heirs, legatees, or legal representative, as the case may be) as a condition
upon the exercise thereof to deliver to the Company a written representation of
present intention to purchase the shares for investment and not for
distribution. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the optionee
upon his exercise of part or all of the option and a stop transfer order may be
placed with the transfer agent. Each option shall also be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the shares subject to the option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of or in connection with, the issue or purchase of shares thereunder,
the option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
8. Termination of Relationship - Exercise Thereafter. In the event the
relationship between the Company and a director, officer, other employee,
consultant or advisor who is an optionee is terminated for any reason other than
death, permanent disability or retirement, such optionee's option may be
exercised (to the extent exercisable by the optionee on the date of such
termination) by the optionee, or if he or she is not living, by his or her
heirs, legatees or legal representatives, as the case may be, during its
specified term but not later than three (3) months after the date of such
termination, and in any event not later than ten (10) years after the date the
option was granted. Temporary absences because of illness, vacation, approved
leaves of absence, and transfers among the Company and its subsidiaries, shall
not be considered to terminate the employment or consulting relationship with
the optionee or to interrupt continuous employment.
In the event of termination of said relationship because of death,
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), or retirement (at age 65 or
earlier as may be permitted by the Company), the option may be exercised in
full, without regard to any installments established under Section 6 hereof, by
the optionee or, if he is not living, by his heirs, legatees, or legal
representative, as the case may be, during its specified term, but not later
than one (1) year after the date of death, permanent disability, or retirement,
and in any event not later than ten (10) years after the date the option was
granted.
- 4 -
<PAGE>
9. Withholding Taxes. Whenever the Company is required to issue or
transfer shares of Common Stock under the Plan, the Company shall have the right
to require the grantee to remit to the Company an amount sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. In the discretion
of the Committee, payment of such withholding taxes may be made by delivery
(including delivery by facsimile transmission) to the Company or its designated
agent of irrevocable instructions to a broker-dealer to sell a sufficient
portion of the shares and deliver the sale proceeds directly to the Company to
pay for the withholding taxes. Alternatively, the Company may, in its
discretion, issue or transfer such shares of Common Stock net of the number of
shares sufficient to satisfy the withholding tax requirements. For withholding
tax purposes, the shares of Common Stock shall be valued on the date the
withholding obligation is incurred.
10. Non-Transferability of Options. No option shall be transferable by
the optionee otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by Code, Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and each option shall be exercisable during an optionee's lifetime
only by the optionee.
11. Limitation on Amounts of Incentive Stock Options Granted. The
aggregate fair market value (determined as of the date of grant) of stock for
which incentive stock options granted to an optionee under this Plan become
first exercisable shall not exceed One Hundred Thousand Dollars ($100,000)
during any calendar year.
12. Adjustment. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
outstanding shares of Common Stock of the Company is changed by any stock
dividend, stock split or combination of shares, the number of shares subject to
the Plan and to options granted thereunder shall be proportionately adjusted;
(b) in the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted, on an
equitable basis as determined by the Committee, for each share of Common Stock
then subject to the Plan, whether or not at the time subject to outstanding
options, the number and kind of shares of Stock or other securities to which the
holders of shares of Common Stock of the Company will be entitled pursuant to
the transaction; and (c) in the event of any other relevant change in the
capitalization of the Company, the Committee shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the Plan,
whether or not then subject to outstanding options. In the event of any such
adjustment, the purchase price per share shall be proportionately adjusted.
- 5 -
<PAGE>
13. Termination and Amendment of Plan. This Plan shall terminate ten
years from the effective date of this Plan, and an option shall not be granted
under the Plan after that date. The Plan may at any time or from time to time be
terminated, modified, or amended by the affirmative vote of a majority in
interest of the voting stock of the Company. The Board of Directors may at any
time and from time to time modify or amend the Plan in respects as it shall deem
advisable to conform to any change in the law, or in any other respect, provided
that any amendment by the Board of Directors which would (a) materially increase
the benefits accruing to participants under the Plan, (b) increase the number of
securities which may be issued under the plan (other than an increase pursuant
to Section 12 hereof), or (c) materially modify the requirements as to
eligibility for participation in the plan must be approved by a majority vote of
the stockholders within twelve months before or after the effective date of such
increase or change. In no event shall any amendment of the Plan (i) change or
impair any options previously granted without the consent of the optionee, or
(ii) extend the term of the plan.
14. Effective Date. This Plan as originally adopted, became effective
on October 15, 1993. The Plan was amended on April 4, 1995 and on April 16,
1998.
- 6 -
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