<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
UFP TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
UFP TECHNOLOGIES, INC.
172 EAST MAIN STREET
GEORGETOWN, MASSACHUSETTS 01833-2107 USA
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
UFP TECHNOLOGIES, INC.
TO BE HELD ON JUNE 9, 1999
The Annual Meeting of Stockholders of UFP Technologies, Inc. (the "Company")
will be held on June 9, 1999 at 10:00 a.m., local time, at the Ferncroft Tara
Hotel, 50 Ferncroft Road, Danvers, Massachusetts 01923, for the following
purposes:
1. To elect seven (7) directors to serve for the ensuing year and until
their successors are duly elected.
2. To consider and act upon a proposed amendment to the Company's
certificate of incorporation to provide for the classification of the Board
of Directors into three classes of directors with staggered terms of office
and to make certain related changes.
3. To consider and act upon a proposed adoption of the Company's 1998
Director Stock Option Incentive Plan.
4. To consider and act upon any matters incidental to the foregoing
purposes and any other matters which may properly come before the Meeting or
any adjourned session thereof.
The Board of Directors has fixed April 23, 1999 as the record date for
determining the stockholders entitled to notice of, and to vote at, the Meeting.
You are cordially invited to attend the Meeting.
By Order of the Board of Directors
RICHARD L. BAILLY,
SECRETARY
Boston, Massachusetts
May 4, 1999
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO VOTE, SIGN, DATE AND RETURN THE ACCOMPANYING ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
EVEN IF YOU HAVE GIVEN YOUR PROXY, THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
THE EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION,
BY EXECUTING A PROXY WITH A LATER DATE, OR BY ATTENDING AND VOTING AT THE
MEETING.
<PAGE>
UFP TECHNOLOGIES, INC.
172 EAST MAIN STREET
GEORGETOWN, MASSACHUSETTS 01833-2107 USA
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 1999
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of UFP Technologies, Inc., a Delaware
Corporation (the "Company") with its principal executive offices at 172 East
Main Street, Georgetown, Massachusetts 01833, for use at the Annual Meeting of
Stockholders to be held on June 9, 1999, and at any adjournment or adjournments
thereof (the "Meeting"). The enclosed proxy relating to the Meeting is solicited
on behalf of the Board of Directors of the Company and the cost of such
solicitation will be borne by the Company. It is expected that this proxy
statement and the accompanying proxy will be mailed to stockholders on or about
May 4, 1999. Certain of the officers and regular employees of the Company may
solicit proxies by correspondence, telephone or in person, without extra
compensation. The Company may also pay to banks, brokers, nominees and certain
other fiduciaries their reasonable expenses incurred in forwarding proxy
material to the beneficial owners of securities held by them.
Only stockholders of record at the close of business on April 23, 1999 will
be entitled to receive notice of, and to vote at, the Meeting. As of that date,
there were outstanding and entitled to vote 4,780,088 shares of Common Stock,
$.01 par value (the "Common Stock"), of the Company. Each such stockholder is
entitled to one vote for each share of Common Stock so held and may vote such
shares either in person or by proxy.
The enclosed proxy, if executed and returned, will be voted as directed on
the proxy or, in the absence of such direction, in favor of (i) the election of
the nominees as directors; (ii) the amendment of the Company's certificate of
incorporation to provide for a classified Board of Directors; and (iii) adoption
of the 1998 Director Stock Option Incentive Plan. If any other matters shall
properly come before the Meeting, the enclosed proxy will be voted by the
proxies in accordance with their best judgment. The proxy may be revoked at any
time prior to exercise by filing with the Secretary of the Company a written
revocation, by executing a proxy with a later date, or by attending and voting
at the Meeting.
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Meeting, seven directors are to be elected. If Proposal No. 2 is
approved, two nominees will be elected as Class I directors to serve an initial
term of one year, two nominees will be elected as Class II directors to serve an
initial term of two years, and three nominees will be elected as Class III
directors to serve an initial term of three years (or, in all cases, until their
successors have been elected and qualified). After this year's election,
election of directors would be for three-year terms. If Proposal No. 2 is not
adopted, each director will serve for one year or until his successor is duly
elected and qualified. The persons listed below in the following table have been
nominated by the Board of Directors for election as directors.
All nominees are currently directors of the Company. It is the intention of
the persons named as proxies to vote for the election of the nominees. In the
unanticipated event that any such nominee should be unable to serve, the persons
named as proxies will vote the proxy for such substitutes, if any, as the
present Board of Directors may designate. The nominees have not been nominated
pursuant to any arrangement or understanding with any person.
The following table sets forth certain information with respect to the
nominees, and the class to which such nominee would be elected if Proposal No. 2
is approved. When used below, positions held with the Company include positions
held with the Company's predecessors and subsidiaries:
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
- ------------------------------------------------------------ --- ------------------------------ ---------------
<S> <C> <C> <C>
R. Jeffrey Bailly (Class I)................................. 37 President, Chief Executive 1995
Officer and Director
William H. Shaw (Class II)(1)............................... 71 Chairman of the Board of 1963
Directors
Richard L. Bailly (Class III)............................... 65 Executive Vice President, 1963
Secretary and Director
William C. Curry (Class I)(1)(2)............................ 65 Director 1990
Kenneth L. Gestal (Class II)................................ 50 Director 1996
Peter R. Worrell (Class III)(2)............................. 42 Director 1997
Michael J. Ross (Class III)................................. 44 Director 1998
</TABLE>
- ------------------------
(1) Member of the Company's Audit Committee
(2) Member of the Company's Compensation Committee
Mr. R. Jeffrey Bailly has served as the President, Chief Executive Officer
and a director of the Company since January 1, 1995. He joined the Company in
1988 and served as a Division Manager from 1989 to 1992, General Manager
Northeast Operations from 1992 to 1994 and as its Vice President of Operations
from 1994 to 1995. From 1984 through 1988, Mr. Bailly, a certified public
accountant, was employed by Coopers & Lybrand. Mr. Bailly is the son of Richard
L. Bailly, a cofounder and a director of the Company.
Mr. Shaw, a cofounder of the Company and its Chairman of the Board, served
as the Chief Executive Officer, President and Treasurer of the Company from its
organization in 1963 through his retirement at the end of 1994. Mr. Shaw has
also served as a director of the Company since 1963. Mr. Shaw is a member of the
Board of Directors of Re-Source America, Inc., a package recycling company.
Mr. Richard Bailly, a cofounder of the Company, has served as its Executive
Vice President and a director since its organization in 1963. Mr. Bailly plans
to retire from his position as Executive Vice
2
<PAGE>
President on June 1, 1999. Mr. Bailly is the author of many of the Company's
patents, including patents covering the forming and lamination of foam plastics,
packaging, conversion technology and moisture transmission.
Mr. Curry has served as a director of the Company since 1990. From 1986 to
March 1994, Mr. Curry, now semiretired, was the president, chief executive
officer and a director of Discom, Inc., which was acquired by TDK USA Corp. in
1988 and has been a wholly owned subsidiary of TDK since that date. Mr. Curry is
a director of several privately owned companies.
Mr. Gestal has served as a director of the Company since 1996. Mr. Gestal is
a general partner at Durabo Asset Management, L.P., a money management group.
From November 1997 through December 1998, Mr. Gestal served as a member of the
Alternative Asset Management Group at Swiss Bank Corporation. Prior to that, Mr.
Gestal was Chairman of Institutional Global Finance Corp., a money management
firm from 1996 through October 1997. From 1991 to 1995, Mr. Gestal served Swiss
Bank Corporation, a securities firm, first as president of SBCI Futures, then as
president of SBC Government Securities Inc. and as a director of both firms.
Prior to joining Swiss Bank Corporation, Mr. Gestal served as the president of
Sanwa-BGK, a securities firm, and as chairman of its futures operations. Mr.
Gestal is the brother-in-law of R. Jeffrey Bailly, the President, Chief
Executive Officer and a director of the Company.
Mr. Worrell has served as a director of the Company since 1997. Mr. Worrell
is the Managing Director of The Bigelow Company, LLC, a private investment bank
with offices in Portsmouth, NH, and Seattle, WA. Mr. Worrell is a director of
several privately owned companies.
Mr. Ross has served as a director of the Company since 1998. Since 1996, Mr.
Ross has served as the chairman and president of Glassbox Inc., which advises
large organizations in the UK on corporate and public issues, and director of
the Glasgow Regeneration Fund, which promotes urban regeneration in economically
deprived areas of West Scotland. From 1992 to 1996, Mr. Ross was international
executive director and a board member of The Body Shop International, PLC, a
cosmetics manufacturer and retailer.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held six meetings during 1998. Each
director attended at least 75% of the aggregate number of all meetings of the
Board of Directors and committees of which he was a member during such fiscal
year, except Mr. Gestal who attended four of six meetings of the Board of
Directors held during 1998.
The Board of Directors has an Audit Committee which met twice in 1998 and is
currently composed of Messrs. Curry and Shaw. The functions performed by this
Committee include recommending to the Board of Directors the engagement of the
independent auditors, reviewing the scope of internal controls and reviewing the
implementation by management of recommendations made by the independent
auditors.
The Board of Directors has a Compensation Committee which met on three
occasions in 1998 and is currently composed of Messrs. Curry and Worrell. The
functions of the Compensation Committee include determining salaries,
individuals to whom stock options are granted and the terms upon which option
grants are made, incentive plans, benefits and overall compensation.
The Board of Directors does not have a nominating committee. Nominations of
directors are considered by the whole Board of Directors.
3
<PAGE>
COMPENSATION OF DIRECTORS
In 1998, nonemployee directors of the Company were entitled to receive (i)
an annual $5,000 fee, (ii) if applicable, an annual committee membership fee of
$1,500 per year (with a maximum fee of $3,000) and (iii) a fee of $500 plus
reimbursement of expenses for each meeting physically attended, until July 1,
1998, at which time the attendance fee was changed to $750. Messrs. Curry,
Gestal, Worrell and T. Gordon Roddick elected to receive stock options in lieu
of half of their respective annual Board of Directors' fees and committee
membership fees pursuant to the proposed 1998 Director Stock Option Incentive
Plan (the "1998 Plan"). Mr. Roddick has decided not to run for re-election to
the Board of Directors. If the 1998 Plan is not approved at the Meeting, these
options will be canceled and Messrs. Curry, Gestal, Worrell and Roddick will
receive the balance of their fees in cash. Mr. Shaw received $12,000 for his
services as Chairman of the Board and $50,000 in retirement benefits pursuant to
a letter agreement with the Company dated January 1, 1995 and an agreement with
the Company dated September 1993. See "Consulting Contract." In addition, each
nonemployee director is eligible to receive stock options pursuant to the 1993
Nonemployee Director Stock Option Plan. This plan will be terminated if the
stockholders approve the adoption of the 1998 Plan at the Meeting. See "Proposal
No. 3--Proposal to Adopt the Company's 1998 Director Stock Option Incentive
Plan." Employee directors may be granted options under the 1993 Stock Option
Plan.
The chart below lists the annual Board of Directors fees, the annual
committee membership fees and the attendance fees received by each nonemployee
director in 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
ANNUAL COMMON STOCK
BOARD ANNUAL UNDERLYING
OF COMMITTEE STOCK OPTIONS
DIRECTORS MEMBERSHIP ATTENDANCE GRANTED IN LIEU
DIRECTOR FEES ($) FEES ($) FEES ($) OF ANNUAL FEES(1)
- ------------------------------ ----------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
William C. Curry.............. 2,500 1,500 3,750 3,200(2)
Kenneth L. Gestal............. 2,500 -- 2,750 2,000(3)
Peter R. Worrell.............. 2,500 750 3,750 2,600(4)
Michael J. Ross............... 1,250 -- 2,250 --
T. Gordon Roddick(5).......... 2,500 -- 750 2,000(3)
William H. Shaw............... 12,000 -- -- --
</TABLE>
- ------------------------
(1) These options have an exercise price of $3.75, the fair market value of the
Common Stock on the date of grant. The options will be exercisable upon the
approval of the 1998 Plan by the stockholders.
(2) Granted in lieu of additional annual fees of $4,000 to which the director
was entitled.
(3) Granted in lieu of additional annual fees of $2,500 to which the director
was entitled.
(4) Granted in lieu of additional annual fees of $3,250 to which the director
was entitled.
(5) Mr. Roddick has decided not to run for re-election to the Board of
Directors.
1993 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. In October, 1993, the Company
adopted the 1993 Nonemployee Director Stock Option Plan (the "Director Plan") to
promote the Company's interests by attracting and obtaining highly skilled,
experienced and knowledgeable independent directors. Only nonemployee directors
are eligible to receive options under the Director Plan. The Director Plan
provides for options for the issuance of up to 110,000 shares of Common Stock.
Commencing July 1, 1994 and on July 1 each year thereafter, each individual who
at the time is serving as a nonemployee director of the Company receives an
automatic grant of options to purchase 2,500 shares of Common Stock. These
options become exercisable in full six months after the date of grant and expire
ten years from the date of grant. The exercise price is the fair market value of
the Common Stock on the date of grant. Options may not be exercised after three
months following the date the holder ceases to be a member of the Board of
4
<PAGE>
Directors of the Company, except in the event of termination by reason of death
or permanent disability. In 1998, Messrs. Curry, Roddick, Shaw, Worrell and
Gestal received options to purchase 2,500 shares of Common Stock with an
exercise price of $4.25 per share. Mr. Ross joined the Company's Board of
Directors on October 22, 1998, and was not eligible to receive options under the
Director Plan in 1998. The Director Plan will be terminated if the stockholders
approve the proposal to adopt the 1998 Plan.
CONSULTING CONTRACT. William H. Shaw retired as the Company's President,
Chief Executive Officer and Treasurer on December 31, 1994. Pursuant to an
agreement between the Company and Mr. Shaw entered into in September 1993, Mr.
Shaw received an automobile and served as a consultant to the Company from
January 1, 1995 to December 31, 1997 for $50,000 per year. Thereafter, Mr. Shaw,
or his heirs or beneficiaries, will receive a retirement benefit of $50,000 per
year for an additional 12 years. Mr. Shaw has agreed that he will not compete
with the Company while he is receiving any of these payments.
INDEMNIFICATION AGREEMENTS. The Company has entered into indemnification
agreements with each of its directors and anticipates that it will enter into
similar agreements with any future directors. Generally, the indemnification
agreements attempt to provide the maximum protection permitted by Delaware law
with respect to indemnification of directors.
The indemnification agreements provide that the Company will pay certain
amounts incurred by a director in connection with any civil or criminal action
or proceeding and specifically including actions by or in the name of the
Company (derivative suits) where the individual's involvement is by reason of
the fact that he is or was a director. Such amounts include, to the maximum
extent permitted by law, attorney's fees, judgments, civil or criminal fines,
settlement amounts, and other expenses customarily incurred in connection with
legal proceedings. Under the indemnification agreements, a director will not
receive indemnification if he is found not to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company.
SECURITY OWNERSHIP OF DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 23, 1999,
with respect to the beneficial ownership of the Company's Common Stock by each
director, each nominee for director, each named executive officer in the Summary
Compensation Table under "Executive Compensation" below, all executive officers
and directors as a group, and each person known by the Company to be the
beneficial owner of 5% or more of the Company's Common Stock. This information
is based upon information received from or on behalf of the named individuals.
5
<PAGE>
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
OWNED (1)
NAME BENEFICIALLY PERCENT OF CLASS
- ---------------------------------------------------- ----------------------- -----------------
<S> <C> <C>
William H. Shaw(2)(5)............................... 609,864 12.8%
c/o UFP Technologies, Inc.
172 East Main Street
Georgetown, MA 01833
Richard L. Bailly(3)(4)............................. 448,242 9.3%
c/o UFP Technologies, Inc.
172 East Main Street
Georgetown, MA 01833
R. Jeffrey Bailly(3)(8)............................. 528,577 10.4%
c/o UFP Technologies, Inc.
172 East Main Street
Georgetown, MA 01833
Michael J. Ross..................................... 0 0
T. Gordon Roddick(5)................................ 130,823 2.7%
Wayne G. Williams(3)................................ 56,771 1.2%
William C. Curry(5)(6).............................. 55,672 1.2%
Kenneth L. Gestal(5)................................ 45,200 *
Peter R. Worrell(5)(9).............................. 22,500 *
Ronald J. Lataille(3)(8)............................ 138,943 2.9%
James J. Cramer(7).................................. 992,900 20.8%
100 Wall Street, 8th Floor
New York, NY 10005
Eliot H. Sherman.................................... 294,684 6.2%
28 Rockland Street
Wellesley Hills, MA 02481
All executive officers and directors as a group (11
persons) (2)(3)(4)(5)(6)(8)(9)...................... 1,982,260 38.0%
</TABLE>
- ------------------------
* Less than one percent.
(1) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares listed.
(2) Includes 67,003 shares owned by the estate of William Shaw's spouse and
51,025 shares owned by a trust for the benefit of Mr. Shaw's children as to
both of which Mr. Shaw disclaims beneficial ownership.
(3) Includes shares issuable pursuant to currently exercisable stock options
under the 1993 Plan as follows: 35,250 for Richard Bailly, 305,000 for R.
Jeffrey Bailly, 25,250 for Wayne Williams, and 10,000 for Ronald J.
Lataille.
(4) Includes 175,924 shares owned by the wife of Mr. Bailly as to which Mr.
Bailly disclaims beneficial ownership. Excludes 528,577 shares attributable
to R. Jeffrey Bailly, a son of Richard Bailly, as to which he disclaims
beneficial ownership.
6
<PAGE>
(5) Includes shares issuable pursuant to currently exercisable stock options
under the 1993 Nonemployee Director Stock Option Plan as follows: 7,500 for
William Shaw, 10,000 for T. Gordon Roddick, 10,000 for William Curry, 5,000
for Kenneth Gestal, and 2,500 for Mr. Worrell.
(6) Includes 38,920 shares owned by the wife of William Curry, as to which he
disclaims beneficial ownership.
(7) Represents an investment group consisting of Jim Cramer, Karen L. Cramer,
J.J. Cramer & Co., Cramer Partners L.P., and Cramer Capital Corporation.
(8) Includes 120,090 shares owned by the Company's Profit Sharing Trust as to
which Messrs. Bailly and Lataille disclaim beneficial interest in excess of
their respective pecuniary interests in the trust. Messrs. Bailly and
Lataille are co-trustees of the trust.
(9) Includes 10,000 shares owned by the Bigelow Company, LLC Profit Sharing Plan
as to which Mr. Worrell disclaims beneficial interest in excess of his
pecuniary interest in the Plan. Mr. Worrell is one of two trustees of the
Plan.
MANAGEMENT
The names of the Company's executive officers and significant employees who
are not directors of the Company, and certain biographical information furnished
by them, are set forth below:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------ --- -------------------------------------------------
<S> <C> <C>
Charles W. Casey.................... 59 Vice President
Ronald J. Lataille.................. 37 Vice President and Chief Financial Officer
Wayne G. Williams................... 56 Vice President
</TABLE>
Mr. Casey joined the Company in 1981 and has served as a Vice President
since 1992. Prior thereto, Mr. Casey served as division manager from 1985
through 1994 and as plant manager from 1981 through 1985.
Mr. Lataille joined the Company in November 1997 as its Chief Financial
Officer. Prior thereto, Mr. Lataille served as Vice President, Treasurer and
Chief Financial Officer of Little Switzerland, Inc. from 1991 through October
1997. He also served as interim President and Chief Executive Officer of Little
Switzerland from October 1994 through October 1995.
Mr. Williams initially joined the Company in 1981 and served as sales
manager, division manager and more recently as Vice President of Technology from
1992 through October 1993. From 1993 through 1994 Mr. Williams served as an
executive officer of Re-Source America. Mr. Williams rejoined the Company as a
Vice President in January 1994. Prior to joining the Company, Mr. Williams was
employed by The Dow Chemical Company (1966-1981) where he held various
technical, sales and project management positions.
Executive officers are chosen by and serve at the discretion of the Board of
Directors of the Company.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation during
the last three fiscal years of each of the executive officers of the Company
whose annual salary and bonus, if any, exceeded $100,000 during the last fiscal
year.
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
FISCAL YEAR SALARY BONUS COMPENSATION STOCK AWARDS UNDERLYING COMPENSATION
NAME & PRINCIPAL POSITION ENDED ($) ($) ($)(2) ($)(3) OPTIONS (#)(4) ($)(5)
- -------------------------------- ----------- --------- --------- ------------- ------------- --------------- ---------------
R. Jeffrey Bailly............... 12/31/98 160,000 0 142,000 144,000 20,000 7,363
President and Chief 12/31/97 150,000 95,000 23,750 0 0 7,317
Executive Officer (1) 12/31/96 140,000 75,000 16,875 0 0 6,367
Richard L. Bailly............... 12/31/98 138,000 20,000 0 0 5,000 7,363
Executive Vice President (1) 12/31/97 132,000 15,000 0 0 0 6,746
12/31/96 127,400 10,000 0 0 5,000 6,051
Ronald J. Lataille.............. 12/31/98 125,800 0 15,000 24,000 20,000 5,999
Vice President and Chief 12/31/97 20,800 0 0 0 20,000 0
Financial Officer (6)
Wayne G. Williams............... 12/31/98 100,000 20,000 0 0 5,000 5,473
Vice President 12/31/97 95,000 15,000 0 0 0 4,891
12/31/96 96,616 10,000 0 0 5,000 4,525
</TABLE>
- ------------------------------
(1) See "Employment Contracts" below.
(2) The Company granted R. Jeffrey Bailly 5,000 shares of Common Stock in April
1996, 1997 and 1998 at a market price of $3.38 per share, $4.75 per share
and $4.00 per share, respectively, in each case based on the closing price
of the Company's Common Stock on the Nasdaq Market on the date of grant. See
"Employment Contracts." Fiscal year ended December 31, 1998 includes for Mr.
Bailly $122,000 paid in compensation for the taxes attributable to his grant
of 48,000 shares of the Company's Common Stock on January 7, 1999. Includes
for Mr. Lataille $15,000 paid in compensation for the taxes attributable to
his grant of 8,000 shares of the Company's Common Stock on January 7, 1999.
(3) On January 7, 1999, the Company granted Messrs. R. Jeffrey Bailly and
Lataille 48,000 and 8,000 shares of the Company's Common Stock,
respectively. These shares are fully vested. Based on $3.00 per share, the
closing price of the Company's Common Stock on the Nasdaq National Market on
the date immediately preceeding the date of grant, the value of these shares
is $144,000 for Mr. Bailly and $24,000 for Mr. Lataille. These shares have
not been registered under the Securities Act of 1933. Dividends will be paid
on these shares only if and to the extent dividends are paid on the
Company's Common Stock.
(4) The Company did not grant any stock appreciation rights or make any
long-term incentive payments during fiscal 1996, 1997 or 1998.
(5) Represents Company contributions to the above-named employees' accounts
under the Company's Profit Sharing Retirement Plan and Trust.
(6) Mr. Lataille joined the Company in November 1997.
EMPLOYMENT CONTRACTS
In April 1995 the Company entered into an employment agreement with R.
Jeffrey Bailly, its President and Chief Executive Officer, which is terminable
by either party at any time, except as provided below. The Agreement provides
that Mr. Bailly will receive a minimum annual salary of $125,000 and
consideration for discretionary bonuses. Mr. Bailly's agreement contains
nondisclosure provisions and prohibits him from competing with the Company
during the term of his employment and for a period of eighteen months
thereafter. Pursuant to the agreement, the Company agreed to grant Mr. Bailly
25,000 shares of its Common Stock at the rate of 5,000 shares per year
commencing April 4, 1995 provided that Mr. Bailly remains employed with the
Company. The employment agreement provides Mr. Bailly with certain other
benefits, including the opportunity to participate in the Company's stock option
plans, insurance plans and other employment benefits as may be generally
available to senior executives of the Company.
Under the terms of the employment agreement, if Mr. Bailly's employment with
the Company is terminated by the Company without cause, or if Mr. Bailly
terminates his employment with the Company for good reason (a reduction in his
base salary, removal from his position as president or chief executive officer,
required relocation outside the greater Boston, Massachusetts area or a material
reduction in his overall level of responsibility) or due to a change in control
of the Company, (i) the Company is required
8
<PAGE>
to continue to pay Mr. Bailly a monthly amount for a period of eighteen months
equal to Mr. Bailly's average monthly salary (including bonus) for the preceding
two years, (ii) all of Mr. Bailly's shares and options granted pursuant to the
employment agreement will vest in full and (iii) the Company will continue to
pay Mr. Bailly's health insurance.
In September 1993, the Company entered into an agreement with Richard L.
Bailly that provides that should Mr. Bailly's employment with the Company be
terminated by the Company for any reason other than for cause, or should Mr.
Bailly terminate his employment for good reason (either a reduction in his
salary below $122,400 or a material reduction in his overall level of
responsibility), Mr. Bailly will receive an automobile and compensation of
$122,400 per year for three years or until he reaches age 65, whichever is
shorter. During this period, he will serve as a consultant to the Company. The
agreement also included provisions for Mr. Bailly's retirement, which was
amended in February 1999, to reflect that upon his retirement in June, 1999, Mr.
Bailly will continue as a consultant to the Company for three additional years
for $50,000 per year. Thereafter, Mr. Bailly, or his heirs or beneficiaries,
will receive a retirement benefit of $50,000 per year for an additional 12
years. Mr. Bailly has agreed that he will not compete with the Company while he
is receiving any of these payments.
9
<PAGE>
SEVERANCE PLANS
In September 1993, the Company adopted a policy that all executive officers
of the Company not otherwise a party to an employment arrangement with the
Company will receive a severance benefit should the employee's employment with
the Company be terminated by the Company other than for cause in connection with
a change in control of the Company, in the form of a base salary continuation
for a period equal to the sum of (i) four months plus (ii) one month for each
year of service with the Company.
STOCK OPTIONS
The following table sets forth certain information with respect to stock
options granted to the named executive officers during the year ended December
31, 1998 and the aggregate number and value of options exercisable and
unexercisable held by the named executive officers at December 31, 1998. No
named executive officer exercised options during the year ended December 31,
1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SHARES OF PERCENT OF STOCK PRICE
COMMON STOCK TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL YEAR(%) ($/SH)(2) DATE 5% ($) 10% ($)
- -------------------------------------------- --------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
R. Jeffrey Bailly........................... 20,000 15.1 3.625 01/27/03 45,594 115,546
Richard L. Bailly........................... 5,000 3.8 3.625 01/27/03 11,399 28,887
Ronald J. Lataille.......................... 20,000 15.1 3.063 11/04/03 38,526 97,633
Wayne G. Williams........................... 5,000 3.8 3.625 01/27/03 11,399 28,887
</TABLE>
- ------------------------
(1) Options vest at the rate of 25% per year commencing one year from the date
of grant.
(2) The exercise price is equal to the fair market value of the Common Stock on
the date of grant.
(3) The 5% and 10% assumed rate of annual compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
prices.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/98 OPTIONS AT 12/31/98 (1)
EXERCISABLE / EXERCISABLE /
UNEXERCISABLE UNEXERCISABLE
NAME (#) ($)
- ------------------------------------------------------------- ------------------------ ------------------------
<S> <C> <C>
R. Jeffrey Bailly............................................ 310,000/20,000 200,250/0
Richard L. Bailly............................................ 43,000/ 7,000 22,500/0
Ronald J. Lataille........................................... 10,000/ 30,000 0/0
Wayne G. Williams............................................ 33,000/ 7,000 15,000/0
</TABLE>
- ------------------------
(1) Based upon the closing price of the Company's Common Stock on December 31,
1998 on the Nasdaq National Market of $3.13 minus the respective option
exercise price.
10
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding executive compensation are made by the Compensation
Committee of the Board of Directors, which in 1998 was composed of Messrs. Curry
and Worrell. Neither Mr. Curry nor Mr. Worrell is a former or current officer or
employee of the company.
COMPENSATION COMMITTEE AND BOARD OF DIRECTORS REPORT
The primary objectives of the Compensation Committee in developing executive
compensation policies are to attract, motivate and retain superior talent to
enable the Company to achieve its business objectives and to align the financial
interests of its executive officers with the stockholders of the Company.
The compensation of executive officers consists of base compensation, bonus,
the grant of options and participation in benefit plans generally available to
employees. In setting compensation, the Compensation Committee strives to
maintain base compensation for the Company's executive officers at levels which
the Compensation Committee believes are competitive with the compensation of
comparable executive officers in similarly situated companies, while relying
upon stock options and the bonus plan to provide significant performance
incentives.
Executive officers are eligible to participate in the bonus plan which is
administered by the Compensation Committee. Under the plan, executive officers
may receive bonuses derived from a formula tied to the Company's income. In
addition, executive officers, including Jeffrey Bailly, may receive
discretionary bonuses payable in cash or the Company's common stock based upon a
subjective evaluation of the performance of the Company and their contributions
to the Company.
Each of the executive officers and all key employees are eligible to receive
grants of options under the 1993 Stock Option Plan. The 1993 Stock Option Plan
is used to align a portion of the officer's compensation with the stockholders'
interests and the long term success of the Company. In determining the number of
options to be granted to each executive officer, the Compensation Committee
reviews recommendations provided by R. Jeffrey Bailly and makes a subjective
determination regarding those recommendations based upon the following criteria:
(i) the individual performance and position of responsibility of the executive
officer, (ii) the number of options held by the executive officer, and (iii) the
financial performance of the Company. No particular weight is given to any of
these factors, rather each executive officer's total compensation package is
reviewed as a whole. During the fiscal year ended December 31, 1998, the Company
granted options to purchase 55,000 shares to executive officers as a group under
the 1993 Stock Option Plan.
In 1998, R. Jeffrey Bailly received a bonus consisting of 48,000 fully
vested shares of the Company's Common Stock and $122,000 in compensation for the
taxes attributable to the grant of these shares. Mr. Bailly also received a
salary of $160,000 and 5,000 shares of Common Stock. This compensation,
including the discretionary bonus, was based upon the employment agreement
negotiated with Mr. Bailly in conjunction with his promotion to Chief Executive
Officer and President of the Company in January 1995. The Board has conducted a
survey of salaries of chief executive officers. Based upon that information and
its experience, the Company believes that Mr. Bailly's compensation was
comparable to the compensation of chief executive officers of similar companies.
<TABLE>
<CAPTION>
COMPENSATION BOARD OF DIRECTORS
<S> <C>
WILLIAM C. CURRY WILLIAM H. SHAW
PETER R. WORRELL R. JEFFREY BAILLY
RICHARD L. BAILLY
WILLIAM C. CURRY
T. GORDON RODDICK
KENNETH L. GESTAL
PETER R. WORRELL
MICHAEL J. ROSS
</TABLE>
11
<PAGE>
PERFORMANCE GRAPH
The following graph compares the annual change in the Company's cumulative
total shareholder return from December 31, 1993 to December 31, 1998 based upon
the market price of the Company's Common Stock with the cumulative total return
on the CRSP Index for the Nasdaq Stock Market (U.S. companies) and the CRSP
Index for NYSE/AMEX/Nasdaq (SIC 3080-3089 U.S.) Miscellaneous Plastics Products
for that period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
RETURNS
<S> <C> <C>
Performance Graph for UFP Technologies, Inc.
Symbol CRSP Total Returns Index for:
UFP Technologies, Inc. Nasdaq Stock Market (US Companies)
12/31/93 100 100
12/31/94 54.5 97.8
12/31/95 72.7 138.3
12/31/96 93.2 170
12/31/97 76.1 208.5
12/31/98 56.8 293.8
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
RETURNS
<S> <C>
Performance Graph for UFP Technologies, Inc.
Symbol CRSP Total Returns Index for:
NYSE/AMEX/NASDAQ Stocks
(SIC 3080-3089 US Companies)
Miscellaneous Plastics
Products
12/31/93 100
12/31/94 100.3
12/31/95 110
12/31/96 152.2
12/31/97 154.7
12/31/98 144.9
</TABLE>
Assumes $100 invested on December 31, 1993 in the Company's Common Stock, the
CRSP Index for the Nasdaq Stock Market (U.S. companies) and the CRSP Index for
NYSE/AMEX/Nasdaq (SIC 3080-3089 U.S.) Miscellaneous Plastics Products, and the
reinvestment of any and all dividends.
12
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company owns an approximate 26.3% limited partnership interest in United
Development Company Limited, a real estate limited partnership ("United
Development"), which owns and leases to the Company the Kissimmee, Florida and
Decatur, Alabama properties. William H. Shaw and Richard L. Bailly, both
principals and stockholders of the Company, each own an approximately 21%
general partnership interest in United Development. Each of Charles W. Casey and
Wayne G. Williams who are officers and/or stockholders of the Company, own an
approximately 5.3% limited partnership interest in this entity.
The Company made a series of loans to United Development from time to time
prior to September 30, 1993 in the total principal amount of approximately
$210,000 of which $99,750 remained outstanding as of December 31, 1998. As of
September 30, 1993, these loans were consolidated into one term note (the
"Original Note") which bore interest at the prime rate of interest as announced
by The First National Bank of Boston, plus 2%. The principal amount of the
Original Note amortized on a ten year basis and the outstanding principal amount
on the Original Note was scheduled to be repaid on September 30, 1998. On
December 31, 1998, United Development refinanced the Original Note. United
Development made a note (the "New Note") in favor of the Company in the
principal amount of $99,750. The New Note bears interest at the rate of 9.75%
per year. The principal amount of the New Note amortizes on a four year basis
with the balance of the outstanding principal amount repayable on December 31,
2002. The New Note is secured by a second priority mortgage on United
Development's Decatur, Alabama facilities.
KISSIMMEE, FLORIDA PROPERTY. On August 26, 1998, the Company extended the
lease with United Development of the Company's Kissimmee, Florida manufacturing
facility to December 31, 2001. Monthly rent for the lease is $10,800 plus the
payment of certain expenses and taxes. The Company believes that the terms of
its lease are comparable to those available in the market for real estate in
Kissimmee, Florida. The Kissimmee, Florida property is subject to $1,500,000
Osceola County Industrial Development Authority Industrial Development Revenue
Bonds, Series 1985 (United Development Company Limited Project) dated April 1,
1985, which were repaid in full in fiscal 1998. Interest on these bonds accrued
at the prime rate of interest as announced by Barnett Bank of Florida and was
payable monthly commencing on June 1, 1986.
In addition to other security for the bonds, including a mortgage on the
property in favor of Barnett Bank and Trust Company, N.A., as trustee, the
Company, William H. Shaw and Richard L. Bailly jointly and severally
unconditionally guaranteed the payment of all principal, interest and premium,
if any, payable on the bonds. The Company, William H. Shaw and Richard L. Bailly
also jointly and severally indemnified the Trustee and Osceola County Industrial
Development Authority, as issuer of the bonds, for all costs, fees and expenses
incurred by them in connection with the bonds.
DECATUR, ALABAMA PROPERTY. On August 26, 1998, the Company extended the
lease with United Development of the Company's Decatur, Alabama manufacturing
facility to December 31, 2001. Under the lease, the Company pays annual rent of
$119,813 plus the payment of certain expenses and taxes. The Company believes
that the terms of this lease are comparable to those available in the market for
real estate in Decatur, Alabama. In June, 1990, United Development acquired from
MCP Industries, Inc. the land on which the Decatur, Alabama property is located,
together with the related leasehold interest. This leasehold interest was
acquired subject to an existing leasehold mortgage in the amount of $227,482.
The acquisition of the property was financed by a $130,000 mortgage loan from
First American Bank $95,000 of which was outstanding as of December 31, 1998.
This mortgage loan is guaranteed by the Company.
13
<PAGE>
INTRODUCTION TO PROPOSAL NO. 2
The Board of Directors has unanimously determined that a proposal to amend
(the "Charter Amendment") the Company's Certificate of Incorporation to create a
classified Board of Directors and make certain related changes is advisable and
has unanimously voted to recommend the proposal to the Company's stockholders
for adoption at the Meeting. The background, reasons and effects of the proposal
are set forth below, followed by a more detailed description of the proposal and
how it would operate.
PURPOSES AND EFFECTS
The Company believes it may be vulnerable to certain tactics--such as the
accumulation of substantial voting positions as a prelude to an attempt to take
over corporate control or effect significant corporate restructuring, a proxy
fight and other similar devices--which have become relatively more common in
recent years. For the reasons discussed below, the Board of Directors considers
that such tactics could be highly disruptive to a company and can result in
dissimilar and unfair treatment of a company's stockholders. Proposal No. 2 is
being submitted for stockholder approval as a means of protecting the Company
from these kinds of tactics.
The Charter Amendment is not being recommended in response to any past
problems regarding Board of Director continuity or any specific effort of which
the Board of Directors is aware to acquire control, but rather in preparation
for such activities which might arise in the future.
If Proposal No. 2 is approved, because only one of the three classes of a
classified Board of Directors will be elected annually, at least two annual
stockholders' meetings, instead of one, will be required to effect a change in
control of the Board of Directors through the normal election processes. The
classified board amendment and related changes would require a person seeking to
acquire control of the Company to wait up to two years to obtain control of the
Board of Directors even though that person has acquired ownership of a majority
or controlling minority interest in the Company.
The classified board amendment and related changes, of course, would affect
all stockholders, not just those seeking to acquire control of the Company, in
the following ways: (1) because at least two annual meetings will be required to
change majority control on the Board of Directors, the amendment would tend to
perpetuate present management and (2) the amendment may tend to discourage
accumulations of large blocks of stock by reducing the control effect of such
blocks, thus reducing temporary fluctuations in market price that could be
caused by such accumulations.
ADVANTAGES OF PROPOSAL
The proposed Charter Amendment is intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through arm's
length negotiations with the Company's Board of Directors. If the Board of
Directors is presented with a proposal from a third party who has acquired a
substantial block of the Company's Common Stock, the directors will be able to
evaluate the proposal and study alternative proposals without the imminent
threat of removal. This will help ensure that the best price is obtained in any
acquisition transaction that may ultimately be consummated. Proposal No. 2 has
the additional benefit of promoting continuity in leadership and policy on the
Board of Directors.
DISADVANTAGES OF PROPOSAL
Adoption of the proposed Charter Amendment may deter certain mergers, tender
offers, proxy contests or other future takeover attempts which holders of some
or even a majority of the outstanding stock believe to be in their best
interests, and may make removal of management more difficult even if such
removal would be beneficial to stockholders generally. Not all takeovers or
changes in control of the Board of Directors that are proposed and effected
without prior consultation and negotiation with the incumbent Board of Directors
are necessarily detrimental to the Company and its stockholders. However,
14
<PAGE>
the Board of Directors believes that the benefits of seeking to protect its
ability to negotiate with the proponent of an unfriendly or unsolicited proposal
to acquire or restructure the Company outweigh the disadvantages of discouraging
such proposals.
The provisions for electing only one out of three classes of the Board of
Directors annually, rather than the entire Board of Directors, will be
applicable to every annual election of directors, and not just to any election
occurring after a change in stockholder control of the Company. A classified
Board of Directors could delay stockholders who do not like the policies of the
Board of Directors from removing a majority of the Board of Directors for up to
two years. This would be so even if the only reason for the attempted action by
a shareholder was dissatisfaction with the performance of the current Board of
Directors.
RELATIONSHIP OF CHARTER AMENDMENT TO OTHER PROVISIONS
The Company has established a stockholder rights plan which, together with
the Company's Certificate of Incorporation and Bylaws, contain several
provisions which may have the effect of making a change of control more
difficult. Delaware law also contains an important limitation on changes in
control.
STOCKHOLDER RIGHTS PLAN. On January 13, 1999, the Board of Directors
adopted a stockholder rights plan (the "Stockholder Rights Plan") pursuant to
which the Company distributed a dividend of one right (a "Right") for each
outstanding share of Common Stock. The Rights have anti-takeover effects. The
Rights will cause substantial dilution of any person or group that attempts to
acquire the Company on terms not approved by the Board of Directors, except
pursuant to an offer conditioned on a substantial number of Rights being
acquired. Each Right entitles the registered holder to purchase from the Company
one one-thousandth of a share of Series A Junior Participating Preferred Stock
of the Company at an exercise price of $30, subject to adjustment.
The Rights are not exercisable until the occurrence of the earlier of (i) 10
days following a public announcement that a person or group of affiliated or
associated persons subject to certain limited exceptions, including current
beneficial holders of 15% or more of the outstanding shares of Common Stock (an
"Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding shares of Common Stock, or (ii) 10 business days (or such later date
as may be determined by action of the Board of Directors prior to such time as
any person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding shares of Common Stock (the earlier of
such dates being called the "Distribution Date"). Until the Distribution Date
(or earlier redemption or expiration of the Rights), each share of Common Stock
issued subsequent to the date of the original distribution of the Rights will be
issued with an associated Right and will be transferred with and only with the
Common Stock. The Rights will expire on February 5, 2009 (the "Final Expiration
Date") unless earlier redeemed or exchanged by the Company as described below.
In the event that any person becomes an Acquiring Person, each holder of a
Right, other than Rights beneficially owned by the Acquiring Person and its
affiliates and associates (which will thereafter be void), will thereafter have
the right to receive upon exercise that number of shares of Common Stock having
a market value of two times the exercise price of the Right. In the event that,
at any time after a person becomes an Acquiring Person, the Company is acquired
in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right.
At any time prior to the time any person becomes an Acquiring Person, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $0.001 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and
15
<PAGE>
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of Incorporation
contains a so-called "anti-greenmail" provision. The provision is intended to
discourage speculators who accumulate beneficial ownership of a significant
block of stock and then, under the threat of making a tender offer or proxy
contest or instigating some other corporate disruption, succeed in extracting
from the Company a premium price to repurchase the shares acquired by the
speculator. This tactic has become known as greenmail. The anti-greenmail
provision prohibits the Company from purchasing any shares of Common Stock from
a Related Person at a per share price in excess of the fair market value at the
time of such purchase, unless the purchase is approved by two-thirds of the
holders of the outstanding shares of the Common Stock, excluding any votes cast
by the Related Persons. The term "Related Person" is defined in general to mean
any person, other than an existing stockholder of the Company, who acquires more
than 5% of the Company's voting stock. Stockholder approval is not required for
such purchases when the offer is made available on the same terms to all holders
of shares of Common Stock or when the purchases are effected on the open market.
The Certificate of Incorporation provides that any stockholder proposal
which is not approved by a majority of the Company's "Continuing Directors" will
be effective only if the proposal is approved by 80% of each class of stock of
the Company which is outstanding and entitled to vote on the proposal.
Generally, a Continuing Director is any member of the Board of Directors who is
not affiliated with any Related Person and who was a member of the Board of
Directors before any person became a Related Person. Any member of the Board of
Directors also may be declared a Continuing Director by a majority of the then
Continuing Directors. This provision deters third parties from obtaining large
blocks of the Company's Common Stock and making proposals which may not be in
all the stockholders' best interests.
The Certificate of Incorporation authorizes the issuance of up to 20,000,000
shares of Common Stock not all of which have been issued or reserved for
issuance. This authorized and available Common Stock could (within the limits
imposed by applicable law and the rules of the Nasdaq National Market) be issued
by the Company and used to discourage a change in control of the Company. For
example, the Company could privately place shares with purchasers who might side
with the Board of Directors in opposing a hostile takeover bid. Shares of Common
Stock could also be issued to a holder that would thereafter have sufficient
voting power to assure that any proposal to amend or repeal the Bylaws or
certain provisions of the Certificate of Incorporation would not receive the
required vote.
The Certificate of Incorporation also authorizes the issuance of up to
1,000,000 shares of Preferred Stock, in one or more series, none of which have
yet been issued or reserved for issuance except in connection with the
Stockholder Rights Plan. The Board of Directors is authorized, without any
further action by the stockholders, to determine the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences, sinking fund terms and other rights, preferences,
privileges and restrictions of any series and the designation thereof. The Board
of Directors may, without stockholder approval, issue Preferred Stock with
rights and privileges which could, among other things, have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
The Certificate of Incorporation also provides that all stockholder action
must be effected at a duly called meeting and not by written consent. In
addition, the Bylaws of the Company do not permit stockholders of the Company to
call a special meeting of stockholders.
DELAWARE TAKEOVER STATUTE. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203") which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless (i) prior to such date the
16
<PAGE>
Board of Directors of the Corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers, and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
or 10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
PROPOSAL NO. 2
AMENDMENT TO CERTIFICATE OF INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF
DIRECTORS AND CERTAIN RELATED CHANGES
The Board of Directors unanimously recommends that stockholders approve the
amendment to provide for the classification of the Company's Board of Directors
into three classes, each comprising as nearly as possible one-third of the
directors, and certain related changes. See Exhibit A for the entire text of the
proposed amendment.
At present, all the Company's directors are elected at each annual meeting
of stockholders for a one year term. If Proposal No. 2 is approved at the
Meeting, the Class I directors would be elected for one year, the Class II
directors for two years and the Class III directors for three years. At each
annual meeting thereafter, the class of directors up for election would be
elected for three years and the directors in the other two classes would
continue in office. The votes required for election would remain unchanged. If
the number of directors is changed, any newly-created directorships or decreases
in directorships are to be assigned by the Board of Directors so as to make all
classes as nearly equal in number as possible. Any vacancies in the office of a
director would be filled only by the remaining directors for the remainder of
the full term of the replaced director.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve the proposal to amend the Certificate of
Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
PROPOSAL NO. 2.
17
<PAGE>
PROPOSAL NO. 3
PROPOSAL TO ADOPT THE COMPANY'S
1998 DIRECTOR STOCK OPTION INCENTIVE PLAN
GENERAL
The Board of Directors is proposing the 1998 Director Stock Incentive Plan
(the "1998 Plan") for stockholder approval. The Board of Directors believes that
the ownership of Common Stock by directors who are not employees of the Company
supports the maximization of long-term stockholder value by aligning the
interest of nonemployee directors with those of stockholders. The 1998 Plan is
designed to facilitate the ownership of Common Stock by nonemployee directors by
providing for the grant of nonqualified stock options to nonemployee directors.
Nonqualified stock options are options which are not incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The Board of Directors adopted the 1998 Plan on June 3, 1998, subject to
approval by the stockholders at the Meeting. Reference is made to Exhibit B to
this Proxy Statement for the full text of the 1998 Plan, which is summarized
below.
DESCRIPTION OF THE 1998 PLAN
ADMINISTRATION. The 1998 Plan will be administered by the Board of
Directors or by any committee of the Board of Directors, including the
Compensation Committee. Subject to the express provisions of the 1998 Plan, the
Compensation Committee has the authority to interpret and construe the 1998 Plan
and to adopt rules and regulations for administering the 1998 Plan.
ELIGIBILITY. Only nonemployee directors of the Company will be eligible to
receive grants of options under the 1998 Plan. As of the date of this proxy
statement, the Company's nonemployee directors are Messrs. Shaw, Curry, Roddick,
Gestal, Worrell and Ross.
AVAILABLE SHARES. Under the 1998 Plan, 150,000 shares of Common Stock will
be available for the grant of stock options, subject to adjustment in the event
of stock splits, stock dividends or changes in corporate structure affecting
Common Stock. To the extent a stock option granted under the 1998 Plan expires
or terminates unexercised, the shares of Common Stock allocable to the
unexercised portion of such option will be available for awards under the 1998
Plan. In addition, to the extent that shares are delivered to pay all or a
portion of an option exercise price, such shares will become available for
awards under the 1998 Plan.
EFFECTIVE DATE, TERMINATION AND AMENDMENT. This 1998 Plan was adopted and
authorized by the Board of Directors of the Company on June 3, 1998, subject to
the ratification by the stockholders and became effective on July 15, 1998,
subject to such stockholder approval. If the 1998 Plan is ratified by the
stockholders, it will be deemed to have become effective on the effective date
of July 15, 1998. Options may be granted under the 1998 Plan prior to
ratification by the stockholders and, in each case, the date of grant will be
determined without reference to the date of ratification of the 1998 Plan by the
stockholders of the Company; provided, however, that if the 1998 Plan is not
ratified by the stockholders, all options granted under the 1998 Plan will be
canceled and void. The 1998 Plan will terminate when shares of Common Stock are
no longer available under the 1998 Plan unless terminated earlier by the Board
of Directors. The Board of Directors or the stockholders may amend or
discontinue the 1998 Plan at any time except that no amendment or discontinuance
shall change or impair any options previously granted without the consent of the
optionee or where stockholder approval is required by applicable law, rule or
regulation. Should an optionee cease to be a member of the Board of Directors of
the Company for any reason other than death or permanent disability, such
optionee's options may be exercised to the extent exercisable 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 representative, as the case may be, during their
specified term but not later than three months after the date of such
termination. Should such an optionee cease to be a member of the Board of
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Directors of the Company because of death or permanent disability, such options
may be exercised in full by the optionee or, if she or she is not living, by his
or her heirs, legatees or legal representatives, as the case may be, during
their specified term but not later than one year after the date of death or
permanent disability.
STOCK OPTIONS. Automatic options, elective options and discretionary
options may be granted under the 1998 Plan. Commencing July 1, 1999 and
continuing in effect on July 1, in each subsequent calendar year, each person
who is at the time serving as a nonemployee director automatically will be
granted an option (each an "Automatic Option") to purchase 2,500 shares of
Common Stock.
Under the 1998 Plan each nonemployee director may elect to receive all or a
portion of his annual director fees or fees for serving as a member of any
committee of the Board of Directors earned during the second half of 1998 and
each subsequent calendar year in the form of an option ("Elective Options").
Each such election must be irrevocable and made in writing by June 30, 1998 for
fees earned in the second half of 1998 and by December 31 of each year for fees
to be received in the following calendar year. The number of shares of Common
Stock into which Elective Options granted in any year are exercisable shall be
determined based on an independent appraisal for such year of the intrinsic
value of the options granted and the amount of fees covered by the director's
election for such year. Elective Options, if any, are granted on the date of the
annual meeting of stockholders.
The Compensation Committee may grant options to nonemployee directors from
time to time in its discretion subject to the provisions of the 1998 Plan (the
"Discretionary Options"). The Compensation Committee may establish the terms of
the Discretionary Option in its sole discretion including, without limitation,
the time to expiration (which shall not exceed 10 years) and the vesting
schedule of such options. No Discretionary Option may be exercisable on a date
earlier than the date on which the 1998 Plan is ratified by the stockholders of
the Company.
Each Automatic Option and Elective Option granted will be for a term of ten
years and will be exercisable for any or all of the shares covered by such
Option on the later of the date on which the 1998 Plan is ratified by the
stockholders of the Company or the date of grant under the 1998 Plan.
The exercise price per share of all Discretionary Options granted under the
1998 Plan will be determined by the Compensation Committee in its discretion,
and may be greater than, but not less than, 100% of the fair market value per
share of Common Stock on the grant date, defined as the average between the
highest and lowest sale prices per share on The Nasdaq Stock Market on the
trading day next preceding the date of grant of the Option. The exercise price
of an Automatic Option or an Elective Option will be 100% of the fair market
value of Common Stock as of the applicable grant date. Options may be exercised
(i) by the payment of cash in the amount of the aggregate option price, (ii) by
surrendering shares of Common Stock owned by the participant, (iii) by a
combination of (i) and (ii), having a combined value equal to the aggregate
option price of the shares subject to the option or the portion of the option
being exercised or (iv) by any other means the Compensation Committee deems
appropriate. Any option or portion thereof that is not exercised on or before
the tenth anniversary of the date of grant will expire.
Options granted under the 1998 Plan will not be transferable by the
participant other than by court order, will or the laws of descent and
distribution and will be exercisable during the participant's lifetime only by
the participant.
As of the date of this proxy statement, Elective Options to purchase 9,800
shares of Common Stock have been granted to Messrs. Curry, Gestal, Worrell and
Roddick at an exercise price of $3.75 per share. No Discretionary Options or
Automatic Options have been granted. The closing price of the Company's Common
Stock on April 13, 1999 was $3.75 per share.
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The Company is authorized to grant options for the issuance of up to 110,000
shares of Common Stock to the Company's nonemployee directors pursuant to the
Director Plan. The Director Plan will terminate if the stockholders approve the
adoption of the 1998 Plan.
FEDERAL TAX CONSEQUENCES. The following general discussion of the federal
income tax consequences of the issuance and exercise of options granted under
the 1998 Plan is based upon the provisions of the Code, current regulations
thereunder and existing administrative rulings of the Internal Revenue Service.
It is not intended to be a complete discussion of all of the federal income tax
consequences of the 1998 Plan or of the requirements that must be met in order
to qualify for the described tax treatment. Changes in the law and regulations
may modify the discussion, and in some cases the changes may be retroactive. No
information is provided as to the state tax laws. The 1998 Plan is not qualified
under Section 401 of the Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Only nonqualified stock options may be granted under the 1998 Plan. An
option holder will not recognize any taxable income upon the grant of a
nonqualified option under the 1998 Plan. Generally, an option holder recognizes
ordinary taxable income at the time a nonqualified option is exercised in an
amount equal to the excess of the fair market value of the shares of Common
Stock on the date of exercise over the exercise price. However, because the
recipient is a director of the Company who is subject to Section 16(b) of the
Securities Exchange Act of 1934 ("Section 16(b)") upon the sale of shares of
Common Stock, recognition of income by the option holder is generally postponed.
In general, the date on which taxable income (if any) is recognized (the
"Recognition Date") will be the date on which the stock becomes "freely
transferable" or not subject to "risk of forfeiture" as those terms are used in
the Code and IRS regulations. The regulations have not yet been amended to
conform with the recently revised rules under Section 16(b). However, it is
generally anticipated that the Recognition Date will be the earlier of (i) six
months after the date the option was granted, or (ii) the first day on which the
sale of the shares would not subject the individual to liability under Section
16(b). It is possible that the six month period will instead run from the option
holder's most recent grant or purchase of Common Stock prior to his or her
exercise of the option. The option holder will generally recognize ordinary
taxable income on the Recognition Date in an amount equal to the excess of the
fair market value of the shares at that time over the exercise price.
Despite this general rule, if the Recognition Date is after the date of
exercise, then the option holder may make an election pursuant to Section 83(b)
of the Code. In this case, the option holder will recognize ordinary taxable
income at the time the option is exercised and not on the later date. In order
to be effective, the 83(b) election must be filed with the Company and the
Internal Revenue Service within 30 days of exercise.
The Company will generally be entitled to a compensation deduction for
federal income tax purposes in an amount equal to the taxable income recognized
by the option holder, provided the Company reports the income on a timely
provided and filed Form W-2 or 1099, whichever is applicable.
An option holder who pays the option price, in whole or in part, by
delivering shares of Common Stock already owned by him or her will generally
recognize no gain or loss for federal income tax purposes on the shares
surrendered, but otherwise will be taxed according to the rules described above.
To the extent the shares acquired upon exercise are equal to the basis of the
shares surrendered, the basis of the shares received will be equal to the basis
of the shares surrendered. The basis of the shares received in excess of the
shares surrendered upon exercise will be equal to the fair market value of the
shares on the date of exercise, and the holding period for the shares received
will commence on that date.
The affirmative vote of the holders of a majority of the shares present in
person or by proxy at the Meeting and entitled to vote on the proposal to
approve the 1998 Plan is required to approve the 1998 Plan.
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THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
PROPOSAL NO. 3.
OTHER MATTERS
VOTING PROCEDURES
The votes of stockholders present in person or represented by proxy at the
Meeting will be tabulated by an inspector of elections appointed by the Company.
A quorum, consisting of a majority of shares of all stock issued, outstanding
and entitled to vote at the Meeting, will be required to be present in person or
by proxy for consideration of the proposal to elect directors, for the proposal
to amend the Certificate of Incorporation and for the proposal to adopt the 1998
Plan. If a quorum is not present, a vote of a majority of the votes properly
cast will adjourn the Meeting.
The seven nominees for director of the Company who receive the greatest
number of votes cast by stockholders present in person or represented by proxy
at the Meeting and entitled to vote thereon will be elected directors of the
Company. The affirmative vote of a majority of the outstanding shares of Common
Stock is required to approve the proposal to amend the Certificate of
Incorporation. The affirmative vote of the holders of a majority of shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote thereon is required to approve the adoption of the 1998 Plan.
Abstentions will have no effect on the outcome of the vote for the election
of directors, but will have the effect of being cast against the proposals to
amend the Certificate of Incorporation and to adopt the 1998 Plan even though
the stockholder so abstaining intends a different interpretation. Shares of
Common Stock held of record by brokers who do not return a signed and dated
proxy will not be considered present at the Meeting, will not be counted towards
a quorum and will not be voted in the election of directors or on the proposals
to amend the Certificate of Incorporation or to adopt the 1998 Plan. Shares of
Common Stock held of record by brokers who return a signed and dated proxy but
who fail to vote (a "broker nonvote") on the election of directors or the
proposal to adopt the 1998 Plan will count toward the quorum but will have no
effect on those proposals not voted. Although broker nonvotes would count toward
the quorum for the proposal to amend the Certificate of Incorporation, the
broker nonvote would have the legal effect as a vote against that proposal, even
though that might not be the intent of the person giving the broker nonvote.
INDEPENDENT AUDITORS
The Board of Directors has not selected the independent auditor to audit the
Company's consolidated financial statements for the fiscal year ending December
31, 1999. The Company is soliciting proposals for the provision of audit
services from the "Big Five" accounting firms and expects to select an auditor
in early May 1999.
KPMG Peat Marwick LLP served as the Company's independent auditor for the
fiscal year ended December 31, 1998. A representative of KPMG Peat Marwick LLP
will not be at the Meeting.
REPORTING UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of the
Company's Common Stock, to file reports of ownership and changes in ownership on
Forms 3, 4 and 5 with the Securities and Exchange Commission and the Nasdaq
National Market. Executive officers, directors and greater than 10% stockholders
are required to furnish the Company with copies of all Forms 3, 4 and 5 they
file.
Based solely on the Company's review of the copies of such Forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for specified fiscal years, the Company
believes that all of its executive officers, directors and greater than 10%
21
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stockholders complied with all Section 16(a) filing requirements applicable to
them during the Company's fiscal year ended December 31, 1998.
OTHER PROPOSED ACTION
The Board of Directors knows of no matters which may come before the Meeting
other than the election of directors, the proposal to amend the Certificate of
Incorporation and the proposal to adopt the 1998 Plan. However, if any other
matters should properly be presented to the Meeting, the persons named as
proxies shall have discretionary authority to vote the shares represented by the
accompanying proxy in accordance with their own judgment.
STOCKHOLDER PROPOSALS
Proposals which stockholders intend to present at the Company's 2000 Annual
Meeting of Stockholders and wish to have included in the Company's proxy
materials pursuant to Rule 14a-8 promulgated under the Securities and Exchange
Act of 1934, as amended, must be received by the Company no later than January
5, 2000. If a proponent fails to notify the Company by March 19, 2000 of a
non-Rule 14a-8 stockholder proposal which it intends to submit at the Company's
2000 Annual Meeting of Stockholders, the proxy solicited by the Board of
Directors with respect to such meeting may grant discretionary authority to the
proxies named therein to vote with respect to such matter.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement has been or will be specifically
incorporated by reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the
sections of the Proxy Statement entitled "Compensation Committee and Board of
Directors Report" and "Performance Graph" shall not be deemed to be so
incorporated, unless specifically otherwise provided in any such filing.
ANNUAL REPORT ON FORM 10-K
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ARE
AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST ADDRESSED TO
INVESTOR RELATIONS, UFP TECHNOLOGIES, INC. AT 172 EAST MAIN STREET, GEORGETOWN,
MASSACHUSETTS 01833.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
ARE URGED TO FILL IN, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED ENVELOPE.
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EXHIBIT A
RESOLVED, That the Certificate of Incorporation of the Corporation be amended by
striking out Article EIGHTH thereof in its entirety, and by substituting in lieu
thereof the following new Article EIGHTH:
"EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further
provided that:
(a) The business of the Corporation shall be conducted by the
officers of the Corporation under the supervision of the Board of
Directors.
(b) The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-Laws.
No election of Directors need be by written ballot.
(c) The Directors of the Corporation shall be classified in respect
to the time for which they shall hold office by dividing them into three
classes, each class to consist of approximately the same number of
Directors, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number
of directors constituting the entire Board of Directors. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one- third, the extra
director shall be a member of Class III, and if such fraction is
two-thirds, one of the extra directors shall be a member of Class II and
the other shall be a member of Class III, unless otherwise provided from
time to time by resolution adopted by the Board of Directors. Directors
shall hold office until the third annual meeting following the annual
meeting at which they were elected; provided, however, that the Directors
first elected to Class I shall hold office for the term ending on the
date of the annual meeting in 2000; the Directors first elected to Class
II shall hold office for the term ending on the date of the annual
meeting in 2001; and the Directors first elected to Class III shall hold
office for the term ending on the date of the annual meeting in 2002; and
provided further, that the term of each director shall be subject to the
election and qualification of his successor and to his earlier death,
resignation or removal. Vacancies in the Board of Directors may be filled
only by the Directors. Any person elected by the Directors to fill a
vacancy in the Board shall hold office until the expiration of the term
of office for the class of Directors to which elected and thereafter
until his successor is chosen and qualified. In the event of any increase
or decrease in the authorized number of directors, (x) each director then
serving as such shall nevertheless continue as a director of the class of
which he is a member and (y) the newly created or eliminated
directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of
directors so as to ensure that the classes have as nearly as possible the
same number of directors. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following
such allocation, and any newly eliminated directorships shall be
subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
(d) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, amend and repeal the by-laws of the Corporation.
(e) Notwithstanding any other provision of law, all action required
to be taken by the stockholders of the Corporation shall be taken at a
meeting duly called and held in accordance with law and with the
Certificate of Incorporation and the By-laws, and not by written
consent."
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EXHIBIT B
UFP TECHNOLOGIES, INC.
1998 DIRECTOR STOCK OPTION INCENTIVE PLAN
1. STATEMENT OF PURPOSE. This 1998 Nonemployee Director Stock Option Plan
(the "Plan") intended to promote the interests of UFP Technologies, Inc., a
Delaware corporation (the "Company") by offering non-employee members of the
Board of Directors of the Company (individually a "Nonemployee Director" and
collectively "Nonemployee Directors") the opportunity to participate in a
special stock option program designed to provide them with significant
incentives to remain in the service of the Company.
2. ADMINISTRATION. The Plan shall be administered by the Board of Directors
of the Company or by any committee of the Board of Directors, including the
Compensation Committee (the "Committee"). The Committee shall have full and
plenary authority to interpret the terms and provisions of the Plan.
3. ELIGIBILITY. Nonemployee Directors of the Company shall be eligible to
receive grants of non-statutory options under this Plan (individually an
"Option" and collectively "Options") pursuant to the provisions of Section 5
hereof.
4. STOCK SUBJECT TO PLAN. The stock issuable under this Plan shall be shares
of the Company's Common Stock, par value $.01 per share (the Common Stock). Such
shares may be made available from authorized but unissued shares of Common Stock
or shares of Common Stock reacquired by the Company. The aggregate number of
shares of Common Stock issuable upon exercise of Options under this Plan shall
not exceed 150,000 shares, subject to adjustment from time to time in accordance
with Section 9 hereof.
5. GRANTING OF OPTIONS.
a. AUTOMATIC GRANTING OF OPTIONS.
(i) Commencing July 1, 1999, and continuing in effect on July 1, in each
subsequent calendar year, each individual who is at the time serving as
a Non- employee Director shall receive an automatic grant of an Option
to purchase 2,500 shares of Common Stock (subject to adjustment as
provided in Section 10 hereof). Each Option granted pursuant to this
Section 5(a)(herein referred to individually as an "Automatic Option" or
collectively as "Automatic Options") shall be for a term of ten (10)
years. Each Option shall become exercisable for any or all of the shares
covered by such Option on the later of the date on which this Plan is
ratified by the shareholders of the Company or on the date of automatic
grant pursuant to this Section 5(a). The Automatic Option shall
thereafter remain so exercisable until the expiration or sooner
termination of the Option term. The foregoing automatic grant dates
under this Section 5(a) are herein referred to individually as an
"Automatic Grant Date" and collectively as "Automatic Grant Dates".
(ii) Should an Optionee cease to be a member of the Board of Directors of
the Company for any reason other than death or permanent disability,
such Optionee's Automatic Options may be exercised (to the extent they
were exercisable 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
representative, as the case may be, during their specified term but not
later than three (3) months after the date of such termination.
(iii) Should an Optionee cease to be a member of the Board of Directors of
the Company because of death or permanent disability (as that term is
defined in Section 22(e)(3) of the Code, as now in effect or as
subsequently amended), such Automatic Options may be exercised in full,
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 their
specified term but not later than one (1) year after the date of death
or permanent disability.
B-1
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b. OPTIONS IN LIEU OF DIRECTOR FEES.
(i) Each Non-Employee Director may elect to receive any or all of his or her
annual director fees or fees for serving as a member of any committee of
the Board of Directors earned during the second half of 1998 and each
subsequent calendar year in the form of Non-Qualified Stock Options
under this Section 5(b). Each Option granted pursuant to this Section
4(b) is herein referred to individually as an "Elective Option" or
collectively as "Elective Options". Each such election must be
irrevocable, and made in writing and filed with the Secretary of the
Company by June 30, 1998 (for fees earned in the second half of 1998)
and (for fees earned in subsequent calendar years) by December 31 of
each year for fees to be received in the following calendar year.
(ii) A Non-Employee Director may file a new election each calendar year
applicable to fees earned in the immediately succeeding calendar year.
If no new election or revocation of a prior election is received by
December 31 of any calendar year, the election, if any in effect for
such calendar year shall continue in effect for the immediately
succeeding calendar year. If a director does not elect to receive his
or her fees in the form of Non-Qualified Stock Options, the fees
otherwise due such director shall be paid in accordance with the normal
payment dates of director fees, as the same may be amended from time to
time by the Company.
(iii) The number of common shares covered by each Elective Option granted in
any year under this Section 5(b) shall be determined based on an
independent appraisal for such year of the intrinsic value of options
granted hereunder and the amount of fees covered by the director's
election for such year. The number of common shares covered by options
granted in 1998 and 1999 (as determined under this procedure) shall be
the number of whole shares equal to (A) the product of three (3) times
the amount of fees which the director has elected under subsection (i)
to receive in the form of Elective Options, divided by (B) One Hundred
percent (100%) of the fair market value of one common share on the
grant date. Any fraction of a share shall be disregarded, and the
remaining amount of the fees corresponding to such option shall be paid
in cash.
(iv) Each Elective Option due a director under this Section 5(b) shall be
issued as of the date of the Annual Meeting of Stockholders of the
Company held in the calendar year during which the corresponding fees
otherwise due the director would have been paid and at a purchase price
equal to One Hundred percent (100%) of the fair market value of the
common shares covered by such option on the grant date, provided,
however, that with respect to fees earned during the second half of
1998, the date of grant shall be July 15, 1998. Each Elective Option
shall have a term of ten (10) years and shall become exercisable for
any or all of the shares covered by such Elective Option on the later
of the date on which this plan is ratified by the shareholders of the
Company or on the date of grant pursuant to this Section 5(b). The
Elective Option shall thereafter remain so exercisable until the
expiration or sooner termination of the Option term. The foregoing
elective grant dates under this Section 5(b) are herein referred to
individually as an "Elective Grant Date" and collectively as "Elective
Grant Dates".
(v) Each Elective Option shall remain in effect for the remainder of the
option term following the termination of the Optionee's service on the
Board of Directors of the Company. In the event of the death or
permanent disability (as that term is defined in Section 22(e)(3) of the
Code, as now in effect or as subsequently amended) of the Optionee, such
Elective Options may be exercised in full, 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 their specified term.
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c. DISCRETIONARY GRANTING OF OPTIONS.
(i) In addition to the Automatic Options and Elective Options, the Committee
may grant non-qualified options to Non-Employee Directors from time to
time in the discretion of the Committee subject to the provisions of
this Section 5(c) and the other provisions of this Plan. Each Option
granted pursuant to this Section 5(c) is herein referred to individually
as a "Discretionary Option" or collectively as "Discretionary Options".
The grant of a Discretionary Option pursuant to this Section 5(c) shall
be evidenced by a written Non-Qualified Stock Option Agreement, executed
by the Company and the Non-Employee Director, stating the number of
shares of Common Stock subject to such Option evidenced thereby and in
such form and with such restrictions and subject to such conditions as
the Committee may from time to time determine, which need not be the
same for each grant or for each participant.
(ii) Each Discretionary Option shall be for a term of not more than ten
years. Each Discretionary Option shall become exercisable in such
installments as may be determined from time to time by the Committee
but not earlier than the date on which this Plan is ratified by the
shareholders of the Company. In addition, subject to such shareholders
ratification, the Committee may, in its discretion (i) accelerate the
exercisability of such option subject to such terms as the Committee
deems necessary and appropriate to effectuate the purpose of the Plan;
or (ii) at any time prior to the expiration or termination of any
Option previously granted, extend the term of any such option 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.
d. The Nonemployee Directors receiving Options are herein referred to
individually as an "Optionee" and collectively as "Optionees." Options
granted under this Plan are not intended to be treated as incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
e. In the event that an Option expires or is terminated or canceled
unexercised as to any shares of Common Stock, the shares subject to the
Option, or portion thereof not so exercised, shall be available for
subsequent grants of Automatic Options, Elective Options or Discretionary
Options under this Plan.
f. Should the total number of shares of Common Stock at the time available
under this Plan not be sufficient for the automatic or elective grants to
be made at that particular time, the available shares shall be allocated
proportionately among all Automatic and Elective Option grants to be made
at that time.
6. EXERCISE PRICE. The exercise price of a Discretionary Option shall be
determined by the Committee in its discretion, and may be greater than, but not
less than the fair market value, at the time the option is granted, of the
shares of Common Stock subject to the option. The exercise price of an Automatic
Option or an Elective Option shall be 100% of the fair market value of Common
Stock as of the applicable Automatic Grant Date or Elective Grant Date. 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 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.
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7. EXERCISE OF OPTION.
a. A Discretionary Option may be exercised in such manner as may be provided
in the applicable Non-Qualified Stock Option Agreement referred to in
Section 5(c)(i) hereof. An Automatic Option or an Elective Option may be
exercised by giving written notice to the Company, attention of the
Secretary, specifying the number of shares to be purchased, accompanied
by the full purchase price for the shares to be purchased either in cash,
or its equivalent, or by tendering previously owned shares of the Common
Stock of the Company, or by a combination of these methods. 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, in its discretion, determines to be consistent
with the Plan's purpose and applicable law. For the purpose of this
Section 7, the per share value of the Common Stock of the Company shall
be the fair market value determined in accordance with Section 6 hereof,
except using the trading day next preceding 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 exercisable) in any order the Optionee chooses, regardless
of the order in which said options were granted.
b. In connection with the exercise of options granted under the Plan, the
Company may make loans to the Optionees as the Committee, in its
discretion, may determine. Such loans shall be subject to the following
terms and conditions and such other terms and conditions as the Committee
shall determine not inconsistent with the Plan. Such loans shall bear
interest at such rates as the Committee shall determine from time to
time, which rates may be below then current market rates or may be made
without interest. In no event may any such loan exceed the fair market
value, at the date of exercise, of the shares covered by the Option, or
portion thereof, exercised by the Optionee. No loan shall have an initial
term exceeding two years, but any such loan may be renewable at the
discretion of the Committee. When a loan shall have been made, shares of
the Common Stock having a fair market value at least equal to 150 percent
of the principal amount of the loan shall be pledged by the Optionee to
the Company as security for payment of the unpaid balance of the loan.
c. 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 (or his or her heirs, legatees or legal
representative, as the case may be) upon his or her 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. NON-TRANSFERABILITY. Except as otherwise provided in an Optionee's option
agreement, or as otherwise permitted by the Committee in its discretion, Options
shall not be assignable or transferable by the Optionee otherwise than by will
or by the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Code, or Title I of the Employee Retirement
Income Security
B-4
<PAGE>
Act of 1974, as amended ("ERISA"), or the rules thereunder. Subject to the
foregoing, during the lifetime of the Optionee, Options shall be exercisable
only by the Optionee.
9. ADJUSTMENTS. The number of shares subject to this Plan and to Options
granted under this Plan shall be adjusted as follows: (a) in the event that the
number of outstanding shares of Common Stock is changed by any stock dividend,
stock split or combination of shares, the number of shares subject to this Plan
and to Options granted hereunder 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 for each share of Common Stock then subject to this 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 will be
entitled pursuant to the transaction; and (c) in the event of any other relevant
change in the capitalization of the Company, an equitable adjustment shall be
made in the number of shares of Common Stock then subject to this Plan, whether
or not then subject to outstanding Options. In the event of any such adjustment
the exercise price per share shall be proportionately adjusted.
10. AMENDMENT OR DISCONTINUANCE OF PLAN. This Plan may from time to time be
amended or discontinued by action of the Board of Directors or by the
stockholders of the Company; provided that no such amendment or discontinuance
shall change or impair any Options previously granted without the consent of the
Optionee.
11. NO IMPAIRMENT OF RIGHTS. Nothing in this Plan or any Automatic Grant or
Elective Grant made pursuant to this Plan shall be construed or interpreted so
as to affect adversely or otherwise impair the Company's right to remove any
Optionee from service on the Board of Directors of the Company at any time in
accordance with the provisions of the Company's By-laws and applicable law.
12. EFFECTIVE DATE. This Plan was adopted and authorized by the Board of
Directors of the Company on June 3, 1998 and amended on February 24, 1999,
subject to the ratification by the stockholders of the Company and became
effective on July 15, 1998. If the Plan is ratified by the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock of the
Company voting in person or by proxy at the Company's 1999 Annual Meeting of
Stockholders, it shall be deemed to have become effective on the Effective Date
of July 15, 1998. Options may be granted under the Plan prior to ratification of
the Plan by the stockholders of the Company and, in each such case, the date of
grant shall be determined without reference to the date of ratification of the
Plan by stockholders of the Company; provided, however that if the Plan is not
ratified by stockholders, all options granted hereunder shall be canceled and
void.
B-5
<PAGE>
PROXY UFP TECHNOLOGIES, INC. PROXY
The undersigned hereby appoints R. Jeffrey Bailly and Ronald J. Lataille,
and each of them, acting singly, with full power of substitution, attorneys and
proxies to represent the undersigned at the 1999 Annual Meeting of Stockholders
of UFP Technologies, Inc. to be held on June 9, 1999, and at any adjournment or
adjournments thereof, with all power which the undersigned would possess if
personally present, and to vote all shares of stock which the undersigned may be
entitled to vote at said meeting upon the matters set forth in the Notice of and
Proxy Statement for the Meeting in accordance with the instructions on the
reverse side and with discretionary authority upon such other matters as may
come before the Meeting. All previous proxies are hereby revoked.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE VOTED AS
DIRECTED BY THE UNDERSIGNED AND IF NO DIRECTION IS INDICATED, IT WILL BE VOTED
FOR THE ELECTION OF THE NOMINEES AS DIRECTORS, FOR THE PROPOSAL TO AMEND THE
CERTIFICATE OF INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS AND
RELATED CHANGES AND FOR THE PROPOSAL TO ADOPT THE 1998 DIRECTOR STOCK OPTION
INCENTIVE PLAN.
Continued, and to be signed, on reverse side
(Please fill in the reverse side and mail in enclosed envelope)
<PAGE>
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
1. Election of Directors:
Nominees: R. Jeffrey Bailly, William H. Shaw, Richard L. Bailly, William C.
Curry, Kenneth L. Gestal, Peter R. Worrell, Michael J. Ross
/ / FOR ALL NOMINEES (except as marked to the contrary)
/ / WITHHOLD AUTHORITY to vote for all nominees
FOR except vote withheld from the following nominee(s):
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE THAT NOMINEE'S
NAME IN THE SPACE PROVIDED ABOVE.)
2. Amendment of certificate of incorporation to provide for a classified board of directors and FOR AGAINST ABSTAIN
related changes. / / / / / /
3. Adoption of UFP Technologies, Inc. 1998 Director Stock Option Plan as described in the FOR AGAINST ABSTAIN
accompanying Proxy Statement. / / / / / /
MARK HERE FOR ADDRESS / /
CHANGE AND NOTE AT LEFT
</TABLE>
(Signatures should be the same as the
name printed hereon. Executors,
administrators, trustees, guardians,
attorneys, and officers of
corporations should add their titles
when signing.)
Signature:
- ------------------------------------------------------------------------ Date:
- ------------
Signature:
- ------------------------------------------------------------------------ Date:
- ------------
