<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For fiscal year ended December 31, 1998 or
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|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934)
For the transition period from __________ to ____________.
Commission File Number : 001-12648
UFP Technologies, Inc.
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(Exact Name of Company as Specified in Its Charter)
Delaware 04-2314970
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(State or Other Jurisdiction of Employer (I.R.S. Identification No.)
Incorporation or Organization)
172 East Main Street, Georgetown, Massachusetts - USA 01833-2107
- ----------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(978) 352-2200
--------------
(Company's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
---- ----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Preferred Share Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. |_|
The aggregate market value of the registrant's Common Stock, $.01 par
value, held by non-affiliates of the registrant as of February 12, 1999, was
$19,928,620 based on the closing price of $4.25 on that date on the Nasdaq
National Market. As of February 12, 1999, 4,689,087shares of the registrant's
Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of
directors at the registrant's 1999 annual meeting of stockholders, which is
expected to be filed within 120 days after the end of the registrant's fiscal
year, are incorporated by reference in Part III of this report.
-UFPT 10-K, page 2-
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PART I
This report contains certain statements that are "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995
(the "Act") and releases issued by the Securities and Exchange Commission. The
words "believe," "expect," "anticipate," "intend", "estimate" and other
expressions which are predictions of or indicate future events and trends and
which do not relate to historical matters identify forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to differ materially from anticipated future results, performance
or achievements expressed or implied by such forward-looking statements.
Examples of these risks, uncertainties, and other factors include, without
limitation, the following: (i) economic conditions that affect sales of the
products of the Company's packaging customers, (ii) actions by the Company's
competitors and the ability of the Company to respond to such actions, (iii) the
ability of the Company to obtain new customers and (iv) the ability of the
Company to execute favorable acquisitions. In addition to the foregoing, the
Company's actual future results could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth in the
Company's various filings with the Securities and Exchange Commission and
changes in general economic conditions, interest rates and the assumptions used
in making such forward-looking statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise.
ITEM 1. BUSINESS
UFP Technologies, Inc. (the "Company" or "UFPT") designs and manufactures
a broad range of high-performance cushion packaging, including 100% recycled
molded fiber packaging products for a variety of industrial and consumer
markets. The Company also designs and manufactures specialty foam products. The
Company is a leading U.S. manufacturer of custom-designed cushion foam packaging
products and engineered specialty foam and laminated products.
Effective November 30, 1998, the Company purchased substantially all of
the assets of Pacific Foam Technologies, Inc. ("Pacific Foam"), based in
Ventura, California. Pacific Foam is engaged in the business of designing and
manufacturing a line of specialty foam products for the health and beauty
industry. Pacific Foam is based in Ventura, California. This acquisition
provides the Company with a strategic west coast presence as well as an
attractive niche market.
Effective January 1, 1997, the Company acquired substantially all of the
properties and net assets of Foam Cutting Engineers, Inc. ("FCE"). FCE is
engaged in the business of designing and manufacturing engineered foam plastics
for packaging and specialty applications, and is based in the Chicago suburb of
Addison, Illinois. This acquisition expands the Company's geographic reach of
its foam plastics business to the strategically important region of the Midwest.
The Company's high-performance cushion packaging products are made
primarily from polyethylene and polyurethane foams, and a wide range of sheet
plastics. These products are cus-
-UFPT 10-K, page 3-
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tom designed and fabricated or molded to provide protection for fragile and
valuable items, and are sold primarily to original equipment and component
manufacturers in the computer, electronics, telecommunications, industrial,
medical and pharmaceutical markets. Molded fiber products are made primarily
from 100% recycled paper, principally derived from waste newspaper. These
products are custom designed, engineered and molded into shapes for packaging
high volume consumer goods, including computer components, medical devices and
other light electronics.
In addition to packaging products, the Company fabricates and molds
specialty products made from cross-linked polyethylene foam and other materials.
The Company also laminates fabrics and other materials to cross-linked
polyethylene foams, polyurethane foams and other substrates. The Company's
specialty products include door panels and other interior automotive components,
athletic and industrial safety belts, components for medical diagnostic
equipment, nail files and other beauty aids, and shock absorbing inserts used in
athletic and leisure footwear.
The Company was incorporated in Massachusetts under the name United
Packaging Corporation in 1963. The Company changed its name to United Foam
Plastics Corporation in 1973 and to UFP Technologies, Inc. in October 1993. In
November 1993, the Company reincorporated in Delaware. In December 1993, the
Company completed an initial public offering of its Common Stock and acquired
Moulded Fibre Technology, Inc. ("MFT"). Unless the context otherwise requires,
the term "Company" or "UFPT" reflects the re-incorporation of UFP Technologies,
Inc. and refers to UFP Technologies, Inc. and its subsidiary, MFT. The Company's
principal offices are located at 172 East Main Street, Georgetown, Massachusetts
01833, and its telephone number is (978) 352-2200.
Market Overview
Packaging Products. The interior cushion packaging market is characterized
by three primary sectors: (1) custom fabricated or molded products for low
volume, high fragility products; (2) molded or die-cut products for high volume,
industrial and consumer goods; and (3) loose fill and commodity packaging
materials for products which do not require custom-designed packaging. Packaging
products are used to contain, display and/or protect their contents during
shipment, handling, storage, marketing and use. The Company serves both the low
volume, high fragility market and the high volume industrial and consumer market
with a range of product offerings but does not serve the lower-end loose fill
and commodity packaging market.
The low volume, high fragility market is generally characterized by annual
production volumes of less than 50,000 pieces. Typical goods in this market
include precision instruments, medical devices, sensitive electronic components
and other high value industrial products that are very sensitive to shock,
vibration and other damage that may occur during shipping and distribution. The
principal materials used to package these goods include polyethylene and
polyurethane foams, foam-in-place polyurethane and molded expanded polystyrene.
Polyurethane foams and polyethylene foams have high shock absorbency, high
resiliency and vibration damping characteristics.
The higher volume consumer packaging market is generally characterized by
annual production volumes in excess of 50,000 pieces. Typical goods in this
market include toys, light electronics, computers and computer peripherals,
stereo equipment and small appliances. These goods
-UFPT 10-K, page 4-
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generally do not require as high a level of shock and vibration protection as
goods in the low volume, high fragility market. The principal materials used to
package these goods include various molded, rigid and foamed plastics, such as
expanded polystyrene foam (EPS), vacuum-formed polystyrene (PS) and polyvinyl
chloride (PVC), and corrugated die-cut inserts, which generally are less
protective and less expensive than resilient foams and molded fiber. The Company
believes that molded fiber is increasingly being used as an alternative medium
to these materials.
Specialty Products. Specialty applications of foam and other types of
plastics are numerous and diverse. Examples of uses of specialty foam products
include automotive interior components, medical devices, toys, gaskets and
carrying cases. Cross-linked polyethylene foams have many of the same properties
as traditional polyethylene foams, including light weight, durability,
resiliency and flexibility. Cross-linked foams also have many advantages over
traditional foams, including the ability to be thermoformed (molded),
availability in vibrant colors, a fine cell structure providing improved
esthetics and lower abrasiveness, and enhanced resistance to chemicals and
ultraviolet light. Certain grades of cross-linked foams can be radiation
sterilized and have been approved by the U.S. Food and Drug Administration for
open wound skin contact.
Cross-linked foam can also be combined with other materials to increase
product usages and market applications. For example, cross-linked foams can be
laminated to fabrics to produce light weight, flexible and durable insoles for
athletic and walking shoes, weight lifting and industrial safety belts, gun
holsters, backpacks, and other products for the leisure, athletic and retail
markets. The Company believes that, as a result of their many advantages,
cross-linked foam and cross-linked foam laminated products are being used in a
wide range of markets as substitutes for traditional rubber, leather and other
product material alternatives.
Regulatory Climate
The packaging industry has been subject to user, industry, and legislative
pressure to develop environmentally responsible packaging alternatives that
reduce, reuse and recycle packaging materials. Government authorities have
enacted legislation relating to source reduction, specific product bans,
recycled content, recyclability requirements and "green marketing" restrictions.
In order to provide packaging that complies with all regulations
regardless of a product's destination, manufacturers seek packaging materials
that meet both environmentally related demands and performance specifications.
Some packaging manufacturers have responded by: reducing product volume and
ultimate waste product disposal through reengineering traditional packaging
products; adopting new manufacturing processes; participating in recovery and
reuse systems for resilient materials that are inherently reusable; creating
programs to recycle packaging following its useful life; and developing
materials that use a high percentage of recycled content in their manufacture.
-UFPT 10-K, page 5-
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Products
The Company's products include foam, plastic, and fiber packaging
products, and specialty foam products.
Packaging Products
The Company designs, manufactures and markets a broad range of packaging
products primarily using polyethylene, polyurethane and cross-linked
polyethylene foams and rigid plastics. These products are custom designed and
fabricated or molded to provide optimum protection for less durable, higher
value items, and are primarily sold to original equipment and component
manufacturers in the computer, electronics, telecommunications, industrial,
medical and pharmaceutical markets. Examples of the Company's packaging products
include end cap packs for computers, corner blocks for telecommunications
consoles, anti-static foam packs for printed circuit boards, die-cut inserts for
attache cases and plastic trays for medical devices and components. Markets for
these products are typically characterized by lower to moderate volumes where
performance, such as shock absorbency and vibration damping, is valued.
The Company's engineering personnel collaborate directly with customers to
study and evaluate specific customer requirements. Based on the results of this
evaluation, packaging products are engineered to customer specifications using
various types and densities of materials with the goal of providing the desired
protection for the lowest cost and with the lowest package volume. The Company
believes that its engineering expertise and breadth of product and manufacturing
capabilities have enabled it to provide unique solutions to achieve these goals.
The markets for the Company's molded fiber packaging and vacuum-formed
trays are characterized by high volume production runs and require rapid
manufacturing turnaround times. Raw materials used in the manufacture of molded
fiber are primarily recycled newspaper, a variety of other grades of recycled
paper and water. Raw materials used in vacuum-formed plastics include
polystyrene (PS) and polyvinyl chloride (PVC). These products compete with
expanded polystyrene (EPS) and manually assembled corrugated die-cut inserts.
Sales of these products have been to the computer, consumer electronics and
medical industries.
The Company's molded fiber products provide customers with packaging
solutions that are more responsive to increasingly stringent environmental
packaging regulations worldwide and meet the rising demands of
environmentally-aware consumers, while simultaneously meeting customer cost and
performance objectives.
Specialty Foam Products
The Company specializes in engineered products that use the Company's
close tolerance manufacturing capabilities and its expertise in various foam
materials and lamination techniques, as well as the Company's ability to
manufacture in clean room environments. The Company's specialty products are
sold primarily to customers in the sporting goods, medical, leisure and footwear
industries. These products include components for automobiles and medical
diagnostic equipment,
-UFPT 10-K, page 6-
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abrasive nail files and anti-fatigue mats, and shock absorbing inserts used in
athletic and leisure footwear.
The Company believes that it is one of the largest purchasers of
cross-linked foam in the United States and as a result it has been able to
establish important relationships with the relatively small number of suppliers
of this product. Through its strong relationships with cross-linked foam
suppliers, the Company believes that it is able to offer customers a wide range
of cross-linked foam products.
The Company also benefits from its ability to custom design its own
proprietary manufacturing equipment in conjunction with its machinery suppliers.
For example, the Company has custom designed its own flame lamination
manufacturing machines allowing the Company to achieve adhesive bonds between
cross-linked foam and fabric and other materials that do not easily combine.
These specialty laminates typically command higher prices than traditional foam
products.
Marketing and Sales
The Company markets and sells its packaging and specialty products in the
United States principally through direct regional sales forces comprised of
skilled engineers. The Company also uses independent manufacturer
representatives on a limited basis to sell its products in regions where it does
not have coverage. The Company's sales engineers collaborate with customers and
the Company's design and manufacturing experts to develop custom engineered
solutions on a cost-effective basis. The Company also markets its products
through attendance by in-house market specialists at trade shows and
expositions. The Company believes that its sales are somewhat seasonal, with
increased sales in the second half of the year.
With the addition of Pacific Foam, the Company now markets a line of
products to the health and beauty industry. These products are sold primarily
through distributors.
Internationally, the Company is seeking to establish exclusive licensing
arrangements for the manufacture and distribution of its molded fiber product
line with foreign companies for designated territories. The Company has entered
into a license agreement with Hong Kong-based Starlite Holdings, covering
Guandong Province, mainland China and Hong Kong, and United Kingdom-based Rexam
PLC covering the United Kingdom and Ireland. Under these arrangements the
manufacturer must pay the Company a lump sum royalty in exchange for the
requisite equipment for production of molded fiber products and, thereafter, a
continuing royalty for the right to manufacture and distribute molded fiber
products in their respective territories. Starlite completed installation of the
Company's equipment and commenced operations in January 1997. Rexam entered into
its license agreement with the Company and began production under that license
in January 1997.
Manufacturing
The Company's manufacturing operations consist primarily of cutting,
molding, vacuum forming, laminating and assembly. For custom molded foam
products, the Company's skilled engineering personnel analyze specific customer
requirements to design and build prototype products to
-UFPT 10-K, page 7-
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determine product functionality. Upon customer approval, prototypes are
converted to final designs for commercial production runs.
Molded cross-linked foam products are produced in a thermoforming process
using heat, pressure, and precision metal tooling.
Cushion foam packaging products that are not cross-linked are fabricated
by cutting shapes from blocks of foam using specialized cutting tools, routers
and hot wire equipment and assembling these shapes into the final product using
a variety of foam welding or gluing techniques. Products can be used on a
stand-alone basis or bonded to another foam product or other material such as a
corrugated medium.
Laminated products are produced through a process whereby the foam medium
is heated to the melting point. The heated foam is then typically bonded to a
non-foam material through the application of mechanical pressure.
Molded fiber products are manufactured by vacuum forming a pulp of
recycled or virgin paper materials onto custom engineered molds. With the
application of vacuum and air, the molded parts are pressed and transferred to
an in-line conveyorized dryer, from which they exit ready for packing or
subsequent value added operations.
The Company does not manufacture any of the raw materials used in its
products. With the exception of certain grades of cross-linked foam, these raw
materials are available from multiple supply sources. Although the Company
relies upon a limited number of suppliers for cross-linked foam, the Company's
relationships with such suppliers are good, and the Company expects that these
suppliers will be able to meet the Company's requirements for cross-linked foam.
Any delay or interruption in the supply of raw materials could have a material
adverse effect on the Company's business.
Research and Development
The Company's engineering personnel continually explore design and
manufacturing techniques to meet the unique demands and specifications of its
customers. In addition, the Company regularly undertakes customer-initiated
engineering feasibility studies for which the Company is compensated regardless
of whether such projects result in commercial production contracts. Because the
Company's products tend to have short life cycles, research and development is
an integral part of the Company's ongoing cost structure.
Competition
The packaging products industry is highly competitive. While there are
several national companies that sell interior packaging, the Company's primary
competition to date for its packaging products has been from smaller independent
regional manufacturing companies. These companies generally market their
products in specific geographic areas from neighboring facilities. In addition,
the Company's foam and fiber packaging products compete against products made
from
-UFPT 10-K, page 8-
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alternative materials, including expanded polystyrene foams, die-cut corrugated,
plastic peanuts, plastic bubbles and foam-in-place urethane.
Competition in the engineered specialty foam products industry is also
intense. The Company's specialty foam products face competition primarily from
smaller companies that typically concentrate on production of specialty products
for specific industries. The Company expects that additional companies will
enter the market for engineered specialty foam products as the market expands.
The Company believes that its engineering expertise, its ability to combine
foams with other materials such as plastics and laminates, and its ability to
manufacture products in a clean room environment will enable it to continue to
compete effectively in the engineered specialty foam products market. The
Company's specialty products also compete with products made from a wide range
of other materials, including rubber, leather and other foams.
The Company believes that its customers typically select vendors based
primarily on price, product performance, product reliability and customer
service. The Company believes that it is able to compete effectively with
respect to these factors in each of its targeted markets.
Patents and Other Proprietary Rights
The Company relies upon trade secret and patent protection to protect its
technology. The Company believes that the improvement of existing products,
reliance upon trade secrets, unpatented proprietary know-how and the development
of new products are generally as important as patent protection in establishing
and maintaining a competitive advantage. Nevertheless, the Company has obtained
patents and may continue to make efforts to obtain patents, when available,
although there can be no assurance that any patent obtained will provide
substantial protection or be of commercial benefit to the Company, or that its
validity will be upheld if challenged.
The Company has two U.S. patents relating to its molded fiber technology
(including certain proprietary machine designs) and has patent applications
pending with respect to such technology in certain foreign countries and
international patent offices. The Company also has U.S. patents relating to its
foam and packaging technologies. There can be no assurance that any of the
Company's patent applications will be granted, or that any patent or patent
application of the Company will provide significant protection for the Company's
products and technology, or will not be challenged or circumvented by others.
The expiration dates for the Company's patents range from February 2003 through
August 2014.
The Company has licensed its molded fiber patents and technology on an
exclusive basis to Rexam in the United Kingdom and Starlite in China, covering
the manufacture and sale of molded fiber products in the United Kingdom,
Ireland, China and certain other Asian countries. See "Marketing and Sales."
Environmental Considerations
In addition to offering molded fiber packaging products made from recycled
paper derived primarily from post-consumer newspaper waste, the Company actively
promotes its philosophy of reducing product volume and resulting post-user
product waste. The Company designs products to
-UFPT 10-K, page 9-
<PAGE>
provide optimum performance with minimum material. In addition, the Company
actively participates in a recovery and reuse program for certain of its plastic
packaging products. The Company is aware of public opposition to environmentally
incompatible packaging, and other products and that future government action may
impose restrictions affecting the industry in which the Company operates. There
can be no assurance that any such action will not adversely impact the Company's
products and business.
Backlog
The Company's backlog as of February 27, 1999, and February 28, 1998
totaled approximately $3.9 million in each year for the Packaging segment, and
$4.9 million and $3.6 million respectively for the Specialty segment. The
backlog consists of purchase orders for which a delivery schedule within the
next twelve months has been specified by customers. Orders included in the
backlog may be canceled or rescheduled by customers without significant penalty.
The backlog as of any particular date should not be relied upon as indicative of
the Company's revenues for any period.
Employees
As of February 19, 1999, the Company had 500 full-time employees,
including 40 in engineering, 370 in manufacturing operations, 40 in marketing,
sales and support services, and 50 in general and administration. The Company is
not a party to any collective bargaining agreement. The Company considers its
employee relations to be good.
Market Risk
The following discussion of the Company's market risk includes
"forward-looking statements" that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
Market risk represents the risk of changes in value of a financial
instrument caused by fluctuations in interest rates, foreign exchange rates, and
equity prices. At December 31, 1998, the Company's cash and cash equivalents
consisted of bank accounts in U.S. dollars, and their valuation would not be
affected by market risk. The Company has two debt instruments where interest is
based upon the prime rate and, therefore, future operations could be affected by
interest rate changes; however, the Company believes that the market risk of the
debt is minimal.
-UFPT 10-K, page 10-
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ITEM 2. PROPERTIES
The following table presents certain information relating to each of the
Company's properties:
<TABLE>
<CAPTION>
Lease
Square Expiration
Location Feet Date Principal Use
- -------- ---- ---- -------------
<S> <C> <C> <C>
Georgetown, Massachusetts(5) 54,000 (owned Headquarters, fabrication, molding, test lab, clean-room,
by the and engineering for Specialty segment
Company)
Decatur, Alabama(1 + 4) 47,250 12/31/01 Fabrication and engineering for Packaging segment
Pawcatuck, Connecticut 39,000 12/31/99 Fabrication and engineering for Packaging segment
Kissimmee, Florida(1 + 4) 37,400 12/31/01 Fabrication, molding, test lab, and engineering for
Packaging segment
Atlanta, Georgia(2) 55,530 10/31/99 Fabrication, molding and engineering for Specialty segment
Haverhill, Massachusetts 38,372 2/28/03 Flame lamination for Specialty segment
Raritan, New Jersey 67,125 2/28/03 Fabrication, molding, test lab, clean-room, and engineering
for Packaging segment
Gilroy, California(2) 36,350 1/1/01 Molded fiber operations and engineering for Packaging
segment
Scarborough, Maine 29,768 5/31/01 Molded fiber operations and engineering for Packaging
segment
Clinton, Iowa 45,000 7/1/01 Molded fiber operations for Packaging segment
Addison, Illinois(3) 30,000 2/28/00 Fabrication and engineering for Packaging segment
Ventura, California 32,546 10/31/01 Fabrication and engineering for Specialty segment
</TABLE>
(1) United Development Company Limited, a Florida limited partnership and an
affiliate of certain officers, directors and stockholders of the Company,
is the lessor of these properties.
(2) The Company has an option to extend the term of this lease for a period of
five years.
(3) The Company has two options to extend the term of this lease for periods
of two years.
(4) The Company has an option to extend the term of this lease for a period of
three years.
(5) Subject to mortgage (see Note 7 of the Notes to the Consolidated Financial
Statements).
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
-UFPT 10-K, page 11-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price
The Company's Common Stock, $.01 par value (the "Common Stock"), was
listed on the Nasdaq Small Cap Market under the symbol "UFPT" and on the Boston
Stock Exchange under the symbol "UFP" from December 17, 1993 to July 8, 1996.
Thereafter, the Company's Common Stock has been listed on the Nasdaq National
Market. The following table sets forth the range of high and low quotations for
the Common Stock as reported by Nasdaq for the quarterly periods from January 1,
1997 to December 31, 1998:
High Low
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Fiscal Year Ended December 31, 1997
First Quarter $6 $3-1/2
Second Quarter 5-1/4 3-1/2
Third Quarter 4-1/2 3-3/4
Fourth Quarter 4-9/16 3-1/4
Fiscal Year Ended December 31, 1998
First Quarter 4-1/4 3-1/2
Second Quarter 4-5/8 4
Third Quarter 4-1/4 2-1/8
Fourth Quarter 3-5/8 2-3/8
Number of Stockholders
As of February 19, 1999, there were 132 holders of record of the Company's
Common Stock.
Dividends
The Company did not pay any dividends in 1998. Although prior to becoming
a public company in December 1993, the Company had from time to time paid cash
dividends on its capital stock, the Company presently intends to retain all of
its earnings to provide funds for the operation and expected expansion of its
business and does not anticipate paying any cash dividends in the foreseeable
future.
-UFPT 10-K, page 12-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
(in thousands, except per share data)
Consolidated statement of operations data:(1) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $47,220 45,452 39,359 34,096 31,907
Gross profit 13,080 12,252 9,912 8,074 6,560
Operating income (loss) 3,174 2,934 2,094 1,095 (1,295)
Net income (loss) 1,647 1,309 1,262 888 (2,514)
Diluted earnings (loss) per share $ 0.34 0.27 0.26 0.19 (0.55)
Weighted average number of shares outstanding 4,830 4,863 4,874 4,734 4,598
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------
Consolidated balance sheet data:(1) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 2,099 2,579 2,488 1,952 1,444
Total assets 29,949 25,195 22,900 20,795 19,142
Short-term debt 5,060 3,525 2,455 3,257 2,766
Long-term debt, excluding current portion 2,123 3,233 3,223 2,414 1,603
Total liabilities 14,053 11,062 10,170 9,356 8,608
Stockholders' equity $15,895 14,133 12,729 11,438 10,534
</TABLE>
(1) See Note 17 of Notes to Consolidated Financial Statements
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain statements that are "forward-looking
statements" as that term is defined under the Act and releases issued by the
Securities and Exchange Commission. The words "believe," "expect," "anticipate,"
"intend", "estimate" and other expressions which are predictions of or indicate
future events and trends and which do not relate to historical matters identify
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressed or implied by such
forward-looking statements.
Examples of these risks, uncertainties, and other factors include, without
limitation, the following: (i) economic conditions that affect sales of the
products of the Company's packaging customers, (ii) actions by the Company's
competitors and the ability of the Company to respond to such actions, (iii) the
ability of the Company to obtain new customers and (iv) the ability of the
-UFPT 10-K, page 13-
<PAGE>
Company to execute favorable acquisitions. In addition to the foregoing, the
Company's actual future results could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth in the
Company's various filings with the Securities and Exchange Commission and
changes in general economic conditions, interest rates and the assumptions used
in making such forward-looking statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise.
Results of Operations
The following table sets forth, for the years indicated, the percentage of
revenues represented by the items as shown in the Company's consolidated
statements of operations:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 72.3 73.0 74.8
Gross profit 27.7 27.0 25.2
Selling, general and administrative expenses 21.0 20.5 19.9
Operating income 6.7 6.5 5.3
Total other deductions 0.8 1.4 1.1
Income before income taxes 5.9 5.1 4.2
Provision for income taxes 2.4 2.2 1.0
Net income from continuing operations 3.5 2.9 3.2
</TABLE>
1998 Compared to 1997:
The Company's net sales increased 3.9% to $47.2 million for the year ended
December 31, 1998 from $45.5 million in the same period last year. The increase
in sales is primarily attributable to higher sales in protective packaging,
which was the beneficiary of several large projects during 1998. In addition, a
smaller component of the increase is attributable to the impact of Pacific Foam,
which was acquired on November 30, 1998. This increase partially offsets a
decrease in sales in the Specialty segment. The Company expects that its
acquisition of Pacific Foam will augment its Specialty segment during 1999.
Gross profit as a percentage of sales improved to 27.7% in the year ended
December 31, 1998, from 27.0% in 1997. The improvement is primarily related to
intensive efforts by management to improve material efficiencies during the
year.
Selling, General and Administrative Expenses ("SG&A") increased 6.3% to
$9.9 million in 1998, from $9.3 million in 1997. As a percentage of sales, SG&A
increased to 21.0% from 20.5%. The increase in dollars and the increase in SG&A
as a percentage of sales are primarily due to the acquisition of Pacific Foam on
November 30, continued systems enhancements, and additions to the management
team.
-UFPT 10-K, page 14-
<PAGE>
Interest expense declined approximately $200,000 to $447,000 in 1998, from
$649,000 in 1997. Although the Company's outstanding debt at December 31, 1998
is higher than on the same date in 1997, the average debt outstanding during the
year ended December 31, 1998 was lower than in 1997. In addition, the Company
borrowed using a LIBOR based interest rate rather than the historically used
Prime based rate. As a result, average interest rates were lower in 1998 than in
1997.
The Company's effective tax rate was 40.9% and 43.2% in 1998 and 1997,
respectively.
Net income increased to $1,647,000 from $1,309,000 in 1997.
1997 Compared to 1996:
The Company's net sales increased 15.5% to $45.5 million for the year
ended December 31, 1997 from $39.4 million in the same period last year. The
increase in sales was primarily attributable to the impact on sales of FCE
Industries which was acquired by the Company in January 1997, as well as
increased sales of the Company's molded fiber packaging product.
Cost of sales as a percentage of sales decreased to 73.0% for the year
ended December 31, 1997 from 74.8% in 1996. The improvement was primarily
attributable to improvements in margins on sales of molded fiber product as well
as an increase in molded fiber sales as a percentage of overall sales.
Selling, general, and administrative expenses ("SG&A") increased 19.2% to
$9.3 million in 1997 from $7.8 million in 1996. As a percentage of sales, SG&A
increased to 20.5% in 1997 from 19.9% in 1996. The increase in SG&A as a
percentage of sales was due to a one-time write-off of receivables associated
with a customer that filed for bankruptcy protection, additional expenses at FCE
Industries, and additions to the management team.
Interest expense increased 33.8% to $649,000 in 1997 from $485,000 in
1996. The increase was due to higher average borrowings associated with the
acquisition of FCE Industries, slightly offset by lower average interest rates.
The Company's effective tax rate was 43.2% and 24.3% in 1997 and 1996,
respectively. The increase in 1997 is primarily due to the impact on the
effective rate in 1996 of the reduction of the Company's valuation allowance for
deferred income taxes associated with the unrestricted remaining loss
carry-forwards. This reduction in the valuation allowance reflected the
Company's improved operating performance, which resulted in the likelihood that
the Company will be able to benefit from its deferred income taxes. See Note 9
of Notes to Consolidated Financial Statements.
Net income for 1997 increased to $1,309,000 from $1,262,000 in 1996.
Liquidity and Capital Resources
The Company funds its operating expenses, capital requirements and growth
plan through internally generated cash, bank credit facilities and long-term
capital leases.
-UFPT 10-K, page 15-
<PAGE>
As of December 31, 1998 and 1997, working capital was $2,099,000 and
$2,579,000, respectively. The decrease in working capital is primarily
attributable to the acquisition of Pacific Foam, which was financed through the
revolving line of credit. Cash provided from operations was $4,295,000 and
$3,090,000 for 1998 and 1997, respectively. Net cash used in investing
activities was $3,557,000 and was used primarily for capital expenditures of
$1,562,000 and the acquisition of Pacific Foam. Capital purchases in 1998
consisted primarily of foam cutting equipment in our Packaging and Specialty
plants and the installation and enhancement of molded fiber packaging equipment.
Including amounts due under the revolving credit facility, the Company had
a total debt outstanding of $7,184,000 and $6,758,000 at December 31, 1998 and
1997, respectively. The increase was primarily attributable to the acquisition
of Pacific Foam, which was partially offset by the required debt service on
long-term debt and capital leases. The Company has a $7,500,000 revolving bank
line, of which $4,150,000 was outstanding at December 31, 1998. Borrowings
through the credit facility are unsecured and bear interest at prime or LIBOR
Plus 1.75%. See Note 7 of Notes to the Consolidated Financial Statements.
The Company has no significant capital commitments in 1999, but plans on
adding additional machinery to increase capacity or to enhance operating
efficiencies in its manufacturing plants. Additionally, the Company may consider
the acquisition of companies, technologies or products in 1999 which are
complementary to its business. The Company believes that its existing resources,
including its revolving loan facility, together with cash generated from
operations and funds expected to be available to it through any necessary
equipment financing and additional bank borrowings, will be sufficient to fund
its cash flow requirements through at least the end of 1999. However, there can
be no assurances that such financing will be available at favorable terms, if at
all.
Year 2000 Readiness
The Year 2000 issue is the potential for system and processing failure of
date-related data and the result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company has established a Year 2000 Compliance Committee (the
"Committee") which is comprised of members of senior management, finance, MIS
operations and engineering. The Committee's mandate is to design and implement a
Compliance Plan that minimizes the risk of material adverse impact to the
Company resulting from events triggered by the turn of the century. A full-time
Year 2000 Project Coordinator has been appointed and a comprehensive
corporate-wide Year 2000 Project plan has been developed.
The Committee has defined three categories of internal elements that are
subject to risk; computer hardware and software, manufacturing equipment and
facility equipment. Computer
-UFPT 10-K, page 16-
<PAGE>
hardware and software includes networking, operating and application software
currently being used by the Company as well as those that are planned to be
installed prior to the year 2000 and the hardware platforms upon which they
operate. Manufacturing equipment includes machinery and equipment, owned or
leased, that is used by the Company in the process of manufacturing inventory
for resale. Facility equipment includes all other devices that potentially have
microprocessor chips that were not included in computer hardware and software
and manufacturing equipment, including, but not limited to, fax machines,
security systems, heating/air conditioning, telephone and other communication
systems, copiers, sprinklers and elevators.
The approach for minimizing risk of noncompliance within each of these
elements includes six phases; Inventory, Risk Assessment, Correction,
Validation, Implementation and Monitoring. In the Inventory phase the Company
identifies the items within each of the three previously defined elements. The
Company has completed a thorough inventory of computer hardware and software,
manufacturing equipment and facility systems and equipment at all plant
locations.
The Risk Assessment phase includes identifying which of the items in the
inventory are noncompliant and estimating the effects of noncompliant system,
program and equipment failure. The Company has completed a comprehensive risk
assessment for all plant locations, which identifies noncompliant and
potentially noncompliant computer hardware and software, manufacturing equipment
and facility systems and equipment. All noncompliant items have been categorized
as either business critical or non-business critical. Business critical systems
and equipment are being addressed first and non-business critical systems and
equipment will be addressed as resources are available.
In the Correction phase, the Company repairs or replaces those items that
are noncompliant. The Company is in the process of implementing new financial
and manufacturing software ("New Software") throughout all of its plants that is
Year 2000 compliant and should result in substantial compliance within the
computer hardware and software element. At this time, the Company expects the
correction of business critical computer hardware and software to be completed
by September 30, 1999. The correction of business critical manufacturing
equipment and facility systems and equipment is expected to be completed by July
31, 1999.
In the Validation phase, the Company confirms that corrections have
resulted in bringing specific systems, programs or equipment into Year 2000
compliance. The validation of specific components will occur as each component
is corrected.
In the Implementation phase, the Company integrates validated systems,
programs and equipment into the business environment. The implementation of
specific components will be conducted as each component is validated. The
Company expects that validation and implementation of business critical
manufacturing equipment and facility systems will be completed by August 31,
1999 and that validation and implementation of business critical computer
hardware and software will be completed by October 29, 1999.
In the Monitoring phase, the Company closely observes the performance of
corrected, validated and implemented systems, programs and equipment. The
monitoring phase begins at imple-
-UFPT 10-K, page 17-
<PAGE>
mentation and will continue beyond the New Year and as long as is necessary to
satisfy the Company that corrections have effectively dealt with Year 2000
concerns.
Independent of its own internal elements, the Company is dependent upon
the customers who order its products and upon numerous third parties who supply
various items including materials, supplies, services, utilities and other items
the Company uses in the ordinary course of business. Included within these third
parties is a group of several key foam raw material suppliers that collectively
supply a significant portion of the Company's foam used in production. The
Company is in the process of surveying the compliance status of its key
customers and third party suppliers. However, the Company may not ever be able
to estimate the nature or extent of any potential adverse impact resulting from
the failure of third parties, such as its suppliers, service providers and
customers. As a result, although the Company does not currently anticipate that
it will experience any significant shipment delays from its major suppliers or
any major sales delays from its major customers due to Year 2000 issues, the
Company cannot provide any assurance that these third parties will not
experience Year 2000 problems or that any may have a material adverse effect on
the Company's business, results of operations and financial condition.
The Company included the cost of the New Software in its financial plan
for 1999. The software and hardware costs have been and will continue to be
capitalized and depreciated in compliance with the Company's capitalization
policy. Although the decision to implement the New Software potentially resolves
the Year 2000 problem for the majority of the Company's computer applications,
it was made for operating reasons and is considered normal capital expenditures.
As a result, the Company does not expect to incur material costs above and
beyond the cost of implementing the New Software.
The Company expects to be substantially compliant by Year 2000, but can
give no assurance as to its readiness or the readiness of its key material and
service providers. As a result, the Company expects to complete a Contingency
Plan (the "Plan") by April 30, 1999, that will address the operating issues in
the event that any of its material or service providers fail to perform as a
result of the Year 2000 problem. In addition, the Plan will address operating
considerations in the event that any of the Company's internal elements fail to
perform as expected. The Company can give no assurance that the Plan will be
effective.
To the extent that the Company does not identify or properly address any
material noncompliant systems or equipment operated by the Company or by third
parties, such as the Company's suppliers, service providers and customers, the
most reasonably likely worst case Year 2000 scenario is a systemic failure
beyond the control of the Company, such as a prolonged telecommunications or
electrical failure, or general disruption in the United States or global
activities that could result in a significant economic downturn. The Company
believes that the primary business risks, in the event of such failure or other
disruption, would include but not be limited to, loss of customers or orders,
increased operating costs, inability to obtain inventory on a timely basis,
disruptions in product shipments, or other business interruptions or a material
nature, as well as claims of mismanagement, misrepresentation, or breach of
contract, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition.
-UFPT 10-K, page 18-
<PAGE>
Other
A significant portion of the Company's Packaging sales of molded fiber
products are to manufacturers of computer peripherals and other consumer
products. As a result, the Company believes that its sales are somewhat
seasonal, with increased sales in the second half of the year. The Company does
not believe that inflation has had a material impact on its results of
operations in the last three years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements and Supplementary Data of the
Company are listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting principles or practices or
financial statement disclosure between the Company and its accountants during
the fiscal year ended December 31, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
-UFPT 10-K, page 19-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) Financial Statements Page
----
Index to Consolidated Financial Statements and Financial
Statement Schedules..............................................F-1
Independent Auditors' Report.....................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997.....F-3
Consolidated Statements of Income for the years ended
December 31, 1998, 1997, and 1996................................F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997, and 1996..........................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996................................F-6
Notes to Consolidated Financial Statements.......................F-7
(A)(2) Financial Statement Schedules
Independent Auditors' Report on Supplementary Information.......F-22
Schedule II - Valuation and Qualifying Accounts.................F-23
(A)(3) Exhibits
Number Reference
------ ---------
2.01 Agreement and Plan of Reorganization A-2.01**
among the Company, Moulded Fibre
Technology, Inc. and UFPAcquisition,
Inc.
2.02 Agreement of Merger between Moulded C-2.02**
Fibre Technology, Inc. and UFP
Acquisition, Inc.
2.03 Merger Agreement relating to the A-2.02
reincorporation of the Company in
Delaware.
2.04 Asset Purchase Agreement relating to I-2**
the purchase of FCE.
2.05 Asset Purchase Agreement relating to Filed herewith
the purchase of the assets of Pacific
Foam Technologies, Inc.
-UFPT 10-K, page 20-
<PAGE>
Number Reference
------ ---------
3.01 Certificate of Incorporation of the F-3.01**
Company, as amended.
3.02 Bylaws of the Company. A-3.02**
4.01 Specimen Certificate for shares of A-4.01**
the Company's Common Stock.
4.02 Description of Capital Stock A-4.02**
(contained in the Certificate of
Incorporation of the Company, filed
as Exhibit 3.01).
4.04 Rights Agreement (including the J-4**
Certificate of Designation and form
of Rights Certificate attached as
Exhibits A and B, respectively,
thereto) between the Registrant and
American Stock Transfer & Trust
Company, as Rights Agent, dated as of
January 13, 1999.
10.02 $1,000,000 Mortgage and Promissory A-10.02**
Note issued by the Company in favor
of Gloucester Bank & Trust Company.
10.06 Alabama Leasehold Mortgage of United A-10.06**
Development Company Limited to First
American Bank.
10.07 Guaranty of the Company in favor of A-10.07**
First American Bank for the benefit
of United Development Company
Limited.
10.08 Agreement between the Company and A-10.08**
William H. Shaw.
10.09 Agreement and Severance Agreement A-10.09**
between the Company and Richard L.
Bailly.
10.18 Employee Stock Purchase Plan. A-10.18**
10.19 1993 Combined Stock Option Plan, as K-4.5* **
amended.
10.20 1993 Nonemployee Director Stock B-4.5**
Option Plan.
10.21 Facility Lease between the Company A-10.21**
and United Development Company
Limited.
10.22 Facility Lease between the Company A-10.22**
and Raritan Associates.
10.23 Facility Sublease between the Company A-10.23**
and United Development Company
Limited.
10.25 Facility lease between the Company A-10.25**
and Flanders Properties.
10.26 Amendment to facility lease between A-10.26**
the Company and Flanders Properties.
10.27 Facility Lease between the Company A-10.27**
and Dana Evans d/b/a Evans
Enterprises.
10.28 Facility Lease between Moulded Fibre A-10.28**
Technology, Inc. and J.B. Brown &
Sons.
10.29 Facility Lease between the Company G-10.29**
and Cole Taylor Bank, as Trustee
-UFPT 10-K, page 21-
<PAGE>
Number Reference
------ ---------
10.30 Form of Indemnification Agreement for A-10.30**
directors and officers of the
Company.
10.32 Promissory Note of United Development A-10.32**
Company Limited in favor of the
Company.
10.33 Form of Representative's Warrant A-10.33**
Agreement.
10.34 Facility Lease between Moulded Fibre C-10.34**
Technology, Inc. and Lincoln Gilroy
II and Patrician Associates, Inc.
10.35 Facility Lease between the Company D-10.35**
and M.D. Hodges Enterprises, Inc.
10.36 Facility Lease between Moulded Fibre D-10.36**
Technology, Inc. and Dead River
Properties.
10.37 Facility Lease between the Company G-10.37**
and Clinton Area Development
Corporation.
10.38.7 First Amendment to Credit Agreement, F-10.38.7**
dated May 31, 1995, between the
Company and BayBank.
10.38.8 Amended and Restated Revolving Credit F-10.38.8**
Note, dated May 31, 1996, between the
Company and BayBank.
10.38.9 Amended and Restated Equipment Note, F-10.38.9**
dated May 31, 1996, between the
Company and BayBank.
10.38.10 Third Amendment, dated July 6, 1998, Filed herewith
to Credit Agreement, dated May 31,
1995, between the Company and
BankBoston.
10.39 Employment Agreement with R. Jeffrey H-10.37**
Bailly dated April 4, 1995.
10.40 1998 Director Stock Option Incentive L**
Plan
10.41 1998 Employee Stock Purchase Plan. M**
11.01 Statement re: Computation of Per C-21.01**
Share Earnings. Filed herewith
21.01 Subsidiaries of the Company. N-21.01**
23.01 Consent of KPMG Peat Marwick LLP. Filed herewith
27.01 Financial Data Schedule. Filed herewith
A Incorporated by reference to the Company's registration
statement on Form S-1 (Registration No. 33-70912). The number
set forth herein is the number of the Exhibit in said
registration statement.
B Incorporated by reference to the Company's Registration
Statement on Form S-8 (Registration No. 33-76440). The number
set forth herein is the number of the Exhibit in said
registration statement.
C Incorporated by reference to the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1993. The
number set forth herein is the number of the Exhibit in said
annual report.
-UFPT 10-K, page 22-
<PAGE>
D Incorporated by reference to the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1994. The
number set forth herein is the number of the Exhibit in said
annual report.
E Incorporated by reference to the Company's Registration
Statement on Form S-8 (Registration No. 33-32248). The number
set forth herein is the number of the Exhibit in said
Registration Statement.
F Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the three months ended June 30, 1996. The number
set forth herein is the number of the Exhibit in said
quarterly report.
G Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995. The
number set forth herein is the number of the Exhibit in said
annual report.
H Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the three months ended June 30, 1995. The number
set forth herein is the number of the Exhibit in said
quarterly report.
I Incorporated by reference to the Company's report on 8-K dated
February 3, 1997. The number set forth herein is the number of
the Exhibit in said report.
J. Incorporated by reference to the Company's report on Form 8-K
dated January 28, 1999. The number set forth herein is the
number of the exhibit in said report.
K. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the three months ended June 30, 1998. The number
set forth herein is the number of the exhibit in said
Quarterly Report.
L. Incorporated by reference to the Company's registration
statement on Form S-8 (registration No. 333-56741).
M. Incorporated by reference to the Company's Proxy Statement
relating to the Company's Annual Meeting of Stockholders on
June 5, 1998.
N. Incorporated by reference to the Company's Annual Report
10K for the fiscal year ended December 31, 1996. The number
set forth herein is the number of the Exhibit in said
Annual Report.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, reference is made to the documents
previously filed with the Securities and Exchange Commission,
which documents are hereby incorporated by reference.
(B) Reports On Form 8-K
The Company did not file any current reports on Form 8-K during the
quarter ended December 31, 1998.
-UFPT 10-K, page 23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UFP TECHNOLOGIES, INC.
Date: March 30, 1999 by:
----------------------------
R. Jeffrey Bailly, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
President, Chief Executive, March 30, 1999
- ------------------- Officer and Director ----------------
R. Jeffrey Bailly
Chairman of the Board of Directors March 30, 1999
- ------------------- ----------------
William H. Shaw
Chief Financial Officer, Vice President, March 30, 1999
- ------------------- Principal Accounting Officer ----------------
Ronald J. Lataille
Executive Vice President, Director March 30, 1999
- ------------------- ----------------
Richard L. Bailly
Director March 30, 1999
- ------------------- ----------------
William C. Curry
Director March 30, 1999
- ------------------- ----------------
Michael J. Ross
Director March 30, 1999
- ------------------- ----------------
Kenneth L. Gestal
Director March 30, 1999
- ------------------- ----------------
T. Gordon Roddick
Director March 30, 1999
- ------------------- ----------------
Peter R. Worrell
-UFPT 10-K, page 24-
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Financial Statements and Schedule
December 31, 1998 and 1997
With Independent Auditors' Report Thereon
<PAGE>
UFP TECHNOLOGIES, INC.
Index to Consolidated Financial Statements and Financial Statement Schedule
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997, and 1996 F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996 F-6
Notes to Consolidated Financial Statements F-7
Schedule
Independent Auditors' Report on Supplementary Information F-22
Schedule II - Valuation and Qualifying Accounts F-23
UFPT 10-K, page F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
UFP Technologies, Inc.:
We have audited the consolidated balance sheets of UFP Technologies, Inc.
and subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UFP
Technologies, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Boston, Massachusetts
February 25, 1999
UFPT 10-K, page F-2
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
----------------------------
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 512,356 233,452
Receivables, net (note 3) 7,867,647 6,413,251
Inventories (note 4) 4,091,770 3,053,299
Prepaid expenses 319,191 83,800
Deferred income taxes (note 9) 369,000 63,000
------------ ----------
Total current assets 13,159,964 9,846,802
------------ ----------
Property, plant and equipment (notes 5, 7 and 14) 20,025,618 20,110,727
Less accumulated depreciation and amortization (9,086,763) (8,920,621)
------------ ----------
Net property, plant and equipment 10,938,855 11,190,106
------------ ----------
Cash surrender value of officers' life insurance, net of loans of
$13,595 in 1997 218,027 352,577
Investment in and advances to affiliated partnership (note 6) 218,524 240,364
Deferred income taxes (note 9) 231,000 693,000
Goodwill, net (note 1) 4,711,463 2,539,367
Other assets 471,009 332,551
------------ ----------
Total assets $ 29,948,842 25,194,767
============ ==========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable (note 7) $ 4,150,000 2,500,000
Current installments of long-term debt (note 7) 59,411 111,888
Current installments of capital lease obligations (note 14) 851,042 913,170
Accounts payable 2,589,492 1,540,377
Accrued taxes and other expenses (note 8) 3,410,929 2,202,817
------------ ----------
Total current liabilities 11,060,874 7,268,252
------------ ----------
Long-term debt, excluding current installments (note 7) 568,678 624,641
Capital lease obligations, excluding current installments (note 14) 1,554,647 2,608,768
Retirement liability and other liabilities (note 13) 869,218 559,896
------------ ----------
Total liabilities 14,053,417 11,061,557
------------ ----------
Commitments and contingencies (note 14)
Stockholders' equity (notes 11 and 12)
Preferred stock, $.01 value. Authorized 1,000,000 shares; no shares
issued or outstanding -- --
Common stock, $.01 value. Authorized 20,000,000; issued and
outstanding 4,707,354 shares in 1998 and 4,666,354 shares in 1997 47,074 46,664
Additional paid-in capital 9,613,859 9,499,019
Retained earnings 6,234,492 4,587,527
------------ ----------
Total stockholders' equity 15,895,425 14,133,210
------------ ----------
Total liabilities and stockholders' equity $ 29,948,842 25,194,767
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
UFPT 10-K, page F-3
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 47,220,174 45,452,232 39,359,066
Cost of sales 34,140,005 33,200,304 29,446,979
------------ ---------- ----------
Gross profit 13,080,169 12,251,928 9,912,087
Selling, general and administrative expenses 9,905,996 9,318,080 7,818,451
------------ ---------- ----------
Operating income 3,174,173 2,933,848 2,093,636
------------ ---------- ----------
Other income (deductions):
Interest expense (447,282) (649,269) (484,958)
Equity in net income of unconsolidated partnerships (note 6) 20,904 15,227 19,937
Other, net 40,170 4,500 39,842
------------ ---------- ----------
Total other deductions (386,208) (629,542) (425,179)
------------ ---------- ----------
Income before income tax expense 2,787,965 2,304,306 1,668,457
Income tax expense (note 9) 1,141,000 995,000 406,000
------------ ---------- ----------
Net income $ 1,646,965 1,309,306 1,262,457
============ ========== ==========
Net income per share (note 10):
Basic $ 0.35 0.28 0.27
============ ========== ==========
Diluted $ 0.34 0.27 0.26
============ ========== ==========
Weighted average common shares (note 10):
Basic 4,682,210 4,655,586 4,634,098
============ ========== ==========
Diluted 4,830,236 4,863,110 4,874,125
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
UFPT 10-K, page F-4
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------- paid-in Retained stockholders'
Shares Amount capital earnings equity
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,626,854 $ 46,269 $ 9,376,227 $ 2,015,764 $11,438,260
Sale of common stock through incentive stock option plan 5,000 50 11,850 -- 11,900
Stock issued in lieu of compensation 5,000 50 16,825 -- 16,875
Net income -- -- -- 1,262,457 1,262,457
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 4,636,854 46,369 9,404,902 3,278,221 12,729,492
Sale of common stock through incentive stock option plan 22,500 225 60,437 -- 60,662
Stock issued in lieu of compensation 7,000 70 33,680 -- 33,750
Net income -- -- -- 1,309,306 1,309,306
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 4,666,354 46,664 9,499,019 4,587,527 14,133,210
Sale of common stock through incentive stock option plan 30,000 300 70,950 -- 71,250
Stock issued in lieu of compensation 11,000 110 43,890 -- 44,000
Net income -- -- -- 1,646,965 1,646,965
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 4,707,354 $ 47,074 $ 9,613,859 $ 6,234,492 $15,895,425
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
UFPT 10-K, page F-5
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,646,965 1,309,306 1,262,457
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,899,915 1,801,758 1,498,123
Equity in net income of unconsolidated affiliate and partnership (20,904) (15,227) (19,937)
Gain (loss) on disposal of property, plant and equipment (40,170) 39,269 --
Stock issued in lieu of compensation 44,000 33,750 16,875
Deferred income taxes 156,000 410,000 131,000
Changes in operating assets and liabilities net of effects from
acquisition:
Receivables, net (584,334) (135,336) (657,661)
Inventories (60,601) (172,738) (152,874)
Prepaid expenses (196,339) 212,148 83,534
Accounts payables 308,615 (785,771) 400,223
Accrued taxes and other expenses 976,495 332,385 346,530
Retirement liability and other liabilities 165,172 60,000 60,000
----------- ----------- -----------
Net cash provided by operating activities 4,294,814 3,089,544 2,968,270
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,562,135) (2,436,224) (3,376,146)
Acquisition of operating assets, less cash acquired (2,293,506) (1,512,879) --
(Increase) decrease in cash surrender value of officers'life insurance 134,550 (27,416) 18,829
Increase in other assets (168,618) (23,352) (32,182)
Payments received on advances to affiliated company 42,744 1,750 21,000
Proceeds from disposal of property, plant and equipment 290,170 4,500 --
----------- ----------- -----------
Net cash used in investing activities (3,556,795) (3,993,621) (3,368,499)
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under notes payable 713,413 1,100,000 (1,375,000)
Proceeds from long-term borrowings -- -- --
Proceeds from long-term capital leases -- 967,000 1,941,000
Proceeds from sale of common stock 71,250 60,662 11,900
Principal repayment of long-term debt (359,077) (422,551) (186,207)
Principal repayment of obligations under capital leases (884,701) (711,113) (372,423)
----------- ----------- -----------
Net cash (used in) provided by financing activities (459,115) 993,998 19,270
----------- ----------- -----------
Net change in cash and cash equivalents 278,904 89,921 (380,959)
Cash and cash equivalents at beginning of year 233,452 143,531 524,490
----------- ----------- -----------
Cash and cash equivalents at end of year $ 512,356 233,452 143,531
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
UFPT 10-K, page F-6
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts and
results of operations of UFP Technologies, Inc. and its wholly owned
subsidiary, Moulded Fibre Technology, Inc. (MFT). All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) Nature of Operations
UFP Technologies, Inc. designs and manufactures a broad range of
packaging and specialty foam products for a variety of industrial
and consumer markets.
(c) Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated and
amortized using the straight-line method over the estimated useful
lives of the assets for financial statement purposes and accelerated
methods for income tax purposes.
Estimated useful lives of property, plant and equipment are as
follows:
Leasehold improvements Life of the lease
Buildings and improvements 31.5 years
Equipment 8-10 years
Furniture and fixtures 5 - 7 years
(e) Income Taxes
The Company's income taxes are accounted for under the asset and
liability method of accounting. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
UFPT 10-K, page F-7
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(f) Investments in Realty Partnerships
The Company has invested in two realty limited partnerships,
Lakeshore Estates Associates and United Development Company Limited.
These investments are stated at cost, plus or minus the Company's
proportionate share of the limited partnerships' income or losses,
less any distributions received from the limited partnerships. The
Company has recognized its share of Lakeshore Estates Associates'
losses only to the extent of its original investment in, and
advances to, this partnership.
(g) Goodwill
Goodwill is being amortized on a straight-line basis over a 20-year
period. Accumulated amortization was $972,799 and $795,280 as of
December 31, 1998 and 1997, respectively. In 1996, a charge in lieu
of taxes of $954,990 was allocated to reduce goodwill.
The Company assesses the recoverability of its intangible assets by
determining whether the amortization of the balance over its
remaining life can be recovered through projected future results.
Goodwill impairment is measured based on projected undiscounted cash
flows over the asset's remaining life.
(h) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(i) Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(j) Reclassifications
Certain prior year account balances have been reclassified to
conform to the 1998 presentation.
UFPT 10-K, page F-8
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(2) Supplemental Cash Flow Information
Cash paid for interest and income taxes is as follows:
Years ended December 31
-----------------------
1998 1997 1996
---- ---- ----
Interest $ 512,190 541,270 484,958
========== =========== ===========
Income taxes $ 643,261 700,230 82,662
========== =========== ===========
During 1998, the Company renegotiated the terms of a facility lease which
was leased from a limited partnership in which the Company and one of its
officers are shareholders. This lease was previously treated as a capital
lease. Based on the terms of the new lease agreement, the lease is no
longer a capital lease. Consequently, the Company wrote off the related
building and improvements and associated capital lease obligation of
$247,834.
(3) Receivables
Receivables consist of the following:
December 31
--------------------------
1998 1997
---- ----
Accounts receivable - trade $ 8,031,561 6,510,517
Employee advances and other receivables 93,951 99,070
----------- ---------
8,125,512 6,609,587
Less allowance for doubtful receivables (257,865) (196,336)
----------- ---------
$ 7,867,647 6,413,251
=========== =========
(4) Inventories
Inventories consist of the following:
December 31
-----------------------------
1998 1997
---- ----
Raw materials $2,634,482 1,933,740
Work in process 504,489 395,592
Finished goods 952,799 723,967
---------- ---------
$4,091,770 3,053,299
========== =========
UFPT 10-K, page F-9
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(5) Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31
-------------------------
1998 1997
---- ----
Land $ 85,319 315,319
Buildings and improvements 1,913,242 2,940,091
Leasehold improvements 1,268,551 1,008,155
Equipment 14,857,508 13,478,014
Furniture and fixtures 1,303,616 1,036,753
Construction in progress - equipment 597,382 1,332,395
----------- -----------
$20,025,618 20,110,727
=========== ===========
(6) Investment in and Advances to Affiliated Partnership
The Company has an ownership interest in a realty limited partnership,
United Development Company Limited. This investment is stated at cost,
plus the Company's proportionate share of the limited partnership's
income, less any distributions received from the limited partnership. The
Company's proportionate share of the limited partnership's net income was
$18,410, $19,937, and $17,541 in 1998, 1997 and 1996, respectively.
On December 31, 1998, United Development Company Limited executed and
delivered to the Company a term note in the amount of $99,750 to evidence
advances received from the Company. This note accrues interest at 9.75%
and is repayable in monthly installments of $2,107.
(7) Indebtedness
At December 31, 1998, the Company may borrow up to $7,500,000 under a
revolving line of credit at the bank's prime lending rate (7.75% at
December 31, 1998) or LIBOR plus 1.75% (6.8991% at December 31, 1998).
Amounts borrowed under this arrangement are due on demand and are
unsecured. At December 31, 1998 and 1997, borrowings under this
arrangement were $4,150,000 and $2,500,000, respectively.
UFPT 10-K, page F-10
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Long-term debt consists of the following:
December 31
------------------
1998 1997
---- ----
8.76% mortgage note payable in monthly
installments of $8,759 including interest,
maturing in 2007; secured by real estate $628,089 678,196
Note payable - other -- 58,333
-------- -------
Total long-term debt 628,089 736,529
Less current installments 59,411 111,888
-------- -------
Long-term debt, excluding current
installments $568,678 624,641
======== =======
Aggregate maturities of long-term debt are as follows:
Year ending December 31:
1999 $ 59,411
2000 60,728
2001 65,898
2002 71,510
Thereafter 370,542
--------
$628,089
========
(8) Accrued Taxes and Other Expenses
Accrued taxes and other expenses consist of the following:
December 31
-------------------------
1998 1997
---- ----
Compensation $ 981,901 903,462
Benefits 723,018 512,438
Federal and state income tax 466,846 98,868
Paid time off 234,490 95,006
Workers Compensation 135,000 35,000
Other 869,674 558,043
---------- ---------
$3,410,929 2,202,817
========== =========
UFPT 10-K, page F-11
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(9) Income Taxes
Total income tax expense for the years ended December 31, 1998, 1997 and
1996 was allocated as follows:
1998 1997 1996
---- ---- ----
Income tax expense from operations $1,141,000 995,000 406,000
========== ========= ========
Goodwill, for initial recognition of
acquired tax benefits that previously
were included in the valuation
allowance $ -- -- (954,990)
========== ========= ========
Income tax expense (benefit)
consists of: Years ended December 31
----------------------------------
1998 1997 1996
---- ---- ----
Current:
Federal $ 830,000 454,000 170,000
State 155,000 131,000 105,000
---------- --------- --------
985,000 585,000 275,000
---------- --------- --------
Deferred:
Federal 145,000 360,000 136,000
State 11,000 50,000 (5,000)
---------- --------- --------
156,000 410,000 131,000
---------- --------- --------
$1,141,000 995,000 406,000
========== ========= ========
At December 31, 1998, the Company has net operating loss carryforwards for
income tax purposes of approximately $2,300,000 which are available to
offset future taxable income and expire during the years ending December
31, 2006 through 2009.
The future benefit of the net operating loss carryforwards in any year is
limited to $302,000 under the provisions of the Tax Reform Act of 1986,
which imposes an annual limitation on the amount that can offset taxable
income due to the change in ownership of MFT.
UFPT 10-K, page F-12
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
December 31
-----------------------
1998 1997
---- ----
Deferred tax assets related to:
Receivables $ 108,303 $ 82,461
Inventories 190,455 107,364
Compensation programs 71,196 39,903
Capital leases --
Retirement liability 260,356 235,156
Net operating loss carryforwards 822,418 925,247
Other 33,704 --
---------- ----------
1,486,432 1,390,131
---------- ----------
Deferred tax liabilities related to:
Excess of book over tax basis of fixed assets 756,384 510,307
Investee tax loss in excess of book losses 130,048 123,824
---------- ----------
886,432 634,131
---------- ----------
Net deferred tax assets $ 600,000 $ 756,000
========== ==========
The amount recorded as net deferred tax assets as of December 31, 1998 and
1997 represents the amount of tax benefits of existing deductible
temporary differences or carryforwards that are more likely than not to be
realized through the generation of sufficient future taxable income within
the carryforward period. The Company believes that the net deferred tax
asset of $600,000 at December 31, 1998 will more likely than not be
realized in the carryforward period. The Company's U.S. taxable income
before application of net operating loss carryforwards was approximately
$2,710,000, $2,123,000, and $1,859,000 for the years ended December 31,
1998, 1997 and 1996, respectively. Management reviews the recoverability
of deferred tax assets during each reporting period.
Actual tax expense for the years presented differs from "expected" tax
expense (benefit) for those years, computed by applying the U.S. federal
corporate rate of 34% to income before income tax expense as follows:
<TABLE>
<CAPTION>
Years ended December 31
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax rate 34.0% 34.0% 34.0%
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit 3.9 4.2 4.0
Officers' life insurance 0.5 1.0 0.5
Amortization of goodwill 1.9 2.3 4.2
Change in the beginning of the year balance of the
valuation allowance for deferred tax assets, net of
$954,990 allocated to goodwill in 1996 -- -- (18.4)
Other 0.6 1.7 --
---- ---- ----
40.9% 43.2% 24.3%
---- ---- ----
</TABLE>
UFPT 10-K, page F-13
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(10) Net Income Per Share
Basic income per share is based upon the weighted average common shares
outstanding during each year. Diluted income per share is based upon the
weighted average of common shares and dilutive common stock equivalent
shares outstanding during each year. The weighted average number of shares
used to compute diluted income per share consisted of the following:
Years ended December 31
-----------------------
1998 1997 1996
---- ---- ----
Weighted average common shares
outstanding during the year 4,682,210 4,655,586 4,634,098
Weighted average common equivalent
shares due to stock options and employee
stock purchase plan 148,026 207,524 240,027
--------- --------- ---------
4,830,236 4,863,110 4,874,125
========= ========= =========
(11) Stock Option and Employee Stock Purchase Plans
The Company maintains a stock option plan to provide long-term rewards and
incentives to the Company's key employees, officers, employee directors,
consultants and advisors. The plan provides for either nonqualified stock
options or incentive stock options for the issuance of up to 1,050,000
shares of common stock. The exercise price of the incentive stock options
may not be less than the fair market value of the common stock on the date
of grant, and the exercise price for nonqualified stock options shall be
determined by the Stock Option Committee. Options granted under the plan
generally become exercisable with respect to 25% of the total number of
shares subject to such options at the end of each 12-month period
following the grant of the option. At December 31, 1998, 745,000 options
were outstanding under the plan.
Through July 15, 1998, the Company maintained a stock option plan covering
nonemployee directors (the "1993 Director Plan"). Effective July 15, 1998,
with the formation of the 1998 Director Stock Option Incentive Plan ("1998
Director Plan"), the 1993 Director Plan was frozen. The 1993 Director Plan
provided for options for the issuance of up to 110,000 shares of common
stock. On July 1 of each year, each individual who at the time was serving
as a nonemployee director of the Company received an automatic grant of
options to purchase 2,500 shares of common stock. These options became
exercisable in full six months after the date of grant and will expire ten
years from the date of grant. The exercise price was the fair market value
of the common stock on the date of grant. At December 31, 1998, 55,000
options were outstanding under the 1993 Director Plan.
Effective July 15, 1998, subject to shareholder approval, the Company
adopted the 1998 Director Stock Option Incentive Plan ("1998 Director
Plan") for the benefit of non-employee directors of the Company. The 1998
Director Plan provides for options for the issuance of up to 300,000
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. In connection with the adoption of the 1998 Director Plan, the 1993
Director Plan was discontinued; however, the options outstanding under the
1993 Director Plan were not affected by the adoption of the new plan. At
December 31, 1998, 9,800 options were outstanding under the 1998 Director
Plan.
UFPT 10-K, page F-14
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
On April 18, 1998, the Company adopted the 1998 Stock Purchase Plan which
provides that all employees of the Company who work more than twenty hours
per week and more than five months in any calendar year and who are
employees on or before the applicable offering period are eligible to
participate. The Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue
Code of 1986. Under the Stock Purchase Plan participants may have withheld
up to 10% of their base salaries during the six month offering periods
ending June 30 and December 31 for the purchase of the Company's common
stock at 85% of the lower of the market value of the common stock on the
first or last day of the offering period. The Stock Purchase Plan provides
for the issuance of up to 150,000 shares of common stock.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25") and related Interpretations in
accounting for its stock option and employee stock purchase plans.
Accordingly, no compensation cost has been recognized in connection with
these plans.
Since the Company accounts for its stock option plans under APB 25,
certain pro forma information regarding net income and net income per
share is required by Financial Accounting Standards Board Statement No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), as if the
Company had accounted for its stock option plans under the fair value
approach of SFAS 123. For purposes of the pro forma disclosures, the
estimated fair value of the stock plans is amortized to expense over the
related vesting period of the options.
The Company's pro forma information is as follows:
Years ended December 31
---------------------------------------
1998 1997 1996
----------- ----------- -----------
Net income as reported $ 1,646,965 $ 1,309,306 $ 1,262,457
Pro forma net income 1,322,286 1,016,768 1,120,964
Basic net income per share as 0.35 0.28 0.27
reported
Pro forma basic net income per 0.28 0.22 0.24
share
Diluted net income per share as 0.34 0.27 0.26
reported
Pro forma diluted net income per 0.27 0.21 0.23
share
The effect of applying SFAS 123 as shown above in the pro forma
disclosures is not representative of the pro forma effect on net income in
future years because it does not take into consideration pro forma
compensation expenses related to stock options granted prior to 1995.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants issued in 1998, 1997 and
1996, respectively: no dividend yield for each year; expected volatility
of 86%, 61%, and 62%; risk-free interest rates of 4.7%, 6.16%, and 6.13%;
and expected lives of 5.59, 4.6 and 4.6 years.
UFPT 10-K, page F-15
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
The following is a summary of stock option activity under all plans:
Shares Weighted Average
Under Options Exercise Price
------------- --------------
Outstanding at December 31, 1995 691,000 $ 3.44
Granted 68,000 3.82
Exercised (5,000) 2.38
Canceled or expired (21,250) 5.35
-------
Outstanding at December 31, 1996 732,750 3.43
Granted 76,500 4.43
Exercised (22,500) 2.69
Canceled or expired (49,250) 3.87
-------
Outstanding at December 31, 1997 737,500 3.52
Granted 127,300 3.74
Exercised (30,000) 2.38
Canceled or expired (25,000) 4.28
-------
Outstanding at December 31, 1998 809,800 3.52
=======
The weighted-average fair value of options granted during 1998, 1997, 1996
and 1995 was $2.70, $1.92, $2.16 and $1.93, respectively. As of December
31, 1998, 581,500 of the outstanding options were exercisable.
The following is a summary of information relating to stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------
Number Weighted Number Weighted
Range of outstanding at average Weighted exercisable at average
exercise December 31, remaining average December 31, exercise
prices 1998 contractual life exercise price 1998 price
- -------- -------------- ---------------- -------------- -------------- -------
<S> <C> <C> <C> <C> <C>
$ 2-3 278,000 1.5 years $ 2.16 254,750 $ 2.16
3-4 293,300 3.1 3.43 142,000 3.33
4-5 78,000 5.1 4.51 24,250 4.42
5-6 148,000 1.2 5.50 148,000 5.50
6-7 12,500 7.5 6.13 12,500 6.13
------- -------
809,800 581,500
======= =======
</TABLE>
(12) Stockholders' Equity
On January 13, 1999, the Company declared a dividend of one preferred
share purchase right ( a "Right") for each outstanding share of common
stock, par value $0.01 per share on February 5, 1999 to the stockholders
of record on that date. Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $0.01 per share (the "Preferred
Share"), of the Company, at a price of $30.00 per one one-thousandth of a
Preferred Share subject to adjustment and the terms of the Rights
Agreement.
UFPT 10-K, page F-16
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
On December 16, 1998, the Company's Board of Directors authorized the
Company to repurchase up to 1,000,000 shares of its common stock at
management's discretion either in the open market or in privately
negotiated transactions. The repurchased stock is expected to be used for
general corporate purposes, including the issuance of shares in connection
with employee benefit plans.
In connection with the acquisition of MFT, the Company issued warrants to
purchase up to 165,904 shares of the Company's common stock. The warrants
were exercisable at a price of $6.60 per share and expired on December 16,
1998.
(13) Supplemental Retirement Plan
The Company has a supplemental retirement plan for one of its key officers
and a retired officer which will provide an annual benefit to these
individuals over a 12-year period following separation from employment.
The Company recorded an expense of $60,000 in 1998, 1997, and 1996 in
accordance with this plan, which includes both current costs and prior
service costs for these individuals. The present value of the supplemental
retirement obligation has been calculated using an 8.5% discount rate.
(14) Leases
During 1998, the Company renegotiated the terms of a facility lease which
was leased from a limited partnership in which the Company and one of its
officers are shareholders. This lease was previously treated as a capital
lease. Based on the terms of the new lease agreement, the lease is no
longer a capital lease. Consequently, the Company wrote off the related
building and improvements and associated capital lease obligation of
$247,834. This transaction resulted in an insignificant gain.
The Company has noncancelable operating leases for its other facilities
that expire through 2003. Certain of the leases contain escalation clauses
which require payments of additional rent to the extent of increases in
related operating costs. The Company also leases various equipment under
capital leases which expire through 2001.
UFPT 10-K, page F-17
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Included in property, plant and equipment are the following amounts held
under capital lease:
December 31
--------------------------
1998 1997
---- ----
Buildings and improvements -- 1,026,850
Equipment 3,759,937 3,757,410
---------- ----------
3,759,937 4,784,260
Less accumulated amortization (800,737) (1,182,931)
---------- ----------
2,959,200 3,601,329
========== ==========
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum lease payments under capital leases as of
December 31, 1998, are as follows:
Capital Operating
Year ending December 31: Leases Leases
---------- ---------
1999 $1,219,518 1,400,629
2000 1,026,829 1,091,519
2001 419,940 930,799
2002 3,483 512,912
2003 -- 128,707
---------- ---------
Total minimum lease payments 2,669,770 4,064,566
=========
Less amount representing interest 264,081
----------
Present value of future minimum lease
payments 2,405,689
Less current installments of obligations under
capital leases 851,042
----------
Obligations under capital lease, excluding
current installments $1,554,647
==========
Rent expense amounted to approximately $1,270,000, $1,215,000, and
$956,000 in 1998, 1997, and 1996, respectively. Approximately $220,000 of
total rent expense was paid in 1998, 1997, and 1996 to a limited
partnership that owns the Decatur, Alabama facility. The Company and one
of its officers have interests in this limited partnership.
(15) Profit-Sharing Plan
The Company maintains a noncontributory profit-sharing plan for eligible
employees. Contributions to the Plan are made at the discretion of the
board of directors and amounted to $500,000, $455,000, and $350,000 in
1998, 1997 and 1996, respectively.
UFPT 10-K, page F-18
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(16) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments, defines the fair value of financial
instruments as the amount at which the instrument could be exchanged in a
transaction between willing parties.
Cash and cash equivalents, accounts receivable, inventories, prepaid
expenses, notes payable to bank, accounts payable, and accrued expenses
and payroll withholdings are stated at carrying amounts that approximate
fair value because of the short maturity of those instruments.
Long-term debt and capital lease obligations are subject to interest rates
currently offered to the Company; therefore, the historical carrying
amount approximates fair value.
(17) Segment Data
The Company has adopted Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information.
The Company is organized based on the nature of the products and services
that it offers. Under this structure, the Company produces products within
two distinct segments; Protective Packaging and Specialty Applications.
Within the Protective Packaging segment, the Company primarily uses
polyethylene and polyurethane foams, sheet plastics and pulp fiber to
provide customers with cushion packaging for their products. Within the
Specialty applications segment, the Company primarily uses cross-linked
polyethylene foam to provide customers in the automotive, athletic,
leisure and health and beauty industries with engineered -product for
numerous purposes.
The accounting policies of the segments are the same as those described in
note 1. Income taxes and interest expense have been allocated based on
operating results and total assets employed in each segment.
Inter-segment transactions are uncommon and not material. Therefore, they
have not been separately reflected in the financial table below. The
totals of the reportable segments' revenues, net profits and assets agree
with the Company's comparable amount contained in the audited financial
statements. Revenues from customers outside of the United States are not
material. No one customer accounts for more than 10% of the Company's
consolidated revenues.
UFPT 10-K, page F-19
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Financial statement information by reportable segment is as follows:
1998
----------------------------------------
Specialty Packaging Total
--------- --------- -----
Sales $14,218,460 33,001,714 47,220,174
Interest expense 137,933 309,349 447,282
Depreciation / amortization 304,482 1,595,423 1,899,915
Other income -- (61,074) (61,074)
Income tax 207,306 933,694 1,141,000
Net income 298,318 1,348,647 1,646,965
Total assets 10,415,991 19,532,851 29,948,842
1997
----------------------------------------
Specialty Packaging Total
--------- --------- -----
Sales $14,464,677 30,987,555 45,452,232
Interest expense 182,587 466,682 649,269
Depreciation / amortization 313,747 1,488,011 1,801,758
Other income -- (19,726) (19,726)
Income tax 258,222 736,778 995,000
Net income 339,514 969,792 1,309,306
Total assets 5,530,092 19,664,675 25,194,767
1996
----------------------------------------
Specialty Packaging Total
--------- --------- -----
Sales $15,641,670 23,717,396 39,359,066
Interest expense 160,875 324,083 484,958
Depreciation / amortization 276,464 1,221,659 1,498,123
Other income -- (59,778) (59,778)
Income tax 495,770 (89,770) 406,000
Net income 665,283 597,174 1,262,457
Total assets 5,704,298 17,195,580 22,899,878
(18) Acquisition
On November 30, 1998, the Company acquired substantially all of the assets
and certain liabilities of Pacific Foam, Inc. for approximately
$3,500,000. Pacific Foam, Inc. is a designer and manufacturer of specialty
foam products for the health and beauty industry. The acquisition was
accounted for as a purchase and was financed through the Company's
revolving line of credit. The results of Pacific Foam, Inc. have been
included in the Company's consolidated financial statements for the month
of December of 1998. The cost of the acquisition was allocated based on
the estimated fair market value of the assets acquired and the liabilities
assumed. The allocation resulted in a goodwill valuation of approximately
$2,300,000, which is being amortized on a straight line basis over 20
years.
UFPT 10-K, page F-20
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
On January 1, 1997, the Company acquired all of the assets and certain
liabilities of Foam Cutting Engineers, Inc. ("FCE") for approximately
$1,500,000. FCE is a designer and manufacturer of engineered foam plastics
for packaging and specialty applications. The acquisition was accounted
for as a purchase and was financed through the Company's revolving line of
credit. The results of FCE's operations were included in the accompanying
consolidated financial statements since the date of acquisition. The cost
of the acquistion was allocated on the basis of the estimated fair market
value of the asssets acquired and the liabilities assumed. This allocation
resulted in goodwill of approximately $107,000 which is being amortized
over 20 years.
The following unaudited pro forma results of operations give effect to the
acquisitions as if the FCE acquisition occurred on January 1, 1996 and the
Pacific Foam acquisition occurred on January 1, 1997. Such pro forma
information reflects certain adjustments including amortization of
goodwill, interest expense and income tax expense. This pro forma
information does not necessarily reflect the results of operations that
would have occurred had the acquisitions taken place as described and is
not necessarily indicative of results that may be obtained in the future.
1998 1997 1996
----------- ----------- -----------
Pro forma total revenue $54,178,794 51,841,753 43,289,258
Pro forma net income $ 1,692,000 1,404,000 1,405,494
Pro forma basic net income per share $ 0.36 0.30 0.30
Pro forma diluted net income per share $ 0.35 0.29 0.29
UFPT 10-K, page F-21
<PAGE>
Independent Auditors' Report on Supplementary Information
The Board of Directors and Stockholders
UFP Technologies, Inc.:
Under date of February 25, 1999, we reported on the consolidated balance
sheets of UFP Technologies, Inc. and subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1998, which are included in the Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule in the Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Boston, Massachusetts
February 25, 1999
UFPT 10-K, page F-22
<PAGE>
Schedule II
UFP TECHNOLOGIES, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1998, 1997 and 1996
Accounts receivable, allowance for doubtful accounts:
1998 1997 1996
---- ---- ----
Balance at beginning of year $ 196,336 $ 164,352 $ 200,936
Provision charged to expense 119,574 226,720 (27,605)
Deductions - write-offs (58,045) (194,736) (8,979)
--------- --------- ---------
Balance at end of year 257,865 196,336 164,352
========= ========= =========
* * * * *
UFPT 10-K, page F-23
<PAGE>
Exhibit 2.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS FOR CASH
PURCHASE AGREEMENT
ACQUISITION OF THE ASSETS OF
PACIFIC FOAM TECHNOLOGIES, INC.
BY UFP TECHNOLOGIES, INC.
DATED: November 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ASSETS FOR CASH PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. PURCHASE AND SALE OF ASSETS............................................................................1
1.1 Sale of Assets.............................................................................................1
1.2 Assumption of Liabilities..................................................................................3
1.3 Purchase Price and Payment................................................................................4
[1.4 INTENTIONALLY OMITTED]....................................................................................5
1.5 Time and Place of Closing..................................................................................5
1.6 Transfer of Subject Assets.................................................................................5
1.7 Change of Name.............................................................................................5
1.8 Further Assurances.........................................................................................5
1.9 Allocation of Purchase Price...............................................................................6
1.10 Right to Hire Employees...................................................................................6
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER...............................................6
2.1 Organization and Qualification of Seller...................................................................6
2.2 Capitalization of Seller...................................................................................6
2.3 Subsidiaries...............................................................................................6
2.4 Authorization of Transaction...............................................................................7
2.5 Present Compliance with Obligations and Laws...............................................................7
2.6 No Conflict of Transaction With Obligations and Laws.......................................................7
2.7 Financial Statements.......................................................................................7
2.8 Absence of Undisclosed Liabilities.........................................................................8
2.9 Absence of Certain Changes.................................................................................8
2.10 Conduct of Business......................................................................................10
2.11 Payment of Taxes.........................................................................................10
2.12 Title to Properties; Liens; Condition of Properties......................................................10
2.13 Collectibility of Receivables............................................................................11
2.14 Inventories..............................................................................................11
2.15 Intellectual Property Rights.............................................................................12
2.16 Contracts and Commitments................................................................................13
2.17 Labor and Employee Relations.............................................................................14
2.18 ERISA and Employee ERISA Benefits........................................................................15
2.19 Environmental Matters....................................................................................17
2.20 Governmental Authorizations..............................................................................19
2.21 Warranty or Other Claims.................................................................................20
2.22 Litigation...............................................................................................20
2.23 Insurance................................................................................................20
2.24 Finder's Fee.............................................................................................21
2.25 Transactions with Interested Persons.....................................................................21
2.26 Absence of Sensitive Payments............................................................................21
2.27 Copies of Documents......................................................................................22
2.28 Disclosure of Material Information.......................................................................22
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER...............................................................22
3.1 Organization of Buyer.....................................................................................22
3.2 Authorization of Transaction..............................................................................22
</TABLE>
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<TABLE>
<S> <C>
3.3 No Conflict of Transaction with Obligations and Laws......................................................22
3.4 Finder's Fee..............................................................................................22
ARTICLE 4. CONDITIONS TO OBLIGATIONS OF BUYER....................................................................23
4.1 Net Worth.................................................................................................23
4.2 FIRPTA Certificate........................................................................................23
4.3 Escrow Agreement..........................................................................................23
4.4 Release of Liens, Security Interests and Other Encumbrances..............................................23
4.5 Third Party Consents......................................................................................23
4.6 Opinion of Seller's Counsel...............................................................................23
4.7 Noncompetition Agreement..................................................................................23
ARTICLE 5. CONDITIONS TO OBLIGATION OF SELLER....................................................................24
5.1 Purchase Price............................................................................................24
5.2 Escrow Agreement..........................................................................................24
5.3 Consent of Landlord.......................................................................................24
ARTICLE 6. INDEMNIFICATION......................................................................................24
6.1 Definitions...............................................................................................24
6.2 Indemnification by Seller.................................................................................25
6.3 Indemnification by Buyer..................................................................................26
6.4 Defense of Third Party Actions............................................................................28
6.5 Miscellaneous.............................................................................................28
6.6 Payment of Indemnification................................................................................29
6.7 Exclusive Remedy..........................................................................................29
ARTICLE 7. MISCELLANEOUS.........................................................................................29
7.1 Fees and Expenses.........................................................................................29
7.2 Bulk Sales Law............................................................................................29
7.3 Notices...................................................................................................30
7.4 Confidentiality...........................................................................................31
7.5 Entire Agreement..........................................................................................31
7.6 Severability..............................................................................................31
7.7 Assignability.............................................................................................31
7.8 Amendment.................................................................................................31
7.9 Governing Law.............................................................................................31
7.10 Counterparts.............................................................................................31
7.11 Effect of Table of Contents and Headings.................................................................31
SIGNATURES.......................................................................................................32
ASSETS FOR CASH PURCHASE AGREEMENT...............................................................................33
LIST OF SCHEDULES AND EXHIBITS................................................................................33
</TABLE>
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<PAGE>
ASSETS FOR CASH PURCHASE AGREEMENT
AGREEMENT entered into as of the 30th day of November, 1998, among UFP
Technologies, Inc., a Delaware corporation, with its principal place of business
in Georgetown, Massachusetts ("Buyer"), and Pacific Foam Technologies, Inc., a
California corporation, with its principal place of business in Ventura,
California ("Seller") and Scott Daley, the sole stockholder of Seller
("Stockholder").
RECITALS:
WHEREAS, Buyer wishes to acquire substantially all of the properties
and assets of Seller, and Seller wishes to convey such assets to Buyer, subject
to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, in order to consummate said sale,
the parties hereto agree as follows:
ARTICLE 1. PURCHASE AND SALE OF ASSETS.
1.1 SALE OF ASSETS.
(a) Subject to the provisions of this Agreement and except as
expressly excluded in paragraph (b) below, Seller agrees to sell and Buyer
agrees to purchase, at the Closing (as defined in Section 1.5 hereof), all of
the properties, assets and business of Seller, of every kind and description,
tangible and intangible, real, personal or mixed, and wherever located,
including without limitation:
(i) all assets shown or reflected on the Base Balance Sheet (as
defined in Section 2.7 hereof);
(ii) all cash and cash equivalents;
(iii) all accounts receivable, notes receivable, trade
accounts, unbilled invoices, contract receivables and other receivables
(collectively, "Receivables");
(iv) all prepaid expenses and deposits;
(v) all inventory, including all raw materials, finished goods,
and all work in process;
(vi) all open customer orders ("Customer Orders");
(vii) all furniture, fixtures, equipment, whether owned or
leased, including, by way of description and not limitation, the machinery and
equipment set forth on SCHEDULE 2.11(a) hereto;
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<PAGE>
(viii) all business records and files;
(ix) all good will including, without limitation, all general
intangibles, patents, patent rights, patent licenses, other licenses,
trademarks, service marks, trade names, other intellectual property, customer
lists, brochures and marketing literature;
(x) the exclusive right to use the name of Seller and any
derivations thereof (including the name "Pacific Foam Technologies") as all or
part of a trade or corporate name;
(xi) all documents, instruments and chattel paper;
(xii) all claims and causes of action; and
(xiii) all unexpired contracts and contract rights.
The assets, property and business of Seller to be sold to and purchased by Buyer
under this Agreement are hereinafter sometimes referred to as the "Subject
Assets."
(b) Notwithstanding the foregoing, the following assets shall be
excluded from the Subject Assets:
(i) assets and property disposed of since the date of the Base
Balance Sheet in the ordinary course of business and such other assets as have
been disposed of pursuant to this Agreement;
(ii) Seller's corporate franchise, stock record books,
corporate record books containing minutes of meetings of directors and
stockholders, original tax returns and financial statements, and such other
records as have to do exclusively with Seller's organization or stock
capitalization;
(iii) the Ford Explorer and the Ford Ranger automobiles
reflected on the books of Seller, subject to any corresponding debt or lease
obligation;
(iv) product development costs net of depreciation and other
assets which include incorporation costs, non-competition agreements and PFT
Ranch, categorized on the Base Balance Sheet as "Other Assets", which shall not
in the aggregate exceed $178,946;
(v) the savings account maintained by Seller at City National
Bank with a balance not to exceed $1,336.23 as reflected on the Base Balance
Sheet, plus accruing interest thereon;
(vi) the City National Bank C.D. valued at $100,000 on
September 30, 1998, plus accruing interest thereon;
(vii) the account maintained by Seller at Schwab #6870-8562,
valued at $103,600, as of November 9, 1998, plus accruing interest thereon;
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<PAGE>
(viii) the loan to shareholder reflected on the Base Balance
Sheet in an amount not to exceed $388,392 together with any accruing interest
thereon; and
(ix) all employee benefit plans and the assets held by Seller
thereunder.
1.2 ASSUMPTION OF LIABILITIES.
(a) Except as otherwise provided herein, Buyer agrees to assume and
perform all of Seller's liabilities reflected on the Base Balance Sheet, as such
liabilities may fluctuate up or down in the ordinary course of Seller's business
prior to the Closing and liabilities clearly disclosed on the Schedules hereto,
provided that Seller does not assume, and Seller shall retain, any income tax
liabilities of Seller whether or not reflected on the Base Balance Sheet. Buyer
further agrees to assume and perform the future obligations of Seller (i) to
fulfill the Customer Orders and (ii) under any contracts assigned to Buyer
hereunder (each an "Assigned Contract"); provided, however, that Buyer assumes
no liability under any Customer Order or Assigned Contract arising out of or
relating to acts or omission of Seller, the conduct of the business or
operations of Seller prior to the Closing, or the failure to obtain any consent
necessary to transfer any Customer Order or Assigned Contract to Buyer in
accordance herewith. The liabilities assumed by Buyer under this paragraph (a)
are hereinafter referred to as the "Assumed Liabilities."
(b) Except to the extent expressly assumed pursuant to paragraph
(a) above, Buyer does not assume and shall not be liable for any debt,
obligation, responsibility or liability of the Seller or any Affiliate (as
defined below) of the Seller, or any claim against any of the foregoing, whether
known or unknown, contingent or absolute, or otherwise, all of which shall be
retained by Seller (the "Retained Liabilities"). Without limiting the foregoing
sentence, Buyer shall have NO responsibility with respect to the following,
whether or not disclosed in the Base Balance Sheet or a Schedule thereto:
(i) liabilities and obligations related to or arising from
transactions with any officer, director or stockholder of Seller or any person
or organization controlled by, controlling, or under common control with any of
them (an "Affiliate");
(ii) liabilities and obligations for taxes of any kind,
including taxes related to or arising from the transfers contemplated by the
Agreement or hereby (except for (a) taxes which have not yet accrued or
otherwise become due and (b) to the extent provided in Section 7.1 hereof);
(iii) liabilities and obligations for damage or injury to
person or property or resulting from or arising out of environmental claims
based upon events occurring prior to the date hereof;
(iv) liabilities and obligations to employees of Seller,
whether for accident, disability, or workers compensation insurance or benefits,
benefits under employee benefit plans, including without limitation, under
COBRA, back pay, accrued vacation, or obligations related to or resulting from
severance of employment by Seller;
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<PAGE>
(v) worker's liens on any of the Subject Assets;
(vi) liabilities incurred by Seller in connection with this
Agreement and the transactions provided for herein, including counsel and
accountant's fees, transfer and other taxes (except to the extent provided in
Section 7.1 hereof), and expenses pertaining to its liquidation or the
performance by Seller of its obligations thereunder;
(vii) liabilities and obligations to creditors not appearing on
the Base Balance Sheet except liabilities and obligations arising after the date
of the Base Balance Sheet incurred in the ordinary course of business;
(viii) liabilities arising out of the sale to or use by
customers or others of any product manufactured, distributed or sold by Seller;
(ix) liabilities of Seller to its dissenting stockholders, if
any; and
(x) liabilities of Seller with respect to any options,
warrants, agreements or convertible or other rights to acquire any shares of its
capital stock of any class; and
(c) The assumption of Assumed Liabilities by Buyer hereunder shall
be treated as independent of Buyer's existing business and shall not enlarge any
rights of third parties under contracts or arrangements with Buyer or Seller or
any of their respective subsidiaries. Nothing herein shall prevent Buyer from
contesting in good faith any of the Assumed Liabilities.
1.3 PURCHASE PRICE AND PAYMENT. In consideration of the sale by Seller
to Buyer of the Subject Assets, Buyer agrees that it will pay to Seller Two
Million Two Hundred Fifty Thousand Dollars ($2,250,000) (the "Purchase Price").
The Purchase Price shall be paid by wire transfer of immediately available funds
in accordance with wire transfer instructions provided to Buyer at least five
(5) business days prior to the Closing Date, the following amounts on the
Closing Date as follows:
(i) $2,150,000 to Seller; and
(ii) $100,000 (the "Escrow Fund") to State Street Bank and
Trust Company, N.A., or such other mutually agreeable institution, as escrow
agent (the "Escrow Agent") under and subject to the terms of the escrow
agreement to be entered into pursuant to Section 4.3 hereof.
1.4 [INTENTIONALLY OMITTED]
1.5 TIME AND PLACE OF CLOSING. The closing of the purchase and sale
contemplated by this Agreement (herein called the "Closing") shall occur on
November 30, 1998. The date on which the Closing occurs is herein referred to as
the "Closing Date".
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<PAGE>
1.6 TRANSFER OF SUBJECT ASSETS. At the Closing, Seller shall deliver or
cause to be delivered to Buyer good and sufficient instruments of transfer,
including bills of sale, assignments and other instruments, in form and
substance satisfactory to counsel to Buyer transferring to Buyer good title to
all the Subject Assets free and clear of all Encumbrances (as defined in Section
2.6 hereof) other than Encumbrances disclosed on a Schedule hereto which Buyer
agrees may remain in place at the Closing and shall deliver possession of the
Subject Assets free and clear of all adverse claims to possession. Seller shall
also deliver or cause to be delivered to Buyer all of the Assigned Contracts
with such assignments thereof and consents to assignments as are necessary to
assure Buyer the full benefit of the same and all of Seller's business records,
copies of tax returns for all years prior to the Closing, books and other data
relating to the Subject Assets, and the business and operations represented
thereby (except corporate records excluded under Section 1.1(b)) and Seller
shall take all requisite steps to put Buyer in actual possession and operating
control of the assets and business of Seller.
1.7 CHANGE OF NAME. Immediately following the Closing, Seller shall
file with the California Secretary of State an amendment to its Charter (as
defined in Section 2.1 hereof) changing its name to a name which does not
include the words "Pacific", "Foam" or "Technologies" or any derivation or
permutation thereof or any name which is confusingly similar. In connection with
the Closing, Seller shall deliver to the Buyer a consent in form satisfactory to
the Secretary of State of the State of California consenting to the use of the
name "Pacific Foam Technologies" by Buyer or any affiliate thereof. Immediately
following the Closing, Seller shall make such other filings as may be necessary
to reflect a change of its name with any other state or local filing agencies
and shall immediately cease use of such name.
1.8 FURTHER ASSURANCES. Seller from time to time after the Closing at
the request of Buyer and without further consideration shall execute and deliver
further instruments of transfer and assignment (in addition to those delivered
under Section 1.7) and take such other action as Buyer may reasonably require to
more effectively transfer and assign to, and vest in, Buyer each of the Subject
Assets. Seller shall cooperate with Buyer to permit Buyer to enjoy Seller's
rating and benefits under the workman's compensation laws and unemployment
compensation laws of applicable jurisdictions, to the extent permitted by such
laws.
1.9 ALLOCATION OF PURCHASE PRICE. The Purchase Price payable by Buyer
for the Subject Assets pursuant to Sections 1.3 and 1.4 and the face amount of
the Assumed Liabilities assumed pursuant to Section 1.2 shall represent payment
for the Subject Assets at the prices shown on a memorandum to be prepared by
Buyer, subject to the reasonable approval of Seller, initialed by the parties
and delivered by Buyer at the Closing or as soon thereafter as required
information is made available. The prices reflected in said memorandum shall
represent the fair market values of the Subject Assets at the Closing, to the
knowledge and belief of Buyer, and the parties agree that they will not take a
position inconsistent with such allocation for Federal income tax purposes.
1.10 RIGHT TO HIRE EMPLOYEES. Seller shall make available to Buyer all
of Seller's employees for hire at or after the Closing. Although Buyer shall
have no obligation to hire any of such employees, it is currently the intention
of Buyer to offer employment to such employees.
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<PAGE>
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER.
Each of Seller and stockholder, jointly and severally, hereby
represents and warrants to Buyer as follows:
2.1 ORGANIZATION AND QUALIFICATION OF SELLER. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, with full power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is conducted by it. The
copies of Seller's Certificate of Incorporation, as amended to date ("Charter"),
certified by the Secretary of State of the State of California, and of Seller's
bylaws as amended to date, certified by Seller's Secretary, are attached as
SCHEDULE 2.1 hereto and are complete and correct. Seller is duly qualified to do
business as a foreign corporation in each of the jurisdictions listed on said
SCHEDULE 2.1 and is not required to be qualified in any other jurisdiction.
2.2 CAPITALIZATION OF SELLER. The authorized capital stock of Seller
consists of ______ shares of Common Stock, no par value, of which ______ are
validly issued and outstanding, fully paid and nonassessable, and were issued in
compliance with Federal and applicable state securities laws, all of which is
owned beneficially and of record by the Stockholder.
2.3 SUBSIDIARIES. Seller does not own, directly or indirectly, any
capital stock of any corporation and has no subsidiaries. Except as set forth on
SCHEDULE 2.3, the Seller does not own any securities issued by any other
business organization or governmental authority. Seller is not a partner or
participant in any joint venture or partnership of any kind.
2.4 AUTHORIZATION OF TRANSACTION. Seller has the full power and
authority to execute, deliver and perform this Agreement and the Escrow
Agreement and to carry out the transactions contemplated hereby and thereby. All
necessary action, corporate or otherwise, has been taken by Seller to authorize
the execution, delivery and performance of this Agreement and the Escrow
Agreement, and the transactions contemplated hereby and thereby, and the
Agreement is, and the Escrow Agreement will be when executed, duly executed and
delivered and the legal, valid and binding obligation of each of Seller and
stockholder, enforceable against Seller and Stockholder in accordance with its
terms.
2.5 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS. Except as set forth
on SCHEDULE 2.5, Seller is not: (a) in violation of its Charter or bylaws; (b)
in default in the performance of or breach of (with or without the passage of
time or the giving of notice) any obligation, agreement or contract to which it
is a party or by which it or any of its assets are bound; or (d) in violation of
any court order, judgment, administrative or judicial order, writ, decree,
stipulation, arbitration, award or injunction (collectively, "Court Orders") or
any license, permit, order, franchise agreement, concession, grant,
authorization, consent or approval (collectively, "Government Authorizations")
that is held by Seller applicable to it or its business or assets, or any
statute, law, ordinance, rule or regulation applicable to its business or assets
(collectively, "Laws").
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2.6 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS. Except as set
forth on SCHEDULE 2.6, neither the execution, delivery and performance of this
Agreement, nor the performance of the transactions contemplated hereby, will:
(i) constitute a breach or violation of any provision of the Charter or bylaws
of Seller; (ii) require any consent, approval or authorization of or
declaration, filing or registration with any person; (iii) constitute (with or
without the passage of time or giving of notice) a default under or breach of
any agreement, instrument or obligation to which Seller is a party or by which
it or any of its assets are bound; (iv) result in the creation of any lien,
option (including right of first refusal or first offer), encumbrance, charge,
restriction, mortgage, pledge, security interest, title exception, conditional
sale agreement, restriction, claim or charge of any kind or character (each an
"Encumbrance") upon any of the properties or assets of Seller; (v) contravene,
conflict with, or result in the violation of any Court Order or Law, or give any
governmental authority, whether foreign, federal, state, local or other
political subdivision or agency of any of the foregoing (each a "Government
Authority"), or any other person, the right to exercise any remedy or obtain any
relief under any Court Order or Law, to which Seller is subject or by which the
properties or assets of Seller are bound; or (vi) contravene, conflict with or
result in the violation of any of the terms and requirements of, or give any
Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate
or modify, any Government Authorization.
2.7 FINANCIAL STATEMENTS.
(a) Attached as SCHEDULE 2.7(A) hereto are the following financial
statements (the "Financial Statements") of Seller, audited or unaudited as
indicated, all of which statements are complete and correct and fairly present
the financial position of Seller on the date of such statements and the results
of its operations on the applicable basis for the periods covered thereby, and
such Financial Statements have been prepared in accordance with GAAP
consistently applied throughout the periods involved and prior periods:
- Balance sheets, income statements, statements of changes in
stockholders equity and statements of cash flow at and as of
the twelve (12) months ended December 31, 1997, 1996 and 1995.
- Balance sheets, income statements, statements of changes in
stockholders equity and statements of cash flow at and as of
the seven (7) months ended July 31, 1998.
The balance sheet dated July 31, 1998 (the "Base Balance Sheet Date")
in the above-referenced financial statements is hereinafter referred to as the
"Base Balance Sheet".
(b) The books of account of Seller for all years fairly reflect the
financial position of Seller in all respects, and have been maintained on a
consistent basis. All auditor's letters to management of Seller for all years
and other significant correspondence from or to such auditors during such
period, if any, are attached as SCHEDULE 2.7(b) hereto.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. Seller has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise (including
without limitation liabilities as
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guarantor or otherwise with respect to obligations of others, or liabilities for
taxes due or then accrued or to become due), except: (a) liabilities stated or
adequately reserved against on the Base Balance Sheet; (b) liabilities incurred
since the Base Balance Sheet Date in the ordinary course of business consistent
with past practices and liabilities; and (c) liabilities disclosed in SCHEDULE
2.8 hereto.
2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth on SCHEDULE 2.9
hereto, since the Base Balance Sheet Date there has not been:
(a) any change in the financial condition, including working
capital, earnings, reserves, properties, assets, liabilities, business or
operations, of the Seller which change, by itself or in conjunction with all
other such changes, whether or not arising in the ordinary course of business,
has been materially adverse with respect to Seller;
(b) any contingent liability incurred by Seller as guarantor or
otherwise with respect to the obligations of others or any other contingent or
fixed obligations or liabilities incurred by Seller;
(c) any Encumbrance placed on any of the properties of Seller which
remains in existence at the time of Closing;
(d) any sale or other disposition, or any agreement or other
arrangements for the sale or other disposition, of any of the properties or
assets of Seller other than the sale of inventory in the ordinary course of
business;
(e) any capital expenditure, lease or commitment or agreement to
lease in excess of $5,000 with respect to any individual item or $10,000 with
respect to all such items;
(f) any write-downs of the value of any inventory (including
write-downs by reason of shrinkage or mark-down or write-off) as uncollectible
or any notes or accounts receivable, except for write-downs or write-offs that
are in the aggregate less than $10,000 in the ordinary course of business;
(g) any damage, destruction or loss, whether or not covered by
insurance, affecting the properties, assets or business of Seller;
(h) any declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, the capital stock of
Seller, including distributions on account of any income tax liabilities except
for normal and ordinary base salary payments to Stockholder; any direct or
indirect redemption, purchase or other acquisition by Seller of its capital
stock, or any issuance of any securities of Seller or any payment made to or for
the personal account or benefit of the Stockholder;
(i) any entrance into any employment contract, or consulting
agreement; or any change in the compensation payable or to become payable by
Seller to any of its officers,
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employees or agents or in any bonus, pension or profit sharing payment,
enhancement or arrangement made to or with any such officers, employees or
agents;
(j) any change with respect to the business organization,
management, or supervisory personnel of Seller;
(k) any payment or discharge of a material lien, claim, obligation
or liability of Seller which was not shown on the Base Balance Sheet or incurred
in the ordinary course of business thereafter;
(l) any obligation or liability incurred by Seller to any of its
officers, directors or shareholders, or any loans or advances made by Seller to
any of its officers, directors or shareholders, except normal compensation,
benefits and expense allowances payable to officers;
(m) any change in any method of accounting or accounting practice,
whether or not such change was permitted by GAAP;
(n) any payment of any Federal, state or local income taxes on
behalf of itself or Stockholder; or
(o) any agreement, whether in writing or otherwise, to take any
action described in this Section 2.9.
2.10 CONDUCT OF BUSINESS. Since the Base Balance Sheet Date, Seller has
conducted its business only in the ordinary course, in substantially the same
manner as operated prior to such date and in accordance with the plans and
ongoing business disclosed by Seller to Buyer prior to such date, and has not
changed any current or disclosed method or introduced any new method of
management or operations.
2.11 PAYMENT OF TAXES. Seller has duly and timely filed all federal,
state, local, and foreign government income, excise, gross receipts or franchise
tax returns, real estate and personal property tax returns, sales and use tax
returns, employee tax and contribution returns, and all other tax returns,
reports and declarations, including valid extensions therefor, or estimated
taxes required to be filed by it, with respect to all applicable taxes ("Tax
Returns") of every kind, character or description, and imposed by any government
or quasi-governmental authority (domestic or foreign), and any interest or
fines, and any and all penalties or additions relating to such taxes, charges,
fees, levies or other assessments ("Taxes"). All of the Tax Returns are complete
and correct. Copies of Seller's Federal and state Tax Returns for the past five
(5) years are attached to SCHEDULE 2.11. All Taxes shown to be due on each Tax
Return have been paid or are being contested in good faith by Seller (which
contest is being diligently pursued and is described on SCHEDULE 2.11). With
respect to all other Taxes for which no return is required, or which have not
yet accrued or otherwise become due, adequate provision has been made in the
pertinent Financial Statements. All Taxes and other assessments and levies which
Seller is required to withhold or collect have been withheld or collected and
paid over or will be paid over to proper governmental authorities as required.
The income tax returns of Seller have never been audited by the Internal Revenue
Service or the California Tax Board. Seller is not
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aware of any intention on the part of any governmental agency, to examine any of
the Tax Returns. No deficiencies have been asserted or assessments made against
Seller, nor is the Internal Revenue Service or any other taxing authority now
asserting or, to the knowledge of Seller or Stockholder without inquiry,
threatening to assert against Seller any deficiency or claim for additional
taxes or interest thereon or penalties in connection therewith. Seller has not
extended the time for the filing of any Tax Return or the assessment of
deficiencies or waived any statute of limitations for any year, which extension
or waiver is still in effect. The provisions for taxes reflected in the
Financial Statements are adequate to cover any tax liabilities of Seller in
respect of its businesses, properties and operations during the periods covered
by said Financial Statements and all prior periods.
2.12 TITLE TO PROPERTIES; LIENS; CONDITION OF PROPERTIES.
(a) Seller owns no real property. Set forth on SCHEDULE 2.12(a)
hereto is a listing of (i) all leases under which Seller leases real property,
(ii) a complete list of the machinery, equipment and other personal property
with an original cost in excess of $1,000 used or owned by Seller as of the date
hereof, and (iii) all leases under which Seller leases any equipment, machinery
or other personal property, including the Leased Equipment. Seller has delivered
to Buyer true, correct and complete copies of all leases, subleases, rental
agreements, contracts of sale, tenancies or licenses related to any of the real
or personal property identified on SCHEDULE 2.12(a). Also set forth on SCHEDULE
2.12(a) is a list of all locations where any of the personal property or
Seller's inventory (other than goods in transit in the ordinary course of
business) are located. The real and personal property identified on such
Schedule includes all properties and assets (whether real, personal or mixed,
tangible or intangible) reflected in the Base Balance Sheet or purchased by
Seller since the Base Balance Sheet Date (except for such properties or assets
sold since the Base Balance Sheet Date in the ordinary course of business), and
includes all property and assets used or required for use in Seller's business,
except for property not required to be disclosed on such Schedule.
(b) Except as specifically disclosed in SCHEDULE 2.12(b) or in the
Base Balance Sheet, Seller has good and marketable title to all its owned
personal property, including property described in SCHEDULE 2.12(b), free and
clear of all Encumbrances and each of its leases is valid, binding and
enforceable in accordance with its terms against the parties thereto is
subsisting and (subject to obtaining required consents, all of which are listed
on SCHEDULE 2.6) fully assignable by Seller, and no default by Seller exists
thereunder, or to the knowledge of Seller and the Stockholders, by any other
party and Seller is in full compliance with all terms and conditions of such
agreements.
(c) Except as otherwise specified in SCHEDULE 2.12(d) hereto, all
machinery and equipment used by Seller are in good condition, working order and
repair, age and reasonable wear and tear excepted, are adequate for the uses to
which they are put, have been well maintained, and substantially conform with
all applicable ordinances, regulations and safety or other laws.
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2.13 COLLECTIBILITY OF RECEIVABLES. All of the Receivables of Seller
shown or reflected on the Base Balance Sheet, less a reserve for bad debts in
the amount shown on the Base Balance Sheet are, and those outstanding at the
Closing will be (a) valid and enforceable claims, (b) which arose out of
transactions with unaffiliated parties, (c) fully collectible within ninety (90)
days of invoice date through normal means of collection, and (d) subject to no
set-off, defense or counterclaim. The reserves for doubtful accounts and the
values at which Receivables are accrued on the Base Balance Sheet are in
accordance with GAAP applied on a basis consistent with prior financial
statements of Seller. A complete and accurate list of each Receivable accrued on
Seller's books on July 31, 1998, which lists the name, age and amount thereof,
is attached as SCHEDULE 2.13. Since December 31, 1996, there has not been a
material change in Seller's receivables' aging practice.
2.14 INVENTORIES.
(a) All inventories of finished goods and raw materials of Seller
reflected on the Base Balance Sheet are and those existing on the Closing Date
will be, of a quantity and quality normally salable in the ordinary course of
business at commercially reasonable prices consistent with Seller's prior
experience. All such inventories are valued on a lower of cost (weighted
average) or market basis and in accordance with Seller's normal valuation
methods and policies, consistently applied. Purchase commitments for raw
materials and parts are not in excess of normal requirements and none are at
prices in excess of current market prices. Except as shown on SCHEDULE 2.14,
since the Base Balance Sheet Date, no inventory items have been sold or disposed
of except through sales in the ordinary course of business at prices no less
than prevailing market prices.
(b) The value of the finished goods inventory on Base Balance
Sheet Date and on the Closing Date, when added to the cost of the variable
expenses of freight, commissions and discounts, shall not exceed the market
price. The inventories of finished goods existing on the Closing Date shall
thereafter be salable at prices equal to or in excess of the amount necessary,
after variable expenses, to sell such inventory at a price equal to no less than
cost. Except for the items listed on SCHEDULE 2.14, all inventories of finished
goods existing on the Base Balance Sheet Date, and on the Closing Date will be
salable on or before May 31, 1999, through Seller's normal and ordinary course
of business and consistent with the past practices of Seller.
2.15 INTELLECTUAL PROPERTY RIGHTS.
(a) For purposes of this Section 2.15, "Intellectual Property"
means all patents, patent applications, trade marks (whether registered or
unregistered) or service marks, trade mark or service mark applications, trade
names, copyrights, licenses and computer software, owned or used by Seller.
(b) All rights of ownership of, or material licenses to use,
Intellectual Property held by Seller are listed on SCHEDULE 2.15. There are no
Intellectual Property rights other than those set forth on SCHEDULE 2.15,
necessary to or regularly used in, the conduct of the business of Seller as
presently conducted or presently in the process of development.
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(c) Except as set forth on SCHEDULE 2.15, all rights to
Intellectual Property required to be listed in SCHEDULE 2.15:
(i) have been duly registered, filed in, or issued by, the
United States Patent Office, United States Register of Copyrights, or the
corresponding offices of other countries identified on said schedule;
(ii) have been properly maintained and renewed in accordance
with all applicable laws and regulations in the United States and such foreign
countries; and
(iii) in the case of patents or patent applications, have been
duly assigned to Seller and such assignment(s) have been recorded in the
appropriate government offices.
(d) No proceedings to which Seller is a party have been commenced
which (i) challenge the rights of Seller in respect of the Intellectual Property
listed on SCHEDULE 2.15, or (ii) charge Seller with infringement of any other
person's rights in Intellectual Property and, to the knowledge of Seller, no
such proceeding is threatened to be filed. None of the rights in Intellectual
Property listed on SCHEDULE 2.15 is being infringed by any other person.
(e) Except as set forth on SCHEDULE 2.15, no director, officer or
employee of Seller owns, directly or indirectly, in whole or in part, any
Intellectual Property right which Seller has used, is presently using, or the
use of which is reasonably necessary to its business as now conducted or
presently contemplated to be conducted.
(f) In addition to the Intellectual Property described above,
Seller has the right to use, free and clear of any claims or rights of others,
except claims or rights described in SCHEDULE 2.15, all trade secrets, customer
lists, and manufacturing and other secret processes and technologies
(collectively "Trade Secrets") required for or used in the manufacture or
marketing of all products formerly or presently produced by Seller, including
products licensed from others. Seller has disclosedto Buyer all written
documentation relating to its Trade Secrets and has adopted measures adequate to
protect its Trade Secrets. Seller is not using or in any way making use of any
Trade Secrets of any third party, including without limitation, a former
employer of any present or past employee of Seller.
2.16 CONTRACTS AND COMMITMENTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 2.16(a) hereto, Seller is not a party to or
subject to any contract, agreement or commitment (written or oral):
(i) for the purchase of any commodity, material, equipment or
asset (except for purchase orders in the ordinary course of business or
contracts involving payments of less than $1,000 each);
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(ii) creating any obligations of Seller after the Base Balance
Sheet Date which call for payments of more than $5,000 during any month for
agreements without a fixed term or more than $20,000 over the term of the
agreement for agreements with a fixed term;
(iii) providing for the purchase of all or substantially all
of its requirements of a particular product from a supplier;
(iv) which by its terms does not terminate or is not
terminable without premium or penalty by Seller (or its successor or assign)
upon ninety (90) days notice;
(v) for the sale or lease of its products not made in the
ordinary course of business;
(vi) with any sales agent or distributor of products of
Seller;
(vii) containing covenants limiting the freedom of Seller to
compete in any line of business or with any person or entity;
(viii) for a license or franchise (as licensor or licensee or
franchisor or franchisee);
(ix) involving any arrangement or obligation with respect to
the return of inventory or merchandise other than on account of a defect in
condition, or failure to conform to the applicable contract;
(x) with the United States government;
(xi) which contains covenants as to noncompetition,
nondisclosure, nonsolicitation or confidentiality restricting or for the benefit
of Seller; or
(xii) which is material to the assets or business of Seller.
(b) Each of the contracts, commitments, plans, agreements and
licenses to which Seller is a party, including those listed on SCHEDULE 2.16(a)
(each a "Contract") is valid, binding and enforceable against Seller and, to the
knowledge of Seller, against the other parties thereto; Seller is in full
compliance with all terms and conditions of each Contract; and, Seller has
neither given nor received notice of any alleged violation of or default under
any such Contract.
(c) Since January 1, 1997, Seller has not experienced any
termination, cancellation, limitation or modification or change in any business
relationship with any material supplier or customer, nor has Seller received
notice or otherwise have knowledge that any customer or supplier intends to
cease, or materially reduce or change the terms of, doing business with Seller
or to terminate any agreement with Seller where such action has had or would
have a material adverse effect on the business of Seller. SCHEDULE 2.16(d) lists
every material customer or supplier of Seller and the amount of business with
that customer. For purposes hereof, a
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supplier is material if during fiscal 1995, 1996 and 1997, it accounted for more
than five percent (5%) by value of the orders of Seller for purchase of all its
raw materials and other products essential to its manufacturing processes for
such year. A customer is material if it accounted for more than three percent
(3%) by value of the orders of Seller in either fiscal 1995, 1996 or 1997.
(d) The total backlog of Seller (including all accepted and
unfulfilled sales orders) is not materially less than the backlog amount set
forth on SCHEDULE 2.16(e), and the aggregate of all outstanding purchase orders
issued by Seller (including all contracts or commitments for the purchase by
Seller of materials or other supplies) is not materially more than the purchase
order amount set forth on such SCHEDULE 2.16(e). All such sales and purchase
commitments were made in the ordinary course of business. All open customer
orders are listed on SCHEDULE 2.16(e).
2.17 LABOR AND EMPLOYEE RELATIONS.
(a) Except as shown on SCHEDULE 2.17 hereto, there are no
currently effective consulting or employment agreements or other material
agreements with individual consultants or employees to which Seller is a party.
Complete and accurate copies of all such written agreements have been delivered
to Buyer and are attached to SCHEDULE 2.17. Also shown on SCHEDULE 2.16 are the
name and rate of compensation (including all bonus compensation) of each
officer, employee or agent of Seller.
(b) None of the employees of Seller is covered by any collective
bargaining agreement with any trade or labor union, employees' association or
similar association. There are no representation elections, arbitration
proceedings, labor strikes, slowdowns or stoppages, or claims of discrimination
or unfair labor practices pending, or, to the knowledge of Seller, threatened,
with respect to the employees of Seller nor has Seller experienced any work
stoppage or other material labor difficulty during the five (5) years
immediately preceding the date of this Agreement.
(c) Seller has complied in all respects with applicable laws,
rules and regulations relating to the employment of labor, including without
limitation those relating to wages, hours, unfair labor practices,
discrimination, and payment of social security and similar taxes. There are no
complaints against Seller pending or, to the knowledge of Seller, threatened
before the National Labor Relations Board or any similar state or local labor
agencies, or before the Equal Employment Opportunity Commission or any similar
state or local agency, by or on behalf of any employee or former employee of
Seller.
(d) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not trigger any
severance pay obligation under any contract or at law or any notice requirement
under any federal or state plant closing law.
(e) Seller has provided to Buyer a complete description of all
employment policies under which Seller has operated or which have been
communicated to its employees.
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(f) Seller has paid in full (or made provisions for payment in
full) to its employees, agents and contractors all wages, salaries, commissions,
bonuses and other direct compensation for all services performed by them. Seller
does not have and will not have on the Closing Date, any contingent liability
for sick leave, vacation time, holiday pay, severance pay or similar items not
set forth on the Base Balance Sheet.
(g) There has not been any citation, fine or penalty imposed or
asserted against Seller under any law or regulation relating to employment,
immigration or occupational safety matters.
2.18 ERISA AND EMPLOYEE BENEFITS
(a) SCHEDULE 2.18 sets forth a brief description of every plan,
arrangement or policy, written or oral, relating to employees of Seller or of
any member of a controlled group or affiliated service group (as defined in
Internal Revenue Code Section 414(b), (c), (m) and (o)) which includes Seller
(an "Affiliate"), which is:
(i) an employee benefit plan within the meaning of Section 3
of the Employment Retirement Income Security Act of 1977, as amended ("ERISA");
or
(ii) a multiemployer plan within the meaning of Section 3(37)
or 4001(a)(3) of ERISA; or
(iii) a compensation, stock purchase, stock option, stock
bonus, stock appreciation, severance, health, welfare, life, disability or other
benefit plan, fund, program, arrangement or practice which is not covered by
clause (i) or (ii) above (including policies related to vacation pay, holiday
time, moving expense reimbursement programs, sick leave and salary reduction
agreements, charge-in-control agreements, and severance agreements).
(Hereinafter, "ERISA Benefit Plan" refers to plans or arrangements under clauses
(i) and (ii) above and "Benefit Plan" refers to plans or arrangements under
clauses (i) - (iii) above.)
(b) There are no agreements or commitments of Seller or any
Affiliate, whether or not legally binding, to create any additional Benefit Plan
not listed on SCHEDULE 2.18. Except as set forth on SCHEDULE 2.18, there have
been no multiemployer plans or defined benefit pension plans covering employees
of Seller or an Affiliate within the last ten (10) years.
(c) With respect to each Benefit Plan, Seller has furnished to
Buyer complete and accurate copies of each Benefit Plan described in SCHEDULE
2.18, including all amendments thereto. With respect to each ERISA Benefit Plan,
Seller has also furnished the three most recent Form 5500s and the most recent
Internal Revenue Service determination letter (if any), plan actuarial report,
summary plan description, summary annual report and employee manual, as well as
summaries of material modifications, material employee communications, and all
reports of the Benefit Plan required by ERISA and the regulations thereunder.
Seller has also furnished Buyer copies of any insurance contracts or trust
agreements through which any ERISA Benefit Plan is funded, any custodial or
investment contracts relating to assets or benefits under the
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Benefit Plan, any contracts relating to record keeping or administration for the
Benefit Plan, and notice of any material adverse change occurring with respect
to any Benefit Plan since the date of the most recently completed and filed
annual report.
(d) Seller has no ERISA Benefit Plan which constitutes a pension
plan within the meaning of Section 3(2) of ERISA. (e) Except as set forth on
SCHEDULE 2.18, with respect to each Benefit Plan:
(i) each Benefit Plan complies currently and has complied in
the past, as to form and operation, with the provisions of all applicable
Federal and state laws, such as ERISA and the Internal Revenue Code, including
without limitation all requirements regarding discrimination, disclosure, and
continuation coverage (under Section 4980B of the Code); and no nonexempt
"prohibited transaction" (as defined in Section 4975 of the Code or enumerated
in Section 406(a) or (b) of ERISA) has occurred;
(ii) all required government filings, reports, and notices
have been properly and timely made, and all such filings and employee
disclosures required to be made within thirty (30) days after Closing that are
based in whole or in part upon the period prior to the Closing shall have been
prepared and delivered to Buyer on or before the Closing;
(iii) no such Benefit Plan is currently under audit or
investigation by any governmental agency or body;
(iv) there are no actions, suits or claims (other than routine
claims for benefits) pending or threatened against any of the Benefit Plans or
against the assets of any Benefit Plan;
(v) all premiums due in connection with the Benefit Plan,
including without limitation premiums due the PBGC and premiums for life and
health insurance and annuity contracts, have been paid in full when due and,
except as specifically disclosed on SCHEDULE 2.18, there are no such premiums
that are attributable to any period of time before the Closing that will not
have been paid on or before the Closing;
(vi) all reports and filings made pursuant to ERISA, including
without limitation all form 5500 and attachments, summary annual reports, and
participant reports, and any other documents reasonably necessary to enable
Buyer to perform its responsibilities with respect to any employee program
subsequent to the Closing, are and shall be available at the offices of Seller
on and immediately after the Closing;
(vii) except as required by COBRA (Section 4980B of the
Internal Revenue Code) or the Family Medical Leave Act, no Benefit Plan provides
health or other welfare benefits to retirees, former employees, or their
dependents.
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(f) Except as required by COBRA or the Family Medical Leave Act,
neither Seller nor any Affiliate has made any promises or incurred any
obligation to provide any health or other welfare benefits to any retirees,
former employees, or their dependents.
(g) The execution and delivery of this
Agreement by the Seller and the consummation of the transactions contemplated
hereunder:
(i) do not constitute a prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code;
(ii) will not result in any obligation or liability of the
Buyer or Seller to any employee of Seller or any Affiliate or to the PBGC in
respect of any Benefit Plan.
2.19 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in SCHEDULE 2.19 hereto, any and all oil,
petroleum products, chemicals, waste oil, hazardous waste, hazardous substances,
toxic substances or hazardous materials (hereafter, "Hazardous Materials") used
or generated by Seller have always been and are being generated, used, stored,
treated and disposed on and at any of the properties or facilities owned or
leased by Seller, the former parent corporation of Seller or, to the best
knowledge of Seller, and any predecessors-in-interest of the Seller (for the
purposes of this Section, a "Site") in compliance with all applicable Laws,
Court Orders, Government Authorizations, including those related to the
protection of public health, worker safety, the environment or the management of
pollution or Hazardous Materials (collectively "Environmental Laws") and Seller
is in compliance with all Environmental Laws. For purposes of this Agreement,
"Environmental Laws" include the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA"), the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Emergency Planning and Community Right-to-Know Act
of 1986, the Hazardous Materials Transportation Act, the Federal Water Pollution
Control Act, the corresponding state and local statutes, ordinances and
amendments or successor legislation to such acts, the common law and any similar
laws, rules, or regulations.
(b) Except as set forth on SCHEDULE 2.19 hereto, Seller has not
received or become subject to any claim, notice, complaint, Court Order,
administrative order or request for information from any Government Authority or
private party (i) alleging violation of, or asserting any exceedence or
noncompliance with any Environmental Law, by it, (ii) asserting potential
liability, (iii) requesting information, or (iv) requesting investigation or
clean-up of any Site under any Environmental Law.
(c) Except as disclosed in SCHEDULE 2.19, no Hazardous Materials
used or generated by Seller, or, to the best knowledge of Seller, any
predecessors-in-interest to Seller, have ever been, are being, or are intended
to be or are threatened with being spilled, released, discharged, disposed,
placed, leaked, or otherwise caused to become located in the air, soil or water
in, under or upon a Site or any land adjacent thereto. Seller has provided Buyer
with copies of all notices filed pursuant to any Environmental Law.
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(d) Except as disclosed in SCHEDULE 2.19, no Hazardous
Materials have ever been shipped by or for Seller, or, to the best knowledge of
Seller, any predecessor-in-interest to the Seller, to other sites or facilities
for treatment, storage or disposal, and Seller has not received any notice that
any sites or facilities to which any such wastes have been shipped or sent to
are subject to or threatened to become subject to any governmental response
action or clean up order. Seller has provided Buyer with copies of all
manifests, bills of lading and other receipts or evidence documenting disposal
or recycling of Hazardous Materials and sales receipts of the process
by-products relating to operations of Seller.
(e) Except as set forth on SCHEDULE 2.19 neither Seller, nor, to
the best knowledge of Seller, any predecessor-in-interest to Seller has treated,
stored for more than ninety (90) days, disposed of or recycled any Hazardous
Materials on any Site nor has anyone else, treated, stored for more than ninety
(90) days, disposed of or recycled any of the foregoing on any Site.
(f) Except as disclosed in SCHEDULE 2.19 hereto, Hazardous
Materials have been collected, managed, recycled, shipped and disposed by Seller
in accordance with all Environmental Laws.
(g) All underground tanks and other storage facilities for
Hazardous Materials located at any Site are disclosed in SCHEDULE 2.19 hereto
and, to the best knowledge of Seller, no other underground tanks or other
storage facilities for Hazardous Materials have been located on a Site and
copies of all notifications made to Federal, state or local authorities pursuant
to Environmental Laws relating to underground storage tanks have been provided
to Buyer. As of the date hereof, none of such tanks and other underground
storage facilities are in violation of any Environmental Law, in any respect.
(h) Except as disclosed in SCHEDULE 2.19 hereto, all wells,
water discharges and other water diversions and all air emission sources on
any Site are properly registered and/or permitted under, and copies of such
permits have been provided to Buyer and do not violate any applicable law.
(i) Except as set forth on SCHEDULE 2.19, there are no
asbestos-containing materials, capacitors, transformers or other equipment or
fixtures containing PCBs located at any Site.
(j) Seller does not produce, purchase or use in its products, or
purchase or use any material, part, component or subassembly incorporated into
its products, containing any chemical or other material to which state packaging
and/or disclosure laws apply except as set forth on SCHEDULE 2.19.
(k) There are no Encumbrances under Environmental Laws on any Site
or any assets of the Seller and no government actions have been taken or are in
process which could subject any Site or any such assets to such encumbrances,
and Seller would not be required to place any notice or restriction relating to
Hazardous Materials at any Site in any deed to such property except as set forth
on SCHEDULE 2.19.
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(l) Seller has made available to Buyer all environmental audits,
assessments or studies within the possession of Seller with respect to Seller's
facilities or any Site and the results of sampling and analysis of any asbestos,
air, soil, or water, including ground and surface water, undertaken with respect
to its facilities or any Site.
(m) Except as disclosed on SCHEDULE 2.19 hereto, Seller is in
compliance with all Federal and state worker safety laws and requirements,
including, but not limited to requirements under the Occupational Safety and
Health Act.
2.20 GOVERNMENTAL AUTHORIZATIONS. Seller holds all Government
Authorizations which are required to permit it to conduct its business as
presently conducted. All such Government Authorizations are listed on SCHEDULE
2.20 hereto, together with the applicable expiration date, and are now, and will
be after the Closing, valid and in full force and effect, and Buyer shall have
full benefit of the same. Seller has not received any notification of any
present failure (or past and unremedied failure) by it to obtain any such
Authorization, approval or franchise, and no proceeding is pending, or to the
knowledge of Seller, threatened, seeking the revocation or limitation of any
Government Authorization.
2.21 WARRANTY OR OTHER CLAIMS.
(a) Except as set forth on SCHEDULE 2.21, Seller does not know of,
or have reason to know of, any existing or threatened claims, or any facts upon
which a claim could be based, against Seller for services or merchandise that
are defective or fail to meet any product warranties. No claim has been asserted
against Seller for renegotiation or price redetermination of any business
transaction, and Seller has no knowledge of any facts upon which any such claim
could be based.
(b) All products that were designed, manufactured or sold by
Seller complied with applicable contracts, agreed product specifications, Laws
and standards (whether Seller, government or industry) and there are no defects
in such products. SCHEDULE 2.21 sets forth Seller's experience with returns of
products sold by Seller for fiscal years 1995, 1996 and 1997 and for the portion
of the current fiscal year (including claims or notices that products may or
will be returned, whether by reason of alleged overshipments, defective
merchandise or otherwise).
2.22 LITIGATION. Except for matters described in SCHEDULE 2.22 hereto,
there is no action, suit, claim, proceeding, investigation or arbitration
proceeding pending (or, to the knowledge of Seller or any Seller, threatened)
against or otherwise involving Seller or any of Seller shares or any of the
officers, directors, former officers or directors, employees, shareholders or
agents of Seller (in their capacities as such) and there are no outstanding
Court Orders to which Seller is a party or by which any of its assets are.
Neither Seller nor any Seller has any reason to believe that any such action,
suit, proceeding, investigation or arbitration proceeding may be brought against
Seller.
2.23 INSURANCE.
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(a) Seller maintains (i) insurance on all of its property
(including leased or owned) real or personal property that insures against loss
or damage by fire or other casualty (including extended coverage) and (ii)
insurance against liabilities, claims and risks of a nature and in such amounts
that are normal and customary in this industry. SCHEDULE 2.23 contains a
complete and correct list of all policies of insurance maintained by Seller
(including insurance providing benefits for employees) in effect on the date
hereof, together with complete and correct information with respect to the
premiums, coverages, insurers, expiration dates, and deductibles in respect of
such policies. Such policies are (1) sufficient to enable Seller to comply with
all requirements of Law and all agreements to which any of them are subject, (2)
will remain in full force and effect through the respective expiration dates of
such policies without the payment of additional premiums, and (3) will not be
adversely affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement.
(b) Except for amounts deductible under the policies of insurance
described on SCHEDULE 2.23 or with respect to risks assumed as a self-insurer
and described on such Schedule, Seller is not, nor has Seller at any time been
subject to any liability as a self-insurer of the business or assets of Seller
that is reasonably likely to have a material adverse effect.
(c) Except as set forth on SCHEDULE 2.23, there are no claims
pending under any of said policies, or disputes with insurers, and all premiums
due and payable thereunder have been paid, and all such policies are in full
force and effect in accordance with their respective terms. No notice of
cancellation or termination has been received with respect to any such policy.
(d) Except as forth on SCHEDULE 2.23, the Seller has no current or
prior insurance policy which remains subject to retrospective adjustment of the
premiums payable thereunder.
2.24 FINDER'S FEE. Seller has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
2.25 TRANSACTIONS WITH INTERESTED PERSONS. No officer, supervisory
employee, director or stockholder of Seller or their respective spouses or
children, (a) owns, directly or indirectly, on an individual or joint basis, any
interest in, or serves as an officer or director of, any customer, competitor or
supplier of Seller or any entity involved in the environmental engineering or
testing services industries, or any organization which has a material contract
or arrangement with Seller, or (b) has any contract or agreement with Seller.
2.26 ABSENCE OF SENSITIVE PAYMENTS. Neither Seller nor any of Seller's
directors, officers, agents, stockholders or employees, on behalf of any of
them:
(a) has made or has agreed to make any contributions, payments or
gifts of funds or property to any governmental official, employee or agent where
either the payment or the purpose of such contribution, payment or gift was or
is illegal under the laws of the United States, any state thereof, or any other
jurisdiction (foreign or domestic);
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(b) has established or maintained any unrecorded fund or asset for
any purpose, or has made any false or artificial entries on any of its books or
records for any reason; or
(c) has made or has agreed to make any contribution or
expenditure, or has reimbursed any political gift or contribution or expenditure
made by any other person to candidates for public office, whether federal, state
or local (foreign or domestic) where such contributions were or would be a
violation of applicable law.
2.27 COPIES OF DOCUMENTS. Complete and correct copies of any underlying
documents listed or described in this Article 2 or any Schedules delivered
pursuant to this Article, together with all amendments, renewals and
modifications related thereto have been delivered to Buyer.
2.28 DISCLOSURE OF MATERIAL INFORMATION. Neither this Agreement nor any
exhibit hereto or certificate issued pursuant hereto contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements herein or therein not misleading, relating to the business
or affairs of Seller. There is no fact which adversely affects, or may in the
future (so far as now can be reasonably foreseen) materially adversely affect,
the business, condition (financial or otherwise) or prospects of Seller which
has not been specifically disclosed herein.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as follows:
3.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full power to own or lease its properties and to conduct its business in
the manner and in the places where such properties are owned or leased or such
business is conducted by it.
3.2 AUTHORIZATION OF TRANSACTION. Buyer has the full power and
authority to execute, deliver and perform this Agreement and to carry out the
transactions contemplated hereby. All necessary action, corporate or otherwise,
has been taken by Buyer to authorize the execution, delivery and performance of
this Agreement and the agreements contemplated hereby and the same is the valid
and binding obligation of Buyer enforceable in accordance with its terms.
3.3 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS. Neither the
execution, delivery and performance of this Agreement or any of the agreements
contemplated hereby, nor the performance of the transactions contemplated
hereby, will: (i) constitute a breach or violation of the Buyer's Charter or
bylaws; (ii) conflict with or constitute (with or without the passage of time or
the giving of notice) a breach of, or default under any material agreement,
instrument or obligation to which Buyer is a party or by which it or its assets
are bound which would materially affect the performance by Buyer of its
obligations under this Agreement; (iii) result in a violation of any Law or
Court Order applicable to Buyer.
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3.4 FINDER'S FEE. Buyer has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
ARTICLE 4. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligation of Buyer to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing the actions required by this Article 4 will have been accomplished:
4.1 NET WORTH. The net worth of Seller as at September 30, 1998, as
determined by Buyer, shall not be less than $572,000.
4.2 FIRPTA CERTIFICATE. At the Closing, Seller shall have delivered
to Buyer a certificate which satisfies the requirements of the regulations
under Section 1445 of the Internal Revenue Code of 1986, as amended.
4.3 ESCROW AGREEMENT. There shall have been executed and delivered
to Buyer an Escrow Agreement in substantially the form of EXHIBIT A hereto
(the "Escrow Agreement") pursuant to which $100,000 of the Purchase Price
shall be deposited in escrow subject to the provisions thereof.
4.4 RELEASE OF LIENS, SECURITY INTERESTS AND OTHER ENCUMBRANCES. Seller
shall have delivered to Buyer evidence satisfactory to Buyer and its counsel
that Seller is able to deliver good title to the Subject Assets free and clear
of all Encumbrances of any nature whatsoever (after application of a portion of
the Purchase Price to satisfy and discharge any such Encumbrances, if necessary,
except Encumbrances permitted by Buyer to remain at the Closing) at or prior to
Closing.
4.5 THIRD PARTY CONSENTS. Seller shall have delivered to Buyer all
consents of third parties necessary to effectuate the transactions contemplated
hereby including under any contracts and leases.
4.6 OPINION OF SELLER'S COUNSEL. Ferguson, Case, Orr, Paterson &
Cunningham, LLP, 1050 South Kimball Road, Ventura, California, counsel to
Seller, shall have delivered to Buyer an opinion in the form of EXHIBIT B
hereto.
4.7 NONCOMPETITION AGREEMENT. Stockholder shall have executed and
delivered a noncompetition agreement in substantially the form of EXHIBIT C
hereto.
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ARTICLE 5. CONDITIONS TO OBLIGATION OF SELLER.
The obligation of Seller to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing, the actions referred by this Article 6 will have been accomplished:
5.1 PURCHASE PRICE. The Initial Purchase Price shall have been paid in
accordance with the provisions of Section 1.3.
5.2 ESCROW AGREEMENT. Buyer shall have executed and delivered to
Seller, the Escrow Agreement and shall have deposited $100,000 in escrow.
5.3 CONSENT OF LANDLORD. Seller shall have received the consent of the
Landlord for the real property upon which Seller's business operates to the
assignment of the lease to Buyer.
ARTICLE 6. INDEMNIFICATION.
6.1 DEFINITIONS For purposes of this Article 6:
"Losses" means all losses, damages (including, without limitation,
punitive and consequential damages), fines, penalties, liabilities, payments and
obligations, and all expenses related thereto. Losses shall include any
reasonable legal fees and costs incurred by any of the Indemnified Persons
subsequent to the Closing in defense of or in connection with any alleged or
asserted liability, payment or obligation, whether or not any liability or
payment, obligation or judgment is ultimately imposed against the Indemnified
Persons and whether or not the Indemnified Persons are made or become parties to
any such action.
"Buyer's Indemnified Persons" means the Buyer, its parent, subsidiary
and affiliated corporations, their respective directors, officers, employees,
stockholders and agents, the Company after the Closing, and any person serving
as a director, officer, employee or agent of the Company at Buyer's request
after the Closing.
"Indemnified Person" means any person entitled to be indemnified under
this Article 6.
"Indemnifying Person" means any person obligated to indemnify another
person under this Article 6.
"Sellers' Indemnified Persons" means Seller, its officers, directors,
employees, Stockholder, and agents either before or after the Closing.
"Third Party Action" means any written assertion of a claim, or the
commencement of any action, suit, or proceeding, by a third party as to which
any person believes it may be an Indemnified Person hereunder.
6.2 INDEMNIFICATION BY SELLER.
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(a) Subject to the limitations in paragraph (b) below, Seller and,
solely to the extent the Purchase Price (including the Escrow Fund and any
income received thereon) is distributed by Seller to Stockholder , Stockholder,
jointly and severally agree to defend, indemnify and hold harmless Buyer's
Indemnified Persons from and against all Losses directly or indirectly incurred
by or sought to be imposed upon any of them:
(i) resulting from or arising out of any breach of any of the
representations or warranties (other than those in Sections 2.1, 2.2, 2.10 and
2.11) made by the Seller or Stockholder in or pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto or
in connection with the Closing;
(ii) resulting from or arising out of any breach of any of the
representations or warranties made by Seller or Stockholder pursuant to Sections
2.1, 2.2, 2.10 and 2.11;
(iii) resulting from or arising out of any breach of any
covenant or agreement made by Seller or Stockholder in or pursuant to this
Agreement;
(iv) in respect of any liability or obligation of Seller which
Buyer has not expressly assumed hereunder, including the Retained Liabilities;
(v) resulting from or arising out of any liability, payment or
obligation arising out of any litigation or similar matter required to be
described on SCHEDULE 2.22;
(vi) resulting from or arising out of the intentional
misrepresentation or breach of warranty of Seller or Stockholder or any
intentional failure of the Company or any Seller to perform or comply with any
covenant or agreement of the Company or any Seller, respectively;
(vii) resulting from or arising out of any liability, payment
or obligation in respect of any taxes owing by Seller or Stockholder of any kind
or description (including interest and penalties with respect thereto) for all
periods, or portions thereof, up to and including the Closing Date with respect
thereto on the Base Balance Sheet and except as otherwise contemplated by
Section 1.7 hereof;
(viii) resulting from or arising out of any third party
action, whether by a governmental authority or other third party for damages,
including fines or penalties, or clean-up costs or other compliance costs under
any Environmental Law or from the violation of any Environmental Law arising out
of the operations of the Company on or before the Closing Date;
(ix) resulting from or arising out of any Benefit Plan;
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(x) resulting from or arising out of the failure to comply
with the so-called "bulk sales" act applicable in the State of California in
connection with this Agreement and the transactions contemplated hereby; or
(xi) resulting from or arising out of any Third Party Action
(including a binding arbitration or an audit by any taxing authority), that it
is instituted or threatened against any of Buyer's Indemnified Persons.
(b) The right to indemnification under paragraph (a) is subject to
the following limitations:
(i) Seller and Stockholder shall have no liability under
paragraph (a) unless one or more of the Buyer's Indemnified Persons gives
written notice to the Sellers asserting a claim for Losses, including reasonably
detailed facts and circumstances pertaining thereto, before the expiration of
the period set forth below:
(A)for claims under clauses (i), (v), (ix) and (xi)
(insofar as a claim under clause (xi) relates to any matter included under
clause (i), (v) or (ix)) of paragraph (a) above, a period of two (2) years from
the Closing Date;
(B)for claims under clauses (iii), (vii), (viii), (ix) and
(xi) (insofar as a claim under clause (xi) relates to any matter included under
clause (iii), (vii), (viii) or (x)) of paragraph (a) above, for so long as any
claim may be made in respect of such matters under any applicable statute of
limitations, as it may be extended; and
(C)for claims under clauses (ii), (iv) and (vi) of
paragraph (a) above, without limitation as to time;
except that, for any claim based upon a covenant or undertaking which by its
terms is to be performed after the Closing, then the period above shall commence
on the date when such covenant or agreement should have been performed.
6.3 INDEMNIFICATION BY BUYER.
(a) Subject to the limitations in paragraph (b) below, from and
after the Closing Date, Buyer shall defend, indemnify and hold harmless Sellers'
Indemnified Persons from any and all Losses directly or indirectly incurred by
or sought to be imposed upon them:
(i) resulting from or arising out of any breach of any of the
representations or warranties made by Buyer in or pursuant to this Agreement or
in any agreement, document or instrument executed and delivered pursuant hereto
or in connection with the Closing;
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(ii) resulting from or arising out of any breach of any
covenant or agreement made by Buyer in or pursuant to this Agreement;
(iii) arising out of, resulting from, or in any way related to
Buyer's conduct or operation of the business sold by Seller to Buyer hereunder
after the Closing;
(iv) resulting from or arising out of any Third party Action
(including a binding arbitration or an audit by any taxing authority), that is
instituted or threatened against any of Seller's Indemnified Persons.
(b) Buyer shall have no liability under paragraph (a) above unless
a Sellers' Indemnified Person gives written notice to Buyer asserting a claim
for Losses, including reasonably detailed facts and circumstances pertaining
thereto, before the expiration of the period set forth below:
(i) for claims under clause (i) of paragraph (a) above, two
(2) years from the Closing Date; and
(ii) for claims under clauses (ii), (iii) and (iv) of
paragraph (a) above, for so long as any claim may be made in respect of such
matters under any applicable statute of limitations as it may be extended.
6.4 DEFENSE OF THIRD PARTY ACTIONS.
(a) Promptly after receipt of notice of any Third Party Action, any
person who believes he, she or it may be an Indemnified Person will give notice
to the potential Indemnifying Person of such action. The omission to give such
notice to the Indemnifying Person will not relieve the Indemnifying Person of
any liability hereunder unless it was prejudiced thereby, nor will it relieve it
of any liability which it may have other than under this Article 6.
(b) Upon receipt of a notice of a Third Party Action, the
Indemnifying Person shall have the right, at its option and at its own expense,
to participate in and be present at the defense of such Third Party Action, but
not to control the defense, negotiation or settlement thereof, which control
shall remain with the Indemnified Person, unless the Indemnifying Person makes
the election provided in paragraph (c) below.
(c) By written notice within forty-five (45) days after receipt of
a notice of a Third Party Action, an Indemnifying Person may elect to assume
control of the defense, negotiation and settlement thereof, with counsel
reasonably satisfactory to the Indemnified Person; provided, however, that the
Indemnifying Person agrees (i) to promptly indemnify the Indemnified Person for
its expenses to date, and (ii) to hold the Indemnified Person harmless from and
against any and all Losses caused by or arising out of any settlement of the
Third Party Action approved by the Indemnifying Person or any judgment in
connection with that Third Party Action. The Indemnifying Persons shall not in
the defense of the Third Party Action enter
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into any settlement or consent to entry of any judgment except with the consent
of the Indemnified Person, which consent shall not be unreasonably withheld.
(d) Upon assumption of control of the defense of a Third Party
Action under paragraph (c) above, the Indemnifying Person will not be liable to
the Indemnified Person hereunder for any legal or other expenses subsequently
incurred in connection with the defense of the Third Party Action, other than
reasonable expenses of investigation.
(e) If the Indemnifying Person does not elect to control the
defense of a Third Party Action under paragraph (c), the Indemnifying Person
shall promptly reimburse the Indemnified Person for expenses incurred by the
Indemnified Person in connection with defense of such Third Party Action, as and
when the same shall be incurred by the Indemnified Person.
(f) Any person who has not assumed control of the defense of any
Third Party Action shall have the duty to cooperate with the party which assumed
such defense.
6.5 MISCELLANEOUS.
(a) Buyer's Indemnified Persons shall be entitled to
indemnification under Section 6.2(a) and Sellers' Indemnified Persons shall be
entitled to indemnification under Section 6.3(a), regardless of whether the
matter giving rise to the applicable liability, payment, obligation or expense
may have been previously disclosed to any such person unless expressly disclosed
in this Agreement on each particular Schedule requiring such disclosure.
(b) If any Loss is recoverable under more than one provision
hereof, the Indemnified Person shall be entitled to assert a claim for such Loss
until the expiration of the longest period of time within which to assert a
claim for Loss under any of the provisions which are applicable.
(c) Buyer may, at its options, recover any amount owing by the
Sellers for indemnification hereunder by setoff against any amounts that may
otherwise be due from the Buyer or the Company to the Sellers, or any of them,
whether hereunder or otherwise; provided that Buyer shall not be required to
recover such claims in such manner and may proceed against the Indemnified Party
at any time or times for recovery of indemnification claims.
6.6 PAYMENT OF INDEMNIFICATION. Claims for indemnification under this
Article 6 shall be paid or otherwise satisfied by Indemnifying Persons within
thirty (30) days after notice thereof is given by the Indemnified Person. Any
amount which may become due and payable to any of the Buyer's Indemnified
Persons under Section 6.2(a) shall first be paid or otherwise satisfied out of
the Escrow Fund until the same has been exhausted. Any claims in excess of the
Escrow Fund may be satisfied by whatever remedy is available at law or equity.
6.7 EXCLUSIVE REMEDY. The indemnification provisions of this Article 6
shall constitute the sole and exclusive remedy of Buyer for any breach of any
representation or warranty or for any failure to perform any covenant or
agreement or for any other claim for
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Losses or otherwise arising out of the transactions contemplated hereby, and the
Buyer waives any other remedy which it or any other person entitled to
indemnification hereunder may have at law or in equity with respect thereto.
ARTICLE 7. MISCELLANEOUS.
7.1 FEES AND EXPENSES. Each of the parties will bear its own expenses
in connection with the negotiation and the consummation of the transactions
contemplated by this Agreement and no expenses of Seller or stockholder relating
in any way to the purchase and sale of the Subject Assets hereunder shall be
charged to or paid by Buyer. Buyer and Seller shall share equally the California
state, county and local bulk transfer tax payable in connection with the
transactions contemplated by this Agreement.
7.2 BULK SALES LAW. Buyer waives compliance with the provisions of the
California Commercial Code relating to bulk transfers in connection with this
sale of assets, subject to the indemnities of Seller contained in this
Agreement. Nothing in this section will estop or prevent either Buyer or Seller
from asserting as a bar or defense to any action or proceeding brought under
that law that it does not apply to the sale contemplated under this Agreement..
7.3 NOTICES. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing addressed as provided
below and if either (a) actually delivered electronically or physically at said
address (provided that if said address is a business, delivery is made during
normal business hours), or (b) in the case of a letter, three business days
shall have elapsed after the same shall have been deposited in the United States
mail, postage prepaid and registered or certified, return receipt requested, or
(c) forty eight (48) hours shall have elapsed after the same shall have been
sent by nationally recognized overnight receipted courier:
If to Seller, to:
Pacific Foam Technologies, Inc.
130 South Ventura Avenue
Ventura, California 93001
Attn: Scott Daley
Telephone: 805 641-9321
Facsimile: 805 641-9403
with a copy to:
Ferguson, Case, Orr, Paterson & Cunningham LLP
1050 South Kimball Road
Ventura, CA 93004
Attn: William Smith, Esquire
Telephone: 805 659-6800
Facsimile: 805 659-6818
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If to the Buyer, to:
UFP Technologies, Inc.
172 East Main Street
Georgetown, MA 01833
Attn: R. Jeffrey Bailly
Tel: 978 352-2200
Fax: 978 352-5616
with a copy to:
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
Attn: Gordon R. Penman, Esquire
Telephone: (617) 856-8200
Facsimile: (617) 852-8201
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
7.4 CONFIDENTIALITY. The parties agree that they will keep confidential
and not disclose or divulge any confidential, proprietary or secret information
which they may obtain from Seller or the Buyer in connection with the
transactions contemplated herein, or pursuant to inspection rights granted
hereunder, or any terms hereof, unless such information is or hereafter becomes
public information and except as otherwise required by law. This provision shall
survive the Closing of the transactions contemplated hereby.
7.5 ENTIRE AGREEMENT. This Agreement (including all exhibits or
schedules appended to this Agreement and all documents delivered pursuant to or
referred to in this Agreement, all of which are hereby incorporated herein by
reference) constitutes the entire agreement between the parties, and all
promises, representations, understandings, warranties and agreements with
reference to the subject matter hereof and inducements to the making of this
Agreement relied upon by any party hereto, have been expressed herein or in the
documents incorporated herein by reference.
7.6 SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision hereof.
7.7 ASSIGNABILITY. Neither this Agreement nor any right to the payment
of money or other obligations hereunder may be assigned by Seller without the
prior written consent of the Buyer. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns.
7.8 AMENDMENT. This Agreement may be amended only by a written
agreement executed by Buyer and Seller.
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7.9 GOVERNING LAW . This Agreement shall be governed by and construed
in accordance with the laws of the State of California (other than the choice of
law principles thereof), except that any representations and warranties with
respect to real and tangible property shall be governed by and construed in
accordance with the laws of the jurisdiction where such property is situated.
7.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
7.11 EFFECT OF TABLE OF CONTENTS AND HEADINGS. Any table of contents,
title of an article or section heading herein contained is for convenience of
reference only and shall not affect the meaning or construction of any or the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed by their duly authorized representatives in
multiple counterparts as of the date set forth above.
BUYER:
UFP TECHNOLOGIES, INC.
By:
--------------------------------------
Name: R. Jeffrey Bailly
Title: President
By:
--------------------------------------
Name:
Title: Assistant Secretary
SELLER:
PACIFIC FOAM TECHNOLOGIES, INC.
By:
--------------------------------------
Name: Scott Daley
Title: President
By:
--------------------------------------
Name:
Title:
-30-
<PAGE>
STOCKHOLDER:
-----------------------------------------
Scott Daley
-31-
<PAGE>
ASSETS FOR CASH PURCHASE AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
ITEM DESCRIPTION
<S> <C>
Schedule 2.1 Charter Documents of Seller
Schedule 2.2 Capitalization of Seller
Schedule 2.3 Subsidiaries
Schedule 2.5 Present Defaults and Violations
Schedule 2.6 Conflicts; Third Party Consents
Schedule 2.7(a) Financial Statements
Schedule 2.7(b) Auditor's Letters
Schedule 2.8 Undisclosed Liabilities
Schedule 2.9 Changes Since Base Balance Sheet Date
Schedule 2.10 Taxes
Schedule 2.11(a) Property, Leases and Equipment
Schedule 2.11(d) Machinery and Equipment
Schedule 2.13 Receivable
Schedule 2.14 Inventory
Schedule 2.15 Intellectual Property Rights
Schedule 2.16(a) Contracts
Schedule 2.16(b) Contract Defaults
Schedule 2.16(c) Burdensome Agreements
</TABLE>
-32-
<PAGE>
<TABLE>
<S> <C>
Schedule 2.16(d) Customers and Suppliers
Schedule 2.16(e) Backlog
Schedule 2.17 Labor and Employee Relations
Schedule 2.18 Benefit Plans
Schedule 2.19 Environmental Matters
Schedule 2.20 Government Authorizations
Schedule 2.21 Warranty Claims; Returns
Schedule 2.22 Litigation
Schedule 2.23 Insurance
Exhibit A Escrow Agreement
Exhibit B Legal Opinion of Seller's Counsel
Exhibit C Noncompetition Agreement
</TABLE>
-33-
<PAGE>
Exhibit 10.21
THIRD AMENDMENT TO LEASE - Kissimmee, Florida
THIS AMENDMENT is made this 26th day of August, 1998 by and between UNITED
DEVELOPMENT COMPANY LIMITED, a Florida limited partnership having a principal
place of business at 2175 Partin Settlement Road, Kissimmee, Florida 32743
(hereinafter called "Landlord") and UFP TECHNOLOGIES, INC., a Delaware
corporation having a principal place of business at 172 East Main Street,
Georgetown, Massachusetts 01833 (hereinafter called "Tenant").
WHEREAS, Landlord and Tenant entered into and executed a lease dated as of
April 1, 1986, as extended and amended on August 1,1991 and Aug. 1, 1996, (the
"Lease") for the Premises (as hereinafter defined) as more particularly
described therein;
WHEREAS, Landlord and Tenant mutually desire to amend and further extend
the Lease;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth
and of ONE DOLLAR and other good and valuable consideration, Landlord and Tenant
hereby agree to amend and do hereby amend the, effective as of July 1, 1998,
Lease as follows:
1. The definition of "Premises" in Section 1.02 is deleted in its entirety
and replaced with the following:
Premises. Approximately 37,400 sq. feet of space in the Building.
The Land and Building together are sometimes referred to as the
"Property."
2. Article 3 of the Lease is deleted in its entirety and replaced with the
following:
Term. The current extension of the Term of this Lease commenced on
July 1, 1998 and shall end at midnight, December 31, 2001, both
dates inclusive, unless extended or sooner terminated under the
provisions hereof; provided, however, that Tenant, at its sole
option, may elect to further extend said Term for one additional
3-year period (commencing on January 1, 2002 and ending at midnight
on December 31, 2005), the Basic Rent for such extended period to be
the lesser of (a) the fair market rent as of January 1, 2002, as
agreed upon by the parties, or, failing such agreement, established
pursuant to a commercially reasonable arbitration proceeding; and
(b) the rent for the current extension Term (as established in
Paragraph 3 of this Third Amendment) increased by the increase from
July 1, 1998 to December 31, 2001 in the Consumer Price Index (All
Items; Base 1982-84 = 100), published by the United States
Department of Labor, Bureau of Labor Statistics, for the area in
which the Premises are located.
3. Section 4.02 of the Lease is deleted in its entirety and replaced with
the following:
Computation of Basic Rent. The Basic Rent for the current extension
of the Lease Term shall be the sum of $129,600 per annum.
4. Section 6.04 is deleted in its entirety and replaced with the
following:
Increases in Taxes. Tenant shall pay to Landlord during the Lease
Term, as Additional Rent, within thirty (30) days of written demand
therefor from Landlord, Tenant's Share of the amount by which the
Taxes assessed against the Property during any tax fiscal year (as
reduced by abatements) exceeds twenty-five thousand dollars
($25,000). If any extension Term shall terminate without fault of
the Tenant
<PAGE>
prior to the end of the then current tax fiscal year, then said
amount payable by Tenant shall be prorated.
5. Article 8 is deleted in its entirety and replaced with the following:
ARTICLE 8
EXTERIOR MAINTENANCE
8.01 Tenant shall at Tenant's expense perform all needed periodic
maintenance and minor repairs to the exterior of the Building and
the structural elements thereof (including but not limited to
foundation, walls, roof, and the like). Tenant shall at Tenant's
expense perform all needed landscaping.
8.02 Landlord shall at Landlord's expense perform all replacements
of and major repairs to the Building and the structural elements
thereof (including but not limited to foundation, walls, roof, and
the like).
6. Section 15.01 is deleted in its entirety and replaced with the
following:
Insurance. Tenant shall, as Additional Rent, take out
and maintain throughout the Term the following insurance protecting
Landlord and Tenant as named insureds and with such additional
insureds as Landlord from time to time may designate, in such
amounts and with such insurance companies as Tenant deems
appropriate, subject to Landlord's reasonable approval: (a)
commercial general liability insurance with so-called "broad form"
endorsement insuring Landlord and Tenant against all claims and
demands for injury to or death of any person or damage to or loss of
property which may be claimed to have occurred on or about the
Property, with an initial combined single limit of at least
$2,000,000; (b) workers' compensation insurance with statutory
limits covering all of Tenant's employees working on the Property;
and (c) fire and casualty insurance with extended coverage on all
buildings and improvements now existing or hereafter erected upon
the Property. Policies for all such insurance shall, in case of
loss, be first payable to the holders of any mortgages on the
property under a standard non-contributing mortgagee's clause, and
shall be deposited with the holder of such mortgage or with
Landlord, as Landlord may elect.
Except as specifically amended hereby, the Lease remains in full force and
effect.
EXECUTED as a sealed instrument as of the date first written above.
TENANT: UFP TECHNOLOGIES, INC. LANDLORD: UNITED DEVELOPMENT COMPANY
LIMITED
BY: /s/ Ronald J. Lataille BY: /s/ Richard L. Bailly
--------------------------- ------------------------
Name: Ronald J. Lataille Name:
Its: Chief Financial Officer General Partner
<PAGE>
Exhibit 10.23
THIRD AMENDMENT TO LEASE - Decatur, Alabama
THIS AMENDMENT is made this ________ day of August, 1998 by and between
UNITED DEVELOPMENT COMPANY UNITED, a Florida limited partnership having a
principal place of business at 2175 Partin Settlement Road, Kissimmee, FL 32743
(hereinafter called "Landlord") and UFP TECHNOLOGIES, INC., a Delaware
corporation having a principal place of business at 172 East Main Street,
Georgetown, MA 01833 (hereinafter called "Tenant").
WHEREAS, Landlord and Tenant entered into and executed a lease dated as of
June 15, 1990, as extended and amended on December 31, 1992, January 1, 1996,
(the "Lease") for the Premises as more particularly described therein;
WHEREAS, Landlord and Tenant mutually desire to further amend and extend
the Lease and to make provisions for, without limitation, the construction of an
addition to the Building as more specifically described below;
NOW. THEREFORE, in consideration of the mutual covenants herein set forth
and of ONE DOLLAR and other good and valuable consideration, Landlord and Tenant
hereby agree to amend and do hereby amend the Lease, effective as of July 1,
1998, as follows:
1. The definitions of "Adjusted Basic Rent" and "Basic Rent" in Section
1.02 are deleted in their entirety.
2. The definition of "Building" in Section 1.02 is deleted in its entirety
and replaced with the following:
Building. The building containing approximately 36,000 square feet
of space (and any additions thereto or expansions thereof,
including, without limitation, the 11,250 square foot addition to be
completed in 1999 [the "Additional Space"]), located on the Land.
The Land and Building together are sometimes referred to as the
"Property."
3. Article 3. of the Lease is deleted in its entirety and replaced with
the following:
Term. The current extension of the Term of this Lease commenced on
July 1, 1998 and shall end at midnight, December 31, 2001, both
dates inclusive, unless extended or sooner terminated under the
provisions hereof; provided, however, that Tenant, at its sole
option, may elect to further extend said Term for one additional
3-year period (commencing on January 1, 2002 and ending at midnight
on December 31, 2005), the Basic Rent for such extended period to be
the lesser of (a) the fair market rent as of January 1, 2002, as
agreed upon by the parties, or, failing such agreement, established
pursuant to a commercially reasonable arbitration proceeding; and
(b) the rent for the current extension Term (as established in
Paragraph 3 of this Third Amendment) increased by the increase from
July 1, 1998 to December 31, 2001 in the Consumer Price Index (All
Items; Base 1982-84 = 100), published by the United States
Department of Labor, Bureau of Labor Statistics, for the area in
which the Premises are located.
-1-
<PAGE>
4. Section 4.02 of the Lease is deleted in its entirety and replaced with
the following:
Computation of Basic Rent. The Basic Rent for the current extension
of the Lease Term shall be the sum of $90,000 per annum; provided,
however, that upon completion of the Additional Space (which shall
be deemed to occur upon issuance of a Certificate of Occupancy by
the local authority having jurisdiction thereof), the Basic Rent
shall increase by $29,812.50 (calculated at $2.65 per square foot of
Additional Space) to a total of $119,812.50 per annum.
5. Section 6.02 is deleted in its entirety and replaced with the
following:
Increases in Taxes. Tenant shall pay to Landlord during the Lease
Term, as Additional Rent, within thirty (30) days of written demand
therefor from Landlord, the Taxes assessed against the Property
during any tax fiscal year (as reduced by abatements). If any
extension Term shall terminate without fault of the Tenant prior to
the end of the then current tax fiscal year, then said amount
payable by Tenant shall be prorated.
6. Article 8 is deleted in its entirety and replaced with the following:
ARTICLE 8
EXTERIOR MAINTENANCE
8.01 Tenant shall at Tenant's expense perform all needed periodic
maintenance and minor repairs to the exterior of the Building and
the structural elements thereof (including but not limited to
foundation, walls, roof, and the like). Tenant shall at Tenant's
expense perform all needed landscaping.
8.02 Landlord shall at Landlord's expense perform all replacements
of and major repairs to the Building and the structural elements
thereof (including but not limited to foundation, walls, roof, and
the like).
7. Section 15.01 is deleted in its entirety and replaced with the
following:
Insurance. Tenant shall, as Additional Rent, take out and maintain
throughout the Term the following insurance protecting Landlord and
Tenant as named insureds and with such additional insureds as
Landlord from time to time may designate, in such amounts and with
such insurance companies as Tenant deems appropriate, subject to
Landlord's reasonable approval: (a) commercial general liability
insurance with so-called "broad form" endorsement insuring Landlord
and Tenant against all claims and demands for injury to or death of
any person or damage to or loss of property which may be claimed to
have occurred on or about the Property, with an initial combined
single limit of at least $2,000,000; (b) workers' compensation
insurance with statutory limits covering all of Tenant's employees
working on the Property; (c) at all times during the course of any
construction or renovation of any improvements or alterations on the
Property, completed value form, "all physical loss," builder's risk
insurance on all work being performed on the Property; and (d) fire
and casualty insurance with extended coverage on all buildings and
improvements now existing or hereafter erected upon the Property.
Policies for all such insurance shall, in case of loss, be first
payable
-2-
<PAGE>
to the holders of any mortgages on the property under a standard
non-contributing mortgagee's clause, and shall be deposited with the
holder of such mortgage or with Landlord, as Landlord may elect.
Except as specifically amended hereby, the Lease remains in full farce and
effect.
EXECUTED as a sealed instrument as of the date first written above.
TENANT: UFP TECHNOLOGIES, INC. LANDLORD: UNITED DEVELOPMENT COMPANY
LIMITED
BY: /s/ Ronald J. Lataille BY: /s/ Richard L. Bailly
--------------------------- ------------------------
Name: Ronald J. Lataille Name: RICHARD L. BAILLY
Its: Chief Financial Officer General Partner
-3-
<PAGE>
NOTE
December 31, 1998 GEORGETOWN, MASSACHUSETTS
172 East Main Street, Georgetown, MA 01833
1. BORROWER'S PROMISE TO PAY
In return for a loan that UNITED DEVELOPMENT TRUST ("UDT") has
received, UDT promises to pay U.S.$99,750.00 (this amount is called
"principal"), plus interest, to the order of the Lender. The Lender is UFP
TECHNOLOGIES, INC. UDT understands that the Lender may transfer this Note.
The Lender, or anyone who takes this Note by transfer and who is entitled
to receive payments under this Note, is called the "Note Holder."
2. INTEREST
Interest will be charged on unpaid principal until the full amount
of principal has been paid. UDT will pay interest at a yearly rate of
9.75%.
The interest rate required by this Section 2 is the rate UDT will
pay both before and after any default described in Section 5 of this Note.
3. TIME AND PLACE OF PAYMENTS
UDT will pay principal and interest as per the attached debt
amortization schedule. UDT will make monthly payments at: 172 East Main
Street, Georgetown, MA 01833.
4. LOAN CHARGES
If a law, which applies to this loan and which sets maximum loan
charges, is finally interpreted so that the interest or other loan charges
collected or to be collected in connection with this loan exceed the
permitted limits, then (i) any such loan charge shall be reduced by the
amount necessary to reduce the charge to the permitted limit; and (ii) any
sums already collected from UDT, which exceeded permitted limits, will be
refunded to UDT. The Note Holder may choose to make this refund by
reducing the principal UDT owes under this Note, or by making a direct
payment to UDT. If a refund reduces principal, the reduction will be
treated as a partial prepayment.
5. BORROWER'S FAILURE TO PAY AS REQUIRED
(A) Late Charge for Overdue Payments
If the Note Holder has not received the full amount of payment by
the end of 30 calendar days after the date it is demanded for
payment, UDT will pay a late charge to the Note Holder. The amount
of the charge will be 3.0% of the overdue payment of principal and
interest.
(B) Default
If UDT does not pay the full amount of each monthly payment on the
date it is due, it will be in default.
(C) Notice of Default
If UDT is in default, the Note Holder may send UDT a written notice
telling it that if it does not pay the overdue amount by a certain
date, the Note Holder may require UDT to pay immediately the full
amount of principal, which has not been paid, and all the interest
that it owes on that amount. That date must be at least 30 days
after the date on which the notice is delivered or mailed to UDT.
(D) No Waiver By Note Holder
Even if, at a time when UDT is in default, the Note Holder does not
require UDT to pay immediately in full as described above, the Note
holder will still have the right to do so if UDT is in default at a
later time.
(E) Payment of Note Holder's Costs and Expenses
If the Note Holder has required UDT to pay immediately in full as
described above, the Note Holder will have the right to be paid back
by UDT for all of its costs and expenses in enforcing this Note to
the extent not prohibited by applicable law. Those expenses include,
for example, reasonable attorneys' fees.
over ->
<PAGE>
NOTE: Page 2
UFP Technologies, Inc. (Note Holder), 172 East Main Street, Georgetown, MA 01833
United Development Trust (Borrower)
- --------------------------------------------------------------------------------
6. GIVING OF NOTICE
Unless applicable law requires a different method, any notice that
must be given to UDT under this Note will be given by delivering it or by
mailing it by first class mail to UDT at the Property Address above, or at
a different address if UDT gives the Note Holder a different address.
Any notice that must be given to the Note Holder under this Note
will be given by mailing it by first class mail to the Note holder at the
address stated in Section 3(A) above, or at a different address if UDT is
given a notice of that different address.
7. THE NOTE IS SECURED BY A SECURITY INTEREST in the property located at 1528
Church Street, Decatur, AL 35602-1207. It is understood that this security
is subordinate to the first mortgage on said property.
WITNESS THE HAND(S) AND SEAL(S) OF THE UNDERSIGNED:
/s/ [Illegible] (Seal) (Seal)
- ----------------------------------- ---------------------------------
UNITED DEVELOPMENT TRUST ("UDT") SSN
GENERAL PARTNER
044223485
<PAGE>
UFP Technologies
UDT Debt Amortization
Month Year Principle Interest Total Balance
- ----- ---- --------- -------- ----- -------
Dec 1998 99,750.00
January 1999 1,296.53 810.47 2,107.00 98,453.47
February 1999 1,307.07 799.93 2,107.00 97,146.40
March 1999 1,317.69 789.31 2,107.00 95,828.72
April 1999 1,328.39 778.61 2,107.00 94,500.33
May 1999 1,339.18 767.82 2,107.00 93,161.14
June 1999 1,350.07 756.93 2,107.00 91,811.08
July 1999 1,361.04 745.96 2,107.00 90,450.04
August 1999 1,372.09 734.91 2,107.00 89,077.95
Septembe 1999 1,383.24 723.76 2,107.00 87,694.71
October 1999 1,394.48 712.52 2,107.00 86,300.22
November 1999 1,405.81 701.19 2,107.00 84,894.41
December 1999 1,417.23 689.77 2,107.00 83,477.18
January 2000 1,428.75 678.25 2,107.00 82,048.43
February 2000 1,440.36 666.84 2,107.00 80,608.08
March 2000 1,452.06 654.94 2,107.00 79,156.02
April 2000 1,463.86 643.14 2,107.00 77,692.16
May 2000 1,475.75 631.25 2,107.00 76,216.41
June 2000 1,487.74 619.26 2,107.00 74,728.67
July 2000 1,499.83 607.17 2,107.00 73,228.84
August 2000 1,512.02 594.98 2,107.00 71,716.82
Septembe 2000 1,524.30 582.70 2,107.00 70,192.52
October 2000 1,536.69 570.31 2,107.00 68,655.84
November 2000 1,549.17 557.83 2,107.00 67,106.66
December 2000 1,561.76 545.24 2,107.00 85,544.91
January 2001 1,574.45 532.55 2,107.00 63,970.46
February 2001 1,587.24 519.76 2,107.00 62,383.22
March 2001 1,600.14 506.86 2,107.00 60,783.08
April 2001 1,613.14 493.86 2,107.00 59,169.94
May 2001 1,626.24 480.76 2,107.00 57,543.70
June 2001 1,639.46 467.54 2,107.00 55,904.24
July 2001 1,652.78 454.22 2,107.00 54,251.46
August 2001 1,666.21 440.79 2,107.00 52,585.26
Septembe 2001 1,679.74 427.26 2,107.00 50,905.51
October 2001 1,693.39 413.61 2,107.00 49,212.12
November 2001 1,707.15 399.85 2,107.00 47,504.97
December 2001 1,721.02 385.98 2,107.00 45,783.95
January 2002 1,735.01 371.99 2,107.00 44,048.94
February 2002 1,749.10 357.90 2,107.00 42,299.84
March 2002 1,763.31 343.69 2,107.00 40,536.52
April 2002 1,777.64 329.36 2,107.00 38,758.88
May 2002 1,792.08 314.92 2,107.00 36,966.80
June 2002 1,806.64 300.36 2,107.00 35,160.16
July 2002 1,821.32 285.68 2,107.00 33,338.83
August 2002 1,836.12 270.88 2,107.00 31,502.71
Septembe 2002 1,851.04 255.96 2,107.00 29,651.67
<PAGE>
October 2002 1,866.08 240.92 2,107.00 27,785.59
November 2002 1,881.24 225.76 2,107.00 25,904.35
December 2002 1,896.53 210.47 2,107.00 24,007.82
January 2003 1,911.94 195.06 2,107.00 22,095.88
February 2003 1,927.47 179.53 2,107.00 20,168.41
March 2003 1,943.13 163.87 2,107.00 18,225.28
April 2003 1,958.92 148.08 2,107.00 16,266.36
May 2003 1,974.84 132.16 2,107.00 14,291.53
June 2003 1,990.88 116.12 2,107.00 12,300.64
July 2003 2,007.06 99.94 2,107.00 10,293.59
August 2003 2,023.36 83.64 2,107.00 8,270.22
Septembe 2003 2,039.80 67.20 2,107.00 6,230.42
October 2003 2,056.38 50.62 2,107.00 4,174.04
November 2003 2,073.09 33.91 2,107.00 2,100.95
December 2003 2,089.93 17.07 2,107.00 11.02
<PAGE>
Exhibit 10.38.10
THIRD AMENDMENT
TO
CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
July _______, 1998 is by among UFP TECHNOLOGIES, INC. ("UFP"), a Delaware
corporation having its principal place of business at 172 East Main Street,
Georgetown, Massachusetts 01833, MOULDED FIBRE TECHNOLOGY, INC. ("MFT"), A Maine
corporation having its principal place of business at 301 U.S. Route One,
Scarborough, Maine 04074 (UFP and MFT are collectively referred to herein as the
"Borrowers" and individually as a "Borrower") and BANKBOSTON, N.A., a national
bank with its head office at 100 Federal Street, Boston, Massachusetts 02110
(the "Bank").
WHEREAS, the Borrowers and the bank are parties to that certain Credit
Agreement dated as of June 30, 1995, as amended pursuant to a First Amendment
dated May 31, 1996, and a Second Amendment dated September 30, 1997 (as herein
amended, the "Credit Agreement"); and
WHEREAS, the Borrowers and the Bank have agreed, subject to the terms and
conditions set forth herein, to amend certain provisions of the Credit Agreement
as set forth herein;
NOW THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Borrowers and the Bank hereby agree to amend the
Credit Agreement as follows;
1. Amendment to 2.1 of the Credit Agreement. Section 2.1 is hereby amended
to exclude the reference to the Borrowing Base.
2. Amendment to 2.2(b) of the Credit Agreement. Section 2.2(b) is hereby
amended by replacing the principal amount of $5,000,000.00 with the principal
amount of $7,500,000.00.
3. Amendment to 9.1(a)(v) of the Credit Agreement. Section 9.1(a)(v) is
hereby amended by replacing "month" with "fiscal quarter".
4. Amendment to 9.3 (a) and (b) of the Credit Agreement. Sections 9.3 (a)
and (b) are hereby deleted in their entirety and the following substituted in
place thereof:
"(a) permit the ratio of Total Liabilities to Tangible Net Worth to
exceed 1.50 to 1.0 at the end of any fiscal quarter;
"(b) permit Tangible Net Worth to be less than $11,000,000.00 at any
time;
5. This Amendment shall become effective upon the satisfaction of each of
the following conditions:
(a) This amendment shall have been executed and delivered by the
respective parties hereto;
(b) The Borrowers shall have executed and delivered to the Bank a Third
Amended and Restated Note in the Form of Exhibit A hereto;
(c) Each of the Borrowers shall have delivered to the Bank certified
copies of corporate resolutions satisfactory to the Bank authorizing
this Amendment and the Third Amended and Restated Note.
(d) Each of the Borrowers shall have delivered to the Bank copies,
certified by a duly authorized officer of each Borrower to be true
and complete on the date hereof, of each
<PAGE>
of (i) its charter or other incorporation documents as in
effect on such date of certification, and (ii) its by-laws as
in effect on such date; and
(e) Each of the Borrowers shall have delivered to the Bank an
incumbency certificate, dated as of the date hereof, signed by
a duly authorized officer of the borrower, and giving the name
and bearing a specimen signature of each individual who shall
be authorized: (i) to sign, in the name and on behalf of such
Borrower each of the deocuments to which such Borrower is or is
to become a party; and (ii) to give notices and to take other
action on its behalf under the documents to which it is a party.
6. Except as expressly amended hereby, the Credit Agreement, the other
loan documents and all documents, instuments in all respects and shall continue
in full force and effect. This construed together as a single document, and all
references in the Credit Agreement shall hereafter refer to the Credit Agreement
as amended by the Amendment.
7. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A SEALED
INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
8. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which counterparts taken
together shall be deemed to constituted one and the same instrument complete
sets of counterparts shall be held by the Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal
this day of July, l998.
UFP TECHNOLOGIES, INC.
By: /s/ Ronald J. Lataille
----------------------------
Name: Ronald J. Lataille
Title: V.P. and Chief Financial Officer
MOULDED FIBRE TECHNOLOGY, INC.
By: /s/ Ronald J. Lataille
----------------------------
Name: Ronald J. Lataille
Title: V.P. and Chief Financial Officer
BANKBOSTON, N.A.
By: /s/ Randall Kutch
----------------------------
Name: RANDALL KUTCH
Title: DIRECTOR
2
<PAGE>
THIRD AMENDED AND RESTATED NOTE
$7,500,000 July , 1998
FOR VALUE RECEIVED, each of the undersigned UFP TECHNOLOGIES, INC.
("UFP"), a Delaware corporation, and MOULDED FIBRE TECHNOLOGY, INC. ("MFT"), a
Maine corporation (UFP and MFT are collectively referred to herein as the
"Borrowers"), hereby promises to pay to the order of BANKBOSTON, N.A., a
national bank (the "Bank") at the Bank's head office at 100 Federal Street,
Boston, MA 02110:
(a) prior to or on June 30, 1999 the principal amount of Seven
Million Five Hundred Thousand Dollars ($7,500,000) or, if less, the
aggregate unpaid principal amount of Loans advanced by the Bank to the
Borrowers pursuant to 2.1 of the Credit Agreement dated June 30, 1995, as
amended as of May 31, 1996, as amended as of September 30, 1997 and as
amended as of June , 1998 (as amended and in effect from time to time,
the "Credit Agreement"), among the Borrowers and the Bank;
(b) the principal outstanding hereunder from time to time at the
times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding from the Closing Date under the Credit Agreement through and
including the maturity date hereof at the times and at the rate provided
in the Credit Agreement.
This Note constitutes the third amendment and restatement in its entirety
of the note dated June 30, 1995 of the Borrowers to the bank.
This Note evidences borrowings under and has been issued by the Borrowers
in accordance with the terms of the Credit Agreement. The Bank and any holder
hereof is entitled to the benefits of the Credit Agreement, the Security
Documents and the other Loan Documents, and my enforce the agreements of the
Borrowers contained therein, and any holder hereof may exercise the respective
remedies provided for thereby or otherwise available in respect thereof, all in
accordance with the respective terms thereof. All capitalized terms used in this
Note and not otherwise defined herein shall have the same meanings herein as in
the Credit Agreement.
The Borrowers irrevocably authorized the Bank to make or cause to be made,
at or about the time of the Drawdown date of any Loan or at the time of receipt
of any payment of principal of this Note, and appropriate notation on the grid
attached to this Note, or the continuation of such grid, or any other similar
record, including computer records, reflecting the making of such Loan or (as
the case may be) the receipt of such payment. The outstanding amount of the
Loans set forth on the grid attached to this Note, or the continuation of such
grid, or any other similar record, including computer records, maintained by the
Bank with respect to any Loans shall be prima facie evidence of the principal
amount thereof owing and unpaid to the Bank, but the failure to record, or any
error in so recording, any such amount on any such grid, continuation or other
record shall not limit or otherwise affect the obligation of the Borrowers
hereunder or under the Credit Agreement to make payments of principal of and
interest on this Note when due.
The Borrowers have the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
<PAGE>
If any one or more of the Events of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank of such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
The Borrower and every endorser and guarantor of this note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment of any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND OBLIGATIONS OF THE BORROWERS HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND THE CONSENT TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWERS BY MAIL AT THE ADDRESS SPECIFIED IN THE CREDIT AGREEMENT. THE
BORROWERS HEREBY WAIVE ANY OBJECTIONS THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN ANY
INCONVENIENT COURT.
This Note shall be deemed to take effect as a sealed instrument under the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, each of the undersigned have caused this Note to be
signed in its respective corporate name and its respective corporate seal to be
impressed thereon by its duly authorized officer as of the day and year first
above written.
UFP TECHNOLOGIES, INC.
By: /s/ Ronald J. Lataille
----------------------------
Name: Ronald J. Lataille
Title: V.P. and Chief Financial Officer
MOULDED FIBRE TECHNOLOGY, INC.
By: /s/ Ronald J. Lataille
----------------------------
Name: Ronald J. Lataille
Title: V.P. and Chief Financial Officer
2
<PAGE>
[Letterhead of KMPG Peat Marwick LLP}
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
UFP Technologies, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-2248, 333-56741, and No. 33-76440) on Form S-8 of UFP Technologies, Inc. of
our report dated February 25, 1999, relating to the consolidated balance sheets
of UFP Technologies, Inc. and subsidiary as of December 31, 1998 and 1997, and
the related statements of income, stockholders' equity, and cashflows and the
related schedule for each of the years in the three-year period ended December
31, 1998, which report appears in the December 31, 1998 annual report on Form
10-K of UFP Technologies, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
March 29, 1999
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<PAGE>
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