<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(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, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934)
For the transition period from __________ to ____________.
Commission File Number : 001-12648
UFP TECHNOLOGIES, INC.
-------------------------------------------------
(Exact Name of Company as Specified in Its Charter)
DELAWARE 04-2314970
-------- ----------
(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
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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
- --- ----
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 22, 2000, was
$11,877,858 based on the closing price of $2.75 on that date on the Nasdaq
National Market. As of February 22, 2000, 4,319,221 shares 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 2000 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.
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UFPT 1999 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 UFP Technologies, Inc. (the "Company" or "UFPT") 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 Item 7 of this report 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
The Company 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 January 14, 2000, the Company purchased all of the
outstanding common stock of Simco Industries, Inc. ("Simco"), located in
Roseville, Michigan. Simco is a full-service supplier of automotive trim
components using their proprietary Superformed-Registered Trademark- process. In
addition, they operate a pattern making and tooling facility also focused on the
automotive interior market. This acquisition provides the Company with a key
Detroit area location as well as advanced molding capabilities.
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. 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
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UFPT 1999 10-K page 3
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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 custom 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"). In January 2000, the Company acquired
all of the outstanding common stock of Simco Industries, Inc. 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
subsidiaries, MFT and Simco. 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
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UFPT 1999 10-K page 4
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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 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
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UFPT 1999 10-K page 5
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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.
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
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UFPT 1999 10-K page 6
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well as the Company's ability to manufacture in clean room environments. The
Company's specialty products are sold primarily to customers in the automotive,
sporting goods, medical, beauty, leisure and footwear industries. These products
include components for automobiles and medical diagnostic equipment, 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.
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UFPT 1999 10-K page 7
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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 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.
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UFPT 1999 10-K page 8
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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 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
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UFPT 1999 10-K page 9
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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 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 16, 2000, and February 28, 1999
totaled approximately $8.7 million and $3.9 million, respectively, for the
Packaging segment, and $4.5 million and $4.9 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, 2000, the Company had a total of 660 full-time
employees in both the Specialty segment (20 in engineering, 286 in manufacturing
operations, 22 in marketing, sales and support services, and 31 in general and
administration) and in the Packaging segment (27 in engineering, 222 in
manufacturing, 25 in marketing, sales and support services, and 27 in general
and administration). These numbers include Simco Industries, Inc., which was
acquired on January 14, 2000; Simco's employees totaled 101. The Company is not
a party to any collective bargaining agreement. The Company considers its
employee relations to be good.
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
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<S> <C> <C> <C>
Georgetown, Massachusetts(5) 54,000 (owned Headquarters, fabrication, molding, test lab, clean-
by the room, and engineering for Specialty segment
Company)
</TABLE>
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UFPT 1999 10-K page 10
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<TABLE>
<CAPTION>
Lease
Square Expiration
Location Feet Date Principal Use
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<S> <C> <C> <C>
Decatur, Alabama(1 + 4) 47,250 12/31/01 Fabrication and engineering for Packaging segment
Pawcatuck, Connecticut 39,000 12/31/00 Fabrication and engineering for Packaging segment
Kissimmee, Florida(1 + 4) 49,400 12/31/01 Fabrication, molding, test lab, and engineering for
Packaging segment
Atlanta, Georgia 55,530 10/31/04 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 5/31/02 Molded fiber operations and engineering for Packaging segment
Clinton, Iowa 25,000 7/1/01 Molded fiber operations for Packaging segment
20,000 7/1/03
Addison, Illinois(3) 45,000 07/31/02 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None.
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UFPT 1999 10-K page 11
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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,
1998 to December 31, 1999:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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
FISCAL YEAR ENDED DECEMBER 31, 1999
First Quarter $ 4-1/2 $ 3
Second Quarter 4-1/2 3-3/8
Third Quarter 3-15/16 3-3/16
Fourth Quarter 3-1/2 2-1/4
</TABLE>
NUMBER OF STOCKHOLDERS
As of February 22, 2000, there were 133 holders of record of the
Company's Common Stock.
DIVIDENDS
The Company did not pay any dividends in 1999. 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.
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UFPT 1999 10-K page 12
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31
(in thousands, except per share data)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:(1) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $58,801 47,220 45,452 39,359 34,096
Gross profit 14,862 13,080 12,252 9,912 8,074
Operating income 3,279 3,174 2,934 2,094 1,095
Net income 1,693 1,647 1,309 1,262 888
Diluted earnings per share $ 0.35 0.34 0.27 0.26 0.19
Weighted average number of diluted
shares outstanding 4,896 4,830 4,863 4,874 4,734
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
CONSOLIDATED BALANCE SHEET DATA:(1) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 3,549 2,099 2,579 2,488 1,952
Total assets 31,867 29,949 25,195 22,900 20,795
Short-term debt and capital lease
obligations 6,011 5,060 3,525 2,455 3,257
Long-term debt and capital lease
obligations, excluding current portion 2,706 2,123 3,233 3,223 2,414
Total liabilities 15,659 14,053 11,062 10,170 9,356
Stockholders' equity $16,208 15,895 14,133 12,729 11,438
</TABLE>
(1) See Note 17 of Notes to Consolidated Financial Statements for segment
information
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
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UFPT 1999 10-K page 13
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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 elsewhere in this report 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
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.7 72.3 73.0
Gross profit 25.3 27.7 27.0
------ ------ ------
Selling, general and administrative expenses 19.7 21.0 20.5
Operating income 5.6 6.7 6.5
------ ------ ------
Total other expenses, net 0.8 0.8 1.4
Income before income taxes 4.8 5.9 5.1
------ ------ ------
Provision for income taxes 1.9 2.4 2.2
Net income 2.9 3.5 2.9
------ ------ ------
====== ====== ======
</TABLE>
1999 COMPARED TO 1998:
The Company's net sales increased 24.5% to $58.8 million for the year
ended December 31, 1999 from $47.2 million in the same period last year. The
increase in sales is primarily attributable to the acquisition of Pacific Foam
on November 30, 1998. In addition, a smaller component of the increase is
attributable to the commencement of the Woodbridge automotive project in the
fourth quarter of 1999.
Gross profit as a percentage of sales decreased to 25.3% in the year
ended December 31, 1999, from 27.7% in 1998. The decrease is primarily
attributable to lower gross margins at Pacific Foam, as well as automotive
program start-up costs.
Selling, General & Administrative Expenses ("SG&A") increased 16.9% to
$11.6 million in 1999, from $9.9 million in 1998. As a percentage of sales, SG&A
decreased to 19.7% in 1999 from 21.0% in 1998. The increase in SG&A dollars is
primarily attributable to the impact of Pacific Foam. The decrease in SG&A as a
percentage of sales reflects the economies of scale accompanying operations
growth.
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 14
<PAGE>
Interest expense increased approximately $194,000 to $641,000 in 1999,
from $447,000 in 1998 as a result of higher average borrowings primarily due to
financing of the Pacific Foam acquisition. In addition, interest expense
increased due to higher interest rates in 1999.
The Company's effective tax rate was 40.2% and 40.9% in 1999 and 1998
respectively.
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.
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 was 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 were primarily due to the acquisition of Pacific Foam
on November 30, continued systems enhancements, and additions to the management
team.
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 was 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.
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.
As of December 31, 1999 and 1998, working capital was $3,549,000 and
$2,099,000, respectively. The increase in working capital is primarily
attributable to increases in inventories and accounts receivable. Cash provided
from operations was $1,258,000 and $4,261,000 for 1999 and 1998, respectively.
Net cash used in investing activities was $2,992,000 and was used primarily for
capital expenditures of $1,949,000 and the repurchase of capital stock of
$1,603,000. Capital purchases in 1999 consisted primarily of foam cutting
equipment in our Packaging plants and the set-up of the Woodbridge production
facility.
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 15
<PAGE>
Including amounts due under the revolving credit facility and capital
lease obligations, the Company had total debt outstanding of $8,718,000 and
$7,184,000 at December 31, 1999 and 1998, respectively. The increase was
primarily attributable to the repurchase of capital stock of $1,603,000. The
Company has a $8,000,000 revolving bank line, of which $5,000,000 was
outstanding at December 31, 1999. Borrowings through the credit facility are
unsecured and bear interest at prime or LIBOR Plus 1.25%. In addition, the
Company has a $10,000,000 acquisition line of credit, of which $1,603,000 (for
the repurchase of capital stock) was outstanding as of December 31, 1999. At
December 31, 1999, the Company had capital lease obligations and other notes
payable of approximately $1,543,000 and $572,000, respectively. At December 31,
1999, the current portion of all debt, including the revolving bank loan, was
approximately $6,011,000. See Note 7 of Notes to the Consolidated Financial
Statements for further discussion of debt.
The Company acquired Simco Industries, Inc. on January 14, 2000, for
which additional borrowings of approximately $5,400,000 were made from the
$10,000,000 acquisition line of credit. The Company has no additional
significant capital commitments in 2000, 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 2000, 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 2000. However, there can be no
assurances that such financing will be available at favorable terms, if at all.
YEAR 2000 READINESS DISCLOSURE
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. Problems associated with the year 2000
may not become apparent until some time after January 2000.
The Company established a Year 2000 Compliance Committee (the "Committee)
which was comprised of members of senior management, finance, MIS, operations
and engineering. The committee's mandate was 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.
The Committee defined three categories of internal elements that were
subject to risk; computer hardware and software, manufacturing equipment and
building equipment. Computer hardware and software included networking,
operating and application software being used by the Company as well as those
that were planned to be installed prior to the year 2000, and the hardware
platforms upon which they operate. Manufacturing equipment included machinery
and equipment, owned or leased, that is used by the Company in the process of
manufacturing inventory for resale.
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 16
<PAGE>
Building equipment included all other devices that potentially have
microprocessing 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 included four distinct phases: Inventory, Assessment, Conversion and
Implementation. In the Inventory phase the Company identified the items within
each of the three previously defined elements. The Assessment phase included
identifying which of the items in the inventory were non-compliant. The items in
Inventory were assessed in an order of priority based upon the Committee's
opinion of their relative importance to the Company's operations.
In the Conversion phase the Company repaired or replaced those items that
were non-compliant. The Company substantially implemented new financial and
manufacturing software ("New Software"), throughout all of its plants, that is
Year 2000 compliant which resulted in compliance within the computer hardware
and software element. The Company did not identify a manufacturing machine that
was not Year 2000 compliant. In the Implementation phase, the Company put into
operation repaired or new devices that were Year 2000 compliant. On January 2,
2000, the Company tested all of its business critical computer hardware and
software, manufacturing equipment, and building equipment, and found all of them
to be functioning properly. Additionally, upon restarting operations, on January
3, 2000, no Year 2000 related failures were experienced.
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 evaluated the compliance status of its customers and third party
suppliers. No business interruption was experienced as a result of a failure of
key suppliers to provide materials, services, or other items. Also, no
interruptions in orders from key customers were experienced.
The Company included the cost of the new software in its financial
statements for 1999 and in its plan for 2000. The software and hardware costs
have been and will be capitalized and depreciated in compliance with the
Company's capitalization policy. Although the decision to implement the New
Software resolved the Year 2000 problem for the majority of the Company's
computer applications, it was made for operating reasons and was/is considered
normal capital expenditures. As a result, the Company did not incur material
costs above and beyond the cost of implementing the New Software.
The Company is substantially compliant, but can give no assurance as to
the ongoing readiness of its key material and service providers. The Company
completed a Contingency Plan (the "Plan") that addresses the operating issues in
the event that any of its material or service providers fail to perform. In
addition, the Plan addresses 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.
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 17
<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.
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, 1999, 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/or LIBOR) and, therefore, future operations could
be affected by interest rate changes; however, the Company believes that the
market risk of the debt is minimal.
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, 1999.
Effective May 21, 1999, the Company dismissed KPMG LLP as the
Registrant's independent accountants, and engaged Arthur Andersen LLP as its new
independent accountants.
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 18
<PAGE>
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.
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
<TABLE>
<CAPTION>
(A) (1) FINANCIAL STATEMENTS PAGE
<S> <C>
Index to Consolidated Financial Statements and Financial Statement
Schedules..........................................................................................F2
Independent Auditors' Report - 1999 ...............................................................F3
Independent Auditors' Reports - 1998 and 1997......................................................F4
Consolidated Balance Sheets as of December 31, 1999 and 1998.......................................F5
Consolidated Statements of Income for the years ended December 31,
1999, 1998, and 1997...............................................................................F6
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998, and 1997..................................................................F7
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, and 1997...............................................................................F8
Notes to Consolidated Financial Statements...................................................F9 - F25
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 19
<PAGE>
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts...................................................F26
</TABLE>
(A) (3) EXHIBITS
<TABLE>
<CAPTION>
Number Reference
------ ---------
<S> <C> <C>
2.01 Agreement and Plan of Reorganization among the Company, Moulded Fibre A-2.01**
Technology, Inc. and UFP Acquisition, Inc.
2.02 Agreement of Merger between Moulded Fibre Technology, Inc. and UFP C-2.02**
Acquisition, Inc.
2.03 Merger Agreement relating to the reincorporation of the Company in A-2.02
Delaware.
2.04 Asset Purchase Agreement relating to the purchase of FCE. I-2**
2.05 Asset Purchase Agreement relating to the purchase of the assets of O-2.05
Pacific Foam Technologies, Inc.
2.06 Stock Purchase Agreement dated January 14, 2000, relating to the P-2.01**
acquisition of the stock of Simco Industries, Inc. by the Company.
3.01 Certificate of Incorporation of the Company, as amended. F-3.01**
3.02 Bylaws of the Company. A-3.02**
4.01 Specimen Certificate for shares of the Company's Common Stock. A-4.01**
4.02 Description of Capital Stock (contained in the Certificate of A-4.02**
Incorporation of the Company, filed as Exhibit 3.01).
4.04 Rights Agreement (including the Certificate of J-4**
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 Note issued by the Company in favor A-10.02**
of Gloucester Bank & Trust Company.
10.06 Alabama Leasehold Mortgage of United Development Company Limited to A-10.06**
First American Bank.
10.07 Guaranty of the Company in favor of First American A-10.07**
Bank for the benefit of United
Development Company Limited.
10.08 Agreement between the Company and William H. Shaw. A-10.08**
10.09 Agreement and Severance Agreement between the Company and Richard L. A-10.09**
Bailly.
10.18 Employee Stock Purchase Plan. A-10.18**
</TABLE>
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 20
<PAGE>
<TABLE>
<CAPTION>
Number Reference
------ ---------
<S> <C> <C>
10.19 1993 Combined Stock Option Plan, as amended. K-4.5* **
10.20 1993 Nonemployee Director Stock Option Plan. B-4.5**
10.21 Facility Lease between the Company and United Development Company A-10.21**
Limited.
10.22 Facility Lease between the Company and Raritan Associates. A-10.22**
10.23 Facility Sublease between the Company and United Development Company A-10.23**
Limited.
10.25 Facility lease between the Company and Flanders Properties. A-10.25**
10.26 Amendment to facility lease between the Company and Flanders Properties. A-10.26**
10.27 Facility Lease between the Company and Dana Evans d/b/a Evans A-10.27**
Enterprises.
10.28 Facility Lease between Moulded Fibre Technology, Inc. and J.B. Brown & A-10.28**
Sons.
10.29 Facility Lease between the Company and Cole Taylor Bank, as G-10.29**
Trustee
10.30 Form of Indemnification Agreement for directors and officers of the A-10.30**
Company.
10.32 Promissory Note of United Development Company Limited in favor of the A-10.32**
Company.
10.33 Form of Representative's Warrant Agreement. A-10.33**
10.34 Facility Lease between Moulded Fibre Technology, Inc. and Lincoln C-10.34**
Gilroy II and Patrician Associates, Inc.
10.35 Facility Lease between the Company and M.D. Hodges Enterprises, Inc. D-10.35**
10.36 Facility Lease between Moulded Fibre Technology, Inc. and Dead River D-10.36**
Properties.
10.37 Facility Lease between the Company and Clinton Area Development G-10.37**
Corporation.
10.38.7 First Amendment to Credit Agreement, dated May 31, F-10.38.7**
1995, between the Company and BayBank.
10.38.8 Amended and Restated Revolving Credit Note, dated F-10.38.8**
May 31, 1996, between the Company and
BayBank.
10.38.9 Amended and Restated Equipment Note, dated May 31, F-10.38.9**
1996, between the Company and BayBank.
10.38.10 Third Amendment, dated July 6, 1998, to Credit 0-10.38.10
Agreement, dated May 31, 1995, between
the Company and BankBoston.
10.38.20 Loan Agreement, dated August 13, 1999, between the Filed herewith
Company and Citizens Bank of
Massachusetts
10.38.30 Supply Agreement, dated January 1, 1999, between Filed herewith
the Company and Woodbridge Foam
Corporation
</TABLE>
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 21
<PAGE>
<TABLE>
<CAPTION>
Number Reference
------ ---------
<S> <C> <C>
10.39 Employment Agreement with R. Jeffrey Bailly dated April 4, 1995. H-10.37**
10.40 1998 Director Stock Option Incentive Plan L**
10.41 1998 Employee Stock Purchase Plan. M**
10.42 Stock Repurchase Agreement Filed herewith
21.01 Subsidiaries of the Company. N-21.01**
23.01 Consent of Arthur Andersen LLP Filed herewith
23.02 Consent of KPMG LLP. Filed herewith
27.01 Financial Data Schedule. Filed herewith
</TABLE>
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.
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.
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 22
<PAGE>
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 by the Company's Annual Report
10-K for the fiscal year ended December 31, 1996. The number
set forth herein is the number of the exhibit in said Annual
Report.
O. Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998. The
number set forth herein is the number of the Exhibit in said
annual report.
P. Incorporated by reference to the Company's report on Form
8-K dated January 31, 2000. The number set forth herein is
the number of the Exhibit in said 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, 1999.
- --------------------------------------------------------------------------------
UFPT 1999 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 22, 2000 by: /s/ R. Jeffrey Bailly
----------------- ----------------------------
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ R. JEFFREY BAILLY President, Chief Executive, March 22, 2000
- --------------------------------
R. Jeffrey Bailly Officer and Director
/s/ WILLIAM H. SHAW Chairman of the Board of Directors March 22, 2000
- --------------------------------
William H. Shaw
/s/ RONALD J. LATAILLE Chief Financial Officer, Vice President, March 22, 2000
- --------------------------------
Ronald J. Lataille Principal Accounting Offer
/s/ RICHARD L. BAILLY Director March 22, 2000
- --------------------------------
Richard L. Bailly
/s/ WILLIAM C. CURRY Director March 22, 2000
- --------------------------------
William C. Curry
/s/ MICHAEL J. ROSS Director March 22, 2000
- --------------------------------
Michael J. Ross
/s/ KENNETH L. GESTAL Director March 22, 2000
- --------------------------------
Kenneth L. Gestal
/s/ T. GORDON RODDICK Director March 22, 2000
- --------------------------------
T. Gordon Roddick
/s/ PETER R. WORRELL Director March 22, 2000
- --------------------------------
Peter R. Worrell
</TABLE>
- --------------------------------------------------------------------------------
UFPT 1999 10-K page 24
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Financial Statements and Schedule
December 31, 1999 and 1998
With Independent Auditors' Report Thereon
UFPT 1999 10-K page F1
<PAGE>
UFP TECHNOLOGIES, INC.
Index to Consolidated Financial Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports F3 - F4
Consolidated Balance Sheets as of December 31, 1999 and 1998 F5
Consolidated Statements of Income for the years ended December 31, 1999, 1998
and 1997 F6
Consolidated Statements of Stockholders' Equity for the years ended
December 31,1999, 1998, and 1997 F7
Consolidated Statements of Cash Flows for the years ended December 31, F8
1999, 1998, and 1997
Notes to Consolidated Financial Statements F9 - F25
SCHEDULE
Schedule II - Valuation and Qualifying Accounts F26
</TABLE>
UFPT 1999 10-K page F2
<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, 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1999. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the schedule 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 consolidated financial position of
UFP Technologies, Inc. and subsidiary as of December 31, 1999, and the results
of their operations and their cash flows for the year ended December 31, 1999,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 18, 2000
UFPT 1999 10-K page F3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
UFP Technologies, Inc.:
We have audited the consolidated balance sheet of UFP Technologies,
Inc. and subsidiary as of December 31, 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the two-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 the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Boston, Massachusetts
February 25, 1999
UFPT 1999 10-K page F4
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
ASSETS 1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 348,729 512,356
Receivables, net 9,676,900 7,867,647
Inventories 5,191,890 4,091,770
Prepaid expenses 317,266 319,191
Deferred income taxes 220,676 369,000
------------ ------------
Total current assets 15,755,461 13,159,964
------------ ------------
Property, plant and equipment 21,650,486 20,025,618
Less accumulated depreciation and amortization (11,084,036) (9,086,763)
------------ ------------
Net property, plant and equipment 10,566,450 10,938,855
------------ ------------
Cash surrender value of officers' life insurance 293,579 218,027
Investment in and advances to affiliated partnership 214,745 218,524
Deferred income taxes 48,416 231,000
Goodwill, net 4,524,285 4,711,463
Other assets 464,427 471,009
------------ ------------
Total assets $ 31,867,363 29,948,842
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,000,000 4,150,000
Current installments of long-term debt 63,916 59,411
Current installments of capital lease obligations 947,429 851,042
Accounts payable 2,438,045 2,589,492
Accrued taxes and other expenses 3,757,412 3,410,929
------------ ------------
Total current liabilities 12,206,802 11,060,874
------------ ------------
Long-term debt, excluding current installments 2,111,076 568,678
Capital lease obligations, excluding current installments 595,232 1,554,647
Retirement and other liabilities 745,840 869,218
------------ ------------
Total liabilities 15,658,950 14,053,417
------------ ------------
Commitments and contingencies
Stockholders' equity
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 4,294,632 shares in 1999 and 4,707,354 shares in 1998 42,946 47,074
Additional paid-in capital 8,237,558 9,613,859
Retained earnings 7,927,909 6,234,492
------------ ------------
Total stockholders' equity 16,208,413 15,895,425
------------ ------------
Total liabilities and stockholders' equity $ 31,867,363 29,948,842
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
UFPT 1999 10-K page F5
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Net sales $ 58,801,063 47,220,174 45,452,232
Cost of sales 43,939,268 34,140,005 33,200,304
------------ ------------ ------------
Gross profit 14,861,795 13,080,169 12,251,928
Selling, general and administrative expenses 11,582,430 9,905,996 9,318,080
------------ ------------ ------------
Operating income 3,279,365 3,174,173 2,933,848
------------ ------------ ------------
Other income (expense):
Interest expense (640,763) (447,282) (649,269)
Equity in net income of unconsolidated
partnerships 22,013 20,904 15,227
Other, net 169,130 40,170 4,500
------------ ------------ ------------
Total other expense (449,620) (386,208) (629,542)
------------ ------------ ------------
Income before income tax
provision 2,829,745 2,787,965 2,304,306
Income tax provision 1,136,328 1,141,000 995,000
------------ ------------ ------------
Net income $ 1,693,417 1,646,965 1,309,306
============ ============ ============
Net income per share:
Basic $ 0.35 0.35 0.28
============ ============ ============
Diluted $ 0.35 0.34 0.27
============ ============ ============
Weighted average common shares:
Basic 4,808,640 4,682,210 4,655,586
============ ============ ============
Diluted 4,895,935 4,830,236 4,863,110
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
UFPT 1999 10-K page F6
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Equity
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<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, 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
------------ ------------ ------------ ------------ ------------
Sale of common stock through incentive
stock option plan 85,345 853 34,846 -- 35,699
Employee Stock Purchase Plan 28,985 290 78,151 -- 78,441
Stock retirement (18,052) (181) (77,387) -- (77,568)
Stock issued in lieu of compensation 61,000 610 185,514 -- 186,124
Stock repurchased (570,000) (5,700) (1,597,425) -- (1,603,125)
Net income -- -- -- 1,693,417 1,693,417
============ ============ ============ ============ ============
Balance at December 31, 1999 4,294,632 $ 42,946 $ 8,237,558 $ 7,927,909 $ 16,208,413
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
UFPT 1999 10-K page F7
<PAGE>
UFP TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,693,417 1,646,965 1,309,306
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,299,673 1,899,915 1,801,758
Equity in net income of unconsolidated affiliate and partnership (22,013) (20,904) (15,227)
Gain (loss) on disposal of property, plant and equipment (169,130) (40,170) 39,269
Stock issued in lieu of compensation 186,124 44,000 33,750
Deferred income taxes 330,908 156,000 410,000
Changes in operating assets and liabilities net of effects from
acquisition:
Receivables, net (1,809,253) (584,334) (135,336)
Inventories (1,100,120) (60,601) (172,738)
Prepaid expenses 1,925 (196,339) 212,148
Accounts payable (151,447) 308,615 (785,771)
Accrued taxes and other expenses 346,483 976,495 332,385
Retirement and other liabilities (164,498) 165,172 60,000
Cash surrender value of officers'life insurance (75,552) 134,550 (27,416)
Increase in other assets (108,640) (168,618) (23,352)
----------- ----------- -----------
Net cash provided by operating activities 1,257,877 4,260,746 3,038,776
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,948,968) (1,562,135) (2,436,224)
Acquisition of operating assets, less cash acquired -- (2,293,506) (1,512,879)
Capital stock repurchase (1,603,125) -- --
Payments received on advances to affiliated company 25,792 42,744 1,750
Proceeds from disposal of property, plant and equipment 534,350 290,170 4,500
----------- ----------- -----------
Net cash used in investing activities (2,991,951) (3,522,727) (3,942,853)
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings under notes payable 850,000 713,413 1,100,000
Proceeds from long-term borrowings 1,603,125 -- --
Proceeds from long-term capital leases -- -- 967,000
Proceeds from sale of common stock 36,572 71,250 60,662
Principal repayment of long-term debt (56,222) (359,077) (422,551)
Principal repayment of obligations under capital leases (863,028) (884,701) (711,113)
----------- ----------- -----------
Net cash (used in) provided by financing activities 1,570,447 (459,115) 993,998
----------- ----------- -----------
Net change in cash and cash equivalents (163,627) 278,904 89,921
Cash and cash equivalents at beginning of year 512,356 233,452 143,531
----------- ----------- -----------
Cash and cash equivalents at end of year $ 348,729 512,356 233,452
=========== =========== ===========
</TABLE>
UFPT 1999 10-K page F8
<PAGE>
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UFP Technologies, Inc. designs and manufactures a broad range of
packaging and specialty foam products for a variety of industrial and
consumer markets.
(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) INVENTORIES
Inventories which include material, labor, and manufacturing
overhead are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(c) 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:
<TABLE>
<CAPTION>
Leasehold improvements Estimated useful life or remaining lease
term, whichever is shorter
<S> <C>
Buildings and improvements 31.5 years
Equipment 8-10 years
Furniture and fixtures 5 -7 years
</TABLE>
(d) 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
UFPT 1999 10-K page F9
<PAGE>
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(e) SALES
Product sales are recorded at the time of shipment and when
persuasive evidence of an arrangement exists, the seller's price
to the buyer is fixed or determinable and collectabillity is
reasonably assured. If a loss is anticipated on any contract,
provision for the entire loss is made immediately. The Securities
and Exchange Commission released Staff Accounting Bulletin (SAB)
No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on December
3, 1999. This SAB provides additional guidance on the accounting
for revenue recognition, including both broad conceptual
discussions as well as certain industry-specific guidance. The
guidance is effective for the first quarter of fiscal 2000, and
would be adopted by recording the effect of any prior revenue
transaction affected as a "cumulative effect of a change in
accounting principle" as of January 3, 2000. The Company does not
expect this new guidance to have a material effect on the
Company's results of operations or financial position.
(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) INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and APB Opinion No.
17, INTANGIBLE ASSETS, the Company reviews long-lived assets and
all intangible assets (including goodwill) for impairment whenever
events or changes in circumstances indicate the carrying amount of
such assets may not be recoverable. Recoverability of these assets
is determined by comparing the forecasted undiscounted net cash
flows of the operation to which the assets relate, to the carrying
amount including associated intangible assets of such operation.
If the operation is determined to be unable to recover the
carrying amount of its assets, then intangible assets are written
down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on
discounted cash flows or appraised values, depending upon the
nature of the assets.
Goodwill is being amortized on a straight-line basis over a
20-year period. Accumulated amortization was $1,258,699 and
$972,799 as of December 31, 1999 and 1998, respectively.
UFPT 1999 10-K page F10
<PAGE>
(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) COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted the provisions
of SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which established
standards for reporting and display of comprehensive income and
its components. Comprehensive income is the total of net income
and all other non-owner changes in stockholders' equity.
Comprehensive income equaled net income for all periods presented.
(j) 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.
(k) SEGMENTS AND RELATED INFORMATION
In the fourth quarter of 1998, the Company adopted the provisions
of SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. The statement establishes standards for the
way that public business enterprises report information and
operating segments in annual financial statements and requires
reporting of selected information in interim financial reports.
(l) START-UP ACTIVITIES
During 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, REPORTING ON THE
COSTS OF START-UP ACTIVITIES. This statement requires a change in
the method of accounting for start-up costs on major projects to
expense these costs as incurred. Prior to this accounting change,
these costs could be capitalized. The impact of this accounting
change did not have a material effect on the Company's results of
operations or financial position.
(m) RECENT ACCOUNT PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 137,
Accounting For Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133, in
July 1999. SFAS No. 133 is now effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000; earlier
adoption is allowed. The statement requires companies to record
derivatives on the balance sheet as assets or
UFPT 1999 10-K page F11
<PAGE>
liabilities, measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it
qualifies for hedge accounting. The Company currently expects
that, due to its limited use of derivative instruments, the
adoption of SFAS No. 133 will not have a material effect on the
Company's results of operations or financial position.
(n) RECLASSIFICATIONS
Certain prior year account balances have been reclassified to
conform to the 1999 presentation.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest $623,855 512,190 541,270
-------- ------- -------
Income taxes $964,985 643,261 700,230
-------- ------- -------
</TABLE>
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 immaterial gain.
(3) RECEIVABLES
<TABLE>
<CAPTION>
December 31
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Accounts receivable - trade $ 9,615,088 8,031,561
Employee advances and other receivables 427,620 93,951
------------ ------------
10,042,708 8,125,512
Less allowance for doubtful receivables (365,808) (257,865)
------------ ------------
$ 9,676,900 7,867,647
============ ============
</TABLE>
UFPT 1999 10-K page F12
<PAGE>
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1999 1998
---- ----
<S> <C> <C>
Raw materials $3,296,702 2,634,482
Work in process 469,875 504,489
Finished goods 1,425,313 952,799
---------- ----------
$5,191,890 4,091,770
========== ==========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
----------------------------
1999 1998
---- ----
<S> <C> <C>
Land $ 85,319 85,319
Buildings and improvements 1,920,842 1,913,242
Leasehold improvements 1,451,999 1,268,551
Equipment 16,283,270 14,857,508
Furniture and fixtures 1,606,314 1,303,616
Construction in progress - equipment 302,742 597,382
----------- -----------
$21,650,486 20,025,618
=========== ===========
</TABLE>
(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
$22,013, $18,410, and $19,937 in 1999, 1998 and 1997, 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
On August 13, 1999, the Company entered into a new banking arrangement.
At December 31, 1999, the Company may borrow up to $8,000,000 under a
revolving line of credit at the bank's prime lending rate (8.5% at
December 31, 1999) or LIBOR plus 1.25% (6.8991% at December 31, 1999).
Amounts borrowed under this arrangement are due on demand and are
unsecured. At December 31, 1999 and 1998, borrowings under this
arrangement were
UFPT 1999 10-K page F13
<PAGE>
$5,000,000 and $4,150,000, respectively. The Company also may borrow up
to $10,000,000 under an "Acquisition" line of credit, with interest based
on the bank's prime lending rate of 8.5% or LIBOR plus 1.25% (see
Footnote 20 for further discussion of credit lines). Amounts under this
arrangement are payable on demand and are unsecured. At December 31,
1999, the Company had borrowings under this arrangement of $1,603,000.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
------------------------------------------
1999 1998
---- ----
<S> <C> <C>
8.76% mortgage note payable in monthly installments of
$8,759 including interest, maturing in 2007; secured by
real estate $ 571,867 628,089
Note payable - acquisition 1,603,125 -
------------------- --------------------
Total long-term debt 2,174,992 628,089
Less current installments 63,916 59,411
------------------- --------------------
Long-term debt, excluding current installments $ 2,111,076 568,678
=================== ====================
Aggregate maturities of long-term debt are as follows:
Year ending December 31:
2000 $ 63,916
2001 466,699
2002 470,000
2003 475,000
Thereafter 699,377
-------------------
$ 2,174,992
===================
(8) ACCRUED TAXES AND OTHER EXPENSES
Accrued taxes and other expenses consist of the following:
<CAPTION>
December 31
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Compensation $ 877,028 981,901
Benefits 612,949 723,018
Federal and state income tax 351,458 466,846
Paid time off 347,290 234,490
Workers Compensation 146,047 135,000
Other 1,422,640 869,674
------------------- -------------------
$ 3,757,412 3,410,929
=================== ===================
</TABLE>
UFPT 1999 10-K page F14
<PAGE>
(9) INCOME TAXES
The Company's income tax provision for the years ended December 31, 1999,
1998 and 1997 consists of:
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 587,000 830,000 454,000
State 218,000 155,000 131,000
-------------------- -------------------- --------------------
805,000 985,000 585,000
-------------------- -------------------- --------------------
Deferred:
Federal 327,000 145,000 360,000
State 4,000 11,000 50,000
-------------------- -------------------- --------------------
331,000 156,000 410,000
-------------------- -------------------- --------------------
Total income tax provision $ 1,136,000 1,141,000 995,000
==================== ==================== ====================
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards
for income tax purposes of approximately $2,044,000 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.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets related to:
Reserves not currently deductible 212,000 298,758
Compensation programs 9,000 71,196
Retirement liability 262,000 260,356
Net operating loss carryforwards 695,000 822,418
Other 58,000 33,704
-------------------- --------------------
1,236,000 1,486,432
-------------------- --------------------
Deferred tax liabilities related to:
Excess of book over tax basis of fixed assets 543,000 756,384
Investee tax loss in excess of book losses 121,000 130,048
Capital leases 303,000 -
-------------------- --------------------
967,000 886,432
-------------------- --------------------
Net deferred tax assets $ 269,000 $ 600,000
==================== ====================
</TABLE>
The amount recorded as net deferred tax assets as of December 31, 1999
and 1998 represents the amount of tax benefits of existing deductible
temporary differences or
UFPT 1999 10-K page F15
<PAGE>
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 $269,000
at December 31, 1999 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 $2,334,000,
$2,710,000, and $2,123,000 for the years ended December 31, 1999, 1998
and 1997, respectively. Management reviews the recoverability of deferred
tax assets during each reporting period.
Actual tax provision for the years presented differs from "expected" tax
provision 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
------------------------------------
1999 1998 1997
---- ---- ----
<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 5.2 3.9 4.2
Officers' life insurance 0.5 0.5 1.0
Amortization of goodwill 1.9 1.9 2.3
Other (1.4) 0.6 1.7
---------- ---------- ----------
Effective tax rate 40.2% 40.9% 43.2%
========== ========== ==========
(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:
<CAPTION>
Years ended December 31
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares outstanding during
the year 4,808,640 4,682,210 4,655,586
Weighted average common equivalent shares due to
stock options and employee stock purchase plan 87,295 148,026 207,524
----------------- ----------------- -----------------
4,895,935 4,830,236 4,863,110
================= ================= =================
</TABLE>
Diluted weighted average shares outstanding for 1999, 1998, and 1997,
exclude 316,517, 490,820, and 415,623 respectively, due to the fact that
the option prices were greater than the average market price of the
common stock.
UFPT 1999 10-K page F16
<PAGE>
(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, 1999, 549,194 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, 1999, 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, 1999, 48,200 options were outstanding under the
1998 Director Plan.
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.
UFPT 1999 10-K page F17
<PAGE>
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. As a result, 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:
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income as reported $ 1,693,417 $ 1,646,965 $ 1,309,306
Pro forma net income 1,338,621 1,322,286 1,016,768
Basic net income per share as reported 0.35 0.35 0.28
Pro forma basic net income per share 0.28 0.28 0.22
Diluted net income per share as reported 0.35 0.34 0.27
Pro forma diluted net income per share 0.27 0.27 0.21
</TABLE>
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 1999, 1998 and
1997, respectively: no dividend yield for each year; expected volatility
of 86%, 86% and 61%; risk-free interest rates of 6.7%, 4.7% and 6.16%;
and expected lives of 5.28, 5.59 and 4.6 years.
UFPT 1999 10-K page F18
<PAGE>
The following is a summary of stock option activity under all plans:
<TABLE>
<CAPTION>
Shares Weighted Average
Under Options Exercise Price
------------- ---------------
<S> <C> <C>
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 157,300 3.74
Exercised (30,000) 2.38
Canceled or expired (25,000) 4.28
------------------------
Outstanding at December 31, 1998 839,800 $ 3.52
Granted 182,844 3.69
Exercised (150,250) 2.16
Canceled or expired (220,000) 4.74
------------------------
Outstanding at December 31, 1999 652,394 $ 3.45
========================
The weighted-average fair value of options granted during 1999, 1998 and
1997 was $2.98, $2.70 and $1.92, respectively. As of December 31, 1999,
408,811 of the outstanding options were exercisable.
The following is a summary of information relating to stock options
outstanding at December 31, 1999:
<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 1999 contractual life exercise price 1999 price
------------ ------------------ ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$ 2-3 123,000 5.3 years $ 2.32 93,000 $ 2.12
3-4 411,450 4.7 years $ 3.45 250,700 $ 3.41
4-5 105,444 6.6 years $ 4.46 52,611 $ 4.40
5-6 0 0 years 0 0 0
6-7 12,500 6.5 years $ 6.13 12,500 $ 6.13
------------ -----------
652,394 5.1 years $ 3.45 408,811 $ 3.33
============ ===========
</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
UFPT 1999 10-K page F19
<PAGE>
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.
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. As of December 31, 1999, 570,000
shares have been repurchased for $1,603,125 and retired.
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 1999, 1998, and
1997 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 immaterial gain.
The Company has noncancelable operating leases for its other facilities
that expire through 2004 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 2002
UFPT 1999 10-K page F20
<PAGE>
Included in property, plant and equipment are the following amounts held
under capital lease:
<TABLE>
<CAPTION>
December 31
--------------------------------------
1999 1998
---- ----
<S> <C> <C>
Buildings and improvements $ - -
Equipment 3,726,320 3,759,937
----------------- -----------------
3,726,320 3,759,937
Less accumulated amortization (1,133,010) (800,737)
----------------- -----------------
$ 2,593,310 2,959,200
================= =================
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum lease payments under capital leases as of
December 31, 1999, are as follows:
<CAPTION>
Year ending December 31: Capital Leases Operating Leases
----------------- -----------------
<S> <C> <C> <C>
2000 1,021,867 1,524,052
2001 441,716 1,287,314
2002 193,400 724,786
2003 - 260,379
2004 - 148,083
-----------------
Total minimum lease payments 1,656,983 3,944,614
=================
Less amount representing interest 114,322
-----------------
Present value of future minimum lease payments 1,542,661
Less current installments of obligations under capital leases 947,429
-----------------
Obligations under capital lease, excluding current installments $ 595,232
=================
</TABLE>
Rent expense amounted to approximately $1,604,000, $1,270,000, and
$1,215,000 in 1999, 1998, and 1997, respectively. Approximately $250,000
of total rent expense was paid in 1999, and $220,000 in 1998 and 1997 to
a limited partnership that owns the Decatur, Alabama, and Kissimmee,
Florida, facilities. 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 $550,000, $500,000 and $455,000 in
1999, 1998 and 1997, respectively.
UFPT 1999 10-K page F21
<PAGE>
(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 1999 10-K page F22
<PAGE>
Financial statement information by reportable segment is as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Specialty Packaging Total
--------- --------- -----
<S> <C> <C> <C>
Sales $ 25,462,398 33,338,665 58,801,063
Operating income 251,015 3,028,350 3,279,365
Total assets 12,504,282 19,363,081 31,867,363
Depreciation / amortization 565,634 1,734,039 2,299,673
Capital expenditures 1,123,477 824,991 1,948,468
1998
---------------------------------------------------------
Specialty Packaging Total
--------- --------- -----
<S> <C> <C> <C>
Sales $ 14,218,460 33,001,714 47,220,174
Operating income 643,557 2,530,616 3,174,173
Total assets 10,415,991 19,532,851 29,948,842
Depreciation / amortization 304,482 1,595,433 1,899,915
Capital expenditures 251,395 1,310,740 1,562,135
1997
---------------------------------------------------------
Specialty Packaging Total
--------- --------- -----
<S> <C> <C> <C>
Sales $ 14,464,677 30,987,555 45,452,232
Operating income 780,323 2,153,525 2,933,848
Total assets 5,530,092 19,664,675 25,194,767
Depreciation / amortization 313,747 1,488,011 1,801,758
Capital expenditures 405,224 2,031,000 2,436,224
</TABLE>
UFPT 1999 10-K page F23
<PAGE>
(18) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Year ended 12/31/98
Net sales $ 10,749,960 $ 11,318,065 $ 12,661,734 $ 12,490,415
Gross profit 2,844,708 3,148,853 3,518,041 3,568,567
Net income 241,487 367,864 492,226 545,388
Basic net income per share 0.05 0.08 0.10 0.12
Diluted net income per share 0.05 0.08 0.10 0.11
Year ended 12/31/99
Net sales $ 13,476,067 $ 14,897,287 $ 14,439,589 $ 15,991,120
Gross profit 3,426,235 3,694,106 3,519,537 4,221,919
Net income 290,875 441,316 300,461 660,765
Basic net income per share 0.06 0.09 0.06 0.14
Diluted net income per share 0.06 0.09 0.06 0.14
</TABLE>
(19) 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.
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 acquisition was allocated on the basis of
the estimated fair market value of the assets 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
UFPT 1999 10-K page F24
<PAGE>
had the acquisitions taken place as described and is not necessarily
indicative of results that may be obtained in the future.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Pro forma total revenue $ 54,178,794 51,841,753
Pro forma net income $ 1,692,000 1,404,000
Pro forma basic net income per share $ 0.36 0.30
Pro forma diluted net income per share $ 0.35 0.29
</TABLE>
(20) SUBSEQUENT EVENTS
On January 14, 2000, the company acquired all of the outstanding common
stock of Simco Industries, Inc., located in Roseville, Michigan. The
transaction was financed primarily by utilizing the company's
"acquisition" line of credit. Simco is a full service supplier of
automotive trim components. In addition, they operate an automotive
pattern making and tooling facility. Simco's 1999 sales were
approximately $13 million.
UFPT 1999 10-K page F25
<PAGE>
Schedule II
UFP TECHNOLOGIES, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
Accounts receivable, allowance for doubtful accounts:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 257,865 $ 196,336 $ 164,352
Provision charged to expense 135,522 119,574 226,720
Deductions - write-offs (27,579) (58,045) (194,736)
------------ ------------ ------------
Balance at end of year 365,808 257,865 196,336
============ ============ ============
</TABLE>
* * * *
UFPT 1999 10-K page F26
<PAGE>
Exhibit 10.38.20
-----------------------------------------------------------------------
LOAN AGREEMENT
-----------------------------------------------------------------------
CITIZENS BANK OF MASSACHUSETTS
THE LENDER
-----------------------------------------------------------------------
UFP TECHNOLOGIES, INC.
MOULDED FIBRE TECHNOLOGY, INC.
THE BORROWER
-----------------------------------------------------------------------
August 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 - DEFINITIONS:
ARTICLE 2 - THE REVOLVING CREDIT:
2-1. ESTABLISHMENT OF REVOLVING CREDIT......................................................... 14
2-2. ESTABLISHMENT OF ACQUISITION LINE OF CREDIT................................................ 14
2-3. LOAN REQUESTS.............................................................................. 15
2-4. MAKING OF LOANS UNDER CREDITS.............................................................. 16
2-5. THE LOAN ACCOUNT........................................................................... 17
2-6. THE REVOLVING CREDIT NOTE.................................................................. 18
2-7. THE ACQUISITION CREDIT NOTE................................................................ 18
2-8. PAYMENT OF THE LOAN ACCOUNT................................................................ 18
2-9. INTEREST RATES. ........................................................................... 19
2-10. LINE (UNUSED) FEE. (a) ................................................................. 20
2-11. PROCEDURES FOR ISSUANCE OF L/C'S........................................................... 20
2-12. CHANGED CIRCUMSTANCES...................................................................... 20
2-13. INCREASED COSTS............................................................................ 21
ARTICLE 3 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
3-1. PAYMENT AND PERFORMANCE OF LIABILITIES..................................................... 22
3-2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS.................................. 22
3-3. DEPOSIT ACCOUNT............................................................................ 23
3-4. YEAR 2000 COMPLIANCE....................................................................... 23
3-5. TITLE TO ASSETS............................................................................ 24
3-6. INDEBTEDNESS............................................................................... 24
3-7. INSURANCE POLICIES......................................................................... 24
3-8. REQUIREMENTS OF LAW........................................................................ 24
3-9. MAINTAIN PROPERTIES........................................................................ 24
3-10. PAY TAXES.................................................................................. 25
3-11. NO MARGIN STOCK............................................................................ 25
3-12. ERISA...................................................................................... 25
3-13. HAZARDOUS MATERIALS........................................................................ 26
3-14. LITIGATION................................................................................. 26
LOANS...................................................................................... 27
3-16. PROTECTION OF ASSETS....................................................................... 27
3-17. AFFILIATE TRANSACTIONS..................................................................... 27
3-18. ADEQUACY OF DISCLOSURE..................................................................... 27
3-19. OTHER COVENANTS............................................................................ 28
ARTICLE 4 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
4-1. MAINTAIN RECORDS........................................................................... 28
4-2. ACCESS TO RECORDS.......................................................................... 29
4-3. QUARTERLY REPORTS.......................................................................... 29
4-4. ANNUAL REPORTS............................................................................. 29
4-5. OFFICERS' CERTIFICATES..................................................................... 29
4-6. ADDITIONAL FINANCIAL INFORMATION........................................................... 30
4-7. FINANCIAL PERFORMANCE COVENANTS............................................................ 30
<PAGE>
ARTICLE 5 - EVENTS OF DEFAULT:
5-1. FAILURE TO PAY CREDITS..................................................................... 31
5-2. FAILURE TO MAKE OTHER PAYMENTS............................................................. 31
5-3. FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).................................... 31
5-4. MISREPRESENTATION.......................................................................... 31
5-5. ACCELERATION OF OTHER DEBT. BREACH OF LEASE................................................ 31
5-6. DEFAULT UNDER OTHER AGREEMENTS............................................................. 32
5-7. UNINSURED CASUALTY LOSS.................................................................... 32
5-8. JUDGMENT. RESTRAINT OF BUSINESS........................................................... 32
5-9. BUSINESS FAILURE........................................................................... 32
5-10. BANKRUPTCY................................................................................. 32
5-11. MATERIAL ADVERSE CHANGE.................................................................... 33
5-12. INDICTMENT - FORFEITURE.................................................................... 33
5-13. CHANGE IN CONTROL.......................................................................... 33
ARTICLE 6 - RIGHTS AND REMEDIES UPON DEFAULT:
6-1. RIGHTS OF ENFORCEMENT...................................................................... 33
6-2. RIGHTS AND REMEDIES........................................................................ 33
ARTICLE 7 - NOTICES:
7-1. NOTICE ADDRESSES........................................................................... 34
7-2. NOTICE GIVEN............................................................................... 35
ARTICLE 8 - TERM:
8-1. TERMINATION OF CREDITS..................................................................... 35
8-2. PAYMENT S AT MATURITY...................................................................... 36
ARTICLE 9 - GENERAL:
9-1. SUCCESSORS AND ASSIGNS..................................................................... 36
9-2. SEVERABILITY............................................................................... 36
9-3. AMENDMENTS. COURSE OF DEALING............................................................. 36
9-4. LENDER'S COSTS AND EXPENSES................................................................ 37
9-5. COPIES AND FACSIMILES...................................................................... 37
9-6. MASSACHUSETTS LAW.......................................................................... 37
9-7. CONSENT TO JURISDICTION.................................................................... 38
9-8. INDEMNIFICATION............................................................................ 38
9-9. RULES OF CONSTRUCTION...................................................................... 38
9-10. INTENT..................................................................................... 40
9-11. RIGHT OF SET-OFF........................................................................... 40
9-12. MAXIMUM INTEREST RATE...................................................................... 40
9-13. WAIVERS. .................................................................................. 40
</TABLE>
<PAGE>
EXHIBITS
2-6 : Revolving Credit Note
2-7 : Acquisition Credit Note
3-2 : Related Entities
3-5 : Encumbrances
3-6 : Indebtedness
3-7 : Insurance Policies
3-10 : Taxes
3-14 : Litigation
3-15 : Loans
4-7 : Financial Performance Covenants
<PAGE>
- --------------------------------------------------------------------------------
LOAN AGREEMENT CITIZENS BANK OF MASSACHUSETTS
- --------------------------------------------------------------------------------
August 13, 1999
THIS AGREEMENT is made between
Citizens Bank of Massachusetts (hereinafter, the "Lender") a
Massachusetts bank with offices at 28 State Street, Boston,
Massachusetts 02109
and
UFP Technologies, Inc. (hereinafter, "UFP"), a Delaware
corporation with its principal executive offices at 172 East Main
Street, Georgetown, Massachusetts 01833
and
Moulded Fibre Technology, Inc. (hereinafter, "MFT"), a Maine
corporation with its principal executive offices at 301 U.S. Route 1,
Scarborough, Maine 04704.
UFP and MFT shall be referred to herein from time to time jointly and
severally as the "Borrower".
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS:
As herein used, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"ACQUISITION CREDIT": Is defined in Section 2-2.
<PAGE>
"ACQUISITION CREDIT CEILING": $10,000,000.00.
"ACQUISITION CREDIT NOTE": Is defined in Section 2-7.
"AFFILIATE": With respect to any two Persons, a relationship in which
(a) one holds, directly or indirectly, not less than Twenty Five
Percent (25%) of the capital stock, beneficial interests,
partnership interests, or other equity interests of the other; or
(b) one has, directly or indirectly, the right, under ordinary
circumstances, to vote for the election of a majority of the
directors (or other body or Person who has those powers
customarily vested in a board of directors of a corporation); or
(c) not less than Twenty Five Percent (25%) of their respective
ownership is directly or indirectly held by the same third
Person.
"APPLICABLE MARGIN" means initially, the rates set forth below:
<TABLE>
<CAPTION>
----------------------------------
Prime Margin Libor Margin
----------------------------------
<S> <C>
0% 1.25%
----------------------------------
</TABLE>
Upon the receipt by the Lender of the Borrower's financial statement
for the fiscal quarter ending June 30, 1999 required to be delivered to the
Lender pursuant to Section 4-3 of this Agreement, the Applicable Margin shall be
adjusted based upon the performance covenants set forth below. Thereafter, the
Applicable Margin shall be adjusted quarterly after the delivery of the
financial statements required to be delivered to the Lender pursuant to Section
4-3 of this Agreement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Total Funded Prime Margin Libor Margin
Debt/EBITDA
- -------------------------------------------------------------------------
<S> <C> <C>
greater than 3.0 to 1 0% 2.00%
- -------------------------------------------------------------------------
less than or equal to 3.0 0% 1.75%
to 1.0 but greater than 2.5
to 1.0
- -------------------------------------------------------------------------
less than or equal to 2.5 0% 1.50%
to 1.0 but greater than or
equal to 2.0 to 1.0
- -------------------------------------------------------------------------
less than 2.0 to 1.0 0% 1.25%
- -------------------------------------------------------------------------
</TABLE>
<PAGE>
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BORROWER": Is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b)
any day on which banks in Boston, Massachusetts, generally are
not open to the general public for the purpose of conducting
commercial banking business; or (c) a day on which the Lender is
not open to the general public to conduct business.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended) or by
any Person, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission) of greater than
50% of the issued and outstanding capital stock of the Borrower
having the right, under ordinary circumstances, to vote for the
election of directors of the Borrower.
(b) More than half of the persons who were directors of the
Borrower on the first day of any period consisting of Twelve (12)
consecutive calendar months (the first of which Twelve (12) month
periods commencing with the first day of the month during which
this Agreement was executed), cease, for any reason other than
death or disability, to be directors of the Borrower.
"COSTS OF COLLECTION": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by
the Lender's attorneys, and all reasonable costs incurred by the
Lender in the administration of the Liabilities and/or the Loan
Documents, which costs and expenses are directly or indirectly
related to or in respect of the Lender's: administration and
management of the Liabilities; negotiation, documentation, and
amendment of any Loan Document; or efforts to preserve, protect,
collect, or enforce any collateral, the Liabilities, and/or the
Lender's Rights and Remedies and/or any of the Lender's rights
and remedies against or in respect of any guarantor or other
person liable in respect of the Liabilities (whether or not suit
is instituted in connection with such efforts).
"CREDITS": The Revolving Credit and the Acquisition Credit,
collectively.
<PAGE>
"EBITDA": The Borrower's earnings before interest, taxes,
depreciation, and amortization, each as determined in accordance
with GAAP. As calculated herein, EBITDA shall be calculated on a
rolling four quarter basis, including adjusted historical EBITDA
for acquired entities.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) Any security interest, mortgage, pledge, hypothecation,
lien, attachment, or charge of any kind (including any agreement
to give any of the foregoing); the interest of a lessor under a
Capital Lease; conditional sale or other title retention
agreement; sale of accounts receivable or chattel paper; or other
arrangement pursuant to which any Person is entitled to any
preference or priority with respect to the property or assets of
another Person or the income or profits of such other Person or
which constitutes an interest in property to secure an
obligation; each of the foregoing whether consensual or
non-consensual and whether arising by way of agreement, operation
of law, legal process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"END DATE": The date upon which both (a) all Liabilities have been
paid in full and (b) all obligations of the Lender to make loans
and advances and to provide other financial accommodations to the
Borrower hereunder shall have been irrevocably terminated.
"ENVIRONMENTAL LAWS": All of the following:
(a) Any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements which regulate or relate to, or
impose any standard of conduct or liability on account of or in
respect to environmental protection matters, including, without
limitation, Hazardous Materials, as are now or hereafter in
effect.
(b) The common law relating to damage to
Persons or property from Hazardous Materials.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within
<PAGE>
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which would be treated as a single
employer under Section 414 of the Internal Revenue Code of 1986,
as amended.
"EVENTS OF DEFAULT": Is defined in Article 5.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is being
made, PROVIDED, HOWEVER, in the event of a Material Accounting
Change, then unless otherwise specifically agreed to by the
Lender, (a) the Borrower's compliance with the financial
performance covenants imposed pursuant to Section 4-7 shall be
determined as if such Material Accounting Change had not taken
place and (b) the Borrower shall include, with its quarterly, and
annual financial statements a schedule, certified by the
Borrower's chief financial officer, on which the effect of such
Material Accounting Change to the statement with which provided
shall be described.
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to
any of the foregoing) are defined or regulated as a hazardous
material in or under any Environmental Law and (b) oil in any
physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness
which is non-recourse to the credit of such Person but which is
secured by an Encumbrance on any asset of such Person) whether or
not evidenced by a promissory note, bond, debenture or other
written obligation to pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of
all letters of credit and acceptances issued for the account of
such Person or reimbursement on account of which such Person
would be obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits or advances. "Indebtedness" also
includes:
<PAGE>
(x) Indebtedness of others secured by an Encumbrance on any
asset of such Person, whether or not such Indebtedness is assumed
by such Person.
(y) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on
account of any obligation of any third party.
(z) The Indebtedness of a partnership or joint venture in
which such Person is a general partner or joint venturer.
"INDEMNIFIED PERSON": Is defined in Section 9-8.
"INTEREST PAYMENT DATE": With reference to:
Each Libor Loan: The last day of the Interest Period
relating thereto; the last day of the third month of any Interest
Period which consists of more than three months; the Termination
Date; and the End Date.
Each Prime Rate Loan: the first day of each month; the
Termination Date; and the End Date.
"INTEREST PERIOD": (a) With respect to each Libor Loan: Subject to
Subsection (c), below, the period commencing on the date of the
making or continuation of, or conversion to, the subject Libor
Loan and ending one, two, three, six or twelve months thereafter,
as the Borrower may elect by notice (pursuant to Section 2.4(a)
to the Lender.
(b) With respect to each Prime Rate Loan: Subject
to Subsection (c), below, the period commencing on the date of
the making or continuation of or conversion to such Prime Rate
Loan and ending on that date (i) as of which the subject Prime
Rate Loan is converted to a Libor Loan, as the Borrower may elect
by notice (pursuant to Section 2-4(a) to the Lender, or (ii) on
which the subject Prime Rate Loan is paid by the Borrower.
(c) The setting of Interest Periods is in all
instances subject to the following:
(i) Any Interest Period for a Prime Rate Loan
which would otherwise end on a day which is not a
Business Day shall be extended to the next
succeeding Business Day.
(ii) Any Interest Period for a Libor Loan which
would otherwise end on a day that is not a Business
Day shall be extended to the next
<PAGE>
succeeding Business Day, unless that succeeding
Business Day is in the next calendar month, in
which event such Interest Period shall end on the
last Business Day of the month during which the
Interest Period ends.
(iii) Subject to Subsection (iv), below, any
Interest Period applicable to a Libor Loan, which
Interest Period begins on a day for which there is
no numerically corresponding day in the calendar
month during which such Interest Period ends, shall
end on the last Business Day of the month during
which that Interest Period ends.
(iv) Any Interest Period which would otherwise
end after the Termination Date shall end on the
Termination Date.
(v) The number of Interest Periods in effect
at any one time is subject to Section 2-9(d)
hereof.
"ISSUER": The Lender as issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of the Borrower and any acceptance made on
account of such letter of credit.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use
or occupancy of any space.
"LENDER": Is defined in the Preamble to the within Agreement.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 6-2.
"LIABILITIES" (in the singular, "LIABILITY"):Includes, without
limitation, all and each of the following, whether now existing
or hereafter arising:
(a) Any and all direct and indirect liabilities,
debts, and obligations of the Borrower to the Lender, each of
every kind, nature, and description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the Lender (including all
future advances whether or not made pursuant to a commitment
by the Lender), whether or not any of such are liquidated,
unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature,
or description, or by reason of any cause of action which the
Lender may hold against the Borrower.
<PAGE>
(c) All notes and other obligations of the Borrower
now or hereafter assigned to or held by the Lender, each of
every kind, nature, and description.
(d) All interest, fees, and charges and other amounts
which may be charged by the Lender to the Borrower and/or
which may be due from the Borrower to the Lender from time to
time.
(e) All reasonable costs and expenses incurred or
paid by the Lender in respect of any agreement between the
Borrower and the Lender or instrument furnished by the
Borrower to the Lender (including, without limitation, Costs
of Collection, attorneys' reasonable fees, and all court and
litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with
the Lender and any and all obligations of the Borrower to act
or to refrain from acting in accordance with any agreement
between the Borrower and the Lender or instrument furnished by
the Borrower to the Lender.
(g) Each of the foregoing as if each reference to the
"Lender" therein were to each Affiliate of the Lender.
"LIBOR BUSINESS DAY": Any day which is both a Business Day and a day
on which the principal interbank market for Libor deposits in
London in which the Lender participates is open for dealings in
United States Dollar deposits.
"LIBOR LOAN": Any Revolving Credit Loan which bears interest at a
Libor Rate.
"LIBOR OFFER RATE": That rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Lender to
be the highest prevailing rate per annum at which deposits in
U.S. Dollars are offered to the Lender, by first-class banks in
the London interbank market in which the Lender participates at
or about 10:00AM (Boston Time) Two (2) Libor Business Days before
the first day of the Interest Period for the subject Libor Loan,
for a deposit approximately in the amount of the subject loan for
a period of time approximately equal to such Interest Period.
"LIBOR MARGIN": See definition of Applicable Margin.
"LIBOR RATE": That per annum rate (calculated on a 360 day year and
actual days elapsed) which is the aggregate of the Libor Offer
Rate PLUS the Libor Margin EXCEPT THAT, in the event that it is
determined by the Lender that the Lender may be subject to the
<PAGE>
Reserve Percentage, the "Libor Rate" shall mean, with respect to
any Libor Loans then outstanding (from the date on which that
Reserve Percentage first became applicable to such loans), and
with respect to all Libor Loans thereafter made, an interest rate
per annum equal the sum of (a) plus (b), where:
(a) is the decimal equivalent of the following
fraction:
LIBOR OFFER RATE
----------------
1 minus Reserve Percentage
(b) the Applicable Libor Margin.
"LINE (UNUSED) FEE": Is defined in Section 2-10.
"LOAN ACCOUNT": Is defined in Section 2-5.
"LOAN DOCUMENTS": This Agreement, each instrument and document
executed and/or delivered as contemplated herein, and each other
instrument or document from time to time executed and/or
delivered in connection with the arrangements contemplated hereby
or in connection with any transaction with the Lender or any
Affiliate of the Lender, including, without limitation, any
transaction which arises out of any cash management, depository,
investment, letter of credit, interest rate protection, or
equipment leasing services provided by the Lender or any
Affiliate of the Lender, as each may be amended from time to
time.
"LOANS": A term of convenience which refers to so much of the unpaid
principal balance of the Loan Account as bears the same rate of
interest for the same Interest Period. (SEE Section 2-9(c).
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year most
recently completed prior to the execution of this Agreement,
which change has a material effect on the Borrower's financial
condition or operating results, as reflected on financial
statements and reports prepared by or for the Borrower, when
compared with such condition or results as if such change had not
taken place or where preparation of the Borrower's statements and
reports in compliance with such change results in the breach of a
financial performance covenant imposed pursuant to Section 4-7
where such a
<PAGE>
breach would not have occurred if such change had not taken place
or VISA VERSA.
"MATERIAL ADVERSE CHANGE": Any event, fact, circumstance, change in,
or effect on, the business of, the Borrower which, individually
or in the aggregate or on a cumulative basis with any other
circumstances, changes in, or effects on, the Borrower or its
assets which:
(a) Is, or could reasonably be expected to be,
materially adverse to the business, operations, assets or
liabilities (including, without limitation, contingent
liabilities), employee relationships, customer or supplier
relationships, results of operations or the condition
(financial or otherwise) of the Borrower.
(b) Could reasonably be expected to materially
adversely affect the ability of the Borrower to operate or
conduct business in all material respects in the manner in
which it is currently operated or conducted by the Borrower or
to perform its obligations under the Loan Documents .
(c) Could reasonably be expected to have a material
adverse effect or result in an adverse change in the value,
enforceability, collectability or the nature of its assets.
"MATURITY DATE": July 31, 2002.
"PARTICIPANT": Is defined in Section 9-11, hereof.
"PERMITTED ENCUMBRANCES": The following:
(a) Encumbrances in favor of the Lender.
(b) Those Encumbrances (if any) listed on
EXHIBIT 3-5, annexed hereto.
(c) The interest of any of the Borrower's
landlords in any of the Borrower's Equipment which is so
affixed to the real estate of that landlord that an interest
therein arises under real estate law.
(d) Any limitation, included in a Lease, upon the
right of the Borrower to encumber the Borrower's interest in
that Lease.
(e) Purchase money security interests (as defined in
the UCC) in Equipment.
(f) Liens securing the payment of taxes, either not
yet overdue or the validity of which are being contested as
permitted by Section 3-10; non-consensual statutory liens
(other than liens securing the payment of taxes) arising in
the ordinary course of Borrower's business to the extent: such
liens secure indebtedness which is
<PAGE>
not overdue or such liens secure indebtedness relating to
claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk
of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to
Borrower, in each instance prior to the commencement of
foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on the
Borrower's books (PROVIDED, HOWEVER, the inclusion of any of
the foregoing as "Permitted Encumbrances" shall not affect
their respective relative priorities vis a vis the security
interests created herein), zoning restrictions, easements,
licenses, covenants and other restrictions affecting the use
of real property which do not interfere in any material
respect with the use of such real property or ordinary
conduct of the business of Borrower as presently conducted
thereon or materially impair the value of the real property
which may be subject thereto.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise
or entity.
"PRIME": The Prime Rate announced from time to time by the Lender. In
the event that the Lender ceases to announce such a rate, "Prime"
shall refer to that rate or index announced or published from
time to time as the Lender, in good faith, designates as the
functional equivalent to said Prime Rate. Any change in "Prime"
shall be effective, for purposes of the calculation of interest
due hereunder, when such change is made effective generally by
the bank on whose rate or index "Prime" is being set. In all
events, interest which is determined by reference to Prime (or
any successor to Prime) shall be calculated on a 360 day year and
actual days elapsed.
"PRIME MARGIN": See definition of Applicable Margin.
"PRIME RATE": Prime plus the applicable Prime Margin.
"PRIME RATE LOAN": Each Loan while bearing interest at Prime plus the
applicable Prime Margin.
"RELATED ENTITY": (a) Any corporation, limited liability company,
trust, partnership, joint venture, or other enterprise which: is
a parent, brother-sister, subsidiary, or affiliate, of the
Borrower; could have such enterprise's tax returns or financial
<PAGE>
statements consolidated with the Borrower's; could be a member of
the same controlled group of corporations (within the meaning of
Section 1563(a)(1), (2) and (3) of the Internal Revenue Code of
1986, as amended from time to time) of which the Borrower is a
member; controls or is controlled by the Borrower or by any
Affiliate of the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or
other requirements having the force of law and (ii) all court
orders and injunctions, arbitrator's decisions, and/or similar
rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court,
tribunal, panel, or other body which has or claims
jurisdiction over such Person, or any property of such Person,
or of any other Person for whose conduct such Person would be
responsible.
(b) That Person's charter, certificate of
incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that Person's
by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.
"RESERVE PERCENTAGE": The decimal equivalent of that rate applicable
to the Lender under regulations issued from time to time by the
Board of Governors of the Federal Reserve System for determining
the maximum reserve requirement of that Lender with respect to
"Eurocurrency liabilities" as defined in such regulations. The
Reserve Percentage applicable to a particular Eurodollar Loan
shall be based upon that in effect during the subject Interest
Period, with changes in the Reserve Percentage which take effect
during such Interest Period to take effect (and to consequently
change any interest rate determined with reference to the Reserve
Percentage) if and when such change is applicable to such loans.
"REVOLVING CREDIT": Is defined in Section 2-1.
"REVOLVING CREDIT CEILING": $8,000,000.00.
"REVOLVING CREDIT NOTE": Is defined in Section 2-6.
"SENIOR FUNDED DEBT": means total of (i) indebtedness or liability for
borrowed
<PAGE>
money; (ii) obligations as lessee under capital leases; (iii)
obligations under letters of credit issued for the account of the
Borrower, and (iv) obligations secured by any lien on property
owned by the Borrower whether or not the obligations have been
assumed by a third party, unless any of the foregoing described
in (i) through (iv), above, are subordinated in favor of the
Lender on terms and conditions acceptable to the Lender.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) would become an Event of
Default if any requisite notice were given and/or any requisite
period of time were to run and such occurrence, circumstance, or
state of facts were not absolutely cured within any applicable
grace period.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 5-9 hereof; or
(c) date set by notice by the Lender to the Borrower, which
notice sets the Termination Date on account of the occurrence
of any Event of Default other than as described in Section 5-9
hereof.
"TOTAL FUNDED DEBT": means all borrowed money as reflected in the
Borrower's consolidated financial statements.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"YEAR 2000 COMPLIANT": Computer applications, imbedded microchips, and
other systems and subsystems which properly recognize and perform
their intended function without any adverse effect on account of
their respective inability to recognize certain dates prior to,
on, and after December 31, 1999 or on account of their treating
any date prior to, on, or after December 31, 1999 other than as
the specific date in question.
ARTICLE 2 - THE REVOLVING CREDIT:
2-1. ESTABLISHMENT OF REVOLVING CREDIT.
(a) The Lender hereby establishes a revolving line of credit
(the "REVOLVING CREDIT") in the Borrower's favor pursuant to which the Lender,
subject to, and in accordance with,
<PAGE>
this Agreement, shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrower as provided herein. The
amount available for borrowing under the Revolving Credit may be repaid and
reborrowed but shall not at any time exceed the the Revolving Credit Ceiling.
(b) The proceeds of borrowings under the Revolving Credit
shall be used solely for working capital purposes of the Borrower and in to
cover the honoring of L/C's.
2-2. ESTABLISHMENT OF ACQUISITION LINE OF CREDIT.
(a) The Lender hereby establishes an acquisition line of
credit (the "ACQUISITION CREDIT") in the Borrower's favor pursuant to which the
Lender, subject to, and in accordance with, this Agreement, shall make loans and
advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein. The amount available for borrowing under the
Acquisition Credit may be repaid and reborrowed but shall not exceed the
Acquisition Credit Ceiling. Mandatory repayments of the Acquisition Credit shall
also be made in accordance with subsection (c), below.
(b) The proceeds of borrowings under the Acquisition Credit
shall be used solely for financing of acquisitions of property, plant or
equipment, or any business or businesses to be acquired.
(c) Principal payments shall be made within nine (9) months of
any borrowing under the Acquisition Credit in accordance with a term facility to
be subject to such repayment terms and grant of collateral, if the grant of
collateral is otherwise required under subparagraph (d), below, as may be agreed
upon between the Lender and the Borrower.
(d) If any quarterly or annual financial statements furnished
by the Borrower pursuant to Section 4-3 or 4-4, below reflect the ratio of
Senior Funded Debt to EBITDA in excess of 2.5 to 1.0 at any time the Borrower
shall promptly grant to the Lender a security interest in assets satisfactory to
the Lender and the Borrower to secure the Acquisition Credit. If, thereafter, in
a subsequent quarter or year end, the Borrower's financial statements furnished
in accordance with Section 4-3 or 4-4, below evidence the ratio of Senior Funded
Debt to EBITDA of less than 2.5 to 1.0, and provided that no Event of Default is
then occurring, the Lender will release such security interests upon the request
of the Borrower.
2-3. LOAN REQUESTS.
(a) Subject to the provisions of this Agreement, a loan or
advance under the Credits duly and timely requested by the Borrower shall be
made pursuant hereto, PROVIDED THAT the Credits have not been suspended as
provided in Section 2-4(h).
(b) Requests for loans and advances under the Credits may be
requested by the
<PAGE>
Borrower in such manner as may from time to time be acceptable to the Lender.
(c) Subject to the provisions of this Agreement, the Borrower
may request a Loan and elect an interest rate and Interest Period to be
applicable to Loan by giving the Lender notice no later than the following:
(i) If such Loan is or is to be converted to a Prime
Rate Loan: By 11:30AM on the Business Day on which the subject Loan is
to be made or is to be so converted. Prime Rate Loans requested by the
Borrower, other than those resulting from the conversion of a Libor
Loan, shall not be less than $10,000.00.
(ii) If such Loan is, or is to be continued as, or
converted to, a Libor Loan: By 1:00PM Three (3) Libor Business Days
before the end of the then applicable Interest Period. Libor Loans and
conversions to Libor Loans shall each be not less than $250,000.00 and
in increments of $50,000.00 in excess of such minimum.
(iii) Any Libor Loan which matures while a Suspension
Event is extant shall be converted, at the option of the Lender to a
Prime Rate Loan notwithstanding any notice from the Borrower that such
Loan is to be continued as a Libor Loan.
(d) Any request for a Loan or for the conversion of a Loan
which is made after the applicable deadline therefor, as set forth above, shall
be deemed to have been made at the opening of business on the then next Business
Day or Libor Business Day, as applicable. Each request for a Loan or for the
conversion of a Loan shall be made in such manner as may from time to time be
acceptable to the Lender
(e) The Borrower may request that the Lender cause the
issuance of L/C's for the account of the Borrower as provided in Section 2-11.
(f) The Lender may rely on any request for a loan or advance,
or other financial accommodation under the Credits which the Lender, in good
faith, believes to have been made by a Person duly authorized to act on behalf
of the Borrower and may decline to make any such requested loan or advance, or
issuance, or to provide any such financial accommodation pending the Lender's
being furnished with such documentation concerning that Person's authority to
act as may be satisfactory to the Lender.
(g) A request by the Borrower for loan or advance, or other
financial accommodation under the Credits shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request,
each of the following is true and correct:
(i) There has been no Material Adverse Change since
the most recent financial information furnished Lender pursuant to this
Agreement.
(ii) The Borrower is in compliance with, and has not
breached any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or in
any of the Loan
<PAGE>
Documents (defined below) is then true and complete as of and as if
made on the date of such request.
(iv) No Suspension Event is then extant.
(h) Upon the occurrence from time to time of any Suspension Event:
(i) The Lender may suspend the Credits immediately.
(ii) The Lender shall not be obligated, during such
suspension, to make any loans or advance, or to provide any financial
accommodation hereunder or to seek the issuance of any L/C.
(iii) The Lender may suspend the right of the
Borrower to request any Libor Loan or to convert any Prime Rate Loan to
a Libor Loan.
2-4. MAKING OF LOANS UNDER CREDITS.
(a) A loan or advance under the Credits shall be made by the
transfer of the proceeds of such loan or advance to an operating account with
the Lender or as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made under
the Credits (and the Borrower shall be indebted to the Lender for the amount
thereof immediately) at the following:
(i) The Lender's initiation of the transfer of the
proceeds of such loan or advance in accordance with the Borrower's
instructions (if such loan or advance is of funds requested by the
Borrower).
(ii) The charging of the amount of such loan to the
Loan Account (in all other circumstances).
(c) There shall not be any recourse to or liability of the Lender,
on account of:
(i) Any delay in the making of any loan or advance
requested under the Credits.
(ii) Any delay in the proceeds of any such loan or
advance constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of
funds which constitute a loan or advance under the Credits, the wire
transfer of which was properly initiated by the Lender in accordance
with wire instructions provided to the Lender by the Borrower.
2-5. THE LOAN ACCOUNT.
(a) An account ("LOAN ACCOUNT") shall be opened on the books
of the Lender. A record may be kept in the Loan Account of all loans made under
or pursuant to this Agreement and of all payments thereon.
<PAGE>
(b) The Lender may also keep a record (either in the Loan
Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed the
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Lender of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against the Lender for any reason or is not so paid shall be a Liability and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. The Lender, without the request of the Borrower, may advance
under the Credits any interest, fee, service charge, or other payment to which
the Lender is entitled from the Borrower pursuant hereto and may charge the same
to the Loan Account and shall bear interest at the Prime Rate.
(e) Any statement rendered by the Lender to the Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Lender with written objection thereto within twenty (20) days from
the mailing of such statement, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender's
books and records concerning the loan arrangement contemplated herein and the
Liabilities shall be prima facie evidence and proof of the items described
therein.
2-6. THE REVOLVING CREDIT NOTE. The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein, shall be
evidenced by a note (the "REVOLVING CREDIT NOTE") in the form of EXHIBIT 2-6,
annexed hereto, executed by the Borrower. Neither the original nor a copy of the
Revolving Credit Note shall be required, however, to establish or prove any
Liability. In the event that the Revolving Credit Note is ever lost, mutilated,
or destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender.
2-7. THE ACQUISITION CREDIT NOTE. The obligation to repay loans and
advances under the Acquisition Credit, with interest as provided herein, shall
be evidenced by a note (the "ACQUISITION CREDIT NOTE") in the form of EXHIBIT
2-7, annexed hereto, executed by the Borrower. Neither the original nor a copy
of the Acquisition Credit Note shall be required, however, to establish or prove
any Liability. In the event that the Acquisition Credit Note is ever lost,
mutilated, or destroyed, the Borrower shall execute a replacement thereof and
deliver such replacement to the Lender.
<PAGE>
2-8. PAYMENT OF THE LOAN ACCOUNT.
(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date. Unless
notified otherwise by the Borrower, such payments shall be applied first to
Prime Rate Loans and only then to Libor Loans
(b) The Lender shall endeavor to cause those application of
payments (if any), pursuant to Sections 2-8(a) and 2-8(b) against Libor Loans
then outstanding in such manner as results in the least cost to the Borrower,
but shall not have any affirmative obligation to do so nor liability on account
of the Lender's failure to have done so. In no event shall action or inaction
taken by the Lender excuse the Borrower from any indemnification obligation
under Section 2-8(e).
(c) The Borrower shall repay the then entire unpaid balance of
the Loan Account and all other Liabilities on the Termination Date.
(d) The Borrower shall indemnify the Lender and hold the
Lender harmless from and against any loss, cost or expense (including loss of
anticipated profits) which the Lender may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of the following:
(i) Default by the Borrower in payment of the
principal amount of or any interest on any Libor Loan as and when due
and payable, including any such loss or expense arising from interest
or fees payable by the Lender to lenders of funds obtained by it in
order to maintain its Libor Loans
(ii) Default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a
request for a Loan or a request to convert a Loan from one applicable
interest rate to another.
(iii) The making of any payment on a Libor Loan or
the making of any conversion of any such Loan to a Prime Rate Loan on a
day that is not the last day of the applicable Interest Period with
respect thereto, including interest or fees payable by the Lender to
lenders of funds obtained by it in order to maintain any such Loans as
"breakage fees" (so-called).
2-9. INTEREST RATES.
(a) Each Loan shall bear interest at the Prime Rate unless
timely notice is given (as provided in Section 2-4(a)) that the subject Loan (or
a portion thereof) is, or is to be converted to, a Libor Loan.
(b) Each Loan which consists of a Libor Loan shall bear
interest at the applicable Libor Rate.
(c) Subject to the provisions hereof, the Borrower, by notice
to the Lender, may
<PAGE>
cause all or a part of the unpaid principal balance of the Loan Account to bear
interest at the Prime Rate or the Libor Rate as specified from time to time by
the Borrower. For ease of reference and administration, each part of the Loan
Account which bears interest at the same interest and for the same Interest
Period is referred to herein as if it were a separate " Loan".
(d) The Borrower shall not select, renew, or convert any
interest rate for a Loan such that, in addition to interest at the Prime Rate,
there is more than ten (10) Libor Rates applicable to the Loans at any one time.
(e) The Borrower shall pay accrued and unpaid interest on each
Loan in arrears as follows:
(i) On the applicable Interest Payment Date for
that Loan.
(ii) On the Termination Date and on the End Date.
(iii) Following the occurrence of any Event of
Default, with such frequency as may be determined by the Lender.
(f) Following the occurrence of any Event of Default (and
whether or not the Lender exercises the Lender's rights on account thereof), all
Loans shall bear interest, at the option of the Lender at rate which is the
aggregate of the Prime Rate PLUS Two Percent (2%) per annum.
2-10. LINE (UNUSED) FEE.
(a) The Borrower shall pay the Lender a REVOLVING LINE
(UNUSED) FEE (so referred to herein) in arrears, on the first day of each
quarter (and on the Termination Date). The Line (Unused) Fee shall be equal to
0.25% per annum of the average difference, during the quarter just ended (or
relevant period with respect to the payment being made on the Termination Date)
between the Revolving Credit Ceiling and the unpaid principal balance of the
Loan Account attributable to the Revolving Credit.
(b) Commencing August 1, 2000, the Borrower shall pay the
Lender an ACQUISITION LINE (UNUSED) FEE (so referred to herein) in arrears, on
the first day of each quarter (and on the Termination Date). The Line (Unused)
Fee shall be equal to 0.25% per annum of the average difference, during the
quarter just ended (or relevant period with respect to the payment being made on
the Termination Date) between the Acquisition Credit Ceiling and the unpaid
principal balance of the Loan Account and any other promissory notes
attributable to the Acquisition Credit.
2-11. PROCEDURES FOR ISSUANCE OF L/C'S.
The Borrower may request that the Lender issue L/C's for the account of
the Borrower. Each such request shall be in such manner as may from time to time
be acceptable to the Lender. The Lender may issue any L/C so requested by the
Borrower, PROVIDED THAT, at the time that the request
<PAGE>
is made, the Credits have not been suspended as provided in Section 2-4(h) and
if so issued:
(a) The aggregate Stated Amount of all L/C's then outstanding,
does not exceed an amount to be determined by the Lender.
(b) The expiry of the L/C is not later than a date approved by
the Lender. (c) The Borrower shall execute such additional documents
and any such fees as may be established by the Lender in connection
with the issuance of any L/C.
2-12. CHANGED CIRCUMSTANCES.
(a) The Lender may give the Borrower notice of the
occurrence of the following:
(i). The Lender shall have determined in good faith
(which determination shall be final and conclusive) on any day on which
the rate for a Libor Loan would otherwise be set, that adequate and
fair means do not exist for ascertaining such rate.
(ii). The Lender shall have determined in good faith
(which determination shall be final and conclusive) that:
(A) The continuation of or conversion of any
Loan to a Libor Loan has been made impracticable or unlawful
by the occurrence of a contingency that materially and
adversely affects the applicable market or compliance by the
Lender in good faith with any applicable law or governmental
regulation, guideline or order or interpretation or change
thereof by any governmental authority charged with the
interpretation or administration thereof or with any request
or directive of any such governmental authority (whether or
not having the force of law).
(B) The indices on which the interest rates for
Libor Loans are based shall no longer represent the effective
cost to the Lender for U.S. dollar deposits in the interbank
market for deposits in which it regularly participates.
(b) In the event that the Lender gives the Borrower notice of
an occurrence described in Section 2-12(a), then, until the Lender notifies the
Borrower that the circumstances giving rise to such notice no longer apply:
(i) The obligation of the Lender to make Libor Loans
of the type affected by such changed circumstances or to permit the
Borrower to select the affected interest rate as otherwise applicable
to any Loans shall be suspended.
(ii) Any notice which the Borrower had given the
Lender with respect to any Libor Loan, the time for action with respect
to which has not occurred prior to the Lender's having given notice
pursuant to Section 2-12(a), shall be deemed at the option of the
Lender to not having been given.
2-13. INCREASED COSTS. If, as a result of any requirement of law, or of
the
<PAGE>
interpretation or application thereof by any court or by any governmental or
other authority or entity charged with the administration thereof, whether or
not having the force of law, which:
(a) subjects the Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments of principal,
interest or other amounts payable by the Borrower to the Lender under
this Agreement (except for taxes on the Lender's overall net income or
capital imposed by the jurisdiction in which the Lender's principal or
lending offices are located);
(b) imposes, modifies or deems applicable any reserve, cash
margin, special deposit or similar requirements against assets held by,
or deposits in or for the account of or loans by or any other
acquisition of funds by the relevant funding office of the Lender;
(c). imposes on the Lender any other condition with respect to
any Loan Document; or
(d) imposes on the Lender a requirement to maintain or
allocate capital in relation to the Liabilities;
and the result of any of the foregoing, in the Lender's reasonable opinion, is
to increase the cost to the Lender of making or maintaining any loan, advance or
financial accommodation or to reduce the income receivable by the Lender in
respect of any loan, advance or financial accommodation by an amount which the
Lender deems to be material, then upon the Lender's giving written notice
thereof, from time to time, to the Borrower (such notice to set out in
reasonable detail the facts giving rise to and a summary calculation of such
increased cost or reduced income), the Borrower shall forthwith pay to the
Lender , upon receipt of such notice, that amount which shall compensate the
Lender for such additional cost or reduction in income.
ARTICLE 3 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Credits (each of which loans shall be deemed to have been made in
reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in this Agreement.
3-1. PAYMENT AND PERFORMANCE OF LIABILITIES.
The Borrower shall pay each Liability when due (or when
demanded if payable on demand) and shall promptly, punctually, and faithfully
perform each other Liability.
<PAGE>
3-2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS.
(a) UFP presently is and shall hereafter remain in good
standing as a Delaware corporation. MFT presently is and shall hereafter remain
in good standing as a Maine corporation. The Borrower is and shall hereafter
remain duly qualified and in good standing in every other State in which, by
reason of the nature or location of the Borrower's assets or operation of the
Borrower's business, such qualification may be necessary. The Borrower is not an
"Investment Company" withing the meaning of the Investment Company Act.
(b) Each Related Entity is listed on EXHIBIT 3-2, annexed
hereto. Each Related Entity is and shall hereafter remain in good standing in
the State in which incorporated and is and shall hereafter remain duly qualified
in which other State in which, by reason of that entity's assets or the
operation of such entity's business, such qualification may be necessary. The
Borrower shall provide the Lender with prior written notice of any entity's
becoming or ceasing to be a Related Entity.
(c) The Borrower shall not change its State of incorporation
nor its taxpayer identification number.
(d) The Borrower has all requisite corporate power and
authority to execute and deliver all Loan Documents to which the Borrower is a
party and has and will hereafter retain all requisite corporate power to perform
all Liabilities.
(e) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary
corporate action.
(ii) Do not, and will not, contravene in any
material respect any provision of any Requirement of Law or obligation
of the Borrower.
(iii) Will not result in the creation or imposition
of, or the obligation to create or impose, any Encumbrance upon any
assets of the Borrower pursuant to any Requirement of Law or
obligation, except pursuant to the Loan Documents.
(f) The Loan Documents have been duly executed and delivered
by Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
3-3. DEPOSIT ACCOUNT. In order to permit the Lender to monitor the
Borrower's financial condition and compliance with this Agreement, the Borrower
shall maintain its primary deposit
<PAGE>
account with the Lender.
3-4. YEAR 2000 COMPLIANCE.
(a) The Borrower has (i) undertaken a detailed inventory,
review, and assessment of all areas within its business and operations that
could be adversely affected by the failure of the Borrower to be Year 2000
Compliant on a timely basis; (ii) developed a detailed plan and timeline for
becoming Year 2000 Compliant on a timely basis; and (iii) to date, implemented
that plan in accordance with that timetable in all material respects. The
Borrower reasonably anticipates that it will be Year 2000 Compliant on a timely
basis.
3-5. TITLE TO ASSETS. The Borrower is, and shall hereafter remain, the
owner its assets free and clear of all Encumbrances with the exceptions of
Permitted Encumbrances, which include those Encumbrances described on EXHIBIT
3-5, annexed hereto.
3-6. INDEBTEDNESS. The Borrower does not and shall not hereafter have
any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender .
(b) The Indebtedness (if any) listed on EXHIBIT 3-6, annexed
hereto.
3-7. INSURANCE POLICIES.
(a) EXHIBIT 3-7, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the Lender
. The coverage reflected on EXHIBIT 3-7 presently satisfies the foregoing
requirements, it being recognized by the Borrower, HOWEVER, that such
requirements may change hereafter to reflect changing circumstances.
3-8. REQUIREMENTS OF LAW. The Borrower is in compliance with, and shall
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
3-9. MAINTAIN PROPERTIES. The Borrower shall:
<PAGE>
(a) Keep its assets in good order and repair (ordinary reasonable
wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material
part of its assets.
(c) Not use any of its assets in violation of any policy of
insurance thereon.
(d) Except in the ordinary course of business, not sell, lease, or
otherwise dispose of any of its assets, other than the following:
(i) The sale of Inventory in compliance with this Agreement.
(ii) The disposal of Equipment which is obsolete, worn out,
or damaged beyond repair, which Equipment is replaced to the extent
necessary to preserve or improve the operating efficiency of the
Borrower.
3-10. PAY TAXES.
(a) Except as disclosed on EXHIBIT 3-10, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.
(b) The Borrower has, and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against the Borrower or its
assets by any person or entity whose claim could result in an Encumbrance upon
any asset of the Borrower or by any governmental authority; properly exercise
any trust responsibilities imposed upon the Borrower by reason of withholding
from employees' pay or by reason of the Borrower's receipt of sales tax or other
funds for the account of any third party; timely make all contributions and
other payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file PROVIDED, HOWEVER, the Borrower may timely contest in good
faith and by appropriate proceedings, any amount which it is obligated to pay as
provided in this Section 3-10(b), but only if and for so long as no lien on any
of its assets is filed with respect to any such amount.
3-11. NO MARGIN STOCK. Except for credit extended under the Borrower's
option plans, the Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying any margin stock (within the meaning
of Regulations U, T, and X of the Board of Governors of the Federal Reserve
System of the United States). No part of the proceeds of any borrowing hereunder
will be used at any time to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock.
3-12. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
<PAGE>
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could
be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning
of ERISA. (f) Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation under
any Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
3-13. HAZARDOUS MATERIALS.
(a) The Borrower has never:
(i) Been legally responsible for any release or threat
of release of any Hazardous Material.
(ii) Received notification of any release or threat of
release of any Hazardous Material from any site or vessel occupied or
operated by the Borrower and/or of the incurrence of any expense or
loss in connection with the assessment, containment, or removal of any
release or threat of release of any Hazardous Material from any such
site or vessel.
(b) The Borrower shall:
(i) Dispose of any Hazardous Material only in compliance
with all Environmental Laws.
(ii) Not store on any site or vessel occupied or operated
by the Borrower and not transport or arrange for the transport of any
Hazardous Material, except if such storage or transport is in the
ordinary course of the Borrower's business and is in compliance with
all Environmental Laws.
(c) The Borrower shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
3-14. LITIGATION. Except as described in EXHIBIT 3-14, annexed hereto,
there is not
<PAGE>
presently pending or threatened by or against the Borrower any suit, action,
proceeding, or investigation which, if determined adversely to the Borrower,
would result in a Material Adverse Change.
3-15. LOANS. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, PROVIDED, HOWEVER, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
(c) Loans which in the aggregate do not exceed $50,000.00 of
outstanding at any time.
(d) Loans described on EXHIBIT 3-15, annexed hereto.
3-16. PROTECTION OF ASSETS. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of its assets, or
take any other action that the Lender may deem necessary or desirable to repair,
insure, maintain, preserve, collect, or realize upon any of its assets. The
Lender shall not have any obligation to undertake any of the foregoing and shall
have no liability on account of any action so undertaken except where there is a
specific finding in a judicial proceeding (in which the Lender has had an
opportunity to be heard), from which finding no further appeal is available,
that the Lender had acted in actual bad faith or in a grossly negligent manner.
The Borrower shall pay to the Lender, on demand, or the Lender, in its
discretion, may add to the Loan Account, all amounts paid or incurred by the
Lender pursuant to this section. The obligation of the Borrower to pay such
amounts is a Liability.
3-17. AFFILIATE TRANSACTIONS. The Borrower shall not make any payment,
nor give any value to any Related Entity except for goods and services actually
purchased by the Borrower from, or sold by the Borrower to, such Related Entity
for a price and on terms which shall
(a) be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations, each as amended; and
(b) no be less favorable from those which would have been charged
in an arms length transaction.
<PAGE>
3-18. ADEQUACY OF DISCLOSURE.
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate.
(b) The Borrower does not have any contingent obligations or
obligation under any Lease or Capital Lease which is not noted in the Borrower's
financial statements furnished to the Lender prior to the execution of this
Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower in connection with the
execution of this Agreement by the Lender contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading. There is no
fact known to the Borrower which has, or which, in the foreseeable future could
have result in a Material Adverse Change which has not been disclosed in writing
to the Lender.
3-19. OTHER COVENANTS. The Borrower shall not indirectly do or cause to
be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 4 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
4-1. MAINTAIN RECORDS. The Borrower shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 4 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, retain independent certified public accountants
who are
<PAGE>
reasonably satisfactory to the Lender and instruct such accountants to fully
cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
4-2. ACCESS TO RECORDS. The Borrower shall accord the Lender and the
Lender's representatives with access from time to time upon forty-eight (48)
hours prior notice from the Lender, prior to the occurrence of any Event of
Default and thereafter without notice, as the Lender and such representatives
may require to all properties owned by or over which the Borrower has control.
The Lender and the Lender's representatives shall have the right, and the
Borrower will permit the Lender and such representatives from time to time as
the Lender and such representatives may request, to examine, inspect, copy, and
make extracts from any and all of the Borrower's books, records, electronically
stored data, papers, and files. The Borrower shall make all of the Borrower's
copying facilities available to the Lender.
4-3. QUARTERLY REPORTS. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's fiscal quarters, the Borrower shall
provide the Lender with an original counterpart of a management prepared
financial statement of the Borrower for the period from the beginning of the
Borrower's then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement,
statement of changes in shareholders' equity, and cash flows and comparisons for
the corresponding quarter of the then immediately previous year.
4-4. ANNUAL REPORTS.
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Borrower's annual financial statement, which statement
shall have been prepared by, and bear the unqualified opinion of, the Borrower's
independent certified public accountants (i.e. said statement shall be
"certified" by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance
sheet, income statement, statement of changes in shareholders' equity, and cash
flows.
(b) Each annual statement shall be accompanied by such
accountant's Certificate indicating that, in the preparation of such annual
statement, such accountants did not conclude that any Suspension Event had
occurred during the subject fiscal year (or if one or more had occurred, the
facts and circumstances thereof).
<PAGE>
4-5. OFFICERS' CERTIFICATES. The Borrower shall cause the
Borrower's Chief Financial Officer to provide such Person's Certificate with
those quarterly and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the financial condition of
the Borrower at the close of, and the results of the Borrower's operations and
cash flows for, the period(s) covered, SUBJECT, HOWEVER to the following:
(i) usual year end adjustments (this exception shall not be
included in the Certificate which accompanies such annual statement).
(ii) Material Accounting Changes (in which event, such
Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the financial
performance covenant imposed pursuant to Section 4-7.
(b) Indicate either that (i) no Suspension Event has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 4-7 hereof.
4-6. ADDITIONAL FINANCIAL INFORMATION.
(a) In addition to all other information required to be provided
pursuant to this Article 4, the Borrower promptly shall provide the Lender, with
such other and additional information concerning the Borrower, its assets, the
operation of the Borrower's business, and the Borrower's financial condition,
including original counterparts of financial reports and statements, as the
Lender may from time to time reasonably request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated projections of the Borrower's anticipated performance
and operating results.
(c) In all events, annually, within ninety (90) days following
the end of the Borrower's fiscal year, the Borrower shall furnish the Lender
with an updated and extended projection which shall go out at least through the
end of the then next fiscal year.
4-7. FINANCIAL PERFORMANCE COVENANTS. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBIT 4-7,
annexed hereto. Compliance with such financial performance covenants shall be
made as if no Material Accounting Changes had
<PAGE>
been made (other than any Material Accounting Changes specifically taken into
account in the setting of such covenants). The Lender may determine the
Borrower's compliance with such covenants based upon financial reports and
statements provided by the Borrower to the Lender (whether or not such
financial reports and statements are required to be furnished pursuant to
this Agreement) as well as by reference to interim financial information
provided to, or developed by, the Lender.
ARTICLE 5 - EVENTS OF DEFAULT:
The occurrence of any event described in this Article 5 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Section 5-9, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, any and all Liabilities shall become
immediately due and payable, at the option of the Lender and without notice or
demand. The occurrence of any Event of Default shall also constitute, without
notice or demand, a default under all other agreements between the Lender and
the Borrower and instruments and papers given the Lender by the Borrower,
whether such agreements, instruments, or papers now exist or hereafter arise.
5-1. FAILURE TO PAY CREDITS. The failure by the Borrower to pay any
amount within three (3) business days of when due under the Credits.
5-2. FAILURE TO MAKE OTHER PAYMENTS. The failure by the Borrower to pay
within three (3) business days of when due(or within three (3) business days of
demand, if payable on demand) any payment Liability other than under the
Credits.
5-3. FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD). The
failure by the Borrower, upon Thirty (30) days written notice by the Lender , to
cure the Borrower's failure to promptly, punctually and faithfully perform,
discharge, or comply with any covenant or Liability not described in Sections
5-1 or 5-2 hereof.
5-4. MISREPRESENTATION. Any representation or warranty at any time made
by the Borrower to the Lender, was not true or complete in all material respects
when given.
5-5. ACCELERATION OF OTHER DEBT. BREACH OF LEASE. The occurrence of any
event such that
<PAGE>
any Indebtedness in excess of $50,000.00 to any creditor other than the Lender
has been accelerated.
5-6. DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach or
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper).
5-7. UNINSURED CASUALTY LOSS. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the Borrower's
assets.
5-8. JUDGMENT. RESTRAINT OF BUSINESS.
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds in excess of $50,000.00 on deposit with, or assets of the Borrower in the
possession of, the Lender or such Participant.
(b) The entry of any judgment against the Borrower in excess of
$50,000.00, which judgment is not satisfied (if a money judgment) or appealed
from (with execution or similar process stayed) within fifteen (15) days of its
entry.
5-9. BUSINESS FAILURE. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower, or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; the offering by or entering into by the Borrower of any
composition, extension, or any other arrangement seeking relief from or
extension of the debts of the Borrower; or the initiation of any judicial or
non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with
creditors; and/or the initiation by or on behalf of the Borrower of the
liquidation or winding up of all or any part of the Borrower's business or
operations.
5-10. BANKRUPTCY. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may
be granted any relief
<PAGE>
from the debts of the Borrower pursuant to the Bankruptcy Code or any other
insolvency statute or procedure; the filing of any complaint, application, or
petition against the Borrower initiating any matter in which the Borrower is or
may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure, which complaint,
application, or petition is not timely contested in good faith by the Borrower
by appropriate proceedings or, if so contested, is not dismissed within sixty
(60) days of when filed.
5-11. MATERIAL ADVERSE CHANGE. The occurrence of any Material Adverse
Change.
5-12. INDICTMENT - FORFEITURE. The indictment of, or institution of any
legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower and/or the imposition of any stay or other order, the effect of which
could be to restrain in any material way the conduct by the Borrower of its
business in the ordinary course.
5-13. CHANGE IN CONTROL. Any Change in Control.
ARTICLE 6 - RIGHTS AND REMEDIES UPON DEFAULT:
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Lender's exercise of any of such rights and remedies.
6-1. RIGHTS OF ENFORCEMENT. The Lender shall have the right to
exercise all or any of the rights, remedies, powers, privileges, and discretions
under all or any of the Loan Documents.
6-2. RIGHTS AND REMEDIES. The rights, remedies, powers, privileges, and
discretions of the Lender hereunder (herein, the " LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default or
of any default under
<PAGE>
any other agreement shall operate as a waiver of any other default hereunder or
under any other agreement. No single or partial exercise of any of the Lender's
Rights or Remedies, and no express or implied agreement or transaction of
whatever nature entered into between the Lender and any person, at any time,
shall preclude the other or further exercise of the Lender 's Rights and
Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies on
any one occasion shall be deemed a waiver on any subsequent occasion, nor shall
it be deemed a continuing waiver. All of the Lender's Rights and Remedies and
all of the Lender's rights, remedies, powers, privileges, and discretions under
any other agreement or transaction are cumulative, and not alternative or
exclusive, and may be exercised by the Lender at such time or times and in such
order of preference as the Lender in its sole discretion may determine. The
Lender's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
ARTICLE 7 - NOTICES:
7-1. NOTICE ADDRESSES. All notices, demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Credits) shall be made to the following
addresses, each of which may be changed upon seven (7) days written notice to
all others given by certified mail, return receipt requested:
If to the Lender:
Citizens Bank of Massachusetts
28 State Street
Boston, Massachusetts 02108
Attention : Mr. Randall L. Kutch
Vice President
Fax : 617 725-5693
WITH A COPY TO:
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention : Robert E. Paul, Esquire
Fax : 617 880-3456
If to the Borrower:
UFP Technologies, Inc.
172 East Main Street
Georgetown, Massachusetts 01833
<PAGE>
Attention : Mr. Ronald Lataille
Fax : 978 352-5616
WITH A COPY TO: Lynch, Brewer, Hoffman & Sands, LLP
101 Federal Street
Boston, Massachusetts 02110
Attention : Owen B. Lynch, Esquire
Fax: :617 951-0811
7-2. NOTICE GIVEN.
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or
Three (3) days following deposit in the United States mail, postage
prepaid.
(ii) By recognized overnight express delivery: the
Business Day following the day when sent.
(iii) By Hand: If delivered on a Business Day after
9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, when delivered.
Otherwise, at the opening of the then next Business Day.
(iv) By Facsimile transmission (which must include a
header on which the party sending such transmission is indicated): If
sent on a Business Day after 9:00 AM and no later than Three (3) hours
prior to the close of customary business hours of the recipient, one
(1) hour after being sent. Otherwise, at the opening of the then next
Business Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 8 - TERM:
8-1. TERMINATION OF CREDITS.
(a) The Credits shall remain in effect (subject to suspension
as provided in Section 2-3(h) hereof) until the Termination Date.
(b) On the Termination Date, the Borrower shall pay the Lender
(whether or not then due), in immediately available funds, the then entire
balance of the Loan Account; all accrued and unpaid interest thereon; any
payments due on account of the indemnification obligations included in Section
2-8(e);and shall make such arrangements concerning any L/C's then outstanding
are reasonably satisfactory to the Lender.
<PAGE>
8-2. PAYMENT S AT MATURITY Until all payments due under this Agreement
have been paid or provided for in accordance with Section 8-1, all provisions of
this Agreement, other than those contained in Article 2 which place an
obligation on the Lender to make any loans or advances or to provide financial
accommodations under the Credits or otherwise, shall remain in full force and
effect until all Liabilities shall have been paid in full.
ARTICLE 9 - GENERAL:
9-1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns. In
the event that the Lender assigns or transfers its rights under this Agreement,
the assignee shall thereupon succeed to and become vested with all rights,
powers, privileges, and duties of the Lender hereunder and the Lender shall
thereupon be discharged and relieved from its duties and obligations hereunder.
9-2. SEVERABILITY. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
9-3. AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between the Borrower and the Lender, either
express or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
<PAGE>
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower and
consequently may be rescinded in the event that any of such representations or
warranties was not true and complete in all material respects when given.
9-4. LENDER'S COSTS AND EXPENSES.
(a) The Borrower shall pay on demand all Costs of Collection
and all reasonable expenses of the Lender in connection with the preparation,
execution, and delivery of this Agreement and of any other Loan Documents,
whether now existing or hereafter arising, and all other reasonable expenses
which may be incurred by the Lender in preparing or amending this Agreement and
all other agreements, instruments, and documents related thereto, or otherwise
incurred with respect to the Liabilities, and all costs and expenses of the
Lender which relate to the credit facility contemplated hereby.
(b) The Borrower authorizes the Lender to pay all such fees
and expenses and in the Lender's discretion, to add such reasonable fees and
expenses to the Loan Account.
(c) The undertaking on the part of the Borrower in this
Section 9-4 shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Lender in favor of the Borrower, other
than a termination, release, or discharge which makes specific reference to this
Section 9-4.
9-5. COPIES AND FACSIMILES. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
9-6. MASSACHUSETTS LAW. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
9-7. CONSENT TO JURISDICTION.
<PAGE>
(a) The Borrower agrees that any legal action, proceeding, case,
or controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Suffolk County Massachusetts. By execution and
delivery of this Agreement, the Borrower, for itself and in respect of its
property, accepts, submits, and consents generally and unconditionally, to the
jurisdiction of the aforesaid courts.
(b) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Suffolk County, sitting in Boston, Massachusetts, and that such Courts
shall have exclusive jurisdiction with respect to any such action.
9-8. INDEMNIFICATION. The Borrower shall indemnify, defend, and hold
the Lender and any employee, officer, or agent of the Lender (each, an
"INDEMNIFIED PERSON") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, or any other Person (as well as
from attorneys' reasonable fees and expenses in connection therewith) on account
of the relationship of the Borrower with the Lender (each of claims which may be
defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Lender's selection, but at the expense of the Borrower) other
than any claim as to which a final determination is made in a judicial
proceeding (in which the Lender and any other Indemnified Person has had an
opportunity to be heard), which determination includes a specific finding that
the Indemnified Person seeking indemnification had acted in a grossly negligent
manner or in actual bad faith. This indemnification shall survive payment of the
Liabilities and/or any termination, release, or discharge executed by the Lender
in favor of the Borrower, other than a termination, release, or discharge which
makes specific reference to this Section 9-8.
9-9. RULES OF CONSTRUCTION. The following rules of construction shall
be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(a) Words in the singular include the plural and words in the
plural include the singular.
(b) Titles, headings (indicated by being UNDERLINED or shown in
Small Capitals) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without limitation"
(or similar words) is illustrative and not limitational.
(e) Except where the context otherwise requires or where the
relevant
<PAGE>
subsections are joined by "or", compliance with any Section or provision of any
Loan Document which constitutes a warranty or covenant requires compliance with
all subsections (if any) of that Section or provision. Except where the context
otherwise requires, compliance with any warranty or covenant of any Loan
Document which includes subsections which are joined by "or" may be accomplished
by compliance with any of such subsections.
(f) Text which is shown in ITALICS, shown in BOLD, shown IN ALL
CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.
(g) The words "may not" are prohibitive and not permissive.
(h) The word "or" is not exclusive.
(i) Any reference to a Person's "knowledge" (or words of similar
import) are to such Person's knowledge assuming that such Person has undertaken
reasonable and diligent investigation with respect to the subject of such
"knowledge" (whether or not such investigation has actually been undertaken).
(j) Terms which are defined in one section of any Loan Document
are used with such definition throughout the instrument in which so defined.
(k) The symbol "$" refers to United States Dollars.
(l) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.
(m) References to "this Agreement" or to any other Loan Document
is to the subject instrument as amended to the date on which application of such
reference is being made.
(n) Except as otherwise specifically provided, all references to
time are to Boston time.
(o) In the determination of any notice, grace, or other period of
time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act, event,
or default from which the designated period of time begins to run shall
not be included and the last day of the period so computed shall be
included unless such last day is not a Business Day, in which event the
last day of the relevant period shall be the then next Business Day and
(II) the period so computed shall end at 5:00 PM on the relevant
Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but
excluding".
(iv) The word "through" means "to and including".
(p) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 9-9
hereof, PROVIDED, HOWEVER, in the event of any inconsistency between the
provisions of this Agreement and any other Loan Document, the provisions of this
Agreement shall govern and control.
<PAGE>
9-10. INTENT. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) All reasonable costs and expenses incurred by the Lender in
connection with the Lender's relationship(s) with the Borrower shall be borne by
the Borrower.
9-11. RIGHT OF SET-OFF. Any and all deposits or other sums at any time
credited by or due to the Borrower from the Lender or any participant (a
"PARTICIPANT") in the credit facility contemplated hereby or any from any
Affiliate of the Lender or any Participant and any cash, securities, instruments
or other property of the Borrower in the possession of the Lender any
Participant or any such Affiliate, whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all times
constitute security for all Liabilities and for any and all obligations of the
Borrower to the Lender or any Participant or any such Affiliate and may be
applied or set off against the Liabilities and against such obligations at any
time after the occurrence of an Event of Default.
9-12. MAXIMUM INTEREST RATE. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as collateral for
the Liabilities.
9-13. WAIVERS.
(a) The Borrower make each of the waivers included in Section
9-13(b), below, knowingly, voluntarily, and intentionally, and understands that
the Lender, in entering into the financial arrangements contemplated hereby and
in providing loans and other financial accommodations to or for the account of
the Borrower as provided herein, whether not or in the future, is relying on
such waivers.
(b) THE BORROWER WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all forms of demand
and notice, both with respect to the Liabilities and its assets.
(ii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH
CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH
THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY
<PAGE>
ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN
THE BORROWER OR ANY OTHER PERSON AND THE LENDER (AND THE LENDER
LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR
CONTROVERSY).
(iii) Any claim to consequential, special, or punitive
damages.
UFP TECHNOLOGIES, INC.
("BORROWER")
By_________________________________
Print Name:________________________________
Title:________________________________
MOULDED FIBRE TECHNOLOGY, INC.
("BORROWER")
By_________________________________
Print Name:________________________________
Title:________________________________
CITIZENS BANK OF MASSACHUSETTS
("LENDER")
By_________________________________
Print Name:________________________________
Title:________________________________
<PAGE>
Exhibit 10.38.30
SUPPLY AGREEMENT
THIS AGREEMENT is made as of January 1, 1999,
BETWEEN:
WOODBRIDGE FOAM CORPORATION 4240
Sherwoodtowne Blvd.,
Mississauga, Ontario, Canada L4Z 2G6
("Woodbridge")
- and -
UFP TECHNOLOGIES, INC.
172 East Main Street
Georgetown, Maryland, USA 01833-2107
("UFP")
WHEREAS Woodbridge intends to issue a purchase order to UFP for the supply
of fabricated and/or thermoformed energy absorbing polyurethane foam roofrails
for the D-186 program;
WHEREAS this is the first of what the parties hope to be several programs
for which UFP will supply to Woodbridge fabricated and/or thermoformed
non-decorative, energy absorbing polyurethane foam, automotive interior
passenger protection parts ("EA Parts");
AND WHEREAS the parties desire that this Agreement will govern the
relationship and apply to all purchase orders issued by Woodbridge to UFP for EA
Parts.
THEREFORE, Woodbridge and UFP agree as follows:
1. EXCLUSIVITY
The parties agree that, during the term of this Agreement:
(a) UFP will exclusively supply EA Parts to Woodbridge and will not supply
EA Parts to, nor for, any other party; and
(b) so long as UFP provides Woodbridge with competitive service, delivery
and quality at the agreed upon prices throughout the term of this Agreement,
Woodbridge will exclusively purchase EA Parts for the D-186 program from UFP.
2. TECHNOLOGY
(a) Woodbridge agrees that any and all inventions, improvements and
discoveries (collectively, "Processing Inventions"), whether or not patentable,
which UFP may conceive or make, in connection with the process of manufacturing,
fabricating or thermoforming the EA Parts manufactured pursuant to this
Agreement shall be the sole and exclusive property of UFP.
(b) In the event that this Agreement is terminated for cause or any portion
of a program is in-sourced by Woodbridge due to UFP's inability to fulfil the
program requirements, UFP agrees to grant to Woodbridge a fully paid-up
non-exclusive licence to use such Processing Inventions in its business for the
life of the respective EA Parts' programs.
<PAGE>
Supply Agreement - Page 2
(c) UFP agrees that any and all inventions, improvements and discoveries
(collectively, "Product Inventions"), whether or not patentable, which it may
conceive, contribute to, or make, in connection with the product attributes of
the EA Parts manufactured pursuant to this Agreement shall be the sole and
exclusive property of Woodbridge.
(d) Woodbridge agrees to grant to UFP a fully paid-up non-exclusive licence
to use such Product Inventions solely to supply Woodbridge with such EA Parts.
3. LIABILITY
Woodbridge acknowledges that UFP shall not be responsible for the
suitability of the EA Parts for their intended use.
4. TERM AND TERMINATION
(a) The term of this Agreement shall commence on January 1, 1999 and shall
run for a period of four (4) years and shall automatically be extended for
additional one (1) year periods, unless earlier cancelled or terminated in
accordance with the provisions of this Agreement. Either party may give written
notice to the other party of its intention to terminate this Agreement at least
six (6) months prior to the end of the term or any renewal thereof.
(b) Woodbridge shall have the right to cancel this Agreement and any
purchase order without cause and Woodbridge's liability for cancellation shall
be limited as follows:
(i) in the event Woodbridge cancels any purchase order for the supply of
EA Parts for the D-186 program effective within four years of the date of this
Agreement, Woodbridge's liability will be limited to UFP's actual cost for work
and materials applicable to each blanket purchase order which shall have been
authorized by Woodbridge and actually expended when the notice of cancellation
was received by UFP, plus reimbursement for the custom equipment built or
purchased specifically for the D-186 program as follows:
<TABLE>
<CAPTION>
CANCELLATION DURING: COST REIMBURSED:
<S> <C>
Year 1 $300,000
Year 2 $225,000
Year 3 $150,000
Year 4 $ 75,000
</TABLE>
(ii) in the event either party shall cease to exist or become
insolvent or the subject of bankruptcy or insolvency proceedings or shall commit
a material breach of this Agreement, the non-breaching party shall have no
liability to other party;
(iii) in the event Woodbridge cancels a purchase order for the
supply of EA Parts for the D-186 program effective after the fourth anniversary
of this Agreement or a purchase order for the supply of any parts for any
program other than the D-186 program at any time, Woodbridge's liability will be
limited to UFP's actual cost for work and materials applicable to each purchase
order which has been authorized by Woodbridge and actually expended when the
notice of cancellation was received by UFP.
<PAGE>
Supply Agreement - Page 3
5. BUSINESS PROCEDURES
The parties agree that they will conduct business with one another in the
following manner:
(a) MARKETING. Woodbridge will be responsible for all marketing and sales
activity related to the EA Parts. Any and all communication with Tier 1 and OEM
customers ("Customers") will be the sole responsibility of Woodbridge. In this
regard, UFP agrees that it will not communicate with, nor solicit any EA Parts
business from Customers, without the express written consent of Woodbridge.
(b) FOAM PRODUCTION. UFP agrees to purchase all of the slab energy
absorbing polyurethane foam required to manufacture the EA Parts (the "Foam")
exclusively from Woodbridge. However, at Woodbridge's sole option, Woodbridge
may from time to time provide UFP with its written consent to allow UFP to
purchase Foam from another manufacturer upon terms approved by Woodbridge.
(c) PURCHASE AND SALE. During the term of this agreement, UFP agrees to
supply EA Parts to Woodbridge on the terms and in the manner set forth in this
agreement, which includes the Standard Terms and Conditions (the "Standard
Terms") attached as Appendix A and The Woodbridge Group Supplier Requirements
Addendum to the QS-9000, as amended from time to time (the "QS-9000 Addendum")
(collectively, this "Agreement"). The general terms set forth in this Agreement
(which include the Standard Terms and the QS-9000 Addendum, as amended from time
to time) shall govern and shall be applicable to any purchase order between UFP
and Woodbridge and shall supersede and take priority over any contrary or
inconsistent terms set forth in any other document, acknowledgement, ASN, or
confirmation whether oral, pre-printed, typed or hand-written. The only manner
in which any provision of this Agreement may be superseded or overridden is by a
typewritten document signed by both UFP and Woodbridge specifically identifying
and referring to this Agreement and the particular provisions to be superseded
or overridden. In the event of any conflict between the terms of a purchase
order and the various documents which constitute this Agreement, the governing
provision shall be that which is found in the first of the following documents
which are listed in descending order of priority: the face of the purchase
order, this agreement, the Standard Terms and the QS-9000 Addendum.
(d) PURCHASE ORDERS. Woodbridge or its affiliates may issue purchase orders
to UFP from time to time for EA Parts which incorporate the Foam. Upon
acceptance of a purchase order that sets out specific quantities of EA Parts to
be supplied (i.e. a spot buy), UFP shall supply such EA Parts in accordance with
the specific terms contained in the purchase order and the general terms
contained in this Agreement. However, upon acceptance of a purchase order which
does not set out particular quantities of EA Parts to be supplied ("Blanket
Purchase Orders"), UFP shall be deemed to agree to supply, at Woodbridge's sole
option, all of Woodbridge's requirements for such EA Parts during the life of
the program. Pursuant to such Blanket Purchase Orders, Woodbridge or its
affiliates may periodically issue product release orders to UFP for deliveries
of quantities of EA Parts as required and UFP shall deliver such quantities of
EA Parts to Woodbridge in accordance with the specific terms of the release, the
Blanket Purchase Order and the general terms of this Agreement.
(e) QS-9000. UFP agrees to adhere to the intent of QS-9000 and to comply
with
<PAGE>
Supply Agreement - Page 4
Woodbridge's QS-9000 Addendum. Woodbridge agrees to provide reasonable
assistance to UFP in UFP's efforts to upgrade their current ISO9000
certification to a QS-9000 certification.
(f) PRICE REDUCTIONS. Price reduction goals established by Customers (i.e.
pursuant to Long Term Agreements or otherwise) will be shared by Woodbridge and
UFP in proportion to their respective value added to the EA Parts sold to
Customers. In this regard, UFP agrees to reduce its price for EA Parts in
amounts necessary to meet its proportionate share of Customer's price reduction
goals on a timely basis. Any additional savings will be proportionally shared
between Woodbridge and UFP.
(g) QUALITY REPORTS. Woodbridge will provide to UFP out-turn quality
reports related to Foam upon request. Woodbridge and UFP will share open quality
books with one another and with Customers, if necessary.
6. CONFIDENTIALITY
Both parties recognize the importance of confidentiality with respect to
this Agreement and the contents of the purchase orders. Each party therefore
undertakes not to disclose the terms and conditions under this Agreement or any
purchase order to any third party without the prior written consent of the other
party unless it was required to be disclosed pursuant to law, regulation or
mandatory order of judicial or governmental or local authority or either party
reasonably requires it to be disclosed for legal or tax purposes.
The parties hereto also recognize and agree that all information made
available by one party to the other shall be and remain the property of the
submitting party and shall be kept strictly confidential by the receiving party
when designated as confidential in tangible form, unless written permission to
the disclosure has been given prior to the disclosure, or the information (i)
was in the receiving party's possession prior to the receipt from the submitting
party, or (ii) became a matter of general public knowledge through no fault of
the receiving party, or (iii) was rightfully received by the receiving party
from a third party without an obligation of confidence, or (iv) was
independently developed by the receiving party, or (v) was required to be
disclosed pursuant to law, regulation or mandatory order of judicial or
governmental or local authority.
7. NOTICES
Any notice or other communications required by this Agreement shall be in
writing and shall be deemed given when delivered in person or received by the
addressee at the above address.
IN WITNESS WHEREOF, the parties hereto cause this Agreement to be executed
in duplicate by their duly authorized representatives, respectively.
WOODBRIDGE FOAM CORPORATION UFP TECHNOLOGIES, INC.
By: David Fowler By: /s/ R. JEFFREY BAILLY
--------------------------- ---------------------------
Name: V.P. R&P, Purch. Name: R. Jeffrey Bailly
------------------------ ------------------------
Title: David Fowler Title: President
----------------------- ------------------------
Date: April 26/99 Date: 4/15/99
------------------------- -------------------------
<PAGE>
Supply Agreement - Page 5
By: /s/ DAVID MILLER
---------------------------
Name: David Miller
-------------------------
Title: VP Technology
-----------------------
Date: April 30/99
-------------------------
<PAGE>
Supply Agreement - Page 6
APPENDIX A
STANDARD TERMS AND CONDITIONS
References to "Purchase Orders" in these Standard Terms shall include
purchase orders, releases and tooling purchase orders, as applicable.
1. GOVERNING PROVISION
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE PROVINCE OF ONTARIO. THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL NOT BE GOVERNED BY THE PROVISIONS OF THE 1980
U.N. CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.
2. CHANGES IN PURCHASE ORDER
Woodbridge reserves the right at any time to change specifications,
methods of shipment or packing, or place or time of delivery. If any such
change causes an increase or decrease in the cost of or the time required
for performance of UFP's obligations under a Purchase Order, an equitable
adjustment shall be made in the contract price or delivery schedule, or
both, or Woodbridge may at its option, cancel a Purchase Order if
agreement on an equitable adjustment cannot be reached. Any claim by UFP
for adjustment under this Article shall be deemed waived unless asserted
in writing within thirty (30) days from receipt by UFP of the change
order. Price increases or extensions of time for delivery shall not be
binding on Woodbridge unless evidenced by a Purchase Order change notice
issued by Woodbridge. No substitutions, changes or modifications of the
ordered item shall be made except upon Woodbridge's written authority.
3. DELIVERY AND DELAY
UFP shall deliver the EA Parts in the quantities and within the time,
which is of the essence, in accordance with the specifications, drawings
or approved samples, and at the prices specified in a Purchase Order.
Failure of UFP to comply with such requirements shall entitle Woodbridge,
in addition to any other rights or remedies afforded Woodbridge by law or
contract, to cancel the Purchase Order and be relieved of all liability
for any undelivered portion. If shipment is delayed for any cause, UFP
must report the same to Woodbridge promptly. Failure of Woodbridge to
insist upon strict performance shall not constitute a waiver of any of
the provisions of the Purchase Order or waiver or any default. Any
failure by Woodbridge to exercise its remedies with respect to any
instalment shall not be deemed to constitute a waiver with respect to
subsequent instalments.
4. NOTICE OF SHIPPING, PACKING AND RISK OF LOSS
All EA Parts shall be suitably packed, marked with Woodbridge's Purchase
Order Number and shipped in accordance with shipping instructions
specified in the Purchase Order and the QS-9000 Addendum and otherwise in
accordance with the requirements of common carriers so as to obtain the
lowest transportation cost. UFP shall be liable to Woodbridge for any
loss or damage resulting from UFP's failure to provide adequate
protection during shipment. Additional expenses, charges or claims
incurred as a result of deviation from the specified route,
non-compliance with other shipping instructions, or improper description
of the shipment in shipping documents shall be assumed by UFP. Risk that
the ordered EA Parts may be lost, damaged or delayed in transit shall be
upon UFP until conforming EA Parts have been actually received, inspected
and accepted by Woodbridge.
5. WARRANTIES, REMEDIES
UFP warrants that EA Parts to be furnished hereunder shall, during the
warranty period specified below, (a) be free and clear of all liens and
encumbrances, good and merchantable title thereto being in UFP; (b) be
free from any defects in material or workmanship (latent or otherwise)
and of good and merchantable quality; (c) conform to Woodbridge's
specifications and drawings and with representations with respect thereto
previously made by UFP and (d) comply and have been produced, processed,
packaged, labelled, delivered and sold in conformity with all applicable
<PAGE>
Supply Agreement - Page 7
federal, provincial, state or other laws, administrative regulations and
orders, including but not limited to the Occupational Safety and Health
Act of 1971 (U.S.) as amended from time to time. The warranty period will
continue for the same period as the warranty period offered by
Woodbridge, its Customer, whichever is longer. The foregoing warranties
shall survive inspection, delivery and payment and shall run in favour of
Woodbridge, its successors and assigns and its customers, whether direct
or indirect.
If any such EA Parts shall be found to be unsatisfactory, defective or
inferior in quality, or not to conform to Woodbridge's specifications or
any other requirements thereof (including UFP's warranties), Woodbridge
may, at its option return such EA Parts to UFP for replacement, credit or
refund, as Woodbridge shall direct. Woodbridge shall also have the right
to cancel any unshipped portions of any Purchase Order. Woodbridge shall
be reimbursed by UFP for all of the costs and expenses in connection with
the storage, handling, packing and/or transporting of any such defective
or otherwise non-conforming EA Parts, and UFP shall assume all risk of
loss or damage in transit to EA Parts returned by Woodbridge.
Furthermore, UFP shall indemnify Woodbridge for a sorting and labour
costs incurred by Woodbridge or its customer with respect to any such
defective or otherwise non-conforming EA Parts. Woodbridge's remedies for
breach of the warranties set out in this Section are hereby expressly
limited to the foregoing.
6. INDEMNIFICATION BY UFP
UFP shall indemnify Woodbridge, its successors and assigns against any
and all losses, damages and expenses (including attorneys' fees and other
costs of defending any action) which they or any of them, may sustain or
incur as a result of any claim for property damage, personal injury or
death arising out of negligence, strict liability in tort or based on any
other theory of law in connection with the EA Parts furnished by UFP, or
as a result of any claim that the EA Parts furnished by UFP fail to
conform to or comply with any federal, provincial, state or local laws,
regulations or standards, save and except as any claim relates to the
Foam material manufactured by Woodbridge and supplied to UFP or any claim
based on negligent design of EA Parts.
7. INSURANCE
UFP shall procure and maintain during the entire term of this Agreement
product liability insurance. The insurance shall be with limits and with
a carrier or carriers reasonably satisfactory to Woodbridge. UFP shall
furnish Woodbridge with certificates of such insurance before commencing
such work. The insurance shall provide that the policy shall not be
cancelled or reduced in coverage until ten (10) days after written notice
shall have been given to Woodbridge of cancellation or reduction in
coverage. All insurance shall name Woodbridge as an additional insured.
8. WOODBRIDGE'S DAMAGES
Subject to the limitation set out in Section 5, UFP shall be responsible
for any and all losses, liabilities, damages and expenses and including
but not limited to attorneys fees and other costs of prosecuting an
action for breach, which Woodbridge may sustain or incur as a result of
any breach of this Agreement.
9. PRICES
Woodbridge shall not be billed at prices higher than those stated on a
Purchase Order, and no additional charges of any kind shall be imposed,
unless authorized by a Purchase Order change notice issued by Woodbridge.
UFP represents that the price charged for the EA Parts comply with
applicable government regulations in effect at time of quotation, sale or
delivery.
10. PATENTS, TRADEMARKS AND COPYRIGHTS
Except for EA Parts ordered in accordance with Woodbridge's design, UFP
warrants that the sale or use of EA Parts furnished hereunder will not
infringe or contribute to infringement of any patent, copyright,
trademark, trade secret or other proprietary right or subject Woodbridge
or its customers (direct or indirect) to royalties in Canada, the United
States or elsewhere, and shall indemnify and
<PAGE>
Supply Agreement - Page 8
save harmless Woodbridge, its successors and assigns and its customers
(whether direct or indirect), against any and all losses, damages and
expenses (including attorneys' fees and other costs of defending any
infringement action) which they, or any of them, may sustain or incur as
the result of a breach of its warranty.
11. FAIR LABOUR STANDARDS CERTIFICATE
UFP hereby certifies that all EA Parts furnished hereunder shall have
been produced in accordance with all applicable provincial, state and
federal laws governing general conditions for labour employed in the
production of such EA Parts.
12. NON-ASSIGNABILITY
UFP shall not assign or sublet the work to be done hereunder without the
prior written consent of Woodbridge, but this provision shall not
restrict UFP in the procurement of component parts or materials. UFP will
ensure that any and all third parties to whom UFP subcontracts any of the
work hereunder are bound by all of the terms and conditions contained in
this Agreement.
13. FORCE MAJEURE
Woodbridge shall not be liable for any damage as a result of any delay or
failure to accept delivery due to any act of God, act of UFP, embargo or
other governmental act, regulation or request, fire, accident, strike,
slowdown or other labour difficulties, war, riot, delay in
transportation, defaults of common carriers, inability to obtain
necessary labour, materials, or manufacturing facilities or, without
limiting the foregoing, any other delays beyond the Woodbridge's control
which shall affect the Woodbridge's ability to receive and use the EA
Parts or services in the event of such delay, the date of delivery shall
be extended for a period equal to the time lost because of the delay.
UFP's exclusive remedy for other delays and for Woodbridge's inability to
accept delivery for any reason shall be rescission of the Purchase Order.
14. GOVERNMENT CONTRACT NON-DISCRIMINATION IN EMPLOYMENT PROVISION
If any Purchase Order is in furtherance of a government contract or
subcontract or is otherwise subject to any legislation governing such
contracts, the contract provisions required therein are hereby
incorporated by reference.
15. AUDIT RIGHTS
Woodbridge will have the right at any reasonable time to send its
authorized representatives to UFP's offices, warehouses and production
facilities to examine UFP's processes and quality systems and all
pertinent documents, data and materials in the possession or under the
control of UFP relating to any of UFP's obligations under a Purchase
Order or this Agreement or to verify any aspects of UFP's responses to
Woodbridge's self-assessment survey. Woodbridge will also have the right
to interview any of UFP's current and former employees. Seller shall
maintain all pertinent books and records relating to a Purchase Order for
a period of six (6) years after completion of services or delivery of EA
Parts.
16. ARBITRATION
If either party initiates litigation on contractual issues, the other
party shall have the right to institute mediation and binding arbitration
in the Province of Ontario in accordance with the laws of that province.
Each party will bear equally the costs of the mediation and arbitration.
17. YEAR 2000
UFP represents and warrants that all of its Systems are Year 2000
compliant and that there will be no interruption of supply to Woodbridge
and no increase in cost to Woodbridge. For the purposes of this section,
"Systems" shall mean all information and computer systems, equipment and
devices used in any of UFP's operations, including but not limited to
material forecasting and logistics, EDI, computer hardware and software,
financial and procurement systems, lot traceability and quality data,
manufacturing processes, diagnostics, inspection equipment and bar code
scanning
<PAGE>
Supply Agreement - Page 9
equipment.
18. SURVIVAL OF TERMS
The provisions of Articles 5, 6, 7, 8, 10 and 18 will survive the
termination of this Agreement.
<PAGE>
Exhibit 10.42
[LETTERHEAD]
- --------------------------------------------------------------------------------
December 17, 1999
VIA FEDERAL EXPRESS
Mr. James J. Cramer
Cramer Partners, L.P.
40 Fulton Street, 24th fl.
New York, NY 10038
Dear Mr. Cramer:
The purpose of this letter is to set forth our agreement with respect to
the purchase by UFP Technologies, Inc. ("UFP") of 570,000 shares of the common
stock (the "Common Stock") of UFP from the persons listed on Schedule A hereto
(the "Cramers").
1. Subject to the approval of UFP's Board of Directors, UFP hereby agrees
to purchase 570,000 shares of Common Stock (the "Stock") from the Cramers
pursuant to the terms hereof at $2-13/16 per share. Upon notice of satisfaction
of the conditions set forth in this Section 1, the Cramers shall deliver
promptly to UFP certificates representing the Stock, endorsed in blank and in
proper form for transfer (the "Certificates"). Upon receipt of the Certificates,
UFP shall wire the purchase price for the Stock in accordance with the written
instructions of James J. Cramer.
2. The Cramers hereby represent and warrant that: (i) the Cramers own, hold
and have good and marketable title to all the Stock, free and clear of any and
all liens, pledges and encumbrances of any kind, (ii) the Cramers have
beneficially owned the Stock for more than two years prior to the date of this
Agreement, (iii) the Cramers are authorized to enter into this Agreement and the
transactions contemplated hereby and (iv) the Cramers' execution of this
Agreement and performance of the Cramers' obligations under this Agreement will
not violate, breach or conflict with any agreements or court orders to which the
Cramers are subject.
3. The Cramers hereby further acknowledge: (i) that the Cramers approached
UFP and proposed that UFP repurchase the Stock; (ii) that UFP from time to time
considers strategic alliances, joint ventures and acquisitions, as well as share
buy-back, going-private and change-of-control transactions; and (iii) that there
may be material, nonpublic information regarding UFP that has not been disclosed
to the Cramers and that could dramatically increase or decrease the value of the
Stock, such as information
<PAGE>
James J. Cramer
Cramer Partners, L.P.
December 17, 1999, page 2
- --------------------------------------------------------------------------------
concerning transactions like those described above or other matters, such as
product introductions, new customers or changes in the competitive landscape.
4. The Cramers hereby acknowledge and agree that the Cramers will not,
directly or indirectly, without the prior written consent of UFP, sell, offer,
contract to sell, pledge, grant any option to purchase or otherwise dispose of
any shares of Common Stock (other than the Stock in accordance with the
provisions of this Agreement) or any securities convertible into or exchangeable
for, or any rights to purchase or acquire, Common Stock held by them or which
may be deemed to be beneficially owned by them pursuant to the rules and
regulations promulgated under the Securities Act of 1933, as amended, for a
period of 180 days after the date of this Agreement. The foregoing sentence
shall not apply: (a) to transfers by way of testate or intestate cessation or by
operational law; (b) to transfers to members of the immediate family of the
undersigned who agree in writing to be bound by the terms and provisions of this
paragraph 4 or to a trust, partnership, limited liability company or any other
entity, all of the beneficial interests of which are held by the undersigned;
(c) to transfers to charitable organizations who agree in writing to be bound by
the terms and provisions of this paragraph 4; (d) to transactions relating to
shares of Common Stock or other securities acquired in open market transactions
after the completion of the sale of the Stock back to UFP as contemplated by
this Agreement; or (e) to transfers pursuant to any tender offer, exchange
offer, merger or other extraordinary transaction which is recommended by the
Board of Directors of UFP.
5. The Cramers, on their behalf and on behalf of each of their affiliates,
hereby release and forever discharge UFP, and each of UFP's respective past,
present and future representatives, affiliates, stockholders, directors,
officers, controlling persons, subsidiaries, successors and assigns
(individually, a "Releasee" and collectively, "Releasees") from any and all
claims, demands, proceedings, causes of action, orders, obligations, contracts,
agreements, debts and liabilities whatsoever, whether known or unknown,
suspected or unsuspected, both at law and in equity, which the Cramers or any of
the Cramers' respective affiliates now have, have ever had or may hereafter have
against the respective Releasees arising by virtue of the sale of Stock
hereunder.
6. This Agreement constitutes the entire agreement between the parties. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the parties. No waiver by any party of
any default, misrepresentation or breach of warranty or a covenant hereunder,
whether intentional or not, shall be effective unless in writing and signed by a
person duly authorized to waive the interests of such party. No such waiver
shall be deemed to extend to any prior or subsequent default, misrepresentation
or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence. 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. This
<PAGE>
James J. Cramer
Cramer Partners, L.P.
December 17, 1999, page 3
- --------------------------------------------------------------------------------
Agreement shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts, regardless of the laws that might otherwise
govern under applicable conflicts of laws thereof.
If the agreement set forth herein is acceptable to you, please sign below
where indicated.
Sincerely,
UFP TECHNOLOGIES, INC.
By: /s/ R. JEFFREY BAILLY
------------------------------------
R. Jeffrey Bailly, President & CEO
Accepted and Agreed:
J.J. CRAMER & CO.
By:
----------------------------
/s/ JAMES J. CRAMER
- ----------------------------
James J. Cramer
- ----------------------------
Karen L. Cramer
CRAMER PARTNERS, L.P.
By: CRAMER CAPITAL CORPORATION
Its general partner
By: /s/ JAMES J. CRAMER
----------------------------
Name: James J. Cramer
Title: President
CRAMER CAPITAL CORPORATION
By: /s/ JAMES J. CRAMER
----------------------------
Name: James J. Cramer
Title: President
<PAGE>
James J. Cramer
Cramer Partners, L.P.
December 17, 1999, page 4
- --------------------------------------------------------------------------------
SCHEDULE A
J.J. Cramer & CO.
James J. Cramer
Karen L. Cramer
Cramer Partners, L.P.
Cramer Capital Corporation
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent Public Accountants, we hereby consent to the incorporation by
reference of our report dated February 18, 2000, included in this Form 10K, into
registration statements previously filed by UFP Technologies, Inc. on,
respectively, Form S-8, File No. 33-32248; Form S-8, File No. 333-56741; and
Form S-8, File No. 33-76440.
/S/ ARTHUR ANDERSEN LLP
- ---------------------------
Boston, Massachusetts
March 21, 2000
<PAGE>
Exhibit 23.02
The Board of Directors
UFP Technologies, Inc.
We consent to the inclusion in Form 10-K of UFP Technologies, Inc. of our report
dated February 25, 1999, with respect to the consolidated balance sheet of UFP
Technologies, Inc. and subsidiary as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the two-year period ended December 31, 1998 and all related
schedules, which reports appear in the Form 10-K of UFP Technologies, Inc. dated
March 30, 1999.
/S/ KPMG LLP
- ----------------------
Boston, MA
March 21, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 349
<SECURITIES> 0
<RECEIVABLES> 10,043
<ALLOWANCES> 366
<INVENTORY> 5,192
<CURRENT-ASSETS> 15,755
<PP&E> 21,650
<DEPRECIATION> 11,084
<TOTAL-ASSETS> 31,867
<CURRENT-LIABILITIES> 12,207
<BONDS> 2,111
0
0
<COMMON> 43
<OTHER-SE> 16,165
<TOTAL-LIABILITY-AND-EQUITY> 31,867
<SALES> 58,801
<TOTAL-REVENUES> 58,801
<CGS> 43,939
<TOTAL-COSTS> 55,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 641
<INCOME-PRETAX> 2,829
<INCOME-TAX> 1,136
<INCOME-CONTINUING> 1,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,693
<EPS-BASIC> .35
<EPS-DILUTED> .35
</TABLE>
