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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
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 registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
100 Hale Street, Newburyport, MA – USA
(Address of principal executive offices)
04-2314970
(I.R.S. Employer
Identification No.)
01950-3504
(Zip Code)
(978) 352-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
UFPT
Name of each exchange on which registered
The NASDAQ Stock Market L.L.C.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐
Accelerated filer ☒
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐
No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the
registrant’s most recently completed second fiscal quarter was approximately $552,925,326, based on the closing sales price of $79.57 per share of such
stock on the NASDAQ Capital Market on June 30, 2022.
As of March 10, 2023, there were 7,610,051 shares of common stock, $0.01 par value per share, of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Portions of the registrant’s Proxy Statement for the 2023 Annual Meeting of
Shareholders.
Parts of this Form 10-K Into Which Incorporated
Part III
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Management and representatives of UFP Technologies,
Inc. (the “Company”) also may from time to time make forward-looking statements. These statements are subject to known and unknown risks,
uncertainties, and other factors, which may cause our or our industry’s actual results, performance, or achievements to be materially different from any
future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not
limited to, statements about the Company’s prospects; statements about the potential further impact the novel coronavirus ("COVID-19") pandemic may
have on the Company’s business, financial condition and results of operations, including with respect to the different markets in which the Company
participates, the demand for its products, the well-being and availability of the Company’s employees, the continuing operation of the Company’s locations,
delayed payments by the Company’s customers and the potential for reduced or canceled orders, the Company’s efforts to address the pandemic, including
regarding the safety of its employees, the maintenance of its facilities and the sufficiency of the Company’s supply chain, inventory, liquidity and capital
resources, including increased costs in connection with such efforts, the impact of the pandemic on the businesses of the Company’s suppliers and
customers, and the overall impact the pandemic may have on the Company’s financial results in 2023; statements about the Company’s acquisition
strategies and opportunities and the Company’s growth potential and strategies for growth; expectations regarding customer demand; expectations
regarding the Company’s liquidity and capital resources, including the sufficiency of its cash reserves and the availability of borrowing capacity to fund
operations and/or potential future acquisitions; anticipated revenues and the timing of such revenues; expectations about shifting the Company’s book of
business to higher-margin, longer-run opportunities; anticipated trends and potential advantages in the different markets in which the Company competes,
including the medical, aerospace and defense, automotive, consumer, electronics, and industrial markets, and the Company’s plans to expand in certain of
its markets; statements regarding anticipated advantages the Company expects to realize from its investments and capital expenditures; statements
regarding anticipated advantages to improvements and alterations at the Company’s existing plants; expectations regarding the Company’s manufacturing
capacity, operating efficiencies, and new production equipment; statements about new product offerings and program launches; statements about the
Company’s participation and growth in multiple markets; statements about the Company’s business opportunities; and any indication that the Company
may be able to sustain or increase its sales, earnings or earnings per share, or its sales, earnings or earnings per share growth rates.
Investors are cautioned that such forward-looking statements involve risks and uncertainties that could adversely affect the Company’s business and
prospects, and otherwise cause actual results to differ materially from those anticipated by such forward-looking statements, or otherwise, including
without limitation: the ongoing effects of the COVID-19 pandemic and its impact on the markets in which the Company participates, including its impact
on the Company’s customers, suppliers and employees, as well as the U.S. and worldwide economies; risks and uncertainties associated with the ongoing
effects of the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations, including risks relating to
decreased, including substantially decreased, demand for the Company’s products; risks relating to the potential closure of any of the Company’s facilities
or the unavailability of key personnel or other employees; risks that the Company’s inventory, cash reserves, liquidity or capital resources may be
insufficient; risks relating to delayed payments by our customers and the potential for reduced or canceled orders; risks relating to the increased costs
associated with the Company’s efforts to respond to the pandemic; risks associated with the identification of suitable acquisition candidates and the
successful, efficient execution of acquisition transactions, the integration of any such acquisition candidates, the value of those acquisitions to our
customers and shareholders, and the financing of such acquisitions; risks related to our indebtedness and compliance with covenants contained in our
financing arrangements, and whether any available financing may be sufficient to address our needs; risks associated with efforts to shift the Company’s
book of business to higher-margin, longer-run opportunities; risks associated with the Company’s entry into and growth in certain markets; risks and
uncertainties associated with seeking and implementing manufacturing efficiencies and implementing new production equipment; risks and uncertainties
associated with growth of the Company’s business and increases to sales, earnings and earnings per share; and risks associated with new product and
program launches. Accordingly, actual results may differ materially.
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In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “projects,” “predicts,” “potential,” and similar expressions intended to identify forward-looking statements. Our actual results
could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts, and
projections, and may be materially better or worse than anticipated. Given these uncertainties, you should not place undue reliance on these forward-
looking statements. Forward-looking statements represent our current beliefs, estimates and assumptions and are only as of the date of this Report. We
expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of
this Report, in order to reflect changes in circumstances or expectations, or the occurrence of unanticipated events, except to the extent required by
applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk
Factors” set forth in Part I Item 1A of this Report, as well as the risks and uncertainties discussed elsewhere in this Report. We qualify all of our forward-
looking statements by these cautionary statements. We caution you that these risks are not exhaustive. We operate in a continually changing business
environment and new risks emerge from time to time.
Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to UFP Technologies, Inc. and its consolidated subsidiaries.
ITEM 1. BUSINESS
The Company is a design, engineering, and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly
engineered custom products. The Company is an important link in the medical device supply chain and a valued outsource partner to many of the top
medical device manufacturers in the world. The Company’s single-use and single-patient devices and components are used in a wide range of medical
devices and packaging for minimally invasive surgery, infection prevention, wound care, wearables, orthopedic soft goods, and orthopedic implants.
The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and
industrial markets. Typical applications of its products include military uniform and gear components, automotive interior trim, air filtration, and protective
cases and inserts.
The Company was incorporated in the State of Delaware in 1993.
The consolidated financial statements of the Company include the accounts and results of operations of UFP Technologies, Inc. and its wholly-owned
subsidiaries, Advant Medical Limited, and its wholly-owned subsidiary Munlu Leighis Advant Teoranta, Advant Costa Rica Limitada, Advant Medical Inc.
(collectively “Advant Medical”), Dielectrics, Inc. (“Dielectrics”), Moulded Fibre Technology, Inc. (“Molded Fiber”) (partial year; entity was sold in July
2022), Contech Medical, Inc. (“Contech”), DAS Medical Holdings, LLC (“DAS Medical”), and DAS Medical’s wholly-owned subsidiaries, Sterimed,
LLC, One Degree Medical Holdings, LLC, DAS Medical Corporation, and its wholly-owned subsidiary DAS Medical International, S.R.L., Simco
Industries, Inc., and UFP Realty LLC (“UFP Realty”), and UFP Realty’s wholly-owned subsidiaries, UFP MA, LLC, UFP CO, LLC, UFP FL, LLC, UFP
TX, LLC, UFP MI, LLC, and UFP IA, LLC. All significant inter-company balances and transactions have been eliminated in consolidation. FlexShield®,
FirmaLite®, Winepacks®, BioShell®, T-Tubes®, Tri-Covers®, Erasables®, Design Nail®, Pro-Sticks®, Cryoshell® Case Fit®, Alloshell®,
ControlClean®, Flash Shiner® and Mambo® are our U.S. registered trademarks. Each trademark, trade name, or service mark of any other company
appearing in this Report belongs to its respective holder.
Available Information
The Company’s Internet website address is http://www.ufpt.com. Through its website, the Company makes available, free of charge, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”). These SEC reports can be accessed
through the investor relations section of the Company’s website. The information found on the Company’s website is not part of this or any other report
filed with or furnished to the SEC. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information
regarding the Company and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.
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Market Overview
The applications for the Company’s products are numerous and diverse. The Company sells its products into distinct markets with its primary focus on the
medical market:
● MedTech – The global medical market is large, growing, and varied but the Company targets and operates in specific segments where its design
and manufacturing expertise and access to highly specialized materials helps customers differentiate products, improve patient outcomes, and
increase their client’s speed to market. The product segments we target and operate in include; infection control, orthopedics, interventional &
surgical, surfaces & support, therapeutics, diagnostics, wound care, and biopharma.
● Automotive – Automotive companies are challenged with creating quieter, safer and more efficient vehicles. The Company partners with OEMs,
Tier 1 suppliers, and its own material manufacturers to develop customized solutions to solve automakers’ biggest challenges.
● Aerospace & Defense – With regard to the aerospace market, the Company primarily targets commercial aircraft manufacturers to address the
need for improved safety, better fuel economy, lower emissions, and overall passenger comfort. With regard to the defense market, as a long-time
supplier to military defense contractors and law enforcement, the Company provides highly innovative solutions to ensure soldier safety, improve
comfort, and protect mission critical equipment.
● Consumer & Electronics –For sports and leisure, the Company is an innovator in comfort cushioning for helmets and other protective gear.
● Industrial – The applications for the Company’s industrial products are highly diverse. Examples include air and liquid filters, thermal & acoustic
insulation, seals, and gaskets.
Products
The Company’s custom products are targeted at macro market trends and create specific opportunities in niche segments where the Company’s access to
specialty materials, engineering know-how, and processing expertise can be leveraged to create value for its customers. Examples of its custom products
targeted to specific markets include:
● MedTech – Protective drapes for robotic surgery, single patient use surfaces, advanced wound care, infection prevention, disposables for surgical
and endoscopic procedures, packaging for orthopedic implants, orthopedic appliances, biopharma drug manufacturing and coils for catheters. In
general, the Company’s solutions are all aimed at improving treatment outcomes while reducing risk and cost.
● Automotive – Molded components designed to make cars lighter (therefore more fuel efficient), quieter, and safer. Applications include acoustic
insulation, interior trim, load floors, sunshades, SUV cargo cover handles, driveshaft damping, engine & manifold covers, quarter panels and
wheel liners.
● Aerospace & Defense – With regard to the aerospace market, molded composites for commercial aviation to make planes lighter and safer. With
regard to the defense market, molded composites for military gear to improve the safety and comfort of soldiers. Applications include backpack
components, knee and elbow pads, eyewear, and helmets.
● Consumer and Electronic Packaging – 100% recycled protective packaging for business-to-consumer brands primarily focused on electronics,
candles, wine, and other high-volume consumer products using the “next day” carrier infrastructure.
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● Specialty Case Solutions – Reusable cases and custom inserts to quickly and safely transport, store, and deploy mission-critical equipment.
Applications include military ballistics panels, virtual training systems, drones, communications equipment, and rugged portable computers.
Regulatory Climate and Environmental Considerations
The Company’s medical customers typically require FDA approval for their products and therefore sometimes require their suppliers to manufacture in
facilities that are FDA registered and comply with the ISO 13485 quality standard for medical devices. The Company has eleven manufacturing locations
that are ISO 13485 certified and eight that are FDA registered. The Company’s automotive customers sometimes require their suppliers to certify their
manufacturing locations to the IATF 16949 automotive quality standard. The Company’s Grand Rapids, MI facility meets this requirement. The Company
designs products to provide optimum performance with minimum material. In addition, the Company bales and disposes of certain of its urethane foam
scrap for use in the carpeting industry. The Company’s Newburyport, MA facility utilizes solar power to provide approximately 11% of its electricity, with
plans to increase capacity in the future. The Company is aware of public support for environmentally-responsible packaging and products. 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.
Marketing and Sales
The Company markets to the target industries it serves by promoting specific solutions, materials, and manufacturing capabilities and services. The
Company markets through websites, trade shows and expositions, social media, online advertising, emails, and press releases. Its relationships with key
material suppliers are also an important part of its marketing and sales efforts. The Company markets and sells its products in the principally through a
direct sales force. The Company’s commercial leaders, in conjunction with Company engineers, collaborate with customers and in-house design and
manufacturing experts to develop custom-engineered solutions on a cost-effective basis. For the year ended December 31, 2022, one customer’s sales were
approximately 21% of total sales; no other customer’s sales exceeded 10% of total sales. Seasonality is not a major factor in the Company’s sales. See the
Company’s consolidated financial statements contained in Part IV, Item 15, of this Report for net sales by market.
Manufacturing
The Company’s manufacturing operations consist primarily of cutting, routing, compression and injection, molding, vacuum-forming, laminating, radio
frequency and impulse welding and assembling. For medical custom-molded foam products and thermoplastic welded devices, 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. Plastics and other materials are sealed using radio frequency and impulse welding. Reticulated
polyurethane foam is also used for many high-performance medical products requiring precision fluid or air management. These products are typically
fabricated using high speed die-cutting or waterjet cutting. Laminated products for medical, military, and personal comfort and protection 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.
The Company also engineers components for automotive use as interior trim and structural applications. These components are produced using a
compression molding process to create highly functional composites consisting of various materials such as polypropylene/fiberglass panels, nonwovens,
and fabrics. Highly specialized polypropylene based nonwoven material is used for automotive interior noise reduction and is fabricated using a die cut
process. Foam for filtration, acoustical, and thermal insulation products that do not utilize cross-linked foam are fabricated by cutting shapes from blocks of
foam, using specialized cutting tools, routers, water jets, 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.
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The Company does not manufacture any of the raw materials used in its products. With the exception of certain grades of cross-linked foam and technical
polyurethane foams, these raw materials are available from multiple supply sources. Although the Company relies upon a limited number of suppliers for
cross-linked and technical polyurethane foams, the Company’s relationships with its suppliers are good, and the Company expects that these suppliers will
be able to meet its requirements for these foams. 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 continuously explore design and manufacturing techniques, as well as new and innovative materials to meet the
unique demands and specifications of its customers. Research and development is an integral part of the Company’s ongoing cost structure.
Competition
The medical design and contract manufacturing industry is highly competitive as is the foam and plastics converting industry as a whole. While there are
several national companies that convert foam and plastics, the Company’s primary competition is from smaller independent regional manufacturing
companies. These companies generally market their products in specific geographic areas from neighboring facilities. The Company’s custom engineered
products face competition primarily from smaller companies that typically concentrate on production of products for specific industries. The Company
expects to compete effectively in the engineered products market due to its ability to address its customers' primary vendor selection criteria, including
price, product performance, product reliability, and customer service, as well as its access to a wide variety of materials, 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.
Patents and Other Proprietary Rights
The Company relies upon trade secrets, patents, and trademarks to protect its technology and proprietary rights. The Company believes the improvement of
existing products, reliance upon trade secrets and 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 a total of 18 active patents relating to technologies
including foam, packaging, tool control technologies, radio frequency welding, automotive superforming processes and certain nail file technologies. The
Company also has patent applications in process. There can be no assurance that any patent or patent application 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 2023
through 2039.
Human Capital Management
As of January 28, 2023, the Company had a total of 2665 full-time employees (compared to 1828 full-time employees as of January 29, 2022) and 303
temporary employees (compared to 187 temporary employees at January 29, 2022). The Company is not a party to any collective bargaining agreements.
The Company considers its employee relations to be good.
The Company strives to promote a workplace that is professional, provides opportunity for career growth and treats all workers with dignity and respect.
The Company will not tolerate unlawful discrimination and harassment in the workplace; it expressly prohibits any form of unlawful discrimination or
harassment based on race, color, religion, sex, sexual orientation, gender identity or expression, national origin, ethnicity, age, physical or mental disability,
genetic information, military or veteran status, pregnancy, childbirth or related medical conditions, or any other legally protected status under applicable
federal, state, or local law.
The Company’s employees are tasked with upholding our Code of Ethics and Business Conduct, which we view as an important component of our
operating strategy. This policy covers the conduct of the Company's employees in their work-related dealings with each other, as well as interactions with
our customers, vendors, and other business partners. The Company’s compliance hotline is maintained for the confidential reporting of any suspected
policy violations or unethical business conduct.
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The Company’s commitment to its employees starts at the top with an executive-level officer – Senior Vice President of Human Resources (“SVP of HR”)
– reporting to the CEO, attending all board meetings, and having significant involvement with the board’s compensation committee. This commitment is
reflected in our efforts to attract, engage, and retain the best people possible.
Compensation and Benefits
The Company’s compensation and benefits offerings are supported by regular third-party benchmarking surveys. In addition to competitive compensation
practices, the Company offers annual stock award bonus programs to reward and retain executives and key employees. Access to company subsidized
health, life and disability insurance; a matching 401(k) plan; and paid time off for vacation, illness and personal reasons, are the highlights of the
Company’s benefits available to all eligible full-time employees. For those employees struggling with life’s challenges, the Company offers employee
assistance programs.
Growth and Development
The Company supports every employee’s opportunity for career growth. It offers tuition reimbursement for employees to further their industry-related
formal education; access to virtual training and education platforms; reimbursement to attend work-related seminars; and on-the-job training and cross-
training to improve job skills. Its talent management program provides feedback on performance, identifies employees with potential for advancement, and
allows for personalized career development plans.
The Company’s commitment to its employees has resulted in several national, regional, and local “Best in Class” awards.
Safety
As an essential manufacturing company, the Company takes its responsibility to our essential employees’ health and safety seriously. Its corporate safety
officer reports directly to the SVP of HR and works with dedicated safety officers at each of our plants to implement safety programs and training. Safety
audits are conducted regularly to ensure compliance.
ITEM 1A. RISK FACTORS
The risks factors described below could materially impact our business, including our results of operations and financial results. These are the risks and
uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem
immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of
the following risks or uncertainties occurs, our business, financial condition and operating results would likely suffer.
Risks Related to our Business
Our business, operating results, and cash flows have been affected and may continue to be adversely affected by the rising rate of inflation.
Inflationary pressures have increased due to general macroeconomic factors as well as the global supply chain disruptions, labor shortages and other
impacts of the ongoing effects of the COVID-19 pandemic. We expect those inflationary trends to continue for the foreseeable future. These inflationary
pressures have affected our manufacturing costs, operating expenses (including wages) and other expenses. We may not be able to pass these cost increases
on to our customers in a timely manner, which could have an impact on our gross margins and profitability. In addition, inflation has resulted in higher
interest rates and could otherwise adversely impact the macroeconomic environment, which in turn could adversely impact our customers and their ability
or willingness to purchase our products. Our inability to successfully manage the effects of inflation could have a material adverse effect on our business,
results of operations and cash flows.
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The ongoing conflict between Russia and Ukraine and the related implications could have a material adverse effect on our business and results of
operations.
As a result of the ongoing military conflict between Russia and Ukraine, the United States and other countries have imposed significant sanctions on Russia
and could impose even wider sanctions. The military conflict and related sanctions could damage or disrupt international commerce and the global
economy. We cannot predict the broader or longer-term consequences of the conflict or of the sanctions imposed to date or in the future, which could
include embargoes, regional instability, geopolitical shifts, exchange rate fluctuations, financial market disruptions and economic recession. Further, the
conflict could exacerbate supply chain challenges, lead to an increase in cyberattacks from Russia, affect the global price and availability of key
commodities, reduce our sales and earnings or otherwise have an adverse effect on our business and results of operations.
In addition, the conflict between Russia and Ukraine may have the effect of heightening other risks disclosed in this Form 10-K, any of which could
materially and adversely affect our business and results of operations. Such risks include but are not limited to interruptions in the transportation channels
for the manufacture and global distribution of our products, heightened inflation, depressed levels of consumer and commercial spending, adverse changes
in international trade policies and relations, and the inability to implement and execute our business strategy. We are currently unable to predict the extent,
nature or duration of any of these occurrences.
We depend on a small number of customers for a large percentage of our revenues. The loss of any such customer, a reduction in sales to any such
customer, or the decline in the financial condition of any such customer could have a material adverse effect on our business, financial condition,
and results of operations.
A limited number of customers typically represent a significant percentage of our revenues in any given year. Our top ten customers represented
approximately 47%, 34%, and 38% of our total revenues in 2022, 2021, and 2020, respectively. One customer comprised approximately 21% of our total
sales for the year ended December 31, 2022; no other customer’s sales exceeded 10% of our total sales for the year ended December 31, 2022. No one
customer’s sales exceeded 10% of total sales for the years ended December 31, 2021 and 2020. The loss of a significant portion of our expected future sales
to any of our large customers would have a material adverse effect on our business, financial condition, and results of operations. Likewise, a material
adverse change in the financial condition of any of these customers could have a material adverse effect on our ability to collect accounts receivable from
any such customer. One customer represented approximately 10% of gross accounts receivable for both years ended December 31, 2022 and 2021.
Our business could be harmed if our products contain undetected errors or defects or do not meet applicable specifications.
Based on customer specifications, we are continuously developing new products and improving existing products. Our existing and newly introduced
products can contain undetected errors or defects. In addition, these products may not meet their performance specifications under all conditions or for all
applications. If, despite internal testing and testing by customers, any of our products contain errors or defects or fail to meet applicable specifications, then
we may be required to enhance or improve those products or technologies. We may not be able to do so on a timely basis, if at all, and may only be able to
do so at considerable expense. If a particular error or defect is repeated throughout our production process, the cost of repairing such defect may be highly
disproportionate to the original cost of the product or component. In addition, any significant errors, defects, or other performance failures could render our
existing and/or future products unreliable or ineffective and could lead to decreased confidence in our products, adverse customer reaction, negative
publicity, mandatory or voluntary recalls, or legal claims, the occurrence of any of which could have a material adverse effect upon our business, financial
condition, and results of operations.
Further, if our products are defectively designed, manufactured, or labeled, contain defective components or are misused, we may become subject to costly
litigation by our customers. Product liability claims could divert management's attention from our core business, be expensive to defend and result in
sizable damage awards against us.
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New technologies could result in the development of new products by our competitors and a decrease in demand for our products, which could
materially adversely affect our business, financial condition and results of operations.
Our failure to develop new technologies, or anticipate or react to changes in existing technologies, could result in a decrease in our sales and a loss of
market share to our competitors. Our financial performance depends on our ability to design, develop, and manufacture new products and product
enhancements on a timely and cost-effective basis. We may not be able to successfully identify new product opportunities or develop and bring new
products to market in a timely and cost-effective manner.
Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive. Our failure to identify or
capitalize on any fundamental shifts in technologies, relative to our competitors, could have a material adverse effect on our competitive position within our
industry and harm our relationships with our customers.
If we fail to comply with specific provisions in our customer contracts or Food and Drug Administration (FDA) regulations, our business could be
materially adversely affected.
Our customer contracts, particularly with respect to contracts for which the government is a direct or indirect customer, may include unique and specialized
requirements. This may also include contracts with customers that manufacture goods subject to FDA regulations. Failure to comply with the specific
provisions in our customer contracts, or any violation of government or FDA contracting regulations, could result in termination of the contracts, increased
costs to us, suspension of payments, imposition of fines, and suspension from future government contracting. Further, any negative publicity related to our
failure to comply with the provisions in our customer contracts could have a material adverse effect on our business, financial condition, or results of
operations.
We may pursue acquisitions or other strategic relationships that involve inherent risks, any of which may cause us to not realize anticipated
benefits.
Our business strategy includes the potential acquisition of businesses and other business combinations that we expect will complement and expand our
business. In addition, we may also pursue other strategic relationships or opportunities. We may not be able to success‐fully identify suitable acquisition or
other strategic opportunities or complete any particular acquisition, combina‐tion, or other transaction on acceptable terms. Our identification of suitable
acquisition candidates and strategic opportunities involves risks inherent in assessing the values, strengths, weaknesses, risks, and profitability of these
opportunities including their effects on our business, diversion of our management’s attention and risks associated with unanticipated problems or
unforeseen liabilities. Our failure to identify suitable acquisition or other strategic opportunities may restrict our ability to grow our business. If we are
successful in pursuing future acquisitions or strategic opportunities, we may be required to expend significant funds, incur additional debt, or issue
additional securities, which may materially and adversely affect our results of operations and be dilutive to our stockholders. If we spend significant funds
or incur additional debt, our ability to obtain financing for working capital or other purposes could decline and we may be more vulnerable to economic
downturns and competitive pressures. In addition, we cannot guarantee that we will be able to finance additional acquisi‐tions or that we will realize any
anticipated benefits from acquisitions or other strategic opportunities that we complete. When and if we successfully acquire another business, the process
of successfully integrating the acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant
financial re‐sources that would otherwise be available for the ongoing development or expansion of our existing business. Decreases in customer loyalty or
product orders, failure to retain and develop the acquired workforce, failure to integrate financial reporting systems, failure to establish and maintain
appropriate controls or unknown or contingent liabilities could adversely affect our ability to realize the anticipated benefits of an acquisition. The
integration of an acquired business whether or not successful, requires significant efforts which may result in additional expenses and divert the attention of
our management and technical personnel from other projects. These transactions are inherently risky, and there can be no assurance that any past or future
transaction will be successful.
Failure to retain key personnel could impair our ability to execute our business strategy.
The continuing service of our executive officers and essential sales, engineering, technical and management personnel, together with our ability to attract
and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees,
and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to
experience a high turnover rate among sales, engineering and technical personnel and we were unable to replace them.
10
We operate in highly competitive industries and we may be unable to compete successfully, which could materially adversely affect our business,
financial condition and results of operations.
We face intense competition in all markets and in each area of our business, in some cases from our own customers bringing programs in-house. Our
primary competition for our products is from smaller, independent, regional manufacturing companies. Our current competitors may increase their
participation in, or new competitors may enter into, the markets in which we compete. In addition, our suppliers may acquire or develop the capability and
desire to compete with us. If our suppliers choose to expand their own operations, through acquisitions or otherwise, and begin manufacturing and selling
products directly to our customers, it could reduce our pricing or sales volume and overall profitability. If we are unable to compete successfully with new
or existing competitors, it could have a material adverse effect on our business, financial condition, and results of operations.
Further, technological innovation by any of our existing competitors, or new competitors entering any of the markets in which we do business, could put us
at a competitive disadvantage and could cause us to lose market share. Increased competition for the sales of our products could result in price reductions,
reduced margins, and loss of market share, which could materially adversely affect our prospects, business, financial condition and results of operations.
The cost of the raw materials we use to manufacture our products, particularly petroleum and petroleum-based raw materials, are subject to
escalation and could increase, which may materially adversely affect our business, financial condition, and results of operations.
The cost of raw materials, including petroleum and petroleum-based raw materials such as resins, used in the production of our products, represents a
significant portion of our direct manufacturing costs. Any fluctuations in the price of petroleum, or any other material used in the production of our
products, may have a material adverse effect on our business, financial condition, and results of operations. Such price increases could reduce demand for
our products. If we are not able to buy raw materials at fixed prices, or pass on price increases to our customers, we may lose orders or enter into orders
with less favorable terms, either of which could have a material adverse effect on our business, financial condition, and results of operations.
Changes in domestic and global economic conditions, supply chain disruptions, labor shortages, the lingering effects of the COVID-19 pandemic, have led
to higher inflation, which, in turn, has led to, and will likely continue to, increase the costs of the raw material we purchase. “Risk Factors — Risks Related
to our Business — Our business, operating results, and cash flows have been affected and may continue to be adversely affected by the rising rate of
inflation.”
Further, the global economy has been, and may continue to be, negatively impacted by the ongoing conflict resulting from Russia’s invasion of Ukraine in
2022. The negative impacts arising from the conflict and sanctions and export restrictions imposed by various countries, including those imposed by
Russia, may include reduced consumer demand, supply chain disruptions, increased cybersecurity risks, and increased costs for transportation, energy, and
raw materials. Although our operations do not take place in Russia or Ukraine further escalation of geopolitical tensions could have a broader impact that
expands into other markets where we do business, which may adversely affect our business, financial condition and results of operations. Please see “Risk
Factors — Risks Related to our Business — The ongoing conflict between Russia and Ukraine and the related implications could have a material adverse
effect on our business and results of operations.”
Security breaches, including cybersecurity incidents and other disruptions could compromise our information, expose us to liability and harm our
reputation and business.
In the ordinary course of our business we collect and store sensitive data, including intellectual property, personal information, our proprietary business
information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data
centers and on our networks. The secure maintenance and transmission of this information is critical to our operations and business strategy. We rely on
commercially available systems, software, tools and monitoring to provide security for processing, transmission, and storage of confidential information.
Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate personal or confidential business information. In
addition, an employee, contractor, or other third-party with whom we do business may attempt to circumvent our security measures in order to obtain such
information and may purposefully or inadvertently cause a breach involving such information. Despite the security measures we have in place and any
additional measures we may implement in the future to safeguard our systems and to mitigate potential security risks, our facilities and systems, and those
of our third-party service providers, could be vulnerable to security breaches. Any such compromise of our data security and access, public disclosure, or
loss of personal or confidential business information could result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, regulatory penalties, disruption of our operations, damage to our reputation, loss of our customers’ willingness to transact business with us,
and subject us to additional costs and liabilities which could materially adversely affect our business.
11
We may be unable to protect our proprietary technology from infringement.
We rely on a combination of patents, trademarks, and unpatented proprietary know-how and trade secrets to establish and protect our intellectual property
rights. We enter into confidentiality agreements with suppliers, customers, employees, consultants, and potential acquisition candidates as necessary to
protect our know-how, trade secrets and other proprietary information. However, these measures and our patents and trademarks may not afford complete
protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology
without authorization or otherwise infringe on our intellectual property rights. We cannot assure that our competitors will not independently develop
equivalent or superior know-how, trade secrets or production methods. Significant impairment of our intellectual property rights could harm our business or
our ability to compete. For example, if we are unable to maintain the proprietary nature of our technologies, our profit margins could be reduced as
competitors could more easily imitate our products, possibly resulting in lower prices or lost sales for certain products. In such a case, our business,
financial condition, and results of operations may be materially adversely affected.
Fluctuations in the supply of components and raw materials we use in manufacturing our products could cause production delays or reductions in
the number of products we manufacture, which could materially adversely affect our business, financial condition, and results of operations.
Our business is subject to the risk of periodic shortages of raw materials. We purchase raw materials pursuant to purchase orders placed from time to time
in the ordinary course of business. Failure or delay by such suppliers in supplying us necessary raw materials could adversely affect our ability to
manufacture and deliver products on a timely and competitive basis.
While we believe that we may, in certain circumstances, secure alternative sources of these materials, we may incur substantial delays and significant
expense in doing so, the quality and reliability of alternative sources may not be the same and our operating results may be materially adversely affected.
Alternative suppliers might charge significantly higher prices for materials than we currently pay. Under such circumstances, the disruption to our business
could have a material adverse impact on our customer relationships, business, financial condition, and results of operations.
In addition, we are dependent on a relatively small number of suppliers for cross-linked foam, thermoformed plastic urethane and technical polyurethane
foams. While we believe that we have developed strong relationships with these suppliers, any failure or delay by such suppliers in supplying us these
necessary products could adversely affect our ability to manufacture and deliver products on a timely and competitive basis.
Our products could infringe the intellectual property rights of others, which may lead to litigation that could itself be costly, result in the payment
of substantial damages or royalties, and prevent us from using technology that is essential to our products.
We cannot guarantee that our products, manufacturing processes or other methods do not infringe the patents or other intellectual property rights of third
parties. Infringement and other intellectual property claims and proceedings brought against us, whether successful or not, could result in substantial costs
and harm our reputation. Such claims and proceedings can also distract and divert our management and key personnel from other tasks important to the
success of our business. In addition, intellectual property litigation or claims could force us to do one or more of the following:
12
● Cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenues;
● Pay substantial damages for past use of the asserted intellectual property;
● Obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and/or
● Redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of third parties, which may be
costly and time-consuming, even if possible.
In the event of an adverse determination in an intellectual property suit or proceeding, or our failure to license essential technology, our sales could be
harmed, and our costs could increase, which could materially adversely affect our business, financial condition, and results of operations.
Reductions in the availability of energy supplies or an increase in energy costs may increase our operating costs.
We use electricity and natural gas at our manufacturing facilities to operate our equipment. Over the past several years, prices for electricity and natural gas
have fluctuated significantly. An outbreak or escalation of hostilities between the United States and any foreign power, or between foreign powers, or a
natural disaster, could result in a real or perceived shortage of petroleum and/or natural gas, which could result in an increase in the cost of electricity or
energy generally as well as an increase in the cost of our raw materials, of which many are petroleum-based. In addition, increased energy costs negatively
impact our freight costs due to higher fuel prices. Future limitations on the availability or consumption of petroleum products and/or an increase in energy
costs, particularly electricity for plant operations, could have a material adverse effect upon our business, financial condition, and results of operations.
Expansion of our operations into markets outside of the U.S. subjects us to political, economic, legal, operational, and other risks that could have a
material adverse effect on our business, results of operations, financial condition, cash flows and reputation.
We have recently added manufacturing facilities in the Dominican Republic, Ireland, Costa Rica, and Mexico. We may continue to expand our operations
by offering our services and entering new lines of business in other markets outside of the U.S. This expansion increases our exposure to the inherent risks
of doing business in international markets. Depending on the market, these risks include those relating to:
● Changes in the local economic environment including, among other things, labor cost increases and other general inflationary pressures;
● Political instability, armed conflicts, or terrorism;
● Public health crises, such as pandemics or epidemics, including the Covid-19 pandemic;
● Social changes;
● Intellectual property legal protections and remedies;
● Trade regulations;
● Procedures and actions affecting approval, production, pricing, reimbursement and marketing of products and services;
● Foreign currency;
● Additional U.S. and foreign taxes;
● Export controls;
● Antitrust and competition laws and regulations;
● Lack of reliable legal systems which may affect our ability to enforce contractual rights;
● Changes in local laws or regulations, or interpretation or enforcement thereof;
● Potentially longer ramp-up times for starting up new operations, and for payment and collection cycles;
● Financial, operational and information technology systems integration;
● Failure to comply with U.S. laws, such as the foreign corrupt practices act, or local laws that prohibit us, our partners, or our partners’ or our
agents or intermediaries from making improper payments to foreign officials or any third party for the purpose of obtaining or retaining business;
and
● Data and privacy restrictions.
13
Issues relating to the failure to comply with applicable non-U.S. laws, requirements or restrictions may also impact our domestic business and increase
scrutiny of our domestic practices.
Additionally, some factors that will be critical to the success of our international business and operations will be different than those affecting our domestic
business and operations. For example, conducting international operations requires us to devote significant management resources to implement our
controls and systems in new markets, to comply with local laws and regulations, including fulfilling financial reporting and records retention requirements,
and overcoming the numerous new challenges inherent in managing international operations, such as challenges based on differing languages and cultures,
as well as differing regulatory and compliance environments, and challenges related to the timely hiring, integration and retention of a sufficient number of
skilled personnel to carry out operations in an environment with which we are not familiar.
Any additional expansion of our international operations through acquisitions or through organic growth could increase these risks. Additionally, while we
may invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, including
the costs of starting up or acquiring new operations, we may not be able to operate them profitably on the anticipated timeline, or at all.
These risks could have a material adverse effect on our business, results of operations, financial condition, and cash flows, and could materially harm our
reputation.
Risks Related to our Share Ownership and our Capital Structure
Restrictions in our credit facilities may limit our business and financial activities, including our ability to obtain additional capital in the future.
In December 2021, we entered into a secured $130 million Second Amended and Restated Credit Agreement with Bank of America, N.A., which provided
for a $90 million revolving credit facility and a $40 million term loan facility. This Credit Agreement contains covenants imposing various restrictions on
our business and financial activities. These restrictions may affect our ability to operate our business and undertake certain financial activities and may
limit our ability to take advantage of potential business or financial opportunities as they arise. The restrictions these covenants place on us include
limitations on our ability to incur liens, incur indebtedness, make investments, dissolve or merge or consolidate with or into another entity, dispose of
certain property, and make restricted payments. The Credit Agreement also requires us to meet certain financial ratios, including a minimum fixed-charge
coverage ratio and a maximum total funded debt to EBITDA ratio. The breach of any of these covenants or restrictions could result in a default under the
Credit Agreement, which could have a material adverse impact to our business, financial condition, and results of operation.
We are also exposed to the risk of increasing interest rates as our revolving credit and term loan facilities are both at a variable interest rate. Any material
changes in interest rates could result in higher interest expense and related payments for us.
Provisions of our corporate charter documents and Delaware law, may dissuade potential acquirers, prevent the replacement or removal of our
current management, and may thereby affect the price of our common stock.
The board of directors has the authority to issue up to 1,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges, and
restrictions, including voting rights of those shares without any further vote or action by the stockholders. The rights of the holders of common stock will
be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible financings, acquisitions, and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting stock. We have no present plans to issue shares of preferred stock.
Further, certain provisions of our certificate of incorporation, bylaws, and Delaware law could delay or make a merger, tender offer or proxy contest
involving us or, for a third party to acquire a majority of our outstanding voting common stock more difficult. These include provisions that classify our
board of directors, limit the ability of stockholders to take action by written consent, call special meetings, remove a director for cause, amend the bylaws,
or approve a merger with another company. In addition, our bylaws set forth advance notice procedures for stockholders to nominate candidates for election
as directors or to bring matters before an annual meeting of stockholders.
14
We are subject to the provisions of Section 203 of the Delaware General Corporation Law which prohibits a publicly-held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stock‐holder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a “business
combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an “interested stockholder”
is a person who, either alone or together with affiliates and associates, owns (or within the past three years did own) 15% or more of the corporation’s
voting stock.
General Risk Factors
We are subject to a variety of federal, state and local laws and regulations, including health and safety laws and regulations, and the cost of
complying, or our failure to comply, with such requirements could materially adversely affect our business, financial condition and results of
operations.
We are subject to a variety of federal, state and local laws and regulations, including health and safety laws and regulations. The risks of substantial costs
and liabilities related to compliance with these laws and regulations are an inherent part of our business. Despite our intention to comply with these laws
and regulations, we cannot guarantee that we will at all times comply with all such requirements. Compliance with health and safety legislation and other
regulatory requirements may prove to be more limiting and costly than we anticipate and may also increase substantially in future years. If we violate, or
fail to comply with these requirements, we could be fined or otherwise sanctioned by regulators. In addition, these requirements are complex, change
frequently and may become more stringent over time, which could materially adversely affect our business, financial condition and results of operations.
Our operations could be disrupted by natural or human causes beyond our control.
Our operations are subject to the risk of disruption by hurricanes, severe storms, floods and other forms of severe weather, earthquakes and other natural
disasters, accidents, fire, power shortages, geopolitical unrest, war and other military action, terrorist attacks and other hostile acts, public health issues,
epidemics or pandemics, and other events, such as raw material or supply scarcity, that are beyond our control and the control of the third parties on which
we depend. Any of these catastrophic events, whether in the United States or abroad, may have a strong negative impact on the global economy, our
employees, facilities, suppliers, or customers, and could decrease demand for our products or our customers’ products, create delays and inefficiencies in
our supply chain and make it difficult or impossible for us to deliver products to our customers in a timely manner. If there is a natural disaster or other
serious disruption at any of our facilities, we may experience plant shutdowns or periods of reduced production as a result of equipment failures, loss of
power, delays in delivery of raw materials or supplies, personnel absences, or extensive damage to any of our facilities, any of which could materially
adversely affect our business, financial condition, or results of operations. In addition, our insurance coverage may not adequately compensate us for losses
incurred as a direct or indirect result of natural or other disasters.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES
The following table presents certain information relating to each of the Company’s design and manufacturing properties:
15
Location
Newburyport, Massachusetts
Huntsville, Alabama
Grand Rapids, Michigan
Rancho Dominguez, California
Denver, Colorado
Denver, Colorado
Kissimmee, Florida
El Paso, Texas
Chicopee, Massachusetts
Providence, Rhode Island
Dominican Republic
Dominican Republic
Dominican Republic
Tijuana, Mexico
Kennesaw, Georgia
Galway, Ireland
Galway, Ireland
La Aurora, Heredia, Costa Rica
Square
Feet
183,000
Lease
Expiration Date
Company Owned
Principal Use
Headquarters, fabrication, molding, tooling, test lab, clean room,
warehousing, and engineering
Engineering, design, and fabrication
Fabrication, molding, warehousing, and engineering
Fabrication, molding and engineering
Fabrication and molding
Fabrication, molding and engineering
Fabrication, molding, test lab and engineering
6/30/2031
Company Owned
10/31/2027
Company Owned
Company Owned
Company Owned
Company Owned Warehousing, fabrication, and molded fiber operations
Company Owned
9/30/2026
12/31/2024
8/31/2023
8/31/2025
2/29/2032
12/31/2027
Company Owned
Monthly Rental
4/30/2028
Fabrication, molding, clean room, warehousing, and engineering
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, and warehousing
Warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
9,000
255,260
56,000
18,270
28,383
49,400
127,730
103,792
79,535
16,557
12,630
51,970
83,256
11,017
35,069
11,500
13,000
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be a party to various suits, claims and complaints arising in the ordinary course of business and is currently a party to
a single employee claim. In the opinion of management of the Company, this active claim should not result in final judgments or settlements that, in the
aggregate, would have a material adverse effect on the Company’s financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES
PART II
OF EQUITY SECURITIES
Market Price
The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “UFPT”. 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, 2021 to December 31, 2022:
Year Ended December 31, 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2022
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
55.52 $
59.68
71.17
75.34
High
76.01 $
87.83
100.64
126.78
16
Low
44.02
49.02
56.11
59.00
Low
56.10
65.00
74.00
85.04
Number of Stockholders
As of March 10, 2023, there were 79 holders of record of the Company’s common stock.
Since many of the shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of
beneficial stockholders represented by these holders of record.
Dividends
The Company did not pay any dividends in 2022 or 2021. The Company presently intends to retain all its earnings to provide funds for the operation of its
business and strategic acquisitions, although it would consider paying cash dividends in the future. Any decision to pay dividends will be at the discretion
of the Company’s board of directors and will depend upon the Company’s operating results, strategic plans, capital requirements, financial condition,
provisions of the Company’s borrowing arrangements, applicable law and other factors the Company’s board of directors considers relevant.
Issuer Purchases of Equity Securities
On June 16, 2015, the Company issued a press release announcing that its Board of Directors authorized the repurchase of up to $10.0 million of the
Company’s outstanding common stock. There was no share repur‐chase activity for the years ended December 31, 2022, 2021, and 2020. During the year
ended December 31, 2015, the Company repurchased 29,559 shares of common stock at a cost of approximately $587 thousand. At December 31, 2022,
approximately $9.4 million was available for future repurchases of the Company's common stock under this authorization.
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a design, engineering, and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly
engineered custom products. The Company is an important link in the medical device supply chain and a valued outsource partner to many of the top
medical device manufacturers in the world. The Company’s single-use and single-patient devices and components are used in a wide range of medical
devices and packaging for minimally invasive surgery, infection prevention, wound care, wearables, orthopedic soft goods, and orthopedic implants.
The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and
industrial markets. Typical applications of its products include military uniform and gear components, automotive interior trim, air filtration, and protective
cases and inserts.
The Company’s current strategy includes further organic growth and growth through strategic acquisitions.
Net sales for the Company for the year ended December 31, 2022 increased 71.5% to $353.8 million from $206.3 million for the year ended December 31,
2021 due to the Company’s acquisitions of Contech Medical, DAS Medical, and Advant Medical, and an organic sales increase of approximately 18.6%.
Gross margin increased to 25.5% for the year ended December 31, 2022, from 24.8% in 2021. Operating income and net income for the year ended
December 31, 2022 increased by 161.1% and 163.1%, respectively. These results were achieved despite challenges that plagued the Company during much
of 2022, including raw material and labor shortages, and significant inflationary cost increases on raw materials, labor, overhead costs and interest on the
Company’s credit facility.
17
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 Income:
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Acquisition costs
Change in fair value of contingent consideration
Gain on sale of Molded Fiber business
(Gain) Loss on sale of fixed assets
Operating income
Interest expense, net
Total other expense
Income before taxes
Income tax expense
Net income from consolidated operations
2022 Compared to 2021
Sales
2022
2021
2020
100.0%
74.5%
25.5%
12.9%
0.3%
2.8%
-4.4%
-1.8%
15.7%
0.8%
0.0%
14.9%
3.1%
11.8%
100.0%
75.2%
24.8%
14.3%
0.2%
0.0%
0.0%
0.0%
10.3%
0.0%
0.0%
10.3%
2.6%
7.7%
100.0%
75.1%
24.9%
15.3%
0.0%
0.0%
0.0%
0.3%
9.3%
0.0%
0.2%
9.1%
1.6%
7.5%
Net sales increased 71.5% to $353.8 million for the year ended December 31, 2022, from net sales of $206.3 million in 2021. The increase in sales was
primarily due to increases in sales to customers in the Medical market of 116.0%. The increases in sales in the Medical market were primarily due to
increased sales from the Company’s recently acquired companies of $121.9 million, as well as an organic sales increase of 24.0% due to increased medical
procedures, restoring of inventory levels by our customer, and price increases implemented in response to incremental input costs. Sales to customers in all
other markets decreased 8.4%, largely due to the Company’s disposition of its Molded Fiber business in July 2022.
Gross Profit
Gross profit as a percentage of sales (“Gross Margin”) increased to 25.5% for the year ended December 31, 2022, from 24.8% in 2021. As a percentage of
sales, material and labor costs collectively increased 5.5%, while overhead decreased 6.3%. The increase in gross margin is primarily due to the leverage of
organic sales growth over the fixed portion of overhead, partially offset by inflationary cost increases in both raw materials and labor.
Selling, General and Administrative Expenses
Selling, General, and Administrative Expenses (“SG&A”) increased approximately 55.3% to $45.8 million for the year ended December 31, 2022, from
$29.5 million in 2021. The increase in SG&A was primarily due to the additional SG&A from recent acquisitions and increased employee compensation
and benefits, offset by reduced SG&A as a result of the sale of the Molded Fiber business. As a percentage of sales, SG&A decreased to 12.9%, from
14.3% in 2021. The decrease in SG&A as a percentage of sales was primarily due to increased organic sales measured against relatively fixed SG&A.
18
Acquisition costs
The Company incurred approximately $1.0 million in costs associated with acquisition related activities which were charged to expense for the year ended
December 31, 2022. These costs were primarily for legal services, valuation services and stamp duty filings and are reflected on the face of the income
statement.
Change in fair value of contingent consideration
In connection with the acquisitions discussed in Note 2, “Acquisitions,” the Company is required to make contingent payments, subject to the entities
achieving certain financial performance thresholds. The potential contingent consideration payments for both the DAS Medical and Contech Medical
acquisitions combined are $25 million. The fair value of the liabilities for the contingent consideration payments recognized upon the acquisition as part of
the purchase accounting opening balance sheets totaled approximately $9.7 million and was estimated by discounting to present value the probability-
weighted contingent payments expected to be made. Assumptions used in this calculation were managements financial forecasts, discount rate and various
volatility factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial
measures. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The fair value of the liabilities for the
contingent consideration payments recognized at December 31, 2022 totaled approximately $14.6 million. The change in fair value of contingent
consideration for the DAS Medical and Contech Medical acquisitions for the year ended December 31, 2022, resulted in an expense of approximately $9.8
million, and was included in change in fair value of contingent consideration in the consolidated statements of income. The Company paid $5 million
during the fourth quarter of 2022 to fulfill the contingent consideration for the Contech Medical acquisition.
Gain on sale of Molded Fiber business
On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold Molded Fiber Technology, Inc. (“MFT”) and related
real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $31.5 million (after giving effect to a working
capital adjustment of approximately $0.1 million that decreased the total consideration). The net book value of the assets sold were approximately $15.4
million and the Company recorded a net gain on sale of approximately $15.7 million, which was recorded in the year ended December 31, 2022. This net
gain included $2.6 million of the purchase price which is being held in escrow until January 26, 2024, to indemnify CKF against certain claims, losses, and
liabilities. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type.
MFT’s annual revenue was approximately $21.3 million for the year ended December 31, 2021. Proceeds from the sale were used to pay down debt on the
Company’s revolving credit facility, as well as income tax obligations on the related gain.
Gain on disposal of property, plant and equipment
For the year ended December 31, 2022, the Company recorded a gain on the sale of fixed assets of approximately $6.2 million. This was primarily the
result of the sale of the Company’s Georgetown, Massachusetts manufacturing facility. The operations previously housed in this location have been fully
absorbed by the nearby Newburyport manufacturing facility. The gain on the Georgetown manufacturing facility was determined by a sales price of
approximately $6.7 million measured against a net book value of approximately $0.5 million and selling expenses of approximately $0.1 million.
Interest expense, net
The Company had net interest expense of approximately $2.8 million and $39 thousand for the years ended December 31, 2022 and 2021, respectively. The
increase in net interest expense for the year ended December 31, 2022 was primarily due to interest paid on funds drawn on the Company’s credit facility
used to finance recent acquisitions.
19
Other Income
Other income was approximately $81 thousand and approximately $26 thousand for years ended December 31, 2022 and 2021, respectively. The increase
in other income was primarily generated by foreign currency transaction gains and changes in the fair value of the swap liability, which is driven by
anticipated future interest rate changes, offset by net cash settlement amounts related to the swap.
Income Taxes
The Company recorded income tax expense, as a percentage of income before income tax expense, of 20.7% for the year ended December 31, 2022
compared to 25.1% for the same period in 2021. The decrease in the effective tax rate for the current year as compared to the prior year was largely due to
lower statutory rates on foreign taxable income in 2022. The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall
tax benefits related to its share-based compensation plans will be recorded directly into income tax expense.
2021 Compared to 2020
Sales
Net sales increased 15.0% to $206.3 million for the year ended December 31, 2021, from net sales of $179.4 million in 2020. The increase in sales was
primarily due to increases in sales to customers in the Medical, Consumer, Electronics, Industrial, Automotive and Aerospace & Defense markets of 10.2%,
42.2%, 28.3%, 13.6%, 6.8% and 25.7% respectively. The increase in sales to the Medical market was partially attributable to sales from the two fourth
quarter acquisitions, Contech Medical and DAS Medical, of $4.5 million and $1.4 million, respectively. Organically, sales to the medical market grew 5.3%
in 2021.
Gross Profit
Gross Margin decreased slightly to 24.8% for the year ended December 31, 2021, from 24.9% in 2020. As a percentage of sales, material and direct labor
costs collectively increased approximately 2.3%, while overhead decreased approximately 2.2%. The increase in collective material and labor costs as a
percentage of sales was primarily due to inflationary increases in raw material costs as well as labor rate increases and staffing challenges. The decrease in
overhead as a percentage of sales was primarily due to fixed overhead costs measured against increased sales.
Selling, General and Administrative Expenses
SG&A increased approximately 7.2% to $29.5 million for the year ended December 31, 2021, from $27.5 million in 2020. As a percentage of sales, SG&A
decreased to 14.3%, from 15.3% in 2020. The decrease in SG&A as a percentage of sales was primarily due to relatively fixed SG&A expenses measure
against increased sales. The increase in SG&A was primarily due to increased compensation programs and travel and entertainment as well as additional
SG&A from the fourth quarter acquisitions of Contech and DAS.
Acquisition costs
The Company incurred approximately $430 thousand in costs associated with acquisition related activities which were charged to expense for the year
ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement.
Interest expense, net
The Company had net interest expense of approximately $39 thousand and $83 thousand for the years ended December 31, 2021 and 2020, respectively.
The decrease in net interest expense was primarily due to interest received from the federal government related to income tax refunds.
Other Income and Expense
Other income was approximately $26 thousand and other expense was approximately $366 thousand for years ended December 31, 2021 and 2020,
respectively. The changes in other expense are primarily generated by changes in the fair value of the swap liability, which is driven by anticipated future
interest rate changes and a declining nominal amount, offset by net cash settlement amounts related to the swap.
20
Income Taxes
The Company recorded income tax expense, as a percentage of income before income tax expense, of 25.1% for the year ended December 31, 2021
compared to 17.9% for the same period in 2020 The increase in the effective tax rate for the current period was largely due to lower discrete income tax
benefits from share-based compensation and amended tax returns in the year ended December 31, 2021 compared to the same period of 2020. The
Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will
be recorded directly into income tax expense.
Liquidity and Capital Resources
The Company generally funds its operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities.
Cash Flows
Net cash provided by operations for the year ended December 31, 2022 was approximately $17.7 million and was primarily a result of net income
generated of approximately $41.8 million, depreciation and amortization of approximately $11.9 million, share-based compensation of approximately $3.2
million, a change in the fair value of contingent consideration of approximately $9.8 million, an increase in income taxes payable of approximately $1.0
million, an increase in accounts payable of approximately $9.1 million due to the building of inventory to meet demand and the timing of vendor payments
in the ordinary course of business, an increase in accrued expenses of approximately $10.4 million primarily due to increased compensation related
liabilities, customer rebates and the current portion of non-compete payments, and an increase in deferred revenue of approximately $1.0 million primarily
due to increased customer deposits on tooling and machinery.
These cash inflows and adjustments to income were offset by a gain on disposal of property, plant and equipment of approximately $6.2 million, a gain on
the sale of the Molded Fiber business of approximately $15.7 million, a decrease in deferred taxes of approximately $4.7 million, an increase in accounts
receivable of approximately $16.8 million due to higher sales in the last two months of the fourth quarter of 2022 as compared to the same period in the
fourth quarter of 2021 and the addition of Advant Medical receivables following the Company’s acquisition of Advant, an increase in inventory of
approximately $19.6 million due to inventory build for upcoming demand, restocking to historical levels and the addition of Advant Medical inventory, an
increase in prepaid expenses of approximately $0.7 million, an increase in other assets of approximately $3.5 million due to increased right of use lease
assets and a decrease in other long-term liabilities of approximately $3.3 million due primarily to the payment and current reclassification of contingent
consideration.
Net cash provided by investing activities during the year ended December 31, 2022 was approximately $1.3 million and was primarily the result of the sale
of Molded Fiber and the sale of the Georgetown manufacturing facility, offset by the acquisition of Advant Medical, as well as additions of manufacturing
machinery and equipment and various building improvements across the Company.
Net cash used for financing activities was approximately $25.9 million during the year ended December 31, 2022 and was primarily the result of payments
on the revolving line of credit of approximately $60 million, principal payments of long-term debt of approximately $4 million, payment of contingent
consideration of approximately $4.5 million, and payments of statutory withholding for stock options exercised and restricted stock units vested of
approximately $1.7 million. These payments were partially offset by borrowings under our credit facility to fund acquisitions of approximately $44 million.
Outstanding and Available Debt
On December 22, 2021, the Company, as the borrower, entered into a secured $130 million Second Amended and Restated Credit Agreement (the “Second
Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of America, N.A., in its
capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time-to-time party thereto. The
Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally dated as of February 1, 2018.
21
The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to the Company and a secured
revolving credit facility, under which the Company may borrow up to $90 million. The Second Amended and Restated Credit Agreement matures on
December 21, 2026. The secured term loan requires quarterly principal payments of $1 million that commenced on March 31, 2022. The proceeds of the
Second Amended and Restated Credit Agreement may be used for general corporate purposes, including funding the acquisition of DAS Medical, as well
as certain other permitted acquisitions. The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by the
Subsidiary Guarantors.
The Second Amended and Restated Credit Agreement calls for interest determined by the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus a
margin that ranges from 1.25% to 2.0% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. In both
cases the applicable margin is dependent upon Company performance. Under the Second Amended and Restated Credit Agreement, the Company is
subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Second
Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments,
permitted indebtedness, and permitted investments.
At December 31, 2022, the Company had approximately $55 million in borrowings outstanding under the Second Amended and Restated Credit
Agreement, which were used as partial consideration for the DAS Medical and Advant Medical acquisitions, and also had approximately $0.7 million in
standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. At December 31, 2022, the applicable
interest rate was approximately 5.2% and the Company was in compliance with all covenants under the Second Amended and Restated Credit Agreement.
Long-term debt consists of the following (in thousands):
Revolving credit facility
Term loan
Total long-term debt
Current portion
Long-term debt, excluding current portion
December 31,
2022
$
$
19,000
36,000
55,000
(4,000)
51,000
Future maturities of long-term debt at December 31, 2022 are as follows (in thousands):
Year ended December 31,
2023
2024
2025
2026
Derivative Financial Instruments
Term Loan
Revolving credit
facility
Total
4,000 $
4,000
4,000
24,000
36,000 $
- $
-
-
19,000
19,000 $
4,000
4,000
4,000
43,000
55,000
$
$
The Company used interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain of its variable-rate debt
instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. Derivative financial instruments
expose the Company to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When
the fair value of a derivative contract is positive, the counterparty owes the Company, creating credit risk for the Company. When the fair value of a
derivative contract is negative, the Company owes the counterparty and, therefore, in these circumstances the Company is not exposed to the counterparty’s
credit risk. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial
institutions based upon their credit profile. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest
rates.
22
The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected
future cash flows and by evaluating hedging opportunities. The Company’s debt obligations exposed the Company to variability in interest payments due to
changes in interest rates. The Company believed that it was prudent to limit the variability of a portion of its interest payments. To meet this objective, in
connection with the first Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate swap agreement under
which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the applicable margin. The swap modified the
Company’s interest rate exposure by converting the previous term loan from a variable rate to a fixed rate in order to hedge against the possibility of rising
interest rates during the term of the loan. The notional amount was approximately $5.7 million at December 31, 2022. The fair value of the swap as of
December 31, 2022 and 2021 was zero and approximately $(176) thousand, respectively, and is included in other liabilities. Changes in the fair value and
net cash settlement amounts related to the swap are recorded in other income of approximately $176 thousand and approximately $24 thousand during the
years ended December 31, 2022 and 2021, respectively.
As the Company has paid the remaining balance of the term loan that was associated with the swap in its entirety, there is no longer underlying debt to
hedge against with the swap. The changes in the fair value of the swap will continue to be accounted for as a financial instrument until its maturity, on
February 1, 2023.
Future Liquidity
The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations. The Company’s principal
sources of funds are its operations and its Second Amended and Restated Credit Agreement. The Company generated cash of approximately $17.7 million
in operations during the year ended December 31, 2022; however, the Company cannot guarantee that its operations will generate cash in future periods.
The Company’s longer-term liquidity is contingent upon future operating performance and the availability of draws on the revolving credit facility under
the Second Amended and Restated Credit Agreement. Further, the continued economic uncertainty resulting from the Ukraine war, inflation or other
factors beyond the control of the Company could affect the Company’s long-term ability to access the public markets and obtain necessary capital in order
to properly capitalize and continue operations.
Throughout fiscal 2023, the Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants. The Company may
consider additional acquisitions of companies, technologies, or products that are complementary to its business. The Company believes that its existing
resources, including its revolving credit facility, together with cash expected to be generated from operations, will be sufficient to fund its cash flow
requirements, including capital asset acquisitions, through the next twelve months.
The Company may also require additional capital in the future to fund capital expenditures, acquisitions or other investments. These capital requirements
could be substantial. The Company anticipates that any future expansion of its business will be financed through existing resources, cash flow from
operations, the Company's revolving credit facility, or other new financing. The Company cannot guarantee that it will be able to meet existing financial
covenants or obtain other new financing on favorable terms, if at all. The Company's liquidity will be impacted to the extent additional stock repurchases
are made under the Company's stock repurchase program.
Stock Repurchase Program
The Company accounts for treasury stock under the cost method, using the first-in, first-out cost flow assumption, and includes treasury stock as a
component of stockholders’ equity. On June 16, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10.0 million
of the Company’s outstanding common stock. Under the program, the Company is authorized to repurchase shares through Rule 10b5-1 plans, open market
purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of
the Securities Exchange Act of 1934. The stock repurchase program will end upon the earlier of the date on which the plan is terminated by the Board or
when all authorized repurchases are completed. The timing and amount of stock repurchases, if any, will be determined based upon our evaluation of
market conditions and other factors. The stock repurchase program may be suspended, modified or discontinued at any time, and the Company has no
obligation to repurchase any amount of its common stock under the program. There were no share repurchases during the years ended December 31, 2022,
2021, and 2020. At December 31, 2022, approximately $9.4 million was available for future repurchases of the Company’s common stock under this
authorization.
23
Critical Accounting Estimates
The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. The Company evaluates its estimates, including those listed
below, on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable under
the circumstances, including current and anticipated worldwide economic conditions, both in general and specifically in relation to the packaging and
component product industries, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of this Report. The
Company believes the following critical accounting policies necessitated that significant judgments and estimates be used in the preparation of its
consolidated financial statements.
The Company has reviewed these policies with its Audit Committee.
Goodwill
In testing Goodwill for impairment, the Company uses several methods including the discounted cash flows method (“DCF”) under the income approach to
determine the fair value of the reporting unit for purposes of testing the reporting unit’s carrying value of goodwill for impairment. The key assumptions
used in our approach included:
● The reporting unit’s estimated financials and five-year projections of financial results, which were based on strategic plans and long-range
forecasts. Sales growth rates represent estimates based on current and forecasted sales mix and market conditions. The profit margins were
projected based on historical margins, projected sales mix, current expense structure and anticipated expense modifications.
● The projected terminal value which reflects the total present value of projected cash flows beyond the last period in the DCF. This value reflects a
growth rate for the reporting unit, which is approximately the same growth rate of expected inflation into perpetuity.
● The discount rate determined using a Weighted Average Cost of Capital method (“WACC”), which considered market and industry data as well as
Company-specific risk factors.
Selection of guideline public companies which are similar in size and market capitalization to each other and to the Company.
Valuation of Intangible Assets and Contingent Consideration Liability
We base the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions
provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. Further, for those
arrangements that involve potential future contingent consideration, we record on the date of acquisition a liability equal to the fair value of the estimated
additional consideration we may be obligated to pay in the future. We re-measure this liability each reporting period and record changes in the fair value
through a separate line item within our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration
liability can result from changes in discount rates, periods, timing and amount of projected revenue or timing or likelihood of achieving regulatory, revenue
or commercialization-based milestones. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows,
discount rates, useful life or probability of achieving clinical, regulatory or revenue-based milestones could result in different purchase price allocations and
recognized amortization expense and contingent consideration expense or benefit in current and future periods.
24
We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that
would indicate impairment or adjustment to the remaining useful life. If we determine it is more likely than not that the asset is impaired based on our
qualitative assessment of impairment indicators, we test the intangible asset for recoverability. If the carrying value of the intangible asset is determined not
recoverable, we will write the carrying value down to fair value in the period the impairment is identified. We calculate fair value of our intangible assets as
the present value of estimated future cash flows we expect to generate from the asset using a risk-adjusted discount rate. The use of alternative assumptions,
including estimated cash flows, discount rates and alternative estimated remaining useful lives could result in different calculations of impairment.
Revenue Recognition
The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects the
consideration that the Company expects to be entitled to in exchange for promised goods or services. The Company recognizes revenue in accordance with
the core principles of ASC 606 which include (1) identifying the contract with a customer, (2) identifying separate performance obligations within the
contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue. The
Company recognizes all but an immaterial portion of its product sales upon shipment. The Company recognizes revenue from the sale of tooling and
machinery primarily upon customer acceptance, with the exception of certain tooling where control does not transfer to the customer, resulting in revenue
being recognized over the estimated time for which parts are produced with the use of each respective tool. The Company recognizes revenue from
engineering services, which are primarily product development services, as the services are performed or as otherwise determined based on the substance
of the agreement. The Company recognizes revenue from bill and hold transactions at the time the specified goods are complete and available to the
customer. In the ordinary course of business, the Company accepts sales returns from customers for defective goods, such amounts being immaterial.
Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The
Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale not as
performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed
when revenue is recognized.
Recent Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of
recent accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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, 2022, the Company’s cash and cash equivalents consisted primarily of bank accounts in U.S. dollars, and their valuation would not
be affected by market risk. Interest under the Company’s credit facility with Bank of America, N.A. calls for interest of BSBY plus a margin that ranges
from 1.25% to 2.00% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. Therefore, future operations
could be affected by interest rate changes. As of December 31, 2022, the applicable interest rate was approximately 5.2%.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the company are listed under Part IV, Item 15, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures”, excluding control
procedures at Advant Medical (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report (the
“Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the
Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or
submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
The Company closed the acquisition of Advant Medical on March 16, 2022. Advant Medical’s total assets and revenues constituted approximately 6.5%
and 5.6%, respectively, of the Company’s consolidated total assets and revenues as shown on our consolidated financial statements as of and for the year
ended December 31, 2022. As the acquisition occurred during fiscal 2022, the Company excluded Advant Medical’s internal control over financial
reporting from the scope of the assessment of the effectiveness of the Company’s disclosure controls and procedures. This exclusion is in accordance with
the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted
from the scope in the year of acquisition if specified conditions are satisfied.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in
Exchange Act Rule 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance, as opposed to absolute assurance, of achieving their internal control objectives.
Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Except as
described above relating to the acquisition of Advant Medical, based on the assessment, management concluded that, as of December 31, 2022, the
Company’s internal control over financial reporting is effective.
Except as described above, there was no change in the Company’s internal control over financial reporting that occurred during the Company’s most
recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting.
26
ITEM 9B. OTHER INFORMATION
On March 14, 2023, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved certain amendments to
the Company’s 2003 Incentive Plan, as amended and restated (the “2003 Incentive Plan”). The amendments, among other things: (i) clarify that the
Compensation Committee or the Board may delegate limited authority to the Chief Executive Officer of the Company or one or more other officers of the
Company (each, a “Designated Officer”) to assist the Compensation Committee administer and operate the 2003 Incentive Plan and to grant equity-based
awards to persons other than a Designated Officer or any person who is an officer (as defined in Rule 16a-1(f)) of the Exchange Act); (ii) increase the
aggregate maximum of Cash Performance Awards (as defined in the 2003 Incentive Plan) that may be paid to any individual pursuant to the 2003 Incentive
Plan; (iii) provide for additional flexibility in the grant of equity-based awards to employees who are foreign nationals or employed outside of the United
States; and (iv) make other conforming and correcting changes thereto.
The foregoing summary of the 2003 Incentive Plan does not purport to be complete and is qualified in its entirety by reference to the complete text of the
2003 Incentive Plan, a copy of which is filed as Exhibit 10.33 to this Annual Report on Form 10-K and is incorporated herein by reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
PART III
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 AND RELATED STOCKHOLDER
MATTERS
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, AND DIRECTOR INDEPENDENCE
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.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 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 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) (1)
Financial Statements
Index to Consolidated Financial Statements and Financial Statement Schedule
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements
(a) (2)
Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
Page
F-2
F-3
F-8
F-9
F-10
F-11
F-12
F-38
All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.
(a) (3)
Exhibits
27
Number
Description of Exhibit
Exhibit Index
2.01
2.02
2.03
3.01
3.02
3.03
3.04
3.05
4.01
4.02
10.01
10.02
10.03
Securities Purchase Agreement, dated as of December 22, 2021, by and among Parallax Investments, LLC, a Georgia limited liability
company and its purchase price beneficiaries, DAS Medical Holdings, LLC, a Georgia corporation and the Company (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 23, 2021 (SEC File No. 001-
12648)).
Agreement for the Purchase and Sale of Personal Goodwill, dated December 22, 2021, between and among the Company and Danny R.
Lee, Daniel Lee, Houston Lee, Armond Groves, Thomas Bonner and Bruce Grady (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed with the SEC on December 23, 2021 (SEC File No. 001-12648)).
Stock Purchase Agreement, dated as of October 21, 2021 by and among the Company, Contech Medical, Inc., Contech Medical, Inc.’s
shareholders, and Christopher M. Byrnes (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q,
filed with the SEC on November 5, 2021 (SEC File No. 001-12648)).
Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.01 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004, filed with the SEC on May 14, 2004 (SEC File No. 001-12648)).
Amended and Restated Certificate of Designation of Series A Junior Participating Preferred Stock of the Company (incorporated by
reference to Exhibit 3.02 to the Company’s Current Report on Form 8-K, filed with the SEC on March 24, 2009 (SEC File No. 001-
12648)).
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K,
filed with the SEC on June 15, 2020 (SEC File No. 001-12648)).
Certificate of Amendment to Certificate of Incorporation of UFP Technologies, Inc., dated June 10, 2020 (incorporated by reference to
Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 15, 2020 (SEC File No. 001-12648)).
Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form
8-K, filed with the SEC on June 14, 2022 (SEC File No. 001-12648)).
Specimen Certificate for shares of the Company’s Common Stock (incorporated by reference to Exhibit 4.01 to the Company’s Registration
Statement on Form S-1, filed with the SEC on December 15, 1993) (filed in paper format).
Description of Capital Stock (contained in the Certificate of Incorporation of the Company, as amended, filed as Exhibit 3.01 hereto).
Form of Indemnification Agreement for directors and officers of the Company (incorporated by reference to Exhibit 10.30 to the
Company’s Registration Statement on Form S-1, filed with the SEC on December 15, 1993) (filed in paper format). #
Executive Non-qualified Excess Plan (incorporated by reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q for the
three months ended September 30, 2006, filed with the SEC on November 13, 2006 (SEC File No. 001-12648)). #
Employment Agreement with R. Jeffrey Bailly dated October 8, 2007 (incorporated by reference to Exhibit 10.28 to the Company’s
Current Report on Form 8-K, filed with the SEC on October 12, 2007 (SEC File No. 001-12648)). #
28
Number
Description of Exhibit
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
10.14
10.15
10.16
2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to Exhibit 10.66 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2013, filed with the SEC on May 10, 2013 (SEC File No. 001-12648)). #
Amendment No. 1 to Employment Agreement with R. Jeffrey Bailly (incorporated by reference to Exhibit 10.56 to the Company’s Current
Report on Form 8-K, filed with the SEC on March 8, 2011 (SEC File No. 001-12648)). #
Facility Lease between the Company and Susana Property Co. (incorporated by reference to Exhibit 10.61 to the Company’s Quarterly
Report on Form 10-Q for the period ended September 30, 2012, filed with the SEC on November 9, 2012 (SEC File No. 001-12648)).
Amendment No. 2 to Employment Agreement with R. Jeffrey Bailly (incorporated by reference to Exhibit 10.62 to the Company’s Current
Report on Form 8-K, filed with SEC on February 22, 2013 (SEC File No. 001-12648)). #
Form of 2019 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K, filed with the SEC on February 25, 2019 (SEC File No. 001-12648)). #
Form of 2019 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed with the SEC on February 25, 2019 (SEC File No. 001-12648)). #
Form of 2019 Non-Qualified Stock Option Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019, filed with the SEC on
August 9, 2019 (SEC File No. 001-12648)). #
Form of 2019 Stock Unit Award Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019, filed with the SEC on August 9, 2019
(SEC File No. 001-12648)). #
Form of 2020 Non-Qualified Stock Option Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on
August 7, 2020 (SEC File No. 001-12648)). #
Form of 2020 Stock Unit Award Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 7, 2020
(SEC File No. 001-12648)). #
First Amendment to Facility Lease between the Company and Susana Property Co. dated July 6, 2012 (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2017, filed with the SEC on August 9, 2017 (SEC File
No. 001-12648)).
Stock Purchase Agreement, dated as of January 30, 2018, by and among the Company, the Sellers defined therein, Dielectrics and the
Sellers’ Representative (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the period ended
December 31, 2017, filed with the SEC on March 16, 2018 (SEC File No. 001-12648)).
Agreement for the Purchase and Sale of Personal Goodwill, dated as of January 30, 2018, by and among the Company and Eric C. Stahl
(incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2017, filed
with the SEC on March 16, 2018 (SEC File No. 001-12648)).
29
Number
Description of Exhibit
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
21.01
Lease dated as of February 1, 2018, by and between Eric C. Stahl and the Company (incorporated by reference to Exhibit 10.22 to the
Company’s Annual Report on Form 10-K for the period ended December 31, 2017, filed with the SEC on March 16, 2018 (SEC File No.
001-12648)).
Amended and Restated 2003 Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
for the period ended March 31, 2018, filed with the SEC on May 10, 2018 (SEC File No. 001-12648))#
Form of 2020 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K, filed with the SEC on February 28, 2020 (SEC File No. 001-12648)). #
Form of 2020 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed with the SEC on February 28, 2020 (SEC File No. 001-12648)). #
Form of 2021 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K, filed with the SEC on February 26, 2021 (SEC File No. 001-12648)). #
Form of 2021 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed with the SEC on February 26, 2021 (SEC File No. 001-12648)). #
Lease, dated August 9, 2021, between and among Logistica Industrial De Tijuana Este, S.A. DE C.V., Co Production De Tijuana, S.A. DE
C.V., and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
August 13, 2021 (SEC File No. 001-126458)).
Second Amended and Restated Credit Agreement, dated December 22, 2021, between and among the Company, certain of its subsidiaries
as guarantors and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on December 23, 2021 (SEC
File No. 001-12648)).
Form of 2022 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K, filed with the SEC on February 22, 2022 (SEC File No. 001-12648)). #
Form of 2022 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed with the SEC on February 22, 2022 (SEC File No. 001-12648)). #
Form of 2023 CEO Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on February 21, 2023 (SEC File No. 001-12648)). #
Form of 2023 CEO Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K, filed with the SEC on February 21, 2023 (SEC File No. 001-12648)). #
Form of 2023 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-
K, filed with the SEC on February 21, 2023 (SEC File No. 001-12648)). #
Form of 2023 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed
with the SEC on February 21, 2023 (SEC File No. 001-12648)). #
Form of 2023 Stock Unit Award Agreement (Ireland). #*
Form of 2023 Stock Unit Award Agreement (Dominican Republic). #*
Amended and Restated 2003 Incentive Plan. #*
Subsidiaries of the Company. *
30
Number
Description of Exhibit
23.01
31.01
31.02
32.01
Consent of Grant Thornton LLP. *
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **
101.INS
Inline XBRL Instance Document. *
101.SCH
Inline XBRL Taxonomy Extension Schema Document. *
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document. *
101.LAB
Inline XBRL Taxonomy Label Linkbase Document. *
101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document. *
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document. *
104
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)).
* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan or arrangement.
ITEM 16. Form 10-K Summary
None.
31
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.
SIGNATURES
Date: March 16, 2023
UFP TECHNOLOGIES, INC.
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.
SIGNATURE
TITLE
/s/ R. Jeffrey Bailly
R. Jeffrey Bailly
/s/ Ronald J. Lataille
Ronald J. Lataille
/s/ Daniel C. Croteau
Daniel C. Croteau
/s/ Cynthia Feldmann
Cynthia Feldmann
/s/ Marc Kozin
Marc Kozin
/s/ Thomas Oberdorf
Thomas Oberdorf
/s/ Joseph John Hassett
Joseph John Hassett
/s/ Symeria Hudson
Symeria Hudson
Chairman, Chief Executive Officer,
President, and Director
Chief Financial Officer, Senior Vice President,
Principal Financial and Accounting Officer
Director
Director
Director
Director
Director
Director
DATE
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
March 16, 2023
UFP TECHNOLOGIES, INC.
Consolidated Financial Statements
and Financial Statement Schedule
As of December 31, 2022 and 2021
And for the Years Ended December 31, 2022, 2021 and 2020
With Reports of Independent Registered Public Accounting Firm
Index to Consolidated Financial Statements and Financial Statement Schedule
UFP TECHNOLOGIES, INC.
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
F-3
F-8
F-9
F-10
F-11
F-12
F-38
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
UFP Technologies, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of UFP Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as
of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s
internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 16, 2023 expressed an unqualified
opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-3
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Valuation of acquired intangible assets
As described further in Note 2 to the financial statements, the Company completed the acquisition of Advant Medical on March 16, 2022 for total
consideration of €19 million in cash (approximately $21.2 million). The identified intangible assets acquired include customer contracts and relationships
of $2.9 million and intellectual property of $2.1 million. We identified valuation of the intangible assets acquired for the Advant Medical acquisition as a
critical audit matter.
The principal considerations for our determination that valuation of the intangible assets acquired for the Advant Medical acquisition is a critical audit
matter are that the determination of the fair values of such assets required management to make significant estimates and assumptions related to forecasted
revenues and operating margins as well as the discount rates used. These estimates and assumptions required a high degree of auditor judgement and effort,
in the selection and application of audit procedures.
Our audit procedures related to the valuation of the intangible assets acquired and contingent consideration liabilities for the Advant Medical acquisition
included the following, among others:
● We tested the design and operating effectiveness of controls relating to the determination of fair values of the intangible assets, including
controls over the development of assumptions related to revenue growth rates, operating margins and discount rates.
● We evaluated the valuation methodologies and discount rates utilized by management with the assistance of our valuation professionals with
specialized skill and knowledge.
● We tested the forecasted revenues and operating margins by assessing the reasonableness of management’s forecasts compared to historical
results and forecasted market and industry trends.
F-4
Valuation of contingent consideration liability
As described further in Notes 16 and 18 to the financial statements, in connection with the DAS Medical acquisition in 2021, the Company incurred
liabilities for certain contingent consideration related to the valuation of earn-out payments based upon the performance of DAS Medical. This liability is
recognized at fair value and re-measured every reporting period. We identified valuation of the DAS Medical contingent consideration liability as a critical
audit matter.
The principal considerations for our determination that valuation of DAS Medical contingent consideration liability is a critical audit matter are that the
determination of the fair values of such a liability required management to make significant estimates and assumptions related to forecasted revenues and
operating margins as well as the discount rates used. These estimates and assumptions required a high degree of auditor judgement and effort, in the
selection and application of audit procedures.
Our audit procedures related to the valuation of the DAS Medical contingent consideration liability included the following, among others:
● We tested the design and operating effectiveness of controls relating to the determination of the fair value of the contingent liability,
including controls over the development of assumptions related to revenue growth rates, operating margins and discount rates.
● We evaluated the valuation methodologies and discount rates utilized by management with the assistance of our valuation professionals with
specialized skill and knowledge.
● We tested the forecasted revenues and operating margins by assessing the reasonableness of management’s forecasts compared to historical
results and forecasted market and industry trends.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Boston, Massachusetts
March 16, 2023
F-5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
UFP Technologies, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of UFP Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
financial statements of the Company as of and for the year ended December 31, 2022, and our report dated March 16, 2023 expressed an unqualified
opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting
(“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
F-6
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of
Advant Medical, a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 7 and 6 percent, respectively, of the
related consolidated financial statement amounts as of and for the year ended December 31, 2022. As indicated in Management’s Report, Advant Medical
was acquired during 2022. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control
over financial reporting of Advant Medical.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Boston, Massachusetts
March 16, 2023
F-7
UFP TECHNOLOGIES, INC.
Consolidated Balance Sheets
(In thousands, except share data)
Assets
December 31,
2022
2021
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Non-qualified deferred compensation plan
Right of use assets
Deferred income taxes
Other assets
Total assets
Current liabilities:
Liabilities and Stockholders’ Equity
Accounts payable
Accrued expenses
Deferred revenue
Lease liabilities
Income taxes payable
Current installments, net of long-term debt
Total current liabilities
Long-term debt, excluding current installments
Deferred income taxes
Non-qualified deferred compensation plan
Lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued
Common stock, $.01 par value, 20,000,000 shares authorized; 7,611,244 and 7,581,685 shares issued and
outstanding, respectively at December 31, 2022; and 7,564,645
and 7,535,086 shares issued and outstanding, respectively, at December 31, 2021
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock at cost, 29,559 shares at December 31, 2022 and 2021
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
F-8
$
$
$
$
4,451 $
55,117
53,536
3,242
116,346
58,072
113,028
68,361
4,148
13,153
1,448
3,636
378,192 $
19,961 $
23,122
4,679
2,517
1,682
4,000
55,961
51,000
448
4,167
10,851
18,220
140,647
11,117
39,384
33,436
3,383
87,320
56,569
107,905
67,585
4,327
9,324
-
1,102
334,132
10,611
16,777
4,247
2,239
909
4,000
38,783
71,000
3,263
4,337
7,118
15,185
139,686
-
-
76
36,070
202,596
(610)
(587)
237,545
378,192 $
75
34,151
160,807
-
(587)
194,446
334,132
UFP TECHNOLOGIES, INC.
Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Acquisition costs
Change in fair value of contingent consideration
Gain on sale of Molded Fiber business
(Gain) loss on disposal of property, plant and equipment
Operating income
Interest expense, net
Other (income) expense
Income before income tax provision
Income tax expense
Net income
Net income per common share outstanding:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Comprehensive Income
Net Income
Other comprehensive income:
Foreign currency translation adjustment
Other comprehensive loss
Comprehensive income
2022
Years Ended December 31,
2021
2020
353,792 $
263,532
90,260
45,796
1,027
9,837
(15,651)
(6,149)
55,400
2,763
(81)
52,718
10,929
41,789 $
5.52 $
5.45 $
7,564
7,663
206,320 $
155,206
51,114
29,480
430
-
-
(14)
21,218
39
(26)
21,205
5,319
15,886 $
2.11 $
2.09 $
7,524
7,615
41,789 $
15,886 $
(610)
(610)
41,179 $
-
-
15,886 $
179,373
134,689
44,684
27,493
-
-
-
459
16,732
83
366
16,283
2,914
13,369
1.79
1.77
7,484
7,568
13,369
-
-
13,369
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-9
UFP TECHNOLOGIES, INC.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2022, 2021 and 2020
(In thousands)
Additional
Accumulated
Other
Common Stock
Paid-in Retained Comprehensive
Treasury Stock
Shares
Amount Capital
Earnings
Loss
Shares
Amount
Total
Stockholders'
Equity
Balance at December 31,
2019
7,446 $
74 $
30,952 $
131,552 $
Share-based compensation
Exercise of stock options
Net share settlement of
restricted stock units
Net income
43
26
(15)
-
1
-
-
-
1,806
474
-
-
(748)
-
-
13,369
Balance at December 31,
2020
7,500 $
75 $
32,484 $
144,921 $
Share-based compensation
Exercise of stock options
Net share settlement of
restricted stock units
Net income
45
7
(17)
-
-
-
-
-
2,428
162
(923)
-
-
-
15,886
Balance at December 31,
2021
Share-based compensation
Exercise of stock options
Net share settlement of
restricted stock units
Other comprehensive loss
Net income
Balance at December 31,
2022
7,535 $
75 $
34,151 $
160,807 $
53
17
(23)
-
-
1
-
-
-
-
3,207
390
(1,678)
-
-
-
-
-
-
41,789
The accompanying notes are an integral part of these consolidated financial statements.
F-10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(610)
-
30 $
(587) $
161,991
-
-
-
-
-
-
-
-
1,807
474
(748)
13,369
30 $
(587) $
176,893
-
-
-
-
-
-
-
-
2,428
162
(923)
15,886
30 $
(587) $
194,446
-
-
-
-
-
-
-
-
-
-
3,208
390
(1,678)
(610)
41,789
7,582 $
76 $
36,070 $
202,596 $
(610)
30 $
(587) $
237,545
UFP TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income from consolidated operations
Adjustments to reconcile net income to net cash provided by operating activities:
$
Depreciation and amortization
(Gain) loss on sales of property, plant and equipment
Gain on sale of Molded Fiber business
Share-based compensation
Change in fair value of contingent consideration
Deferred income taxes
Changes in operating assets and liabilities:
Receivables, net
Inventories
Prepaid expenses
Income taxes
Other assets
Accounts payable
Accrued expenses
Deferred revenue
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Proceeds from sale of Molded Fiber
Proceeds from sale of property, plant and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from advances on revolving line of credit
Payments on revolving line of credit
Proceeds from the issuance of long-term debt
Principal repayment of long-term debt
Payment of contingent consideration
Principal payments on finance lease obligations
Proceeds from the exercise of stock options
Payment of statutory withholding for restricted stock units vested
Net cash (used in) provided by financing activities
Effect of foreign currency exchange rates on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
The accompanying notes are an integral part of these consolidated financial statements.
F-11
2022
Years Ended December 31,
2021
2020
41,789 $
15,886 $
13,369
11,886
(6,149)
(15,651)
3,208
9,837
(4,710)
(16,864)
(19,605)
(692)
953
(3,545)
9,131
10,446
1,008
(3,298)
17,744
(13,780)
(20,653)
29,007
6,717
1,291
44,000
(60,000)
-
(4,000)
(4,543)
(63)
390
(1,678)
(25,894)
193
(6,666)
11,117
4,451 $
8,410
(14)
-
2,428
-
(1,794)
(7,754)
(4,496)
(557)
893
(681)
102
1,009
2,294
(1,433)
14,293
(5,395)
(96,178)
-
114
(101,459)
34,839
-
40,000
-
-
(29)
162
(923)
74,049
-
(13,117)
24,234
11,117 $
8,268
459
-
1,807
-
136
2,220
(366)
(256)
295
(73)
(681)
(537)
(687)
1,083
25,037
(4,368)
-
-
107
(4,261)
5,500
(5,500)
-
-
-
(11)
474
(748)
(285)
-
20,491
3,743
24,234
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(1)
Summary of Significant Accounting Policies
UFP Technologies, Inc. (“the Company”) is a design, engineering, and custom manufacturer of comprehensive solutions for medical devices, sterile
packaging, and other highly engineered custom products. The Company is an important link in the medical device supply chain and a valued
outsource partner to many of the top medical device manufacturers in the world. The Company’s single-use and single-patient devices and
components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, wound care, wearables,
orthopedic soft goods, and orthopedic implants.
The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense,
consumer, electronics, and industrial markets. Typical applications of its products include military uniform and gear components, automotive interior
trim, athletic padding, air filtration, abrasive nail files, and protective cases and inserts.
(a) Principles of Consolidation
The consolidated financial statements of the Company include the accounts and results of operations of UFP Technologies, Inc. and its wholly-
owned subsidiaries, Advant Medical Limited, and its wholly-owned subsidiary Munlu Leighis Advant Teoranta, Advant Costa Rica Limitada,
Advant Medical Inc. (collectively “Advant Medical”), Dielectrics, Inc. (“Dielectrics”), Moulded Fibre Technology, Inc. (partial year; entity
was sold in July 2022), Contech Medical, Inc. (“Contech”), DAS Medical Holdings, LLC (“DAS Medical”), and DAS Medical’s wholly-
owned subsidiaries, Sterimed, LLC, One Degree Medical Holdings, LLC, DAS Medical Corporation, and its wholly-owned subsidiary DAS
Medical International, S.R.L., Simco Industries, Inc., and UFP Realty LLC (“UFP Realty”), and UFP Realty’s wholly-owned subsidiaries. All
significant inter-company balances and transactions have been eliminated in consolidation. The Company consists of a single operating and
reportable segment. The Company has evaluated all subsequent events through the date of this filing.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including allowance
for doubtful accounts and the net realizable value of inventory, and the fair value of goodwill, and the fair value of intangible assets, 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.
(c) Fair Value Measurement
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value for assets and liabilities, which are required to be
recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the
market-based risk measurement or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer
restrictions, and credit risk.
(d) Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are stated at carrying amounts that
approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates
fair value as the interest rate on the debt approximates the Company’s current incremental borrowing rate.
F- 12
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At December 31,
2022 and 2021, the Company did not have any cash equivalents.
The Company maintains its cash in bank deposit accounts that at times exceed federally insured limits. The Company periodically reviews the
financial stability of institutions holding its accounts and does not believe it is exposed to any significant custodial credit risk on cash.
(f) Accounts Receivable
The Company periodically reviews the collectability of its accounts receivable. Provisions are recorded for accounts that are potentially
uncollectable. Determining adequate reserves for accounts receivable requires management’s judgment. Conditions impacting the realizability
of the Company’s receivables could cause actual asset write-offs to be materially different than the reserved balances as of December 31, 2022.
(g) Inventories
Inventories include material, labor, and manufacturing overhead and are valued at the lower of cost or net realizable value. Cost is determined
using the first-in, first-out (“FIFO”) method.
The Company periodically reviews the realizability of its inventory for potential excess or obsolescence. Determining the net realizable value
of inventory requires management’s judgment. Conditions impacting the realizability of the Company’s inventory could cause actual asset
write-offs to be materially different than the Company’s current estimates as of December 31, 2022.
(h) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and are depreciated or amortized using the straight-line method over the estimated useful lives
of the assets or the related lease term, if shorter.
Estimated useful lives of property, plant, and equipment are as follows:
Leasehold improvements
Buildings and improvements (years)
Machinery and equipment (years)
Furniture,
software (years)
fixtures,
computers
Shorter of estimated useful life
or remaining lease term
20 -30
7 – 15
3 – 7
&
Property, plant, and equipment amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the
estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the
impairment loss to be recorded is calculated by the excess of the asset’s carrying value over its fair value. No events or changes in
circumstances arose during the year ended December 31, 2022 that required management to perform an impairment analysis.
(i) Goodwill
Goodwill is tested for impairment annually and will be tested for impairment between annual tests if an event occurs or circumstances change
that would indicate that the carrying amount may be impaired. Impairment testing for goodwill is done at a reporting unit level. Reporting units
are one level below the business segment level but can be combined when reporting units within the same segment have similar economic
characteris‐tics. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the
estimated fair value of the reporting unit. The Company consists of a single reporting unit. In performing the most recent “step 1” evaluation of
goodwill impairment, the Company primarily utilized the guideline public company (“GPC”) method under the market approach and the
discounted cash flows method (“DCF”) under the income approach to determine the fair value of the reporting unit for purposes of testing the
reporting unit’s carrying value of goodwill for impairment. The GPC method derives a value by generating a multiple of EBITDA through the
comparison of the Company to similar publicly traded companies. The DCF approach derives a value based on the present value of a series of
estimated future cash flows at the valuation date by the application of a discount rate, one that a prudent investor would require before making
an investment in our equity securities.
F- 13
The Company changed its annual impairment testing date in 2021 to October 1 in order to allow for sufficient time to complete its analysis. As
of our most recent step 1 evaluation on October 1, 2022, based on calculations under the above noted approach, the fair value of the reporting
unit significantly exceeded the carrying value of the reporting unit. In performing these calculations, management used its most reasonable
estimates of the key assumptions discussed above. If the Company’s actual operating results and/or the key assumptions utilized in
management’s calculations differ from our expectations, it is possible that a future impairment charge may be necessary.
(j) Intangible Assets
Intangible assets with a definite life are amortized on a straight-line basis, with estimated useful lives ranging from 5 to 20 years. Intangible
assets with a definite life are tested for impairment whenever events or circumstances indicate that their carrying values may not be
recoverable. No events or changes in circumstances arose during the year ended December 31, 2022 that required management to perform an
impairment analysis.
(k) Revenue Recognition
The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects
the consideration that the Company expects to be entitled to in exchange for promised goods or services. The Company recognizes revenue in
accordance with the core principles of ASC 606 which include (1) identifying the contract with a customer, (2) identifying separate
performance obligations within the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance
obligations, and (5) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The
Company recognizes revenue from the sale of tooling and machinery primarily upon customer acceptance, with the exception of certain tooling
where control does not transfer to the customer, resulting in revenue being recognized over the estimated time for which parts are produced
with the use of each respective tool. The Company recognizes revenue from engineering services, which are primarily product development
services, as the services are performed or as otherwise determined based on the substance of the agreement. The Company recognizes revenue
from bill and hold transactions at the time the specified goods are complete and available to the customer. In the ordinary course of business,
the Company accepts sales returns from customers for defective goods, such amounts being immaterial. Although only applicable to an
insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The Company has elected to
account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale not as
performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and
are expensed when revenue is recognized.
(l) Share-Based Compensation
When accounting for equity instruments exchanged for employee services, share-based compen‐sation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting
period of the equity grant). Forfeitures are expensed as they occur.
(m) Shipping and Handling Costs
Costs incurred related to shipping and handling are included in cost of sales. Amounts charged to customers pertaining to these costs are
included in net sales.
F- 14
(n) Income Taxes
The Company’s income taxes are accounted for under the asset and liability method. 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 basis and operating loss and tax credit carry‐forwards. Deferred tax expense or
benefit results from the net change during the year in deferred tax assets and liabilities. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.
The Company evaluates the need for a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be
realized. The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for
a valuation allowance. Should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period such determination was made.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial
statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon
settlement. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense.
(o) Segments and Related Information
The Company follows the provisions of Accounting Standards Codification (ASC) 280, Segment Reporting, which establish standards for the
way public business enterprises report information and operating segments in annual financial statements (see Note 19).
(p) Treasury Stock
The Company accounts for treasury stock under the cost method, using the first-in, first out cost flow assumption, and includes treasury stock
as a component of stockholders’ equity. The Company did not repurchase any shares of common stock during the years ended December 31,
2022, 2021 and 2020.
(q) Research and Development
On a routine basis, the Company incurs costs related to research and development activity. These costs are expensed as incurred.
Approximately $9.3 million, $8.5 million, and $8.2 million were expensed in the years ended December 31, 2022, 2021 and 2020, respectively.
(r) Foreign Currency Translation
The Company translates all assets and liabilities of its foreign subsidiaries, where the U.S. dollar is not the functional currency, at the period-
end exchange rate and translates income and expenses at the average exchange rates in effect during the period. The net effect of this
translation is recorded in the consolidated financial statements as a component of Accumulated Other Comprehensive Income (AOCI).
Translation adjustments are not adjusted for income taxes as they relate to permanent investments in the Company’s foreign subsidiaries.
Recent Accounting Pronouncements
There are no newly issued accounting pronouncements that the Company expects to have a material effect on the financial statements.
F- 15
Revisions
Certain revisions have been made to the December 31, 2021 Condensed Consolidated Balance Sheet to conform to the current year presentation
relating to a reclassification of other liabilities (long-term) to accrued expenses (current). The reclassification resulted in an increase in accrued
expenses of $4.1 million and a decrease in other liabilities of $4.1 million. These revisions had no impact on previously reported earnings, net
income or cash flows and are deemed immaterial to the previously issued financial statements.
(2)
Acquisitions and Divestiture
Molded Fiber
On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold its Moulded Fiber Technology, Inc. (“MFT”)
and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $31.5 million (including a
working capital adjustment of approximately $0.1 million that decreased the total consideration). The net book value of the assets sold were
approximately $15.4 million and the Company recorded a net gain on sale of approximately $15.7 million, which was recorded in the year ended
December 31, 2022. $2.6 million of the purchase price is being held in escrow to indemnify CKF against certain claims, losses, and liabilities. The
Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. MFT’s annual
revenue was approximately $21.3 million for the year ended December 31, 2021. Proceeds from the sale were used to pay down debt on the
Company’s revolving credit facility, as well as income tax obligations on the related gain.
Advant Medical
On March 16, 2022, the Company purchased 100% of the outstanding shares of common stock of Advant Medical, Ltd., Advant Medical Inc. and
Advant Medical Costa Rica, Limitada, (together Advant), pursuant to a Stock Purchase Agreement and related agreements, for an aggregate
purchase price of €19.0 million in cash along with a working capital adjustment at closing (total consideration in U.S. Dollars amounted to
approximately $21.2 million). The purchase price was subject to additional adjustment based upon Advant’s final working capital at closing. A
portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Stock Purchase
Agreement contains customary representations, warranties, and covenants customary for transactions of this type.
Founded in 1993, Advant is headquartered in Galway, Ireland, with operations in Costa Rica and partner manufacturing in Mexico. Advant is a
developer and manufacturer of Class I, II, and III medical devices and packaging, primarily for catheters and guide wires.
The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed
based on management’s estimates of fair value (in thousands):
F- 16
Fair value of considerations transferred
Cash paid at closing
Other liability
Cash from Advant
Total consideration
Purchase price allocation
Accounts receivable
Inventory
Other current assets
Property, plant, and equipment
Customer contracts & relationships
Intellectual property
Non-compete agreement
Lease right of use assets
Other assets
Goodwill
Total identifiable assets
Accounts payable
Accrued expenses
Income taxes
Deferred taxes
Lease liabilities
Net assets acquired
$
$
$
$
$
23,608
395
(2,840)
21,163
2,299
2,410
213
5,704
2,925
2,127
259
289
41
7,140
23,407
(772)
(668)
(66)
(449)
(289)
21,163
Acquisition costs associated with the transaction were approximately $789 thousand, of which $759 thousand was charged to expense in the year
ended December 31, 2022, and $30 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal,
investment banking, and valuation services, as well as stamp duty filings and are reflected on the face of the income statement.
The amount of revenue and earnings of Advant recognized since the acquisition date, which is included in the condensed consolidated statement of
income for the year ended December 31, 2022, was approximately $20.0 million and $2.4 million, respectively.
Pro-forma statements
The following table contains an unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2022, and
2021, as if the Advant acquisition had occurred at the beginning of 2021 (in thousands):
Sales
Operating Income
Net Income
Earnings per share:
Basic
Diluted
Year Ended December 30,
2021
2022
(Unaudited)
(Unaudited)
$
$
$
$
$
358,196 $
56,321 $
42,311 $
5.59 $
5.52 $
291,403
27,729
21,805
2.90
2.86
F- 17
The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that
would have occurred had the acquisition occurred as presented. In addition, future results may vary significantly from the results reflected in such
pro forma information.
DAS Medical
On December 22, 2021, the Company purchased 100% of the outstanding membership interests of DAS Medical Holdings, LLC, (DAS Medical)
pursuant to a Securities Purchase Agreement, for a net purchase price of $66.7 million in cash. The purchase price was subject to adjustment based
upon DAS Medical’s final working capital at closing, and the purchase price may be increased by up to $20.0 million in earn-out payments based
upon the achievement of certain EBITDA and/or revenue targets of DAS Medical for the years ended December 31, 2022, 2023, 2024 and 2025. A
portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Securities
Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. As a result of the final
working capital adjustment, the total consideration was reduced by approximately $115 thousand.
In connection with its entry into the Purchase Agreement, the Company also entered into an Agreement for the Purchase and Sale of Personal
Goodwill (the “Goodwill Agreement”) with the purchase price beneficiaries. Pursuant to the terms of the Goodwill Agreement, on December 22,
2021, the Company purchased from the beneficiaries their personal goodwill, including business relationships, trade secrets and knowledge in
connection with DAS Medical’s business, for a purchase price of $20 million in cash.
The Company has also entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional
consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following
the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners.
Founded in 2010, DAS Medical is headquartered in Atlanta, Georgia, with manufacturing in the Dominican Republic. DAS Medical is a medical
device contract manufacturer specializing in the design, development and production of single-use surgical equipment covers, robotic draping
systems and fluid control pouches.
The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed
based on management’s estimates of fair value (in thousands):
F- 18
Fair value of considerations transferred
Cash paid at closing
Contingent liability (Earn-out)
Non-compete agreements
Cash from DAS
Working capital adjustment
Total consideration
Purchase price allocation
Accounts receivable
Inventory
Other current assets
Property, plant, and equipment
Customer contracts & relationships
Intellectual property
Non-compete agreement
Lease right of use assets
Goodwill
Total identifiable assets
Accounts payable
Accrued expenses
Deferred revenue
Lease liabilities
Net assets acquired
$
$
$
$
$
95,000
5,188
8,855
(8,316)
(115)
100,612
2,351
7,570
68
3,314
36,730
2,380
4,697
1,221
51,742
110,073
(5,238)
(2,995)
(7)
(1,221)
100,612
Acquisition costs associated with the transaction were approximately $448 thousand, of which $155 thousand was charged to expense in the year
ended December 31, 2022, and $293 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal
and valuation services and are reflected on the face of the income statement.
The amount of revenue and net income of DAS Medical recognized since the acquisition date, which is included in the condensed consolidated
statement of income for the year ended December 31, 2021, was approximately $1.4 million and $0.1 million, respectively.
Contech Medical
On October 12, 2021, the Company purchased 100% of the outstanding shares of common stock of Contech Medical, Inc., pursuant to a stock
purchase agreement and related agreements, for an aggregate purchase price of $9.5 million in cash, the assumption of a contingent liability of $0.5
million plus up to an additional $5 million based upon the achievement of certain EBITDA targets of Contech for the 12-month period ended June
30, 2022. The purchase price was subject to adjustment based upon Contech’s working capital at closing. A portion of the purchase price is being
held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Purchase Agreement contains customary representations,
warranties, and covenants customary for transactions of this type.
Founded in 1987, Contech is based in Providence, Rhode Island with partner manufacturing in Costa Rica. Contech is a global leader in the design,
development, and manufacture of Class III medical device packaging primarily for catheters and guide wires. The Company has leased the
Providence location from a realty trust owned by the selling shareholders and affiliates. The lease is for five years with one five-year renewal option.
F- 19
The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed
based on management’s estimates of fair value (in thousands):
Fair value of consideration transferred:
Cash paid at closing
Contingent liability (Earn-out)
Other liability
Cash from Contech
Total consideration
Purchase Price Allocation:
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Customer Contracts & Relationships
Intellectual Property
Non-Compete agreement
Lease right of use assets
Goodwill
Total identifiable assets
Accounts payable
Accrued expenses
Deferred revenue
Lease liabilities
Net assets acquired
$
$
$
$
$
9,766
4,543
500
(266)
14,543
2,851
2,320
37
1,170
3,043
2,247
86
1,523
4,278
17,555
(1,015)
(414)
(60)
(1,523)
14,543
Acquisition costs associated with the transaction were approximately $153 thousand, of which $113 thousand was charged to expense in the year
ended December 31, 2022, and $40 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal and
valuation services and are reflected on the face of the income statement.
The amount of revenue and net income of Contech recognized since the acquisition date, which is included in the condensed consolidated statement
of income for the year ended December 31, 2021, was approximately $4.5 million and $0.5 million, respectively.
The following table contains an unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2021, and
2020, as if both acquisitions had occurred at the beginning of 2020 (in thousands):
Sales
Operating Income
Net Income
Earnings per share:
Basic
Diluted
Year Ended December 31,
2020
2021
(Unaudited)
(Unaudited)
$
$
$
$
$
269,932 $
25,878 $
20,562 $
2.73 $
2.70 $
235,328
22,617
18,354
2.45
2.43
F- 20
The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that
would have occurred had both acquisitions occurred as presented. In addition, future results may vary significantly from the results reflected in such
pro forma information.
(3)
Revenue Recognition
Disaggregated Revenue
The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to our customers (in thousands)
(See Note 19 for further information regarding net sales by market):
Net sales of:
Products
Tooling and Machinery
Engineering services
Total net sales
Contract balances
2022
Years Ended December 31,
2021
2020
$
$
342,742 $
6,307
4,743
353,792 $
201,248 $
1,814
3,258
206,320 $
172,299
2,787
4,287
179,373
Timing of revenue recognition may differ from the timing of invoicing to customers. When invoicing occurs prior to revenue recognition, the
Company has deferred revenue (contract liabilities) included within “deferred revenue” on the condensed consolidated balance sheet.
The following table presents opening and closing balances of contract liabilities for the years ended December 31, 2022, and 2021 (in thousands):
Deferred revenue - beginning of period
Acquired in business combinations
Increases due to consideration received from customers
Revenue recognized
Decrease due to sale of Molded Fiber
Deferred revenue - end of period
Contract Liabilities
Years Ended
December 31,
2022
2021
$
$
4,247 $
-
6,337
(5,330)
(575)
4,679 $
1,887
69
4,007
(1,716)
-
4,247
Revenue recognized during the years ended December 31, 2022 and 2021 from amounts included in deferred revenue at the beginning of the period
was approximately $2.2 million and $0.8 million, respectively.
F- 21
When invoicing occurs after revenue recognition, the Company has unbilled receivables (contract assets) included within “receivables” on the
condensed consolidated balance sheet.
The following table presents opening and closing balances of contract assets for the years ended December 31, 2022 and 2021 (in thousands):
Unbilled Receivables - beginning of period
Increases due to revenue recognized, not invoiced to customers
Decreases due to customer invoicing
Unbilled Receivables - end of period
(4)
Supplemental Cash Flow Information
Cash paid for:
Interest
Income taxes, net of refunds
Non-cash investing and financing activities:
Capital additions accrued but not yet paid
Accrued contingent consideration
Present value of non-competition payments
Finance lease right of use assets
Finance lease liabilities
Operating lease right of use assets
Operating lease liabilities
(5)
Receivables and Allowance for Credit Losses
Receivables consist of the following (in thousands):
Accounts receivable–trade
Less allowance for credit losses
Receivables, net
Contract Assets
Years Ended
December 31,
2022
2021
$
$
74 $
3,653
(3,457)
270 $
271
1,815
(2,012)
74
2022
Years Ended December 31,
2021
(in thousands)
2020
$
$
2,721 $
13,200
125 $
14,568
10,043
-
-
329
(329)
53 $
5,914
135 $
9,731
9,477
187
(187)
7,782
(7,782)
71
2,481
225
-
-
108
(108)
-
-
December 31,
2022
2021
$
$
55,850 $
(733)
55,117 $
39,903
(519)
39,384
The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for
accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the
current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts
receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally,
specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The
Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers'
financial condition and macroeconomic conditions. Balances are written-off when determined to be uncollectible. Estimates based on an assessment
of anticipated payment and all other historical, current, and future information that is reasonably available are used to determine the allowance.
F- 22
The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount
expected to be collected for the years ended December 31, 2022 and 2021 (in thousands):
Allowance - beginning of period
Provision for expected credit losses
Amounts written off against the allowance, net of recoveries
Decrease due to sale of Molded Fiber business
Allowance - end of period
(6)
Inventories
Inventories consist of the following (in thousands):
Raw materials
Work in process
Finished goods
Total Inventory
(7) Goodwill and Other Intangible Assets
Allowance for Credit Losses
Year Ended December 31,
2021
2022
$
$
519 $
293
(40)
(39)
733 $
484
179
(144)
-
519
December 31,
2022
2021
$
$
42,475 $
4,183
6,878
53,536 $
22,184
4,205
7,047
33,436
The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 are as follows (in thousands):
Opening balance
Acquired in business combinations (See Note 2)
DAS working capital adjustment
DAS opening balance sheet reclassification
Sale of Molded Fiber
Foreign currency translation
Ending balance
Approximately $106.0 million of goodwill at December 31, 2022, is deductible for tax purposes
F- 23
2022
2021
$
$
107,905 $
7,140
196
(243)
(1,778)
(192)
113,028 $
51,838
56,067
-
-
-
-
107,905
The carrying values of the Company’s definite-lived intangible assets as of December 31, 2022 and 2021 are as follows (in thousands):
December 31, 2022
Weighted-average useful life
Gross amount
Accumulated amortization
Net balance
December 31, 2021
Weighted-average useful life
Gross amount
Accumulated amortization
Net balance
Intellectual
Property /
Tradename &
Brand
11.9 years
Customer
List
20 years
Non-
Compete
9.3 years
Total
65,174 $
(7,665)
57,509 $
7,064 $
(727)
6,337 $
5,497 $
(982) $
4,515 $
77,735
(9,374)
68,361
Intellectual
Property /
Tradename &
Brand
11.9 years
Customer
List
20 years
Non-
Compete
9.5 years
Total
62,328 $
(4,442)
57,886 $
4,994 $
(175)
4,819 $
5,245 $
(365) $
4,880 $
72,567
(4,982)
67,585
$
$
$
$
Amortization expense related to intangible assets was approximately $4.4 million, $1.3 million, and $1.3 million for the years ended December 31,
2022, 2021, and 2020, respectively. The estimated remaining amortization expense as of December 31, 2022 is as follows (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total
$
$
4,408
4,401
4,401
4,399
4,397
46,355
68,361
(8)
Property, Plant and Equipment
Property, plant, and equipment consist of the following (in thousands):
Land and improvements
Buildings and improvements
Leasehold improvements
Machinery & equipment
Furniture, fixtures, computers & software
Construction in progress
Property, plant and equipment
Accumulated depreciation and amortization
Net property, plant and equipment
December 31,
2022
4,811 $
34,446
5,503
52,233
6,401
7,272
110,666 $
(52,594)
58,072 $
2021
3,191
36,234
4,859
72,963
6,052
3,538
126,837
(70,268)
56,569
$
$
$
Depreciation and amortization expense of Property, Plant and Equipment for the years ended December 31, 2022, 2021, and 2020 was
approximately $7.5 million, $7.1 million, and $7.0 million, respectively.
F- 24
(9)
Debt
On December 22, 2021, the Company, as the borrower, entered into a secured $130 million Second Amended and Restated Credit Agreement (the
“Second Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of
America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time-to-
time party thereto. The Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally
dated as of February 1, 2018.
The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to the Company and a
secured revolving credit facility, under which the Company may borrow up to $90 million. The Second Amended and Restated Credit Agreement
matures on December 21, 2026. The secured term loan requires quarterly principal payments of $1 million that commenced on March 31, 2022. The
proceeds of the Second Amended and Restated Credit Agreement may be used for general corporate purposes, including funding the acquisition of
DAS Medical, as well as certain other permitted acquisitions. The Company’s obligations under the Second Amended and Restated Credit
Agreement are guaranteed by the Subsidiary Guarantors.
The Second Amended and Restated Credit Agreement calls for interest determined by the Bloomberg Short-Term Bank Yield Index rate (“BSBY”)
plus a margin that ranges from 1.25% to 2.0% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 0.25% to
zero. In both cases the applicable margin is dependent upon Company performance. Under the Second Amended and Restated Credit Agreement, the
Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant.
The Second Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on
certain payments, permitted indebtedness, and permitted investments.
At December 31, 2022, the Company had approximately $55 million in borrowings outstanding under the Second Amended and Restated Credit
Agreement, which were used as partial consideration for the DAS Medical and Advant acquisitions, and also had approximately $0.7 million in
standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. At December 31, 2022, the
applicable interest rate was approximately 5.2% and the Company was in compliance with all covenants under the Second Amended and Restated
Credit Agreement.
Long-term debt consists of the following (in thousands):
December 31,
2022
Revolving credit facility
Term loan
Total long-term debt
Current portion
Long-term debt, excluding current portion
Future maturities of long-term debt at December 31, 2022 are as follows (in thousands):
$
$
Year ended December 31,
2023
2024
2025
2026
Term Loan
Revolving credit
facility
Total
4,000 $
4,000
4,000
24,000
36,000 $
- $
-
-
19,000
19,000 $
$
$
F- 25
19,000
36,000
55,000
(4,000)
51,000
4,000
4,000
4,000
43,000
55,000
Derivative Financial Instruments
The Company used interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain of its variable-
rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. Derivative financial
instruments expose the Company to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the
derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, creating credit risk for the
Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, in these circumstances the
Company is not exposed to the counterparty’s credit risk. The Company minimizes counterparty credit risk in derivative instruments by entering into
transactions with carefully selected major financial institutions based upon their credit profile. Market risk is the adverse effect on the value of a
derivative instrument that results from a change in interest rates.
The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact
expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations exposed the Company to variability in interest
payments due to changes in interest rates. The Company believed that it was prudent to limit the variability of a portion of its interest payments. To
meet this objective, in connection with the first Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest
rate swap agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the
applicable margin. The swap modified the Company’s interest rate exposure by converting the previous term loan from a variable rate to a fixed rate
in order to hedge against the possibility of rising interest rates during the term of the loan. The notional amount was approximately $5.7 million at
December 31, 2022. The fair value of the swap as of December 31, 2022 and 2021 was zero and approximately $(176) thousand, respectively, and is
included in other liabilities. Changes in the fair value and net cash settlement amounts related to the swap are recorded in other income of
approximately $176 thousand and approximately $24 thousand during the years ended December 31, 2022 and 2021, respectively.
As the Company has paid the remaining balance of the term loan that was associated with the swap in its entirety, there is no longer underlying debt
to hedge against with the swap. The changes in the fair value of the swap will continue to be accounted for as a financial instrument until its
maturity, on February 1, 2023.
(10) Accrued Expenses
Accrued expenses consist of the following (in thousands):
Compensation
Current portion of contingent consideration
Current portion of present value of non-competition payments
Accrued customer rebates
Other
December 31,
2022
7,949 $
5,000
1,888
3,493
4,792
23,122 $
2021
6,498
4,543
156
1,241
4,339
16,777
$
$
Certain amounts for the year ended December 31, 2021 were revised to conform to the current year presentation (See Note 1).
F- 26
(11)
Income Tax
The Company’s domestic and foreign net income before provision for income taxes for the years ended December 31, 2022, 2021, and 2020 consists
of the following (in thousands):
Domestic
Foreign
Total
2022
Years Ended December 31,
2021
2020
$
34,654 $
18,064
52,718
21,205 $
-
21,205
16,283
-
16,283
The Company’s income tax provision for the years ended December 31, 2022, 2021, and 2020 consists of the following (in thousands):
Current
Federal
State
Foreign
Total Current
Deferred
Federal
State
Foreign
Total Deferred
Total income tax provision
2022
Years Ended December 31,
2021
2020
$
$
11,238 $
2,309
1,863
15,410
(3,856)
(624)
(1)
(4,481)
10,929 $
5,793 $
1,320
-
7,113
(1,399)
(395)
-
(1,794)
5,319 $
2,223
555
-
2,778
(28)
164
-
136
2,914
The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows (in
thousands):
Deferred tax assets:
Reserves
Inventory capitalization
Compensation programs
Equity-based compensation
Lease liability
Intangible assets
Deferred revenue
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Excess of book over tax basis of fixed assets
Goodwill
Right of use asset
Total deferred tax liabilities
Net long-term deferred tax assets (liabilities)
F- 27
December 31,
2022
450 $
305
2,120
690
3,298
1,132
1,115
362
9,472
-
9,472
(2,782)
(2,445)
(3,245)
(8,472)
1,000 $
2021
380
706
1,842
668
2,427
877
365
17
7,282
(17)
7,265
(4,481)
(3,628)
(2,419)
(10,528)
(3,263)
$
$
The amounts recorded as deferred tax assets as of December 31, 2022 and 2021 represent the amount of tax benefits of existing deductible
temporary differences or carryforwards that are more likely than not to be realized through the generation of sufficient future taxable income within
the carryforward period. The Company had gross deferred tax assets of approximately $9.5 million at December 31, 2022, that it believes are more
likely than not to be realized in the carryforward period. Management reviews the recoverability of deferred tax assets during each reporting period.
The Company has provided a valuation allowance of zero and $17 thousand at December 31, 2022 and 2021, respectively, for deferred tax assets
(net of federal tax benefit).
The actual tax provision for the years presented differs from that derived from using a U.S federal statutory rate of 21% to income before income tax
expense as follows:
U.S. federal statutory rate
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit
Meals and entertainment
Tax credits
Return to provision adjustments
Foreign rate differential
GILTI impact
Excess tax benefits on equity awards
Excess compensation
Other
Change in valuation allowance
Effective tax rate
2022
Years Ended December 31,
2021
2020
21.0%
3.2
-
(0.7)
-
(3.7)
0.8
-
0.8
(0.7)
-
20.7%
21.0%
4.0
-
(1.7)
0.7
-
-
-
0.7
0.6
(0.2)
25.1%
21.0%
4.2
0.1
(7.2)
-
-
-
(1.2)
0.8
0.2
-
17.9%
The Company’s foreign subsidiary earnings are subject to current U.S. taxation under the Tax Cuts and Jobs Act of 2017, which also repealed U.S.
taxation on the subsequent repatriation of those earnings. We intend to repatriate substantially all of our future foreign subsidiary earnings. The
repatriation of earnings outside of the U.S. generally does not represent a material net tax impact to the Company. The withholding taxes associated
with the Company’s earnings in the Dominican Republic are generally fully creditable against the Company US tax liability and therefore do not
produce any incremental tax consequences. The earnings of the Company’s other foreign subsidiaries, and therefore the withholding taxes
associated with those earnings, are not material as of December 31, 2022.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as Ireland and Costa Rica. It currently
does not have a local filing obligation with respect to its subsidiary in the Dominican Republic. The Company has not been audited by any state for
income taxes with the exception of returns filed in Michigan which have been audited through 2004, income tax returns filed in Massachusetts
which have been audited through 2007, income tax returns filed in Florida which have been audited through 2019, income tax returns filed in New
Jersey which have been audited through 2012, income tax returns in Colorado which have been audited through 2017, and income tax returns in
Iowa which have been audited through 2019. The Company’s federal tax return is currently being audited for the years 2019 and 2020. Federal and
state tax returns for the years 2019 through 2022 remain open to examination by the IRS and various state jurisdictions. The Company’s non-US tax
returns in Ireland and Costa Rica are open back to 2018.
At December 31, 2022 and 2021, the Company did not have any gross unrecognized tax benefits (“UTB”) resulting from uncertain tax positions.
F- 28
(12) 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 both basic and diluted income per share consisted of the following (in thousands):
Basic weighted average common shares outstanding during the year
Weighted average common equivalent shares due to stock options and
restricted stock units
Diluted weighted average common shares outstanding during the year
2022
Years Ended December 31,
2021
2020
7,564
99
7,663
7,524
91
7,615
7,484
84
7,568
The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, when the
average market price of the common stock is lower than the exercise price of the related options during the period. These outstanding stock awards
are not included in the computation of diluted earnings per share because the effect would have been antidilutive.
For the years ended December 31, 2022, 2021, and 2020, the number of stock awards excluded from the computation was 9,876, 10,716, and
14,892, respectively.
(13) Share-Based Compensation
The Company issues share-based awards through several plans that are described in detail below.
Incentive Plan
In June 2003, the Company formally adopted the 2003 Incentive Plan (the “Plan”). As amended and restated to date, the Plan is intended to benefit
the Company by offering equity-based and other incentives to certain of the Company’s executives and employees who are in a position to
contribute to the long-term success and growth of the Company, thereby encouraging the continuance of their involvement with the Company and/or
its subsidiaries.
Two types of equity awards may be granted to participants under the Plan: restricted shares or other stock awards. Restricted shares are shares of
common stock awarded subject to restrictions and to possible forfeiture upon the occurrence of specified events. Other stock awards are awards that
are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of common stock. Such awards
may include Restricted Stock Unit Awards (“RSUs”), incentive and non-qualified stock options, performance shares, or stock appreciation rights.
The Company determines the form, terms, and conditions, if any, of any awards made under the Plan.
Through December 31, 2022, 1,327,064 shares of common stock were issued under the 2003 Incentive Plan, none of which have been restricted. An
additional 98,448 shares are being reserved for outstanding grants of RSUs and other share-based compensation that are subject to various
performance and time-vesting contingencies. The Company has also granted awards in the form of stock options under this Plan. Through December
31, 2022, 185,000 options were granted and no options are outstanding. At December 31, 2022, 738,769 shares or options are available for future
issuance in the 2003 Incentive Plan.
Director Plan
Effective July 15, 1998, the Company adopted the 1998 Director Plan, which was amended and renamed on June 3, 2009 as the 2009 Non-Employee
Director Stock Incentive Plan (the “Director Plan”). The Director Plan was amended on March 7, 2013, to (i) prohibit the repricing of stock options
or other equity awards without the consent of the Company’s shareholders, and (ii) prohibit the Company from buying out underwater stock options.
The Director Plan was amended on June 8, 2022, to increase the maximum number of shares issuable under the Director Plan from 975,000 to
1,075,000. The Director Plan, as amended, provides for the issuance of stock options and other equity-based securities to non-employee members of
the Company’s board of directors.
F- 29
Through December 31, 2022, 400,510 options were granted, and 93,302 options are outstanding. For the year ended December 31, 2022, 3,882
RSUs are being reserved for outstanding grants of RSUs and 131,846 shares remain available to be issued under the Director Plan.
Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite
service period (generally the vesting period of the equity grant). Share-based compensation is included in selling, general & administrative expenses
as follows (in thousands):
Share-based compensation related to:
Common stock grants
Stock option grants
Restricted Stock Unit awards
Total share-based compensation
2022
Years Ended December 31,
2021
2020
$
$
400 $
263
2,545
3,208 $
400 $
210
1,818
2,428 $
400
232
1,175
1,807
The total income tax benefit recognized in the consolidated statements of income for share-based compensa‐tion arrangements was approximately
$1.3 million, $0.8 million, and $0.7 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Common stock grants
The compensation expense for common stock granted during the three-year period ended December 31, 2022, was determined based on the market
price of the shares on the date of grant.
Stock option grants
The compensation expense for stock options granted during the three-year period ended Decem‐ber 31, 2022, was determined as the fair value of the
options using the Black Scholes valuation model. The assumptions are noted as follows:
Expected volatility
Expected dividends
Risk-free interest rate
Exercise price
Expected term (years)
Weighted-average grant date fair value
$
$
2022
Years Ended December 31,
2021
2020
34.7%
None
33.7%
None
2.9%
$
77.28
6.2
30.37
$
0.8%
$
57.34
6.2
19.60
$
32.8%
None
0.3%
43.95
6.1
14.10
The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the
Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time
of grant for periods corresponding with the expected term of the option. The expected term is estimated based on historical option exercise activity.
F- 30
The following is a summary of stock option activity for the year ended December 31, 2022:
Outstanding December 31, 2021
Granted
Exercised
Outstanding December 31, 2022
Exercisable at December 31, 2022
Vested and expected to vest at December 31, 2022
Shares Under
Options
Weighted
Average
Exercise Price
(per share)
Weighted
Average
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic Value
(in thousands)
98,671 $
9,876
(16,472)
92,075 $
82,199 $
92,075 $
33.53
77.28
23.72
39.98
35.50
39.98
5.95 $
5.53 $
5.95 $
7,174
6,773
7,174
During the years ended December 31, 2022, 2021, and 2020, the total intrinsic value of all options exercised (i.e., the difference between the market
price and the price paid by the employees to exercise the options) was approximately $1.2 million, $0.2 million, and $0.8 million, respectively, and
the total amount of consideration received from the exercise of these options was approximately $0.4 million, $0.2 million, and $0.5 million,
respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price
and withholding taxes. During the year ended December 31, 2022, 1,876 shares were redeemed for this purpose at an average market price of
$95.82. During both the years ended December 31, 2021 and 2020, no shares were redeemed for this purpose.
Restricted Stock Unit awards (“RSUs”)
The Company grants RSUs to its directors, executive officers and employees. The stock unit awards are subject to various time-based vesting
requirements, and certain portions of these awards are subject to performance criteria of the Company. Compensation expense on these awards is
recorded based on the fair value of the award at the date of grant, which is equal to the Company’s closing stock price, and is charged, to expense
ratably during the service period. No compensation expense is taken on awards that do not become vested, and the amount of compensation expense
recorded is adjusted based on management’s determination of the probability that these awards will become vested.
The following table summarizes informa‐tion about stock unit award activity during the year ended December 31, 2022:
Outstanding at December 31, 2021
Awarded
Shares vested
Forfeitures
Outstanding at December 31, 2022
Restricted Stock
Units
Weighted Average
Award Date Fair
Value
101,168 $
51,981
(49,575)
(1,244)
102,330 $
41.78
74.66
41.05
63.34
56.02
At the Company’s discretion, RSU holders are given the option to net-share settle to cover the required minimum withholding tax, and the remaining
amount is converted into the equivalent number of common shares. During the year ended December 31, 2022, 19,425 shares were redeemed for
this purpose at an average market price of $67.05. During the years ended December 31, 2021 and 2020, 14,190 and 11,423 shares were redeemed
for this purpose at an average market price of $52.55 and $49.91, respectively.
F- 31
The following summarizes the future share-based compensation expense the Company will record as the equity securities granted through December
31, 2022, vest (in thousands):
2023
2024
2025
Total
(14) Leases
Options
Restricted
Stock Units
Total
$
$
131 $
-
-
131 $
2,186 $
1,287
150
3,623 $
2,317
1,287
150
3,754
The Company has operating and finance leases for offices, manufacturing plants, vehicles and certain office and manufacturing equipment. Leases
with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for each separate lease component of a
contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. Variable lease
payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates
or usage, are not included in the right of use (“ROU”) assets or lease liabilities. These are expensed as incurred and recorded as variable lease
expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating and finance lease ROU assets and operating
and finance lease liabilities are stated separately in the condensed consolidated balance sheet.
ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to
make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the net present value of
fixed lease payments over the lease term. The Company's lease term includes options to extend or terminate the lease when it is reasonably certain
that it will exercise that option. ROU assets are also adjusted for any deferred or accrued rent. As the Company's leases do not typically provide an
implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present
value of lease payments.
ROU assets and lease liabilities consist of the following (in thousands):
Operating lease ROU assets
Finance lease ROU assets
Total ROU assets
Operating lease liabilities - current
Finance lease liabilities - current
Total lease liabilities - current
Operating lease liabilities - long-term
Finance lease liabilities - long-term
Total lease liabilities - long-term
F- 32
December 31,
2022
2021
$
$
$
$
$
$
12,942 $
211
13,153 $
2,458 $
59
2,517 $
10,695 $
156
10,851 $
9,053
271
9,324
2,181
58
2,239
6,903
215
7,118
Lease Cost:
Finance lease cost:
Amortization of right of use assets
Interest on lease liabilities
Operating lease cost
Variable lease cost
Short-term lease cost
Total lease cost
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
ROU assets obtained in exchange for finance lease obligations
Weighted-average remaining lease term (years):
Finance
Operating
Weighted-average discount rate:
Finance
Operating
$
$
$
Year Ended
December 31,
($ in thousands)
2022
2021
$
$
$
60
5
2,621
304
57
3,047
2,452
63
-
3.54
5.34
2.10%
3.00%
27
3
1,263
263
43
1,599
1,284
29
198
4.54
3.95
2.10%
2.63%
The aggregate future lease payments for leases as of December 31, 2022 were as follows (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
December 31, 2022
Finance
Operating (a)
63 $
63
63
28
6
-
223
(8)
215 $
2,492
2,420
2,234
2,012
1,709
3,611
14,478
(1,325)
13,153
$
$
(a) Future operating lease payments have not been reduced by minimum sublease rentals of approximately $2.1 million due in the future under
non-cancelable subleases.
Rent expense amounted to approximately $2.6 million, $1.4 million, and $1.3 million in 2022, 2021, and 2020, respectively.
F- 33
(15) Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
Accrued contingent consideration (earn-out)
Present value of non-competition payments
Other
December 31,
2022
2021
$
$
9,568 $
8,155
497
18,220 $
5,188
9,321
676
15,185
Certain amounts for the year ended December 31, 2021 were revised to conform to the current year presentation (See Note 1).
(16) Commitments and Contingencies
(a) Legal – From time to time, the Company may be a party to various suits, claims and complaints arising in the ordinary course of business. In the
opinion of management of the Company, these suits, claims and complaints should not result in final judgments or settlements that, in the
aggregate, would have a material adverse effect on the Company’s financial condition or results of operations.
(b) Contingent Consideration – In conjunction with both the Contech Medical and DAS Medical acquisitions in the fourth quarter of 2021, the
Company incurred liabilities for certain contingent consideration related to the valuation of earn-out payments based upon the performance of
the business. Also in conjunction with the DAS Medical acquisition, the Company incurred a liability for contingent consideration related to the
present value of non-competition payments. We re-measure contingent liabilities each reporting period and record changes in the fair value
through a separate line item within our consolidated statements of operations. Increases or decreases in the fair value of the contingent
consideration liability can result from changes in discount rates, periods, timing and amount of projected revenue or timing or likelihood of
achieving regulatory, revenue or commercialization-based milestones. The use of alternative valuation assumptions, including estimated revenue
projections, growth rates, cash flows, discount rates, useful life, or probability of achieving clinical, regulatory, or revenue-based milestones
could result in different purchase price allocations and recognized amortization expense and contingent consideration expense or benefit in
current and future periods.
(17) Employee Benefit Plans
The Company maintains 401(k) and profit-sharing plans for eligible employees. Contributions to the Plans are made in the form of matching
contributions to employee 401(k) deferrals, and until 2020, discretionary profit-sharing amounts determined by the Board of Directors to be funded
by March 15 following each fiscal year. Contributions to the Plan were approxi‐mately $0.7 million, $0.6 million, and $0.9 million for the years
2022, 2021, and 2020, respectively.
The Company has a partially self-insured health insurance program that covers all eligible participating employees. The maximum liability is limited
by a stop loss of $225 thousand per insured person, along with an aggregate stop loss determined by the number of participants.
The Company has an Executive, Non-qualified “Excess” Plan (“the Plan”), which is a deferred compen‐sa‐tion plan available to certain executives.
The Plan permits participants to defer receipt of part of their current compensation to a later date as part of their personal retirement or financial
planning. Partici‐pants have an unsecured contractual commitment from the Company to pay amounts due under the Plan.
The compensation withheld from Plan participants, together with gains or losses determined by the participants’ deferral elections is reflected as a
deferred compensation obligation to participants and is classified within the liabilities section in the accompanying balance sheets. At December 31,
2022 and 2021, the balance of the deferred compensation liability totaled approximately $4.2 million and $4.3 million, respectively. The related
assets, which are held in the form of a Company-owned, variable life insurance policy that names the Company as the beneficiary, are classified
within the other assets section of the accompanying balance sheets and are accounted for based on the underlying cash surrender values of the
policies and totaled approximately $4.1 and $4.3 million as of December 31, 2022 and 2021, respectively.
F- 34
(18) Fair Value of Financial Instruments
Financial instruments recorded at fair value in the consolidated balance sheets, or disclosed at fair value in the footnotes, are categorized based upon
the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by ASC 820, Fair Value Measurements
and Disclosures, and directly related to the amount of subjectivity associated with inputs to fair valuation of these assets and liabilities, are as
follows:
Level 1
Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for the
asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing
information on an ongoing basis.
Level 2
Valued based on either directly or indirectly observable prices for the asset or liability through correlation with market data at the measurement
date and for the duration of the instrument’s anticipated life.
Level 3
Valued based on management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The following table presents the fair value and hierarchy levels, for financial assets that are measured at fair value on a recurring basis (in
thousands):
Level 2
Liabilities:
Derivative financial instruments
Level 3
Purchase price contingent consideration (Note 2):
Accrued contingent consideration (earn-out)
Present value of non-competition payments
December 31, 2022 December 31, 2021
$
$
- $
176
14,568 $
10,043
9,731
9,477
Derivative financial instruments consist of an interest rate swap for which fair value is determined through the use of a pricing model that utilizes
verifiable inputs such as market interest rates that are observable at commonly quoted intervals for the full term of the swap agreement.
In connection with the acquisitions discussed in Note 2, “Acquisitions,” the Company is required to make contingent payments, subject to the
entities achieving certain financial performance thresholds. The contingent consideration payments for both acquisitions combined are up to $25
million. The fair value of the liabilities for the contingent consideration payments recognized upon the acquisition as part of the purchase accounting
opening balance sheets totaled approximately $9.7 million and was estimated by discounting to present value the probability-weighted contingent
payments expected to be made. Assumptions used in this calculation were managements financial forecasts, discount rate and various probability
factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial
measures. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of
contingent consideration for the acquisition is included in change in fair value of contingent consideration in the consolidated statements of
operations.
F- 35
Also in connection with the DAS Medical acquisition, the Company has entered into Non-Competition Agreements with the beneficiaries and the
Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in
payments over the ten years following the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners.
The present value of the Non-Competition Agreements totaled approximately $8.9 million. This liability is considered to be a Level 3 financial
liability that is re-measured each reporting period. The change in fair value of contingent consideration for the acquisition is included in change in
fair value of contingent consideration in the consolidated statements of operations.
The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, that are stated at carrying amounts
that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates
fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.
(19) Segment Data
The Company consists of a single operating and reportable segment.
Revenues shipped to customers outside of the United States comprised approximately 16% of the Company’s consolidated revenues for the year
ended December 31, 2022. One customer comprised approximately 21% of the Company’s consolidated revenues for the year ended December 31,
2022. No customer comprised more than 10% of the Company’s consolidated revenues for the years ended December 31, 2021 and 2020. One
customer represented approximately 10% of gross accounts receivable for both years ended December 31, 2022 and 2021. Approximately 17% of all
long-lived assets are located outside of the United States.
The Company’s custom products are primarily sold to customers within the Medical, Automotive, Consumer, Aerospace & Defense, Industrial, and
Electronics markets. Sales by market for the years ended December 31, 2022, 2021, and 2020 as follows (in thousands):
Market
Net Sales
%
Net Sales
%
Net Sales
%
2022
2021
2020
Medical
Automotive
Consumer
Aerospace & Defense
Industrial
Electronics
Net Sales
$
$
286,180
17,487
17,255
15,328
10,322
7,220
353,792
80.9% $
4.9%
4.9%
4.3%
2.9%
2.1%
100.0% $
132,505
15,596
26,048
16,380
8,413
7,378
206,320
64.2% $
7.6%
12.6%
7.9%
4.1%
3.6%
100.0% $
120,258
14,607
18,316
12,810
7,622
5,760
179,373
67.2%
8.1%
10.2%
7.1%
4.2%
3.2%
100.0%
Certain amounts for the year ended December 31, 2021 were reclassified between markets to conform to the current year presentation.
(20) Quarterly Financial Information (unaudited)
Summarized quarterly financial data is as follows (in thousands, except per share data):
2022
Net sales
Gross profit
Net income
Basic net income per share
Diluted net income per share
Q1
Q2
Q3
Q4
71,242 $
17,134
4,858
0.64
0.64
94,343 $
24,324
8,929
1.18
1.17
96,970 $
25,523
19,540
2.58
2.56
91,237
23,279
8,462
1.12
1.10
$
F- 36
2021
Net sales
Gross profit
Net income
Basic net income per share
Diluted net income per share
$
Q1
Q2
Q3
Q4
48,599 $
12,609
4,163
0.55
0.55
50,655 $
13,414
4,715
0.63
0.62
50,723 $
12,016
3,789
0.50
0.50
56,343
13,075
3,219
0.43
0.42
F-37
Schedule II
UFP TECHNOLOGIES, INC.
Consolidated Financial Statement Schedule
Valuation and Qualifying Accounts
Years ended December 31, 2022, 2021, and 2020
Accounts receivable, allowance for credit losses:
Balance at beginning of year
Provision for bad debt
Write-offs, net of recoveries
Sale of Molded Fiber business
Balance at end of year
2022
2021
2020
519 $
293
(40)
(39)
733 $
484 $
179
(144)
-
519 $
486
13
(15)
-
484
$
$
F-38
Exhibit E
STOCK UNIT AWARD AGREEMENT
(with Ireland Supplement)
(Granted under the UFP Technologies, Inc. 2003 Incentive Plan)
Exhibit 10.31
This Stock Unit Award Agreement is entered into as of the 14th day of February, 2023 by and between UFP Technologies, Inc. (hereinafter the
“Company”) and _______________ (the “Awardee”). Capitalized terms used but not defined herein shall have the meanings assigned to them in the
Company’s 2003 Incentive Plan, as amended (the “Plan”). Stock Unit Awards (SUA’s represent the Company’s unfunded and unsecured promise to issue
shares of Common Stock at a future date, subject to the terms of this Award Agreement, including, without limitation, the performance objectives set
forth in Schedule A hereto, and the Plan. Awardee has no rights under the SUAs other than the rights of a general unsecured creditor of the Company.
1. Grant of Stock Unit Awards; Performance Objectives; Vesting.
(a) The Company, in the exercise of its sole discretion pursuant to the Plan, does hereby award to the Awardee the number of SUAs
set forth on Schedule A hereto upon the terms and subject to the conditions hereinafter contained. The SUA’s shall consist of a Threshold Award, a
Target Award and an Exceptional Award. The Target Award and the Exceptional Award are each awarded subject to attainment during the Performance
Cycle described on Schedule A of the Performance Objectives set forth on Schedule A .
(b) Subject to attainment of any applicable Performance Objectives, payment with respect to vested SUA’s shall be made entirely in
the form of shares of Common Stock of the Company on each respective vesting date as set forth on Schedule A.
(c) As soon as possible after the end of the Performance Cycle, the Committee will certify in writing whether and to what extent the
Performance Objectives have been met for the Performance Cycle. The date of the Committee’s certification pursuant to this subsection (c) shall
hereinafter be referred to as the “Certification Date”. The Company will notify the Awardee of the Committee’s certification following the Certification
Date (such notice, the “Determination Notice”). The Determination Notice shall specify (i) the Performance Objective, as derived from the Company’s
audited financial statements; and (ii) the extent, if any, to which the Performance Objectives were satisfied with respect to the Target Award and the
Exceptional Award.
2. Change in Control. Notwithstanding the vesting schedule set forth in Schedule A: if there is a Change in Control of the Company (as
defined in the Plan) following the end of the Performance Cycle, and the Awardee’s Continuous Status as an employee, as contemplated by Section 4
hereof, shall not have been terminated as of the date immediately prior to the effective date of such Change in Control, then subject to attainment during
the Performance Cycle described on Schedule A of any applicable Performance Objective set forth on Schedule A, and subject to the provisions of
Section 21 of this Award Agreement, any SUA’s representing the Threshold, Target and the Exceptional Award, which are not already vested shall
become vested in full as of the effective date of such Change in Control.
3. Termination. Unless terminated earlier under Section 4, 5 or 6 below, an Awardee’s rights under this Award Agreement with respect to
the SUAs issued under this Award Agreement shall terminate at the time such SUAs are converted into shares of Common Stock.
4. Termination of Awardee’s Continuous Status as an Employee. Except as otherwise specified in Section 5 and 6 below, in the event of
termination of Awardee’s Continuous Status as an employee of the Company, Awardee’s rights under this Award Agreement in any unvested SUAs shall
terminate. For purposes of this Award Agreement, an Awardee’s Continuous Status as an employee shall mean the absence of any interruption or
termination of service as an employee. Continuous Status as an employee shall not be considered interrupted in the case of sick leave or leave of absence
for which Continuous Status is not considered interrupted as determined by the Company in its sole discretion.
5. Disability of Awardee. Notwithstanding the provisions of Section 4 above, in the event of termination of Awardee’s Continuous Status
as an employee as a result of disability (within the meaning of Section 409A of the Internal Revenue Code, and hereinafter referred to as “Disability”),
the SUAs which would have vested during the twelve (12) months following the date of such termination, set out in Schedule A, shall become vested as
of the date of such termination, subject, however, to the provisions of Section 21 of this Award Agreement. If Awardee’s Disability originally required
him or her to take a short-term disability leave which was later converted into long-term disability, then for the purposes of the preceding sentence the
date on which Awardee ceased performing services shall be deemed to be the date of commencement of the short-term disability leave. The Awardee’s
rights in any unvested SUAs that remain unvested after the application of this Section 5 shall terminate at the time Awardee ceases to be in Continuous
Status as an employee.
6. Death of Awardee. Notwithstanding the provisions of Section 4 above, in the event of the death of Awardee:
(a) If the Awardee was, at the time of death, in Continuous Status as an employee, the SUAs which would have vested during the
twelve (12) months following the date of death of Awardee, set out in Schedule A, shall become vested as of the date of death.
(b) The Awardee’s rights in any unvested SUAs that remain after the application of Section 6(a) shall terminate at the time of the
Awardee’s death.
7. Value of Unvested SUAs. In consideration of the award of these SUAs, Awardee agrees that upon and following termination of
Awardee’s Continuous Status as an employee for any reason (whether or not in breach of applicable laws), and regardless of whether Awardee is
terminated with or without cause, notice, or pre-termination procedure or whether Awardee asserts or prevails on a claim that Awardee’s employment was
terminable only for cause or only with notice or pre-termination procedure, any unvested SUAs under this Award Agreement shall be deemed to have a
value of zero dollars ($0.00).
2
8. Conversion of SUAs to shares of Common Stock; Responsibility for Taxes.
(a) Provided Awardee has satisfied the requirements of Section 8(b) below, and subject to the provisions of Section 21 below, on the
vesting of any SUAs, such vested SUAs shall be converted into an equivalent number of shares of Common Stock that will be distributed to Awardee or,
in the event of Awardee’s death, to Awardee’s legal representative, as soon as practicable. The distribution to the Awardee, or in the case of the
Awardee’s death, to the Awardee’s legal representative, of shares of Common Stock in respect of the vested SUAs shall be evidenced by a stock
certificate, appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company, or other appropriate means as
determined by the Company.
(b) Regardless of any action the Company takes with respect to any or all income tax (including federal, state and local taxes),
social security, payroll tax or other tax-related withholding (“Tax Related Items”), Awardee acknowledges that the ultimate liability for all Tax Related
Items legally due by Awardee is and remains Awardee’s responsibility and that the Company (i) makes no representations or undertakings regarding the
treatment of any Tax Related Items in connection with any aspect of the SUAs, including the grant of the SUAs, the vesting of SUAs, the conversion of
the SUAs into shares of Common Stock, the subsequent sale of any shares of Common Stock acquired at vesting and the receipt of any dividends; and (ii)
does not commit to structure the terms of the grant or any aspect of the SUAs to reduce or eliminate the Awardee’s liability for Tax Related Items. Prior
to the issuance of shares of Common Stock upon vesting of SUAs as provided in Section 8(a) above, Awardee shall pay, or make adequate arrangements
satisfactory to the Company, in its sole discretion, to satisfy all withholding obligations of the Company. In this regard, Awardee authorizes the Company
to withhold all applicable Tax Related Items legally payable by Awardee from Awardee’s wages or other cash compensation payable to Awardee by the
Company. Alternatively, or in addition, if permissible under applicable law, the Company may, in its sole discretion, (i) sell or arrange for the sale of
shares of Common Stock to be issued to satisfy the withholding obligation, and/or (ii) withhold in shares of Common Stock, provided that the Company
shall withhold only the amount of shares necessary to satisfy the minimum withholding amount. Awardee shall pay to the Company any amount of Tax
Related Items that the Company may be required to withhold as a result of Awardee’s receipt of SUAs, or the conversion of SUAs to shares of Common
Stock that cannot be satisfied by the means previously described. Except where applicable legal or regulatory provisions prohibit, the standard process
for the payment of an Awardee’s Tax Related Items shall be for the Company to withhold in shares of Common Stock only to the amount of shares
necessary to satisfy the minimum withholding amount. The Company may refuse to deliver shares of Common Stock to Awardee if Awardee fails to
comply with Awardee’s obligation in connection with the Tax Related Items as described herein.
(c) In lieu of issuing fractional shares of Common Stock, on the vesting of a fraction of a SUA, the Company shall round the shares
to the nearest whole share and any such share which represents a fraction of a SUA will be included in a subsequent vest date.
3
(d) Until the distribution to Awardee of the shares of Common Stock in respect to the vested SUAs is evidenced by a stock
certificate, appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company, or other appropriate means, Awardee
shall have no right to vote or receive dividends or any other rights as a shareholder with respect to such shares of Common Stock, notwithstanding the
vesting of SUAs. Subject to the provisions of Section 21 below, the Company shall cause such distribution to Awardee to occur promptly upon the
vesting of SUAs. No adjustment will be made for a dividend or other right for which the record date is prior to the date Awardee is recorded as the owner
of the shares of Common Stock, except as provided in Section 8 of the Plan.
(e) By accepting the Award of SUAs evidenced by this Award Agreement, Awardee agrees not to sell any of the shares of Common
Stock received on account of vested SUAs at a time when applicable laws or Company policies prohibit a sale. This restriction shall apply so long as
Awardee is an Employee, Consultant or outside director of the Company or a Subsidiary of the Company.
(f) Adjustments and other matters relating to stock dividends, stock splits, recapitalizations, reorganizations, Corporate Events and
the like shall be made and determined in accordance with Section 6 of the Plan, as in effect on the date of this Agreement.
9. Non-Transferability of SUAs. Awardee’s right in the SUAs awarded under this Award Agreement and any interest therein may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner, other than by will or by the laws of descent or distribution, prior to the
distribution of the shares of Common Stock in respect of such SUAs. SUAs shall not be subject to execution, attachment or other process.
10. Acknowledgment of Nature of Plan and SUAs. In accepting the Award, Awardee acknowledges that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or
terminated by the Company at any time, as provided in the Plan;
(b) the Award of SUAs is voluntary and occasional and does not create any contractual or other right to receive future awards of
SUAs, or benefits in lieu of SUAs even if SUAs have been awarded repeatedly in the past;
(c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d) Awardee’s participation in the Plan is voluntary;
(e) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;
4
(f) if Awardee receives shares of Common Stock, the value of such shares of Common Stock acquired on vesting of SUAs may
increase or decrease in value;
(g) notwithstanding any terms or conditions of the Plan to the contrary and consistent with Section 4 and Section 7 above, in the
event of involuntary termination of Awardee’s employment (whether or not in breach of applicable laws), Awardee’s right to receive SUAs and vest
under the Plan, if any, will terminate effective as of the date that Awardee is no longer actively employed and will not be extended by any notice period
mandated under applicable law; furthermore, in the event of involuntary termination of employment (whether or not in breach of applicable laws),
Awardee’s right to receive shares of Common Stock pursuant to the SUAs after termination of employment, if any, will be measured by the date of
termination of Awardee’s active employment and will not be extended by any notice period mandated under applicable law. The Committee shall have
the exclusive discretion to determine when Awardee is no longer actively employed for purposes of the award of SUAs; and
(h) Awardee acknowledges and agrees that, regardless of whether Awardee is terminated with or without cause, notice or pre-
termination procedure or whether Awardee asserts or prevails on a claim that Awardee’s employment was terminable only for cause or only with notice or
pre-termination procedure, Awardee has no right to, and will not bring any legal claim or action for, (a) any damages for any portion of the SUAs that
have been vested and converted into Common Shares, or (b) termination of any unvested SUAs under this Award Agreement.
11. No Employment Right. Awardee acknowledges that neither the fact of this Award of SUAs nor any provision of this Award
Agreement or the Plan or the policies adopted pursuant to the Plan shall confer upon Awardee any right with respect to employment or continuation of
current employment with the Company, or to employment that is not terminable at will. Awardee further acknowledges and agrees that neither the Plan
nor this Award of SUAs makes Awardee’s employment with the Company for any minimum or fixed period, and that such employment is subject to the
mutual consent of Awardee and the Company, and subject to any written employment agreement that may be in effect from time to time between the
Company and the Awardee, may be terminated by either Awardee or the Company at any time, for any reason or no reason, with or without cause or
notice or any kind of pre- or post-termination warning, discipline or procedure.
12. Administration. The authority to manage and control the operation and administration of this Award Agreement shall be vested in the
Committee (as such term is defined in Section 2 of the Plan), and the Committee shall have all powers and discretion with respect to this Award
Agreement as it has with respect to the Plan. Any interpretation of the Award Agreement by the Committee and any decision made by the Committee
with respect to the Award Agreement shall be final and binding on all parties.
13. Plan Governs. Notwithstanding anything in this Award Agreement to the contrary, the terms of this Award Agreement shall be subject
to the terms of the Plan, and this Award Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee
from time to time pursuant to the Plan.
5
14. Notices. Any written notices provided for in this Award Agreement which are sent by mail shall be deemed received three business
days after mailing, but not later than the date of actual receipt. Notices shall be directed, if to Awardee, at the Awardee’s address indicated by the
Company’s records and, if to the Company, at the Company’s principal executive office.
15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to SUAs awarded under the
Plan or future SUAs that may be awarded under the Plan by electronic means or request Awardee’s consent to participate in the Plan by electronic
means. Awardee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic
system established and maintained by the Company or another third party designated by the Company.
16. Acknowledgment. By Awardee’s acceptance as evidenced below, Awardee acknowledges that Awardee has received and has read,
understood and accepted all the terms, conditions and restrictions of this Award Agreement and the Plan. Awardee understands and agrees that this
Award Agreement is subject to all the terms, conditions, and restrictions stated in this Award Agreement and the Plan, as the latter may be amended from
time to time in the Company’s sole discretion. In addition, the Awardee acknowledges that the Award and rights granted to the Awardee hereunder shall
be subject to forfeiture to the Company in accordance with any policy that may hereafter be promulgated by the Company to comply with the
requirements of Section 10D(b)(2) of the Securities Exchange Act of 1934, as amended.
17. [Intentionally Omitted]
18. Governing Law. This Award Agreement shall be governed by the laws of the State of Delaware, without regard to Delaware laws that
might cause other law to govern under applicable principles of conflicts of law.
19. Severability. If one or more of the provisions of this Award Agreement shall be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or
unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void
shall first be construed, interpreted or revised retroactively to permit this Award Agreement to be construed so as to foster the intent of this Award
Agreement and the Plan.
20. Complete Award Agreement and Amendment. This Award Agreement and the Plan constitute the entire agreement between Awardee
and the Company regarding SUAs. Any prior agreements, commitments or negotiations concerning these SUAs are superseded. This Award Agreement
may be amended only by written agreement of Awardee and the Company, without consent of any other person. Awardee agrees not to rely on any oral
information regarding this Award of SUAs or any written materials not identified in this Section 20.
6
21. Section 409A. This Award Agreement is intended to be in compliance with the provisions of Section 409A of the Internal Revenue
Code to the extent applicable, and the Regulations issued thereunder. Anything in this Agreement to the contrary notwithstanding, if at the time of the
Awardee’s separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder (the “Code”), the Company determines that the Awardee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the
Code, then to the extent any payment or benefit that the Awardee becomes entitled to under this Agreement would be considered deferred compensation
subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the
Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the
Awardee’s separation from service, or (B) the Awardee’s death. The determination of whether and when a separation from service has occurred shall be
made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h). To the extent that any provision of this Agreement is
ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with
Section 409A of the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to
fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder
without additional cost to either party. Solely for the purposes of Section 409A of the Code, the share increments issuable on each vesting date on
Schedule A shall be considered a separate payment. The Company makes no representation or warranty and shall have no liability to the Awardee or any
other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not
satisfy an exemption from, or the conditions of, such Section.
22. Ireland Supplement. If the Awardee is an employee located in Ireland then in addition to the terms and conditions set forth above, the
provisions of the Ireland Supplement attached hereto shall also apply.
7
EXECUTED the day and year first above written.
UFP TECHNOLOGIES, INC.
By:
R. Jeffrey Bailly
Chief Executive Officer
AWARDEE’S ACCEPTANCE:
I have read and fully understood this Award Agreement and, as referenced in Section 16 above, I accept and agree to be bound by all of the terms,
conditions and restrictions contained in this Award Agreement and the other documents referenced in it.
8
SCHEDULE A
The SUA’s issuable under this Agreement shall consist of a Threshold Award, a Target Performance Award and an Exceptional Performance Award, each
in the amounts set forth below, each such award issuable in one-third increments on the vesting dates set forth below, provided the respective
performance objective (if applicable) is satisfied.
The Performance Objective established by the Committee with respect to the Target Performance Award and Exceptional Performance Award is Adjusted
Operating Income** for 2023
Performance Objective
Performance Cycle
Number of Shares of
Common Stock
Vesting Dates: March 1 of:
*/2025
*/2024
*/2026
[1/3]
[1/3]
[1/3]
none
n/a
_____
___
___
___
of Adjusted Operating
Income**
Calendar Year
2023
___
(in addition to (a) above)
___
___
___
of Adjusted Operating
Income**
Calendar Year
2023
___
***
(in addition to (a) and (b)
above)
___
___
___
a. Threshold
Award
[50% of total]
b. Target
Performance
Award
[25% of total]
c. Exceptional
Performance
Award
[25% of total]
*Vesting is subject to the Compensation Committee’s determination of satisfaction of any applicable performance target for 2023 (for Target and
Exceptional Performance Awards), and subject to continued employment on each such vesting date (for all Awards).
** Adjusted Operating Income is defined herein as Operating Income on the Company’s 10-K, excluding the effect of (i) non-recurring restructuring
charges related to plant closings and consolidations; and (ii) the impact of acquired or disposed of operations during such year.
*** Between Adjusted Operating Income of $XXX and $XXX the number of shares of Common Stock issuable under the Exceptional Performance
Award (in addition to the shares issuable upon attainment of the Target Performance Award) would range from 0, representing the number of shares
issuable upon attainment of $XXX of Adjusted Operating Income, to the full number of shares otherwise issuable under the Exceptional award, based on
straight line interpolation rounded up or down to the nearest whole share (not to exceed $XXX of Adjusted Operating Income for purposes of this
calculation).
9
UFP TECHNOLOGIES, INC.
STOCK UNIT AWARD
IRELAND SUPPLEMENT
This supplement to the Stock Unit Award Agreement applies to any Participant who is resident or employed in Ireland (an “Ireland Participant”) at the
time of grant of an Award.
An Award made to an Ireland Participant shall be subject to the following supplementary terms and conditions and, in the event of any conflict between
any term, condition or other provision contained in the Plan or in an Award agreement for an Ireland Participant and any supplementary term or
condition provided for in this supplement, the supplementary term or condition in this supplement shall govern and prevail. All capitalised terms used
herein but not otherwise defined shall have the respective meanings set forth in the Plan.
1. Relationship of Plan to Contract of Employment. Notwithstanding any other provision of the Plan or an Award agreement:
(a) the Plan and any Award agreement shall not form part of any contract of employment between the Company or a Subsidiary and an Ireland
Participant;
(b) unless expressly so provided in his or her contract of employment, an Ireland Participant has no right or entitlement to an Award or any expectation
that an Award might be made to him or her, whether subject to any conditions or at all;
(c) the benefit to an Ireland Participant of participation in the Plan (including, in particular but not by way of limitation, of any Award made to him or
her) shall not form any part of his or her remuneration or count as his or her remuneration for any purpose and shall not be pensionable;
(d) the rights or opportunity granted to an Ireland Participant on the grant of an Award shall not give the Ireland Participant any rights or additional
rights and if an Ireland Participant ceases to be employed by the Company or a Subsidiary, he or she shall not be entitled to compensation for the
loss of any right or benefit or prospective right or benefit under the Plan (including, in particular but not by way of limitation, any Award held by
him or her which lapses by reason of his or her ceasing to be employed by the the Company or a Subsidiary) whether by way of damages for unfair
dismissal, wrongful dismissal, breach of contract or otherwise;
(e) the rights or opportunity granted to an Ireland Participant on the making of an Award shall not give the Ireland Participant any rights or additional
rights in respect of any pension scheme operated by the Company or a Subsidiary; and
(f) an Ireland Participant shall not be entitled to any compensation or damages for any loss or potential loss which he or she may suffer by reason of
being unable to acquire or retain Stock or any interest in Stock (or any equivalent or connected interest) pursuant to an Award in consequence of the
loss or termination of his or her employment with the Company or a Subsidiary for any reason whatsoever (whether or not the termination is
ultimately held to be wrongful or unfair).
10
2. Taxation. An Ireland Participant shall be responsible for and shall indemnify the Company and its Subsidiaries against, any tax, universal social
charge or employee social security liability relating to the grant and subsequent vesting or exercise of an Award and the release or disposal of any
resulting Stock. The tax withholding provisions in Section 7(e) of the Plan shall, where applicable, apply as if each reference to taxes included
reference to universal social charge and employee pay related social insurance.
3. Provision of Information.
(a) An Ireland Participant shall provide to the Company and its Subsidiaries as soon as reasonably practicable such information as the Company or its
Subsidiary reasonably requests for the purpose of complying with its share scheme reporting obligations (if any) under the Taxes Consolidation Act
1997 (as amended) of Ireland and current requirements of the Revenue Commissioners of Ireland.
(b) An Ireland Participant who is a director or shadow director or secretary of any Subsidiary that is incorporated in Ireland (an “Ireland Subsidiary”)
shall notify the Ireland Subsidiary in writing within five business days of such Ireland Participant receiving or disposing of a “disclosable
interest” (within the meaning of and for the purposes of Chapter 5 of Part 5 of the Companies Act 2014 of Ireland) in the Company, or within five
business days of such Ireland Participant becoming aware of the event giving rise to the notification requirement, or within five business days of
such Ireland Participant becoming a director or shadow director or secretary if such a “disclosable interest” exists at the time.
4. Personal Data. By accepting the grant of an Award, an Ireland Participant acknowledges, in respect of the processing and disclosure of the Ireland
Participant’s personal data, that:
(a) the Company or its Subsidiary is required to collect, process and utilise the Ireland Participant’s personal data for purposes directly relevant to the
employment relationship between the Company or its Subsidiary and the Ireland Participant, and, for the purpose of administering the Plan, to
disclose or transfer some or all of that personal data, as necessary, between the Company or its Subsidiaries or to any third party engaged by the
Company or its Subsidiary to assist with the administration of the Plan;
(b) the Company or its Subsidiary and any such third party may utilise such personal data for the purpose of administering the Plan and the Ireland
Participant’s Award, provided that such personal data shall be kept confidential and shall not be used by the third party for any purposes not related
to the administration of the Plan;
(c) a Subsidiary and any such third party may be located in the European Economic Area (the “EEA”) or outside of the EEA and the personal data may
be transferred within the EEA or outside of the EEA for the purpose of administering the Plan (in which case the transfer shall be governed by
“model contract clauses” or equivalent measures required under the European Union’s data protection laws);
11
(d) the Ireland Participant’s personal data may be processed and disclosed by and to any future purchaser of the Company (or of a Subsidiary thereof
that has the employment relationship with the Ireland Participant or of their respective undertakings or any parts thereof) for the purpose of
administering the Plan and/or confirming the Ireland Participant’s entitlement to an Award where such entitlement is relevant to such purchase;
(e) the purposes described in this paragraph 4 for the processing of the Ireland Participant’s personal data are necessary for the administration of the
Plan or are otherwise necessary for the legitimate interests of the Company or its Subsidiary in connection with the administration of the Plan; and
(f) should the Ireland Participant exercise certain data subject rights in relation to the Ireland Participant’s personal data, such as the right of objection
or erasure, the Ireland Participant acknowledges that it may no longer be possible to administer the Plan or the Ireland Participant’s Award pursuant
to the Plan and any Award agreement and, in that case, the Award shall lapse and the Ireland Participant shall be deemed to have waived (without
any right to compensation) any right to the Award.
5. Securities Law. Where an Award offered under the Plan is deemed to be an offer of securities to the public in Ireland, Article 1(4)(i) of Regulation
(EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 (the “Prospectus Regulation”) provides, among others, an exemption
(the “Exemption”) from the obligation to publish a prospectus if the securities are offered to existing or former directors or employees by their
employer or by an affiliated undertaking provided that a document is made available containing information on the number and nature of the securities
and the reasons for and details of the offer. Accordingly, in reliance on the Exemption, no prospectus has been prepared or filed with any competent
regulatory authority in the EEA in relation to offers made to existing or former directors or employees by the Company or its Subsidiaries pursuant to
the Plan, and no such prospectus has been approved and/or published in the EEA. The Plan, this supplement and the Award agreement contains the
information that must be made available in order to avail of the Exemption, namely information on the number and nature of the securities and the
reasons for and details of the offer.
12
UFP TECHNOLOGIES, INC.
2003 INCENTIVE PLAN
As Amended and Restated on March 14, 2023
Exhibit 10.32
1. Statement of Purpose. The purpose of this 2003 Incentive Plan (hereinafter referred to as the “Plan”) is to benefit UFP TECHNOLOGIES,
INC. (the “Company”) through the maintenance and development of its businesses by offering equity-based and other incentives to certain present and
future executives and other employees who are in a position to contribute to the long-term success and growth of the Company, thereby encouraging the
continuance of their involvement with the Company and/or its subsidiaries.
2. Administration of the Plan.
(a) Board or Committee Administration. Except as otherwise provided in subsection 2(d) below, the Plan shall be administered by the
Compensation Committee of the Company's Board of Directors (the “Board”) or such other committee thereof consisting of such members (not less than
two) of the Board as are appointed from time to time by the Board (the “Compensation Committee”), each of the members of which, at the time of any
action under the Plan, shall be (i) a “non-employee director” as then defined under Rule 16b-3 under the Act (or meeting comparable requirements of any
successor rule relating to exemption from Section 16(b) of the Act) and (ii) an “independent director” as then defined under the rules of the Nasdaq Stock
Market (or meeting comparable requirements of any stock exchange on which the Company's Common Stock, $.01 par value (the “Common Stock”)
may then be listed). Hereinafter, all references in this Plan to the “Committee” shall mean the Board if no Committee has been appointed. The Committee
shall have all necessary powers to administer and interpret the Plan. Such powers of the Compensation Committee include exclusive authority (within the
limitations described and except as otherwise provided in the Plan) to select the employees or determine classes of employees to be granted Awards under
the Plan, to determine the aggregate amount, type, size, and terms of the Awards to be made to eligible employees, and to determine the time when
Awards will be granted. The Compensation Committee may take into consideration recommendations from the appropriate officers of the Company with
respect to making the foregoing determinations as to Plan Awards, administration, and interpretation. The Committee shall have full power and authority
to adopt such rules, regulations, agreements and instruments for the administration of the Plan and for the conduct of its business as the Committee deems
necessary or advisable. The Committee's interpretations of the Plan and all action taken and determinations made by the Committee pursuant to the
powers vested in it hereunder shall be conclusive and binding on all parties concerned, including the Company, its shareholders and any director or
employee of the Company or any Subsidiary.
(b) Committee Actions. The Committee may select one of its members as its chairman and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum and acts of a majority of the members of the Committee at a meeting at which a
quorum is present, or acts reduced to or approved in writing by all the members of the Committee (if consistent with applicable state law), shall be the
valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
(c) Section 409A. The Committee shall take into account compliance with Section 409A of the Internal Revenue Code in connection with
any grant of an Award under the Plan, to the extent applicable.
(d) Delegation by the Board to a Designated Officer. To the extent permitted by law, the Board may delegate to the Chief Executive Officer
of the Company or one or more other officers of the Company (each herein a “Designated Officer”) the duties or powers it may deem advisable to assist
the Committee in the administration and operation of the Plan and may grant to the Designated Officer authority to enter into 1 or more transactions to
grant equity-based Awards and with respect to such transactions, such Awards may be issued in such numbers, at such times and for such consideration as
the Designated Officer may determine; provided that the resolution fixes (i) the maximum number of rights or options subject to the equity-based
Awards, and the maximum number of shares issuable upon exercise thereof, that may be issued pursuant to such resolution, (ii) a time period during
which such equity-based Awards and during which the shares issuable upon exercise thereof, may be issued, and (iii) a minimum amount of consideration
(if any) for which such rights or options subject to such equity-based Awards may be issued and a minimum amount of consideration for the shares
issuable upon exercise thereof and provided further, however, (i) the Committee shall not delegate such responsibilities to the Designated Officer for
Awards granted to the Designated Officer or any employee who is considered an officer (as defined in Rule 16a-1(f)) of the Exchange Act. The
Designated Officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority
delegated. To the extent authority under the Plan is delegated to the Designated Officer, references in the other provisions of this Plan to the Committee
shall instead mean to the Designated Officer.
3. Eligibility. Participation in the Plan shall be limited to executives or other employees (including officers and directors who are also
employees) of the Company and its Subsidiaries selected on the basis of such criteria as the Committee may determine. Employees who participate in
other incentive or benefit plans of the Company or any Subsidiary may also participate in this Plan. As used herein, the term “employee” shall mean any
person employed full time or part time by the Company or a Subsidiary on a salaried basis, and the term “employment” shall mean full-time or part-time
salaried employment by the Company or a Subsidiary.
4. Rules Applicable to Awards.
(a) All Awards.
(i) Awards. Awards may be granted in the form of any or a combination of the following: Stock Options; SARs; Restricted Stock;
Unrestricted Stock; Stock Unit Awards, other Stock Based Awards; Cash Performance Awards; other Performance Awards; or grants of cash, or loans,
made in connection with other Awards in order to help defray in whole or in part the economic cost (including tax cost) of the Award to the Participant.
2
(ii) Terms of Awards. The Committee shall determine the terms of all Awards subject to the limitations provided herein.
(iii) Performance Criteria. Where rights under an Award depend in whole or in part on satisfaction of Performance Criteria, actions
by the Company that have an effect, however material, on such Performance Criteria or on the likelihood that they will be satisfied will not be deemed an
amendment or alteration of the Award.
(iv) Vesting, Etc. Without limiting the generality of Section 4(a)(ii), the Committee may determine the time or times at which an
Award will vest (i.e., become free of forfeiture restrictions) or become exercisable and the terms on which an Award requiring exercise will remain
exercisable.
(b) Awards Requiring Exercise.
(i) Time and Manner of Exercise. Unless the Committee expressly provides otherwise, (A) an Award requiring exercise by the holder
will not be deemed to have been exercised until the Committee receives a written notice of exercise (in form acceptable to the Committee) signed by the
appropriate person and accompanied by any payment required under the Award; and (B) if the Award is exercised by any person other than the
Participant, the Committee may require satisfactory evidence that the person exercising the Award has the right to do so.
(ii) Exercise Price. The Committee shall determine the exercise price of each Stock Option or SAR; provided, however, that each Stock
Option or SAR must have an exercise price that is not less than the fair market value of the Stock subject to the Stock Option, determined as of the date
of grant. Except as provided in Section 6, in no event may any Stock Option or SAR previously granted under the Plan (i) be amended to decrease the
exercise price or strike price thereof, as the case may be, (ii) be cancelled in conjunction with the grant of any new Stock Option or SAR with a lower
exercise price or strike price, as the case may be, (iii) be amended to provide for a cash buyout of the Stock Option or SAR if such Stock Option or SAR
is not “in the money,” (iv) be subject to a voluntary surrender and subsequent grant of “in the money” Stock Option or SAR (v) otherwise be subject to
any action that would be treated under the NASDAQ rules as a “repricing” of such Stock Option or SAR unless such amendment, cancellation or action
is approved by the Company’s shareholders.
(iii) Payment of Exercise Price, If Any. Where the exercise of an Award is to be accompanied by payment, the Committee may
determine the required or permitted forms of payment.
(c) Awards Not Requiring Exercise.
3
(i). Restricted Stock. Restricted Stock awards shall be evidenced by a written agreement in the form prescribed by the Committee in its
discretion, which shall set forth the number of shares of Common Stock awarded, the restrictions imposed thereon (which may include, without
limitation, restrictions on the right of the grantee to sell, assign, transfer or encumber shares while such shares are subject to other restrictions imposed
under this Section 4), the duration of such restrictions; the events (which may, in the discretion of the Committee, include performance-based events or
objectives) the occurrence of which would cause a forfeiture of the Restricted Stock in whole or in part; and such other terms and conditions as the
Committee in its discretion deems appropriate. If so determined by the Committee at the time of an award of Restricted Stock, the lapse of restrictions on
Restricted Stock may be based on the extent of achievement over a specified performance period of one or more performance targets based on
performance criteria established by the Committee. Restricted Stock awards shall be effective upon execution of the applicable Restricted Stock
agreement by the Company and the Participant. Following a Restricted Stock award and prior to the lapse or termination of the applicable restrictions, the
share certificates for such Restricted Stock shall be held in escrow by the Company. Upon the lapse or termination of the applicable restrictions (and not
before such time), the certificates for the Restricted Stock shall be issued or delivered to the Participant. From the date a Restricted Stock award is
effective, the Participant shall be a shareholder with respect to all the shares represented by such certificates and shall have all the rights of a shareholder
with respect to all such shares, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares,
subject only to the restrictions imposed by the Committee.
(ii). Stock Unit Awards. Stock Unit Awards shall be evidenced by a written agreement in the form prescribed by the Committee in its
discretion, which shall set forth the number of shares of Common Stock to be awarded pursuant to the Award, the restrictions imposed thereon (which
may include, without limitation: restrictions on the right of the grantee to sell, assign, transfer or encumber the Award prior to vesting, and, in the
discretion of the Committee, certain continued service requirements and terms under which the vesting of such Awards might be accelerated) and such
other terms and conditions as the Committee in its discretion deems appropriate. If so determined by the Committee at the time of the grant of a Stock
Unit Award, vesting of the Award may be contingent on achievement over a specified performance period of one or more performance targets based on
performance criteria established by the Committee. Stock Unit Awards shall be effective upon execution of the applicable Stock Unit Award Agreement
by the Company and the Participant. Upon a determination of satisfaction of the applicable performance-related conditions and satisfaction of the
applicable continued service requirements, (and not before such time), shares of Stock shall be issued to the Participant pursuant to the Award. The
Participant shall not have any rights of a shareholder of the Company with respect to such shares prior to such issuance.
(iii) Unrestricted Stock and Other Stock-Based Awards. The Committee shall have the authority in its discretion to grant to eligible
Participants Unrestricted Stock and other Stock-Based Awards. The Committee shall determine the terms and conditions, if any, of any Other Stock
Based Awards made under the Plan.
(iv) Non Stock – Based Awards. The Committee shall have the authority in its discretion to grant to eligible Participants Awards not
based on the Stock, including, without limitation, Cash Performance Awards, and other Performance Awards as deemed by the Committee to be
consistent with the purposes of the Plan.
4
5. Limits on Awards under the Plan.
(a) Number of Shares. A maximum of 2,250,000 shares of Common Stock, subject to adjustment as provided in Section 6, may be delivered
in satisfaction of Stock-Based Awards under the Plan.
(b) Share Counting Rules. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting
(as, for example, in the case of tandem or substitute awards) and make adjustments if the number of shares of Stock actually delivered differs from the
number of shares previously counted in connection with an Award. To the extent that an Award expires or is canceled, forfeited, settled in cash or
otherwise terminated or concluded without a delivery to the Participant of the full number of shares to which the Award related, the undelivered shares
will again be available for grant. Shares withheld in payment of the exercise price or taxes relating to an Award and shares equal to the number
surrendered in payment of any exercise price or taxes relating to an Award shall be deemed to constitute shares not delivered to the Participant and shall
be deemed to again be available for Awards under the Plan; provided, however, that, where shares are withheld or surrendered more than ten years after
the date of the most recent stockholder approval of the Plan or any other transaction occurs that would result in shares becoming available under this
Section 5(b), such shares shall not become available if and to the extent that it would constitute a material revision of the Plan subject to stockholder
approval under then applicable rules of the national securities exchange on which the Stock is listed or the Nasdaq Stock Market, as applicable.
(c) Type of Shares. Common Stock delivered by the Company under the Plan may be authorized but unissued Common Stock or previously
issued Common Stock acquired by the Company and held in treasury. No fractional shares of Common Stock will be delivered under the Plan.
(d) Other Stock-Based Award Limits. The maximum number of shares of Common Stock subject to Awards that may be granted to any
person in any calendar year shall be 150,000. In addition, in no event shall the number of Awards providing for the acquisition of shares of Common
Stock for a consideration less than Fair Market Value as of the date of grant or exercise of such Awards granted to all Participants in any Fiscal Year
exceed 250,000. For this purpose, Fair Market Value may be determined as of a date not more than two trading days prior to the date of grant or exercise
in order to facilitate compliance with the reporting requirements under Section 16 of the Act. Subject to these limitations, each person eligible to
participate in the Plan shall be eligible in any year to receive Awards covering up to the full number of shares of Common Stock then available for
Awards under the Plan.
(e) Other Award Limits. No more than $2,000,000 may be paid to any individual with respect to any Cash Performance Award (for the
avoidance of doubt, Awards expressed in terms of shares of Common Stock or units representing Common Stock, shall be subject to the limit set forth in
Section 5(d) above). In applying the dollar limitation of the preceding sentence: (A) multiple Cash Performance Awards to the same individual that are
determined by reference to performance periods of one year or less ending with or within the same fiscal year of the Company shall be subject in the
aggregate to one $2,000,000 limit, and (B) multiple Cash Performance Awards to the same individual that are determined by reference to one or more
multi-year performance periods ending in the same fiscal year of the Company shall be subject in the aggregate to separate $2,000,000 limits.
5
6. Adjustments for Recapitalizations, Mergers, Etc.
(a) Dilution and Other Adjustments. Notwithstanding any other provision of the Plan, in the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares, or other similar
corporate change (including a Corporate Event, as defined below), an equitable adjustment shall be made, as determined by the Committee, so as to
preserve, without increasing or decreasing, the value of Awards and authorizations, in (i) the maximum number or kind of shares issuable or Awards
which may be granted under the Plan, (ii) the maximum number, kind or value of any Plan Awards which may be awarded or paid in general or to any
one employee or to all employees in a Fiscal Year, (iii) the performance-based events or objectives applicable to any Plan Awards, (iv) any other aspect or
aspects of the Plan or outstanding Awards made thereunder as specified by the Committee, or (v) any combination of the foregoing. Such adjustments
shall be made by the Committee and shall be conclusive and binding for all purposes of the Plan.
(b) Corporate Events. Notwithstanding the foregoing, except as may otherwise be provided in an Award agreement or a written employment
agreement between the Participant and the Company which has been approved by the Committee, upon any Corporate Event, in lieu of providing the
adjustment set forth in Section 6(a) above, the Committee may, in its discretion, cancel any or all vested and/or unvested Awards as of the consummation
of such Corporate Event, and provide that holders of Awards so cancelled will receive a payment in respect of cancellation of their Awards based on the
amount of the per share consideration being paid for the Stock in connection with such Corporate Event, less, in the case of Options and other Awards
subject to exercise, the applicable exercise price; provided, however, that holders of (i) Options shall only be entitled to consideration in respect of
cancellation of such Awards if the per share consideration less the applicable exercise price is greater than zero, and (ii) Performance Awards shall only
be entitled to consideration in respect of cancellation of such Awards to the extent that applicable performance criteria are achieved prior to or as a result
of such Corporate Event, and shall not otherwise be entitled to payment in consideration of cancelled unvested Awards. Payments to holders pursuant to
the preceding sentence shall be made in cash, or, in the sole discretion of the Committee, in such other consideration necessary for a holder of an Award
to receive property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been,
immediately prior to such transaction, the holder of the number of shares of Stock covered by the Award at such time.
7. Miscellaneous Provisions.
6
(a) The holder of a Plan Award shall have no rights as a Company shareholder with respect thereto unless, and until the date as of which,
shares of Common Stock shall have been issued in respect of such Award.
(b) Except as the Committee shall otherwise determine in connection with determining the terms of Awards to be granted or shall thereafter
permit, no Plan Award or any rights or interests therein of the recipient thereof shall be assignable or transferable by such recipient except upon death to
his or her Designated Beneficiary or by will or the laws of descent and distribution, and, except as aforesaid, during the lifetime of the recipient, a Plan
Award shall be exercisable only by, or payable only to, as the case may be, such recipient or his or her guardian or legal representative.
(c) All Awards granted under the Plan shall be evidenced by agreements in such form and containing and/or incorporating such terms and
conditions (not inconsistent with the Plan and applicable law) in addition to those provided for herein as the Committee shall approve.
(d) No shares of Common Stock shall be issued, delivered or transferred upon exercise or in payment of any Award granted hereunder unless
and until all legal requirements applicable to the issuance, delivery or transfer of such shares have been complied with to the satisfaction of the
Committee and the Company, including, without limitation, compliance with the provisions of the Securities Act of 1933, the Act, any other laws to
which the issuance, delivery or transfer of such shares would be subject, and the applicable requirements of the exchanges on which the Company's
Common Stock may, at the time, be listed. The Committee and the Company shall have the right to condition any issuance of shares of Common Stock
made to any Participant hereunder on such Participant's undertaking in writing to comply with such restrictions on his or her subsequent disposition of
such shares as the Committee and/or the Company shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation
thereof, and certificates, if any, representing such shares may be legended to reflect any such restrictions.
(e) The Company shall have the right to make such provision for the withholding of taxes as it deems necessary. In furtherance of the
foregoing, the Company shall have the right to require, as a condition of the distribution of Awards in Common Stock, that the Participant or other person
receiving such Common Stock either (i) pay to the Company at the time of distribution thereof the amount of any federal, state, or local taxes which the
Company is required to withhold with respect to such Common Stock or (ii) make such other arrangements as the Company may authorize from time to
time to provide for such withholding including without limitation having the number of the units of the Award cancelled or the number of the shares of
Common Stock to be distributed reduced by an amount with a value equal to the value of such taxes required to be withheld. Notwithstanding the
foregoing, the Committee may, in its discretion, in connection with the grant of any Award of Common Stock, authorize the Company to pay to
Participant receiving the Award, a cash gross-up payment in an amount necessary to cover such federal, state or local taxes attributable to such Award
and to such cash payment.
(f) No employee or director of the Company or a Subsidiary or other person shall have any claim or right to be granted an Award under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company
or a Subsidiary, it being understood that all Company and Subsidiary employees who have or may receive Awards under this Plan are employed at the
will of the Company or such Subsidiary and in accord with all statutory provisions.
7
(g) Awards may be granted to employees who are foreign nationals or employed outside the United States, or both, on such terms and
conditions different from those applicable to Awards to employees employed in the United States as may, in the judgment of the Committee, be necessary
or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of Awards
in order to minimize the Company’s obligation with respect to tax equalization for employees on assignments outside their home country.
Notwithstanding the foregoing, no Award may be granted pursuant to this Section if the granting of such Award, or the application of the proposed terms
and conditions with respect thereto, would constitute an amendment to the Plan that would have required stockholder approval by applicable law, or by
the rules of the Nasdaq Stock Market or any stock exchange on which Common Stock may be listed.
(i) The costs and expenses of administering this Plan shall be borne by the Company and not charged to any Award or to any employee or
Participant receiving an Award.
(j) In addition to the terms defined elsewhere herein, the following terms as used in this Plan shall have the following meanings:
“Act” shall mean the Securities Exchange Act of 1934 as amended from time to time.
“Award” shall mean an award described in Section 4(a)(i).
“Business Combination” shall mean (i) the consummation of a reorganization, merger or consolidation or sale or disposition of all or
substantially all of the assets of the Company.
“Cash Performance Award” shall mean a Performance Award payable in cash. The right of the Company to extinguish an Award in
exchange for cash or the exercise by the Company of such right shall not make an Award otherwise not payable in cash a Cash Performance
Award.
“Change in Control” shall, unless otherwise provided in an Award agreement, or an employee’s effective negotiated employment,
change in control, severance or similar arrangement, mean: (i) a Business Combination, unless, in each case following such Business
Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Common Stock of the Company
immediately before the consummation of such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively,
the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a
corporation that as a result of the transaction owns the Company or all or substantially all of the assets of the Company either directly or
indirectly through one or more subsidiaries); and (B) no person or group (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act
of 1934) of the Company or the corporation resulting from the Business Combination) beneficially owns, directly or indirectly, more than 50%
of the then outstanding shares of the common stock of the corporation resulting from the Business Combination; (ii) individuals who, as of the
date of grant of an Award hereunder constitute the Board of Directors of the Company (the “Incumbent Board”) thereafter cease for any reason
to constitute at least a majority of the Board of Directors of the Company, provided, however, that any individual's becoming a director after the
date of grant of such Award whose election, or nomination for election by the stockholders of the Company, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board will be considered as though the individual were a member of the Incumbent
Board, but excluding, for this purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or (iii) any person (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) shall become at
any time or in any manner the beneficial owner of capital stock of the Company representing more than 50% of the voting power of the
Company.
8
“Corporate Event” means (i) a merger or consolidation involving the Company in which the Company is not the surviving corporation;
(ii) a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Stock
receive securities of another corporation and/or other property, including cash; or (iii) the reorganization or liquidation of the Company.
“Designated Beneficiary” shall mean the person or persons, if any, last designated as such by the Participant on a form filed by him or
her with the Company in accordance with such procedures as the Committee shall approve.
“Fair Market Value” of a share of Common Stock of the Company on any date shall mean the closing price of the Common Stock on
the trading day coinciding with such date, or if not trading on such date, then the closing price as of the next following trading day. If shares of
the Common Stock shall not have been traded on any national exchange or interdealer quotation system for more than 10 days immediately
preceding such date or if deemed appropriate by the Committee for any other reason, the fair market value of shares of Common Stock shall be
determined by the Committee in such other manner as it may deem appropriate.
“Fiscal Year” shall mean the twelve-month period used as the annual accounting period by the Company and shall be designated
according to the calendar year in which such period ends.
9
“Internal Revenue Code” shall mean the Internal Revenue Code of 1986 and regulations thereunder as amended from time to time.
References to particular sections of the Internal Revenue Code shall include any successor provisions.
“ISO” shall mean an incentive stock option under Section 422 of the Internal Revenue Code.
“Participant” shall mean, as to any Award granted under this Plan and for so long as such Award is outstanding, the employee to whom
such Award has been granted.
“Performance Award” shall mean an Award subject to Performance Criteria. To the extent any Performance Award that was issued
prior to adoption of the Tax Cuts and Jobs Act of 2017 was intended to be eligible for the performance-based compensation exception under
Section 162(m) of the Internal Revenue Code, the Plan and such award shall be construed to the maximum extent permitted by law in a manner
consistent with qualifying the award for such exception.
“Performance Criteria” shall mean specified criteria the satisfaction of which is a condition for the exercisability, vesting or full
enjoyment of an Award. Performance Criterion shall mean: (a) an objectively determinable measure of performance relating to any of the
following (determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or
geographical basis, or in combinations thereof): (i) sales; revenues; assets; liabilities; costs; expenses; earnings before or after deduction for all
or any portion of interest, taxes, depreciation, amortization or other items, whether or not on a continuing operations or an aggregate or per share
basis; comparisons with various stock market indices; return on equity, investment, capital or assets; one or more operating ratios; borrowing
levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; working capital requirements; stock price; stockholder
return; sales, contribution or gross margin, of particular products or services; particular operating or financial ratios; customer acquisition,
expansion, retention; customer satisfaction; employee satisfaction; economic value added; attainment of strategic and operational initiatives;
improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable; operating margin;
year-end cash; operating efficiencies; research and development achievements; manufacturing achievements (including obtaining particular
yields from manufacturing runs and other measurable objectives related to process development activities); implementation, completion or
attainment of measurable objectives with respect to manufacturing, commercialization, products or projects, production, volume levels,
acquisitions and divestitures, recruiting and maintaining personnel; or any combination of the foregoing; or (ii) acquisitions and divestitures (in
whole or in part); joint ventures and strategic alliances; strategic partnerships or transactions; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity) and refinancings; transactions that would constitute a change of control;
or any combination of the foregoing, or (b) a subjectively determinable measure of performance. A Performance Criterion measure and targets
with respect thereto determined by the Committee need not be based upon an increase, a positive or improved result or avoidance of loss. In
determining attainment of a performance goal (A) the Committee may exclude the impact of unusual, non-recurring or extraordinary items
attributable to (1) acquisitions or dispositions of stock or assets, (2) any changes in accounting standards or treatments that may be required or
permitted by the Financial Accounting Standards Board, Public Company Accounting Oversight Board or adopted by the Company, the
Subsidiaries or any applicable division, business segment or business unit after the goal is established, (3) restructuring activities, including,
without limitation, plant closings, plant moves or consolidations, (4) disposal of a segment of a business, (5) discontinued operations,
(6) unbudgeted capital expenditures, (7) the issuance or repurchase of equity securities and other changes in the number of outstanding shares,
and (8) any business interruption event; and (B) the Committee may determine after the start of a Performance Period to exclude such other
items, each determined according to Generally Accepted Accounting Principles (to the extent applicable) as identified in the Company’s
accounts, financial statements, notes thereto, or management discussion and analysis.
10
“Restricted Stock” shall mean an Award of Stock subject to forfeiture to the Company if specified conditions are not satisfied.
“SARs” shall mean rights entitling the holder upon exercise to receive cash or Stock, as the Committee determines, equal to a function
(determined by the Committee using such factors as it deems appropriate) of the amount by which the Stock has appreciated in value since the
date of the Award.
“Stock” shall mean Common Stock of the Company, par value $.01 per share.
“Stock-based Awards” shall mean such awards that are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock as deemed by the Committee to be consistent with the purposes of the Plan, and shall
include, without limitation, all Stock Options, SARs, Restricted Stock, Stock Unit Awards and any Performance Awards consisting of any of the
foregoing.
“Stock Options” shall mean options entitling the recipient to acquire shares of Stock upon payment of the exercise price and shall
consist of ISO’s and non-statutory options.
“Stock Unit Awards” shall mean an award payable in shares of Stock. A Stock Unit Award may, but shall not be required to include a
Performance Award.
“Subsidiary” shall mean any domestic or foreign corporation, partnership, association, joint stock company, trust or unincorporated
organization “affiliated “ with the Company, that is, directly or indirectly, through one or more intermediaries, “controlling”, “controlled by” or
“under common control with”, the Company.
“Unrestricted Stock” shall mean an Award of Stock not subject to any restrictions under the Plan.
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(k) This Plan shall be governed by the laws of the Commonwealth of Massachusetts and shall be construed for all purposes in accordance
with the laws of said Commonwealth except as may be required by the General Corporation Law of Delaware or by applicable federal law.
8. Amendments and Termination; Requisite Shareholder Approval. The Board may at any time terminate or from time to time amend or
suspend the Plan in whole or in part in such respects as the Board may deem advisable in order that Awards granted thereunder shall conform to any
change in the law, or in any other respect which the Board may deem to be in the best interests of the Company; provided, however, that no amendment
of the Plan shall be made without shareholder approval if shareholder approval of the amendment is at the time required by applicable law, or by the rules
of the Nasdaq Stock Market or any stock exchange on which Common Stock may be listed. The Board shall have the power to amend the Plan in any
manner contemplated by this Section 8 deemed necessary or advisable for Awards granted under the Plan to qualify for the exemption provided by Rule
16b-3 (or any successor rule relating to exemption from Section 16(b) of the Act), or to comply with applicable law, and any such amendment shall, to
the extent deemed necessary or advisable by the Board, be applicable to any outstanding Awards theretofore granted under the Plan notwithstanding any
contrary provisions contained in any Award agreement. In the event of any such amendment to the Plan, the holder of any Award outstanding under the
Plan shall, upon request of the Board and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the
Board to any Award agreement relating thereto within such reasonable time as the Board shall specify in such request. With the consent of the Participant
affected, the Board may amend outstanding agreements evidencing Plan Awards in a manner not inconsistent with the terms of the Plan. Notwithstanding
anything contained in this Section 8 or in any other provision of the Plan, unless required by law, no action contemplated or permitted by this Section 8
shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Award theretofore made under the Plan
without the consent of the affected Participant.
9. Effective Date and Term of Plan. This Plan was adopted on April 8, 2003. The Plan was amended on February 26, 2007, March 22, 2007,
February 21, 2008, March 2, 2011, March 7, 2013, March 17, 2016, March 14, 2018, March 16, 2021, and March 14, 2023. The Plan was last ratified by
the Company’s stockholders on June 9, 2021. The Plan shall remain in effect, subject to the right of the Board of Directors to further amend or terminate
the Plan at any time pursuant to Section 8 hereof, until all shares subject to it shall have been purchased or acquired according to the Plan’s provisions,
provided, however, that no ISO may be granted under the Plan after the tenth anniversary of the date upon which the Plan has most recently been ratified
by the Company’s stockholders.
12
UFP TECHNOLOGIES, INC.
2003 INCENTIVE PLAN
As Amended and Restated on March 14, 2023
Exhibit 10.33
1. Statement of Purpose. The purpose of this 2003 Incentive Plan (hereinafter referred to as the “Plan”) is to benefit UFP TECHNOLOGIES,
INC. (the “Company”) through the maintenance and development of its businesses by offering equity-based and other incentives to certain present and
future executives and other employees who are in a position to contribute to the long-term success and growth of the Company, thereby encouraging the
continuance of their involvement with the Company and/or its subsidiaries.
2. Administration of the Plan.
(a) Board or Committee Administration. Except as otherwise provided in subsection 2(d) below, the Plan shall be administered by the
Compensation Committee of the Company's Board of Directors (the “Board”) or such other committee thereof consisting of such members (not less than
two) of the Board as are appointed from time to time by the Board (the “Compensation Committee”), each of the members of which, at the time of any
action under the Plan, shall be (i) a “non-employee director” as then defined under Rule 16b-3 under the Act (or meeting comparable requirements of any
successor rule relating to exemption from Section 16(b) of the Act) and (ii) an “independent director” as then defined under the rules of the Nasdaq Stock
Market (or meeting comparable requirements of any stock exchange on which the Company's Common Stock, $.01 par value (the “Common Stock”)
may then be listed). Hereinafter, all references in this Plan to the “Committee” shall mean the Board if no Committee has been appointed. The Committee
shall have all necessary powers to administer and interpret the Plan. Such powers of the Compensation Committee include exclusive authority (within the
limitations described and except as otherwise provided in the Plan) to select the employees or determine classes of employees to be granted Awards under
the Plan, to determine the aggregate amount, type, size, and terms of the Awards to be made to eligible employees, and to determine the time when
Awards will be granted. The Compensation Committee may take into consideration recommendations from the appropriate officers of the Company with
respect to making the foregoing determinations as to Plan Awards, administration, and interpretation. The Committee shall have full power and authority
to adopt such rules, regulations, agreements and instruments for the administration of the Plan and for the conduct of its business as the Committee deems
necessary or advisable. The Committee's interpretations of the Plan and all action taken and determinations made by the Committee pursuant to the
powers vested in it hereunder shall be conclusive and binding on all parties concerned, including the Company, its shareholders and any director or
employee of the Company or any Subsidiary.
(b) Committee Actions. The Committee may select one of its members as its chairman and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum and acts of a majority of the members of the Committee at a meeting at which a
quorum is present, or acts reduced to or approved in writing by all the members of the Committee (if consistent with applicable state law), shall be the
valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
(c) Section 409A. The Committee shall take into account compliance with Section 409A of the Internal Revenue Code in connection with
any grant of an Award under the Plan, to the extent applicable.
(d) Delegation by the Board to a Designated Officer. To the extent permitted by law, the Board may delegate to the Chief Executive Officer
of the Company or one or more other officers of the Company (each herein a “Designated Officer”) the duties or powers it may deem advisable to assist
the Committee in the administration and operation of the Plan and may grant to the Designated Officer authority to enter into 1 or more transactions to
grant equity-based Awards and with respect to such transactions, such Awards may be issued in such numbers, at such times and for such consideration as
the Designated Officer may determine; provided that the resolution fixes (i) the maximum number of rights or options subject to the equity-based
Awards, and the maximum number of shares issuable upon exercise thereof, that may be issued pursuant to such resolution, (ii) a time period during
which such equity-based Awards and during which the shares issuable upon exercise thereof, may be issued, and (iii) a minimum amount of consideration
(if any) for which such rights or options subject to such equity-based Awards may be issued and a minimum amount of consideration for the shares
issuable upon exercise thereof and provided further, however, (i) the Committee shall not delegate such responsibilities to the Designated Officer for
Awards granted to the Designated Officer or any employee who is considered an officer (as defined in Rule 16a-1(f)) of the Exchange Act. The
Designated Officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority
delegated. To the extent authority under the Plan is delegated to the Designated Officer, references in the other provisions of this Plan to the Committee
shall instead mean to the Designated Officer.
3. Eligibility. Participation in the Plan shall be limited to executives or other employees (including officers and directors who are also
employees) of the Company and its Subsidiaries selected on the basis of such criteria as the Committee may determine. Employees who participate in
other incentive or benefit plans of the Company or any Subsidiary may also participate in this Plan. As used herein, the term “employee” shall mean any
person employed full time or part time by the Company or a Subsidiary on a salaried basis, and the term “employment” shall mean full-time or part-time
salaried employment by the Company or a Subsidiary.
4. Rules Applicable to Awards.
(a) All Awards.
(i) Awards. Awards may be granted in the form of any or a combination of the following: Stock Options; SARs; Restricted Stock;
Unrestricted Stock; Stock Unit Awards, other Stock Based Awards; Cash Performance Awards; other Performance Awards; or grants of cash, or loans,
made in connection with other Awards in order to help defray in whole or in part the economic cost (including tax cost) of the Award to the Participant.
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(ii) Terms of Awards. The Committee shall determine the terms of all Awards subject to the limitations provided herein.
(iii) Performance Criteria. Where rights under an Award depend in whole or in part on satisfaction of Performance Criteria, actions
by the Company that have an effect, however material, on such Performance Criteria or on the likelihood that they will be satisfied will not be deemed an
amendment or alteration of the Award.
(iv) Vesting, Etc. Without limiting the generality of Section 4(a)(ii), the Committee may determine the time or times at which an
Award will vest (i.e., become free of forfeiture restrictions) or become exercisable and the terms on which an Award requiring exercise will remain
exercisable.
(b) Awards Requiring Exercise.
(i) Time and Manner of Exercise. Unless the Committee expressly provides otherwise, (A) an Award requiring exercise by the holder
will not be deemed to have been exercised until the Committee receives a written notice of exercise (in form acceptable to the Committee) signed by the
appropriate person and accompanied by any payment required under the Award; and (B) if the Award is exercised by any person other than the
Participant, the Committee may require satisfactory evidence that the person exercising the Award has the right to do so.
(ii) Exercise Price. The Committee shall determine the exercise price of each Stock Option or SAR; provided, however, that each Stock
Option or SAR must have an exercise price that is not less than the fair market value of the Stock subject to the Stock Option, determined as of the date
of grant. Except as provided in Section 6, in no event may any Stock Option or SAR previously granted under the Plan (i) be amended to decrease the
exercise price or strike price thereof, as the case may be, (ii) be cancelled in conjunction with the grant of any new Stock Option or SAR with a lower
exercise price or strike price, as the case may be, (iii) be amended to provide for a cash buyout of the Stock Option or SAR if such Stock Option or SAR
is not “in the money,” (iv) be subject to a voluntary surrender and subsequent grant of “in the money” Stock Option or SAR (v) otherwise be subject to
any action that would be treated under the NASDAQ rules as a “repricing” of such Stock Option or SAR unless such amendment, cancellation or action
is approved by the Company’s shareholders.
(iii) Payment of Exercise Price, If Any. Where the exercise of an Award is to be accompanied by payment, the Committee may
determine the required or permitted forms of payment.
(c) Awards Not Requiring Exercise.
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(i). Restricted Stock. Restricted Stock awards shall be evidenced by a written agreement in the form prescribed by the Committee in its
discretion, which shall set forth the number of shares of Common Stock awarded, the restrictions imposed thereon (which may include, without
limitation, restrictions on the right of the grantee to sell, assign, transfer or encumber shares while such shares are subject to other restrictions imposed
under this Section 4), the duration of such restrictions; the events (which may, in the discretion of the Committee, include performance-based events or
objectives) the occurrence of which would cause a forfeiture of the Restricted Stock in whole or in part; and such other terms and conditions as the
Committee in its discretion deems appropriate. If so determined by the Committee at the time of an award of Restricted Stock, the lapse of restrictions on
Restricted Stock may be based on the extent of achievement over a specified performance period of one or more performance targets based on
performance criteria established by the Committee. Restricted Stock awards shall be effective upon execution of the applicable Restricted Stock
agreement by the Company and the Participant. Following a Restricted Stock award and prior to the lapse or termination of the applicable restrictions, the
share certificates for such Restricted Stock shall be held in escrow by the Company. Upon the lapse or termination of the applicable restrictions (and not
before such time), the certificates for the Restricted Stock shall be issued or delivered to the Participant. From the date a Restricted Stock award is
effective, the Participant shall be a shareholder with respect to all the shares represented by such certificates and shall have all the rights of a shareholder
with respect to all such shares, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares,
subject only to the restrictions imposed by the Committee.
(ii). Stock Unit Awards. Stock Unit Awards shall be evidenced by a written agreement in the form prescribed by the Committee in its
discretion, which shall set forth the number of shares of Common Stock to be awarded pursuant to the Award, the restrictions imposed thereon (which
may include, without limitation: restrictions on the right of the grantee to sell, assign, transfer or encumber the Award prior to vesting, and, in the
discretion of the Committee, certain continued service requirements and terms under which the vesting of such Awards might be accelerated) and such
other terms and conditions as the Committee in its discretion deems appropriate. If so determined by the Committee at the time of the grant of a Stock
Unit Award, vesting of the Award may be contingent on achievement over a specified performance period of one or more performance targets based on
performance criteria established by the Committee. Stock Unit Awards shall be effective upon execution of the applicable Stock Unit Award Agreement
by the Company and the Participant. Upon a determination of satisfaction of the applicable performance-related conditions and satisfaction of the
applicable continued service requirements, (and not before such time), shares of Stock shall be issued to the Participant pursuant to the Award. The
Participant shall not have any rights of a shareholder of the Company with respect to such shares prior to such issuance.
(iii) Unrestricted Stock and Other Stock-Based Awards. The Committee shall have the authority in its discretion to grant to eligible
Participants Unrestricted Stock and other Stock-Based Awards. The Committee shall determine the terms and conditions, if any, of any Other Stock
Based Awards made under the Plan.
(iv) Non Stock – Based Awards. The Committee shall have the authority in its discretion to grant to eligible Participants Awards not
based on the Stock, including, without limitation, Cash Performance Awards, and other Performance Awards as deemed by the Committee to be
consistent with the purposes of the Plan.
4
5. Limits on Awards under the Plan.
(a) Number of Shares. A maximum of 2,250,000 shares of Common Stock, subject to adjustment as provided in Section 6, may be delivered
in satisfaction of Stock-Based Awards under the Plan.
(b) Share Counting Rules. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting
(as, for example, in the case of tandem or substitute awards) and make adjustments if the number of shares of Stock actually delivered differs from the
number of shares previously counted in connection with an Award. To the extent that an Award expires or is canceled, forfeited, settled in cash or
otherwise terminated or concluded without a delivery to the Participant of the full number of shares to which the Award related, the undelivered shares
will again be available for grant. Shares withheld in payment of the exercise price or taxes relating to an Award and shares equal to the number
surrendered in payment of any exercise price or taxes relating to an Award shall be deemed to constitute shares not delivered to the Participant and shall
be deemed to again be available for Awards under the Plan; provided, however, that, where shares are withheld or surrendered more than ten years after
the date of the most recent stockholder approval of the Plan or any other transaction occurs that would result in shares becoming available under this
Section 5(b), such shares shall not become available if and to the extent that it would constitute a material revision of the Plan subject to stockholder
approval under then applicable rules of the national securities exchange on which the Stock is listed or the Nasdaq Stock Market, as applicable.
(c) Type of Shares. Common Stock delivered by the Company under the Plan may be authorized but unissued Common Stock or previously
issued Common Stock acquired by the Company and held in treasury. No fractional shares of Common Stock will be delivered under the Plan.
(d) Other Stock-Based Award Limits. The maximum number of shares of Common Stock subject to Awards that may be granted to any
person in any calendar year shall be 150,000. In addition, in no event shall the number of Awards providing for the acquisition of shares of Common
Stock for a consideration less than Fair Market Value as of the date of grant or exercise of such Awards granted to all Participants in any Fiscal Year
exceed 250,000. For this purpose, Fair Market Value may be determined as of a date not more than two trading days prior to the date of grant or exercise
in order to facilitate compliance with the reporting requirements under Section 16 of the Act. Subject to these limitations, each person eligible to
participate in the Plan shall be eligible in any year to receive Awards covering up to the full number of shares of Common Stock then available for
Awards under the Plan.
(e) Other Award Limits. No more than $2,000,000 may be paid to any individual with respect to any Cash Performance Award (for the
avoidance of doubt, Awards expressed in terms of shares of Common Stock or units representing Common Stock, shall be subject to the limit set forth in
Section 5(d) above). In applying the dollar limitation of the preceding sentence: (A) multiple Cash Performance Awards to the same individual that are
determined by reference to performance periods of one year or less ending with or within the same fiscal year of the Company shall be subject in the
aggregate to one $2,000,000 limit, and (B) multiple Cash Performance Awards to the same individual that are determined by reference to one or more
multi-year performance periods ending in the same fiscal year of the Company shall be subject in the aggregate to separate $2,000,000 limits.
5
6. Adjustments for Recapitalizations, Mergers, Etc.
(a) Dilution and Other Adjustments. Notwithstanding any other provision of the Plan, in the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares, or other similar
corporate change (including a Corporate Event, as defined below), an equitable adjustment shall be made, as determined by the Committee, so as to
preserve, without increasing or decreasing, the value of Awards and authorizations, in (i) the maximum number or kind of shares issuable or Awards
which may be granted under the Plan, (ii) the maximum number, kind or value of any Plan Awards which may be awarded or paid in general or to any
one employee or to all employees in a Fiscal Year, (iii) the performance-based events or objectives applicable to any Plan Awards, (iv) any other aspect or
aspects of the Plan or outstanding Awards made thereunder as specified by the Committee, or (v) any combination of the foregoing. Such adjustments
shall be made by the Committee and shall be conclusive and binding for all purposes of the Plan.
(b) Corporate Events. Notwithstanding the foregoing, except as may otherwise be provided in an Award agreement or a written employment
agreement between the Participant and the Company which has been approved by the Committee, upon any Corporate Event, in lieu of providing the
adjustment set forth in Section 6(a) above, the Committee may, in its discretion, cancel any or all vested and/or unvested Awards as of the consummation
of such Corporate Event, and provide that holders of Awards so cancelled will receive a payment in respect of cancellation of their Awards based on the
amount of the per share consideration being paid for the Stock in connection with such Corporate Event, less, in the case of Options and other Awards
subject to exercise, the applicable exercise price; provided, however, that holders of (i) Options shall only be entitled to consideration in respect of
cancellation of such Awards if the per share consideration less the applicable exercise price is greater than zero, and (ii) Performance Awards shall only
be entitled to consideration in respect of cancellation of such Awards to the extent that applicable performance criteria are achieved prior to or as a result
of such Corporate Event, and shall not otherwise be entitled to payment in consideration of cancelled unvested Awards. Payments to holders pursuant to
the preceding sentence shall be made in cash, or, in the sole discretion of the Committee, in such other consideration necessary for a holder of an Award
to receive property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been,
immediately prior to such transaction, the holder of the number of shares of Stock covered by the Award at such time.
7. Miscellaneous Provisions.
6
(a) The holder of a Plan Award shall have no rights as a Company shareholder with respect thereto unless, and until the date as of which,
shares of Common Stock shall have been issued in respect of such Award.
(b) Except as the Committee shall otherwise determine in connection with determining the terms of Awards to be granted or shall thereafter
permit, no Plan Award or any rights or interests therein of the recipient thereof shall be assignable or transferable by such recipient except upon death to
his or her Designated Beneficiary or by will or the laws of descent and distribution, and, except as aforesaid, during the lifetime of the recipient, a Plan
Award shall be exercisable only by, or payable only to, as the case may be, such recipient or his or her guardian or legal representative.
(c) All Awards granted under the Plan shall be evidenced by agreements in such form and containing and/or incorporating such terms and
conditions (not inconsistent with the Plan and applicable law) in addition to those provided for herein as the Committee shall approve.
(d) No shares of Common Stock shall be issued, delivered or transferred upon exercise or in payment of any Award granted hereunder unless
and until all legal requirements applicable to the issuance, delivery or transfer of such shares have been complied with to the satisfaction of the
Committee and the Company, including, without limitation, compliance with the provisions of the Securities Act of 1933, the Act, any other laws to
which the issuance, delivery or transfer of such shares would be subject, and the applicable requirements of the exchanges on which the Company's
Common Stock may, at the time, be listed. The Committee and the Company shall have the right to condition any issuance of shares of Common Stock
made to any Participant hereunder on such Participant's undertaking in writing to comply with such restrictions on his or her subsequent disposition of
such shares as the Committee and/or the Company shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation
thereof, and certificates, if any, representing such shares may be legended to reflect any such restrictions.
(e) The Company shall have the right to make such provision for the withholding of taxes as it deems necessary. In furtherance of the
foregoing, the Company shall have the right to require, as a condition of the distribution of Awards in Common Stock, that the Participant or other person
receiving such Common Stock either (i) pay to the Company at the time of distribution thereof the amount of any federal, state, or local taxes which the
Company is required to withhold with respect to such Common Stock or (ii) make such other arrangements as the Company may authorize from time to
time to provide for such withholding including without limitation having the number of the units of the Award cancelled or the number of the shares of
Common Stock to be distributed reduced by an amount with a value equal to the value of such taxes required to be withheld. Notwithstanding the
foregoing, the Committee may, in its discretion, in connection with the grant of any Award of Common Stock, authorize the Company to pay to
Participant receiving the Award, a cash gross-up payment in an amount necessary to cover such federal, state or local taxes attributable to such Award
and to such cash payment.
(f) No employee or director of the Company or a Subsidiary or other person shall have any claim or right to be granted an Award under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company
or a Subsidiary, it being understood that all Company and Subsidiary employees who have or may receive Awards under this Plan are employed at the
will of the Company or such Subsidiary and in accord with all statutory provisions.
7
(g) Awards may be granted to employees who are foreign nationals or employed outside the United States, or both, on such terms and
conditions different from those applicable to Awards to employees employed in the United States as may, in the judgment of the Committee, be necessary
or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of Awards
in order to minimize the Company’s obligation with respect to tax equalization for employees on assignments outside their home country.
Notwithstanding the foregoing, no Award may be granted pursuant to this Section if the granting of such Award, or the application of the proposed terms
and conditions with respect thereto, would constitute an amendment to the Plan that would have required stockholder approval by applicable law, or by
the rules of the Nasdaq Stock Market or any stock exchange on which Common Stock may be listed.
(i) The costs and expenses of administering this Plan shall be borne by the Company and not charged to any Award or to any employee or
Participant receiving an Award.
(j) In addition to the terms defined elsewhere herein, the following terms as used in this Plan shall have the following meanings:
“Act” shall mean the Securities Exchange Act of 1934 as amended from time to time.
“Award” shall mean an award described in Section 4(a)(i).
“Business Combination” shall mean (i) the consummation of a reorganization, merger or consolidation or sale or disposition of all or
substantially all of the assets of the Company.
“Cash Performance Award” shall mean a Performance Award payable in cash. The right of the Company to extinguish an Award in
exchange for cash or the exercise by the Company of such right shall not make an Award otherwise not payable in cash a Cash Performance
Award.
“Change in Control” shall, unless otherwise provided in an Award agreement, or an employee’s effective negotiated employment,
change in control, severance or similar arrangement, mean: (i) a Business Combination, unless, in each case following such Business
Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Common Stock of the Company
immediately before the consummation of such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively,
the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a
corporation that as a result of the transaction owns the Company or all or substantially all of the assets of the Company either directly or
indirectly through one or more subsidiaries); and (B) no person or group (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act
of 1934) of the Company or the corporation resulting from the Business Combination) beneficially owns, directly or indirectly, more than 50%
of the then outstanding shares of the common stock of the corporation resulting from the Business Combination; (ii) individuals who, as of the
date of grant of an Award hereunder constitute the Board of Directors of the Company (the “Incumbent Board”) thereafter cease for any reason
to constitute at least a majority of the Board of Directors of the Company, provided, however, that any individual's becoming a director after the
date of grant of such Award whose election, or nomination for election by the stockholders of the Company, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board will be considered as though the individual were a member of the Incumbent
Board, but excluding, for this purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or (iii) any person (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) shall become at
any time or in any manner the beneficial owner of capital stock of the Company representing more than 50% of the voting power of the
Company.
8
“Corporate Event” means (i) a merger or consolidation involving the Company in which the Company is not the surviving corporation;
(ii) a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Stock
receive securities of another corporation and/or other property, including cash; or (iii) the reorganization or liquidation of the Company.
“Designated Beneficiary” shall mean the person or persons, if any, last designated as such by the Participant on a form filed by him or
her with the Company in accordance with such procedures as the Committee shall approve.
“Fair Market Value” of a share of Common Stock of the Company on any date shall mean the closing price of the Common Stock on
the trading day coinciding with such date, or if not trading on such date, then the closing price as of the next following trading day. If shares of
the Common Stock shall not have been traded on any national exchange or interdealer quotation system for more than 10 days immediately
preceding such date or if deemed appropriate by the Committee for any other reason, the fair market value of shares of Common Stock shall be
determined by the Committee in such other manner as it may deem appropriate.
“Fiscal Year” shall mean the twelve-month period used as the annual accounting period by the Company and shall be designated
according to the calendar year in which such period ends.
9
“Internal Revenue Code” shall mean the Internal Revenue Code of 1986 and regulations thereunder as amended from time to time.
References to particular sections of the Internal Revenue Code shall include any successor provisions.
“ISO” shall mean an incentive stock option under Section 422 of the Internal Revenue Code.
“Participant” shall mean, as to any Award granted under this Plan and for so long as such Award is outstanding, the employee to whom
such Award has been granted.
“Performance Award” shall mean an Award subject to Performance Criteria. To the extent any Performance Award that was issued
prior to adoption of the Tax Cuts and Jobs Act of 2017 was intended to be eligible for the performance-based compensation exception under
Section 162(m) of the Internal Revenue Code, the Plan and such award shall be construed to the maximum extent permitted by law in a manner
consistent with qualifying the award for such exception.
“Performance Criteria” shall mean specified criteria the satisfaction of which is a condition for the exercisability, vesting or full
enjoyment of an Award. Performance Criterion shall mean: (a) an objectively determinable measure of performance relating to any of the
following (determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or
geographical basis, or in combinations thereof): (i) sales; revenues; assets; liabilities; costs; expenses; earnings before or after deduction for all
or any portion of interest, taxes, depreciation, amortization or other items, whether or not on a continuing operations or an aggregate or per share
basis; comparisons with various stock market indices; return on equity, investment, capital or assets; one or more operating ratios; borrowing
levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; working capital requirements; stock price; stockholder
return; sales, contribution or gross margin, of particular products or services; particular operating or financial ratios; customer acquisition,
expansion, retention; customer satisfaction; employee satisfaction; economic value added; attainment of strategic and operational initiatives;
improvement in or attainment of expense levels or working capital levels, including cash, inventory and accounts receivable; operating margin;
year-end cash; operating efficiencies; research and development achievements; manufacturing achievements (including obtaining particular
yields from manufacturing runs and other measurable objectives related to process development activities); implementation, completion or
attainment of measurable objectives with respect to manufacturing, commercialization, products or projects, production, volume levels,
acquisitions and divestitures, recruiting and maintaining personnel; or any combination of the foregoing; or (ii) acquisitions and divestitures (in
whole or in part); joint ventures and strategic alliances; strategic partnerships or transactions; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity) and refinancings; transactions that would constitute a change of control;
or any combination of the foregoing, or (b) a subjectively determinable measure of performance. A Performance Criterion measure and targets
with respect thereto determined by the Committee need not be based upon an increase, a positive or improved result or avoidance of loss. In
determining attainment of a performance goal (A) the Committee may exclude the impact of unusual, non-recurring or extraordinary items
attributable to (1) acquisitions or dispositions of stock or assets, (2) any changes in accounting standards or treatments that may be required or
permitted by the Financial Accounting Standards Board, Public Company Accounting Oversight Board or adopted by the Company, the
Subsidiaries or any applicable division, business segment or business unit after the goal is established, (3) restructuring activities, including,
without limitation, plant closings, plant moves or consolidations, (4) disposal of a segment of a business, (5) discontinued operations,
(6) unbudgeted capital expenditures, (7) the issuance or repurchase of equity securities and other changes in the number of outstanding shares,
and (8) any business interruption event; and (B) the Committee may determine after the start of a Performance Period to exclude such other
items, each determined according to Generally Accepted Accounting Principles (to the extent applicable) as identified in the Company’s
accounts, financial statements, notes thereto, or management discussion and analysis.
10
“Restricted Stock” shall mean an Award of Stock subject to forfeiture to the Company if specified conditions are not satisfied.
“SARs” shall mean rights entitling the holder upon exercise to receive cash or Stock, as the Committee determines, equal to a function
(determined by the Committee using such factors as it deems appropriate) of the amount by which the Stock has appreciated in value since the
date of the Award.
“Stock” shall mean Common Stock of the Company, par value $.01 per share.
“Stock-based Awards” shall mean such awards that are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock as deemed by the Committee to be consistent with the purposes of the Plan, and shall
include, without limitation, all Stock Options, SARs, Restricted Stock, Stock Unit Awards and any Performance Awards consisting of any of the
foregoing.
“Stock Options” shall mean options entitling the recipient to acquire shares of Stock upon payment of the exercise price and shall
consist of ISO’s and non-statutory options.
“Stock Unit Awards” shall mean an award payable in shares of Stock. A Stock Unit Award may, but shall not be required to include a
Performance Award.
“Subsidiary” shall mean any domestic or foreign corporation, partnership, association, joint stock company, trust or unincorporated
organization “affiliated “ with the Company, that is, directly or indirectly, through one or more intermediaries, “controlling”, “controlled by” or
“under common control with”, the Company.
11
“Unrestricted Stock” shall mean an Award of Stock not subject to any restrictions under the Plan.
(k) This Plan shall be governed by the laws of the Commonwealth of Massachusetts and shall be construed for all purposes in accordance
with the laws of said Commonwealth except as may be required by the General Corporation Law of Delaware or by applicable federal law.
8. Amendments and Termination; Requisite Shareholder Approval. The Board may at any time terminate or from time to time amend or
suspend the Plan in whole or in part in such respects as the Board may deem advisable in order that Awards granted thereunder shall conform to any
change in the law, or in any other respect which the Board may deem to be in the best interests of the Company; provided, however, that no amendment
of the Plan shall be made without shareholder approval if shareholder approval of the amendment is at the time required by applicable law, or by the rules
of the Nasdaq Stock Market or any stock exchange on which Common Stock may be listed. The Board shall have the power to amend the Plan in any
manner contemplated by this Section 8 deemed necessary or advisable for Awards granted under the Plan to qualify for the exemption provided by Rule
16b-3 (or any successor rule relating to exemption from Section 16(b) of the Act), or to comply with applicable law, and any such amendment shall, to
the extent deemed necessary or advisable by the Board, be applicable to any outstanding Awards theretofore granted under the Plan notwithstanding any
contrary provisions contained in any Award agreement. In the event of any such amendment to the Plan, the holder of any Award outstanding under the
Plan shall, upon request of the Board and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the
Board to any Award agreement relating thereto within such reasonable time as the Board shall specify in such request. With the consent of the Participant
affected, the Board may amend outstanding agreements evidencing Plan Awards in a manner not inconsistent with the terms of the Plan. Notwithstanding
anything contained in this Section 8 or in any other provision of the Plan, unless required by law, no action contemplated or permitted by this Section 8
shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Award theretofore made under the Plan
without the consent of the affected Participant.
9. Effective Date and Term of Plan. This Plan was adopted on April 8, 2003. The Plan was amended on February 26, 2007, March 22, 2007,
February 21, 2008, March 2, 2011, March 7, 2013, March 17, 2016, March 14, 2018, March 16, 2021, and March 14, 2023. The Plan was last ratified by
the Company’s stockholders on June 9, 2021. The Plan shall remain in effect, subject to the right of the Board of Directors to further amend or terminate
the Plan at any time pursuant to Section 8 hereof, until all shares subject to it shall have been purchased or acquired according to the Plan’s provisions,
provided, however, that no ISO may be granted under the Plan after the tenth anniversary of the date upon which the Plan has most recently been ratified
by the Company’s stockholders.
12
UFP Technologies, Inc. wholly owns the following companies:
1. Advant Medical Limited, a private limited company incorporated under the laws of Ireland, its wholly-owned subsidiary:
a. Munlu Leighis Advant Teoranta, a private limited company incorporated under the laws of Ireland
2. Advant Costa Rica Limitada, incorporated under the laws of Costa Rica
Exhibit 21.01
3. Advant Medical Inc., a Delaware corporation
4. Simco Industries, Inc., a Michigan company
5. Dielectrics, Inc., a Massachusetts company
6. Contech Medical, Inc., a Rhode Island company
7. DAS Medical Holdings, LLC, a Georgia limited liability company, and its wholly-owned subsidiaries:
a. Sterimed, LLC, a Georgia limited liability company
b. One Degree Medical Holdings, LLC, a Georgia limited liability company
c. DAS Medical Corporation, a Delaware company, and its wholly-owned subsidiary:
i. DAS Medical International, S.R.L., a Dominican Republic company
8. UFP Realty LLC, a Massachusetts limited liability company, and its wholly-owned subsidiaries:
a. UFPT MA, LLC, a Massachusetts limited liability company
b. UFP CO, LLC, a Colorado limited liability company
c. UFP FL, LLC, a Florida limited liability company
d. UFP TX, LLC, a Texas limited liability company
e. UFP MI, LLC, a Michigan limited liability company
f. UFP IA, LLC, an Iowa limited liability company
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 16, 2023, with respect to the consolidated financial statements and internal controls over financial reporting
included in the Annual Report of UFP Technologies, Inc. on Form 10-K for the year ended December 31, 2022. We hereby consent to the incorporation by
reference of said reports in the Registration Statements of UFP Technologies, Inc. on Forms S-8 (File No. 333-265651, File No. 333-174907, File No. 333-
151883, File No. 333-143673, File No. 333-116436, File No. 333-56741, File No. 333-91408, File No. 333-106390, File No. 333-39946, and File No. 333-
76640).
Exhibit 23.01
/s/ GRANT THORNTON LLP
Boston, MA
March 16, 2023
Exhibit 31.01
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, R. Jeffrey Bailly, President and Chief Executive Officer of UFP Technologies, Inc., certify that:
1.
I have reviewed this annual report on Form 10-K of UFP Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
March 16, 2023
Date
/s/ R. Jeffrey Bailly
R. Jeffrey Bailly
Chairman, Chief Executive Officer,
President, and Director
(Principal Executive Officer)
Exhibit 31.02
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Ronald J. Lataille, Chief Financial Officer of UFP Technologies, Inc., certify that:
1.
I have reviewed this annual report on Form 10-K of UFP Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
March 16, 2023
Date
/s/ Ronald J. Lataille
Ronald J. Lataille
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Exhibit 32.01
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
the undersigned officers of UFP Technologies, Inc., a Delaware corporation (the “Company”), do hereby certify, to the best of such officers’ knowledge and
belief, that:
(1) The Annual Report on Form 10-K for the year ended December 31, 2022, (the “Form 10-K”) of the Company fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-K fairly presents, in all materials respects, the financial condition and results of operations of the
Company.
March 16, 2023
Date
March 16, 2023
Date
/s/ R. Jeffrey Bailly
R. Jeffrey Bailly
Chairman, Chief Executive Officer,
President, and Director
(Principal Executive Officer)
/s/ Ronald J. Lataille
Ronald J. Lataille
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to UFP Technologies, Inc. and
will be retained by UFP Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.