UFP TECHNOLOGIES, INC.

                    1998 DIRECTOR STOCK OPTION INCENTIVE PLAN

         1.  STATEMENT OF PURPOSE.  This 1998 Non-employee Director Stock 
Option Plan (the "Plan") intended to promote the interests of UFP 
Technologies, Inc., a Delaware corporation (the "Company") by offering 
non-employee members of the Board of Directors of the Company (individually a 
"Non-employee Director" and collectively "Non-employee Directors") the 
opportunity to participate in a special stock option program designed to 
provide them with significant incentives to remain in the service of the 
Company.

         2.  ADMINISTRATION.  The Plan shall be administered by the Board of 
Directors of the Company or by any committee of the Board of Directors, 
including the Compensation Committee (the "Committee"). The Committee shall 
have full and plenary authority to interpret the terms and provisions of the 
Plan.

         3.  ELIGIBILITY.  Non-employee Directors of the Company shall be 
eligible to receive grants of non-statutory options under this Plan 
(individually an "Option" and collectively "Options") pursuant to the 
provisions of Section 5 hereof.

         4.  STOCK SUBJECT TO PLAN.  The stock issuable under this Plan shall 
be shares of the Company's Common Stock, par value $.01 per share (the Common 
Stock). Such shares may be made available from authorized but unissued shares 
of Common Stock or shares of Common Stock reacquired by the Company. The 
aggregate number of shares of Common Stock issuable upon exercise of Options 
under this Plan shall not exceed 150,000 shares, subject to adjustment from 
time to time in accordance with Section 10 hereof.

         5.  GRANTING OF OPTIONS.

         a.  AUTOMATIC GRANTING OF OPTIONS.

         Commencing July 1, 1999, and continuing in effect on July 1, in each 
subsequent calendar year, each individual who is at the time serving as a 
Non-employee Director shall receive an automatic grant of an Option to 
purchase 2,500 shares of Common Stock (subject to adjustment as provided in 
Section 10 hereof). Each Option granted pursuant to this Section 5(a) (herein 
referred to individually as an "Automatic Option" or collectively as 
"Automatic Options") shall be for a term of ten (10) years. Each Option shall 
become exercisable for any or all of the shares covered by such Option on the 
later of the date on which this Plan is ratified by the 

                                      10


shareholders of the Company or six months after the date of automatic grant 
pursuant to this Section 5(a). The Automatic Option shall thereafter remain 
so exercisable until the expiration or sooner termination of the Option term. 
The foregoing automatic grant dates under this Section 5(a) are herein 
referred to individually as an "Automatic Grant Date" and collectively as 
"Automatic Grant Dates".

         b.  OPTIONS IN LIEU OF DIRECTOR FEES.

         (i)    Each Non-Employee Director may elect to receive any or all of 
his or her annual director fees or fees for serving as a member of any 
committee of the Board of Directors earned during the second half of 1998 and 
each subsequent calendar year in the form of Non-Qualified Stock Options 
under this Section 5(b). Each Option granted pursuant to this Section 4(b) is 
herein referred to individually as an "Elective Option" or collectively as 
"Elective Options". Each such election must be irrevocable, and made in 
writing and filed with the Secretary of the Company by June 30, 1998 (for 
fees earned in the second half of 1998) and (for fees earned in subsequent 
calendar years) by December 31 of each year for fees to be received in the 
following calendar year.

         (ii)   A Non-Employee Director may file a new election each calendar 
year applicable to fees earned in the immediately succeeding calendar year. 
If no new election or revocation of a prior election is received by December 
31 of any calendar year, the election, if any in effect for such calendar 
year shall continue in effect for the immediately succeeding calendar year. 
If a director does not elect to receive his or her fees in the form of 
Non-Qualified Stock Options, the fees otherwise due such director shall be 
paid in accordance with the normal payment dates of director fees, as the 
same may be amended from time to time by the Company.

         (iii)  The number of common shares covered by each Elective Option 
granted in any year under this Section 5(b) shall be determined based on an 
independent appraisal for such year of the intrinsic value of options granted 
hereunder and the amount of fees covered by the director's election for such 
year. The number of common shares covered by options granted in 1998 (as 
determined under this procedure) shall be the number of whole shares equal to 
(A) the product of three (3) times the amount of fees which the director has 
elected under subsection (i) to receive in the form of Elective Options, 
divided by (B) One Hundred percent (100%) of the fair market value of one 
common share on the grant date. Any fraction of a share shall be disregarded, 
and the remaining amount of the fees corresponding to such option shall be 
paid in cash.

         (iv)   Each Elective Option due a director under this Section 5(b) 
shall be

                                      11



issued as of the date of the Annual Meeting of Stockholders of the Company 
held in the calendar year during which the corresponding fees otherwise due 
the director would have been paid and at a purchase price equal to One 
Hundred percent (100%) of the fair market value of the common shares covered 
by such option on the grant date, provided, however, that with respect to 
fees earned during the second half of 1998, the date of grant shall be July 
15, 1998. Each Elective Option shall have a term of ten (10) years and shall 
become exercisable for any or all of the shares covered by such Elective 
Option on the later of the date on which this plan is ratified by the 
shareholders of the Company or six months after the date of grant pursuant to 
this Section 5(b). The Elective Option shall thereafter remain so exercisable 
until the expiration or sooner termination of the Option term. The foregoing 
elective grant dates under this Section 5(b) are herein referred to 
individually as an "Elective Grant Date" and collectively as "Elective Grant 
Dates"

         c.  DISCRETIONARY GRANTING OF OPTIONS.

         (i)    In addition to the Automatic Options and Elective Options, 
the Committee may grant non-qualified options to Non-Employee Directors from 
time to time in the discretion of the Committee subject to the provisions of 
this Section 5(c) and the other provisions of this Plan. Each Option granted 
pursuant to this Section 5(c) is herein referred to individually as a 
"Discretionary Option" or collectively as "Discretionary Options". The grant 
of a Discretionary Option pursuant to this Section 5(c) shall be evidenced by 
a written Non-Qualified Stock Option Agreement, executed by the Company and 
the Non-Employee Director, stating the number of shares of Common Stock 
subject to such Option evidenced thereby and in such form as the Committee 
may from time to time determine.

         (ii)   Subject to the provisions of Section 8 hereof, each 
Discretionary Option shall be for a term of not more than ten years. Each 
Discretionary Option shall become exercisable in such installments as may be 
determined from time to time by the Committee but not earlier than the date 
on which this Plan is ratified by the shareholders of the Company. In 
addition, subject to such shareholders ratification, the Committee may, in 
its discretion (i) accelerate the exercisability of such option subject to 
such terms as the Committee deems necessary and appropriate to effectuate the 
purpose of the Plan; or (ii) at any time prior to the expiration or 
termination of any Option previously granted, extend the term of any such 
option for such period as the Committee in its discretion shall determine. In 
no event, however, shall the aggregate option period with respect to any 
option, including the original term of the option and any extensions thereof, 
exceed ten years. Subject to the foregoing, all or any part of the shares to 
which the right to purchase has accrued may be purchased at the time of such 
accrual or at any time or times thereafter during the option period.

         (d)  The Non-employee Directors receiving Options are herein 
referred to

                                      12


individually as an "Optionee" and collectively as "Optionees." Options 
granted under this Plan are not intended to be treated as incentive stock 
options as defined in Section 422 of the Internal Revenue Code of 1986, as 
amended (the "Code").

         In the event that an Option expires or is terminated or canceled 
unexercised as to any shares of Common Stock, the shares subject to the 
Option, or portion thereof not so exercised, shall be available for 
subsequent grants of Automatic Options, Elective Options or Discretionary 
Options under this Plan.

         Should the total number of shares of Common Stock at the time 
available under this Plan not be sufficient for the automatic or elective 
grants to be made at that particular time, the available shares shall be 
allocated proportionately among all Automatic and Elective Option grants to 
be made at that time.

         6.  EXERCISE PRICE.  The exercise price of a Discretionary Option 
shall be determined by the Committee in its discretion, and may be greater 
than, but not less than the fair market value, at the time the option is 
granted, of the shares of Common Stock subject to the option. The exercise 
price of an Automatic Option or an Elective Option shall be 100% of the fair 
market value of Common Stock as of the applicable Automatic Grant Date or 
Elective Grant Date. Such fair market value shall be deemed to be the last 
trading price of the Common Stock on the trading day next preceding the date 
of the grant of the option except that if the Common Stock is then listed on 
any national exchange, fair market value shall be the mean between the high 
and low sales price on the trading day next preceding the date of grant of 
the option. If shares of the Common Stock shall not have been traded on any 
national exchange or interdealer quotation system for more than 10 days 
immediately preceding the date of grant of such option or if deemed 
appropriate by the Committee for any other reason, the fair market value of 
shares of Common Stock shall be determined by the Committee in such manner as 
it may deem appropriate. In no event shall the exercise price of any share of 
Common Stock be less than its par value.

         7.  EXERCISE OF OPTION.  An Option may be exercised by giving 
written notice to the Company, attention of the Secretary, specifying the 
number of shares to be purchased, accompanied by the full purchase price for 
the shares to be purchased either in cash, or its equivalent, or by tendering 
previously owned shares of the Common Stock of the Company, or by a 
combination of these methods. Payment may also be made, in the discretion of 
the Committee, by delivery (including delivery by facsimile transmission) to 
the Company or its designated agent of an executed irrevocable option 
exercise form together with irrevocable instructions to a broker-dealer to 
sell a sufficient portion of the shares and deliver the sale proceeds 
directly to the Company to pay for the exercise price, or by any other means 
which the Committee, in its discretion, determines to be consistent with the

                                      13


Plan's purpose and applicable law. For the purpose of this Section 7, the per 
share value of the Common Stock of the Company shall be the fair market value 
determined in accordance with Section 6 hereof, except using the trading day 
next preceding the date of exercise. Any Optionee holding two or more options 
that are partially or wholly exercisable at the same time may exercise said 
options (to the extent they are then exercisable) in any order the Optionee 
chooses, regardless of the order in which said options were granted.

         In connection with the exercise of options granted under the Plan, 
the Company may make loans to the Optionees as the Committee, in its 
discretion, may determine. Such loans shall be subject to the following terms 
and conditions and such other terms and conditions as the Committee shall 
determine not inconsistent with the Plan. Such loans shall bear interest at 
such rates as the Committee shall determine from time to time, which rates 
may be below then current market rates or may be made without interest. In no 
event may any such loan exceed the fair market value, at the date of 
exercise, of the shares covered by the Option, or portion thereof, exercised 
by the Optionee. No loan shall have an initial term exceeding two years, but 
any such loan may be renewable at the discretion of the Committee. When a 
loan shall have been made, shares of the Common Stock having a fair market 
value at least equal to 150 percent of the principal amount of the loan shall 
be pledged by the Optionee to the Company as security for payment of the 
unpaid balance of the loan.

         At the time of exercise of any Option, the Company may, if it shall 
determine it necessary or desirable for any reason, require the Optionee (or 
his heirs, legatees or legal representative, as the case may be) as a 
condition upon the exercise thereof, to deliver to the Company a written 
representation of present intention to purchase the shares for investment and 
not for distribution. In the event such representation is required to be 
delivered, an appropriate legend may be placed upon each certificate 
delivered to the Optionee (or his or her heirs, legatees or legal 
representative, as the case may be) upon his or her exercise of part or all 
of the Option and a stop transfer order may be placed with the transfer 
agent. Each Option shall also be subject to the requirement that, if at any 
time the Company determines, in its discretion, that the listing, 
registration or qualification of the shares subject to the Option upon any 
securities exchange or under any state or federal law or the consent or 
approval of any governmental regulatory body is necessary or desirable as a 
condition of or in connection with the issue or purchase of shares 
thereunder, the Option may not be exercised in whole or in part unless such 
listing, registration, qualification, consent or approval shall have been 
effected or obtained free of any conditions not acceptable to the Company.

         8.  TERMINATION OF BOARD MEMBERSHIP - EXERCISE THEREAFTER.  Should 
an Optionee cease to be a member of the Board of Directors of the Company for 
any

                                      14


reason other than death or permanent disability, such Optionee's Options may 
be exercised (to the extent they were exercisable on the date of such 
termination) by the Optionee or, if he or she is not living, by his or her 
heirs, legatees or legal representative, as the case may be, during their 
specified term but not later than three (3) months after the date of such 
termination.

         Should an Optionee cease to be a member of the Board of Directors of 
the Company because of death or permanent disability (as that term is defined 
in Section 22(e)(3) of the Code, as now in effect or as subsequently 
amended), such Options may be exercised in full, by the Optionee or, if he or 
she is not living, by his or her heirs, legatees or legal representatives, as 
the case may be, during their specified term but not later than one (1) year 
after the date of death or permanent disability.

         9.  NON-TRANSFERABILITY.  Except as otherwise provided in an 
Optionee's option agreement, or as otherwise permitted by the Committee in 
its discretion, Options shall not be assignable or transferable by the 
Optionee otherwise than by will or by the laws of descent and distribution, 
or pursuant to a qualified domestic relations order as defined by the Code, 
or Title I of the Employee Retirement Income Security Act of 1974, as amended 
("ERISA"), or the rules thereunder. Subject to the foregoing, during the 
lifetime of the Optionee, Options shall be exercisable only by the Optionee.

         10.  ADJUSTMENTS.  The number of shares subject to this Plan and to 
Options granted under this Plan shall be adjusted as follows: (a) in the 
event that the number of outstanding shares of Common Stock is changed by any 
stock dividend, stock split or combination of shares, the number of shares 
subject to this Plan and to Options granted hereunder shall be 
proportionately adjusted; (b) in the event of any merger, consolidation or 
reorganization of the Company with any other corporation or corporations, 
there shall be substituted, on an equitable basis for each share of Common 
Stock then subject to this Plan, whether or not at the time subject to 
outstanding Options, the number and kind of shares of stock or other 
securities to which the holders of shares of Common Stock will be entitled 
pursuant to the transaction; and (c) in the event of any other relevant 
change in the capitalization of the Company, an equitable adjustment shall be 
made in the number of shares of Common Stock then subject to this Plan, 
whether or not then subject to outstanding Options. In the event of any such 
adjustment the exercise price per share shall be proportionately adjusted.

         11.  AMENDMENT OR DISCONTINUANCE OF PLAN.  This Plan may from time 
to time be amended or discontinued by action of the Board of Directors or by 
the stockholders of the Company; provided that no such amendment or 
discontinuance shall change or impair any Options previously granted without 
the consent of the

                                      15



Optionee.

         12.  NO IMPAIRMENT OF RIGHTS.  Nothing in this Plan or any Automatic 
Grant or Elective Grant made pursuant to this Plan shall be construed or 
interpreted so as to affect adversely or otherwise impair the Company's right 
to remove any Optionee from service on the Board of Directors of the Company 
at any time in accordance with the provisions of the Company's By-laws and 
applicable law.

         13.  EFFECTIVE DATE.  This Plan was adopted and authorized by the 
Board of Directors of the Company on June 3, 1998 subject to the ratification 
by the stockholders of the Company and became effective on July 15, 1998, 
subject to such stockholder approval. If the Plan is ratified by the 
affirmative vote of the holders of a majority of the outstanding shares of 
Common Stock of the Company voting in person or by proxy at the next 
following stockholders' meeting, it shall be deemed to have become effective 
on the Effective Date of July 15, 1998. Options may be granted under the Plan 
prior to ratification of the Plan by the stockholders of the Company and, in 
each such case, the date of grant shall be determined without reference to 
the date of ratification of the Plan by stockholders of the Company; 
provided, however that if the Plan is not ratified by stockholders, all 
options granted hereunder shall be canceled and void.




                                      16