SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934
For the fiscal year ended December 31, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
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OF 1934
For the transition period from to
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Commission file number 0-14870
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Quipp, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-2306191
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) number)
4800 N.W. 157th Street, Miami, Florida 33014
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 623-8700
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K ( ).
The aggregate market value of voting stock held by non-affiliates of the
Registrant on March 10, 1995 was approximately $12,937,960.*
The number of shares of the Registrant's common stock, $.01 par value,
outstanding at March 10, 1995 was 1,469,465.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Where Incorporated
- - - --------------------- ------------------
Part III
Portions of QUIPP, INC. Proxy Statement relating
to 1995 Annual Meeting of Shareholders (to be filed
not later than 120 days after the close of the fiscal
year covered by this report on Form 10-K)
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*Calculated by excluding all shares held by executive officers, directors, and
five percent shareholders of Registrant without conceding that all such person
are "affiliates" of Registrant for purposes of the federal securities laws.
PART I
ITEM 1. BUSINESS
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Quipp, Inc. (the "Company"), through its wholly-owned subsidiary, Quipp
Systems, Inc., designs and manufactures material handling equipment for the
newspaper industry. The Company's products generally are designed to accomplish
much of the mailroom operations of a newspaper publisher. The mailroom is an
area to which newspapers flow from the pressroom in a continuous stream and in
which newspapers are stacked, bundled and moved to the shipping docks. Conveyor
systems are utilized to transport newspapers from the press to stacking machines
that transform a continuous stream of newspapers into stacks. The stacks may be
bundled and conveyed directly to the shipping docks, loaded into carts or stored
on pallets for further processing at a later time.
The Company's products include the following:
Newspaper Stacker - The Company's newspaper stacker accurately counts and
automatically stacks and ejects newspapers at press speeds of up to 80,000
copies per hour.
Bottomwrapper - The Company's bottomwrapper applies wrapping paper to the
bottom and top, as required, of each newspaper stack to reduce product damage.
Twin-Belt Newspaper Conveyor - The Company's twin-belt newspaper conveyor
transports newspapers in an overlapping stream from a newspaper press to various
locations throughout the mailroom. The Company's conveyor systems include
horizontal and vertical conveyor modules, integrated with direction switching
and other special purpose components arranged to accommodate the building layout
of the newspaper printing facility in which the conveyors are used. The maximum
surface speed that the Company's twin-belt conveyor can accommodate is
approximately 80,000 newspapers per hour.
Fold Compressor - The Company's fold compressor conditions newspapers
prior to stacking or delivery to inserting machines by removing air from each
newspaper and setting a uniform leading edge-fold on each newspaper. The
compressing operation also allows smaller stacks to be produced out of the same
number of papers and improves the accuracy of newspaper counting devices.
Stream Aligner - The Company's stream aligner straightens misaligned
newspapers and centers the newspaper stream for more reliable stacking. The
stream aligner is installed at an end of a conveyor, just prior to stacking.
Newspaper Sensor - The Company's mechanical and laser newspaper sensors
accurately count newspapers at rates of up to 80,000 copies per hour.
Rollerslat Conveyor - The Company's rollerslat conveyor employs an array
of independently rotating rollers and is utilized in the processing of newspaper
stacks prior to bundling.
Centering Pacer - The Company's centering pacer aligns newspaper stacks on
a rollerslat conveyor prior to bottomwrapping or bundling.
Stacker Programmer - This microprocessor-based product controls a
newspaper stacker so that the proper number of newspapers required for each
carrier route or newsstand distributor are stacked into bundles.
Press Production Monitor - This microprocessor-based product utilizes a
variety of sensors to simultaneously count newspapers as they are printed by
multiple presses, thereby reducing waste by assuring timely press shutdown.
This system also provides a computer printout of production data.
Bundle Control System - This sensor-equipped microprocessor monitors the
delivery of bundled newspapers to the shipping dock, controlling conveyors and
diverters so that proper numbers of newspapers are supplied for delivery.
Single Gripper Conveyor - This product transports newspapers or other
printed material by holding individual copies by the spine, one gripper for each
copy. The conveyor offers several advantages over conventional conveyors, the
most significant of which is the flexibility of distribution, including the
ability to release copies at any number of processing points in the mailroom
centers.
Cart Loading System - This system accumulates and loads tied bundles of
printed material into carts for transport to remote areas of the plant or to
distribution centers.
Sort Tray Distribution System - This computer controlled system consists
of wheeled carts fastened together, forming a continuous, chain-like loop, for
transportation of bundles of newspapers from any given packaging line or storage
position to any available truck loading position or temporary storage area.
The Company's products are basically modular in construction with
electronic control circuitry.
The Company's manufacturing activities consist primarily of the assembly
of components comprising its products, the fabrication of some mechanical parts
and testing of the completed products. As of February 1, 1995, the Company's
backlog represented approximately $8,372,985 in firm sales orders, as compared
to $2,651,364 on February 1, 1994. The Company believes that it will satisfy
all orders included in such backlog by end of 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
General" in Item 7.
Approximately 100 vendors supply parts, materials and components for the
Company's various products. The Company believes that alternative sources of
supply are available for all required components. If necessary, certain machine
parts could be manufactured in the Company's in-house machine shop, which is
presently used primarily for special orders and the development of prototype
parts.
The Company customarily receives a deposit upon the execution of a sales
contract and payment of a substantial portion of the balance of the purchase
price prior to shipment. Any remaining amount due is typically received upon
the completion of installation.
All of the Company's products have at least a one-year warranty, and the
Company provides personnel for both installation and repair from its Miami-based
service department. Customers are encouraged to stock spare modules and
components, and many newspaper publishers have purchased standby equipment from
the Company.
The San Diego Union and Dow Jones & Company accounted for approximately
22% and 10%, respectively, of the Company's sales in 1994. The Sacramento Bee
and the San Bernardino Sun each accounted for approximately 10% of the Company's
sales in 1993. Fox Valley Press, Seiken Graphics, Inc. and the San Bernardino
Sun, accounted for approximately 15%, 14% and 12%, respectively, of the
Company's sales in 1992. The Company sells a significant portion of its
products to newspaper publishers in the United States; however, the Company also
has significant foreign sales, which accounted for 11%, 21% and 26% of total
sales in 1994, 1993 and 1992, respectively. The following table indicates the
amount of sales by geographic area during the past three years:
1994 1993 1992
United States $15,088,678 $11,728,815 $14,739,790
Japan 149,472 441,167 2,739,890
Canada 175,031 370,598 980,677
Latin America 1,165,028 1,313,872 0
New Zealand 7,160 5,488 810,209
Other 449,479 929,357 523,421
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$17,034,848 $14,789,297 $19,793,987
============ ============ ============
In connection with the installation of equipment, the Company will, at the
request of a customer, resell to the customer related equipment that is not
manufactured by the Company. The Company realizes a small mark-up (typically no
more than 10 percent) with respect to the resale of such equipment. Such sales
accounted for approximately 4.0%, 5.0% and 6.0% of the Company's total sales in
1994, 1993 and 1992, respectively.
ACQUISITION OF ASSETS OF HALL PROCESSING SYSTEMS.
- - - -------------------------------------------------
Pursuant to an agreement dated December 21, 1994, the Company purchased,
in December 1994 and January 1995, substantially all of the assets utilized by
Hall Processing Systems ("Hall") in the manufacture and design of stackers,
conveyor systems, wrappers and other related equipment. The purchase price for
the assets was $1,557,500 and 40,000 shares of Company common stock. The
$1,557,500 purchase price was comprised of $657,000 in cash and $900,000 via
delivery of a promissory note. The note is payable over three years and bears
interest at five percent per annum.
In connection with the 40,000 shares of Company Common Stock delivered to
Hall in the transaction, Hall may resell to the Company, on December 21, 1997,
all of such shares other than shares that Hall has sold, or could have sold
under Rule 144 during any three month period commencing after December 21, 1997
in which the closing bid price of the Common Stock remains at or above $6.00 per
share for at least ten consecutive business days. The resale price is $6.00 per
share.
The Company also agreed to purchase certain inventory items that are the
subject of outstanding purchase orders made by Hall prior to the date of the
agreement. The cost of such inventory will be approximately $355,000. The
Company also agreed to assume certain of Hall's warranty obligations, with
respect to which the Company has recorded a warranty reserve of $100,000 as of
December 31, 1994.
OTHER TRANSACTIONS
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In August 1994, the Company granted the right to manufacture and sell
worldwide, except in the United States, all parts and assemblies associated with
the Company's "Quipp Grip" single gripper conveyor system. In exchange for
granting such right, the Company received $50,000. In addition, the assignee of
the right agreed to absorb all warranty expenses incurred at an installation
site. The Company had previously accrued a warranty reserve of $140,000 with
respect to the installation. This reserve was reversed as part of the recording
of the transaction. The Company retains the patent relating to the product, and
also retains the right to manufacture and sell the "Quipp Grip" conveyor system
worldwide.
In December 1994, the Company sold the rights, title and interest in its
tray system patent, which is utilized in its sort tray distribution system, for
$900,000. In connection with the sale, the purchaser granted to the Company a
license to make, use and sell the tray system for use in the delivery of
signatures and newspapers in the publishing and newspaper industries.
COMPETITION
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The Company believes that its two principal competitors for the newspaper
mailroom equipment business in the United States are IDAB, Inc., ("IDAB") a
subsidiary of EDS Technologies, Inc., and Machine Design Services, a privately
owned company that manufacturers certain types of conveyors. In addition, there
are several other companies that compete in other small segments of the
business.
The Company competes by stressing its engineering expertise and the
quality and reliability of its products and strength of its reputation. The
Company feels it has a competitive edge over certain of its competitors, in that
the Company can deliver an entire mailroom system, while some competitors can
supply only certain components of a system. However, the Company has experienced
strong competition on the basis of price with respect to most of its products.
MARKETING
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The Company's marketing effort is conducted by a five-person sales staff
which calls upon the support of the engineering staff as needed. The Company
has marketed its products domestically primarily through direct solicitation by
its sales staff, participation in trade shows and a modest program of trade
journal advertising. It markets its products in the export markets through
foreign dealers. Some of the foreign dealers are commissioned, while others
purchase the Company's products for resale.
The Company's marketing effort emphasizes the reliability, minimum
installation cost, ease of maintenance and careful handling of newspaper
products incorporated in the design of the Company's products. For prospective
customers, the Company is able to use computer-aided systems to design custom
newspaper handling systems and prepare proposals that describe the equipment,
schedules and prices for each project.
PATENTS
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The Company holds 29 U.S. patents, including 14 U.S. patents acquired in
connection with the Company's purchase of Hall Processing Systems, which expire
during the period from 1995 to 2011. The Company also purchased from Hall 16
foreign patents that expire from 1995 to 2007. The Company will continue to
apply for patent protection when deemed advisable; however, the Company believes
that the success of its products ultimately is dependant upon performance,
reliability, and engineering ingenuity and that its patents are not material to
its business.
RESEARCH AND DEVELOPMENT
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Research and development expenditures totaled $361,790, $510,072 and
$365,503 in 1994, 1993 and 1992, respectively. In 1994, the Company's research
and development efforts focused on design changes to its newspaper stacker in
order to reduce the manufacturing costs. The Company is now marketing the
redesigned newspaper stacker.
EMPLOYEES
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As of February 1, 1995, the Company had 105 full-time employees. None of
the Company's employees are represented by a union, and the Company considers
its employee relations to be good.
ITEM 2. PROPERTIES
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The Company's administrative and manufacturing operations are located in a
63,000 square foot building in Miami, Florida that is owned by the Company. For
information regarding the Company's financing obligations with respect to this
property, see Note 8 to the Company's Consolidated Financial Statements included
in Item 8.
The Company owns all of the equipment utilized in its manufacturing
operations. In the opinion of management, the Company's properties are adequate
and suitable for its operations.
ITEM 3. LEGAL PROCEEDINGS
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As previously disclosed, on March 16, 1990, Ferag AG, a Swiss Corporation
("Ferag"), filed a complaint against the Company in the United States District
Court for the Southern District of Florida. The complaint alleged that the
Company committed acts of infringement of one or more claims a patent held by
the plaintiff, either directly, contributorily or by inducing others to
infringe. The plaintiff sought a preliminary and final injunction against
further infringement by the Company and certain related persons, an order
directing the Company to account for and pay damages adequate to compensate for
the infringement of the patents, interest and costs, and such other relief as
the Court may deem just and proper. The Company answered that plaintiff's
patent is invalid due to violation of U.S. patent rules and, separately, that
the Company's design does not infringe the provisions of the patent. On
September 15, 1993, the Court found that the Company infringed one of the
patents held by the plaintiff, but that the plaintiff failed to establish
willful infringement by the Company. The Company filed an appeal in the United
States Court of Appeals for the Federal Circuit. On January 24, 1995, the United
States Court of Appeals for the Federal Circuit, declaring plaintiff's patent to
be invalid, reversed the judgment of the lower court. The Company does not know
if Ferag will file a writ of certiorari with the United States Supreme Court.
In April 1994, the Company entered into an agreement with the plaintiff to
stipulate the entry of an order by the District Court providing that, if the
Company's appeal was unsuccessful, the Company will pay a maximum of $1,000,000
in damages plus interest accrued in an escrow account in which the Company would
deposit the $1,000,000. The order was entered by the Court on May 10, 1994 and
the Company deposited $1,000,000 into the escrow account. The court order
provides that if the appeal were successful, amounts in the escrow account would
be returned to the Company, and the Company would be free of all obligations to
Ferag with respect to the use of the invention that was subject to Ferag's
patent claim. The parties also agreed that in the event of a reversal by the
appellate court on some but not all issues, the maximum damages would be
$1,000,000 plus interest on the escrow account. In light of the decision of the
United States Court of Appeals for the Federal Circuit, the Company anticipates
that the $1,000,000, plus interest less escrow agent fees, should be returned to
the Company by April 17, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The names, business experience and ages of all executive officers of the
Company are listed below:
Business Experience During
Name the Past Five Years Age
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James E. Pruitt President, Chief Executive 60
Officer and Director of the
Company since April 1989.
From April 1986 to
April 1989, Mr. Pruitt was
engaged in his own consulting
business in the graphic
arts and electronics industries.
From 1983 through 1986, he was
President and Chief Executive
Officer of Harris Graphics
Corporation and also served
as its Chairman from 1983
through 1985.
Louis D. Kipp President of Quipp Systems, Inc., 63
since July 1987. Director of the
Company from August 1987 to January
1995. President of the Company from
August 1983 to July 1987, when he
became President of Quipp Systems,
Inc. Treasurer of the Company from
August 1983 to April 1988.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holding
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Matters
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The Company's Common Stock, $.01 par value, is traded on the Nasdaq
National Market. The following table represents the quarterly high and low
sales prices of the Common Stock during 1994 and 1993, as reported by Nasdaq:
1994 1993
High Low High Low
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1st Quarter 3 3/4 2 1/2 4 3/8 3 3/4
2nd Quarter 4 3 1/4 4 5/8 3 1/2
3rd Quarter 3 7/8 3 5 4
4th Quarter 8 1/2 3 4 1/4 2 1/2
The number of shareholders of record of the Company's Common Stock as of
March 10, 1995 was 111.
The Company has not paid dividends on its Common Stock since its
inception.
Item 6. Selected Financial Data
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Year ended December 31
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1994 1993 1992 1991 1990
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(In thousands, except per share data)
Income Statement
Information:
Net sales $17,035 $14,789 $19,794 $12,976 $12,589
Gross profit 4,893 4,661 5,558 3,316 3,008
Research and
development 362 510 366 590 491
Sale of patent and
license rights 1,090 0 0 0 0
Selling, general
and administrative
expenses 3,653 4,036 4,245 2,721 2,873
Net income (loss) 1,376 321 702 160 (31)
Net income (loss)
per share 0.88 0.21 0.45 0.11 (0.02)
Balance Sheet Information:
(at end of period)
Current assets $14,482 $11,959 $13,105 $11,802 $8,189
Total assets 19,342 14,241 15,194 14,930 11,649
Current liabilities 7,444 3,669 4,548 4,886 1,665
Long-term liabilities 1,350 1,700 1,800 1,900 2,000
Shareholders' equity 10,548 8,871 8,846 8,144 7,984
Book value per share 7.52 6.33 6.02 5.54 5.43
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
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of Operations
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Results of Operations
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1994 vs. 1993
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Sales during 1994 increased 15% to $17,034,848 from $14,789,297 in 1993.
This increase reflects increased demand and the Company's ability to gain a
greater share of the market. Gross profit as a percentage of sales decreased to
29% in 1994 from 32% in 1993. Although the Company realized increased margins
due to lower manufacturing costs on its newspaper stacker, which comprises
approximately 43% of net sales, gross profit was adversely affected by the
establishment of additional reserves. The reserves were established to provide
for anticipated followup costs on certain installations.
Selling, general and administrative expenses decreased to $3,653,007 in
1994 from $4,036,432 in 1993. As a percentage of sales, selling, general and
administrative expenses decreased to 21% in 1994 from 27% in 1993. The decrease
was primarily due to a decrease in legal expenses and the reversal of a royalty
reserve in the amount of $550,598 established by the Company for the possible
payment of damages in connection with the litigation described in Note 13 to the
Company's Consolidated Financial Statements. This decrease was partially offset
by an increase in bad debts of $274,000.
Research and development expenses decreased $148,282 to $361,790 in 1994
compared to $510,072 in 1993. This decrease was primarily due to the completion
of a program designed to decrease manufacturing costs of the Company. The
Company is now marketing the improved newspaper stacker.
Operating profit was $1,967,930, an increase of $1,853,146, compared to
$114,784 in 1993. This increase was partially due to an increase in the volume
of sales and a decrease in selling, general and administrative expenses, offset
by additional reserves established by the Company for followup costs and bad
debts. Additionally, as discussed in Item 1 above, the Company sold rights in
August 1994 to manufacture and sell worldwide, except in the United States, its
single gripper conveyor system for $50,000 and the assumption by the purchaser
of certain warranty expenses (for which the Company had established a reserve of
$140,000, which has been reversed). In addition, operating income reflects the
Company's sale, in November 1994, of the right, title and interest in its tray
system patent which is utilized in the sort tray distribution system for
$900,000. The Company has retained a license to make, use and sell the tilt
tray system for use in delivery of signatures and newspapers in the publishing
and newspaper industries.
Interest income increased in 1994 by $67,695 due to the increase in the
Company's interest bearing accounts and the increase in interest rates on these
accounts. Interest expense declined $1,426 in 1994 due to the decrease in the
principal balance of the Company's long-term debt.
1993 vs. 1992
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Sales during 1993 decreased 25% to $14,789,297 from $19,793,987 in 1992.
The decrease was attributable to a softening of demand. Gross profit, as a
percentage of sales, increased to 32% in 1993 from 28% in 1992, due to an
increased proportion of sales of standard products, which have lower production
costs than products that are customized to customer specifications.
Selling, general and administrative expenses decreased to $4,036,432 in
1993 from $4,245,280 in 1992. The decrease was primarily due to a decline in
salary, travel, advertising and trade show expenses as a result of improved
control of these expenses. However, as a percentage of sales, selling, general
and administrative expenses increased to 27% in 1993 from 21% in 1992 primarily
due to an increase in legal costs of the Company's patent litigation, and an
increase in warranty expenses due to a possible product performance problem.
Research and development expenses increased $144,569 to $510,072 in 1993
compared to $365,503 in 1992. This increase resulted from expenditures on a
program designed to decrease manufacturing costs of an existing product.
Operating profit was $114,784, a decrease of $832,540 compared to $947,324
in 1992. This decrease was primarily due to a lower volume of sales and an
increase in legal and warranty expenses. The Company's adoption, effective
January 31, 1993, of Statement of Financial Accounting Standards ("SFAS No.
109"), Accounting for Income Taxes, had a cumulative effect of $156,566, thereby
increasing income on the consolidated statement of operations for the year ended
December 31, 1993. See Note 6 to the Company's Consolidated Financial
Statements.
Interest income declined by $15,392 due to the reduction in interest rates
on the Company's interest bearing accounts. Interest expense declined $12,157
due to the reduced interest rates and decrease in the principal balance of the
Company's long-term debt.
General
- - - -------
The Company's backlog as of February 1, 1995 was $8,372,985 compared to
$2,651,364 at the same date last year. All of the February 1, 1995 backlog is
scheduled for shipment in 1995.
The Company currently reserves 1 1/2% of its contract sales revenue for
warranty expenses and believes that such reserves are generally adequate to
cover its anticipated warranty expense.
Liquidity and Capital Resources
- - - -------------------------------
On December 31, 1994, the Company's cash and cash equivalents and current
securities totalled $7,382,624 and the Company's working capital was $7,038,044.
The Company believes its resources are sufficient to fund operations at its
current levels, including the expected expansion of business resulting from its
recent acquisition of the inventory assets of Hall Processing Systems.
See Note 2 to the Company's Consolidated Financial Statements.
Inflation
- - - ---------
The rate of inflation has not had a material impact on the operations of
the Company.
Item 8. Financial Statements
- - - ----------------------------
Index to Financial Statements
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1993
Consolidated Statements of Operations For Each of the Years
in the Three-Year Period Ended December 31, 1994
Consolidated Statements of Shareholders' Equity for Each of
the Years in the Three-Year Period Ended December 31, 1994
Consolidated Statements of Cash Flows for Each of the Years
in the Three-Year Period Ended December 31, 1994
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Quipp, Inc.:
We have audited the accompanying consolidated balance sheets of Quipp, Inc. and
subsidiary as of December 31, 1994 and 1993 (the "Company") and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quipp, Inc. and
subsidiary as of December 31, 1994 and 1993 and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 10, 1995
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
December 31 December 31
ASSETS 1994 1993
---- ----
Current Assets:
Cash and cash equivalents $6,258,859 $4,590,223
Securities available for
sale-current 100,000 600,000
Restricted cash 1,023,765 0
Accounts receivable, net of
allowance of $499,000 in
1994 and $353,000 in 1993 2,621,229 2,639,151
Inventories (Note 5) 3,203,261 2,881,209
Deferred tax asset-current (Note 6) 1,104,432 905,980
Prepaid income tax 0 154,209
Prepaid expenses and other
receivables 170,696 188,539
----------- ----------
Total current assets 14,482,242 11,959,311
Property, plant and equipment, net (Note 7) 2,026,846 1,986,588
Securities available for sale 1,400,000 0
Goodwill (Note 2) 530,742 0
Other assets 874,192 240,552
Deferred tax asset (Note 6) 27,810 54,136
----------- ----------
$19,341,832 $14,240,587
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term
debt (Note 8) $100,000 $100,000
Accounts payable 1,253,719 708,752
Accrued salaries and wages 778,829 553,193
Customer deposits 2,473,363 352,594
Current tax liability 622,720 0
Other accrued liabilities (Note 9) 2,215,567 1,954,620
----------- -----------
Total current liabilities 7,444,198 3,669,159
----------- -----------
Long-term debt (Note 8) 1,350,000 1,700,000
---------- -----------
Contingencies (Note 13)
Total liabilities 8,794,198 5,369,159
----------- -----------
Shareholders' Equity
Common stock - par value $.01 per share
authorized 3,000,000 shares, issued
and outstanding 1,469,465 shares 14,695 14,695
Additional paid-in capital 4,596,090 4,596,090
Retained earnings 5,932,249 4,556,043
Common stock subscribed 300,000 0
Less treasury stock 68,700 shares
at cost (295,400) (295,400)
----------- -----------
Total shareholders' equity 10,547,634 8,871,428
----------- -----------
$19,341,832 $14,240,587
=========== ===========
See accompanying notes to the consolidated financial statements.
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For Each of the Years in the Three-Year Period Ended December 31, 1994
1994 1993 1992
---- ---- ----
Sales $17,034,848 $14,789,297 $19,793,987
Cost of sales 12,142,121 10,128,009 14,235,880
----------- ----------- -----------
Gross profit 4,892,727 4,661,288 5,558,107
----------- ----------- -----------
Other operating income
and (expense) items:
Sale of patent and license
rights 1,090,000 0 0
Selling, general and
administrative expenses (3,653,007) (4,036,432) (4,245,280)
Research and development (361,790) (510,072) (365,503)
----------- ----------- -----------
(2,924,797) (4,546,504) (4,610,783)
----------- ----------- -----------
Operating profit 1,967,930 114,784 947,324
----------- ----------- -----------
Other income (expense):
Interest income 274,895 207,200 222,592
Interest expense (53,436) (54,862) (67,019)
----------- ----------- -----------
221,459 152,338 155,573
----------- ----------- -----------
Income before income taxes,
extraordinary item, and
cumulative effect of
change in accounting
for income taxes 2,189,389 267,122 1,102,897
Income tax provision 813,183 102,552 423,863
----------- ----------- -----------
Income before extraordinary
item, and cumulative effect
of change in accounting
for income taxes 1,376,206 164,570 679,034
Extraordinary item:
Utilization of net loss
carryforward 0 0 22,936
Cumulative effect of change
in accounting for income
taxes 0 156,566 0
----------- ---------- ----------
Net income $1,376,206 $321,136 $701,970
=========== ========== ==========
Per share amounts:
Income before extraordinary
item and cumulative effect
of change in accounting for
income taxes 0.88 0.11 0.44
Extraordinary item 0.00 0.00 0.01
Cumulative effect of change
in accounting for income
taxes 0.00 0.10 0.00
--------- --------- ----------
Net income per common and
common equivalent share $0.88 $0.21 $0.45
========= ========= ==========
Weighted average number of 1,556,972 1,510,762 1,546,600
common equivalent shares ========= ========= ==========
outstanding
See accompanying notes to the consolidated financial statements.
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For Each of the Years in the Three-Year Period Ended December 31, 1994
Additional
Common Stock Paid-in
Retained
Shares Amount Capital Earnings
------ ---------- ----------- --------
Balance,
January 1, 1992 1,469,465 $14,695 $4,596,090 $3,532,937
Net income 701,970
--------- ------- ---------- ----------
Balance,
December 31, 1992 1,469,465 14,695 4,596,090 4,234,907
Net income 321,136
Purchase of
treasury stock
--------- -------- --------- ----------
Balance,
December 31, 1993 1,469,465 14,695 4,596,090 4,556,043
Net income 1,376,206
Common stock
subscribed
--------- -------- ----------- -----------
Balance,
December 31, 1994 1,469,465 14,695 4,596,090 5,932,249
========= ======== ========== ==========
Common Treasury Stock
Stock at Cost
Subscribed Shares Amount Total
------------ -------- ---------- ----------
Balance,
January 1, 1992 $0 $0 $0 $8,143,722
Net income 701,970
------------ -------- ---------- ----------
Balance,
December 31, 1992 0 0 0 8,845,692
Net income 321,136
Purchase of
treasury stock
68,700 (295,400) (295,400)
------------ ------- --------- ----------
Balance,
December 31, 1993 0 68,700 (295,400) 8,871,428
Net income 1,376,206
Common stock
subscribed 300,000 0 0 300,000
------------ ------- -------- ---------
Balance,
December 31, 1994 $300,000 68,700 ($295,400) $10,547,634
========= ======== ========== ==========
See accompanying notes to the consolidated financial statements.
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For Each of the Years in the Three-Year Period ended December 31, 1994
1994 1993 1992
----- ---- ----
Cash provided by operations:
Net income before extraordinary item $1,376,206 $321,136 $679,034
Extraordinary item 0 0 22,936
---------- -------- --------
Net Income 1,376,206 321,136 701,970
---------- -------- --------
Reconciliation of net income to net
cash provided by (used in)
operations:
Deferred income taxes (87,768) (123,943) (477,405)
Cumulative effect of change in
accounting for income taxes 0 (156,566) 0
Depreciation and amortization 171,424 174,325 306,000
Gain on sale of automobile 0 (4,281) 0
Changes in operational assets
and liabilities:
(Increase) in restricted cash (1,023,765) 0 0
Decrease in receivables 17,922 445,307 862,821
Decrease (increase) in inventories 36,948 (309,866) 218,444
Decrease (increase) in prepaid
income taxes 154,209 (154,209) 0
(Increase) in other assets and
prepaid expenses and other
receivables (356,156) (41,458) (43,806)
Increase in accounts payable
and other liabilities 451,550 312,518 248,611
Increase (decrease) in customer
deposits 2,120,769 (582,583) (896,972)
Increase (decrease) in income taxes
payable 622,720 (609,152) 338,901
------------ --------- --------
Net cash provided by (used in)
operations 3,484,059 (728,772) 1,258,564
------------ --------- ---------
Cash flows from investing activities:
(Increase) decrease in securities
available for sale (900,000) (600,000) 804,636
Capital expenditures (187,923) (216,324) (96,464)
Acquisition of business (377,500) 0 0
------------ --------- ----------
Net cash (used in) provided
by investing activities (1,465,423) (816,324) 708,172
Cash flows from financing activities:
Repayment of debt (350,000) (100,000) (100,000)
Repurchase of stock 0 (295,400) 0
----------- --------- ----------
Net cash used in financing activities (350,000) (395,400) (100,000)
----------- --------- ----------
Increase (decrease) in cash and cash
equivalents 1,668,636 (1,940,496) 1,866,736
Cash and cash equivalents at beginning
of year 4,590,223 6,530,719 4,663,983
----------- ----------- ----------
Cash and cash equivalents at end of $6,258,859 $4,590,223 $6,530,719
year
=========== ========== ==========
Supplemental disclosure of cash payments
made for:
Interest $53,436 $54,862 $67,019
=========== =========== =========
Income taxes $124,022 $985,000 $567,425
=========== =========== ==========
Supplemental disclosure of non-cash
investing activities:
On December 21, 1994 as discussed in Note 2, the Company acquired the
inventory assets of Hall Processing Systems. The purchase price in
1994 included the issuance of common shares of the Company valued at
$300,000 and $657,500 in cash, of which $280,000 was paid in 1995.
See accompanying notes to the consolidated financial statements.
QUIPP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Quipp, Inc. and Quipp Systems, Inc., a wholly-owned subsidiary
(the "Company"). All material intercompany transactions have been eliminated.
OPERATIONS - The Company is in the business of designing and manufacturing
material handling equipment for the newspaper industry.
RESTRICTED CASH - This represents monies held in escrow for possible payment
of damages in regards to the former litigation described in Note 13. The
monies, plus interest, less escrow agent fees, should be released to the Company
on or before April 17, 1995.
INVENTORIES - Inventories are recorded at a lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSITS - The majority of the Company's
sales are on a contract basis which provides for progress payments. Progress
payments are accounted for as customer deposits when received and recorded as
sales upon shipment of the equipment.
GOODWILL - The excess of cost over the fair value of net assets acquired is
amortized on a straight-line basis over 17 years.
RESEARCH AND DEVELOPMENT COSTS - Internal research and development costs are
charged to operations as incurred.
PROPERTY, PLANT AND EQUIPMENT, NET - Property, plant and equipment is carried
at cost. Depreciation is computed using straight-line and accelerated methods.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in income for the period. The cost of maintenance and
repairs is charged to operations as incurred; significant renewals and
betterments are capitalized.
INCOME TAXES - Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", issued by
the Financial Accounting Standards Board ("FASB"). The adoption of this
statement had a cumulative effect of $156,566, thereby increasing income on the
consolidated statement of operations for the year ended December 31, 1993. FAS
109 requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statement or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Under SFAS No. 109,
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. Prior to
January 1, 1993, the Company accounted for income taxes for financial statement
purposes in accordance with Accounting Principles Board (APB) Opinion No.11,
Accounting for Income Taxes.
RECLASSIFICATIONS - Certain reclassifications have been made to conform to
the current year's presentation.
CASH EQUIVALENTS - The Company considers all highly liquid debt investments
purchased with original maturity of three months or less to be cash equivalents.
SECURITIES AVAILABLE FOR SALE - The Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"), effective January 1,
1994. Under SFAS 115, the Company is required to classify any debt and
marketable equity securities in one of three categories: trading, available for
sale, or held for maturity. Securities available for sale are recorded at fair
value. Realized gains and losses from the sales of securities are computed
using the specific identification method. Unrealized gains and losses, net of
the related tax effects, on noncurrent securities are recorded as a separate
component of stockholders' equity until realized.
NET INCOME PER SHARE - Net income per common stock equivalent share has been
computed on the basis of the weighted average number of common and common stock
equivalent shares outstanding.
DEFERRED BOND FINANCING COST - Deferred bond financing costs included in
other assets is being amortized using a method which approximates the effective
yield over the term of issue.
2 ACQUISITION
In December 1994 and January 1995, the Company purchased all the inventory
assets of Hall Processing Systems ("Hall"), in a series of transactions, as well
as used equipment and intellectual property (i.e. patents, drawings, etc.) for
$1.9 million. This purchase price included $657,500 in cash, a 3-year promissory
note in the principal amount of $900,000 and the issuance of 40,000 shares of
the Company's common stock valued at $300,000, or $7.50 per share. In
connection with the 40,000 shares of Company common stock delivered to Hall in
the transaction, Hall may resell to the Company, on December 21, 1997, all of
such shares other than shares Hall has sold, or could have sold under Rule 144
during any three month period commencing after December 21, 1997 in which the
closing bid price of the common stock remains at or above $6.00 per share for at
least ten consecutive business days. The purchase of approximately $900,000 of
inventory was concluded in January 1995.
The purchase has been accounted for by the purchase method in 1994 and the
net assets relating to the part of the transaction which closed in December 1994
are included in the Company's December 31, 1994 consolidated balance sheet based
upon their estimated fair values at the date of acquisition. The excess of the
purchase price over the estimated fair value of the net assets acquired was
recorded as goodwill in the amount of $530,742.
3 SALE OF PATENT AND LICENSE RIGHTS
In August 1994, the Company sold the rights to manufacture and sell
worldwide, except in the United States, its single gripper conveyor system for
$190,000. In exchange for granting such right, the Company received $50,000. In
addition, the assignee of the right agreed to absorb all warranty expenses
incurred at an installation site. The Company had previously accrued a warranty
reserve of $140,000 with respect to the installation. This reserve was reversed
as part of the recording of the transaction. The Company retains the patent and
the right to manufacture and sell the single gripper conveyor system worldwide.
In December 1994, the Company sold the rights, title and interest in their
tray system patent for $900,000. The Company, however, was granted a license to
make, use and sell the tilt-tray system for use in the delivery of signatures
and newspapers in the publishing and newspaper industries.
4 SECURITIES AVAILABLE FOR SALE
Securities available for sale are recorded at fair value and consist
primarily of United States government obligations and other short-term
investments with original maturity dates in excess of 90 days. Non current
securities available for sale in the amount of $1,400,000 mature in 1996.
5 INVENTORIES
Inventory consists of the following:
December 31
---------------------------------
1994 1993
-------------- ---------------
Raw Material $1,842,225 $2,351,477
Work in process 1,140,590 307,261
Finished goods 220,446 222,471
------------ -------------
$3,203,261 $2,881,209
============ =============
6 INCOME TAXES
The Company adopted SFAS No. 109 as of January 1, 1993. The cumulative
effect of $156,566 for this change in accounting for income taxes, was included
in the consolidated statement of operations for the year ended December 31,
1993. Prior years' financial statements have not been restated.
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1994 and
1993 are as follows:
1994 1993
Deferred tax assets: ---- ----
Warranty reserve $116,712 $105,316
Inventory obsolescence 79,529 5,348
Allowance for bad debts 231,990 130,737
Contract reserves 374,708 194,725
Accrued royalties 0 203,721
Depreciation 27,810 54,136
Vacation accrual 58,685 53,034
Unicap 61,995 43,495
ANPA 82,346 77,511
Workman's compensation 11,560 0
Other taxes 86,907 92,589
-------- --------
Total gross deferred tax assets 1,132,242 960,612
Less valuation allowance 0 0
--------- --------
Net deferred tax assets 1,132,242 960,612
Deferred tax liability:
Workman's compensation 0 (496)
---------- ---------
Net deferred tax assets $1,132,242 $960,116
========== =========
Income tax expense (benefit) for the years ended December 31, 1994, 1993, and
1992 is as follows:
1994 Current Deferred Total
---- ------- -------- -----
U.S. Federal, $802,594 ($78,187) $724,407
state and local 98,357 (9,581) 88,776
-------- -------- --------
$900,951 ($87,768) $813,183
======== ======== ========
1993
----
U.S. Federal, $201,769 ($110,412) $91,357
state and local 24,726 (13,531) 11,195
-------- -------- --------
$226,495 ($123,943) $102,552
======== ======== ========
1992
----
U.S. Federal, $769,539 ($407,628) $361,911
state and local 131,729 (69,777) 61,952
-------- -------- --------
$901,268 ($477,405) $423,863
======== ======== ========
Reconciliation of the statutory Federal income tax rate and the Company's
effective rate for the years ended December 31, 1994, 1993 and 1992 are as
follows:
1994 1993 1992
------------------ ------------------ -------------
% of % of % of
pretax pretax pretax
Amount earnings Amount earnings Amount earnings
Federal
tax rate $744,392 34.0% $90,821 34.0% $374,985 34.0%
State and
local taxes,
net of
federal
income tax
benefit 58,592 2.7% 7,389 2.8% 40,888 3.7%
Other 10,199 0.4% 4,342 1.6% 7,990 0.7%
------------------- ------------------ ----------------
$813,183 37.1% $102,552 38.4% $423,863 38.4%
=================== ================== ================
In 1992, the Company utilized approximately $61,000 of net operating loss
carryforwards for financial reporting purposes. As of December 31, 1992, the
Company had no remaining net operating loss carryforwards for financial
reporting purposes.
7 PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
December 31
--------------------------------- ESTIMATED
1994 1993 USEFUL
-------------------------------- LIVES
Land $500,500 $500,500
Building and Building
improvements 1,655,940 1,655,940 31.5 Years
Machinery 715,053 659,873 5.0 Years
Furniture and Fixtures 143,438 139,818 5.0 Years
Computer Equipment 379,995 250,872 5.0 Years
Automobiles 34,561 34,561 5.0 Years
---------------- ---------------
$3,429,487 $3,241,564
---------------- ---------------
Less: Accumulated depreciation
and amortization
1,402,641 1,254,976
---------------- ---------------
$2,026,846 $1,986,588
================ ===============
8 LONG-TERM DEBT
On October 4, 1988, the Company borrowed $2,340,000 by issuing, through
Dade County Industrial Development Authority, Variable Rate Industrial Revenue
Bonds with a balance of $1,450,000 at December 31, 1994. The proceeds from this
borrowing were used to refinance the $1,925,000 purchase price of the Company's
administrative and manufacturing facility on May 16, 1988 and to replenish funds
used for building improvements and new equipment. The Bonds are secured by a
letter of credit from a bank, and bore interest at an average rate of 3.2% and
2.8% during 1994 and 1993, respectively. The bonds are payable in installments
of $100,000 in years 1995 through 2007 and $400,000 in 2008. The letter of
credit securing the Company's obligation expires September 16, 1998.
9 OTHER ACCRUED LIABILITIES
December 31
---------------------------------
1994 1993
---------------- ---------------
Professional fees 323,250 122,547
Warranty reserve 422,558 284,636
Provision for taxes other
than income 234,885 364,574
Contract provision 1,012,723 523,950
Accrued royalties (Note 13) 0 550,598
Other 222,151 108,315
---------------- ---------------
$2,215,567 $1,954,620
================ ===============
The Company's warranty reserves are determined based on the Company's
experience with customers' claims arising from the sale of defective
merchandise. Currently, the Company reserves 1 1/2% of its contract sales
revenue for warranty expense. Amounts included in these reserves were charged to
selling expense.
10 SHAREHOLDERS' EQUITY
Stock Options - The Company has adopted an Incentive Stock Option Plan
that is open to participation by employees of the Company and the Company's
wholly-owned subsidiary, Quipp Systems, Inc. ("Quipp Systems"). The exercise
price for options granted under the plan is at least 100% of the fair market
value of the shares on the date the option is granted. Options may be granted
under the plan to purchase a maximum of 225,000 shares of Common Stock. In
1990, options to purchase 125,000 shares were granted to two of the Company's
executives at an exercise price of $1.75 per share. The options expire on March
21, 2000.
Stock Appreciation Rights Plan - Effective August 1, 1987, the Company
adopted a Stock Appreciation Rights Plan for officers and other managerial
employees. The Plan provides, among other things, incentive compensation based
upon appreciation in the market value of the Common Stock of the Company.
Vesting of share units occurs in equal increments over a five-year period.
Payments can be made annually or deferred until not later than the end of the
five year period, or such longer period as may be approved by the Board of
Directors. No more than 100,000 share units may be issued pursuant to the Plan
No share units were awarded in 1994 or 1993. In 1992, 8,500 share units were
awarded. The compensation expense relating to the plan was $132,997, $24,442 and
$38,400 in 1994, 1993, and 1992, respectively.
As a result of the part of the acquisition of Hall assets, discussed in
Note 2, that closed in December 1994, shareholders' equity as of December 31,
1994 reflects common stock subscribed in the amount of $300,000 for the shares
issued by the Company in 1995 to Hall Processing Systems. During the first
quarter of 1995, the Company reclassified this amount upon the issuance of the
stock and recorded the $400 to common stock at par value and the remainder of
$299,600 to additional paid-in capital.
In May 1993, the Board of Directors of the Company authorized a stock
repurchase program, pursuant to which a maximum of $500,000 could be utilized
through May 1994 to repurchase shares of the Company's Common Stock. During
1993, the Company purchased 68,700 shares for an aggregate purchase price of
$295,400. No additional repurchases were made through the end of the repurchase
period.
11 MAJOR CUSTOMERS
The Company sells a substantial portion of its products to newspaper
publishers in the United States; however, foreign sales accounted for 11%, 20%
and 26% of total revenue in 1994, 1993 and 1992, respectively. The San Diego
Union and Dow Jones & Company accounted for approximately 22% and 10%,
respectively, of the Company's sales in 1994. The Sacramento Bee and the San
Bernardino Sun each accounted for approximately 10% of the Company's revenues in
1993. Fox Valley Press, Seiken Graphics, Inc. and the San Bernardino Sun
accounted for approximately 15%, 14% and 12%, respectively, of the Company's
sales in 1992.
12 EMPLOYEE BENEFIT PLAN
Effective January 1, 1992, the Company adopted the Quipp Systems Employee
Savings and Investment Plan (the Plan). The Plan is a defined contribution plan
which covers substantially all full-time employees. The plan permits eligible
employees to contribute to the Plan up to 10% of annual compensation subject to
the maximum allowable contribution limits of Sections 415, 401(K) and 404 of the
Internal Revenue Code. The Company makes a matching contribution to the Plan
equal to 25% of the first 4% of compensation contributed by each participant.
The amount contributed by the Company in 1994 and 1993 was $36,357 and $23,000
respectively. The administrative expenses of the Plan are paid by the Company
as sponsor.
13 CONTINGENCIES
On March 16, 1990, Ferag AG, a Swiss Corporation ("Ferag"), filed a
complaint against the Company in the United States District Court for the
Southern District of Florida. The complaint alleged that the Company committed
acts of infringement of one or more claims of two patents held by the plaintiff,
either directly, contributorily or by inducing others to infringe. The
plaintiff sought a preliminary and final injunction against further infringement
by the Company and certain related persons, an order directing the Company to
account for and pay damages adequate to compensate for the infringement of the
patents, interest and costs, and such other relief as the Court may deem just
and proper. The Company argued that plaintiff's patent is invalid due to
violation of U.S. patent rules and, separately, that the Company's design does
not infringe the provision of the patent. On September 15, 1993, the Court
found that the Company infringed one of the patents held by the plaintiff, but
that the plaintiff failed to establish willful infringement by the Company. The
Company filed an appeal in the United States Court of Appeals for the Federal
Circuit. On January 24, 1995, the United States Court of Appeals for the Federal
Circuit reversed the judgement of the United States Court for the Southern
District of Florida. As a result, the Company reversed amounts previously
accrued for the possible payment of damages of $550,598, by reducing selling,
general and administrative expenses as of December 31, 1994.
In conjunction with the Hall transaction as discussed in note 2, the
Company has a commitment to repurchase 40,000 common shares from Hall Processing
Systems, Inc. at a buy-back price of $6.00 per share on December 31, 1997 at the
option of Hall.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- - - -----------------------------------------------------------------------
Financial Disclosure
- - - --------------------
Not applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
- - - -----------------------------------------------------------
This information (other than the information relating to executive
officers included in Part I) will be included in the Company's Proxy Statement
relating to its Annual Meeting of Shareholders, which will be filed within 120
days after the close of the Company's fiscal year covered by this report, and is
hereby incorporated by reference to such Proxy Statement.
Item 11. Executive Compensation
- - - --------------------------------
This information will be included in the Company's Proxy Statement
relating to its Annual Meeting of Shareholders, which will be filed within 120
days after the close of the Company's fiscal year covered by this report, and is
hereby incorporated by reference to such Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- - - -----------------------------------------------------------------------
This information will be included in the Company's Proxy Statement
relating to its Annual Meeting of Shareholders, which will be filed within 120
days after the close of the Company's fiscal year covered by this report, and is
hereby incorporated by reference to such Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- - - -------------------------------------------------------
This information will be included in the Company's Proxy Statement
relating to its Annual Meeting of Shareholders, which will be filed within 120
days after the close of the Company's fiscal year covered by this report, and is
hereby incorporated by reference to such Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- - - -----------------------------------------------------------------------
(a) 1 Financial Statements - See "Index to Financial Statements"
2 The following financial statement schedules for the years 1994,
1993 and 1992 are submitted herewith:
All schedules are omitted because they are
inapplicable.
3 Exhibits
2 Asset Purchase Agreement, dated December 21, 1994, among
the Registrant, Quipp Systems, Inc., Hall Systems Inc.,
Goss Processing Systems, Inc., and Hall Processing Systems.
3.1 Articles of Incorporation, as amended and restated.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-18, filed
with the Commission on June 30, 1986).
3.2 By-Laws, as amended (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-
18, filed with the Commission on June 30, 1986).
10.2.1 Loan Agreement between Dade County Industrial Development
Authority and Quipp, Inc. dated as of October 1, 1988.
(Incorporated by reference to Exhibit 10.4.2 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.2.2 Indenture of Trust between the Dade County Industrial
Development Authority and Mellon Bank, N.A. dated as of
October 31, 1988. (Incorporated by reference to Exhibit
10.4.3 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10.2.3 Specimen Bond - Dade County Industrial Development
Authority. (Incorporated by reference to Exhibit 10.4.4 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.2.4 Copy of Promissory Note, dated as of October 4, 1988, from
Quipp, Inc. to Dade County Industrial Development
Authority. (Incorporated by reference to Exhibit 10.4.5 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.2.5 Reimbursement Agreement among NCNB National Bank of North
Carolina, Quipp Systems, Inc. and Quipp, Inc. dated as of
October 4, 1988 (Incorporated by reference to Exhibit
10.4.6 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10.2.6 Mortgage and Security Agreement from Quipp, Inc. to NCNB
National Bank of North Carolina and Dade County Industrial
Development Authority dated as of October 1, 1988.
(Incorporated by reference to Exhibit 10.4.7 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.2.7 Guaranty Agreement among Quipp Systems, Inc., Quipp Inc.,
and Dade County Industrial Development Authority dated as
of October 1, 1988. (Incorporated by reference to Exhibit
10.4.8 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10.2.8 Guaranty Agreement among Quipp Systems, Inc., Quipp Inc.,
and NCNB National Bank of North Carolina dated as of
October 1, 1988. (Incorporated by reference to Exhibit
10.4.9 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10.2.9 Letter Agreement dated March 26, 1992 between NCNB National
Bank of North Carolina and the Registrant dated March 27,
1991. (Incorporated by reference to Exhibit 10.3.9 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990).
*10.3 Quipp, Inc. 1990 Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-8, filed with the Commission on May
7,1990).
*10.4 Quipp, Inc. Stock Appreciation Rights Plan. (Incorporated
by reference to Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987).
*10.5 Restated Employment Agreement, dated May 1, 1993, between
Quipp, Inc. and James E. Pruitt (Incorporated by reference
to Exhibit 10.5 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993).
*10.6 Restated Employment Agreement, dated May 1, 1993, between
Quipp Systems, Inc. and Louis D. Kipp (Incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report
on form 10-K for the fiscal year ended December 31, 1993).
*10.7 Quipp Systems, Inc. Employee Savings and Investment Plan
(Incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on form 10-K for the fiscal
year ended December 31, 1993).
11 Schedule of Computation of Net Income Per Share.
22 Subsidiary of the Registrant. (Incorporated by reference to
Exhibit 22 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987).
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule
- - - -------------------------------------------
* Constitutes management contact or compensatory plan or arrangement
required to be filed as an exhibit to this form.
(b) The Registrant filed no reports on Form 8-K during the last
quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
QUIPP, INC.
Date: March 30, 1995 By: s\ James E. Pruitt
------------------------------
James E. Pruitt, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
s\ James E. Pruitt Principal Executive March 30, 1995
- - - ------------------------ Officer and Director
JAMES E. PRUITT
s\ Ralph M. Branca Director March 30, 1995
- - - -----------------------
RALPH M. BRANCA
s\ Jack D. Finley Director March 30, 1995
- - - ------------------------
JACK D. FINLEY
s\ Director March 30, 1995
- - - -----------------------
CRISTINA H. KEPNER
s\ William L. Rose Director March 30, 1995
- - - ------------------------
WILLIAM L. ROSE
s\ Louis D. Kipp Principal Financial March 30, 1995
- - - ------------------------ Officer
LOUIS D. KIPP
s\ Charlotte Porro Principal Accounting March 30, 1995
- - - ----------------------- Officer
CHARLOTTE PORRO
QUIPP, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
Exhibits
2 Asset Purchase Agreement, dated December 21, 1994, among the
Registrant, Quipp Systems, Inc., Hall Systems Inc., Goss
Processing Systems, Inc., and Hall Processing Systems.
3.1 Articles of Incorporation, as amended and restated.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-18, filed
with the Commission on June 30, 1986).
3.2 By-Laws, as amended (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-18,
filed with the Commission on June 30, 1986).
10.2.1 Loan Agreement between Dade County Industrial Development
Authority and Quipp, Inc., dated as of October 1, 1988.
(Incorporated by reference to Exhibit 10.4.2 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.2.2 Indenture of Trust between the Dade County Industrial
Development Authority and Mellon Bank, N.A. dated as of
October 31, 1988. (Incorporated by reference to Exhibit
10.4.3 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10.2.3 Specimen Bond - Dade County Industrial Development
Authority. (Incorporated by reference to Exhibit 10.4.4 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.2.4 Copy of Promissory Note, dated as of October 4, 1988, from
Quipp, Inc. to Dade County Industrial Development Authority
(Incorporated by reference to Exhibit 10.4.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.2.5 Reimbursement Agreement among NCNB National Bank of North
Carolina, Quipp Systems, Inc. and Quipp, Inc. dated as of
October 4, 1988. (Incorporated by reference to Exhibit
10.4.6 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
10.2.6 Mortgage and Security Agreement from Quipp, Inc. to NCNB
National Bank of North Carolina and Dade County Industrial
Development Authority dated as of October 1, 1988.
(Incorporated by reference to Exhibit 10.4.7 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
10.2.7 Guaranty Agreement among Quipp Systems, Inc., Quipp Inc.,
and Dade County Industrial Development Authority dated as of
October 1, 1988 (Incorporated by reference to Exhibit 10.4.8
to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988).
10.2.8 Guaranty Agreement among Quipp Systems, Inc., Quipp Inc.,
and NCNB National Bank of North Carolina dated as of October
1, 1988 (Incorporated by reference to Exhibit 10.4.9 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
10.2.9 Letter Agreement dated March 26, 1992 between NCNB National
Bank of North Carolina and the Registrant dated March 27,
1991. (Incorporated by reference to Exhibit 10.3.9 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990).
10.3 Quipp, Inc. 1990 Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-8, filed with the Commission on May 7,
1990).
10.4 Quipp, Inc. Stock Appreciation Rights Plan. (Incorporated
by reference to Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1987).
10.5 Restated Employment Agreement, dated May 1, 1993, between
Quipp, Inc. and James E. Pruitt (Incorporated by reference
to Exhibit 10.6 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993)
10.6 Restated Employment Agreement, dated May 1, 1993, between
Quipp Systems, Inc. and Louis D. Kipp (Incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993)
10.7 Quipp Systems, Inc. Employee Savings and Investment Plan
(Incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993)
10.8 Asset Purchase Agreement, dated December 21, 1994, among the
Registrant, Quipp Systems, Inc., Hall Systems Inc., Goss
Processing Systems, Inc., and Hall Processing Systems.
11 Schedule of Computation of Net Income Per Share.
22 Subsidiary of the Registrant. (Incorporated by reference to
Exhibit 22 to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 1987).
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedules
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from Quipp,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994 and is
qualified in its entirety by reference to such Form 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,282,624
<SECURITIES> 1,500,000
<RECEIVABLES> 2,621,229
<ALLOWANCES> 499,000
<INVENTORY> 3,203,261
<CURRENT-ASSETS> 14,482,242
<PP&E> 2,026,846
<DEPRECIATION> 171,424
<TOTAL-ASSETS> 19,341,832
<CURRENT-LIABILITIES> 7,444,198
<BONDS> 1,450,000
<COMMON> 14,695
0
0
<OTHER-SE> 10,532,939
<TOTAL-LIABILITY-AND-EQUITY> 19,341,832
<SALES> 17,034,848
<TOTAL-REVENUES> 18,124,848
<CGS> 12,142,121
<TOTAL-COSTS> 12,142,121
<OTHER-EXPENSES> 4,014,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,436
<INCOME-PRETAX> 2,189,389
<INCOME-TAX> 813,183
<INCOME-CONTINUING> 1,376,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,376,206
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
</TABLE>
ASSET PURCHASE AGREEMENT
This Agreement made this 21st day of December, 1994, by and between HALL
SYSTEMS, INC. and GOSS PROCESSING SYSTEMS, INC. (herein collectively referred to
as "Seller"), HALL PROCESSING SYSTEMS, (herein referred to as "Company") and
QUIPP, INC., a Florida Corporation, and QUIPP SYSTEMS, INC., a Florida
corporation (herein collectively referred to as "Purchaser") joined by SCRIPPS
HOWARD, INC. and ROCKWELL GRAPHIC SYSTEMS, INC., solely for the purposes of
Section 13.6 hereof.
W I T N E S S E T H :
WHEREAS, the Company is a general partnership owned equally by Seller; and
WHEREAS, the business of the Company is the manufacture, design,
installation and support of stackers, conveyor systems, wrappers and other
equipment for the graphic arts industry; and
WHEREAS, the parties hereto have reached an understanding with respect to
the sale by the Company and the purchase by the Purchaser of all of the
Company's right, title and interest to certain products, parts and services sold
or offered for sale by the Company as set forth and described in Exhibit A
attached hereto, including all patents (U.S. and foreign), trademarks, product
names, drawings, specifications, manufacturing data, manuals, parts lists, price
lists and sales literature owned by the Company relating thereto (the items set
forth or described in Exhibit A including all patents (U.S. and foreign),
trademarks, product names, drawings, specifications, manufacturing data,
manuals, parts lists, price lists and sales literature owned by the Company
relating thereto being herein referred to as the "Assets"); and
WHEREAS, the parties hereto have reached an understanding with respect to
the sale by the Company and the purchase by the Purchaser of certain Inventory
owned by the Company; and
WHEREAS, SCRIPPS HOWARD, INC. and ROCKWELL GRAPHICS SYSTEMS, INC. have
agreed to guarantee the Company's indemnification obligations pursuant to
Section 13.6 hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and promises hereinafter contained, the
parties hereto agree as follows:
ARTICLE I
SALE OF ASSETS
1.1 The Company shall sell to the Purchaser at a purchase price as
hereinafter provided all of the Assets and the Purchaser in reliance on the
representations and warranties of the Seller and the Company contained in this
Agreement and subject to its terms and conditions shall purchase those Assets
from the Company at the purchase price hereinafter provided.
1.2 Company shall sell to the Purchaser at a purchase price to be
determined as hereinafter provided such items of Aggregate Current Inventory and
Aggregate Noncurrent Inventory (each as defined in Article VI hereof) as are
selected and valued pursuant to the provisions of Article VI hereof and the
items referred to in Sections 6.5 and 6.7 through 6.10 hereof (the Aggregate
Current Inventory, Aggregate Noncurrent Inventory to be purchased by Purchaser
and those additional items collectively constituting the "Inventory" as that
term is used in this Agreement) and the Purchaser, in reliance on the
representations and warranties of the Seller and the Company contained in this
Agreement and subject to its terms and conditions shall purchase such Inventory
from the Company at the purchase price to be determined as herein provided.
ARTICLE II
PURCHASE PRICE
2.1 Subject to the terms and conditions of this Agreement, Company
hereby agrees to sell, assign, transfer, and convey to Purchaser, and Purchaser
hereby agrees to buy the Assets for a total purchase price of Three Hundred
Fifty Thousand ($350,000.00) Dollars, U.S. and the delivery of forty thousand
(40,000) shares of the one cent ($.01) par value shares of the common stock of
Quipp, Inc. (herein referred to as the "Quipp Shares").
2.2 Subject to the terms and conditions of this Agreement, the
Company hereby agrees to sell, transfer and convey to Purchaser, and Purchaser
hereby agrees to buy the Inventory at the purchase price determined in
accordance with the provisions of Article VI hereof.
2.3 The purchase price, as set forth above, shall be payable as
follows:
A. The sum of Three Hundred Fifty Thousand ($350,000.00) Dollars
plus the aggregate amount to be paid by Purchaser pursuant to Sections 6.5
and 6.7 hereof, shall be paid to the Company by wire transfer on the
Closing Date in accordance with written instructions delivered by the
Company or Seller in advance of the Closing Date.
B. The purchase price determined in accordance with Sections 6.1,
6.2, 6.3, 6.6 and 6.9 hereof shall be paid to the Company by delivery of a
promissory note as described in Section 6.6 hereof on or before January 9,
1995, except as extended by Section 6.4 hereof. The purchase price payable
with respect to the Inventory referred to in Section 6.8 and Section 6.10
shall be payable as described in those Sections.
C. The delivery of a certificate for forty thousand
(40,000) Quipp Shares registered in the name of the Company. It is
understood that these Quipp Shares are being issued from the
treasury of Quipp, Inc. and no representations are being made as to
whether or not such shares are freely tradeable or are subject to
resale restrictions in accordance with the provisions of the
Securities Act of 1933, the Securities and Exchange Act of 1934 and
the Florida Securities laws.
D. The Company shall deliver the Assets free and clear of
any lien, other encumbrance or claim of any third party.
ARTICLE III
CLOSING
3.1 The Closing of this transaction shall take place at the
offices of Baker & Hostetler, Cleveland, Ohio on or before December 21, 1994
(the "Closing Date").
3.2 At Closing, Company shall deliver to Quipp Systems, Inc:
A. Duly executed Bills of Sale, Assignments and any and all
other documents necessary or appropriate to transfer title to the
Assets;
B. Duly executed Bill of Sale for the Inventory referred to
in Sections 6.5 and 6.7 hereof.
C. A signed schedule of the Assets.
D. The counsel opinion described in Section 8.2 hereof.
E. Duly executed Assignment and Assumption Agreement
pursuant to Sections 6.11, 6.12 and 13.2 hereof.
3.3 At the Closing, Purchaser shall deliver:
A. To Company the sum of Three Hundred Fifty Thousand
($350,000.00) Dollars plus any additional amount payable pursuant to
Section 2.3A, in accordance with Section 2.3A
B. To Company a certificate representing forty thousand
(40,000) Quipp Shares in accordance with Section 2.3C hereof.
C. The counsel opinion described in Section 9.3 hereof.
D. Duly executed Assignment and Assumption Agreement
pursuant to Sections 6.11, 6.12 and 13.2 hereof.
3.4 On or before January 9, 1995, except as extended pursuant to
Section 6.4 hereof, Purchaser shall deliver to Company its Promissory Note in an
amount determined in accordance with the provisions of Article VI hereof, in the
form attached as Exhibit B.
3.5 Upon the request of any party to any other party at any time
and from time to time following the Closing Date, that other party shall
forthwith execute and deliver such further instruments of assurance, transfer,
endorsement, conveyance, direction, or authorization as the requesting party and
its counsel shall reasonably require in order to evidence more fully, confirm
and perfect the consummation of the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SELLER
The Company and Seller represent and warrant as follows:
4.1 The Company is a general partnership organized, validly
existing, and in good standing under the laws of the State of Ohio.
4.2 The Company has no subsidiaries.
4.3 The partners owning all of the Company's partnership interests
are Hall Systems, Inc. and Goss Processing Systems, Inc.
4.4 The Company has good and marketable title to all the Assets
and Inventory subject to no security interest, mortgage, pledge, lien,
conditional sale agreement, encumbrance or charge, except for liens as listed on
Exhibit C as securing specified liabilities with respect to which no default
exists, and except for minor imperfections in title and encumbrances, if any,
which are not substantial in amount and do not materially distract from the
value of the subject property or materially impair the Company's operation and
have arisen only in the ordinary course of business. The Assets and Inventory
sold hereunder are sold "AS IS, WHERE IS AND WITH ALL FAULTS." Other than the
express representations and warranties set forth herein, THE COMPANY AND SELLER
MAKE NO REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE CONCERNING ANY OF THE
ASSETS OR INVENTORY AND NO STATUTORY OR OTHER WARRANTY AS TO THE QUANTITY OR
QUALITY OF ANY OF THE ASSETS OR INVENTORY, THEIR CONDITION, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE SHALL BE IMPLIED. In particular, there is no
warranty that use of any Asset or Inventory or product, or any product
manufactured utilizing any of the Assets or Inventory or any portion thereof,
will not infringe the patent or proprietary rights of any third party. Without
limitation as to any other disclaimer herein contained, the Company and Sellers
do not make and specifically disclaim any representation or warranty as to the
accuracy, sufficiency or suitability of any drawings, specifications,
manufacturing data, or other data purchased hereunder or disclosed hereunder or
any product made utilizing such drawings, specifications, manufacturing data, or
other data.
4.5 To the best knowledge and belief of Michael Williams,
President of the Company, there are no pending claims or outstanding assertions
by any person to the effect that the manufacture, sale or use of any product or
process by the Company in connection with its business infringes on any
intellectual property of any person.
4.6 There is no litigation or proceedings pending or to the
Company's or Seller's knowledge threatened against the Company relating to the
Assets or Inventory, except as set forth on Exhibit C.
4.7 Company represents that it is acquiring the Quipp Shares
described in Section 2.3C for investment and does not have any present intention
to sell, transfer or distribute such Quipp Shares.
4.8 Company represents that is has received the 1934 Act Reports
described in Section 5.8 hereof.
4.9 The execution, delivery and performance of this Agreement,
compliance by the Company and Seller with the provisions hereof and the
consummation by the Company and Seller of the transactions contemplated hereby
will not require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body (except
such as have been obtained or may be required under the securities or Blue Sky
laws of the various states) and will not conflict with or constitute a breach of
any of the terms of provisions of, or a default under, the respective governing
documents of the Company, Hall Systems, Inc. or Goss Processing Systems, Inc. or
any agreement, indenture or other instrument to which the Company or Seller is a
party or by which it or its property is bound, or violate or conflict with any
laws, administrative regulations or rulings or court decrees applicable to the
Company or Seller; provided, that neither the Company nor the Seller makes any
representation or warranty concerning any federal, state or other antitrust law
or other law relating to unfair competition or anticompetitive effects.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants as follows:
5.1 Quipp, Inc. is a company organized, validly existing, and in
good standing under the laws of the State of Florida.
5.2 Quipp Systems, Inc., is a company organized and validly
existing, and in good standing under the laws of the State of Florida.
5.3 Except for Quipp Systems, Inc., Quipp, Inc. has no
subsidiaries. Quipp Systems, Inc. has no subsidiaries.
5.4 All of the outstanding capital stock of Quipp Systems, Inc. is
owned by Quipp, Inc.
5.5 There is no litigation or proceeding pending or to Purchaser's
knowledge threatened against Purchaser on any of its property except as set
forth on Exhibit D.
5.6 As of November 15, 1994, the outstanding capital stock of
Quipp, Inc. consisted of One Million, Four Hundred Sixty-Nine Thousand, Four
Hundred Sixty-Five (1,469,465) shares of common stock (which includes Sixty-
Eight Thousand, Seven Hundred (68,700) shares held as Treasury Stock), One Cent
($.01) par value, and there has been no material change in the number of
outstanding shares of common stock, One Cent ($.01) par value, of Quipp, Inc.
since that date.
5.7 All the outstanding shares of capital stock of Quipp, Inc.
have been duly authorized and validly issued and are fully paid, nonassessable
and not subject to any preemptive or similar rights; and the Quipp Shares to be
issued and transferred hereunder have been duly authorized and, when issued and
delivered to the Company as provided in this Agreement, will be validly issued,
fully paid and nonassessable, and the issuance of the Quipp Shares will not be
subject to any preemptive or similar rights.
5.8 Purchaser has provided to the Company Quipp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed by Quipp,
Inc., with the Securities and Exchange Commission on March 29, 1994, as amended
or supplemented, if applicable, and the Forms 10-Q for the periods ended March
31, 1994, June 30, 1994 and September 30, 1994 filed by Quipp, Inc. under the
Securities and Exchange Act of 1934, as amended (collectively, the "1934 Act
Reports"). Quipp, Inc. has not filed any report on Form 8-K during 1994. The
1934 Act Reports at the time they were filed did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and there has been no
material adverse change in the results of operations, financial condition,
prospects or business of Quipp, Inc. subsequent to the date of any 1934 Act
Report.
5.9 The Quipp Shares are treasury shares, and assuming that the
Company acquires the Certificates representing the Quipp Shares in good faith
and without notice of any adverse claim (within the meaning of the Uniform
Commercial Code provisions that govern Purchaser's transfer of the Quipp Shares
to the Company), upon delivery of the certificates representing the Quipp Shares
to the Company, registered in the name of the Company, endorsed to the Company
or endorsed in blank, the Company will acquire the Quipp Shares free of any
adverse claim (within the meaning of the Uniform Commercial Code provisions that
govern Purchaser's issuance of the Quipp Shares to the Company).
5.10 The delivery of the Quipp Shares to the Company is exempt from
registration under Section 517.061(3)(b), Florida Statutes (Chapter 92-198),
Laws of Florida).
5.11 The execution, delivery and performance of this Agreement,
compliance by Purchaser with all the provisions hereof and the consummation by
Purchaser of the transactions contemplated hereby will not require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the respective governing documents of Quipp, Inc. or Quipp Systems, Inc. or any
agreement, indenture or other instrument to which Quipp, Inc. or Quipp Systems,
Inc. or any of their respective subsidiaries is a party or by which Quipp, Inc.
or Quipp Systems, Inc. or their property is bound, or violate or conflict with
any laws, administrative regulations or rulings or court decrees applicable to
Purchaser; provided, that Purchaser makes no representation or warranty
concerning any federal, state or other antitrust law or other law relating to
unfair competition or anticompetitive effects.
ARTICLE VI
PURCHASE OF INVENTORY
Company agrees to sell and the Purchaser agrees to buy certain inventory
items as hereinafter set forth.
6.1 For purposes of this Article VI, the term "Line Item
Classification" means any of the various line item classifications used in the
Company's inventory records to identify parts for the products identified by the
Product Codes listed on Exhibit E, and the term "Item" means any item in any
Line Item Classification. The Company will use its Query computer program
("Query") and the physical count described in Section 6.6 hereof to identify (i)
each Item on hand, by part number and description, (ii) the number on hand of
each such Item, (iii) the standard cost of each such Item as reflected in the
Company's inventory records in accordance with the Company's customary
accounting policies and practices, and (iv) the total standard cost of all Items
in each Line Item Classification, in each case as of December 27, 1994 (the
"Count Date"). The Query run shall also identify the number of units of each
Item used between January 1, 1993 and the Count Date (the "Measurement Period")
and the aggregate standard cost, by Item, of those units and shall exclude any
Item which has not been used in production or sold during the Measurement Period
as those Items are "Obsolete." The aggregate standard cost calculated pursuant
to the immediately preceding sentence for all Items in a Product Code,
multiplied by the percentage shown on Exhibit E for that Product Code, shall
constitute the "Aggregate Current Inventory." The amount derived by subtracting
the Aggregate Current Inventory from the total standard cost of all Items in all
Product Codes on hand as of the Count Date shall constitute the "Aggregate
Noncurrent Inventory."
6.2 Purchaser shall purchase Items that have an aggregate value
(based on standard costs, as described above) equal to the Aggregate Current
Inventory. Purchaser may select the particular Items to be so purchased,
without regard to the Product Codes to which they are attributable, and the
Company and Seller shall be entitled to be present at and to assist in
Purchaser's selection thereof. Purchaser shall not be obligated to purchase any
Obsolete Item.
6.3 In addition to the purchase described in Section 6.2 hereof,
Purchaser shall purchase, at twenty (20%) percent of Inventoried Book Value (as
defined in Section 6.6 hereof), the lesser of (i) all of the Items included in
Aggregate Noncurrent Inventory for which there has been any use in production or
sale during the Measurement Period, and (ii) an amount of Aggregate Noncurrent
Inventory that has an Inventoried Book Value of Two Hundred Fifty Thousand
($250,000.00) Dollars, calculated as described in Section 6.1 hereof and subject
to the procedures set forth in Section 6.4 hereof. If the Aggregate Noncurrent
Inventory has an Inventoried Book Value of more than Two Hundred Fifty Thousand
($250,000.00) Dollars, then Purchaser may select from the entire Noncurrent
Inventory Items with an Inventoried Book Value of Two Hundred Fifty Thousand
($250,000.00) Dollars, and the Company and Seller shall be entitled to be
present at and to assist in Purchaser's selection thereof. In no event will
Purchaser be obligated to purchase any Obsolete Item.
6.4 Company and Purchaser have agreed that Purchaser may test the
results of the Query Program to insure that the following conditions have been
met:
A. All Obsolete Items have been deleted from Inventory.
B. All Product Codes not listed on Exhibit E have been
excluded from the Query run and the physical count described in
Section 6.6 hereof.
C. All Items included in determining the "Inventoried Book
Value" have been actually used in production or sold within the
"Measurement Period" and have not been included as a result of a
inventory adjustment; and
D. All items have been properly classified within each
Product Code as listed on Exhibit E.
Purchaser will have these tests done immediately upon receipt of the Query run
results and will give written notice to Company on or before January 6, 1995, of
whether or not it accepts the results thereof. If the Purchaser accepts those
results, then the delivery of the Promissory Note referred to in Section 3.2B
and Bill of Sale referred to in Section 6.6 shall be completed no later than
January 9, 1995. If Purchaser notifies Company that it does not accept those
results, it must specify in writing the reason within the conditions set forth
in Subsections A, B, C or D of this Section no later than January 6, 1995, and
if such notice is not given, then the Purchaser shall be deemed to have accepted
those results. If written notification is given to Company on or before January
6, 1995, that those results are not accepted, then Michael Williams,
representing the Company and Louis D. Kipp, representing the Purchaser shall
meet no later than January 9, 1995, in an effort to work out any differences of
opinion and if they are unable to work out such difference of opinion, then
these two (2) representatives agree that Bill Moore (The Cleveland Plain Dealer)
shall be the third (3rd) arbitrator and these three (3) persons shall meet no
later than January 13, 1995 to determine the appropriate results after each of
the Company and the Purchaser presents its position. The three (3) persons
shall decide by majority vote and their decision shall be binding and non-
reviewable and shall be rendered and the Promissory Note and Bill of Sale
referred to in this Section 6.4 shall be delivered no later than January 20,
1995. Any cost of the three (3) person panel shall be paid equally by the
Company and the Purchaser.
6.5 The Company agrees to sell, and Purchaser agrees to purchase,
the Company's "engineering" Dual Carrier Stacker, its "engineering" HT 16
Stacker, and a used Monitor Stacker, as identified to representatives of
Purchaser by representatives of the Company for an aggregate purchase price of
Twenty Thousand ($20,000.00) Dollars.
6.6 A physical count of the Items shall be taken by the Company,
with representatives of Purchaser present therefor if Purchaser so elects. That
count shall be completed no later than December 30, 1994. The term "Inventoried
Book Value" for Items in any Line Item Classification, as used in this
Agreement, shall mean the number of these Items, as determined by the physical
count described in this Section 6.6, multiplied by the standard cost of those
Items, as referred to in Section 6.1 thereof. The purchase price for the
Inventory referred to in Sections 6.2 and 6.3 and determined in accordance with
this Article VI, and for the items referred to in Section 6.9 hereof, shall be
evidenced by the Purchaser's promissory note in the form attached hereto as
Exhibit B (herein referred to as "Promissory Note") to be completed and
delivered no later than January 9, 1995, as may be extended pursuant to the
provisions of Section 6.4 hereof. The term of the Promissory Note shall be for
three (3) years and the unpaid balance of the Promissory Note shall accrue
interest at the rate of five (5%) percent per annum. The Promissory Note shall
be payable in three (3) equal annual payments of principal due on the first,
second and third anniversaries of the Closing Date, together with interest on
the unpaid balance. The Promissory Note may be prepaid, in whole or in part, by
paying accrued interest and then such principal payment as the Purchaser may
determine. On Purchaser's delivery to the Company of the Promissory Note, the
Company shall deliver to Purchaser a Bill of Sale for the Aggregate Current
Inventory and the Aggregate Noncurrent Inventory purchased by Purchaser and an
instrument of assignment for the purchase orders referred to in Sections 6.11
and 6.12 hereof.
6.7 The Company shall sell and the Purchaser shall purchase the
five (5) used stackers and one (1) bottom wrap machine owned by the Company, and
located at the date hereof on the premises of the Times-Picayune, in New
Orleans, Louisiana, for an aggregate purchase price of Seven Thousand, Five
Hundred ($7,500.00) Dollars to be paid in cash at Closing.
6.8 The Company shall produce and sell and the Purchaser shall
purchase ten (10) "Dual Carrier Stackers" (the "New Stackers") at a purchase
price equal to the lower of (a) the Company's fully burdened manufacturing cost
as determined pursuant to the Company's customary accounting policies and
practices, or (b) Twenty-Eight Thousand ($28,000.00) Dollars per New Stacker.
The Company shall be entitled to segregate from its Inventory, on
or prior to the December 27, 1994, those Items necessary for the production of
the New Stackers and such segregated Items shall not be purchased pursuant to
Section 6.2 or 6.3 hereof. The purchase price for the New Stackers shall be
paid in cash upon the Company's conducting a demonstration run thereof at the
Company's site upon completion of production there. Production of the New
Stackers and that demonstration run shall be completed by January 31, 1995.
6.9 Company shall sell and the Purchaser shall purchase the lesser
of (i) all of the used Ranger sensor heads that are in the Company's possession
on December 30, 1994, and (ii) ten (10) of those sensor heads. The purchase
price of each of such used Ranger sensor heads is One Thousand ($1,000.00)
Dollars. Purchaser's obligation hereunder shall be evidenced by the Promissory
Note described in Section 6.6.
6.10 Company has a partially filled outstanding purchase order with
COE CORPORATION (the "COE Order") and has prepaid the sum of One Thousand, One
Hundred Five ($1,105.00) Dollars for each sensor unit remaining to be purchased
under the COE Order. Purchaser shall purchase from the Company, upon the
Company's receipt thereof from COE CORPORATION, the lesser of (i) all of the
sensor units delivered to the Company after the date hereof under the COE Order,
and (ii) forty-five (45) of those units. The price to be paid by Purchaser for
each unit so purchased shall be Two Thousand, Two Hundred Ten ($2,210.00)
Dollars paid by check mailed upon Purchaser's receipt of that unit from the
Company.
6.11 Company has a group of purchase orders for Items used in the
production of and as repair parts for the Dual Carrier Stacker as listed on
Exhibit F. The Purchaser agrees to assume Company's obligations under those
Purchase Orders and, except as set forth in Section 6.12 and this Section 6.11,
shall have no further obligations with respect to any of Company's outstanding
purchase orders or commitments.
6.12 The Company has a group of purchase orders for repair parts as
listed on Exhibit G. The Purchaser assumes the Company's obligations under
those purchase orders to the extent that upon receipt of such Items, the
particular Item purchased within each Line Item Classification does not result
in the Purchaser purchasing items that would be included in "Aggregate
Noncurrent Inventory" as defined in Section 6.1 hereof (excluding the Inventory
referred to in Sections 6.8, 6.9 and 6.10).
6.13 The Inventory shall be removed from the premises of the
Company, at Purchaser's sole cost, as soon as practicable following the
completion of the Inventory count and the delivery of the Promissory Note
provided for in Section 6.6 hereof, but no later than the eleventh (11th) day
following the delivery of the Promissory Note.
ARTICLE VII
SECURITY LAW PROVISIONS
7.1 Company acknowledges that it is acquiring the Quipp Shares
described in Section 2.3C for investment and further acknowledges that such
Quipp Shares have not been registered by Quipp, Inc. under the Securities Act of
1933 (the "Securities Act") and that the sale or transfer of such Quipp Shares
cannot be made unless such Quipp Shares are registered for sale pursuant to the
provisions of the Securities Act of 1933 or unless such transfer or distribution
is exempt from the registration requirements of the Securities Act of 1933.
7.2 Quipp, Inc. agrees that it will maintain its effective
registration under the Securities Act of 1934 at least through December 31,
1997. Quipp, Inc. agrees to continue to provide reports and public information
so that Company may sell or distribute the Quipp Shares of Quipp, Inc. stock
pursuant to "Rule 144" at least through December 31, 1997.
7.3 If any time prior to the fifth anniversary of the Closing,
Quipp, Inc. shall determine to file a Registration Statement under the
Securities Act on Form S-3 (or other appropriate form for the registration of
shares except for Form S-4 or S-8), and except if Company does not accept
Purchaser's purchase offer described in Section 13.1 hereof, Quipp, Inc. will
provide written notice of such determination to the Company, which notice shall
specify the number of shares Quipp, Inc. intends to register. Upon the written
request of the Company or Seller, given within ten (10) days after the mailing
of any such notice, Quipp, Inc. will cause up to the entire forty thousand
(40,000) Quipp Shares issued to the Company pursuant to this Agreement which the
Company or Seller has so requested to be registered to be included in such
Registration Statement. The Company and Seller agree to execute such other
agreements, documents and instruments and to take such other and further action
in connection with the registration of the Quipp Shares as Quipp, Inc. or the
underwriters may reasonably request.
7.4 Quipp, Inc. agrees to pay all registration expenses in
connection with any registration under Section 7.3 hereof. The Company and
Seller shall pay all discounts and commissions payable to Underwriters, Selling
brokers, managers or other similar persons related to the sale or disposition of
Quipp Shares pursuant to any registration under this Article VII.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligations of the Purchaser to close under this Agreement shall be
subject to the following conditions (which may be waived in writing by
Purchaser):
8.1 The representations and warranties of Company herein contained
shall be true as of and at the Closing Date with the same force as though made
at such time; Company shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by it
prior to the Closing Date.
8.2 Purchaser shall have received from Company's counsel, a
favorable opinion, dated the Closing Date, in form and substance satisfactory to
Purchaser's counsel, to the effect that:
A. The Company is a general partnership duly organized
under the laws of the State of Ohio; and
B. Company has duly executed and validly delivered all of
the papers required by it to be executed and delivered in accordance
with the provisions of Paragraph 3.2 hereof.
ARTICLE IX
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS TO CLOSE
The obligations of the Company and Seller to close under this Agreement
shall be subject to the following conditions (which may be waived in writing by
the Company and Seller):
9.1 The representations and warranties of the Purchaser herein
contained shall be true as of and at the Closing Date with the same force as
though made at such time; Purchaser shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Closing Date.
9.2 Compliance by the Purchaser with the provisions of Sections
2.3A and 2.3C hereof.
9.3 Seller shall have received from Walton Lantaff Schroeder &
Carson, a favorable opinion, dated the Closing Date, in form and substance
satisfactory to Seller's counsel, to the effect that:
A. Quipp Systems, Inc. is a corporation duly organized and
validly existing in good standing under the laws of the State of
Florida;
B. Quipp, Inc. is a corporation duly organized and validly
existing in good standing under the laws of the State of Florida;
C. The execution and delivery by each of Quipp, Inc. and
Quipp Systems, Inc. of this Agreement and the Promissory Note and
the performance of each of Quipp, Inc. and Quipp Systems, Inc. of
their respective obligations under this Agreement and the Promissory
Note have been duly authorized by all necessary corporate action;
D. The Quipp Shares have been duly authorized and, when
issued and delivered to the Company in accordance with this
Agreement, will have been validly issued and will be fully paid and
nonassessable, and the issuance of the Quipp Shares is not subject
to preemptive or similar rights. The execution and delivery by
Quipp, Inc. of the share certificate representing the Quipp Shares
have been duly authorized by all necessary corporate action; and
E. The conveyance of the Quipp Shares to the Company is an
exempt transaction under Section 517.061(3)(b), Florida Statutes,
(Chapter 92-198, Laws of Florida).
9.4 All documents and the execution and delivery thereof shall be
satisfactory in form and substance to Seller and its counsel, and the Purchaser
shall have delivered to Seller and its counsel certificates or other evidences
of compliance with the obligations hereunder dated the Closing Date as Seller
and its counsel may reasonably require.
9.5 The Closing shall take place on or before December 21, 1994;
or if no Closing occurs on or before such date, this Agreement shall terminate.
ARTICLE X
BOOKS, RECORDS AND FILES
Company acknowledges that Purchaser may have need for the Company's books,
records and files relating to the Assets and Inventory at some time in the
future. Accordingly, the parties agree that all such books, records and files
are not acquired by Purchaser and shall be stored at the Company's headquarters
offices or at Hall Systems, Inc.'s headquarters offices, currently in
Cincinnati, Ohio. Company hereby agrees to permit the Purchaser reasonable
access to such books, records and files solely for the purpose of facilitating,
and only to the extent necessary to facilitate, Purchaser's use of the Assets
and Inventory acquired pursuant to this Agreement, and agrees to use the same
degree of care and provide the same safeguards and security for all such books,
records, and files as are presently provided by the Company. Company shall be
entitled to destroy any of its books, records or files relating to the Assets
and Inventory at any time after the thirtieth (30th) day following its delivery
to Quipp Systems, Inc. of notice of Company's intent to destroy such items,
unless Quipp Systems, Inc. shall have arranged to take custody of that item
prior to that thirtieth (30th) day at its cost. Purchaser hereby agrees to
permit the Company reasonable access to its books, records and files relating to
the Assets and Inventory solely for the purpose of facilitating, and only to the
extent necessary to facilitate, the Company's handling of any investigation,
claim or proceeding that may arise with respect to the Assets or Inventory or
with respect to any products sold or services rendered by the Company, and
agrees to use the same degree of care and provide the same safeguards and
security for all such books, records and files as are presently provided by the
Purchaser. Purchaser shall be entitled to destroy any of its books, records or
files relating to the Assets and Inventory at any time after the 30th day
following its delivery to the Company of notice of Purchaser's intent to destroy
such items, unless the Company shall have arranged to take custody of that item
prior to the 30th day at its cost.
ARTICLE XI
INDEMNIFICATION
The parties hereto agree as follows:
11.1 The Company and Seller shall indemnify and hold harmless the
Purchaser at all times after the date of this Agreement against and in respect
of all liabilities of the Company of any nature whether accrued, absolute,
contingent or otherwise, existing on the Closing Date including without
limitation, liabilities for product liability claims for any and all injuries
arising from the sale of products and systems or the furnishing of services
prior to the Closing Date, customer claims for non-performance or warranty
services for products and systems sold prior to the Closing Date, employment
claims, discrimination claims, litigation, judgments and awards against Company,
any tax liabilities to the extent not so reflected or reserved against, accrued
in respect or measured by the Company's income for any period prior to the
Closing Date. Notwithstanding anything herein to the contrary, Seller and
Company shall under no circumstances whatsoever have any obligation to indemnify
and hold harmless the Purchaser from and against any such liability which arises
out of or relates to:
A. The sale or use of any of the Assets or the Inventory by
Purchaser after the Closing Date; or
B. The performance of any services by Purchaser, including
any warranty services the performance of which has been assumed by
the Purchaser pursuant to this Agreement.
11.2 The Company and Seller shall indemnify and hold harmless the
Purchaser at all times after the date of this Agreement against and in respect
of any damage or deficiency resulting from any breach of warranty or
nonfulfillment of any agreement on the part of the Company under this Agreement
or from any misrepresentation or omission from any certificate or other
instrument to be furnished to the Purchaser.
11.3 Purchaser shall notify Company in writing within sixty (60)
days as to any debt, liability or claim for which Company is obligated to
indemnify the Purchaser in accordance with the provisions of this Article.
Seller and Company shall have thirty (30) days from receipt of such notification
to deliver to Purchaser its objections thereof. If the Seller or Company
delivers written objection to such debt, liability or claim, the Seller or
Company shall be afforded the opportunity of contesting such debt, liability or
claim at its sole cost and expense and during the period of such defense the
Purchaser shall not pay such debt, liability or claim or take any other action
which will adversely affect Seller's or Company's right to defend or contest
same. If Purchaser fails to notify Seller and Company of any such debt,
liability or claim within thirty (30) days after Purchaser's receipt of notice
of that debt, liability or claim, or if Purchaser pays or satisfies such debt,
liability or claim, Seller's and Company's obligations hereunder shall be
satisfied unless Seller and Company have failed or refused to defend or pay
after receipt of notice from Purchaser. If Seller or Company is not able to
successfully defend or contest such debt, liability or claim through all
applicable judicial or administrative processes, the Seller and Company shall be
obligated to indemnify the Purchaser as if no written objection had been
delivered. Notwithstanding anything to the contrary herein, Purchaser shall not
be entitled to make any claim for breach of warranty under this Article XI
unless and until Purchaser's aggregate claims therefor hereunder exceed Twenty-
Five Thousand ($25,000.00) Dollars. In the event that the indemnified debts or
claims equal or exceed Twenty-Five Thousand ($25,000.00) Dollars, then the
indemnification obligation shall extend to the first One ($1.00) Dollar of such
indemnified debts or claims.
11.4 Purchaser shall indemnify and hold Company, Hall Systems, Inc.
and Goss Processing Systems, Inc. harmless at all times after the date of this
Agreement against and in respect of any and all liabilities assumed by Purchaser
hereunder, liabilities arising from Purchaser's conduct of its business on or
after the Closing Date attributable to the sale or use of the Assets and the
Inventory including without limitation, liabilities for product liability claims
for any and all injuries, including death, or damage to property, and
Purchaser's breach of its warranties or covenants contained herein. Company,
Hall Systems, Inc. or Goss Processing Systems, Inc. shall notify Purchaser in
writing within thirty (30) days as to any debt, liability or claim for which
Purchaser is obligated to indemnify Company, Hall Systems, Inc. or Goss
Processing Systems, Inc. in accordance with the provisions of this Section.
Purchaser shall have thirty (30) days from receipt of such notification to
deliver to Company, Hall Systems, Inc. or Goss Processing Systems, Inc. its
objections thereto. In the event no written objections are received and the
Purchaser refuses or fails to pay, then Company, Hall Systems, Inc. and Goss
Processing Systems, Inc. shall have the right to proceed directly against the
Purchaser to recover the full amount of such debt, liability or claim, together
with its costs, including attorneys fees incurred on account of such debt,
liability or claim. If Purchaser delivers written objection to such debt,
liability or claim, the Purchaser shall be afforded the opportunity of
contesting such debt, liability or claim at its sole cost and expense and during
the period of such defense, neither Company, Hall Systems, Inc. nor Goss
Processing Systems, Inc. shall pay such debt, liability or claim or take any
other action which will adversely affect Purchaser's right to defend or contest
the same. If Company, Hall Systems, Inc., or Goss Processing Systems, Inc.
fails to notify Purchaser of any such debt, liability or claim within thirty
(30) days after Company, Hall Systems, Inc. or Goss Processing Systems, Inc.
receives notice of any such debt, liability or claim, or if Company, Hall
Systems, Inc. or Goss Processing Systems, Inc. pays or satisfies such debt,
liability or claim, Purchaser's obligations hereunder shall be satisfied unless
Purchaser have failed or refused to defend or pay after receipt of notice from
Company, Hall Systems, Inc., or Goss Processing Systems, Inc. If Purchaser is
not able to successfully defend or contest such debt, liability or claim through
all applicable judicial or administrative processes, Purchaser will be obligated
to indemnify the Company, Hall Systems, Inc. and Goss Processing Systems, Inc.
as if no written objection had been delivered. Notwithstanding anything to the
contrary herein, Company, Hall Systems, Inc. and Goss Processing Systems, Inc.
shall not be entitled to make any claim for breach of warranty under this
Section unless and until Company's, Hall Systems, Inc.'s and Goss Processing
Systems, Inc.'s aggregate claims therefor hereunder exceed Twenty-Five Thousand
($25,000.00) Dollars. In the event that the indemnified liability or claims
equal or exceed Twenty-Five Thousand ($25,000.00) Dollars, then the
indemnification obligation shall extend to the first One ($1.00) Dollar of such
indemnified liabilities or claims. This indemnification provision shall extend
to all costs, including attorney's fees, incurred by Company, Hall Systems, Inc.
or Goss Processing Systems, Inc. on account of such debt or claim, together with
reasonable attorney's fees incurred in securing indemnification hereunder.
ARTICLE XII
NON-COMPETITION
12.1 Each of the Company, Hall Systems, Inc., Goss Processing
Systems, Inc. and any affiliate of Goss Processing Systems, Inc. covenants that,
for a period of five (5) years after the date of this Agreement, neither it nor
any company now or hereafter controlled by it will, directly or indirectly,
enter into, or acquire control of, any business engaged in the development,
manufacture or sale of products set forth on Exhibit A within the United States,
Canada, Australia, New Zealand or Great Britain. Nothing herein shall prevent
(i) any such entity or any of its affiliates (other than the Company) from
merging with, or acquiring part or all of the business of or having a financial
interest in, any other entity which is engaged in a business that is competitive
with the products set forth on Exhibit A if such competitive business is an
incidental (but not the principal) part of the business acquired, (ii) any
affiliate of Goss Processing Systems, Inc. from continuing its existing business
of the manufacture, distribution and sale of printing presses involving as an
incidental part the sale of mailroom equipment, (iii) Company from performing
service work relating to gripper-conveyor units at customer locations, non-
stacker orders accepted prior to the date of this Agreement to be performed
after the date hereof or post-installation completion of products installed
prior to the date hereof, or any work required to comply with warranty
obligations not assumed by Purchaser hereunder, or (iv) any affiliate of Goss
Processing Systems, Inc. from continuing its activities as presently conducted
of the distribution and sale of mailroom equipment products for newspaper
application either ancillary to its printing press sales or as a part of its
participation in commercial press markets, or (v) any affiliate of Goss
Processing Systems, Inc. from continuing its activities of the development and
sale of newspaper and commercial printing management information systems and
related software for processing production, maintenance and management data,
which may include the processing of information in mailroom subsystems. For
purposes of this Article, the term "affiliate" shall mean any other corporation
or unincorporated entity (other than the Company) directly or indirectly
controlling, controlled by or under common control with such entity. Neither the
Company nor any affiliate of the Company presently intends to develop,
manufacture, sell or service any product covered by any patent or patent
application owned by the Company that is not listed on Exhibit A except to the
extent that any such activity may be covered by clauses (i), (ii), (iii), (iv)
or (v) of the second sentence of this Section 12.1.
12.2 The parties hereto agree that the provisions of this Article
shall survive the Closing. Any violation of Section 12.1 may be enforced by
injunctive relief.
ARTICLE XIII
ADDITIONAL AGREEMENTS
Company and Purchaser further agree as follows:
13.1 Purchaser agrees to purchase, or cause to be purchased, from
Company on December 21, 1997, such number of the forty thousand (40,000) Quipp
Shares acquired by Company pursuant to Section 2.3C which shall not be deemed to
be "sold" as set forth in this Section 13.1 as Company may offer to Purchaser.
The offer shall be in writing and shall be delivered to Purchaser no later than
November 1, 1997. If Company does not deliver a written offer to Purchaser by
November 1, 1997, or to the extent that Company does not offer all of the Quipp
Shares acquired by it pursuant to Section 2.3C, then Purchaser's obligation
hereunder will terminate on December 21, 1997, with respect to the Quipp Shares
not so offered. If Company offers any Quipp Shares pursuant to this Section,
then Purchaser shall purchase, or cause to be purchased, all of the Quipp Shares
offered for a cash payment equal to Six ($6.00) Dollars per Quipp Share. For
purposes of Section 13.1, Quipp Shares acquired by Company pursuant to Section
2.3C shall be deemed "sold" in an amount equal to the maximum number of Quipp
Shares which Company could have sold during any "Sales Period" commencing after
December 21, 1996 pursuant to Rule 144 promulgated by the Securities and
Exchange Commission pursuant to the Securities Act of 1933. A "Sales Period"
means the first consecutive three (3) month period commencing after December 21,
1996, during which the closing bid price of the one ($.01) cent par value common
stock of Quipp, Inc. as reported in the "Pink Sheets" published by the National
Quotation Bureau which are deemed to be the official reporting records of NASDAQ
(herein referred to as the "NASDAQ" price") remains at or above six ($6.00)
dollars per Quipp Share for not less than ten (10) consecutive business days
(any such period of ten or more consecutive business days, "Qualifying Sale
Days"), and each consecutive three (3) month period thereafter that contains
Qualifying Sale Days and commences not earlier than three (3) months after the
last day of the latest three (3) month period that contained Qualifying Sale
Days. The Company shall be deemed to have sold the maximum number of Quipp
Shares allowable pursuant to Rule 144 during each Sales Period regardless of the
number of Quipp Shares sold, if any. Accordingly, only the difference, if any,
between the forty thousand (40,000) Quipp Shares acquired by Company pursuant to
Section 2.3C and the Quipp Shares deemed sold hereunder may be offered and shall
be purchased by Purchaser pursuant to the provisions of this Section 13.1.
Company may sell or transfer the Quipp Shares at any time. The right to offer
Quipp Shares for repurchase pursuant to the provisions of this Section 13.1 is
limited to Company and may not be sold, transferred or assigned to any other
person or entity except for Hall Systems, Inc., Goss Processing Systems, Inc.,
Scripps Howard, Inc. and Rockwell Graphic Systems, Inc. ("permitted
transferrees"). If rights under this Section 13.1 are sold, transferred or
assigned to "permitted transferrees" then such rights shall not be subject to
any further sale, transfer or assignment by such entities. Notwithstanding the
foregoing provisions, Purchaser may, at any time after the Closing Date, offer
to purchase for cash all of the Quipp Shares at a Purchase Price of Six ($6.00)
Dollars per Quipp Share. This offer shall be delivered in writing and shall be
for all the Quipp Shares. Company (or the permitted transferrees) shall have
fifteen (15) business days from receipt of such notice to accept or reject such
offer. If the offer is accepted, payment for such Quipp Shares shall be made
within five (5) business days of receipt of acceptance of the offer. If the
offer is rejected, then Purchaser's obligations under this Section 13.1 (as well
as under Section 7.3) shall be eliminated and of no further force or effect.
The offer to purchase described in the preceding sentence may be made regardless
of the bid or asked price of the Quipp Shares and, in particular, even though
the bid price of the Quipp Shares exceeds Six ($6.00) Dollars per share on the
date of the offer or the date of Closing.
13.2 Purchaser shall fulfill all of Company's warranty obligations
for the products and services and installations listed or described on Exhibit
H, whether or not sales of those products and installations have been made or
will be made after the Closing Date, with no additional compensation to be paid
by the Company to the Purchaser for assuming such warranty responsibility.
Except for the installation and sales described on Exhibit H, Purchaser is
assuming no responsibility of warranty for products sold or services performed
by Company. Section 13.12 addresses Company's warranty responsibility for the
Company Gripper Conveyor Systems and the possible assumption thereof by
Purchaser.
13.3 Company and Seller agree that Quipp Systems, Inc. will be free
at any time after the Closing to use the name "MetroGraphics" as, or as part of
its corporate name or the name of a subsidiary of either Quipp Systems, Inc. or
Quipp Inc. The name "Metrographics" must be used in connection with the
corporate suffix "Inc." or "Corporation" or "Corp." and may be used as one word,
two words, hyphenated or in combination with other words, but only as the name
of the company and not as a product name, trademark, servicemark, tradename,
logo or similar item. Further, neither Quipp Systems, Inc. nor Quipp, Inc.
shall use "Metro" alone or in combination with any other word or design as a
trademark or tradename to identify any product.
13.4 Company and Seller agree that Quipp Systems, Inc. will be free
at any time after the Closing to use the name "Hall" to identify or describe the
"Hall" Stacker and to represent to customers that it is a "Hall" Stacker.
Company and Seller further agree that Quipp Systems, Inc. may represent to
customers and members of the public that Quipp Systems, Inc. is authorized and
obligated to provide repair parts and services for Company, except to the extent
that the Company is acting in accordance with clause (iii) of the next-to-last
sentence of Section 12.1 hereof, and shall in any such representation indicate
that Quipp Systems, Inc. is acting independently on its own behalf and not as an
agent for, or otherwise on behalf of, the Company or any of the Company's
affiliates.
13.5 Notwithstanding the provisions of Article XII hereof, the
Company shall be entitled to retain copies of all drawings, blueprints, plans,
specifications and other items necessary to enable it to complete all of its
installation and service obligations on gripper-conveyor systems heretofore sold
by it, and to perform all other activities contemplated by clause (iii) of the
next-to-last sentence of Section 12.1 hereof. It is understood and agreed that
the provision of such warranty and installation services will not constitute a
violation of the non-competition provisions described in Article XII hereof.
The Company and Seller agree that at the completion of the performance of those
obligations, all such documentation, including revised documentation, including,
without limitation, plans, drawings, blueprints and specifications shall be
delivered to Purchaser who will then obtain the exclusive right, and shall be
obligated, to provide repair parts and service for such installations. Notwith-
standing anything to the contrary herein, (i) the Company shall be entitled to
retain a copy of all such documentation for archival purposes, and (ii) the
immediately preceding sentence shall not apply to the Company's Gripper-Conveyor
systems.
13.6 Scripps Howard, Inc. and Rockwell Graphic Systems, Inc. hereby
jointly and severally unconditionally guarantee the indemnification obligations
of the Seller and Company contained in Sections 11.1 and 11.3 hereof. Provided,
however, that this guarantee shall be limited to the aggregate amount paid by
Purchaser pursuant to Section 2.3A and pursuant to the Promissory Note.
13.7 Each of Seller and Purchaser represents and warrants to and
agrees with the other that there was no broker, finder or any other individual,
partnership or corporation entitled to a brokers or finders fee from it in
connection with the transaction covered by this Agreement.
13.8 Purchaser acknowledges that it has retained Robert L. Walker
as a consultant and that the payment of any and all commissions or compensation
due Robert L. Walker shall be the sole and exclusive responsibility of the
Purchaser.
13.9 It is understood and agreed that the Purchaser is not
purchasing the equipment, rejected or retained Inventory, cash in bank or other
assets of the Company, is not assuming any contracts, agreements, liabilities,
warranty or repair responsibilities of the Company except as expressly provided
herein and is not required to employ any personnel of the Company.
13.10 Purchaser shall supply any exemption certificate or similar
instrument that may be necessary to preclude the imposition of sales tax in
connection with the transactions contemplated by this Agreement, and shall pay
any sales tax so imposed.
13.11 Purchaser shall not disclose the Company's acquisition of the
Quipp Shares or the status of the Company or any of its affiliates as a
shareholder of Quipp, Inc. except to the extent required by law or with the
Company's prior written consent.
13.12 Company acknowledges that it is solely responsible for the
completion of five (5) installations of its Gripper-Conveyor system. Company
intends to redesign such Gripper-Conveyor systems in a effort to obtain
acceptance thereof by the customers. Purchaser is assuming no responsibility
for the fulfillment of Company's responsibility with respect to such
installations and Company shall indemnify and hold Purchaser harmless in
accordance with the provisions of Article XI hereof with respect to the comple-
tion of such installations. In the event that such installations are accepted
by the customers, then, and in that event, the Purchaser is willing to accept
responsibility for warranty service for such Gripper-Conveyor installations,
subject to the mutual agreement between the Company and the Purchaser at such
time as to the payment which Company shall make to Purchaser to compensate
Purchaser for the cost of providing such warranty service. The parties hereto
agree that it is impossible at this time to set forth the specific terms and
conditions of such agreement, but they agree to meet in good faith to attempt to
agree upon the compensation to be paid by Company to Purchaser for undertaking
such warranty responsibilities and to determine the method of payment, whether
it is in cash, inventory or a combination thereof. If Purchaser accepts the
responsibility referred to above, and the Company and the Purchaser reach the
mutual agreements referred to above, then at the completion of the performance
of those obligations, all molds, tooling and dies for the Gripper-Conveyor in
the Company's possession or control, together with the documentation therefor,
including revised documents, including, without limitation, plans, drawings,
blueprints and specifications shall be delivered to Purchaser at no further cost
to Purchaser who will then obtain the exclusive right, and shall be obligated,
to provide repair parts and services for such installations. Notwithstanding
anything to the contrary herein, the Company shall be entitled to retain a copy
of all such documentation for archival purposes.
ARTICLE XIV
GENERAL PROVISIONS
14.1 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.2 This Agreement and attachments constitute the entire agreement
and understanding of the parties and may be modified or amended and the
requirements of any provisions hereof may be waived with the mutual consent of
Company and Purchaser by written instrument signed by them or their respective
successors or assigns, in any manner deemed necessary or appropriate by them.
14.3 The agreements and indemnifications of the parties contained
herein (except as those indemnifications relate to representations and
warranties) shall survive the Closing Date and the consummation of the
transactions provided for in this Agreement indefinitely. The Company's and
Seller's representations and warranties contained herein and their
indemnification obligations relating thereto, shall surviving the Closing Date
for the period of thirty-six (36) months. Purchaser's representations and
warranties contained herein and Purchaser's indemnification obligations relating
thereto shall survive the Closing Date for a period of thirty-six (36) months.
14.4 In the event that any party to this Agreement shall default in
the performance of any obligations, covenants or agreements hereunder, the other
parties to this Agreement shall severally, in addition to all other remedies
which may be available to them, be entitled to injunctive and other equitable
relief, including without limitation, specific performance, and shall be
entitled to recover from the defaulting party their loss, cost and expense
(including reasonable attorneys' fees) incurred by them in securing such
injunctive or equitable relief.
14.5 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. There are no
intended third party beneficiaries of this Agreement. Neither Quipp, Inc. nor
Quipp Systems, Inc. shall assign this Agreement or any of its rights or
obligations hereunder to any entity without the Company's and Seller's prior
written consent, which either may withhold in its absolute discretion.
14.6 All notices and requests hereunder shall be in writing by mail
or by Federal Express and addressed to the parties for whom intended as follows:
If to Company: Hall Processing Systems
Attention: Michael Williams
24400 Sperry Drive
Westlake, Ohio 44145
Telephone: (216) 892-4114
Fax: (216) 892-4119
with a copy to:
Robert A. Weible, Esquire
Baker & Hostetler
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
If to Seller: Scripps Howard, Inc.
Attention: Daniel J. Castellini, Vice President
312 Walnut Street
20th Floor
Cincinnati, Ohio 45202
Telephone: (513) 977-3833
Fax: (513) 977-3729
with a copy to:
Robert A. Weible, Esquire
Baker & Hostetler
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Goss Processing Systems, Inc.
c/o Rockwell Graphic Systems
700 Oakmont Lane
Westmont, Illinois 60559-5546
with a copy to:
Goss Processing Systems, Inc.
Attention: Office of the General Counsel
c/o Rockwell Graphic Systems
700 Oakmont Lane
Westmont, Illinois 60559-5546
If to Purchaser:
Quipp, Inc. and Quipp Systems, Inc.
Attention: James E. Pruitt, President
4800 N.W. 157 Street
Miami, Florida 33014-6434
Telephone: (305)623-8700
Fax: (305)623-0980
with a copy to:
Charles P. Sacher, Esquire
Walton Lantaff Schroeder & Carson
2655 LeJeune Road, Suite 1101
Coral Gables, Florida 33134
The parties hereto may designate other addresses for the purposes of notice by
sending written notice of such changed address to the other parties hereto in
the manner provided.
14.7 This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on
the day and year first above written.
COMPANY
HALL PROCESSING SYSTEMS
By Hall Systems, Inc., Managing Partner
By s/Daniel J. Castellini (SEAL)
-------------------------
SELLER
HALL SYSTEMS, INC.
By s/Daniel J. Castellini
---------------------------------
Its: President
----------------------------
Attest:
- - - ------------------------
Secretary
GOSS PROCESSING SYSTEMS, INC.
By s/ Robert A. Weible, Esq.
--------------------------------
Its: Attorney in Fact
--------------------------
Attest:
- - - -------------------------
Secretary
PURCHASER
QUIPP SYSTEMS, INC.
By s/ Louis D. Kipp
-----------------------------
Its: President
-----------------------------
Attest:
- - - ------------------------------
Secretary
QUIPP, INC.
By s/ Louis D. Kipp
-------------------------------
Its: Vice President
Attest: ------------------------------
- - - ----------------------------
Secretary
SCRIPPS HOWARD, INC.
By s/ Daniel J. Castellini
----------------------------
Its: Senior Vice President
----------------------------
Attest:
- - - -------------------------
Secretary
ROCKWELL GRAPHIC SYSTEMS, INC.
By
-------------------------------
Its:
Attest: --------------------------
- - - ---------------------------
Secretary
ex-2.EDG
QUIPP, INC. AND SUBSIDIARY
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
For Each of the Years Ended December 31, 1994, 1993 and 1992
PRIMARY 1994 1993 1992
---- ---- ----
Net income (loss) $1,376,206 $321,136 $701,970
============ ========== =========
Weighted average number of common
shares outstanding during the year 1,469,465 1,469,465 1,469,465
Add-common equivalent shares
(determined using the "treasury
stock" method) representing shares
issuable upon exercise of employee
stock options 87,507 41,297 77,135
----------- --------- ---------
Weighted average number of shares
used in calculation of net income
per share 1,556,972 1,510,762 1,546,600
=========== ========== ==========
Net income per common share
$ .88 $ .21 $ .45
=========== ========== ==========
QUIPP, INC. AND SUBSIDIARY
EXHIBIT 23
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Quipp, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-8 of Quipp, Inc. of our report dated March 10, 1995, relating to the
consolidated balance sheets of Quipp, Inc. and subsidiary as of December 31,
1994 and 1993, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1994, which report appears in the December 31, 1994
annual report on Form 10-K of Quipp, Inc.
KPMG Peat Marwick LLP
March 30, 1995
