SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to
Commission file number 0-14870
Quipp, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-2306191
(State or other jurisdiction of
incorporation or organization) (I.R.S. employer identification no.)
4800 N.W. 157th Street, Miami, Florida 33014
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 623-8700
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
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 8, 1996 was approximately $17,450,020.*
The number of shares of the Registrant's common stock, $.01 par value,
outstanding at March 8, 1996 was 1,634,465.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated
Portions of Quipp, Inc. Proxy Statement relating to 1996 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).
Where Incorporated
Part III
*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 I - BUSINESS
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 are generally 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 are basically modular in construction with electronic
control circuitry and include the following:
Newspaper Stacker - The Company's principal product is its Series 350 Stacker.
In addition, the Company has, through the Hall Processing Systems acquisition
described below, added the Hall Dual Carrier Stacker to its product line. The
Company's stackers perform the function of forming counted bundles of newspapers
for delivery at speeds of up to 80,000 copies per hour.
Bottomwrapper - The Company's bottomwrapper applies wrapping paper to the bottom
and top of each newspaper stack to reduce product damage.
Three-quarter wrapper - The Company s three-quarter wrapper is a variation of
its bottomwrapper. This machine offers protection for three sides of the
newspaper bundle and provides a surface for receiving inkjet printed messages.
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 a smaller stack 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 automatically centers, aligns,
and paces newspaper stacks prior to wrapping, strapping and/or distribution
control.
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 product incorporates a sensor-equipped
microprocessor to monitor 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 - The Company's single gripper conveyor transports
newspapers or other printed material by holding individual copies by the spine,
one gripper for each copy. The single gripper 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.
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 a given packaging line or storage
position to an available truck loading position or temporary storage area.
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. The Company uses approximately 330 vendors to
supply parts, materials and components for its 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 used primarily for custom engineering
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.
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 9.0%, 4.0% and 5.0% of the Company's total sales in
1995, 1994 and 1993, respectively.
All of the Company's products, excluding those not manufactured by the Company,
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.
For the year ended December 31, 1995, no customer accounted for 10% or more of
the Company's net sales. The San Diego Union and Dow Jones & Company accounted
for approximately 22% and 10%, respectively, of the Company's net sales in
1994. The Sacramento Bee and the San Bernardino Sun each accounted for
approximately 10% of the Company's net sales in 1993. Since the equipment is
designed to have an extended life, the Company's largest customers in any one
year are usually different from the largest customers in a subsequent period.
Although the Company sells a significant portion of its products to newspaper
publishers in the United States, it also has significant foreign sales which
accounted for 18%, 11%, and 21% of total sales in 1995, 1994, and 1993
respectively. The following table indicates the amount of sales by geographic
area during the past three years:
1995 1994 1993
United States $19,012,140 $15,088,678 $11,728,815
Japan 1,335,192 149,472 441,167
Canada 430,855 175,031 370,598
Latin America 166,605 1,165,028 1,313,872
New Zealand 1,799,382 7,160 5,488
Other 452,597 449,479 929,357
------------ ---------- ---------
$23,196,771 $17,034,848 $14,789,297
=========== =========== ===========
As of February 1, 1996, the Company's backlog represented approximately
$6,796,469 in firm sales orders, as compared to $8,372,985 on February 1, 1995.
The Company believes that it will satisfy all orders included in the backlog by
end of 1996. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - General" in Item 7.
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. The Company also agreed to assume certain
of Hall's warranty obligations, with respect to which the Company recorded a
warranty reserve of $100,000 at December 31, 1994. During 1995 the Company
issued the 40,000 shares of Common Stock and also paid the first $300,000
installment of the promissory note, leaving a balance due of $600,000 at the end
of the year.
COMPETITION
The newspaper industry has experienced a decrease in size in recent years, as
the number of newspapers in the country has declined. There has also been
consolidation among manufacturers of material handling equipment for the
newspaper industry. The Company believes it has been able to compete
successfully by stressing its engineering expertise and the quality and
reliability of its products.
The Company believes that its two principal competitors for the newspaper
mailroom equipment business in the United States are the Sheridan division of AM
Graphics, and Machine Design Services, a privately owned company that
manufactures certain types of conveyors. In addition, there are several
companies that compete in other segments of the business. The Company has
experienced strong competition on the basis of price with respect to most of its
products, and anticipates that price competition will continue.
MARKETING
The Company's marketing effort is conducted by its six-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 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, reasonable
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
The Company holds 18 U.S. patents, including 14 U.S. patents acquired in
connection with the Company's purchase of the Hall assets, which expire during
the period from 1996 to 2011. The Company also purchased from Hall 7 foreign
patents that expire from 1996 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 dependent upon performance, reliability
and engineering, ingenuity and that its patents are not material to its
business.
RESEARCH AND DEVELOPMENT
Research and development expenditures totaled $219,170, $361,790 and $510,072 in
1995, 1994 and 1993, respectively. In 1995, the Company's research and
development efforts focused on additional design changes to its existing
newspaper stacker in order to reduce manufacturing costs. Additionally, the
Company's engineering resources were substantially devoted to customization of
products for clients as a result of the significant increase in net sales during
1995.
EMPLOYEES
As of February 1, 1996, the Company had 123 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
The Company operates its business from one site located in Miami, Florida. The
building, which is owned by the Company, contains approximately 63,170 square
feet, of which 48,300 feet are utilized for the Company s manufacturing
operations, with the remaining 14,870 square feet used for its administrative
functions. 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
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 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 would 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 District 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 reversed the judgment against the Company. Thereafter,
Ferag filed a writ of certiorari with the United States Supreme Court. In
October 1995, the United States Supreme Court denied certiorari. As a result,
the Court of Appeals ruling in favor of the Company is final.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
EXECUTIVE OFFICERS OF THE REGISTRANT
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
Ralph M. Branca Mr. Branca has been President and 60
Chief Executive Officer since May
1995 and a director of the
Company since April 1991. From
1966 to 1989, Mr. Branca was
employed by Emhart Corporation,
and served in various
executive capacities from 1980 to 1989.
From 1989 to the present, he has been
President and owner of RMB Associates,
engaged in business consulting.
Louis D. Kipp Mr. Kipp has been President of 63
Quipp Systems, Inc., since July 1987
and a director of the Company
from August 1987 to January
1995. He became a director again
in May 1995. Also Mr. Kipp was President
of the Company from August 1983 to
July 1987. He was Treasurer of the
Company from August 1983 to
April 1988. He was reelected to
this position in October 1990
and has served as Treasurer since that date.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDING
MATTERS
The Company's Common Stock, $.01 par value, is traded on the Nasdaq National
Market under the symbol, QUIP . The following table sets forth high and low
sales prices of the Common Stock of the Company as reported on the Nasdaq
National Market since January 1, 1994:
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
High 12.75 16.25 14.75 12.50
Low 6.50 10.50 9.50 8.50
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
High 3.75 4.00 3.88 8.50
Low 2.50 3.25 3.00 3.00
As of March 8, 1996, the Company had approximately 86 record holders of the
Common Stock, including brokers and other nominees. The Company has not paid
dividends on its Common Stock since its inception.
ITEM 6 - SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the financial
statements and notes thereto which are included elsewhere in this Annual Report
on Form 10-K and also with Management s Discussion and Analysis of Financial
Condition and Results of Operations. The following selected financial data for
each of the years in the five year period ended December 31, 1995 has been
derived from the audited balance sheets and related statements of operations the
Company.
<TABLE>
1995 1994 1993 1992 1991
(In thousands, except per share data)
Income Statement Data:
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net sales $23,197 $17,035 $14,789 19,794 $12,976
Gross profit 7,631 4,893 4,661 5,558 3,316
Research and development 219 362 510 366 590
Sale of patent and
license rights 0 1,090 0 0 0
Selling, general
and administrative
expenses 4,294 3,653 4,036 4,245 2,721
Operating profit 3,117 1,968 115 947 5
Other income
(expense) net 265 221 152 156 155
Net income 2,096 1,376 321 702 160
Net income per common and
common equivalent share 1.30 0.88 0.21 0.45 0.11
Weighted average number of
shares outstanding 1,625,657 1,556,792 1,510,762 1,546,600 1,500,581
</TABLE>
<TABLE>
1995 1994 1993 1992 1991
(In thousands, except per share data)
<CAPTION>
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Current assets $18,383 $14,482 $ 11,959 $ 13,105 $ 11,802
Total assets 21,267 19,342 14,241 15,194 14,930
Current liabilities 6,855 7,444 3,669 4,548 4,886
Long-term liabilities 1,550 1,350 1,700 1,800 1 ,900
Shareholders' equity 12,863 10,548 8,871 8,846 8,144
Book value per share 7.87 7.18 6.04 6.02 5.54
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Results of Operations
1995 vs. 1994
Increase Percent
(Decrease) of Net Sales
1995 1994 $ % 1995 1994
Net Sales $23,197 17,035 $6,162 36 100 100
The Company's increased net sales for 1995 were mainly a result of higher
stacker shipments as compared to those in 1994. The increased shipments
reflected the addition of the Hall Dual Carrier Stacker to the Company s product
line as a result of the Hall acquisition. See Note 2 to the Consolidated
Financial Statements for further discussion of the Hall acquisition. In
addition, the Company generated greater spare parts sales in 1995, due in part
to the Hall acquisition, as well as increased sales of bottomwrappers.
`
Increase Percent
(Decrease) of Net Sales
1995 1994 $ % 1995 1994
Gross profit 7,631 4,893 2,738 56 33 29
Increased gross profit reflects decreased costs of sales, as a result of price
negotiation with vendors and, in certain instances, use of lower cost vendors
for stacker parts. The higher 1995 gross profit also resulted from cost savings
in connection with the redesign of the Company s stacker, as well as an improved
mix of the products sold.
Increase Percent
(Decrease) of Net Sales
1995 1994 $ % 1995 1994
Selling, general and
administrative expenses 4,295 3,653 642 18 19 21
Selling, general and administrative expenses increased principally due to
increased amortization resulting from the Hall acquisition. Selling, general
and administrative expenses also reflected other expenses relating to the Hall
acquisition and increased costs incurred to support higher net sales. The
Company also incurred expenses in 1995 related to an upgrade in its computer
system.
Increase Percent
(Decrease) of Net Sales
1995 1994 $ % 1995 1994
Research and development 219 362 (143) (40) 1 2
Research and development expenses decreased from 1994 to 1995 due to increased
utilization of the Company s engineering staff to support the Company s
increased net sales, as many orders received by the Company require some
degree of custom engineering. The Company plans to add new engineering
personnel so that it may better support engineering demands relating both to
sales as well as research and development projects.
Increase Percent
(Decrease) of Net Sales
1995 1994 $ % 1995 1994
Operating profit 3,117 1,968 1,149 58 13 12
The significant increase in stacker shipments and improved margins were the
principal factors contributing to the increases in operating profit from 1994 to
1995.
Increase Percent
(Decrease) of Net Sales
1995 1994 $ % 1995 1994
Other income and
expense
Interest income 355 274 81 30 2 2
Interest expense (90) (53) 37 70 0* 0*
---- ---- -- -- -- --
265 221 44 20 2 2
Interest income rose as a result of slightly higher interest rates. Interest
expense for 1995 increased principally due to additional debt incurred for the
Hall acquisition. See Note 8 to the Consolidated Financial Statements for
further discussion of the debt incurred as a result of the Hall acquisition.
1994 vs. 1993
Increase Percent
(Decrease) of Net sales
1994 1993 $ % 1994 1993
Net Sales $17,035 $14,789 $2,246 15 100 100
The sales increase reflects increased demand and the Company's ability to gain a
greater share of the market.
Increase Percent
(Decrease) of Net Sales
1994 1993 $ % 1995 1994
Gross profit 4,893 4,661 232 5 29 32
Although the Company realized increased margins due to lower manufacturing costs
on its newspaper stacker, which comprised approximately 43 percent of net
sales, gross profit was adversely affected by the establishment of additional
reserves. The reserves were established to provide for anticipated follow up
costs on certain installations.
______________
*less than 1%
Increase Percent
(Decrease) of Net sales
1994 1993 $ % 1995 1994
Selling, general and
administrative
expenses 3,653 4,036 (383) (9) 21 27
The decrease in selling, general and administrative expenses 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.
Increase Percent
(Decrease) of Net Sales
1994 1993 $ % 1995 1994
Research and
development 362 510 (148) (29) 2 3
Research and development expenses decreased primarily due to the completion of a
program designed to decrease manufacturing costs of the Company's newspaper
stacker. The Company is now marketing the improved newspaper stacker.
Increase Percent
(Decrease) of Net Sales
1994 1993 $ % 1995 1994
Operating profit 1,968 115 1,853 1,611% 12 1
The increase in operating profit 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 follow up costs and bad
debts. Additionally, in 1995, the Company sold rights 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 tilt tray system patent
which is utilized in its 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.
Increase Percent
(Decrease) of Net Sales
1994 1993 $ % 1995 1994
Other income and
expenses
Interest income 274 207 67 32 2 1
Interest expense (53) (55) (2) (4) 0* 0*
---- ----- --- --- --- ---
221 152 69 45 2 1
Interest income increased in 1994 due to the increase in the Company's interest
bearing accounts and the increase in interest rate on these accounts. Interest
expense declined in 1994 due to the decrease in the principal balance of the
Company's long-term debt.
General
The Company's larger orders are typically received some months in advance of
delivery. Therefore, backlog can be an important, though by no means a
conclusive, indication of the Company's revenue stream over the short term. The
timing of revenues can be affected by the size of pending orders and the amount
of custom engineering required with respect to an order, the timetable for
delivery and the receipt and nature of new orders. The Company's backlog as of
February 1, 1996 was $6,796,469 compared to $8,732,985 at the same date in 1995.
The Company believes it will satisfy all orders in the February 1, 1996 backlog
by the end of 1996.
Liquidity and Capital Resources
On December 31, 1995, the Company's cash and cash equivalents and the current
portion of securities available for sale totaled $6,737,458 and the Company's
working capital was $11,508,430. The Company believes its resources are
sufficient to fund operations at its current levels.
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, 1995 and 1994
Consolidated Statements of Operations For Each of the Years in the Three-Year
Period Ended December 31, 1995
Consolidated Statements of Shareholders' Equity for Each of the Years in the
Three-Year Period Ended December 31, 1995
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year
Period Ended December 31, 1995
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, 1995 and 1994 (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, 1995. 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, 1995 and 1994 and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
March 8, 1996
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
ASSETS
Cash and cash equivalents $1,251,020 $ 744,770
Securities available for
sale-current (Note 4) 5,486,438 5,614,089
Restricted cash (Note 1) 0 1,023,765
Accounts receivable, net (Note 1) 6,907,402 2,621,229
Inventories (Note 5) 3,474,885 3,203,261
Deferred tax asset-current (Note 6) 1,177,920 1,104,432
Prepaid expenses and other receivables 85,281 170,696
----------- -----------
Total current assets 18,382,946 14,482,242
Property, plant and equipment, net (Note 7) 1,991,665 2,026,846
Securities available for sale (Note 4 ) 0 1,400,000
Goodwill (Note 2) 499,522 530,742
Other assets 354,315 874,192
Deferred tax asset (Note 6) 38,680 27,810
$21,267,128 $19,341,832
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 8) $400,000 $100,000
Accounts payable 821,957 1,253,719
Accrued salaries and wages 499,041 778,829
Customer deposits and deferred
income (Note 1) 3,159,502 2,473,363
Current tax liability 213,997 622,720
Other accrued liabilities (Note 9) 1,760,019 2,215,567
------- -----
Total current liabilities 6,854,516 7,444,198
Long-term debt (Note 8) 1,550,000 1,350,000
----------- ------------
Contingencies (Note 13)
Total liabilities 8,404,516 8,794,198
Shareholders' Equity
Common stock - par value $.01 per
share, authorized
3,000,000 shares, 1,634,465 and 1,469,465
shares issued and outstanding 16,345 14,695
Additional paid-in capital 5,113,190 4,596,090
Retained earnings 8,028,477 5,932,249
Common stock subscribed 0 300,000
Less treasury stock 68,700 shares at cost (295,400) (295,400)
--------- ----------
Total shareholders' equity 12,862,612 10,547,634
----------- ------------
$21,267,128 $19,341,832
=========== ============
See accompanying notes to the consolidated financial statements.
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
Net sales $23,196,771 $17,034,848 $14,789,297
Cost of sales 15,565,945 12,142,121 10,128,009
---------- ---------- ----------
Gross profit 7,630,826 4,892,727 4,661,288
--------- --------- ---------
Other operating income and (expense) items:
Sale of patent and license
rights (Note 3) 0 1,090,000 0
Selling, general and
administrative expenses (4,294,970) (3,653,007) (4,036,432)
Research and development (219,170) (361,790) (510,072)
--------- --------- -------
(4,514,140) (2,924,797) (4,546,504)
---------- ----------- -------
Operating profit 3,116,686 1,967,930 114,784
Other income (expense):
Interest income 355,148 274,895 207,200
Interest expense ( 90,314) (53,436) (54,862)
--------- -------- --------
264,834 221,459 152,338
------- -------- -------
Income before income taxes
and cumulative effect of change in
accounting for income taxes 3,381,520 2,189,389 267,122
Income tax provision (1,285,292) (813,183) (102,552)
----------- ---------- ---------
Income before cumulative
effect of change
in accounting for income
taxes 2,096,228 1,376,206 164,570
Cumulative effect of change
in accounting
for income taxes 0 0 156,566
---------- ---------- -------
Net income $2,096,228 $1,376,206 $321,136
========== ========== =======
Per share amounts:
Income before cumulative effect of change
in accounting for income taxes 1.30 0.88 0.11
Cumulative effect of change
in accounting for income taxes 0.00 0.00 0.10
----- ---- ----
Net income per common and
common equivalent share $1.30 $0.88 $0.21
===== =====
Weighted average number of common
equivalent shares outstanding 1,625,657 1,556,762 1,510,762
========= ========= =======
See accompanying notes to the consolidated financial statements
<TABLE>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 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
Net income 2,096,228
Conversion of employee stock options 125,000 1,250 217,500
Issuance of shares for acquisition 40,000 400 299,600
(Note 10)
Common stock subscribed
--------- ------- ---------- ----------
Balance, December 31, 1995 1,634,465 $16,345 $5,113,190 $8,028,477
========= ======= ========== ==========
Common Stock Treasury Stock at Cost
Subscribed Shares Amount Total
Balance, January 1, 1993 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
Net income 2,096,228
Conversion of employee stock options 218,750
Issuance of shares for acquisition 300,000
(Note 10)
Common stock subscribed (300,000) (300,000)
--------- ------ ---------- -----------
Balance, December 31, 1995 $0 68,700 ($295,400) $12,862,612
========= ====== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash provided by operations:
Net Income $2,096,228 $1,376,206 $321,136
--------- --------- ---------
Reconciliation of net income to net
cash provided by (used in) operations:
Deferred income taxes (84,358) (87,768) (123,943)
Cumulative effect of change in
accounting for income taxes 0 0 (156,566)
Depreciation and amortization 325,569 171,424 174,325
Gain-on sale of automobile 0 0 (4,281)
Changes in operational assets and liabilities:
Decrease (increase) in restricted cash 1,023,765 (1,023,765) 0
(Increase) decrease in accounts receivables (4,286,173) 17,922 445,307
Decrease (increase) in inventories 908,376 36,948 (309,866)
Decrease (increase) in prepaid income taxes 0 154,209 (154,209)
Decrease (increase) in other assets and prepaid
expenses and other receivables 490,318 (356,156) (41,458)
Decrease(increase) in accounts payable and other liabilities (1,167,096) 451,550 312,518
Increase (decrease) in customer deposits and deferred income 686,139 2,120,769 (582,583)
Increase (decrease) in income taxes payable (408,723) 622,720 (609,152)
--------- ------- ---------
Net cash provided by (used in) operations (415,955) 3,484,059 (728,772)
--------- --------- ---------
Cash flows from investing activities:
(Increase) decrease in securities available for sale 1,527,651 (6,414,089) (600,000)
Capital expenditures (144,196) (187,923) (216,324)
Acquisition of business (280,000) (377,500) 0
---------- --------- ---------
Net cash (used in) provided by investing activities 1,103,455 (6,979,512) (816,324)
--------- ----------- ---------
Cash flows from financing activities:
Repayment of debt (400,000) (350,000) (100,000)
Repurchase of stock 0 0 (295,400)
Conversion of stock options 218,750 0 0
------- ---------- ---------
Net cash used in financing activities (181,250) (350,000) (395,400)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 506,250 (3,845,453) (1,940,496)
Cash and cash equivalents at beginning of year 744,770 4,590,223 6,530,719
---------- --------- ---------
Cash and cash equivalents at end of year $1,251,020 $744,770 $4,590,223
========== ======== ==========
Supplemental disclosure of cash payments made for:
Interest $90,314 $53,436 $54,862
======= ======== =======
Income taxes $1,778,373 $124,022 $985,000
========== ======== ========
</TABLE>
Supplemental disclosure of non-cash investing activities:
On December 21, 1994 as discussed in Note 2, the Company acquired the inventory
($1,259,000) and other assets ($267,758) of Hall Processing Systems. The
purchase price in 1994 included the issuance of common shares of the Company
valued at $300,000 and $677,500 in cash.
See accompanying notes to the consolidated financial statements.
QUIPP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
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 - Restricted cash represents monies held in escrow for possible
payment of damages with respect to the former litigation described in Note 13.
The monies, plus interest, less escrow agent fees, were released to the Company
on April 6, 1995.
Inventories - Inventories are stated at a lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Accounts receivable - Trade receivables are reflected net of an allowance for
uncollectible accounts of $846,171 and $627,002 in 1995 and 1994, respectively.
Customer deposits and deferred income - The majority of the Company's sales are
on a contract basis which provide for progress payments. These customer
deposits, as received, are recorded to the customer's accounts and the revenue
related to the contract is deferred. Revenue is recognized upon shipment of the
equipment.
Goodwill - Goodwill represents the excess of cost over the estimated fair value
of net assets acquired and is being 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 - The Company provides for depreciation of
property, plant and equipment, all of which are recorded at cost, by annual
charges to income. Depreciation is computed using the straight line method.
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 - The Company accounts for income taxes using the asset and
liability approach. Under Statement of Financial Accounting Standards No. 109
( SFAS 109"), this approach gives consideration to the future tax consequences
with differences between financial accounting and tax bases of assets and
liabilities recorded as deferred tax assets and liabilities. ( SFAS ) 109 was
effective January 1, 1993, and adopted by Company in the year ended December
31, 1993 with a cumulative effect of $156,566, thereby increasing income on the
consolidated statement of operations for that year.
Reclassifications - Certain reclassifications have been made to prior years
financial statements to conform to the current year's presentation.
Cash equivalents - The Company considers all highly liquid investment
instruments purchased with 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 and reported in the determination of net income.
Unrealized gains and losses, net of the related tax effects, on non-current
securities are recorded as a separate component of stockholders' equity until
realized.
Net income per share - Net income per share has been computed using the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares, which results from the assumed issuance of shares under stock
option plans, are determined using the treasury stock method.
Deferred bond financing cost - Deferred bond financing costs incurred upon
issuance of the industrial revenue bonds (See Note 8) included in other assets
are being amortized using a method which approximates the effective yield over
the term of issue.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosuresManagement of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the repoted amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. ACQUISITION
In December 1994 and January 1995, the Company purchased the inventory 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 $677,500 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. The purchase of
approximately $900,000 of the inventory, consisting primarily of raw materials,
was concluded in January 1995 and recorded to the books at such time. In 1995,
the Company repaid $300,000 of the promissory note, leaving a $600,000 balance
as of December 31, 1995.
The purchase was 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 as of
that date was recorded as goodwill in the amount of $530,742 and is being
amortized over 17 years. As of December 31, 1995, the amount of goodwill was
$499,522, with amortization of $31,220 charged to operations for the year then
ended.
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 $50,000. In
addition, the assignee of the right agreed to assume all of the 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 its 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.
5. INVENTORIES
Components of inventory as of December 31 were as follows:
1995 1994
Raw Material $2,945,575 $1,842,225
Work in process 247,572 1,140,590
Finished goods 281,738 220,446
------------------------
$3,474,885 $3,203,261
========== ==========
Inventories as of December 31, 1995 reflect the addition of inventory assets
acquired from Hall (See Note 2 above).
6. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1995, 1994, and
1993 is as follows:
Current Deferred Total
1995
Federal $1,169,605 $(72,171) $1,097,434
State and local 200,045 (12,187) 187,858
---------- -------- ---------
$1,369,650 $(84,358) $1,285,292
========= ======== =========
1994
Federal $802,594 ( $78,187) $724,407
State and local 98,357 (9,581) 88,776
---------- ------------ ----------
$900,951 ($87,768) $813,183
======== ========== ========
1993
Federal $201,769 ($110,412) $91,357
State and local 24,726 (13,531) 11,195
---------- ----------- --------
$226,495 ( $123,943) $102,552
======== =========== =========
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. The
tax effects of the temporary differences that give rise to significant portions
of the deferred tax assets and liabilities as of December 31, 1995 and 1994 are
as follows:
1995 1994
Deferred tax assets:
Warranty reserve $110,744 $116,712
Inventory obsolescence 165,900 79,529
Allowance for bad debts 313,083 231,990
Contract reserves 163,367 374,708
Depreciation 38,680 27,810
Vacation accrual 72,160 58,685
Unicap 98,995 61,995
Workman's compensation 10,693 11,560
Other taxes 172,308 86,907
Other 70,670 82,346
-------- -----------
Total gross deferred tax assets 1,216,600 1,132,242
Less valuation allowance 0 0
--------- -------------
Net deferred tax assets 1,216,600 1,132,242
Deferred tax liability: 0 0
Less noncurrent portion
Depreciation 38,680 27,810
----------- -----------
1,177,920 1,104,432
========= =========
Reconciliation of the statutory Federal income tax rate and the Company's
effective rate for the years ended December 31, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993 % of Pretax % of Pretax % of Pretax
Amount Earnings Amount Earnings Amount Earnings
<S> <C> <C> <C> <C> <C> <C>
Federal tax rate $1,149,716 34.0% $744,392 34.0% $90,821 34.0%
State and local taxes, net of
federal income tax benefit 123,986 3.7% 58,592 2.7% 7,389 2.8%
Other 11,590 .3% 10,199 0.4% 4,342 1.6%
---------- ------- ----- ---- ------ ----
$1,285,292 38.0% $813,183 37.1% $102,552 38.4%
========= ===== ===== ====== ====== =======
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT, NET
The property, plant and equipment, net balances at December 31, 1995 and 1994
consist of the following:
<TABLE>
1995 1994 Estimated useful lives
<S> <C> <C> <C>
Land $500,500 $ 500,500
Building 1,431,772 1,431,772 31.0 Years
Building Improvements 245,692 224,168 10.0 Years
Machinery 717,827 715,053 5.0 Years
Furniture and Fixtures 145,270 143,438 5.0 Years
Computer Equipment 473,882 379,995 5.0 Years
Automobiles 58,740 34,561 5.0 Years
----------- ----------
3,573,683 3,429,487
Less: Accumulated depreciation
and amortization 1,582,018 1,402,641
------------ -----------
$1,991,665 $2,026,846
========== ==========
</TABLE>
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 $1,350,000 at December 31, 1995, of which $100,000 was
classified as current. 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 4.2% and 3.2% during 1995 and 1994,
respectively. The bonds are payable in installments of $100,000 in years 1996
through 2007 and $150,000 in 2008. The letter of credit securing the Company's
obligation expires September 16, 1998.
As a part of the Hall acquisition described in Note 2, the Company entered into
a $900,000 promissory note. The note is payable over three years and bears
interest at 5 percent per year. In 1995, the Company paid the first installment
of the note in the amount of $300,000, leaving a $300,000 current balance and a
$300,000 noncurrent balance as of December 31, 1995.
9. OTHER ACCRUED LIABILITIES
The components of other accrued liabilities at December 31:
1995 1994
Professional fees 130,277 323,250
Warranty reserve 299,307 422,558
Provision for taxes
other than income 462,560 234,885
Contract provision 566,444 1,012,723
Other 301,431 222,151
-------- ---------
$1,760,019 $2,215,567
========== ==========
The amount accrued for professional fees at December 31, 1995 is lower than 1994
as the litigation in which the Company was involved in 1994 has been completed.
See further discussion of litigation in Note 13. The Company's warranty
reserves are determined based on the Company's experience with customers' claims
arising from the sale of merchandise. The Company's exposure is based upon
previous experience which is estimated at 1 1/2% of contract sales revenue.
Amounts added to these reserves were charged to selling expense. The Company
does not reserve for products manufactured by others, because they are not
covered by a Comapny Warranty.
10. SHAREHOLDERS' EQUITY
Stock Options - The Company has an incentive stock option plan under which
options may be granted to 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. These options were all exercised in 1995.
No other options have been granted under the plan.
Stock Appreciation Rights Plan -The Company has a Stock Appreciation Rights
Plan for 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 1995, 1994 or 1993. The compensation
expense relating to the plan was $30,606, $132,997, and $24,442 in 1995, 1994,
and 1993, 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. 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 $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
For the year ended December 31, 1995, there were no customers that accounted for
10% or more of the company's net sales. The San Diego Union and Dow Jones &
Company accounted for approximately 22% and 10%, respectively, of the Company's
net sales in 1994. The Sacramento Bee and the San Bernardino Sun each accounted
for approximately 10% of the Company's net sales in 1993. The Company sells a
substantial portion of its products to newspaper publishers in the United
States; however, foreign sales accounted for 18%, 11% and 21% of total revenue
in 1995, 1994 and 1993, respectively.
12. EMPLOYEE BENEFIT PLAN
The Quipp Systems Employee Savings and Investment 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 1995
and 1994 was $37,935 and $36,357, 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 answered the 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 District 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 against the Company. Thereafter, Ferag filed a writ of
certiorari with the United States Supreme Court. In October 1995, the United
States Supreme Court denied certiorari. As a result, the Court of Appeals
ruling in favor of the Company is final.
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 would have paid 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 District
Court on May 10, 1994 and the Company deposited $1,000,000 into the escrow
account. The court order provided, among other things, that if the appeal were
successful, amounts in the escrow account would be returned to the Company.
The $1,000,000, held in escrow, plus interest, less escrow agent fees, was
returned to the Company on April 6, 1995.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 All schedules are omitted because they are inapplicable
3 Exhibits (Note: The file number of all referenced Annual and
Quarterly Reports on Forms 10-K and forms 10-Q, respectively, is 0-14870.)
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 (Incorporated by reference to Exhibit 2 to the
Registrants Annual Report on Form 10-K for the year ended December 31, 1994).
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 to the
Registrant's Quarterly Report on form 10-Q for its quarter ended June 30, 1995.
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
NationsBank 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).
10.2.10 Amendment to Reimbursement Agreement between NationsBank of North
Carolina N.A., Quipp Systems, Inc. and Quipp, Inc. dated as of March 31, 1994.
*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 Quipp, Inc. 1996 Equity Compensation Plan.
*10.6 Restated Employment Agreement, dated May 1, 1995, between Quipp
Systems, Inc. and Louis D. Kipp
*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 contract 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 27, 1996 By: s\Ralph M. Branca
Ralph M. Branca, Principal
Executive Officer and Director
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\ Ralph M. Branca Principal Executive March 27, 1996
RALPH M. BRANCA Officer and President
JAMES E. PRUITT Director
s\ Jack D. Finley Director March 27, 1996
JACK D. FINLEY
Director
CRISTINA H. KEPNER
s\ William L. Rose Director March 27, 1996
WILLIAM L. ROSE
s\ Louis D. Kipp Principal Financial March 27, 1996
LOUIS D. KIPP Officer
s\Mary Johnson Principal Accounting March 27, 1996
MARY JOHNSON Officer
QUIPP, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
(a) 1 Financial Statements - See "Index to Financial Statements"
2 All schedules are omitted because they are inapplicable
3 Exhibits (Note: The file number of all referenced Annual and
Quarterly Reports on Forms 10-K and forms 10-Q, respectively, is 0-14870.)
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 (Incorporated by reference to Exhibit 2 to the
Registrants Annual Report on Form 10-K for the year ended December 31, 1994).
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 to the
Registrant's Quarterly Report on form 10-Q for its quarter ended June 30, 1995.
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 Nations 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).
10.2.10 Amendment to Reimbursement Agreement between NationsBank of
North Carolina N.A., Quipp Systems, Inc. and Quipp, Inc. dated as of March 31,
1994.
*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 Quipp, Inc. 1996 Equity Compensation Plan.
*10.6 Restated Employment Agreement, dated May 1, 1995, between
Quipp Systems, Inc. and Louis D. Kipp
*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 contract 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. The Board of <PAGE>
AMENDMENT TO REIMBURSEMENT AGREEMENT
THIS AMENDMENT TO REIMBURSEMENT AGREEMENT (The Amendment ), made and entered
into this 31st day of March 1994, by and among QUIPP, INC., a Florida
corporation (the Company), QUIPP SYSTEMS, INC., a Florida corporation (the
Guarantor ), and NATIONS BANK OF NORTH CAROLINA, N.A., FORMERLY KNOWN AS NCNB
National Bank of North Carolina (the Bank ).
RECITALS
A. The Company, the Guarantor and the Bank entered into a Reimbursement
Agreement dated as of October 1, 1988 (the Agreement ) in connection with, and
as an inducement to the Bank for the Bank's issuance of a letter of credit (the
Letter of Credit ) to Mellon Bank, N.A., as trustee for the benefit of the
holders of bonds in the original aggregate principal amount of TWO MILLION THREE
HUNDRED FORTY THOUSAND DOLLARS ($2,340,000.00) issued by the Dade County
Industrial Development Authority, a political subdivision and body corporate and
politic of the State or Florida.
B. The amount available under the Letter of Credit, as same has been
previously extended, has been reduced to ONE MILLION SIX HUNDRED FIFTY THOUSAND
DOLLARS ($1,650,000.00).
C. The Company and the Guarantor have requested the bank to extend the
Letter of Credit to September 16, 1998, and the Bank is agreeable to same,
subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants of the parties
hereto, and for other good and valuable consideration, it is agreed as follows:
1. The foregoing statements are true and correct and are incorporated
herein as if set forth in full.
2. Unless otherwise defined herein, all terms used herein shall have
the definitions specified in the Agreement.
3. The agreement is hereby modified as follows (all references to
Sections being the applicable Sections of the Agreement):
(a) The minimum Consolidated Tangible Net Worth, required pursuant
to Section 4.01 be EIGHT MILLION SEVEN HUNDRED NINETY-NINE THOUSAND DOLLARS
($8,799,000.00) at fiscal year end December 31, 1993, increased, as of each
subsequent fiscal year end, by the Required Annual Increase as provided in
Section 4.01 (p), but such Consolidated Tangible Net Worth to, in no event,
decline for three or more consecutive fiscal quarters.
(b) The minimum Debt Coverage Ratio, as required pursuant to
Section 4.01 (r), is increased to 1.75 to 1.00.
(c) Section 4.01 (t) is added as follows:
(t) Within ninety (90) days after each annual Dade County
environmental inspection of the property
encumbered by the Mortgage,
deliver to the bank a certificate from Dade County, in
form and
substance satisfactory to the Bank, demonstrating ongoing
satisfactory environmental compliance with respect to
such property.
4. Each and every reference to the Agreement in the other Bond
Documents shall be deemed to refer to the Agreement, as modified by this
Amendment.
5. The obligation of the Bank to further extend the Letter of Credit
as provided herein is subject to satisfactory compliance with conditions
precedent requiring that the Bank shall have received the following, prior to or
simultaneously with the execution of this Amendment:
(a) current certified copies of Articles of Incorporation, By-Laws
and evidence of good standing for the company and the Guarantor; and
(b) such additional documents, instruments and agreements as
are required hereunder as well as those which the Bank or its counsel may
reasonably request.
6. As partial consideration for the Bank extending the Letter of Credit
as provided above, the Bank has fully earned a nonrefundable renewal fee in the
amount of EIGHT THOUSAND TWO HUNDRED FIFTY DOLLARS ($8,250.00), which shall be
paid to the Bank simultaneously with the execution of this Amendment.
7. The Company and the Guarantor each represent and warrant to the Bank
that, except as has been otherwise disclosed to the Bank in writing, the
representations and warranties contained in the Agreement and all related
documentation are true and correct on and as of the date hereof (with the same
force and effect as if made on and as of the date hereof) and with respect to
this Amendment
and the related documentation referenced herein.
8 The Company and the Guarantor each acknowledge and confirm that the
Security Documents and all collateral furnished in connection with Agreement
continue to secure the obligations thereunder, as hereby modified.
9. The Company shall pay all out- of-pocket expenses incurred by the
Bank in connection with the preparation for and closing of the transaction
contemplated under this Amendment, including, without limitation, the fees and
expenses of special counsel for Bank. In addition, BORROWER shall pay any and
all taxes (together with interest and penalties, if any, applicable thereto) and
fees
now or hereafter required in connection with the execution and delivery if the
Agreement, as hereby amended, and all related documents, instruments and
agreements.
10. Except as expressly modified herein, all terms and provisions of the
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection with the Agreement shall remain unchanged and in full
force and effect. No consent of the Bank hereunder shall operate as a waiver or
continuing consent with respect to any instance or event other than those
specified herein.
11. All covenants, agreements, representations and warranties contained
herein shall be binding upon and inure to the benefit of the parties hereto,
their respective successors and assigns, except that the Company shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Bank.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO, INCLUDING, BUT NOT LIMITED TO, THOSE ARISING OUT OF ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION PRACTICE AND PROCEDURE FOR THE ARBITRATION OF
COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE SPECIAL RULES SET FORTH BELOW IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGEMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AMENDMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF THE COMPANY S DOMICILE AT THE TIME OF THE EXECUTION OF THIS AMENDMENT AND
ADMINISTERED BY J.A.M.S., WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(b) RESERVATION OF RIGHTS. NOTHING IN THE AGREEMENT, AS MODIFIED
BY THIS AMENDMENT, SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THE AGREEMENT, AS MODIFIED BY THIS AMENDMENT; OR (II) BE A WAIVER BY THE BANK
OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN
SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF
ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THE AGREEMENT, AS MODIFIED BY
THIS AMENDMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION
OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment the
day and year first above written.
(CORPORATE SEAL) QUIPP, INC. a Florida
Corporation
Attest: s\ Charlotte Porro
By: s\ James E. Pruitt
As: Controller
As: CEO and President
(CORPORATE SEAL) QUIPP SYSTEMS, INC., a Florida
Corporation
Attest: s\ Charlotte Porro
By: s\ Louis D. Kipp
As: Controller
As: President
NATIONS BANK OF NORTH CAROLINA
N.A. (f/k/a NCNB NATIONAL BANK
OF
NORTH CAROLINA
By: s\ Steven Mayor
As:
_________________________________<PAGE>
QUIPP, INC. 1996 EQUITY COMPENSATION PLAN
The purpose of the Quipp, Inc, 1996 Equity Compensation Plan (the
"Plan") is (i) to provide designated officers (including officers who are also
directors), and other employees of Quipp, Inc. and its subsidiaries (within the
meaning specified in Section 424(f) of the Code) (hereinafter collectively
referred to as the "Company"), members of the Board who are not employed in any
capacity by the Company ("Non-Employee Directors") and consultants and advisors
to the Company ("Key Advisors") with certain rights to acquire common stock of
the Company, and (ii) to provide for the grant of incentive stock options and
nonqualified stock options. The Company believes that the Plan will be an
incentive to the participants to contribute materially to the growth of the
Company, thereby benefitting the Company's shareholders, and will align the
economic interests of the participants with those of the shareholders.
1. Administration
Subject to the provisions of Section 6, the Plan shall be
administered and interpreted by the Board of Directors or by a committee
consisting of not less than two persons appointed by the Board of Directors of
the Company from among its members who are Non-Employee Directors of the
Company, all of whom are "outside directors" as defined under section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and related Treasury
regulations. The Board of Directors, in such administrative capacity or, if
appointed, such Committee, (either of which are hereinafter referred to as the
"Committee"), subject to the provisions of Section 6, shall have the sole
authority to determine (i) the individuals to whom options and awards shall be
granted under the Plan, (ii) the type, size and terms of the grants or awards to
be made to each such individual, (iii) the time when the grants or awards will
be made and (iv) any other matters arising under the Plan. The Committee shall
have full power and authority to administer and interpret the Plan, to make
factual determinations and to adopt or amend such rules, regulations, agreements
and instruments for implementing the Plan and for conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interests in the Plan or in any awards granted hereunder.
2. Grants and Awards
Incentives under the Plan shall consist of incentive stock options,
nonqualified stock options, restricted stock grants (hereinafter collectively
referred to as "Grants") and stock bonus awards ("Awards"). All Grants and
Awards shall be subject to the terms and conditions set forth herein and to
those other terms and conditions consistent with this Plan as the Committee
deems appropriate and as are specified in writing by the Committee to the
employee, Key Advisor or Non-Employee Director (the "Grant Letter"). The
Committee shall approve the form and provisions of each Grant Letter. Grants
and/or Awards under a particular Section of the Plan need not be uniform as
among the employees or Key Advisors and Grants and/or Awards under two or more
Sections of the Plan may be combined in one instrument. Grants to Non-Employee
Directors shall be governed by Section 6.
3. Shares Subject to the Plan
(a) Subject to the adjustment specified below, the aggregate
number of shares of common stock, $.01 par value, of the Company ("Company
Stock") that may be issued or transferred under the Plan is 400,000 shares. The
maximum aggregate number of shares of Company Stock that shall be subject to
options restricted stock grants or stock bonus awards under the Plan to any
single individual during the term of the Plan shall be 100,000 shares. The
shares may be authorized but unissued shares of Company Stock or treasury shares
of Company Stock, including, without limitation, shares repurchased by the
Company on the open market. If and to the extent options granted under the Plan
terminate, expire, or cancel without having been exercised, or if any shares of
restricted stock are forfeited (regardless of whether any voting rights are
exercised, dividends received, or any other rights were vested in the
Participant prior to forfeiture), the shares subject to such option or
comprising such restricted stock shall again be available for purposes of the
Plan.
(b) If there is any change in the number or kind of shares of
Company Stock outstanding by reason of a stock dividend, recapitalization, stock
split, or combination or exchange of such shares, or a merger, reorganization or
consolidation of the Company, reclassification or change in par value or by
reason of any other extraordinary or unusual event affecting the outstanding
Company Stock as a class without the Company's receipt of consideration or if
the value of outstanding Shares of Company Stock is substantially reduced due to
the Company's payment of an extraordinary dividend or distribution, the maximum
number of shares of Company Stock available for Grants or Awards, the maximum
number of shares of Company Stock for which any one individual participating in
the Plan may receive Grants and Awards over the term of the Plan, and the number
of shares and price per share subject to outstanding Stock Options shall be
proportionately adjusted by the Committee to reflect any increase or decrease in
the number or kind of issued shares of Company Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Grants or Awards; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated. During the Restriction Period (as defined
in Section 7(a)), shares of the Company Stock subject to the Restricted Stock
Grant (as defined in the introductory clause of Section 7) shall be deemed to be
outstanding, and the number and kind of such shares shall be adjusted in the
same manner as other outstanding shares of Company Stock as a result of any of
the events that would cause the operation of the provisions of this Section
3(b). The adjustments determined by the Committee shall be final, binding and
conclusive. As used herein, the term "Company Stock" shall include any other
kind of Company securities issued in respect of Company Stock pursuant to the
events set forth in this Section 3(b).
4. Eligibility for Participation
Officers and other employees of the Company, Key Advisors designated
by the Committee and Non-Employee Directors shall be eligible to participate in
the Plan (hereinafter referred to individually as the "Participant" and
collectively as the "Participants"). The Committee shall select the individuals
(other than Non-Employee Directors) to receive Grants and Awards (the
"Grantees") from among the Participants and determine the number of shares of
Company Stock subject to a particular Grant or Award in such manner as the
Committee determines; provided, however, that Key Advisors must render bona fide
services and such services must not be in connection with the offer or sale of
securities in a capital-raising transaction; and provided further, that Non-
Employee Directors may receive only Nonqualified Stock Options (as defined
below) pursuant to Section 6 hereof.
5. Granting of Options
(a) Number of Shares. The Committee shall grant to each Grantee a
number of stock options as the Committee shall determine.
(b) Type of Option and Price. The Committee may grant options
qualifying as incentive stock options within the meaning of Section 422 of the
Code ("Incentive Stock Options") or stock options which are not intended to so
qualify ("Nonqualified Stock Options") or any combination of Incentive Stock
Options and Nonqualified Stock Options (hereinafter referred to collectively as
"Stock Options") in accordance with the terms and conditions set forth herein;
provided, however, that Key Advisors shall not be eligible to receive grants of
Incentive Stock Options and Non-Employee Directors may receive only Nonqualified
Stock Options pursuant to Section 6 hereof.
The purchase price of Company Stock subject to an Incentive Stock
Option or a Nonqualified Stock Option shall be at least equal to the "Fair
Market Value" of a share of such Company Stock on the date such Stock Option is
granted. The Fair Market Value per share shall be, if the principal trading
market for the Company Stock is a national securities exchange or the Gnostic
National Market, the last reported sale price thereof on the relevant date or
the latest preceding date upon which a sale was reported, or, if the Company
Stock is not principally traded on such exchange or market, the mean between the
last reported "bid" and "asked" prices thereof on the relevant date, as reported
on Gnostic or, if not so reported, as reported by the National Daily Quotation
Bureau, Inc. or as reported in a customary financial reporting service, as
applicable and as the Committee determines. If the Company Stock is not subject
to reported transactions or "bid" or "ask" quotations as set forth above, the
Fair Market Value per share shall be as determined by the Committee.
(c) Term. The Committee shall determine the option term of each
Stock Option. The term shall not exceed ten years from the date of grant.
(d) Exercisability of Options. Subject to Section 6, Stock
Options shall become exercisable in accordance with the terms and conditions
determined by the Committee, in its sole discretion, and specified in the Grant
Letter. The Committee, in its sole discretion, may accelerate the
exercisability of any or all outstanding Stock Options, other than stock options
granted pursuant to Section 6 and held by a Participant who is then a Non-
Employee Director, at any time and for any reason. In addition, all outstanding
Stock Options including stock options granted pursuant to Section 6, shall
become immediately exercisable upon a Change in Control (as defined herein)
unless the Committee, in its sole discretion, determines not to accelerate such
Stock Options upon a Change in Control (the Committee shall not make such a
determination in connection with Stock Options granted pursuant to Section 6
held by a Participant who is then a Non-Employee Director). The Committee may
make such determination prior to the Change in Control or, provided that the
Committee making such determination following a Change in Control is comprised
of the same members as those on the Committee immediately prior to such Change
in Control, within thirty (30) days following such Change in Control.
(e) Manner of Exercise. A Grantee may exercise a Stock Option, in
whole or in part, by delivering a notice of exercise to the Committee with
accompanying payment of the option price. Such notice may instruct the Company
to deliver shares of Company Stock due upon the exercise of the Stock Option to
any registered broker or dealer designated by the Company ("Designated Broker")
in lieu of delivery to the Grantee. Such instructions must designate the
account into which the shares are to be deposited. The Grantee may tender this
notice of exercise, which has been properly executed by the Grantee, and the
aforementioned delivery instructions to any Designated Broker.
(f) Termination of Employment, Disability or Death.
(1) In the event the Grantee ceases to be an employee or
director of the Company or Key Advisor for any reason other than disability,
death or a termination for cause by the Company, any Stock Option which is
otherwise exercisable by the Grantee shall terminate unless exercised within
ninety days of the date on which he ceases to be an employee or Key Advisor (or,
except with respect to Stock Options granted pursuant to Section 6 and held by
persons who are then Non-Employee Directors, within such other period of time as
may be specified by the Committee), but in any event no later than the date of
expiration of the option term.
(2) In the event the Grantee ceases to be an employee or
director of the Company or a Key Advisor because he is disabled within the
meaning of section 22(e)(3) of the Code, any Stock Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year of
the date on which he ceases to be an employee, director or Key Advisor (or,
except with respect to Stock Options granted pursuant to Section 6 and held by
persons who are then Non-Employee Directors, within such other period of time as
may be specified by the Committee), but in any event no later than the date of
expiration of the option term.
(3) In the event of the death of the Grantee while he is an
employee, director or Key Advisor of the Company or within not more than three
months of the date on which he ceases to be an employee, director or Key Advisor
(or, except with respect to Stock Options granted pursuant to Section 6 and held
by persons who are then Non-Employee Directors, within such other period of time
as may be specified in by the Committee), any Stock Option which was otherwise
exercisable by the Grantee at the date of death may be exercised by his personal
representative at any time prior to the expiration of one year from the date of
death (or, except with respect to Stock Options granted pursuant to Section 6
and held by persons who are then Non-Employee Directors, within such other
period of time as may be specified in by the Committee), but in any event no
later than the date of expiration of the option term.
(4) In the event the Grantee ceases to be an employee or
director of the Company or Key Advisor on account of a termination for "Cause"
by the Company, any Stock Option held by the Grantee shall terminate as of the
date he ceases to be an employee or Key Advisor (or, except with respect to
Stock Options granted pursuant to Section 6 and held by persons who are then
Non-Employee Directors, as the Committee may otherwise provide) but in any event
no later than the date of expiration of the option term. "Cause" shall mean (I)
with respect to Grantees other than Non-Employee Directors, except to the extent
otherwise provided in a Grantee's Grant Letter, a finding by the Committee,
after full consideration of the facts presented on behalf of both the Company
and the Grantee, that the Grantee has breached his or her employment or service
contract with the Company, or has been engaged in disloyalty to the Company,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his or her employment or service,
or has disclosed trade secrets or confidential information of the Company, (ii)
with respect to Non-Employee Directors, the date the Grantee's directorship is
terminated, if the directorship is terminated on account of (A) any act of
fraud, intentional misrepresentation, embezzlement or theft, (B) commission of a
felony or disclosure of trade secrets or confidential information of the
Company. In such event, in addition to the immediate termination of the Option,
the Grantee shall automatically forfeit all Option Shares for any exercised
portion of an Option for which the Company has not yet delivered the share
certificates upon refund by the Company of the Option Price.
(g) Satisfaction of Option Price. The Grantee shall pay the
option price in cash or, with the approval of the Committee, by delivering
shares of Company Stock already owned by the Grantee for the period necessary to
avoid a charge to the Company's earnings for financial reporting purposes and
having a fair market value on the date of exercise equal to the option price or
with a combination of cash and shares, or (except with respect to Stock Options
granted pursuant to Section 6 and held by persons who are then Non-Employee
Directors) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board or any successor regulation of the agency then
responsible for administering margin regulations pertaining to securities
brokers ("Regulation T"). Non-Employee Directors who hold Stock Options granted
pursuant to Section 6 may make payment through a broker in accordance with
procedures permitted by Regulation T. The Grantee shall pay the option price
and the amount of withholding tax due, if any, at the time of exercise. Shares
of Company Stock shall not be issued or transferred upon exercise of a Stock
Option until the option price and applicable withholding taxes are fully paid.
(h) Requirements for Incentive Stock Options. Each Grant of an
Incentive Stock Option shall provide that to the extent that the aggregate fair
market value of the Company Stock on the date of the Grant with respect to which
Incentive Stock Options are exercisable for the first time by a Grantee during
any calendar year under the Plan or any other stock option plan of the Company
exceeds $100,000, then such Stock Options, to the extent of such excess, shall
be treated as Nonqualified Stock Options. An Incentive Stock Option shall not
be granted to any Participant who, at the time of grant, owns stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or parent of the Company, unless the option price per share is
not less than 110% of the fair market value of Company Stock on the date of
grant and the option term is not more than five years from the date of grant.
Notwithstanding anything in the Plan to the contrary, to the extent that any
Stock Option does not qualify as an Incentive Stock Option, such option shall be
treated as a Nonqualified Stock Option.
6. Option Grants to Non-Employee Directors
A Non-Employee Director shall be entitled to receive Nonqualified Stock
Options only in accordance with this Section 6.
(a) Initial Grant. Each Non-Employee Director who is a member of
the Board on the effective date of the Plan (the "Effective Date") and who was
not previously an employee of the Company will receive on the Effective Date a
grant of a Nonqualified Stock Option to purchase 5,000 shares of Company Stock.
Each Non-Employee Director who first becomes a member of the Board after the
Effective Date will receive a grant of a Nonqualified Stock Option to purchase
5,000 shares of Company Stock immediately upon his or her becoming a member of
the Board.
(b) Annual Grants. On each date that the Company holds its annual
meeting of stockholders, commencing with the 1997 calendar year, each Non-
Employee Director in office immediately after the annual election of directors
(excluding any directors first elected at such meeting, who shall each receive
the grant specified in Section 6(a)) will receive a grant of a Nonqualified
Stock Option to purchase 5,000 shares of Company Stock.
(c) Option Exercise Price; Term of Options. Options granted under
this Section 6 shall have a per share exercise price equal to the Fair Market
Value of a share of Company Stock on the date of grant, and such options shall
be fully exercisable on the date of grant. Options granted under this Section 6
shall have a term of ten years from the date of grant, subject to earlier
termination pursuant to Section 5(f).
(d) Administration. The provisions of the Section 6 are intended
to operate automatically and not require administration. However, to the extent
that administrative determinations are required, the provisions of this Section
6 shall be made by the members of the Board who are not eligible to receive
grants under this Section 6, but in no event shall such determinations affect
the eligibility of Grantees, the determination of the exercise price, the timing
of the grants or the number of shares subject to Stock Options granted hereunder
or otherwise cause the Plan, insofar as it relates to Non-Employee Directors, to
fail to satisfy the conditions of Rule 16b-3(c)(ii) under the Security Exchange
Act of 1934, as amended (the Exchange Act ).
(e) Acceleration. Upon the occurrence of a Change of Control,
each Stock Option granted pursuant to this Section 6 shall automatically
accelerate and become fully exercisable as to all shares subject to such option
and shall remain exercisable until the expiration of the option term.
(f) Applicability of the Plan Provisions. Except as otherwise
provided in the Plan (including this section 6), the Nonqualified Stock Options
granted to Non-Employee Directors shall be subject to the provisions of this
Plan applicable to Nonqualified Stock Options granted to other persons.
(g) Amendment. Notwithstanding any other provision of the Plan,
this Section 6 and the provisions of Section 5(f) and Section 5(g) as they
pertain to Non-Employee Directors may not be amended more than once every six
months, other than the comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended ( ERISA ) or the rules
thereunder.
7. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock, subject to
restriction as set forth herein, to a Participant under a grant (a Restricted
Stock Grant ). Non-Employee Directors and Key Advisors shall not be eligible to
receive Restricted Stock Grants. The following provisions are applicable to
Restricted Stock Grants:
(a) General Requirements. Share of Company Stock issued pursuant
to Restricted Stock Grants will be issued for no consideration unless otherwise
required under applicable law. Subject to any other restrictions by the
Committee as provided pursuant to this Section, restrictions on the transfer of
shares of Company Stock set forth in Section 7(d) shall lapse as provided in the
Grant Letter. The period of time during which the Restricted Stock Grant will
remain subject to restrictions including the time prior to satisfaction of
performance or other conditions for removal of restrictions will be designated
in the Grant Letter as the Restriction Period.
(b) Number of Shares. The Committee shall grant to each Grantee
a number of shares of Company Stock pursuant to a Restricted Stock Grant in such
manner as the Committee determines.
(c) Requirement of Employment. If the Grantee's employment
terminates during a period designated in the Grant Letter as the Restriction
Period, the Restricted Stock Grant terminates as to all shares covered by the
Grant as to which restrictions on transfer have not lapsed, and, unless the
Company has retained possession of the shares of Company Stock subject to
restriction, those shares of Company Stock must be immediately returned to the
Company. The Committee may, however, provide for complete or partial exceptions
to this requirements as it deems equitable.
(d) Restriction on Transfer and Legend on Stock Certificate.
During the Restriction Period, a Grantee may not sell, assign, transfer, pledge,
or otherwise dispose of the shares of Company Stock to which such Restriction
Period applies except as provided by the Committee. Each certificate for a
share issued or transferred under a Restricted Stock Grant shall contain a
legend giving appropriate notice of the restrictions in the Grant. The Grantee
shall be entitled to have the legend removed from the stock certificate or
certificates covering any of the shares subject to restrictions when all
restrictions an such shares have lapsed.
(e) Voting and Dividends. If so determine by the Committee, the
Grantee shall have the right to vote shares of the Company Stock subject to the
Restricted Stock Grant and to receive the payment of any cash dividends paid on
such shares during the Restricted Period.
(f) Lapse of Restrictions. All the restrictions imposed during
the Restricted Stock Grant shall lapse upon the expiration of the applicable
Restriction Period; provided, however, that upon a Change in Control (as defined
herein), the Restricted Period relating to the shares which have not, prior to
such date, been satisfied shall immediately lapse, unless the Committee, in its
sole discretion, determines not to lapse such restrictions upon a Change in
Control. The Committee may make such determination prior to the Change in
Control or, provided that the Committee making such determination following a
Change in Control is comprised of the same members as those on the Committee
immediately prior to such Change in Control, within thirty (30) days following
such Change in Control. In addition, the Committee may determine as to any or
all Restricted Stock Grants, that all restrictions shall lapse, without regard
to any Restriction Period, under such circumstances as it deems appropriate.
8. Stock-Based Award.
The Committee is authorized, subject to limitations under applicable
law, to grant to Participants other than Non-Employee Directors Awards of
Company Stock purely as a bonus and not subject to any restrictions or
conditions.
9. Transferability of Stock Options.
No Stock Option granted under the Plan may be transferred, except by
will or by the laws of descent and distribution. During the lifetime of the
person to whom a Stock Option is granted, such Stock Option may be exercised
only by such person. Notwithstanding the foregoing, a (i) Nonqualified Stock
Option may be transferred pursuant to the terms of a qualified domestic
relations order, within the meaning of sections 401(a)(13) and 414(p) of the
Code or within the meaning of Title I of ERISA and (ii) the Committee may
provide, in a Grant Letter, that a Grantee may transfer Stock Options to his or
her children, grandchildren or spouse or to one or more trusts for the benefit
of such family members or to partnerships in which such family members are the
only partners (a Family Transfer ), provided that Grantee receives no
consideration for a Family Transfer and the Grant Letter relating to Stock
Options transferred in a Family Transfer continue to be subject to the same
terms and conditions that were applicable to such Stock Options immediately
prior to the Family Transfer.
10. Change in Control.
A Change of Control shall be deemed to have occurred upon the
earliest to occur of the following events: (i) the date the shareholders of the
Company (or Board of Directors, if shareholders action is not required) approve
a plan or other arrangement pursuant to which the Company will be dissolved or
liquidated, or (ii) the date the shareholders of the Company (or the Board of
Directors, if shareholder action is not required) approve a definitive agreement
to sell or otherwise dispose of substantially all of the assets of the Company,
or (iii) the date the shareholders of the Company (or Board of Directors, if
shareholder action is not required) and the shareholders of the other
constituent corporation (or its board of directors if shareholder action is not
required) have approved a definitive agreement to merge or consolidate the
Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of Company
Stock immediately prior to the merger or consolidation will have at least a
majority of the ownership of common stock of the surviving corporation ( and, if
one class of common stock is not the only class of voting securities entitled to
vote on the election of directors of the surviving corporation, a majority of
the voting power of the surviving corporation's voting securities) immediately
after the merger or consolidation, which common stock (and, if applicable,
voting securities) is to be held in the same proportion as such holders'
ownership of Company Stock of the Company immediately before the merger or
consolidation, or (iv) the date any entity, person or group, within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act 1934, as
amended, (other than the Company or any employee benefit plan ( or related
trust) sponsored or maintained by the Company) shall have become the beneficial
owner of, or shall obtained voting control over, securities of the Company
having at least twenty percent (20%) of the combined voting power of outstanding
securities of the Company in the election of directors, or (v) the first day
after the date this Plan is approved by shareholders of the Company when
directors are elected such that a majority of the members of the Board of
Directors for less than two years, unless the election or nomination for
election of each new director who was not a director at the beginning of such
two year period was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period.
11. Amendment and Termination of the Plan.
(a) Amendment. The Board of Directors of the Company may amend
the Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors of the Company may not change the class of
individuals eligible to receive an incentive stock option or increase the
maximum number of shares as to which Grants or Awards may be made under the
Plan, or the individual limit for any single Participant, without obtaining
shareholder approval by such vote as is required by the Florida Business
Corporation Act, as amended and, if applicable, the provisions of the Company's
Articles of Incorporation or By-Laws, or, if a greater vote is required in order
to comply with applicable requirements of the Code or Rule 16b-3, by such vote
as is required by the Code or Rule 16b-3. No amendment to the Plan shall
adversely affect any outstanding Grant or Award, however, without the consent of
the Participant holding such Grant or Award.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date unless
terminated earlier by the Board of Directors of the Company or unless extended
by the Board with the approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Plan that occurs after a Grant or Award is made
shall not result in the termination or amendment of the Grant or Award unless
the Participant holding such Grant or Award consents or unless the Committee
acts under Section 18(b). The termination of the Plan shall not impair the
power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant or Award may be
terminated or amended under Section 18(b) or may be amended by agreement of the
Company and the Participant holding such Grant or Award consistent with the
terms of the Plan.
12. Rights of Participants.
Nothing in this Plan shall entitle any Participant or other person
to any claim or right to be a Grant or Award under this Plan. Neither this Plan
nor any action taken hereunder shall be construed as giving any Participant any
rights to be retained by or in the employ of the Company.
13. Withholding of Taxes.
The Company shall have the right to deduct from wages paid to the
employee of the Company, any federal, state or local taxes required by law to be
withheld with respect to Grants or Awards, and the Participant or other person
receiving Company Stock under the Plan shall be required to pay to the Company
the amount of any such taxes which the Company is required to withhold with
respect to such Company Stock.
14. Agreements with Participants.
Each Grant made under this Plan shall be evidenced by a Grant Letter
containing such terms and conditions consistent with the term of the Plan, as
the Committee shall approve.
15. Requirements for Issuance of Shares.
No Company Stock shall be issued or transferred upon payment of any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Restricted Stock Grant, Stock Option or Award made to any Participant
hereunder on such Participant's undertaking in writing to comply with such
restrictions on his subsequent disposition such shares of Company Stock as the
Committee shall deem necessary or advisable as a result of any applicable law,
regulation or official interpretation thereof, and certificates representing
such shares may be legended to reflect any such restrictions.
16. Heading
Sections headings are for reference only. In the event of a
conflict between a title and the content of a Section, the content of the
Section shall control.<PAGE>
17. Effective Date of the Plan
Subject to the approval of the Company's shareholders, this Plan
shall be effective as of the date the Plan is adopted by the Board of Directors
of the Company. If the Plan if not approved by the Company' shareholders within
twelve months following such date, all Grant under the Plan shall be null and
void. No Awards may be made prior to shareholders approval.
18. Miscellaneous
(a) Substitute Grants. The Committee may make a Grant to an
employee of another corporation who becomes a Participant by reason of a
corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or Restricted Stock Grant granted by such
corporation ( Substituted Stock Incentives ). The terms and conditions of the
substitute Grant may vary from the terms and conditions required by the Plan and
from those of the Substituted Stock Incentives. The Committee shall prescribe
the provisions of the substitute Grants.
(b) Compliance with Law. The Plan, the exercise of Grants and
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by a
governmental or regulatory agency as may be required, including, without
limitation, the filing of a registration statement under the Securities Act of
1933 with respect to shares of Company Stock under the Plan. The Plan is
intended to enable transactions under the Plan with respect to directors and
officers (within the meaning of Section 16(a) under the Securities Exchange Act
of 1934, as amended) to satisfy the conditions of Rule 16b-3; to the extent that
any provision of the Plan would cause a conflict with such conditions or would
cause the administration of the Plan as provided in Section 1 to fail to satisfy
the conditions of Rule 16b-3, such provision shall be deemed null and void to
the extent permitted by applicable law. Notwithstanding the foregoing, the
provision in Grant letter for Family Transfers pursuant to Section 9 is
expressly permitted, even though Stock Options evidenced by such Grant Letter
may not be deemed to satisfy the conditions of Rule 16b-3 as a result of such
provision. The Committee may revoke any Grant if it is contrary to applicable
law or modify a Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to Participants. The Committee may, in its sole
discretion, agree to limit its authority under this Section.
(c) Ownership of Stock. A Participant shall have no rights as a
shareholder with respect to any shares of Company Stock covered by a Grant or
Award until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company, except as may be
detremined pursuant to Section 7(e).<PAGE>
RESTATED EMPLOYMENT AGREEMENT
This Agreement made and entered into as of the first day of May, 1995, by
and between QUIPP SYSTEMS, INC., a Florida corporation hereinafter called
"COMPANY," which term shall include its successors or assigns, and LOUIS D.
KIPP, of Miami, Florida, hereinafter called "EMPLOYEE," which term shall include
his heirs, personal representatives or assigns wherever the context so requires
or admits.
W I T N E S S E T H :
WHEREAS, COMPANY is a Florida corporation, involved in the design and
manufacture of material handling equipment for the newspaper and commercial
printing industries; and
WHEREAS, COMPANY and EMPLOYEE entered into that certain Employment
Agreement dated the 20th day of July, 1989; and
WHEREAS, COMPANY and EMPLOYEE entered into that certain Amendment to
Employment Agreement dated the 30th day of April 1991; and
WHEREAS, COMPANY and EMPLOYEE entered into that certain Restated
Employment Agreement dated the 1st day of May, 1995; and
WHEREAS, COMPANY and EMPLOYEE wish to further amend and modify such
employment Agreement by restating the same as hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed between the parties as follows:
1. COMPANY employs EMPLOYEE as its President and Chief Executive
Officer to serve and perform such duties at such times and places, and in such
manner as the Board of Directors of COMPANY from time to time may direct.
2. The term of this Agreement shall continue for a period of twenty-
four (24) months commencing May 1, 1995.
3. COMPANY agrees to pay EMPLOYEE:
A. Basic compensation at the rate of One Hundred Ten Thousand
($110,000) dollars per annum, payable in bi-weekly installments of Four Thousand
Two Hundred Thirty and 77/100 ($4,230.77) Dollars, plus any additional
compensation granted by COMPANY'S Board of Directors during the life of the
contract, said increases to apply to the term of the contract remaining after
the effective date of such increases.
B. An incentive bonus pursuant to the QUIPP, INC. EXECUTIVE INCENTIVE
COMPENSATION PLAN. The amount of the corporate contribution to the plan, if
any, and the allocation of bonuses, if any, to EMPLOYEE will be established by
the Board of Directors of Quipp Inc., a Florida corporation that is the only
shareholder of COMPANY, and/or a duly designated committee thereof.
4. COMPANY agrees to do the following:
A. Provide employee with an automobile and its reasonable
operating expenses. The acquisition of such automobile shall be approved by the
Compensation Committee of COMPANY'S Board of Directors or, if such a Committee
has not been appointed, by COMPANY'S Board of Directors. Any tax liability
incurred by EMPLOYEE as a result of the provision of this vehicle shall be the
responsibility of EMPLOYEE.
B. In accordance with COMPANY practice regarding such expenses,
reimburse EMPLOYEE for travel and entertainment expense reasonably incurred as a
consequence of his employment by COMPANY.
5. If EMPLOYEE voluntarily terminates his employment with the COMPANY,
COMPANY shall
A. Pay EMPLOYEE his basic compensation up to the date of
termination and unused vacation time.
B. Continue EMPLOYEE'S health insurance (which, for purposes of
this Agreement shall be deemed to include family coverage) for a period of
twenty-four (24) months if EMPLOYEE voluntarily terminates his employment before
reaching age 65, or for a period of sixty (60) months, if EMPLOYEE voluntarily
terminates his employment after reaching age 65, provided that in either event
EMPLOYEE pays one hundred percent (100%) of the cost of such health insurance,
as determined pursuant to subsection 5.C below; provided, however, that EMPLOYEE
shall not be obligated to pay more than the premium for any similarly situated
full-time employee, and COMPANY shall pay any excess. During the time of
continuation of said insurance, insurance provided by COMPANY shall be
subordinate to any other health insurance (including Medicare or any other
governmentally provided coverage) for which EMPLOYEE is eligible; provided, that
the Company shall reimburse EMPLOYEE for any Medicare, Part B premiums paid by
EMPLOYEE during such time.
C. For purposes of this Agreement, the cost of EMPLOYEE'S health
insurance shall be the actual premium paid to the insurance company and, if
COMPANY is partially self insured, the cost per participant for each year or
portion thereof relating to such self insurance. EMPLOYEE shall pay such
amounts at the beginning of the relevant year or portion thereof for which
EMPLOYEE is entitled to receive health insurance pursuant to this Section 5 (or,
if applicable, subsection 6.A or subsection 7.B), based on the estimated average
cost per participant for equivalent coverage, and an appropriate adjustment
shall be made at the end of such period, based on the actual cost per
participant for equivalent coverage.
6. A. In the event that there is an "involuntary termination" of
EMPLOYEE during the term of this Agreement, then and in that event COMPANY
shall:
(i) Pay EMPLOYEE his basic compensation through the termination
date of this Agreement, or one year's annual salary, whichever is greater.
(ii) Continue EMPLOYEE'S health insurance until EMPLOYEE'S
seventieth (70th) birthday, provided EMPLOYEE pays one hundred percent (100%) of
the cost of such insurance, as determined pursuant to subsection 5.C above;
provided, however, that EMPLOYEE shall not be obligated to pay more than the
amount paid for such insurance by any similarly situated full-time employee, and
COMPANY shall pay any excess. During the time of continuation of said
insurance, insurance provided by COMPANY shall be subordinate to any other
health insurance (including Medicare or any other governmentally provided
coverage) for which EMPLOYEE is eligible; provided, that the Company shall
reimburse any Medicare, Part B premiums paid by EMPLOYEE during such time.
B. By its approval hereof, Quipp, Inc. agrees that in the event
of an "involuntary termination" under this Agreement, it shall vest EMPLOYEE one
hundred percent (100%) in all options that he holds to acquire shares of Quipp,
Inc. stock pursuant to any Quipp, Inc. stock option plan or similar plan.
C. For the purposes of this Agreement, an "involuntary
termination" shall be deemed to have occurred in the event that:
(i) COMPANY terminates EMPLOYEE'S employment for any reason
other than the EMPLOYEE'S fraud, or EMPLOYEE's
conviction of a crime involving moral turpitude, or
EMPLOYEE'S willful misconduct or gross negligence in the
performance of his duties or responsibilities under this
Agreement; or
(ii) EMPLOYEE voluntarily terminates employment with COMPANY
within ninety (90) days of EMPLOYEE's demotion, change
in duties, reduction in compensation, or a relocation of
more than fifty miles of the principal place of business
of COMPANY;
provided, however, that a "Termination Upon a Change of Control" (as defined in
subsection 7.A.(iv)) will not be deemed to be an "involuntary termination." In
the event of a "Termination Upon a Change of Control," the rights of EMPLOYEE
shall be as set forth in Section 7 of this Agreement.
7. A. For purposes of Section 7 of this Agreement only, the
following terms shall have the following meanings unless the context clearly
otherwise requires:
(i) "Base Salary" means the annualized amount of the
aggregate cash remuneration being paid to EMPLOYEE by the COMPANY, exclusive of
any cash payments made to EMPLOYEE under any bonus or similar plan or any
contributions made for EMPLOYEE'S benefit to any pension or profit sharing plan
or other type of executive retirement plan.
(ii) "Change of Control" means an event following which any
person, together with all "affiliates" and "associates," as defined in Rule 12b-
2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any group within the meaning of Section 13(d)(3) or Rule 13d-5(b)(1) under the
Exchange Act, shall be come the beneficial owner, directly or indirectly, in the
aggregate of twenty percent (20%) or more of the common stock of Quipp, Inc.,
then outstanding, unless the Board of Directors of Quipp, Inc., within thirty
(30) days after having been advised that such ownership level has been reached,
determines, in its sole discretion, that it should not be considered as a Change
of Control for purposes of this Section 7 or (ii) if during any 24-month period,
individuals who at the beginning of such period constituted the Board of
Directors of Quipp, Inc. cease for any reason to constitute a majority thereof,
unless the election, or the nomination for election by Quipp, Inc. shareholders,
of the directors who were not directors at the beginning of such period was
approved by a vote of at least a majority of the directors in office at the time
of such election or nomination who were directors at the beginning of such
period.
(iii) "Termination of Employment" means the termination of
all of EMPLOYEE'S actual employment relationships with COMPANY.
(iv) "Termination upon a Change of Control" means a
Termination of Employment after a Change of Control and prior to May 1, 1997
either:
(a) initiated by COMPANY or any successor corporation for
any reason other than those listed in subsection 6.C(i); or
(b) initiated by EMPLOYEE upon one or more of the following
occurrences:
(1) a significant reduction in the authority, duties
or responsibilities held by EMPLOYEE immediately prior to the Change
of Control, a significant breach by COMPANY of its duties and
obligations to EMPLOYEE under this Agreement, or any removal of
EMPLOYEE from or any failure to re-elect EMPLOYEE to the positions
held by EMPLOYEE immediately prior to the Change of Control
(including positions held with Quipp, Inc.), except in connection
with promotions to higher office;
(2) a reduction in EMPLOYEE'S Base Salary as in effect
immediately prior to the Change of Control; or
(3) a transfer of EMPLOYEE, without EMPLOYEE'S express
written consent, to a location which is outside the general
metropolitan area in which EMPLOYEE'S principal place of business
immediately preceding such transfer is located, or which is
otherwise an unreasonable commuting distance from EMPLOYEE'S
principal residence.
B. In the event of EMPLOYEE'S Termination upon a Change of
Control, COMPANY shall:
(i) pay to EMPLOYEE, within 30 days of Termination of
Employment, in cash, an amount equal to three times EMPLOYEE'S Base Salary in
effect either immediately prior to the Termination of Employment or immediately
prior to the Change of Control, whichever is higher.
(ii) continue EMPLOYEE'S health insurance until EMPLOYEE'S
seventieth (70th) birthday, provided EMPLOYEE pays one hundred percent (100%) of
the cost of such insurance, as determined pursuant to subsection 5.C above;
provided, however, that EMPLOYEE shall not be obligated to pay more than the
amount paid for such insurance by any similarly situated full-time employee, and
COMPANY shall pay any excess. During the time of continuation of said
insurance, insurance provided by COMPANY shall be subordinate to any other
health insurance (including Medicare or any other governmentally provided
coverage) for which EMPLOYEE is eligible; provided, that the Company shall
reimburse EMPLOYEE for any Medicare, Part B premiums paid by EMPLOYEE during
such time.
C. (i) In the event that COMPANY shall fail or refuse to make
payment of any amount due Employee under subsection 7.B(i) above within the time
provided therein, COMPANY shall pay to EMPLOYEE, in addition to the payment of
any other sums provided in this Agreement, interest, compounded quarterly, on
any amount remaining unpaid from the date payment is required under such
subsection 7.B(i) until paid to EMPLOYEE, at the rate from time to time
announced by NationsBank, N.A. as its "prime rate" plus 3%, each change in such
rate to take effect on the effective date of the change in such prime rate (the
"Section 7 Interest Rate"); and
(ii) In the event that COMPANY shall fail or refuse to make
available to EMPLOYEE health insurance as provided under subsection 7.B(ii),
COMPANY shall reimburse EMPLOYEE for any payments made by EMPLOYEE to obtain
similar insurance that are in excess of payments EMPLOYEE would otherwise have
to make pursuant to subsection 7.B(ii)(the "Excess Payments"), plus interest,
compounded quarterly, on any Excess Payments made by EMPLOYEE from the latter of
the date (1) EMPLOYEE notifies COMPANY that such Excess Payments are being made
or (2) the date EMPLOYEE makes the Excess Payments, until the date COMPANY
reimburses EMPLOYEE for such Excess Payments and all accrued interest. In the
event that COMPANY reimburses only a portion of EMPLOYEE'S Excess Payments and
accrued interest, interest will continue to accrue on the unpaid portion.
Interest payable pursuant to this subsection 7.C(ii) shall be payable at the
Section 7 Interest Rate.
(iii) In addition to the payments required under subsections
7.C(i) and 7.C(ii), COMPANY shall pay to EMPLOYEE, on demand, the amount
necessary to reimburse EMPLOYEE in full for all expenses (including all
attorneys' fees and expenses) incurred by EMPLOYEE in enforcing any of the
obligations of COMPANY under subsection 7.B.
D. By its approval hereof, Quipp, Inc. agrees that in the event
of EMPLOYEE'S Termination upon a Change of Control, it shall vest EMPLOYEE one
hundred percent (100%) in all options that he holds to acquire shares of Quipp,
Inc. stock pursuant to any Quipp, Inc. stock option plan or similar plan.
E. It is the intention of COMPANY and EMPLOYEE that any and all
amounts payable by COMPANY to EMPLOYEE (the "Payments") under the terms of
Section 7 of this Agreement, together with any other payments due EMPLOYEE from
COMPANY ("Other Payments") shall not constitute "excess parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated by the Internal Revenue Service
thereunder. In the event that the independent accountants acting as auditors
for the COMPANY immediately prior the Change in Control (or another accounting
firm designated by the COMPANY and EMPLOYEE) determine that the Payments would,
either by themselves or together with Other Payments, constitute "excess
parachute payments," the Payments shall be reduced to the maximum amount which
may be paid without constituting the Payments and the Other Payments as "excess
parachute payments."
F. The rights of EMPLOYEE under Section 7 of this Agreement are
independent of EMPLOYEE'S employment rights under Section 1 hereof, and Section
7 does not create any separate employment rights or modify any of the other
Sections of this Agreement except as expressly stated herein.
8. EMPLOYEE agrees to devote his full time and attention to the
business of the COMPANY and not to become engaged in any competing business or
practice during the term hereof.
9. EMPLOYEE shall be entitled to a vacation, sick days and
participation in the normal employee fringe benefits offered by the COMPANY from
time to time to any other employee subject to the same eligibility and accrual
rules as any other employee.
10. The invalidity of unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
11. This Agreement shall inure to and be binding on the parties hereto
and their respective heirs, successors and assigns.
12. This document shall be construed for all purposes as a Florida
document and shall be interpreted and enforced in accordance with the laws of
the State of Florida.
13. This Agreement contains the entire understanding among the parties
hereof, and supersedes all prior agreements and understandings, including the
agreements referenced in the preambles to this Agreement. This Agreement shall
become effective when signed by the parties hereto and when Quipp, Inc.
indicates, by its signature hereto, approval of this Agreement, and by such
approval, Quipp, Inc. agrees to the provisions of subsections 3.B, 6.B and 7.D.
This Agreement may be amended by a written agreement between COMPANY and
EMPLOYEE that is approved in writing by Quipp, Inc.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as
of the day and year first above written.
QUIPP SYSTEMS, INC.
BY:/s/ Christer Sjogren
Christer Sjogren
Executive Vice President
/s/ Louis D. Kipp
LOUIS D. KIPP
APPROVED:
QUIPP, INC.
BY:/s/ Jack D. Finley
Jack D. Finley
Chairman of the Board signatures
<TABLE>
QUIPP, INC. AND SUBSIDIARY
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Primary 1995 1994 1993
<S> <C> <C> <C>
Income before cumulative effect of change 2,096,228 1,376,206 164,570
in accounting for income taxes
Cumulative effect of change in accounting 0 0 156,566
for income taxes
Net income (loss) $2,096,228 $1,376,206 $321,136
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 156,192 87,507 41,297
Weighted average number of shares
used in calculation of net income
per share 1,625,657 1,556,972 1,510,762
Income before cumulative effect of change
in accounting for income taxes 1.30 0.88 0.11
Cumulative effect of change
in accounting for income taxes 0.00 0.00 0.10
Net income per common and
common equivalent share $1.30 $0.88 $0.21
</TABLE>
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 8, 1996, relating to the
consolidated balance sheets of Quipp, Inc. and subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of operations,
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the December 31, 1995
annual report on Form 10-K of Quipp, Inc.
KPMG Peat Marwick LLP
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Quipp Inc.
1995 10-K and is qualified in its entirety by reference to such 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,251,020
<SECURITIES> 5,486,438
<RECEIVABLES> 6,907,402
<ALLOWANCES> (846,171)
<INVENTORY> 3,474,885
<CURRENT-ASSETS> 18,382,946
<PP&E> 3,573,683
<DEPRECIATION> (1,582,018)
<TOTAL-ASSETS> 18,382,946
<CURRENT-LIABILITIES> 6,854,516
<BONDS> 0
16,345
0
<COMMON> 0
<OTHER-SE> 12,846,267
<TOTAL-LIABILITY-AND-EQUITY> 12,862,612
<SALES> 23,196,771
<TOTAL-REVENUES> 23,551,919
<CGS> 15,565,945
<TOTAL-COSTS> 20,170,398
<OTHER-EXPENSES> 4,514,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,314
<INCOME-PRETAX> 3,381,520
<INCOME-TAX> 1,285,292
<INCOME-CONTINUING> 2,096,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,096,228
<EPS-PRIMARY> 1.3
<EPS-DILUTED> 1.3
</TABLE>
