UNITED STATES
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, 1998
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
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Quipp, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-2306191
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4800 NW 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 10, 1998 was approximately $35,804,951. The number of shares
of the Registrant's common stock, $.01 par value, outstanding at March 10, 1999
was 1,655,384.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated
---------------------
Portions of the Quipp, Inc. Proxy Statement relating to the 1999 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 and directors of
Registrant without conceding that all such person are "affiliates" of Registrant
for purposes of the federal securities laws.
<PAGE>
PART I
ITEM I - BUSINESS
- -----------------
Quipp, Inc., (the "Company" or "Quipp"), through its wholly owned subsidiary,
Quipp Systems, Inc., is engaged in the design, manufacture and sale of material
handling equipment for the newspaper industry. The Company's products are
generally designed to accomplish much of the mailroom operations of a newspaper.
The mailroom is an area where newspapers flow from the pressroom in a continuous
stream and are stacked, bundled and moved to the shipping docks. Conveyor
systems are utilized to transport newspapers from the press to stacking
machines. The stacks are 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 principal products, which are marketed both domestically and
internationally, are basically modular in construction with electronic control
circuitry. The Company's primary products (which comprise the majority of
Quipp's sales) include the following :
Newspaper Stacker - The Series 400 Stacker, the Company's principal product,
counts and batches stacks of newspapers at maximum speeds of 85,000 copies per
hour. The Quipp Sport Stacker (Quipp Sport), aimed at smaller volume newspapers,
performs the same mailroom functions the as larger stacker, but at maximum
speeds of 60,000 copies per hour. These slower speeds are designed for lower
circulation newspapers. `
Bottomwrapper - The Quipp Viper, the Company's bottomwrapper, applies wrapping
paper to the bottom or three sides of a newspaper stack to protect against
product damage. The Viper can be equipped with an inkjet printing device that
enables the newspaper publisher to provide delivery location and copy count
information on the wrapping paper.
Among the company's other products are the following:
Automatic Cart Loading System - This system automatically accumulates and loads
strapped bundles of printed material into transportation carts for transport to
remote distribution centers. Quipp's Automatic Cart Loading System handles
bundles of various shapes and sizes. Upon completion of loading, the full cart
is automatically discharged from the cart loader and ready for the delivery
truck.
Newspaper Conveyor Systems - The Company's conveyor systems, which include the
Quipp Twin-Track and the Quipp Rollerslat, transport newspapers from pressrooms
to various locations throughout the mailroom. These conveyor systems include
both horizontal and vertical conveyor modules, which can be integrated with
directional switches, and special purpose components that can be arranged to
accommodate the layout of the newspaper plant. The Quipp Twin-Track is a
twin-belt newspaper conveyor that transports newspapers in an overlapping stream
with maximum surface speeds of approximately 80,000 newspapers per hour. The
Quipp Rollerslat conveyor employs an array of independently rotating rollers and
is utilized in the processing of newspaper stacks prior to bundling.
Other Products -The Company manufactures a variety of other products for
mailroom operations, including several different types of stream aligners,
centering pacers, fold compressors, newspaper sensors, press production monitors
and other equipment.
The Company's manufacturing activities consist primarily of the assembly of
products from purchased components, the fabrication of some mechanical parts and
the testing of completed products. The Company uses approximately 360 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 development of prototype parts.
All of the Company's products have at least a one-year warranty, and the Company
provides personnel for both installation and repair from the Miami-based service
department. In addition to the manufacture and sale of its products, the Company
sells spare parts for equipment purchased through the Company. In 1998 and 1997
the sale of spare parts accounted for approximately 7% and 8%, respectively, of
the Company's net sales revenue. Customers are encouraged to stock spare modules
and components.
2
<PAGE>
The Company sells most of its products to newspaper publishers in the United
States. The Company's foreign sales accounted for 12%, 18%, and 19% of total
sales in 1998, 1997, and 1996 respectively. The following table indicates the
amount of sales by geographic area during the past three years:
<TABLE>
<CAPTION>
SALES BY GEOGRAPHIC AREA
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $23,969,296 $22,281,825 $17,555,230
Far East 413,883 2,214,009 2,639,972
North America 408,728 1,187,003 314,698
Latin America 1,827,103 611,787 203,949
Africa 0 263,453 0
Other 502,386 460,205 854,024
---------------------------------------------------
$27,121,396 $27,018,282 $21,567,873
===================================================================================================================
</TABLE>
As of December 31, 1998, the Company's backlog of sales orders was approximately
$10,566,840, as compared to $5,422,169 on December 31, 1997. The backlog
consists of some OEM products which generally have lower margins. The Company
believes that it will satisfy all orders included in the backlog by end of 1999.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" - General in Item 7.
For the years ended December 31, 1998 and 1997, no single customer accounted for
10% or more of the Company's net sales. In 1996, The New York Times accounted
for approximately 11% of the Company's net sales. Since the Company's equipment
is designed to have an extended life, the Company's largest customers in a given
year are usually different from the largest customers in any other year.
In connection with the installation of equipment, the Company, at the request of
a customer, will resell related mailroom equipment to the customer that is not
manufactured by the Company. Such sales accounted for approximately 3.0%, 2.0%
and 3.0% of the Company's total sales in 1998, 1997, and 1996 respectively.
3
<PAGE>
COMPETITION
The newspaper industry has experienced a decrease in size in recent years, as
the number of newspapers in the country has declined. Moreover, in recent years,
there has been consolidation among manufacturers of newspaper material handling
equipment. These developments have increased competition in the industry, and
some of the Company's competitors have much greater financial resources than the
Company. Nevertheless, the Company believes it has been able to compete
successfully in this environment by stressing its engineering expertise and the
quality and reliability of its products.
The Company believes it has two principal competitors for the newspaper mailroom
equipment business in the United States, Heidelberg Finishing Systems, a
domestic subsidiary of Heidelberger Druckmaschinen, a German Company and, GMA, a
domestic subsidiary of Muller-Martini Versand-Systeme AG, a Swiss Company. In
addition, there are several companies that compete with respect to certain of
the Company's products. The Company has experienced competition on the basis of
price with respect to most of its products and anticipates that price
competition will continue.
MARKETING
The Company sells its products domestically through a six person direct sales
staff and internationally through foreign dealers. Domestic marketing efforts
include direct solicitation, trade show participation and a program of national
and regional trade journal advertising. International marketing efforts are
coordinated through the foreign dealers. Some of the foreign dealers are
commissioned, while others purchase the Company's products for resale. Through
the use of computer aided systems, the Company is able to customize the proposal
process, including the design of custom newspaper handling systems tailored to
the specific prospect's requirements.
PATENTS and TRADEMARKS
The Company holds 23 U.S. patents, which expire during the period from 1999 to
2015. The Company has three patents pending and continues 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, and that its patents are not material to its business. "Quipp" and
"Quipp Gripp" are registered trademarks and trademarks of the Company.
RESEARCH AND DEVELOPMENT
Research and development expenditures totaled $760,256, $582,839 and $579,580 in
1998, 1997 and 1996, respectively. Research and development expenditures in 1998
were principally devoted to the improvement of the Company's gripper conveyor
and the development of a palletizer. The Company plans to introduce these
products to the market at the annual newspaper exposition (NEXPO) to be held in
June 1999, in Las Vegas, Nevada.
EMPLOYEES
As of December 31, 1998, the Company had 144 full-time employees. None of the
Company's employees are represented by a union, and the Company considers its
employee relations to be good.
4
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, business experience and ages of the executive officers of the Company
are listed below:
<TABLE>
<CAPTION>
Name Business Experience During the Past Five Years Age
---- ---------------------------------------------- ---
<S> <C> <C>
Anthony P. Peri Mr. Peri has been President and Chief Executive 56
Officer of Quipp, Inc. and Quipp Systems, Inc., and a director
of both companies since April 1998. From May 1997 to
March 1998 he was President and Chief Operating Officer
of Ctext, Inc. From August 1986 to May 1997, Mr. Peri
served in various capacities at Harris Publishing Systems
Corporation, the most recent of which was Vice President
and General Manager.
Christer A. Sjogren Mr. Sjogren, Executive Vice President of Quipp Systems, Inc. 56
since 1994, has served Quipp Systems, in various capacities
since 1983. He is responsible for the engineering functions
of the Company. Mr. Sjogren has been a Director of
Quipp Systems, Inc. since 1996.
Jeffrey S. Barocas Mr. Barocas has been Chief Financial Officer of Quipp, Inc. 51
since July 1996. On May 12, 1998, Mr. Barocas was elected
to the Board of Directors of Quipp Systems, Inc. Prior to
joining the Company, Mr. Barocas was Chief Financial
Officer of a US subsidiary of London International from 1990.
</TABLE>
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 approximately 48,300 square 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. Although the expansion planned for
1998 was not undertaken the Company continues to explore the feasibility of
expanding its administrative facilities by approximately 3,000 square feet in
1999.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable
5
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT COMMON EQUITY AND RELATED STOCKHOLDER 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 for each calendar quarter in 1997 and 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
1998 1997
High Low High Low
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $17.00 $14.75 $10.25 $8.25
Second Quarter 19.13 15.50 14.75 9.25
Third Quarter 20.38 15.50 17.50 13.50
Fourth Quarter 19.00 14.50 17.50 14.00
===================================================================================================================
</TABLE>
As of March 10, 1999, the Company had approximately 200 record holders of the
Common Stock, including brokers and other nominees. On May 10, 1999 the Company
will pay a special dividend of $7.00 per share to shareholders of record on
April 8, 1999. Based on the number of shares outstanding at March 10,1999 the
Company will distribute $11,587,688. This amount will increase if any
outstanding stock options are exercised on or prior to April 8, 1999.
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
The selected financial data should be read in conjunction with the financial
statements and notes thereto and also with Management's Discussion and Analysis
of Financial Condition and Results of Operations, which are included elsewhere
in this Annual Report on Form 10-K. The following selected financial data for
each of the years in the five-year period ended December 31, 1998 has been
derived from the audited balance sheets and related statements of income of the
Company.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Information:
Net sales $27,121 $27,018 $21,568 $23,197 $17,035
Gross profit 10,166 9,769 7,864 7,631 4,893
Research and development 760 583 580 219 362
Selling, general and administrative expenses 4,925 4,690 4,205 4,295 3,653
Operating profit 4,481 4,517 3,224 3,117 1,968
Net income 3,348 3,081 2,220 2,096 1,376
- --------------------------------------------------------------------------------------------------------------------------------
Per Share Amounts:
Net income per share (basic) 2.05 1.95 1.42 1.34 0.88
Net income per share (diluted) 1.96 1.89 1.42 1.34 0.88
Book value per share 13.67 11.58 9.63 8.21 7.18
Market price per share - high 20.38 17.50 13.50 16.25 8.50
- low 14.50 8.25 8.38 6.75 2.50
- --------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Information
Current assets $28,954 $22,882 $19,496 $18,383 $14,482
Total assets 31,278 25,303 22,074 21,267 19,342
Current liabilities 7,834 5,693 5,842 6,855 7,444
Long-term liabilities 950 1,050 1,150 1,550 1,350
Shareholders' equity 22,494 18,560 15,082 12,863 10,548
Weighted average number of equivalent
shares outstanding 1,707,366 1,630,213 1,565,765 1,565,765 1,556,792
================================================================================================================================
</TABLE>
6
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Results of Operations
(Note: All dollar amounts are in thousands)
1998 vs. 1997
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 27,121 $ 27,018
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 103
% 0
</TABLE>
In 1998 the Company experienced record net sales, principally due to record
sales of its core products, stackers and bottomwrappers.
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross Profit $ 10,166 $ 9,769
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 397
% 4
Percentage of Net Sales 37% 36%
</TABLE>
The increase in gross profit was principally the result of an improved sales mix
and continued manufacturing cost control programs. The Company's core products
have a higher gross profit margin than ancillary products such as twin track,
floor equipment or OEM (original equipment manufacturers). The improved gross
profit margin was partially offset by a reclassification of bad debt allowances
of $474,186 to product cost contingencies (contract reserves). Cost
contingencies are anticipated future additional costs that may be incurred after
equipment is shipped and installed, the customer has been invoiced and revenue
is recorded. The Company records cost contingencies to match possible future
expenses with related revenue.
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Selling, General and Administrative Expenses $ 4,925 $ 4,690
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 235
% 5
Percentage of Net Sales 18% 17%
</TABLE>
The increase in selling, general and administrative expense was principally due
to legal and accounting fees incurred in connection with an aborted business
combination and patent infringement litigation that the Company brought against
another company, which was settled during 1998. The increase was offset in part
by a reclassification of bad debt expense to product cost contingencies, which
is included in cost of goods sold.
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Research and Development $ 760 $ 583
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 177
% 30
Percentage of Net Sales 3% 2%
</TABLE>
The increase in research and development expenditures from 1997 to 1998
principally related to improvement of the Company's gripper conveyor and the
development of a palletizer.
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Income $ 4,481 $ 4,517
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ (36)
% ( 1)
Percentage of Net Sales 17% 17%
</TABLE>
The decrease in the 1998 operating income, as compared to 1997, was principally
a result of increases in research and development and selling, general and
administrative costs, offset by the increase in gross profit. As a percentage of
net sales, operating income remained relatively stable.
7
<PAGE>
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Income and Expense (Net) $ 601 $ 415
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) $ 186
% 45
Percentage of Net Sales 2% 2%
</TABLE>
The increase in other income and expense (net) was a result of increases in
interest income resulting from higher interest rates and higher balances of
cash, cash equivalents and securities available for sale.
Results of Operations
(Note: All dollar amounts are in thousands)
1997 vs. 1996
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 27,018 $ 21,568
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 5,450
% 25%
</TABLE>
The increase in net sales reflects growth in the domestic market. This increase
was partially offset by a decrease in international sales, caused by a
significant decline in sales to the Far East. Management believes that sales in
the Far East were adversely affected by general economic difficulties in the
region.
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross Profit $ 9,769 $ 7,864
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 1,905
% 24
Percentage of Net Sales 36% 36%
</TABLE>
The increase in gross profit was the result of an increase in sales volume. As a
percent of net sales, gross profit remained stable, despite a higher mix of
original equipment manufactured products (which generally have lower margins).
This stability is the result of increased manufacturing efficiencies.
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Selling, General and Administrative Expenses $ 4,690 $ 4,205
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 485
% 11
Percentage of Net Sales 17% 19%
</TABLE>
The increase in selling, general and administrative expenses resulted from
increases in commissions and in freight, warranty and trade show expenses. These
expenses are generally related to the level of Company sales, and the increase
reflects the higher sales volume.
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Research and Development $ 583 $ 580
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 3
% 1
Percentage of Net Sales 2% 3%
</TABLE>
Research and development expenditures remained essentially unchanged. Increased
sales volume led to a decrease in research and development expenditures as a
percentage of net sales.
8
<PAGE>
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Income $ 4,517 $ 3,224
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 1,293
% 40
Percentage of Net Sales 17% 15%
</TABLE>
The increase in operating income resulted from increased gross profit and
economies of scale in connection with expenses that are not significantly
affected by increased sales volume.
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Income and Expense (Net) $ 415 $ 284
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) $ 131
% 46
Percentage of Net Sales 2% 1%
</TABLE>
The net increase in other income is principally due to an increase in interest
income. Higher cash balances throughout the year had a positive effect on
interest income. In 1997, the Company invested largely in tax-free securities.
Investments in these instruments generally contribute less to income before
income tax than taxable instruments. However, investments in tax-free
instruments contributed more to net income (after tax income) than would taxable
instruments that the Company deemed suitable for investment. Interest
obligations on indebtedness partially offset the increase in the interest
income.
Year 2000 Disclosure
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words, date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities.
The Company has been engaged in an evaluation of its Year 2000 readiness in
connection with its information technology and non-information technology
systems. In addition, the Company has analyzed its products as they relate to
the Year 2000 issue. The Company has also attempted to analyze Year 2000 issues
relating to third parties with whom the Company has a business relationship.
The current status of the Company's efforts is as follows:
Internal Systems and Products
Information Technology Systems - The Company's manufacturing and accounting
software supplier has advised the Company that Year 2000 support of MAPICS was
implemented in 1995 and that the Company's manufacturing and accounting software
is Year 2000 compliant. In addition, the Company's AS400 operating system has
been upgraded and the Company has received correspondence from the vendor that
this software is Year 2000 compliant. To confirm Year 2000 compliance, the
Company began testing of its manufacturing, accounting and operating system
during the fourth quarter of 1998.
The Company's manufacturing department was using a computerized data collection
system to record labor time and attendance. This system was not Year 2000
compliant. The Company replaced the software and related hardware in February
1999 with software and hardware that is certified by the manufacturer to be Year
2000 compliant.
Non-Information Technology Systems - The Company's heating, cooling, ventilation
and alarm systems include microprocessor-based components. The heating, cooling
and ventilation systems providers have advised the Company that these systems
are not date sensitive. The alarm company was unable to provide assurance of
Year 2000 compliance for the alarm. Therefore, the alarm system was replaced in
November 1998 with a system certified by the manufacturer to be compliant.
Products - The Company's products are not materially date sensitive. Moreover,
products currently manufactured that have time and date functions are Year 2000
compliant. Therefore, the Company does not believe it has any material exposure
with regard to its products as a result of the Year 2000 issue.
9
<PAGE>
Year 2000 Issues Relating to Third Parties
Vendors - The Company utilizes approximately 360 vendors to supply parts,
materials and components for its various products. The Company has surveyed its
major vendors regarding their Year 2000 status. Several vendors supplied letters
to the Company stating that they are either Year 2000 compliant or that they
will be Year 2000 compliant by December 31, 1998. However, the Company is unable
to verify this information and it is possible that advice received from vendors
may be erroneous. Moreover, certain vendors have not responded to the Company's
request for information and may not be Year 2000 compliant. Nevertheless, the
Company believes alternative sources of supply are available for all required
components. Therefore, absent widespread difficulties effecting several critical
vendors, the Company does not anticipate that vendors' Year 2000 issues would
have a material adverse effect on the Company. In addition, certain machine
parts could be manufactured in the Company's in-house machine shop.
The Company has received verbal verification from several of its freight
providers that they are Year 2000 compliant. However, the Company is not
currently aware of the Year 2000 readiness of certain outside service companies,
such as telecommunications or utility providers. The failure of these providers
to be Year 2000 compliant could have a material adverse effect on the Company,
which is not currently quantifiable. In the worst case, the Company's operations
could be seriously disrupted.
Customers - The Company's customer base typically changes significantly from
year to year. Since the Company's equipment is designed to have an extended
life, significant repeat orders are not received on a regular basis. As a
result, the Company is unable to predict the identity of most of its major
customers in the Year 2000 and thereafter. The Company is unable to make an
inquiry as to whether the customers' computer driven payment or purchasing
processes are Year 2000 compliant. A customer's Year 2000 issues could cause a
delay in receipt of purchase orders or payment. If Year 2000 issues are
widespread among the Company's customers, the Company's sales and cash flow
could be materially adversely affected.
Market Risk
The Company is exposed to various types of market risk, including changes in
interest rates. Market risk is the potential loss arising from adverse changes
in market rates and prices, such as interest rates. The Company does not enter
into derivatives or other financial instruments for trading or speculative
purposes. Because the Company's cash and investments exceed short and long-term
debt, the exposure to interest rates relates primarily to its investment
portfolios. Due to the short term maturities of Quipp's investments, management
believes that there is no significant risks arising from interest rates
fluctuations. The Company is actively managing the investment portfolios to
increase return on investments, but, in order to ensure liquidity, will only
invest in instruments with credit quality and where a secondary market exists.
The counterparties are major financial institutions and government agencies.
General
The majority of the Company's sales are made on a contract basis. Typically, a
deposit is received upon the execution of the sales contract. Prior to shipment,
additional payments are received, reducing the customer's balance due. Larger
orders are normally received some months in advance of delivery. Therefore,
backlog can be an important, though by no means conclusive, indication of the
Company's short-term revenue stream. The timing of revenues can be affected by
pending orders, the amount of custom engineering required, the timetable for
delivery, and the receipt and nature of new orders. The backlog, as of December
31, 1998, and December 31, 1997, was $10,566,840 and $5,422,169, respectively.
The backlog consists of some OEM products which generally have lower margins.
Management believes all orders in the December 31, 1998 backlog will be
satisfied by the end of 1999.
Liquidity and Capital Resources
On December 31, 1998, cash, cash equivalents and securities available for sale
totaled $20,281,287, as compared to $13,668,457 at December 31, 1997, an
increase of $6,612,830. This increase was principally related to cash provided
by operations, an increase in deferred revenues of $2,096,351 and a reduction of
$540,659 in inventory. Working capital at December 31, 1998 was $21,120,481, an
increase of $3,931,476 from $17,189,005 at December 31, 1997. On May 10, 1999,
the Company will pay a special dividend of $7.00 per share to shareholders of
record on April 8, 1999. Based on the number of shares outstanding on March 10,
1999 the Company will distribute $11,587,688. This amount will increase if any
outstanding stock options are exercised on or prior to April 8, 1999. The
Company believes that the remaining cash, cash equivalents and securities
available for sale together with cash generated from operations will be
sufficient to fund operations at the current level.
10
<PAGE>
Inflation
The rate of inflation has not had a material impact on operations.
Forward Looking Statements
The statements contained in this Annual Report on Form 10-K regarding the
shipment of backlog during the next twelve months; the planned introduction of
an improved gripper conveyor and a palletizer; third party statements regarding
Year 2000 readiness of their products, services and systems; consequences of the
failure of the Company's products and systems, and outside parties to be Year
2000 compliant; and other Year 2000 related matters are forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. A number of important factors could cause actual results to differ
materially from those in the forward looking statements including, among others,
economic conditions generally and specifically in the newspaper industry, change
in product demand, delays in shipment, cancellation of customer orders,
engineering and production difficulties relating to the gripper conveyor and
palletizer, unanticipated hardware or software problems in connection with
upgrades, unavailability of vendors to replace vendors having Year 2000
difficulties, inability of the Company to internally fabricate necessary machine
parts and unanticipated costs of Year 2000 measures.
ITEM 7A - QUALITATIVE AND QUANTATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations" - Market Risk
11
<PAGE>
<TABLE>
<CAPTION>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Independent Auditors' Report
Financial Statements:
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income For Each of the Years in the Three-Year Period Ended December 31, 1998
Consolidated Statements of Shareholders' Equity for Each of the Years in the Three-Year Period Ended December 31,1998
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended December 31, 1998
Notes to Consolidated Financial Statements
</TABLE>
12
<PAGE>
Independent Auditor's Report
The Board of Directors
Quipp Inc.:
We have audited the accompanying consolidated balance sheets of Quipp,
Inc. and subsidiary (the "Company") as of December 31, 1998, and 1997 and the
related consolidated statements of income, and shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 13, 1998 and 1997 and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998 in conformity with generally accepted accounting principles.
/ s / KPMG LLP
Miami, Florida
February 19, 1999
(Except NOTE 13 which is dated March 8, 1999)
13
<PAGE>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,820,956 $ 822,573
Securities available for sale 18,460,331 12,845,884
Accounts receivable, net 4,388,385 4,381,535
Inventories 2,989,950 3,530,609
Deferred tax assets-current 814,899 1,169,119
Prepaid expenses and other receivables 479,761 132,508
---------------------------------
Total current assets 28,954,282 22,882,228
Property, plant and equipment, net 1,837,161 1,825,906
Goodwill 405,861 437,082
Other assets 80,782 110,417
Deferred tax assets - 47,434
---------------------------------
Total Assets $31,278,086 $25,303,067
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable 1,425,757 1,252,375
Accrued salaries and wages 697,136 588,165
Deferred revenues 3,439,314 1,342,963
Income taxes payable 167,704 184,044
Contract contingencies 596,397 323,491
Other accrued liabilities 1,407,493 1,902,185
---------------------------------
Total current liabilities 7,833,801 5,693,223
Long-term debt 950,000 1,050,000
Contingencies (Note 12) -- -
---------------------------------
Total liabilities 8,783,801 6,743,223
Shareholders' Equity:
Common stock - par value $.01 per share, authorized 8,000,000
shares. Issued 1,644,994 in 1998 and 1,636,444 shares in 1997 16,450 16,365
Additional paid-in capital 5,800,581 5,359,845
Retained earnings 16,677,254 13,329,609
Treasury stock, at cost, 1998 - 0 and 1997 - 33,950 shares (145,975)
---------------------------------
Total shareholders' equity 22,494,285 18,559,844
---------------------------------
Total Liabilities and Shareholders' Equity $31,278,086 $25,303,067
=================================
</TABLE>
See accompanying notes to the consolidated financial statements.
14
<PAGE>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $27,121,396 $27,018,282 $21,567,873
Cost of sales (16,955,430) (17,248,863) (13,703,717)
-----------------------------------------------------
Gross profit 10,165,966 9,769,419 7,864,156
-----------------------------------------------------
Other operating income and (expense) items:
Sale of patent and license rights - 19,865 145,037
Selling, general and administrative expenses (4,924,902) (4,689,557) (4,205,480)
Research and development (760,256) (582,839) (579,580)
-----------------------------------------------------
Operating profit 4,480,808 4,516,888 3,224,133
-------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 646,947 476,430 345,120
Interest expense (45,473) (61,704) (61,032)
-----------------------------------------------------
601,474 414,726 284,088
-------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,082,282 4,931,614 3,508,221
Income taxes (1,734,637) (1,850,310) (1,288,393)
-----------------------------------------------------
Net income $3,347,645 $3,081,304 $2,219,828
-------------------------------------------------------------------------------------------------------------------
Per share amounts:
Basic income per common share $2.05 $1.95 $1.42
Diluted income per common share $1.96 $1.89 $1.42
-----------------------------------------------------
Weighted average number of common
Equivalent shares outstanding 1,707,366 1,630,213 1,565,765
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
15
<PAGE>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDING DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by operations:
Net Income $3,347,645 $3,081,304 $2,219,828
--------------------------------------------------
Reconciliation of net income to net cash Provided by (used in)
operations:
Deferred income taxes 401,654 (81,500) 84,720
Depreciation and amortization 337,237 342,845 333,321
Other noncash items - 21,538 -
Changes in operational assets and liabilities:
Accounts receivable, net (6,850) 1,693,757 832,110
Inventories 540,659 64,590 (120,314)
Other assets and prepaid expenses and
other receivables (417,920) 1,616 81,224
Accounts payables and other accrued liabilities (212,339) 690,046 293,910
Contract contingencies 272,906 104,006 (222,050)
Deferred revenues 2,096,352 (481,935) (1,334,604)
Income tax payable (16,340) 139,258 (169,211)
--------------------------------------------------
Net cash provided by operations 6,343,004 5,575,525 1,998,934
--------------------------------------------------
Cash flows from investing activities:
Securities purchased (46,948,510) (54,766,876) (17,406,009)
Securities sold 41,334,062 50,384,823 14,428,616
Capital expenditures (216,969) (193,890) (24,132)
--------------------------------------------------
Net cash used in investing activities (5,831,417) (4,575,943) (3,001,525)
--------------------------------------------------
Cash flows from financing activities:
Repayment of debt (100,000) (700,000) (100,000)
Conversion of stock options 586,796 374,562 -
--------------------------------------------------
Net cash used in financing activities 486,796 (325,438) (100,000)
--------------------------------------------------
Increase (decrease) in cash and cash equivalents 998,383 674,144 (1,102,591)
Cash and cash equivalents at beginning of year 822,573 148,429 1,251,020
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,820,956 $ 822,573 $ 148,429
-------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash payments made for:
Interest $ 45,473 $ 61,704 $ 61,032
Income taxes $1,587,566 $1,375,000 $1,326,000
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
16
<PAGE>
QUIPP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Treasury Stock Shareholders'
Shares Amount Capital Earnings Shares Amount Equity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
January 1,1996 1,634,465 $ 16,345 $ 5,113,190 $ 8,028,477 68,700 $ (295,400) $ 12,862,612
Net Income 2,219,828 2,219,828
- -----------------------------------------------------------------------------------------------------------------
Balances
December 31, 1996 1,634,465 16,345 5,113,190 10,248,305 68,700 (295,400) 15,082,440
Net Income 3,081,304 3,081,304
Issuance of shares for
directors' fees 1,979 20 21,518 21,538
Exercise of employee
stock options 225,137 (34,750) 149,425 374,562
- -----------------------------------------------------------------------------------------------------------------
Balances
December 31, 1997 1,636,444 16,365 5,359,845 13,329,609 33,950 (145,975) 18,559,844
Net Income 3,347,645 3,347,645
Exercise of employee
stock options 8,550 85 440,736 (33,950) 145,975 586,796
- -----------------------------------------------------------------------------------------------------------------
Balances
December 31, 1998 1,644,994 $ 16,450 $ 5,800,581 $ 16,677,254 - $ - $ 22,494,285
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
17
<PAGE>
QUIPP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying consolidated financial statements
include the accounts of Quipp, Inc. and Quipp Systems, Inc., a wholly owned
subsidiary (collectively the Company). All material intercompany balances and
transactions have been eliminated in consolidation.
Nature of business - The Company designs and manufactures material handling
equipment for the newspaper industry. The products are generally designed to
accomplish much of the mailroom operations of a newspaper. The mailroom is an
area where newspapers flow from the pressroom in a continuous stream and are
stacked, bundled and moved to the shipping docks. Conveyor systems are utilized
to transport newspapers from the press to the stacking machines. 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.
Inventories - Inventories include material, labor and factory overhead, and are
stated at the lower of cost or market. Costs are determined using the first-in,
first-out (FIFO) method.
Accounts receivable/deferred revenues - The majority of the Company's sales are
made on a contract basis, which provides for progress payments. These payments,
as received, are recorded to the customer's accounts receivable balance, and the
revenue related to the contract is deferred. Revenue is recognized upon shipment
of the equipment. If the contract includes installation, the installation
revenue is recognized upon completion of installation at the customer's site.
Accounts receivable is net of an allowance for doubtful accounts of $217,789 for
1998 and $715,275 for 1997, (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
Goodwill - Goodwill, resulting from a business acquisition, represents the
excess of purchase price over fair value of net assets acquired, and is
amortized on a straight-line basis over the expected periods to be benefited,
which is 17 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance, over its
remaining life, can be recovered through undiscounted future operating cash
flows. The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the recoverability of
goodwill will be affected if estimated future operating cash flows are not
achieved.
Research and development costs - Research and development costs consist of
expenditures incurred for the discovery of new knowledge that will be used in
the development of new products or the significant enhancement of existing
products and/or production processes, and the implementation of such knowledge
through design, testing and construction of prototypes. The Company expenses
research and development costs as they are 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 over
the estimated useful lives of the assets. 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 the period in which
they are related. Repairs and maintenance are expensed as incurred; alterations
and major overhauls, which extend the lives or increase the capacity of plant
assets, are capitalized.
Income taxes - Income taxes are accounted for using an asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and to operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion, or all, of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.
18
<PAGE>
Cash and cash equivalents - Cash and cash equivalents includes all the Company's
operating cash balances, demand deposits and short-term investments with
original maturities of three months or less. The Company classifies investments
with an original maturity of more than three months as securities available for
sale.
Securities available for sale - Securities available for sale include any
securities that are not held for trading or are not intended to be held to
maturity, and are recorded at fair value. Unrealized holding gains or losses,
net of taxes, are excluded from income and recognized as a separate component of
shareholders' equity until realized. Realized gains and losses arising from the
sale of securities are computed using the specific identification method and are
included in net income. Fair value of the securities is determined based upon
market prices or discounted cash flow. A decline in the market value of any
available-for-sale security below cost that is deemed to be other than temporary
would result in a reduction in carrying amounts of the security. This reduction
would be charged to income. Dividend and interest income are recognized when
earned.
Earnings per share - Earnings per share amounts are based upon the
weighted-average number of common and common equivalent shares outstanding
during the year. Common equivalent shares are excluded from the computation in
periods in which they have an anti-dilutive effect. The Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which specifies the computation, presentation and disclosure requirements
for earnings per share (EPS). It replaces the presentation of primary and fully
diluted EPS with basic and diluted EPS. Basic EPS excludes all dilution, and is
based upon the weighted-average number of common shares outstanding during the
period. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company has restated all previously reported per share
amounts to conform to SFAS 128.
Deferred bond financing cost - Deferred bond financing costs, which were
incurred upon issuance of the industrial revenue bonds (See note 6), are
included in other assets and are amortized using a method which approximates the
effective yield over the term of issue of the bonds.
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
disclosure of contingent assets and liabilities, at the date of the financial
statements. These estimates could affect the reported amounts of revenues and
expenses. Significant items subject to estimates include the allowance for
doubtful accounts, warranty reserves, provision for cost contingencies on
completed contracts and inventory reserves. Actual results could differ from
those estimates.
Contract cost contingencies - Contract cost contingencies are based upon an
estimate of possible additional costs that may be incurred by the Company after
a system is installed, the customer has been invoiced and the revenue has been
recorded. These costs occur when additional efforts are required to assure
compliance with the customers' specifications. The estimate is based on the
Company's past experience, (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
Warranty reserve - Warranty reserves are determined based on the Company's
experience with customers' claims arising from the sale of merchandise. The
Company's exposure, based on previous experience, is estimated at 1-1/2% of
contract revenue. Amounts added to these reserves were charged to selling
expense.
Impairment of long-lived assets - The Company determines impairment of
long-lived assets under the requirements that long-lived assets, and certain
identifiable intangibles to be held and used by the Company, be reviewed for
impairment whenever events, or changes in circumstances, indicate that the
carrying amount of the assets may not be fully recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. There was no impairment of long-lived assets in 1998 and 1997.
Stock-Based compensation - The Company applies the intrinsic value-based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
interpretations, in accounting for its fixed plan stock options. Under APB 25,
compensation expense is recorded on the grant date only if the current market
price of the underlying stock exceeds the exercise price. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation," (SFAS 123), (See
Note 7).
19
<PAGE>
Comprehensive income - In June 1997 the Financial Accounting Standards Board
issued Statements on Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). SFAS 130 is effective for fiscal years
beginning after December 15, 1997 and establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 130 requires all items to be reported
in separate financial statement. The Company did not have unrealized holding
gains or loses during 1998. Therefore, no comprehensive income disclosure was
deemed necessary by management. The Company does not believe that the adoption
of SFAS 130 will have a significant impact on its financial statements.
20
<PAGE>
Note 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale, which are recorded at fair value, consist
primarily of federal, state and local government obligations and other
short-term investments. Due to the short-term maturity provisions of these
instruments, the carrying value of securities available for sale approximates
fair value as of December 31, 1998 and 1997. The Company's securities available
for sale at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities:
Bankers Acceptance $1,190,309 $ -
Commercial Paper 1,000,000 5,000,000
Municipal Securities 7,700,000 4,850,000
Federal Govt. Agency Obligations 6,750,000 3,000,000
Money Market Investments 1,719,527 -
Premium/(discount) on Investments 100,495 (4,116)
----------------------------------------------------------------------------------------------------------------------
Total $18,460,331 $12,845,884
======================================================================================================================
</TABLE>
Note 3 - INVENTORIES
Components of inventory as of December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw Materials $2,616,640 $2,631,602
Work in Process 179,388 731,850
Finished Goods 193,922 167,157
-------------------------------------------------------------------------------------------------------------------
Total $2,989,950 $3,530,609
===================================================================================================================
</TABLE>
Note 4 - INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998, 1997 and
1996 is as follows:
Current Deferred Total
1998
U.S. Federal $1,321,958 $361,461 $1,683,419
State and local 11,025 40,193 51,218
----------- ---------- -----------
$3,332,983 $401,654 $1,734,637
----------- ---------- -----------
1997
U.S. Federal $1,771,939 ($72,220) $1,697,719
State and local 159,872 (7,281) 152,591
----------- ---------- -----------
$1,931,811 ($81,501) $1,850,310
----------- ---------- -----------
1996
U.S. Federal $1,072,267 $75,471 $1,147,738
State and local 131,406 9,249 140,655
----------- ---------- -----------
$1,203,673 84,720 $1,288,393
=========== ========== ===========
21
<PAGE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
Deferred Tax Assets:
<S> <C> <C>
Warranty reserve $ 91,914 $ 93,359
Inventory obsolescence 132,041 170,562
Allowance for bad debts 78,401 258,428
Contract reserves 144,121 116,877
Depreciation (29,013) 106,321
Vacation Accrual 72,034 66,634
Unicap 42,970 82,770
Other taxes 162,380 129,461
Other 120,051 192,141
------------------------------------------------------------------
Total gross deferred tax assets $ 814,899 $ 1,216,553
Less valuation allowance - -
------------------------------------------------------------------
Net deferred tax assets $ 814,899 $ 1,216,553
Deferred tax liability - -
------------------------------------------------------------------
Less noncurrent portion
of depreciation - (47,434)
------------------------------------------------------------------
Net noncurrent deferred assets $ 814,899 $ 1,169,119
==================================================================
</TABLE>
The following table summarizes the differences between the Company's effective
income tax rate and the statutory federal tax rate for the years ended December
31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------------------------------
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase resulting from:
State and Local taxes, net of
Federal income tax benefit 2.0% 2.1% 2.6%
Other (1.9)% 1.4% 0.4%
------------------------------------------------
34.1% 37.5% 37.0%
===============================================
</TABLE>
22
<PAGE>
Note 5 - PROPERTY, PLANT AND EQUIPMENT, NET
The property, plant and equipment, net balances at December 31, 1998 and 1997
consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Estimated
Useful
1998 1997 life
(Years)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $500,500 $500,500
Building 1,431,771 1,431,771 31
Building Improvements 385,720 366,930 10
Machinery 720,050 719,130 5
Furniture and Fixtures 201,102 173,151 5
Computer Equipment 660,096 541,481 5
Automobiles 109,433 58,740 5
---------------- ----------------
4,008,672 3,791,703
Less: Accumulated depreciation (2,171,511) (1,965,797)
---------------- ----------------
$1,837,161 $1,825,906
==========================================================================================================
</TABLE>
Depreciation expense charged to income was $213,847, $196,651 and $187,128 in
1998, 1997, and 1996, respectively.
Note 6 - LONG-TERM DEBT
Industrial Revenue Bonds - 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 $1,050,000 at December 31, 1998, of
which $100,000 is classified as current. The Bonds are secured by a letter of
credit from a bank, and bore interest at an average rate of 3.6% and 3.9% for
1998 and 1997, respectively. The bonds are payable in annual installments of
$100,000 from 1999 through 2007 and $150,000 in 2008. The letter of credit
securing the Company's obligation expires on September 16, 2003.
23
<PAGE>
Note 7 - STOCK OPTION PLANS
1996 Equity Compensation Plan - In 1996, the Quipp, Inc. 1996 Equity
Compensation Plan (Equity Compensation Plan) was adopted by the Board of
Directors and approved by the shareholders. The Equity Compensation Plan
replaced the Quipp, Inc. 1990 Incentive Stock Option Plan, which was terminated.
The Equity Compensation Plan provides for grants of stock options and
stock-based awards to employees and certain consultants and advisors of the
Company. It also provides for the grant of stock options to non-employee members
of the Company's Board of Directors. Stock options issued in connection with the
Equity Compensation Plan are granted with an exercise price per share equal to
the fair market value of a share of Company common stock at the date of grant.
All stock options have five to ten-year maximum terms and vest, either
immediately, or within four years of grant date. The Equity Compensation Plan
initially authorized 400,000 shares of common stock for issuance. In 1998 the
Equity Compensation Plan was amended to authorize an additional 200,000 shares
of common stock. As a result, the total number of shares of common stock
issuable under the Equity Compensation Plan is 600,000.
At December 31, 1998 and 1997, there were 166,500 and 100,000 shares,
respectively, available for grant under the Equity Compensation Plan; 133,500
and 116,500 shares were granted in 1998 and 1997, respectively. Using the Black
& Scholes option-pricing model, with the following weighted-average assumptions:
an expected dividend yield of zero and expected lives ranging from five to ten
years for both 1998 and 1997, and a risk-free interest rate of 4.65% and 6.3%
for 1998 and 1997, respectively, the per share weighted-average fair value of
stock options granted during 1998 and 1997 ranged from approximately $5.5 to
$8.6 and $11.0 to $11.1, respectively. The Company applies APB 25 in accounting
for its stock options and, accordingly, no compensation expense has been
recognized for its stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS 123, the Company's net income and net income per common
and common equivalent shares would have been reduced to the pro forma amounts
indicated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income As reported $3,347,645 $3,081,304
Pro forma $2,747,582 $2,681,076
Net Income per Common and As reported $1.96 $1.89
Common Equivalent Shares Pro forma $1.61 $1.64
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The full impact of calculating compensation expense for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented above because
compensation expense is reflected over the options' vesting period, which could
be up to four years. At December 31, 1998 the range of exercise prices and
remaining contractual life of outstanding options was $9 to $17.5, and 2 to 9
years, respectively. At December 31, 1998, the number of options exercisable was
247,250, and the weighted-average exercise price of those options was $11.85.
24
<PAGE>
Note 8 - EARNINGS PER SHARE
A reconciliation of the number of shares used in computing basic and diluted EPS
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Shares
Basic Shares 1,630,706 1,576,556 1,565,765
Common stock
Equivalents from option plan 76,660 53,657 -
----------------------------------------------------------------------
Diluted 1,707,366 1,630,213 1,565,765
----------------------------------------------------------------------
EPS
Basic $ 2.05 $ 1.95 $ 1.42
Diluted $ 1.96 $ 1.89 $ 1.42
=============================================================================================================
</TABLE>
Note 9 - MAJOR CUSTOMERS
For the years ended December 31, 1998 and 1997, no single customer accounted for
10% or more of the Company's net sales. For the year ended December 31, 1996,
The New York Times accounted for approximately 11% of the Company's net sales.
The Company sells a substantial portion of its products to the domestic
newspaper industry; foreign sales accounted for 12%, 18%, and 19% of total net
sales in 1998, 1997 and 1996, respectively.
Note 10 - EMPLOYEE BENEFIT PLAN
The Quipp Systems, Inc. Employee Savings and Investment Plan (the Savings Plan),
is a defined contribution plan which covers substantially all full-time
employees. The Savings Plan permits eligible employees to contribute up to 20%
of annual compensation, subject to the maximum allowable contribution limits of
Sections 415, 401(k) and 404 of the Internal Revenue Code. In 1998, the Board of
Directors approved an increase in the matching contribution to the Savings Plan
of 50%, up to the first 6% of compensation deferred by each participant, up from
4% in prior years. The amount contributed by the Company in 1998, 1997, and
1996, was $66,588, $62,889 and $71,222, respectively. The administrative
expenses of the Savings Plan are paid by the Company as sponsors.
Note 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties. The
carrying amounts of the following approximate fair value because of the short
maturity of these instruments as of December 31, 1998 and 1997; cash and cash
equivalents, securities available for sale, accounts receivable, prepayments and
other receivables, long-term debt, accounts payable and accrued salaries and
wages.
Note 12 - CONTINGENCIES
In the normal course of business, the Company is exposed to litigation,
including asserted and unasserted claims. In the opinion of management, the
resolution of these matters would not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
Note 13 - SUBSEQUENT EVENTS
On May 10, 1999 , the Company will pay a special dividend of $7.00 per share to
shareholders of record on April 8,1999. Based on the numbers of shares
outstanding at March 10, 1999 the Company will distribute $11,587,688. This
amount will increase if any outstanding stock options are exercised on or prior
to April 8, 1999.
25
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
Not applicable.
26
<PAGE>
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
- --------------------------------------------------------
Not applicable
27
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1 Financial Statements - See "Index to Financial Statements" in
Item 8
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.)
Exhibit
No.
3.1 Articles of Incorporation, as amended (Incorporated
by reference to Exhibit 3.3 to the Registrant's
Quarterly Report on Form 10-Q, for the quarter ended
June 30, 1998).
3.2 By-Laws, as amended.
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 the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.2.2 Indenture of Trust between 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 the 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 the 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 the 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 the 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 the 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 the 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 the 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 the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1990).
28
<PAGE>
10.2.10 Amendment to Reimbursement Agreement among
NationsBank of North Carolina N.A., Quipp Systems,
Inc. and Quipp, Inc. dated as of March 31, 1994
(Incorporated by reference to Exhibit 10.2.10 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.3 Quipp, Inc. Stock Appreciation Rights Plan
(Incorporated by reference to Exhibit 10.6 10.4 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987).
*10.4 Quipp, Inc. 1996 Equity Compensation Plan
(Incorporated by Reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30th 1998).
*10.5 Quipp Systems, Inc. Employee Savings and Investment
Plan (Incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
*10.6 Agreement dated as of July 16, 1996 among Quipp,
Inc., Quipp Systems, Inc. and Ralph M. Branca
(incorporated by reference to Exhibit 10.8 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1996).
*10.7 Restated employment agreement, dated as of May 1,
1997, among Quipp Inc, Quipp Systems, Inc. and Louis
D. Kipp.
*10.8 Quipp Inc. Management Incentive Plan.
11 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 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.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
Quipp, Inc.
Date: March 29, 1999 By: /s/ Anthony P. Peri
--------------------------
Anthony P. Peri,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Anthony P. Peri
- --------------------------
ANTHONY P. PERI Chief Executive March 29, 1999
Officer and Director
/s/ Richard H. Campbell
- --------------------------
RICHARD H. CAMPBELL Director March 29, 1999
/s/ Jack D. Finley
- --------------------------
JACK D. FINLEY Director March 29, 1999
/s/ Cristina H. Kepner
- --------------------------
CRISTINA H. KEPNER Director March 29, 1999
/s/ William L. Rose
- --------------------------
WILLIAM L. ROSE Director March 29, 1999
/s/ Ralph M. Branca
- --------------------------
RALPH M. BRANCA Director March 29, 1999
/s/ Louis D. Kipp
- --------------------------
LOUIS D. KIPP Director March 29, 1999
/s/ Jeffrey S. Barocas
- --------------------------
JEFFREY S. BAROCAS Principal Financial and March 29, 1999
Accounting Officer
</TABLE>
<PAGE>
QUIPP, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
Exhibit
No.
3.1 Articles of Incorporation, as amended (Incorporated
by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q, for the Quarter ended
June 30, 1998).
3.2 By-Laws, as amended.
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 the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988).
10.2.2 Indenture of Trust between 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 the 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 the 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 the 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 the 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 the 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 the 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 the 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 the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1990).
10.2.10 Amendment to Reimbursement Agreement among
NationsBank of North Carolina N.A., Quipp Systems,
Inc. and Quipp, Inc. dated as of March 31, 1994
(Incorporated by reference to Exhibit 10.2.10 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
<PAGE>
10.3 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).
*10.4 Quipp, Inc. 1996 Equity Compensation Plan
(Incorporated by as amended 1-C to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
*10.5 Quipp Systems, Inc. Employee Savings and Investment
Plan (Incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
*10.6 Agreement dated as of July 16, 1996 among Quipp,
Inc., Quipp Systems, Inc. and Ralph M. Branca
(incorporated by reference to Exhibit 10.8 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1996).
*10.7 Restated employment agreement, dated as of May 1,1997
among Quipp Inc., Quipp Systems I Inc. and Louis D.
Quipp.
*10.8 Quipp Inc. Management Incentive Plan.
11 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 LLP
27 Financial Data Schedule
* Constitutes management contract or
compensatory plan or arrangement required to
be filed as an exhibit to this form.
BYLAWS
OF
QUIPP, INC.
(a Florida corporation)
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Offices
<S> <C>
Section 1.01. Principal Office........................................................................ 1
Section 1.02. Registered Office....................................................................... 1
Section 1.03. Other Offices........................................................................... 1
ARTICLE II
Meetings of Shareholders
Section 2.01. Annual Meeting.......................................................................... 1
Section 2.02. Special Meetings........................................................................ 1
Section 2.03. Place of Meetings....................................................................... 1
Section 2.04. Voting Lists............................................................................ 2
Section 2.05. Fixing of a Record Date................................................................. 2
Section 2.06. Notice of Meetings...................................................................... 3
Section 2.07. Precondition to Delivery of Notice of
Special Meeting of Shareholders Called
by Shareholders................................................................. 3
Section 2.08. Quorum.................................................................................. 3
Section 2.09. Adjournment............................................................................. 3
Section 2.10. Organization............................................................................ 4
Section 2.11. Voting.................................................................................. 4
Section 2.12. Proxies................................................................................. 5
Section 2.13. Action by Shareholders Without a
Meeting..................................................................... 5
ARTICLE III
Board of Directors
Section 3.01. Powers and Duties....................................................................... 6
Section 3.02. Qualification and Election.............................................................. 7
Section 3.03. Number and Term of Office............................................................... 7
Section 3.04. Organization............................................................................ 7
Section 3.05. Place of Meetings....................................................................... 8
Section 3.06. Annual Meetings......................................................................... 8
Section 3.07. Regular Meetings........................................................................ 8
-i-
<PAGE>
Page
----
Section 3.08. Special Meetings........................................................................ 8
Section 3.09. Action by Written Consent Without
a Meeting........................................................................ 8
Section 3.10. Conference Telephone Meetings........................................................... 8
Section 3.11. Quorum.................................................................................. 8
Section 3.12. Voting.................................................................................. 9
Section 3.13. Adjournment............................................................................. 9
Section 3.14. Compensation............................................................................ 9
Section 3.15. Resignations............................................................................ 9
Section 3.16. Vacancies............................................................................... 9
Section 3.17. Removal................................................................................. 9
Section 3.18. Executive and Other Committees.......................................................... 10
Section 3.19. Nomination of Directors................................................................. 11
ARTICLE IV
Notice and Waiver of Notice
Section 4.01. Notice.................................................................................. 12
Section 4.02. Waiver of Notice........................................................................ 12
ARTICLE V
Officers
Section 5.01. Number and Qualification................................................................ 12
Section 5.02. Election and Term of Office............................................................. 13
Section 5.03. Subordinate Officers, Committees and
Agents............................................................................. 13
Section 5.04. The Chairman of the Board............................................................... 13
Section 5.05. The President........................................................................... 13
Section 5.06. The Chief Financial Officer............................................................. 14
Section 5.07. The Vice Presidents..................................................................... 14
Section 5.08. The Secretary........................................................................... 14
Section 5.09. The Treasurer........................................................................... 14
Section 5.10. Salaries and Compensation............................................................... 15
Section 5.11. Resignations............................................................................ 15
Section 5.12. Removal................................................................................. 15
Section 5.13. Vacancies............................................................................... 15
Section 5.14. Bond.................................................................................... 15
ARTICLE VI
Certificates of Stock, Transfer
-ii-
<PAGE>
Page
----
Section 6.01. Share Certificates, Issuance............................................................ 16
Section 6.02. Transfer................................................................................ 16
Section 6.03. Registered Shareholders................................................................. 16
Section 6.04. Lost, Destroyed or Mutilated
Certificates................................................................ 16
ARTICLE VII
Indemnification of Directors, Officers,
Employees and Agents
Section 7.01. Directors, Officers, Employees and
Agents...................................................................... 17
Section 7.02. Expenses................................................................................ 18
Section 7.03. Determination of Standard of Conduct.................................................... 18
Section 7.04. Advance Expenses........................................................................ 18
Section 7.05. Benefit................................................................................. 18
Section 7.06. Insurance............................................................................... 19
Section 7.07. No Rights of Subrogation................................................................ 19
Section 7.08. Indemnification for Past Directors...................................................... 19
Section 7.09. Affiliates.............................................................................. 19
Section 7.10. Reliance................................................................................ 19
Section 7.11. Fund for Payment of Expenses............................................................ 20
Section 7.12. Amendments.............................................................................. 20
ARTICLE VIII
Miscellaneous
Section 8.01. Checks.................................................................................. 20
Section 8.02. Dividends............................................................................... 20
Section 8.03. Deposits................................................................................ 20
Section 8.04. Fiscal Year............................................................................. 20
Section 8.05. Severability............................................................................ 20
ARTICLE IX
Amendments
Section 9.01. Amendments to the Bylaws................................................................ 21
</TABLE>
-iii-
<PAGE>
ARTICLE I
Offices
-------
Section 1.01. Principal Office. The principal office of the
corporation in the State of Florida, which may be the registered office, shall
be established at such place as the board of directors shall from time to time
determine.
Section 1.02. Registered Office. The registered office of
the corporation in the State of Florida shall be at the office of its registered
agent as stated in the articles of incorporation or as the board of directors
shall from time to time determine.
Section 1.03. Other Offices. The corporation may have
additional offices at such other places, either within or without the State of
Florida, as the board of directors may from time to time determine or the
business of the corporation may require.
ARTICLE II
Meetings of Shareholders
------------------------
Section 2.01. Annual Meeting. The annual meeting of
shareholders shall be held after the close of each fiscal year on such date and
at such time as determined by the board of directors. The shareholders entitled
to vote at such meeting shall elect the directors and shall transact such other
business as may properly be brought before the meeting.
Section 2.02. Special Meetings. Special meetings of the
shareholders of the corporation may be called, for any purpose or purposes
permitted by law, by the board of directors on its own initiative and shall be
called by the board of directors upon written request by the chairman of the
board, president of the corporation, or, upon delivery to the secretary of one
or more written demands for the meeting describing the purpose or purposes for
which it is to be held, by the holders of not less than ten percent of all the
shares entitled to be cast on any issue proposed to be considered at the
proposed special meeting. Notice of such meeting shall be given by the secretary
as provided herein. Only business within the purpose or purposes described in
such special meeting notice may be conducted at a special shareholders meeting.
Section 2.03. Place of Meetings. All meetings of the
shareholders of the corporation shall be held at such place within or without
the State of Florida as shall be designated from time to time by the board of
directors and stated in the notice of such meeting or in a duly executed waiver
of notice thereof.
Section 2.04. Voting Lists. The officer or agent of the
corporation having charge of the stock transfer books for shares of the
corporation shall make, at least ten days before each meeting of shareholders,
a complete list of the shareholders entitled to vote at the
-1-
<PAGE>
meeting and any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each shareholder, which list shall
be kept on file at the place identified in the meeting notice in the city where
the meeting will be held or the corporation's principal place of business or at
the office of its registrar or transfer agent for a period of at least ten days
prior to the meeting, and shall be subject to inspection by any shareholder at
any time during usual business hours. Such list shall also be produced and kept
open at the time and place of the meeting, and shall be subject to the
inspection of any shareholder during the whole time of the meeting. The original
share ledger or transfer book, or a duplicate thereof, shall be prima facie
evidence as to who are the shareholders entitled to examine such list or share
ledger or transfer book, or to vote, in person or by proxy, at any meeting of
the shareholders.
Section 2.05. Fixing of a Record Date. The board of
directors may fix in advance a date as the record date for any determination of
shareholders entitled to notice of, or to vote at, any meeting of shareholders,
or entitled to payment of a dividend or allotment of any rights or privileges,
such date in any case to be not more than seventy days and, in the case of a
meeting of shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If no record date is fixed for the determination of shareholders
entitled to notice of, or to vote at, a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which the secretary mails
the notice of the meeting or the date on which the resolution of the board of
directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, unless the board of directors fixes a
new record date under this section for the adjourned meeting. The board of
directors shall fix a new record date if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
Section 2.06. Notice of Meetings. Written notice stating the
place, day and hour of every meeting of the shareholders shall be given by the
secretary to each shareholder entitled to vote at such meeting, either
personally or by first class mail, at least ten days, but not more than sixty
days, prior to the day named for the meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States first-class mail
postage prepaid, addressed to the shareholder at his address as it appears on
the stock transfer books of the corporation.
Section 2.07. Precondition to Delivery of Notice of Special
Meeting of Shareholders Called by Shareholders. The secretary shall inform
shareholders who have delivered a written request for a special meeting and
otherwise complied with section 2.02 of the reasonably estimated costs of
preparing and mailing a notice of the meeting, and, on payment of these costs to
the corporation, the secretary shall deliver notice of such meeting to each
shareholder entitled thereto.
-2-
<PAGE>
Section 2.08. Quorum. The presence, in person or by proxy,
of shareholders entitled to cast a majority of the votes which all shareholders
are entitled to cast shall constitute a quorum for such meeting. Treasury
shares, shares of this corporation's stock which are owned by another
corporation the majority of the voting stock of which is owned by this
corporation, and shares of this corporation's stock held by another corporation
in a fiduciary capacity for the benefit of this corporation shall not be counted
in determining the total number of outstanding shares for voting purposes at any
given time. After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of
shareholders entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof. When a specified item of business is required to be voted
on by any class or series of stock, a majority of the shares of such class or
series shall constitute a quorum for transaction of such item of business by
that class or series.
Section 2.09. Adjournment. When a meeting which is properly
called is adjourned to another time or place, it shall not be necessary to give
any notice of the adjourned meeting if the time and place to which the meeting
is adjourned are announced at the meeting at which the adjournment is taken, and
at the adjourned meeting any business may be transacted that might have been
transacted on the original date or place of the meeting. If, however, after the
adjournment the board fixes a new record date for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record on
the new record date entitled to vote at such meeting.
The holders of a majority of the shares represented, and who
would be entitled to vote at a meeting if a quorum were present, where a quorum
is not present, may adjourn such meeting from time to time.
Section 2.10. Organization. At every meeting of the
shareholders, the chairman of the board, if there be one, or in the case of
vacancy in office or absence of the chairman of the board, one of the following
officers present in the order stated: the vice chairman of the board, if there
be one, the president, the vice presidents in their order of rank and then
seniority, or a chairman chosen by the shareholders entitled to cast a majority
of the votes which all shareholders present in person or by proxy are entitled
to cast, shall act as chairman, and the secretary, or, in his absence, an
assistant secretary, or, in the absence of both the secretary and assistant
secretaries, a person appointed by the chairman, shall act as secretary.
Section 2.11. Voting. If a quorum is present at any meeting,
action on a matter (other than the election of directors) is approved if the
votes cast in favor exceed the votes cast in opposition, unless the question is
one for which, by express provision of the law or of the articles of
incorporation or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
-3-
<PAGE>
Except as may be otherwise provided in the articles of
incorporation, every shareholder of record shall have the right, at every
shareholders' meeting, to one vote for every share, and if the corporation has
issued fractional shares, to a fraction of a vote equal to every fractional
share, of stock of the corporation standing in his name on the books of the
corporation. A shareholder may vote either in person or by proxy.
Treasury shares, shares of this corporation's stock which
are owned by another corporation the majority of the voting stock of which is
owned by this corporation, and the shares of this corporation's stock held by
another corporation in a fiduciary capacity for the benefit of this corporation
shall not be voted, directly or indirectly, at any meeting of shareholders.
At each election for directors, every shareholder entitled
to vote shall have the right to vote the number of shares owned by him, for as
many persons as there are directors to be elected at that time and for whose
election he has a right to vote or, if cumulative voting is authorized by the
articles of incorporation, to accumulate his votes by giving one candidate a
number of votes equal to the number of directors to be elected at that time
multiplied by the number of his votes or distribute such number of votes among
any number of candidates.
Shares standing in the name of another corporation, domestic
or foreign, may be voted by the officer, agent, or proxy designated by the
bylaws of the corporate shareholder; or, in the absence of any applicable bylaw,
by such person as the board of directors of the corporate shareholder may
designate. Proof of such designation may be made by presentation of a certified
copy of the bylaws or other instrument of the corporate shareholder. In the
absence of any such designation, or in case of conflicting designation, by the
corporate shareholder, the chairman of the board, president, any vice president,
secretary and treasurer of the corporate shareholder shall be presumed to
possess, in that order, authority to vote such shares.
Shares held by an administrator, executor, guardian or
conservator may be voted by such person, either in person or by proxy, without a
transfer of such shares into the name of such person, provided, that if
requested by the chairman of the board, president, chief financial officer,
treasurer or secretary, such person has provided evidence of such fiduciary
status acceptable to such officer.
Shares standing in the name of a trustee may be voted by
such trustee, either in person or by proxy, but no trustee shall be entitled to
vote shares held by such trustee without a transfer of such shares into the name
of such trustee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him or the name of his nominee, without the transfer of such shares into his
name, provided, that if requested by the chairman of the board, president, chief
financial officer, treasurer or secretary, such person has provided evidence of
such status acceptable to such officer.
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A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee or the nominee of the pledgee shall be
entitled to vote the shares so transferred.
Section 2.12. Proxies. Every shareholder entitled to vote at
a meeting of shareholders or to express consent or dissent to corporate action
in writing without a meeting may authorize another person or persons to act for
him by proxy in accordance with applicable laws.
Section 2.13. Action by Shareholders Without a Meeting.
Unless otherwise provided in the articles of incorporation, any action required
to be taken at any annual or special meeting of shareholders of the corporation,
or any action which may be taken at any annual or special meeting of the
shareholders, may be taken without a meeting, without prior notice and without a
vote, if one or more consents in writing, setting forth the action so taken,
shall be dated and signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted, and delivered to the corporation by delivery to its principal
office in Florida, its principal place of business, the corporate secretary, or
another officer or agent of the corporation having custody of the minute book.
If any class of shares is entitled to vote thereon as a class, such written
consent shall be required of the holders of a majority of the shares of such
class and of the total shares entitled to vote. No written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the date of the earliest dated consent delivered in the manner set forth
above, written consents signed by the holders of the number of shares required
to take action are delivered to the corporation by delivery as set forth above.
ARTICLE III
Board of Directors
------------------
Section 3.01. Powers and Duties. All corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, a board of directors,
except as may be otherwise provided in the Florida Business Corporation Act or
the articles of incorporation.
A director shall perform his duties as a director, including
duties as a member of any committee of the board upon which the director may
serve, in good faith, in a manner the director reasonably believes to be in the
best interests of the corporation, and with such care as an ordinarily prudent
person in a like position would use under similar circumstances. In performing
his duties, a director shall be entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by:
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(1) one or more officers or employees of the
corporation whom the director reasonably believes to be reliable and competent
in the matters presented,
(2) counsel, public accountants or other
persons as to matters which the director reasonably believes to be within such
person's professional or expert competence, or
(3) a committee of the board upon which the
director does not serve, duly designated in accordance with provisions of the
articles of incorporation or these bylaws, as to matters within its designated
authority, which committee the director reasonably believes to merit confidence.
A director shall not be considered to be acting in good
faith if the director has knowledge concerning the matter in question that would
cause such reliance described in the preceding subsection to be unwarranted.
A person who performs his duties in compliance with this
section shall not be liable for any action taken as a director or any failure to
take any action.
A director of the corporation who is present at a meeting of
the board of directors at which action on any corporate matter is taken shall be
presumed to have assented to the action taken, unless the director votes against
such action or abstains from voting in respect thereto.
Section 3.02. Qualification and Election. Unless otherwise
provided in the articles of incorporation, directors need not be residents of
Florida or shareholders in the corporation. Except in the case of vacancies,
directors shall be elected by the shareholders. If the board of directors is
classified with respect to the power to elect directors or with respect to the
terms of directors and if, due to a vacancy or vacancies, or otherwise,
directors of more than one class are to be elected, each class of directors to
be elected at the meeting shall be nominated and elected separately. The
candidates receiving the greatest number of votes, up to the number of directors
to be elected, shall be elected directors.
Section 3.03. Number and Term of Office. The board of
directors shall consist of the number of directors serving at the time of
adoption of this Section 3.03, or such other number as may thereafter be from
time to time (i) be determined by the board of directors or (ii) be set forth in
a notice of a meeting of shareholders called for the election of the board of
directors. Notwithstanding the foregoing, no decrease shall have the effect of
shortening the term of any incumbent director. Each director shall serve until
the third succeeding annual meeting of the shareholders after the director's
election and until the director's successor shall have been elected and
qualified or until the director's earlier resignation, removal from office or
death.
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Section 3.04. Organization. At every meeting of the board of
directors, the chairman of the board, if there be one, or in the absence of the
chairman of the board, the president of the corporation or a chairman chosen by
a majority of the directors present, shall preside, and the secretary or any
person appointed by the chairman of the meeting shall act as secretary.
Section 3.05. Place of Meetings. Meetings of the board of
directors of the corporation, regular or special, may be held either within or
without the State of Florida.
Section 3.06. Annual Meetings. The board of directors shall
hold an annual meeting each year immediately following the annual meeting of the
shareholders at the place where such meeting of the shareholders was held for
the purpose of election of officers and consideration of any other business that
may be properly brought before the meeting. Notice of such annual meetings need
not be given to either old or new members of the board of directors.
Section 3.07. Regular Meetings. If the board of directors
determines to hold regular meetings, the board of directors may, at the annual
meeting of the board of directors, fix by resolution the date, time and place of
other regular meetings of the board. Notice of such regular meetings need not be
given to any member of the board of directors, unless the same is held at other
than the date, time and place of such meeting as fixed in accordance with this
Section 3.07, in which event notice shall be given in the same manner as is
provided in Section 3.08 with respect to special meetings of the board of
directors. In addition, announcement of a changed date, time or place at a
meeting of the board of directors shall be deemed adequate notice to the
directors present at such meeting.
Section 3.08. Special Meetings. Special meetings of the
board of directors may be called by any two directors, the chairman of the board
or the president. Notice of any special meeting of directors shall be given to
each director at his business or residence in writing by first class or
overnight mail or courier service, telegram or facsimile transmission, orally by
telephone or by hand delivery. If mailed by first class mail, such notice shall
be deemed adequately delivered when deposited in the United States mail so
addressed, with postage prepaid, at least five days before such meeting. If by
telegram, overnight mail or courier service, such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph company or
the notice is delivered to the overnight mail or courier service company at any
time during a day that is at least two days prior to the date of such meeting.
If by facsimile transmission, such notice shall be deemed adequately delivered
when the notice is transmitted at least 12 hours prior to the time set for the
meeting. If by telephone or by hand delivery, the notice shall be given at least
12 hours prior to the time set for the meeting.
Section 3.09. Action by Written Consent Without a Meeting.
Any action of the board of directors or of any committee thereof, which is
required or permitted to be taken at a
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regular or special meeting, may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, signed by all of the members
of the board of directors or of the committee, as the case may be, is filed in
the minutes of the proceedings of the board of directors or committee.
Section 3.10. Conference Telephone Meetings. One or more
members of the board of directors may participate in meetings of the board or a
committee of the board by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at such meeting.
Section 3.11. Quorum. A majority of the directors in office
shall be present at each meeting in order to constitute a quorum for the
transaction of business. An interested director may be counted in determining
the presence of a quorum at a meeting of the board of directors which
authorizes, approves or ratifies a contract or transaction in which such
director has an interest.
Section 3.12. Voting. Except as otherwise specified in the
articles of incorporation or these bylaws or provided by statute, the acts of a
majority of the directors present at a meeting at which a quorum is present
shall be the acts of the board of directors.
Section 3.13. Adjournment. A majority of the directors
present, regardless of whether or not a quorum exists, may adjourn any meeting
of the board of directors, to another time and place and no notice of any
adjourned meeting need be given, other than by announcement at the meeting.
Section 3.14. Compensation. The board of directors shall
have the authority to fix the compensation of directors for their attendance at
meetings of the board of directors or committees thereof, or otherwise, and such
compensation may include expenses, if any, associated with attendance at such
meetings.
Section 3.15. Resignations. Any director of the corporation
may resign at any time by giving written notice to the president or the
secretary of the corporation. Such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3.16. Vacancies. Any vacancy occurring in the board
of directors, including any vacancy created by reason of an increase in the
number of directors, may be filled by the affirmative vote of a majority of the
remaining directors, or by the shareholders in the manner provided in the
Florida Business Corporation Act. A director elected to fill a vacancy shall
hold office only until the next election of directors by the shareholders.
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Section 3.17. Removal. The shareholders may remove one or
more directors from office, with or without cause (unless the articles of
incorporation provide that directors may be removed only for cause), by a vote
or written consent of the holders of a majority of the shares then entitled to
vote. In case the board of directors or any one or more directors is so removed,
new directors may be elected at the same meeting or by the same written consent.
If the corporation has cumulative voting and if less than the entire board is to
be removed, no individual director may be removed if the votes cast against the
resolution for his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board or a class of which he is part.
Section 3.18. Executive and Other Committees. The board of
directors, by resolution adopted by a majority of the entire board, may
designate from among its members an executive committee and one or more other
committees, each committee to consist of two or more directors. The board may
designate as alternate members of any committee, one or more directors who may
replace any absent or disqualified member at any meeting of the committee.
The executive committee or other committee shall have and
exercise all of the authority of the board to the extent provided in the
resolution designating the committee, except that no such committee of the board
shall have the authority of the board to:
(1) approve or recommend to shareholders
actions or proposals required by law to be approved by shareholders;
(2) fill vacancies on the board of directors or
any committee thereof;
(3) amend or repeal these bylaws;
(4) authorize or approve the reacquisition of
shares unless pursuant to a general formula or method specified by the board of
directors; or
(5) authorize or approve the issuance or sale
of or contract for the sale of shares or determine the designation and relative
rights, preferences and limitations of a voting group unless within limits
specifically prescribed by the board of directors.
A majority of the directors in office designated to a
committee, or directors designated to replace them as provided in this section,
shall be present at each meeting to constitute a quorum for the transaction of
business, and the acts of a majority of the directors in office designated to a
committee or their replacements shall be the acts of the committee.
Each committee shall keep regular minutes of its proceedings
and report such proceedings periodically to the board of directors.
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Sections 3.05, 3.08, 3.09, 3.10 and 3.11 shall be applicable
to committees of the board of directors.
Section 3.19. Nomination of Directors. Nominations for the
election of directors may be made by the board of directors, a committee
designated by the board of directors pursuant to Section 3.18 or any shareholder
of record entitled to vote in the election of directors generally at the record
date of the meeting and also on the date of the meeting at which directors are
to be elected. However, any such shareholder may nominate one or more persons
for election as directors only if written notice (the "Notice") of the
shareholder's intent to nominate a director at the meeting is given by the
shareholder and received by the secretary of the corporation in the manner and
within the time specified in this Section. The Notice shall be delivered to the
secretary of the corporation not less than 21 days nor more than 50 days prior
to any meeting of the shareholders called for the election of directors; except
that if less than 28 days' notice of the meeting is given to shareholders, the
Notice shall be delivered to the secretary of the corporation not later than the
earlier of the seventh day following the day on which notice of the meeting was
first mailed to shareholders or the fourth day prior to the meeting. In lieu of
delivery to the secretary, the Notice may be mailed to the secretary by
certified mail, return receipt requested, but shall be deemed to have been given
only upon actual receipt by the secretary.
The Notice shall be in writing and shall contain or be
accompanied by: (1) the name and residence address of the nominating shareholder
and of the person or persons to be nominated; (2) a representation that the
shareholder is a holder of record of voting stock of the corporation and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the Notice; (3) such information regarding each nominee as would
have been required to be included in a proxy statement filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, (or pursuant to any successor act
or regulation) had proxies been solicited with respect to such nominee by the
management or board of directors of the corporation; (4) a description of all
arrangements or understandings among the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; and (5) the written
consent of each nominee to serve as a director of the corporation if so elected.
The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that any nomination made at the meeting was
not made in accordance with the procedures of this section and, in such event,
the nomination shall be disregarded.
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ARTICLE IV
Notice and Waiver of Notice
---------------------------
Section 4.01. Notice. Whenever written notice is required to
be given to any director under the provisions of the articles of incorporation,
these bylaws or the Florida Business Corporation Act, it shall be given to such
director by personal delivery, telecopier, delivery to an overnight courier
service or representative, deposit in the United States first-class mail, or by
certified or registered mail, addressed to the address of such person (or, if
applicable, such person's telecopier number) appearing on the books of the
corporation, or supplied by such person to the corporation for the purpose of
notice. A notice of a meeting shall specify the place, day and hour of the
meeting. Notices to shareholders shall be given as provided in Section 2.06
hereof.
Section 4.02. Waiver of Notice. Whenever any notice is
required to be given under the Florida Business Corporation Act, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
shareholders, neither the business to be transacted at, nor the purpose of, the
meeting need be specified in the waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any
meeting, shall constitute a waiver of notice of such meeting in the manner
provided in the Florida Business Corporation Act unless: (a) in the case of a
shareholders meeting, (i) the shareholder objects at the beginning of the
meeting to holding the meeting or transacting business at the meeting or (ii)
with respect to a matter that is not within the purpose or purposes described in
the meeting notice, the shareholder objects when the matter is presented and (b)
in the case of a directors' or committee meeting, the director states, at the
beginning of the meeting or promptly upon arrival at the meeting, any objection
to the transaction of business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
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Section 5.01. Number and Qualification. The officers of the
corporation shall consist of such officers and agents as may be appointed by the
board of directors. One person may hold more than one office. Officers may but
need not be directors or shareholders of the corporation. The board of directors
may elect from among the members of the board a chairman of the board who, if
elected, shall be an officer of the corporation. A duly appointed officer may
appoint one or more officers or assistant officers to the extent authorized by
the board of directors.
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Section 5.02. Election and Term of Office. Except for such
officers as may be elected pursuant to Section 5.03, the officers of the
corporation shall be appointed to hold office until the next annual
organizational meeting of directors and until a successor shall have been duly
elected and qualified, or until his death, resignation or removal.
Section 5.03. Subordinate Officers, Committees and Agents.
The board of directors may from time to time elect such officers and appoint
such committees, employees or other agents as the board deems the business of
the corporation may require, to hold office for such period, have such
authority, and perform such duties as are provided in these bylaws, or as the
board of directors may delegate.
Section 5.04. The Chairman of the Board. The chairman of the
board, if elected, shall preside at all meetings of the shareholders and of the
board of directors, and shall, at each annual meeting of shareholders, present a
report with respect to the condition and business of the Company. He shall have
the authority to sign on behalf of the corporation, all reports, filings and
other documents with such government agencies as are required by applicable law
and shall perform such other duties as may from time to time be requested of him
by the board of directors. The chairman of the board shall assume the duties of
the president when the president is absent or otherwise unable to discharge his
responsibilities. To be eligible to serve, the chairman of the board must be a
director of the corporation.
Section 5.05. The President. The president shall be the
chief executive officer of the corporation and shall have general powers of
supervision, direction and control over the business and operations of the
corporation, subject, however, to the authority of the board of directors. He
shall have the authority to supervise preparation of and sign on behalf of the
corporation, all reports, filings and other documents with such government
agencies as are required by applicable law. He shall sign, execute, and
acknowledge, in the name of the corporation, deeds, mortgages, bonds, contracts
or other instruments except in cases where the signing and execution thereof
shall be expressly delegated by the board of directors, or by these bylaws, to
some other officer or agent of the corporation; and, in general, shall perform
all duties incident to the office of president and such other duties as from
time to time may be assigned to him by the chairman of the board and board of
directors. If the board of directors has elected a chairman of the board, the
president shall assume the duties of the chairman of the board when the chairman
of the board is absent or unable to discharge his responsibilities.
Section 5.06. The Chief Financial Officer. The Chief
Financial Officer shall be the principal financial officer of the corporation
and, unless another officer is so designated, principal accounting officer of
the corporation; whenever required by the Board of Directors, he shall render a
statement of the financial condition of the corporation; shall keep and
maintain, or cause to be kept and maintained, adequate and correct accounts of
the properties and business transactions of the corporation, including, but not
limited to, accounts of its assets, liabilities,
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receipts, disbursement, gains, losses, capital surplus and shares; shall be
responsible for assuming adherence to such financial policies as are promulgated
by the board of directors; and, in general, shall discharge such other duties as
may from time to time be assigned to him by the board of directors, the chairman
of the board or the president. The books of account shall be open at all
reasonable times to inspection by any director.
Section 5.07. The Vice Presidents. The vice presidents
shall perform duties as may from time to time be assigned to them by the board
of directors, the chairman of the board or the president.
Section 5.08. The Secretary. The secretary shall attend all
meetings of the board of directors and committees thereof and shall record the
time and place of holding of such meeting, whether regular or special, and if
special, how authorized, the notice given, the names of those present at
directors' meetings or the number of shares present or represented at share
holders' meetings in books to be kept for that purpose; shall see that notices
are given and records and reports properly kept and filed by the corporation as
required by law; shall, unless otherwise designed by the board of directors, be
the custodian of the seal of the corporation and see that it is affixed to all
documents to be executed on behalf of the corporation under its seal; and, in
general, shall perform all duties incident to the office of secretary, and such
other duties as may from time to time be assigned to him by the board of
directors, the chairman of the board or the president.
Section 5.09. The Treasurer. The treasurer shall have or
provide for the custody of the funds or other property of the corporation and
shall keep a separate book account of the same; shall collect and receive or
provide for the collection and receipt of moneys earned by or in any manner due
to or received by the corporation; shall deposit all funds in his custody as
treasurer in such banks or other places of deposit as the board of directors may
from time to time designate; shall, whenever so required by the board of
directors, render an accounting showing his transactions as treasurer; and, in
general, shall discharge such other duties as may from time to time be assigned
to him by the board of directors, the chairman of the board, the president or
the Chief Financial Officer. If the board of directors fails to elect a Chief
Financial Officer, then the Treasurer shall perform the duties of the Chief
Financial Officer.
Section 5.10. Salaries and Compensation. The salaries, if
any, of the officers elected by the board of directors shall be fixed from time
to time by the board of directors or by such officer as may be designated by
resolution of the board. The salaries or other compensation of any officers,
employees and agents elected, appointed or retained by an officer or committee
to which the board of directors has delegated such a power shall be fixed from
time to time by such officer or committee. No officer shall be prevented from
receiving such salary or other compensation by reason of the fact that he is
also a director of the corporation.
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Section 5.11. Resignations. Any officer or agent may resign at any time
by giving written notice of resignation to the board of directors or to the
president or the secretary of the corporation. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Section 5.12. Removal.
Any officer, committee member, employee or agent of the corporation may be
removed, either for or without cause, by the board of directors or other
authority which elected or appointed such officer, committee member or other
agent.
Section 5.13. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, shall be filled by
the board of directors or by the officer or committee to which the power to fill
such office has been delegated, as the case may be. Section 5.14. Bond. The
chairman of the board, president, chief financial officer and treasurer shall
give such bond, if any, for the faithful performance of the duties of such
office as shall be required by the board of directors.
ARTICLE VI
Certificates of Stock, Transfer
-------------------------------
Section 6.01. Share Certificates, Issuance. Every
shareholder shall be entitled to have a certificate representing all shares to
which he is entitled; and such certificate shall be signed (either manually or
in facsimile) by the chairman of the board, if any, or by the president or a
vice president and by the secretary or any assistant secretary of the
corporation and may be sealed with the corporate seal or a facsimile thereof. In
the event any officer who has signed, or whose facsimile signature has been
placed upon any share certificate shall have ceased to be such officer because
of death, resignation or otherwise, before the certificate is issued, it may be
issued with the same effect as if the officer had not ceased to be such at the
date of its issue. Certificates representing shares of the corporation shall
otherwise be in such form as provided by statute and approved by the board of
directors. Every certificate exchanged or returned to the corporation shall be
marked "CANCELLED", with the date of cancellation.
Section 6.02. Transfer. Transfers of shares shall be made
on the books of the corporation upon surrender of the certificates therefor,
endorsed by the person named in the certificate or by an attorney lawfully
constituted in writing.
Section 6.03. Registered Shareholders. Except as otherwise
expressly set forth in these bylaws, the corporation shall be entitled to
recognize a person registered on its books in whose name any shares of the
corporation are registered as the absolute owner thereof with the
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exclusive rights to receive dividends, and to vote such shares as owner. Except
as otherwise provided by law, the corporation shall not be bound to recognize
any equitable or other claim regardless of whether the corporation shall have
express or other notice thereof.
Section 6.04. Lost, Destroyed or Mutilated Certificates. The
holder of any shares of the corporation shall notify the corporation of any
loss, destruction or mutilation of the certificates therefor, and the board of
directors may, in its discretion, cause new certificates to be issued to him,
upon satisfactory proof of such loss, destruction, or mutilation and, if the
board of directors shall so determine, the deposit of a bond in such form and in
such sum, and with such surety or sureties, as it may direct.
ARTICLE VII
Indemnification of Directors, Officers,
---------------------------------------
Employees and Agents
--------------------
Section 7.01. Directors, Officers, Employees and Agents. The
corporation shall indemnify any officer or director who was or is a party or is
threatened to be made a party (which shall include the giving of testimony or
similar involvement) to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by, or in the right of the corporation) by reason of the fact that he
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of any
other corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, including any appeal thereof, if he acted in good
faith in a manner he reasonably believed to be in, or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceedings, had no reasonable cause to believe that his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not create, of itself, a presumption that the person did not act in good faith
or in a manner which he reasonably believed to be in, or not opposed to, the
best interest of the corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party (which shall include the giving of
testimony or similar involvement), to any threatened, pending, or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement (to
the extent permitted by law), including any appeal thereof. Such indemnification
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shall be authorized if such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable unless, and only to the extent that, the court in which such proceeding
was brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
The corporation may, by action of the board of directors and
to the extent provided in such action, indemnify employees and agents as though
they were officers and directors.
Section 7.02. Expenses. To the extent that a director,
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to above, or
in any defense of any claim, issue or matter therein, the corporation shall
indemnify him against expenses (including attorneys' fees) actually and reason
ably incurred by him in connection therewith.
Section 7.03. Determination of Standard of Conduct. Any
indemnification hereunder, unless pursuant to a determination by a court, shall
be made by the corporation as authorized upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth above. Such determination shall be made either (1) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such proceeding, (2) by majority vote of a committee duly designated
by the board of directors consisting of two or more directors not at the time
parties to the proceeding, (3) by the shareholders who were not parties to such
action, suit or proceedings, or (4) by independent legal counsel selected in
accordance with the provisions of the Florida Business Corporation Act in a
written opinion.
Section 7.04. Advance Expenses. To the extent permitted by
applicable law, expenses including attorney's fees incurred by an officer,
director, employee or agent of the corporation in defending any action, suit or
proceeding shall be paid, in the case of an officer or director, and may be
paid, in the case of an employee or agent, by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized herein.
Section 7.05. Benefit. The indemnification provided by this
Article shall be in addition to the indemnification rights provided pursuant to
the Florida Business Corporation Act, and shall not be deemed exclusive of any
other rights to which person seeking indemnification may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or
-16-
<PAGE>
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office (provided that no indemnification
may be made if expressly prohibited by the Florida Business Corporation Act),
and shall continue as to a person who has ceased to be a director, officer,
employee or agent of the corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 7.06. Insurance. The corporation shall be empowered
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions contained
herein.
Section 7.07. No Rights of Subrogation. Indemnification
herein shall be a personal right and, the corporation shall have no liability
under this Article VII to any insurer or any person, corporation, partnership,
association, trust or other entity (other than the heirs, executors or
administrators of any person otherwise entitled to indemnification pursuant to
the provisions of this Article VII) by reason of subrogation, assignment or
succession by any other means to the claim of any person to indemnification
hereunder.
Section 7.08. Indemnification for Past Directors.
Indemnification as provided in this section shall continue as to a person who
has ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
Section 7.09. Affiliates. For the purposes of this Article,
references to "the corporation" include all constituent corporations absorbed in
a consolidation or merger, as well as the resulting or surviving corporation, so
that any person who is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
Section 7.10. Reliance. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon such rights of indemnification as are provided in this Article.
Section 7.11. Fund for Payment of Expenses. The corporation
may create a fund of any nature, which may, but need not be, under the control
of a trustee, or otherwise may secure in any manner its indemnification
obligations, whether arising hereunder, under the Articles, by agreement, vote
of shareholders or directors, or otherwise.
-17-
<PAGE>
Section 7.12. Amendments. The provisions of this Article VII
relating to indemnification and to the advancement of expenses shall constitute
a contract between the corporation and each of its directors and officers which
may be modified as to any director or officer only with that person's consent or
as specifically provided in this section. Notwithstanding any other provision of
these bylaws relating to their amendment generally, any repeal or amendment of
this Article VII which is adverse to any director or officer shall apply to such
director or officer only on a prospective basis, and shall not limit the rights
of a director or officer to indemnification or to the advancement of expenses
with respect to any action or failure to act occurring prior to the time of such
repeal or amendment.
ARTICLE VIII
Miscellaneous
-------------
Section 8.01. Checks. All checks or demands for money and
notes of the corporation shall be signed by such officer or officers or such
other person or persons as the board of directors may designate from time to
time.
Section 8.02. Dividends. The board of directors, at any
regular or special meeting thereof, subject to any restrictions contained in the
articles of incorporation, may declare and pay dividends upon the shares of the
corporation's stock in cash, property or the corporation's shares in accordance
with the Florida Business Corporation Act.
Section 8.03. Deposits. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such financial
institutions or other depositaries as the board of directors may approve or
designate.
Section 8.04. Fiscal Year. The fiscal year of the corporation shall
end on the 31st day of December in each year. Section 8.05. Severability. The
provisions of these bylaws shall be separable each from any and all other
provisions of these bylaws, and if any such provision shall be adjudged to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, or the powers granted to this corporation by the
articles of incorporation or bylaws.
ARTICLE IX
Amendments
----------
Section 9.01. Amendments to the Bylaws. Except as
specifically set forth elsewhere herein or in the articles of incorporation, the
board of directors may amend or repeal
-18-
<PAGE>
these bylaws. The shareholders entitled to vote thereon may amend or repeal
these bylaws even though the bylaws may also be amended or repealed by the board
of directors.
Adopted: July 18, 1995
Amended: July 16, 1996
Amended: August 15, 1997
Amended: January 20, 1999
-19-
RESTATED EMPLOYMENT AGREEMENT
-----------------------------
This Agreement made and entered into as of the first day of May, 1997,
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, 1993; 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 to provide for the continued retention of the services of
EMPLOYEE as President of COMPANY until such time as a successor is designated by
the Board of Directors
1
<PAGE>
of COMPANY and assumes the responsibilities of that office, and thereafter to
provide for the performance of services by EMPLOYEE on a consulting basis.
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 (but not to exceed an
average of four days per week) and places, and in such manner as the Board of
Directors of COMPANY from time to time may direct, until such time as the Board
of Directors designates a successor for EMPLOYEE as President and such successor
assumes the responsibilities of that office (the "Succession Event"). Upon the
occurrence of the Succession Event, EMPLOYEE will be designated President
Emeritus of COMPANY.
2. Following the Succession Event, COMPANY shall retain EMPLOYEE to
provide services to COMPANY as a consultant to COMPANY. In his capacity as a
consultant, EMPLOYEE will assist COMPANY with respect to such strategic
planning, sales, engineering and other operational matters as are requested by
COMPANY.
3. COMPANY agrees to pay EMPLOYEE prior to the Succession Event:
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 until the earlier of (i) the end of the term
of the contract remaining after the effective date of such increases and (ii)
the Succession Event.
2
<PAGE>
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 pay EMPLOYEE after the Succession Event, for
EMPLOYEE'S services as a consultant, at the rate of $600 for each day EMPLOYEE
provides services pursuant to this Agreement.
5. During the term of this Agreement, COMPANY shall, both before and
after the Succession Event:
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, or service as a consultant to,
COMPANY.
6. A. COMPANY agrees that it will continue EMPLOYEE'S health insurance
(which, for purposes of this Agreement shall be deemed to include family
coverage then available to a full-time employee similarly situated (i.e.,
serving in an executive capacity)) until EMPLOYEE'S seventieth (70th) birthday,
provided that EMPLOYEE pays the same premium or
3
<PAGE>
portion thereof as is then paid by any full-time employee similarly situated
(regardless of whether such premium is payable before or after the Succession
Event and regardless of whether the EMPLOYEE is then providing services to the
COMPANY) for such equivalent coverage. 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.
B. EMPLOYEE shall pay amounts payable by EMPLOYEE under
Section 6.A at the beginning of the relevant year or portion thereof for which
EMPLOYEE is entitled to receive health insurance pursuant to this Section 6,
based on the estimated average premium payable by a participant for equivalent
coverage, and an appropriate adjustment shall be made at the end of such period,
based on the actual premium paid per participant for equivalent coverage.
7. By its approval hereof, Quipp, Inc. agrees that upon termination of
this Agreement or any extension of this Agreement or, if earlier, upon the
occurrence of the Succession Event, Quipp, Inc. 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.
8. EMPLOYEE agrees to devote his time and attention to the business of
the COMPANY as set forth in Section 1 hereof and not to become engaged in any
competing business or practice during the term hereof.
4
<PAGE>
9. Prior to the Succession Event, 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. Following the
Succession Event, EMPLOYEE shall be entitled to paid vacation time, which shall
accrue on a monthly basis. The amount of vacation time accrued per month will
bear the same proportion to 1/12 of the annual paid vacation time accrued by
EMPLOYEE in 1996 as the number of days of consulting service provided by
EMPLOYEE in a month bears to the number of regular work days for full time
employees of the COMPANY during that month.
10. This Agreement (other than the provisions of Section 6) shall
terminate on April 30, 1999; provided, that this Agreement may be extended for
additional one year terms upon written agreement between COMPANY and EMPLOYEE.
11. The invalidity of unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
12. This Agreement shall inure to and be binding on the parties hereto
and their respective heirs, successors and assigns.
13. 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.
14. 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 Section 7. This Agreement may
be
5
<PAGE>
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/ Crister A. Sjogren
-----------------------------------------------
Crister A. 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
6
QUIPP, INC.
MANAGEMENT INCENTIVE COMPENSATION PLAN
1. Purpose - The purpose of the Quipp, Inc. Management Incentive Plan (the
"Plan") is to afford an incentive to certain management and other key employees
of QUIPP SYSTEMS, INC., ("Quipp Systems") and QUIPP, INC. (the "Company") to
increase the Company's profits. The Plan is designed to compensate participants
on the basis of financial results of the Company, orders booked by Quipp Systems
and the achievement of personal objectives defined for each participant.
2. Defined Terms - As used in the Plan, the following terms have the meanings
set forth below:
A) "Incentive Point Total" means the total of all Incentive
Points assigned to Participants.
B) "Incentive Points" means a right to share in the Profit
allocated to a Part of the Incentive Pool. The amount of the
share in the Profit allocable to a Participant is dependent on
the number of Incentive Points assigned to the Participant and
the Incentive Point Total assigned to all Participants.
C) "Incentive Pool" means the total amount payable under the Plan
during any Plan Year."Planned Incentive Pool" means the total
dollar amount estimated to be payable under the Plan at the
beginning of a Plan Year. "Actual Incentive Pool" means the
calculated total dollar amount payable under the Plan at the
conclusion of a Plan Year. The "Incentive Pool" will be
segmented into "Parts," with payment from each Part based upon
achievement of objectives designated for that Part. In the
first Plan Year, such Parts of the Incentive Pool shall
consist of the "Part A Pool," the "Part B Pool," and the "Part
C Pool," as described in paragraph 6 hereof.
D) "Participant" means any employee who is assigned Incentive
Points under this Plan.
E) "Plan Year" means the Company's fiscal year.
F) "Point Value" means the quotient of the total dollar amount of
a Part of the Incentive Pool divided by the Incentive Point
Total.
<PAGE>
G) "Profit" means the Company's operating income as set forth on
the Company's audited financial statements for the relevant
plan year.
H) "Reference Percentage" means the percentage of Profit
established by the Board as a contribution to the Plan for the
Plan year. For the first year of the Plan, the Reference
Percentage is 6%.
3. Administration of Plan - This Plan shall be administered by the
Compensation and Nominating Committee of the Company's Board of Directors (the
"Committee"). The Committee is authorized to interpret the terms and provisions
of the Plan and to adopt such rules and regulations for the administration of
the Plan as it may deem advisable. All interpretations and determinations by the
Committee with respect to the Plan shall be final, binding and conclusive.
Subject to the terms, provisions and conditions of the Plan, the Committee is
hereby authorized to, among other things: (a) approve selection of employees to
be assigned Incentive Points, (b) approve the individual objectives established
for each participant, (c) approve the number of Incentive Points to be assigned
to each Participant, (d) approve the Planned Incentive Pool amount at the
beginning of each fiscal year, (e) approve the segmentation of the Incentive
Pool into Parts, and (f) approve the amount of the payment to be made to
participants under the Plan. The Company's auditors will verify the calculation
of the Actual Incentive Pool following completion of the audit of the Company's
financial statements for the relevant Plan Year. The Committee shall prescribe
the form, which shall be consistent with this Plan, of the instruments, if any,
evidencing the designation of a Participant's Incentive Points and the
determination of Point Value.
4. Eligibility - Incentive Points will be assigned only to persons who are
employees of the Company (excluding directors who are not regular employees). No
member of the Committee, while serving as such, shall be eligible to participate
in this Plan. While all employees are eligible to be considered for
participation, it is contemplated that only those employees who perform services
of special importance to the Company or Quipp Systems in the management,
operation or development of the business of those entities will be selected to
participate.
5 Establishment of Incentive Pool - The amount of Planned Incentive Pool
shall be equal to the product of the Reference Percentage multiplied by the
budgeted Profit for the relevant Plan Year (subject to adjustment as set forth
in paragraph 6). The Reference Percentage shall be 6% until the Board of
Directors shall set a different amount at the beginning of a Plan Year. The
Planned Incentive Pool shall be estimated, based on the budgeted Profit set
forth in Company budget plan for the ensuing fiscal year. The Actual Incentive
Pool shall be calculated from the Company's audited results for the Plan Year.
The Actual Incentive Pool shall be the basis for the payments to Participants
under the Plan.
6. Valuation of Incentive Amount - For the first year of the Plan, the
Incentive Pool will be segmented into three Parts:
2
<PAGE>
Part A Pool: representing the company Profit achievement
portion of the Incentive Pool
Part B Pool: representing the personal objective
achievement portion of the Incentive Pool
Part C Pool: representing the product order achievement
portion of the Incentive Pool
Sixty percent (60%) of the product of Profit and Reference Percentage will be
set aside for the Part A Pool. Twenty-five percent (25%) of the product of
Profit and the Reference Percentage shall be set aside for Part B Pool. Fifteen
percent (15%) of the product of Profit and the Reference Percentage will be set
aside for the Part C Pool. However, the amount of the Part C Pool will be
subject to adjustment following the determination of orders for the relevant
Plan Year as follows:
A= 15% x P x O/B
Where A= Adjusted Part C Pool
P= Actual Inventive Pool prior to adjustment
O= Actual orders during the relevant Plan Year
B= Budgeted orders for the relevant Plan Year
7. Assignment of Points - Selection of Participants and assignment of
Incentive Points to all participants other than the President of the Company
will be recommended by the President to the Committee for its approval.
Assignment of Incentive Points for the President shall be approved by the
Committee. A person selected to participate in the Plan shall be notified in the
beginning of the Plan Year (or at such later time as he/she is designated to
participate in the Plan) and shall be notified as to the number of Incentive
Points assigned and the planned Point Value for the ensuing Plan Year. The
Participant shall also be notified of the planned breakdown of the Incentive
Pool by Parts, and, with respect to the Part B Pool, will participate with
President of the Company and/or the Participant's supervisor in establishing
specific personal objectives and the weighting of these objectives, which shall
be subject to the approval of the Committee. Specific personal objectives for
the President and weighting of those objectives will be established by the
Committee. The Incentive Points initially assigned to a Participant in respect
of the Part B Pool (the "Initial Point Amount") shall be adjusted following the
conclusion of the Plan Year by multiplying the Initial Pool Amount by a
percentage representing the Participant's percentage of achievement of his/her
individual objectives. Percentage of achievement for all Participants other than
the President will be determined by the Committee, after consideration of the
recommendation of the President and/or a supervisor designated by him that
includes an evaluation of Participant's success in addressing individual
objectives. For example, if a Participant had three objectives of equal weight
and only one was achieved, then the Participant's Incentive Points for the Part
B Pool will be reduced to 331/3% of the Incentive Points initially assigned. The
Committee shall also make such final determination in respect of
3
<PAGE>
the President. Inclusion in the Plan in any given year does not assure any
Participant of inclusion in any other year.
8. Payment - The amount to be paid to each Participant with respect to any
Plan Year shall be determined following the conclusion of the audit of the
Company's financial statements for such Plan Year. The Participant shall receive
from each of the Part A, Part B and Part C Pools an amount equal to the number
of Incentive Points assigned to him/her multiplied by the Point Value for that
specific Part. Each payment under the Plan in respect of a Plan Year shall be
made within fifteen days following the conclusion of the audit of the Company's
financial statements for the Plan Year. In years subsequent to the first Plan
Year, the President may proposed alternative objectives and percentages for
Parts of the Incentive Pool and may propose that the Incentive Pool be segmented
into more or fewer Parts. Upon approval of the Proposal by the Committee (with
such modifications as it may deem advisable), the Plan may be so modified. Such
changes must be proposed and approved prior to the start of the Plan Year.
9. Death or Termination of Employment - In the event of a Participant's death,
retirement or termination of employment by the Company or Quipp Systems other
than for cause during a Plan Year, a pro-rata share of the payment, if any, that
Participant would otherwise have received had he/she been employed for the
entire year, based on proportion of the Plan Year that the Participant was
employed, shall be paid to Participant or his/her heirs. Such payment shall be
made at the same time as a payment is made, following the end of the Plan Year,
to Participants who continue to be employed by the Company or Quipp Systems. In
the event of termination of a Participant's employment due to voluntary
resignation at any time up until the end of the Plan Year, the Participant will
forfeit all rights to any payment for the Plan Year in which his/her employment
was terminated.
10. Right of Company to Terminate Employment - Nothing contained in the Plan
shall interfere in any way with the right of the Company to terminate the
employment of the Participant at any time for any reason.
11. Nontransferability - No amounts payable under the Plan shall be
transferable by the Participant otherwise than by will or by the laws of descent
and distribution.
12. Termination of or Amendments to Plan - The Board of Directors at any time
may terminate, or from time to time may amend, modify, or suspend the Plan. In
addition, the Committee may make limited modifications to the Plan as permitted
under paragraph 8 above. The termination or amendment of the Plan shall not
affect the accrued obligations of the Company prior to such termination or
amendment. Nothing contained herein shall constitute an obligation on the part
of the Company to continue the Plan or to maintain any level of contribution
from Plan Year to Plan Year.
4
<PAGE>
13. Governing Law - The Plan shall be governed and construed in accordance
with the laws of the State of Florida.
14. Effective Date - The Plan shall be effective commencing January 1, 1999.
Approved by the Board of Directors of QUIPP, INC. on 12/31, 1998.
/s/ Anthony P. Peri
- --------------------------
Anthony P. Peri, President
5
QUIPP, INC. AND SUBSIDIARY
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Diluted 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (loss) $3,347,645 $3,081,304 $2,219,828
----------------------------------------------------
Weighted average number of common
shares outstanding during the year 1,630,706 1,576,556 1,565,765
Add-common equivalent shares (determined using the
"treasury stock" method) representing shares
issuable upon exercise of employee stock options 76,660 53,657 0
----------------------------------------------------
Weighted average number of shares used in calculation
of net income per share 1,707,366 1,630,213 1,565,765
----------------------------------------------------
Diluted income per common and common
equivalent share 1.96 1.89 1.42
-------------------------------------------------------------------------------------------------------------------
</TABLE>
To Board of Directors
Quipp, Inc.:
We consent to the incorporation by reference in the registration statements on
Form S-8 of Quipp, Inc., file numbers 333-6355 and 333-75085, of our report
dated February 19, 1999, relating to the consolidated balance sheets of Quipp,
Inc. and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholder's equity and cash flows for each
of the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1998 annual report on Form 10-K of Quipp, Inc.
/ s / KPMG LLP
Miami, Florida
February 19, 1999
(Except NOTE 13 which is dated March 8, 1999.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Quipp, Inc., Annual Report on Form 10-K for the year ended December 31, 1998
and is qualified in its entirety by reference to such Form 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,820,956
<SECURITIES> 18,460,331
<RECEIVABLES> 4,606,174
<ALLOWANCES> (217,789)
<INVENTORY> 2,989,950
<CURRENT-ASSETS> 28,954,282
<PP&E> 4,008,672
<DEPRECIATION> 2,171,511
<TOTAL-ASSETS> 31,278,086
<CURRENT-LIABILITIES> 7,833,801
<BONDS> 950,000
0
0
<COMMON> 16,450
<OTHER-SE> 22,477,835
<TOTAL-LIABILITY-AND-EQUITY> 31,278,086
<SALES> 27,121,396
<TOTAL-REVENUES> 27,121,396
<CGS> (16,955,430)
<TOTAL-COSTS> 22,640,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,473
<INCOME-PRETAX> 5,082,282
<INCOME-TAX> 1,734,637
<INCOME-CONTINUING> 3,347,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,347,645
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 1.96
</TABLE>
