<PAGE> 1
FORM 10-Q/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________
to ___________________
Commission file number 1-7916
RECOGNITION INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-1080346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 EAST GRAUWYLER ROAD, IRVING, TEXAS 75061
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 579-6000
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
----- -----
At March 9, 1994, the Registrant had outstanding 14,921,690 shares of its
Common Stock, par value $.25 per share.
<PAGE> 2
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
---------------------
Consolidated Balance Sheet as of 1
January 31, 1994 and October 31, 1993.
Consolidated Statement of Operations - 2
Three Months Ended January 31, 1994 and 1993.
Consolidated Statement of Cash Flows - 3
Three Months Ended January 31, 1994 and 1993.
Notes to Consolidated Financial Statements. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS. 5
------------------------------------
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 8
---------------------------------
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 9
INDEX TO EXHIBITS 10
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(thousands)
<TABLE>
<CAPTION>
January 31,
1994 October 31,
(Unaudited) 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including
restricted amounts of $4,704 in 1994
and $4,731 in 1993 $ 37,051 $ 53,334
Short-term investments, including
restricted amounts of $227 in 1994
and $231 in 1993 506 483
Receivables - net 43,234 45,420
Inventories:
Raw materials and parts 11,469 12,203
Work in process 9,837 6,254
Finished goods 11,382 11,378
Other current assets 4,823 3,575
--------- ---------
Total current assets 118,302 132,647
--------- ---------
Property, plant and equipment - net 15,659 16,403
Service parts - net 24,464 19,115
Long-term receivables 5,294 4,886
Goodwill - net 18,067 18,597
Capitalized software - net 9,188 8,991
Other assets 16,324 16,725
--------- ---------
Total assets $207,298 $217,364
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 5,691 $ 5,776
Trade accounts payable 9,897 9,082
Domestic and foreign income taxes 1,155 3,803
Accrued compensation and benefits 3,178 6,924
Advance payments by customers 15,579 18,397
Accrued and other current liabilities 10,120 13,621
--------- ---------
Total current liabilities 45,620 57,603
--------- ---------
Long-term debt 53,656 53,656
--------- ---------
Other liabilities 6,435 5,303
--------- ---------
Stockholders' equity:
Preferred stock, no par value: authorized
shares - 800; issued shares - none -- --
Series A junior participating preferred
stock, no par value: authorized shares -
200; issued shares - none -- --
Common stock, $.25 par value: authorized
shares - 30,000; issued shares - 14,977
in 1994 and 14,953 in 1993 3,744 3,738
Capital in excess of par value 138,346 137,865
Accumulated deficit (36,711) (37,367)
Translation adjustments (3,365) (3,007)
Treasury stock (427) (427)
--------- ---------
Total stockholders' equity 101,587 100,802
--------- ---------
Commitments and contingencies
--------- ---------
Total liabilities and stockholders' equity $207,298 $217,364
========= =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(thousands, except per share)
<TABLE>
<CAPTION>
Three months ended
January 31,
1994 1993
-------- --------
<S> <C> <C>
Revenues:
Product $18,157 $20,773
Customer service 32,191 28,255
-------- --------
50,348 49,028
Cost of revenues:
Product 12,021 11,285
Customer service 19,856 19,676
-------- --------
31,877 30,961
-------- --------
Gross profit 18,471 18,067
Operating expenses:
Engineering and development 4,250 3,862
Selling and marketing 7,955 7,731
General and administrative 3,216 3,120
Amortization and other operating 905 839
-------- --------
Operating income 2,145 2,515
Interest income 593 526
Interest expense (1,077) (1,397)
Foreign exchange gains (losses) - net (43) 157
Other expense - net (50) (197)
-------- --------
Income before income taxes 1,568 1,604
Provision for income taxes (912) (988)
-------- --------
Net income $ 656 $ 616
======== ========
Earnings per share $ .04 $ .05
======== ========
Weighted average shares outstanding 15,884 13,141
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Three months ended
January 31,
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM:
OPERATIONS -
Net income $ 656 $ 616
-------- --------
Adjustments to reconcile net income to
net cash used for operations:
Depreciation 2,710 2,763
Amortization 1,591 1,464
Deferred income taxes 1,072 (44)
Sales-type leases and installment sales - net (899) 493
Net book value of service parts used 250 303
Decrease in receivables 658 566
Increase in inventories (2,812) (3,574)
Other working capital changes (11,336) (7,492)
Other 1,051 635
-------- --------
Total adjustments (7,715) (4,886)
-------- --------
Net cash used for operations (7,059) (4,270)
-------- --------
INVESTMENTS AND ACQUISITIONS -
Additions to property, plant and equipment (958) (860)
Additions to service parts (7,041) (1,467)
Additions to capitalized software (907) (828)
Increase in short-term investments (28) (16)
Payment for acquisition of business (218) (126)
Other 39 5
-------- --------
Net cash used for investments
and acquisitions (9,113) (3,292)
-------- --------
FINANCING ACTIVITIES -
Proceeds from issuance of short-term debt 4 43
Repayment of short-term debt -- (35)
Repayment of long-term debt -- (750)
Issuance of common stock 224 800
Other -- (58)
-------- --------
Net cash provided by financing activities 228 --
-------- --------
Effect of exchange rate changes on cash (339) (716)
-------- --------
Net decrease in cash and cash equivalents (16,283) (8,278)
Cash and cash equivalents at beginning of period 53,334 25,851
-------- --------
Cash and cash equivalents at end of period $37,051 $17,573
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the three-month period for:
Interest $ 99 $ 447
Income taxes $ 2,145 $ 2,488
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The unaudited financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include
all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in
conjunction with the financial statements and notes thereto included
in Recognition's Annual Report on Form 10-K for the year ended October
31, 1993. The accompanying financial statements have not been
examined by independent accountants in accordance with generally
accepted auditing standards, but in the opinion of management such
financial statements include all adjustments of a normal recurring
nature necessary to fairly present Recognition's financial position,
results of operations and cash flows. The results of operations for
the three months ended January 31, 1994 may not be indicative of the
results that may be expected for the year ending October 31, 1994.
(2) Certain amounts in the 1993 financial statements have been
reclassified to conform with the 1994 presentation.
(3) At January 31, 1994, Recognition was contingently liable for
approximately $2,020,000 under letters of credit issued primarily to
customers in connection with sales contracts.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CHANGES IN FINANCIAL CONDITION
Working capital at January 31, 1994 was $72.7 million, a decrease of
$2.4 million compared to October 31, 1993. The decrease was a result of a
decrease in current assets of $14.3 million, offset by a decrease in current
liabilities of $11.9 million.
The decrease in current assets was due primarily to a decrease in cash
and cash equivalents of $16.3 million (see Consolidated Statement of Cash
Flows). Accounts receivable decreased $2.2 million reflecting payments
received on several large receivables outstanding at October 31, 1993. These
decreases were partially offset by increases in inventories and other current
assets of $2.9 million and $1.2 million, respectively. The increase in
inventories is primarily due to purchases in anticipation of future shipments.
Other current assets increased primarily due to prepaid expenses.
The decrease in current liabilities included a $2.6 million decrease
in domestic and foreign income taxes primarily due to payments of 1993 taxes by
certain foreign subsidiaries. Accrued compensation and benefits decreased $3.7
million primarily due to the payment of 1993 annual performance bonuses.
Advance payments by customers decreased $2.8 million due to revenues recorded
in the first quarter of 1994 for which payment was received in 1993. Accrued
and other current liabilities decreased $3.5 million primarily due to payments
related to restructuring and to sales and property taxes accrued at October 31,
1993.
At January 31, 1994, Recognition had $37.6 million of cash, cash
equivalents and short-term investments, of which $4.9 million was pledged as
collateral or otherwise committed to secure certain guarantees and a foreign
bank loan. Recognition has a revolving credit facility for up to $25.0
million. The facility contains covenants including maintenance of certain
financial ratios, net worth requirements, and restrictions on future borrowings
and payment of dividends. Obligations under the facility are secured by a lien
on substantially all of Recognition's assets, excluding its real estate. At
January 31, 1994, letters of credit of $1.5 million were outstanding under the
facility, which reduced the amount of credit available to $23.5 million.
Recognition believes it has sufficient cash, including amounts
available under the credit facility, to meet its operating and capital
requirements for fiscal year 1994.
5
<PAGE> 8
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTH PERIODS ENDED
JANUARY 31, 1994 AND 1993
Consolidated revenues were $50.3 million in the first quarter of 1994,
an increase of three percent, or $1.3 million, as compared to the first quarter
of 1993. Revenues from equipment products and services were $39.5 million in
1994, a decrease of $3.2 million, or eight percent, as compared to 1993.
Revenues from software products and services, including Plexus(R) software
products and software sold in conjunction with equipment, were $10.9 million in
1994. This represented an increase of $4.5 million, or 71 percent, as compared
to 1993.
The increase in consolidated revenues reflected an increase of $4.0
million, or 26 percent, in foreign revenues partially offset by a decrease of
$2.7 million, or eight percent, in domestic revenues. Foreign operations
contributed 38 percent of the first quarter of 1994 revenues compared to 31
percent in the first quarter of 1993.
Product revenues from equipment and software decreased 13 percent, or
$2.6 million, compared to the first quarter of 1993. Revenues from equipment
were $12.4 million in 1994, a decrease of 24 percent, or $3.9 million. This
reflected decreased revenues from document recognition products, offset
partially by increased revenues from the delivery and installation of network
products under major contracts in Canada. Revenues from software products were
$5.8 million in 1994, an increase of 30 percent, or $1.3 million.
Customer service revenues increased 14 percent, or $3.9 million, when
compared to the first quarter of 1993. Equipment related service revenues were
$27.1 million in 1994, an increase of three percent, or $.7 million. Software
service revenues related to both Plexus products and software sold in
conjunction with equipment were $5.1 million in 1994, an increase of 165
percent, or $3.2 million.
Consolidated gross profit in the first quarter of 1994 was $18.5
million, up $.4 million from the first quarter of 1993. Product gross profit
was $6.1 million, or 34 percent of revenues, in 1994 compared to $9.5 million,
or 46 percent, in 1993. This decline was attributed to four primary factors:
the unfavorable impact of fixed manufacturing expenses on gross profit margins
due to the lower revenues from document recognition products; a larger
percentage of product revenues from lower gross profit margin contracts for
network products in Canada; increased revenues from sales of lower gross profit
margin third party software products; and revenues from certain contracts which
required additional product customization resulting in lower gross profit
margins. Customer service gross profit increased $3.8 million primarily as a
result of revenues from custom software development and additional service
revenues from services on recently installed equipment and
6
<PAGE> 9
software which were performed by existing staff without increased expense.
Recognition's system business is undergoing a transition from older,
closed architecture products to newer, open architecture products. Revenues
from the older products declined more than anticipated in the first quarter and
may continue at lower levels for the next several quarters until replaced by
revenues from the newer products. Some of these newer products are being
marketed to original equipment manufacturers (OEMs). Gross profit margins on
OEM revenues, as well as sales and marketing expenses, are generally lower than
those on end-user revenues. Recognition expects lower customer service revenues
from OEM products, as end-users will typically obtain equipment maintenance
services from the OEM. Recognition is marketing its maintenance services for
products manufactured by other companies to generate additional customer
service revenues.
The provision for income taxes for 1994 and 1993 was a result of
income earned by certain foreign entities with relatively high effective tax
rates while no tax benefits were available to entities which recorded losses
for the three months.
7
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The information required by this portion of Item 6 is set
forth in the Index to Exhibits on pages 10 through 12 of this Report.
(b) Reports on Form 8-K - No Reports on Form 8-K were filed during the
quarter for which this Report is being filed.
8
<PAGE> 11
SIGNATURES
Pursuant to the requirements 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.
RECOGNITION INTERNATIONAL INC.
(Registrant)
Date: March 16, 1994 /s/ THOMAS E. HOEFERT
Thomas E. Hoefert
Vice President and Controller
(Duly Authorized Officer and Chief
Accounting Officer)
9
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
2. Not Applicable.
4.1 Restated Certificate of Incorporation effective May 30, 1974 (incorporated by reference to Exhibit 3.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1993).
4.2 Amendment to Article First of Registrant's Restated Certificate of Incorporation effective March 12, 1993
(incorporated by reference to Exhibit 28(b) to Registrant's Current Report on Form 8-K dated March 12, 1993).
4.3 Amendment to Article Fourth of Registrant's Restated Certificate of Incorporation effective April 3, 1985
(incorporated by reference to Exhibit 3.3 to Registrant's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993).
4.4 Amendment adding Article Thirteenth to Registrant's Restated Certificate of Incorporation effective March 16, 1987
(incorporated by reference to Exhibit 3.4 to Registrant's Annual Report on Form 10-K for the fiscal year ended
October 31, 1992).
4.5 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock effective
September 28, 1992 (incorporated by reference to Exhibit 3.5 to Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992).
4.7 By-Laws, as amended and restated as of October 28, 1993 (incorporated by reference to Exhibit 3.6 to Registrant's
Annual Report on Form 10-K for the fiscal year ended October 31, 1993).
4.8 Indenture dated as of April 3, 1986 and First Supplemental Indenture dated as of November 1, 1987 between
Registrant and MBank Dallas, National Association, as Trustee, with respect to Registrant's 7-1/4% Convertible
Subordinated Debentures due 2011 (incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1992).
4.9 Rights Agreement dated as of September 18, 1992 between Registrant and Society National Bank as Rights Agent
</TABLE>
10
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
(incorporated by reference to Registrant's Form 8-A Registration Statement dated September 25, 1992).
4.10 Amended and Restated Promissory Note dated as of March 30, 1992 by Registrant to TransTechnology Corporation in the
principal amount of $1,934,183 (incorporated by reference to Exhibit 4.10 to Registrant's Quarterly Report on
Form 10-Q for the period ended July 31, 1992).
4.11 Amended and Restated Credit Agreement dated as of July 29, 1993 by and among Registrant and The First National
Bank of Boston, National Bank of Canada, New York Branch and First Interstate Bank of Texas, N.A. (incorporated
by reference to Exhibit 4.11 to Registrant's Quarterly Report on Form 10-Q for the period ended July 31, 1993).
4.12 First Amendment dated as of January 31, 1994 to Amended and Restated Credit Agreement dated as of July 29, 1993.
4.13 Amended and Restated Revolving Credit Notes dated as of July 29, 1993 in the principal amounts of $12,000,000,
$7,000,000 and $6,000,000 payable by Registrant to The First National Bank of Boston, as agent for The First
National Bank of Boston, First Interstate Bank of Texas, N.A. and National Bank of Canada, New York Branch,
respectively (incorporated by reference to Exhibit 4.12 to Registrant's Quarterly Report on Form 10-Q for the
period ended July 31, 1993).
4.14 Security Agreement dated as of March 26, 1992 by and among Registrant, Hybrid Systems Inc. and The First National
Bank of Boston (incorporated by reference to Exhibit 19.5 to Registrant's Quarterly Report on Form 10-Q for the
period ended April 30, 1992).
4.15 General Security Agreement dated as of March 26, 1992 by and between Mohawk Data Sciences-Canada, Limited and The
First National Bank of Boston (incorporated by reference to Exhibit 19.6 to Registrant's Quarterly Report on Form
10-Q for the period ended April 30, 1992).
4.16 Unlimited Guaranty dated as of March 26, 1992 by Hybrid Systems Inc. and Recognition Equipment (Japan), Inc.
</TABLE>
11
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
in favor of The First National Bank of Boston (incorporated by reference to Exhibit 19.7 to Registrant's
Quarterly Report on Form 10-Q for the period ended April 30, 1992).
4.17 Unlimited Guaranty dated as of March 26, 1992 by Mohawk Data Sciences-Canada, Limited in favor of The First
National Bank of Boston (incorporated by reference to Exhibit 19.8 to Registrant's Quarterly Report on Form 10-Q
for the period ended April 30, 1992).
4.18 Amendment of Security Documents Agreement dated as of July 29, 1993 by and among Registrant, Recognition Canada
Inc., Recognition Japan Inc., Recognition Australia Pty. Ltd. and Recognition Holding Limited and The First
National Bank of Boston (incorporated by reference to Exhibit 4.17 to Registrant's Quarterly Report on Form 10-Q
for the period ended July 31, 1993).
10. Not Applicable.
11.1 Statement re computation of per share earnings.
15. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27. Not applicable.
99. Not applicable.
</TABLE>
12
<PAGE> 1
EXHIBIT 4.12
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT AND
AMENDMENT NO. 2 TO STOCK PLEDGE AGREEMENT
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND AMENDMENT
NO. 2 TO STOCK PLEDGE AGREEMENT, dated as of January 31, 1994 (the
"Amendment"), by and among RECOGNITION INTERNATIONAL INC., a Delaware
corporation (the "Borrower"), RECOGNITION AUSTRALIA PTY. LTD., a corporation
organized under the laws of the state of New South Wales, Australia
("Recognition Australia"), RECOGNITION HOLDING LIMITED, a corporation organized
under the laws of England ("Recognition Ltd."), THE FIRST NATIONAL BANK OF
BOSTON, FIRST INTERSTATE BANK OF TEXAS, N.A., NATIONAL BANK OF CANADA, NEW YORK
BRANCH and the other lending institutions from time to time listed on Schedule
1 to the Credit Agreement (as hereinafter defined) (collectively, the "Banks")
and THE FIRST NATIONAL BANK OF BOSTON as agent (the "Agent") for itself and the
other Banks, amending certain provisions of (a) the Amended and Restated Credit
Agreement dated as of July 29, 1993 (as amended and in effect from time to
time, the "Credit Agreement") by and among the Borrower, the Banks and the
Agent and (b) the Stock Pledge Agreement, dated as of March 26, 1992 (as
amended by Amendment No. 1 to Stock Pledge Agreement dated as of March 31,
1993, the Amendment of Security Documents Agreement dated as of July 29, 1993,
and as further amended and in effect from time to time, including pursuant to
the terms hereof, the "Stock Pledge Agreement") by and among the Borrower,
Recognition Australia, Recognition Ltd. and the Agent. Terms not otherwise
defined herein which are defined in the Credit Agreement shall have the same
respective meanings herein as therein.
WHEREAS, the Borrower, the Banks and the Agent have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this Amendment; and
WHEREAS, the Borrower, Recognition Australia, Recognition Ltd., the
Banks and the Agent have agreed to modify certain terms and conditions of the
Stock Pledge Agreement as specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the mutual agreements contained in
the Credit Agreement, the Stock Pledge Agreement and herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT.
Section 1 of the Credit Agreement is hereby amended as follows:
(a) The definition of "Capital Expenditures" is hereby amended by
inserting immediately after the words "such term shall
<PAGE> 2
not include" on the fifth line thereof the letter "(a)" and the words "any
amounts paid or Indebtedness incurred by the Borrower, up to a maximum
aggregate amount of $5,000,000, in the fiscal quarters ending January 31, 1994
and April 30, 1994 in connection with the purchase by the Borrower of the
Delphax Inventory and (b)"; and
(b) Section 1 of the Credit Agreement is further amended by
inserting the following definitions in the appropriate alphabetical order:
"Delphax Inventory. Inventory purchased by the
Borrower from Delphax Systems, a Massachusetts general
partnership, pursuant to a Subcontract Agreement dated as of
November 1, 1993 by and between the Borrower and Delphax
Systems."
"Recognition Vendor Guarantees. One or more
guarantees made by the Borrower in favor of any Person which
sells personal computers and related equipment and software to
Recognition Canada for resale by Recognition Canada under
several customer contracts, which guarantee to such Person the
payment and performance of obligations incurred by Recognition
Canada; provided, however, the aggregate liability of the
Borrower under all such guarantees outstanding at any time
shall not exceed $4,000,000."
Section 2. AMENDMENT TO Section 2.5 OF THE CREDIT AGREEMENT.
Section 2.5 of the Credit Agreement is hereby amended as follows:
(a) Section 2.5(b) is hereby amended by deleting the
words "three and one-quarter percent (3 1/4%)" from the third line
thereof and substituting in place thereof the words "three percent
(3%)"; and
(b) Section 2.5(c)(B) is hereby amended by deleting the
words "two and three-quarter percent (2-3/4%)" from the second line
thereof and substituting in place thereof the words "two and one-half
percent (2-1/2%)".
Section 3. AMENDMENT TO Section 4.5 OF THE CREDIT AGREEMENT.
Section 4.5 of the Credit Agreement is hereby amended as follows:
(a) Section 4.5(b) is hereby amended by deleting the
words "three and one-quarter percent (3 1/4%)" from the third line
thereof and substituting in place thereof the words "three percent
(3%)"; and
(b) Section 4.5(c)(B) is hereby amended by deleting the
words "two and three-quarter percent (2-3/4%)" from the second and
third lines thereof and substituting in place thereof the words "two
and one-half percent (2-1/2%)".
2
<PAGE> 3
Section 4. AMENDMENT TO Section 9.1 OF THE CREDIT AGREEMENT.
Section 9.1 of the Credit Agreement is hereby amended by (a) deleting from
Section 9.1(h) the amount "$3,000,000" and substituting in place thereof the
amount "$4,000,000"; (b) deleting the word "and" at the end of Section 9.1(o);
(c) deleting the period at the end of Section 9.1(p) and substituting in place
thereof a semicolon and the word "and"; and (d) inserting immediately after the
text of Section 9.1(p) and the word "and", the following:
"(q) Indebtedness arising under the Recognition Vendor
Guarantees."
Section 5. AMENDMENT TO Section 9.3(B) OF THE CREDIT AGREEMENT.
Section 9.3(b) of the Credit Agreement is hereby amended by inserting
immediately after the words "Canadian Guaranty" on the first line thereof a
comma and the words "the Recognition Vendor Guarantees".
Section 6. AMENDMENT TO Section 10.1 OF THE CREDIT AGREEMENT.
Section 10.1 of the Credit Agreement is hereby amended by deleting the ratio of
"2.50:1.00" which appears directly opposite the date April 30, 1994 and
substituting in place thereof the ratio of "1.90:1.00".
Section 7. AMENDMENT TO Section 4 OF THE STOCK PLEDGE AGREEMENT.
Section 4 of the Stock Pledge Agreement is hereby amended by inserting
immediately after the first sentence in Section 4, the words "Notwithstanding
anything to the contrary contained in this Section 4, so long as no Default or
Event of Default has occurred or is continuing, the Pledgor shall be entitled
to retain, up to an maximum aggregate amount of $1,000,000 in any calendar
year, any sums paid to it with respect to the redemption by Recognition Canada
of the Class A Preference Shares previously issued to the Pledgor by
Recognition Canada, and the Banks and the Agent hereby agree that upon receipt
by the Agent of evidence satisfactory in form and substance to the Agent of
such a redemption and the related request of the Pledgor, and at the Pledgor's
sole cost and expense, the Agent shall release and return to the Pledgor shares
of previously pledged Stock, consisting of Class A Preference Shares,
representing sixty five percent (65%) of the Class A Preference Shares of
Recognition Canada to be redeemed."
Section 8. CONDITIONS TO EFFECTIVENESS. This Amendment shall
not become effective until the Agent receives a counterpart of this Amendment
executed by the Borrower, Recognition Australia, Recognition Ltd., the
Guarantors, the Banks and the Agent.
Section 9. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in Section 7 of the Credit Agreement, and each of the
Borrower, Recognition Australia and Recognition Ltd. represents and warrants
that all the representations and warranties of each as set forth in the Stock
Pledge Agreement are true and correct in all material respects on and as of the
date hereof; provided, that all references therein to the Credit Agreement or
the Stock Pledge Agreement, as the case may be, shall refer to such
3
<PAGE> 4
Credit Agreement or Stock Pledge Agreement, as the case may be, as amended
hereby.
Section 10. RATIFICATION, ETC. Except as expressly amended
hereby, the Credit Agreement, the Stock Pledge Agreement and all documents,
instruments and agreements related thereto, including, but not limited to the
Security Documents, are hereby ratified and confirmed in all respects and shall
continue in full force and effect. The Credit Agreement or the Stock Pledge
Agreement, as the case may be, and this Amendment shall be read and construed
as a single agreement. All references in the Credit Agreement or the Stock
Pledge Agreement, as the case may be, or any related agreement or instrument to
the Credit Agreement or Stock Pledge Agreement, as the case may be, shall
hereafter refer to the Credit Agreement or Stock Pledge Agreement, as the case
may be, as amended hereby.
Section 11. NO WAIVER. Nothing contained herein shall constitute
a waiver of, impair or otherwise affect any Obligations, any other obligation
of the Borrower, Recognition Australia, Recognition Ltd. or any rights of the
Banks and the Agent consequent thereon.
Section 12. COUNTERPARTS. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
Section 13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
a document under seal as of the date first above written.
RECOGNITION INTERNATIONAL INC.
By: /s/ ROBERT M. SWARTZ
Title: Senior Vice President
RECOGNITION AUSTRALIA PTY. LTD.
By: /s/ ROBERT M. SWARTZ
Title: Director
4
<PAGE> 5
RECOGNITION HOLDING LIMITED
By: /s/ THOMAS A. LOOSE
Title: Director
THE FIRST NATIONAL BANK OF
BOSTON, INDIVIDUALLY AND AS AGENT
By: /s/ GEORGE HIBBARD
Title: Vice President
FIRST INTERSTATE BANK OF
TEXAS, N.A.
By: /s/ STEVE WOOD
Title: Vice President
NATIONAL BANK OF CANADA,
NEW YORK BRANCH
By: /s/ LARRY L. SEARS
Title: Group Vice President
By: /s/ ANGELA M. KLOCK
Title: Assistant Vice President
5
<PAGE> 6
RATIFICATION OF GUARANTY
Each of Guarantors under the Guaranty and the Canadian Guaranty hereby
acknowledges and consents to the foregoing Amendment as of January 31, 1994 and
confirms and ratifies all of its obligations under the Guaranty and the
Canadian Guaranty.
RECOGNITION JAPAN INC.
By: /s/ ROBERT M. SWARTZ
Title: Vice President
RECOGNITION CANADA INC.
By: /s/ ROBERT M. SWARTZ
Title: Vice President
6
<PAGE> 1
EXHIBIT 11.1
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(thousands, except per share)
<TABLE>
<CAPTION>
Three months ended
January 31,
----------------------------------
1994 1993
-------- --------
<S> <C> <C>
Primary
- -------
Net income $ 656 $ 616
======== ========
Shares:
Weighted average shares outstanding,
net of treasury shares 14,916 12,020
Net shares issuable on exercise
of certain stock options 968 1,121
-------- --------
Weighted average shares outstanding,
as adjusted 15,884 13,141
======== ========
Earnings per share - primary $ .04 $ .05
======== ========
Fully Diluted:
- -------------
Earnings:
Net income $ 656 $ 616
Add after tax interest expense
applicable to 7 1/4% convertible
subordinated debentures 919 919
-------- --------
Net income, as adjusted $ 1,575 $ 1,535
======== ========
Shares:
Weighted average shares outstanding,
net of treasury shares 14,916 12,020
Shares issuable assuming conversion
of 7 1/4% convertible subordinated
debentures 3,088 3,088
Net shares issuable on exercise of
certain stock options 999 1,180
-------- --------
Weighted average shares outstanding,
as adjusted 19,003 16,288
======== ========
Earnings per share - fully diluted $ .08 $ .09
======== ========
</TABLE>
Note: This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because
it produces an anti-dilutive result.
