<PAGE> 1
FORM 10-Q
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 JULY 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 September 12, 1994, the Registrant had outstanding 15,174,306 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
July 31, 1994 and October 31, 1993.
Consolidated Statement of Operations - 2
Three Months and Nine Months
Ended July 31, 1994 and 1993.
Consolidated Statement of Cash Flows - 3
Nine Months Ended July 31, 1994 and 1993.
Notes to Consolidated Financial Statements. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. 6
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 12
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 13
INDEX TO EXHIBITS 14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(thousands)
<TABLE>
<CAPTION>
July 31,
1994 October 31,
ASSETS (Unaudited) 1993
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including
restricted amounts of $5,494 in 1994
and $4,731 in 1993 $ 35,555 $ 53,334
Short-term investments, including
restricted amounts of $524 in 1994
and $231 in 1993 536 483
Receivables - net 41,185 45,420
Inventories:
Raw materials and parts 5,378 12,203
Work in process 12,511 6,254
Finished goods 12,156 11,378
Other current assets 4,346 3,575
-------- --------
Total current assets 111,667 132,647
-------- --------
Property, plant and equipment - net 16,585 16,403
Service parts - net 24,476 19,115
Long-term receivables 5,250 4,886
Goodwill - net 16,819 18,597
Capitalized software - net 5,512 8,991
Other assets 15,661 16,725
-------- --------
Total assets $195,970 $217,364
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 7,891 $ 5,776
Trade accounts payable 9,241 9,082
Domestic and foreign income tax 714 3,803
Accrued compensation and benefits 5,671 6,924
Advanced payments by customers 14,715 18,397
Accrued and other current liabilities 23,630 13,621
-------- --------
Total current liabilities 61,862 57,603
-------- --------
Long-term debt 51,722 53,656
-------- --------
Other liabilities 6,828 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 - 15,182
in 1994 and 14,953 in 1993 3,796 3,738
Capital in excess of par value 140,060 137,865
Accumulated deficit (64,528) (37,367)
Translation adjustments (3,343) (3,007)
Treasury stock (427) (427)
-------- --------
Total stockholders' equity 75,558 100,802
-------- --------
Commitments and contingencies
-------- --------
Total liabilities and stockholders' equity $195,970 $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 Nine months ended
July 31, July 31,
------------------ -------------------
1994 1993 1994 1993
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product $ 14,620 $31,278 $ 64,489 $ 83,778
Customer service 30,497 29,063 93,553 86,410
-------- ------- -------- --------
45,117 60,341 158,042 170,188
Cost of revenues:
Product 11,817 17,688 47,237 48,321
Customer service 21,583 20,927 62,523 61,409
-------- ------- -------- --------
33,400 38,615 109,760 109,730
-------- ------- -------- --------
Gross profit 11,717 21,726 48,282 60,458
Operating expenses:
Engineering and development 6,225 3,945 14,569 11,681
Selling and marketing 8,078 9,182 24,912 25,563
General and administrative 3,305 3,382 10,056 10,153
Restructuring 19,041 --- 19,041 ---
Amortization and other
operating 1,233 856 2,994 2,570
-------- ------- -------- --------
Operating income (loss) (26,165) 4,361 (23,290) 10,491
Interest income 570 822 1,749 1,962
Interest expense (1,067) (1,354) (3,215) (4,128)
Foreign exchange gains (losses),
net 502 (565) 676 10
Other income (expense) 26 110 (167) (179)
-------- ------- -------- --------
Income (loss) before income taxes (26,134) 3,374 (24,247) 8,156
Provision for income taxes (292) (934) (2,914) (3,914)
-------- ------- -------- --------
Net income (loss) $(26,426) $ 2,440 $(27,161) $ 4,242
======== ======= ======== ========
Weighted average shares
outstanding 15,474 15,566 15,695 13,997
======== ======= ======== ========
Earnings (loss) per share $ (1.71) $ .16 $ (1.73) $ .30
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Nine months ended
July 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM:
OPERATIONS -
Net income $(27,161) $ 4,242
Adjustments to reconcile net income to
net cash provided by (used for) operations:
Depreciation 8,289 8,502
Amortization 5,258 4,776
Restructuring 19,041 --
Write-down of capitalized software 2,821 --
Deferred income taxes 884 (1,150)
Sales-type leases and installment sales, net (768) 732
Net book value of service parts used 766 718
Proceeds from sale of receivables -- 798
Increase (decrease) in receivables 3,907 (2,927)
Increase in inventories (3,838) (3,217)
Other working capital changes (12,287) (4,515)
Other 2,042 2,053
-------- --------
Total adjustments 26,115 5,770
-------- --------
Net cash provided by (used for) operations (1,046) 10,012
-------- --------
INVESTMENTS AND ACQUISITIONS -
Additions to property, plant and equipment (4,731) (4,097)
Additions to service parts (11,481) (5,162)
Additions to capitalized software (2,302) (3,393)
Increase (decrease) in short-term investments (11) 23
Payment for acquisition of businesses,
net of cash acquired (405) (327)
Other 248 122
-------- --------
Net cash used for investments
and acquisitions (18,682) (12,834)
-------- --------
FINANCING ACTIVITIES -
Proceeds from short-term debt 273 190
Repayment of short-term debt (583) (254)
Repayment of long-term debt -- (14,250)
Issuance of common stock 1,460 30,326
Establishment of stock rights plan -- (83)
-------- --------
Net cash provided by financing activities 1,150 15,929
-------- --------
Effect of exchange rate changes on cash 799 (100)
-------- --------
Net increase in cash and cash equivalents (17,779) 13,007
Cash and cash equivalents at beginning of period 53,334 25,851
-------- --------
Cash and cash equivalents at end of period $ 35,555 $ 38,858
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the nine-month period for:
Interest $ 2,142 $ 3,149
Income taxes $ 5,015 $ 7,546
======== ========
</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 nine months ended July 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) The net amount of capitalized software was as follows
(thousands):
July 31, October 31,
1994 1993
-------- -----------
Capitalized amounts - at cost:
Balance at beginning of
period $13,805 $ 9,823
Internally developed 2,302 4,164
Write-downs charged to
operating expenses (3,235) --
Fully amortized balances
written off (1,968) (182)
------- -------
Balance at end of period 10,904 13,805
------- -------
Accumulated amortization:
Balance at beginning of period 4,814 2,758
Amortization charged to cost
of product revenues 2,546 2,238
Fully amortized balances
written off (1,968) (182)
------- -------
Balance at end of period 5,392 4,814
------- -------
$ 5,512 $ 8,991
======= =======
(4) In the third quarter of 1994, Recognition adopted a plan to
restructure its operations which is expected to be completed
by the end of the third quarter of 1995. There are three
4
<PAGE> 7
major parts to this plan: (1) to consolidate certain
operations into a new Worldwide Systems Group which will
eliminate duplicate support and overhead operations and move
Recognition more quickly through the transition of the
hardware business from older proprietary products to newer
open architecture products; (2) to consolidate hardware
manufacturing and engineering to the Dallas, Texas facility
and to close the Charlotte, North Carolina facility and other
offices; and (3) to reduce expenses in Recognition's software
business by consolidating certain software support functions
into its Sunnyvale location and reduce overall headcount.
As a result of adopting this plan, Recognition recorded a
restructuring charge of $19,041,000, or $18,617,000 net of
taxes. This includes termination benefits of $7,932,000 for
the involuntary termination of 314 employees. The majority of
the employees to be terminated are currently employed in
Recognition's Charlotte, North Carolina facility. The
remainder of the employees to be terminated are part of the
restructuring of its Worldwide Systems Group and the Software
Division. The restructuring charge also includes $3,083,000
for obligations relating to employee relocation, $5,973,000
for the write-down of certain assets no longer required in the
business, $1,443,000 for facility lease terminations and
$610,000 for other related items. As of July 31, 1994,
Recognition has paid $783,000 in termination benefits for the
involuntary termination of 90 employees and has incurred an
additional $5,790,000 related to the other above accruals.
(5) At July 31, 1994, Recognition was contingently liable for
approximately $1,829,000 under letters of credit issued
primarily in connection with vendor purchase contracts and
performance guarantees on customer sales contracts.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CHANGES IN FINANCIAL CONDITION
In the third quarter of 1994, Recognition recorded a
restructuring charge of $19.0 million for obligations relating to
employee severance and relocation, write-down of certain assets no
longer required in the business, facility lease terminations and
other related items. Together, these charges will use
approximately $13 million of cash, of which approximately $9
million would have been incurred as salaries and office rents
without the restructuring. Additional restructuring costs of $3 to
$4 million are expected to be incurred through 1995 for relocation,
hiring and training of employees to accomplish the restructuring.
Working capital at July 31, 1994 was $49.8 million, a decrease
of $25.2 million compared to October 31, 1993. The decrease was a
result of a decrease in current assets of $21.0 million and an
increase in current liabilities of $4.2 million.
The decrease in current assets was due primarily to a decrease
in cash and cash equivalents of $17.8 million (see Consolidated
Statement of Cash Flows). Accounts receivable decreased $4.2
million primarily due to the decrease in revenues.
The increase in current liabilities included a $10.0 million
increase in accrued and other current liabilities due primarily to
accruals related to the restructuring. Short-term debt increased
$2.1 million due to the reclassification from long-term debt of the
$1.9 million promissory note to TransTechnology Corporation due in
1995. These increases were partially offset by decreases in
advance payments by customers, domestic and foreign income taxes
and accrued compensation and benefits of $3.7 million, $3.1 million
and $1.3 million, respectively. Advance payments by customers
decreased due to revenue recorded in the first nine months of 1994
for which payment was received in 1993. Domestic and foreign
income taxes decreased primarily due to payments of 1993 taxes in
1994 offset by provisions for 1994 taxes by certain foreign
subsidiaries. Accrued compensation and benefits decreased
primarily due to the payment of 1993 annual performance bonuses in
the first quarter of 1994 offset by lower provisions for estimated
1994 annual performance bonuses.
At July 31, 1994, Recognition had $36.1 million of cash, cash
equivalents and short-term investments, of which $6.0 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
6
<PAGE> 9
by a lien on substantially all of Recognition's assets, excluding
its real estate. As of July 31, 1994, Recognition was not in
compliance with these covenants, however, Recognition's banks have
waived this noncompliance and have indicated a willingness to amend
the covenants. Recognition anticipates that the amendment will be
completed in the fourth quarter. At July 31, 1994, letters of
credit of $1.3 million were outstanding under the facility.
Recognition believes it has sufficient cash, including cash to
be generated from operations, to meet its operating and capital
requirements for the foreseeable future.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTH PERIODS ENDED
JULY 31, 1994 AND 1993
Recognition recorded a net loss for the third quarter of 1994
of $26.4 million compared to net income of $2.4 million in the
third quarter of 1993, a decrease of $28.9 million. The loss for
the third quarter of 1994 included a restructuring charge of $18.6
million, net of tax, and $5.9 million of other charges. The other
charges include $1.8 million for the write-down of inventory and
$.4 million of additional amortization of capitalized software
charged to cost of product revenues, $.5 million for the write-down
of service parts charged to cost of customer service revenues, $2.8
million for the write-down of certain capitalized software charged
to engineering and development expenses, and $.4 million of
additional allowances for bad debt charged to other operating
expenses. Excluding the restructuring charge and the other
charges, the net loss for the third quarter of 1994 was $1.9
million, a decrease of $4.4 million as compared to the third
quarter of 1993. This decrease was primarily the result of the
decline in revenues from the older proprietary hardware products
due to the on-going transition from older to newer open
architecture products.
Consolidated revenues were $45.1 million in the third quarter
of 1994, a decrease of 25 percent, or $15.2 million, as compared to
the third quarter of 1993. Revenues from equipment products and
services were $35.7 million, a decrease of $15.0 million or 30
percent, as compared to 1993. Revenues from software products and
services, including Plexus(R) software products and software sold in
conjunction with equipment, were $9.4 million in 1994. This
represented a decrease of $.2 million, or two percent, as compared
to 1993.
The decrease in consolidated revenues reflected a decrease of
$7.8 million, or 33 percent, in foreign revenues and a decrease of
$7.4 million, or 20 percent, in domestic revenues. Foreign
operations contributed 35 percent of the third quarter of 1994
revenues compared to 39 percent in the third quarter of 1993.
7
<PAGE> 10
Product revenues were $14.6 million, a decrease of $16.6
million when compared to the third quarter of 1993. Revenues from
equipment products were $9.0 million in 1994, a decrease of 63
percent, or $15.4 million. This reflected decreased revenues from
document recognition products and from the delivery and
installation of network products under major contracts in Canada.
Revenues from software products were $5.6 million in 1994, a
decrease of 18 percent, or $1.2 million, due to the completion of
a large order in the third quarter of 1993 and price discounting in
1994.
Customer service revenues were $30.5 million, an increase of
five percent, or $1.4 million, when compared to the third quarter
of 1993. Equipment related service revenues were $26.7 million in
1994, an increase of one percent, or $.4 million. Software service
revenues related to both Plexus products and software sold in
conjunction with equipment were $3.8 million in 1994, an increase
of 38 percent, or $1.1 million.
Consolidated gross profit in the third quarter of 1994 was
$11.7 million, down $10.0 million from the third quarter of 1993.
Product gross profit was $2.8 million, or 19 percent of revenues,
in 1994 compared to $13.6 million, or 43 percent of revenues, in
1993. The product gross profit for the third quarter of 1994
included the charges for the write-down of inventory of $1.8
million due to a decline in anticipated deliveries of older
proprietary hardware products and for additional amortization of
capitalized software of $.4 million. Excluding these charges,
product gross profit was $5.0 million, or 34 percent of revenues in
1994. This decline in product gross profit was attributable to
four primary factors: the decrease in product revenues in the
third quarter of 1994 when compared to the third quarter of 1993;
the unfavorable impact of fixed manufacturing expenses on gross
profit margins due to the lower revenues from document recognition
products; increased revenues from third party software products
with lower gross profit margins; and price discounting on selected
products. Customer service gross profit increased $.8 million
primarily as a result of revenues from custom software development,
partially offset by the $.5 million charge for the write-down of
service parts.
Engineering and development expenses increased $2.3 million
due to the $2.8 million charge for the write-down of certain
capitalized software.
Selling and marketing expenses decreased $1.1 million
primarily due to a reduction in staffing associated with the
restructuring.
In the third quarter of 1994, Recognition recorded a
restructuring charge of $19.0 million for obligations relating to
employee severance and relocation, write-down of certain assets no
8
<PAGE> 11
longer required in the business, facility lease terminations and
other related items.
Amortization and other operating expenses increased due to the
$.4 million charge to record additional allowances for bad debt.
Recognition reported a foreign exchange gain of $.5 million in
the third quarter of 1994, compared to a foreign exchange loss of
$.6 million in the same period last year. The current period gain
is primarily due to valuation gains on intercompany receivables
from foreign subsidiaries as a result of the weakening of the U.S.
dollar.
Recognition's system business is undergoing a transition from
older, closed architecture products to newer, open architecture
products. Revenues from the older products are declining and may
continue at lower levels for the next several quarters until
replaced by revenues from the newer products. Some of the newer
products are being marketed through third parties. Gross profit
margins on such revenues, as well as sales and marketing expenses,
are generally lower than those on end-user revenues. Recognition
expects lower customer service revenues from such products, as
end-users will typically obtain equipment maintenance services from
the third parties. Further decline in customer service revenues is
expected as a result of maintenance agreements expiring for older
hardware products. Recognition is marketing its maintenance
services for products manufactured by other companies to generate
additional customer service revenues, however, Recognition does not
expect these service revenues on third party products to fully
offset the decline in service revenues in 1995 on its older hardware
products.
Management believes Recognition's software business revenue
growth rate over the past several years has been nearly double the
growth rate of the imaging industry, which Recognition has
estimated to be 15 to 30 percent annually. The growth rate has
been sustained by obtaining several large orders. The uncertain
timing of large orders makes growth rates difficult to forecast.
In the last six months, Recognition's software growth rate did not
match the growth rate previously experienced and Recognition
expects future revenue growth to be more in line with industry
growth rates and trends.
Additional restructuring expenses of $3 to $4 million are
expected to be incurred through 1995 for relocation, hiring and
training of employees to accomplish the restructuring. When the
restructuring actions are complete, Recognition believes annual
costs should be reduced by $8 to $9 million.
9
<PAGE> 12
RESULTS OF OPERATIONS - COMPARISON OF NINE MONTH PERIODS ENDED
JULY 31, 1994 AND 1993
Consolidated revenues were $158.0 million in the first nine
months of 1994, a decrease of seven percent, or $12.1 million, as
compared to the first nine months of 1993. Revenues from equipment
products and services were $125.6 million in 1994, a decrease of
$19.7 million, or 14 percent, as compared to 1993. Revenues from
software products and services, including Plexus software products
and software sold in conjunction with equipment, were $32.4 million
in 1994. This represented an increase of $7.6 million, or 31
percent, as compared to 1993.
The decrease in consolidated revenues reflected a decrease of
$10.8 million, or 10 percent, in domestic revenues and a decrease
of $1.3 million, or two percent, in foreign revenues. Foreign
operations contributed 41 percent of the first nine months of 1994
revenues compared to 39 percent in the first nine months of 1993.
Product revenues were $64.5 million, a decrease of 23 percent,
or $19.3 million, compared to the first nine months of 1993.
Revenues from equipment products were $45.3 million in 1994, a
decrease of 32 percent, or $21.1 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 $19.2 million in 1994, an increase of 10 percent, or
$1.8 million.
Customer service revenues were $93.6 million, an increase of
eight percent, or $7.1 million, when compared to the first nine
months of 1993. Equipment related service revenues were $80.3
million in 1994, an increase of two percent, or $1.3 million.
Software service revenues related to both Plexus products and
software sold in conjunction with equipment were $13.2 million in
1994, an increase of 79 percent, or $5.8 million.
Consolidated gross profit in the first nine months of 1994 was
$48.3 million, down $12.2 million from the first nine months of
1993. Product gross profit was $17.3 million, or 27 percent of
revenues, in 1994 compared to $35.5 million, or 42 percent of
revenues, in 1993. Product gross profit for 1994 included the
charges for the write-down of inventory of $1.8 million and for
additional amortization of capitalized software of $.4 million.
Excluding these charges, product gross profit was $19.5 million, or
30 percent of revenues in 1994. This decline was attributable to
five primary factors: the decrease in product revenues in the
first nine months of 1994 when compared to the first nine months of
1993; 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 contracts for network products in Canada;
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<PAGE> 13
increased revenues from third party software products with lower
gross profit margins; and price discounting on selected products.
Customer service gross profit increased $6.0 million primarily as
a result of revenues from custom software development and
additional revenues from services for equipment and software which
were performed by existing staff without increased expense. These
increases were partially offset by the $.5 million charge for the
write-down of service parts.
Engineering and development expenses increased $2.9 million
due to the $2.8 million charge for the write-down of certain
capitalized software.
In the third quarter of 1994, Recognition recorded a
restructuring charge of $19.0 million for obligations relating to
employee severance and relocation, write-down of certain assets no
longer required in the business, facility lease terminations and
other related items.
Amortization and other operating expenses increased due to the
$.4 million charge to record additional allowances for bad debt.
Interest expense decreased $.7 million due to interest on the
term loan obtained in conjunction with the acquisition of the Lundy
Financial Systems Division of TransTechnology Corporation which was
paid in full in the third quarter of 1993.
Recognition reported a foreign exchange gain of $.7 million
for the first nine months of 1994. The gain resulted primarily
from the weakening of the U.S. dollar relative to currencies of
various countries in which Recognition conducts business.
The provisions for income taxes for 1994 and 1993 were 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 nine months. The 1994
provision also includes a $.4 million tax benefit for the
restructuring charges recorded in the third quarter of 1994.
11
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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 14 through 17
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.
12
<PAGE> 15
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: September 13, 1994 /s/ Thomas Hoefert
Thomas E. Hoefert
Vice President and Chief Financial
Officer
(Duly Authorized Officer and
Principal Financial Officer)
13
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF DOCUMENT
- - ------- -----------------------
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).
4.6 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).
4.7 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).
14
<PAGE> 17
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF DOCUMENT
- - ------- -----------------------
4.8 Rights Agreement dated as of September 18, 1992 between
Registrant and Society National Bank as Rights Agent
(incorporated by reference to Registrant's Form 8-A
Registration Statement dated September 25, 1992).
4.9 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).
4.10 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).
4.11 First Amendment to Amended and Restated Credit Agreement
and Amendment No. 2 to Stock Pledge Agreement dated as of
January 31, 1994 by and among Registrant, Recognition
Australia Pty. Ltd., Recognition Holding Limited, 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 4.12 to
Registrant's Quarterly Report on Form 10-Q for the period
ended January 31, 1994).
4.12 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).
4.13 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).
15
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF DOCUMENT
- - ------- -----------------------
4.14 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).
4.15 Unlimited Guaranty dated as of March 26, 1992 by Hybrid
Systems Inc. and Recognition Equipment (Japan), Inc. 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).
4.16 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).
4.17 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).
10.1 Letter Agreement dated as of August 24, 1994 amending the
Lease Agreement dated as of March 30, 1992 between
Registrant and TransTechnology Corporation.
Management Contracts and Compensatory Plans and Arrangements
(Exhibits 10.2 through 10.4):
10.2 Employment Agreement dated as of June 1, 1994 between
Registrant and Robert M. Swartz.
10.3 Amendment dated as of August 18, 1994 to Employment
Agreement dated as of November 1, 1989 between Registrant
and Thomas A. Loose.
10.4 Notice of Grant of Stock Option and Stock Option Grant
Agreement dated as of June 8, 1994 between Registrant and
Robert M. Swartz.
11.1 Statement re computation of per share earnings.
15. Not applicable.
16
<PAGE> 19
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF DOCUMENT
- - ------- -----------------------
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27.1 Financial Data Schedules.
99. Not applicable.
17
<PAGE> 1
Exhibit 10.1
Recognition International Inc.
Post Office Box 660204
Dallas, TX 75266-0204
Tel 214 579 6000
Fax 214 579 5799
Recognition
Direct Phone 214 579 6378
August 24, 1994
TransTechnology Corporation
700 Liberty Avenue
Union, New Jersey 07083-8198
Attention: Ms. Valentina Doss
Vice President and Secretary
RE: Asset Acquisition Agreement, dated March 5, 1992, between
TransTechnology Corporation (Seller) and Recognition
International Inc., formerly Recognition Equipment
Incorporated (Buyer), hereinafter referred to as the
"Agreement"
Gentlemen:
The purpose of this letter agreement is to reflect the current
status of the environmental activities at the Charlotte, North
Carolina facility by modifying and amending the Agreement in the
following respects: (Capitalized terms used herein shall have the
same meaning as in the Agreement unless defined otherwise herein)
1. Section 8.9(a)(x) of the Agreement and Section 18(e) of
the Lease are hereby amended to provide that the Expiration
Date of the Lease is for all purposes March 30, 1995, or such
earlier date specified by Buyer upon 60 days written notice.
2. All rights of Buyer and Seller to exercise a put or option
to purchase or require the purchase of the Property under the
Agreement or the Lease are hereby waived by Buyer and Seller.
3. The property Escrow will be released to the Buyer on the
Expiration Date and the Escrow Agent is entitled to rely on
this letter agreement as authorization from Buyer and Seller
to release the Property Escrow to Buyer on such date.
4. The Buyer shall receive a distribution from the
Environmental Escrow in the amount of $175,000, such amount
being payable on the Expiration Date. The balance of the
Environmental Escrow will be released to the Seller on the
Expiration Date and the Escrow Agent is entitled to rely on
this letter agreement as authorization from Buyer and Seller
to release the Environmental Escrow in the manner set forth
above to Buyer and Seller on such date.
<PAGE> 2
TransTechnology Corporation
August 24, 1994
Page 2
5. All rights of Buyer and Seller under Section 8.9(a)(iii),
(iv), and (v) of the Agreement and Section 18(a)(i), (ii), and
(iii) of the Lease to terminate the Lease Prior to the
Expiration Date are hereby waived by Buyer and Seller.
6. Except as set forth in paragraph 4 above, the Buyer hereby
releases any claim or cause of action that it may have under
the Agreement arising from the failure of the Seller to
continue diligently to completion the Post-Closing
Investigation or the failure of the Seller to perform and
conduct continuously with reasonable diligence the Identified
Remediation.
7. Section 15 of the Lease is hereby amended to add the
following:
"Landlord may place and continually keep in a conspicuous
place on the Premises for the information of the public the
usual and customary 'For Sale' or 'For Rent' signs with the
name and address of Landlord and its agents, or either of
them. Prospective purchasers or tenants authorized by
Landlord may inspect the premises at any time during normal
business hours upon reasonable notice, and during hours other
than normal business hours with the agreement of Tenant."
Except to the extent that a term or provision of the Agreement or
the Lease is expressly amended or waived by this letter agreement,
all of the terms of the Agreement and the Lease are hereby ratified
and confirmed and remain in full force and effect. Neither the
waivers nor releases set forth in this letter agreement, nor any
other provision of this letter agreement, shall modify or amend the
obligations of Buyer and Seller under Section 7.2 of the Agreement.
If you agree to the foregoing, please so indicate by signing below
in the space indicated, retain the original of this letter and
return the copy to the undersigned.
Sincerely,
RECOGNITION INTERNATIONAL INC.
By: /s/ Robert M. Swartz
Robert M. Swartz
President
Worldwide Systems Group
AGREED AND ACCEPTED BY
TRANSTECHNOLOGY CORPORATION
By: /s/ Valentina Doss
Name: Valentina Doss
Title: VP, General Counsel & Secretary
Date: September 8, 1994
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of June 1, 1994, by and between Recognition
International Inc., a Delaware corporation (the "Company"), and
Robert M. Swartz (the "Employee").
The Company desires to continue the employment of the Employee
to serve the Company in an executive capacity and to obtain the
benefit of the Employee's knowledge, experience and abilities and
the Employee is willing to serve in such capacity and continue his
employment by the Company.
Employee represents to the Company (a) that there are no
restrictions, agreements or understandings whatsoever to which
Employee is a party which would prevent or make unlawful Employee's
execution of this Agreement or Employee's employment hereunder,
(b) that Employee's execution of this Agreement and Employee's
employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is
a party or by which Employee is bound, and (c) that Employee is
free and able to execute this Agreement and to enter into
employment by the Company.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Employment Agreements. This Agreement supersedes and
replaces in all respects the letter agreement between the parties
hereto dated July 25, 1990.
2. Position and Responsibilities. During the Employment
Period (as hereinafter defined), the Company shall employ the
Employee and the Employee shall serve the Company in an executive
capacity performing the functions as shall be designated by the
Chief Executive Officer of the Company or attendant to the office
that he may hold from time to time. The Employee shall devote his
full business time to the business and affairs of the Company and
the promotion of its interests and perform all duties and services
on behalf of the Company necessary to carry out such functions.
<PAGE> 2
3. Employment Period.
3.1. The Employment Period shall mean the period commencing as
of the date of this Agreement and continuing until terminated by
the Company pursuant to paragraph 3.2 hereof or terminated by the
Employee.
3.2 The Company shall have the right in its sole discretion,
on written notice to the Employee, to terminate the Employee's
employment with or without Cause (as defined in Paragraph 5.3),
such termination to be effective as of the date on which notice is
given or as of such later date otherwise specified in the notice.
4. Compensation.
4.1. The Company shall pay to the Employee for the services to
be rendered by the Employee hereunder a base salary at the rate per
month determined by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). The base salary will
be reviewed at least annually by the Committee and may be adjusted
at any time in the sole discretion of the Board of Directors or the
Committee. The term "Base Salary" as used in this Agreement shall
mean, at any point in time, the Employee's monthly base salary at
such time.
4.2. The Employee shall be eligible to receive an annual bonus
payment pursuant to the Company's executive bonus plan as in effect
from time to time (the "Executive Bonus Plan"). A targeted bonus
for the Employee shall be established annually and shall be earned
based on the achievement of performance goals to be established by
the Committee. The term "Targeted Bonus" as used in this Agreement
shall mean, at any point in time, the Employee's targeted bonus
under the Executive Bonus Plan at such time.
4.3. During the Employment Period, the Employee shall be
entitled to participate fully in any benefit plans, programs,
policies and fringe benefits which are made available to the
corporate officers of the Company generally.
5. Severance Pay.
5.1 In the event that (i) the Company terminates the
Employee's employment for any reason other than for Cause and at a
time when Employee is not receiving benefits under the Company's
Short Term Disability Policy or Long Term Disability Plan; or (ii)
2
<PAGE> 3
the Employee terminates his employment as a result of any of the
following reasons: (A) without the Employee's consent the Company
materially diminishes the scope of the Employee's duties, assigns
to the Employee duties materially inconsistent with his designated
position, or reduces the Employee's Base Salary or Targeted Bonus
to an amount less than previously determined or established by the
Committee, (B) the Company fails on or before the effective date to
obtain the assumption of this Agreement by any acquiror of
substantially all of its assets or other successor to the Company,
or (C) the Company breaches any of its material obligations under
this Agreement and such breach is not cured within 30 days after
written notice thereof by the Employee; then the Company shall pay
the Employee severance payments in an amount equal to the sum of
the Employee's annualized Base Salary in effect at the time of such
termination, plus an amount equal to the Employee's Targeted Bonus
for the fiscal year in which such termination occurs (provided,
however, that if the basis for Employee's termination is the
reduction in his Base Salary or the reduction of his Targeted
Bonus, the severance pay shall be based on the Base Salary and the
Targeted Bonus in effect prior to such reduction). The severance
payments shall be made in equal monthly installments for a period
of 12 months unless the termination of employment occurs within 180
days after a "Change in Control" (as defined in Paragraph 5.3
below), in which case the severance payment shall be paid in a lump
sum on the day following such termination. Notwithstanding the
foregoing, if the Employee terminates his employment pursuant to
clause (ii) above, he shall be entitled to the severance payments
provided for in this paragraph only if he gives written notice to
the Company of his termination of employment within 30 days after
the occurrence of the event or events specified in clause (ii) on
which he bases his termination and such notice specifies such event
or events.
5.2 The severance payments provided for in Paragraph 5.1 of
this Agreement shall be in lieu of all severance payments or
benefits to which the Employee might otherwise be entitled under
Company severance policies from time to time in effect, except for
(i) accrued and unpaid Base Salary to the date of termination, (ii)
3
<PAGE> 4
any bonus due with respect to fiscal years completed as of the date
of termination pursuant to the Executive Bonus Plan, (iii) payments
made in lieu of accrued vacation as provided for in the Company's
vacation policies, and (iv) benefits payable or available to the
Employee pursuant to the Company's Executive Benefit Plan. Nothing
contained in the foregoing shall be construed so as to affect the
Employee's rights or the Company's obligations relating to
agreements or benefits which are unrelated to termination of
employment.
5.3 For purposes of this Agreement, the following terms
shall have the following meanings:
"CAUSE" shall mean: (i) neglect, refusal or failure by
the Employee (other than by reason of illness, accident
or other physical or mental incapacity) in any material
respect, to attend to his duties as assigned to him by
the Company consistent with this Agreement; (ii) failure
by the Employee in any material respect to comply with
any of the other terms of this Agreement; (iii) repeated
failure by the Employee to follow the established
reasonable and material written or other policies,
standards and regulations of the Company; (iv) willful
engagement by the Employee in gross misconduct injurious
to the Company or any of its subsidiaries; (v)
misappropriation of property worth more than $100 of the
Company or any of its subsidiaries; or (vi) Employee's
conviction in a court of law of any crime that
constitutes a felony in the jurisdiction involved;
provided, however, that occurrences described in clauses
(i), (ii) or (iii) of this paragraph shall not be deemed
to constitute "Cause" unless Employee shall have first
received written notice from the Chief Executive Officer
advising the Employee in reasonable detail of the
specific acts or omissions alleged to constitute "Cause"
under said clauses, and such act or omission continues
after Employee shall have had a reasonable opportunity to
cease or correct the acts or omissions so complained of;
and
"CHANGE IN CONTROL" shall mean an event which shall be
deemed to have occurred if (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended [the "Exchange Act"]),
other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company
or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the
4
<PAGE> 5
combined voting power of the Company's then outstanding
securities; or (ii) during any period of two consecutive
years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such
period constitute the Board of Directors of the Company
(the "Board") and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in
clauses (i) or (iii) of this paragraph) whose election by
the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or
whose election or nomination for election was previously
so approved, cease for any reason to constitute a
majority of the Board; or (iii) the stockholders of the
Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or
consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding
or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's
assets.
6. Source and Timing of Payments. All payments
provided under this Agreement shall be paid in cash from the
general funds of the Company, and no special or separate fund shall
be established, and no other segregation of assets made, to assure
payment. Employee shall have no right, title, or interest whatever
in or to any investments which the Company may make to aid the
Company in meeting its obligations hereunder. Nothing contained in
this Agreement, and no action taken pursuant to its provisions,
shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between the Company and Employee or any
other person. To the extent that any person acquires a right to
receive payments from the Company hereunder, such right shall be no
greater than the right of an unsecured creditor of the Company.
All payments required to be made to Employee in installments
hereunder shall be made over the applicable period in accordance
with the Company's normal payroll dates and procedures.
5
<PAGE> 6
7. Agreement Not To Compete. Provided that the Company has
complied in all material respects with this Agreement, the Employee
agrees that he will not, prior to the expiration of one year after
the date of termination of his employment with the Company, become
employed by, or provide services as a consultant or otherwise to,
BancTec, Inc., FileNet Corporation, ScanOptics, Inc., Wang
Laboratories, Inc. or Viewstar Corporation, or any subsidiary,
affiliate or successor of any such company, or any subsidiary,
affiliate or division of International Business Machines
Corporation ("IBM") that deals primarily with workflow, check
processing or IBM's Image Plus product. Employee acknowledges that
the restrictions contained in this paragraph, in view of the nature
of the business in which the Company is engaged and Employee's
position within the Company, are reasonable and necessary in order
to protect the legitimate interests of the Company, and that any
violation thereof would result in irreparable injuries to the
Company.
8. Company Proprietary Information. Upon termination of
Employee's employment for any reason, he will forthwith deliver and
assign to the Company all the results of his service as an employee
and all documents, records, notebooks and repositories of or
containing secret, confidential or proprietary information
concerning the Company or its business or affairs, including all
copies thereof in his possession or control, whether prepared by
him or others. In the absence of permission by the Company,
Employee will not at any time during, or after the termination of,
his employment reveal, divulge or make known to any person outside
the Company's business organization or use for his own account any
secret, confidential or proprietary information concerning the
Company or its business or affairs known to him (whether or not
developed in whole or in part by his efforts). During and after
the termination of his employment, Employee will make no use of any
such information except for the benefit of the Company.
9. Injunctive Relief. Employee agrees that the Company will
have no adequate remedy at law if he violates any of the terms of
Paragraphs 7 or 8 above. In such event, the Company will have the
6
<PAGE> 7
right, in addition to any other right the Company may have, to
obtain injunctive relief to restrain any breach or threatened
breach by the Employee or specific enforcement of such terms. The
Company and the Employee recognize that the terms of such
paragraphs may be subject to reformation by a court of equity in
any suit for the enforcement thereof, and it is the Company's and
the Employee's agreement and intention that such terms are
severable and divisible, and the invalidity of any such term under
applicable law shall not affect the enforceability of any of the
remaining terms and that any such terms not enforceable in full
under applicable law shall be reformed and construed to provide for
a scope and duration consistent with the maximum scope and duration
enforceable under applicable law.
10. Tax Withholding. Payments to the Employee of all
compensation and other amounts contemplated under this Agreement
shall be subject to all applicable legal requirements with respect
to the withholding of taxes.
11. Assignment. Neither this Agreement nor any right, duty,
obligation or interest hereunder shall be assignable or delegable
by the Employee without the Company's prior written consent;
provided, however, that nothing in this paragraph shall preclude
the Employee from designating any of his beneficiaries to receive
any benefits payable hereunder upon his death or disability, or his
executors, administrators, or other legal representatives from
assigning any rights hereunder to the person or persons or entities
entitled thereto. This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, and upon
the Employee and his heirs, estate, executors, administrators and
legal representatives.
12. Headings. The headings of the paragraphs hereof are
inserted for convenience only and shall not be deemed to constitute
a part hereof nor to affect the meaning thereof.
13. Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been given at the time when
delivered by hand or when mailed by registered or certified mail,
addressed to the appropriate address below stated of the party to
7
<PAGE> 8
which notice is given, or to such changed address as such party may
have fixed by notice:
To the Company:
if by mail:
Recognition International Inc.
Post Office Box 660204
Dallas, Texas 75266
Attn: Secretary
if by hand:
Recognition International Inc.
2701 East Grauwyler Road
Irving, Texas 75061
Attn: Secretary
To the Employee:
At his home address as shown
in the Company's personnel records
provided, however, that any notice of change of address shall be
effective only upon receipt.
14. Waivers. If either party should waive any breach of any
provision of this Agreement, such party shall not thereby be deemed
to have waived any preceding or succeeding breach of the same or
any other provision of this Agreement.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
which together shall constitute one and the same instrument.
16. Governing Law. This Agreement is to be governed by and
construed in accordance with the laws of the State of Texas as
applicable to contracts entered into and to be performed wholly
within the State, without giving effect to the choice of law
provisions thereof.
17. Arbitration.
17.1 Any controversy between the parties hereto involving the
construction or application of any of the terms, covenants or
conditions hereof shall, on the written request of one party served
upon the other, be submitted to arbitration, and such arbitration
shall be governed by the provisions of the Texas General
8
<PAGE> 9
Arbitration Act, Articles 224 through 238-20 of the Revised Civil
Statutes of Texas, as amended from time to time.
17.2 The parties hereto may agree upon one arbitrator to
resolve any controversy, but in the event that they cannot so
agree, there shall be three arbitrators, one named in writing by
each of the parties with notice thereof to be furnished to the
other party within thirty (30) days after demand for arbitration is
made, and a third to be chosen by the two so named within thirty
(30) days after the appointment of the second arbitrator. If
either party refuses or neglects to join in the appointment of the
arbitrator(s) within the designated period, or if the two
arbitrators chosen by the parties are unable to agree on a third
arbitrator within the designated period, any arbitrator not so
selected shall be appointed by the court on the application of
either party in accordance with the provisions of Article 226 of
the Revised Civil Statutes of Texas.
17.3 At the time any dispute hereunder is submitted to
arbitration, the parties hereto shall use reasonable efforts to
agree on the procedures to govern such arbitration. If the parties
hereto are unable to agree on such procedures within thirty (30)
days after the designation of the arbitrator(s), the arbitrator(s)
shall determine such procedures.
17.4 All arbitration hearings conducted hereunder, and all
judicial proceedings to enforce any of the provisions hereof
relating to arbitration, shall take place in Dallas County, Texas
and shall be governed by the laws of the State of Texas.
17.5 Each party shall be responsible for its own attorneys'
fees and expenses and all other expenses incurred by such party in
connection with the arbitration. The other costs and expenses of
the arbitration proceeding, including the fees and expenses of the
arbitrator(s) themselves, shall be shared equally by the parties.
17.6 The award under any arbitration hereunder shall be made
within sixty (60) days of the conclusion of the arbitration. The
award shall be in writing and signed by the arbitrator(s) joining
in the award and shall be binding upon the parties.
9
<PAGE> 10
18. Complete Agreement; Amendments. The foregoing is the
entire agreement of the parties with respect to the subject matter
hereof and may not be amended, supplemented, cancelled or
discharged except by written instrument executed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
RECOGNITION INTERNATIONAL INC.
By: /s/ R.A. Vanourek
Chief Executive Officer
EMPLOYEE
/s/ Robert M. Swartz
Robert M. Swartz
10
<PAGE> 1
Exhibit 10.3
Recognition International Inc.
Post Office Box 660204
Dallas, Texas 75266-0204
Tel 214 579 6000
Fax 214 579 5799
RECOGNITION
August 18, 1994
Mr. Thomas A. Loose
7724 Glen Albens Circle
Dallas, Texas 75225
RE: AMENDMENT OF EMPLOYMENT AGREEMENT
Dear Tom:
The purpose of this letter is to amend your existing employment agreement
with Recognition International Inc. (the "Company") dated as of November 1,
1989 the "Agreement") to reflect the arrangements we have discussed relating to
your continued employment and eventual retirement. In order to accomplish your
retirement plan, your duties as General Counsel of the Company will cease, and
your Agreement is hereby amended as follows, effective as of November 1, 1994:
1. "Recognition Equipment Incorporated" shall be changed to "Recognition
International Inc." wherever it may appear in the Agreement.
2. Paragraph 1 is amended by deleting the paragraph in its entirety and
replacing it with the following:
"During the Employment Period (as hereinafter defined), the
Company shall employ the Employee as an employee, and
the Employee shall serve the Company as Senior Vice
President performing the functions as shall be designated by
the Chief Executive Officer of the Company or attendant to
the office that he may hold from time to time. Except
during periods of illness, the Employee shall devote such
business time to the business and affairs of the Company
and the promotion of its interests as may be requested by
the Chief Executive Officer, provided that such request
shall not exceed one-half of usual and customary business
time."
<PAGE> 2
Mr. Thomas A. Loose
August 18, 1994
Page 2
3. Paragraph 2.l is hereby amended by deleting the paragraph in its
entirety and replacing it with the following:
"The Employment Period shall mean the period
commencing on November 1, 1994, and continuing until
April 30, 1996, or until terminated by the Company
pursuant to paragraph 2.2 hereof or terminated by
Employee."
4. Paragraph 3.1 is hereby amended by deleting such paragraph in its
entirety and replacing it with the following:
"The Company shall pay to the Employee for services to be
rendered by the Employee hereunder a salary at the rate of
$15,278 per month payable no less frequently than every
month."
5. Paragraph 3.2 is hereby deleted in its entirety.
6. Paragraph 3.3 is hereby renumbered as paragraph 3.2 and is amended by
deleting the period at the end of the paragraph and adding the
following:
"except that Employee shall not accrue any vacation during
the Employment Period and Employee shall not be eligible
to participate in the Company's Executive Bonus Plan for
fiscal year 1995 or thereafter."
7. The phrase beginning with "(A)" appearing on the fifth line of
paragraph 4.1 and ending on the tenth line immediately before "(B)"
is hereby deleted and replaced by the following:
"(A) without Employee's consent the Company assigns to
the Employee duties materially inconsistent with his
designated position,"
8. The remainder of paragraph 4.1 commencing with "(a)" appearing on the
17th line of such paragraph is hereby deleted and replaced with the
following:
"$15,278 times the number of months equal to eighteen
months less that number of full months from November 1,
1994 to the date of Employee's termination."
<PAGE> 3
Mr. Thomas A. Loose
August 18, 1994
Page 3
9. Paragraph 4.2 is hereby amended by deleting the words "Base Salary"
appearing in the fifth line and substituting therefore the word
"salary"; by deleting the clauses (ii) and (iii) appearing on the
fifth, sixth and seventh lines in their entirety; by renumbering
clauses (iv) and (v) as clauses (ii) and (iii); and by inserting in
clause (iii), after the phrase "Board of Directors" the phrase "or
the Compensation Committee of the Board of Directors".
10. Paragraph 4.3 is hereby deleted in its entirety and replaced by the
following:
"4.3 If Employee's employment by the Company is
terminated as a result of Employee's Disability, the
Company will pay to Employee for the period beginning on
the date of such termination and ending on April 30, 1996,
a monthly disability benefit in an amount equal to that
amount which, when added to the total amount of all
benefits to which Employee may be entitled under any
group benefit plan for employees of the Company that are
payable as a result of such Disability, shall equal $15,278
per month."
11. A new paragraph 19 is hereby added as follows:
"19. Retirement Benefits. Pursuant to the consent of the
Compensation Committee of the Board of Directors of the
Company, Employee shall receive benefits pursuant to
Section 5.1.C of the Executive Benefit Plan, as amended
and restated as of December 1, 1984 and as further
amended on December 10, 1992, and pursuant to the related
letter of acceptance executed by Employee and the
Company dated January 15, 1985, as amended as to
Employee as of May 27, 1992. The benefit payments shall
be at the monthly rate of $9,476, shall commence on
November 1, 1994, and shall be payable at least monthly
thereafter in accordance with the terms of such plan."
12. A new paragraph 20 is hereby added as follows:
"20. Additional Benefits. Upon termination of
employment, Employee shall also receive the following
benefits:
<PAGE> 4
Mr. Thomas A. Loose
August 18, 1994
Page 4
20.1 Employee will be given the option to
convert the Split Dollar Life Insurance Policy on
Employee's life to a personal policy owned by Employee
pursuant to the provisions of the agreements between
Employee and the Company relating to the policy.
20.2 Pursuant to the Company's Corporate
Incentive Plan (the "Plan"), the Compensation Committee
determined that special circumstances were demonstrated
that, in the judgment of the Compensation Committee,
merited an increase in the period of exercisability of every
option, other than Incentive Stock Options, held by
Employee under the Plan on the date following Employee's
termination so that each such option held by Employee
shall, to the extent exercisable at the date of Employee's
termination, be exercisable at any time prior to the
expiration date of said option, or until October 31, 1997,
whichever is the shorter period. Such determination
constituted an amendment to each option agreement
between Employee and the Company under the Plan.
20.3 Employee will also be reimbursed on a
monthly basis for the amounts which Employee must pay
under COBRA in order to obtain certain benefits for
Employee and Employee's family under the Company's
Bene/Flex Plan for a period of 18 months following
Employee's termination of employment."
13. Paragraph 19 is hereby renumbered as paragraph 21.
All other provisions of the Agreement will remain in full force and effect.
<PAGE> 5
Mr. Thomas A. Loose
August 18, 1994
Page 5
If the foregoing amendment is acceptable to you, please so indicate by
signing both enclosed copies of this letter in the space indicated and
returning one signed copy to the Company.
Very truly yours,
RECOGNITION INTERNATIONAL INC.
By: /s/ Robert A. Vanourek
Name: Robert A. Vanourek
Title: President & C.E.O.
Accepted and Agreed:
By: /s/ Thomas A. Loose
Thomas A. Loose
<PAGE> 1
Exhibit 10.4
RECOGNITION
RECOGNITION INTERNATIONAL INC.
NOTICE OF GRANT OF STOCK OPTIONS
TO: ROBERT M. SWARTZ
Congratulations! You have been granted an option to purchase
Recognition International Inc. Common Stock as follows:
Non-Qualified Stock Option Grant No. 001413
Date of Grant 06/08/94
Stock Option Plan 1990 Corporate Incentive Plan
Option Price Per Share $8.500
Total Number of Shares Granted 100,000
This option shall become exercisable in cumulative installments as
follows:
(i) with respect to 20 percent of the total number of shares subject
to the option on the date hereof, and (ii) with respect to the remaining shares
subject to the option, an additional 20 percent of such total number of shares
upon the expiration of each of the four succeeding 12-month periods hereafter.
By your signature and Recognition's signature below, you and
Recognition agree that this stock option is granted under and governed by the
terms and conditions of Recognition's 1990 Corporate Incentive Plan, as
amended, and the terms of the Stock Option Grant Agreement which is attached to
and made a part of this document.
RECOGNITION INTERNATIONAL INC.
By: /s/ Carol S. Lyon 6-8-1994
Carol S. Lyon, Vice President Date
/s/ Robert M. Swartz 6-22-1994
Optionee Signature Date
Name: ROBERT M. SWARTZ
Address:
Tax I.D.:
Note: Address and Tax I.D. Number shown above are as reflected in our records.
Please make any necessary corrections above.
<PAGE> 2
STOCK OPTION GRANT AGREEMENT
UNDER THE
1990 CORPORATE INCENTIVE PLAN (THE "PLAN")
OF
RECOGNITION INTERNATIONAL INC.
* * * * *
In consideration of the premises and mutual covenants herein contained
and other good and valuable consideration, Recognition International Inc. (the
"Company") and the individual named on the attached Notice of Grant of Stock
Options (the "Optionee") agree as follows:
This agreement covers the grant of a stock option as specified in the
attached Notice of Grant of Stock Options (the "Notice"). As used herein, the
term "Agreement" means this Stock Option Grant Agreement and the Notice.
1. COMMITTEE AND THE PLAN. The Compensation Committee of the
Company's Board of Directors (the "Committee") shall have authority to make
constructions of this Agreement, and to correct any defect or supply any
omission or reconcile any inconsistency in this Agreement, and to prescribe
rules and regulations relating to the administration of this option and other
options granted under the Plan. In this connection, it is understood that the
Plan is incorporated herein by reference, and made a part of this Agreement as
if fully set forth herein. The Plan shall control in the event there be any
conflict between the Plan and this Agreement, and shall control as to any
matters not contained in this Agreement. Terms used in this Agreement which
are defined in the Plan shall have the same meanings in this Agreement as are
assigned to such terms in the Plan.
2. GRANT OF OPTION. The Company hereby grants to the Optionee
the right and option to purchase the number of shares of the presently
authorized Common Stock of the Company set forth in the attached Notice at the
per-share purchase price reflected in such Notice, at the times and on the
terms and conditions set forth herein and in the Notice. The option evidenced
hereby is intended to be and is designated as a non-incentive stock option and
is not intended to be an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code.
3. DATE OF GRANT. The Date of Grant of this option is the date
set forth in the Notice.
4. TERM. Subject to earlier termination in accordance with the
Plan or this Agreement, this option shall continue for ten (10) years from the
Date of Grant. If the expiration date of this option or any termination date
provided for in the Plan or in this Agreement shall fall on a Saturday, Sunday
or a day on which the executive offices of the Company are not open for
business, then such expiration or termination date shall be deemed to be the
last normal business day of the Company, at its office specified in or pursuant
to Paragraph 15 hereof, preceding such Saturday, Sunday or day on which such
offices are closed.
<PAGE> 3
5. EXERCISABILITY. This option shall become exercisable as set
forth in the attached Notice, provided that the total number of shares becoming
exercisable in the aggregate shall in no event exceed the Total Number of
Shares Granted" as specified in the Notice. To the extent at the time
exercisable, this option may be exercised in whole or in part at any time, at
the sole discretion of the holder thereof. Except as set forth in Paragraphs 9
and 10 hereof, the Optionee may not exercise this option unless at the time of
exercise thereof the Optionee has been in the employ of the Company or of a
Subsidiary continuously since the Date of Grant of this option. This option
shall be exercisable during the lifetime of the Optionee only by the Optionee
or the Optionee's guardian or legal representative. Neither the Optionee nor
any person exercising this option pursuant to Paragraph 10 hereof may exercise
this option for a fraction of a share.
6. EXERCISE AND PAYMENT. The option granted hereunder shall be
exercisable by giving written notice of exercise to the Company, in form
satisfactory to the Committee, specifying the number of shares to be purchased
and accompanying such notice with payment of the full purchase price therefor
in (a) lawful United States currency or (b) if permitted by the Committee, in
its sole discretion, partially or entirely in whole shares of Common Stock of
the Company, with the balance, if any, to be paid in cash. Options shall be
deemed to have been exercised on the first date upon which the Company receives
notice of exercise, payment of the purchase price and all other documents,
information and amounts required in respect of such exercise by the Plan or
this Agreement.
7. WITHHOLDING TAX. Prior to the exercise of this option, and as
a condition to the Company's obligation to deliver shares upon such exercise,
the holder of this option shall make arrangements satisfactory to the Company
for the payment of any applicable federal or other withholding taxes payable as
a result thereof.
8. DISCHARGE. If the Optionee's employment by the Company and
all Subsidiaries shall terminate because of the Optionee's discharge for cause,
then this option, and any rights the Optionee may have under this option, shall
terminate and be forfeited immediately as to any unexercised portion thereof.
9. OTHER TERMINATION. If the Optionee's employment by the
Company and all Subsidiaries shall terminate for any reason other than cause
(other than by reason of death or disability), this option shall be exercisable
by the Optionee at any time prior to the expiration date of this option or
within three months after the date of such termination of employment, whichever
is the shorter period, but only to the extent that this option was exercisable
at the date of such termination.
10. DEATH OR DISABILITY. In the event of termination of the
Optionee's employment by reason of disability (of which the Committee shall be
the sole judge) or the death of the Optionee while an employee of the Company
or a Subsidiary, this option shall be fully exercisable (whether or not
exercisable on the date of death or termination of employment by reason of
disability) at any time prior to the expiration date of this option or within
six months after the date of death or termination of employment, whichever is
the shorter period, by the person or persons specified in the Optionee's Will
or, if the Optionee shall have failed to make specific provision in the
Optionee's Will for such exercise or shall have died intestate, or in the case
of disability, when appropriate, by the Optionee's guardian or legal
representative.
11. SECURITIES ACT REPRESENTATIONS. Each exercise of this option
shall, at the election of the Committee, be contingent upon receipt by the
2
<PAGE> 4
Company from the holder of this option of such written representations
concerning the Optionee's intentions with regard to retention or disposition of
the shares being acquired by exercise of this option and/or such written
covenants and agreements as to the manner of disposal of such shares as, in the
opinion of the Committee, may be necessary to ensure that any disposition by
such holder will not involve a violation of the Securities Act of 1933, as
amended, or any similar or superseding statute or statutes, or any other
applicable statute or regulation, as then in effect.
12. STOCKHOLDER RIGHTS. Neither the Optionee nor the Optionee's
guardian or legal representatives shall be or have any of the rights or
privileges of a stockholder of the Company in respect of any of the shares
deliverable upon the exercise of this option, unless and until certificates
representing such shares shall have been issued and delivered.
13. NO RIGHT OF EMPLOYMENT. Neither the granting of this option,
the exercise of any part hereof, nor any provision of the Plan or this
Agreement shall constitute or be evidence of any understanding, express or
implied, on the part of the Company or any Subsidiary to employ the Optionee
for any specified period.
14. NON-TRANSFERABILITY. Except as otherwise provided in the Plan
or this Agreement, this option and the rights and privileges conferred hereby
may not be transferred, assigned, pledged or hypothecated or otherwise disposed
of in any way (whether by operation of law or otherwise) and shall not be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option or
any right or privilege conferred hereby contrary to the provisions hereof, this
option and the rights and privileges conferred hereby shall immediately become
null and void.
15. NOTICE. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed to or delivered to the party
for whom it is intended in each case properly addressed: if to the Company, at
its address in Dallas, Texas, attention Corporate Secretary; or if mailed or
delivered to the Optionee, at the address set forth below the Optionee's
signature on the attached Notice (or at such other address or in care of such
other person as may hereafter be designated in writing by either party to the
other).
3
<PAGE> 1
EXHIBIT 11.1
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS (LOSS) PER SHARE
(Unaudited)
(thousands, except per share)
<TABLE>
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Primary:
Net income (loss) $(26,426) $ 2,440 $(27,161) $ 4,242
======== ======= ======== =======
Shares:
Weighted average shares
outstanding, net of treasury
shares 15,056 14,495 14,965 12,907
Net shares issuable on exercise
of certain stock options 418 1,071 730 1,090
-------- ------- -------- -------
Weighted average shares
outstanding, as adjusted 15,474 15,566 15,695 13,997
======== ======= ======== =======
Earnings (loss) per share -
primary $ (1.71) $ .16 $ (1.73) $ .30
======== ======= ======== =======
Fully Diluted (A):
Earnings:
Net income (loss) $(26,426) $ 2,440 $(27,161) $ 4,242
Add after tax interest expense
applicable to 7 1/4% convertible
subordinated debentures 919 919 2,756 2,756
-------- ------- -------- -------
Net income (loss), as adjusted $(25,507) $ 3,359 $(24,405) $ 6,998
======== ======= ======== =======
Shares:
Weighted average shares
outstanding, net of treasury
shares 15,056 14,495 14,965 12,907
Shares issuable assuming
conversion of 7 1/4% convertible
subordinated debentures 3,088 3,088 3,088 3,088
Net shares issuable on exercise
of certain stock options 418 1,071 730 1,090
-------- ------- -------- -------
Weighted average shares
outstanding, as adjusted 18,562 18,654 18,783 17,085
======== ======= ======== =======
Earnings (loss) per share -
fully diluted $ (1.37) $ .18 $ (1.30) $ .41
======== ======= ======== =======
</TABLE>
Note A: 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 35,555
<SECURITIES> 536
<RECEIVABLES> 43,053
<ALLOWANCES> 1,868
<INVENTORY> 30,045
<CURRENT-ASSETS> 111,667
<PP&E> 98,284
<DEPRECIATION> 57,223
<TOTAL-ASSETS> 195,970
<CURRENT-LIABILITIES> 61,862
<BONDS> 51,722
<COMMON> 3,796
0
0
<OTHER-SE> 71,762
<TOTAL-LIABILITY-AND-EQUITY> 195,970
<SALES> 64,489
<TOTAL-REVENUES> 158,042
<CGS> 47,237
<TOTAL-COSTS> 109,760
<OTHER-EXPENSES> 2,372
<LOSS-PROVISION> 603
<INTEREST-EXPENSE> 3,215
<INCOME-PRETAX> (24,247)
<INCOME-TAX> 2,914
<INCOME-CONTINUING> (27,161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,161)
<EPS-PRIMARY> (1.73)
<EPS-DILUTED> (1.30)
</TABLE>
