<PAGE> 1
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ (Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1995
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 13 1995, the Registrant had outstanding 15,275,740 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, 1995 and October 31, 1994.
Consolidated Statement of Operations - 2
Three Months Ended January 31, 1995 and 1994.
Consolidated Statement of Cash Flows - 3
Three Months Ended January 31, 1995 and 1994.
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. 10
---------------------------------
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURE 11
INDEX TO EXHIBITS 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(thousands)
<TABLE>
<CAPTION>
January 31,
1995 October 31,
ASSETS (Unaudited) 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including
restricted amounts of $6,382 in 1995
and $6,359 in 1994 $ 40,341 $ 40,115
Short-term investments, including
restricted amounts of $530 in 1995
and $536 in 1994 543 549
Receivables - net 49,479 50,263
Inventories:
Raw materials and parts 4,371 4,375
Work in process 10,546 10,243
Finished goods 7,437 10,067
Other current assets 5,068 5,599
--------- ---------
Total current assets 117,785 121,211
--------- ---------
Property, plant and equipment - net 15,958 16,304
Service parts - net 25,559 25,281
Long-term receivables 3,993 5,278
Goodwill - net 15,562 16,377
Capitalized software - net 5,449 5,605
Other assets 14,264 14,407
--------- ---------
Total assets $198,570 $204,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 7,921 $ 7,988
Trade accounts payable 12,192 10,426
Domestic and foreign income taxes 343 1,650
Accrued compensation and benefits 4,161 5,328
Advance payments by customers 18,950 20,350
Accrued and other current liabilities 19,763 22,877
--------- ---------
Total current liabilities 63,330 68,619
--------- ---------
Long-term debt 51,722 51,722
--------- ---------
Other liabilities 6,961 6,285
--------- ---------
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 - 15,310
in 1995 and 15,295 in 1994 3,828 3,824
Capital in excess of par value 141,245 140,851
Accumulated deficit (64,419) (63,947)
Translation adjustments (3,709) (2,503)
Treasury stock (388) (388)
--------- ---------
Total stockholders' equity 76,557 77,837
--------- ---------
Commitments and contingencies
--------- ---------
Total liabilities and stockholders' equity $198,570 $204,463
========= =========
</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,
1995 1994
-------- --------
<S> <C> <C>
Revenues:
Product $22,539 $18,157
Customer service 30,862 32,191
-------- --------
53,401 50,348
Cost of revenues:
Product 16,073 12,021
Customer service 21,341 19,856
-------- --------
37,414 31,877
-------- --------
Gross profit 15,987 18,471
Operating expenses:
Engineering and development 2,884 4,250
Selling and marketing 8,006 7,955
General and administrative 2,978 3,216
Restructuring 571 --
Amortization and other operating 745 905
-------- --------
Operating income 803 2,145
Interest income 592 593
Interest expense (1,068) (1,077)
Foreign exchange losses - net (270) (43)
Other income (expense) - net 40 (50)
-------- --------
Income before income taxes 97 1,568
Provision for income taxes (568) (912)
-------- --------
Net income (loss) $ (471) $ 656
======== ========
Earnings (loss) per share $ (.03) $ .04
======== ========
Weighted average shares outstanding 15,528 15,884
======== ========
</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,
1995 1994
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (471) $ 656
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operations:
Depreciation 3,118 2,710
Amortization 1,359 1,591
Restructuring 571 --
Net book value of service parts used 812 250
Other 753 1,097
Changes in assets and liabilities:
Receivables (27) 1,081
Inventories 1,999 (2,812)
Trade accounts payable 1,806 916
Advance payments by customers (1,292) (2,240)
Other current assets and liabilities (5,295) (10,332)
Other non-current assets and liabilities 1,607 24
-------- --------
Net cash provided by (used for) operating activities 4,940 (7,059)
-------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,106) (958)
Additions to service parts (3,003) (7,041)
Additions to capitalized software (288) (907)
Payment for acquisition of business (163) (218)
Other 1 11
-------- --------
Net cash used for investing activities (4,559) (9,113)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt -- 4
Issuance of common stock 112 224
-------- --------
Net cash provided by financing activities 112 228
-------- --------
Effect of exchange rate changes on cash (267) (339)
-------- --------
Net increase (decrease) in cash and cash equivalents 226 (16,283)
Cash and cash equivalents at beginning of period 40,115 53,334
-------- --------
Cash and cash equivalents at end of period $40,341 $37,051
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the three-month period for:
Interest $ 100 $ 99
Income taxes $ 1,020 $ 2,145
======== ========
</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, 1994. 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, 1995 may not be indicative of the
results that may be expected for the year ending October 31, 1995.
(2) Certain amounts in the 1994 financial statements have been
reclassified to conform with the 1995 presentation.
(3) In 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 major parts to this plan: (1) to eliminate
duplicate support and overhead operations and move Recognition's
systems business more quickly through the transition from older,
proprietary products to newer, open architecture products by
consolidating certain operations; (2) to consolidate manufacturing and
engineering into the Dallas, Texas facility and to close the
Charlotte, North Carolina facility and other offices; and (3) to
reduce expenses and overall headcount in Recognition's software
business by consolidating certain software support functions.
As a result of adopting this plan, Recognition recorded restructuring
charges of $19,732,000 in 1994 and $571,000 in 1995. These charges
include termination benefits of $7,938,000 for the involuntary
termination of 314 employees. The majority of the employees to be
terminated are employed in Recognition's Charlotte, North Carolina
facility. The remainder of the employees to be terminated are part of
the restructuring of the systems and software businesses. The
restructuring charges also include $3,183,000 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 $1,766,000 for other related items. As of
January 31, 1995, Recognition has paid $2,337,000 in termination
benefits for the involuntary termination of 160 employees and has
written down assets or paid amounts totaling $8,723,000 related to
other restructuring items.
4
<PAGE> 7
(4) At January 31, 1995, Recognition was contingently liable for
approximately $903,000 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 1994, Recognition adopted a restructuring plan to consolidate
certain operations in its systems business, close its Charlotte, North Carolina
facility and other offices and consolidate certain software support functions.
The plan is expected to be completed by the end of the third quarter of 1995.
As a result of adopting this plan, Recognition recorded restructuring charges
of $19.7 million in 1994 and $.6 million in 1995 for obligations relating to
employee severance and relocation, write-down of certain assets no longer
required in the business, facility lease terminations, the hiring and training
of employees to accomplish the restructuring and other related items.
Additional restructuring charges of $1.5 to $2.5 million are expected to be
incurred through the balance of 1995 for the relocation, hiring and training of
employees to accomplish the restructuring. Together, these charges are
expected to use approximately $16 million of cash, of which approximately $9
million would have been incurred as salaries and office rents without the
restructuring. As of January 31, 1995, approximately $10 million of the $16
million of cash remains to be paid, a substantial portion of which will be paid
during 1995.
Working capital at January 31, 1995 was $54.5 million, an increase of
$1.9 million compared to October 31, 1994. The change was a result of a
decrease in current liabilities of $5.3 million and a decrease in current
assets of $3.4 million.
The decrease in current liabilities included a $3.1 million decrease
in accrued and other current liabilities due primarily to payments related to
restructuring and to sales and property taxes accrued at October 31, 1994.
Advance payments by customers decreased $1.4 million due to revenues recorded
in the first quarter of 1995 for which payment was received in 1994. Domestic
and foreign income taxes decreased $1.3 million due primarily to payments of
1994 taxes by certain foreign subsidiaries. Accrued compensation and benefits
decreased $1.2 million primarily due to payment of salaries and commissions
accrued at October 31, 1994. These decreases were partially offset by an
increase in trade accounts payable of $1.8 million due to the timing of
disbursements in the ordinary course of business.
The decrease in current assets was due primarily to a $2.3 million
decrease in inventory resulting from the shipment of finished goods inventory
held at October 31, 1994 under several large contracts.
At January 31, 1995, Recognition had $40.9 million of cash, cash
equivalents and short-term investments, of which $6.9 million was pledged as
collateral or otherwise committed to secure certain guarantees and a foreign
bank loan. Recognition has a $25.0 million
6
<PAGE> 9
revolving credit facility. The facility contains covenants including
maintenance of certain financial ratios, net worth requirements and
restrictions on future borrowings and payment of dividends with which
Recognition was in compliance at January 31, 1995. Obligations under the
facility are secured by a lien on substantially all of Recognition's assets,
excluding its real estate. Due to outstanding letters of credit issued under
the facility and restrictions imposed by the financial covenants, the amount of
credit available under the facility at January 31, 1995 was approximately $5
million. The credit facility expires in July 1995 and any borrowings
outstanding at that time will convert to a one-year term loan. Recognition
expects to extend or renegotiate the revolving credit facility at that time.
Recognition believes it has sufficient cash, including amounts
available under the current credit facility, to meet its operating and capital
requirements for fiscal year 1995.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTH PERIODS ENDED
JANUARY 31, 1995 AND 1994
Recognition recorded a net loss for the first quarter of 1995 of $.5
million compared to net income of $.7 million in the first quarter of 1994, a
decrease of $1.2 million. The net loss for the first quarter of 1995 included
a restructuring charge of $.6 million for hiring, training and asset
relocations associated with the restructuring plan adopted in the third quarter
of 1994. The remaining decrease was primarily the result of lower gross profit
margins, offset by approximately $1.6 million of savings from the
restructuring.
Consolidated revenues were $53.4 million in the first quarter of 1995,
an increase of six percent, or $3.1 million, as compared to the first quarter
of 1994. Revenues from equipment products and services were $40.9 million in
the first quarter of 1995, an increase of $1.5 million, or four percent, as
compared to the first quarter of 1994. Revenues from software products and
services, including Plexus(R) software products and software sold in
conjunction with equipment, were $12.5 million in the first quarter of 1995.
This represented an increase of $1.6 million, or 15 percent, as compared to the
first quarter of 1994.
The increase in consolidated revenues reflected an increase in
domestic revenues of $1.1 million, or three percent, and an increase in foreign
revenues of $2.0 million, or 10 percent. Foreign operations contributed 40
percent of the first quarter of 1995 revenues compared to 38 percent in the
first quarter of 1994.
Product revenues were $22.5 million, an increase of 24 percent, or
$4.4 million, when compared to the first quarter of 1994. Revenues from
equipment products were $14.4 million in the first quarter of 1995, an increase
of 16 percent, or $2.0 million, due
7
<PAGE> 10
primarily to revenues associated with the new, open system high-speed document
transport and the Universal Transport(TM) products. Revenues from software
products were $8.1 million in the first quarter of 1995, an increase of 41
percent, or $2.4 million, due primarily to a sale of third party software in
Canada.
Customer service revenues were $30.9 million, a decrease of four
percent, or $1.3 million, when compared to the first quarter of 1994.
Equipment related service revenues were $26.5 million in the first quarter of
1995, a decrease of two percent, or $.6 million, as a result of the expected
expiration of maintenance agreements for older products partially offset by an
increase in revenues from third party maintenance services. Software service
revenues related to both Plexus products and software sold in conjunction with
equipment were $4.4 million in the first quarter of 1995, a decrease of 15
percent, or $.8 million. The 1994 software service revenues included
significant revenues for custom software completed for a customer in Japan.
Consolidated gross profit in the first quarter of 1995 was $16.0
million, down $2.5 million from the first quarter of 1994. Product gross
profit was $6.5 million, or 29 percent of revenues, in the first quarter of
1995 compared to $6.1 million, or 34 percent of revenues, in the first quarter
of 1994. This decline in the product gross profit margin was attributable to a
change in the mix of equipment revenues to products marketed through third
parties with lower gross profit margins, and start-up costs for the production
of the new high-speed transport and Universal Transport products.
Customer service gross profit was $9.5 million, or 31 percent of
revenues, in the first quarter of 1995 compared to $12.3 million, or 38 percent
of revenues, in the first quarter of 1994. The 38 percent gross profit margin
in 1994 was unusually high due to custom software revenues in Japan. The 31
percent gross profit margin in 1995 is generally in line with historical
trends. However, the gross profit margin on equipment maintenance services is
declining as revenues from the service of proprietary products are being
replaced by revenues from the service of third party products with lower gross
profit margins. Gross profit margins vary for other services based upon the
specific services performed. As a result, it is difficult to predict future
total customer service gross profit margins.
Engineering and development expenses decreased $1.4 million due to the
completion of certain development activities related to the high-speed document
transport and Universal Transport products in the latter half of 1994,
cancellation of non-strategic development activities in the software business
and lower sustaining engineering for older, proprietary products.
The provisions for income taxes for 1995 and 1994 were a
8
<PAGE> 11
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.
In 1994, Recognition's Canadian subsidiary recorded significant
revenues under several major contracts with the Canadian government for network
products. Delivery and installation under these major contracts was
substantially completed in the first quarter of 1995. Recognition is currently
pursuing new contracts in Canada but at this time cannot be assured that any of
these contracts will be awarded to Recognition. As a result, future revenues
may be lower. However, the impact on income would be mitigated by the fact
that the gross profit margin on such contracts are substantially lower than
Recognition's typical gross profit margins.
Beginning in 1994 the growth rate in software revenues from products
and services did not match growth rates previously experienced. These revenues
increased 18 percent in fiscal year 1994 and 15 percent in the first quarter of
1995. These growth rates are more in line with industry rates which
Recognition estimates to be 15 to 30 percent annually. Although the volume of
software shipments has expanded, revenue growth in server software products did
not offset the decline in client software product revenues which were impacted
by significant competitor price reductions in the application development tool
market. Recognition expects server software product revenues to continue to
increase and account for a greater portion of software product revenues;
however, the uncertain timing of large orders and the effect of industry forces
and competition on pricing makes growth rates difficult to forecast.
9
<PAGE> 12
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 12 through 15 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.
10
<PAGE> 13
SIGNATURE
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 13, 1995 /s/ Thomas E. Hoefert
---------------- -------------------------------
Thomas E. Hoefert
Vice President and Chief
Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
11
<PAGE> 14
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).
4.6 By-Laws, as amended and restated as of December 15, 1994 (incorporated by reference to Exhibit 3.6 to
Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1994).
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).
</TABLE>
12
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
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 Second Amendment dated as of October 31, 1994 to Amended and Restated Credit Agreement dated as of July 29,
1993 (incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the period
ended October 31, 1994).
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).
</TABLE>
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
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. 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).
</TABLE>
Management Contracts and Compensatory Plans and Arrangements (Exhibit 10.1)
<TABLE>
<S> <C>
10.1 Stock Option Plan VII, as amended and restated as of October 6, 1994.
11.1 Statement re computation of per share earnings.
15. Not applicable.
18. Not applicable.
</TABLE>
14
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27.1 Financial Data Schedules.
99. Not applicable.
</TABLE>
15
<PAGE> 1
EXHIBIT 10.1
STOCK OPTION
PLAN VII
(As Amended And Restated As Of October 6, 1994)
The purposes of this Stock Option Plan VII (the "Plan") are to make
available stock options to induce individuals to enter the employ of
Recognition Equipment Incorporated (the "Company") and its subsidiaries, to
remain in the employ of the Company and/or its subsidiaries, and to provide an
opportunity for such employees to acquire a proprietary interest in the Company
so that they will devote their best efforts to the benefit of the Company.
DEFINITIONS
As used in the Plan, the following terms shall, unless the context
otherwise requires, have the respective meanings set forth below:
(a) "Common Stock" shall mean the Common Stock, par value
$.25 per share, of the Company or the other kind(s) of
securities which shall be substituted for Common Stock or to
which Common Stock shall be adjusted in accordance with
Section 3.6 of the Plan. "Shares" shall mean shares of Common
Stock or shares or units of such other kinds of securities.
(b) "Committee" shall mean the Compensation Committee of the
Board of Directors of the company which shall consist of three
or more members of the Board of Directors, each of whom shall
be selected by and serve at the pleasure of the Board of
Directors and shall be a disinterested person (as that term is
defined in subparagraph (d)(3) of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended).
(c) "Fair Market Value" on any date shall mean (i) the closing
sale price per share of Common Stock on the principal
securities exchange on which it is listed on such date, or if
there be no sales reported on such date, on the preceding
business day on which a sale is reported or (ii) if the Common
Stock is not then listed on any securities exchange, the
amount reasonably determined by the Committee to be the Fair
Market Value per share of Common Stock on such date.
(d) "Option" shall mean an employee stock option granted by
the Committee pursuant to the Plan.
(e) "Parent" shall mean any corporation that owns, directly
or indirectly, stock possessing more than 50% of the voting
power of all classes of stock of the Company.
<PAGE> 2
(f) "Securities" shall mean shares of Common Stock of the
Company acquired upon exercise of Options and any securities
issued in respect of such shares.
(g) "Subsidiary" shall mean any corporation in which stock
possessing more than 50% of the voting power of all classes of
stock of such corporation is owned, directly or indirectly, by
the Company.
I
ADMINISTRATION
Section 1.1 Administration. The Plan shall be administered by the
Committee. The Committee from time to time may prescribe, amend and rescind
such rules, regulations, provisions and procedures, consistent with the terms
of the Plan, as, in its opinion, may be advisable in the administration of the
Plan and shall determine the provisions, which shall be consistent with the
terms of the plan but need not be identical, of the respective agreements
required by Section 1.5 of the Plan, including, without limitation, provisions
(a) specifying the term, and period or periods and extent of exercisability, of
Options (b) imposing, and specifying the nature and extent of, restrictions, if
any, upon disposition of any Securities, (c) specifying the circumstances, if
any, under which all or part of any Securities may be required to be forfeited
and surrendered to the Company (and the consideration, if any, to be paid by
the Company for any such Securities forfeited and surrendered) and (d)
specifying the extent and times of lapse of any such restrictions or risks of
forfeiture. The Committee shall have the authority, in its discretion, to
construe and interpret the Plan and such respective agreements and to make all
other determinations necessary or advisable for administering the Plan. A
majority of the Committee shall constitute a quorum, and the acts of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by all members of the Committee, shall be the acts of the
Committee, unless provisions to the contrary are embodied in the Company's
By-Laws or resolutions duly adopted by the Board of Directors. All actions
taken and decisions or determinations made by the Committee pursuant to the
Plan shall be binding and conclusive on all persons interested in the Plan. No
member of the Committee shall be liable for any action, decision or
determination taken or made in good faith with respect to the Plan or any
Option granted under it.
Section 1.2 Eligibility. Those individuals who become employees of
the Company and its Subsidiaries (including officers and directors thereof if
they are such employees) and who, consistent with the purposes of the Plan, are
selected by the Committee shall be eligible to be granted Options, provided,
however, that no such employee who, immediately after the grant of an Option,
would own (within the meaning of Section 425(d) of the Internal Revenue Code of
1954, as amended) stock possessing more than 10% of the combined voting power
of all classes of the Company or any Parent or Subsidiary shall be eligible to
be granted Options. From such eligible employees, the Committee shall, from
time to time, choose those, if any, to whom Options shall be granted. More
than one Option may be granted to the same person. The adoption of the Plan
shall not be deemed to give any person a right to be granted any option.
Section 1.3 Shares Available. The board of Directors shall reserve
for the purposes of the Plan, out of the authorized but unissued shares of
Common Stock or out of shares of Common Stock held in the Company's Treasury,
or partly out of each, as shall be determined by the Board of Directors, a
total of 1,650,000 shares of such Common Stock. Any shares delivered upon
exercise of Options
<PAGE> 3
granted under the Plan shall reduce by the number of shares so delivered the
number of shares available for granting of Options under the Plan. If an
Option granted under the Plan to any employee expires or is cancelled or
terminated unexercised as to any shares covered thereby or if any Securities
are forfeited and surrendered to the Company, such shares or Securities shall
be available for granting of Options.
Section 1.4 Authority of the Committee to Grant Options. Subject to
the provisions of the Plan, the Committee shall have authority, in its
discretion, to determine the persons to whom Options shall be granted, to grant
Options, to determine the number of shares to be covered by any Option.
Section 1.5 Agreements. The specific terms of each Option granted by
the Committee pursuant to the Plan shall be determined by the Committee,
consistent with the terms of the Plan, and shall be set forth and confirmed in
an agreement which shall be in such form and contain such provisions as shall
be determined from time to time by the Committee and which shall be executed
pursuant and with reference to the Plan by the Company and the person to whom
such Option is granted. Any such agreement may contain any provisions,
consistent with the terms of the Plan, as may be deemed necessary or
appropriate and approved by the Committee and may be amended from time to time
by written instrument executed by the Company and the person holding such
Option to reflect any change in the provisions thereof made in accordance with
the Plan.
Section 1.6 Notice of Exercise. Each exercise of an Option must be
evidenced by written notice of exercise to the Company in form satisfactory to
the Committee.
II
STOCK OPTIONS
Section 2.1 Option Terms. The Committee shall establish the option price per
share at the time any option is granted, and such option price per share shall
not be less than the greater of (a) 85% of the Fair Market Value per share of
the shares subject to such Option on the day such Option is granted or (b) the
per share par value of such shares. The option price will be subject to
adjustment in accordance with the provisions of Section 3.6 of the Plan.
Options may be granted under the Plan for terms of not more than ten years from
the date of grant thereof.
Section 2.2 Continuation of Employment. Each Option by its terms
shall require the employee granted such Option to remain in the continuous
employ of the Company and/or a Subsidiary for such period or periods as the
Committee shall determine at the time of grant, from the date of grant of his
Option before the right to exercise any part of the Option will accrue,
provided that the Committee at any time, or from time to time, after the time
of grant may in its discretion shorten such period or periods.
Section 2.3 Exercise of Options. Subject to the provisions of this
Article II, each Option shall become and be exercisable at such time or times
and during such period or periods, in full or in such installments (which may
be cumulative or noncumulative), as may be determined by the Committee at the
time of the grant of such Option, provided that the Committee at any time, or
from time to time, after the time of grant may in its discretion accelerate the
exercisability of all or any portion of any
<PAGE> 4
option by accelerating the date on which it was initially to have become
exercisable and/or, in the case of Options exercisable in installments,
accelerating the dates on which all or any portion of any or all of such
installments were initially to have become exercisable.
Section 2.4 Option Price. The option price of each share purchased
pursuant to exercise of each Option shall be paid either (i) entirely in cash
or (ii) if permitted by the Committee in its sole discretion, partially or
entirely in full shares of Common Stock, with the balance, if any, to be paid
in cash. Any payment of the option price in shares of Common Stock shall be
credited toward the option price at the Fair Market Value per share of such
shares on the date of payment. Any payment to the Company in shares of Common
Stock as permitted by this Section 2.4 shall vest in the Company good and
unencumbered title thereto, free and clear of all liens, restrictions, charges,
encumbrances and adverse claims, and shall be effected by delivery of the
certificate(s) representing such shares, duly endorsed in blank or accompanied
by stock power(s) duly executed in blank and otherwise in proper form for
transfer.
III
ADDITIONAL PROVISIONS
Section 3.1 Non-Transferability. Options shall not be transferable
by the recipient otherwise than by Will or, if he dies intestate, by the laws
of descent and distribution of the jurisdiction of his domicile at the time of
his death, and such Options shall be exercisable during his lifetime only by
such recipient or his guardian or legal representative.
Section 3.2 Termination of Employment. If the employment by the
Company and all Subsidiaries of a person who is the holder of any Option shall
terminate because of such person's discharge (for or without cause), his rights
under any then outstanding Option shall terminate and be forfeited immediately
as to any unexercised or unpaid portion thereof. If any such person shall
voluntarily terminate his employment (other than by reason of his disability),
each outstanding Option held by him shall be exercisable by him at any time
prior to the expiration date of the Option or within three months after the
date of such termination of employment, whichever is the shorter period, but
only to the extent such Option was exercisable at the date of such termination.
In the event of termination of employment by reason of disability (of which the
Committee shall be the sole judge) or the death of any such person while such
person is an employee of the Company or a Subsidiary, each outstanding Option
held by him shall be fully exercisable (whether or not exercisable on the date
of his death or termination of employment by reason of disability) at any time
prior to the expiration date of the Option or within six months after the date
of death or termination of employment, whichever is the shorter period. To the
extent any Option is not exercised during the period after termination of the
holder's employment specified in this Section 3.2, such Option shall terminate
at the end of such period. In the case of death or disability, Options shall be
exercisable by the person or persons specified in such deceased person's Will
or, if such deceased person shall have failed to make specific provision in his
Will for such exercise or shall have died intestate, or in the case of
disability, when appropriate, by such person's guardian or legal
representative. Anything to the contrary contained in this Section 3.2
notwithstanding, the Committee may, in its sole discretion, either at the time
of grant of an Option, at the time of termination of employment, or at any
other time, increase the period and extent of exercisability of any Option held
by (i) a person whose employment terminates as the result of his death or
disability, (ii) a person who dies or becomes disabled during any period while
his Option remains
<PAGE> 5
exercisable under this Section 3.2 or (iii) a person who demonstrates to the
Committee special circumstances that, in the sole judgment of the Committee,
merit such increase.
Section 3.3 Leave of Absence. The Committee may make such provisions
regarding the effect of a leave of absence of any recipient as the Committee
shall determine.
Section 3.4 Securities Laws; Compliance with Laws. Each exercise of
an Option shall, at the election of the Committee, be contingent upon receipt
by the Company from the recipient (or, in the event of his death or disability,
his legal representatives, legatees or distributees) of such written
representations (if any) concerning the recipient's (or their) intentions with
regard to the acquisition, retention or disposition of the shares being
acquired upon exercise of such Option and/or such written covenants and
agreements (if any) as to the acquisition, retention and disposition of such
shares as, in the opinion of the Committee, may be necessary to ensure that the
acquisition and any disposition of such shares by the recipient or such other
persons will not involve a violation of the Securities Act of 1933, as amended,
or any similar or superseding statute or statues, or any other applicable
statute or regulation, as then in effect. Each Option shall be subject to the
requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of Common Stock
subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with the granting
of, such Option or the issuance or delivery of shares thereunder, such Option
may not be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. Nothing in the Plan or in any
Option granted under it shall require the Company to issue or deliver any
shares upon exercise of any Options if such issuance or delivery would, in the
opinion of counsel for the Company, constitute 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.
Section 3.5 Issuance of Shares. A person exercising an Option shall
not be treated as having become the registered owner of any shares of Common
Stock issuable or deliverable on such exercise until such shares are
issued and delivered.
Section 3.6 Adjustment of Number and Kind of Shares. The shares
available for the Plan as provided in Section 1.3 of the Plan are a part of the
Common Stock, par value $.25 per share, of the Company, presently authorized in
the Restated Certificate of Incorporation, as amended, of the Company. In the
event that a dividend shall be declared and paid upon the Common Stock payable
in shares of Common Stock, the number of undelivered shares of Common Stock
then subject to any Option and the number of shares of Common Stock at the time
reserved for sale or delivery pursuant to the Plan but not at the time covered
by an Option shall be adjusted by adding to each such share the number of
shares which would be distributable thereon if such share had been outstanding
on the date fixed for determining the shareholders entitled to receive such
stock dividend. In the event that the outstanding shares of Common Stock shall
be changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company, whether through amendment of the Company's
certificate of incorporation, reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation (other than a merger or
consolidation to which Section 3.7 of the Plan applies), then there shall be
substituted for each undelivered share of Common Stock then subject to any
Option and for each share of Common Stock at the time reserved for sale or
delivery pursuant to the Plan but not at the time covered by an Option, the
number and kind of shares of stock or other
<PAGE> 6
securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged. In the event there
shall be any change, other than as specified above in this Section 3.6, in the
outstanding shares of Common Stock, then if the Committee shall, in its sole
discretion, determine that such change equitably requires an adjustment or
change in the number or kind of shares then reserved for sale or delivery
pursuant to the Plan but not at the time covered by an Option and of
undelivered shares then subject to an Option, such adjustment or change shall
be made by the Committee and shall be effective and binding for all purposes of
the Plan. In the case of any such substitution or adjustment as provided for in
this Section 3.6, the option price in each stock option agreement for each
share covered thereby prior to such substitution or adjustment will be the
option price for all shares which shall have been substituted for such share or
to which such share shall have been adjusted pursuant to this Section 3.6. The
determination of the Committee as to all adjustments and substitutions referred
to in this Section 3.6 shall be conclusive. No adjustment or substitution
provided for in this Section 3.6 shall require the Company to deliver or sell a
fractional share, and any fractional shares resulting from any adjustment or
substitution pursuant to this Section 3.6 shall be eliminated from the
applicable Option. The provisions of this Section 3.6 shall apply with respect
to successive dividends, amendments, reorganizations, recapitalizations, stock
split-ups, combinations of shares, mergers, consolidations and changes of the
kind referred to in this Section 3.6.
Section 3.7 Business Combinations. In the event that, while any
Options are outstanding under the Plan, there shall occur (a) a merger or
consolidation of the Company with or into another corporation in which the
Company shall not be the surviving corporation (for purposes of this Section
3.7, the Company shall not be deemed the surviving corporation in any such
transaction if, as the result thereof, it becomes a wholly-owned subsidiary of
another corporation), (b) a dissolution of the Company or (c) a transfer of all
or substantially all of the assets of the Company in one transaction or a
series of related transactions to one or more other persons or entities, then,
with respect to each Option outstanding immediately prior to the consummation
of such transaction:
(i) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the
Options granted under the Plan, or the substitution for such
Options of new options equivalent to the Options, with
appropriate adjustment as to number and kind of shares or
other securities deliverable with respect thereto, the Options
granted under the Plan, or the new options substituted
therefor, shall continue, subject to such adjustment, in the
manner and under the terms provided in the respective
agreements under Section 1.5.
(ii) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the
Options granted under the Plan, or for the substitution of
equivalent options, then each holder of an outstanding Option
shall be entitled, immediately prior to the effective date of
such transaction, to purchase the full number of shares that
he would otherwise have been entitled to purchase during the
entire remaining term of the Option and any restriction or
risk of forfeiture imposed pursuant to Section 1.1 of the Plan
shall lapse immediately prior to the effective date of such
transaction. The unexercised portion of any Option shall be
deemed cancelled and terminated as of the effective date of
such transaction.
<PAGE> 7
IV
MISCELLANEOUS
Section 4.1 Amendment of Plan. The Board of Directors of the Company
shall have the right to amend, suspend or terminate the Plan at any time. The
Board of Directors may delegate to the Committee all or any portion of its
authority under this Section 4.1. No amendment, suspension or termination
(whether pursuant to this Section 4.1 or upon expiration of the stated term of
the Plan) may, without the consent of the holder of an existing Option
materially and adversely affect his rights under such Option.
Section 4.2 Effective Date and Duration of Plan. The Plan shall
become effective on February 25, 1982 and shall continue in effect until
terminated pursuant to the terms hereof.
Section 4.3 Right to Continued Employment. Nothing in the Plan or in
any Option granted under it shall confer any right to continue in the employ of
the Company or any of its Subsidiaries or interfere in any way with the right
of the Company or any of its Subsidiaries to terminate any employment at any
time.
Section 4.4 Requested Information. Each grantee of an Option shall
furnish to the Company all information requested by the Company to enable it to
comply with any reporting or other requirement imposed upon the Company by or
under any applicable statute or regulation.
Section 4.5 Payment of Taxes. Prior to the exercise of any Option
the holder of such Option shall make arrangements satisfactory to the Company
for the payment of any applicable federal or other withholding taxes payable as
a result thereof. Appropriate amounts to pay any such taxes shall be deducted
from any cash amount paid under the Plan.
Section 4.6 Headings. The Article and Section headings contained in
the Plan are for convenience only and shall not affect the construction of the
Plan.
<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,
----------------------------------
1995 1994
-------- --------
<S> <C> <C>
Primary
- -------
Net income (loss) $ (471) $ 656
======== ========
Shares:
Weighted average shares outstanding,
net of treasury shares 15,245 14,916
Net shares issuable on exercise
of certain stock options 283 968
-------- --------
Weighted average shares outstanding,
as adjusted 15,528 15,884
======== ========
Earnings (loss) per share - primary $ (.03) $ .04
======== ========
Fully Diluted:
- -------------
Earnings:
Net income (loss) $ (471) $ 656
Add after tax interest expense
applicable to 7 1/4% convertible
subordinated debentures 919 919
-------- --------
Net income, as adjusted $ 448 $ 1,575
======== ========
Shares:
Weighted average shares outstanding,
net of treasury shares 15,245 14,916
Shares issuable assuming conversion
of 7 1/4% convertible subordinated
debentures 3,088 3,088
Net shares issuable on exercise of
certain stock options 300 999
-------- --------
Weighted average shares outstanding,
as adjusted 18,633 19,003
======== ========
Earnings per share - fully diluted $ .02 $ .08
======== ========
</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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 40,341
<SECURITIES> 543
<RECEIVABLES> 50,164
<ALLOWANCES> 2,627
<INVENTORY> 22,354
<CURRENT-ASSETS> 117,785
<PP&E> 105,680
<DEPRECIATION> 64,163
<TOTAL-ASSETS> 198,570
<CURRENT-LIABILITIES> 63,330
<BONDS> 51,722
<COMMON> 3,828
0
0
<OTHER-SE> 72,729
<TOTAL-LIABILITY-AND-EQUITY> 198,570
<SALES> 22,539
<TOTAL-REVENUES> 53,401
<CGS> 16,073
<TOTAL-COSTS> 37,414
<OTHER-EXPENSES> 3,306
<LOSS-PROVISION> 323
<INTEREST-EXPENSE> 1,068
<INCOME-PRETAX> 97
<INCOME-TAX> 568
<INCOME-CONTINUING> (471)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (471)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
