<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 APRIL 30, 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)
<TABLE>
<S> <C>
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)
</TABLE>
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 June 6, 1995, the Registrant had outstanding 15,355,740 shares of its
Common Stock, par value $.25 per share.
<PAGE> 2
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
INDEX
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<CAPTION>
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheet as of 1
April 30, 1995 and October 31, 1994.
Consolidated Statement of Operations - 2
Three Months and Six Months
Ended April 30, 1995 and 1994.
Consolidated Statement of Cash Flows - 3
Six Months Ended April 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. 12
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>
April 30,
1995 October 31,
ASSETS (Unaudited) 1994
--------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including
restricted amounts of $7,188 in 1995
and $6,359 in 1994 $ 43,300 $ 40,115
Short-term investments, including
restricted amounts of $623 in 1995
and $536 in 1994 637 549
Receivables - net 51,629 50,263
Inventories:
Raw materials and parts 9,219 4,375
Work in process 7,742 10,243
Finished goods 6,823 10,067
Other current assets 3,907 5,599
--------- ---------
Total current assets 123,257 121,211
--------- ---------
Property, plant and equipment - net 15,547 16,304
Service parts - net 26,505 25,281
Long-term receivables 3,802 5,278
Goodwill - net 15,114 16,377
Capitalized software - net 5,282 5,605
Other assets 13,969 14,407
--------- ---------
Total assets $203,476 $204,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 9,044 $ 7,988
Trade accounts payable 14,533 10,426
Domestic and foreign income taxes 1,454 1,650
Accrued compensation and benefits 5,632 5,328
Advance payments by customers 18,152 20,350
Accrued and other current liabilities 18,544 22,877
--------- ---------
Total current liabilities 67,359 68,619
--------- ---------
Long-term debt 49,472 51,722
--------- ---------
Other liabilities 6,789 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 - 15,406
in 1995 and 15,295 in 1994 3,852 3,824
Capital in excess of par value 142,008 140,851
Accumulated deficit (63,802) (63,947)
Translation adjustments (1,814) (2,503)
Treasury stock (388) (388)
--------- ---------
Total stockholders' equity 79,856 77,837
--------- ---------
Commitments and contingencies
--------- ---------
Total liabilities and stockholders' equity $203,476 $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 Six months ended
April 30, April 30,
--------------------------- -----------------------------
1995 1994 1995 1994
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product $23,144 $31,712 $ 45,683 $ 49,869
Customer service 32,307 30,865 63,169 63,056
-------- -------- --------- ---------
55,451 62,577 108,852 112,925
-------- -------- --------- ---------
Cost of revenues:
Product 16,155 23,399 32,228 35,420
Customer service 22,520 21,084 43,861 40,940
-------- -------- --------- ---------
38,675 44,483 76,089 76,360
-------- -------- --------- ---------
Gross profit 16,776 18,094 32,763 36,565
Operating expenses:
Engineering and development 2,603 4,094 5,487 8,344
Selling and marketing 8,149 8,879 16,155 16,834
General and administrative 2,857 3,535 5,835 6,751
Restructuring 733 -- 1,304 --
Amortization and other operating 851 856 1,596 1,761
-------- -------- --------- ---------
Operating income 1,583 730 2,386 2,875
Interest income 676 586 1,268 1,179
Interest expense (1,082) (1,071) (2,150) (2,148)
Foreign exchange gains, net 1,226 217 956 174
Other expense, net (78) (143) (38) (193)
-------- --------- --------- ---------
Income before income taxes 2,325 319 2,422 1,887
Provision for income taxes (1,708) (1,710) (2,276) (2,622)
-------- -------- --------- ---------
Net income (loss) $ 617 $(1,391) $ 146 $ (735)
======== ======== ========= =========
Earnings (loss) per share $ .04 $ (.09) $ .01 $ (.05)
======== ======== ========= =========
Weighted average shares 15,454 15,725 15,492 15,806
======== ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
RECOGNITION INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Six months ended
April 30,
1995 1994
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 146 $ (735)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation 6,091 5,488
Amortization 2,660 3,275
Restructuring 1,304 --
Net book value of service parts used 1,074 543
Other 250 1,093
Changes in assets and liabilities:
Receivables (507) (10,619)
Inventories 992 (372)
Trade accounts payable 3,600 4,347
Advance payments by customers (2,490) (4,085)
Other current assets and liabilities (3,783) (6,794)
Other non-current assets and liabilities 427 203
-------- ---------
Net cash provided by (used for) operating activities 9,764 (7,656)
-------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,992) (3,226)
Additions to service parts (5,470) (9,529)
Additions to capitalized software (582) (1,839)
Payment for acquisition of business (75) (306)
Escrow for purchase of real property 1,400 --
Other 7 97
-------- ---------
Net cash used for investing activities (6,712) (14,803)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt 200 273
Repayment of short-term debt (417) (273)
Repayment of long-term debt (1,934) --
Issuance of common stock 611 261
-------- ---------
Net cash provided by (used for) financing activities (1,540) 261
-------- ---------
Effect of exchange rate changes on cash 1,673 298
-------- ---------
Net increase (decrease) in cash and cash equivalents 3,185 (21,900)
Cash and cash equivalents at beginning of period 40,115 53,334
-------- ---------
Cash and cash equivalents at end of period $43,300 $ 31,434
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the six-month period for:
Interest $ 2,904 $ 2,815
Income taxes $ 2,351 $ 2,878
======== =========
</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 six months ended
April 30, 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 $1,304,000 in 1995. These charges
include termination benefits of $7,938,000 for the involuntary
termination of 314 employees. The majority of the employees affected
by the restructuring were employed in Recognition's Charlotte, North
Carolina facility. The remainder of the affected employees were
employed in the systems and software businesses. The restructuring
charges also include $3,249,000 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 $2,433,000 for other related items. As of April 30, 1995,
Recognition has paid $4,097,000 in termination benefits for the
involuntary termination of 258 employees and has written down assets or
paid amounts totaling $10,272,000 related to other restructuring items.
4
<PAGE> 7
(4) On May 19, 1995, the boards of directors of BancTec, Inc. (BancTec) and
Recognition unanimously approved an agreement to merge the two
companies through an exchange of stock. Under the terms of the
agreement, Recognition stockholders will receive .59 of a share of
BancTec common stock for each share of Recognition common stock owned.
The agreement is subject to regulatory approval as well as approval by
the stockholders of both companies and is expected to be completed in
early Fall of 1995. The transaction is expected to be tax free to both
companies' stockholders and to be accounted for on a "pooling of
interest" basis. Under this basis of accounting, the assets and
liabilities of BancTec and Recognition will be combined based on the
respective carrying values of the accounts in the historical financial
statements of each entity. Results of operations of the combined company
will include income of BancTec and Recognition for the entire fiscal
period in which the combination occurs and the historical results of
operations of the separate companies for fiscal years prior to the
merger will be combined and reported as the results of operations of
the combined company.
(5) At April 30, 1995, Recognition was contingently liable for
approximately $983,000 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
On May 19, 1995, the boards of directors of BancTec, Inc. (BancTec)
and Recognition unanimously approved an agreement to merge the two companies
through an exchange of stock. Under the terms of the agreement, Recognition
stockholders will receive .59 of a share of BancTec common stock for each share
of Recognition common stock owned. The agreement is subject to regulatory
approval as well as approval by the stockholders of both companies and is
expected to be completed in early Fall of 1995. The transaction is expected to
be tax free to both companies' stockholders and to be accounted for on a
"pooling of interest" basis. Under this basis of accounting, the assets and
liabilities of BancTec and Recognition will be combined based on the respective
carrying values of the accounts in the historical financial statements of each
entity. Results of operations of the combined company will include income of
BancTec and Recognition for the entire fiscal period in which the combination
occurs and the historical results of operations of the separate companies for
fiscal years prior to the merger will be combined and reported as the results
of operations of the combined company.
Recognition's future orders and revenues may be adversely impacted due
to the announcement of the proposed merger and resulting uncertainties created
in the market place for its products and services.
Recognition adopted a restructuring plan in 1994 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 $1.3 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.
Together, these charges are expected to use approximately $15 million of cash,
of which approximately $9 million would have been incurred as salaries and
office rents without the restructuring. As of April 30, 1995, approximately $6
million of the $15 million of cash remains to be paid, a substantial portion of
which will be paid during 1995.
Working capital at April 30, 1995 was $55.9 million, an increase of
$3.3 million compared to October 31, 1994. The change was a result of an
increase in current assets of $2.0 million and a decrease in current
liabilities of $1.3 million.
6
<PAGE> 9
The increase in current assets was due primarily to an increase in
cash and cash equivalents of $3.2 million (see Consolidated Statement of Cash
Flows). Accounts receivable increased $1.4 million primarily due to revenue
recorded for shipments made in the second quarter of 1995. These increases
were partially offset by a decrease in other current assets of $1.7 million
primarily due to the release to Recognition of $1.4 million which had been
placed in escrow as part of the acquisition of the Lundy Financial Systems
Division of TransTechnology Corporation.
The decrease in current liabilities included a $4.3 million decrease
in accrued and other current liabilities due to payments related to
restructuring accrued at October 31, 1994. Advance payments by customers
decreased $2.2 million due to revenues recorded in the first six months of 1995
for which payment was received in 1994. These decreases were partially offset
by increases in trade accounts payable and short-term debt of $4.1 million and
$1.1 million, respectively. The $4.1 million increase in trade accounts
payable was due to the timing of disbursements in the ordinary course of
business. The increase in short-term debt was primarily due to the
reclassification of $2.3 million from long-term debt for a sinking fund payment
due in April 1996 on the 7 1/4% convertible debentures offset by the repayment
of the $1.9 million promissory note to TransTechnology Corporation.
At April 30, 1995, Recognition had $43.9 million of cash, cash
equivalents and short-term investments, of which $7.8 million was pledged as
collateral or otherwise committed to secure certain guarantees and a foreign
bank loan. Recognition has a $25.0 million 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 April 30, 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 April 30, 1995
was approximately $12 million. The credit facility expires in July 1995 and
any borrowings outstanding at that time will convert to a one-year term loan.
Recognition does not intend to extend the revolving credit facility pending the
completion of the proposed merger.
Recognition believes it has sufficient cash to meet its operating and
capital requirements for fiscal year 1995.
7
<PAGE> 10
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTH PERIODS ENDED
APRIL 30, 1995 AND 1994
Recognition recorded net income for the second quarter of 1995 of $.6
million compared to a net loss of $1.4 million in the second quarter of 1994,
an increase of $2.0 million. The net income for the second quarter of 1995
included a restructuring charge of $.7 million for hiring, training and asset
relocations associated with the restructuring plan adopted in the third quarter
of 1994. Excluding the restructuring charge, the increase of $2.7 million was
primarily the result of a decrease in operating expenses and an increase in
foreign exchange gains offset partially by a decrease in gross profit
associated with lower network integration revenues in Canada.
Consolidated revenues were $55.5 million in the second quarter of
1995, a decrease of 11 percent, or $7.1 million, as compared to the second
quarter of 1994. Revenues from equipment products and services were $44.5
million in the second quarter of 1995, a decrease of $5.9 million, or 12
percent, as compared to the second quarter of 1994. Revenues from software
products and services, including Plexus(R) software products and software sold
in conjunction with equipment, were $11.0 million in the second quarter of
1995. This represented a decrease of $1.2 million, or ten percent, as compared
to the second quarter of 1994.
The decrease in consolidated revenues reflected a decrease in domestic
revenues of $1.5 million, or four percent, and a decrease in foreign revenues
of $5.6 million, or 19 percent. Foreign operations contributed 42 percent of
the second quarter of 1995 revenues compared to 47 percent in the second
quarter of 1994.
Product revenues were $23.2 million, a decrease of 27 percent, or $8.6
million, when compared to the second quarter of 1994. Revenues from equipment
products were $16.6 million in the second quarter of 1995, a decrease of 31
percent, or $7.3 million. Revenues from software products were $6.6 million in
the second quarter of 1995, a decrease of 16 percent, or $1.3 million. These
decreases were primarily due to decreased revenues associated with network
integration products provided by Recognition's Canadian subsidiary to branches
of the Canadian government as a result of the completion of major contracts in
the first quarter of 1995.
Customer service revenues were $32.3 million, an increase of five
percent, or $1.5 million, when compared to the second quarter of 1994.
Equipment related service revenues were $28.0 million in the second quarter of
1995, an increase of five percent, or $1.4 million, when compared to the second
quarter of 1994. This increase in equipment related service revenues reflected
increased international service revenues and increased revenues for
Recognition's multi-vendor services offset by decreased revenues from the
expected expiration of domestic maintenance agreements for
8
<PAGE> 11
older products. Software service revenues related to both Plexus products and
software sold in conjunction with equipment were $4.3 million in the second
quarter of 1995, unchanged when compared to the second quarter of 1994.
Consolidated gross profit in the second quarter of 1995 was $16.8
million, down $1.3 million from the second quarter of 1994. Product gross
profit was $7.0 million, or 30 percent of revenues, in the second quarter of
1995 compared to $8.3 million, or 26 percent of revenues, in the second quarter
of 1994. This increase in the product gross profit margin was attributable to
the lower revenue from network products in Canada which had lower gross profit
margins and savings from the closure of the Charlotte, North Carolina facility.
Customer service gross profit was $9.8 million, or 30 percent of
revenues, in the second quarter of 1995 compared to $9.8 million, or 32 percent
of revenues, in the second quarter of 1994. This decline in the customer
service gross profit margin was a result of start-up expenses associated with
new contracts for multi-vendor services.
Engineering and development expenses decreased $1.5 million due to the
completion of certain development activities related to the high-speed document
transport and Universal Transport(TM) 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.
Selling and marketing expenses, and general and administrative
expenses each decreased $.7 million due to a reduction in headcount as a result
of the restructuring.
Recognition reported a foreign exchange gain of $1.2 million in the
second quarter of 1995, compared to $.2 million in the second quarter of 1994.
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.
The provisions for income taxes for 1995 and 1994 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 three months.
RESULTS OF OPERATIONS - COMPARISON OF SIX MONTH PERIODS ENDED
APRIL 30, 1995 AND 1994
Recognition recorded net income for the first six months of 1995 of
$.2 million compared to a net loss of $.7 million in the first six months of
1994, an increase of $.9 million. The net
9
<PAGE> 12
income for the first six months of 1995 included a restructuring charge of $1.3
million for hiring, training and asset relocations associated with the
restructuring plan adopted in the third quarter of 1994. Excluding the
restructuring charge, the increase of $2.2 million was primarily the result of
a decrease in operating expenses and an increase in foreign exchange gains
offset partially by lower gross profit in the first six months of 1995 when
compared to the first six months of 1994.
Consolidated revenues were $108.9 million in the first six months of
1995, a decrease of four percent, or $4.1 million, as compared to the first six
months of 1994. Revenues from equipment products and services were $85.5
million in the first six months of 1995, a decrease of $4.5 million, or five
percent, as compared to the first six months of 1994. Revenues from software
products and software sold in conjunction with equipment, were $23.4 million in
the first six months of 1995, essentially unchanged when compared to the first
six months of 1994.
The decrease in consolidated revenues reflected a decrease in domestic
revenues of $.4 million, or one percent, and a decrease in foreign revenues of
$3.7 million, or eight percent. Foreign operations contributed 41 percent of
the first six months of 1995 revenues compared to 43 percent in the first six
months of 1994.
Product revenues were $45.7 million, a decrease of eight percent, or
$4.2 million, when compared to the first six months of 1995. Revenues from
equipment products were $31.0 million in the first six months of 1995, a
decrease of 15 percent, or $5.3 million, due primarily to decreased revenues
associated with network integration products provided by Recognition's Canadian
subsidiary to branches of the Canadian government, partially offset by
increased revenues associated with the new, open system high-speed document
transport and the Universal Transport products. Revenues from software
products were $14.7 million in the first six months of 1995, an increase of
eight percent, or $1.1 million, due primarily to sales of third party software
in Canada.
Customer service revenues were $63.2 million, essentially unchanged
when compared to the first six months of 1994. Equipment related service
revenues were $54.5 in the first six months of 1995, an increase of two
percent, or $.8 million. This increase in equipment related service revenues
reflected increased international service revenues and increased revenues for
multi-vendor services offset by decreased revenues from the expected expiration
of domestic maintenance agreements for older products. Software service
revenues related to both Plexus products and software sold in conjunction with
equipment were $8.7 million in the first six months of 1995, a decrease of
eight percent, or $.7 million. The 1994 software service revenues included
significant revenues for custom software completed for a customer in Japan.
10
<PAGE> 13
Consolidated gross profit in the first six months of 1995 was $32.8
million, down $3.8 million from the first six months of 1994. Product gross
profit was $13.5 million, or 29 percent of revenues, in the first six months of
1995 compared to $14.4 million, or 29 percent of revenues, in the first six
months of 1994.
Customer service gross profit was $19.3 million, or 31 percent of
revenues, in the first six months of 1995 compared to $22.1 million, or 35
percent of revenues, in the first six months of 1994. The 35 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 $2.9 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.
Selling and marketing expenses, and general and administrative
expenses decreased $.7 million and $.9 million, respectively, due to the
reduction in headcount as a result of the restructuring.
Recognition reported a foreign exchange gain of $1.0 million in the
first six months of 1995, compared to $.2 million in the first six months of
1994. 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.
The provisions for income taxes for 1995 and 1994 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 six months.
11
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Registrant's Annual Meeting of Stockholders was held on March 9, 1995, at which
time the following matters were voted on:
Re-election of the following directors in Class III with terms to expire in
1998:
<TABLE>
<CAPTION>
For Withheld Broker Nonvotes
--- -------- ---------------
<S> <C> <C> <C>
Gilbert H. Lamphere 13,024,006 128,731 None
William G. Spears 13,012,201 128,731 None
Robert Vanourek 12,992,079 128,731 None
</TABLE>
ITEM 6. EXHITITS 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. A Current Report on
Form 8-K dated May 19, 1995 was subsequently filed by the Registrant.
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.
<TABLE>
<S> <C>
RECOGNITION INTERNATIONAL INC.
(Registrant)
Date: June 6, 1995 /s/Thomas Hoefert
--------------- ------------------------------------
Thomas E. Hoefert
Vice President and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
</TABLE>
13
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of May 19, 1995 among BancTec, Inc., BTec Merger Subsidiary and
Registrant (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated
March 19, 1995).
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
</TABLE>
14
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
Registrant's 7-1/4% Convertible Subordinated Debentures due 2011 (incorporated by reference to Exhibit 4.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1992).
4.8 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).
</TABLE>
15
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
4.13 Amended and Restated Revolving Credit Notes dated as of July 29, 1993 in the principal amounts of
$12,000,000, $7,000,000 and $6,000,000 payable by Registrant to The First National Bank of Boston, as
agent for The First National Bank of Boston, First Interstate Bank of Texas, N.A. and National Bank of
Canada, New York Branch, respectively (incorporated by reference to Exhibit 4.12 to Registrant's
Quarterly Report on Form 10-Q for the period ended July 31, 1993).
4.14 Security Agreement dated as of March 26, 1992 by and among Registrant, Hybrid Systems Inc. and The
First National Bank of Boston (incorporated by reference to Exhibit 19.5 to Registrant's Quarterly
Report on Form 10-Q for the period ended April 30, 1992).
4.15 General Security Agreement dated as of March 26, 1992 by and between Mohawk Data Sciences-Canada,
Limited and The First National Bank of Boston (incorporated by reference to Exhibit 19.6 to
Registrant's Quarterly Report on Form 10-Q for the period ended April 30, 1992).
4.16 Unlimited Guaranty dated as of March 26, 1992 by Hybrid Systems Inc. and Recognition Equipment
(Japan), Inc. 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
</TABLE>
16
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
to Registrant's Quarterly Report on Form 10-Q for the period ended July 31, 1993).
Management Contracts and Compensatory Plans and Arrangements (Exhibits 10.1
through 10.5)
10.1 Assignment of Target Bonus for fiscal year 1995 under the Executive
Bonus Plan for Robert A. Vanourek.
10.2 Assignment of Target Bonus for fiscal year 1995 under the Executive
Bonus Plan for Robert M. Swartz.
10.3 Assignment of Target Bonus for fiscal year 1995 under the Executive
Bonus Plan for Thomas D. Neitzel.
10.4 Letter agreement dated May 19, 1995 between Registrant and Robert A.
Vanourek.
10.5 Letter agreement dated May 19, 1995 between Registrant and Robert M.
Swartz.
11.1 Statement re computation of per share earnings.
15. Not applicable.
18. Not applicable.
19. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27.1 Financial Data Schedules.
99. Not applicable.
</TABLE>
17
<PAGE> 1
Exhibit 10.1
C O N F I D E N T I A L
ROBERT A. VANOUREK
ASSIGNMENT OF TARGETED BONUS
UNDER THE RECOGNITION INTERNATIONAL INC.
EXECUTIVE BONUS PLAN (THE "PLAN")
1. TARGETED BONUS. Your Targeted Bonus for the Plan Year ending
October 31, 1995 , as specified by the Compensation Committee, is Two hundred
thirty-four thousand DOLLARS $ 234,000.00) which may be earned, at the times
and on the terms and conditions stated in the Plan and this Assignment, based
upon the results achieved by the Company during that Plan Year.
2. PARTICIPANT TYPE. Corporate [X] SBU [ ]
3. DETERMINATION OF BONUS. Your Targeted Bonus will be allocated to
the achievement of the Objectives specified in Exhibit "A" attached hereto and
incorporated by reference herein. The percentage of the Targeted Bonus
allocated to each such Objective will be determined based on the Weighting for
your participant type specified above (Corporate or SBU) as specified in
Exhibit "A".
4. THE PLAN. The Plan is incorporated herein by reference, and made
a part hereof as if fully set forth herein. The Plan will control in the event
of any conflict between the Plan and any matter set forth herein, and will
control as to any matters not contained in this Bonus Assignment. Terms used
herein which are not defined here will have the same meanings as are assigned
to such terms in the Plan.
Please sign both copies of this Bonus Assignment in the space below and
return one to Mail Station 21.
I acknowledge that I have received and reviewed a copy of the Recognition
International Inc. Executive Bonus Plan and this Bonus Assignment and agree to
be bound thereby.
PLAN PARTICIPANT
/S/ Robert A. Vanourek 4/24/95
--------------------------------------------------
Signature (Date)
1
<PAGE> 2
EXHIBIT "A"
EXECUTIVE BONUS PLAN
PLAN YEAR 1995
1. OBJECTIVES
The following are the Objectives and their Weighting used in determining the
Bonus you may earn under the Plan. The specific Objectives and Weighting
applicable to you are based upon whether you are an SBU or Corporate
Participant. If you are assigned to more than one group during the Plan Year,
your Bonus will be prorated based upon the time assigned to each group, and the
performance of each respective group as of October 31 of the Plan Year will be
used to calculate the Bonus, regardless of the performance of the group as of
the date of your reassignment.
<TABLE>
<CAPTION>
Weighting for Weighting for
Objective SBU Participants Corporate Participants
- --------- ---------------- ----------------------
<S> <C> <C>
Net Income 37.5% 75%
Corporate Cash Flow 12.5% 25%
SBU Operating Income 37.5% N/A
Group Cash Flow 12.5% N/A
-------- ---
100.0% 100%
</TABLE>
The Compensation Committee of the Board of Directors will determine the
specific dollar amount of the Objective for Net Income, SBU Operating Income,
Corporate Cash Flow and Group Cash Flow, based upon the Company's financial
plan for the fiscal year as approved by the Committee for purposes of this
Plan. You will be notified of the specific dollar amount of each Objective
applicable to you.
2. DEFINITIONS
For purposes of this Exhibit A, the following definitions will apply:
"NET INCOME" means income before extraordinary items for the Plan Year
as reported in the Company's annual published financial statements for
the Plan Year, as adjusted to reflect the exclusion of items of income
or expense which in the opinion of the Committee, in its sole
discretion, abnormally affect the results of operations of the Company
for the Plan Year.
"CORPORATE CASH FLOW" means the net changes in cash, cash equivalents
and short-term investments as reported in the Company's annual
published financial statements for the Plan Year, as adjusted to
reflect items which in the opinion of the Committee, in its sole
discretion, abnormally affect cash flows of the Company for the Plan
Year.
"SBU OPERATING INCOME" means the income of the respective SBU, as
determined by the Company in its sole discretion. SBU Operating
Income will exclude extraordinary items, provisions for income taxes
and nonoperating expenses, and applicable intracompany transactions
will be eliminated (excluded).
"GROUP CASH FLOW" means the cash flows for certain accounts, as
determined by the Company in its sole discretion, pertaining to either
the Worldwide Systems Group or the Software Division.
2
<PAGE> 3
3. DETERMINATION OF BONUS AMOUNT
The actual amount of Bonus you may earn is determined by the following factors:
-- Targeted Bonus
-- Weighting of each Objective.
-- SBU or Corporate assignment(s) during the Plan Year.
-- Actual Corporate or SBU performance against Objectives.
NOTE: THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS, IN ITS SOLE
DISCRETION, MAY INCREASE, DECREASE OR ELIMINATE THE AMOUNT OF BONUS PAYABLE TO
OR ON BEHALF OF ALL PARTICIPANTS OR A PARTICIPANT WHEN THE COMMITTEE FINDS THAT
SPECIAL CIRCUMSTANCES EXIST THAT, IN THE SOLE JUDGMENT OF THE COMMITTEE,
WARRANT SUCH INCREASE, DECREASE OR ELIMINATION.
NET INCOME AND SBU OPERATING INCOME OBJECTIVES
<TABLE>
<CAPTION>
Percentage Achievement Percentage of Weighted
of Objective Targeted Bonus Earned
--------------------------------- ----------------------
<S> <C>
Less than 80% 0% Earned
80% to 100% 50% to 100% Earned; prorated
(e.g. 90% equals 75% earned)
100% 100% Earned
Greater than 100% % Earned equals % of Achievement (e.g. 120%)
</TABLE>
CORPORATE CASH FLOW AND GROUP CASH FLOW OBJECTIVES
<TABLE>
<CAPTION>
Percentage of Weighted
Cash Flow Achievement Targeted Bonus Earned
--------------------- ---------------------
<S> <C>
More than $5 Million Below Objective 0% Earned
Between $5 Million Below Objective 50% to 100% Earned; prorated
and Objective (e.g. $2.5 million below Objective equals 75% earned)
At Objective and Above 100% Earned
(If achievement exceeds Objective, the percentage earned
remains at 100%.)
</TABLE>
The following page has example calculations:
3
<PAGE> 4
EXAMPLE 1 - SBU PARTICIPANT
Assumption: $5,000 Targeted Bonus
<TABLE>
<CAPTION>
SBU
Objective Achievement Earned % Weighting Payout $
- --------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net Income 90% 75% 37.5% $1,406.25
Corporate Cash Flow $2.5 Million Below Objective 75% 12.5% 468.75
SBU Operating Income 80% 50% 37.5% 937.50
Group Cash Flow Above Objective 100% 12.5% 625.00
---------
TOTAL BONUS: $3,437.50
</TABLE>
EXAMPLE 2 - CORPORATE PARTICIPANT
Assumption: $5,000 Targeted Bonus
<TABLE>
<CAPTION>
Corporate
Objective Achievement Earned % Weighting Payout $
- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net Income 80% 50% 75% $1,875.00
Corporate Cash Flow $2.5 Million Below Objective 75% 25% 937.50
---------
TOTAL BONUS: $2,812.50
</TABLE>
4
<PAGE> 1
Exhibit 10.2
C O N F I D E N T I A L
ROBERT M. SWARTZ
ASSIGNMENT OF TARGETED BONUS
UNDER THE RECOGNITION INTERNATIONAL INC.
EXECUTIVE BONUS PLAN (THE "PLAN")
1. TARGETED BONUS. Your Targeted Bonus for the Plan Year ending
October 31, 1995, as specified by the Compensation Committee, is One hundred
twenty-five thousand DOLLARS $ 125,000.00) which may be earned, at the
times and on the terms and conditions stated in the Plan and this Assignment,
based upon the results achieved by the Company during that Plan Year.
2. PARTICIPANT TYPE. Corporate [ ] SBU [X]
3. DETERMINATION OF BONUS. Your Targeted Bonus will be allocated to
the achievement of the Objectives specified in Exhibit "A" attached hereto and
incorporated by reference herein. The percentage of the Targeted Bonus
allocated to each such Objective will be determined based on the Weighting for
your participant type specified above (Corporate or SBU) as specified in
Exhibit "A".
4. THE PLAN. The Plan is incorporated herein by reference, and made
a part hereof as if fully set forth herein. The Plan will control in the event
of any conflict between the Plan and any matter set forth herein, and will
control as to any matters not contained in this Bonus Assignment. Terms used
herein which are not defined here will have the same meanings as are assigned
to such terms in the Plan.
Please sign both copies of this Bonus Assignment in the space below and
return one to Mail Station 21.
I acknowledge that I have received and reviewed a copy of the Recognition
International Inc. Executive Bonus Plan and this Bonus Assignment and agree to
be bound thereby.
PLAN PARTICIPANT
/S/ Robert M. Swartz 5/1/95
- -------------------------------------------------
Signature (Date)
1
<PAGE> 2
EXHIBIT "A"
EXECUTIVE BONUS PLAN
PLAN YEAR 1995
1. OBJECTIVES
The following are the Objectives and their Weighting used in determining the
Bonus you may earn under the Plan. The specific Objectives and Weighting
applicable to you are based upon whether you are an SBU or Corporate
Participant. If you are assigned to more than one group during the Plan Year,
your Bonus will be prorated based upon the time assigned to each group, and the
performance of each respective group as of October 31 of the Plan Year will be
used to calculate the Bonus, regardless of the performance of the group as of
the date of your reassignment.
<TABLE>
<CAPTION>
Weighting for Weighting for
Objective SBU Participants Corporate Participants
- --------- ---------------- ----------------------
<S> <C> <C>
Net Income 37.5% 75%
Corporate Cash Flow 12.5% 25%
SBU Operating Income 37.5% N/A
Group Cash Flow 12.5% N/A
-------- ---
100.0% 100%
</TABLE>
The Compensation Committee of the Board of Directors will determine the
specific dollar amount of the Objective for Net Income, SBU Operating Income,
Corporate Cash Flow and Group Cash Flow, based upon the Company's financial
plan for the fiscal year as approved by the Committee for purposes of this
Plan. You will be notified of the specific dollar amount of each Objective
applicable to you.
2. DEFINITIONS
For purposes of this Exhibit A, the following definitions will apply:
"NET INCOME" means income before extraordinary items for the Plan Year
as reported in the Company's annual published financial statements for
the Plan Year, as adjusted to reflect the exclusion of items of income
or expense which in the opinion of the Committee, in its sole
discretion, abnormally affect the results of operations of the Company
for the Plan Year.
"CORPORATE CASH FLOW" means the net changes in cash, cash equivalents
and short-term investments as reported in the Company's annual
published financial statements for the Plan Year, as adjusted to
reflect items which in the opinion of the Committee, in its sole
discretion, abnormally affect cash flows of the Company for the Plan
Year.
"SBU OPERATING INCOME" means the income of the respective SBU, as
determined by the Company in its sole discretion. SBU Operating
Income will exclude extraordinary items, provisions for income taxes
and nonoperating expenses, and applicable intracompany transactions
will be eliminated (excluded).
"GROUP CASH FLOW" means the cash flows for certain accounts, as
determined by the Company in its sole discretion, pertaining to either
the Worldwide Systems Group or the Software Division.
2
<PAGE> 3
3. DETERMINATION OF BONUS AMOUNT
The actual amount of Bonus you may earn is determined by the following factors:
-- Targeted Bonus
-- Weighting of each Objective.
-- SBU or Corporate assignment(s) during the Plan Year.
-- Actual Corporate or SBU performance against Objectives.
NOTE: THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS, IN ITS SOLE
DISCRETION, MAY INCREASE, DECREASE OR ELIMINATE THE AMOUNT OF BONUS PAYABLE TO
OR ON BEHALF OF ALL PARTICIPANTS OR A PARTICIPANT WHEN THE COMMITTEE FINDS THAT
SPECIAL CIRCUMSTANCES EXIST THAT, IN THE SOLE JUDGMENT OF THE COMMITTEE,
WARRANT SUCH INCREASE, DECREASE OR ELIMINATION.
NET INCOME AND SBU OPERATING INCOME OBJECTIVES
<TABLE>
<CAPTION>
Percentage Achievement Percentage of Weighted
of Objective Targeted Bonus Earned
---------------------- ----------------------
<S> <C>
Less than 80% 0% Earned
80% to 100% 50% to 100% Earned; prorated
(e.g. 90% equals 75% earned)
100% 100% Earned
Greater than 100% % Earned equals % of Achievement (e.g. 120%)
</TABLE>
CORPORATE CASH FLOW AND GROUP CASH FLOW OBJECTIVES
<TABLE>
<CAPTION>
Percentage of Weighted
Cash Flow Achievement Targeted Bonus Earned
--------------------- ---------------------
<S> <C>
More than $5 Million Below Objective 0% Earned
Between $5 Million Below Objective 50% to 100% Earned; prorated
and Objective (e.g. $2.5 million below Objective equals 75% earned)
At Objective and Above 100% Earned
(If achievement exceeds Objective, the percentage earned
remains at 100%.)
</TABLE>
The following page has example calculations:
3
<PAGE> 4
EXAMPLE 1 - SBU PARTICIPANT
Assumption: $5,000 Targeted Bonus
<TABLE>
<CAPTION>
SBU
Objective Achievement Earned % Weighting Payout $
- --------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net Income 90% 75% 37.5% $1,406.25
Corporate Cash Flow $2.5 Million Below Objective 75% 12.5% 468.75
SBU Operating Income 80% 50% 37.5% 937.50
Group Cash Flow Above Objective 100% 12.5% 625.00
---------
TOTAL BONUS: $3,437.50
</TABLE>
EXAMPLE 2 - CORPORATE PARTICIPANT
Assumption: $5,000 Targeted Bonus
<TABLE>
<CAPTION>
Corporate
Objective Achievement Earned % Weighting Payout $
- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net Income 80% 50% 75% $1,875.00
Corporate Cash Flow $2.5 Million Below Objective 75% 25% 937.50
---------
TOTAL BONUS: $2,812.50
</TABLE>
4
<PAGE> 1
Exhibit 10.3
C O N F I D E N T I A L
THOMAS D. NEITZEL
ASSIGNMENT OF TARGETED BONUS
UNDER THE RECOGNITION INTERNATIONAL INC.
EXECUTIVE BONUS PLAN (THE "PLAN")
1. TARGETED BONUS. Your Targeted Bonus for the Plan Year ending
October 31, 1995, as specified by the Compensation Committee, is (Eighty
thousand DOLLARS $ 80,000.00) which may be earned, at the times and on
the terms and conditions stated in the Plan and this Assignment, based upon the
results achieved by the Company during that Plan Year.
2. PARTICIPANT TYPE. Corporate [ ] SBU [X]
3. DETERMINATION OF BONUS. Your Targeted Bonus will be allocated to
the achievement of the Objectives specified in Exhibit "A" attached hereto and
incorporated by reference herein. The percentage of the Targeted Bonus
allocated to each such Objective will be determined based on the Weighting for
your participant type specified above (Corporate or SBU) as specified in
Exhibit "A".
4. THE PLAN. The Plan is incorporated herein by reference, and made
a part hereof as if fully set forth herein. The Plan will control in the event
of any conflict between the Plan and any matter set forth herein, and will
control as to any matters not contained in this Bonus Assignment. Terms used
herein which are not defined here will have the same meanings as are assigned
to such terms in the Plan.
Please sign both copies of this Bonus Assignment in the space below and
return one to Mail Station 21.
I acknowledge that I have received and reviewed a copy of the Recognition
International Inc. Executive Bonus Plan and this Bonus Assignment and agree to
be bound thereby.
PLAN PARTICIPANT
/S/ Thomas D. Neitzel 5/17/95
- ---------------------------------------------------
Signature (Date)
1
<PAGE> 2
EXHIBIT "A"
EXECUTIVE BONUS PLAN
PLAN YEAR 1995
1. OBJECTIVES
The following are the Objectives and their Weighting used in determining the
Bonus you may earn under the Plan. The specific Objectives and Weighting
applicable to you are based upon whether you are an SBU or Corporate
Participant. If you are assigned to more than one group during the Plan Year,
your Bonus will be prorated based upon the time assigned to each group, and the
performance of each respective group as of October 31 of the Plan Year will be
used to calculate the Bonus, regardless of the performance of the group as of
the date of your reassignment.
<TABLE>
<CAPTION>
Weighting for Weighting for
Objective SBU Participants Corporate Participants
- --------- ---------------- ----------------------
<S> <C> <C>
Net Income 37.5% 75%
Corporate Cash Flow 12.5% 25%
SBU Operating Income 37.5% N/A
Group Cash Flow 12.5% N/A
-------- ---
100.0% 100%
</TABLE>
The Compensation Committee of the Board of Directors will determine the
specific dollar amount of the Objective for Net Income, SBU Operating Income,
Corporate Cash Flow and Group Cash Flow, based upon the Company's financial
plan for the fiscal year as approved by the Committee for purposes of this
Plan. You will be notified of the specific dollar amount of each Objective
applicable to you.
2. DEFINITIONS
For purposes of this Exhibit A, the following definitions will apply:
"NET INCOME" means income before extraordinary items for the Plan Year
as reported in the Company's annual published financial statements for
the Plan Year, as adjusted to reflect the exclusion of items of income
or expense which in the opinion of the Committee, in its sole
discretion, abnormally affect the results of operations of the Company
for the Plan Year.
"CORPORATE CASH FLOW" means the net changes in cash, cash equivalents
and short-term investments as reported in the Company's annual
published financial statements for the Plan Year, as adjusted to
reflect items which in the opinion of the Committee, in its sole
discretion, abnormally affect cash flows of the Company for the Plan
Year.
"SBU OPERATING INCOME" means the income of the respective SBU, as
determined by the Company in its sole discretion. SBU Operating
Income will exclude extraordinary items, provisions for income taxes
and nonoperating expenses, and applicable intracompany transactions
will be eliminated (excluded).
"GROUP CASH FLOW" means the cash flows for certain accounts, as
determined by the Company in its sole discretion, pertaining to either
the Worldwide Systems Group or the Software Division.
2
<PAGE> 3
3. DETERMINATION OF BONUS AMOUNT
The actual amount of Bonus you may earn is determined by the following factors:
-- Targeted Bonus
-- Weighting of each Objective.
-- SBU or Corporate assignment(s) during the Plan Year.
-- Actual Corporate or SBU performance against Objectives.
NOTE: THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS, IN ITS SOLE
DISCRETION, MAY INCREASE, DECREASE OR ELIMINATE THE AMOUNT OF BONUS PAYABLE TO
OR ON BEHALF OF ALL PARTICIPANTS OR A PARTICIPANT WHEN THE COMMITTEE FINDS THAT
SPECIAL CIRCUMSTANCES EXIST THAT, IN THE SOLE JUDGMENT OF THE COMMITTEE,
WARRANT SUCH INCREASE, DECREASE OR ELIMINATION.
NET INCOME AND SBU OPERATING INCOME OBJECTIVES
<TABLE>
<CAPTION>
Percentage Achievement Percentage of Weighted
of Objective Targeted Bonus Earned
---------------------- ----------------------
<S> <C>
Less than 80% 0% Earned
80% to 100% 50% to 100% Earned; prorated
(e.g. 90% equals 75% earned)
100% 100% Earned
Greater than 100% % Earned equals % of Achievement (e.g. 120%)
</TABLE>
CORPORATE CASH FLOW AND GROUP CASH FLOW OBJECTIVES
<TABLE>
<CAPTION>
Percentage of Weighted
Cash Flow Achievement Targeted Bonus Earned
--------------------- ---------------------
<S> <C>
More than $5 Million Below Objective 0% Earned
Between $5 Million Below Objective 50% to 100% Earned; prorated
and Objective (e.g. $2.5 million below Objective equals 75% earned)
At Objective and Above 100% Earned
(If achievement exceeds Objective, the percentage earned
remains at 100%.)
</TABLE>
The following page has example calculations:
3
<PAGE> 4
EXAMPLE 1 - SBU PARTICIPANT
Assumption: $5,000 Targeted Bonus
<TABLE>
<CAPTION>
SBU
Objective Achievement Earned % Weighting Payout $
- --------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net Income 90% 75% 37.5% $1,406.25
Corporate Cash Flow $2.5 Million Below Objective 75% 12.5% 468.75
SBU Operating Income 80% 50% 37.5% 937.50
Group Cash Flow Above Objective 100% 12.5% 625.00
---------
TOTAL BONUS: $3,437.50
</TABLE>
EXAMPLE 2 - CORPORATE PARTICIPANT
Assumption: $5,000 Targeted Bonus
<TABLE>
<CAPTION>
Corporate
Objective Achievement Earned % Weighting Payout $
- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net Income 80% 50% 75% $1,875.00
Corporate Cash Flow $2.5 Million Below Objective 75% 25% 937.50
---------
TOTAL BONUS: $2,812.50
</TABLE>
4
<PAGE> 1
Exhibit 10.4
May 19, 1995
Mr. Robert A. Vanourek
President and Chief Executive Officer
Recognition International Inc.
2701 East Grauwyler Road
Irving TX 75061
Dear Mr. Vanourek:
This letter is intended to supplement and clarify the employment
agreement dated December 14, 1994, between Recognition International Inc. (the
"Company") and you (the "Agreement").
1. Severance Amount. Notwithstanding anything to the contrary in
paragraph 14(d) of the Agreement or in the definition of "Severance Amount" in
paragraph 5.5 of the Agreement, it is understood that in the event of a Change
in Control (as defined in the Agreement) any reduction in the Severance Amount
shall be governed by the provisions of the definition of "Severance Amount" in
paragraph 5.5 and not by the provisions of the letter agreement dated January
12, 1994 between the Company and you.
2. Releases. On the effective date of the proposed merger between the
Company and a subsidiary of BancTec, Inc., if the Company and you agree to
exchange further releases, the Company shall execute and deliver to you a
release in the form of Exhibit A and you shall execute and deliver to the
Company a release in the form of Exhibit B.
3. Future Litigation. If, following the termination of your
employment with the Company, you are required to give testimony and assistance
in connection with any litigation or arbitration proceeding or investigation
involving the Company, the Company shall reimburse you for, or advance to you,
all reasonable out-of-pocket travel and other expenses incurred by you in
connection with your testimony and assistance under this paragraph 3, including
reasonable fees and disbursements for independent counsel for you, if you
reasonably determine that the litigation, arbitration, proceeding or
investigation is of a nature that requires that you have independent
representation. Such expenses shall be reimbursed or advanced promptly after
your submission to the Company of statements in such reasonable detail as the
Company may require. Except for any such action where you are a named party,
you shall be entitled to a fee of $[2,000] per day (or a pro rata fee for a
portion of a day) for furnishing such testimony and assistance, such fee to be
paid promptly following your submission of a statement therefor.
4. Offsets. In the event of any termination of your employment under
paragraph 5 of the Agreement, you shall be under no obligation to seek other
employment and there shall be no offset against amounts due you under the
Agreement on account of (a) any remuneration attributable to any subsequent
employment that you may obtain or (b) any claims the Company may have against
you.
5. Company Proprietary Information. With respect to paragraph 8 of
the Agreement, it is agreed as follows:
1
<PAGE> 2
(a) Upon termination of your employment, you may retain your
personal notes, diaries, calendars, Rolodex and correspondence.
(b) It shall not be a violation of paragraph 8 of the Agreement if
you disclose confidential or proprietary information when required to do so by
a court of law, by any governmental agency having supervisory authority over
the business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order you to
divulge, disclose or make accessible such information, provided that you (i)
give the Company prompt written notice of such request and (ii) allow the
Company adequate time to object to such request.
If the foregoing correctly sets forth our understanding, please
indicate your agreement below.
Very truly yours,
RECOGNITION INTERNATIONAL INC.
By: /s/ Gilbert H. Lamphere
-----------------------------
Gilbert H. Lamphere
Chairman of the Board Agreed:
/s/ Robert A. Vanourek
--------------------------
Robert A. Vanourek
2
<PAGE> 3
Exhibit A
General Release
Recognition International Inc. (the "Company") voluntarily and
knowingly releases Robert A. Vanourek ("Vanourek") from any and all claims,
actions and causes of action it has or may have arising on or before the date
of this Release, whether known or unknown which it had, ever had, or ever in
the future may have and which are based on acts or omissions occurring up to
and including the date of this letter, except that the Company does not release
its right to have Vanourek perform his obligations under the employment
agreement dated December 14, 1994 between the Company and Vanourek.
Dated: ________________, 1995
Recognition International Inc.
By: _______________________________
3
<PAGE> 4
Exhibit B
General Release
Robert A. Vanourek ("Vanourek") hereby releases the Company and all
agents, employees, directors, officers of the Company and all their
predecessors and successors (collectively, "Releasees"), from any and all
claims, actions and causes of action related to his employment with the Company
or the termination of such employment, whether known or unknown, which he has,
ever had, or ever in the future may have and which are based on acts or
omissions occurring up to and including the date of this release. Included
within the release set forth in the preceding sentence, without limiting its
scope, are claims arising under Title VII of the Civil Rights Act of 1964, as
amended and the Age Discrimination in Employment Act of 1967, as amended (the
"ADEA"), as well as any other federal, state or local civil rights or labor
laws, and/or contract or tort laws, and which are related to Vanourek's
employment with the Company or the termination of that employment. This
release does not waive claims that may arise after the date this release is
executed and which are based on acts or omissions occurring after the date
Vanourek signed this release. This release shall not affect (a) the
obligations of the Company set forth in the employment agreement dated December
14, 1994 between the Company and Vanourek[, the January 24, 1994 letter
agreement between Vanourek and the Company] or other obligations that by their
terms, are to be performed after the date hereof (including, without
limitation, obligations to Vanourek under any stock option, stock aware or
incentive plans or agreements or obligations under any pension plan or other
benefit plan, all of which shall remain in effect in accordance with their
terms), (b) obligations to indemnify him respecting acts or omissions in
connection with his service as an officer or employee of the Company or (c) any
right he may have to obtain contribution in the event of the entry of judgment
against him as a result of any act or failure to act for which both Vanourek
and the Company are jointly responsible.
Vanourek hereby acknowledges that he has been given at least 21 days
to review this release from the date he first received it and he has been
advised to review it with an attorney of his choice. Vanourek further
understands that he has 7 days after the signing hereof to revoke it by so
notifying the Company in writing. Vanourek further acknowledges that he has
carefully read this release, and knows and understands the contents thereof and
its binding legal effect. Vanourek signs the same of his own free will and
act, and it is his intention that he be legally bound thereby.
Dated:___________________, 1995
___________________________
Robert A. Vanourek
4
<PAGE> 1
Exhibit 10.5
May 19, 1995
Mr. Robert M. Swartz
Senior Vice President
Recognition International Inc.
2701 East Grauwyler Road
Irving TX 75061
Dear Mr. Swartz:
This letter is intended to supplement and clarify the employment
agreement dated December 14, 1994, between Recognition International Inc. (the
"Company") and you (the "Agreement").
1. Severance Amount. Notwithstanding anything to the contrary in
paragraph 14(d) of the Agreement or in the definition of "Severance Amount" in
paragraph 5.5 of the Agreement, it is understood that in the event of a Change
in Control (as defined in the Agreement) any reduction in the Severance Amount
shall be governed by the provisions of the definition of "Severance Amount" in
paragraph 5.5 and not by the provisions of the letter agreement dated January
12, 1994 between the Company and you.
2. Releases. On the effective date of the proposed merger between the
Company and a subsidiary of BancTec, Inc., if the Company and you agree to
exchange further releases, the Company shall execute and deliver to you a
release in the form of Exhibit A and you shall execute and deliver to the
Company a release in the form of Exhibit B.
3. Future Litigation. If, following the termination of your
employment with the Company, you are required to give testimony and assistance
in connection with any litigation or arbitration proceeding or investigation
involving the Company, the Company shall reimburse you for, or advance to you,
all reasonable out-of-pocket travel and other expenses incurred by you in
connection with your testimony and assistance under this paragraph 3, including
reasonable fees and disbursements for independent counsel for you, if you
reasonably determine that the litigation, arbitration, proceeding or
investigation is of a nature that requires that you have independent
representation. Such expenses shall be reimbursed or advanced promptly after
your submission to the Company of statements in such reasonable detail as the
Company may require. Except for any such action where you are a named party,
you shall be entitled to a fee of $[2,000] per day (or a pro rata fee for a
portion of a day) for furnishing such testimony and assistance, such fee to be
paid promptly following your submission of a statement therefor.
4. Offsets. In the event of any termination of your employment under
paragraph 5 of the Agreement, you shall be under no obligation to seek other
employment and there shall be no offset against amounts due you under the
Agreement on account of (a) any remuneration attributable to any subsequent
employment that you may obtain or (b) any claims the Company may have against
you.
5. Company Proprietary Information. With respect to paragraph 8 of
the Agreement, it is agreed as follows:
(a) Upon termination of your employment, you may retain your
personal notes, diaries, calendars, Rolodex and correspondence.
(b) It shall not be a violation of paragraph 8 of the Agreement if
you disclose confidential or proprietary information when required to do so by
a court of law, by any governmental agency having supervisory authority over
the business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order you to
divulge, disclose or
1
<PAGE> 2
make accessible such information, provided that you (i) give the Company prompt
written notice of such request and (ii) allow the Company adequate time to
object to such request.
6. Special Arrangements. It is understood that you shall remain a
full-time employee of the Company for a period of 45 days (the "Initial
Period") after the execution of the proposed Agreement and Plan of Merger by
and among the Company and a subsidiary of BancTec, Inc. (the "Merger
Agreement"). Thereafter, you shall remain on payroll at your current salary
with all of your other current entitlements, but will be available only for
specific assignments given to you from time to time by the President and Chief
Executive Officer, provided that you may take a one-month vacation following
the Initial Period. Following the Initial Period, you may provide serivces
either as a full-time employee or otherwise to any other entity, subject to the
provisions of paragraph 7 of the Agreement. In any event, you shall cease to
be on the Company's payroll and shall no longer be available for the
assignments referred to in the second sentence of this paragraph either (a) on
the effective date of the merger contemplated by the Merger Agreement (the
"Merger") or (b) September 15, 1995, whichever occurs sooner. If the Merger
occurs within six months following the date you cease to be on payroll, you
shall be entitled to the Severance Amount pursuant to paragraph 5.3B of the
Agreement and to the benefits provided for in paragraphs 5.3C and 5.4 of the
Agreement. If the Merger does not occur within such six-month period, you
shall be deemed to have terminated your employment voluntarily and shall be
entitled to the compensation and benefits, if any, following such voluntary
termination.
If the foregoing correctly sets forth our understanding, please
indicate your agreement below.
Very truly yours,
RECOGNITION INTERNATIONAL INC.
By: /s/ Gilbert H. Lamphere
----------------------------
Gilbert H. Lamphere
Chairman of the Board
Agreed:
/s/ Robert M. Swartz
--------------------------
Robert M. Swartz
2
<PAGE> 3
Exhibit A
General Release
Recognition International Inc. (the "Company") voluntarily and
knowingly releases Robert M. Swartz ("Swartz") from any and all claims, actions
and causes of action it has or may have arising on or before the date of this
Release, whether known or unknown which it had, ever had, or ever in the future
may have and which are based on acts or omissions occurring up to and including
the date of this letter, except that the Company does not release its right to
have Swartz perform his obligations under the employment agreement dated
December 14, 1994 between the Company and Swartz.
Dated: ________________, 1995
Recognition International Inc.
By: __________________________
3
<PAGE> 4
Exhibit B
General Release
Robert M. Swartz ("Swartz") hereby releases the Company and all
agents, employees, directors, officers of the Company and all their
predecessors and successors (collectively, "Releasees"), from any and all
claims, actions and causes of action related to his employment with the Company
or the termination of such employment, whether known or unknown, which he has,
ever had, or ever in the future may have and which are based on acts or
omissions occurring up to and including the date of this release. Included
within the release set forth in the preceding sentence, without limiting its
scope, are claims arising under Title VII of the Civil Rights Act of 1964, as
amended and the Age Discrimination in Employment Act of 1967, as amended (the
"ADEA"), as well as any other federal, state or local civil rights or labor
laws, and/or contract or tort laws, and which are related to Swartz's
employment with the Company or the termination of that employment. This
release does not waive claims that may arise after the date this release is
executed and which are based on acts or omissions occurring after the date
Swartz signed this release. This release shall not affect (a) the obligations
of the Company set forth in the employment agreement dated December 14, 1994
between the Company and Swartz[, the January 24, 1994 letter agreement between
Swartz and the Company] or other obligations that by their terms, are to be
performed after the date hereof (including, without limitation, obligations to
Swartz under any stock option, stock aware or incentive plans or agreements or
obligations under any pension plan or other benefit plan, all of which shall
remain in effect in accordance with their terms), (b) obligations to indemnify
him respecting acts or omissions in connection with his service as an officer
or employee of the Company or (c) any right he may have to obtain contribution
in the event of the entry of judgment against him as a result of any act or
failure to act for which both Swartz and the Company are jointly responsible.
Swartz hereby acknowledges that he has been given at least 21 days to
review this release from the date he first received it and he has been advised
to review it with an attorney of his choice. Swartz further understands that
he has 7 days after the signing hereof to revoke it by so notifying the Company
in writing. Swartz further acknowledges that he has carefully read this
release, and knows and understands the contents thereof and its binding legal
effect. Swartz signs the same of his own free will and act, and it is his
intention that he be legally bound thereby.
Dated:___________________, 1995
___________________________
Robert M. Swartz
4
<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 Six months ended
April 30, April 30,
----------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary:
- -------
Net income (loss) $ 617 $(1,391) $ 146 $ (735)
======== ======== ======== ========
Shares:
Weighted average shares
outstanding, net of treasury
shares 15,280 14,923 15,262 14,919
Net shares issuable on exercise
of certain stock options 174 802 230 887
-------- -------- -------- --------
Weighted average shares
outstanding, as adjusted 15,454 15,725 15,492 15,806
======== ======== ======== ========
Earnings (loss) per share -
primary $ .04 $ (.09) $ .01 $ (.05)
======== ======== ======== ========
Fully Diluted (A):
- -----------------
Earnings:
Net income (loss) $ 617 $(1,391) $ 146 $ (735)
Add after tax interest expense
applicable to 7 1/4% convertible
subordinated debentures 919 919 1,837 1,837
-------- -------- -------- --------
Net income (loss), as adjusted $ 1,536 $ (472) $ 1,983 $ 1,102
======== ======== ======== ========
Shares:
Weighted average shares
outstanding, net of treasury
shares 15,280 14,923 15,262 14,919
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 207 802 230 903
-------- -------- -------- --------
Weighted average shares
outstanding, as adjusted 18,575 18,813 18,580 18,910
======== ======== ======== ========
Earnings (loss) per share -
fully diluted $ .08 $ (.03) $ .11 $ .06
======== ======== ======== ========
</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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<CASH> 43,300
<SECURITIES> 637
<RECEIVABLES> 52,592
<ALLOWANCES> 2,703
<INVENTORY> 23,784
<CURRENT-ASSETS> 123,257
<PP&E> 106,405
<DEPRECIATION> 64,353
<TOTAL-ASSETS> 203,476
<CURRENT-LIABILITIES> 67,359
<BONDS> 49,472
<COMMON> 3,852
0
0
<OTHER-SE> 76,004
<TOTAL-LIABILITY-AND-EQUITY> 203,476
<SALES> 45,683
<TOTAL-REVENUES> 108,852
<CGS> 32,228
<TOTAL-COSTS> 76,089
<OTHER-EXPENSES> 6,913
<LOSS-PROVISION> 170
<INTEREST-EXPENSE> 2,150
<INCOME-PRETAX> 2,422
<INCOME-TAX> 2,276
<INCOME-CONTINUING> 146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>