<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended December 31, 1998
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 0-26924
AMX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-1815822
(State of Incorporation) (I.R.S. Employer Identification No.)
11995 FORESTGATE DRIVE 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 644-3048
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 [ ]
8,936,138
COMMON STOCK, $0.01 PAR VALUE (Number of Shares Outstanding at
(Title of Each Class) February 5, 1999)
<PAGE>
AMX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at December 31, 1998
and March 31, 1998 3
Consolidated Statements of Operations for the Three
and Nine Months Ended December 31, 1998 and 1997 5
Consolidated Statements of Cash Flows for the Nine
Months ended December 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 614,855 $ 178,942
Receivables - trade and other, less allowance for
doubtful accounts of $662,000 for December 31, 1998
and $460,000 for March 31, 1998 11,319,599 10,276,225
Inventories 10,312,235 9,002,737
Prepaid expenses 1,281,194 768,492
Deferred income tax 136,905 136,905
----------- -----------
Total current assets 23,664,788 20,363,301
Property and equipment, at cost, net 4,711,081 4,347,791
Capitalized software -- 169,274
Deposits and other 676,926 433,442
Deferred income tax 10,058 10,058
Goodwill, less accumulated amortization of $308,000 for
December 31, 1998 and $122,000 for March 31, 1998 818,251 1,004,049
----------- -----------
Total assets $29,881,104 $26,327,915
----------- -----------
----------- -----------
</TABLE>
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,638,540 $ 3,866,857
Line of credit and notes payable 2,801,079 2,403,437
Current portion of long-term debt 1,500,000 --
Accrued compensation 1,488,312 1,481,770
Accrued sales commissions 796,888 787,913
Accrued dealer incentives 515,476 329,416
Other accrued expenses 353,593 153,449
Income taxes payable 20,565 743,868
------------ ------------
Total current liabilities 13,114,453 9,766,710
Long-term debt 14,820 45,600
Commitments and contingencies
Minority interest in subsidiary -- 1,652,000
Shareholders' equity :
Preferred stock, $0.01 par value
Authorized shares - 10,000,000
Issued shares - none -- --
Common stock, $0.01 par value:
Authorized shares -- 40,000,000
Issued shares -- 8,300,118 for
December 31, 1998 and 8,261,158 for March 31,1998 83,001 82,612
Additional paid-in capital 4,170,292 4,079,682
Retained earnings 12,498,538 10,748,183
Less treasury stock (5,208 shares at March 31, 1998) -- (46,872)
------------ ------------
Total shareholders' equity 16,751,831 14,863,605
------------ ------------
Total liabilities and shareholders' equity $ 29,881,104 $ 26,327,915
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
System sales $ 18,174,917 $ 14,483,866 $ 51,430,169 $ 40,886,028
OEM and custom product sales 352,817 657,458 1,243,786 2,127,153
------------ ------------ ------------ ------------
Net sales 18,527,734 15,141,324 52,673,955 43,013,181
Cost of sales 9,942,013 7,051,732 25,597,044 19,174,388
------------ ------------ ------------ ------------
Gross profit 8,585,721 8,089,592 27,076,911 23,838,793
Selling and marketing expenses 5,852,795 4,914,698 17,196,704 15,624,887
Research and development expenses 1,163,798 895,995 3,066,935 2,906,753
General and administrative expenses 1,291,209 1,098,040 3,920,614 3,467,353
Costs associated with acquisition of minority
interest and merger of subsidiaries -- 1,693,747 -- 1,693,747
------------ ------------ ------------ ------------
Total operating expenses 8,307,802 8,602,480 24,184,253 23,692,740
Operating income (loss) 277,919 (512,888) 2,892,658 146,053
Interest expense 94,894 38,267 290,387 86,233
Other income, net 21,761 18,562 52,105 87,542
------------ ------------ ------------ ------------
Income (loss) before income taxes 204,786 (532,593) 2,654,376 147,362
Income tax provision 62,446 194,742 834,981 468,954
------------ ------------ ------------ ------------
Net income (loss) $ 142,340 $ (727,335) $ 1,819,395 $ (321,592)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings (loss) per share $ 0.02 $ (0.09) $ 0.22 $ (0.04)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings (loss) per share $ 0.02 $ (0.09) $ 0.21 $ (0.04)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,819,395 $ (321,592)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,968,708 1,758,001
Costs associated with acquisition of minority interest -- 1,164,000
Provision for losses on receivables 202,000 101,045
Provision for inventory obsolescence 45,000 27,000
Changes in operating assets and liabilities:
Receivables (1,245,375) (2,942,830)
Inventories (1,354,498) (3,435,715)
Prepaid expenses (512,702) (127,427)
Accounts payable 1,771,680 1,230,914
Accrued expenses 401,721 (68,150)
Income taxes payable (723,303) 65,469
----------- -----------
Net cash provided by (used in) operating activities 2,372,626 (2,549,285)
INVESTING ACTIVITIES
Purchase of property and equipment (1,976,923) (1,567,150)
Investment in capitalized software -- (15,000)
Minority interest in PHAST (1,652,000) (26,041)
Increase in other assets (243,484) (161,990)
----------- -----------
Net cash used in investing activities (3,872,407) (1,770,181)
FINANCING ACTIVITIES
Sale of securities -- net of expenses 129,902 53,013
Exercise of stock options 7,970 13,537
Net increase in line of credit 400,000 2,900,000
Proceeds from long-term debt and notes payable 1,594,841 --
Repayments of long-term debt and notes payable (127,979) (35,213)
----------- -----------
Net cash provided by financing activities 2,004,734 2,931,337
Effect of exchange rate changes on cash (69,040) 119
----------- -----------
Net increase (decrease) in cash and cash equivalents 435,913 (1,388,010)
Cash and cash equivalents at beginning of period 178,942 2,091,819
----------- -----------
Cash and cash equivalents at end of period $ 614,855 $ 703,809
----------- -----------
----------- -----------
Supplemental Schedule of Noncash Financing Activity
Issuance of AMX Common Stock in connection with PHAST acquisition $ -- $ 1,894,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
<PAGE>
AMX CORPORATION
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying condensed consolidated financial statements, which should be
read in conjunction with the consolidated financial statements and footnotes
included in the Annual Report on Form 10-K for the fiscal year ended March
31, 1998, of AMX Corporation (the "Company"), are unaudited (except for the
March 31, 1998 consolidated balance sheet, which was derived from the
Company's audited financial statements), but have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included.
Operating results for the nine months ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending March 31, 1999.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings Per Share," which was effective for financial
statements for periods ending after December 15, 1997. The new standard
eliminated primary and fully diluted earnings per share and required
presentation of basic and diluted earnings per share together with disclosure
of how the per share amounts were computed. Earnings per share amounts for
all periods have been restated and presented to conform to the SFAS 128
requirements.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income $142,340 $(727,335) $1,819,395 $(321,592)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Denominator:
Denominator for basic earnings per share
Weighted-average shares outstanding 8,299,461 8,142,146 8,280,468 7,940,088
Effect of dilutive securities:
Employee stock options 608,083 n/a 544,248 423,163
--------- --------- ----------- ---------
Denominator for diluted earnings per share 8,907,544 8,142,146 8,824,716 8,363,251
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Basic earnings per share $ 0.02 $ (0.09) $ 0.22 $ (0.04)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Diluted earnings per share $ 0.02 $ (0.09) $ 0.21 $ (0.04)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
Of the total stock options outstanding at December 31, 1998, options
covering 95,000 shares of stock were not included in the computation of
diluted earnings per share because the option exercise price was greater than
the average market price of the common shares for the period, and therefore
the effect would have been anti-dilutive.
<PAGE>
3. Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- --------------
<S> <C> <C>
Raw materials $ 4,233,675 $4,430,081
Work in progress 1,978,562 722,593
Finished goods 4,274,998 3,980,063
Less reserve for obsolescence (175,000) (130,000)
----------- ----------
Total $10,312,235 $9,002,737
----------- ----------
----------- ----------
</TABLE>
4. Comprehensive Income
As of April 1, 1998, the Company adopted Financial Accounting Standards Board
Statement 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its
components. However, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. Statement 130 requires
unrealized gains or losses on the Company's foreign currency translation
adjustments to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
Statement 130.
The components of comprehensive income, net of related tax, for the nine
month periods ended December 31, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Net income (loss) $ 1,819,395 $ (321,592)
Foreign currency translation adjustments (69,040) 119
------------ ----------
Comprehensive income $ 1,750,355 $ (321,473)
------------ ----------
------------ ----------
</TABLE>
5. Subsequent Event
On January 19, 1999, the Company announced that it had made a $5,000,000
private placement of its common stock with John F. McHale, a member of its
board of directors. The valuation of these shares was based on the average
closing price of the stock during the ten-day period ended January 15, 1999,
the date on which the subscription agreement was executed. After providing
The Nasdaq Stock Market with a notification listing of additional shares,
which such notice had to be on file with the The Nasdaq Stock Market for
fifteen days prior to any new issuances of the Company, 623,520 shares of
common stock were issued to Mr. McHale on February 5, 1999. The Company used
a portion of the proceeds of this placement to pay its revolving line of
credit in full.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Company's 1998 Annual Report on Form 10-K. The Company believes that all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below to present fairly the following
quarterly information. Quarterly operating results have varied significantly
in the past and can be expected to vary in the future. Results of operations
for any particular quarter are not necessarily indicative of results of
operations for a full year.
FORWARD LOOKING INFORMATION
Certain information contained herein contains forward-looking statements (as
defined in the Private Securities Litigation Reform Act of 1995) regarding
future events or the future financial performance of the Company, and are
subject to a number of risks and other factors which could cause the actual
results of the Company to differ materially from those contained in and
anticipated by the forward-looking statements. Among such factors are:
industry concentration and the Company's dependence on major customers,
competition, risks associated with international operations and entry into
new markets, government regulation, variability in operating results, general
business and economic conditions, customer acceptance of any demand for the
Company's new products, the Company's overall ability to design, test, and
introduce new products on a timely basis, reliance on third parties, the
Company's ability to manage change, dependence on key personnel, dependence
on information systems and changes in technology. The forward-looking
statements contained herein are necessarily dependent upon assumptions,
estimates and data that may be incorrect or imprecise. Accordingly, any
forward-looking statements included herein do not purport to be predictions
of future events or circumstances and may not be realized. Forward-looking
statements contained herein include, but are not limited to, forecasts,
projections and statements relating to inflation, future acquisitions and
anticipated capital expenditures. All forecasts and projections in this
report are based on management's current expectations of the Company's near
term results, based on current information available pertaining to the
Company, including the aforementioned risk factors. Actual results could
differ materially.
OVERVIEW
AMX designs, develops, manufactures and markets integrated control systems
that enable end users to operate as a single system a broad range of
electronic and programmable equipment in a variety of corporate, educational,
industrial, entertainment, governmental, and residential settings. The
Company's hardware and software products provide the operating system,
machine control, and user interface necessary to operate, as an integrated
network, electronic devices from different manufacturers through easy-to-use
control panels. The Company's systems are available in a variety of
configurations and provide centralized control of a wide range of video
systems, audio systems, teleconferencing equipment, educational media,
lighting equipment, environmental control systems, security systems, and
other electronic devices. The Company has introduced several
Windows-Registered Trademark--based software applications that handle design
functions, permit scheduling control, and enable a personal computer to
operate on the Company's AXlink and PHASTlink bus as a control panel.
The Company's quarterly operating results have varied significantly in
the past, and can be expected to vary in the future. These quarterly
fluctuations have been the result of a number of factors. These factors
include seasonal purchasing of the Company's dealers and distributors,
particularly from international distributors, OEMs, and other large
customers; sales and marketing expenses related to entering new markets; the
timing of new product introductions by the Company and its competitors;
fluctuations in commercial and residential construction and remodeling
activity; and changes in product or distribution channel mix. In addition,
the Company generally experiences higher selling and marketing expenses
during the first fiscal quarter of each year due to costs associated with
three of the Company's largest trade shows.
<PAGE>
The Company's system sales are made through dealers and distributors.
The Company principally relies on over 1,600 specialized third-party dealers
of electronic and audiovisual equipment to sell, install, support and service
its products in the United States. Internationally, the Company relies on a
network of 23 exclusive distributors serving 29 countries and over 118
dealers serving an additional 21 countries to distribute its products.
The Company's U.S. dealers pursue a wide variety of projects that can
range from small conference rooms/boardrooms to very large projects in a
university, government facility, amusement park, or corporate training
facility. The Company's international distributors tend to order in large
quantities to take advantage of volume discounts the Company offers and to
economize on shipping costs. These international orders are not received at
the same time each year. Notwithstanding the difficulty in forecasting future
sales and the relatively small level of backlog at any given time, the
Company generally must plan production, order components, and undertake its
development, selling and marketing activities, and other commitments months
in advance. Accordingly, any shortfall in revenues in a given quarter may
impact the Company's results of operations.
The Company purchases components that comprise approximately 37% to 41%
of its cost of sales from foreign vendors. The primary components purchased
are standard power supplies and displays for touch panels. Historically, the
Company has not had any significant cost issues related to price changes due
to purchasing from foreign vendors. However, there can be no assurance that
this will be the case in the future. The Company has experienced delays of up
to three weeks in receiving materials from foreign vendors. However, the
Company takes this issue into consideration when orders are placed and,
therefore, this concern has not, in the past, significantly impacted the
Company's ability to meet production and customer delivery deadlines.
However, a significant shortage of or interruption in the supply of foreign
components could have a material adverse effect on the Company's results of
operations.
The Company's selling and marketing expenses category also includes
customer service and support and engineering. The engineering department of
the Company is involved in research and development as well as customer
support and service. Additionally, the Company has created sales support
teams, which are focused on specific geographic regions or customer
categories. These teams include sales personnel, system designers, and
technical support personnel, all of whom indirectly participate in research
and development activities by establishing close relationships with the
Company's customers and by individually responding to customer-expressed
needs.
RESULTS OF OPERATIONS
The following table contains certain amounts, expressed as a percentage
of net sales, reflected in the Company's consolidated statements of income
for the three month and nine month periods ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
System sales 98.1% 95.7% 97.6% 95.1%
OEM and custom product sales 1.9 4.3 2.4 4.9
Net sales 100.0 100.0 100.0 100.0
Cost of sales 53.7 46.6 48.6 44.6
Gross profit 46.3 53.4 51.4 55.4
Selling and marketing expenses 31.6 32.5 32.6 36.3
Research and development
expenses 6.2 5.9 5.9 6.8
General and administrative
expenses 7.0 7.3 7.4 8.1
Costs associated with
acquisition of minority
interest and merger of
<PAGE>
subsidiaries -- 11.1 -- 3.9
Total operating expenses 44.8 56.8 45.9 55.1
Operating income (loss) 1.5 (3.4) 5.5 0.3
Interest expense 0.5 0.3 0.5 0.2
Other income 0.1 0.1 0.1 0.2
Income (loss) before income
taxes 1.1 (3.6) 5.1 0.3
Income taxes 0.3 1.2 1.6 1.1
Net income (loss) 0.8% (4.8)% 3.5% (0.8)%
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 RESULTS COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1997 RESULTS
The Company continued its history of revenue growth during the third quarter.
Revenues increased $3.4 million or 22.4% compared to the same quarter last
year. The increase in revenues was realized in commercial, residential, and
international markets. Residential revenues were up 43% over the same
quarter of the previous year, due to continued growth from the Company's
subsidiary, PHAST. Revenues from the international market were up 31% over
the same quarter last year, bolstered by strong sales in Canada, Mexico and
Europe. Sales in the Asian region were 20% less than the same quarter last
year. This did not have a material impact on the Company, however, because
only approximately 3% of the Company's revenues result from sales to this
region. OEM revenue was down significantly from the same quarter last year
due to the loss of the Company's largest OEM customer.
Gross margins decreased 6% compared to the same quarter last year. During
the third quarter of fiscal 1999, the Company recognized a write off of
inventory and receivables at its PHAST subsidiary, impacting gross margins by
$1.7 million, or 9.4% of revenue. This write off was primarily a result of
discontinued products from the Company's former subsidiary, AudioEase.
AudioEase and PHAST were merged in October 1997, and the two operations were
combined in Salt Lake City. The Company continued to sell its AudioEase
products after the merger. However, development of the product line at PHAST
created overlap in the AudioEase products, and resulted in the decision
during the third quarter to discontinue the AudioEase products. This
decision will allow the Company's dealers (to whom the Company sells its
products) to concentrate its efforts on the PHAST products, which is the
focus of all future product development. Without the write off of the
inventory and receivables, margins would have been $10.3 million, or 54.8%.
Exclusive of the special charge during the same quarter last year, the
Company's operating expenses decreased slightly as a percentage of sales.
Last year the Company recognized a special charge for the acquisition of the
minority interest at PHAST and costs associated with the merger of PHAST and
AudioEase. The Company has increased spending in areas such as new product
development, the PHASTLink Partner Program, dealer training, technical
support, and its regional sales offices, and has reduced spending on trade
shows, marketing, and in its Singapore office. The Company has also realized
a reduction in expenses as a result of the merger of Audio Ease, Inc. into
PHAST in October 1997.
The Company's effective tax rate is lower than last year. This is due to two
factors. The Company does not have the large non-deductible expenses it had
during the same quarter last year, and the increase in sales to its
international market allows the Company to realize a more favorable tax
impact from the use of its Foreign Sales Corporation.
NINE MONTHS ENDED DECEMBER 31, 1998 RESULTS COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1997 RESULTS
<PAGE>
Revenues have increased 22.4%, or $9.7 million, during the first nine months
of the fiscal year 1999, compared to the same period for the fiscal year
1998. As indicated in the previous discussion of the third quarter results,
the revenue growth is due to strong demand for products from the
residential, commercial, and international markets. Growth in the
residential market is primarily due to the continued acceptance of the PHAST
product line in the market place. Residential revenues are up 44% over the
same period last year. Commercial revenues are up 20%, and international
revenues are up 32% over the same period last year.
Even without the write off of inventory and receivables taken in the third
quarter, which was described above, gross margins are slightly lower than
last year. This is primarily a result of the increase in sales to the
residential market. The residential market achieves lower gross margins than
the Company's other markets.
For the nine months ended December 31, 1998, the Company's operating expenses
have decreased 5.3% as a percentage of sales, exclusive of the special charge
taken last year for the acquisition of the minority interest and the merger
of subsidiaries. The Company has increased spending in areas such as new
product development, the PHASTLink Partner Program, dealer training,
technical support, and its regional sales offices, and has reduced spending
on trade shows, marketing, and in its Singapore office. The Company has also
realized a reduction in expenses as a result of the merger of Audio Ease,
Inc. into PHAST in October 1997.
The Company's effective tax rate is lower than last year. The Company has
not incurred the large non-deductible expenses that it did in the same period
last year, including not being able to consolidate losses from its PHAST
subsidiary, and the special charge. The increase in sales to its
international market allows the Company to realize a more favorable tax
impact from the use of its Foreign Sales Corporation.
LIQUIDITY AND CAPITAL RESOURCES
For the past three years, the Company has satisfied its operating cash
requirements principally through cash flow from operations. During the fiscal
year ended March 31, 1998, $2.4 million was drawn against the revolving line
of credit agreement in order to satisfy operating cash requirements. In the
nine months ended December 31, 1998, the Company provided $2.4 million of
cash flow from operations. The Company spent $2.0 million on capital
expenditures, primarily for the purchase of tooling, office furniture, and
computer equipment. In April 1998, the Company also paid $1.475 million to
redeem the preferred stock of PHAST, which was funded by a term loan from its
commercial bank.
Additionally, the Company has a $5.0 million revolving line of credit
agreement that expires on September 30, 1999. It is expected that this line
of credit will be renewed at that time. The line of credit provides for
interest at the bank's contract rate, which is expected to approximate prime.
At December 31, 1998, $2.8 million was outstanding under the revolving loan
agreement.
The Company expects to spend approximately $2.3 million for capital
expenditures in fiscal 1999.
On January 19, 1999, the Company announced that it had made a $5,000,000
private placement of its common stock with John F. McHale, a member of its
board of directors. The valuation of these shares was based on the average
closing price of the stock during the ten-day period ended January 15, 1999,
the date on which the subscription agreement was executed. After providing
The Nasdaq Stock Market with notification of the listing of additional
shares, which such notice had to be on file with The Nasdaq Stock Market for
fifteen days prior to any new issuances of the Company, 623,520 shares of
common stock were issued to Mr. McHale on February 5, 1999. In connection
with this transaction, Mr.
<PAGE>
McHale was elected Chairman of the Board of Directors of the Company. The
Company used a portion of the proceeds of this placement to pay its revolving
line of credit in full.
The Company believes that cash flow from operations, the Company's
existing cash resources and funds available under its revolving loan facility
will be adequate to fund its working capital and capital expenditure
requirements for at least the next 12 months. An important element of the
Company's business strategy has been, and continues to be, the acquisition of
similar businesses and complementary products and technology and the
integration of such businesses and products and technology into the Company's
existing operations. Such future acquisitions, if they occur, may require
that the Company seek additional funds.
CONTINGENCIES
The Company is party to ordinary litigation incidental to its business,
none of which is expected to have a material adverse effect on the results of
operations, financial position or liquidity of the Company.
YEAR 2000
Some computers and other equipment are operated and controlled by
software code in which calendar year data is abbreviated to only two digits.
As a result of this design flaw, some of these systems could fail to produce
correct results beginning on January 1, 2000, if the year indicator "00" is
interpreted to designate the 1900 rather than the year 2000. This problem
with software design as well as embedded technology such as microcontrollers
is commonly referred to as the "Year 2000" issue. The Company uses a variety
of software products to operate its business, and the Company's products
contain software and embedded technology that is used in the operation of the
products, all of which could be affected by the Year 2000 issue.
STATE OF READINESS
The Company has developed and begun implementation of a plan to address
the problems involved with the Year 2000 issues. The plan is focussed on
four areas: the Company's internal software and hardware, the Company
products, the Company's suppliers, and the equipment that supports the
Company's infrastructure.
In order to assess its issues with internal software, the Company made a
complete inventory of all software located on its computer network and
desktop support systems. The manufacturers of these software programs have
been contacted in order to ascertain whether these software programs are year
2000 compliant. The Company has had an independent review of its information
systems department conducted to confirm its handling of the Year 2000 issues.
Additionally, the Company has also arranged to have all of its major software
programs tested in a lab, at which time all date indicators will be moved
forward to the year 2000. It is anticipated that this testing will be
completed by February 1999.
The Company has addressed Year 2000 issues in the engineering of its
products. The Company believes that there will be minimal product failure by
the Company's products as a result of the year 2000 issues and such failures
are not expected to have a material adverse effect on the Company's business,
financial condition, or results of operations. However, many of the
Company's products interface with systems and products of other
manufacturers, and, as a result, a system of which the Company's products
comprise a portion may fail through no fault of the Company's. The Company
may be requested to remedy the issue because of the integration of its
equipment in these systems.
The Company relies on over 300 manufacturers and suppliers to provide
parts and equipment that are integrated during the manufacturing the
Company's products. Because of the reliance of obtaining these products in
order to manufacture the Company's products, it is important for the Company
to ascertain these suppliers' ability to operate their businesses on January
1, 2000. As of December 31, 1998,
<PAGE>
the majority of these manufacturers and suppliers have been contacted by the
Company and asked to respond to a questionnaire that will indicate their
readiness to the Year 2000 issues. The Company will attempt to gain a
response from 100% of these suppliers. Based on the relative size and
sophistication of the supplier, and the critical nature of the part to the
Company's products, on-sites visits may be made to certain of these
suppliers. The Company has received responses from many of its suppliers,
and will continue to follow up with those that have not yet responded.
Finally, the Company has begun inspection of the many systems that
provide support to the infrastructure of its operations. These include phone
systems, security systems, air conditioning equipment, machinery, and other
related equipment that are used in the Company's physical operations.
Responses and warranties have been received by certain of the manufacturers
of the equipment and service providers. Based on these responses, it is the
Company's belief that there will be no material operational issues with its
infrastructure.
COSTS
Based on the analysis completed so far, the Company believes that the
costs it will incur to address Year 2000 issues will not exceed $50,000, and
are covered in the normal operating plan of the Company for the fiscal year
1999. Certain of the actions included in the plan require the Company to
enlist outside service providers. The costs for these outside service
providers have been incorporated into the Company's operating plan. The
Company should not incur any material additional costs for these services.
Personnel costs associated with the implementation and completion of the plan
are also covered in the normal operations of the Company.
RISK OF YEAR 2000 ISSUES AND CONTINGENCY PLANS
The Company believes its products will have minimal impact from the Year
2000 issue, and that the Company's software that comprise a portion of the
Company's products is more likely than not free from any Year 2000 issues. It
is the Company's belief that the most reasonably likely worst case scenario
is that the Company's critical suppliers will not have adequately addressed
Year 2000 issues. The Company's contingency plan for this is to seek new
suppliers. Because of the bidding process the Company currently uses in
purchasing its materials, the Company believes that it will not be difficult
to find additional sources of its raw materials. However, because of the
inherent complexities involved in Year 2000 issues, the Company may find that
its costs of these materials exceeds its current costs, and as a result its
results of operations may be adversely affected by this course of events.
However, it is the Company's belief at this time that any effect on the
Company's costs of doing business and results of operations will not be
material. This belief may change as the Company's analysis continues.
FORWARD-LOOKING STATEMENTS RELATING TO YEAR 2000 ISSUES
The discussion of the Company's efforts and expectations relating to the
Year 2000 issue contain forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the costs associated with such compliance
are based upon management's best estimates, which were derived using numerous
assumptions. These assumptions involve a number of future events, including
the continued availability of certain resources, cooperation by vendors and
customers, and other factors. There can be no assurance that these estimates
will prove to be accurate, and actual results could differ materially from
those currently anticipated. Specific factors that could cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in Year 2000 issues, variability of definitions of
"compliance with Year 2000" and the myriad of different products and
services, and combinations thereof, sold by the Company. No assurance can be
given that the aggregate cost of defending and resolving such claims, if any,
will not materially adversely affect the Company's results of operations.
<PAGE>
AMX CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to this item is incorporated herein from Part 1.
Financial Information (Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Contingencies).
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation the Company.
(Incorporated by reference from Exhibit 4.1 to the Company's Form
S-8 filed March 11, 1996, File No. 333-2202).
3.2 Amended and Restated Bylaws of the Company, as amended.
(Incorporated by reference from Exhibit 3.2 to the Company's
Form 10-Q, for the period ending September 30, 1997, File No. O-26924).
4.1 Specimen certificate for the Common Stock of the Company
(Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 filed September 13, 1995, as
amended, File No. 33-96886).
(+)10.1 Employment Agreement dated October 1998 between the Company and
Joe Hardt.
(+)10.2 Employment Agreement dated October 1998 between the Company and
Tom Hite.
(+)27.1 Financial Data Schedule.
</TABLE>
b. Reports on Form 8-K
None
(+) Filed herewith.
<PAGE>
AMX CORPORATION
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.
AMX Corporation
Date: February 16, 1999 By: /s/ David E. Chisum
----------------------------------------
David E. Chisum
Chief Financial Officer (Duly Authorized
Officer and Principal Financial Officer)
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of October, 1998 between AMX
Corporation, a Texas corporation, with offices at 11995 Forestgate Drive,
Dallas, Texas 75243 (the "Company"), and J. Joseph Hardt, an individual
residing at 6254 Park Lane, Dallas, Texas 75225 (the "Employee").
RECITALS
The Employee has served in an executive capacity for the Company and the
Company desires to continue to employ the Employee and the Employee desires to
provide such services upon the terms and conditions hereinafter set forth.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee as its President
and Chief Executive Officer, and the Employee accepts such employment for the
term of employment specified in Section 3 below (the "Employment Term"). During
the Employment Term, the Employee shall have the duties, responsibilities and
authority which normally attend the office of President and Chief Executive
Officer of a corporation similar in size and character to the Company. In this
connection, the Employee shall be responsible for ensuring that the policies
stipulated by the Board of Directors are implemented. The Employee shall not be
required to relocate outside of the Dallas, Texas area; provided, however, that
the Employee may be required to undertake reasonable travel in order to
discharge his responsibilities hereunder.
2. PERFORMANCE. The Employee agrees to devote his best efforts and
substantially all of his business time to the performance of his duties
hereunder during the Employment Term; provided, however, that the Employee shall
be entitled to pursue other business interests outside of normal business hours
so long as the pursuit of such interests does not unreasonably interfere with
the performance by the Employee of his responsibilities hereunder or violate any
of the other provisions of this Agreement.
3. EMPLOYMENT TERM. The Employment Term shall begin on the date of this
Agreement and continue until the third anniversary of such date.
4. COMPENSATION.
(a) SALARY. During the Employment Term, the Company shall pay the
Employee an annual base salary, payable in accordance with normal payroll
practice, subject to withholding and other applicable taxes, at the annualized
rate of $200,000 per year. The Employee's salary shall be subject to review on
an annual basis by the Compensation Committee of the Board of Directors of the
Company; provided, however, that in no event shall the Employee's base salary be
decreased.
(b) DISCRETIONARY BONUS. The Employee shall be eligible to
participate in such bonus plan as may be approved from time to time by the
Compensation Committee of the Board of Directors of the Company.
(c) ADDITIONAL BENEFITS. In addition to the other compensation
payable to the Employee hereunder, and to the benefits set forth on SCHEDULE 1
attached hereto, during the
<PAGE>
Employment Term the Company shall provide the Employee with such other
benefits as may be approved by the Company's Board of Directors, and will
also permit the Employee to participate in any and all group life insurance
plans and medical and dental health benefit plans and the like and all other
incentive plans maintained by or on behalf of the Company.
5. EXPENSES. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder.
6. AGREEMENT NOT TO COMPETE. The Employee agrees that during the
Non-Competition Period (defined below) he will not in any capacity, either
separately, jointly, or in association with others, directly or indirectly,
as an officer, director, consultant, agent, employee, owner, partner,
distributor, dealer, representative, stockholder or otherwise, engage or have
a financial interest in any business located anywhere in the Restricted Area
(as herein defined) which competes with the Company or with any affiliate of
the Company (excepting only the ownership of not more than 5.0% of the
outstanding securities of any class listed on an exchange or regularly traded
in the over-the-counter market). "Restricted Area" means the entire world.
An entity or individual shall be deemed to compete with the Company or one of
the Company's affiliates as of a particular time if the entity or individual
then manufactures, produces, markets, distributes or sells any product or
service which is directly competitive with, or which may be purchased in
replacement or substitution of, any product or service which was being
manufactured, produced, marketed, distributed, sold or actively developed by
the Company or such affiliate during the Employment Term, and which is then
still being manufactured, produced, marketed, distributed, sold or actively
developed by the Company or such affiliate. A product or service shall be
deemed to be under active development by the Company or its affiliate as of a
particular date only if the Company or such affiliate has devoted significant
resources to the development thereof and intends to market, distribute or
sell such product or service within the next 18 months of such date. The
"Non-Competition Period" is (a) the period during which the Employee is
employed hereunder plus (b) a period of two years thereafter. The Employee
further agrees that during the Non-Competition Period he will not in any
capacity, either separately, jointly or in association with others, directly
or indirectly, solicit or otherwise contact any of the Company's or its
affiliates' customers, distributors, dealers or representatives as shown by
the Company's or its affiliates' records, that were customers, distributors,
dealers or representatives of the Company or its affiliates at any time
during the two years immediately preceding the date of termination of the
Employee's employment hereunder if such solicitation or contact is for the
specific purpose of selling products or services that compete with any
products or services that the Company or its affiliates had available for
sale to its customers, distributors, dealers, representatives or prospects
during the two years immediately preceding the end of the Non-Competition
Period. If a court determines that the foregoing restrictions are too broad
or otherwise unreasonable under applicable law, including with respect to
time or space, the court is hereby requested and authorized by the parties
hereto to revise the foregoing restrictions to include the maximum
restrictions allowed under the applicable law. The Employee expressly agrees
that breach of the foregoing would result in irreparable injuries to the
Company and its affiliates, that the remedy at law for any such breach will
be inadequate and that upon breach of this provision, the Company and its
affiliates, in addition to all other available remedies, shall be entitled as
a matter of right to injunctive relief in any court of competent jurisdiction
without the necessity of proving the actual damage to the Company or its
affiliates. For purposes of this Section 6 and Section 7, an affiliate of
the Company shall include any person or entity directly or indirectly
controlling (within the meaning of Rule 12b-2 under the Securities Exchange
Act of 1934), or directly or indirectly controlled by, or under direct or
indirect common control with the Company and specifically includes PHAST
Corporation, a Delaware corporation, and Access Technology Ltd., a United
Kingdom corporation.
2
<PAGE>
7. SECRET PROCESSES AND CONFIDENTIAL INFORMATION. For the Employment
Term and thereafter, (a) the Employee will not divulge, directly or indirectly,
other than in the regular and proper course of business of the Company or its
affiliates or as required by law, any confidential knowledge or information with
respect to the operation or finances of the Company or its affiliates or with
respect to confidential or secret processes, techniques, machinery, customers,
plans and products manufactured or sold by the Company or its affiliates
(collectively, "Confidential Information") and (b) the Employee will not use,
directly or indirectly, any Confidential Information for the benefit of anyone
other than the Company or its affiliates; provided, however, that the Employee
has no obligation, express or implied, to refrain from using or disclosing to
others any such knowledge or information which is or hereafter shall become
available to the public other than through disclosure by the Employee. All new
processes, techniques, know-how, inventions, plans, products, patents and
devices developed, made or invented by the Employee, alone or with others, while
an employee of the Company or its affiliates, are hereby assigned to the Company
and shall become and be the sole property of the Company unless released in
writing by the Company. Notwithstanding the foregoing, if the Employee is
required to disclose or divulge Confidential Information pursuant to any
subpoena or other judicial process he will promptly so notify the Company, and
if so requested by the Company or its affiliates, will assist the Company or its
affiliates in seeking a protective order with respect thereto. If the Company
cannot or chooses not to obtain such a protective order, the Employee will
divulge only such Confidential Information as he is advised by his counsel is
required to be disclosed, and will use his best efforts to ensure that the
balance of such Confidential Information will be kept confidential.
8. TERMINATION.
(a) TERMINATION AT END OF TERM. Unless affirmatively extended by
written agreement of the Company and the Employee, the employment of the
Employee hereunder shall terminate at the end of the Employment Term.
(b) TERMINATION BY THE COMPANY WITH CAUSE. The Company shall have
the right at any time to terminate the Employee's employment hereunder by
written notice upon the occurrence of any of the following (any such termination
being referred to as a termination for "Cause"):
(i) the commission by the Employee of any deliberate and
premeditated act that materially and adversely affects the business,
financial condition or results of operations of the Company;
(ii) Employee's habitual drunkenness, use of illegal substances or
drugs or the use, possession, distribution or being under the
influence of alcohol or illegal substances or drugs in the workplace
(the only exception is that Employee may consume alcohol reasonably
and responsibly, if he so chooses, at legitimate business events and
functions where alcohol is legally available);
(iii) the conviction by the Employee of a felony;
(iv) the willful failure or refusal of the Employee to perform his
duties hereunder, which failure or refusal continues for 45 days after
written notice thereof from the Company to the Employee; or
3
<PAGE>
(v) the breach by the Employee of any terms of this Agreement,
which breach continues for 45 days subsequent to written notice from
the Company to the Employee of the breach.
(c) TERMINATION BY COMPANY FOR DEATH OR DISABILITY. The Company
shall have the right at any time to terminate the Employee's employment
hereunder by 30 days written notice upon the Employee's inability to perform his
duties hereunder by reason of any mental, physical or other disability which has
existed for a period of at least six consecutive months (for purposes hereof,
"disability" has the same meaning, as is defined for such term in the Company's
disability policy), as determined by an independent physician. The Employee's
employment hereunder shall also terminate upon the death of the Employee.
(d) TERMINATION BY COMPANY WITHOUT CAUSE. The Company shall have
the right at any time, upon vote of a majority of the Board of Directors, by
30 days written notice to Employee to terminate the Employee's employment for
any other reason without Cause.
(e) TERMINATION BY EMPLOYEE FOR GOOD REASON. The Employee shall
have the right, upon written notice to the Company, at any time to terminate
his employment hereunder if any one or more of the following events shall
have occurred, which event shall have remained unremedied by the Company for
a period of 30 days following written notice thereof from the Employee,
specifying in reasonable detail the alleged event (any such termination being
referred to herein as a termination for "Good Reason"):
(i) the Company shall require that the Employee relocate outside of
the Dallas, Texas area;
(ii) the Company shall substantially diminish the responsibilities of
the Employee (other than in connection with the Employee's
unavailability by reason of disability or otherwise); or
(iii) the Company shall materially breach any of its obligations
under this Agreement.
4
<PAGE>
9. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) WITH CAUSE OR VOLUNTARY TERMINATION. If the Employee's
employment is terminated with Cause or if the Employee voluntarily terminates
his employment (other than for Good Reason), all benefits shall cease at the
time of such termination; provided, however, that the Employee shall be entitled
to continue to participate in the Company's medical benefit plans, at his own
expense, to the extent required by law.
(b) DEATH OR DISABILITY. If the Employee's employment is terminated
by the death or disability of the Employee (pursuant to Section 8(c)), the
Employee's compensation provided in Section 4 shall be paid to the Employee or,
in the event of the death of the Employee, the Employee's estate, as follows:
(i) the Employee's base salary specified in Section 4(a) shall
continue to be paid in monthly installments for twelve months
following such termination; and
(ii) the Employee's additional benefits specified in Section 4(c)
shall terminate at the time of such termination; provided, however,
that in the event of disability the Employee shall be entitled to
continue receiving such benefits so long as he receives salary from
the Company.
(c) WITHOUT CAUSE OR FOR GOOD REASON. If the Employee's employment
is terminated by the Company without Cause (pursuant to Section 8(d)), or the
Employee terminates his employment for Good Reason (pursuant to Section 8(e)),
then the Employee shall be entitled to the following benefits in complete
discharge of the Company's obligations hereunder:
(i) the Employee's salary specified in Section 4(a) shall continue
to be paid in monthly installments for twelve months; and
(ii) the Employee's additional benefits specified in Section 4(c)
shall terminate at the time of such termination; provided, however,
that the Employee shall be entitled to participate in the Company's
medical benefit plans, at the Company's expense, for twelve months
following the date of such termination.
10. INSURANCE. The Company may purchase insurance on the life of the
Employee, and if it does so, the Employee shall cooperate fully by performing
all the requirements of the life insurer which are necessary conditions
precedent to the issuance of the life insurance policy issued by it.
Notwithstanding the foregoing, if at the time of termination for any reason
(other than death), the Company is maintaining a life insurance policy on the
Employee which has a cash surrender value, then to the extent permitted under
such policy the Employee may purchase such policy from the Company by paying to
the Company the cash surrender value thereof.
11. NOTICE. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the addresses set
forth above or to such other addresses as the parties may hereafter give notice
provided herein.
12. QUALIFYING SHARES. From time to time the Employee may be asked to be
the record holder of one or more shares of one or more subsidiaries of the
Company for the purpose of
5
<PAGE>
satisfying various regulatory requirements. The Employee acknowledges that
he shall have no beneficial interest in such shares and agrees that upon
request of the Company he will transfer such shares to the Company for $1.
13. GENERAL.
(a) PRIOR AGREEMENTS. This Agreement supersedes and replaces all
prior agreements between the Company and the Employee, written or oral, relating
to the terms of the Employee's employment by the Company including, but not
limited to, that certain Employment Agreement dated March 30, 1995.
(b) GOVERNING LAW. The terms of this Agreement shall be governed by
the laws of the State of Texas.
(c) ASSIGNABILITY. The Employee may not assign his interest in or
delegate his duties under this Agreement. The covenants and obligations of the
Employee hereunder shall redound to the benefit of the Company's successors and
assigns.
(d) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company, its successors and assigns.
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) DURATION. Notwithstanding the term of employment hereunder, this
Agreement shall continue for so long as any obligations remain under this
Agreement.
[Rest of Page Intentionally Left Blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto executed this Agreement the day and year first written above.
AMX CORPORATION
Attest:
By: /s/ J. Otis Winters
- -------------------------- ----------------------------------------
Secretary Name: J. Otis Winters
----------------------------------
Title: Chairman, Compensation Committee
----------------------------------
Witness: EMPLOYEE
/s/ Joe Hardt
- ------------------------------ -----------------------------------
J. Joseph Hardt
7
<PAGE>
SCHEDULE 1
SPECIFIC EMPLOYMENT BENEFITS
(a) Four weeks of paid vacation a year, which may not be accrued;
(b) Reimbursement for life insurance premiums of approximately $1,200 per year.
(c) Payment of bar association dues and continuing legal education expenses.
8
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of October, 1998 between AMX
Corporation, a Texas corporation, with offices at 11995 Forestgate Drive,
Dallas, Texas 75243 (the "Company"), and Tom Hite, an individual residing at 8
Mountain Wood Lane, Sandy, Utah 84092 (the "Employee").
RECITALS
The Employee has served in an executive capacity for the Company and the
Company desires to continue to employ the Employee and the Employee desires to
provide such services upon the terms and conditions hereinafter set forth.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee as its Vice
President - Engineering and as President and Chief Executive Officer of its
subsidiary, PHAST Corporation, a Delaware corporation ("PHAST"), and the
Employee accepts such employment for the term of employment specified in Section
3 below (the "Employment Term") and agrees to serve in such other or additional
offices or positions as the Company may request. During the Employment Term,
the Employee shall have the duties, responsibilities and authority which
normally attend the office(s) held by him of a corporation similar in size and
character to the Company and the duties, responsibilities and authority which
normally attend the office(s) of PHAST held by him. In this connection, the
Employee shall be responsible for ensuring that the policies stipulated by the
Board of Directors are implemented and agrees to undertake such travel or
relocation as the Company may reasonably request. During the term of this
Agreement, the positions or duties required at PHAST and location to provide
services may change and/or may be combined with Employee's position at the
Company.
2. PERFORMANCE. The Employee agrees to devote his best efforts and
substantially all of his business time to the performance of his duties
hereunder during the Employment Term; provided, however, that the Employee shall
be entitled to pursue other business interests outside of normal business hours
so long as the pursuit of such interests does not unreasonably interfere with
the performance by the Employee of his responsibilities hereunder or violate any
of the other provisions of this Agreement.
3. EMPLOYMENT TERM. The Employment Term shall begin on the date of this
Agreement and continue until the third anniversary of such date.
4. COMPENSATION.
(a) SALARY. During the Employment Term, the Company shall pay the
Employee an annual base salary, payable in accordance with normal payroll
practice, subject to withholding and other applicable taxes, at the annualized
rate of $150,000 per year. The Employee's salary shall be subject to review on
an annual basis by the Compensation Committee of the Board of Directors of the
Company; provided, however, that in no event shall the Employee's base salary be
decreased.
(b) DISCRETIONARY BONUS. The Employee shall be eligible to
participate in such bonus plan as may be approved from time to time by the
Compensation Committee of the Board of Directors of the Company.
<PAGE>
(c) ADDITIONAL BENEFITS. In addition to the other compensation
payable to the Employee hereunder, and to the benefits set forth on SCHEDULE 1
attached hereto, during the Employment Term the Company shall provide the
Employee with such other benefits as may be approved by the Company's Board of
Directors, and will also permit the Employee to participate in any and all group
life insurance plans and medical and dental health benefit plans and the like
and all other incentive plans maintained by or on behalf of the Company.
5. EXPENSES. The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder.
6. AGREEMENT NOT TO COMPETE. The Employee agrees that during the
Non-Competition Period (defined below) he will not in any capacity, either
separately, jointly, or in association with others, directly or indirectly,
as an officer, director, consultant, agent, employee, owner, partner,
distributor, dealer, representative, stockholder or otherwise, engage or have
a financial interest in any business located anywhere in the Restricted Area
(as herein defined) which competes with the Company or with any affiliate of
the Company (excepting only the ownership of not more than 5.0% of the
outstanding securities of any class listed on an exchange or regularly traded
in the over-the-counter market). "Restricted Area" means the entire world.
An entity or individual shall be deemed to compete with the Company or one of
the Company's affiliates as of a particular time if the entity or individual
then manufactures, produces, markets, distributes or sells any product or
service which is directly competitive with, or which may be purchased in
replacement or substitution of, any product or service which was being
manufactured, produced, marketed, distributed, sold or actively developed by
the Company or such affiliate during the Employment Term, and which is then
still being manufactured, produced, marketed, distributed, sold or actively
developed by the Company or such affiliate. A product or service shall be
deemed to be under active development by the Company or its affiliate as of a
particular date only if the Company or such affiliate has devoted significant
resources to the development thereof and intends to market, distribute or
sell such product or service within the next 18 months of such date. The
"Non-Competition Period" is (a) the period during which the Employee is
employed hereunder plus (b) a period of two years thereafter. The Employee
further agrees that during the Non-Competition Period he will not in any
capacity, either separately, jointly or in association with others, directly
or indirectly, solicit or otherwise contact any of the Company's or its
affiliates' customers, distributors, dealers or representatives as shown by
the Company's or its affiliates' records, that were customers, distributors,
dealers or representatives of the Company or its affiliates at any time
during the two years immediately preceding the date of termination of the
Employee's employment hereunder if such solicitation or contact is for the
specific purpose of selling products or services that compete with any
products or services that the Company or its affiliates had available for
sale to its customers, distributors, dealers, representatives, or prospects
during the two years immediately preceding the end of the Non-Competition
Period. If a court determines that the foregoing restrictions are too broad
or otherwise unreasonable under applicable law, including with respect to
time or space, the court is hereby requested and authorized by the parties
hereto to revise the foregoing restrictions to include the maximum
restrictions allowed under the applicable law. The Employee expressly agrees
that breach of the foregoing would result in irreparable injuries to the
Company and its affiliates, that the remedy at law for any such breach will
be inadequate and that upon breach of this provision, the Company and its
affiliates, in addition to all other available remedies, shall be entitled as
a matter of right to injunctive relief in any court of competent jurisdiction
without the necessity of proving the actual damage to the Company or its
affiliates. For purposes of this Section 6 and Section 7, an affiliate of
the Company shall include any person or entity directly or indirectly
controlling (within the meaning of Rule 12b-2 under the Securities Exchange
Act of 1934), or directly or indirectly controlled by, or under direct or
indirect common control with the Company and specifically includes PHAST
2
<PAGE>
Corporation, a Delaware corporation, and Access Technology Ltd., a United
Kingdom corporation.
7. SECRET PROCESSES AND CONFIDENTIAL INFORMATION. For the Employment
Term and thereafter, (a) the Employee will not divulge, directly or indirectly,
other than in the regular and proper course of business of the Company or its
affiliates or as required by law, any confidential knowledge or information with
respect to the operation or finances of the Company or its affiliates or with
respect to confidential or secret processes, techniques, machinery, customers,
plans and products manufactured or sold by the Company or its affiliates
(collectively, "Confidential Information") and (b) the Employee will not use,
directly or indirectly, any Confidential Information for the benefit of anyone
other than the Company or its affiliates; provided, however, that the Employee
has no obligation, express or implied, to refrain from using or disclosing to
others any such knowledge or information which is or hereafter shall become
available to the public other than through disclosure by the Employee. All new
processes, techniques, know-how, inventions, plans, products, patents and
devices developed, made or invented by the Employee, alone or with others, while
an employee of the Company or its affiliates, are hereby assigned to the Company
and shall become and be the sole property of the Company unless released in
writing by the Company. Notwithstanding the foregoing, if the Employee is
required to disclose or divulge Confidential Information pursuant to any
subpoena or other judicial process he will promptly so notify the Company, and
if so requested by the Company or its affiliates, will assist the Company or its
affiliates in seeking a protective order with respect thereto. If the Company
cannot or chooses not to obtain such a protective order, the Employee will
divulge only such Confidential Information as he is advised by his counsel is
required to be disclosed, and will use his best efforts to ensure that the
balance of such Confidential Information will be kept confidential.
8. TERMINATION.
(a) TERMINATION AT END OF TERM. Unless affirmatively extended by
written agreement of the Company and the Employee, the employment of the
Employee hereunder shall terminate at the end of the Employment Term.
(b) TERMINATION BY THE COMPANY WITH CAUSE. The Company shall have
the right at any time to terminate the Employee's employment hereunder by
written notice upon the occurrence of any of the following (any such termination
being referred to as a termination for "Cause"):
(i) the commission by the Employee of any deliberate and
premeditated act that materially and adversely affects the business,
financial condition or results of operations of the Company;
(ii) Employee's habitual drunkenness, use of illegal substances or
drugs or the use, possession, distribution or being under the
influence of alcohol or illegal substances or drugs in the workplace
(the only exception is that Employee may consume alcohol reasonably
and responsibly, if he so chooses, at legitimate business events and
functions where alcohol is legally available);
(iii) the conviction by the Employee of a felony;
3
<PAGE>
(iv) the willful failure or refusal of the Employee to perform his
duties hereunder, which failure or refusal continues for 45 days after
written notice thereof from the Company to the Employee; or
(v) the breach by the Employee of any terms of this Agreement,
which breach continues for 45 days subsequent to written notice from
the Company to the Employee of the breach.
(c) TERMINATION BY COMPANY FOR DEATH OR DISABILITY. The Company
shall have the right at any time to terminate the Employee's employment
hereunder by 30 days written notice upon the Employee's inability to perform his
duties hereunder by reason of any mental, physical or other disability which has
existed for a period of at least six consecutive months (for purposes hereof,
"disability" has the same meaning, as is defined for such term in the Company's
disability policy), as determined by an independent physician. The Employee's
employment hereunder shall also terminate upon the death of the Employee.
(d) TERMINATION BY COMPANY WITHOUT CAUSE. The Company shall have the
right at any time, upon vote of a majority of the Board of Directors, by 30 days
written notice to Employee to terminate the Employee's employment for any other
reason without Cause.
(e) TERMINATION BY EMPLOYEE FOR GOOD REASON. The Employee shall have
the right, upon written notice to the Company, at any time to terminate his
employment hereunder if any one or more of the following events shall have
occurred, which event shall have remained unremedied by the Company for a period
of 30 days following written notice thereof from the Employee, specifying in
reasonable detail the alleged event (any such termination being referred to
herein as a termination for "Good Reason"):
(i) the Company shall substantially diminish the responsibilities of
the Employee (other than in connection with the Employee's
unavailability by reason of disability or otherwise); or
(ii) the Company shall materially breach any of its obligations under
this Agreement.
9. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) WITH CAUSE OR VOLUNTARY TERMINATION. If the Employee's
employment is terminated with Cause or if the Employee voluntarily terminates
his employment (other than for Good Reason), all benefits shall cease at the
time of such termination; provided, however, that the Employee shall be entitled
to continue to participate in the Company's medical benefit plans, at his own
expense, to the extent required by law.
(b) DEATH OR DISABILITY. If the Employee's employment is terminated
by the death or disability of the Employee (pursuant to Section 8(c)), the
Employee's compensation provided in Section 4 shall be paid to the Employee or,
in the event of the death of the Employee, the Employee's estate, as follows:
(i) the Employee's base salary specified in Section 4(a) shall
continue to be paid in monthly installments for twelve months
following such termination; and
4
<PAGE>
(ii) the Employee's additional benefits specified in Section 4(c)
shall terminate at the time of such termination; provided, however,
that in the event of disability the Employee shall be entitled to
continue receiving such benefits so long as he receives salary from
the Company.
(c) WITHOUT CAUSE OR FOR GOOD REASON. If the Employee's employment
is terminated by the Company without Cause (pursuant to Section 8(d)), or the
Employee terminates his employment for Good Reason (pursuant to Section 8(e)),
then the Employee shall be entitled to the following benefits in complete
discharge of the Company's obligations hereunder:
(i) the Employee's salary specified in Section 4(a) shall continue
to be paid in monthly installments for twelve months; and
(ii) the Employee's additional benefits specified in Section 4(c)
shall terminate at the time of such termination; provided, however,
that the Employee shall be entitled to participate in the Company's
medical benefit plans, at the Company's expense, for twelve months
following the date of such termination.
10. INSURANCE. The Company may purchase insurance on the life of the
Employee, and if it does so, the Employee shall cooperate fully by performing
all the requirements of the life insurer which are necessary conditions
precedent to the issuance of the life insurance policy issued by it.
Notwithstanding the foregoing, if at the time of termination for any reason
(other than death), the Company is maintaining a life insurance policy on the
Employee which has a cash surrender value, then to the extent permitted under
such policy the Employee may purchase such policy from the Company by paying to
the Company the cash surrender value thereof.
11. NOTICE. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the addresses set
forth above or to such other addresses as the parties may hereafter give notice
provided herein.
12. QUALIFYING SHARES. From time to time the Employee may be asked to be
the record holder of one or more shares of one or more subsidiaries of the
Company for the purpose of satisfying various regulatory requirements. The
Employee acknowledges that he shall have no beneficial interest in such shares
and agrees that upon request of the Company he will transfer such shares to the
Company for $1.
13. GENERAL.
(a) PRIOR AGREEMENTS. This Agreement supersedes and replaces all
prior agreements between the Company and the Employee, written or oral, relating
to the terms of the Employee's employment by the Company; provided, however, the
Employee Non-Disclosure Agreement executed by Employee as of March 10, 1997
shall continue in full force and effect.
(b) GOVERNING LAW. The terms of this Agreement shall be governed by
the laws of the State of Texas.
(c) ASSIGNABILITY. The Employee may not assign his interest in or
delegate his duties under this Agreement. The covenants and obligations of the
Employee hereunder shall redound to the benefit of the Company's successors and
assigns.
5
<PAGE>
(d) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company, its successors and assigns.
(e) ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) DURATION. Notwithstanding the term of employment hereunder, this
Agreement shall continue for so long as any obligations remain under this
Agreement.
[Rest of Page Intentionally Left Blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto executed this Agreement the day and year first written above.
AMX CORPORATION
Attest:
By: /s/ J. Otis Winters
- -------------------------- ----------------------------------------
Secretary Name: J. Otis Winters
----------------------------------
Title: Chairman, Compensation Committee
----------------------------------
Witness: EMPLOYEE
/s/ Tom Hite
- -------------------------- -------------------------------------------
Tom Hite
7
<PAGE>
SCHEDULE 1
SPECIFIC EMPLOYMENT BENEFITS
(a) Four weeks of paid vacation a year, which may not be accrued;
(b) Reimbursement for life insurance premiums of approximately $1,200 per
year.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 (UNAUDITED) AND FOR
THE NINE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 614,855
<SECURITIES> 0
<RECEIVABLES> 11,319,599
<ALLOWANCES> (662,451)
<INVENTORY> 10,312,235
<CURRENT-ASSETS> 23,664,788
<PP&E> 10,481,684
<DEPRECIATION> 5,770,603
<TOTAL-ASSETS> 29,881,104
<CURRENT-LIABILITIES> 13,114,453
<BONDS> 14,820
0
0
<COMMON> 83,001
<OTHER-SE> 16,668,830
<TOTAL-LIABILITY-AND-EQUITY> 29,881,104
<SALES> 52,673,955
<TOTAL-REVENUES> 52,673,955
<CGS> 25,597,044
<TOTAL-COSTS> 25,597,044
<OTHER-EXPENSES> 24,184,253
<LOSS-PROVISION> 198,304
<INTEREST-EXPENSE> 290,387
<INCOME-PRETAX> 2,654,376
<INCOME-TAX> 834,982
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,819,395
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
