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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED MARCH 31, 1999,
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)
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TEXAS 75-1815822
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
11995 FORESTGATE DRIVE, DALLAS, TEXAS 75243
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 644-3048
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
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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 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the registrant as of May 31,
1999, computed by reference to the closing sales price of the registrant's
Common Stock on the Nasdaq National Market on such date, was approximately
$39,543,109.
The number of shares of the registrant's Common Stock outstanding as of May
31, 1999 was 8,483,423.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
AMX Corporation ("AMX" or the "Company"), which was incorporated in Texas
in March 1982, is a leading developer, manufacturer, and marketer of integrated
remote control systems. These systems enable end users to operate as a single
system a broad range of electronic 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 provide centralized control for over
10,000 different electronic devices, including video systems, audio systems,
teleconferencing equipment, educational media, lighting equipment, environmental
control systems, and security systems.
The Company's systems have readily accommodated evolving technologies. In
particular, the Company is currently integrating its control systems with the
Internet. The Company is developing products which will allow end users to be
able to cache information from the Internet, narrow cast this information, and
display that content on the system's control panels. The technology will also
allow end users to access the control system remotely through the Internet.
Applications in the commercial market for the Company's remote control
systems include: use for presentations in corporate board rooms, business
training centers; audio-visual controls for hotel, meeting and convention
facilities; security camera control, video distribution, and public address
systems for stadiums and theme parks; multimedia and teleconferencing support
for government and military facilities; and decision support centers for
industrial applications. The Company has developed hardware and software
products specifically for the education market designed to enhance the
educational experience and improve productivity of teachers and administrators.
These products are used to manage, schedule, and control media retrieval and
distribution, distance learning, and interactive education for schools. In the
residential market, the Company's products enable individuals to create an
integrated home automation system which can control audio, video and home
theater systems, lighting, motorized drapes, heating and air conditioning units,
closed circuit cameras, security systems, and other home electronic equipment.
The Company's system sales are made through dealers and distributors who
are supported by Company sales and support offices in certain geographic areas
and by independent manufacturers' representatives in areas not served by Company
offices. The Company principally relies on over 1,600 specialized third-party
dealers of electronic and audio-visual equipment to sell, install, support, and
service its products in the United States. Internationally, in addition to
maintaining customer training and technical support offices in the United
Kingdom, Canada, Mexico, and Singapore, the Company relies on a network of 20
exclusive distributors serving 24 countries and over 92 dealers serving 21
additional countries to distribute its products. Dealers and distributors can
use the AMX software to tailor the Company's control system for each
installation. The Company also sells various customized products, primarily user
interface devices, to OEMs and other large customers.
The Company believes that the market for its products has grown due to the
greater affordability, increased functionality, and more widespread use of a
diverse array of electronic devices, particularly sophisticated audio, video,
and presentation equipment, many of which now employ microprocessors and other
electronic features. Many of these devices have separate control systems that
are incompatible due to the absence of any one widely accepted control standard.
In many settings, devices from several manufacturers are used, resulting in the
presence of multiple control units that can be confusing and cumbersome to the
user. This creates a need for products such as those produced by the Company.
The Company's strategy is to take advantage of the growth in the market for
its products by bringing the power and flexibility of remote control technology
to a wide variety of settings. Elements of the Company's strategy include:
- leveraging distribution channels by introducing new products, entering
into strategic alliances, and acquiring complementary products and
technologies;
- developing new software to target specific vertical markets and to
simplify system programming in order to expand system sales;
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- continuing to emphasize customer support and service in order to
maintain and enhance market share;
- expanding international distribution;
- developing products that leverage the expanding demand for
distribution of internet content to non-PC devices ; and
- providing flexible systems to accommodate emerging technologies.
MARKET AND INDUSTRY OVERVIEW
One of the first widespread uses of wireless remote control technology was
garage door openers. From this particular application in the 1970s, a number of
companies developed technologies for the wireless operation of slide projectors.
In the 1980s, the widespread adoption of microprocessors enabled the development
of embedded systems that were easier to use and made possible the operation of
sophisticated electronic devices using a control command system. The widespread
adoption of products using microprocessors has also increased the availability
and the use of other electronic and programmable equipment over the past decade.
This growth has been fueled by increased affordability and performance of this
equipment and has created a demand for integrated remote control systems in the
commercial, education, and residential markets.
In addition to active marketing and educational efforts by manufacturers,
the industry is supported by several trade associations, notably ICIA
(International Communications Industries Association), CEDIA (Custom Electronic
Design and Installation Association), and NAB (National Association of
Broadcasters). The key associations hold trade shows, provide training programs,
and actively develop their respective markets within the industry.
The residential market, which is supported by both AMX and PHAST control
systems, remains a very immature marketplace. There are numerous manufacturers
that provide a wide variety of products to the residential market. The products
range from very simple lighting controls sold in a retail store, to very complex
and very expensive systems designed for a single application.
The Company's products are designed to simplify the user's control of
complex and sophisticated electronic devices. The Company's products are
suitable for use in a wide variety of settings and vertical installations. The
Company's products are currently used most commonly in the following markets:
COMMERCIAL
CORPORATE. In the corporate setting, the Company's systems are used in
board rooms, conference and meeting rooms, convention centers, auditoriums,
training centers, and teleconferencing facilities. Typical applications include
integrated control of a wide variety of audio and visual presentation equipment,
such as video projectors, VCRs, laser disc players, computers, and sound
systems, as well as lighting and temperature controls and window coverings. The
Company believes that an increasing portion of the board, conference, meeting,
and training rooms constructed or remodeled are being designed to include
integrated remote control systems. The Company also believes that it is one of
the largest providers of integrated control systems to this market and that this
market represents a significant opportunity for its products. AMX estimates that
its control systems are used in the facilities of over 70% of the Fortune 500
companies, including Electronic Data Systems , Intel, Enron, AT&T, Sony,
American Airlines, Exxon, Coca Cola, and Motorola.
SPORTS. The Company's systems are currently being used in stadiums and
other sports facilities across the United States, including BankOne Ballpark,
Camden Yards, The Ballpark in Arlington, the Georgia Dome, and the United Center
in Chicago. Applications typically include controlling audio and video systems,
switchers and routers, and surveillance cameras.
ENTERTAINMENT. The Company's systems are used in various museums and
amusement parks across the United States, including Disney World, EPCOT Center,
Sea World, Virginia Air and Space Museum, JFK Museum, Universal Studios, Busch
Gardens, and the Rock and Roll Hall of Fame. Applications typically include
controlling audio and visual systems and electronic and mechanical equipment
used in exhibits and special effects.
INDUSTRIAL. The Company's systems are currently being used in decision
support centers in industrial settings such as the Network Emergency Response
Assistance Center of
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Bell South Services, Inc., the Decision Command Center of Burlington Northern
Railroad, and the Network Operations Center of EDS. Typical applications
include control of large screen video displays and video routing equipment.
GOVERNMENT. The Company's systems are being used by federal, state, and
local government entities such as the State of Maryland Intelligent Highway
Vehicle Control System, the California Senate, the Louisiana House of
Representatives, the Library of Congress in Washington, D.C., and war rooms at
the U.S. Army War College. Typical applications include audio visual equipment
control, video routing and distribution, video teleconferencing, and voting and
request-to-speak systems.
EDUCATION Consistent with its business strategy of developing software for
specific vertical markets, the Company has developed an array of products
targeted at schools, colleges, and universities. In this market, the Company
provides a media retrieval and distance learning system, as well as audio-visual
and multimedia controls for lecture halls and auditoriums. According to a market
research firm, there are over 105,000 primary and secondary schools and 8,900
colleges and universities in the United States. The Company's media retrieval
systems have been installed in over 220 educational institutions, including the
Singapore American School, the University of Notre Dame, the University of Texas
at Dallas, the Dallas Independent School District, and the Edina School District
of Minnesota located in the Minneapolis metropolitan area.
RESIDENTIAL
The Company's products enable individuals to create an integrated home
automation system which can control such items as audio, video, home theater
systems, lighting, motorized drapes, heating and air conditioning units, closed
circuit cameras, security systems, and other home electronic equipment. The
Company, through its subsidiary PHAST Corporation ("PHAST"), has developed
standardized control products designed to increase its penetration of the
residential market. The Company believes that the residential market for its
products is significant and growing. According to Parks Associates, a market
research firm, there are approximately 40,000 new homes constructed in the
United States each year having a value greater than one million dollars. Of
these homes, Parks Associates estimates that approximately 80% are installing
some form of intelligent electronic control system.
BUSINESS STRATEGY
The Company's strategy is to take advantage of the growth in the markets
for its main products by bringing the power and flexibility of remote control
technology to a wide variety of settings. Elements of the Company's strategy
include:
LEVERAGING DISTRIBUTION CHANNELS BY INTRODUCING NEW PRODUCTS, ENTERING
INTO STRATEGIC ALLIANCES AND ACQUIRING COMPLEMENTARY PRODUCTS AND
TECHNOLOGIES. The Company believes that the AMX brand name and reputation
for quality are well established in its primary distribution channels. The
Company believes that it can take advantage of this strong reputation by
marketing additional products or product applications through its existing
distribution channels. The Company regularly evaluates opportunities to
acquire complementary products and technologies and enter into strategic
alliances. These include the Company's 1996 acquisitions of AudioEase and
Camrobotics, its agreement with First Virtual to utilize its Synergy
software as a front end to their ATM video delivery products.
ENHANCE AND EXPAND THE COMPANY'S POSITION AS A LEADING SUPPLIER OF REMOTE
CONTROL SOLUTIONS FOR HOME ENTERTAINMENT AND HOME AUTOMATION SYSTEMS. The
Company believes that the market opportunity for its products in home
automation and home entertainment systems to be significant and rapidly
growing. AMX systems have been sold in very high-end residential
applications for a number of years. In 1995, the Company commenced research
and development activities at its PHAST subsidiary with the goal of
developing a product which would be affordable to a wider range of
customers than the Company's existing products. PHAST products first
shipped in early 1997, and have since received several industry awards.
Additionally, acceptance of the PHAST product line is illustrated by the
agreement between the Company and Leviton, pursuant to which Leviton has
agreed to enhance the interoperability of its existing Leviton CEBus,
Lonworks and x-10(communication protocols) devices with PHAST products by
developing a PHSTLink gateway allowing the products to operate as a single,
integrated system. The Company has also had over thirty manufacturers agree
to become PHASTLink Partners, which requires that these companies include a
PHASTLink port on their equipment. The Company believes that the
residential market represents a significant market opportunity.
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DEVELOPING NEW SOFTWARE TO TARGET SPECIFIC VERTICAL MARKETS AND TO SIMPLIFY
SYSTEM PROGRAMMING IN ORDER TO EXPAND SALES. The Company believes that many
of its sales in certain end markets, such as lighting controls for the
industrial market, have been made on an accommodation basis, without
specific targeting of the application involved or of the end market itself.
In contrast, the Company has dedicated substantial engineering resources to
the development of proprietary software applications specifically tailored
to the requirements of the education market. The Company believes that by
investing in the development of software for certain targeted markets for
which it does not now offer specific solutions, it can expand its
penetration of these markets. In addition, the Company believes that
enhanced software investment can increase system sales by simplifying
programming requirements for its dealers. For example, the Company began
distributing tools to enable dealers to more easily program the Company's
systems by employing graphical user interfaces. The Company believes that
these enhancements can provide its dealers with simplified customization
techniques, reduce programming time, and enhance sales of the Company's
products.
CONTINUING TO EMPHASIZE CUSTOMER SUPPORT, SERVICE, AND TRAINING
IN ORDER TO MAINTAIN AND ENHANCE MARKET SHARE. The Company believes that
the support, service and training it provides to its customers are key
competitive advantages. The Company provides technical support, on-site
repair and support, as needed, and on-line software support to its dealers
and end users, as well as extensive training for its dealers and
distributors. In order to provide such customer support, the Company has
added offices in Philadelphia, Los Angeles, Toronto and Mexico City, as
well as establishing an office in Singapore. The Company recently added a
training facility in its location in the United Kingdom. The Company also
now provides customer support on Saturday at its Dallas office. The Company
intends to continue its emphasis in this key area of competitive strength.
EXPANDING INTERNATIONAL DISTRIBUTION. The Company currently markets its
products outside the United States through a network of international
distributors with exclusive rights to sell AMX products. The Company
believes that the international market still remains underpenetrated and
that, by expanding its distribution presence overseas, it can expand
international sales. In June 1993, the Company purchased Axcess Technology,
Ltd., a distributor of electronic equipment based in the United Kingdom. In
August 1995 the Company formed its subsidiary AMX Control Systems, Ltd.
Pte. In Singapore to provide technical support and training for Asia and
the Pacific Rim. The Company also has representatives in Canada and Mexico.
DEVELOPING PRODUCTS THAT LEVERAGE THE EXPANDING DEMAND FOR DISTRIBUTION OF
INTERNET CONTENT TO NON-PC DEVICES. The Company believes that there is
great demand for devices that receive and store information from the
internet. It has begun development of products that integrate with its
current equipment that will receive information from the internet and
narrow-cast this information to other devices. These devices will include
the Company's current automation equipment, as well as devices from other
manufacturers such as cellular phones, pagers, and hand held devices.
PROVIDING FLEXIBLE SYSTEMS TO ACCOMMODATE EMERGING TECHNOLOGIES. The
Company believes that an important competitive advantage is the flexible,
modular design of its systems, which are expandable and which can
accommodate a wide variety of control formats. This design maximizes the
ability of the Company's products to accommodate new technologies in
electronic devices as they are developed. The Company intends to expand
this flexibility in order to continue to take advantage of the evolution
and development of new and innovative technologies in the devices which its
products control.
PRODUCT BENEFITS
The Company believes that its products provide several key benefits that
have led to their adoption and use:
EASE OF USE
The Company's control panels enable users who do not have prior computer or
technical training to control a variety of complex and sophisticated electronic
devices. For example, the Company's TiltScreen and other touch panels facilitate
use of the Company's systems by providing a convenient, programmable, intuitive
user interface. The Company's systems enable users to efficiently and easily
control a number of audio-visual devices with the touch of a finger,
facilitating corporate presentations in the board room, training center, or the
home.
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FLEXIBLE AND SCALABLE ARCHITECTURE
The software and hardware components of the Company's systems are designed
to provide users with the flexibility and scalability to modify and expand their
control systems as needs change. The Company's software allows the control
panels to be easily adapted to control additional products. The Company's
hardware has a modular design that enables users to install additional control
cards or modules as their systems expand or controlled devices are replaced. The
Company's systems are capable of communicating among devices using standard
control formats, including relays, IR, serial, RS-232/422/485, Musical
Instrument Digital Interface ("MIDI"), audio volume, Society of Motion Picture
and Television Engineers ("SMPTE"), as well as others. The PHAST subsidiary has
also worked with leading residential industries, allowing the Landmark system to
integrate seamlessly with other home data network standards, including X-10,
CEBus, LonWorks, and Digital Harmony IEEE 1394. The Company has developed a
proprietary database of control and communication protocols for over 10,000
different electronic devices that contains information gathered and developed by
the Company to facilitate efficient system configuration.
PRODUCT COMPONENTS
The Company's current systems and products are offered in a variety of
configurations designed to meet the changing needs of individual end users. A
typical AMX or PHAST system consists of a central controller, a series of device
interfaces, and one or more control panels or other user interfaces that enable
the user to manipulate those devices. Prices for a complete system vary
substantially depending upon the configuration of the system. The Company also
develops software to operate its systems, to serve as dealer development tools,
to simplify system design and programming, and to provide specific applications
for maintenance needs the Company has identified.
AMX and PHAST systems interface with virtually any electronically
controlled equipment and include a variety of simple-to-operate, custom-designed
control panels. There are four general categories of systems components produced
by AMX: controllers, peripherals, panels, and software.
CONTROLLERS are components that perform the direct "handshake" to the
various elements of a user's system, such as video projectors and switchers,
tape and disc players, audio components, computers, and lighting. Linked
together over a 4-wire data bus, the controllers tie together the variety of
often dissimilar parts into a unified network for control.
PERIPHERALS are intelligent sub-systems designed for specific applications,
including lighting and robotic camera control. This type of technology can be
used as independent, dedicated systems or linked to another AMX control system
for integrated operation.
PANELS are the user's "window" to the system. Ranging from small hand-held
wireless remotes to color touch panels that can interactively guide the user
through an application, AMX panels come in a variety of shapes and size to match
any requirement.
SOFTWARE is applied in three different ways: automation, design, and
scheduling. Automation software runs inside the system, acting as the central
"brain" between the user and the system components. Design software is used to
layout system architecture or to create application designs for panels.
Scheduling software runs on a computer, allowing users to schedule resources and
create automated events that operate interactively with AMX Control Systems.
CUSTOMER SUPPORT AND SERVICE
The Company believes that the support and service it provides to its
customers are key competitive advantages and, as part of its strategy, will
continue to focus on the development of such support and service. The Company
has established a customer service and support organization that provides order
processing, technical and engineering support, and hardware repair to dealers,
distributors, and end users of its products. Within this organization, the
Company has created sales support teams focused on specific geographic regions
or customer categories and supported by dedicated, trained technicians. The
Company believes that the establishment of sales support teams with specific
geographic responsibility enhances the development of personal relationships
between the Company's dealers and distributors and specific sales and support
personnel. The Company's customer technical support team in Dallas is staffed 12
hours a day, Monday through Friday, and eight hours a day on Saturday, with
emergency service available at all other times as needed. The Company will, if
necessary, send technical support to a job site to provide individual attention
as such needs arise. The Company's sales support teams can provide operating
software updates, modifications, and new device interface codes online through
the use of modems. In addition, the Company provides
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technical support to customers from its offices in Salt Lake City, Singapore,
and the United Kingdom, as well as through its international distributors.
The Company has a fully-staffed training facility in Dallas, Texas, where
dealers and distributors are provided free training to program, install, and
service the Company's systems. The Company has begun to provide training at
regional sites, selected to accommodate clusters of its dealers, thereby
reducing the dealer's cost of travel to Dallas. Additionally, the Company is
utilizing its Philadelphia and Los Angeles offices to provide training to its
dealers .
The Company provides either a one-year or three-year warranty on all of its
products, both software and hardware. Although the Company has experienced
limited product warranty claims in the past, there can be no assurance that such
claims will not increase in the future.
SALES, DISTRIBUTION, AND MARKETING
The Company markets and sells its systems products worldwide through
distribution channels that include manufacturer's representatives in the U. S.
dealers and distributors internationally, as well as OEM and custom product
arrangements. Since the market for integrated remote control systems products is
relatively new, the Company believes that market awareness of the capabilities
and features of such products is currently low. The Company relies on third
parties to sell, install, support, and service its integrated remote control
systems, a strategy that it believes is best suited for broad market coverage,
including international coverage. As the Company's products diversify and
simplify, new sales channels will be explored. These channels could range from
large home developers, to utility companies, or to retail stores.
DOMESTIC MARKETS
U.S. Dealers. The Company has established relationships with many of the
leading United States audio-visual system integrators and has over 1,600 dealers
in the United States. Of these, approximately 900 are systems dealers that sell
a wide range of the Company's products; approximately 200 are dealers authorized
by the Company to sell only AMX slide projector controllers: approximately 60
dealers are authorized to sell the Company's Synergy electronic classroom
systems: and approximately 400 are dealers primarily focused on the residential
market.
The Company's dealers generally sell a wide range of electronic products,
including those of competitors of the Company. The Company believes that
utilizing the sales force of dealers that are already selling audio-visual
systems integration services to potential purchasers of electronic presentation
equipment is the most effective way to reach a broad range of customers. The
Company believes that the inclusion of an AMX system in the package of
electronic equipment sold to customers of electronic dealers enhances the
profitability of systems sales to dealers. The Company's agreements with its
dealers involve non-exclusive arrangements that may be canceled by either party
at will and contain no minimum purchase requirements on the part of the dealers.
The Company's agreements with its distributors grant exclusive distribution
rights as to a specific geographic area. The distributorship agreements can be
terminated by the Company or the distributors under certain circumstances, and
there can be no assurance that any of such dealers and distributors will
continue to offer the Company's products. Furthermore, while the Company's
international distributors generally assume certain support and minimum
performance obligations, there are no obligations on the part of the Company's
dealers, distributors, or manufacturers' representatives to provide any
specified level of support to the Company's products or to devote any specific
time, resources, or efforts in marketing of the Company's products. The
Company's dealers, distributors and manufacturers' representatives generally
offer products of several different companies, including products competitive
with the Company's products. Accordingly, there is a risk that these dealers,
distributors and manufacturers' representatives of the Company may give higher
priority to products of other suppliers and may reduce their efforts to sell the
Company's products. A reduction in the sales efforts by certain of the Company's
current dealers, distributors, or manufacturers' representatives or the loss of
certain or all of such relationships could have a material adverse effect on the
Company's results of operations.
The Company provides training to educate dealers on the necessary
programming and other service techniques required to install and service the
Company's systems. The Company believes that its commitment to dealer training
has resulted in a growing, increasingly well-trained group of dealers who are
serving a range of discrete vertical markets. In addition, the Company reviews
the capabilities and performance of its dealers on an annual basis.
OEM AND CUSTOM PRODUCTS ARRANGEMENTS.
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The Company currently makes and custom designs systems for OEMs and other
large customers such as VTEL, British Telecom, Tech Electronics, Tektronix, Bang
& Olufsen, and IBM. The Company believes that its expertise in simplifying user
interfaces and integration of disparate electronic equipment will enable it to
forge additional OEM relationships, and intends to seek such relationships. In
the fiscal years ended March 31, 1997, 1998, and 1999, OEM and Custom Products
Sales represented approximately 8%, 4% and 3% of total sales, respectively. The
failure of OEM and custom product customers to purchase products as anticipated
may result in the Company holding inventories that are not salable to other
customers, and inventory writedowns may result.
INTERNATIONAL MARKETS
The Company relies on a network of 20 exclusive distributors serving 26
countries and over 92 dealers serving an additional 21 countries to distribute
its product internationally. Outside the United States, independent distributors
with exclusive distribution rights market the Company's custom products. In June
1993 the Company purchased AXCESS Technology, Ltd., a distributor of electronic
equipment based in the United Kingdom. AXCESS distributes the Company's products
as well as products of six other manufacturers. Sales outside of the United
States, consisting substantially of products sold in Europe, Canada, Mexico,
Asia, and Australia, represented approximately $11.3 million, $16.7 million, and
$20.7 million, or 27%, 28%, and 30% of the Company's total sales during the
fiscal years ended March 31, 1997, 1998, and 1999, respectively. See Note 12 to
the Company's Consolidated Financial Statements. Since the Company's
international sales are denominated in U.S. dollars, the Company does not
currently engage in hedging activities with respect to fluctuations in currency
values but may elect to do so in the future. These sales are subject to a number
of risks generally associated with international sales, including: the effect of
a strengthening or weakening U.S. dollar on demand for the Company's products in
international markets; other currency fluctuation risks; greater difficulty in
accounts receivable collections and increased credit risk; logistical
difficulties of managing international operations; unexpected restrictions on
the repatriation of funds; and unpredicted changes in regulatory requirements,
tariffs, and other trade barriers. The loss of, or reduction in, international
sales would have a material adverse effect on the Company's results of
operations.
RESEARCH AND DEVELOPMENT
The Company believes that timely development and introduction of new
products are essential to maintaining its competitive position. The Company
devotes most of its internal research and development resources to making
advances in audio/video software and controller technology, firmware and
software, and mechanical design. The Company is committed to soliciting and
understanding customer requirements. Accordingly, its dealers and distributors
are a principal source of ideas for new products, product refinement ideas, and
new market applications for the Company's products. The Company also works with
component suppliers to keep abreast of technological advances and to incorporate
new features as they are developed.
The Company is continuously involved in the refinement, enhancement, and
expansion of its operating and application software capabilities. With the
continued improvement of microprocessor capability, the Company believes that
this ongoing software research and development is a key means of increasing the
number of applications for its products and of extending the life of its
hardware systems. As a result, the Company is investing an increasing proportion
of its research and development effort in software development activities.
In August 1995, the Company, together with several individual shareholders
(including two former employees of the Company), organized PHAST. PHAST has its
principal place of business in Salt Lake City, Utah and was organized to design,
manufacture, market, and distribute automation control systems and products
primarily for the residential market. The Company currently owns 100% of the
outstanding capital stock of PHAST, having purchased the 49% minority interest
during the year ended March 31, 1998.
Research and development expenses were approximately $2,834,000,
$3,849,000, and $4,100,000 in the fiscal years ended March 31, 1997, 1998 and
1999, which represented 6.8%, 6.6%, and 5.9% of net sales in those periods,
respectively. The engineering department of the Company is involved in both
research and development and 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
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support personnel, all of whom indirectly participate in research and
development activities by establishing close relationships with the Company's
customers and by creatively responding to customer-expressed needs.
MANUFACTURING
The Company's manufacturing and assembly operations for its systems and
related products are conducted in Dallas, Texas and Salt Lake City, Utah. The
Company's manufacturing operations consist primarily of design, final assembly
and testing of products, quality control, and materials procurement functions
However, it is the intent of the Company to increase its utilization of contract
manufacturers that will provide turn-key manufacturing of the Company's
products. This focus will reduce the amount of inventory required to be held by
the Company, as well as reducing the time that the inventory is held by the
Company.
The principal components of the Company's products are printed circuit
boards, electronic components (including microprocessors), displays, and metal,
plastic, or wood housings, substantially all of which are purchased from outside
vendors. The Company generally buys components under purchase orders and does
not have long-term agreements with its suppliers. Although alternate suppliers
are available for most of these components, qualifying a replacement supplier
and receiving components for certain other products could take up to several
months. Certain components, including the microprocessors manufactured by
Motorola, are currently available only from sole sources and embody such
parties' proprietary technology. There can be no assurance that Motorola or any
other sole source supplier will continue to provide required components in
sufficient quantities or at acceptable prices. In addition, no back-up tooling
exists for many of the Company's molded plastic components. Should a mold break
or become unusable, repair or replacement could take several months. The Company
does not always maintain sufficient inventory to allow it to fill customer
orders without interruption during the time that would be required to obtain an
adequate supply of replacement components. Any shortage or discontinuation of
supply in these components would materially adversely affect the Company's
results of operations. The Company also depends on its suppliers to deliver
products that are free from defects, competitive in functionality and cost, and
in compliance with the Company's specifications and delivery schedules.
Disruption in supply, a significant increase in cost of one or more components,
failure of a third party supplier to remain competitive in functionality or
price, or the failure of a supplier to comply with any of the Company's
procurement needs could delay or interrupt the Company's manufacture and
delivery of products and thereby materially adversely affect the Company's
results of operations.
Many of the components used in the Company's products are procured from
outside the United States. There is no assurance that trading policies adopted
by the United States or foreign governments will not restrict the availability
of components or increase the Company's cost of obtaining components. Any
significant increase in component prices, whether due to fluctuations in
currency exchange rates or other foreign disruptions, would have a material
adverse effect on the Company's results of operations.
BACKLOG
The Company generally ships its standard products promptly following
receipt of an order. The Company's backlog of orders for its standard products
has generally been less than 45 days at any given time. While the Company's OEM
and other large customers typically place orders for products several months
prior to the scheduled shipment date, these orders are subject to rescheduling
and cancellation. As a result, the Company does not consider its backlog to be a
meaningful indicator of future sales.
COMPETITION
The markets for the Company's systems are highly competitive. The Company's
principal direct competitor in all of its current markets, Crestron, is based in
North America. The residential market is currently extremely diverse in its
product functionality, and as a result, has a variety of manufacturers which
supply products to the residential market. In addition, the Company assumes that
there are other companies with substantial financial, technical, manufacturing,
and marketing resources currently engaged in the development and marketing of
products similar to those of the Company and that such companies may enter one
or more of the Company's markets at any time. Although some of the Company's
competitors are smaller in annual revenues and in capitalization, most of the
Company's competitors are focused on a single vertical market and may therefore
devote more resources to products that may be directly
9
<PAGE>
competitive with, and that may adversely impact sales of, the Company's
products in such markets. Moreover, as the Company pursues new markets, it is
likely that AMX will encounter new competitors.
The Company believes its ability to compete depends on such factors as
reputation, quality, customer support and service, price, features and functions
of products, ease of use, software and hardware innovation, reliability, and
marketing and distribution channels. Although the Company believes that it
competes favorably with respect to these factors, there can be no assurance that
the Company will be able to compete successfully in the future.
The Company's products fill a need created by the absence of' industry-wide
standard communication and control protocols and formats for electronic devices.
In the event manufacturers were to adopt such standards for various electronic
devices, the Company's results of operations could be adversely affected. There
can be no assurance that standard communication and control protocols will not
be adopted in the future.
PROPRIETARY RIGHTS
Although the Company has recently filed for several new patents, the
Company currently has very few patents for its products and relies primarily on
a combination of copyright and trade secret protection to establish and protect
its proprietary rights. There can be no assurance that the Company's measures to
protect its proprietary rights will deter or prevent unauthorized use of the
Company's technology. In addition, the laws of certain foreign countries may not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. If the Company is unable to protect its proprietary rights in
its intellectual property, it could have a material adverse effect upon the
Company's results of operations.
From time to time, certain companies have asserted patent, copyright, and
other intellectual property rights relevant to the Company's business, and the
Company expects that this will continue. The Company evaluates each claim
relating to its products and, if appropriate, would seek a license. If the
Company or its suppliers were unable to license from others protected technology
used in the Company's products, the Company could be prohibited from marketing
such products. The Company could also incur substantial costs to redesign its
products or defend any legal action taken against the Company. If, in any legal
action that might arise, the Company's products should be found to infringe upon
intellectual proprietary rights, the Company could be enjoined from further
infringement and required to pay damages. In the event a third party were to
sustain a valid claim against the Company and in the event any required license
were not available on commercially reasonable terms, the Company's results of
operations could be materially and adversely affected. Litigation, which could
result in substantial cost to and diversion of resources of the Company, may
also be necessary to enforce intellectual property rights of the Company or to
defend the Company against claimed infringement of the rights of others.
GOVERNMENT REGULATION
The Company's domestic business operations are subject to certain federal,
state, and local laws and regulations relating to RF and IR emissions generated
by the Company's products. Certain of the Company's products must comply with
FCC regulations before the products may be marketed in the United States. There
can be no assurance that its products will comply with such regulations or that
FCC regulations will remain constant with respect to the Company's current or
future products. Failure to comply with FCC regulations for products under
development or a change in existing regulations by the FCC that would make
products non-compliant could have a material adverse effect on the Company's
results of operations. Because the requirements imposed by such laws and
regulations are frequently changed, the Company is unable to predict its ability
to comply with, or the ultimate cost of compliance with, such requirements.
European Community ("EC") regulations relating to electromagnetic emissions
and immunity testing became effective January 1, 1996. Although most of the
Company's products comply with applicable EC regulations, some of the Company's
newest products do not yet comply with applicable EC regulations and will not be
sold in EC member countries until they comply. Accordingly, failure to receive
EC approval on new products may limit or eliminate the Company's ability to sell
its new products in EC member countries and would have an adverse effect on the
Company's results of operations.
10
<PAGE>
EMPLOYEES
As of March 31, 1999, the Company employed approximately 400 people,
including 140 in manufacturing, 140 in selling and marketing activities, 70 in
engineering and programming, and 50 in management, administration and finance.
None of the Company's employees is represented by a labor union or is subject to
a collective bargaining agreement. The Company believes that its relations with
its employees are good.
The Company is dependent in large part on its ability to attract and retain
management, engineering, marketing, and other technical personnel. Competition
for engineering and other technical personnel is intense, and the inability to
attract and retain highly qualified technical personnel to coordinate the
Company's operations could adversely affect the Company's results of operation.
There can be no assurance that the Company will be able to attract and retain
the qualified personnel necessary for its business.
11
<PAGE>
ITEM 2. PROPERTIES
The Company occupies buildings that contain approximately 118,000 square
feet of floor space. All of this space is leased under agreements that expire at
various dates through May 2012. The principal facilities are located as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET DESCRIPTION
- ------------------------------ ----------- --------------------------------------------------------------
<S> <C> <C>
Dallas, Texas 65,000 Offices, engineering, research and development, and production
Salt Lake City, Utah 30,000 Offices, engineering, research and development, and production
York, England UK 9,000 Offices, engineering, and warehouse
Costa Mesa, California 4,000 Offices
Singapore 8,000 Offices
Philadelphia, Pennsylvania 2,000 Offices
</TABLE>
All facilities are suitable for the Company's business and are fully
utilized. All furniture and equipment owned and leased by the Company is well
maintained and suitable for the Company's operations.
The Company considers its current facilities adequate and believes that
suitable additional space will be available, as needed, to accommodate further
physical expansion of corporate operations and for additional sales and service.
ITEM 3. LEGAL PROCEEDINGS
Litigation
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
STOCK PRICES
In November 1995, the Company's common stock, par value $0.01 per share
(the "Common Stock"), was admitted for trading on the Nasdaq National Market
under the symbol "AMXX."
The following table sets forth, for the periods indicated, the high and low
closing sale prices for the Common Stock for the fiscal years ended March 31,
1998 and 1999.
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
---------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter............................................................... $ 7 3/4 $ 5
Second Quarter.............................................................. 8 5 3/4
Third Quarter............................................................... 8 5 5/8
Fourth Quarter.............................................................. 9 1/4 5 5/8
FISCAL 1999
---------------------------------------------------------------------------
First Quarter............................................................... 11 7 1/2
Second Quarter.............................................................. 87/8 5
Third Quarter............................................................... 8 3/4 5
Fourth Quarter.............................................................. 12 5/8 7 1/4
</TABLE>
As of June 22, 1999, there were approximately 3,000 beneficial holders of
the Common Stock.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying dividends on the Common Stock in the foreseeable future in
order to retain all available earnings generated by the Company's operations for
the development and growth of its business. In addition, under the terms of the
Company's debt agreements, the Company may not pay dividends without the prior
consent of the lending bank. Any future determination as to the payment of
dividends will be at the discretion of the Board of Directors of the Company and
will depend upon the Company's operating results, financial condition, capital
requirements, general business conditions, and such other factors that the Board
of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
On February 5, 1999, the Company issued 623,520 shares of its Common Stock
for an aggregate purchase price of $5,000,000 to John F. McHale, the Company's
Chairman of the Board. The Company believes that the issuance of securities in
the foregoing transaction was exempt from registration in reliance on Section
4(2) of the Securities Act of 1933, as amended, as a transaction not involving a
public offering.
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
INCOME STATEMENT DATA: 1995(1) 1996 1997 1998 1999
- ----------------------------------------------------------- ------- ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
System sales............................................... $23,387 $30,274 $38,302 $56,291 $67,517
OEM and custom product sales............................... 3,896 2,457 3,154 2,474 1,756
------- ----------- -------- -------- -------
Net sales ................................................. 27,283 32,731 41,456 58,765 69,273
Cost of sales.............................................. 10,570 12,370 17,243 26,401 32,562
------- ----------- -------- -------- -------
Gross profit............................................... 16,713 20,361 24,21 32,364 36,711
Selling and marketing expenses............................. 9,598 10,945 15,061 20,296 23,566
Research and development................................... 730 1,475 2,834 3,849 4,100
Acquired research and development.......................... -- -- 1,230 -- --
General and administrative expenses........................ 2,512 2,717 4,361 4,600 4,731
Costs associated with acquisition of minority interest
and merger of subsidiary................................ -- -- -- 1,694 --
------- ----------- -------- -------- -------
Operating income........................................... 3,873 5,224 727 1,925 4,314
Interest expense........................................... 42 535 13 194 340
Other income, net......................................... 134 117 288 159 55
------- ----------- -------- -------- -------
Income before income taxes................................. 3,965 4,806 1,002 1,890 4,029
Income tax provision....................................... 1,269 1,792 1,371 1,087 1,266
======= ----------- ======== -------- =======
Net income (loss).......................................... $ 2,696 3,014 (369) 803 2,763
======= ======== =======
Preferred stock dividends, including accretion and
redemption.............................................. (3,153)(1) (177)
--------
Net income (loss) applicable to common shareholders........ $ (139)(1) $ 626
=========== ========
Earnings (loss) per common share - basic................... $ 0.62 $ (0.02) $ (0.05) $ 0.08 $ 0.33
======= =========== ======== ======== =======
Earnings (loss) per common share - diluted................. $ 0.55 $ (0.02) $ (0.04) $ 0.07 $ 0.31
======= =========== ======== ======== ========
Shares used for basic earnings (loss) per share............ 4,348 5,881 7,769 8,014 8,386
======= =========== ======== ======== ========
Shares used for diluted earnings (loss) per share.......... 4,883 6,500 8,229 8,445 8,988
======= =========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
BALANCE SHEET DATA: 1995 1996 1997 1998 1999
- --------------------------------------------- -------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Working capital.............................. $ 5,229 $8,564 $8,182 $10,420 $15,352
Total assets................................. 10,317 14,652 19,741 26,328 31,509
Long-term debt; including current portion,
line of credit, and notes payable............ 7,334 54 279 2,449 5,593
Redeemable preferred stock, net of discount . 9,474 -- -- -- --
(1)
Shareholders' equity (deficit)............... (11,927) 10,714 11,996 14,864 18,535
(1)
</TABLE>
- -----------
(1) On March 31, 1995, an individual and entities including certain investment
funds ("New Shareholders"), purchased $7.0 million of Debentures, 120,000
shares of Series A Preferred Stock for $12.0 million, and 3,240,000 shares
of Common Stock for $150,000. These proceeds, along with $1.25 million of
the Company's cash, were used to redeem 3,240,000 shares of Common Stock
from the Company's co-founder and Chairman of the Board
14
<PAGE>
and from a charitable remainder trust established by him. For
financial reporting purposes, the proceeds of $19,150,000 from the sale
of the Debentures, the Series A Preferred Stock and the Common Stock to
the New Shareholders were allocated based on the relative fair market
values of such securities as determined by an independent valuation
commissioned by the Company. Such fair market values were: Debentures,
$7.0 million (effective yield of 12.8%);.Series A Preferred Stock,
$9,474,000 (effective yield of 13%); and Common Stock, $2,676,000 (or
$0.83 per share). This transaction did not affect the Company's income
statement for the year ended March 31, 1995. Earnings per common share
is based on net income after Series A Preferred Stock dividend
requirements, accretion of the discount, and redemption of Series A
Preferred Stock. On November 21, 1995, the Company completed its initial
public offering and utilized a portion of the proceeds thereof to repay
outstanding subordinated debentures and the redeemable preferred stock.
15
<PAGE>
ITEM 7. 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 1999 Annual Report to Shareholders.
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 provide centralized control for over 10,000 different electronic
devices, including video systems, audio systems, teleconferencing equipment,
educational media, lighting equipment, environmental control systems, and
security systems. The Company's systems have readily accommodated evolving
technologies. In particular, the Company is currently integrating its control
systems with the Internet. The Company is developing products which will allow
end users to be able to cache information from the Internet, narrow cast this
information, and display that content on the system's control panels. The
technology will also allow end users to access the control system remotely
through the Internet.
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 20 exclusive distributors serving 24 countries and over 92 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.
The Company purchases components that comprise approximately 30% to 35% 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 four
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. Additionally, the Company has created sales
support teams, 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.
16
<PAGE>
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 each
of the three years in the period ended March 31, 1999:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
System sales......................................................... 92.4% 95.8% 97.5%
OEM and custom product sales......................................... 7.6 4.2 2.5
------- ------- -------
Net sales............................................................ 100.0 100.0 100.0
Cost of sales........................................................ 41.6 44.9 47.0
------- ------- -------
Gross profit......................................................... 58.4 55.1 53.0
Selling and marketing expenses....................................... 36.3 34.5 34.0
Research and development expenses.................................... 6.8 6.6 5.9
Acquired research and development ................................... 3.0 -- --
Costs associated with acquisition of minority interest and
merger of subsidiaries............................................ -- 2.9 --
General and administrative expenses.................................. 10.5 7.8 6.9
------- ------- -------
Operating income..................................................... 1.8 3.3 6.2
Interest expense..................................................... -- 0.3 0.5
Other income, net.................................................... 0.6 0.3 0.1
------- ------- -------
Income before income taxes........................................... 2.4 3.3 5.8
Income tax provision................................................. 3.3 1.9 1.8
------- ------- -------
Net income (loss).................................................... (0.9)% 1.4% 4.0%
======= ======== =======
</TABLE>
1999 RESULTS COMPARED TO 1998 (ALL
REFERENCES ARE TO FISCAL YEARS)
In 1999, AMX continued its performance of double-digit revenue growth. AMX
categorizes its sales into four markets: corporate, residential, international,
and educational. It is assumed at the present time that the majority of
shipments sent internationally are for corporate installations.
The largest increase in a market was realized in the residential market,
which has been a focus of product development for the Company in the last three
years. Its subsidiary, PHAST, realized revenue growth of 45%. This was the
result of several factors. PHAST's products continued to be accepted in its
marketplace as the ease of use and functionality of the equipment has continued
to pull demand for the product. Also, demand for home automation has increased
as more and more people seek the use of technology in their homes. While revenue
has increased, this market realizes the lowest percentage of gross margin on its
products as margins in the residential market are not as high as those in the
commercial market. Additionally, the PHAST subsidiary has not yet achieved high
enough production volumes to allow it to realize the benefits of large quantity
purchasing programs.
The international market continued its strong growth pattern, increasing
sales 26% over the previous year. The Company continues to focus on growth in
the international market with the increased staffing in its Singapore office and
the expansion of its offices in the United Kingdom. Sales into the Asian market
were down 12% from last year, with significant growth realized into Canada and
Mexico. The majority of the Company's international sales are to its
distributors, which are offered reduced pricing to offset the marketing and
support they provide to their dealers.
Sales into the commercial market, which include OEM sales realized nominal
growth over the previous year. OEM sales were $700,000 below the previous year
because the Company lost its largest OEM customer due to a
17
<PAGE>
corporate buyout. The Company has since reduced its focus on OEM sales
efforts. The commercial market has seen a large amount of consolidation of
the dealers and integrators, and as such, there have been more efforts to
receive price concessions by these dealers causing them to consolidate their
purchasing efforts and increase volume.
The education market realized a significant decrease in revenue compared to
the previous year. This was due to a shift in demand for the product technology.
The Company has developed a new product which the Companies believes will meet
that demand. However, this product did not begin shipping until after the end of
the fiscal year. Products sold into the education market achieve the highest
gross margin of all of the Company's markets.
Operating expenses decreased as a percentage of sales, from 51.8% to 46.8%.
In 1998 the Company had expenses attributable to the acquisition and merger of a
subsidiary, which did not occur in 1999. A further reduction was achieved as
result of the 45% increase in revenue at PHAST, which did not require a
corresponding increase in the operating expenses of the company. Moreover, the
Company focused its efforts on decreasing its general and administrative
expenses as a percent of sales during the year.
During the third quarter of fiscal year 1999, the Company recognized a
write off of inventory and receivables at its PHAST subsidiary, impacting gross
margins by $1.7 million. 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 AudioEase products after the merger.
However, development of the product line at PHAST created duplication with 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.
1998 RESULTS COMPARED TO 1997 (ALL REFERENCES ARE TO FISCAL YEARS)
In 1998, AMX experienced its highest revenue growth during the decade of
the nineties, as revenues grew 42% over the previous year. AMX groups its sales
into four markets: corporate, residential, international, and educational.
Although it is assumed at the present time that the majority of shipments sent
internationally are for corporate installations, international remains a
separate market. All markets experienced growth during 1998, led by 96% growth
in the residential market. While AMX experienced an increase in revenues to its
residential dealers, the greatest impact of this growth was a result of the
shipments from AMX's subsidiary, PHAST Corporation. PHAST had just begun
shipping its product at the end of 1997; therefore, 1998 is the first full year
of shipping this product.
The international market revenues increased 52% over the previous year.
This increase was primarily a result of a continuing maturation of its sales
channel with our global partners. AMX added 2 distributors and 41 dealers in
1998. Additionally, a favorable economy in Europe, as well as continued emphasis
in the Asia territory, assisted in the growth. Sales in the Asia territory
increased during the year, with only a slight impact realized in the fourth
quarter, due to the region's economic troubles. Sales in the Asia territory for
the year were less than 4% of the Company's revenues.
The corporate market realized steady growth of 24% during the year.
End-users and dealers continue to create applications for AMX control systems as
more and more demand is placed on the use of technology in presentations,
training, and security. OEM sales, which are a part of the corporate market,
were adversely affected during the year by the loss of AMX's largest OEM
customer . Educational sales grew 46% during the year primarily as a result of
the release of a new software standard for the Company's Synergy system.
AMX has historically achieved gross margins approximating 60%. These
margins continue in all our markets, with the exception of the residential
market, and at AMX's UK subsidiary, Axcess Technology. Axcess is a distributor
of AMX's products in addition to the products of five other manufacturers, and
accordingly does not achieve the higher margins of the manufacturer of a
product. As AXCESS has experienced revenue growth, its lower margins have had
the effect of reducing the margins of the consolidated entity. Likewise, margins
in the residential market have been less than AMX's historical rate. With the
increase in revenue from the residential market, this also has the effect of
reducing consolidated margins. Finally, margins for the residential market have
been adversely affected because PHAST is not yet producing to capacity at its
Salt Lake City facility.
AMX made a concerted effort in 1998 to reduce its operating expenses as a
percentage of income. This was accomplished while maintaining its focus on
product development and customer service. Research and development expenses were
at an all-time high of $3.8 million in 1998, but were a lower percentage of
revenues than in 1997. AMX realized a reduction in operating expenses as a
result of the merger of AudioEase and PHAST, which occurred in
18
<PAGE>
October 1997. Settlement costs associated with the Ford Audio-Visual
litigation, which were included in General and Administrative expenses in
1997 and approximated 2% of revenues, were non-recurring.
When AMX purchased the final 20% minority interest in its PHAST subsidiary,
$1.7 million was charged against earnings for expenses related to the purchase
and the subsequent merger of its AudioEase subsidiary into PHAST. These charges
consist principally of employee-related expenses associated with the purchase,
the write-off of the remaining intangibles from the purchase of AudioEase in
1996, and costs associated with the merger and move of AudioEase from Denver,
Colorado to Salt Lake City, Utah.
Interest expense increased in 1998 because AMX drew on its short-term line
of credit to fund its operations; correspondingly, other income decreased
because the Company was not able to invest cash in short-term repurchase
agreements.
The effective tax rate was adversely affected during 1998 by expenses
which were not deductible for federal income tax purposes. Approximately $1.1
million of the merger expenses were not deductible, as were $890,000 of PHAST
losses incurred prior to AMX acquiring 80% control of the subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
For the past three fiscal years, the Company has satisfied its operating
cash requirements principally through cash flow from operations. During fiscal
1999, the Company generated $2.8 million of cash in its operations. Investing
activities used $5.2 million of cash. This was for the purchase of $3.2 million
of property and equipment comprised principally of computer equipment, computer
software, and tooling for its new products. Additionally, the Company used $1.7
million to repurchase the preferred stock, including dividends, representing the
minority interest in its PHAST subsidiary. This purchase was financed by a loan
from the Company's commercial bank. See Note 4 to the Company's Consolidated
Financial Statements.
During the year, the Company sold 623,520 shares of its common stock to its
now Chairman of the Board in a private placement which generated $5.0 million in
cash. On March 31, 1999, the Company repurchased approximately 500,000 shares of
stock from one of the Company's original investors for $4.5 million, all of
which was funded by a loan from the Company's commercial bank. See Note 4 to the
Company's Consolidated Financial Statements.
The Company has a revolving loan agreement for $5.0 million which expires
on September 30, 1999, which provides for interest at the bank's contract rate
which is comparable to prime. As of March 31, 1999, there was no outstanding
balance on the line of credit. It is expected that this credit facility will be
renewed by the Company's lending institution.
The Company expects to spend approximately $3.2 million for capital
expenditures in fiscal 2000.
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. See "Item 3 --
Legal Proceedings."
19
<PAGE>
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 year 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 has completed a majority of its plan to
address the problems involved with the Year 2000 issues. The plan is focused 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 arranged to have all of its major software programs
tested in a lab, at which time all date indicators were moved forward to the
year 2000. As a result of these efforts, it is the Company's belief that its
internal software systems will be able to support dates on or after January
1, 2000.
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 of 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 March 31, 1999, 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
majority of these suppliers have responded and provided assurances that their
systems are compliant with the Year 2000. Based on the relative size and
sophistication of the supplier, and the critical nature of the part to the
Company's products, on-site visits may be made to certain suppliers to
provide greater assurances of their readiness.
Finally, the Company has inspected the many systems that provide support to
the infrastructure of its operations. These systems 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 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 systems.
COSTS
Based on the analysis and efforts completed so far, the Company believes
that the costs it will incur to address Year 2000 issues will not exceed
$50,000. To date, the Company has spent approximately $25,000 on these efforts
and the remaining costs are covered in the normal operating plan of the Company
for the fiscal year 2000. 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
20
<PAGE>
The Company believes its products will have minimal impact from the Year
2000 issue, and that the Company's software that comprises 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.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS.
As disclosed in Note 4 to the Consolidated Financial Statements, the
Company had outstanding debt of $5.6 million and $2.4 million at March 31, 1999
and 1998, respectively. This debt represents 18% and 9% of total assets at those
respective dates. The Company's long-term debt currently has an average maturity
of 1.5 years and interest rates averaging 8.1%.
The Company does have an exposure to changing interest rates as the
interest rates on its debt instruments are variable at the bank's contract rate,
which is comparable to prime. A hypothetical 10% increase or decrease in market
interest rates over the next year would cause a change in the Company's interest
expense of approximately $160,000. However, changing interest rates do not
materially impact the fair value of the Company's debt instruments due to the
variability of the interest rates on these instruments.
Additionally, the Company does not have significant exposure to changing
interest rates on invested cash, which was approximately $1.8 million and $0.2
million at March 31, 1999 and 1998 respectively. The Company invests its cash
mainly in repurchase agreements.
To date, the Company has not entered into any derivative financial
instruments to manage interest rate risk and is currently not evaluating the
future use of any such financial instruments.
The Company transacts business in various foreign currencies through its
wholly owned subsidiaries in York, England and Singapore. Accordingly, the
Company is subject to exposure from adverse movements in foreign currency
exchange rates. The Company generally mitigates this risk by transacting
business in the functional currency of each of its subsidiaries, thus creating a
natural hedge by paying expenses incurred in the local currency. To date, the
Company has not entered into any derivative financial instruments to manage
foreign currency risk and is currently not evaluating the future use of any such
financial instruments. A hypothetical 10% plus or minus fluctuation in non-U.S.
exchange rates would have an earnings impact of approximately $175,000, based
on March 31, 1999 balances and rates.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the Company's
Consolidated Financial Statements contained in this report. The Company's
Consolidated Financial Statements begin at page F-1
hereunder.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The presentation of Directors and Executive Officers of the Registrant
appears in the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders ("Proxy Statement") which is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION.
The presentation of Executive Compensation of the Registrant appears in the
Proxy Statement which is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The presentation of the Security Ownership of Certain Beneficial Owners and
Management of the Registrant appears in the Proxy Statement which is
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The presentation of Certain Relationships and Related Transactions of the
Registrant appears in the Proxy Statement which is incorporated by
reference herein.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS.
THE FINANCIAL STATEMENTS FILED AS A PART OF THIS ANNUAL REPORT ON
FORM 10-K ARE LISTED IN THE "INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS" ON PAGE F-1 HEREOF.
(2) FINANCIAL STATEMENT SCHEDULES.
THE FINANCIAL STATEMENT SCHEDULES FOR WHICH PROVISION IS MADE IN
THE APPLICABLE ACCOUNTING REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION ARE NOT REQUIRED UNDER THE RELATED
INSTRUCTIONS OR ARE INAPPLICABLE AND THEREFORE HAVE BEEN OMITTED.
(3) EXHIBITS.
THE FOLLOWING EXHIBITS ARE FILED AS A PART OF THIS ANNUAL REPORT
ON FORM 10-K.
2.1 Agreement of Merger and Plan of Reorganization dated as of May 16,
1996, among Registrant, AMX Acquisition Corporation, SPS
International, Inc. (now known as AudioEase, Inc.), John P.
Sundquist and Sandra P. Sundquist, Donald J. Heiskell and Janice T.
Heiskell, Bruce R. Munroe, David A. Daniels, and Thomas J. Gleason
(Incorporated by reference from Exhibit 2.1 to the Company's Form
8-K, dated as of May 16, 1996, file no. 0-26924).
3.1 Amended and Restated Articles of Incorporation of the Registrant
(Incorporated by reference from Exhibit 3.1 to the Company's Form
S-8 filed March 11, 1996, file no. 333-2202).
3.2 Amended and Restated Bylaws of the Registrant, as amended
(Incorporated by reference from Exhibit 3.2 to the Company's Form
10-Q, for the period ending September 11, 1997, file no. 0-26924).
**4.1 Specimen Certificate for Common Stock of Registrant.
**4.2 Registration Rights Agreement dated as of March 30, 1995 by and
among Registrant, the persons listed on Schedule 1.1 thereto,
Scott D. Miller, Peter D. York, Joe Hardt and Billie I. Williamson.
**4.3 First Amendment dated September 12, 1995 to Registration Rights
Agreement dated as of March 30, 1995 by and among Registrant, the
persons listed on Schedule 1.1 thereto, Scott D. Miller, Peter D.
York, Joe Hardt, and Billie I. Williamson.
4.4 Registration Rights Agreement dated as of May 16, 1996, by and
among Registrant, John P. Sundquist and Sandra P. Sundquist, Donald
J. Heiskell and Janice T. Heiskell, Bruce R. Munroe, David A.
Daniels, and Thomas J. Gleason (Incorporated by reference from
Exhibit 4.4 to the Company's Form 10-K, as amended, for the fiscal
year ended March 31, 1996, file no. 0-26924).
4.5 Declaration of Registration Rights made October 14, 1997, by the
Company for the benefit of certain shareholders and employees of
PHAST Corporation pursuant to the Stock Purchase Agreement, as
hereinafter defined (Incorporated by reference from Exhibit 4.2 to
the Company's Form 10-Q, for the period ending December 3, 1997,
file no. 0-26924).
**10.1 AMX Corporation 1993 Stock Option Plan, accompanied by forms of
Incentive Stock Option and Non-qualified Stock Option Agreements.
**10.2 AMX Corporation 1995 Stock Option Plan, accompanied by form of
Stock Option Agreement and form of Exercise Notice.
**10.3 1995 Director Stock Option Plan, accompanied by form of Director
Stock Option Agreement and form of Exercise Notice.
**10.4 1996 Employee Stock Purchase Plan, accompanied by forms of
Enrollment/Change Form, Section 16b Participation Form and Stock
Purchase Agreement.
**10.5 Commercial Lease Agreement dated January 2, 1992 between
Registrant and New England Mutual Life Insurance Company, as
amended.
**10.6 Employment Agreement dated March 30, 1995 between Registrant and
Scott D. Miller.
**10.7 Employment Agreement dated March 30, 1995 between Registrant and
Joe Hardt.
**10.8 Employment Agreement dated March 30, 1995 between Registrant and
Peter D. York.
**10.9 Employment Agreement dated March 30, 1995 between Registrant and
Billie I. Williamson.
24
<PAGE>
**10.10 First Amendment dated September 12, 1995 to Employment Agreement
dated March 30, 1995 between Registrant and Scott D. Miller.
**10.11 First Amendment dated September 12, 1995 to Employment Agreement
dated March 30, 1995 between Registrant and Joe Hardt.
**10.12 First Amendment dated September 12, 1995 to Employment Agreement
dated March 30, 1995 between Registrant and Peter D. York.
**10.13 First Amendment dated September 12, 1995 to Employment Agreement
dated March 30, 1995 between Registrant and Billie I. Williamson.
**10.14 Promissory Note dated June 15, 1995, from Peter D. York to
Registrant in the original principal amount of $77,298.
**10.15 Promissory Note dated May 1, 1995, from Joe Hardt to Registrant in
the original principal amount of $44,500.
**10.16 Promissory Note dated August 15, 1995, from Billie I. Williamson to
Registrant in the original principal amount of $52,250.
*10.17 Second Amendment to Lease dated February 12, 1997 between the
Registrant and Merit Industrial Properties Limited Partnership.
*10.18 Third Amendment to Lease dated May 1, 1997 between the Registrant
and Merit Industrial Properties Limited Partnership.
*10.19 Promissory Note dated January 2, 1997, from Joe Hardt to
Registrant in the original principal amount of $22,125.
*10.20 Promissory Note dated July 2, 1996, from Joe Hardt to Registrant in
the original principal amount of $22,125.
*10.21 Promissory Note dated January 2, 1998, from Joe Hardt to Registrant
in the original principal amount of $22,125.
*10.22 Stock Purchase Agreement dated as of October 14, 1997, by and among
the Company, Will West, Eric Smith, Ron Wells, Carmelo J. Santoro,
Scott D. Miller, PHAST Corporation, and certain employees of PHAST
(the "Stock Purchase Agreement") (Incorporated by reference from
Exhibit 2.1 to the Company's Registration Statement on Form S-3,
filed November 19,1 997, file no. 333-40557).
10.23 Employment Agreement dated October 1998 between the Company and Joe
Hardt (Incorporated by reference from Exhibit 10.1 to the Company's
Form 10-Q, for the period ending December 31, 1998. File No.
0-26924)
10.24 Employment Agreement dated October 1998 between the Company and Tom
Hite (Incorporated by reference from Exhibit 10.1 to the Company's
Form 10-Q, for the period ending December 31, 1998. File No.
0-26924)
+10.25 AMX Corporation 1999 Equity Incentive Plan.
+10.26 Subscription Agreement dated January 15, 1999, between the
Company and John F. McHale.
+10.27 Stock Purchase Agreement dated March 30, 1999, by and between the
Company, Summit Ventures III, L.P., Summit Subordinated Debt
Fund, L.P., and Summit Investors II, L.P.
+21.1 Schedule of Subsidiaries.
+23.1 Consent of Independent Auditors.
+27.1 Financial Data Schedule.
- -----------
+ FILED HEREWITH.
* INCORPORATED BY REFERENCE FROM THE EXHIBIT OF THE SAME NAME TO THE
COMPANY FORM 10-K, FOR THE YEAR ENDING MARCH 31, 1997, FILE NO.
0-26924.
** INCORPORATED BY REFERENCE FROM THE EXHIBIT OF THE SAME NUMBER IN THE
COMPANY'S FORM S-1 FILED SEPTEMBER 13, 1995, AS AMENDED, FILE NO.
33-96886.
(b) REPORTS ON FORM 8-K. CURRENT REPORT ON FORM 8-K DATED JANUARY 19, 1999,
AND FILED JANUARY 19, 1999, REGARDING A PRESS RELEASE.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
BY: /s/ Joe Hardt
-------------------------------------------
JOE HARDT, CHIEF EXECUTIVE OFFICER, AND PRESIDENT
JUNE 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ John F. McHale
- ----------------------------------- Chairman of the Board and Director June 29, 1999
John F. McHale
/s/ Joe Hardt President, Chief Executive Officer, and June 29, 1999
- ----------------------------------- Director
Joe Hardt (Principal Executive Officer)
/s/ Peter D. York Vice Chairman, June 29, 1999
- ----------------------------------- Assistant Secretary, and Director
Peter D. York
/s/ David E. Chisum Chief Financial Officer, Secretary and June 29, 1999
- ----------------------------------- Treasurer
David E. Chisum (Principal Financial and Accounting Officer)
/s/ Thomas S. Roberts
- ----------------------------------- Director June 29, 1999
Thomas S. Roberts
/s/ Harvey B. Cash
- ----------------------------------- Director June 29, 1999
Harvey B. Cash
/s/ J. Otis Winters
- ----------------------------------- Director June 29, 1999
J. Otis Winters
/s/ Scott D. Miller
- ----------------------------------- Director June 29, 1999
Scott D. Miller
</TABLE>
26
<PAGE>
AMX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................................ F-2
Consolidated Balance Sheets at March 31, 1998 and 1999.................................... F-3
Consolidated Statements of Operations for the years ended March 31, 1997, 1998 and 1999... F-5
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1997, 1998 and 1999.......................................................... F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1998 and 1999... F-7
Notes to Consolidated Financial Statements................................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AMX Corporation
We have audited the accompanying consolidated balance sheets of AMX
Corporation as of March 31, 1998 and 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AMX Corporation at March 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.
Ernst & Young LLP
May 3, 1999
Dallas, Texas
F-2
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 178,942 $ 1,801,756
Receivables - trade and other, less allowance for doubtful
accounts of $460,000 for 1998 and $420,000 for 1999............... 10,276,225 9,796,261
Inventories......................................................... 9,002,737 10,990,262
Prepaid expenses.................................................... 768,492 1,028,767
Deferred income taxes............................................... 136,905 708,805
----------- -----------
Total current assets.................................................. 20,363,301 24,325,851
Property and equipment, at cost, net.................................. 4,347,791 5,693,836
Capitalized software.................................................. 169,274 --
Deposits and other.................................................... 433,442 732,826
Deferred income taxes ................................................ 10,058 --
Goodwill, less accumulated amortization of $122,000 for 1998 and
$370,000 for 1999................................................. 1,004,049 756,316
----------- -----------
Total assets.......................................................... $26,327,915 $31,508,829
=========== ============
</TABLE>
F-3
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable.......................................................... $ 3,866,857 $ 4,076,799
Line of credit and notes payable.......................................... 2,403,437 --
Current portion of long-term debt......................................... -- 1,684,000
Accrued compensation...................................................... 1,481,770 1,504,118
Accrued sales commissions................................................. 787,913 667,051
Accrued dealer incentives................................................. 329,416 442,561
Other accrued expenses.................................................... 153,449 212,354
Income taxes payable...................................................... 743,868 386,634
------------ ------------
Total current liabilities................................................... 9,766,710 8,973,517
Deferred income taxes ...................................................... -- 90,963
Long-term debt ............................................................. 45,600 3,909,284
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-- 8,261,158 for 1998 and 8,961,974 for 1999............... 82,612 89,620
Additional paid-in capital................................................ 4,079,682 9,419,066
Retained earnings......................................................... 10,755,104 13,517,996
Less treasury stock (5,208 shares for 1998 and 496,476 shares for 1999)... (46,872) (4,468,284)
Accumulated other comprehensive loss...................................... (6,921) (23,333)
------------ ------------
Total shareholders' equity.................................................. 14,863,605 18,535,065
------------ ------------
Total liabilities and shareholders' equity.................................. $ 26,327,915 $ 31,508,829
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
System sales....................................................... $38,302,054 $56,290,433 $67,516,870
OEM and custom product sales....................................... 3,154,488 2,474,085 1,756,540
----------- ----------- -----------
Net sales........................................................ 41,456,542 58,764,518 69,273,410
Cost of sales...................................................... 17,243,292 26,400,787 32,562,258
----------- ----------- -----------
Gross profit..................................................... 24,213,250 32,363,731 36,711,152
Selling and marketing expenses..................................... 15,060,987 20,295,877 23,565,857
Research and development expenses.................................. 2,834,185 3,849,283 4,099,850
Acquired research and development.................................. 1,230,000 -- --
Costs associated with acquisition of minority interest and
merger of subsidiaries......................................... -- 1,693,747 --
General and administrative expenses (including $896,000 relating
to litigation settled in 1997)................................. 4,360,605 4,599,822 4,730,994
----------- ----------- -----------
Operating income................................................. 727,473 1,925,002 4,314,451
Interest expense................................................... (13,219) (194,189) (340,324)
Other income, net.................................................. 288,238 159,307 55,051
Income before income taxes......................................... 1,002,492 1,890,120 4,029,178
Income tax provision............................................... 1,371,046 1,086,934 1,266,286
----------- ----------- -----------
Net income (loss).................................................. $ (368,554) 803,186 $ 2,762,892
=========== ===========
Preferred stock dividends.......................................... (177,000)
-----------
Net income applicable to common shareholders....................... $ 626,186
===========
Basic earnings (loss) per share.................................... $ (0.05) $ 0.08 $ 0.33
=========== =========== ===========
Diluted earnings (loss) per share.................................. $ (0.04) $ 0.07 $ 0.31
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- ----------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
NUMBER PAID-IN RETAINED NUMBER COMPREHENSIVE SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS OF SHARES AMOUNT INCOME (LOSS) EQUITY
--------- ------ ---------- ----------- --------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996... 7,552,120 $75,521 $ 131,498 $10,497,472 -- -- $ 10,005 $10,714,496
Net loss.................... -- -- -- (368,554) -- -- -- (368,554)
Equity adjustment from
foreign currency
translation.............. -- -- -- -- -- -- (436) (436)
-----------
Total comprehensive loss.... -- -- -- -- -- -- -- (368,990)
Purchase of treasury stock.. -- -- -- -- (5,208) (46,872) -- (46,872)
Exercise of stock options,
including tax benefit of
$43,660, and purchases
under employee stock
purchase plan............. 91,000 910 151,175 -- -- -- -- 152,085
Stock issued to purchase
AudioEase................ 181,818 1,818 1,498,182 -- -- -- -- 1,500,000
Sale of common stock........ 7,853 79 45,598 -- -- -- -- 45,677
--------- ------- ---------- ----------- --------- ----------- ------------ -----------
Balance at March 31, 1997... 7,832,791 78,328 1,826,453 10,128,918 (5,208) (46,872) 9,569 11,996,396
Net income.................. -- -- -- 803,186 -- -- -- 803,186
Equity adjustment from
foreign currency
translation.............. -- -- -- -- -- -- (16,490) (16,490)
-----------
Total comprehensive income.. -- -- -- -- -- -- -- 786,696
Dividends accrued on
subsidiary preferred -- -- -- (177,000) -- -- -- (177,000)
stock....................
Exercise of stock
options, including tax
benefit of $87,705,
and purchases under
employee stock
purchase plan............ 57,625 576 264,872 -- -- -- -- 265,448
Stock issued to purchase
20% of PHAST............. 350,814 3,508 1,890,887 -- -- -- -- 1,894,395
Sale of common stock........ 19,928 200 97,470 -- -- -- -- 97,670
--------- ------- ---------- ----------- --------- ----------- ------------ -----------
Balance at March 31, 1998... 8,261,158 82,612 4,079,682 10,755,104 (5,208) (46,872) (6,921) 14,863,605
Net income.................. -- -- -- 2,762,892 -- -- -- 2,762,892
Equity adjustment from
foreign currency
translation.............. -- -- -- -- -- -- (16,412) (16,412)
-----------
Total comprehensive income.. 2,746,480
Purchase of treasury stock.. -- -- -- -- (496,476) (4,468,284) -- (4,468,284)
Cancellation of treasury
stock.................... (5,208) (52) (46,820) -- 5,208 46,872 -- --
Exercise of stock options
including tax benefit of
$34.802, and purchases
under employee stock
purchase plan............. 58,050 580 254,344 -- -- -- -- 254,924
Sale of common stock........ 647,974 6,480 5,131,860 -- -- -- -- 5,138,340
--------- ------- ---------- ----------- --------- ----------- ------------ -----------
Balance at March 31, 1999... 8,961,974 $89,620 $9,419,066 $13,517,996 (496,476) $(4,468,284) $ (23,333) $18,535,065
========= ======= ========== =========== ========= ========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
----------- ----------- -----------
Net income (loss)............................................. $ (368,554) $ 803,186 $ 2,762,892
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................... 984,780 2,148,805 2,304,063
Provision (credit) for losses on receivables................ (30,708) 366,000 (40,000)
Provision (credit) for inventory obsolescence............... (38,698) 69,698 584,408
Acquired research and development........................... 980,000 -- --
Costs associated with acquisition of minority interest...... -- 1,526,996 --
Deferred income taxes....................................... 45,086 (43,365) (470,879)
Changes in operating assets and liabilities:
Receivables............................................... (2,024,683) (3,971,835) 519,964
Inventories............................................... (1,467,749) (4,112,244) (2,571,933)
Prepaid expenses.......................................... (219,986) (296,560) (260,275)
Accounts payable.......................................... 1,235,009 607,787 209,942
Accrued expenses.......................................... 631,281 47,348 73,536
Income taxes payable...................................... (416,968) 785,785 (357,234)
----------- ----------- -----------
Net cash provided by (used in) operating activities........... (691,190) (2,068,399) 2,754,484
INVESTING ACTIVITIES
Purchase of property and equipment............................ (3,150,408) (2,091,191) (3,233,101)
Investment in capitalized software............................ (253,061) (22,500) --
Increase in other assets...................................... (118,979) (221,473) (299,384)
Payment to former owner of AudioEase.......................... (180,000) -- --
Minority interest in PHAST.................................... 1,500,000 (25,490) (1,652,000)
----------- ----------- -----------
Net cash used in investing activities......................... (2,202,448) (2,360,654) (5,184,485)
FINANCING ACTIVITIES
Sale of common stock -- net of expenses and exercise of
stock options............................................. 197,762 363,120 5,393,264
Net purchases of treasury stock............................... (46,872) -- (4,468,284)
Net increase (decrease) in line of credit and notes payable... -- 2,215,677 (2,403,437)
Proceeds from long-term debt.................................. 187,762 -- 5,970,485
Repayments of long-term debt.................................. (211,518) (46,131) (422,801)
----------- ----------- -----------
Net cash provided by financing activities..................... 127,134 2,532,666 4,069,227
Effect of exchange rate changes on cash....................... (436) (16,490) (16,412)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.......... (2,766,940) (1,912,877) 1,622,814
Cash and cash equivalents at beginning of period.............. 4,858,759 2,091,819 178,942
----------- ----------- -----------
Cash and cash equivalents at end of period.................... $ 2,091,819 $ 178,942 $ 1,801,756
=========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
AMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
AMX Corporation (the "Company") was organized in March 1982 and operates in
a single industry. The Company designs and manufactures control and automation
systems for both enterprise and consumer applications. These systems are
designed to operate as an integrated network over 10,000 different electronic
devices The Company sells primarily to dealers and distributors in the United
States, Canada, Mexico, Central America, Europe, Australia, the Middle East, and
the Far East.
PRINCIPLES OF CONSOLIDATION
The Company's financial statements include the accounts of AXCESS
Technology Ltd., a wholly owned foreign subsidiary, AMX International Sales
Corporation, a wholly owned foreign sales corporation, PHAST Corporation, a
wholly owned subsidiary, and AMX Control Systems PTE, Ltd., a wholly owned
foreign subsidiary. All significant inter-company balances have been eliminated.
CASH EQUIVALENTS
Cash equivalents include any temporary investments with an initial maturity
of three months or less. Cash equivalents currently include bank repurchase
obligations with maturities generally of seven days or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is generally
computed on a currently adjusted standard (which approximates current average
costs) or average basis.
DEPRECIATION
Depreciation of property and equipment is provided in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives, principally using the straight line depreciation method. The estimated
lives used in determining depreciation range from 3 to 10 years.
CONCENTRATION OF CREDIT RISK
During the years ended March 31, 1997, 1998, and 1999, the Company realized
approximately 27%, 28%, and 30%, respectively, of total revenues from foreign
sales and had approximately 32% and 38%, respectively, of trade receivables due
from foreign customers at March 31, 1998 and 1999. The Company has operations
outside the U.S. in the United Kingdom and Singapore. The net assets of these
locations represented 12% and 1%, respectively, of consolidated net assets at
March 31, 1999, and 9% and 1%, respectively at March 31, 1998.
The Company provides credit in the normal course of business to its dealers
and distributors. The Company generally does not require collateral or a deposit
when providing credit. The Company performs ongoing credit evaluations of its
customers and maintains allowances for possible credit losses, which, when
realized, have been within the range of management's expectations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("FAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. The Company adopted FAS 130 in the
first quarter of fiscal year 1999. The adoption of FAS 130 had no impact on the
Company's
F-8
<PAGE>
consolidated results of operations, financial position or cash flows as its
effect is limited to the presentation of additional financial information.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The adoption
of FAS 131 had no impact on the Company's consolidated results of operations,
financial position or cash flows as its effect is limited to the presentation of
additional financial information. All prior period amounts have been restated to
conform with FAS 131. See footnote 12 for further information.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product.
CAPITALIZED SOFTWARE
The cost (including coding and testing) of producing software is
capitalized once technological feasibility is established. Capitalized software
costs are amortized on a product-by-product basis using the greater of the
amounts computed on the straight-line method over the remaining estimated
economic life of the product or using the ratio that current gross revenues bear
to the total of current and anticipated future gross revenues for the product.
Amortization of capitalized software begins when the products are available for
general release to customers.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the assets and liabilities denominated in
foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year-end and historical rates, as applicable, and revenues
and expenses are translated at the average monthly exchange rates.
F-9
<PAGE>
Translation gains and losses included in income are immaterial and result
from translating all accounts other than the original inter-company advances to
U.S. dollars.
STOCK BASED EMPLOYEE COMPENSATION
Pursuant to Statement of Financial Accounting Standards No. 123 (SFAS 123)
"Accounting for Stock-Based Compensation," the Company accounts for stock-based
compensation utilizing the provisions of Accounting Principles Board Opinion No.
25, because, as discussed in Note 10, the alternative fair value accounting
provided for under SFAS 123 requires use of option valuation models that were
not developed for use involving employee stock options.
ADVERTISING
The Company expenses the costs of advertising when incurred. Advertising
costs were $492,000, $440,000 and $221,000 for the years ended March 31, 1997,
1998, and 1999, respectively.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998 1999
---------- -----------
<S> <C> <C>
Raw materials.................................. $4,430,081 $ 5,557,286
Work in progress............................... 722,593 788,733
Finished goods................................. 3,980,063 5,358,651
Reserve for obsolescence....................... (130,000) (714,408)
---------- -----------
$9,002,737 $10,990,262
========== ===========
</TABLE>
F-10
<PAGE>
3. PROPERTY AND EQUIPMENT
The general classes of property and equipment are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
Equipment, including computers.......... $ 7,128,232 $10,002,248
Furniture and fixtures.................. 1,384,464 1,388,754
Leasehold improvements.................. 404,016 462,525
Vehicles................................ 133,210 119,253
----------- -----------
9,049,922 11,972,780
Less accumulated depreciation........... 4,702,131 6,278,944
----------- -----------
$ 4,347,791 $ 5,693,836
=========== ===========
</TABLE>
Depreciation expense was approximately $816,000, $1,774,000, and $1,887,000
for the years ended March 31, 1997, 1998, and 1999, respectively.
4. DEBT
The Company has a $5,000,000 revolving line of credit agreement expiring
September 30, 1999. At March 31, 1998 there was approximately $2,400,000
outstanding under the line of credit agreement. At March 31, 1999, $5,000,000
was available under this agreement. The line of credit agreement provides for a
borrowing base computation based on accounts receivable and inventories.
Advances under the line bear interest at the bank's contract rate set at the
time of the borrowing, which is comparable to prime. Collateral for the loan
consists of a security interest in accounts receivable, inventories, and
property and equipment. The agreement requires the maintenance of certain
financial ratios and equity levels and restricts payment of dividends.
The Company obtained a $1,500,000 million note on April 7, 1998 from its
primary banking institution to purchase preferred stock described in Note 11.
Collateral for this note consists of a security interest in accounts receivable,
inventories, and property and equipment. Principal payments of $375,000 are due
quarterly, beginning on January 22, 1999, with a final payment due on October
22, 1999. The note bears interest at the bank's contract rate, which is
comparable to prime. The outstanding balance at March 31, 1999, was
$1,125,000. The note agreement requires the maintenance of certain financial
ratios and equity levels.
On March 31, 1999, the Company obtained a $10,000,000 credit facility from
its primary banking institution to be used to repurchase common stock of the
Company. Advances against this facility bear interest at the bank's current
rate, which is comparable to prime. Collateral for the facility consists of a
security interest in accounts receivable, inventories, and property and
equipment. At March 31, 1999, approximately $5,500,000 was available under this
facility. The loan agreement allows for advances against the facility until
September 30, 1999. The principal amount of the loan at that time will be
amortized based on a four-year amortization schedule, with payments made
quarterly. The remaining unpaid principal balance is due on April 30, 2002. The
agreement requires the maintenance of certain financial ratios and equity
levels. Based on current market rates, management believes the carrying value of
its debt approximates fair value.
Interest paid amounted to approximately $39,000, $194,000, and $340,000 for
the years ended March 31, 1997, 1998, and 1999, respectively.
Future maturities of long-term debt at March 31, 1999, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31:
------------------------------------
<S> <C>
2000................................ $ 1,684,000
2001................................ 1,118,000
2002................................ 2,791,284
-----------
$ 5,593,284
===========
</TABLE>
F-11
<PAGE>
5. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory profit sharing plan that is available to
all U.S. employees who are at least 21 years of age and meet certain service
requirements. The amount of any contributions to the plan is determined by the
Board of Directors and is based on the level of Company earnings before income
taxes. Contributions to the plan are allocated among the eligible participants
based on the percentage each participant's salary bears to total salaries of all
participants. Contributions to the plan for the years ended March 31, 1997,
1998, and 1999, were $240,000, $300,000 and $423,000 respectively.
The Company has a 401(k) plan available to all U.S. employees who are at
least 21 years of age and meet certain service requirements. Employees can
contribute up to 15% of their salary subject to statutory limitations. The
Company matches the employees' contributions at $0.25 on every dollar to a
maximum of 1% of compensation. Company contributions for the years ended March
31, 1997, 1998 and 1999, were $39,300, $53,500, and $77,500 respectively.
The Company's 1996 Employee Stock Purchase Plan permits eligible employees
to purchase common stock through payroll deductions. The price of the common
stock purchased under the 1996 Employee Stock Purchase Plan is 85% of the lower
of the fair market value of the common stock at the beginning or at the end of
each offering period. The Plan provides for two six-month offering periods each
year beginning on the first trading day on or after January 1 and July 1. For
the years ended March 31, 1997, 1998 and 1999, 7,853, 19,928, and 24,454 shares
were issued under this plan.
6. INCOME TAXES
The components of the Company's income tax provision were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Federal income taxes:
Current...................................... $ 981,085 $ 654,204 $ 1,148,499
Deferred..................................... 45,086 (43,365) (470,879)
State income taxes............................... 126,000 189,000 111,000
Foreign income taxes............................. 218,875 287,095 477,666
----------- ----------- -----------
$ 1,371,046 $ 1,086,934 $ 1,266,286
=========== =========== ===========
</TABLE>
The income of foreign operations before income taxes for the years ended
March 31, 1997, 1998, and 1999 was $589,000, $834,000, and $1,662,000,
respectively.
Income tax expense differs from amounts computed by applying the U.S.
federal statutory tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1998 1999
----------- ---------- ------------
<S> <C> <C> <C>
Federal income tax at statutory rate................................. $ 340,848 $ 642,641 $ 1,369,920
State income tax, net of federal tax benefit......................... 77,265 126,152 71,449
Benefit of income reported through Foreign Sales Corporation......... (232,078) (467,569) (281,600)
Unbenefited/(benefited) losses of foreign subsidiary and rate
differences....................................................... 21,164 (7,350) (78,964)
Unbenefited losses of PHAST subsidiary............................... 785,846 305,565 --
Effect of non-deductible goodwill and other intangibles amortization. -- 57,077 78,226
Effect of non-deductible meals and entertainment expenses............ 61,900 64,532 115,428
Effect of non-deductible acquired research and development........... 333,200 -- --
Effect of non-deductible costs associated with acquisition
of minority interest and merger of subsidiary..................... -- 369,838 --
Other................................................................ (17,099) (3,952) (8,173)
----------- ---------- ------------
$ 1,371,046 $1,086,934 $ 1,266,286
=========== ========== ===========
</TABLE>
F-12
<PAGE>
Significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Intangible assets..................................... $ 81,708 $ 75,541
PHAST net operating loss carryforward................. 1,352,350 1,352,350
Inventories........................................... 160,977 415,387
Bad debts............................................. 173,662 152,149
Accrued expenses...................................... 45,365 207,492
Inter-company profit in inventory .................... 175,633 170,589
Other, net............................................ 6,959 6,959
----------- -----------
1,996,654 2,380,467
Deferred tax liabilities:
Transaction fees...................................... (70,300) (70,300)
Prepaid expenses...................................... (75,527) (37,737)
Capitalized software.................................. (62,631) --
Depreciation.......................................... -- (94,854)
Prepaid expenses...................................... (175,740) (206,034)
Other, net............................................ (1,350) (1,350)
----------- -----------
(385,548) (410,275)
----------- -----------
Valuation allowance...................................... (1,464,143) (1,352,350)
----------- -----------
Net deferred tax asset................................... $ 146,963 $ 617,842
=========== ===========
</TABLE>
Prior year net operating losses totalling $3,615,000 of the Company's PHAST
Corporation subsidiary, can be carried forward to offset future taxable income
of PHAST through 2012 .
Cash paid for federal income taxes was approximately $1,586,000, $548,000,
and $2,070,000 for the years ended March 31, 1997, 1998, and 1999, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases various real property and equipment. Under certain
leases, the Company is required to pay costs such as taxes, insurance, and
operating expenses in addition to the rental payments. Rental expense under
operating leases for the years ended March 31, 1997, 1998, and 1999, was
$470,000, $614,000, and $794,000, respectively.
At March 31, 1999, future minimum payments for non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31:
--------------------
<S> <C>
2000.......................................... $ 872,674
2001.......................................... 614,869
2002.......................................... 397,728
2003.......................................... 311,164
2004.......................................... 823,168
2005 and thereafter........................... 37,961
-----------
$ 3,057,564
===========
</TABLE>
F-13
<PAGE>
The Company is involved in certain legal activities and disputes arising in
the ordinary course of business. The Company believes that it has adequate legal
defenses and that the ultimate outcome of these matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
MARCH 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Net income (loss)........................................... $ (368,554) $ 803,186 $ 2,762,892
Preferred stock dividends, including accretion
and redemption........................................... -- (177,000) --
------------- ------------- -------------
Net income (loss) applicable to common shareholders......... $ (368,554) $ 626,186 $ 2,762,892
============= ============= =============
Denominator:
Denominator for basic earnings per share -
Weighted-average shares outstanding...................... 7,768,547 8,014,097 8,385,519
Effect of dilutive securities:
Employee stock options...................................... 460,510 431,021 602,775
------------- ------------- -------------
Denominator for diluted earnings per share.................. 8,229,057 8,445,118 8,988,294
============= ============= =============
Basic earnings (loss) per share............................. $ (0.05) $ 0.08 $ 0.33
============= ============= =============
Diluted earnings (loss) per share........................... $ (0.04) $ 0.07 $ 0.31
============= ============= =============
</TABLE>
Of the total stock options outstanding at March 31, 1997 and 1998,
approximately 48,100 and 36,200, shares of stock, respectively, were not
included in the computation of diluted earnings (loss) 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.
9. ASSET ACQUISITIONS
In May 1996, the Company acquired 100% of the outstanding stock of SPS
International, Inc. dba AudioEase in exchange for 181,818 shares (valued at
$1,500,000) of AMX Corporation common stock in a transaction accounted for as a
purchase. AudioEase designed, manufactured and marketed hardware and software
products for upscale home theater systems, and whole-home audio/video control
and distribution systems, as well as other electronic home systems. Including
acquisition costs, the total purchase price was $1,760,000. The purchase price
was allocated to the fair market value of assets acquired based on an
independent valuation commissioned by the Company. Purchased research and
development was valued based on an analysis of AudioEase's products under
development which resulted in a charge to expense of $980,000, with no related
tax benefit. Of the remaining purchase price, $500,000 was allocated to
intangibles, including goodwill, with the remainder allocated to the tangible
net assets of AudioEase. The intangibles, including goodwill, were being
amortized on a straight-line basis over useful lives ranging from 5 - 15 years.
However, the unamortized balance of the intangibles of $363,000 was written off
when AudioEase was merged into PHAST in November 1997 and AudioEases's
operations were moved from Denver to Salt Lake City.
In June 1996, the Company purchased all of the assets of Camrobotics, Inc.
for cash in a transaction accounted for as a purchase. Of the total purchase
price of $334,000, $250,000 was allocated to purchased research and development
expense and the remainder was allocated to the net assets of Camrobotics, Inc.
F-14
<PAGE>
10. SHAREHOLDERS' EQUITY AND STOCK OPTIONS
In January 1999, the Company sold 630,520 shares of common stock to its now
Chairman of the Board in private placement for $5.0 million in cash. The share
price used for this transaction was obtained from the average closing price of
the Company's common stock for the last ten trading days before and including
the purchase date.
In March 1999, the Company repurchased approximately 500,000 shares of its
common stock from an existing shareholder for $4.5 million. This repurchase was
financed with the proceeds of the $10 million credit facility described in Note
4. The share price used for this transaction was obtained from using the average
closing price of the stock for the ten days prior to the announcement of the
transaction.
The Company has four stock-based compensation plans outstanding, which are
described below. No compensation cost is recognized for its fixed option plans
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of the grant. The
1993 Stock Option Plan, as amended, authorized the granting of options for up to
1,452,544 shares of common stock. All options have a term of ten years and vest
over a four year period. There are no options available for grant under this
plan.
In September 1995, the Company approved the 1995 Stock Option Plan and the
1995 Director Stock Option Plan. Under the 1995 Stock Option Plan, the Company
may grant options for up to 1,000,000 shares of common stock. All options have a
term of ten years and vest over a four-year period. The 1995 Director Stock
Option Plan authorized the granting of stock options for up to 250,000 shares to
non-employee directors. All options granted under this plan are fully vested and
have a term of ten years.
In April 1999, the Company and its shareholders approved the 1999 Equity
Incentive Plan. Under this plan, the Company may grant options for up to
3,000,000 shares of common stock. These options have a term of ten years and
vest over a four year period.
A summary of the status of the Company's plans is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
----------- -------------
<S> <C> <C>
Outstanding at March 31, 1996................................. 957,080 $ 2.67
Options granted............................................ 153,250 6.58
Options exercised.......................................... (91,000) 1.19
Options canceled........................................... (102,300) 3.30
-----------
Outstanding at March 31, 1997 917,030 3.40
Options granted............................................ 343,850 6.07
Options exercised.......................................... (57,625) 3.08
Options canceled........................................... (65,075) 6.46
-----------
Outstanding at March 31, 1998................................. 1,138,180 4.04
Options granted............................................ 489,958 6.10
Options exercised.......................................... (58,050) 3.79
Options canceled........................................... (55,653) 6.36
===========
Outstanding at March 31, 1999................................. 1,514,435 $ 4.63
===========
Available for granting in future periods at March 31, 1999.... 334,620
===========
</TABLE>
F-15
<PAGE>
The following table summarizes information about stock options outstanding
under the plans as of March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED OPTIONS
OUTSTANDING AT AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF EXERCISE PRICES 3/31/99 REMAINING AVERAGE 3/31/99 AVERAGE
CONTRACTUAL LIFE EXERCISE PRICE EXERCISE PRICE
- ---------------------------- ---------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.895 to $2.07............ 541,880 5.5 years $1.62 466,880 $1.58
$5.50 to $9.00............. 972,555 8.5 years 6.32 255,839 6.95
---------------- ----------------
$0.895 to $9.00............ 1,514,435 7.4 years $4.64 722,719 $3.48
================ ================
</TABLE>
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock-based compensation plans and other stock
options under the fair value method of that SFAS. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model. The following weighted-average assumptions were used for grants under the
fixed option plans in 1997, 1998 and 1999, respectively: dividend yield of 0%
for all periods; expected volatility of 54.2%, 42.6%, and 54.1%; risk-free
interest rate of 6.36%, 4.97% and 5.90%; and expected lives of 6 years for all
periods.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures the estimated fair value of
stock-based compensation and other options is amortized to expense over the
vesting period. The Company's pro forma net income (loss) and net income (loss)
per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1998 1999
---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net income (loss)...................... As reported $ (368,554) $ 803,186 $ 2,762,892
Pro forma $ (592,966) $ 421,367 $ 2,037,459
Net income applicable to common -- --
shareholders...................... As reported $ 626,186
Pro forma -- $ 244,367 --
Basic earnings (loss) per share ....... As reported $ (0.05) $ 0.08 $ 0.33
Pro forma $ (0.08) $ 0.03 $ 0.24
Diluted earnings (loss) per share ..... As reported $ (0.04) $ 0.07 $ 0.31
Pro forma $ (0.07) $ 0.03 $ 0.23
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosures during
the initial phase-in period may not be representative of the effects on reported
net income for future years.
The weighted-average fair value of options granted under the options plans
during 1997, 1998, and 1999 was $3.86, $3.07, and $3.51, respectively.
F-16
<PAGE>
11. PHAST CORPORATION
In August 1995, the Company formed its then 51% owned subsidiary, PHAST
Corporation ("PHAST"), then a start-up company that designs and manufactures
home automation systems for the residential market, and provided PHAST
$1,115,000 to fund its first year of operations.
In August 1996, the Company's chairman (a 16% shareholder) independently
purchased a 29% interest in the common stock of PHAST for $25,000 and purchased
$1,475,000 of PHAST's 8% Preferred Stock. In March 1997, at the request of the
Company's Board of Directors and as a condition precedent to further funding of
PHAST by the Company, the chairman granted the Company an option through March
1998 to purchase his PHAST securities for $2,500,000, subject to an independent
appraisal.
In July 1997, the Company acquired 7,322 shares of common stock of PHAST
Corporation ("PHAST"), representing 29% of the stock of its subsidiary. The
Company had held 51% of the common stock of PHAST since its formation in August
1995. The shares were purchased from Scott D. Miller, the Company's chairman,
for $25,000 in cash. The Company also granted Mr. Miller the right to require
the Company to purchase his 14,750 shares of preferred stock in PHAST for a per
share purchase price of $100 (which was the liquidation preference of the
preferred stock), or an aggregate purchase price of $1,475,000, plus accrued but
unpaid dividends, at any time from April 1, 1998 through March 31, 1999. In
connection therewith, the option granted to the Company in March 1997 to
purchase such preferred stock from the chairman was terminated. In April 1998,
the Company purchased the preferred stock for $1,475,000. This purchase was
financed with the proceeds of the note described in Note 4.
In October of 1997, the Company acquired the remaining 6,421 shares, or
20%, of the common stock of PHAST in exchange for the issuance of 350,814 shares
of its common stock and a de minimis amount of cash. In conjuction with the
purchase the Company recorded one-time charges of $1.7 million in its third
quarter operating results, and recorded $920,000 of goodwill in its financial
statements, which is being amortized on a straight-line basis over 4 years.
These charges consist primarily of employee-related expenses associated with the
purchase, the write-off of the remaining intangibles from the purchase of
AudioEase in 1996, and costs associated with the merger and move of AudioEase
from Denver to Salt Lake City. The Company has consolidated PHAST Corporation
since its formation.
As a result of the financial commitment made to PHAST, the Company's
consolidated financial statements for the fiscal years ended March 31, 1997 and
1998 include $2,311,312 and $2,748,409, respectively, of net losses from PHAST
(excluding merger and acquisition-related expenses), which represent 100% of
PHAST's losses.
12. SEGMENT AND RELATED INFORMATION
The Company is engaged in one line of business: the design, manufacture,
and distribution of systems that allow control of electronic equipment and the
distribution of information from the internet to these devices. International
sales which include export sales and sales from foreign operations, account for
a significant portion of the Company's revenues. Certain financial information
by geographic area is provided in the table below based on the location of the
Company's facilities
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States $ 37,567,937 $ 52,997,275 $ 61,974,842
United Kingdom 3,654,427 5,061,004 6,723,142
Singapore 234,178 706,239 575,427
------------ ------------ ------------
Consolidated $ 41,456,542 $ 58,764,518 $ 69,273,411
============ ============ ============
Operating income
United States $ 144,129 $ 1,101,326 $ 2,665,431
United Kingdom 579,993 792,748 1,510,129
Singapore 3,351 30,928 138,892
------------ ------------ ------------
Consolidated $ 727,473 $ 1,925,002 $ 4,314,452
============ ============ ============
F-17
<PAGE>
Identifiable assets:
United States $ 17,572,249 $ 23,081,091 $ 27,431,780
United Kingdom 2,057,711 3,098,124 3,910,935
Singapore 110,687 148,700 166,114
------------ ------------ ------------
Consolidated $ 19,740,647 $ 26,327,915 $ 31,508,829
============ ============ ============
</TABLE>
The information presented above may not be indicative of results if the
geographic areas were independent organizations. Inter-company transactions are
made at established transfer prices.
F-18
<PAGE>
Export sales from the Company's U.S. operations to unaffiliated customers
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1998 1999
------------- ------------ -------------
<S> <C> <C> <C>
Americas..................................................... $ 685,000 $ 1,720,000 $ 2,582,000
Asia and the Pacific Rim..................................... 1,437,000 2,795,000 2,549,000
Australia.................................................... 1,122,000 1,333,000 1,340,000
Europe 4,797,000 7,980,000 9,062,000
Middle East and Africa....................................... 608,000 804,000 839,000
------------- ------------ -------------
$ 8,649,000 $ 14,632,000 $ 16,372,000
============= ============ =============
</TABLE>
F-19
<PAGE>
AMX CORPORATION
1999 EQUITY INCENTIVE PLAN
Adopted February 9, 1999
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide a means by which selected Employees
of and Consultants to the Company and its Affiliates may be given an opportunity
to acquire a proprietary interest in the Company. Under the Plan, the Company
may provide various types of long-term incentive awards, including Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock
Reload Options and Other Stock-Based Awards, in order to retain the services of
persons who are now Employees of or Consultants to the Company and its
Affiliates, to secure and retain the services of new Employees and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates. Stock Options granted under the Plan
may be Incentive Stock Options or Nonqualified Stock Options, as determined by
the Committee at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code and the regulations promulgated
thereunder.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Affiliate" means, with respect to any Person, any Parent or
Subsidiary of such Person, whether such Parent or Subsidiary is now or hereafter
existing.
(b) "Agreement" means the agreement between the Company and the Holder
setting forth the terms and conditions of an Award under the Plan.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options are, or will be, granted under the
Plan.
(d) "Award" means an award of Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Reload Options or Other Stock-Based
Awards under the Plan.
(e) "Beneficial Owner" means a "beneficial owner" as defined in Rule
13d-3 of the Exchange Act.
(f) "Board" means the Board of Directors of the Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
(h) "Change of Control" means the occurrence of (i) any Person or
Group of Persons becoming for the first time the Beneficial Owner, directly or
indirectly, of more than fifty percent (50%) of the total combined voting power
of all classes of capital stock of the Company normally entitled to vote for the
election of directors of the Company ("Voting Stock"), other than as a result of
a transfer or series of related transfers of Voting Stock from a Person or Group
of Persons who immediately prior to such transfer or transfers was the
Beneficial Owner, and who after giving effect to such transfer or transfers
continues to be the Beneficial Owner, of more than fifty percent (50%) of the
Voting Stock of the Company; (ii) a merger or consolidation of the Company with
or into another Person or the merger of another Person into the Company as a
consequence of which those Persons who held all of the Voting Stock of the
Company immediately prior to such merger or consolidation do not hold either
directly or indirectly a majority of the Voting Stock of the Company (or, if
applicable, the surviving company of such merger or consolidation) after the
consummation of such merger or consolidation; (iii) the sale of all or
substantially all of the assets of the Company to any Person or Group of Persons
(other than to an entity which owns a majority or more of the Common Stock of
the Company, a Subsidiary of the Company, or to an entity whose equity interests
are owned directly or indirectly by the Company or by an entity which owns
directly or indirectly a majority or more of the Common Stock of the Company);
or (iv) any event or series of events (which event or series of events must
include a proxy fight or proxy solicitation with respect to the election of
directors of the Company made in opposition to the nominees recommended by the
Continuing Directors) during any period of 12 consecutive months, as a result of
which a majority of the Board of Directors of the Company consists of
individuals other than Continuing Directors.
(i) "Committee" means the Compensation Committee of the Board of
Directors.
(j) "Common Stock" means the Common Stock, par value $.01 per share,
of the Company.
(k) "Company" means AMX Corporation.
(l) "Consultant" means (i) any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services and (ii) any Director of the Company, whether such
Director is compensated for such services or not.
(m) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company or any Affiliate is not
interrupted or terminated. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the case of (i) any leave of absence approved
by the Company or (ii) transfers between locations of the Company or between the
Company or any Affiliate or any successor. A leave of absence approved by the
Company shall include sick leave, military leave, or any other personal leave
approved by an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed 90 days, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 91st day of such leave any Incentive Stock Option held
by the Holder shall cease to be treated
2
<PAGE>
for tax purposes as an Incentive Stock Option and shall be treated for tax
purposes as a Nonqualified Stock Option.
(n) "Deferred Stock" means Stock to be received at the end of a
specified deferral period under an Award made pursuant to Section 10 below.
(o) "Director" means a member of the Board of Directors of the
Company.
(p) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. The payment of a
Director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(r) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other
source as the Committee deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of
determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by
the Committee.
(s) "Group" means a "group" as such term is used in Section
13(d)(3) of the Exchange Act.
(t) "Holder" means a person who has received an Award under the
Plan.
(u) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(v) "Nonqualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
3
<PAGE>
(w) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(x) "Option" means a Stock Option granted pursuant to the Plan.
(y) "Option Agreement" shall mean the written option agreement,
substantially in the form attached hereto as Exhibit A (or such other form as
may be approved by the Committee for use under the Plan pursuant to Section
3(b)(v) hereof), between the Company and Holder evidencing the grant of an
Option.
(z) "Optioned Stock" means the Common Stock subject to an Option.
(aa) "Other Stock-Based Awards" means awards (other than Stock Options,
Stock Appreciation Rights, Restricted Stock, Deferred Stock and Stock Reload
Options) denominated or payable in, valued in whole or in part by reference to,
or otherwise based on, or related to shares of Common Stock.
(bb) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(cc) "Person" means an individual or entity.
(dd) "Plan" means this 1999 Equity Incentive Plan.
(ee) "Restricted Stock" means Stock, received under an Award made
pursuant to Section 9 below, that is subject to restrictions under said Section
9.
(ff) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor rule thereto.
(gg) "Section 16(b)" means Section 16(b) of the Exchange Act.
(hh) "SAR Value" means the excess of the Fair Market Value of one share
of Common Stock over the exercise price per share specified in a related Stock
Option in the case of a Stock Appreciation Right granted in tandem with a Stock
Option and the Stock Appreciation Right price per share in the case of a Stock
Appreciation Right awarded on a free standing basis, in each case multiplied by
the number of shares in respect of which the Stock Appreciation Right shall be
exercised, on the date of exercise.
(ii) "Share" means a share of the Common Stock of the Company.
(jj) "Stock" means the Common Stock of the Company.
4
<PAGE>
(kk) "Stock Appreciation Right' means the right, pursuant to an Award
granted under Section 8 hereof, to recover an amount equal to the SAR Value.
(ll) "Stock Option" means any Option to purchase shares of Stock which
is granted pursuant to the Plan.
(mm) "Stock Reload Option" means any option granted under Section 7(e)
as a result of the payment of the exercise price of a Stock Option and/or the
withholding tax related thereto in the form of Stock owned by the Holder or the
withholding of Stock by the Company.
(nn) "Subsidiary" "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code,
including without limitation, in the case of the Company, PHAST Corporation,
Axcess Technology, Ltd., and AMX Control Systems, Ltd. Pte.
(oo) "Tandem Stock Appreciation Right" means a Stock Appreciation Right
granted in tandem with all or part of any Stock Option granted under the Plan.
3. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATION. The Plan at all times shall be administered
by the Committee, which shall be comprised solely of not less than two members
who shall be (i) "Non-Employee Directors" within the meaning of Rule 16b-3 and
(ii) unless otherwise determined by the Board of Directors, "outside directors"
within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section
162(m) of the Code.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan and
subject to the approval of any relevant authorities, including the approval, if
required, of any stock exchange upon which the Common Stock is listed, the
Committee shall have the full authority to award: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of the Plan):
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Consultants and Employees to whom Awards may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Awards or any
combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each
such Award granted hereunder;
5
<PAGE>
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award granted hereunder. Such terms
and conditions include, but are not limited to, the exercise price of an
Option; any specified performance goals or other criteria which must be
attained for the vesting of an Award; any restrictions or limitations;
and any vesting, exchange, surrender, cancellation, acceleration,
termination, exercise or forfeiture provisions; and
(vii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Holders of
any Awards. No member of the Board or any Committee administering the Plan shall
be liable for any action taken or determination made in good faith with respect
to the Plan or any Option granted hereunder.
4. STOCK SUBJECT TO THE PLAN.
The maximum aggregate number of Shares that may be acquired by Holders of
any Awards granted under the Plan is 3,000,000 Shares and the maximum number of
Shares that may be acquired by an individual Holder under the Plan shall not
exceed 1,500,000 (in each case subject to adjustment as provided in Section 12
of the Plan). The Shares may be authorized but unissued or reacquired Common
Stock.
If any shares of Stock that have been granted pursuant to a Stock Option
cease to be subject to a Stock Option, or if any shares of Stock that are
subject to any Stock Appreciation Right, Restricted Stock, Deferred Stock award,
Reload Stock Option or Other Stock-Based Award granted hereunder are forfeited
or any such award otherwise terminates without a payment being made to the
Holder in the form of Stock, such shares shall again be available for
distribution in connection with future grants and awards under the Plan. Only
net shares issued upon a stock-for-stock exercise (including stock used for
withholding taxes) shall be counted against the number of shares available under
the Plan.
5. ELIGIBILITY.
(a) Awards may be made or granted to key employees, officers,
directors and consultants of the Company who are deemed to have rendered or to
be able to render significant services to the Company or its Subsidiaries and
who are deemed to have contributed or to have the potential to contribute to the
success of the Company. No Incentive Stock Option shall be granted to any person
who is not an employee of the Company or a Subsidiary at the time of grant.
6
<PAGE>
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonqualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company or any Affiliate) exceeds $100,000, such Options shall
be treated for tax purposes as Nonqualified Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. For purposes of this Section 5(b), the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(c) Neither the Plan nor any Award shall confer upon any Holder any
right with respect to continuation of his or her employment or consulting
relationship with the Company or any Affiliate, nor shall it interfere in any
way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
6. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Committee, but
in the case of an Incentive Stock Option:
(i) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Affiliate, the per
Share exercise price shall not be less than 110% of the Fair Market Value
per Share on the date of grant; and
(ii) granted to any other Employee, the per Share exercise price
shall not be less than 100% of the Fair Market Value per Share on the
date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Committee (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration shall be paid, to the
extent permitted by applicable statutes and regulations at the time the Option
is exercised, either (i) in cash or check, or (ii) at the discretion of the
Committee, in one or a combination of the following ways (which may be in
combination with or in lieu of payment by cash or check): (A) by delivery to the
Company of other Shares of Common Stock of the Company to be valued at their
Fair Market Value on the exercise date, (B) according to a deferred payment or
other arrangement with the Person to whom the Option is granted or to whom the
Option is transferred pursuant to Section 15, (C) withholding of Shares that
would otherwise be issued upon the exercise of the Option, valued at their Fair
Market Value on the exercise date, or (D) in any other form of legal
consideration that may be acceptable to the Committee. In making its
determination as to the type of consideration to accept, the Committee shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company. In addition, such consideration shall be accompanied by the
delivery by the Optionee of a properly executed exercise notice together with
such other documentation as the
7
<PAGE>
Committee and a broker, if applicable, shall require to effect an exercise of
the Option and delivery to the Company of the sale or loan proceeds required to
pay the exercise price.
7. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Committee, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan. The total number of Shares subject to an Option may, but need not, be
allotted in periodic installments (which may, but need not, be equal). The
Option Agreement may provide that from time to time during each of such
installment periods, the Option may become exercisable with respect to some or
all of the Shares allotted to that period and may be exercised with respect to
some or all of the Shares allotted to such period and/or any prior period as to
which the Option became vested but was not fully exercised.
An Option may not be exercised for a fraction of a Share. Exercise of an
Option in any manner shall result in a decrease in the number of Shares that
thereafter may be available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
Subject to Section 18, an Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option Agreement by the Person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. To the extent required by applicable federal,
state, local or foreign law, an Optionee shall make arrangements satisfactory to
the Company for the satisfaction of any withholding tax obligations that arise
by reason of an Option exercise or any sale of Shares, which obligations may, as
authorized by the Committee, consist of any consideration and method of payment
allowable under Section 6(b) hereof. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote, receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 hereof.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Subject to
paragraph (c) below, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant, such Optionee may exercise his or her
Option to the extent that the Optionee was entitled to exercise it at the date
of such termination; provided, however, that such Option may be exercised only
within such period of time as is determined by the Committee at the date of
grant. Such time period shall not, in the case of an Incentive Stock Option,
exceed three (3) months after the date of such termination and shall not, in any
case, be later than the expiration date of the term of such
8
<PAGE>
Option as set forth in the Option Agreement. To the extent that the Optionee was
not entitled to exercise the Option at the date of such termination, or if the
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan. An Optionee's Continuous Status as an Employee
or Consultant shall not be terminated in the event of Optionee's change of
status from an Employee to a Consultant or from a Consultant to an Employee;
provided, however, that in the event of an Optionee's change of status from an
Employee to a Consultant, any Incentive Stock Option granted to such Employee
shall automatically cease to be treated for tax purposes as an Incentive Stock
Option and shall be treated for tax purposes as a Nonqualified Stock Option on
the day three months and one day following such change of status.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent he or she otherwise was entitled to exercise it at the date of
such termination. If such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, then in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically cease to be treated for
tax purposes as an Incentive Stock Option and shall be treated for tax purposes
as a Nonqualified Stock Option on the day three months and one day following
such termination. To the extent that the Optionee was not entitled to exercise
the Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement) by the Optionee's estate or by any
Person who acquired the right to exercise the Option by bequest or inheritance
(the "Option Beneficiary"), but only to the extent that the Optionee was
entitled to exercise the Option on the date of death. To the extent that, at the
time of death, the Optionee was not entitled to exercise the Option, or if the
Option Beneficiary does not exercise the Option within the time specified
herein, the Option shall terminate and the Shares covered by such Option shall
revert to the Plan.
(e) STOCK RELOAD OPTION. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Non-Qualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price of the Fair Market Value as of the date of
the Stock Reload Option grant. Unless the Committee determines otherwise, a
Stock Reload Option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the Option to which the Stock Reload
Option is related.
9
<PAGE>
8. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
tandem with (i.e., Tandem Stock Appreciation Right) or in conjunction with all
or part of any Stock Option granted under the Plan or may be granted on a
free-standing basis. In the case of a Non-Qualified Stock Option, a Tandem Stock
Appreciation Right may be granted either at or after the time of the grant of
such Non-Qualified Stock Option. In the case of an Incentive Stock Option, a
Tandem Stock Appreciation Right may be granted only at the time of the grant of
such Incentive Stock Option.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to the following terms and conditions:
(i) EXERCISABILITY. Tandem Stock Appreciation Rights shall
be exercisable only at such time or times and to the extent that the
Stock Options to which they relate shall be exercisable in accordance
with the provisions of Section 7 hereof and this Section 8 and may be
subject to the Code with respect to related Incentive Stock Options
and such additional limitations on exercisability as shall be
determined by the Committee and set forth in the Agreement. Other
Stock Appreciation Rights shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by
the Committee and set forth in the Agreement.
(ii) TERMINATION. A Tandem Stock Appreciation Right shall
terminate and shall no longer be exercisable upon the termination or
exercise of the related Stock Option, except that, unless otherwise
determined by the Committee at the time of grant, a Tandem Stock
Appreciation Right granted with respect to less than the full number of
shares covered by a related Stock Option shall not be reduced until after
the number of shares remaining under the related Stock Option equals the
number of shares covered by the Tandem Stock Appreciation Right.
(iii) METHOD OF EXERCISE. A Tandem Stock Appreciation Right may
be exercised by a Holder by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the Holder shall
be entitled to receive such amount in the form determined pursuant to
Section 8(b)(iv) below. Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the
related Tandem Stock Appreciation Rights have been exercised.
(iv) RECEIPT OF SAR VALUE. Upon the exercise of a Stock
Appreciation Right, a Holder shall be entitled to receive up to, but not
more than, an amount in cash and/or shares of Stock equal to the SAR
Value with the Committee having the right to determine the form of
payment.
(v) SHARES AFFECTED UPON PLAN. Upon the exercise of a Tandem
Stock Appreciation Right, the Stock Option or part thereof to which such
Tandem Stock
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Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 4 hereof on the number
of shares of Common Stock to be issued under the Plan, but only to the
extent of the number of shares, if any, issued under the Tandem Stock
Appreciation Right at the time of exercise based upon the SAR Value.
9. RESTRICTED STOCK.
(a) GRANT. Shares of Restricted Stock may be awarded either alone or
in addition to other Awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Restricted Stock will be awarded, the number of shares to be awarded, the
price (if any) to be paid by the Holder, the time or times within which such
Awards may be subject to forfeiture ("Restriction Period"), the vesting schedule
and rights to acceleration thereof, and all other terms and conditions of the
Awards.
(b) TERMS AND CONDITIONS. Each Restricted Stock Award shall be subject
to the following terms and conditions:
(i) CERTIFICATES. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name
of the Holder to whom such Restricted Stock shall have been awarded.
During the Restriction Period, certificates representing the Restricted
Stock and any securities constituting Retained Distributions (as defined
below) shall bear a legend to the effect that ownership of the Restricted
Stock (and such Retained Distributions), and the enjoyment of all rights
appurtenant thereto, are subject to the restrictions, terms and
conditions provided in the Plan and the Agreement. Such certificates
shall be deposited by the Holder with the Company, together with stock
powers or other instruments of assignment, each endorsed in blank, which
will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions
that shall be forfeited or that shall not become vested in accordance
with the Plan and the Agreement.
(ii) RIGHTS OF HOLDER. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The
Holder will have the right to vote such Restricted Stock, to receive and
retain all regular cash dividends and other cash equivalent distributions
as the Board may in its sole discretion designate, pay or distribute on
such Restricted Stock and to exercise all other rights, powers and
privileges of a holder of Common Stock with respect to such Restricted
Stock, with the exceptions that (A) the Holder will not be entitled to
delivery of the stock certificate or certificates representing such
Restricted Stock until the Restriction Period shall have expired and
unless all other vesting requirements with respect thereto shall have
been fulfilled; (B) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (C) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion
designate, pay or distribute, the Company will retain custody of all
distributions ("Retained Distributions") made or declared with
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respect to the Restricted Stock (and such Retained Distributions will be
subject to the same restrictions, terms and conditions as are applicable
to the Restricted Stock) until such time, if ever, as the Restricted
Stock with respect to which such Retained Distributions shall have been
made, paid or declared shall have become vested and with respect to which
the Restriction Period shall have expired; (D) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement
or otherwise established by the Committee with respect to any Restricted
Stock or Retained Distributions will cause a forfeiture of such
Restricted Stock and any Retained Distributions with respect thereto.
(iii) VESTING: FORFEITURE. Upon the expiration of the Restriction
Period with respect to each Award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions
(A) all or part of such Restricted Stock shall become vested in
accordance with the terms of the Agreement, and (B) any Retained
Distributions with respect to such Restricted Stock shall become vested
to the extent that the Restricted Stock related thereto shall have become
vested. Any such Restricted Stock and Retained Distributions that do not
vest shall be forfeited to the Company and the Holder shall not
thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
10. DEFERRED STOCK.
(a) GRANT. Shares of Deferred Stock may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which receipt of the shares will be deferred, and all the other
terms and conditions of the Awards.
(b) TERMS AND CONDITIONS. Each Deferred Stock Award shall be subject
to the following terms and conditions:
(i) CERTIFICATES. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 10(b)(iii) below,
where applicable), share certificates shall be delivered to the Holder,
or his legal representative, representing the number equal to the shares
covered by the Deferred Stock Award.
(ii) VESTING; FORFEITURE. Upon the expiration of the Deferral
Period (or the Additional Deferral Period, where applicable) with respect
to each Award of Deferred Stock and the satisfaction of any other
applicable limitations, terms or conditions, such Deferred Stock shall
become vested in accordance with the terms of the Agreement. Any Deferred
Stock that does not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Deferred Stock
that has been so forfeited.
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(iii) ADDITIONAL DEFERRAL PERIOD. A Holder may request to, and
the Committee may at any time, defer the receipt of an Award (or an
installment of an Award) for an additional specified period or until a
specified event ("Additional Deferral Period"). Subject to any exceptions
adopted by the Committee, such request must generally be made at least
one year prior to expiration of the Deferral Period for such Deferred
Stock Award (or such installment).
11. OTHER STOCK-BASED AWARDS.
(a) GRANT AND EXERCISE. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and Awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other Awards under
this Plan or any other plan of the Company.
(b) ELIGIBILITY FOR OTHER STOCK-BASED AWARDS. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such Other Stock-Based Awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such Awards, and all other terms and conditions
of the Awards.
(c) TERMS AND CONDITIONS. Each Other Stock-Based Award shall be
subject to such terms and conditions as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Award, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Award, as well as the price per share of Common Stock covered by each such
outstanding Award, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company.
The conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible or
exchangeable into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall
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be made with respect to, the number or exercise price of shares of Common Stock
subject to an Award.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Committee shall notify the Holder
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Award shall terminate immediately prior to
the consummation of such proposed action; provided, however, that the Committee
may, in the exercise of its sole discretion in such instances, declare that any
Award shall terminate as of an earlier date fixed by the Committee and give each
Holder the right to exercise his or her rights as to all or any part of the
Award, including Shares as to which the Award would not otherwise be
exercisable.
(c) MERGER OR ASSET SALE. Subject to Section 12(d), in the event of
the merger of the Company into, or the consolidation of the Company with,
another corporation in which the shareholders of the Company receive cash or
securities of another issuer, or any combination thereof, in exchange for their
shares of Common Stock, or the sale of all or substantially all of the assets of
the Company, each outstanding Award shall be assumed or an equivalent option or
right substituted by the successor corporation or an Affiliate of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Award, the Holder shall fully vest in and have the right to
exercise the Award (provided it has not already terminated), including Shares as
to which it would not otherwise be vested or exercisable. If an Award becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger, consolidation or sale of assets, the Committee shall notify the
Holder that the Award shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Award shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Award shall
be considered assumed if, following the merger, consolidation or sale of assets,
the option substituted for such Award confers the right to purchase or receive,
for each Share of Stock subject to the Award immediately prior to the merger,
consolidation or sale of assets, the per Share consideration (whether stock,
cash, or other securities or property) received in the merger, consolidation or
sale of assets by holders of Common Stock (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger, consolidation or sale of assets is not solely common
stock of the successor corporation or its Parent (if any), the Committee may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Award, for each Share of Stock subject to
the Award, to be solely common stock of the successor corporation or its Parent
(if any) equal in fair market value to the per Share consideration received by
holders of Common Stock in the merger, consolidation or sale of assets.
(d) CHANGE OF CONTROL. Notwithstanding anything to the contrary, the
Committee may grant Awards which provide for the acceleration of the vesting of
Shares subject to the Award upon a Change of Control. Such provisions shall be
set forth in the Agreement.
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(e) FURTHER ADJUSTMENTS. In the event of any change of a type
described in paragraphs (a) or (c) above, the Committee shall make any further
adjustment to the maximum number of Shares which may be acquired under the Plan
pursuant to the exercise of Awards, the maximum number of Shares for which
Awards may be granted to any one Employee and the number of Shares and price per
Share subject to outstanding Awards as shall be equitable to prevent dilution or
enlargement of rights under such Awards, and the determination of the Committee
as to these matters shall be conclusive and binding on the Holder; provided,
however, that (i) each such adjustment with respect to an Incentive Option shall
comply with the rules of Section 424(a) of the Code (or any successor provision)
and (ii) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder other than an "incentive stock option"
as defined in Section 422 of the Code.
(f) NO LIMITATION ON RIGHT TO MERGE, ETC. The grant of Awards pursuant
to the Plan shall not restrict in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve, liquidate, or sell or
transfer all or any part of its business or assets.
13. TERM OF PLAN.
The Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the shareholders of the Company, as
described in Section 21 of the Plan. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 17 of the Plan.
14. TERM OF OPTIONS.
The term of each Option shall be the term stated in the Option Agreement;
provided, however, that the term shall be no more than ten (10) years from the
date of grant thereof; and provided further that in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Affiliate, the term of the Option shall
be no more than five (5) years from the date of grant thereof.
15. NON-TRANSFERABILITY OF AWARDS.
An Incentive Stock Option shall not be transferrable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Person to whom the Incentive Stock Option is granted only by
such Person. Any other Award, including a Nonqualified Stock Option, shall not
be transferrable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order, as defined by the Code or by
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of
the Person to whom the Option is granted only by such Person or any transferee
pursuant to a QDRO; provided, however, that the Board of Directors or the
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Committee, as applicable, in its discretion, may allow for transferability of
Nonqualified Stock Options by a Holder to "Immediate Family Members." For
purposes of the Plan, "Immediate Family Members" means children, grandchildren,
spouse or common law spouse, siblings or parents of the Holder or to bona fide
trusts, partnerships or other entities controlled by and of which the
beneficiaries are Immediate Family Members of the Holder. Any Nonqualified Stock
Option grants that are transferable are further conditioned on the Holder and
Immediate Family Members agreeing to abide by the Company's then current stock
option transfer guidelines.
16. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the date on
which the Committee makes the determination granting such Award, or such other
date as is determined by the Committee. Notice of the determination shall be
given to each Employee or Consultant to whom an Award is so granted within a
reasonable time after the date of such grant.
17. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may amend or terminate the Plan in any respect whatsoever,
provided that any such amendment or termination of the Plan shall not affect
Award already granted and such Award shall remain in full force and effect as if
the Plan had not been amended or terminated. In addition, to the extent
necessary and desirable to comply with Rule 16b-3 (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
18. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued pursuant to an Award unless the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
Applicable Laws, including, without limitation, the Securities Act of 1933, as
amended (the "Securities Act"), the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed or any automatic quotation system upon which the
Shares may then be quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
The Company may require any Optionee or other Holder, as a condition of
receiving Shares pursuant to an Award, (i) to give written assurances
satisfactory to the Company as to the Holder's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matter, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Award; (ii) to give written assurances satisfactory to the
Company stating that such Person is acquiring the Shares subject to the Award
for such Person's own account and not with any present intention of selling or
otherwise distributing such
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Shares; and (iii) to deliver such other documentation as may be necessary to
comply with federal and state securities laws. These requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the Shares upon the exercise of the Award has been registered under
a then currently effective registration statement under the Securities Act and
all applicable state securities laws, or (ii) as to any particular requirement,
a determination is made by counsel for the Company that such requirement need
not be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Shares, and may enter
stop-transfer orders against the transfer of the Shares issued upon the exercise
of an Award.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
19. RESERVATION OF SHARES.
The Company, during the term of the Plan, shall at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
20. AGREEMENTS.
Options shall be evidenced by Option Agreements in such form as the
Committee shall approve from time to time. Other Awards shall be evidenced by
similar Agreements.
21. SHAREHOLDER APPROVAL.
Continuance of the Plan shall be subject to approval by the shareholders
of the Company within twelve (12) months before or after the date the Plan is
adopted. Such shareholder approval shall be obtained to the extent and in manner
required under Applicable Laws and the rules of any stock exchange upon which
the Common Stock is listed or any automatic quotation system upon which the
Common Stock is quoted.
22. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options or other Awards shall
constitute general funds of the Company.
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23. MISCELLANEOUS.
(a) ACCELERATION OF VESTING. The Committee shall have the power to
accelerate the time at which an Award may first be exercised or the time during
which an Award or any part thereof will vest, notwithstanding the provisions in
the Award Agreement stating the time at which it may first be exercised or the
time during which it will vest.
(b) RULE 16b-3. With respect to Persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 and with respect to such Persons all
transactions shall be subject to such conditions regardless of whether they are
expressly set forth in the Plan or the Award Agreement. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall
not apply to such Persons or their transactions and shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
(c) GRANTS EXCEEDING ALLOTTED SHARES. If the number of shares of Stock
subject to an Award granted pursuant to the Plan exceeds, as of the date of
grant, the number of Shares that may be issued under the Plan without additional
shareholder approval, such Award shall be void with respect to such excess
Shares, unless shareholder approval of an amendment sufficiently increasing the
number of Shares subject to the Plan is timely obtained in accordance with
Section 17 of the Plan.
(d) NOTICE. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Secretary of the Company and
shall become effective when it is received. Any written notice to Holders
required by any provisions of the Plan shall be addressed to the Holder at the
address on file with the Company and shall become effective three days after it
is mailed by certified mail, postage prepaid to such address or at the time of
delivery if delivered sooner by messenger or overnight courier.
(e) SAVINGS CLAUSE. Notwithstanding any other provision hereof, the
Plan is intended to qualify as a plan pursuant to which Incentive Stock Options
may be issued under Section 422 of the Code. If the Plan or any provision of the
Plan shall be held to be invalid or to fail to meet the requirements of Section
422 of the Code or the regulations promulgated thereunder, such invalidity or
failure shall not affect the remaining parts of the Plan, but rather it shall be
construed and enforced as if the Plan or the affected provision thereof, as the
case may be, complied in all respects with the requirements of Section 422 of
the Code.
(f) GOVERNING LAW. The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the laws of the State of
Texas without regard to its conflict of laws rules.
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EXHIBIT A
AMX CORPORATION
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's name and address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of this Option Agreement and the Plan,
including the provisions thereof relating to increases in the number of shares
covered by this Option upon the occurrence of certain specified events, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date.................. _________________________
Exercise Price per Share................... $________________________
Total Number of Shares Granted............. _________________________
Total Exercise Price....................... $________________________
Type of Option: ____ Incentive Stock Option
____ Nonqualified Stock Option
Term/Expiration Date:
(No more than 10 years from date
of grant, 5 years for certain grants)
VESTING SCHEDULE
This Option may be exercised, in whole or in part, in accordance with the
following schedule. Except only as specifically provided elsewhere herein or in
the Plan, this Option shall be exercisable in the following cumulative
installments:
[NOTE: TO BE COMPLETED UPON GRANT OF OPTIONS]
TERMINATION PERIOD
You may exercise this Option for three months (or such shorter period
provided for elsewhere herein) after your employment or consulting relationship
with the Company terminates, or for such
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longer period upon your death or disability as provided in the Plan. If your
status changes from Employee to Consultant or Consultant to Employee, this
Option Agreement shall remain in effect. In no case may you exercise this Option
after the Term/Expiration Date as provided above. Notwithstanding the foregoing,
in the event the Company terminates your employment for Cause (as defined
below), this Option will terminate on the date of the termination of your
employment and will not be exercisable thereafter. For purposes of this
Agreement, "Cause" means the occurrence of any of the following events or
reasons:
(a) Optionee's conviction for a felony offense or commission by
Optionee of any act abhorrent to the community that the Company considers
materially damaging to or tending to discredit the reputation of the Company;
(b) Dishonesty, fraud, willful misconduct, unlawful discrimination or
theft on the part of Optionee;
(c) Optionee's using for his or her own benefit any confidential or
proprietary information of the Company, or willfully or negligently divulging
any such information to third parties without the prior written consent of the
Company;
(d) Optionee's public drunkenness, public 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 Optionee may consume alcohol reasonably and responsibly, if he or she so
chooses, at legitimate business events and functions where alcohol is legally
available); or
(e) the determination by the Company that Optionee has continually
failed or refused to comply, after notice of and a reasonable opportunity to
cure such failure or refusal, with the policies, standards, regulations,
instructions, or directions of the Company as they currently exist or as they
may be modified from time to time.
II. AGREEMENT
1. GRANT OF OPTION. AMX Corporation (the "Company") hereby grants to
the Optionee named in Section I hereof (the "Optionee") an option (the"Option")
to purchase the total number of shares of Common Stock (the "Shares") set forth
in Section I hereof, at the exercise price per share set forth in Section I
hereof (the "Exercise Price") subject to the terms, definitions and provisions
of the 1999 Stock Option Plan (the "Plan") adopted by the Company, which is
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in Section I hereof as an Incentive Stock Option, this
Option is intended (subject to Section 5(b) of the Plan) to qualify as an
Incentive Stock Option as defined in Section 422 of the Code.
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2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in Section I hereof and
with the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in the form attached hereto as Exhibit A) which shall state the election
to exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
The Optionee shall, upon notification of the amount due (if any) as a
result of the exercise of the Option and prior to or concurrent with delivery of
the certificate representing the Shares, pay to the Company as provided in the
Plan amounts necessary to satisfy applicable federal, state and local tax
withholding requirements.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed or any automatic quotation system upon which the Shares may then be
quoted. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. METHOD OF PAYMENT. The purchase price of Optioned Shares acquired
pursuant to the Option shall be paid as set forth in the Plan. THE USE OF SHARES
OF STOCK ACQUIRED OR TO BE ACQUIRED TO PAY FOR EXERCISED SHARES MAY HAVE INCOME
TAX CONSEQUENCES FOR THE OPTIONEE.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, and
may not be exercised if the issuance of such Shares upon such exercise or the
method of payment of consideration for such shares would constitute a violation
of any applicable federal or state securities or other law or regulation,
including any rule under Part 207 of Title 12 of the Code of Federal Regulations
as promulgated by the Federal Reserve Board.
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5. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
or as otherwise set forth in the Plan and may be exercised during the lifetime
of Optionee only by Optionee or a permitted transferee as set forth in the Plan.
The terms of the Plan and this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
6. TERM OF OPTION. This Option may be exercised only within the term
set out in Section I hereof, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Sections 5 and 6 of the Plan regarding Options designated as Incentive Stock
Options and Options granted to more than ten percent (10%) shareholders shall
apply to this Option.
7. TAX CONSEQUENCES. The grant and/or exercise of the Option will
have federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES ACQUIRED UPON EXERCISE, PARTICULARLY WITH RESPECT TO HIS
OR HER STATE'S TAX LAWS.
8. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and this Option Agreement may not be
amended except by means of a writing signed by the Company and Optionee. This
Option Agreement is governed by Texas law except for that body of law pertaining
to conflict of laws.
9. WARRANTIES, REPRESENTATIONS AND COVENANTS. The undersigned
Optionee warrants and represents that he or she has reviewed the Plan and this
Option Agreement in their entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Option Agreement and fully understands all
provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Committee
upon any questions relating to the Plan and Option Agreement. Optionee further
agrees to notify the Company upon any change in the residence address indicated
below. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS OPTION AGREEMENT, NOR IN THE PLAN, WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
22
<PAGE>
AMX CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
OPTIONEE:
----------------------------------------
Signature
----------------------------------------
Print Name
----------------------------------------
Residence Address
----------------------------------------
Area Code/Telephone Number
23
<PAGE>
EXHIBIT A
AMX CORPORATION
1999 EQUITY INCENTIVE PLAN
EXERCISE NOTICE
AMX Corporation
11995 Forestgate Drive
Dallas, Texas 75243
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______ shares (the "Shares")
of the Common Stock of AMX Corporation (the "Company") under and pursuant to the
1999 Stock Option Plan (the "Plan") and the Stock Option Agreement dated
_______, 199__ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as specified in the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares of ____________________________________.
THE USE OF SHARES OF STOCK ACQUIRED OR TO BE ACQUIRED FOR EXERCISED SHARES
MAY HAVE INCOME TAX CONSEQUENCES FOR THE OPTIONEE.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. The Purchaser shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any Shares
subject for which such Option is exercised including, but not limited to, rights
to vote or to receive dividends unless and until the Purchaser has satisfied all
requirements for exercise of the Option pursuant to its terms, the certificates
evidencing such Shares have been issued and the Purchaser has become a record
holder of such Shares. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date all the conditions set forth above are
satisfied, except as provided in Section 12 of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with
24
<PAGE>
the purchase or disposition of the Shares and that Purchaser is not relying on
the Company for any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and this Agreement may not be amended except by means of a writing
signed by the Company and Purchaser. This Agreement is governed by Texas law
except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
PURCHASER: AMX CORPORATION
_____________________________ By: ______________________________
Signature
_____________________________ Its: _____________________________
Print Name
Address: Address:
_____________________________ 11995 Forestgate Drive
Dallas, Texas 75243
_____________________________
25
<PAGE>
Exhibit 10.26
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "AGREEMENT"), dated as of January 15,
1999, is entered into by and between AMX Corporation, a Texas corporation (the
"COMPANY"), and John F. McHale, an individual residing in the State of Texas
(the "INVESTOR").
A. Investor desires to purchase 623,520 shares (the "Shares") of the
common stock, par value $.01 per share (the "COMMON STOCK"), of the Company, at
a purchase price of $8.019 per share, such purchase price per share to be equal
to the average closing price of the Common Stock as quoted on The Nasdaq Stock
Market for the last ten trading days, including the date hereof, for an
aggregate purchase price of $5,000,007.00
B. The parties hereto desire to enter this Agreement to provide for
the purchase by the Investor of the Shares on the terms set forth herein and to
govern the parties' respective rights and obligations with respect thereto.
Accordingly, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK
1.1 PURCHASE AND SALE.
A. Subject to the terms and conditions set forth herein, the Company
shall issue and sell and the Investor shall purchase 623,520 Shares of Common
Stock. The purchase price (the "PURCHASE PRICE") for the Shares shall be $8.019
per Share, for an aggregate Purchase Price of $5,000,007.00.
B. The Company will file with The Nasdaq Stock Market a Notification
Form for Listing of Additional Shares, which such notification form is required
to be filed fifteen days prior to the issuance of any additional shares by the
Company. At the end of such fifteen day period, the Company shall deliver to the
Investor one or more stock certificates representing 623,520 Shares registered
in the names and in the amounts as specified by the Investor and (2) the
Investor shall deliver by wire transfer or certified check to the Company in
immediately available funds in U.S. dollars an amount equal to the Purchase
Price.
C. The Investor agrees to deliver to the Company from time to time
such documents and certificates as may be reasonably requested by the Company to
comply with the applicable securities laws and the rules and regulations of The
Nasdaq Stock Market.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; CERTAIN AGREEMENTS
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor as of the date hereof as follows: (a)
the Company and each of its subsidiaries are duly organized, validly existing
and in good standing under the laws of their respective jurisdictions of
organization, (b) the Company has all corporate and other necessary power and
authority, and the legal right, to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate all of the transactions
<PAGE>
contemplated hereby, (c) the Company has authorized the issuance of the Shares
and the Shares, when issued and delivered as provided hereunder against payment
in accordance with the terms hereof, will be duly authorized, issued and
outstanding, fully-paid and non-assessable, (d) this Agreement has been duly
authorized by all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company, (e) this Agreement constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally, (f) the execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby do not
(i) contravene the Company's articles of incorporation or bylaws or (ii) breach
or constitute a default under any loan or purchase agreement, indenture,
mortgage, deed of trust, lease, instrument, contract or other agreement binding
on or affecting the Company, any of its subsidiaries or any of their respective
property or assets the breach of which, either individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the Company
and its subsidiaries taken as a whole, (g) no governmental authorization, and no
consent, approval or authorization of, or notice to, or other action by, any
other person, is required for the due execution, delivery, recordation, filing
or performance by the Company of this Agreement, or for any of the other
transactions contemplated hereby, except for any such authorization or consent
which has been or will be obtained prior to the time at which it is required to
be obtained, and (h) the Company has furnished or made available to the Investor
a true and complete copy of its Form 10-K for the fiscal year ended March 31,
1998 and its Form 10- Q for the fiscal quarter ended September 30, 1998
(collectively, the "SEC DOCUMENTS"), which the Company filed under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), with the
Securities and Exchange Commission ("SEC") and, as of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except to the extent
corrected by a subsequently filed document with the SEC.
2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
hereby represents and warrants to the Company as of the date hereof:
A. AUTHORITY. The Investor has the requisite power and authority to
enter into and to consummate the transactions contemplated hereby and otherwise
to carry out his obligations hereunder. This Agreement has been duly executed
and delivered by the Investor and constitutes the valid and legally binding
obligation of the Investor, enforceable against him in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to, or affecting
generally the enforcement of, creditors rights and remedies or by other general
principles of equity.
B. NO SOLICITATION. The offering of the Shares in the Company to the
Investor was made only through direct, personal communication between the
Investor and a duly authorized representative of the Company and not through
public solicitation or advertising.
C. INVESTMENT INTENT. The Investor is acquiring the Shares for his
own account for investment purposes only and not with a view to or for
distributing or reselling such Shares or any part thereof or interest therein
and the Investor does not presently have any reason to anticipate any change in
his circumstances or other particular occasion or event which would cause him to
sell such Shares, without prejudice, however, to the Investor's right, subject
to the provisions of this Agreement, at all times to sell or otherwise dispose
of all or any part of such Shares pursuant to an effective registration
statement under the Securities Act of 1933, as
-2-
<PAGE>
amended (the "SECURITIES ACT"), or pursuant to an available exemption from the
registration requirements thereunder and in compliance with applicable state
securities laws; provided, however, that the Investor acknowledges that the
Company has no obligation to register the Shares under the Securities Act or any
other securities laws.
D. INVESTOR STATUS. At the time the Investor was offered the Shares
to be acquired hereunder, the Investor was and at the date hereof, the Investor
is an "accredited investor" as defined in Rule 501(a) under the Securities Act.
E. INVESTMENT COMPANY. The Investor is not, and following issuance of
the Shares will not be, nor is the Investor an affiliate of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
F. EXPERIENCE OF INVESTOR. The Investor, either alone or together
with the Investor's representatives, has such knowledge, sophistication and
experience in business, investment and financial matters, and has such
knowledge, sophistication and experience in evaluating and investing in common
stocks and other securities based on actual participation in business,
investment and financial matters, so as to be capable of evaluating the merits
and risks of an investment in the Shares to be acquired by the Investor
hereunder, and has so evaluated the merits and risks of such investment.
G. ABILITY OF INVESTOR TO BEAR RISK OF INVESTMENT. The Investor is
able to bear the economic risk of an investment in the Shares to be acquired
hereunder and, at the present time, is able to afford a complete loss of such
investment. The Investor is aware that no guarantees have been or can be made by
the Company or any of its representatives respecting the future value, if any,
of the Shares or the profitability or success of the business of the Company and
no assurances are or have been made concerning the dividend or distribution by
the Company of cash to its shareholders.
H. ACCESS TO INFORMATION. The Investor acknowledges that he has been
a member of the Board of Directors of the Company since October 22, 1997. The
Investor acknowledges that, as a member of the Board of Directors of the Company
and otherwise, he has been afforded (i) the opportunity to ask such questions as
the Investor has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the Shares
offered hereunder and the merits and risks of investing in such Shares; (ii)
access to information about the Company and the Company's financial condition,
results of operations, cash flow, business, properties, assets, management and
business prospects sufficient to enable him to evaluate an investment in such
Shares; and (iii) the opportunity to obtain such additional information which
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment.
I. RELIANCE. The Investor understands and acknowledges that (i) the
Shares being offered and sold to Investor hereunder are being offered and sold
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under Section 4(2)
of the Securities Act and (ii) the availability of such exemption depends in
part on, and that the Company will rely upon the accuracy and truthfulness of,
the foregoing representations and the Investor hereby consents to such reliance.
J. CERTAIN FEES. Except as provided herein, no fees or commissions
will be payable by the Investor to any broker, financial advisor, finder,
investment banker, or bank with respect to the transactions
-3-
<PAGE>
contemplated by this Agreement. The Company acknowledges and agrees that the
Investor makes no representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.
2.3 SURVIVAL. All representations, warranties and covenants contained
herein shall survive the execution and delivery of this Agreement indefinitely.
2.4 TRANSFER RESTRICTIONS.
A. If the Investor should decide to dispose of any Shares to be
acquired hereunder, the Investor understands and agrees that he may do so only
(i) pursuant to an effective registration statement under the Securities Act,
(ii) to the Company or (iii) pursuant to an available exemption or exclusion
from the registration requirements of the Securities Act. In connection with any
transfer of any Shares other than pursuant (i) to an effective registration
statement, (ii) to the Company, (iii) to an affiliate of the Investor which is
an "accredited investor" within the meaning of Rule 501(a) under the Securities
Act, provided that any such transferee shall agree to be bound by the terms of
this Agreement, and (iv) in reliance on Rule 144 under the Securities Act, the
Company may require that the transferor provide to the Company an opinion in
form and substance reasonably satisfactory to the Company of counsel experienced
in the area of United States securities laws selected by the transferor to the
effect that such transfer does not require registration of such Shares under the
Securities Act.
B. The Investor agrees to the imprinting, so long as appropriate, of
the following legend on certificates representing the Shares:
THESE SHARES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS
THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET
FORTH IN A SUBSCRIPTION AGREEMENT, DATED AS OF JANUARY 15, 1999, BETWEEN
THE COMPANY AND THE ORIGINAL HOLDER HEREOF. A COPY OF SUCH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
The legend set forth above shall be removed in connection with any resale
of Shares pursuant to an effective registration statement under the Securities
Act or sooner if, in the opinion of counsel to the Company and the Investor
experienced in the area of United States securities laws, such legend is no
longer required under applicable requirements of the Securities Act (including
judicial interpretation and pronouncements issued by the staff of the SEC). The
certificates representing the Shares shall also bear any other legends required
by applicable federal or state securities laws, which legends shall be removed
when, in the opinion of
-4-
<PAGE>
counsel to the Company, such legends are no longer required under the applicable
requirements of such securities laws. In connection therewith, the Company may
request, and the Investor or other transferor shall provide, such information as
the Company or its counsel may reasonably request to evaluate the propriety of
removing any legends. The Company makes no representation, warranty or agreement
as to the availability of any exemption from registration under the Securities
Act with respect to any resale of Shares. The Investor agrees that the Company
shall be entitled to make a notation on its records and give instructions to any
transfer agent of the Company in order to implement the restrictions on transfer
set forth in this Section 2.4.
ARTICLE III
MISCELLANEOUS
3.1 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Investor and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
3.2 WAIVER AND AMENDMENT. This Agreement may be amended, and the
observance of any term hereof may be waived (either retroactively or
prospectively), with and only with the written consent of the Company and the
Investor. No amendment or waiver consented to as provided herein will extend to
or affect any obligation, covenant, or agreement not expressly amended or waived
or impair any right, power or remedy consequent thereon.
3.3 NOTICES. All notices and other communications provided for
hereunder shall be in writing and delivered by telecopier or (if expressly
permitted under the applicable provisions hereof by telephone, if the sender on
the same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), by registered or certified Mail with return
receipt requested (postage prepaid) or by a recognized overnight delivery
service (with charges prepaid). Any such notice must be sent:
(a) If to Investor:
John F. McHale
12303 Technology Blvd.
Austin, Texas 78727
(b) If to the Company:
AMX Corporation
11995 Forestgate Drive
Dallas, Texas 75243
Attention: Joe Hardt
Telecopier: 972-907-6234
-5-
<PAGE>
With a copy to:
Munsch Hardt Kopf & Harr, P.C.
1445 Ross Avenue
4000 Fountain Place
Dallas, Texas 75202
Attention: A. Michael Hainsfurther, Esq.
Telecopier: 214-855-7584
(c) If any notice required under this Agreement is permitted to
be made, and is made, by telephone, actions taken or omitted to be taken in
reliance thereon by the Investor shall be binding upon the Company
notwithstanding any inconsistency between the notice provided by telephone and
any subsequent writing in confirmation thereof provided to the Investor;
provided that any such action taken or omitted to be taken by the Investor shall
have been in good faith and in accordance with the terms of this Agreement.
3.4 SUCCESSORS AND ASSIGNS. All covenants and other agreements
contained in this Agreement by or on behalf of any of the parties hereto bind
and inure to the benefit of its or his successors and assigns, whether or not so
expressed.
3.5 SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by
applicable law) not invalidate or render unenforceable such provision in any
other jurisdiction.
3.6 CONSTRUCTION. Each covenant contained herein shall be construed
(absent express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance with
any other covenant. Where any provision herein refers to action to be taken by
any person, or which such person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
person.
3.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.
3.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the law of the State of Texas.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
AMX CORPORATION
By: /s/ Joe Hardt
-------------------------------
Joe Hardt, President
INVESTOR
By: /s/ John F. McHale
-------------------------------
John F. McHale
-7-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of this 30th day of March, 1999 by and among Summit Ventures III, L.P., Summit
Subordinated Debt Fund, L.P., and Summit Investors II, L.P. (collectively, the
"Sellers" and individually, each a "Seller" and all of which are part of an
affiliated group of investment partnerships referred to, collectively as "Summit
Partners") and AMX Corporation, a Texas corporation (the "Company").
WHEREAS, Summit Ventures III, L.P. is the legal and beneficial owner of
Four Hundred Seventeen Thousand Thirty Seven (417,037) shares of the $.01 par
value per share Common Stock of the Company (the "Common Stock") represented by
Stock Certificate No. C0650;
WHEREAS, Summit Subordinated Debt Fund, L.P. is the legal and beneficial
owner of Sixty Nine Thousand Five Hundred Nine (69,509) shares of the Common
Stock of the Company represented by Stock Certificate No. C0651;
WHEREAS, Summit Investors II, L.P. is the legal and beneficial owner of
Nine Thousand Nine Hundred Thirty (9,930) shares of the Common Stock of the
Company represented by Stock Certificate No. C0652;
WHEREAS, the Company wishes to effect a purchase of certain shares of the
issued and outstanding Common Stock of the Company held by the Sellers;
NOW, THEREFORE, for and in consideration of the above, and the premises
set forth herein and other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE AND SALE OF THE STOCK. Sellers hereby agree as to
themselves to bargain, grant, sell and convey all of the Common Stock set forth
below opposite its name to the Company and the Company hereby agrees to purchase
such Common Stock from each Seller on the terms and conditions hereinafter set
forth.
Summit Ventures III, L.P. 417,037
Summit Subordinated Debt Fund, L.P. 69,509
Summit Investors II, L.P. 9,930
2. PURCHASE PRICE. The purchase price ("Purchase Price") per share at
which the Company agrees to purchase and the Sellers agree to sell such shares
of Common Stock at Closing (as hereinafter defined) is nine dollars ($9.00)
payable by the Company to each of the Sellers at Closing by wire transfer.
Notwithstanding the above and except as set forth in the last sentence of this
section, the consideration paid to Sellers shall be increased if on or before
June 30, 1999 (i) the Company acquires shares of its Common Stock from any of
the shareholders listed on Exhibit "A" ("Certain Shareholders") at a per share
price in excess of nine dollars ($9.00) per share or (ii) the Company issues its
Common Stock at a per share price in excess of nine dollars ($9.00) per share to
Cisco Systems, Inc., a California corporation or any entity controlled by it
(collectively, "Cisco"), and such shares immediately after such issuance
constitute ten percent (10%) or more of the Company's issued and outstanding
shares of Common Stock. In either such event, the Company shall pay such
additional consideration to the Sellers so that the per share price paid to
Sellers is equal to the highest
<PAGE>
per share price paid to any of the Certain Shareholders or paid by Cisco,
whichever is applicable or if both are applicable, whichever is higher. The
right of Sellers to receive additional consideration shall not apply to any
transactions which occur after June 30, 1999 and shall not apply to any
purchases (i) pursuant to any offer made by the Company to all of its
shareholders, or (ii) made by the Company as part of any transaction which is
subject to Rule 13(e)-3, promulgated under the Securities Exchange Act of
1934, governing going private transactions.
3. CLOSING. The closing ("Closing") of the transactions contemplated
by this Agreement shall take place on or before March 31, 1999.
4. TRANSFER. At the Closing, each Seller hereby agrees to deliver to
the Company, the stock certificates evidencing those number of shares as set
forth opposite its name as set forth in Section 1 hereof, duly endorsed in blank
for transfer or accompanied by a duly executed stock power.
5. REPRESENTATIONS OF EACH SELLER. Each Seller, acting severally and
not jointly, hereby warrants and represents to the Company as follows:
(a) It owns all right, title or interest in the Common Stock set forth
opposite its name as set forth in Section 1 hereof free and clear of any claim,
security interest, mortgage, pledge, lien or other encumbrance of whatever
nature;
(b) Assuming due execution and delivery by the Company of this
Agreement, this Agreement constitutes the legal, valid and binding obligation of
such Seller, enforceable against such Seller in accordance with its terms;
(c) Such Seller, until the date hereof, has remained a shareholder of
the Company and is aware of the Company's business affairs and financial
conditions and has acquired information about the Company and its business,
assets, results of operations, and financial condition to reach an informed and
knowledgeable decision to sell its respective shares of the Company and such
Seller has had an opportunity to review all such information about the Company
as it desires and it has been given an opportunity to ask questions and receive
answers about the Company and such Seller acknowledges that Thomas S. Roberts
("Mr. Roberts") is a member of the Board of Directors of the Company as the
representative of Summit Partners and Mr. Roberts is aware of various
discussions in which the Company is engaged regarding various products,
alliances, potential new investors and that the Company is in a position,
through its Chairman of the Board, John F. McHale, to take advantage of various
introductions made through Mr. McHale, including but not limited to
introductions to Cisco, International Business Machines Corporation, a New York
corporation and John Tolleson;
(d) Such Seller hereby acknowledges that the Company has made no
representations or warranties to it with respect to the value of the shares of
Common Stock to be purchased hereunder and the actual value of such shares may
be more or less than the consideration being paid by the Company pursuant to
this Agreement; and
(e) Such Seller is a limited partnership duly and validly organized
under the laws of the jurisdiction of its formation, all partnership or
corporate action required for the execution and delivery
2
<PAGE>
by such partnership of this Agreement will not violate the partnership
agreement of such partnership or any of its general partners or any material
contract or agreement to which such partnership is subject, or by which its
assets are bound, or require any consent, approval, license or other
authorization to be obtained by such Seller.
6. REPRESENTATIONS OF THE COMPANY. The Company hereby warrants and
represents to the Sellers as follows:
(a) The Company has all corporate and other necessary power and
authority, and the legal right, to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate all of the transactions
contemplated hereby;
(b) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company including being authorized by the board of
directors of the Company who found such purchase to be in the best interest of
the Company and its shareholders. The board of directors of the Company
considered numerous factors including, but not limited to, the relationship of
Mr. Roberts as a director of the Company and as a representative of the Sellers;
(c) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally;
(d) The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby do not
(i) contravene the Company's articles of incorporation or bylaws or (ii) breach
or constitute a default under any loan or purchase agreement, indenture,
mortgage, deed of trust, lease, instrument, contract or other agreement binding
on or affecting the Company, any of its subsidiaries or any of their respective
property or assets the breach of which, either individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the Company
and its subsidiaries taken as a whole;
(e) No governmental authorization, and no consent, approval or
authorization of, or notice to, or other action by, any other person, is
required for the due execution, delivery, recordation, filing or performance by
the Company of this Agreement, or for any of the other transactions contemplated
hereby, except for any such authorization or consent which has been or will be
obtained prior to the time at which it is required to be obtained;
(f) The Company has furnished or made available to the Sellers a true
and complete copy of its Form 10-K for the fiscal year ended March 31, 1998 and
its Form 10-Q for the fiscal quarter ended December 31, 1998 (collectively, the
"SEC Documents"), which the Company filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with the Securities and Exchange
Commission ("SEC") and, as of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under
3
<PAGE>
which they were made, not misleading, except to the extent corrected by a
subsequently filed document with the SEC.
7. GENERAL. This Agreement has been executed in, and shall be
governed by and construed in accordance with the laws of the State of Texas, and
all obligations are enforceable in Dallas County, Texas. All terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the legal representatives, heirs, successors and assigns
of the parties hereto.
8. ATTORNEYS' FEES. If any action at law or equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any relief to which it may be entitled.
9. SURVIVAL. Notwithstanding the termination of this Agreement, the
provisions of Section 5 shall survive and be binding upon each Seller unless a
written agreement that specifically refers to the termination of the obligations
and covenants of Section 5 is executed by the Company.
10. FURTHER ACTS. Each party hereto agrees to perform such further
acts and execute and deliver such further instruments and documents which may
reasonably be necessary in order to carry out the provisions and effectuate the
intent of this Agreement.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior and contemporaneous
settlement agreements or settlement understandings and/or discussions, whether
written or oral, between the parties with respect to the subject matter hereof.
12. SEVERABILITY. Should any one or more of the provisions hereof be
determined to be illegal or unenforceable, all of the other provisions hereof
shall be given effect separately therefrom and shall not be affected thereby.
13. MODIFICATION. The Agreement may be altered or amended in whole or
an part by written instruments signed by the Company and all other parties
hereto.
14. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute one (1) and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have hereunder set their hands as of the
day and year first above written.
AMX CORPORATION
a Texas corporation
By: /s/ Joe Hardt
-----------------------------------------
Joe Hardt, Chief Executive Officer
SUMMIT VENTURES III, L.P.,
By: Summit Partners III, L.P.
its general partner
By: Stamps, Woodsum & Co. III,
its general partner
By: /s/ Tom Roberts
-----------------------
SUMMIT SUBORDINATED DEBT FUND, L.P.
By: Summit Partners SD, L.P.
its general partner
By: /s/ Tom Roberts
--------------------------------
SUMMIT INVESTORS II, L.P.
By: /s/ Tom Roberts
-----------------------------------------
5
<PAGE>
EXHIBIT A
Advent VII L.P.
Advent Atlantic and Pacific II L.P.
Chestnut Capital International III Limited Partnership
Advent New York L.P.
Advent Industrial II L.P.
TA Venture Investors Limited Partnership
Interwest Partners V L.P.
6
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
<S> <C> <C>
PHAST Corporation Incorporated in Deleware, U.S. Dba PHAST Corporation
Axcess Technology Ltd. Incorporated in the United Kingdom Dba Axcess Technology Ltd.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-2202) pertaining to the AMX Corporation 1996 Employee Stock
Purchase Plan, the AMX Corporation 1995 Director Stock Option Plan, the AMX
Corporation 1995 Stock Option Plan, and the AMX Corporation 1993 Stock Option
Plan of our report dated May 3, 1999 with respect to the consolidated financial
statements of AMX Corporation included in this Annual Report (Form 10-K) for the
year ended March 31, 1999.
Ernst & Young LLP
Dallas, Texas
June 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,801,756
<SECURITIES> 0
<RECEIVABLES> 10,216,261
<ALLOWANCES> (420,000)
<INVENTORY> 10,990,262
<CURRENT-ASSETS> 24,325,851
<PP&E> 11,972,780
<DEPRECIATION> 6,278,944
<TOTAL-ASSETS> 31,508,829
<CURRENT-LIABILITIES> 8,973,517
<BONDS> 3,909,284
0
0
<COMMON> 89,620
<OTHER-SE> 18,445,445
<TOTAL-LIABILITY-AND-EQUITY> 31,508,829
<SALES> 69,273,411
<TOTAL-REVENUES> 69,273,411
<CGS> 32,562,258
<TOTAL-COSTS> 32,562,258
<OTHER-EXPENSES> 32,396,701
<LOSS-PROVISION> (199,443)
<INTEREST-EXPENSE> (340,324)
<INCOME-PRETAX> 4,029,178
<INCOME-TAX> 1,266,286
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,762,892
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.31
</TABLE>
