<PAGE>
*SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A)
of the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
APPLIED MAGNETICS CORPORATION
----------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(l)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or their underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:(1)
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
-------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
-------------------------------------------------------------------------
(3) Filing party:
-------------------------------------------------------------------------
(4) Date filed:
-------------------------------------------------------------------------
<PAGE>
[LOGO OF APPLIED MAGNETICS CORPORATION]
75 ROBIN HILL ROAD
GOLETA, CALIFORNIA 93117
January 5, 1996
To The Stockholders of Applied Magnetics Corporation:
You are cordially invited to attend the Annual Meeting of Stockholders of
Applied Magnetics Corporation to be held at 4:00 p.m., local time, on Friday,
February 9, 1996, at the Company's facility at 75 Robin Hill Rd., Goleta,
California. A copy of the Notice of Annual Meeting of Stockholders, Proxy
Statement and Proxy are enclosed. At the Meeting you will be asked to consider
the election of directors for the next year, amendment to the 1994 Employee
Stock Option Plan, and ratification of the appointment of Arthur Andersen LLP
as the Company's independent public accountants.
WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING OR NOT, YOU ARE REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE IN ORDER THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THE
ANNUAL MEETING.
APPLIED MAGNETICS CORPORATION
Sincerely,
/s/ Craig D. Crisman
Craig D. Crisman
Chairman and Secretary
<PAGE>
[LOGO OF APPLIED MAGNETICS CORPORATION]
75 ROBIN HILL ROAD
GOLETA, CALIFORNIA 93117
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 9, 1996
To The Stockholders:
The Annual Meeting of Stockholders of Applied Magnetics Corporation (the
"Company") will be held at the Company's facility at 75 Robin Hill Rd.,
Goleta, California, on Friday, February 9, 1996 at 4:00 p.m., local time, for
the following purposes:
1. To elect five directors of the Company to serve for the ensuing year
and until their successors have been elected and qualified;
2. To approve the amendment of the Company's 1994 Employee Stock Option
Plan to increase the number of shares of Common Stock authorized for the
issuance thereunder by 1,100,000 shares;
3. To ratify the selection of Arthur Andersen LLP, independent certified
public accountants, as auditors for the Company for the fiscal year ending
September 28, 1996; and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has determined that only holders of Common Stock of
record at the close of business on December 21, 1995, will be entitled to
receive notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
Craig D. Crisman
Chairman and Secretary
Goleta, California
January 5, 1996
YOUR VOTE IS IMPORTANT
Please immediately date, sign, and return your proxy in the enclosed
envelope. If you attend the meeting, you may withdraw your proxy and vote in
person.
THANK YOU FOR ACTING PROMPTLY
<PAGE>
[LOGO OF APPLIED MAGNETICS CORPORATION]
PROXY STATEMENT
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
GENERAL
The enclosed Proxy Statement is solicited on behalf of the Board of
Directors of Applied Magnetics Corporation (the "Company") for use at the
Annual Meeting of Stockholders (the "Meeting") to be held February 9, 1996, at
the Company's facility at 75 Robin Hill Rd., Goleta, California at 4:00 p.m.,
local time, and at any adjournments thereof. The Company's principal offices
are located at 75 Robin Hill Road, Goleta, California and its telephone number
is 805/683-5353.
These proxy solicitation materials are to be mailed on or about January 5,
1996 to all stockholders entitled to vote at the meeting.
REVOCABILITY
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by filing with the Secretary of the Company an instrument
revoking it or a duly executed proxy bearing a later date or by personal
attendance and voting at the Annual Meeting. Subject to such revocation, all
shares represented by each properly executed proxy received by the Company
will be voted in accordance with the instructions indicated thereon, and if
instructions are not indicated, will be voted for the election of the nominees
for director named in this Proxy Statement, in favor of the Amendment to the
1994 Employee Stock Option Plan to increase shares by 1,100,000 and in favor
of the proposal to ratify the selection of independent certified public
accountants.
RECORD DATE AND VOTING
As of December 21, 1995 (the "Record Date"), the outstanding voting
securities of the Company consisted of 22,877,412 shares of $.10 par value
Common Stock. The presence in person or by proxy of holders of a majority of
the issued and outstanding Common Stock will constitute a quorum for the
transaction of such business as shall properly come before the meeting.
Each share of Common Stock has one vote on all matters. Stockholders do not
have the right to cumulate their votes in the election of directors.
The cost of soliciting proxies will be borne by the Company. The Company is
retaining Georgeson & Company, Inc. to solicit proxies for a cost of
approximately $5,000, plus out-of-pocket expenses. In addition, the Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to
such beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or telegram.
Generally, stockholder approval of a matter, other than the election of
directors, requires the affirmative vote of a majority of the shares present
in person or represented by proxy and entitled to vote on the matter.
Directors are elected by a plurality of the votes of the shares present in
person or by proxy and entitled to vote on the elections of directors. The
affirmative vote of the majority of the shares present, in person or by proxy
at the meeting and entitled to vote is required for approval of the amendment
to the 1994 Employee Stock Option Plan (the "1994 Plan") and to ratify the
election of the independent certified public accountants.
1
<PAGE>
Shares voted to abstain on a matter will be treated as entitled to vote on
the matter and will thus have the same effect as "no" votes. Broker non-votes
are not counted as entitled to vote on a matter in determining the number of
affirmative votes required for approval of the matter, but are counted as
present for quorum purposes. The term "broker non-votes" refers to shares held
by a broker in street name which are present by proxy but are not voted on a
matter pursuant to rules prohibiting brokers from voting on non-routine
matters without instructions from the beneficial owner of the shares. The
election of directors, the amendment to increase the number of shares under
the 1994 Plan by an amount less than five percent of the total amount of the
Common Stock outstanding and ratification of the selection of independent
certified public accountants are generally considered to be routine matters on
which brokers may vote without instructions from beneficial owners.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
Five directors, constituting the entire Board of Directors, are to be
elected at the Annual Meeting to hold office until the next Annual Meeting and
until their successors are elected and qualified. Unless otherwise instructed,
the proxy holders intend to vote the proxies received by them for the election
of the nominees named below, all of whom are now members of the Board. It is
not anticipated that any of the nominees will decline or be unable to serve as
a director. If, however, that should occur, the proxy holders will vote the
proxies in their discretion for any nominee designated by the present Board of
Directors to fill the vacancy.
The following table sets forth certain information concerning each person
nominated for election as a director:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE PRINCIPAL OCCUPATION AND DIRECTORSHIPS
---- --- -------------- --------------------------------------
<C> <C> <C> <S>
Craig D. Crisman.......... 54 1994 Chairman of the Board, President,
Chief Executive Officer, Chief
Financial Officer and Secretary of the
Company.
Harold R. Frank........... 71 1957 Chairman Emeritus of the Company and
director of Circon Corporation, Trust
Company of the West and Key
Technology, Inc.
R. C. Mercure............. 64 1982 Professor and Director, Engineering
Management Program, University of
Colorado at Boulder and director of
Imex Medical systems.
Herbert M. Dwight......... 65 1989 President and Chairman of Optical
Coating Laboratory, Inc. and director
of Applied Materials, Inc., and Trans
Ocean, Ltd.
Jerry Goldress............ 65 1995 Chairman and Chief Executive Officer
of Wherehouse Entertainment, Chief
Executive Officer of Grisanti, Galef,
and Goldress, Inc., and director of
Dreco Energy Services LTD.
</TABLE>
The Board of Directors has adopted resolutions amending the Company's bylaws
to increase the number of authorized directors from four to five effective as
of November 3, 1995.
Mr. Crisman became an employee of the Company on August 1, 1995. Prior to
that time he was a partner of the firm of Grisanti, Galef, and Goldress, Inc.
("GG&G"). GG&G was engaged by the Company on August 1, 1994, to provide crisis
management and turnaround services to the Company. The turnaround engagement
was determined to have been successfully completed on July 27, 1995. He was
elected Chief Executive Officer on August 1, 1994, and, subsequently, was
elected Director, President, and Chief Financial Officer. He was elected
Chairman of the Board and Secretary on November 3, 1995. During the five years
2
<PAGE>
preceding his appointment as Chief Executive Officer and as a Director of the
Company, Mr. Crisman was a partner of GG&G. In this capacity he has been
engaged, as a crisis management consultant, in business turnaround assignments
involving a number of different enterprises in various industries.
Mr. Frank has served as an officer of the Company for more than five years.
Mr. Goldress is, and for more than five years has been, Chief Executive
Officer of the firm of GG&G. He was elected director of the Company on
November 3, 1995. He holds the position of Chairman and Chief Executive
Officer of Wherehouse Entertainment, and is a director of Dreco Energy
Services LTD. For additional information concerning the relationship between
GG&G and the Company see "Certain Relationships and Related Transactions".
In August 1991, Mr. Dwight became President and Chairman of Optical Coating
Laboratory, Inc., which is engaged in the design, development and production
of precision optical thin film components. Prior to that time he had, since
July 1988, served as President, Chairman and Chief Executive Officer of
Superconductor Technologies, Inc which is engaged in high temperature
superconductivity research and development. He is also a director of Trans
Ocean Ltd., a sea container leasing corporation, and of Applied Materials,
Inc., a wafer fabrication equipment manufacturer.
Dr. Mercure has been for a period of more than five years, Professor and
Director of the Engineering Management Program at the University of Colorado
at Boulder. He is a director of Imex Medical Systems.
VOTE REQUIRED
The five nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be
elected as directors. Votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum for the
transaction of business, but have no legal effect under Delaware law. While
there is no definitive statutory or case law authority in Delaware as to the
proper treatment of abstentions in the election of directors, the Company
believes that abstentions should be counted for purposes of determining
whether a quorum is present at the Annual Meeting for the transaction of
business. In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions with respect to the election of directors in this
manner.
SPECIAL COMMITTEES AND ATTENDANCE AT MEETINGS
The Board of Directors has Audit and Compensation Committees whose members
in fiscal 1995 were Dr. Mercure and Mr. Dwight. Mr. Goldress was elected to
membership on the Audit and Compensation Committees on November 3, 1995.
The Audit Committee makes recommendations regarding the selection of
independent public accountants, reviews reports from its independent public
accountants and reviews with them the scope and results of the audit
engagement. During fiscal year 1995, there was one meeting of the Audit
Committee.
The Compensation Committee reviews and makes recommendations to the Board
concerning the Company's executive compensation policy, authorizes and
approves the grant of options and awards to executive officers and key
employees under the Company's stock option and long-term incentive plans. The
Compensation Committee authorized the success fee award to GG&G. See
"Remuneration of Directors". During fiscal year 1995, the Compensation
Committee met on five occasions.
The Board of Directors does not have a nominating committee or any other
committee which performs a similar function.
During fiscal year 1995, the Board met ten times. Each director attended
more than 75% of the Board meetings and meetings of any committees on which he
serves during the portion of the year that he was a director.
3
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE APPLIED MAGNETICS CORPORATION 1994
EMPLOYEE STOCK OPTION PLAN
GENERAL
Under the 1994 Plan, 1,000,000 shares of Common Stock were reserved for
issuance upon the exercise of options which may be granted from time-to-time
to officers and certain employees of the Company or its subsidiaries. The
amendment to the 1994 Plan approved by the Board of Directors would increase
the number by 1,100,000. This amendment is subject to approval by the
stockholders of the Company. The 1994 Plan permits the award of both Non-
Qualified and Incentive Stock Options.
The purpose of the 1994 Plan is to attract and retain executives and certain
other employees and to secure for the Company the benefits of the incentive
inherent in equity ownership by employees who are responsible for the
continuing growth and success of the Company. Applied Magnetics believes that
equity based compensation arrangements such as stock options enhance the
Company's ability to attract and retain key technical, engineering and
management personnel who can make significant contributions to Applied
Magnetics' future success.
The Company has considered prevailing compensation practices in the industry
in which it competes for these people and, particularly, compensation and
benefits being offered by companies engaged in recruitment efforts affecting
both the Company's personnel and those employment candidates whom the Company
itself, may, from time-to-time, seek to recruit. On the basis of these
considerations, the Company believes that stock options are important
compensation elements, particularly during periods, such as those recently
experienced, when the disk drive industry is undergoing substantial changes
and uncertainty and, as a result, there is increased competition for
attracting and retaining key technical management and scientific resources.
Moreover, this form of compensation closely aligns employees' interests in the
Company's success and growth with similar interests of Applied Magnetics'
stockholders.
Options have been granted under the 1994 Plan as of the date of this Proxy
Statement to purchase 790,922 shares of Common Stock and a total of 209,078
shares are currently reserved for future grants.
No determinations have been made by the Compensation Committee ("Committee")
or the Board of Directors as to the number of options to be granted to any
executive officer or employees of the Company, either individually or as a
group. The exercise price of options, when and if granted, will be not less
than the fair market value of the Company's Common Stock on the dates of
grant.
The following description summarizes certain provisions of the 1994 Plan.
This description is subject to, and is qualified in its entirety by, the full
text of the 1994 Plan and the defined terms used therein.
TERM
The 1994 Plan will continue in effect until terminated by the Company's
Board of Directors. However, in accordance with the requirements of federal
tax law, no Incentive Stock Options will be granted under the 1994 Plan more
than ten years following its effective date.
ELIGIBILITY
Employees of the Company and its subsidiaries (approximately 5,500 people as
of September 30, 1995) are eligible to receive option grants under the 1994
Plan. Options may be granted to those persons whose performance the Committee
determines can have a significant effect on the success of the Company. The
Committee has the discretion to designate which persons shall be granted
options under the 1994 Plan, to determine whether options will be granted as
Nonqualified or Incentive Stock Options and to determine the terms of the
options.
4
<PAGE>
ADMINISTRATION AND OPERATION OF THE 1994 PLAN
The 1994 Plan is administered entirely by the Committee which has the
authority to interpret and determine all questions of policy and expediency
pertaining to the 1994 Plan and to adopt such rules, regulations, agreements
and instruments as it deems necessary for its proper administration and take
any and all other actions it deems necessary or advisable for the proper
administration of the 1994 Plan.
The 1994 Plan authorizes the grant of options to officers, executives and
other key employees of the Company and its subsidiaries. The Committee will
determine which officers, executives and other key employees ("Optionees") are
eligible to participate in the 1994 Plan. Selections for participation in the
1994 Plan and the amount of options to be granted will be determined on the
basis of the Committee's belief as to the individual contribution to the
growth of the Company that those employees have made in the past and can make
in the future, based on their abilities and positions within the Company.
In addition, the 1994 Plan includes provisions which permit the Committee to
amend the plan from time-to-time in order to limit the options that may be
granted to certain executive officers. This limitation provision, which may be
expressed in either absolute terms or as a percentage of shares available, may
be imposed, at the Committee's discretion, if necessary to avoid circumstances
in which aggregate compensation paid by the Company to certain executives
during certain periods may not be deductible to the Company under Section
162(m) of the Internal Revenue Code to the extent such aggregate compensation
exceeds $1 million. See "Federal Income Tax Consequences".
STOCK AVAILABLE FOR AWARD
Providing the amendment to the 1994 Plan is approved by the stockholders,
the aggregate number of shares of Common Stock reserved for issuance upon
exercise of options granted under the 1994 Plan shall not exceed 2,100,000
shares.
NONQUALIFIED AND INCENTIVE STOCK OPTIONS
Stock options may be granted under the 1994 Plan as either Incentive Stock
Options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") or Nonqualified Stock Options (i.e., stock
options which are not Incentive Stock Options).
The exercise price of options is set by the Committee and stated in the
option agreement. The exercise price may not be less than 100% of the fair
market value of the Common Stock on the date of the grant. The closing price
of the Common Stock on the New York Stock Exchange on December 21, 1995 was
$16 1/2.
The exercise price may be paid in cash or by delivery of a cashier's or
certified check or a check issued by a broker-dealer which is a member firm of
the New York Stock Exchange, Inc., or at the discretion of the Committee, by
delivery of shares of the Company's Common Stock already owned by the
Optionee; or any combination of the foregoing. Options granted under the 1994
Plan will expire not later than 10 years after the date of grant.
Incentive Stock Options are subject to special statutory provisions.
Incentive Stock Options granted to any employee owning stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company may not have an exercise price less than 110% of the fair market value
on the grant date and may not be exercisable more than 5 years from the date
of grant. Also, options continue to qualify as Incentive Stock Options only to
the extent that the aggregate fair market value of stock (as of the date of
grant) with respect to which such options are exercisable for the first time
by the Optionee during any calendar year does not exceed $100,000.
5
<PAGE>
EXERCISE OF STOCK OPTIONS
An option will be exercisable at such times as are determined by the
Committee at the date of grant.
If the Optionee ceases to be employed by the Company for any reason other
than death, Disability or Retirement (as such terms are defined in the 1994
Plan), the right to exercise the option shall expire 90 days following the
date such employment is terminated. However, in the event of termination of
employment as a result of the death or Disability of the Optionee while
employed by the Company all outstanding, unexercised options which were
exercisable at the time of such termination or which become exercisable within
one year thereafter may be exercised at any time during such one year period
(subject to the expiration of the option) by the Optionee or by his or her
estate or other person who acquired the right to exercise by bequest or
inheritance. Options granted under the 1994 Plan will be nontransferable and,
except in the case of death, the option may be exercised only by the Optionee.
If the Optionee retires (within the meaning of Retirement as defined in the
1994 Plan) all outstanding, unexercised options shall continue to be
exercisable by him or her in accordance with the terms of said options and
subject to the expiration thereof provided, however, that if and to the extent
that Incentive Stock Options are exercised more than 90 days after the
Retirement date, such options will be treated as Nonqualified Options.
Provided the Board of Directors has not on or before a Change in Control
determined that all or a portion of the outstanding options shall become fully
and immediately exercisable, if, within one year following such Change in
Control, the Optionee's employment is terminated (i) involuntarily for any
reason or (ii) voluntarily after a material lessening of his or her duties or
a material reduction in his or her base salary, all outstanding options held
by such Optionee shall become immediately and fully exercisable.
ADJUSTMENT OF SHARES
The 1994 Plan provides for adjustments to the number of shares subject to
the 1994 Plan and the number of shares and the price per share of stock
subject to outstanding options in the event of any stock dividend,
recapitalization, split-up, combination or exchange of the Common Stock. In
the event of liquidation or dissolution, or a corporate reorganization in
which the Company is not the survivor, the options terminate, except that the
Board may accelerate the ability to exercise the options. If options expire or
terminate without having been exercised in full, the unpurchased shares shall
again be available for issuance under the 1994 Plan. No additional options
will be granted under the 1994 Plan after expiration of 10 years following the
effective date of the 1994 Plan (see "Term").
FEDERAL INCOME TAX CONSEQUENCES
An Optionee receiving a Nonqualified Stock Option does not recognize taxable
income on the date of grant. However, he or she will recognize ordinary income
at the time of exercise in the amount of the difference between the option
exercise price and the fair market value of the Company's Common Stock on the
date of exercise. The Optionee will have a basis in such shares equal to the
market value on the date of exercise. If the Company withholds from the
Optionee's compensation or otherwise receives from the Optionee the amount
required to be withheld with respect to such exercise, the Company will be
entitled to a concurrent deduction equal to the ordinary income recognized by
the Optionee. Upon subsequent disposition of the shares acquired upon exercise
of a Nonqualified Stock Option, any future gain or loss to the employee will
be either short-term or long-term capital gain or loss, depending on how long
the shares are held.
Incentive Stock Options which are granted under the 1994 Plan are intended
to qualify as incentive stock options within the meaning of Section 422 of the
Code. The following is a summary of the principal Federal income tax aspects
of Incentive Stock Options.
The holder of an Incentive Stock Option will not recognize income upon the
grant or exercise of such option. However, the difference between the exercise
price of an Incentive Stock Option and the fair market value of the shares
purchased on the date of exercise is an item of tax preference for purposes of
computing the Optionee's alternative minimum tax, if any, under the Code.
Income will be recognized by the Optionee upon
6
<PAGE>
the sale or other disposition of the shares acquired under such option, in an
amount measured by the excess of the then fair market value of the shares over
the exercise price. Such amount will be treated as long-term capital gain if
the Optionee has disposed of such shares after the later of two years after
the grant of the option or one year after exercise of the option. If those
holding period rules are not met, the Optionee may recognize income in the
year of disposition at ordinary income rates in an amount equal to the lesser
of the excess of the fair market value of the shares on the exercise date over
the exercise price or the excess of the fair market value of the shares on the
date of disposition over the exercise price. Any gain in excess of the amount
taxed as ordinary income will be capital gain and will be long-term capital
gain if the shares have been held for more than one year.
The Company will not be allowed any compensation deduction with respect to
an Incentive Stock Option if the holding period rules are satisfied by the
Optionee. However, if the holding period rules for an Incentive Stock Option
are not met, the Company will be allowed a deduction in the taxable year in
which the Optionee disposes of the shares in the amount which the Optionee is
required to include as ordinary income.
Section 162(m) of the Internal Revenue Code limits the federal income tax
deductibility of compensation paid to the Company's Chief Executive Officer,
and to each of the other four most highly compensated executive officers. The
Company generally may deduct compensation paid to such an officer, only if the
compensation does not exceed $1 million during any fiscal year, or is
"Performance-Based" as defined in Section 162(m).
The Company believes that the 1994 Plan constitutes a performance-based
compensation plan for purposes of Section 162(m) because, among other things,
the options granted under the 1994 Plan will not be granted at exercise prices
less than fair market value on the date of grant. Moreover, the amount of
compensation, if any, to be received by any affected executive officer is
based on an increase in the price of the Company's Common Stock from the
exercise price. In order to retain the ability to have the 1994 Plan satisfy
the requirement of a performance-based compensation plan, the 1994 Plan
includes provisions allowing the Committee to amend such plan, from time-to-
time, so as to limit the number of options which could be granted to any
person or group of persons. Such limitations, if any, could be expressed, at
the discretion of the Committee, either as an absolute limit or as a
percentage of available shares. Pursuant to Internal Revenue Service
regulations, the 1994 Plan provides that the Company may not grant, to any one
employee during the life of the 1994 Plan, options to purchase shares of
Common Stock which exceed the aggregate number of shares reserved for issuance
under the 1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE AMENDMENT TO THE 1994 PLAN.
7
<PAGE>
PROPOSAL NO. 3
SELECTION OF AUDITORS
The Board of Directors of the Company has appointed Arthur Andersen LLP,
independent certified public accountants as auditors of the Company for the
year ending September 28, 1996, and has further directed that management
submit the selection of auditors for ratification by the stockholders at the
Annual Meeting. Arthur Andersen LLP has audited the Company's financial
statements for the past twenty nine years. This firm will have representatives
at the Annual Meeting who will have an opportunity to make a statement and
will be available to respond to appropriate questions.
VOTE REQUIRED
Affirmative votes constituting a majority of the votes eligible to be cast
by the Common Stock present in person or represented by proxy at the Annual
Meeting and "entitled to vote on the subject matter" ( the "Votes Cast") will
be required to approve the ratification of Arthur Andersen LLP as the
Company's independent accountants for the fiscal year ending September 28,
1996. Votes that are cast against the proposal are counted for purposes of
determining (i) the presence or absence of a quorum for the transaction of
business and (ii) the total number of Votes Cast with respect to this
proposal. While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions in the counting of votes
with respect to a proposal such as the ratification of selection of auditors,
the Company believes that abstentions should be counted for purposes of
determining both the presence or absence of a quorum for the transaction of
business and the total number of Votes Cast. In the absence of controlling
precedent to the contrary, the Company intends to treat abstentions on this
proposal in this manner.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR THE FISCAL YEAR ENDING SEPTEMBER 28, 1996.
OTHER INFORMATION
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") certain reports on prescribed forms
regarding ownership of, and transactions in, the Company's Securities. Such
officers, directors and ten percent stockholders are also required by SEC
rules to furnish the Company with copies of all Section 16(a) forms that they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company is aware
that during fiscal 1995 three of the Officers were not in compliance with the
Section 16(a) filing requirements. Mr. LeBlanc was not in compliance with
Section 16(a) filing requirements for three reports and three transactions.
Mr. Ross was not in compliance with Section 16(a) filing requirements for
three reports and three transactions. Mr. Altavilla, Corporate Controller, was
not in compliance with Section 16(a) filing requirements for two reports and
three transactions. The officers have subsequently complied with all reporting
requirements of Section 16(a), and the Company believes that all other
officers, directors, and ten percent stockholders complied with the filing
requirements.
8
<PAGE>
SECURITY OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table contains certain information regarding beneficial
ownership of the Company's Common Stock as of October 27, 1995 by (i) each
person which is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) the Chief
executive officer and each of the Company's three other most highly
compensated executive officers (the four officers shall be referred to as the
"Named Executive Officers"), and (iv) all directors and executive officers as
a group:
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
NAME BENEFICIALLY OF CLASS
- ---- ------------ --------
<S> <C> <C>
PRINCIPAL STOCKHOLDER:
Harold R. Frank......................................... 1,205,839(1) 5.32
75 Robin Hill Road
Goleta, California
OUTSIDE DIRECTORS:
Herbert M. Dwight, Jr................................... 1,667(2) *
R. C. Mercure, Jr....................................... 7,200(2) *
Jerry E. Goldress....................................... 37,500(4) *
EXECUTIVE OFFICERS:
Craig D. Crisman........................................ 119,643(4) *
John E. Ross............................................ 56,054(3) *
FORMER EXECUTIVE OFFICERS:
Raymond P. LeBlanc...................................... 20,722(3) *
William R. Anderson..................................... 52,342 *
All Directors and Named Executive
Officers as a Group (8 persons) ....................... 1,500,967(5) 6.62
</TABLE>
- --------
* less than 1 %
(1) Includes 873,971 shares held by Mr. Frank as Trustee of the Catherine M.
and Harold R. Frank Trusts. Also includes 330,000 shares held by Mr. Frank
as Trustee under trusts for three of his grandchildren, as to all of which
he disclaims any beneficial interest, and includes 1,558 shares held by
Mr. Frank as custodian under the California Uniform Transfers to Minors
Act, as to which shares he disclaims any beneficial interest. In view of
his shareholdings, Mr. Frank may be deemed a control person of the
Company.
(2) Includes, as to each of Messrs. Mercure and Dwight, options, exercisable
within 60 days, to purchase 3,334 shares under the Company's 1994
Directors' Stock Option Plan.
(3) Includes (i) options for Mr. Ross to purchase 56,054 shares exercisable
within 60 days, (ii) options for Mr. LeBlanc to purchase 20,092 shares
exercisable within 60 days and an aggregate of 630 shares held by Mr.
LeBlanc as custodian for minor children under the California Uniform
Transfers to Minor Act, as to all of which shares he disclaims any
beneficial interest.
(4) Currently exercisable options were assigned to Mr. Crisman and the J.
Goldress Revocable trust in which Mr. Goldress has a pecuniary interest,
pursuant to the arrangement between GG&G and the Company. See "Certain
Relationships and Related Transactions".
(5) Includes options to purchase 236,623 shares exercisable within 60 days.
9
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chief Executive Officer and each of the
three other most highly compensated executive officers whose salary plus bonus
exceeded $100,000, information concerning compensation paid for services to
the Company in all capacities during the fiscal year ended September 30, 1995,
as well as the total compensation paid to each such individual in each of the
Company's previous two fiscal years (if such person was the Chief Executive
Officer or an executive officer, as the case may be, during any part of such
fiscal year).
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------ -------------------------- ----------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS COMP.(2) AWARDS($)(3) OPTIONS(#)(4) PAYOUTS($) SATION(5)
------------------ ---- ------- ------- -------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Craig C. Crisman(1) 1995 62,500 -0- -0- -0- 419,643 -0- -0-
Chief Executive Officer 1994 -0- -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0- -0-
John E. Ross 1995 221,611 31,357 -0- 19,000 6,472 -0- 1,652
General Manager 1994 214,017 105,000 -0- 97,500 125,000 -0- 1,387
1993 64,390 105,000 -0- -0- -0- -0- 290
Raymond P. LeBlanc 1995 225,778 -0- -0- 9,500 6,113 -0- 21,012
formerly Vice 1994 163,363 15,000 -0- -0- -0- -0- 294
President, 1993 133,000 -0- -0- -0- -0- -0- -0-
Secretary and General
Counsel
William R. Anderson 1995 -0- -0- -0- -0- -0- -0- 300,000
formerly President and 1994 292,241 -0- -0- -0- 75,000 -0- 3,475
Chief Operating Officer 1993 311,078 -0- -0- -0- -0- -0- 1,108
</TABLE>
- --------
(1) Mr. Crisman was a partner in a consulting firm engaged by the Company
through July 27, 1995. He received no compensation directly from the
Company during this relationship. See "Certain Relationships and Related
Transactions". He became an employee of the Company on August 1, 1995.
(2) The value of perquisites, if any, fell below $50,000 or 10% of reported
base and bonus for each executive.
(3) The restricted stock awards to Mr. Ross were issued under the amended and
restated 1989 Long Term Incentive Plan ("1989 Plan") and consisted of an
aggregate of 28,000 shares of Common Stock. There were 20,000 shares
awarded in 1994 valued at $97,500 and 8,000 shares awarded in 1995 valued
at $19,000 and are subject to restrictions under the 1989 Plan that, among
other things, prohibit the sale or transfer of the Common Stock.
Accordingly, awards under the 1989 Plan are considered Restricted Stock.
These restrictions, which also apply to other awards under the 1989 Plan,
are automatically removed ten years following the date of the award
provided the participant is still employed by the Company. Restrictions
may be removed earlier, if certain predetermined performance objectives
are achieved. The shares awarded in 1994 were issued with restrictions to
be lifted if Mr. Ross was employed by the Company one year from the grant
date of July 14, 1994. The restrictions on 20,000 shares were lifted on
July 14, 1995 and the aggregate value of these shares based on the closing
price on the New York Stock Exchange of $8.375 on such date, was $167,500.
The remaining 8,000 shares remain subject to restrictions and the
aggregate market value on the New York Stock Exchange as of September 30,
1995, was $125,000.
In connection with a separation agreement between the Company and Mr.
LeBlanc dated as of July 19, 1995, the Company agreed to remove
restrictions as to the 7,500 shares of Restricted Stock held by Mr. LeBlanc
as of the date of the separation agreement. The aggregate value of these
shares, based on the closing price on the New York Stock Exchange of $8.00
per share on such date, was $60,000.
10
<PAGE>
(4) Includes all stock options granted during the year. No Stock Appreciation
Right's (SARs) were granted and no stock options were granted in tandem
with any SARs.
(5) These amounts reflect the dollar value of premiums paid by the Company
with respect to term life insurance. The amounts included in this column
as to Mr. LeBlanc represent the principal amount of loan installments
which were forgiven by the Company pursuant to an interest-free loan
agreement. The amounts for fiscal 1995 included in this column as to Mr.
Anderson represent monthly payments pursuant to his resignation agreement.
See "Employment Contracts and Termination of Employment Arrangements".
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth the stock options granted to the named
executive officers under the Company's stock option plans, and the options
exercised by such named executive officers, during the fiscal year ended
September 30, 1995.
The Option/SAR Grant Table sets forth hypothetical gains for the options at
the end of their respective ten (10) year terms, as calculated in accordance
with the rules of the Securities and Exchange Commission. Each gain is based
on an arbitrarily assumed annualized rate of compound appreciation of the
market price of 5% and 10%, less the exercise price, from the date the option
was granted to the end of the option term. Actual gains, if any, on option
exercise are dependent on the future appreciation in value of the Company's
Common Stock which appreciation, if any, would benefit the Company's
stockholders as well as persons to whom options have been granted.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
-------------------------------------------------- ----------------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER
NAME GRANTED FISCAL YEAR(1) SHARE(2) EXPIRATION DATE 5% 10%
---- ------- -------------- --------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Craig Crisman........... 207,188 16% $8.50 August 1, 2000 $1,107,545 $2,806,737
Craig Crisman........... 92,812 7% 8.50 August 1, 2005 496,136 1,257,307
Craig Crisman........... 119,643 9% 4.13 December 21, 1999 310,377 786,556
Ray LeBlanc............. 1,113 less than 1% 4.25 September 6, 2004 2,975 7,539
Ray LeBlanc............. 5,000 less than 1% 3.88 October 28, 2004 12,185 30,879
John Ross............... 1,472 less than 1% 4.25 September 6, 2004 3,934 9,970
John Ross............... 5,000 less than 1% 3.88 October 28, 2004 12,185 30,879
</TABLE>
- --------
(1) The Company did not grant SARs in fiscal 1995.
(2) Options were granted in fiscal 1995 at fair market value and are
exercisable in cumulative annual installments of 50% of the shares granted
beginning one (1) year after date of grant, and in all cases expire 10
years from the grant date. Mr. Crisman's options fall into three
categories for exercisability: (1) the 92,812 options agree with the
aforementioned rules; (2) the 207,188 options are exercisable in
cumulative annual installments of 33 1/3% of the shares granted beginning
one (1) year after date of grant; (3) the 119,643 options are currently
100% exercisable, and are his portion of the success fee granted to GG&G
(see Remuneration of Directors).
(3) Potential realizable value is based on an assumption that the price of the
Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the 10 year option term. Potential
realizable value is shown net of exercise price. These numbers are
calculated based on the regulations promulgated by the SEC and do not
reflect the Company's estimate of future stock price growth.
11
<PAGE>
AGGREGATED OPTION EXERCISES FISCAL 1995 AND FISCAL 1995 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Craig D. Crisman........ 0 $ 0 119,643 300,000 $1,375,895 $2,137,500
John E. Ross............ 0 0 56,888 94,584 465,956 996,413
Raymond P. LeBlanc...... 54,635 326,990 20,092 0 187,460 0
</TABLE>
- --------
(1) Calculated on the basis of the closing price of the Company's common stock
on the New York Stock Exchange, $15.625 per share, on September 30, 1995.
REMUNERATION OF DIRECTORS
Mr. Dwight and Dr. Mercure were each paid an annual retainer of $10,800 and
were entitled to be paid $1,000 for each Board meeting attended during the
fiscal year ended September 30, 1995. Directors who are not otherwise employed
by the Company, but who serve as members of the Audit or Compensation
Committees are entitled to be paid $1,000 for attendance at meetings of such
Committees if they occur on days other than on a regularly scheduled Board
meeting day. In July 1994, in view of the Company's difficulties and
deteriorating financial condition, the non-employee directors elected to defer
receipt of fees payable to them for attendance at Board and Committee
meetings. In November 1995, the directors elected to be reimbursed for
deferred meeting fees and to reinstate regularly scheduled meeting fees.
Directors are not compensated for meetings held by teleconferencing
facilities. Travel and accommodation expenses incurred by directors in
attending Board and Committee meetings are reimbursed.
Under the Company's 1994 Nonemployee Directors Plan, (the "1994 Directors
Plan") which was approved by the Stockholders at the 1994 Annual Meeting,
options to purchase 5,000 shares of Common Stock were granted to each of
Messrs. Mercure, Dwight and Crisman on March 1, 1995, at an exercise price of
$3.00 per share. Under the Directors Plan, so long as each person serves as a
director, he will be granted an option to purchase 5,000 shares on March 1 of
each subsequent year.
The exercise price of each option granted under the 1994 Directors Plan is
set at the fair market value of the Common Stock on the date of grant. If the
Common Stock is listed on a stock exchange, fair market value will be the
closing price of the Common Stock on such exchange on the date of grant;
provided, however, that if the date of grant falls on a day when such exchange
is not open for the trading, the fair market value will be set at the closing
price of the Common Stock on such exchange on the first trading day
immediately following the date of grant.
In addition to the arrangements described above, the Compensation Committee
granted an option to GG&G Equity Partners to purchase 250,000 shares of Common
Stock at $4.125 per share as a Success Fee ("the GG&G options"). In December
1994, the GG&G options were assigned to the individual equity partners of
GG&G. The options are non-qualified options which are currently exercisable
and the shares obtainable by exercise of these options have been registered
with the Securities and Exchange Commission on Form S-3. Board Resolutions
were adopted on July 27, 1995, finding that the turnaround engagement of GG&G
was successfully carried out and completed, and the agreement with GG&G was
then terminated. Pursuant to the GG&G agreement, a recruiting fee of $131,250
was paid upon the employment of Mr. Crisman.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1986, the Company entered into an employment Agreement (the
"Employment Agreement") with Harold R. Frank, the Company's founder and then
Chairman of the Board. The Employment Agreement sets forth provisions with
respect to Mr. Frank's continued employment relationship with the Company and
reductions in Mr. Frank's normal compensation payable by the Company. Under
the Employment Agreement,
12
<PAGE>
Mr. Frank has also agreed to forego participation in certain employee benefits
plans of the Company in which he would otherwise be eligible to participate,
namely the Company's Cash Incentive Profit Sharing, Long-Term Incentive and
the 401(k) Plans. In consideration of Mr. Frank's agreements, the Company has
fixed, at $500,000, an amount of deferred compensation payable to Mr. Frank,
without interest, in installments over a ten-year period which began in 1986.
All installments on this agreement have been paid and no further payments are
due to Mr. Frank.
On August 1, 1994, the Company entered into an agreement with GG&G (the
"GG&G Agreement") pursuant to which GG&G was retained by the Company to
provide crisis management and turnaround services. The selection of GG&G was
the result of efforts commenced by the Board of Directors in approximately
June 1994, in response to significant operating losses and a deteriorating
financial condition. Mr. Frank, with the assistance of other directors, was
instructed by the Board to interview a number of persons and firms to provide
these services. On the basis of this review process, GG&G was selected and
retained effective as of August 1, 1994, with the understanding that Mr.
Crisman would be the principal consultant to be assigned by GG&G to perform
these services and to serve as Chief Executive Officer of the Company. Under
the terms of the GG&G Agreement, GG&G was paid a monthly fee of $70,000 plus
expenses through May 1995. The monthly fee was reduced to $55,000 effective
June 1995 for the services of Mr. Crisman and any other consultants assigned
by GG&G to provide services to the Company. On August 1, 1995, the GG&G
Agreement was terminated and Mr. Crisman was hired by the Company.
On November 3, 1995, Jerry E. Goldress, Chief Executive Officer and owner of
GG&G, was elected to the Board of Directors of the Company. The total amount
of fees paid to GG&G by the Company in fiscal 1995 was $670,000 for the
aforementioned services.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
On October 5, 1994, in connection with his resignation as an executive
officer and director of the Company, Mr. Anderson and the Company entered into
an agreement pursuant to which, among other things, Mr. Anderson will be paid
the sum of $600,000 in equal monthly installments starting on October 5, 1994,
without interest, over a twenty-four (24) month period and will provide
consulting services to the Company. In addition, pursuant to the terms of the
Company's 1989 Plan, Restrictions (as defined in the 1989 Plan) were removed
as to 11,549 shares of Common Stock previously granted to Mr. Anderson. The
aggregate value of these shares, based on the closing price of the Common
Stock on the New York Stock Exchange of $4.125 per share on October 5, 1994,
was $47,640.
On January 4, 1994, the Company entered into a retention agreement with Mr.
Raymond P. LeBlanc, the Vice President, Secretary and General Counsel of the
Company, pursuant to which, among other things, the Company agreed that if Mr.
LeBlanc was terminated as a result of an Involuntary Termination (as defined
in the retention agreement) occurring within two years from the date of such
agreement ("Retention Term"), he would receive a severance payment equal to
the product of his base monthly compensation and the number of months
remaining between the time of Involuntary Termination and the expiration of
the Retention Term, plus a severance payment equal to the product of his base
monthly compensation and one month for each year of his employment with the
Company (not exceeding 24 months). In addition, any outstanding and unpaid
amounts under the loan made by the Company to him (described below) would be
forgiven and discharged, and the Company would retain Mr. LeBlanc to provide
legal services to the Company for a period of twelve months following the
termination date at a monthly retainer of $10,000 per month. At July 18, 1995,
Mr. LeBlanc's monthly base compensation was $14,167. Pursuant to the retention
agreement with Mr. LeBlanc, the Company also agreed to loan him the sum of
$80,000, represented by an interest-free promissory note and subject to
forgiveness, in four annual installments of $20,000 each, beginning January 4,
1995, provided Mr. LeBlanc's employment with the Company was not terminated
voluntarily or for Cause (as defined in the agreement). The loan was secured
by a deed of trust on Mr. LeBlanc's residence in Santa Barbara, California. On
July 19, 1995 the Company entered into a separation agreement with Mr. LeBlanc
pursuant to which, among other things, he resigned as an officer of the
Company, agreed to provide services on an as-required, part time basis for the
Company until February 1996. Under the terms of the separation agreement, the
Company agreed to forgive the entire balance of $60,000 due under the loan
agreement. In addition, vesting was accelerated on 39,818 stock
13
<PAGE>
options, and pursuant to the terms of the Company's 1989 Plan, restrictions
(as defined in the 1989 Plan) were removed as to 7,500 shares of Common Stock
previously granted to Mr. LeBlanc. The aggregate value of these shares, based
on the closing price of the Common Stock on the New York Stock exchange of
$8.00 per share on July 19, 1995, was $60,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1995, the Compensation Committee consisted of directors
Mercure and Dwight, none of whom have ever been officers or employees of the
Company or any of its subsidiaries. Mr. Goldress, CEO of GG&G, joined the
Board of Directors on November 3, 1995. See "Certain Relationships and Related
Transactions."
COMPENSATION COMMITTEE REPORT
INTRODUCTION
At or about the start of each fiscal year, the Compensation Committee of the
Board of Directors (the "Committee") generally determines base salary levels
as well as awards and performance objectives under applicable long term
incentive plans for executive officers. It is at this time that the Committee
also determines stock option grants for executive officers and key employees.
The Committee takes into account the Company's actual performance during the
preceding fiscal year (compared to the projected results) and the plans and
objectives for the fiscal year just beginning.
The Committee's executive compensation policies recognize both industry and
company-specific conditions and circumstances. Such policies acknowledge that
the industry served by the Company is dynamic, that changes in technology and
market conditions occur frequently and rapidly and that competition for
executives and key personnel exists within a broad range of technology and
computer firms as well as manufacturers of disk drives and disk drive
components.
Moreover, these policies are affected by the Company's performance, its
current and projected financial condition, and its requirements for special or
unique executive skills and expertise based on strategic requirements.
Overall, the Committee's executive compensation policies are designed to
provide competitive levels of compensation and to assist the Company in
attracting, retaining and motivating qualified executives and key employees.
COMPENSATION OBJECTIVES
The compensation program for executives seeks to achieve an appropriate mix
of "base" salary and "incentive" compensation components.
Fair and competitive base salaries for executives and key personnel are
intended to meet the Company's basic executive recruitment and retention
needs. Incentive-based compensation practices and plans are intended to
provide rewards, based on performance bonuses or equity-based compensation
elements, that are related to the Company's performance as measured against
business objectives and strategies.
Given these objectives, the Committee's focus has been to develop a
compensation "package" consisting of:
. competitive base salaries;
. cash bonuses; and
. Long-term incentive, equity-based compensation.
The Company has historically sought to align aggregate base salary and cash
bonus compensation components of executive compensation to be at or near the
median of competitive compensation within a peer
14
<PAGE>
group of companies. These are companies whose revenues compare to Applied
Magnetics or compete with the Company for executive persons having similar
skills, experience, education, demonstrated technical and management
capabilities and other attributes, as those the Company seeks to retain and
recruit regardless of revenues.
Besides Company-specific performance data, both actual and projected, and
assessments of the individual contributions made by key executives, the
Committee has, historically, reviewed and considered independent survey data,
studies published by executive compensation consultants, publicly available
data regarding compensation practices of companies within the "peer" group
described above and internally prepared and compiled data in formulating
compensation policies and decisions. Independent survey data, compensation
consultants' studies and publicly available "peer" group information have been
particularly important in making decisions with respect to base salaries.
COMPENSATION PROGRAM COMPONENTS
The Company uses a total compensation program which consists of both cash
(including base salary and cash bonuses) and equity based compensation.
1. Base Salary: Base salary is used as a recruitment device and as a minimum
level of compensation considered appropriate to satisfy the retention
objectives of the compensation policies. Increases, if any, are based on an
evaluation of the contributions made by the individual during the preceding
year, as well as those expected to be made during the ensuing year. If, based
on this evaluation process, base salary increases are to be made, they are
also generally based on median increases in the high technology industry for
companies with comparable size and performance characteristics (collected from
salary survey data published by outside consultants and other information such
as proxy statements).
Based on this evaluation process with respect to the year ended September
30, 1995, no base salary increases were awarded to the named executive
officers.
2. Cash Bonuses: The committee's criteria for determining cash bonuses is
similar to that of base cash pay in that they seek to maximize shareholder
value by designing bonus payout targets which focus on overall company
performance through individual business unit performance. Comparative data
from the same pool of peer companies as is utilized in the base salary
analysis is analyzed to determine competitive cash bonus award targets.
The committee approved the Key Management Incentive Bonus Plan ("Bonus
Plan") for executives for the fiscal year. Members of the Company's key
management team were eligible to receive a percentage of their base
compensation if certain minimum profitability targets were met during the
fiscal year. These performance targets were determined at the beginning of the
fiscal year. The Chief Executive Officer was excluded from the Bonus Plan.
The Bonus Plan was designed to generate a pool of money equal to
approximately 25 percent of base salary of participating executives if the
Company's overall target for pre-tax profits was met. Performance below or
above this target would decrease or increase the available pool of money which
could be distributed to participants. Actual distribution would be based on
individual performance and will be determined based on the recommendation of
the CEO with approval of the Compensation Committee.
For fiscal 1995 the Bonus Plan provided for a pool of money to be
distributed to eligible executive participants if certain pre-tax profits were
attained. Pre-tax profits realized were less than the targeted amount.
Notwithstanding this shortfall from targeted pre-tax profits, the Compensation
Committee determined subjectively that the management team provided an
extraordinary effort and results to return the Company to profitability. As a
result the Committee in its discretion decided to add additional funds to this
pool to be distributed based on recommendations from the CEO.
15
<PAGE>
All employees of the Company who are U.S. residents, and certain employees
of certain foreign subsidiaries participate in the Cash Incentive Profit
Sharing Plan (the "Cash Plan") after six months of employment. Under this
plan, the Company distributes an aggregate of twelve percent of operating pre-
tax profits, if any, earned by the Company during each six-months of
operations of each fiscal year. Cash distributions under the Cash Plan are
made to participants in the proportion which each participant's compensation
for each six month period bears to the total of all eligible compensation
during the period. No payments were made under the Cash Plan during fiscal
1995 as the rules of the plan required that a profit be generated from
operations, which did not occur.
3. Long-Term Incentives: Long-term incentives are provided through grants of
stock options and of awards of Common Stock that are subject to restrictions
prohibiting the sale or transfer of the stock ("Restricted Stock"). Subject to
the terms of the applicable plans, the Committee determines the individuals to
whom grants or awards should be made, the timing of grants, the purchase price
per share (as to stock options) and the number of shares subject to each
option. The Committee also determines the number of shares of any Restricted
Stock awards, the performance objectives to be achieved in order to remove
restrictions and whether these performance objectives have been achieved.
Stock options have been granted under the 1988, 1992 and 1994 Stock Options
Plans to the named executive officers and certain other employees primarily to
motivate these executives to maximize stockholder value. The option program is
also used to encourage executives and key employees to remain with the
Company. All options are granted at fair market value on the date of the
grant.
Restricted Stock is granted under the 1989 Plan. As in the case of stock
options, with Restricted Stock, the potential value of the award increases
with increasing stock price. This is intended to align the value enhancement
interests of executives with those of the Company's stockholders.
Restricted Stock grants are used to provide incentives for experienced
executives to remain with the Company for the long term and to recruit senior
executives and other key management and technical personnel. Moreover, in
certain cases the Committee has authorized the removal of restrictions in
connection with severance agreements with certain former executives.
Performance objectives are established by the Committee for the 1989 Plan at
or near the beginning of each fiscal year. The achievement of performance
objectives results in removal of restrictions as to all or part of the
Restricted Stock.
At the beginning of fiscal 1995, the Committee established performance
objectives for the year as to all persons who held Restricted Stock. These
objectives called for achievement of a minimum level of pre-tax income for the
entire year. The Committee subsequently determined that those objectives were
not achieved. Notwithstanding this shortfall from targeted pre-tax profits,
the Committee determined subjectively to lift the restrictions.
PERFORMANCE MEASUREMENTS AND INDUSTRY COMPARISONS
As an overall, long-term executive compensation policy, the Company
continues to believe that the key to its executive compensation program is
establishing aggressive business objectives and executive compensation
objectives against a performance profile that considers executive and
management performance relative to these objectives and the Company's overall
performance relative to the performance of the companies described above under
"Introduction".
COMPANY PERFORMANCE AND CEO COMPARISON
As indicated above, the Company's executive compensation program is based
upon performance relative to Company-specific objectives and compensation paid
by comparable enterprises. Many of the same factors relating to executive
compensation in general were considered by the Committee in August of the
fiscal year in connection with setting compensation for Mr. Crisman, the
President and Chief Executive Officer.
The Committee feels that Mr. Crisman is directly responsible for the
financial turnaround of the Company from an overall loss to a profit for the
fiscal year. This in connection with the ongoing need for the Company of
16
<PAGE>
strong financial leadership and direction as well as the review of comparable
compensation for President and Chief Executive Officers of other companies
used in the Company's executive compensation analysis, led the Committee to
set Mr. Crisman's current rate of pay at $375,000 per year. Pursuant to his
employment agreement, Mr. Crisman is eligible to receive a cash bonus based on
a plan to be devised by the Board.
Prior to August, Mr. Crisman had served the Company as a consultant with
GG&G and as a result received compensation directly from that firm.
Members of the Compensation
Committee:
Dr. R.C. Mercure, Jr.
Herbert M. Dwight, Jr.
17
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG APPLIED MAGNETICS CORPORATION, THE S & P 500 INDEX
AND THE HAMBRECHT & QUIST COMPUTER HARDWARE INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period APPLIED S&P H & Q COMPUTER
(Fiscal Year Covered) MAGNETICS CORP. 500 INDEX HARDWARE
- ------------------- --------------- --------- --------------
<S> <C> <C> <C>
Measurement Pt- 9/90 $100 $100 $100
FYE 9/91 $115 $131 $114
FYE 9/92 $ 93 $146 $101
FYE 9/93 $133 $165 $ 79
FYE 9/94 $ 64 $171 $105
FYE 9/95 $227 $221 $167
</TABLE>
STOCKHOLDERS PROPOSALS--1997 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
stockholders' meeting if they comply with the requirements of the proxy rules.
Any proposals intended to be presented at the 1997 Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before September 5, 1996 in order to be considered for inclusion in the
Company's proxy statement and form of proxy relating to such meeting.
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. However, if any other matters are properly presented for action, the
persons named in the accompanying proxy intend to vote on such matters in
their discretion.
Craig D. Crisman
Chairman and Secretary
January 5, 1996
18
<PAGE>
PROXY
APPLIED MAGNETICS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Applied Magnetics Corporation, a Delaware
corporation (the "Company"), hereby appoints Craig D. Crisman and Peter T.
Altavilla, and each of them, each with full power of substitution, as proxy for
the undersigned to vote and otherwise represent all the shares registered in
the name of the undersigned at the Annual Meeting of Stockholders of the
Company to be held on Friday, February 9, 1996 at 4:00 p.m., 75 Robin Hill Rd.,
Goleta, California, and at any adjournment thereof, with the same effect as if
the undersigned were present and voting such shares, on the following matters
and in the following manner as further described in the accompanying Proxy
Statement.
Either of such proxies and attorneys-in-fact, or their substitutes, as shall
be present and shall act at said meeting or any adjournment or adjournments
thereof shall have and may exercise all the powers of said proxies and
attorneys-in-fact thereunder.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders, the Proxy Statement and the Company's 1995 Annual Report to
Stockholders.
The Shares represented by the proxy will be voted in accordance with the
specification made. If no specification is made, the Shares represented by this
proxy will be voted for each of the nominees and proposals and, in the
discretion of the proxy holders, on any other matters that may properly come
before the meeting or any adjournment thereof.
The proxies are authorized to vote and otherwise represent the shares of the
undersigned on any other matters which may properly come before the meeting of
any adjournment, according to their decision and in their discretion.
PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE.
<PAGE>
I plan to attend the meeting [ ]
1. ELECTION OF DIRECTORS:
FOR the nominees listed (except as indicated to the contrary): [ ]
WITHHOLD AUTHORITY to vote for ALL nominees listed: [ ]
NOMINEES: Harold R. Frank, Craig D. Crisman, Herbert M. Dwight, Jr., Dr. R.C.
Mercure, Jr., and Jerry E. Goldress
(Instruction: To withhold authority to vote for any nominee, write that
nominee's name in the space provided below.)
--------------------------------------------------------------------------
2. Approval of the amendment of the Company's 1994 Employee Stock Option Plan
to increase the number of shares of Common Stock authorized for the issuance
thereunder by 1,100,000 Shares.
For [ ] Against [ ] Abstain [ ]
3. Approval of the selection of Arthur Andersen LLP as independent certified
public accountants for the fiscal year ending September 28, 1996.
For [ ] Against [ ] Abstain [ ]
Dated: ___________________________________________________________________, 1996
- --------------------------------------------------------------------------------
(Signature of Stockholder)
- --------------------------------------------------------------------------------
(Signature of Stockholder)
Please date and sign exactly as your name appears on this proxy. Joint owners
should each sign. If the signer is a corporation, please sign full corporate
name and title by duly authorized officer. Executors, trustees, guardians and
the like should give full title as such.
"PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD
YOUR VOTES"
