As filed with the Securities and Exchange Commission on May 23, 1996
Registration No. 333-2369
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
Under The Securities Act of 1933
------------------------------
APPLIED MAGNETICS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-1950506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
------------------------------
75 Robin Hill Road
Goleta, California 93117-3108
(805) 683-5353
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
CRAIG D. CRISMAN
Chairman of the Board and
Chief Executive Officer
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, California 93117-3108
(805) 683-5353
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
With a Copy to:
JAMES J. SLABY, JR., ESQ.
JAMES M. RENE, ESQ.
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor
Los Angeles California 90071
(213) 620-1780
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration
Statement.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
Page 1 of 35 <PAGE>
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on
such date as the Securities and Exchange Commission (the
"Commission"), acting pursuant to said Section 8(a), may determine.
The prospectus contained in this Registration Statement also
relates to a registration statement previously filed with the
Commission (Registration No. 33-59409).
EXHIBIT INDEX ON PAGE 34
Page 2 of 35 <PAGE>
APPLIED MAGNETICS CORPORATION
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Showing Locations in Prospectus of the Information
Required by Items of Form S-3
Form S-3 Caption Caption in Prospectus
---------------- ---------------------
Item 1. Forepart of the Outside Front Cover Page of
Registration Statement Prospectus
and Outside Front Cover
Page of Prospectus
Item 2. Inside Front and Outside Inside Front and Outside Back
Back Cover Pages of Cover Pages of Prospectus
Prospectus
Item 3. Summary Information, Risk Prospectus Summary, Risk
Factors and Ratio of Factors; Certain Relationships
Earnings to Fixed Charges and Related Transactions
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Offering Plan of Distribution
Price
Item 6. Dilution Inapplicable
Item 7. Selling Security Holders Selling Stockholders
Item 8. Plan of Distribution Plan of Distribution
Item 9. Description of Securities Description of Capital Stock
to be Registered
Item 10. Interests of Named Legal Matters; Experts
Experts and Counsel
Item 11. Material Changes Material Developments
Item 12. Incorporation of Certain Incorporation of Certain
Information by Reference Documents by Reference
Item 13. Disclosure of Commission Inapplicable
Position on Indemnifi-
cation for Securities Act
Liabilities
Page 3 of 35 <PAGE>
Subject to Completion, May ___, 1996
Prospectus
APPLIED MAGNETICS CORPORATION
350,000 Shares
Common Stock, $.10 Par Value
The shares of Common Stock, $.10 par value (the "Shares") of
Applied Magnetics Corporation (the "Company") which may be offered
hereby (the "Offering") by certain stockholders of the Company (the
"Selling Stockholders") named herein under the heading "Selling
Stockholders" will be sold to the Selling Stockholders on (i) the
exercise of options, and (ii) the exercise of a warrant, in each case
to purchase shares of the Company's Common Stock. None of the
proceeds of any sales by the Selling Stockholders will be received by
the Company. It is anticipated that the shares will be sold through
the usual brokerage channels on the New York Stock Exchange, or
otherwise, at prevailing market prices and subject to the usual and
customary commissions.
The Common Stock is listed on the New York Stock Exchange
under the symbol "APM". The closing price of the Company's Common
Stock on May 22, 1996 was $18-3/8.
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS
SET FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
The date of this Prospectus is May ___, 1996
Page 4 of 35 <PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith files periodic reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade
Center, Suite 1300, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
In addition, copies of such reports, proxy statements and other
information concerning the Company may also be inspected and copied at
the offices of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005.
The Company has filed with the Commission a Registration
Statement on Form S-3 (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Shares being offered pursuant to this Prospectus. This
Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration
Statement and the documents incorporated herein by reference which may
be examined without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies thereof may be obtained from the
Commission upon payment of the prescribed fees. Statements herein as
to the contents of any document referred to are not necessarily
complete and in each instance are qualified in all respects by
reference to the applicable documents filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File
No. 1-6635) pursuant to the Exchange Act are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995, as amended by Form 10-K/A No. 1 filed
with the Commission on May ___, 1996;
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended December 30, 1995;
3. The Company's Quarterly Report on Form 10-Q/A No. 1 for
the quarter ended December 30, 1995;
4. The Company's Current Report on Form 8-K filed with the
Commission on March 11, 1996;
Page 5 of 35 <PAGE>
5. The Company's Current Report on Form 8-K filed with the
Commission on March 19, 1996;
6. The Company's Current Report on Form 8-K filed with the
Commission on April 2, 1996;
7. The Company's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1996; and
8. All other documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of the
Offering of the Common Stock.
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus and the Registration Statement of which it
is a part to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated herein
modifies or replaces such statement. Any statement so modified or
superseded shall not be deemed, in its unmodified form, to constitute
a part of this Prospectus or such Registration Statement.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE WITHOUT
CHARGE UPON WRITTEN OR ORAL REQUEST DIRECTED TO: APPLIED MAGNETICS
CORPORATION, 75 ROBIN HILL ROAD, GOLETA, CALIFORNIA 93117-3108,
ATTENTION: SECRETARY, TELEPHONE: (805) 683-5353.
------------------------------
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus. Prospective
investors should carefully consider the matters set forth under the
heading "RISK FACTORS" beginning on page 7.
The Company
The Company is one of the world's leading independent
manufacturers of advanced magnetic recording heads for hard disk
drives. The Company manufactures advanced inductive thin film and MR
disk head products and assembles ferrite disk head products, in each
case, primarily for supply to manufacturers of 3.5 inch hard disk
drives. The Company's products compete on the basis of price,
performance and availability. The Company's products are used in disk
drives manufactured by, among others, International Business Machines
("IBM"), Maxtor Corporation ("Maxtor"), Micropolis Corporation
("Micropolis"), NEC Electronics, Inc. ("NEC"), Quantum Corporation
Page 6 of 35 <PAGE>
("Quantum"), Seagate Technology, Inc. ("Seagate Technology") and
Western Digital ("Western Digital").
The Company was incorporated in California in 1957 and
reincorporated in Delaware in 1987. The Company's principal offices
are located at 75 Robin Hill Road, Goleta, California 93117-3108,
telephone number (805) 683-5353.
The Offering
Shares Offered Hereby 350,000 shares of Common Stock,
$.10 par value, of the Company.
Plan of Distribution A maximum of 350,000 shares of
Common Stock are being offered by
the Selling Stockholders. The
Selling Stockholders may offer from
time to time some or all of the
shares of Common Stock held by them
directly or, alternatively, through
underwriters, dealers or agents.
See "PLAN OF DISTRIBUTION."
Shares Outstanding 23,081,913 shares of Common Stock
as of May 21, 1996.
Options Outstanding Options to purchase an aggregate of
2,322,585 shares of Common Stock on
May 21, 1996.
Proceeds The Company will not receive any of
the proceeds from the sale of the
Shares by the Selling Stockholders.
See "USE OF PROCEEDS."
NYSE Trading Symbol APM
Risk Factors Prospective investors should
carefully consider the matters
discussed under the heading "RISK
FACTORS."
RISK FACTORS
------------
In addition to the other information contained in this
Prospectus and the documents incorporated herein by reference,
investors should consider the following factors before purchasing the
Common Stock being offered by this Prospectus.
Page 7 of 35 <PAGE>
RAPID TECHNOLOGICAL CHANGES
The magnetic recording head industry has been characterized
by rapidly changing technology, short product life cycles and price
erosion. The Company estimates that the industry product life cycle
is currently running as short as 12 to 18 months. The demand for
smaller, lighter products with greater data storage capacity requires
disk drive and disk head manufacturers to continue to build greater
performance into smaller products. There is no assurance that the
Company's products will achieve such performance or that the Company
will continue to qualify for disk drive manufacturers' programs.
During fiscal 1993 and 1994 and the first two quarters of fiscal 1995,
the Company experienced substantial losses and significant production
and product quality problems as it sought to adapt to the market's
transition from ferrite disk heads to thin film disk heads. There is
no assurance that the Company will continue to qualify for disk head
manufacturing programs or that it will not experience similar
manufacturing and product quality problems in the future. The
Company's future success depends in large part on its ability to
develop and qualify new products on a timely basis and in sufficient
quantities that compete effectively on the basis of price and
performance. See "THE COMPANY."
FLUCTUATIONS IN QUARTERLY AND ANNUAL OPERATING RESULTS
The Company's operating results have fluctuated and may
continue to fluctuate from quarter to quarter and year to year. The
Company experienced net losses (i) for the fiscal year ended
September 30, 1991 of $18,284,000 on an aggregate basis, or $1.12 per
share (a net loss from continuing operations of $15,805,000, or $0.97
per share), (ii) for the fiscal year ended September 30, 1992 of
$25,107,000 on an aggregate basis, or $1.51 per share (net income from
continuing operations of $315,000, or $0.02 per share), (iii) for the
fiscal year ended September 30, 1993 of $43,728,000 on an aggregate
basis, or $2.17 per share, and (iv) for the fiscal year ended
September 30, 1994 of $52,670,000 on an aggregate basis, or $2.39 per
share. As recently as the first two quarters of fiscal 1995, the
Company experienced substantial losses. The Company's sales are
generally made pursuant to individual purchase orders and production
is scheduled and customer-specific materials are ordered on the basis
of such purchase orders. As customer programs mature, the Company may
have to write-down inventory and equipment. In addition, the Company
must qualify on future programs to sell its products. The Company has
also, on occasion, experienced cancellation and rescheduling of orders
and reductions in quantities ordered as customer requirements change.
As a result, the Company's backlog may not be a reliable indicator of
future sales. Cancellation, rescheduling and reductions of orders in
the future could result in inventory losses, under-utilization of
production capacity and write-downs of tooling and equipment which
would have a material adverse effect on the Company's future operating
results. Moreover, the Company and several of its major competitors
have announced large capital expenditure programs, and there is no
assurance that market demand will be adequate to absorb this expanded
capacity. The Company's operating results have in the past and likely
Page 8 of 35 <PAGE>
will in the future be adversely affected during periods when
production capacity is under-utilized.
DEPENDENCE ON CYCLICAL HARD DISK DRIVE INDUSTRY
Demand for the Company's products is driven first by demand
for disk drive units. Demand for more and faster disk drives is in
turn driven by demand for such products as PCs, network servers, disk
arrays, workstation drives, mainframes and internet servers and for
memory intensive services such as video on demand, voicemail and
multimedia services. The disk drive industry is cyclical and
historically has experienced periods of oversupply and reduced
production levels, resulting in significantly reduced demand for disk
heads, as well as pricing pressures. The effect of these cycles on
suppliers, including the Company, has been magnified by hard disk
drive manufacturers' practice of ordering components, including disk
heads, in excess of their needs during periods of rapid growth, which
increases the severity of the drop in the demand for components during
periods of reduced growth or contraction. In recent years, the disk
drive industry has experienced significant growth, and the Company has
expanded its capacity and expects to do so further. There is no
assurance that such growth will continue, that the level of demand for
disk drives will not decline, or that future demand will be sufficient
to support existing and future capacity. A decline in demand for hard
disk drives may have a material adverse effect on the Company's future
operating results.
SIGNIFICANT CAPITAL NEEDS
The magnetic disk head industry is capital intensive and
requires significant expenditures for research and development in
order to develop and take advantage of technological improvements and
new technologies such as thin film and MR disk head products. The
Company believes that, in order to achieve its objectives, it will
need significant additional resources over the next several years for
capital expenditures, working capital and research and development.
In fiscal 1996, the Company plans to spend approximately $125 million
(including amounts financed through equipment leases) on capital
expenditures, of which $16 million was incurred during the quarter
ended December 30, 1995. The Company believes that it will be able to
fund these expenditures from a combination of the proceeds of the Debt
Offering (as defined below), existing cash balances, cash flow from
operations, existing credit facilities and lease financing
arrangements. However, there is no assurance that these funds will be
sufficient for its needs, and in any event, the Company may need
additional sources of capital to meet requirements in future years.
There is no assurance that such additional funds will be available to
the Company or, if available, upon terms and conditions acceptable to
the Company. If the Company were unable to obtain sufficient capital,
it would need to curtail its operating and capital expenditures, which
could adversely affect the Company's future operating results.
Page 9 of 35 <PAGE>
RELIANCE ON SHORT-TERM BORROWING
At December 30, 1995, the Company had outstanding
approximately $47.1 million of short-term borrowings in floating rate
demand loan facilities from a bank in Malaysia, where it has
substantial manufacturing operations. The proceeds of the loan
facilities were used in the construction of assembly facilities in
Malaysia and are used for working capital purposes. In May 1995, the
Company and the Malaysian bank amended these loan facilities to
include a security interest in the Company's real property holdings in
Malaysia and to include certain covenants which preclude the Company
from granting liens on and security interests in other assets in
Malaysia. While the Company has no reason to believe the loan will be
called, there is no assurance that the bank will continue to make this
credit available. If the loan were called and the Company were unable
to refinance the loan, it would result in breach of covenants in other
borrowing facilities maintained by the Company and, thereby, create a
cash shortfall for the Company. As of April 27, 1996, $0.9 million
was available under this credit facility. In addition, the Company
has a credit line with CIT Group/Business Credit, Inc., pursuant to
which $18.9 million was available to be drawn down by the Company as
of April 27, 1996.
COMPETITION
The disk head industry is intensely competitive and largely
dependent on sales to a limited number of major disk drive
manufacturers and systems companies. The Company's top six customers
accounted for 97% of the Company's net sales in fiscal 1995, and sales
to Conner Peripherals Inc. ("Conner") and Maxtor represented
approximately 41% and 19% of total sales, respectively. Many of the
Company's competitors are significantly larger and more diversified
and have substantially greater financial, technical and marketing
resources than does the Company. Additionally, a number of disk drive
manufacturers with significantly greater financial, technical and
marketing resources than the Company, such as IBM, Seagate Technology,
Quantum, Hitachi, Ltd. ("Hitachi"), Hewlett-Packard Company and
Fujitsu Limited ("Fujitsu") currently produce thin film and, in some
cases, MR heads for their own use. Seagate Technology also makes its
disk head products available to other disk drive manufacturers. Other
disk drive manufacturers could develop or acquire the ability to
produce thin film and MR heads in the future. The Company's ability
to obtain new orders from customers depends on its ability to
anticipate technological changes, develop products to meet
individualized customer requirements and to achieve timely delivery of
products that meet customer specifications at competitive prices. In
addition, the disk drive industry is also intensely competitive and
disk drive manufacturers may quickly lose market share as a result of
the successful deployment of new technologies by their competitors or
various other factors. In recent years, certain disk drive
manufacturers have declared bankruptcy. A significant reduction in
orders from or the loss of a major customer, which could occur for any
of a variety of reasons, could have a material adverse effect on the
Company's future operating results.
Page 10 of 35 <PAGE>
FURTHER CONSOLIDATION OF THE DISK DRIVE INDUSTRY
The information technology industry is experiencing
significant consolidation. In recent years, certain disk drive and
systems companies have acquired or merged with magnetic disk head
companies in an effort to produce magnetic disk heads for their own
use. In fiscal 1994, Quantum, a major disk drive manufacturer,
acquired Digital Equipment Corporation's ("DEC") inductive thin film
head operations as well as a controlling interest in Rocky Mountain
Magnetics, a joint venture between Storage Technology and DEC. Rocky
Mountain Magnetics is primarily engaged in the development and
production of MR disk heads. In addition, Seagate Technology, a major
manufacturer of both disk drives and recording heads, and Conner, the
Company's largest customer in fiscal 1995, recently merged. The
Company anticipates that revenues from Conner will decline materially
during fiscal 1996. Net sales attributable to Conner in fiscal 1994
and 1995 were $145.1 million and $119.6 million, respectively. The
Company has so far been able to replace the Conner business with sales
to other customers, principally Western Digital, and demand for the
Company's products currently exceeds production capacity. There is no
assurance, however, that overall demand for the Company's products will
continue at present levels. There is no assurance that disk drive and
systems companies will not continue to vertically integrate and acquire
the ability to produce disk heads for their own use. Further
consolidation of the disk drive industry may reduce the number of disk
drive programs requiring the Company's products and may increase
credit risks for the Company due to the concentration of its
customers. As a result, there is no assurance that further vertical
integration of disk drive and system companies and consolidation
within the disk drive industry will not have a material adverse effect
on the Company's future operating results. See "THE COMPANY."
DEPENDENCE ON FOREIGN OPERATIONS
The Company conducts substantially all of its production,
assembly and test operations in its facilities in Ireland, Korea,
Malaysia and the People's Republic of China ("PRC"). In addition, the
Company has contractual relationships with unaffiliated parties who
conduct manufacturing and assembly operations for the Company in
Malaysia and the PRC. The Company's operations in Korea have, from
time to time in recent years, been affected by labor disruptions and
slow downs. The Company's production facility in Malaysia is
currently facing potential labor shortages as other disk drive and
component manufacturers expand their production facilities in
Malaysia. In addition to risks of labor disruption, civil unrest and
political instability, the Company's foreign operations subject it to
delays in obtaining governmental permits and approvals, currency
exchange fluctuations, currency restrictions, trade restrictions and
transportation problems. See "THE COMPANY."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's operations and development
programs largely depends on a limited number of key technical and
management personnel as well as on its continued ability to attract
and retain skilled engineering and technical personnel. The Company
does not maintain key man life insurance on the lives of key
employees. Competition for qualified technical and engineering
Page 11 of 35 <PAGE>
personnel is intense and the Company's future success will depend, in
large part, on its ability to continue to attract, retain, train and
motivate highly skilled and dedicated employees.
INTELLECTUAL PROPERTY
The Company relies primarily on a combination of
confidentiality agreements and internal procedures to protect its
proprietary rights in its manufacturing processes, product designs and
equipment. There is no assurance that the steps taken by the Company
will be adequate to protect its proprietary rights or that the
Company's competitors will not independently develop or patent
technologies that are equivalent or superior to the Company's
technology. In addition, certain employees of the Company are subject
to the terms of confidentiality agreements with respect to proprietary
information of their former employers. The failure of these employees
to comply with the terms of their agreements could result in assertion
of claims against the Company and such employees which, if successful,
might restrict their role with the Company and could have a material
adverse effect on the Company's future operating results. The Company
does not believe that any of its employees is in violation of his or
her prior employment agreements in the performance of his or her
duties with the Company.
ENVIRONMENTAL REGULATIONS AND WATER SUPPLY RESTRICTIONS
The Company uses certain hazardous chemicals in its
manufacturing process and is subject to a variety of environmental and
land use regulations relating to the use, storage, discharge and
disposal of such chemicals and the conduct of its manufacturing
operations. Such environmental and land use regulations could
restrict the Company's ability to expand its present production
facilities or establish additional facilities in other locations, or
could require the Company to acquire costly equipment or to incur
other significant expenses to comply with environmental regulations or
to clean up prior discharges. The Company, which is subject to water
use restrictions, uses a significant amount of water in its manu-
facturing process. Although to date the Company has been able to
obtain sufficient water supplies without significantly increased
costs, stricter water use restrictions may be mandated and additional
expenditures for water reclamation and conservation may be required.
Any further restrictions on water use could require the Company to
reduce production and materially adversely affect the Company's future
operating results.
MANAGEMENT OF GROWTH
The Company is experiencing growth and is planning
significant internal expansion. In order to maintain and improve
operating results, the Company's management will be required to manage
this growth and the related expansion effectively. There is no
assurance that the Company's expansion will remain on schedule or will
improve operating results. As the Company continues to expand, it may
become more difficult to manage geographically dispersed operations.
The Company's failure to effectively manage growth could have a
material adverse effect on its future operating results.
Page 12 of 35 <PAGE>
SHAREHOLDER RIGHTS PLAN
The Company has adopted a shareholder rights plan designed
to prevent takeovers not approved by the Board of Directors. This
plan could adversely affect purchasers of the Shares in that it could
discourage tender offers for the Company's Common Stock.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been
volatile, ranging in price from $2.50 to $19.25 per share over the
past year. The trading price of the Company's Common Stock has
fluctuated in response to quarter-to-quarter operating results,
industry conditions, awards of orders to the Company or its
competitors, new product or product development announcements by the
Company or its competitors, general market and economic conditions and
other events or factors. In addition, the volatility of the stock
markets in recent years has caused wide fluctuations in trading prices
of stocks of technology companies independent of their individual
operating results. The market price of the Company's Common Stock at
any given time may be adversely affected by factors independent of the
Company's operating results.
THE COMPANY
-----------
The Company is one of the world's leading independent
manufacturers of advanced magnetic recording heads for hard disk
drives. The Company manufactures advanced inductive thin film and MR
disk head products and assembles ferrite disk head products, in each
case, primarily for supply to manufacturers of 3.5 inch hard disk
drives. The Company's products compete on the basis of price,
performance and availability. The Company's products are used in disk
drives manufactured by, among others, IBM, Maxtor, Micropolis, NEC,
Quantum, Seagate Technology and Western Digital.
The demand for disk drive units has grown significantly in
recent years largely in response to the global proliferation of
personal computers and the increasing demand for data storage
capacity. Commencing with the Company's fiscal year 1995, a number of
disk drive manufacturers, including those served by the Company,
experienced shortages of key components, including recording heads,
thereby increasing demand for the Company's products. Commencing with
the Company's fiscal year 1995, this increasing demand, coupled with
thin film production process improvements and greater production
capacity, has resulted in a significant increase in the Company's thin
film disk head unit shipments and has improved operating and financial
performance.
The Company's product line is currently centered around thin
film disk heads, the largest segment of the recording head industry.
Thin film heads permit greater storage capacity per disk and provide
higher transfer rates than ferrite disk heads. The Company continues
to expand its thin film production capacity and further develop its
Page 13 of 35 <PAGE>
thin film technology. The Company is also committing engineering and
production resources to further its MR disk head capability, which it
believes to be the next generation of recording head technology. MR
disk heads offer still greater recording densities and other
performance advantages demanded by the disk drive market.
The financial performance of manufacturers of magnetic
recording heads is, because of the high fixed cost nature of their
operations, particularly sensitive to the volume of unit sales and the
pricing of those units as well as to production yields. The industry
continues to experience rapid technological change and compressed
product life cycles. New product development allows disk head
manufacturers an opportunity to differentiate their products and gain
market share. However, such development requires significant
investment, including substantial capital expenditures. The resulting
financial burdens make it imperative that disk head manufacturers
maintain acceptable yields at each step in the manufacturing process.
In addition, the compression of product life cycles necessitates the
rapid development and deployment of new products and limits the period
in which manufacturers may recoup their investment.
The Company experienced a decline in shipments in the third
and fourth quarters of fiscal 1992 due primarily to the reduced demand
by IBM for certain ferrite disk head products and the continuing
decline in overall demand for minislider form factor thin film disk
heads. The decline in net sales of ferrite disk head products
continued through the first quarter of fiscal 1993. As a result, in
1992 the Company began to shift its business focus from ferrite
assembly to the manufacture of the thin film microslider form factor.
The decision to pursue the manufacture of the thin film microslider
form factor required the Company to invest significant resources in
developing and perfecting the wafer fabrication and other processes
involved in thin film microslider form factor production.
During fiscal 1993 and fiscal 1994, market demand shifted to
the thin film nanoslider form factor from the microslider form factor
and from ferrite disk heads. The unexpectedly rapid market transition
from minislider to microslider to nanoslider form factors impacted
fiscal 1993 as the Company sustained significant losses and recorded a
$49.6 million restructuring charge in the fourth quarter to
consolidate manufacturing resources and write-down production assets
(primarily related to ferrite and thin film microslider production) to
their estimated net realizable values. In fiscal 1994, the Company
continued to incur operating and financial difficulties as it
struggled with its thin film nanoslider form factor manufacturing
process which impacted the Company's ability to expand production
capacity to achieve desired levels of volume shipments in response to
strong market demand.
In August 1994, in an effort to reverse this situation, the
Company engaged a consulting firm to provide it with crisis management
assistance. Mr. Craig D. Crisman, then a member of the consulting
firm, was appointed the Company's Chief Executive Officer. Under his
direction, the Company has significantly improved its yields in thin
Page 14 of 35 <PAGE>
film disk head production, implemented a number of cost reduction
programs, instituted aggressive cash management practices,
consolidated its manufacturing activities and divested itself of
certain non-core assets. These measures have significantly improved
the Company's cash and working capital positions. The Company and
Mr. Crisman entered into a five-year employment agreement in August
1995 and on November 3, 1995, Mr. Crisman was elected Chairman.
In an effort to capitalize on these improvements and to add
to its existing market share, the Company intends to increase its thin
film and MR disk head capacity. To achieve this goal, the Company
currently plans approximately $125 million of capital expenditures,
including those financed by operating leases, in fiscal 1996,
primarily to improve inductive thin film production processes and
increase thin film and MR production volumes.
DISK DRIVE INDUSTRY
Demand for the Company's products is driven first by demand
for disk drive units. Demand for more and faster disk drives is in
turn driven by demand for such products as personal computers ("PCs"),
network servers, disk arrays, workstation drives, mainframes and
internet servers and for memory intensive services such as video
voicemail and multimedia services. There are a limited number of
suppliers of disk drives, of which the largest include Fujitsu,
Hewlett-Packard Company, Hitachi, IBM, Iomega Corporation, Maxtor,
Micropolis, NEC, Quantum, Samsung, Seagate Technology, Toshiba and
Western Digital. Some systems companies that manufacture disk drives
are vertically integrated and produce magnetic recording heads for
their own use. The Company focuses its marketing efforts on those
manufacturers with large volume disk drive programs. For any given
program, the Company may be one of several suppliers of disk heads.
The Company believes that certain disk drive companies that are
vertically integrated will continue to rely on outside suppliers, such
as the Company, as second and third sources of supply. See "RISK
FACTORS -- Further Consolidation of the Disk Drive Industry."
PRODUCTS
The Company manufactures or assembles disk heads for supply
to manufacturers of hard disk drives, which are the predominant high
capacity data storage devices used in all classes of computers. Hard
disk drives typically include one to ten disks onto and from which
data is recorded and retrieved by two to 20 recording heads. These
heads are positioned by an actuator assembly to "fly" within three
one-millionths of an inch, or less, of the surface of the disk. The
head, consisting of a slider attached to a suspension assembly, is
generally referred to as a "head gimbal assembly" or HGA. Multiple
HGAs, assembled together with other components, comprise a "head stack
assembly," or HSA. The Company supplies both HGAs and HSAs to disk
drive manufacturers.
The Company's thin film products are produced in volume
predominantly for 3.5 inch disk drives to achieve information
densities of up to 500 megabits of data per square inch of disk
Page 15 of 35 <PAGE>
surface. The Company is actively seeking to become qualified for the
production of higher capacity, low profile 3.5 inch disk drives for
use in next generation PCs and workstations. These drives will have
recording densities of up to 850 megabits per square inch.
Development and commercialization of MR disk head technology
continues to be a major focus of the Company. MR drives are expected
to have densities of more than 1,000 megabits per square inch. The
Company currently assembles MR HSAs in Ireland with HGAs provided by
another manufacturer. The Company is currently in production of MR
disk heads and continues development efforts to increase production
capabilities.
The Company has also made important progress in the design
and production of new advanced thin film disk heads, including higher
efficiency products that increase the output signal for a given number
of coil turns. Additional advances have been made in developing
"track trimming" processes, which produce core elements that are both
narrower and of more equal dimensions, allowing the head to write
narrower and more densely packed tracks of data onto the disk surface.
Advances have already been made in the Company's efforts to
develop and offer thin film and MR disk heads with fully etched air
bearing surfaces and other negative pressure air bearing surfaces.
These designs and processes will improve production yields and permit
heads to fly at lower, more uniform heights or in light contact with
the disk, thus contributing to higher storage densities and improving
the reliability of the disk head. In addition, the Company has
reduced the size of its recording heads from the "microslider" to the
"nanoslider" format and is working on a further reduction to the
"picoslider" format. Smaller heads allow greater recording densities
and higher throughput in certain manufacturing operations.
TECHNOLOGY
FERRITE DISK HEADS. The Company does not manufacture
ferrite disk sliders, but rather buys ferrite sliders for assembly
into HGAs and HSAs. These heads represent older technology and
generally deliver a lower level of performance compared to thin film
or MR heads. However, recent advances in ferrite technology have
extended the useful life of ferrite heads for incorporation in more
price-competitive, lower capacity disk drives.
Ferrite HGAs are produced by first manufacturing a magnetic
"core," which is then bonded into a slider "body" to form the ferrite
slider. This is followed by precision winding a wire coil around the
core and attaching the slider to a suspension assembly to form an HGA.
THIN FILM DISK HEADS. Thin film disk heads are produced
with manufacturing processes adapted from semiconductor manufacturing.
First, ceramic substrates are cut into wafers. Thin films of highly
permeable magnetic material are deposited on the wafer and electrical
coils are electroplated on individual heads on the wafer in a pattern
which is imprinted through photolithographic techniques. The wafers
are then sliced into individual heads. This process permits
Page 16 of 35 <PAGE>
significantly greater miniaturization and permits greater manu-
facturing precision. As a result, thin film heads generally can be
designed, developed and manufactured in volume and with greater
precision than ferrite heads.
MR DISK HEADS. The Company is further developing its
magnetoresistive film head technology, which is an advancement from
the current thin film technology. The Company believes that MR disk
heads represent the next important magnetic recording head technology.
In contrast to thin film, which is typically designed to "read" and
"write" data using a single inductive element, an MR disk head uses an
inductive element to "write" data onto the disk and a separate
magnetoresistive element to "read" data from the disk. MR employs
magnetic materials that vary in electrical resistance when in a
magnetic field. MR heads have the ability to read data at lower media
velocities and narrower track widths than previous technologies,
permitting their use in higher density and smaller disk drives. See
"RISK FACTORS -- Rapid Technological Changes."
MANUFACTURING
LOCATION AND VOLUME. The Company's manufacturing and
assembly operations are located in California, Ireland, Korea,
Malaysia and the PRC. During its fiscal year 1995, the Company
supplied HGAs in volume for eight different disk drive products to
three customers and supplied HSAs in volume for nine different disk
drive products to two customers. Over the period, the Company sold on
average 2.1 million HGAs per month (including HGAs incorporated into
HSAs) and on average 150,000 HSAs per month. Approximately 71% of the
Company's HGA shipments during this period were shipments of
nanosliders for use in 3.5 inch disk drives.
WAFER/DISK HEAD FABRICATION -- THIN FILM AND MR PRODUCTS.
The Company's two wafer fabrication facilities are located in Goleta,
California and produce 150 millimeter (approximately six-inch)
diameter round wafers. Approximately 8,400 individual (unyielded)
nanoslider heads can be produced from one six-inch wafer. During
fiscal 1995, the Company closed its three-inch wafer fabrication
operation in favor of the higher efficiency six-inch production lines.
Completed wafers are sliced into row bars and after testing
are shipped to Penang, Malaysia for further processing. There, row
bars are converted into individual sliders in the Company's slider
fabrication facility. This process involves high precision grinding
and lapping as well as photolithography and ion milling technologies,
which define the critical air bearing geometries permitting the head
to fly within a few millionths of an inch, or less, of the disk
surface.
ASSEMBLY. The Company assembles HGAs and HSAs outside of
the United States. Principal sites are in Penang, Malaysia; Chung-Ju,
South Korea; Dublin, Ireland; and Beijing, the PRC.
During fiscal 1995, due principally to growth and intense
local competition for manufacturing and assembly personnel, the
Page 17 of 35 <PAGE>
Company experienced a shortage of labor in both South Korea and
Malaysia. In an effort to mitigate this competition for personnel,
the Company has commenced a manufacturing operation in the PRC. This
location was chosen due to the Company's previous experience with
subcontractors in the PRC and the area's abundance of labor resources.
MARKETING
As a result of the disk drive manufacturers' continuous
development of higher capacity products, head suppliers such as the
Company work closely with drive manufacturers to develop customized
HGAs and HSAs for each new disk drive. The Company believes that the
most effective means of marketing and selling magnetic recording disk
heads is to establish close relationships with disk drive
manufacturers at the engineering level, which permits technical
collaboration and are intended to result in the Company's heads being
"designed-in" for particular disk drives. Through its product
planning and marketing efforts, the Company seeks to identify those
disk drive programs whose volume and pricing parameters will allow the
Company to most efficiently allocate its production resources.
The Company's magnetic recording disk heads are sold in the
U.S. and foreign countries by its direct sales personnel and through
subsidiaries in Singapore, Malaysia and Ireland. In addition, the
Company has granted certain exclusive marketing rights in Japan to
Hitachi Metals, Ltd.
RESEARCH AND DEVELOPMENT
In an effort to add to its existing market share, the
Company has and will continue to expend substantial amounts in
connection with its research and development efforts. The Company's
development efforts are devoted to commercialization of advanced
inductive thin film head technology and MR disk head technology.
Research and development expenditures were $32.6 million, $38.8
million and $33.7 million for fiscal years 1993, 1994 and 1995,
respectively, before third party funding of $15.1 million in fiscal
1993 and $14.1 million in fiscal 1994.
CAPITAL EXPENDITURES
The Company currently plans approximately $125 million of
capital expenditures, including those financed by operating leases, in
fiscal 1996, primarily to improve inductive thin film production
processes and increase thin film and MR production volumes. The
Company believes that the net proceeds of the Debt Offering (as
defined below), together with existing cash balances, cash flow from
operations, existing credit facilities, operating lease arrangements
and the planned sales of certain real property assets, will be
sufficient to fund its planned capital expenditures in fiscal 1996.
Page 18 of 35 <PAGE>
STOCK OPTIONS AND WARRANT
-------------------------
On August 1, 1994, the Company entered into an agreement
(the "GG&G Agreement") with Grisanti, Galef & Goldress, Inc. ("GG&G")
pursuant to which GG&G was retained by the Company to provide crisis
management and turnaround services. Craig D. Crisman, Chairman of the
Board and Chief Executive Officer of the Company, was the principal
consultant assigned by GG&G to perform these services.
In December 1994, the Company granted an option to GG&G
Equity Partners, a Nevada limited partnership comprised in part of
members of GG&G ("GG&G Equity Partners"), to purchase 250,000 shares
of Common Stock at the then market price of $4.125 per share as a
success fee (the "GG&G options"). At approximately the same time, the
GG&G options were distributed to the individual partners of GG&G
Equity Partners.
The GG&G options are non-qualified options and are currently
exercisable. The exercise price of the GG&G options is $4.125 per
share, the fair market value of the Common Stock on the date of the
approval of the grant of the GG&G options by the Company's Board of
Directors. The GG&G options are not assignable and may be exercised
only by the holder or, in the event of the holder's death, by a person
who acquired the right to exercise by bequest or inheritance. The
GG&G options grant the holders thereof certain registration rights
which require the Company to register the shares of the Company's
Common Stock issuable upon exercise of the GG&G options.
On May 27, 1992, the Company entered into an agreement (the
"Needham Agreement") with Needham and Company, Inc. ("Needham"),
pursuant to which, on August 18, 1993, the Company issued to Needham a
warrant (the "Needham Warrant") to purchase up to 100,000 shares of
the Company's Common Stock at a purchase price of $7.375 per share,
subject to adjustment based on certain antidilution provisions
contained therein. The Needham Warrant grants Needham certain
registration rights which require the Company to register the shares
of the Company's Common Stock issuable upon exercise of the Needham
Warrant (the "Needham Shares").
USE OF PROCEEDS
---------------
The Company will not receive any proceeds from the sale of
Common Stock offered by the Selling Stockholders.
SELLING STOCKHOLDERS
--------------------
This Prospectus may be used in connection with the sale of
certain shares of the Company's Common Stock by the Selling
Stockholders. Such shares may be acquired by the Selling Stockholders
on the exercise of (i) the GG&G options and (ii) the Needham Warrant,
Page 19 of 35 <PAGE>
to purchase shares of the Company's Common Stock granted in connection
with the engagement by the Company of GG&G and pursuant to the Needham
Warrant, respectively. The following table provides information as to
the shares of Common Stock owned beneficially by the Selling
Stockholders as of May 22, 1996, the number of shares to be sold by
the Selling Stockholders and the number of shares which will be owned
by Selling Stockholders after the Offering.
Number of
Shares Number
Beneficially of Beneficial
Name and Owned Prior Shares Ownership
Address of to Being After
Selling Stockholder Offering<F1> Offered<F2> Offering
------------------- ------------ ----------- --------
Martin Batt-Keough MP 5,357 5,357 0
118 Cidar Lane
McMurrey, Pennsylvania 15317
Craig D. Crisman <F3> 119,643 119,643 0
c/o Applied Magnetics Corporation
75 Robin Hill Road
Goleta, California 93117-3108
Marvin A. Davis Inc. Defined 5,357 5,357 0
Benefit Pension Fund
80 Seville Chase
Atlanta, Georgia 30328
American Consolidated Resources, 42,858 42,858 0
Inc. Retirement Trust <F4>
39 Summerwind
Irvine, California 92714
The J. Goldress Revocable Trust 37,500 37,500 0
<F5>
P.O. Box 8506
Incline Village, Nevada 89452
Lynda Dawson 12,500 12,500 0
P.O. Box 5240
Incline Village, Nevada 89450
Lee N. Katz Profit Sharing Trust 5,357 5,357 0
5435 Powers Overlook Court
Atlanta, Georgia 30327
Page 20 of 35 <PAGE>
Number of
Shares Number
Beneficially of Beneficial
Name and Owned Prior Shares Ownership
Address of to Being After
Selling Stockholder Offering<F1> Offered<F2> Offering
------------------- ------------ ----------- --------
Carole O'Connor 5,357 5,357 0
P.O. Box 5717
Incline Village, Nevada 89450
Richard J. Puricelli 5,357 5,357 0
2750 Indian Mound Road S.
Bloomfield Hills, Michigan
48301
Richard D. Saunders - IRA 5,357 5,357 0
836 Woodbine Lane
Northbrook, Illinois 60062
W. Gary Suttle 5,357 5,357 0
3104 East Camelback Road
Suite 511
Phoenix, Arizona 85016
Needham & Company, Inc. 100,000 100,000 0
445 Park Avenue
New York, New York 10022-4406
Total 350,000
[FN]
<F1> Consists of shares subject to the GG&G options and the Needham
Warrant, as applicable, and assumes the exercise in full of all
of the GG&G options and the Needham Warrant.
<F2> Assumes the sale of all shares purchased on the exercise of the
GG&G options and the Needham Warrant.
<F3> Craig D. Crisman is the Chairman of the Board, Chief Executive
Officer and a director of the Company.
<F4> Owned beneficially by Brian R. Stone, Acting Chief Financial
Officer of the Company.
<F5> Owned beneficially by Jerry E. Goldress, a director of the
Company.
Page 21 of 35 <PAGE>
DESCRIPTION OF CAPITAL STOCK
----------------------------
PREFERRED STOCK
The Company has authorized a class of Preferred Stock
consisting of 5,000,000 shares, $.10 par value. The Board of
Directors of the Company has authority, without any further action by
the holders of Common Stock, to divide the Preferred Stock into
series, to fix the number of shares comprising any series and to fix
or alter the voting powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications,
limitations or restrictions, including dividend rights, dividend
rates, conversion rights, rights and terms of redemption, rights upon
dissolution or liquidation and sinking fund provisions, of any wholly
unissued series of Preferred Stock.
COMMON STOCK
The authorized Common Stock of the Company consists of
40,000,000 shares, $.10 par value. Holders of Common Stock have one
vote for each share held, are not entitled to cumulate their votes for
the election of directors and do not have preemptive rights. The
shares are not subject to redemption. Subject to the terms of any
shares of Preferred Stock which may be issued, holders of Common Stock
are entitled to receive such dividends as are declared by the Board of
Directors out of funds legally available therefor and are entitled to
participate equally in the assets of the Company available for
distribution in the event of liquidation or dissolution. The Company
is subject to certain dividend restrictions under a loan agreement.
RIGHTS PLAN
In October 1988, the Board of Directors declared a dividend
of one Right for each outstanding share of Common Stock of the Company
to stockholders of record on November 4, 1988. Each Right entitles
the holder to buy the economic equivalent of one share of Common Stock
in the form of one one-hundredth of a share of a newly created series
of participating preferred stock of the Company at an exercise price
of $75.00 per share. The Rights are exercisable only if a person or
group acquires 20% or more of the voting power of the Company (an
"Acquiring Person") or announces a tender or exchange offer which
would result in a person or group becoming an Acquiring Person, in
either case, without the prior consent of the Company.
If any person or group becomes the beneficial owner of 20%
or more of the voting power of the Company (other than as a result of
a tender offer or exchange offer for all outstanding shares of Common
Stock at a price and on terms determined by at least a majority of the
members of the Board of Directors who are not officers of the Company
to be both adequate and otherwise in the best interests of the Company
and its stockholders), then each Right (other than those owned by the
Acquiring Person or related parties) will entitle its holder to
purchase, at the Right's exercise price, shares of the Company's
Common Stock or common stock equivalents having a market value of
Page 22 of 35 <PAGE>
twice the Right's exercise price ("Flip-In Right"). The Flip-In Right
will result in substantial dilution of an Acquiring Persons' voting
and economic interest in the Company and a substantial economic
benefit to the other stockholders of the Company.
In addition, after a person or group becomes an Acquiring
Person, if the Company is involved in a merger or other business
combination transaction with another person in which its common shares
are changed or exchanged, or the Company sells 50% or more of its
assets or earning power to another person, each Right (other than
owned by the Acquiring Person or related parties) will entitle its
holder to purchase, at the Right's exercise price, shares of Common
Stock of such other person having a market value of twice the Right's
exercise price.
The Company will be entitled to redeem the Rights at one
cent per Right (i) at any time before a person or group becomes an
Acquiring Person without prior approval, (ii) in connection with an
acquisition of the Company not involving the Acquiring Person and in
which all stockholders are treated alike or (iii) after the Flip-In
Right is triggered and the exercise period has expired if and for as
long as no person owns 20% of the Common Stock of the Company. The
Rights expire at the earlier of (i) ten years after adoption of the
Rights Plan, or (ii) consummation of a merger following a tender offer
approved by the Board, in either case unless earlier redeemed by the
Company.
The Exercise Price payable, and the number of shares of
Common Stock or other securities or property issuable, upon exercise
of the Rights are subject to adjustments from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Preferred Stock, (ii) upon the
grant to holders of the Preferred Stock of certain rights or warrants
to subscribe for Preferred Stock or convertible securities or
securities having the same or more favorable rights, privileges and
preferences as the Preferred Stock at less than the current market
price of the Preferred Stock, or (iii) upon the distribution to
holders of the Preferred Stock of evidences of indebtedness or assets
or of subscription rights or warrants (other than those referred to
above).
Stockholders of the Company may, depending upon the
circumstances, recognize taxable income in the event that the Rights
become exercisable for Common Stock of the Company (or other
consideration) or for common stock of the acquiring company as set
forth above.
PLAN OF DISTRIBUTION
--------------------
The Company has been advised that the Selling Stockholders
may sell the Shares from time to time in transactions on the New York
Stock Exchange or in privately-negotiated transactions, or a
combination of such methods of sale, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices
Page 23 of 35 <PAGE>
or at negotiated prices. The Selling Stockholders may effect
transactions hereunder by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling
Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they may sell as principal,
or both.
The Selling Stockholders and any broker-dealers who act in
connection with the sale of Shares hereunder may be deemed to be
"underwriters" as that term is defined in the Securities Act, and any
commissions received by them and profit on any resale of the Shares as
principal might be deemed to be underwriting discounts and commissions
under the Securities Act.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On August 1, 1994, the Company entered into the GG&G
Agreement. Craig D. Crisman, Chairman of the Board and Chief
Executive Officer of the Company and a Selling Stockholder, was the
principal consultant assigned by GG&G to perform the services under
the GG&G Agreement. 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. In July 1995, the Board concluded
that the turnaround engagement of GG&G had been successfully
completed, and the agreement with GG&G was then terminated. The
Company paid a total of $140,000 and $680,000 in consulting fees to
GG&G in fiscal 1994 and fiscal 1995, respectively. In addition, GG&G
Equity Partners received options to purchase shares of the Company's
Common Stock. See "STOCK OPTIONS AND WARRANT."
Following the termination of the GG&G Agreement on August 1,
1995, Mr. Crisman was hired by the Company as Chief Executive Officer.
On November 3, 1995, he was elected Chairman of the Board. Pursuant to
the GG&G Agreement, a recruiting fee of $131,250 was paid to GG&G upon
the employment of Mr. Crisman.
Although the GG&G Agreement was terminated, the Company
continues to engage the services of Brian R. Stone, a GG&G consultant
and a Selling Stockholder, in his capacity as Acting Chief Financial
Officer of the Company. The Company currently pays a monthly fee to
GG&G in the amount of $20,000, plus expenses, in consideration of
Mr. Stone's services. In addition, Mr. Stone also currently serves as
Chief Executive Officer of Delta Bravo, Inc., a Delaware corporation
("DBI"). The fee which the Company currently pays to GG&G may
increase as a result of Mr. Stone's services to DBI pursuant to
certain developments between the Company and DBI as set forth under
the heading "LEGAL PROCEEDINGS."
Page 24 of 35 <PAGE>
LEGAL PROCEEDINGS
-----------------
On or about March 11, 1993, the Company entered into a
purchase agreement (the "Purchase Agreement") with DBI, providing for
the purchase by DBI of all the outstanding capital stock of two
subsidiaries of the Company, Magnetic Data, Inc., a Delaware
corporation ("MDI") and Brum-Ko Magnetics Corporation, a Nebraska
corporation ("Brum-Ko"), for an aggregate purchase price comprised of
(i) $3,165,000 in cash, (ii) $24,450,000 in notes of DBI (the
"Notes"), (iii) $11,252,613 of DBI preferred stock and (iv) the
assumption of certain liabilities of the Company. The Notes are
secured by, among other things, a guarantee of Stuart Millar
("Millar"), owner of at least 75% of the outstanding shares of DBI,
which guarantee is secured, pursuant to a pledge agreement, by a
pledge all of Millar's shares in DBI (the "Pledged Shares"). On
July 17, 1995, Millar entered into an agreement with a third party
whereby Millar agreed to sell 51% of the Common Stock of DBI. As a
result of this action, the Company exercised its right under the
pledge agreement to vote the Pledged Shares as proxy and attorney-
in-fact for Millar. On August 25, 1995, the Company sought to elect a
new board of directors of DBI by written consent pursuant to Delaware
law. The Company then instituted a lawsuit in Delaware seeking
judicial confirmation of the election of its nominees to the Board of
DBI. On February 9, 1996, the Delaware Chancery Court entered its
order declaring the Company's nominees to be the Board of Directors of
DBI, effective August 25, 1995. Millar has indicated that he intends
to appeal the Chancery Court ruling. On February 14, 1996, the Board
of Directors of DBI, among other things, removed Millar as President
and Chief Executive Officer of DBI and replaced him with Mr. Stone.
As a result of Mr. Stone's additional duties to DBI as described
above, the fees which the Company pays to GG&G may increase.
On November 3, 1995, Jerry E. Goldress, Chief Executive
Officer and the majority shareholder of GG&G, was elected to the Board
of Directors of the Company.
MATERIAL DEVELOPMENTS
---------------------
On March 22, 1996, the Company consummated an offering of
$115,000,000 principal amount of convertible, subordinated debentures
with a maturity of ten years (the "Debt Offering"). Proceeds from the
sale of such debentures were used to retire a $10.0 million line of
credit which matured on March 29, 1996. Remaining net proceeds of the
Debt Offering will be used for working capital and other general
corporate purposes, including capital expenditures primarily for plant
expansion and manufacturing and assembly equipment to increase the
production of MR and advanced inductive thin film products.
Page 25 of 35 <PAGE>
LEGAL MATTERS
-------------
The validity of the shares of Common Stock has been passed
upon for the Company by Sheppard, Mullin, Richter & Hampton LLP, Los
Angeles, California.
EXPERTS
-------
The consolidated balance sheets of Applied Magnetics
Corporation and Subsidiaries as of September 30, 1995 and 1994, and
the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended
September 30, 1995, and the related schedules, incorporated by
reference in this prospectus and elsewhere in this registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and
are incorporated herein in reliance upon the authority of said firm as
experts in giving said reports.
Page 26 of 35 <PAGE>
No dealer, salesperson or other
person has been authorized to give
any information or to make any
representations other than those APPLIED MAGNETICS
contained in this Prospectus in CORPORATION
connection with the offer made by
this Prospectus and, if given or
made, such information or repre-
sentations must not be relied upon
as having been authorized by the 350,000 Shares of
Company. Neither the delivery of Common Stock
this Prospectus nor any sale made
hereunder shall under any circum-
stances create any implication that
there has been no change in the affairs
of the Company since the date hereof.
This Prospectus does not constitute
an offer or solicitation by anyone
in any jurisdiction in which such
offer or solicitation is not qualified
to do so or to anyone to whom it
is unlawful to make such solicitation.
------------------------------
Table of Contents
Available Information . . . 5
Information Incorporated by
Reference . . . 5
Prospectus Summary . . . 6
Risk Factors . . . 7
The Company . . .13 Prospectus
Stock Options and Warrant . . .19
Use of Proceeds . . .19 May ___, 1996
Selling Stockholders . . .19
Description of Capital
Stock . . .22
Plan of Distribution . . .23
Certain Relationships and
Related Transactions . . .24
Legal Proceedings . . .25
Material Developments . . .25
Legal Matters . . .26
Experts . . .26
Page 27 of 35 <PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection
with the sale and distribution of the securities being registered,
other than underwriting discounts and commissions. All of the amounts
shown are estimates, except the Securities and Exchange Commission
registration fee and the listing fee.
Securities and Exchange Commission
registration fee $ 1,863.15<F*>
Listing fee $ 3,000.00
Printing and engraving expenses $ 2,000.00<F**>
Accounting Fees and expenses $ 7,000.00<F**>
Legal fees and expenses $ 26,000.00<F**>
Miscellaneous expenses $ 1,000.00<F**>
Total $ 40,863.15<F**>
[FN]
<F*> Includes a registration fee of $340 previously paid with
respect to securities previously registered (Registration
No. 33-59409) and carried forward in this Registration
Statement.
<F**> Estimated
ITEM 15. Indemnification of Directors and Officers
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains a
provision limiting the personal liability of directors to the Company
or its stockholders for monetary damages for breach of fiduciary duty
as a director. This provision is intended to eliminate the risk that
a director might incur personal liability to the Company or its
stockholders for breach of the duty of care. Such provision absolves
directors of liability for negligence in the performance of their
duties, including gross negligence. Directors remain liable for
breaches of the duty of loyalty to the Company and its stockholders as
well as for acts or omissions not taken in good faith or which involve
intentional misconduct or a knowing violation of law and transactions
from which a director derived improper personal benefit. In addition,
the Company's Certificate of Incorporation does not absolve directors
of liability for unlawful dividends or stock repurchases or
redemptions to which a negligence standard presently applies under the
Delaware General Corporation Law (the "DGCL"). Also, there may be
certain liabilities, such as those under the United States federal
securities laws or other state or federal laws, which a court may hold
are unaffected by the Certificate of Incorporation.
II-1
Page 28 of 35 <PAGE>
The Company's By-laws provide that each person who is or was
a director, legal representative, officer or employee of the Company
(or was serving at the request of the Company as a director, legal
representative, officer or employee of another entity), will be
indemnified and held harmless by the Company to the fullest extent
authorized by the DGCL (as it may be amended to allow for broader
indemnification rights) from any liability incurred as a result of
such service. Among other things, the indemnification provisions
provide indemnification for officers and directors against liabilities
for judgments in and settlements of lawsuits and other proceedings and
for the advance and payment of fees and expenses reasonably incurred
by the director or officer in defense of any such lawsuit or
proceeding. The Company's By-laws provide that the rights to
indemnification and the payment of expenses conferred therein will not
be exclusive of any other right that any person may have or acquire
under any statute, provision of the Certificate of Incorporation,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise. The Company's By-laws also provide that the Company shall
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Company against any liability
asserted against such person and incurred by such person in any such
capacity, whether or not the Company would have the power to indemnify
such person against such liability under the DGCL. The Company
maintains this insurance coverage for its officers and directors as
well as insurance coverage to reimburse the Company for potential
costs of its corporate indemnification of officers and directors.
ITEM 16. EXHIBITS
4.1 Special Nonstatutory Option Agreement dated as of
December 21, 1994 between registrant and GG&G
Equity Partners (Incorporated by reference to
Form S-3 Registration Statement filed May 17, 1995
(Registration No. 33-59409))<F*>
4.2 Warrant issued on August 18, 1993 to Needham &
Company, Inc.<F*>
5.1 Opinion of Sheppard, Mullin, Richter & Hampton LLP<F*>
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sheppard, Mullin, Richter & Hampton LLP
(included in Exhibit 5.1)<F*>
24.1 Power of Attorney of certain officers and
directors (included on page S-1)<F*>
[FN]
<F*> Previously filed.
II-2
Page 29 of 35 <PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the Registration Statement is on Form
S-3, or Form S-8, and the information required to be included in
a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-3
Page 30 of 35 <PAGE>
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 15 hereof, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-4
Page 31 of 35 <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly
caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of Goleta, State of California, on May 23, 1996.
APPLIED MAGNETICS CORPORATION
By /s/ Craig D. Crisman*
-------------------------
Craig D. Crisman
Chairman of the Board and
Chief Executive Officer
S-1
Page 32 of 35 <PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to its Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Craig D.Crisman* Chairman of the Board, May 23, 1996
----------------------- Chief Executive Officer
Craig D. Crisman and Director (Principal
Executive Officer and
Principal Financial
Officer)
/s/ Peter T. Altavilla Corporate Controller May 23, 1996
----------------------- (Principal Accounting
Peter T. Altavilla Officer)
/s/ Harold R. Frank* Chairman Emeritus and May 23, 1996
----------------------- Director
Harold R. Frank
/s/ R. C. Mercure, Jr.* Director May 23, 1996
-----------------------
R. C. Mercure, Jr.
/s/Herbert M. Dwight, Jr.* Director May 23, 1996
-----------------------
Herbert M. Dwight, Jr.
/s/ Jerry E. Goldress* Director May 23, 1996
-----------------------
Jerry E. Goldress
*By: /s/ Peter T. Altavilla
--------------------------
Peter T. Altavilla
Attorney-in-Fact**
** By authority of Power of Attorney previously filed with this
registration statement.
S-2
Page 33 of 35 <PAGE>
EXHIBIT INDEX
Exhibits Description Page
-------- ----------- ----
23.1 Consent of Arthur Andersen LLP 35
Page 34 of 35 <PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement (File
No. 333-2369) of our reports dated December 12, 1995 included in
Applied Magnetics Corporation's Form 10-K for the year ended
September 30, 1995 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
May 23, 1996
Page 35 of 35 <PAGE>
