As filed with the Securities and Exchange Commission on April 9, 1996
Registration No. 33-xxxxx
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
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.
If the only securities being registered on this form
are being offered pursuant to dividend or interest reinvestment
plans, please check the following box. /__/
If any of the securities being registered on this
form are to be offered on a delayed or continuous basis
Page 1 of 70 <PAGE>
pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. / X /
---
If this form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities
Act registration statement number of earlier effective
registration statement for the same offering. /__/
If this form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration
statement number of the earlier effective registration
statement for the same offering. /__/
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. /__/
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum
Class of Offering Aggregate Amount of
Securities Amount to be Price Per Offering Registration
to be Registered Registered Unit<F1> Price<F1> Fee
---------------- ----------- -------- --------- ------------
Common Stock, 350,000 $15.4375 $5,403,125 $1,863.15<F2>
$.10 par value
[FN]
<F1> Estimated solely for purposes of determining the
registration fee based on the average of the high and low
prices on the New York Stock Exchange on April 2, 1996.
<F2> Pursuant to Rule 429, the registration fee includes $340.00
which has been previously paid with respect to 250,000
shares of Common Stock previously registered by the
registrant (Registration No. 33-59409).
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay
its effective date until 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
Page 2 of 70 <PAGE>
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 36
Page 3 of 70 <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 Prospectus
Statement and
Outside Front Cover
Page of Prospectus
Item 2. Inside Front and Inside Front and Outside
Outside Back Cover Back Cover Pages of
Pages of Prospectus Prospectus
Item 3. Summary Information, Prospectus Summary, Risk
Risk Factors and Factors; Certain
Ratio of Earnings to Relationships and Related
Fixed Charges Transactions
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Plan of Distribution
Offering Price
Item 6. Dilution Inapplicable
Item 7. Selling Security Selling Stockholders
Holders
Item 8. Plan of Distribution Plan of Distribution
Item 9. Description of Description of Capital Stock
Securities to be
Registered
Item 10. Interests of Named Legal Matters; Experts
Experts and Counsel
Item 11. Material Changes Material Developments
Item 12. Incorporation of Incorporation of Certain
Certain Information Documents by Reference
by Reference
Item 13. Disclosure of Inapplicable
Commission Position
on Indemnification
for Securities Act
Liabilities
Page 4 of 70 <PAGE>
Subject to Completion, April 9, 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 April 2, 1996 was $15-5/8.
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE
MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON
PAGE 4.
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 April ___, 1996
Page 5 of 70 <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;
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;
Page 6 of 70 <PAGE>
4. The Company's Current Report on Form 8-K filed
with the Commission on March 11, 1996;
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; and
7. 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 4.
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 ("Quantum"),
Page 7 of 70 <PAGE>
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 23,007,071 shares of Common Stock
as of March 29, 1996.
Options Outstanding Options to purchase an aggregate
of 2,213,533 shares of Common
Stock on December 30, 1995.
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 8 of 70 <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. 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 inven-
tory 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 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
Page 9 of 70 <PAGE>
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 develop-
ment 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 expendi-
tures, 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.
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
Page 10 of 70 <PAGE>
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 facilities 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.
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 substan-
tially 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.
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")
Page 11 of 70 <PAGE>
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. 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 indus-
try 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 relation-
ships 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 develop-
ment 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 insur-
ance on the lives of key employees. Competition for qualified
technical and engineering 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
Page 12 of 70 <PAGE>
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 propri-
etary rights or that the Company's competitors will not
independently develop or patent technologies that are equiva-
lent 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 informa-
tion 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 environ-
mental 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 facili-
ties 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 13 of 70 <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 Com-
pany'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 oper-
ating 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 signifi-
cantly 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
Page 14 of 70 <PAGE>
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 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.
Page 15 of 70 <PAGE>
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 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
Page 16 of 70 <PAGE>
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 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
Page 17 of 70 <PAGE>
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 semi-
conductor 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 significantly greater miniaturization and permits
greater manufacturing 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 tech-
nologies, 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
Page 18 of 70 <PAGE>
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 photolithogra-
phy 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 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
Page 19 of 70 <PAGE>
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.
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
Page 20 of 70 <PAGE>
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, 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 April 9, 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.
Page 21 of 70 <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
------------------- ------------ ----------- --------
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
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
Page 22 of 70 <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
------------------- ------------ ----------- --------
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 23 of 70 <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
Page 24 of 70 <PAGE>
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 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.
Page 25 of 70 <PAGE>
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 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,
Page 26 of 70 <PAGE>
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."
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
will be used to repay debt and for working capital and other
general corporate purposes, including capital expenditures for
Page 27 of 70 <PAGE>
increases in the production of MR and advanced inductive thin
film products.
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 28 of 70 <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
representations must not be relied
upon as having been authorized by 350,000 Shares of
the Company. Neither the delivery Common Stock
of this Prospectus nor any sale
made hereunder shall under any
circumstances 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 . . . 6
Information Incorporated by
Reference . . . 6
Prospectus Summary . . . 7
Risk Factors . . . 8
The Company . . .14 Prospectus
Stock Options and Warrant . . .20
Use of Proceeds . . .21 April ___, 1996
Selling Stockholders . . .21
Description of Capital
Stock . . .24
Plan of Distribution . . .26
Certain Relationships and
Related Transactions . . .26
Legal Proceedings . . .27
Material Developments . . .27
Legal Matters . . .28
Experts . . .28
Page 29 of 70 <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 $ 5,500.00<F**>
Legal fees and expenses $ 21,000.00<F**>
Miscellaneous expenses $ 1,000.00<F**>
Total $ 34,363.15<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
II-1
Page 30 of 70 <PAGE>
court may hold are unaffected by the Certificate of
Incorporation.
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))
4.2 Warrant issued on August 18, 1993 to Needham &
Company, Inc.
5.1 Opinion of Sheppard, Mullin, Richter & Hampton LLP
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sheppard, Mullin, Richter & Hampton LLP
(included in Exhibit 5.1)
24.1 Power of Attorney of certain officers and directors
(included on page S-1)
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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.
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(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.
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Page 33 of 70 <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Goleta, State of
California, on April 9, 1996.
APPLIED MAGNETICS CORPORATION
By /s/ Craig D. Crisman
-------------------------
Craig D. Crisman
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Craig D.
Crisman and Peter T. Altavilla, and each of them, his
attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this
registration statement and to file the same, with exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue
hereof.
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Page 34 of 70 <PAGE>
Pursuant to the requirements of the Securities Act of
1933, this 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, April 9, 1996
----------------------- Chief Executive Officer
Craig D. Crisman and Director (Principal
Executive Officer and
Principal Financial
Officer)
/s/ Peter T. Altavilla Corporate Controller April 9, 1996
----------------------- (Principal Accounting
Peter T. Altavilla Officer)
/s/ Harold R. Frank Chairman Emeritus and April 9, 1996
----------------------- Director
Harold R. Frank
/s/ R. C. Mercure, Jr. Director April 9, 1996
-----------------------
R. C. Mercure, Jr.
/s/Herbert M. Dwight, Jr. Director April 9, 1996
-----------------------
Herbert M. Dwight, Jr.
/s/ Jerry E. Goldress Director April 9, 1996
-----------------------
Jerry E. Goldress
S-2
Page 35 of 70 <PAGE>
EXHIBIT INDEX
Exhibits Description Page
-------- ----------- ----
4.2 Warrant issued on August 18,
1993 to Needham & Company, Inc. 37
5.1 Opinion of Sheppard, Mullin,
Richter & Hampton LLP 68
23.1 Consent of Arthur Andersen LLP 70
23.2 Consent of Sheppard, Mullin,
Richter & Hampton LLP (included
in Exhibit 5.1)
24.1 Power of Attorney of certain
officers and directors (included
on page S-1)
Page 36 of 70 <PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR AN
EXEMPTION THEREFROM APPLIES.
Warrant No. 002
WARRANT
to Purchase Common Stock of
Applied Magnetics Corporation,
a Delaware corporation,
THIS IS TO CERTIFY THAT: NEEDHAM & COMPANY, INC.
("NEEDHAM"), is entitled to purchase from Applied Magnetics
Corporation, a Delaware corporation (the "Company"), at any
time on and after February 5, 1993, but not later than
4:00 p.m., Pacific Standard Time, on the Expiration Date (as
defined in Section 1), ONE HUNDRED THOUSAND (100,000) shares of
Common Stock (adjusted as provided below), in whole or in part,
at a purchase price of $7.375 per share, all on the terms and
conditions provided herein.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN
Section 1 CERTAIN DEFINITIONS. As used in this
Warrant, unless the context otherwise requires:
"Affiliate" means, with respect to a specified
Person, any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with
such specified Person. For purposes of this definition,
"control" when used with respect to any specified Person means
the power to direct the management and policies of such Person,
whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Appraised Value" as to any security means the fair
market value of such security, as determined by a written
appraisal (the "Appraisal") prepared by a nationally-
recognized investment bank or appraiser that has not, during
the 24 months preceding the date hereof, been engaged by the
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Company or Needham and that is selected by the Company and that
is reasonably acceptable to Needham. "Fair market value" of
all outstanding Common Stock is defined for this purpose as the
price in a single transaction determined on a going-concern
basis that would be agreed upon by the most likely hypothetical
buyer for a 100% interest in the equity capital of the Company.
The Company shall pay for the cost of any such Appraisal.
"Business Day" means any day other than days on which
commercial banks are authorized or required to close in
Los Angeles, California or New York, New York or on which the
Holder or the Company is closed.
"Commission" means the Securities and Exchange
Commission or any other similar or successor agency of the
United States government administering the Securities Act.
"Common Stock" means the Company's authorized Common
Stock, par value $.10 per share.
"Consideration" in any issuance of securities (a
"Transaction") means (i) in case of an issuance for cash or
property, (a) the net amount of the cash and the fair market
value of the property received by the Company for such securi-
ties plus (b) in case of any options, warrants, rights, or
other securities convertible into or exchangeable or exercis-
able for Equivalent Shares (collectively "Options"), the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion, exchange or
exercise thereof then or at any time in the future; and (ii) in
case of an issuance in cancellation of obligations of the
Company, the principal amount of such obligations plus the
amount, if any, paid to the Company or less the amount, if any,
paid by the Company to the holder thereof on such cancellation.
"Current Market Price" of any security shall be
deemed to be the price determined pursuant to the first
applicable of the following methods:
(i) If such security is traded on a national
securities exchange or is traded in the over-the-counter
market, the Current Market Price of such security shall be
deemed to be the average of the daily market prices for the
5 consecutive Trading Days prior to such date. The market
price for each such Trading Day shall be (a) if such security
is traded on a national securities exchange, its last sale
price on such Trading Day on such national securities exchange
or, if there was no sale on that day, the last reported sale
price on such national exchange on the preceding Trading Day on
which there was a sale or (b) if the principal market for such
security is the over-the-counter market, and such security is
quoted on the National Association of Securities Dealers
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Automated Quotations System ("NASDAQ"), the last sale price
reported on NASDAQ on such Trading Day or, if such security is
an issue for which last sale prices are not reported on NASDAQ,
the mean between the bid and ask quotation on such day, but, in
each of the preceding two cases, if the relevant NASDAQ price
or quotation did not exist on such day, then the price or
quotation on the preceding Trading Day in which there was such
a price or quotation.
(ii) If the Current Market Price of the Common
Stock cannot be ascertained by any of the methods set forth in
paragraph (i) immediately above, the Current Market Price of
the Common Stock involved shall be deemed to be the price equal
to the quotient determined by dividing the Appraised Value
(including the value of any consideration to be received by the
Company upon the exercise of any outstanding options, warrants
or other rights to purchase Common Stock) by the number of
shares (including any fractional shares) of the Common Stock
(other than treasury stock), on a fully diluted basis. Other
securities shall be valued on a comparable basis.
"Equivalent Shares" means Common Stock and shares of
any new class (a "New Class") of the Company's securities
without fixed maximum dividends or which share with the Common
Stock in the residual value of the Company on liquidation.
Shares of any New Class shall be deemed to be a number of
shares of Common Stock which would have the same share of non-
fixed dividends or liquidation value, whichever is higher, as a
share of a New Class. The term "Equivalent Shares" shall also
include all options.
"Exchange Act" means the Securities Exchange Act of
1934, and any similar or successor Federal statute, and the
rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
"Exercise Price" means on the date of original issue
of this Warrant, the purchase price per share as set forth on
the first page of this Warrant and thereafter shall mean such
amount as adjusted pursuant to Section 4.
"Expiration Date" means February 4, 1998.
"Issue Price" means the result determined by dividing
the Consideration received by the deemed number of Equivalent
Shares issued in any Transaction.
"Non-dilutive Issuances" means the issuance of any
series of the Company's $.10 par value preferred stock, the
issuance of Options to purchase shares of Common Stock, the
issuance of Common Stock upon the exercise of such Options or
the issuance of restricted stock, provided that (i) such
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Options or restricted stock are issued to employees, officers
or directors of the Company or consultants hired by the
Company, (ii) such options (or the issuance of Common Stock
upon exercise of such options) or restricted stock are issued
pursuant to one or more employee stock purchase plans adopted
by the Company, any of the Company's employee or director stock
option plans or long-term incentive plans or as part of bona
fide reasonable compensation arrangements in the ordinary
course of business, (iii) in the case of Options, the exercise
price of such Options shall be substantially equal to the then
Current Market Price of the underlying Common Stock on the date
of grant unless (x) issued pursuant to an employee stock
purchase plan intended to meet the requirements of Section 423
of the Internal Revenue Code of 1986 and relating to no more
than two percent (2%) of the outstanding shares of Common Stock
in any calendar year (computed after giving effect to the
issuance of such shares), (y) the issuance shall be in the form
of restricted stock, (other than restricted stock issued or
issuable pursuant to the Company's 1989 Amended and Restated
Long Term Incentive Plan) in which case it shall relate to no
more than one percent (1%) of the outstanding shares of Common
Stock (computed after giving effect to the issuance of such
shares) or (z) the issuance is part of a general plan to
reissue Options at exercise prices lower than the existing
exercise prices of outstanding employee Options and (iv) such
Options and restricted stock, in the aggregate, shall not be
exercisable for, or represent, more than ten percent (10%) of
the outstanding Common Stock (computed after giving effect to
the exercise of all such options and the issuance of all such
Restricted Stock);
"Offering" with respect to any of the Company's
securities means the registration of such securities under the
Securities Act, whether underwritten or not, for sale to the
public.
"Outstanding Securities" means, as of any date of
determination, the number of the issued and outstanding shares
(except treasury shares) of Equivalent Shares as of the date
thereof on a fully diluted basis.
"Person" means a corporation, an association, a
trust, a partnership, a joint venture, an organization, a
business, an individual, a government or political subdivision
thereof or a governmental body.
"Prospectus" means the prospectus included in any
Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the Offering
of any portion of the Restricted Securities covered by the
Registration Statement and by all other amendments and supple-
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Page 40 of 70 <PAGE>
ments to the prospectus, including post-effective amendments
and all materials incorporated by reference in such Prospectus.
"Registration Statement" means a registration
statement filed by the Company pursuant to the Securities Act.
"Restricted Securities" means this Warrant, the
Warrant Shares and any securities issued or issuable with
respect to this Warrant or the Warrant Shares by way of a stock
dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation, reclassifica-
tion or other reorganization; PROVIDED, HOWEVER, that a
security shall cease to be a Restricted Security at such time
as (i) it has been effectively registered under the Securities
Act and disposed of in accordance with the Registration
Statement covering it, (ii) it is distributed to the public
pursuant to Rule 144 or Rule 144A (or any similar provisions
then in force) under the Securities Act or (iii) it has
otherwise been transferred and a new certificate or other
evidence of ownership for it not bearing a restrictive legend
and not subject to any stop transfer order has lawfully been
delivered by or on behalf of the Company and no other
restriction on transfer exists.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and
regulations of the Commission promulgated thereunder, all as
the same shall be in effect from time to time.
"Selling Shareholder" means any Person whose
Restricted Securities are being registered pursuant to
Section 7.1 or Section 7.2.
"Trading Day" means any day on which trading occurs
on the New York Stock Exchange.
"Trading Price" for the Common Stock or Equivalent
Shares on any Trading Day means (a) if such security is traded
on a national securities exchange, its last sale price on such
Trading Day on such national securities exchange or, if there
was no sale on that day, the last reported sale price on such
national exchange on the preceding Trading Day on which there
was a sale or (b) if the principal market for such security is
the over-the counter market, and such security is quoted on the
National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), the last sale price reported on NASDAQ on
such Trading Day or, if such security is an issue for which
last sale prices are not reported on NASDAQ, the mean between
the bid and ask quotation on such day, but, in each of the
preceding two cases, if the relevant NASDAQ price or quotation
did not exist on such day, then the price or quotation on the
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Page 41 of 70 <PAGE>
preceding Trading Day in which there was such a price or
quotation.
"Warrant Shares" means the shares of Common Stock
purchasable by Needham upon the exercise hereof.
OTHER DEFINITIONS. The following terms shall have
the meaning ascribed to them in the sections indicated below:
Definition Section
---------- -------
"Company" Introduction
"Controlling Person" 10.1
"Demand Notice" 7.1
"Demand Registration Statement" 7.1
"Event" 2.2.3
"Options" page 2
"Other Shareholder" 7.1
"Other Shares" 7.1
"Piggyback Notice" 7.2
"Piggyback Registration Statement" 7.2
"Registration Expenses" 7.2
"Transfer Agent" 12.1
Section 2 EXERCISE OF WARRANT.
2.1 EXERCISE BY NEEDHAM. Needham may, at any time
on and after the date hereof, but not later than the Expiration
Date, exercise this Warrant in whole at any time or in part
from time to time for the number of Warrant Shares which
Needham is then entitled to purchase hereunder.
2.2 ACCELERATION OF EXERCISABILITY; AUTOMATIC
EXERCISE UPON REORGANIZATIONS, ASSET SALES ETC.. In the case
of any (i) consolidation or merger of the Company with or into
another corporation in which the Company is not the surviving
corporation, (ii) sale of all or substantially all of the
Company's operating assets to another corporation, (iii) re-
classification of the Common Stock, or (iv) a voluntary or
involuntary dissolution, liquidation or winding up of the
Company (any such transaction shall be referred to herein as an
"Event"), this Warrant shall, immediately prior to the consum-
mation of such Event be deemed exercised as to the full number
of Warrant Shares and Needham shall be entitled to receive such
shares of stock, securities, cash or other assets which Needham
would have received had it fully exercised this Warrant on or
prior to the record date for such Event less the Exercise
Price.
2.3 METHOD OF EXERCISE. Needham may exercise this
Warrant, in whole or in part, but if in part, in increments of
not less than 5,000 shares, by delivery to the Company at its
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office maintained for such purpose pursuant to Section 18 (i) a
written notice of Needham's election to exercise this Warrant,
which notice shall specify the number of Warrant Shares to be
purchased, (ii) this Warrant and (iii) a sum equal to the
Exercise Price therefor by check or wire transfer. Such notice
may, but need not, be in the form of the Subscription set out
at the end of this Warrant.
2.4 ISSUANCE OF WARRANT SHARES. Upon Needham's
exercise of the Warrant pursuant to Section 2.1 or 2.3 hereof,
the Company shall, within ten Business Days thereafter, cause
to be executed and delivered to Needham a certificate or
certificates representing the aggregate number of fully-paid
and nonassessable shares of Common Stock issuable upon such
exercise. The stock certificate or certificates for Warrant
Shares so delivered shall be in such denominations as may be
specified in the exercise notice, shall be registered in the
name of Needham and shall be issued with a restrictive legend
substantially in the form of that described in Section 3.1
hereof. Such certificate or certificates shall be deemed to
have been issued and Needham or any other Person so designated
to be named therein shall be deemed to have become a holder of
record of such shares, including to the extent permitted by law
the right to vote such shares or to consent or to receive
notice as a stockholder, as of the close of business on the
date such notice is delivered to the Company. If this Warrant
shall have been exercised only in part, the Company shall,
within ten Business Days of delivery of such certificate or
certificates, deliver to Needham a new warrant dated the date
it is issued, evidencing the rights of Needham to purchase the
remaining Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this
Warrant. At the request of Needham, appropriate notation may
be made on this Warrant and the Warrant shall be returned to
Needham. The Company shall pay all expenses, transfer taxes
and other charges payable in connection with the preparation,
issuance and delivery of stock certificates and new warrants
under this Section 2.
Section 3 TRANSFER OF WARRANT AND WARRANT SHARES.
3.1 RESTRICTIONS ON TRANSFER OF WARRANT AND WARRANT
SHARES. Neither the Warrant nor the Warrant Shares may be
sold, transferred, pledged or hypothecated (i) except to a
Needham Affiliate; and (ii) unless the Company, if it reason-
ably requests, shall have been supplied with an opinion of
Needham's counsel (which may be counsel employed by Needham)
that such transfer is not in violation of the Securities Act
and any applicable state laws. Any certificate for Warrant
Shares issued to any subsequent transferee upon exercise of
this Warrant and any certificate for any Warrant Shares issued
hereunder or to any subsequent transferee shall be stamped or
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otherwise imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE
REGISTRATION OR QUALIFICATION UNDER APPLICABLE FEDERAL OR STATE
SECURITIES LAWS."
Upon request of Needham and, if requested by the
Company, upon the receipt by the Company of an opinion of
Needham's legal counsel that a certificate for Warrant Shares
may be issued without such legend in compliance with the
Securities Act and applicable state securities laws, the
Company shall cause its transfer agent to remove the foregoing
legend from the certificate or issue to Needham a new
certificate therefor free of any restrictive legend.
3.2 MECHANICS OF PERMITTED TRANSFERS. Subject to
satisfaction of the conditions set forth in Section 3.1, this
Warrant and all rights hereunder are transferable, in whole or
in part, on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the office of the
Company (to the attention of its Secretary) maintained for such
purpose pursuant to Section 18, together with a written assign-
ment of this warrant duly executed by the holder of the Warrant
or its agent or attorney. Upon such surrender, the Company
shall execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees and in the denominations specified
in such instrument of assignment, and this Warrant shall
promptly be canceled. If and when this Warrant is assigned in
blank, the Company may (but shall not be obliged to) treat the
bearer hereof as the absolute owner of this Warrant and the
Company shall not be affected by any notice to the contrary.
This Warrant, if properly assigned in compliance with this
Section 3, may be exercised by an assignee for the purchase of
Warrant Shares without having a new Warrant issued.
Subject to compliance with this Section 3, this
Warrant may be divided or combined with other Warrants upon
presentation at the office of the Company, together with a
written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the holder of the
Warrant or its agent or attorney. As to any transfer which may
be involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance
with such notice. The Company agrees to maintain at its office
books for the registration and transfer of the Warrants.
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The Company shall pay all expenses, taxes and other
charges incurred by the Company in the performance of its
obligations in connection with the preparation, issuance and
delivery of Warrants under this Section 3.
Section 4 ANTI-DILUTION PROVISIONS. If any of the
following events occurs at any time hereafter prior to the
expiration of this Warrant, then the Exercise Price and the
number of Warrant Shares immediately prior to such event shall
be adjusted as described below in order to prevent dilution:
4.1 STOCK SPLITS. REVERSE SPLITS. RECAPITALIZATION
OR RECLASSIFICATIONS. If at any time the outstanding shares of
Common Stock are subdivided into a greater number of shares,
then the Exercise Price will be reduced proportionately and the
number of Warrant Shares will be increased proportionately.
Conversely, if at any time the outstanding Common Stock is
consolidated into a smaller number of shares, then the Exercise
Price will be increased proportionately and the number of
Warrant Shares will be reduced proportionately. In the case of
any recapitalization or other reclassification of the Common
Stock, then the Exercise Price and the number of Warrant Shares
will be adjusted as appropriate. Each adjustment to the
Exercise Price and the number of Warrant Shares shall be effec-
tive on the record date for such subdivision, consolidation,
recapitalization or other reclassification of the Common Stock,
as the case may be.
4.2 ADJUSTMENT FOR SALE OF SHARES BELOW EXERCISE
PRICE.
4.2.1 SALE OF EQUIVALENT SHARES. If at any
time prior to the first anniversary of the date hereof, the
Company issues any Equivalent Shares at an Issue Price which is
less than the Exercise Price (except for (i) this Warrant or
shares of Common Stock issued pursuant to this Warrant,
(ii) Non-dilutive Issuances, (iii) an issuance which results in
adjustments pursuant to Section 4.1 hereof or (iv) an issuance
which results from the exercise or conversion of Options and
for which an adjustment was already made), then (1) the number
of Warrant Shares purchasable upon exercise of this Warrant
shall be adjusted by multiplying the number of Warrant Shares
theretofore purchasable upon exercise of this Warrant by a
fraction (i) the numerator of which shall be the Outstanding
Securities immediately after such Transaction and (ii) the
denominator of which shall be (a) the Outstanding Securities
immediately prior to such Transaction plus (b) the number of
Equivalent Shares that the Consideration received by the
Company in such Transaction would purchase at the then Current
Market Price and (2) the Exercise Price shall be adjusted to a
price determined by multiplying the existing Exercise Price by
a fraction (i) the numerator of which shall be the number of
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Warrant Shares purchasable upon exercise of this Warrant
immediately before the adjustment set forth in clause (1) above
and (ii) the denominator of which shall be the number of
Warrant Shares purchasable upon exercise of this Warrant
immediately after such adjustment. Equivalent Shares shall be
deemed issued at such time as any Option covering such shares
shall be issued.
4.2.2 READJUSTMENTS. If any adjustments are
made pursuant to this Section 4.2 as a result of the issuance
of Options, then (i) if such Options by their terms provide for
an increase or increases, or a decrease or decreases with the
passage of time or otherwise, in the amount of additional
Consideration, if any, payable to the Company, or in the rate
of such increase or decrease becoming effective, the number of
Warrant Shares purchasable upon exercise of this Warrant and
the Exercise Price shall be readjusted to reflect the same, and
(ii) if any such Options are not exercised prior to their
expiration, upon such expiration, the number of Warrant Shares
purchasable upon exercise of this Warrant and the Exercise
Price shall be readjusted to reflect the actual number of
Equivalent Shares issued and the actual Consideration for which
they were issued.
4.3 EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In
case the Company at any time or from time to time after the
date hereof but prior to the expiration of this Warrant and
prior to any exercise hereof, shall declare, order, pay or make
a dividend or other distribution (including, without limita-
tion, any distribution of cash, property, additional Common
Stock, other securities or Options by way of dividend or spin-
off, reclassification, recapitalization or similar corporate
rearrangement) on the common Stock, other than a regular
periodic cash dividend at a rate in any fiscal year which is
not in excess of ten percent of the Current Market Price (as
determined as of the record date established by the Board of
Directors of the Company for purposes of determining
shareholders of record entitled to such dividend or other
distribution), then, and in each such case, the Exercise Price
in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or distribution
shall be reduced, effective as of the close of business on such
record date, to a price (calculated to the nearest .001 of a
cent) determined by multiplying such Exercise Price by a
fraction (x) the numerator of which shall be the Current Market
Price as of such record date or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading, less the fair market value of such divi-
dend or distribution (as determined in good faith by the Board
of Directors of the Company) applicable to one share of Common
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Stock, and (y) the denominator of which shall be such Current
Market Price.
4.4 OTHER SECURITIES ADJUSTMENTS. If, as a result
of this Section 4, Needham shall become entitled to receive any
securities other than Common Stock upon exercise of this
Warrant, the number and purchase price of such securities shall
thereafter be adjusted from time to time in the same manner as
provided pursuant to this Section 4 for Common Stock. The
allocation of purchase price between various securities shall
be made in writing by the Board of Directors of the Company in
good faith at the time of the event by which Needham becomes
entitled to receive new securities, and a copy of such
allocation shall promptly be sent to Needham.
4.5 NOTICE OF ADJUSTMENTS. When any adjustments are
required to be made under this Section 4, the Company shall as
promptly as practicable (i) determine such adjustments,
(ii) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the adjustment
and setting forth the calculation thereof; and (iii) cause a
copy of such statement to be mailed to Needham within 5 days
after the date on which the circumstances giving rise to such
adjustment occurred. Any time there is an adjustment in the
number of Warrant Shares or in the Exercise Price that is equal
to or greater than 10% of the total amount of pre-adjustment
Warrant Shares or of the preadjustment Warrant Price, within
30 days of the request therefore by Needham, the Company will
obtain and deliver to Needham a letter from its regular
independent auditors or another firm of independent public
accountants of recognized national standing selected by the
Company's Board of Directors, which letter shall confirm the
statements in the most recent statement delivered pursuant to
this Section 4.5.
4.6 COMPUTATIONS AND ADJUSTMENTS. Upon each compu-
tation of an adjustment under this Section 4, the Exercise
Price shall be computed to the nearest cent and the number of
Warrant Shares shall be calculated to the nearest whole share.
However, the fractional amount shall be used in calculating any
future adjustments.
If any shares of Common Stock required to be reserved
for issue upon exercise of this Warrant require registration
with any governmental authority under any federal or state law
(otherwise than as provided in Section 7) before such shares
may be so issued, the Company will in good faith and as expedi-
tiously as possible and at its expense endeavor to cause such
shares to be duly registered.
4.7 CERTAIN EVENTS. If any event occurs as to
which, in the good faith judgment of the Board of Directors of
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the Company, the other provisions of this Section 4 are not
strictly applicable or if strictly applicable would not fairly
protect the rights of Needham in accordance with the essential
intent and principles of such provisions, then the Board of
Directors of the Company shall appoint its regular independent
auditors or another firm of independent public accountants of
recognized national standing which shall give their opinion
upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without
dilution, the rights of Needham. Upon receipt of such opinion,
the Board of Directors of the Company shall forthwith make the
adjustments described therein; provided, that no such adjust-
ment shall have the effect of increasing the Exercise Price or
decreasing the number of Warrant Shares as otherwise determined
pursuant to this Section 4. The Company may make such reduc-
tions in the Exercise Price or increases to the number of
Warrant Shares as it deems advisable, including any adjustments
necessary to ensure that any event treated for Federal income
tax purposes as a distribution of stock or stock rights will
not be taxable to recipients.
4.8 PROHIBITION OF CERTAIN ACTIONS. The Company
will not, by amendment to its certificate of incorporation or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities (other than
Non-dilutive Issuances) or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of this
Section 4 and in taking all such action as may be necessary to
protect the rights of Needham against dilution or other
impairment.
Section 5 TAKING OF RECORD: STOCK AND WARRANT
TRANSFER BOOKS. In the case of all dividends or other distri-
butions by the Company to the holders of its Common Stock with
respect to which any provision of Section 4 refers to the
taking of a record of such holders, the Company will in each
such case take such a record as of the close of business on a
Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up, close its stock
transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
Section 6 NO VOTING RIGHTS. Except as expressly
provided herein, this Warrant shall not entitle Needham to any
voting rights or other rights as a stockholder of the Company.
Notwithstanding the foregoing, if at any time prior to the
expiration of the Warrant and prior to any exercise hereof,
(a) the Company proposes to declare, pay or make any dividend
or distribution on Common Stock of the Company (other than a
regular periodic cash dividend at a rate in any fiscal year
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which is not in excess of ten percent of the Current market
Price), (b) the Company proposes to offer to the holder of any
securities of the Company any cash, property or securities of
the Company or any right to subscribe for or purchase any
thereof or (c) any of the events referred to in Sections 4.1,
4.2, 4.3 or 4.4 hereof is proposed, then, in any one or more of
said events the Company shall give notice in writing of such
event as provided in Section 20 hereof, such giving notice to
be completed at least twenty (20) days prior to the date fixed
as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such divi-
dend, distribution, subscription rights or other rights or for
the determination of stockholders entitled to vote on such
proposed event.
Section 7 REGISTRATION RIGHTS.
7.1 DEMAND REGISTRATION. Needham may at any time
after February 12, 1994, by written notice to the Company (the
"Demand Notice"), demand that the Company file, and the Company
shall file, a Registration Statement (a "Demand Registration
Statement") on a specified date no sooner than 60 days
following receipt by the Company of such demand, covering the
Restricted Securities specified in the Demand Notice by
Needham: Needham shall not be entitled to request the Company
to file and cause to be declared effective more than one Demand
Registration Statement or any Demand Registration for less than
50,000 shares of Restricted Securities. The Company shall use
its best efforts to cause such Demand Registration Statement to
be declared effective on the date requested by the managing
underwriter for the Offering, or, if such Offering is not
underwritten, as soon as practicable after the filing thereof
with the Commission, and shall keep such Demand Registration
Statement effective for so long as the Offering has not been
completed (but in no event longer than 150 days from the
effective date of such Demand Registration Statement).
Any other Person entitled to participate in a Demand
Registration Statement (an "Other Shareholder") and the Company
shall be permitted to register equity securities of the Company
in any Demand Registration Statement or to participate in the
Offering, but only as provided in this subparagraph, by
requesting that securities of the same class as the Restricted
Securities be included in the Demand Registration Statement for
sale in the Offering on the following terms and conditions:
(i) Each such Other Shareholder and/or the Company
must give written notice of such election to Needham within
30 days following the date on which the Demand Notice was
received by the Company, such notice to specify the number and
class of shares proposed to be sold by each Other Shareholder
and/or the Company in the Offering (the "Other Shares");
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(ii) Each such Other Shareholder and/or the Company
must agree to sell such Other Shares on the same basis provided
in the underwriting arrangements approved by Needham and to
timely complete and execute all questionnaires, powers of
attorney, indemnities, hold-back agreements, underwriting
agreements and other documents required under the terms of such
underwriting arrangements or by the Commission or by any state
securities regulatory body; and
(iii) If the managing underwriter of the Offering
determines, after consultation with the Selling Shareholders,
that inclusion of all or any portion of the Other Shares in the
Offering would adversely affect the marketability of the
Restricted Securities to be sold in the Offering, the number of
Other Shares that may be sold by each Other Shareholder and/or
the Company in the Offering shall be limited to such number of
Other Shares that the managing underwriter determines may be
included therein without such an adverse effect. In such
event, the number of Other Shares that may be sold in the
Offering shall be allocated pro rata among Needham, each Other
Shareholder and the Company based upon the respective numbers
of Other Shares sought to be included in such Offering; and
(iv) if any Other Shareholder and/or the Company
desires to withdraw their Other Shares from the Demand
Registration Statement, they may only do so during the time
period and on the terms to be determined by the Holder.
Notwithstanding anything contained in this
Section 7.1 to the contrary, the Company may delay the regis-
tration of the Restricted Securities to which a Demand Notice
relates if upon receipt of such Demand Notice (i) the Company
notifies Needham that it is contemplating filing a registration
statement within 90 days of such demand (which shall not affect
Needham's other rights hereunder, including without limitation
Needham's rights under Section 7.2 below) or (ii) the Company
notifies Needham that a material event has occurred that has
not been publicly disclosed and if disclosed would have a
material adverse effect on the Company. In the case of clause
(i) of this paragraph, the Company shall use its best efforts,
as soon as practical, upon the first to occur of the abandon-
ment of such contemplated registration statement or the
expiration of such 90 day period, to register the Restricted
Securities to which a Demand Notice relates, unless such Demand
Notice is withdrawn. In the case of clause (ii) of this
paragraph, the Company may not delay the filing of a Demand
Registration Statement for more than 90 days from the time of
the demand unless such Demand Notice is withdrawn. The Company
cannot exercise the rights of postponement set forth above more
than once in any 18 month period. If there is a postponement
under either clause (i) or (ii) above the Demand Notice may be
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withdrawn by notice to the Company. In such case, no demand
shall have been made for the purposes of the second sentence of
Section 7.1.
7.2 "PIGGYBACK" REGISTRATION RIGHTS. If at any time
after February 12, 1994, or from time to time thereafter, the
Company shall determine to register any shares of its capital
stock of the same class as the Restricted Securities (or
securities convertible into or exchangeable or exercisable for
shares of such class) for its own account or for the account of
any shareholder, Needham shall be entitled to include
Restricted Securities in such registration (a "Piggyback
Registration Statement") (and related underwritten Offering, if
any) on the following terms and conditions:
(i) The Company shall promptly give written
notice of such determination to Needham (a "Piggyback
Notice") and Needham shall have the right to request, by
written notice given to the Company within 30 days
following the date the Piggyback Notice was given by the
Company to Needham, that a specific number of Restricted
Securities held by Needham be included in the Piggyback
Registration Statement and related underwritten offering,
if any;
(ii) If the Piggyback Registration Statement
relates to an underwritten Offering, the Piggyback Notice
shall specify the name of the managing underwriter for
such Offering. The Piggyback Notice shall also specify
the number of securities to be registered for the account
of the Company and for the account of any shareholder;
(iii) If the Piggyback Registration Statement
relates to an underwritten Offering, each Selling
Shareholder must agree to sell such Person's Restricted
Securities on the same basis provided in the underwriting
arrangements approved by the Company and to timely
complete and execute all questionnaires, powers of
attorney, indemnities, holdback agreements, underwriting
agreements and other documents required under the terms of
such underwriting arrangements or by the Commission;
(iv) If the managing underwriter for any
underwritten Offering under the Piggyback Registration
Statement determines that inclusion of all or any portion
of the Restricted Securities in such Offering would
adversely affect the ability of the underwriter for such
Offering to sell all of the securities requested to be
included for sale in such Offering, the number of shares
that may be sold in such Offering shall be allocated first
to the Company (or, if the Offering is being made
principally for the account of another Person, to such
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Person) and thereafter pro rata among the Selling
Shareholders and to any other shareholders holding
applicable preexisting contractual registration rights
PROVIDED, HOWEVER, that if the Piggyback Registration
Statement results from the Company's exercise of its
rights pursuant to clause (i) of the last paragraph of
Section 7.1, the number of shares that may be sold in such
Offering shall be allocated first pro rata to the Company
(or, if the Offering is being made principally for the
account of another Person, to such Person) and the Selling
Shareholders based upon the respective number of shares
sought by each to be included in the Offering; and
(v) Selling Shareholders shall have the right
to withdraw their Restricted Securities from the Piggyback
Registration Statement, but if the same relates to an
underwritten Offering, they may only do so during the time
period and on terms agreed upon among the underwriters for
such underwritten Offering and the holders of Restricted
Securities.
Notwithstanding the foregoing, the Company shall, on
five business days notice to the holders of Restricted Securi-
ties, have the right to withdraw any Piggyback Registration
Statement filed pursuant to this Section 7.2 at any time prior
to the effective date thereof, but without prejudice to the
rights of the holders of Restricted Securities to require the
Company to register their Restricted Securities pursuant to
Section 7.1.
7.3 SELECTION OF UNDERWRITERS. If the Restricted
Securities covered by the Demand Registration Statement are to
be sold in an underwritten Offering, the managing underwriter
of such Offering shall be designated by Needham so long as such
underwriter is reasonably satisfactory to the Company. Alter-
natively, if the Restricted Securities included in a Piggyback
Registration Statement are to be sold in an underwritten
Offering, the managing underwriter of such Offering shall be
designated by the Company or such other Person as may be
initiating the Offering pursuant to contractual registration
rights.
Section 8 REGISTRATION PROCEDURES. In connection
with the Company's registration obligations pursuant to
Section 7 hereof, the Company will use its best efforts to
effect such registration to permit the sale of the Restricted
Securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto
the Company will as promptly as practicable:
(a) at least five Business Days before filing a
Registration Statement or Prospectus and at least one
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Business Day prior to the filing of any amendments or
supplements thereto, furnish to Needham and the
underwriters, if any, copies of all such documents
substantially in the form proposed to be filed, which
documents will be subject to the review of Needham, the
underwriters and their respective counsel, and the Company
will not file any Registration Statement or amendment
thereto or any Prospectus or any supplement thereto to
which Needham or the underwriters, if any, shall reason-
ably object; except that if the Registration Statement is
a Piggyback Registration Statement relating to an under-
written Offering and the underwriters do not agree with
such objection by Needham and Needham is permitted to
withdraw its Restricted Securities from such Offering, the
Company can file the Piggyback Registration Statement
notwithstanding such objection by Needham;
(b) prepare and file with the Commission such
amendments and post-effective amendments to the
Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable time
period required herein; upon the occurrence of any event
contemplated by Clause (6) of subparagraph (c) (6) below,
promptly prepare a supplement or post-effective amendment
to the Registration Statement or the Prospectus or any
document incorporated therein by reference or file any
other required document so that, as thereafter delivered
to the purchasers of the Restricted Securities, the
Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary
to make the statements therein not misleading; cause the
Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration
Statement during the applicable period in accordance with
the intended methods of disposition by Needham set forth
in such Registration Statement or Prospectus supplement;
(c) promptly notify Needham, the managing
underwriter and their respective counsel, and (if
requested by any such Person) confirm such advice in
writing, (1) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed,
and, with respect to the Registration Statement or any
post-effective amendment, when the same has become
effective, (2) of any request by the Commission for
amendments or supplements to the Registration Statement or
the Prospectus or for additional information, (3) of the
issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the
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initiation of any proceedings for that purpose, (4) if at
any time the representations and warranties of the Company
contemplated by paragraph (1) below cease to be true and
correct, (5) of the receipt by the Company of any notifi-
cation with respect to the suspension of the qualification
of the Restricted Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for
such purpose, and (6) of the happening of any event during
the registration period and the period such Registration
Statement is in effect thereafter which makes any state-
ment made in the Registration Statement, the Prospectus or
any document incorporated therein by reference untrue or
which requires the making of any changes in the
Registration Statement, the Prospectus or any document
incorporated therein by reference in order to make the
statements therein not misleading;
(d) make every best effort to obtain the
withdrawal of any order suspending the effectiveness of
the Registration Statement at the earliest possible
moment;
(e) if requested by the managing underwriters
or Needham, immediately incorporate in a Prospectus
supplement or post-effective amendment such information as
the managing underwriters and/or Needham agree should be
included therein relating to the sale of the Restricted
Securities, including, without limitation, information
with respect to the number of Restricted Securities being
sold to such underwriters or other Persons, the purchase
price being paid therefor by such underwriters or other
Persons and any other terms of the distribution of the
Restricted Securities to be sold in such Offering
including, if applicable, any required disclosure of
arrangements with underwriters; and make all required
filings of such Prospectus supplement or post-effective
amendment as promptly as practicable after being notified
of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(f) furnish to Needham and each managing
underwriter without charge, at least one signed copy of
the Registration Statement and any post-effective
amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference
and all exhibits (including those incorporated by
reference);
(g) deliver to Needham and the underwriters
without charge, as many copies of the Prospectus (includ-
ing each preliminary Prospectus) and any amendment or
supplement thereto as such Persons may reasonably request;
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the Company consents to the use of the Prospectus or any
amendment or supplement thereto by each of Needham and the
underwriters in connection with the Offering and sale of
the Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any Offering of Restricted Securi-
ties covered by a Registration Statement under Section 7,
register or qualify or cooperate with Needham, the under-
writers and their respective counsel in connection with
the registration or qualification of such Restricted
Securities for offer and sale under the securities or blue
sky laws of such jurisdictions in the United States as
Needham or the underwriter may reasonably request in
writing and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdic-
tions of the Restricted Securities covered by the
Registration Statement, except that the Company shall not
be required to take any actions under this subparagraph
(h) if such actions would require it to submit to the
general taxation of such jurisdiction or to file therein
any general consent to service of process, unless this
limitation means that the Restricted Securities would not
be qualified for offer and sale in at least 20 states;
(i) use its best efforts to cause the
Restricted Securities covered by the Registration
Statement to be registered with or approved by such
governmental agencies or authorities other than the
Commission and state securities regulatory bodies as may
be necessary to enable Needham or the underwriters to
consummate the disposition of such Restricted Securities
in the United States;
(j) cooperate with Needham and the managing
underwriter to facilitate the timely preparation and
delivery of certificates representing Restricted
Securities to be sold which do not bear any restrictive
legends; and cause such Restricted Securities to be in
such denominations and registered in such names as the
managing underwriter may request at least two business
days prior to any sale of Restricted Securities to the
underwriters;
(k) (A) make such representations and warranties
to Needham and the underwriters as are customarily made by
issuers to underwriters in primary underwritten offerings
(or as may be requested by the underwriters); (B) obtain
customary opinions of counsel to the Company and updates
thereof (which counsel and opinions shall be reasonably
satisfactory to Needham); (C) obtain "cold comfort"
letters and updates thereof from the Company's independent
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certified public accountants addressed to the under-
writers, such letters to be in customary form and covering
matters of the type customarily requested in "cold
comfort" letters by underwriters in connection with
primary underwritten offerings (or as may be reasonably
requested by the underwriters) and to use its best efforts
to obtain such a letter for the Selling Shareholders or to
obtain a letter from such accountants authorizing the
Selling Shareholders to rely on such "cold comfort"
letter; (D) if an underwriting agreement is entered into,
ensure that the same shall set forth in full the indemni-
fication provisions and procedures of Section 10 hereof
with respect to the Company and the Selling Shareholders;
and (E) deliver such documents and certificates as may be
requested by Needham and the managing underwriter to
evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agree-
ment. The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent
required thereunder;
(l) make available for inspection by Needham,
any underwriter participating in any Offering of
Restricted Securities, and any attorney or accountant
retained by Needham or managing underwriter, all financial
and other records, pertinent corporate documents and
properties of the Company, and cause the Company's
officers, directors and employees to be available to
discuss and to supply all information reasonably requested
by Needham, underwriter, attorney, accountant or their
respective representatives in connection with the
Registration Statement;
(m) otherwise use its best efforts to comply
with all applicable rules and regulations of the
Commission and state securities regulatory bodies; and
(n) make generally available to its security
holders earnings statements satisfying the provisions of
Section 11(a) of the Securities Act no later than 30 days
after the end of any 12-month period (or 60 days, if such
period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which Restricted Securities are sold to
underwriters in a firm or best efforts underwritten
Offering, or, if not sold to underwriters in such an
Offering, (2) beginning with the first month of the
Company's first fiscal quarter commencing after the
effective date of the Registration Statement, which
statements shall cover such 12-month period.
Needham agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described
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in Clause 6 of subparagraph (c) hereof, Needham will forthwith
discontinue disposition of Restricted Securities under the
Prospectus related to the applicable Registration Statement
until Needham's receipt of the copies of the supplemented or
amended Prospectus contemplated by subparagraph (k) hereof, or
until it is advised in writing by the Company that the use of
the Prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by
reference in the Prospectus. Needham further agrees to
cooperate with the Company and the managing underwriters to
facilitate the timely preparation and filing of the Registra-
tion Statement and in connection therewith to provide in
writing such information about Needham as the Company is
reasonably advised by its counsel is necessary under applicable
securities laws.
Section 9 REGISTRATION EXPENSES. All expenses
incident to the Company's performance of or compliance with
this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securi-
ties or blue sky laws, securities acts, printing expenses,
messenger, telephone and delivery expenses, and fees and
disbursements of Company counsel and of independent certified
public accountants of the Company (including the expenses of
any special audit required by or incident to such performance),
will be borne by the Company. The Company will also pay its
internal expenses, the expense of any annual audit and the fees
and expenses of any Person retained by the Company. All such
expenses are referred to herein as "Registration Expenses."
Needham shall be responsible for payment of all fees and
disbursements of its counsel and accountants and all other out
of pocket expenses of Needham in connection with its partici-
pation in any Offering pursuant to this Agreement. All
underwriting discounts and selling commissions applicable to
the sale of Registered Securities by Needham in any Offering
pursuant to this Agreement shall be borne by Needham.
Section 10 INDEMNIFICATION.
10.1 INDEMNIFICATION BY THE COMPANY. The Company
agrees to indemnify and hold harmless each holder of Restricted
Securities, its officers, directors and employees and each
Person who controls such Person (within the meaning of
Section 16 of the Securities Act) (each, an "Indemnified
Person") from and against any and all losses, claims, damages
and liabilities, joint or several (including any investigation,
legal or other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which such Indemnified
Person may become subject under the Securities Act, the
Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses,
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claims, damages or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amend-
ment or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or
(ii) any violation by the Company of the Securities Act or the
Exchange Act, or other federal or state law applicable to the
Company and relating to any action or inaction required of the
Company in connection with such registration, and shall
reimburse such Person or such officer, director, employee or
Indemnified Person for any legal or other expenses incurred by
such Person in connection with investigating or defending any
such loss, claim, damage or liability; PROVIDED, HOWEVER, that
the Company shall not be liable to an Indemnified Person in any
such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any alleged untrue
statement or alleged omission made in such Registration
Statement, Prospectus, preliminary Prospectus or amendment or
supplement in reliance upon and in conformity with written
information furnished to the Company by such Indemnified Person
in a writing specifically stating that such information is for
use in the preparation thereof (which information shall be
limited solely to information with respect to such Indemnified
Person, its holdings of Restricted Securities and its plan of
distribution for its Restricted Securities). Such indemnity
shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Person
or such officer, director, employee or Indemnified Person, and
shall survive the transfer of such securities by such Needham.
The Company will also indemnify underwriters, selling brokers,
dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors
and each Person who controls such Persons (within the meaning
of the Securities Act) to the same extent customarily requested
by such Persons in similar circumstances.
10.2 INDEMNIFICATION BY NEEDHAM. Needham, by
exercising the registration rights hereunder, agrees to
indemnify and hold harmless the Company, its directors and each
officer who signed such Registration Statement and each Person
who controls the Company (within the meaning of Section 16 of
the Securities Act) under the same circumstances as the
foregoing indemnity from the Company to Needham to the extent,
but only to the extent, that such losses, claims, damages,
liabilities or actions arise out of or are based upon any
untrue statement of a material fact or omission of a material
fact that was made in the Registration Statement, the
Prospectus, the preliminary Prospectus or any amendment or
supplement thereto, in reliance upon and in conformity with
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written information relating to Needham furnished to the
Company by Needham in a writing specifically stating that such
information is for use in the preparation thereof (which
information shall be limited solely to information with respect
to Needham, its holdings of Restricted Securities and its plan
of distribution for its Restricted Securities) unless such
statement was corrected in a writing to the Company from
Needham prior to the final Prospectus. In no event shall the
aggregate liability of Needham exceed the amount of the net
proceeds received by Needham upon the sale of the Restricted
Securities giving rise to such indemnification obligation.
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Company or
such officer, director, employee or Controlling Person, and
shall survive the transfer of such securities by Needham. The
Company and Needham shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the
distribution, to the same extent as customarily furnished by
such Persons in similar circumstances.
10.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any
Person entitled to indemnification hereunder will (i) give
prompt notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party;
PROVIDED, HOWEVER, that any Person entitled to indemnification
hereunder shall have the right to employ separate counsel and
to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person
and not of the indemnifying party unless (a) the indemnifying
party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of
such claim or employ counsel reasonably satisfactory to such
Person, or (c) in the reasonable judgment of the Person to be
indemnified, a conflict of interest may exist between such
Person and the indemnifying party with respect to such claims
(in which case, if the Person notifies the indemnifying party
in writing that such Person elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such
claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without
its consent (but such consent will not be unreasonably
withheld). No indemnified party will be required to consent to
entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by all
claimants or plaintiffs to such indemnified party of a release
from all liability in respect to such claim or litigation. Any
indemnifying party who is not entitled to, or elects not to,
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assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such
claim. As used in this Section 10.3, the terms "indemnifying
party", "indemnified party" and other terms of similar import
are intended to include only the Company (and its officers,
directors, employees and control persons as set forth above) on
the one hand, and the holders of the Restricted Securities (and
their officers, directors, employees and control persons as set
forth above) on the other hand, as applicable.
Section 11 RULE 144 AND 144A. Without limitation to
any rights granted to Needham under Section 7 hereof, the
Company covenants that it will file, on a timely basis, all
reports required to be filed by it under the Securities Act and
the Exchange Act, and it will take such further action as any
holder of Restricted Securities may request, all to the extent
required from time to time to enable such holder to sell
Restricted Securities without registration under the Securities
Act within the limitation of the conditions provided by
(a) Rule 144 or Rule 144A under the Securities Act, as such
Rules may be amended from time to time, or (b) any similar rule
or regulation hereafter adopted by the Commission. Upon the
request of Needham, the Company will deliver to Needham a
written statement verifying that it has complied with such
information and requirements.
Section 12 RESERVATION OF WARRANT SHARES:
AUTHORIZATION.
12.1 RESERVATION OF WARRANT SHARES. The Company has
reserved and will keep available, out of the authorized and
unissued shares of Common Stock or the authorized and issued
shares of Common Stock held in the Company's Treasury, the full
number of shares sufficient to provide for the exercise of the
rights of purchase represented by this Warrant. The transfer
agent for the Common Stock (the "Transfer Agent") and every
subsequent Transfer Agent for any shares of the Company's
capital stock issuable upon the exercise of any or the rights
of purchase herein are hereby irrevocably authorized and
directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares as shall be requisite
for such purpose. The Company will keep a copy of this Warrant
on file with the Transfer Agent and with every subsequent
Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase
represented by this Warrant. The Company will supply such
Transfer Agent with duly executed stock certificates for such
purpose; provided, however, that such stock certificates shall
not be registered in the name of Needham or any assignee of
Needham unless and until the Warrant or Warrants have been
exercised. The Company will furnish to such Transfer Agent a
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copy of all notices of adjustments and certificates related
thereto transmitted to Needham pursuant to this Warrant.
12.2 AUTHORIZATION. This Warrant has been duly and
validly executed and delivered by the Company and constitutes a
valid and binding agreement of the Company enforceable in
accordance with its terms (except in each such case as
enforceability may be limited by bankruptcy, insolvency,
reorganization and other similar laws now or hereafter in
effect relating to or affecting creditors, rights generally and
except that the remedy of specific performance and injunctive
and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought and except as
rights to indemnity and contribution hereunder may be limited
by federal or state securities laws). The execution, delivery
and performance of this Warrant by the Company and compliance
by the Company with the terms and provisions hereof do not and
will not violate any provision of any law, rule or regulation,
order, writ, judgment, injunction, statute, decree, determina-
tion or award having applicability to the Company, or any of
its properties or assets. The execution, delivery and
performance of this Warrant by the Company and compliance by
the Company with the terms and provisions hereof do not and
will not (i) conflict with or result in a breach of or
constitute a default under any provision of the charter or by-
laws of the Company; or (ii) give rise to an event of default
under any material contractual obligation of the Company. The
Company covenants that upon issuance and delivery against
payment pursuant to the term of their Warrant Agreement, all
Warrant Shares will be validly issued, fully paid and
nonassessable. Except as set forth on Schedule 1 attached
hereto, there are no outstanding subscriptions, convertible
securities, options, warrants or other rights, agreements or
commitments to subscribe for or purchase or acquire from the
Company, or any contracts providing for the issuance of, or the
granting of rights to acquire, any capital stock of the Company
or any securities convertible or exchangeable for any such
capital stock. There are no preemptive rights with respect to
and there are no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any shares
of the Company.
Section 13 MISCELLANEOUS REGISTRATION PROVISIONS.
13.1 DAMAGES. Without limiting in any way any of
the rights Needham may otherwise have at law or in equity, for
damages or otherwise, the Company hereby agrees to indemnify
and hold harmless Needham from and against any loss or expense
that may be incurred or suffered by Needham which arises from
any of the following: (i) any Demand Registration Statement is
not filed with the Commission on or before the time required in
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Section 7.1, or (ii) the Company is not able for any reason
within its reasonable control to cause the Demand Registration
Statement to be declared effective by the Commission at the
time reasonably requested by the underwriters in the Offering
and to remain effective until completion of the Offering, or to
cause the Restricted Securities to be qualified or registered
for sale in all appropriate jurisdictions as provided in
Section 8(h) and to remain so qualified or registered
thereafter during the applicable period under applicable law.
13.2 SPECIFIC PERFORMANCE. Needham, in addition to
being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement.
The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reasons of a breach by it
of the provisions of this Agreement and hereby agrees to waive
the defense in any action for specific performance that a
remedy at law would be adequate.
13.3 NO INCONSISTENT AGREEMENTS. Except for Non-
dilutive Issuances and as set forth in Schedule 1, the Company
has not previously entered into, and will not on or after the
date of this Warrant and prior to the first to occur of (i) the
Expiration Date, or (ii) the exercise of this Warrant, enter
into any agreement with respect to its securities which is
inconsistent with the terms of this Warrant, including any
agreement which impairs or limits the registration rights
granted to Needham or which otherwise conflicts with the
provisions hereof or would preclude the Company from
discharging its obligations hereunder.
Section 14 LIMITATION OF LIABILITY. No provision
hereof, in the absence of affirmative action by Needham to
purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of Needham hereof, shall give rise to any
liability of Needham for the purchase price of the Warrant
Shares or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the
Company.
Section 15 LOSS. DESTRUCTION OF WARRANT
CERTIFICATES. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of
any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of an unsecured indemnity or security
satisfactory to the Company, or in the case of any such
mutilation, upon surrender and cancellation of such Warrant,
the Company will make and deliver, in lieu of such lost,
stolen, destroyed or mutilated Warrant, a new Warrant of like
tenor and representing the right to purchase the same aggregate
number of shares of Common Stock or Equivalent Shares.
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Section 16 FURNISH INFORMATION. The Company agrees
that it shall deliver to Needham copies of all financial
statements, reports and proxy statements and other documents
which the Company is required to send to its stockholders
generally.
Section 18 OFFICE OF THE COMPANY. So long as this
Warrant remains outstanding, the Company shall maintain an
office in California or New York where the Warrant may be
presented for exercise, transfer, division or combination as
herein provided.
Section 19 TRANSFEREES, ETC.. All references in
this Warrant to "Needham" shall include, where applicable,
Needham and any Affiliate of Needham to whom this Warrant in
whole or in part, has been transferred in accordance with the
provisions hereof.
Section 20 NOTICES GENERALLY. Any notice, demand or
delivery pursuant to the provisions hereof shall be
sufficiently delivered or made if sent by first class certified
or registered mail or telecopy (with original to follow by
first class mail) or by overnight delivery service with receipt
thereof and addressed to Needham at its last known address
appearing on the books of the Company, which until further
notice shall be Needham & Company, Inc., 400 Park Avenue,
New York, New York 10022, or, except as herein otherwise
expressly provided, to the Company at its principal executive
office, 75 Robin Hill Road, Goleta, California 93117,
Attention: General Counsel or such other address as shall have
been furnished to the party giving or making such notice,
demand or delivery.
IN WITNESS WHEREOF, the Company has caused this
Warrant to be signed in its name by its Chief Executive
Officer, President, any Executive Vice President or its Chief
Financial Officer and Treasurer and attested by its Secretary
or an Assistant Secretary.
Dated: August 18, 1993
Applied Magnetics Corporation
By: /s/ William R. Anderson
--------------------------------
Name: William R. Anderson
Title: Chief Executive Officer
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ATTEST:
/s/ Raymond P. Le Blanc
------------------------------------------------
Raymond P. Le Blanc
Vice President, Secretary and General Counsel
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SUBSCRIPTION FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to
purchase Warrant Shares, evidenced by the within Warrant,
according to the terms and conditions thereof, and herewith
makes payment of the purchase price in full. The undersigned
requests that certificate(s) for such shares shall be issued in
the name set forth below.
Date: _____________
NEEDHAM & COMPANY, INC.
By ___________________________________
Signature
(Please Print)
Name:_____________________
Address:__________________
________________________
________________________
Employer Identification Number,
Social Security Number or other
identifying number:____________
If such number of shares shall not be all the shares
purchasable under the within Warrant, Needham hereby requests
that a new Warrant for the unexercised portion shall be
registered in the name set forth below and delivered to the
address set forth below.
Name:_____________________
(Please Print)
Address: __________________________
__________________________
__________________________
Employer Identification Number,
Social Security Number or other
identifying number:______________
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Page 65 of 70 <PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner
of this Warrant hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned under
this Warrant, with respect to the number of Warrant Shares set
forth below:
No. of Stock
Name and Address of Assignee Warrant Shares
---------------------------- --------------
and does hereby irrevocably constitute and appoint ____________
__________________, Attorney to make such transfer on the books
of Applied Magnetics Corporation, a Delaware corporation,
maintained for the purpose, with full power of substitution in
the premises.
Dated:
_________________________________
By:
Its:
NOTICE: The signature to the subscription must correspond
with the name as written upon the face of the within
Warrant in every particular, without alteration or
enlargement or any change whatever.
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SCHEDULE 1
----------
OPTIONS, WARRANTS, PREEMPTIVE RIGHTS
AND OTHER RIGHTS OUTSTANDING IN RELATION TO
ISSUANCES OF APPLIED MAGNETICS CORPORATION
$.10 PAR VALUE COMMON STOCK
(August 18, 1993)
1. Options to purchase Common Stock of the Company
outstanding under any and all employee and director Stock
Option Plans.
2. The Company's Amended and Restated 1989 Long
Term Incentive Plan.
3. The Shareholder Rights Plan set forth in the
Rights Agreement, dated as of October 19, 1988, between the
Company and First Interstate Bank of California.
4. Warrants to purchase 100,000 shares of the
Common Stock of the Company, which warrants shall be issued in
accordance with, and have substantially those terms and
conditions set forth in, that certain letter agreement dated
May 27, 1992, between Needham & Company, Inc. and Applied
Magnetics Corporation.
5. The $10,000,000 Note Purchase Agreement dated
November 25, 1992 between Conner Peripherals, Inc. and Applied
Magnetics Corporation.
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EXHIBIT 5.1
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
A Limited Liability Partnership Including Professional Corporations
Attorneys at Law
Forty-Eighth Floor
333 South Hope Street
Los Angeles, California 90071-1448
Telephone: (213) 620-1780
-------
Facsimile: (213) 620-1398
April 9, 1996
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, California 93117-3108
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have examined Registration Statement on Form S-3
(File No. 33-59409), filed by you with the Securities and
Exchange Commission (the "Commission") on April 9, 1996 (the
"Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of 350,000 shares
of your Common Stock (the "Shares"). As your counsel in
connection with this transaction, we have examined the
proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale and
issuance of the Shares.
It is our opinion that upon conclusion of the
proceedings being taken or contemplated by us, as your counsel,
to be taken prior to the issuance of the Shares, and upon the
completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the
securities laws of the various states where required, the
Shares, when issued and sold in the manner described in the
Registration Statement, will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit
to the Registration Statement, and further consent to the use
of our name wherever appearing in the Registration Statement,
Page 68 of 70 <PAGE>
Applied Magnetics Corporation
April 9, 1996
Page 2
including the prospectus constituting a part thereof, and any
amendment thereto, which has been approved by us.
Very truly yours,
/s/ SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
Page 69 of 70 <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
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
April 4, 1996
Page 70 of 70 <PAGE>
