<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
APPLIED MAGNETICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
APPLIED MAGNETICS CORPORATION
[LOGO]
75 ROBIN HILL ROAD
GOLETA, CALIFORNIA 93117
January 6, 1997
DEAR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders of
Applied Magnetics Corporation to be held at 4:00 p.m., local time, on Friday,
February 7, 1997, at the Company's facility at 75 Robin Hill Road, Goleta,
California, 93117. A copy of the Notice of Annual Meeting of Stockholders, Proxy
Statement and Proxy are enclosed. Stockholders of record on December 16, 1996,
will be entitled to vote at the meeting. A formal notice setting forth the
business to come before the meeting and a proxy statement is attached.
A copy of the Annual Report for the fiscal year ended September 28, 1996, is
being delivered to each stockholder of the Company concurrently with the
enclosed proxy material.
WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING OR NOT, YOU ARE REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE IN ORDER THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THE
ANNUAL MEETING.
Sincerely,
Craig D. Crisman
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
APPLIED MAGNETICS CORPORATION
75 ROBIN HILL ROAD
GOLETA, CALIFORNIA 93117
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
To The Stockholders of
Applied Magnetics Corporation:
The Annual Meeting of Stockholders of Applied Magnetics Corporation (the
"Company") will be held at the Company's facility at 75 Robin Hill Road, Goleta,
California, 93117, on Friday, February 7, 1997 at 4:00 p.m., local time, for the
following purposes:
1. To elect five directors of the Company to serve for the ensuing year
and until their successors have been elected and qualified;
2. To approve the form of and to authorize the entry into
indemnification agreements with the non-employee directors of the Company.
3. To consider and act upon a proposal to amend the Company's 1994
Employee Stock Option Plan to increase the number of shares of Common Stock
reserved for issuance thereunder from 2,100,000 to 3,250,000;
4. To consider and act upon a proposal to amend the Company's 1994
Non-Employee Directors' Stock Option Plan to increase the initial option
grant to non-employee directors from 5,000 shares to 15,000 shares, change
the vesting of options and to ratify and approve a grant of options under
said plan to purchase 15,000 shares to Directors Dwight and Mercure and
10,000 shares to Directors Frank and Goldress.
5. To ratify the appointment of Arthur Andersen LLP, independent
certified public accountants, as auditors for the Company for the fiscal
year ending September 27, 1997; and
6. To transact such other business as may properly come before the
Annual Meeting and any adjournment thereof.
Stockholders of record at the close of business on December 16, 1996, will
be entitled to receive notice of, and to vote at, the Annual Meeting and any
adjournment thereof.
Craig D. Crisman
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Goleta, California
January 6, 1997
YOUR VOTE IS IMPORTANT
Please immediately date, sign, and return your proxy in the enclosed
envelope. If you attend the meeting, you may withdraw your proxy and vote in
person.
<PAGE>
APPLIED MAGNETICS CORPORATION
------------------
PROXY STATEMENT
---------------------
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
GENERAL
The enclosed Proxy Statement is solicited on behalf of the Board of
Directors of Applied Magnetics Corporation (the "Company") for use at the Annual
Meeting of Stockholders (the "Meeting") to be held February 7, 1997, at the
Company's facility at 75 Robin Hill Road, Goleta, California, 93117, at 4:00
p.m., local time, and at any adjournments thereof. The Company's principal
offices are located at 75 Robin Hill Road, Goleta, California, 93117, and its
telephone number is 805/683-5353.
These proxy solicitation materials are to be mailed on or about January 6,
1997 to all stockholders entitled to vote at the meeting.
REVOCABILITY
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by filing with the Secretary of the Company an instrument
revoking it or a duly executed proxy bearing a later date or by personal
attendance and voting at the Annual Meeting. Subject to such revocation, all
shares represented by each properly executed proxy received by the Company will
be voted in accordance with the instructions indicated thereon, and if
instructions are not indicated, will be voted for the election of the nominees
for director named in this Proxy Statement, in favor of indemnification
agreements for the non-employee directors, in favor of the amendment to the 1994
Employee Stock Option Plan ("the 1994 Plan") to increase shares reserved for
issuance under the Plan, by 1,150,000, in favor of the amendment to the 1994
Non-Employee Directors' Stock Option Plan to increase the number of shares
covered by initial stock option grants, change the vesting date of non-employee
directors' options to the first anniversary of the date of grant, in favor of
stock option grants of 15,000 shares to Directors Dwight and Mercure, and 10,000
shares to Directors Frank and Goldress, and in favor of the proposal to ratify
the selection of independent certified public accountants.
RECORD DATE AND VOTING
As of December 16, 1996 (the "Record Date"), the outstanding voting
securities of the Company consisted of , , shares of $.10 par value
Common Stock. The presence in person or by proxy of holders of a majority of the
issued and outstanding Common Stock will constitute a quorum for the transaction
of such business as shall properly come before the meeting.
Each share of Common Stock has one vote on all matters. Stockholders do not
have the right to cumulate their votes in the election of directors.
The cost of soliciting proxies will be borne by the Company. The Company is
retaining ChaseMellon Shareholder Services to solicit proxies for a cost of
approximately $4,000, plus out-of-pocket expenses. In addition, the Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or telegram.
Generally, stockholder approval of a matter, other than the election of
directors, requires the affirmative vote of a majority of the shares present in
person or represented by proxy and entitled to vote
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on the matter. Directors are elected by a plurality of the votes of the shares
present in person or by proxy and entitled to vote on the election of directors.
The affirmative vote of the majority of the shares present, in person or by
proxy at the meeting and entitled to vote is required for approval of
indemnification agreements for the non-employee directors, approval of the
amendment to the 1994 Plan, approval of the amendments to the 1994 Non-Employee
Directors' Stock Option Plan, approval of option grants to non-employee
directors and to ratify the selection of the independent certified public
accountants.
Shares voted to abstain on a matter will be treated as entitled to vote on
the matter and will thus have the same effect as "no" votes. Broker non-votes
are not counted as entitled to vote on a matter in determining the number of
affirmative votes required for approval of the matter, but are counted as
present for quorum purposes. The term "broker non-votes" refers to shares held
by a broker in street name which are present by proxy but are not voted on a
matter pursuant to rules prohibiting brokers from voting on non-routine matters
without instructions from the beneficial owner of the shares. The election of
directors, the approval of the indemnification agreements for non-employee
directors, the amendment to increase the number of shares under the 1994 Plan by
an amount less than five percent of the total amount of the Common Stock
outstanding, the amendment to increase the initial option grant to non-employee
directors from 5,000 shares to 15,000 shares, change the vesting of options and
to ratify and approve a grant of options under said plan to purchase 15,000
shares to Directors Dwight and Mercure and 10,000 shares to Directors Frank and
Goldress and ratification of the selection of independent certified public
accountants are generally considered to be routine matters on which brokers may
vote without instructions from beneficial owners.
SECURITY OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table contains certain information regarding beneficial
ownership of the Company's Common Stock as of December 16, 1996 by (i) each
person which is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) the Chief
Executive Officer and the Company's other most highly compensated executive
officer (the two officers shall be referred to as the "Named Executive
Officers"), and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED OF CLASS
- ----------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS:
Harold R. Frank ................................................. 1,207,505(1) 5.16
75 Robin Hill Road
Goleta, California
FMR Corporation ................................................. 3,356,450 14.3
82 Devonshire Street
Boston, Massachusetts
NON-EMPLOYEE DIRECTORS:
Herbert M. Dwight, Jr............................................ 4,998(2) *
Harold R. Frank.................................................. 1,207,505(1) 5.16
Jerry E. Goldress................................................ 39,166(3) *
R. C. Mercure, Jr................................................ 10,531(2) *
EXECUTIVE OFFICERS:
Craig D. Crisman................................................. 244,643(4) *
Peter T. Altavilla............................................... 10,708(5) *
All Directors and Named Executive Officers as a Group (6
persons)....................................................... 1,517,551(6) 6.4
</TABLE>
- ------------------------
* less than 1%
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(1) Includes 873,971 shares held by Mr. Frank as Trustee of the Catherine M. and
Harold R. Frank Trusts. Also includes (330,000) shares held by Wilmington
Trust Company, as sole Trustee under irrevocable trusts for three of Mr.
Frank's grandchildren, as to all of which he disclaims any beneficial
interest, and includes 1,558 shares held by Mr. Frank as custodian under the
California Uniform Transfers to Minors Act, as to which shares he disclaims
any beneficial interest. Includes options, exercisable within 60 days to
purchase 1,666 shares under the Company's 1994 Non-Employee Directors' Stock
Option Plan. In view of his shareholdings, Mr. Frank may be deemed a control
person of the Company.
(2) Includes, as to each of Messrs. Mercure and Dwight, options, exercisable
within 60 days, to purchase 4,998 shares under the Company's 1994
Non-Employee Directors' Stock Option Plan.
(3) Includes currently exercisable options to purchase 37,500 shares assigned to
the J. Goldress Revocable trust in which Mr. Goldress has a beneficial
interest, pursuant to certain arrangements between the Company and the
consulting firm of Grisanti, Galef & Goldress ("GG&G"). See "Certain
Relationships and Related Transactions". Includes options, exercisable
within 60 days, to purchase 1,666 shares under the Company's 1994
Non-Employee Directors' Stock Option Plan.
(4) Includes currently exercisable options to purchase 119,643 shares to Mr.
Crisman, pursuant to the arrangement between GG&G and the Company. See
"Certain Relationships and Related Transactions". Includes options,
exercisable within 60 days, to purchase 125,000 shares pursuant to options
granted under employee stock option plans.
(5) Includes options to purchase 8,750 shares exercisable within 60 days
pursuant to options granted under employee stock option plans.
(6) Includes options to purchase 302,555 shares exercisable within 60 days.
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<PAGE>
PROPOSAL NO. 1
NOMINATION AND ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
Five directors, constituting the entire Board of Directors, are to be
elected at the Annual Meeting to hold office until the next Annual Meeting and
until their successors are elected and qualified. Unless otherwise instructed,
the proxy holders intend to vote the proxies received by them for the election
of the nominees named below, all of whom are now members of the Board. It is not
anticipated that any of the nominees will decline or be unable to serve as a
director. If, however, that should occur, the proxy holders will vote the
proxies in their discretion for any nominee designated by the present Board of
Directors to fill the vacancy. Each of the directors nominated was elected at
the 1996 Annual Meeting.
The following table sets forth certain information concerning each person
nominated for election as director:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION OR OFFICE
- ------------------------------------- --- --------------- ----------------------------------
<S> <C> <C> <C>
Craig D. Crisman..................... 55 1994 Chairman of the Board and Chief
Executive Officer of the Company
Harold R. Frank...................... 72 1957 Chairman Emeritus of the Company
and Director
Herbert M. Dwight, Jr................ 66 1989 Director
Jerry E. Goldress.................... 66 1995 Director
R. C. Mercure........................ 65 1982 Director
</TABLE>
Mr. Crisman became an employee of the Company on August 1, 1995. Prior to
that time, since 1981, he was a member of GG&G. GG&G was engaged by the Company
on August 1, 1994, to provide crisis management and turnaround services to the
Company. The turnaround engagement was determined to have been successfully
completed on July 27, 1995. Mr. Crisman was elected Chief Executive Officer and
a director of the Company on August 1, 1994. He was elected Chairman of the
Board on November 3, 1995. During the five years preceding his appointment as
Chief Executive Officer and as a director of the Company, Mr. Crisman was a
partner of GG&G. In that capacity he had been engaged, as a crisis management
consultant, in business turnaround assignments involving a number of different
enterprises in various industries.
Mr. Frank, founder of the Company, was named Chairman Emeritus of the
Company on November 3, 1995. He is also director of Circon Corporation, a
producer of endoscopes and ultra miniature color video cameras for medical and
industrial applications, Trust Company of the West, a financial institution, and
Key Technology, Inc., a manufacturer of automated food processing systems.
Mr. Dwight is, and for more than five years has been, President and Chairman
of Optical Coating Laboratory, Inc., which is engaged in the design, development
and production of precision optical thin film components. He is also a director
of Applied Materials, Inc., a wafer fabrication equipment manufacturer.
Mr. Goldress is, and for more than five years has been, Chief Executive
Officer of GG&G. He holds the position of Chairman and Chief Executive Officer
of Wherehouse Entertainment, a retail seller of compact discs and videos. For
additional information concerning the relationship between GG&G and the Company
see "Certain Relationships and Related Transactions".
Dr. Mercure is, and for a period of more than five years, has been,
Professor and Director of the Engineering Management Program at the University
of Colorado at Boulder. Dr.Mercure has been a
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<PAGE>
director of the Company since 1982. He is a director of Imex Medical Systems,
which is engaged in the development and manufacture of medical diagnostic and
monitoring instruments.
VOTE REQUIRED
The five nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but have no legal effect under Delaware law. While there is no definitive
statutory or case law authority in Delaware as to the proper treatment of
abstentions in the election of directors, the Company believes that abstentions
should be counted for purposes of determining whether a quorum is present at the
Annual Meeting for the transaction of business. In the absence of controlling
precedent to the contrary, the Company intends to treat abstentions with respect
to the election of directors in this manner.
SPECIAL COMMITTEES AND ATTENDANCE AT MEETINGS
The Board of Directors has an Audit Committee whose members in fiscal 1996
were Mr. Frank, Mr. Goldress and Dr. Mercure. The Board of Directors also has a
Compensation Committee whose members in fiscal 1996 were Mr. Dwight, Mr. Frank
and Mr. Goldress.
The Audit Committee makes recommendations regarding the selection of
independent public accountants, reviews reports from its independent public
accountants and reviews with them the scope and results of the audit engagement.
During fiscal year 1996, there was one meeting of the Audit Committee.
The Compensation Committee reviews and makes recommendations to the Board
concerning the Company's executive compensation policy, authorizes and approves
the grant of options and awards to executive officers and key employees under
the Company's stock option and long-term incentive plans. See "Remuneration of
Directors". During fiscal year 1996, the Compensation Committee met on four
occasions.
The Board of Directors does not have a nominating committee or any other
committee which performs a similar function.
During fiscal year 1996, the Board met five times. Each director attended
more than 75% of the Board meetings and meetings of any committees on which he
served during the year.
5
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AND AUTHORIZATION TO ENTER INTO
INDEMNIFICATION AGREEMENTS WITH NON-EMPLOYEE DIRECTORS
The Board of Directors has directed that a proposal to approve the form of
and to authorize the Company to enter into indemnification agreements (the
"Indemnification Agreements") with its non-employee directors in substantially
the form attached hereto as Appendix A be submitted to a vote of stockholders
for approval. This summary is not intended to be complete and is subject to, and
in its entirety by reference to Appendix A. If the Indemnification Agreements
are approved by the stockholders, it is anticipated that the Indemnification
Agreements will be entered into with the non-employee directors of the Company
immediately after the Annual Meeting and that similar agreements will be entered
into, from time to time, with future non-employee directors of the Company. The
Company has previously entered into similar indemnity agreements with Messrs.
Crisman and Altavilla and with certain other key executives with and consultants
to the Company.
The Board of Directors of the Company has unanimously approved the form of
and, subject to stockholder approval, authorized the Company to enter into the
Indemnification Agreements.
The Indemnification Agreements provide (a) for indemnification to the
maximum extent permitted by law against expenses (including attorneys' fees and
all other costs and obligations of any nature whatever), judgments, fines,
settlements and other amounts actually and reasonably incurred in a proceeding
to which the director is a party by reason of the fact that he or she is a
director of the Company, unless a court determines that such indemnification is
not permitted under applicable law; (b) for the advancement of all expenses to
the director, including attorneys' fees and all other costs, fees, expenses and
obligations paid or incurred in connection with defending or settling any
action, suit or proceeding, related to the fact that such director is or was a
director of the Company or is or was serving at the request of the Company as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust or other enterprise, and for repayment to the Company if it
is found that the director is not entitled to such indemnification under
applicable law; (c) the director may seek court relief in the event the
Company's Board of Directors (or other person or body appointed by such Board)
determines that the director would not be permitted to be indemnified under
applicable law (and therefore is not entitled to indemnification under the
Indemnification Agreement); and (d) indemnification against expenses, (including
attorneys' fees) incurred in seeking to collect from the Company an indemnity
claim or advancement of expenses to the extent successful.
The Board of Directors of the Company believes that it is in the best
interest of the Company to indemnify its non-employee directors, as well as the
officers and other key executives of the Company, to the fullest extent
possible. The Indemnification Agreements are proposed to be adopted in
conjunction with the limitation of personal liability of directors provided for
by Delaware law and in conjunction with the mandatory indemnification provisions
set forth in the Certificate of Incorporation and Bylaws of the Company. Among
other things, the Indemnification Agreements would provide the indemnified
directors with a specific contractual assurance that the rights to
indemnification currently provided to them will remain available, regardless of,
among other things, any amendment to or revocation of the indemnification
provisions, in the Certificate of Incorporation or by Bylaws of the Company or
any change in composition or philosophy of the Company's Board of Directors such
as might occur following an acquisition or change of control of the Company. If
court assistance to obtain such indemnity is required, the director can receive
indemnity against costs incurred in pursuing his or her rights to
indemnification.
The Indemnification Agreements impose upon the Company the burden of proving
that the director is not entitled to indemnification in any particular case. The
Indemnification Agreements also provide that a director's rights thereunder are
not exclusive of any other rights he or she may have under Delaware law,
directors' and officers' insurance, the Certificate of Incorporation, the Bylaws
of the Company or otherwise; however, the Indemnification Agreements do prevent
double payment. Notwithstanding the
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<PAGE>
above discussion, all terms and rights under the Indemnification Agreements
exist only to the extent permitted by applicable law. To the knowledge of the
Company there is no threatened or pending action that might result in claims of
indemnification under the Indemnification Agreements.
Delaware law does not require that stockholder approval be obtained in order
to enter into the Indemnification Agreements. The Board of Directors of the
Company is seeking stockholder approval, however, because each of the
non-employee directors is potentially benefited by such agreements and,
therefore, has an inherent conflict of interest with regard thereto. Stockholder
approval of the Indemnification Agreements may not prevent a stockholder from
later seeking to challenge the Indemnification Agreements. Although the Board of
Directors cannot determine in advance its position with respect to any challenge
to the enforceability of the Indemnification Agreements by its stockholders, it
may assert stockholder approval of such Indemnification Agreements as a defense.
If the Indemnification Agreements are not approved by the stockholders, the
Board will reconsider whether the Indemnification Agreements should be entered
into.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company present in person or represented by proxy and
entitled to vote at the Annual Meeting is required for approval of the form of
and authorization to enter into the Indemnification Agreements with the
Company's non-employee directors.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THIS PROPOSAL.
7
<PAGE>
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO THE APPLIED MAGNETICS CORPORATION
1994 EMPLOYEE STOCK OPTION PLAN
GENERAL
Under the 1994 Employee Stock Option Plan (the "1994 Plan"), 1,000,000
shares of Common Stock were initially reserved for issuance upon the exercise of
options which may be granted from time-to-time to officers and certain employees
of the Company or its subsidiaries. At the 1995 annual meeting of stockholders,
an amendment to increase the number of shares reserved for issuance, to
2,100,000, was approved. The proposed amendment to the 1994 Plan, approved by
the Board of Directors, would increase the number of shares reserved for
issuance under the 1994 Plan by 1,150,000 and is subject to approval by the
stockholders of the Company. The 1994 Plan permits the award of both
Non-Qualified and Incentive Stock Options.
The purpose of the 1994 Plan is to attract and retain executives and certain
other employees and to secure for the Company the benefits of the incentive
inherent in equity ownership by employees who are responsible for the continuing
growth and success of the Company. The Company believes that equity based
compensation arrangements such as stock options enhance the Company's ability to
attract and retain key technical, engineering and management personnel who can
make significant contributions to its future success.
The Company has considered prevailing compensation practices in the industry
in which it competes for these people and, particularly, compensation and
benefits being offered by companies engaged in recruitment efforts affecting
both the Company's personnel and those employment candidates whom the Company
itself, may, from time-to-time, seek to recruit. On the basis of these
considerations, the Company believes that stock options are important
compensation elements, particularly during periods, such as those recently
experienced, when the disk drive industry is undergoing substantial changes and,
as a result, there is increased competition for attracting and retaining key
technical management and scientific resources. Moreover, this form of
compensation closely aligns employees' interests in the Company's success and
growth with similar interests of the Company's stockholders.
As of the date of this proxy statement, options have been granted under the
1994 Plan to purchase 1,117,658 shares of Common Stock, 367,139 options have
been exercised and 615,203 shares are currently reserved for future grants.
The Compensation Committee ("Committee") or the Board of Directors shall
determine the number of options to be granted to any executive officer or
employee of the Company, either individually or as a group. The exercise price
of options, when granted, will be not less than the fair market value of the
Company's Common Stock on the dates of grant.
The following description summarizes certain provisions of the 1994 Plan.
This description is subject to, and is qualified in its entirety by, the full
text of the 1994 Plan and the defined terms used therein.
TERM
The 1994 Plan will continue in effect until terminated by the Company's
Board of Directors. However, in accordance with the requirements of federal tax
law, no Incentive Stock Options will be granted under the 1994 Plan more than
ten years following its effective date.
ELIGIBILITY
Key employees of the Company and its subsidiaries are eligible to receive
option grants under the 1994 Plan. Options may be granted to those persons whose
performance the Committee determines can have a significant effect on the
success of the Company. The Committee has the discretion to designate
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<PAGE>
which persons shall be granted options under the 1994 Plan, to determine whether
options will be granted as Nonqualified or Incentive Stock Options and to
determine the terms of the options.
ADMINISTRATION AND OPERATION OF THE 1994 PLAN
The 1994 Plan is administered entirely by the Committee which has the
authority to interpret and determine all questions of policy pertaining to the
1994 Plan and to adopt such rules, regulations, agreements and instruments as it
deems necessary for its proper administration and take any and all other actions
it deems necessary or advisable for the proper administration of the 1994 Plan.
The 1994 Plan authorizes the grant of options to officers, executives and
other key employees of the Company and its subsidiaries. The Committee will
determine which officers, executives and other key employees ("Optionees") are
eligible to participate in the 1994 Plan. Selections for participation in the
1994 Plan and the amount of options to be granted will be determined on the
basis of the Committee's belief as to the individual contribution to the growth
of the Company that those employees have made in the past and can make in the
future, based on their abilities and positions within the Company.
In addition, the 1994 Plan includes provisions which permit the Committee to
amend the plan from time-to-time in order to limit the options that may be
granted to certain executive officers. This limitation provision, which may be
expressed in either absolute terms or as a percentage of shares available, may
be imposed, at the Committee's discretion, if necessary to avoid circumstances
in which aggregate compensation paid by the Company to certain executives during
certain periods may not be deductible to the Company under Section 162(m) of the
Internal Revenue Code to the extent such aggregate compensation exceeds $1
million. See "Report of Compensation Committee--Chief Executive Officer's
Compensation-- Policy With Respect to Internal Revenue Code Section 162(m)."
STOCK AVAILABLE FOR AWARD
Providing the amendment to the 1994 Plan is approved by the stockholders,
the aggregate number of shares of Common Stock reserved for issuance upon
exercise of options granted under the 1994 Plan shall not exceed 3,250,000
shares.
NONQUALIFIED AND INCENTIVE STOCK OPTIONS
Stock options may be granted under the 1994 Plan as either Incentive Stock
Options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or Nonqualified Stock Options (i.e., stock options which
are not Incentive Stock Options).
The exercise price of options is set by the Committee and stated in the
option agreement. The exercise price may not be less than 100% of the fair
market value of the Common Stock on the date of the grant. The closing price of
the Common Stock on the New York Stock Exchange on January , 1997 was $ .
The exercise price may be paid in cash or by delivery of a cashier's or
certified check or a check issued by a broker-dealer which is a member firm of
the New York Stock Exchange, Inc., or at the discretion of the Committee, by
delivery of shares of the Company's Common Stock already owned by the Optionee;
or any combination of the foregoing. Options granted under the 1994 Plan will
expire not later than 10 years after the date of grant.
Incentive Stock Options are subject to special statutory provisions.
Incentive Stock Options granted to any employee owning stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company may not have an exercise price less than 110% of the fair market value
on the grant date and may not be exercisable more than five years from the date
of grant. Also, options continue to qualify as Incentive Stock Options only to
the extent that the aggregate fair market value of stock (as of the
9
<PAGE>
date of grant) with respect to which such options are exercisable for the first
time by the Optionee during any calendar year does not exceed $100,000.
EXERCISE OF STOCK OPTIONS
An option will be exercisable at such times as are determined by the
Committee at the date of grant.
If the Optionee ceases to be employed by the Company for any reason other
than death, Disability or Retirement (as such terms are defined in the 1994
Plan), the right to exercise the option shall expire 90 days following the date
such employment is terminated. However, in the event of termination of
employment as a result of the death or Disability of the Optionee while employed
by the Company all outstanding, unexercised options which were exercisable at
the time of such termination or which become exercisable within one year
thereafter may be exercised at any time during such one year period (subject to
the expiration of the option) by the Optionee or by his or her estate or other
person who acquired the right to exercise by bequest or inheritance. Options
granted under the 1994 Plan will be nontransferable and, except in the case of
death, the option may be exercised only by the Optionee. If the Optionee retires
(within the meaning of Retirement as defined in the 1994 Plan) all outstanding,
unexercised options shall continue to be exercisable by him or her in accordance
with the terms of said options and subject to the expiration thereof, provided,
however, that if and to the extent that Incentive Stock Options are exercised
more than 90 days after the Retirement date, such options will be treated as
Nonqualified Options. Provided the Board of Directors has not on or before a
Change in Control determined that all or a portion of the outstanding options
shall become fully and immediately exercisable, if, within one year following
such Change in Control (as such term is defined in the 1994 Plan), the
Optionee's employment is terminated (i) involuntarily for any reason or (ii)
voluntarily after a material lessening of his or her duties or a material
reduction in his or her base salary, all outstanding options held by such
Optionee shall become immediately and fully exercisable.
ADJUSTMENT OF SHARES
The 1994 Plan provides for adjustments to the number of shares subject to
the 1994 Plan and the number of shares and the price per share of stock subject
to outstanding options in the event of any stock dividend, recapitalization,
split-up, combination or exchange of the Common Stock. In the event of
liquidation or dissolution, or a corporate reorganization in which the Company
is not the survivor, the options terminate, except that the Board may accelerate
the ability to exercise the options. If options expire or terminate without
having been exercised in full, the unpurchased shares shall again be available
for issuance under the 1994 Plan. No options will be granted under the 1994 Plan
after February 17, 2004 (see "Term").
FEDERAL INCOME TAX CONSEQUENCES
An Optionee receiving a Nonqualified Stock Option does not recognize taxable
income on the date of grant. However, he or she will recognize ordinary income
at the time of exercise in the amount of the difference between the option
exercise price and the fair market value of the Company's Common Stock on the
date of exercise. The Optionee will have a basis in such shares equal to the
market value on the date of exercise. If the Company withholds from the
Optionee's compensation or otherwise receives from the Optionee the amount
required to be withheld with respect to such exercise, the Company will be
entitled to a concurrent deduction equal to the ordinary income recognized by
the Optionee. Upon subsequent disposition of the shares acquired upon exercise
of a Nonqualified Stock Option, any future gain or loss to the employee will be
either short-term or long-term capital gain or loss, depending on how long the
shares are held.
10
<PAGE>
Incentive Stock Options which are granted under the 1994 Plan are intended
to qualify as incentive stock options within the meaning of Section 422 of the
Code. The following is a summary of the principal Federal income tax aspects of
Incentive Stock Options.
The holder of an Incentive Stock Option will not recognize income upon the
grant or exercise of such option. However, the difference between the exercise
price of an Incentive Stock Option and the fair market value of the shares
purchased on the date of exercise is an item of tax preference for purposes of
computing the Optionee's alternative minimum tax, if any, under the Code. Income
will be recognized by the Optionee upon the sale or other disposition of the
shares acquired under such option, in an amount measured by the excess of the
then fair market value of the shares over the exercise price. Such amount will
be treated as long-term capital gain if the Optionee has disposed of such shares
after the later of two years after the grant of the option or one year after
exercise of the option. If those holding period rules are not met, the Optionee
may recognize income in the year of disposition at ordinary income rates in an
amount equal to the lesser of the excess of the fair market value of the shares
on the exercise date over the exercise price or the excess of the fair market
value of the shares on the date of disposition over the exercise price. Any gain
in excess of the amount taxed as ordinary income will be capital gain and will
be long-term capital gain if the shares have been held for more than one year.
The Company will not be allowed any compensation deduction with respect to
an Incentive Stock Option if the holding period rules are satisfied by the
Optionee. However, if the holding period rules for an Incentive Stock Option are
not met, the Company will be allowed a deduction in the taxable year in which
the Optionee disposes of the shares in the amount which the Optionee is required
to include as ordinary income.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE 1994 PLAN.
11
<PAGE>
PROPOSAL NO. 4
APPROVAL OF AMENDMENTS TO
1994 NON-EMPLOYEE DIRECTORS' PLAN
AND APPROVAL AND RATIFICATION OF OPTION GRANTS
GENERAL
In February, 1994, the stockholders approved the Company's 1994 Non-Employee
Directors' Option Plan (the "1994 Directors' Plan") to permit automatic,
one-time grants of stock options to members of the Board of Directors who are
not employees of the Company or its subsidiaries ("Non-employee Directors"). The
current Non-employee Directors are Messrs. Dwight, Goldress and Frank and Dr.
Mercure. Under the 1994 Plan, each Non-employee Director was granted an option
to purchase 5,000 shares of Common Stock on the first business day of the month
following the later of the following events to occur: (i) February 18, 1994
(which was the date of approval by the Company's stockholders of the 1994 Plan);
or (ii) the date on which such person first became a director, whether through
election by the stockholders of the Company or appointment by the Board of
Directors to fill the vacancy. Directors Dwight, Frank, Goldress and Mercure
have each been granted options under the 1994 Directors' Plan. See "Executive
Officer Compensation--Renumeration of Directors."
On November 8, 1996, the Board of Directors of the Company adopted, subject
to approval by the stockholders, two amendments to the 1994 Director's Plan., as
follows: (i) an increase in the options to be granted to a Non-employee Director
on the date he or she first becomes a director from 5,000 shares to 15,000
shares and (ii) a change in the vesting of options granted to Non-employee
Directors from 33 1/3 percent on each of the first three anniversaries of the
date upon which the options are granted to 100 percent vesting on the first
anniversary following the date of grant. The Board also requests that the
stockholders ratify and approve the action of the Board on November 8, 1996
granting to each of the current Non-employee Directors options to purchase
15,000 shares (10,000 shares in the case of Mr. Goldress, who received an option
to purchase 5,000 shares upon his appointment as a Director of the Company in
November, 1995 and Mr. Frank, who received an option to puchase 5,000 shares
shares upon his appointment as a Non-employee Director of the Company in
January, 1996.) This grant of options is intended to reflect, in effect, an
initial grant of options to the Non-employee Directors, who, with the exception
of Messrs. Frank and Goldress, did not receive an initial option grant upon
becoming a director of the Company. The Directors believe that such an initial
option grant is consistent with prevailing practices in the Company's industry
relating to compensation of outside directors.
The Company believes that the successful establishment and implementation of
corporate strategies and objectives is enhanced by the contributions, guidance
and experience of persons who serve on the Board as outside directors. The
ability to attract and retain such persons is therefore in the best interests of
the Company and its stockholders.
The purpose of the 1994 Directors' Plan is to provide a means whereby
Non-employee Directors will acquire an equity interest in the Company and to
secure for the Company and its stockholders the benefits inherent in such equity
ownership by persons whose advice and counsel are important to the continued
growth and success of the Company. Upon adoption of the Plan, a total of 150,000
shares of the Company's $.10 par value Common Stock ("Common Stock") were
reserved for issuance pursuant to the 1994 Director's Plan. As of the date of
this Proxy Statement, options to purchase 50,000 shares of the Company's Common
Stock have been granted under this Plan to Non-employee Directors.
The following summary of the 1994 Directors' Plan is qualified in its
entirety by the full text of the 1994 Directors' Plan.
12
<PAGE>
ADMINISTRATION AND GRANT OF OPTIONS
The 1994 Directors' Plan is designed to work without administration.
However, to the extent administration is necessary, it will be provided by a
committee (the "Committee") consisting of two or more members of the Board of
Directors of the Company who are not Non-employee Directors. Currently, the
Board consists of only one employee director.
Non-employee Directors of the Company are eligible to participate in the
1994 Directors' Plan. Should Messrs. Dwight, Frank and Goldress and Dr. Mercure,
who have previously participated in the 1994 Directors' Plan, be elected as
directors by the stockholders at the Annual Meeting, they will be eligible to
continue to participate in the 1994 Directors' Plan.
Under the current 1994 Directors' Plan, each Non-employee Director will be
granted an option to purchase 5,000 shares of Common Stock (i) on the date on
which such person first becomes a director, whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy (which
may be created by the resignation, removal, retirement or death of an incumbent
director or an amendment to the Company's Bylaws increasing the number of
authorized directors); and (ii) thereafter, on March 1 of each year following
the date of such election or appointment so long as such person continues to
serve as a director. If the proposed amendment is adopted, the option granted
under (i) above will be increased from 5,000 shares to 15,000 shares.
The exercise price of each option granted under the 1994 Director's Plan is
set at fair market value of the Common Stock on the date of grant. If the Common
Stock is listed on a stock exchange, fair market value shall be the closing
price of the Common Stock on such exchange on the date of grant, provided
however, that if the date of grant falls on a day when such exchange is not open
for trading, the fair market value will be set at the closing price of the
Common Stock on such exchange on the first trading day immediately following the
date of grant.
EXERCISE AND ADJUSTMENT
Options granted under the current 1994 Directors' Plan are exercisable as to
33 1/3 percent of the number of shares subject to the options after the first
year following the date of grant. Thereafter, the options become exercisable
cumulatively as to an additional 33 1/3 percent in each succeeding year. If the
proposed amendment is adopted, the options granted under the 1994 Directors'
Plan will be 100% exercisable upon the first anniversary of the date of grant.
The exercise price may be paid in cash or by delivery of a cashier's or
certified check issued by a broker-dealer which is a member of the New York
Stock Exchange, Inc.
If the optionee ceases to serve as a director of the Company for any reason
other than death or Disability (as defined in the 1994 Directors' Plan), the
right to exercise the option expires 90 days following the date the optionee
ceases to serve as a director of the Company. However, in the event of death,
any outstanding option may be exercised (subject to the expiration date of the
option) during the one year period after the date of death, but only to the
extent it was exercisable on the date of such death. In the event of termination
of service as a Director as a result of Disability, any outstanding option may
be exercised (subject to the expiration date of the option) during the period of
one year after such termination but only to the extent it was exercisable on the
date of such termination or becomes exercisable, by its terms, during the one
year period following such termination. Options granted under the 1994
Directors' Plan are non-transferable and, in the case of death, the option may
be exercised by the optionee's estate or any person who acquired the right to
exercise the option by bequest or inheritance or by any reason of the death of
the optionee.
The 1994 Directors' Plan provides for adjustments to the number of shares
subject to the 1994 Directors' Plan and the number of shares and price per share
of stock subject to outstanding options in the event of any stock dividend,
recapitalization, split-up, combination or exchange of the Common Stock. In
13
<PAGE>
the event of liquidation or dissolution, or a corporate reorganization in which
the Company is not the survivor, the options terminate without having been
exercised in full, the unpurchased shares shall again be available for issuance
under the 1994 Directors' Plan. No additional options will be granted under the
1994 Directors' Plan after ten years following the effective date thereof.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1994 Directors' Plan are nonqualified stock
options for federal income tax purposes. Because the options are not actively
traded on an established market, no tax will be imposed on an optionee, and no
deduction will be available to the Company, upon the grant of an option. An
optionee will recognize ordinary income upon the exercise of an option. The
amount of income taxable to an optionee is the excess of the fair market value
of the Common Stock at the time the income is recognized over the exercise price
of the option. The Company is entitled to a deduction in the same amount.
The initial tax basis of the Common Stock received by an optionee will be
the fair market value of the Common Stock taken into account in determining the
amount of ordinary income to the optionee.
Upon the disposition of Common Stock acquired under the Plan, any difference
between the amount realized on the disposition and the optionee's tax basis in
the Common Stock generally will be treated as long-term or short-term capital
gain or loss depending on the optionee's holding period for the Common Stock.
VOTE REQUIRED
Affirmative votes constituting a majority of the votes eligible to be cast
by the Common Stock present in person or represented by proxy at the Annual
Meeting will be required to approve the amendments to the 1994 Directors' Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENTS TO THE 1994 DIRECTORS' PLAN AND APPROVAL AND
RATIFICATION OF THE GRANT OF OPTIONS TO THE NON-EMPLOYEE DIRECTORS.
14
<PAGE>
PROPOSAL NO. 5
SELECTION OF AUDITORS
The Board of Directors of the Company has appointed Arthur Andersen LLP,
independent certified public accountants as auditors of the Company for the year
ending September 27, 1997, and has further directed that management submit the
selection of auditors for ratification by the stockholders at the Annual
Meeting. Arthur Andersen LLP has audited the Company's financial statements for
the past thirty years. This firm will have representatives at the Annual Meeting
who will have an opportunity to make a statement and will be available to
respond to appropriate questions.
VOTE REQUIRED
Affirmative votes constituting a majority of the votes eligible to be cast
by the Common Stock present in person or represented by proxy at the Annual
Meeting and "entitled to vote on the subject matter" ( the "Votes Cast") will be
required to approve the ratification of Arthur Andersen LLP as the Company's
independent accountants for the fiscal year ending September 27, 1997.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 27, 1997.
OTHER INFORMATION
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission ("SEC") certain reports on prescribed forms regarding
ownership of, and transactions in, the Company's securities. Such officers,
directors and ten percent stockholders are also required by SEC rules to furnish
the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during fiscal 1996 all of the Named Executive Officers, directors and ten
percent stockholders complied with the filing requirements of Section 16(a).
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chief Executive Officer and the one
other most highly compensated executive officer whose salary plus bonus exceeded
$100,000, information concerning compensation paid for services to the Company
in all capacities during the fiscal year ended September 28, 1996, as well as
the total compensation paid to each such individual in each of the Company's
previous two fiscal years (if such person was the Chief Executive Officer or an
executive officer, as the case may be, during any part of such fiscal year).
15
<PAGE>
LONG TERM COMPENSATION
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION
--------------------------------------------- AWARDS
OTHER --------------------------------
ANNUAL RESTRICTED SECURITIES
COMPENSATION STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) AWARDS($)(3) OPTIONS(#)(4)
- --------------------------------- ----------- ----------- ----------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Craig C. Crisman ................ 1996 375,000 189,287 0 0 100,000
Chief Executive Officer 1995(1) 62,500 0 0 0 419,643
1994 -- -- -- -- --
Peter T. Altavilla .............. 1996 115,866 40,431 0 0 10,000
Controller and Secretary 1995 93,691 31,357 0 9,500 5,000
1994 85,025 0 0 0 0
<CAPTION>
PAYOUTS
---------------
LTIP ALL OTHER
NAME AND PRINCIPAL POSITION PAYOUTS($) COMPENSATION
- --------------------------------- --------------- -------------------
<S> <C> <C>
Craig C. Crisman ................ 0 0
Chief Executive Officer 0 0
-- --
Peter T. Altavilla .............. 0 0
Controller and Secretary 0 0
0 0
</TABLE>
- ------------------------------
(1) Mr. Crisman was a partner in a consulting firm engaged by the Company
through July 27, 1995. He received no compensation directly from the Company
during this relationship. See "Certain Relationships and Related
Transactions". He became an employee of the Company on August 1, 1995.
(2) The value of perquisites, if any, fell below $50,000 or 10% of reported base
and bonus for each executive.
(3) The restricted stock award to Mr. Altavilla was issued under the amended and
restated 1989 Long Term Incentive Plan ("1989 Plan") and consisted of an
aggregate of 4,000 shares of Common Stock awarded in 1995, valued at $9,500
and is subject to restrictions under the 1989 Plan that, among other things,
prohibit the sale or transfer of the Common Stock. Accordingly, awards under
the 1989 Plan are considered Restricted Stock. These restrictions, which
also apply to other awards under the 1989 Plan, are automatically removed
ten years following the date of the award provided the participant is still
employed by the Company. Restrictions may be removed earlier, if certain
predetermined performance objectives are achieved. The shares awarded in
1995 were issued with restrictions to be lifted if Mr. Altavilla met certain
performance objectives. The restrictions on 4,000 shares were lifted on
January 2, 1996 and the aggregate value of these shares based on the closing
price on the New York Stock Exchange of $17.875 on such date, was $71,500.
(4) Includes all stock options granted during the year. No Stock Appreciation
Right's (SARs) were granted and no stock options were granted in tandem with
any SARs.
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth the stock options granted to the named
executive officers under the Company's stock option plans, and the options
exercised by such named executive officers, during the fiscal year ended
September 28, 1996.
The Option/SAR Grant Table sets forth hypothetical gains for the options at
the end of their respective ten year terms, as calculated in accordance with the
rules of the Securities and Exchange Commission. Each gain is based on an
arbitrarily assumed annualized rate of compound appreciation of the market price
of 5% and 10%, less the exercise price, from the date the option was granted to
the end of the option term. Actual gains, if any, on option exercise are
dependent on the future appreciation in value of the Company's Common Stock
which appreciation, if any, would benefit the Company's stockholders as well as
persons to whom options have been granted.
OPTIONS GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM(3)
SECURITIES UNDERLYING EMPLOYEES IN PRICE PER --------------------
NAME OPTIONS GRANTED(#) FISCAL 1996(1) SHARE($/SH)(2) EXPIRATION DATE 5% 10%
- -------------------- --------------------- ------------------ --------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
February 9,
Craig Crisman....... 100,000 9.0% $ 15.25 2006 $ 959,064 $2,430,457
Peter T. February 9,
Altavilla......... 10,000 1.0% 15.25 2006 95,906 243,046
</TABLE>
- ------------------------------
(1) The Company did not grant SARs in fiscal 1996.
(2) Options were granted in fiscal 1996 at fair market value and are exercisable
in cumulative annual installments of 25% of the shares granted beginning one
year after date of grant, and in all cases expire 10 years from the grant
date.
16
<PAGE>
(3) Potential realizable value is based on an assumption that the price of the
Common Stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the 10 year option term. Potential
realizable value is shown net of exercise price. These numbers are
calculated based on the regulations promulgated by the SEC and do not
reflect the Company's estimate of future stock price growth.
AGGREGATED OPTION EXERCISES FISCAL 1996 AND FISCAL 1996 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 28, 1996 SEPTEMBER 28, 1996(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Craig C. Crisman................ 0 $ 0 219,643 300,000 $2,582,591 $ 2,137,500
Peter T. Altavilla.............. 0 0 3,750 12,500 50,000 61,250
</TABLE>
- ------------------------------
(1) Calculated on the basis of the closing price of the Company's common stock
on the New York Stock Exchange, $17.875 per share, at September 27, 1996.
REMUNERATION OF DIRECTORS
Mr. Dwight, Mr. Frank, Mr. Goldress and Dr. Mercure were each paid an annual
retainer of $10,000 and were entitled to be paid $1,000 for each Board meeting
attended during the fiscal year ended September 28, 1996. Directors who are not
otherwise employed by the Company, but who serve as members of the Audit or
Compensation Committees are entitled to be paid $1,000 for attendance at
meetings of such Committees if they occur on days other than on a regularly
scheduled Board meeting day. Directors are not compensated for meetings held by
teleconferencing facilities. Travel and accommodation expenses incurred by
directors in attending Board and Committee meetings are reimbursed. At a meeting
held on November 8, 1996, the annual retainer was increased to $15,000. The fee
for attendance at Board and Committee meetings was increased to $1,250.
Under the Company's 1994 Non-Employee Directors Plan, (the "1994 Directors
Plan") which was approved by the stockholders at the 1994 Annual Meeting,
options to purchase 5,000 shares of Common Stock were granted to each of Messrs.
Dwight, Frank, Goldress and Mercure on March 1, 1996, at an exercise price of
$15.50 per share. Under the Directors Plan, so long as each person serves as a
director, he will be granted an option to purchase 5,000 shares on March 1 of
each subsequent year.
The exercise price of each option granted under the 1994 Directors Plan is
set at the fair market value of the Common Stock on the date of grant. If the
Common Stock is listed on a stock exchange, fair market value will be the
closing price of the Common Stock on such exchange on the date of grant;
provided, however, that if the date of grant falls on a day when such exchange
is not open for the trading, the fair market value will be set at the closing
price of the Common Stock on such exchange on the first trading day immediately
following the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 1, 1994, the Company entered into an agreement with GG&G (the
"GG&G Agreement") pursuant to which GG&G was retained by the Company to provide
crisis management and turnaround services. Mr. Crisman was the principal
consultant assigned by GG&G to perform these services and was appointed to serve
as Chief Executive Officer of the Company. Under the terms of the GG&G
agreement, GG&G was paid a monthly fee of $70,000 plus expenses through May
1995. The monthly fee was reduced to $55,000 effective June 1995 for the
services of Mr. Crisman and any other consultants assigned by GG&G to provide
services to the Company . 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.
17
<PAGE>
In December 1994, the Company also granted an option to GG&G Equity
Partners, a partnership comprised in part of members of GG&G, 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 assigned to the individual
partners of GG&G Equity Partners, including Messrs. Goldress, Crisman and Brian
Stone. The options, are non-qualified options which are currently exercisable
and the shares issuable upon exercise of these options have been registered
under the Securities Act of 1933, as amended, on Form S-3.
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
and final payments of $50,802 were paid during fiscal 1996.
In March, 1996, Delta Bravo Inc. ("DBI"), a subdisiary of the Company,
engaged the services of Brian R. Stone, a GG&G consultant, and formerly Acting
Chief Financial Officer of the Company, as Chief Executive Officer of DBI. In
accordance with that engagement, DBI pays to GG&G the sum of $35,000 per month.
The Board of Directors of the Company has also approved payment to GG&G of a
success fee linked directly to cash proceeds to the Company resulting from the
operations of DBI and its subsidiaries and from their sale to a third party. In
the event DBI is not sold, the success fee will be based on the earnings of DBI
and its subsidiaries.
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.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
On October 5, 1994, in connection with the resignation of William R.
Anderson as an executive officer and director of the Company, the Company
entered into an agreement pursuant to which, among other things, Mr. Anderson
was to be paid the sum of $600,000 in equal monthly installments starting on
October 5, 1994, without interest, over a twenty-four (24) month period. The
agreement provided that Mr. Anderson would provide consulting services to the
Company. In addition, pursuant to the terms of the Company's 1989 Plan,
Restrictions (as defined in the 1989 Plan) were removed as to 11,549 shares of
Common Stock previously granted to Mr. Anderson. The aggregate value of these
shares, based on the closing price of the Common Stock on the New York Stock
Exchange of $4.125 per share on October 5, 1994, was $47,640. On October 5,
1996, the Company made the final installment payment to Mr. Anderson.
On July 19, 1995, the Company entered into a separation agreement with
Raymond P. LeBlanc, formerly Secretary and General Counsel of the Company,
pursuant to which, among other things, he resigned as an officer of the Company,
agreed to provide services on an as-required, part time basis for the Company
until February 1996. Under the terms of the separation agreement, the Company
agreed to forgive the entire balance of $60,000 due under a loan agreement with
the Company. In addition, vesting was accelerated on 39,818 stock options, and
pursuant to the terms of the Company's 1989 Plan, restrictions (as defined in
the 1989 Plan) were removed as to 7,500 shares of Common Stock previously
granted to Mr. LeBlanc. The aggregate value of these shares, based on the
closing price of the Common Stock on the New York Stock exchange of $8.00 per
share on July 19, 1995, was $60,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee consisted of directors
Dwight, Frank and Goldress. Mr. Frank was an employee and officer of the Company
until November 3, 1995, when he retired. Mr. Dwight and Mr. Goldress have never
been officers or employees of the Company or any of its subsidiaries. Mr.
Goldress, Chief Executive Officer of GG&G, was appointed to the Board of
Directors on November 3, 1995. He was elected to the Board at the 1995 annual
meeting of stockholders. See "Certain Relationships and Related Transactions."
18
<PAGE>
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is comprised of the three independent, non-employee directors named
below. See the description of the Compensation Committee above.
COMPENSATION POLICIES
Policies governing the compensation of the Company's executives are
established and monitored by the Compensation Committee. All decisions relating
to the compensation of the Company's executives during fiscal 1996 were made by
the Compensation Committee.
In administering its compensation program, the Compensation Committee
follows the belief that compensation should reflect the value created for
stockholders while supporting the Company's strategic goals. In doing so, the
compensation programs reflect the following themes:
1. The Company's compensation programs should be effective in attracting,
motivating and retaining key executives;
2. There should be a correlation among the compensation awarded to an
executive, the performance of the Company as a whole, and the executive's
individual performance;
3. The Company's compensation programs should provide the executives with a
financial interest in the Company similar to the interests of the
Company's stockholders; and
4. The Company's compensation program should strike an appropriate balance
between short and long term performance objectives.
ELEMENTS OF COMPENSATION PROGRAMS
At least annually, the Committee reviews the Company's executive officer
compensation programs to ensure that pay levels and incentive opportunities are
competitive and reflect the performance of the Company. The three basic
components of the program, each of which is intended to serve the overall
compensation philosophy, are as follows:
BASE SALARY--Base salary levels are, in part, established though comparisons
with companies of similar size engaged in the same or similar business as that
of the Company. Actual salaries are based on individual performance of the
executive officer within the salary range reflecting job evaluation and market
comparisons. Base salary levels for executive officers are reviewed annually and
established within a range deemed by the Committee to be reasonable and
competitive. The Committee recommended increases in base salary for the
executive officers in fiscal 1996 of up to 9.5%.
ANNUAL INCENTIVES--The Company's executive officers are eligible to
participate in the annual incentive compensation program whose awards are based
on the attainment of certain operating and individual goals. The objective of
this program is to provide competitive levels of compensation in return for the
attainment of certain financial objectives that the Committee believes are
primary factors in the enhancement of shareholder value. In particular, the
program seeks to focus the attention of executive officers towards earnings
growth. Bonuses for executive officers of the Company under this program are
intended to be consistent with targeted awards of companies of similar size and
engaged in the same or similar business as that of the Company. Actual awards
are subject to adjustment up or down, at the discretion of the Committee, based
on the Company's overall performance. For fiscal 1996, the Compensation
Committee awarded bonuses to executive officers based upon the performance
measures discussed above. The bonuses are reflective of the Company's overall
improvement in earnings and total stockholder return in fiscal 1996.
19
<PAGE>
LONG-TERM INCENTIVES--As an important element retaining and motivating the
Company's senior management, the Committee believes that those persons who have
substantial responsibility for the management and growth of the Company should
be provided with an opportunity to increase their ownership of Company stock.
Therefore, executive officers and certain other key employees are eligible to
receive stock options from time to time, giving them the right to purchase
shares of Common Stock of the Company at a specified price in the future. The
number of stock options granted to executive officers is based on various
factors, including the respective scope of accountability, strategic and
operational goals and anticipated performance and contributions of the
individual executive. Each non-employee director receives annually, on a
prescribed date, options to purchase 5,000 shares of Common Stock at an exercise
price equal to the closing price of the Company's Common Stock on the date of
grant as reported on the New York Stock Exchange. Non-employee directors
constitute a committee of disinterested directors to administer the granting of
all other options under the Company's stock option plans.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Crisman's compensation is determined pursuant to the principles noted
above. The Committee, in considering his compensation for fiscal 1996, reviewed
his existing compensation arrangements, comparable compensation for chief
executive officers of other companies and the performance of both Mr. Crisman
and the Company. The Committee made the following determinations regarding Mr.
Crisman's compensation:
- Based upon Mr. Crisman's and the Company's fiscal 1996 performance, the
Company increased Mr. Crisman's base salary by 9.3%.
- Based upon Mr. Crisman's and the Company's fiscal 1996 performance, the
Committee awarded Mr. Crisman a profit sharing distribution of $189,287.
- In order to provide a long-term incentive to Mr. Crisman, the Committee
awarded him non-qualified stock options to purchase 100,000 shares of the
Company's Common Stock at fair market value on the date of grant.
POLICY WITH RESPECT TO INTERNAL REVENUE CODE SECTION 162(M). In 1993, the
Internal Revenue Code of 1986 (the "Code") was amended to add Section 162(m).
Section 162(m), and regulations thereunder adopted in 1995, place a limit of
$1,000,000 on the amount of compensation that may be deducted by the Company in
any year with respect to certain of the Company's most highly compensated
officers. Section 162(m) does not, however, disallow a deduction for qualified
"performance-based compensation" the material terms of which are disclosed to
and approved by stockholders. At the present time, the Company's executive
officer compensation levels are substantially below the $1,000,000 pay limit and
the Company believes that it will most likely not be affected by the regulation
in the near future. Where appropriate in light of specific compensation
objectives, the Board intends to take necessary actions in the future to
minimize the loss of tax deductions related to compensation.
Members of the Compensation Committee:
Herbert M. Dwight, Jr.
Harold R. Frank
Jerry E. Goldress
20
<PAGE>
PERFORMANCE GRAPH
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURN*
AMONG APPLIED MAGNETICS CORPORATION,
THE S&P 500 INDEX
AND THE HAMBRECHT & QUIST
COMPUTER HARDWARE INDEX
Hambrecht &
Applied Quist
Magnetics S&P Computer
Corporation 500 Hardware
9/91 100 100 100
9/92 81 111 88
9/93 116 125 70
9/94 56 130 92
9/95 198 169 146
9/96 230 203 177
* $100 INVESTED ON 9/30/91 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
</TABLE>
STOCKHOLDERS PROPOSALS--1998 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
stockholders' meeting if they comply with the requirements of the proxy rules.
Any proposals intended to be presented at the 1998 Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before September 4, 1997 in order to be considered for inclusion in the
Company's proxy statement and form of proxy relating to such meeting.
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. However, if any other matters are properly presented for action, the
persons named in the accompanying proxy intend to vote on such matters in their
discretion.
Craig D. Crisman
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
January 6, 1997
21
<PAGE>
APPENDIX A
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of ,
, by and between APPLIED MAGNETICS CORPORATION, a Delaware corporation (the
"Company"), and ("Indemnitee"), with reference to the following
facts:
A. Indemnitee is currently serving as a key executive of the Company.
B. The Company and Indemnitee recognize the substantial increase in
corporate litigation in general, subjecting key executives to expensive
litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available to be
adequate under the present circumstances to protect him or her against the
risks associated with his or her service to the Company and the Company
recognizes that Indemnitee and other key executives of the Company may not
be willing to continue to serve as key executives without additional
protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, including Indemnitee, to serve as key executives of
the Company and thus desires to indemnify its key executives to provide them
with the maximum protection permitted by law.
THEREFORE, IN CONSIDERATION OF the foregoing premises, the Company and
Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
1.1 THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the Company to
procure a judgment in its favor) by reason of the fact that Indemnitee is or
was a key executive of the Company, or any subsidiary of the Company, and
such proceeding relates to any action or inaction on the part of Indemnitee
while a key executive or by reason of the fact that Indemnitee is or was
serving at the request of the Company as a key executive, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including, subject to Section 13 hereof,
attorneys' fees and any expenses of establishing a right to indemnification
pursuant to this Agreement or under Delaware law), judgments, fines,
settlements (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) and other amounts actually and
reasonably incurred by Indemnitee in connection with such proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and,
in the case of a criminal proceeding, if Indemnitee had no reasonable cause
to believe Indemnitee's conduct was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, or with respect to any criminal proceedings, would not create a
presumption that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
1.2 PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the
right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a key executive
of the Company, or any subsidiary of the Company, and such action relates to
any action or inaction on the part of Indemnitee while a key executive, or
by reason of the fact that Indemnitee is or
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<PAGE>
was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including, subject to Section 13 hereof,
attorneys' fees and any expenses of establishing a right to indemnification
pursuant to this Agreement or under Delaware law) and amounts paid in
settlement, in each case to the extent actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of the proceeding if
Indemnitee acted in good faith and in a manner Indemnitee believed to be in
or not opposed to the best interests of the Company, except that no
indemnification shall be made with respect to any claim, issue or matter to
which Indemnitee shall have been adjudged to have been liable to the Company
in the performance of Indemnitee's duty to the Company, unless and only to
the extent that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for expenses
and then only to the extent that the court shall determine is proper.
1.3 SUCCESSFUL DEFENSE ON MERITS. To the extent that Indemnitee has
been successful on the merits in defense of any proceeding referred to in
Section 1.1 or 1.2 above, or in defense of any claim, issue or matter
therein, the Company shall indemnify Indemnitee against expenses (including
attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
1.4 CERTAIN TERMS DEFINED. For purposes of this Agreement, references
to "other enterprises" shall include employee benefit plans, references to
"fines" shall include any excise taxes assessed on Indemnitee with respect
to an employee benefit plan and references to "proceeding" shall include any
threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative. For purposes of this Agreement,
references to the "Company" shall include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that an Indemnitee who is or was a director, officer,
employee or other agent of such a constituent corporation, or who, being or
having been such a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as an Indemnitee would if
he or she had served the resulting or surviving corporation in the same
capacity.
2. AGREEMENT TO SERVE. Indemnitee agrees to serve or continue to serve as
a key executive of the Company for so long as he or she is duly elected or
appointed or until such time as he or she voluntarily resigns. Indemnitee agrees
to tender written notice to the Company at least 30 days prior to voluntarily
resigning. The terms of any existing employment agreement between Indemnitee and
the Company shall continue in effect but shall be modified or supplemented by
the terms of this Agreement. Nothing contained in this Agreement is intended to
create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
3.1 ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense,
settlement (excluding amounts actually paid in settlement of any action,
suit or proceeding) or appeal of any civil or criminal action, suit or
proceeding referenced in Section 1.1 or 1.2 hereof. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that,
it shall be determined ultimately that Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the
Company.
3.2 NOTICE OF CLAIM. Indemnitee shall, as a condition precedent to his
or her right to be indemnified under this Agreement, give the Company notice
in writing as soon as practicable of any claim made against Indemnitee for
which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Secretary of the Company at the
address shown
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<PAGE>
on the signature page of this Agreement (or such other address as the
Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
3.3 ENFORCEMENT RIGHTS. Any indemnification provided for in Section 1
shall be made no later than sixty (60) days after receipt of the written
request of Indemnitee. If a claim or request under this Agreement, under any
statute, or under any provision of the Company's Bylaws providing for
indemnification, is not paid by the Company, or on its behalf, within sixty
(60) days after written request for payment thereof has been received by the
Company, Indemnitee may, but need not, at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim or request,
and subject to Section 13, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall
be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in connection with any action, suit or
proceeding in advance of its final disposition) that Indemnitee has not met
the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed but the burden of
proving such defense shall be on the Company and Indemnitee shall be
entitled to receive interim payments of expenses pursuant to Section 3.1
unless and until such defense may be finally adjudicated by court order or
judgment for which no further right of appeal exists. The parties hereto
intend that, if the Company contests Indemnitee's right to indemnification,
the question of Indemnitee's right to indemnification shall be a decision
for the court and no presumption regarding whether the applicable standard
has been met will arise based on any determination or lack of determination
of such by the Company (including its Board of Directors or any committee
thereof, independent legal counsel or its stockholders).
3.4 ASSUMPTION OF DEFENSE. In the event the Company shall be obligated
to pay the expenses of any proceeding against Indemnitee, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding with
counsel approved by Indemnitee, which approval shall not be unreasonably
withheld, upon the delivery to Indemnitee of written notice of its election
so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same
proceeding, unless (i) the employment of counsel by Indemnitee is authorized
by the Company, (ii) Indemnitee shall have reasonably concluded that there
may be a conflict of interest of such counsel retained by the Company
between the Company and Indemnitee in the conduct of such defense, or (iii)
the Company ceases or terminates the employment of such counsel with respect
to the defense of such proceeding, in any of which events then the fees and
expenses of Indemnitee's counsel shall be at the expense of the Company. At
all times Indemnitee shall have the right to employ other counsel in any
such proceeding at Indemnitee's expense.
3.5 NOTICE TO INSURERS. If, at the time of the receipt of a notice of
a claim pursuant to Section 3.2 hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.
3.6 SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall do all things that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to enforce such
rights.
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<PAGE>
4. EXCEPTIONS. Notwithstanding any other provision herein to the contrary,
the Company shall not be obligated pursuant to the terms of this Agreement:
4.1 CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or as otherwise required under
the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if
the Board of Directors has approved the initiation or bringing of such suit;
or
4.2 LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that such proceeding was not made in good faith or
was frivolous; or
4.3 INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) that have been paid directly to Indemnitee by an insurance
carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
4.4 CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee
of securities in violation of Section 16(b) of the Securities Exchange Act
of 1934, as amended, or any similar successor statute.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by
Indemnitee in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
6.1 SCOPE. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by
law, including those circumstances in which indemnification would otherwise be
discretionary and notwithstanding that such indemnification is not specifically
authorized by this Agreement. In the event of any change in any applicable law,
statute or rule which narrows the right of a Delaware corporation to indemnify a
key executive, such changes, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement shall have no effect on this
Agreement or the parties' rights and obligations hereunder.
6.2 NON-EXCLUSIVITY. Nothing herein shall be deemed to diminish or
otherwise restrict any rights to which Indemnitee may be entitled under the
Company's Bylaws, any agreement, any vote of stockholders or disinterested
directors, or under the laws of the State of Delaware.
7. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its key executives under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
8. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors
A-4
<PAGE>
and possibly certain other key executives of the Company with coverage for
losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. Notwithstanding the foregoing, the
Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a subsidiary or parent of the
Company.
9. SEVERABILITY. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. If this Agreement or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the fullest extent permitted by any
applicable portion of this Agreement that shall not have been invalidated and
the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
10. EFFECTIVE DATES. This Agreement shall be effective as of the date set
forth on the first page and may apply to acts or omissions of Indemnitee which
occurred prior to such date if Indemnitee was a key executive of the Company, or
any predecessor corporation or constituent corporation in a merger involving the
Company, or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, at the time such act or omission occurred.
11. COVERAGE. The provisions of this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though Indemnitee may have ceased to serve in such capacity at the
time of any action, suit or other covered proceeding. This Agreement shall be
binding upon the Company and its successors and assigns and shall inure to the
benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and
assigns.
12. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement or
as subsequently modified by written notice.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that the action was not instituted in good faith or was frivolous. In the event
of an action instituted by or in the name of the Company under this Agreement,
or to enforce or interpret any of the terms of this Agreement, Indemnitee shall
be entitled to be paid all court costs and expenses, including attorneys' fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that Indemnitee's defenses to such
action were not made in good faith or were frivolous.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action
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<PAGE>
or proceeding which arises out of or relates to this Agreement and agree that
any action instituted under this Agreement shall be brought only in the state
courts in the State of Delaware.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
<TABLE>
<S> <C>
APPLIED MAGNETICS CORPORATION Address:
75 Robin Hill Road
Goleta, California 93117
By:
Title:
INDEMNITEE Address:
(Signature)
(Printed or typed name)
</TABLE>
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<PAGE>
APPLIED MAGNETICS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF THE BOARD OF DIRECTORS
The undersigned stockholder of Applied Magnetics Corporation, a Delaware
corporation (the "Company"), hereby appoints Craig D. Crisman and Peter T.
Altavilla, and each of them, with full power of substitution, as proxy for
the undersigned to vote and otherwise represent all the shares registered in the
name of the undersigned at the Annual Meeting of Stockholders of the Company to
be held on Friday, February 7, 1997 at 4:00 p.m., 75 Robin Hill Road, Goleta,
California, 93117, and any adjournment thereof, with the same effect as if the
undersigned were present and voting such shares, on the following matter and in
the following manner as further described in the accompanying Proxy Statement.
Either of such proxies and attorneys-in-fact, or their substitutes, as shall
be present and shall act at said meeting or any adjournment thereof shall have
and may exercise all the powers of said proxies and attorneys-in-fact
thereunder.
The undersigned acknowledge receipt of the Notice of Annual Meeting of
Stockholders, the Proxy Statement and the Company's 1996 Annual Report to
Stockholders.
The shares represented by the proxy will be voted in accordance with the
specification made. If no specification is made, the Shares represented by this
proxy will be voted for each of the nominees and proposals and, in the
discretion of the proxy holders, or any other matters that may properly come
before the meeting or any adjournment thereof.
The proxies are authorized to vote and otherwise represent the shares of the
undersigned on any other matters which may properly come before the meeting of
any adjournment, according to their decision and in their discretion.
PLEASE DATE AND SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE.
(CONTINUED ON REVERSE SIDE)
<PAGE>
Please mark
your votes as /X/
indicated in
this example
FOR the nominees WITHHOLD AUTHORITY
listed (EXCEPT AS TO VOTE FOR ALL
INDICATED TO THE CONTRARY) NOMINEES LISTED:
1. ELECTION OF DIRECTORS. / / / /
NOMINEES: Craig D. Crisman, Herbert M. Dwight, Jr., Harold R. Frank, Jerry E.
Goldress and Dr. R.C. Mercure, Jr.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. Approval of the form of and to authorize FOR AGAINST ABSTAIN
the entry into identification agreements
with the non-employee directors of the / / / / / /
Company.
3. Approval of the amendment of the Company's FOR AGAINST ABSTAIN
1994 Employee Stock Option Plan to increase
the number of shares of Common Stock / / / / / /
reserved for the issuance thereunder from
2,100,000 to 3,250,000 Shares.
4. Approval of the amendment of the Company's FOR AGAINST ABSTAIN
1994 Non-Employee Director Stock Option
Plan to increase the initial option grant / / / / / /
to non-employee directors from 5,000 shares
to 15,000 shares, change the vesting of
options and to ratify and approve a grant
of option under said Plan to purchase
15,000 shares to Directors Dwight and
Mercure and 10,000 shares to Directors
Frank and Goldress.
5. Approval of the appointment of Arthur FOR AGAINST ABSTAIN
Andersen LLP, independent certified
public accountants, as auditors for the / / / / / /
Company for the fiscal year ending
September 27, 1997.
I plan to attend the meeting. / /
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES
FOR DIRECTOR AND FOR EACH OF THE PROPOSALS SET FORTH ABOVE.
PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD
YOUR VOTES
Signature(s) Dated , 1997
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Please date and sign exactly as your name appears on this proxy. Joint owners
should each sign. If the signer is a corporation, please sign full corporate
name and title by duly authorized officer. Executors, trustees, guardians and
the like should give full title as such.
