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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 Section 240.14a-11(c) or Section 240.14a-12
APPLIED MAGNETICS CORP.
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(Name of Registrant as Specified In Its Charter)
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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APPLIED MAGNETICS CORPORATION
[Logo] 75 Robin Hill Road
Goleta, California 93117
January _, 1998
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 6, 1998, 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 15,
1997, 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 27, 1997, 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
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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 6, 1998 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 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 3,250,000 to 5,350,000;
3. To consider and act upon a proposal to amend the Company's 1994 Non-
Employee Directors' Stock Option Plan to increase the number of shares of Common
Stock reserved for issuance thereunder from 150,000 to 300,000;
4. To approve an amendment to the Company's Certificate of Incorporation,
to increase the number of shares of Common Stock authorized for issuance from
40,000,000 to 80,000,000;
5. To approve and ratify the financing transaction described in the
accompanying Proxy Statement;
6. To ratify the appointment of Arthur Andersen LLP, independent
certified public accountants, as auditors for the Company for the fiscal year
ending October 3, 1998; and
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7. 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 15, 1997, 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 _, 1998
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.
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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 6, 1998, 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 _,
1998 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 (i) for the election of the
nominees for director named in this Proxy Statement; (ii) in favor of the
amendment to the 1994 Employee Stock Option Plan (the "1994 Plan") to increase
shares reserved for issuance under the 1994 Plan, by 2,100,000; (iii) in favor
of the amendment to the 1994 Non-Employee Directors' Stock Option Plan (the
"1994 Directors' Plan") to increase shares reserved for issuance under the 1994
Directors' Plan, by 150,000; (iv) in favor of the increase in the number of
shares of Common Stock authorized under the Certificate of Incorporation; (v) to
approve and ratify the financing transaction described herein (the "Financing
Transaction"); and (vi) in favor of the ratification of Arthur Andersen LLP as
the Company's independent auditors for the fiscal year ending October 3, 1998.
The Board is not aware of any matters that are expected to come before the
Annual Meeting other than those referred to in this Proxy Statement. If any
other matter should come before the Annual Meeting, the persons named in the
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accompanying proxy intend to vote such proxies in accordance with their best
judgment.
RECORD DATE AND VOTING
As of December 15, 1997 (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 Chase Mellon Shareholder Services to solicit proxies for a cost of
approximately $5,000 plus out-of-pocket expenses. In addition, the Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or telegram.
Generally, stockholder approval of a matter, other than the election of
directors, requires the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote on the
matter. Directors are elected by a plurality of the votes of the shares present
in person or by proxy and entitled to vote on the 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 the amendment to
the 1994 Plan, approval of the amendment to the 1994 Directors' Plan, approval
and ratification of the Financing Transaction, and ratification of the selection
of the Arthur Andersen LLP as Company independent auditors. Passage of the
proposal to approve an amendment to the Company's Certificate of Incorporation
to provide for an increase in the Company's authorized Common Stock requires the
approval of a majority of the outstanding Common Stock.
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.
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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 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. The New York Stock Exchange determines whether brokers
have discretionary authority to vote on a given proposal.
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 15, 1997 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>
Percent
Shares Beneficially of
Name Owned Class
- ---- ------------------- -----
<S> <C> <C>
NON-EMPLOYEE DIRECTORS:
Herbert M. Dwight, Jr 28,998(1) *
Harold R. Frank 869,161(2) 3.6
Jerry E. Goldress 19,999(3) *
R.C. Mercure, Jr 35,531(1)(2) *
EXECUTIVE OFFICERS:
Craig D. Crisman 344,643(4) *
Peter T. Altavilla 10,708(5) *
All Directors and Named Executive Officers
as a Group (6 persons) 1,187,551(6) 5.5
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</TABLE>
* less than 1%
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(1) Includes, as to each of Messrs. Mercure and Dwight, options, exercisable
within 60 days, to purchase 29,998 shares under the Company's 1994
Directors' Plan
(2) Includes 578,607 shares held by Mr. Frank as Trustee of the Catherine M.
and Harold R. Frank Trusts. Does not include 53,700 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. 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 18,332 shares under the Company's 1994 Directors' Plan.
(3) Includes options, exercisable within 60 days, to purchase 19,999 shares
under the Company's 1994 Directors' Plan. See "Certain Relationships and
Related Transactions".
(4) Includes currently exercisable options to purchase 119,643 shares to Mr.
Crisman, pursuant to the arrangement between Grisanti, Galef & Goldress,
Inc. ("GG&G") and the Company. See "Certain Relationships and Related
Transactions". Includes options, exercisable within 60 days, to purchase
225,000 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 451,720 shares exercisable within 60 days.
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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 1997 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 56 1994 Chairman of the Board and
Chief Executive Officer of
the Company
Harold R. Frank 73 1957 Chairman Emeritus of the
Company and Director
Herbert M. Dwight, Jr. 67 1989 Director
Jerry E. Goldress 67 1995 Director
R.C. Mercure, Jr. 66 1982 Director
</TABLE>
Mr. Crisman became an employee of the Company on August 1, 1995. Prior to
that time, commencing in 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
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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.
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. Mr. Goldress is also a director of K2, Inc., a manufacturer of
snow skis and fishing tackle and of Artisoft, Inc., a computer software company.
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 director of the Company since
1982. He is also a director of Ball Corporation, a manufacturer of metal and
plastic containers.
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.
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SPECIAL COMMITTEES AND ATTENDANCE AT MEETINGS
The Board of Directors has an Audit Committee whose members in fiscal 1997
were Messrs. Frank and Goldress and Dr. Mercure. The Board of Directors also
has a Compensation Committee whose members in fiscal 1997 were Messrs. Dwight,
Frank and 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 1997, 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 1997, 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 1997, the Board met nine times. Each director attended
more than 75% of the Board meetings and meetings of any committees on which he
served during the year.
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PROPOSAL NO. 2
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 and its subsidiaries. At the 1996 annual meeting of stockholders,
an amendment to increase the number of shares reserved for issuance, to
2,100,000, was approved. At the 1997 annual meeting, the stockholders approved
an amendment to increase the number of shares reserved for issuance to
3,250,000. 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 2,100,000 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.
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As of the date of this proxy statement, options have been granted
under the 1994 Plan to purchase 1,670,014 shares of Common Stock, 612,701
options have been exercised and 967,285 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 date 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 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
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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
Provided the amendment to the 1994 Plan is approved by the stockholders,
the aggregate number of shares of Common Stock reserved for future issuance upon
exercise of options granted under the 1994 Plan shall not exceed 4,737,299
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 Non-qualified 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 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, 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
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the foregoing. Options granted under the 1994 Plan will expire not later than
ten 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 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, 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 (as
such term is defined in the 1994 Plan), determined that all or a portion of the
outstanding options shall become fully and immediately exercisable, if, within
one year following such Change in Control, the Optionee's employment is
terminated (i) involuntarily for any reason or (ii) voluntarily after a material
lessening of his or her duties or a material reduction in
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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.
FEDERAL INCOME TAX CONSEQUENCES
An Optionee receiving a Non-qualified 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 Non-qualified Stock Option, any future gain or loss to the employee will be
either short-term or long-term capital gain or loss, depending on how long the
shares are held.
Incentive Stock Options which are granted under the 1994 Plan are intended
to qualify as incentive stock options within the meaning of Section 422 of the
Code. The following is a summary of the principal federal income tax aspects of
Incentive Stock Options.
The holder of an Incentive Stock Option will not recognize income upon the
grant or exercise of such option. However, the difference between the exercise
price of an Incentive Stock Option and the fair market value of the shares
purchased on the date of exercise is an item of tax preference for purposes of
computing the Optionee's alternative minimum tax, if any, under the Code.
Income will be recognized by the Optionee upon the sale or other disposition of
the shares acquired under such option, in
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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.
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 amendment to the 1994 Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE 1994 PLAN.
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PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO
1994 NON-EMPLOYEE DIRECTORS' PLAN
GENERAL
Under the 1994 Non-Employee Directors' Plan ("the 1994 Directors' Plan"),
150,000 shares of the Company's $.10 par value Common Stock were initially
reserved for issuance upon exercise of options. The proposed amendment to the
1994 Directors' Plan, approved by the Board of Directors, would increase the
number of shares reserved for issuance under the 1994 Directors' Plan by 150,000
and is subject to approval by the stockholders of the Company.
The 1994 Directors' Plan permits automatic grants of stock options to
members of the Board of Directors who are not employees of the Company or its
subsidiaries ("Non-employee Directors"). Messrs. Dwight, Goldress and Frank and
Dr. Mercure are Non-employee Directors. Under the 1994 Directors' Plan, each
Non-employee Director is (i) granted an option to purchase 20,000 shares of
Common Stock on the first business day of the month following 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 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) is granted an option to purchase 5,000
shares of Common Stock on March 1 of each year, following the date of such
election or appointment so long as such person continues to serve as director.
See "Executive Officer Compensation--Renumeration of 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.
-17-
<PAGE>
As of the date of this proxy statement, options have been granted under the
1994 Directors' Plan to purchase 140,000 shares of Common Stock, no options have
been exercised and 10,000 shares are currently reserved for future grants.
The following summary of the 1994 Directors' Plan is qualified in its
entirety by the full text of the 1994 Directors' Plan.
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 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.
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 amended 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.
-18-
<PAGE>
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 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 purchased 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.
-19-
<PAGE>
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 amendment to the 1994 Directors' Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE 1994 DIRECTORS' PLAN.
-20-
<PAGE>
PROPOSAL NO. 4
APPROVAL TO INCREASE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 40,000,000 TO 80,000,000
The Board of Directors has unanimously adopted a resolution, subject to
stockholder approval, amending the Company's Certificate of Incorporation to
increase the number of shares of authorized Common Stock from 40,000,000 to
80,000,000. The Board submits that resolution, which follows, to the
stockholders:
"Resolved, that the first paragraph of Article FOURTH of the
Certificate of Incorporation be amended to read as follows:
The total number of shares of stock which the corporation shall have
authority to issue is eighty-five million (85,000,000), consisting of
eighty million (80,000,000) shares of Common Stock of the par value of ten
cents ($.10) per share and five million (5,000,000) shares of Preferred
Stock of the par value of ten cents ($.10) per share."
If the proposed amendment is adopted by the stockholders, the Company plans
to file a Certificate of Amendment to the Certificate of Incorporation to be
effective as soon as practicable following the Annual Meeting of Stockholders.
On December 15, 1997, of the 40,000,000 authorized shares of Common Stock,
a total of ____________ shares was outstanding; 6,182,796 shares were reserved
for issuance on conversion of the Company's 7% Convertible Subordinated
Debentures Due 2006; 967,285 shares were reserved for issuance under the 1994
Plan; 10,000 shares were reserved under the 1994 Directors Plan; and no shares
were reserved for issuance under the amended and restated 1989 Long Term
Incentive Plan (the "1989 Plan").
While the Company has no present plans, agreements, or commitments for the
issuance of additional shares of Common Stock, the Board believes that the
availability of additional shares will afford the Company greater flexibility in
considering possible future actions, such as stock splits or stock dividends.
The additional shares will also be available for future acquisitions of property
and of securities of other companies and for other corporate purposes. The
additional shares will be available for issuance from time to time without
future action by the stockholders and without first offering such shares to the
stockholders. Stockholders do not have preemptive rights with respect to the
Common Stock. The issuance of Common Stock, or securities convertible into
Common Stock on other than a pro-rata basis, would result in the dilution of a
present stockholder's interest in the Company.
-21-
<PAGE>
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote thereon is required for the adoption of the
proposed amendment.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
-22-
<PAGE>
PROPOSAL NO. 5
APPROVAL AND RATIFICATION OF THE FINANCING TRANSACTION
BACKGROUND
On March 22, 1966, the Company completed the sale of $115,000,000 of 7%
Convertible (the "Convertible Debentures"). The Convertible Debentures are
convertible into an aggregate of 6,182,796 shares of Common Stock.
Of the approximate $111.2 million of net proceeds to the Company from the
sale of the Convertible Debentures, approximately $10 million was used to repay
certain bank indebtedness, and the balance has been added to the Company's
working capital for general corporate purposes, including capital expenditures.
The Convertible Debentures were sold through NatWest Securities Limited,
Salomon Brothers and Montgomery Securities (collectively, the 'Initial
Purchasers') within the United States to 'qualified institutional buyers' (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
'Securities Act')) and to a limited number of institutional 'accredited
investors' (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act), and outside the United States pursuant to Regulation S under the
Securities Act, and may not be reoffered or resold in the United States absent
registration or an applicable exemption from the registration requirements.
A shelf registration statement filed by the Company under the Securities Act for
resale of the Restricted Debentures (as defined) and the shares of Common Stock
issuable upon conversion by the holders thereof become effective on September
20, 1996.
SUMMARY OF TERMS OF CONVERTIBLE DEBENTURES
The following is a cursory summary of the terms of the Convertible
Debentures. A more expansive description of such terms is set forth in
'Description of the Debentures' attached as Annex A to this proxy statement.
On March 22, 1996, the Company completed its offering of 7% Convertible
Subordinated Debentures due March 15, 2006 in the aggregate principal amount of
$115,000,000 (the "Debentures"). The Debentures are, subject to certain
limitations, convertible into shares of Common Stock, $.10 par value (the
"Common Stock") of the Company prior to redemption or maturity, at a conversion
price of $18.60 per share, subject to adjustment under certain conditions.
Interest on the Debentures is payable semi-annually in arrears on March 15 and
September 15, commencing on September 15, 1996.
-23-
<PAGE>
The Debentures are general unsecured obligations of the Company, and are
subordinated in right of payment to all existing and future senior indebtedness
of the Company and are effectively subordinated to all existing and future
liability of the Company's subsidiaries. As of September 27, 1997, the
Company's senior indebtedness and the indebtedness of its subsidiaries,
aggregated approximately $51.9 million. Neither the Indenture nor the
Debentures will limit the amount of senior indebtedness or other indebtedness
the Company or its subsidiaries may incur.
The Debentures will mature on March 15, 2006 and are redeemable, in whole
or in part, at the option of the Company on or after April 1, 1999 and otherwise
in the event of certain changes involving taxation, at the redemption prices set
forth below, plus accrued and unpaid interest to the date of redemption:
After April 1, Redemption Price
-------------- ----------------
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
In the event of a Change of Control, each holder of Debentures will have
the right to cause the Company to repurchase the Debentures in whole, but not in
part, at a price equal to 100% of the principal amount thereof plus accrued and
unpaid interest to the repurchase date. In the event of a Change of Control (as
defined), which occurs prior to April 1, 1999, the Company shall have the option
to redeem the Debentures in whole, but not in part, at the redemption price set
forth below, in each case, together with accrued and unpaid interest to the date
fixed for redemption:
Redemption Date Redemption Price
--------------- ----------------
Closing date to October 1, 1996 124.00%
October 2, 1996 to April 1, 1997 120.50%
April 2, 1997 to October 1, 1997 117.00%
October 2, 1997 to April 1, 1998 113.50%
April 2, 1998 to October 1, 1998 110.00%
October 2, 1998 to April 1, 1999 106.50%
Except to the extent necessary to avoid certain reporting requirements with
regard to Foreign Holders (as defined), the Company is not required to make any
mandatory redemption or annual sinking fund payments.
The net proceeds of the offering, $111.2 million, have been used to retire
a $10 million line of credit and for working capital and other general corporate
purposes, including capital expenditures.
-24-
<PAGE>
The Company may not consolidate with, merge into or transfer all or
substantially all of its assets to another person unless (i) in the case of a
merger or consolidation, either the Company is the surviving entity or the
surviving entity is a corporation organized under the laws of the United States,
any state thereof, or the District of Columbia and expressly assumes all the
obligations of the Company under the Debentures and the Indenture, and (ii) no
default or event of default shall have occurred and be continuing or shall occur
after giving pro forma effect to such transaction.
--- -----
In accordance with the terms of a registration rights agreement executed in
connection with the offering of the Debentures, the Company filed a shelf
registration statement covering the restricted Debentures and the shares of
Common Stock issuable upon conversion of the restricted Debentures with the
Securities and Exchange Commission. The Registration Statement on Form S-3 (No.
333-09225) became effective on September 20, 1996.
The Debentures are listed on the Luxembourg Stock Exchange and the Rule
144A Debentures are designated for trading on the Private Offerings, Resales and
Trading through Automatic Linkages ("PORTAL") System of the National Association
of Securities Dealers, Inc.
PURPOSE OF SOLICITATION
The Company has undertaken to the New York Stock Exchange, Inc. (the
"NYSE") to solicit proxies from all stockholders of the Company to approve and
ratify the Financing Transaction in order to comply with a NYSE rule which
requires that stockholders of a NYSE listed corporation approve all
transactions, other than public offerings for cash, which result (or could
result) in the issuance of in excess of 20% of the shares of its common stock
outstanding. An additional 6,182,796 shares of Common Stock (approximately
26.9% of the Common Stock outstanding on the date the Financing Transaction was
consummated) are issuable upon conversion of the Convertible Debentures, thereby
requiring approval of the Financing Transaction by the Company's stockholders
under the NYSE rule.
In the event the financing transaction is not approved and ratified, the
Convertible Debentures will remain outstanding, but the Common Stock will be
subject to delisting by the NYSE. In such event, the Company would consider
available alternatives, including seeking to list the Common Stock on The Nasdaq
National Market. There can be no assurance that such event would not materially
adversely affect the market for or liquidity of the Common Stock.
-25-
<PAGE>
VOTE REQUIRED
Approval and ratification of the financing transaction requires the
affirmative vote of a majority of the votes cast, provided that the total votes
cast on such proposal represents more than 50% of the shares of Common Stock
entitled to vote thereon at the annual meeting. Unless marked to the contrary,
proxies received will be voted for approval and ratification of the Financing
Transaction.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
AND RATIFICATION OF THE FINANCING TRANSACTION.
-26-
<PAGE>
PROPOSAL NO. 6
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 October 3, 1998, 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-one 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 will be required to approve the ratification of Arthur Andersen LLP as
the Company's independent accountants for the fiscal year ending October 3,
1998.
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 OCTOBER 3, 1998.
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 and
written representations from reporting persons, the Company has determined that
in July, 1997 Mr. Frank made a sale of 25,000 shares that was reported on a 1997
Form 5. In
-27-
<PAGE>
August 1997, Mr. Altavilla received a restricted stock grant of 1,800 shares of
the Company's Common Stock under the 1989 Plan that was reported on a 1997 Form
5. To the Company's knowledge, all other Section 16 reporting requirements
applicable to its directors and other executive officers were complied with for
fiscal year 1997.
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
$100,000, information concerning compensation paid for services to the Company
in all capacities during the fiscal year ended September 27, 1997, as well as
the total compensation paid to each such individual in each of the Company's
previous two fiscal years (if such person was the Chief Executive Officer or an
executive officer, as the case may be, during any part of such fiscal year).
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ -------------------------- -------
Restricted
Other Stock Securities LTIP
Name and Principal Salary Bonus Annual Awards Underlying Payouts
Position Year ($) ($) Comp.($)(2) ($)(3) Option(#)(4) ($)(3)
- ----------------------------- ---- ------ ---- ---------- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Craig C. Crisman 1997 422,500 431,809 0 0 200,000 0
Chief Executive Officer 1996 375,000 189,287 0 0 100,000 0
1995(1) 62,500 0 0 0 419,643 0
Peter T. Altavilla 1997 129,616 66,959 0 56,925 15,000 0
Controller and Secretary 1996 115,866 40,431 0 0 10,000 0
1995 93,691 31,357 0 9,500 5,000 0
<CAPTION>
All Other
Compensation
------------
<S> <C>
Craig C. Crisman 0
Chief Executive Officer 0
0
Peter T. Altavilla 0
Controller and Secretary 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 salary and bonus for each executive.
-28-
<PAGE>
(3) The restricted stock awards to Mr. Altavilla were issued under the 1989
Plan and are subject to restrictions under the 1989 Plan that, among other
things, prohibit the sale or transfer of the Common Stock. Accordingly,
awards under the 1989 Plan are considered Restricted Stock. These
restrictions 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 and 1997 were issued
with restrictions to be lifted if Mr. Altavilla met certain performance
objectives. An aggregate of 4,000 shares of Common Stock was awarded in
1995, valued at $9,500. 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. An aggregate of 1,800 shares of Common Stock was awarded in 1997,
valued at $56,925 and is subject to restrictions under the terms of the
1989 Plan.
(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.
On August 1, 1995, The Company entered into an employment agreement ("The
Employment Agreement"), with Mr. Crisman employing him as Chief Executive
Officer and Chairman of the Board of the Company for a term ending on July 31,
2000. Under the terms of the Employment Agreement, as amended, Mr. Crisman
receives a current base salary of $450,000 per year. Upon execution of the
Employment Agreement Mr. Crisman received a grant of nonqualified options to
purchase 300,000 shares of the Company's Common Stock at the then fair market
price of the Company's Common Stock.
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth the stock options granted to the named
executive officers under the Company's stock option plans, and the options
exercised by such named executive officers, during the fiscal year ended
September 27, 1997.
-29-
<PAGE>
The Option/SAR Grant Table sets forth hypothetical gains for the options at
the end of their respective ten-year terms, as calculated in accordance with the
rules of the SEC. Each gain is based on an arbitrarily assumed annualized rate
of compound appreciation of the market price of 5% and 10%, less the exercise
price, from the date the option was granted to the end of the option term.
Actual gains, if any, on option exercise are dependent on the future
appreciation in value of the Company's Common Stock which appreciation, if any,
would benefit the Company's stockholders as well as persons to whom options have
been granted.
-30-
<PAGE>
OPTIONS GRANTS IN FISCAL 1997
Individual Grants
-------------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable
Value
at Assumed Annual
Rates
Options of Stock Price
Number of Granted to Appreciation
Securities Employees Exercise Price for Option Term($)(3)
Underlying In Fiscal Per Share ---------------------
Name Options Granted(#) 1997(1) ($/Sh)(2) Expiration Date 5% 10%
- ---- ------------------ ------- -------------- --------------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Craig Crisman 100,000 10.0% 31.63 May 9, 2007 1,988,879 5,040,211
Craig Crisman 100,000 10.0% 35.56 August 8, 2007 2,236,507 5,667,747
Peter T. Altavilla 15,000 1.5% 31.63 May 9, 2007 322,765 794,938
</TABLE>
(1) The Company did not grant SARs in fiscal 1997.
(2) Options were granted in fiscal 1997 at fair market value and are
exercisable in cumulative annual installments of 25% of the shares granted
beginning one year after date of grant, and in all cases expire ten years
from the grant date.
(3) Potential realizable value is based on an assumption that the price, of the
Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten-year option term.
Potential realizable value is shown net of exercise price. These numbers
are calculated based on the regulations promulgated by the SEC and do not
reflect the Company's estimate of future stock price growth.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Length of
Market Price Original
of Stock at Exercise Price Option Term
Number of Time of At Time of Remaining at
Options/SARs Repricing or Repricing or Date of
Repriced or Amendment Amendment New Exercise Repricing or
Name Date Amended # ($) ($) Price ($) Amendment
---- ---- --------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Craig Crisman May 9, 1997 100,000 31.625 40.00 31.625 117 months(1)
Peter T. Altavilla May 9, 1997 15,000 31.625 40.00 31.625 117 months(1)
</TABLE>
- ------------------------
(1) Options granted to Messrs. Crisman and Altavilla on January 20, 1997 were
cancelled and new options on the same terms, except for the change in
exercise price from $40.00 to $31.625, as the cancelled options were
granted on May 9, 1977.
-31-
<PAGE>
AGGREGATED OPTION EXERCISES FISCAL 1997 AND FISCAL 1997 OPTION VALUE
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised In-the-Money Options at
Options at September 27, 1997 September 27, 1997(1)
----------------------------- -----------------------
Shares
Acquired on Value
Name Exercise(#) Realized($) Exercisable(#) Unexercisable(#) Exercisable($) Unexecisable($)
- ---- ------------ ----------- ----------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Craig C. Crisman 0 0 344,643 375,000 8,949,223 4,039,063
Peter T. Altavilla 0 0 8,750 22,500 227,734 163,594
</TABLE>
(1) Calculated on the basis of the closing price of the Company's Common Stock
on the New York Stock Exchange, $33.4375 per share, at September 26, 1997.
REMUNERATION OF DIRECTORS
Messrs. Dwight, Frank, Goldress and Dr. Mercure were each paid an annual
retainer of $15,000 and received $1,250 for each Board meeting attended during
the fiscal year ended September 27, 1997, 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 $1,250 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.
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 Dr. Mercure on March 3, 1997, at an exercise price
of $43.125 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.
-32-
<PAGE>
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.
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
nonqualified 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, Magnetic Data Technologies, Inc. ("MDT"), a subsidiary of
the Company, (formerly "Delta Bravo, Inc.") 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 MDT. In accordance with that engagement,
MDT pays to GG&G a monthly fee of $35,000. 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 MDT and its
subsidiaries and from their sale to a third party. In the event MDT is not sold,
the success fee will be based on the earnings of MDT and its subsidiaries. MDT
paid a total of $245,000 and $420,000 in consulting fees to GG&G in fiscal 1996
and fiscal 1997, respectively.
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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.
SEVERANCE AGREEMENTS
The Company has entered into severance agreements with certain
executive officers and key employees of the Company, including both of the named
executive officers shown in the Summary Compensation Table.
These agreements are intended to provide for continuity of management in
the event of a change in control of the Company. The agreements provide that
covered executive officers and key employees could be entitled to certain
severance benefits following a change in control of the Company. If, following
a change in control, the executive officer or key employee is terminated by the
Company for any reason, other than for disability or for cause, or if such
executive officer or key employee terminates his or her employment for good
reason (as this term is defined in the agreements), then the executive officer
or key employee is entitled to a severance payment that will be the executive's
or key employee's base amount for a period of twelve months, as defined in the
agreements. The severance payment generally is made in the form of a lump sum.
"Base amount" means the sum of (a) the executive officer's or key
employee's then monthly base salary; (b) the executive's or key employee's then
monthly car allowance, if any, and (c) one-twelfth of an amount equal to any
bonus the executive officer or key employee received or was entitled to receive
for the fiscal year immediately preceding a change in control.
If a change in control occurs, the agreements are effective for a
period of three years thereafter. Under the severance agreements, a change in
control would include any of the following events: (1) any "person", as defined
in the Securities Exchange Act of 1934, as amended, acquires 20 percent or more
of the Company's voting securities; (ii) a majority of the Company's directors
are replaced during a two-year period; or (iii) shareholders approve certain
mergers, or a liquidation, or sale of the Company's assets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1997, the Compensation Committee consisted of Messrs.
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
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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 1996 annual
meeting of stockholders. See "Certain Relationships and Related Transactions."
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 1997 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.
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<PAGE>
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 1997 of up to 17.4%.
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 1997, 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 1997.
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
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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.
Regranting of Stock Options. During fiscal year 1997, in response to a
substantial increase in competitive efforts to recruit employees critical to the
continued success of the Company, the Compensation Committee, with the consent
of the affected optionees, approved the cancellation of certain outstanding
stock options and the regrant of options at the then current market price of the
Company's Common Stock. Intense competition exists for skilled engineers and
other key employees in the magnetic recording head industry and the use of stock
options for retention and motivation of key employees is pervasive in high
technology industries. The Compensation Committee believes that stock options
are a critical component of the compensation offered by the Company to promote
the long term retention of key employees, motivate high levels of performance
and recognize employee contributions to the success of the Company.
The market price of the Company's Common Stock declined substantially from
January 20, 1997, the date the options in question were granted, to May 9, 1997,
the date the Committee approved the cancellation and regrant of options. In
light of the substantial decline in the market price, the Compensation Committee
believed that the outstanding stock options at an exercise price substantially
in excess of the actual market price were no longer an effective tool to
encourage employee retention or to motive high levels of performance. All
employees holding options granted on January 20, 1997, were eligible to
participate in the option regrant. Eligible optionees were permitted to
exchange options that were granted under certain of the Company's stock option
plans that had been granted to the optionees on January 20, 1997, with an
exercise price of $40.00 per share for options granted at a price of $31.625 per
share on May 9, 1997. The options were regranted on the basis of one for one,
at an exercise price equal to the closing price of the Company's Common Stock,
as reflected on the New York Stock Exchange, on May 9, 1997. The new options
provided for the same vesting schedule and term as the options granted on
January 20, 1997, commencing on the date of grant. Regranted options for
Messrs. Crisman and Altavilla provided for the purchase of 100,000 shares and
15,000 shares, respectively. Regranted options to all employees represented
options to purchase a total of 738,503 shares.
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 1997, 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 1997 performance, the Company
increased Mr. Crisman's base salary by 9.8%.
Based upon Mr. Crisman's and the Company's fiscal 1997 performance, the
Committee awarded Mr. Crisman profit sharing distributions totaling of $431,809.
In order to provide a long-term incentive to Mr. Crisman, the Committee
awarded him nonqualified stock options to purchase 200,000 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 highest paid
executive officer receives compensation below the $1,000,000 pay limit. The
Company believes that the compensation payable to the highest paid executive
officer will most likely not be affected by the regulation in fiscal year 1998.
While the Committee will consider deductibility under Section 162(m) with
respect to future compensation arrangements with executive officers,
deductibility will not be the sole factor used in ascertaining
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<PAGE>
appropriate levels or modes of compensation. Since corporate objectives may not
always be consistent with the requirements for full deductibility, it is
conceivable that the Company may enter into compensation arrangements in the
future under which payments are not deductible under Section 162(m).
Members of the Compensation Committee:
Herbert M. Dwight, Jr.
Harold R. Frank
Jerry E. Goldress
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<PAGE>
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG APPLIED MAGNETICS CORPORATION, THE S&P 500 INDEX
AND THE HAMBRECHT & QUIST COMPUTER HARDWARE INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period APPLIED S&P HAMBRECHT & QUIST
(Fiscal Year Covered) MAGNETICS CORP. 500 INDEX COMPUTER HARDWARE
------------------- -------------- --------- -----------------
<S> <C> <C> <C>
Measurement Pt- 9/92 $100 $100 $100
FYE 9/93 $143 $113 $ 79
FYE 9/94 $ 69 $117 $104
FYE 9/95 $245 $152 $166
FYE 9/96 $284 $183 $201
FYE 9/97 $496 $257 $388
</TABLE>
* $100 INVESTED ON 9/30/92 IN STOCK OR INDEX
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 27.
STOCKHOLDERS PROPOSALS - 1999 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 1999 Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before September 2, 1998 in order to be considered for inclusion in the
Company's proxy statement and form of proxy related 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 , 1998
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<PAGE>
ANNEX A
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DESCRIPTION OF THE DEBENTURES
The Debentures were issued pursuant to an Indenture (the "Indenture") dated
as of March 22, 1996, by and between the Company and The Chase Manhattan Bank,
N.A., as trustee (the "Trustee"). The following summary of the Debentures, the
Indenture and the Registration Rights Agreement does not purport to be complete
and is subject to, and is qualified in its entirety by, reference to all of the
provisions of the Indenture, the Debentures and the Registration Rights
Agreement, therein contained. Certain capitalized terms used in the
"Description of the Debentures" are defined below under "Certain Definitions".
Copies of the Indenture and the Registration Rights Agreement can be obtained
from the Managers or the Company upon request. Capitalized terms used herein
without definition have the meaning ascribed to them in the Indenture and the
Registration Rights Agreement, as appropriate. References under this heading to
the "Company" are to Applied Magnetics Corporation, and do not include its
subsidiaries unless expressly stated. Wherever particular provisions of the
Indenture or the Registration Rights Agreement are referred to in this summary,
such provisions are incorporated by reference as a part of the statements made
and such statements are qualified in their entirety by such reference.
GENERAL
The Debentures are unsecured general obligations of the Company, limited in
aggregate principal amount to $115,000,000. The Debentures are subordinated in
right of payment to all existing and future Senior Indebtedness of the Company,
as described under "Subordination" below. At September 27, 1997, Senior
Indebtedness of the Company and indebtedness of its subsidiaries aggregated
$51.9 million. Neither the Indenture nor the Debentures limit the amount of
Senior Indebtedness or other indebtedness that the Company or its subsidiaries
may incur.
The Debentures will mature on March 15, 2006. The Debentures bear interest
at the rate per annum of 7% from the Closing Date or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semiannually in arrears on March 15 and September 15 of each year, commencing on
September 15, 1996. Interest is calculated on the basis of a 360-day year
consisting of twelve 30-day months. The interest paid on September 15, 1996,
was $33.639 per $1,000 principal amount of the Debentures, and on each March 15
and September 15 thereafter will amount to $35.000 per $1,000 principal amount
of the Debentures.
SUBORDINATION
The Debentures are obligations exclusively of the Company and not of its
subsidiaries. The Company's subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Debentures or to make funds available therefor, whether by
dividends, loans or other payments. In addition, the payment of dividends and
the making of loans and advances to the Company by its subsidiaries may be
subject to statutory or contractual restrictions, are contingent upon the
earnings of those subsidiaries and are subject to various business
considerations. Neither the Indenture nor the Debentures restrict the Company's
subsidiaries' ability to agree to such restrictions in the future.
The Debentures are subordinated in right of payment to all existing and
future Senior Indebtedness of the Company and rank pari passu with other
unsecured subordinated indebtedness of the Company.
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The rights of holders of Debentures are structurally subordinated to all
existing and future liabilities (including trade payables and commitments under
leases) of the Company's subsidiaries. Neither the Indenture nor the Debentures
restrict the incurrence of Senior Indebtedness or other indebtedness by the
Company or its subsidiaries. Any right of the Company to receive assets of any
of its subsidiaries upon liquidation or reorganization of the subsidiary (and
the consequent right of the holders of the Debentures to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subject to any security interests in the assets of such subsidiary and
subordinated to any indebtedness of such subsidiary senior to that held by the
Company.
The Indenture provides that no payment may be made by the Company on
account of the principal of, premium, if any, interest on, or Additional Amounts
(as defined herein) with respect to, the Debentures, or to acquire any of the
Debentures (including repurchases of Debentures at the option of the holder
thereof) for cash or property (other than Junior Securities), or on account of
the redemption provisions of the Debentures, (i) upon the maturity of any Senior
Indebtedness of the Company by lapse of time, acceleration (unless waived) or
otherwise, unless and until all principal of, premium, if any, and interest on
such Senior Indebtedness and all other Obligations in respect thereof are first
paid in full (or such payment is duly provided for), or (ii) in the event of
default of any principal of, premium, if any, interest on, or any other
Obligation in respect of, any Senior Indebtedness of the Company when it becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise (a "Payment Default"), unless and until such Payment
Default has been cured or waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Designated Senior Indebtedness or their
representative immediately to , accelerate its maturity and (ii) written notice
of such event of default given to the Company and the Trustee, by the requisite
holders of such Designated Senior Indebtedness or their representative (a
"Payment Notice"), then, unless and until such event of default has been cured
or waived or otherwise has ceased to exist, no payment (by setoff or otherwise)
may be made by or on behalf of the Company on account of the principal of,
premium, if any, interest on, or Additional Amounts with respect to, the
Debentures, or to acquire or repurchase any of the Debentures for cash or
property, or on account of the redemption provisions of the Debentures, in any
such case other than payments made with Junior Securities of the Company.
Notwithstanding the foregoing, unless (i) the Designated Senior indebtedness in
respect of which such event of default exists has been declared due and payable
in its entirety within 179 days after the Payment Notice is delivered as set
forth above (the "Payment Blockage Period"), and (ii) such declaration has not
been rescinded or waived, at the end of the Payment Blockage Period the Company
shall be required to pay all sums not paid to the holders of the Debentures
during the Payment Blockage Period due to the foregoing prohibitions and to
resume all other payments as and when due on the Debentures. Any number of
Payment Notices may be given; provided, however, that (i) not more than one
Payment Notice shall be given within any period of 360 consecutive days, and
(ii) no default that existed upon the commencement of a Payment Blockage Period
(whether or not such event of default is on the same issue of Designated Senior
Indebtedness) shall be made the basis for the commencement of any other Payment
Blockage Period.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee or the holders of Debentures or any paying agent at a
time when such payment or distribution is prohibited by the foregoing
provisions, such payment or distribution shall be held in trust for the benefit
of the holders of Senior Indebtedness of the Company, and shall be paid or
delivered by the Trustee or such holders of Debentures or such paying agent, as
the case may be, to the holders of the Senior Indebtedness of the Company
remaining unpaid or
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<PAGE>
unprovided for or, to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Indebtedness of the Company may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness of the Company held or represented by each, for application to the
payment of all Senior Indebtedness of the Company remaining unpaid, to the
extent necessary to pay or to provide for the payment of all Such Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors or any
marshaling of assets or liabilities, (i) the holders of all Senior Indebtedness
of the Company will first be entitled to receive payment in full (or have such
payment duly provided for) before the holders of Debentures are entitled to
receive any payment on account of the principal of any interest on, or
Additional Amounts with respect to, the Debentures (other than Junior
Securities) and (ii) any, payment or distribution of assets of the Company of
any kind or character whether in cash, property or securities (other than Junior
Securities) to which the holders of Debentures on their behalf would be entitled
(by setoff or otherwise), except for the subordination provisions contained in
the Indenture and the Debentures, will be paid by the liquidating trustee or
agent or other person making such a payment or distribution directly to the
holders of Senior Indebtedness of the Company or their representative to the
extent necessary to make payment in full of all such Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution,
to the holders of such Senior Indebtedness.
No provision contained in the Indenture or the Debentures will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, interest on, and Additional Amounts with
respect to, the Debentures. The subordination provisions of the Indenture and
the Debentures will not prevent the occurrence of any default or Event of
Default or limit the rights of any holder of Debentures, subject to the four
immediately preceding paragraphs, to pursue any other rights or remedies with
respect to the Debentures.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorgan ization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its subsidiaries or a marshaling of assets or liabilities of the Company
and its subsidiaries, holders of the Debentures may receive ratably less than
other creditors.
DELIVERY AND FORM OF REGULATION S DEBENTURES
The Debentures sold to the Managers pursuant to Regulation S (the
"Regulation S Debentures") initially were issued in the form of a temporary
global debenture (the "Regulatory S Global Security") in bearer form without
coupons or conversion rights, which was deposited with The Chase Manhattan Bank,
N.A., London office, as common depository for Morgan Guaranty Trust Company of
New York, Brussels office, as operator of the Euroclear system ("Euroclear") and
Cedel Bank, societe anonyme ("Cedel"), for the accounts of the subscribers of
the Regulation S Debentures on the Closing Date. Upon deposit of the Regulation
S Global Security, Cedel or Euroclear, as the case may be, will credit each
subscriber with a principal amount of Regulation S principal amount thereof for
which it has subscribed and paid. The Regulation S Global Security is
exchangeable, commencing on and after the Exchange Date, for definitive
Debentures either (i) in bearer form in denominations of $1,000 and $10,000,
each with interest coupons attached thereto representing the semi-annual
interest payable thereon ("Bearer Debentures"), or (ii) in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof ("Registered Regulation S Debentures"). An exchange will be made only
after certification that the
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<PAGE>
beneficial owners of such Regulation S Debentures are not United States persons
or other persons who have purchased such Regulation S Debentures for resale to
United States persons. A beneficial owner must exchange its interest in the
Regulation S Global Security for definitive Debentures before interest payments
can be collected or conversion rights exercised.
In compliance with United States federal income tax laws and regulations,
Bearer Debentures may not be offered or sold during the 40-day period beginning
on the Closing Date, or at any time if part of a Manager's unsold allotment, to
a person who is within the United States or its possessions or to a United
States person (as defined in the Code) other than (a) foreign financial
institutions if such institutions agree in writing to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Code and the regulations
thereunder, (b) exempt distributors (as defined in the Treasury Regulations) or
(c) United States offices of international organizations or foreign central
banks. United States federal income tax laws and regulations also require that
Bearer Debentures not be delivered within the United States. For a further
description of restrictions on offers and sales in the United States or to
United States persons, see "Notice to Investors."
Bearer Debentures and interest coupons bear the following legend: Any
United States person who holds this obligation will be subject to limitations
under the United States income tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the United States Internal Revenue Code." The
sections referred to in such legend provide that any United States person
holding a Bearer Debenture or interest coupon, with certain limited exceptions,
will not be entitled to deduct any loss incurred with respect to such Bearer
Debenture or interest coupon and will not be entitled to any capital gain
treatment with respect to any sale, redemption or other disposition of such
Bearer Debenture or interest coupon but will be taxed thereon at ordinary income
rates instead.
DELIVERY AND FORM OF RESTRICTED DEBENTURES
The Managers sold a portion of the Debentures to certain institutions in
the United States in reliance on exemptions from the registration requirements
of the Securities Act. Those of such Debentures ("Rule 144A Debentures") that
were sold to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) ("QIBs") are represented by a single global Debenture (the "Rule
144A Global Security"), which was deposited on the Closing Date with, or on
behalf of, The Depository Trust Company (the "Depository") and registered in the
name of Cede & Co., as nominee of the Depository (such nominee being referred to
herein as the "Rule 144A Global Security Holder"). The Debentures represented
by the Rule 144A Global Security are eligible for trading on PORTAL. Those of
such Debentures ("Accredited Investor Debentures") that are sold to certain
classes of "accredited investors" (as defined in Rule 501 under the Securities
Act) are in fully registered form and have been delivered to the Managers on
behalf of such investors. The Rule 144A Global Security and the Accredited
Investor Debentures were delivered for the accounts of the purchasers thereof on
the Closing Date. The Rule 144A Debentures and the Accredited Investor
Debentures are collectively referred to herein as the "Restricted Debentures."
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") or the
"Depository's Indirect Participants") that clear through or maintain a custodial
relationship with a Participants, either directly or
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<PAGE>
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only through the Depository's Participant
or the Depository's Indirect Participants.
So long as the Rule 144A Global Security Holder is the registered owner of
the Rule 144A Debentures, the Rule 144A Global Security Holder will be
considered the sole holder under the Indenture of the Rule 144A Debentures.
Beneficial owners of Rule 144A Debentures are considered the owners or holders
thereof under the Indenture for any purposes, including with respect to the
giving of any directions, instructions or approvals to the Trustee. Neither the
Company nor the Trustee have any responsibility or liability for any aspect of
the records of the Depository or for maintaining, supervising or reviewing any
records of the Depository relating to the Rule 144A Debentures.
Payments in respect of the principal of, premium, if any, interest on, and
Additional Amounts with respect to, Rule 144A Debentures registered in the name
of the Rule 144A Global Security Holder on the applicable record date are
payable by the Trustee to or at the direction of the Rule 144A Global Security
Holder in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the persons in
whose names the Rule 144A Debentures, including the Rule 144A Global Security,
are registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Rule 144A Debentures. The Company believes, however, that it is currently
the policy of the Depository immediately to credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depository. Payments by the Depository's Participants and the
Depository's Indirect Participants to the beneficial owners of Debentures will
be governed by standing instructions' and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
EXCHANGE AND TRANSFER
At the option of the holder thereof and subject to the terms of the
Debentures and of the Indenture, Bearer Debentures (provided that all related
unmatured coupons are attached) are exchangeable for an equal aggregate
principal amount of Registered Debentures in denominations of $1,000 and
integral multiples thereof without coupons and/or Bearer Debentures of
authorized denominations, and Registered Debentures are exchangeable for an
equal aggregate principal amount of Registered Debentures of different
authorized denominations, in each case without service charge (other than the
cost of delivery) and upon payment of any taxes and other governmental charges.
Registered Debentures are not exchangeable for Bearer Debentures. Registered
Debentures shall be registered as provided in the Indenture. Title to Bearer
Debentures will pass by delivery. The registered holder of a Registered
Debenture will be treated by the Company, the Trustee and their respective
agents for all purposes as the owner of such Registered Debenture.
The transfer of Registered Debentures may be registered, and Registered
Debentures may be presented in exchange for other Registered Debentures of
different authorized denominations, at the office of the Trustee in The City of
New York, without service charge (other than the cost of delivery) and upon
payment of any taxes or other governmental charges. Registered Debentures may
also be presented for purposes of transfer or such exchange, and Bearer
Debentures may be presented in exchange for either Bearer Debentures or
Registered Debentures, at the offices of the designated paying agents in London
or Luxembourg, or such other paying agents outside the United States as may be
specified in notices to the holders of Debentures in accordance with "___
Notices" below.
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<PAGE>
The Company will not be required (a) to exchange Bearer Debentures for
Registered Debentures during the period between the close of business on each
March 1 or September 1 (an "Interest Record Date") and the opening of business
on the next succeeding Interest Payment Date; (b) to exchange Bearer Debentures
for Registered Debentures if, as a result, the Company would incur adverse
consequences under United States federal income tax law at the time of exchange;
or, (c) in the event of a redemption in part (i) to register the transfer of
Registered Debentures or to exchange Bearer Debentures for Registered Debentures
for a period of 15 days immediately preceding the date on which notice is given
identifying the serial numbers of the Debentures called for such redemption,
(ii) to register the transfer or exchange of any such Registered Debenture, or
portion thereof, called for redemption, or (iii) to exchange any Bearer
Debenture called for redemption; provided, however, that a Bearer Debenture
called for redemption may be exchanged for a Registered Debenture that is
simultaneously surrendered, with written instruction for payment on the date
fixed for redemption, unless the redemption date is after an Interest Record
Date and on or before the next Interest Payment Date, in which case such
exchange may only be made prior to the Interest Record Date immediately
preceding the redemption date.
Subject to certain conditions, any person having a beneficial interest in
the Rule 144A Global Security may, upon request to the Trustee, exchange such
beneficial interest for Registered Debentures in the form of certificated
Debentures. Upon any such issuance, the Trustee is required to register such
certificated Debentures in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). All such certificated
Debentures will be subject to the legend requirements described herein under
"Notice to Investors." In addition, if (i) the Company notifies the Trustee in
writing that the Depository is no longer willing or able to act as a depository
and the Company has not appointed a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Registered Debentures in the form of certificated
Debentures under the Indenture, then, upon surrender by the Rule 144A Global
Security Holder of the Rule 144A Global Security, Registered Debentures in
certificated form will be issued to each person that the Rule 144A Global
Security Holder and the Depository identify as being the beneficial owner of the
related Debentures.
Neither the Company nor the Trustee will be liable for any delay by the
Rule 144A Global Security Holder or the Depository in identifying the beneficial
owners of Rule 144A Debentures, and the Company and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the Rule 144A
Global Security Holder or the Depository for all purposes.
The Debentures may not be sold or otherwise transferred except in
accordance with the provisions set forth under "Notice to Investors."
CONVERSION
The Bearer and Registered Regulation S Debentures are convertible, at any
time 40 days after the Closing Date and prior to redemption or maturity, at the
holder's option, into shares of the Company's Common Stock initially at a
conversion price of $18.60 per share (the "Conversion Price") which is
equivalent to approximately 53.763 shares of Common Stock for each $1,000
principal amount of Debentures. The Restricted Debentures are convertible, at
any time one year after the Closing Date and prior to redemption or maturity, at
the holder's option, into shares of the Company's Common Stock at the Conversion
Price, provided that Restricted Debentures may be converted prior to such time,
upon the earlier of (i) the first date on which a registration statement with
respect to such Restricted Debentures is declared effective by the U.S.
Securities and Exchange Commission and (ii) the day after the first date on
which (A) any person (or group of persons) announces that it is (or they are)
commencing a tender offer for all or part of the Company's Common Stock, or (B)
the Company makes a public announcement of
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<PAGE>
a proposed Change of Control. The Conversion Price is subject to adjustment
under certain conditions. The right to convert a Debenture called for redemption
or delivered for repurchase will terminate at the close of business on the
Business Day next preceding the redemption date or repurchase date for such
Debenture.
If after April 1, 1999 and prior to maturity, the closing price of the
Company's Common Stock (determined as the last reported sales price, in either
case on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the closing
sale price quoted on the Nasdaq Stock Market's National Market) exceeds an
amount equal to 130% of the Conversion Price for at least 20 trading days within
30 consecutive trading days, the Company at its option may convert all (but not
less than all) of the Debentures, together with interest accrued and unpaid
thereon, into fully paid and nonassessable shares of Common Stock by giving the
Trustee written notice of its election together with information and
calculations supporting such election (the "Conversation Notice") no later than
five business days after the 20th such day (the "Conversion Date").
Promptly after (and in any event within five business days following) its
receipt and verification of the Conversion Notice, the Trustee shall mail notice
of the Company's election to each holder of a Debenture. Such notice shall,
among things, state (i) that the Trustee has received the Conversion Notice and
that, so long as the Company delivers a sufficient number of shares of Common
Stock (and cash in lieu of fractional shares) to convert all outstanding
Debentures and accrued and unpaid interest thereon at the Conversion Price in
effect on the first business day following the Conversion Date by the 25th
business day following the Conversion Date (the "Surrender Date"), all (but not
less than all) Debentures shall be deemed to have been converted on the
Conversion Date, (ii) the identity of the conversion agent for the conversion
and the office or offices of such conversion agent at which Debentures may be
surrendered for shares of Common Stock (and cash in lieu of fractional shares)
and (iii) that upon surrender to such conversion agent of such holder's
Debenture(s) and a duly completed notice of conversion in the form attached to
such holder's Debenture(s), such holder shall receive its shares of Common Stock
(and cash in lieu of fractional shares) resulting from the Company's election to
convert all outstanding Debentures. See "__ Notices" below.
So long as the Company delivers to the applicable conversion agent by the
Surrender Date a sufficient number of shares of Common Stock (and cash in lieu
of fractional shares) to convert all outstanding Debentures and accrued and
unpaid interest thereon through the Surrender Date at the Conversion Price in
effect on the Conversion Date, all (but not less than all) Debentures shall be
deemed to have been converted on the Conversion Date and interest shall cease to
accrue on the Debentures from and after the Surrender Date.
The right of conversion attaching to any Debenture may be exercised by the
holder thereof by delivering the Debenture at the specified office of a
conversion agent (including such office in Luxembourg, as described under "__
Payments, Paying Agents and Conversion Agents" below), accompanied by a duly
signed and completed notice of conversion, in substantially the form set forth
in the Debentures. The conversion date shall be the date on which the Debenture
and the duly signed and completed notice of conversion shall have been so
delivered.
A holder delivering a Debenture for conversion will not be required to pay
any taxes or duties payable in respect of the issuance or delivery of Common
Stock on conversion but will be required to pay any tax or duty which may be
payable in respect of any transfer involved in the issuance or delivery of the
Common Stock in a name other than that of the holder of the Debenture.
Certificates representing
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shares of Common Stock will not be issued or delivered unless all taxes and
duties, if any, payable by such holder have been paid. Such certificates will be
delivered to the address specified by such holder in its completed notice of
conversion.
Each Bearer Debenture delivered for conversion must be delivered with all
related unmatured coupons. The holder thereof shall not be entitled to any
payment of interest by the Company with respect to such unmatured coupons.
The Company shall not be required to make any payment of interest in
respect of any Registered Debenture that is converted at the option of the
holder thereof on or prior to the Interest Payment Date for the relevant period.
In the case of any Registered Debenture that has been converted at the option of
the holder thereof after any Interest Record Date, but before the next Interest
Payment Date, interest, the stated due date of which is on such Interest Payment
Date, shall be payable on such Interest Payment Date notwithstanding such
conversion, and such interest shall be paid to the holder of such Registered
Debenture who is a holder on such Interest Record Date. Any Registered
Debenture so converted prior to such Interest Payment Date must be accompanied
by payment of an amount equal to the interest payable on such Interest Payment
Date on the principal amount of Registered Debentures being surrendered for
conversion.
The Conversion Price will be subject to adjustment in certain events,
including (a) dividends (and other distributions) payable in Common Stock on any
class of capital stock of the Company, (b) the issuance to all holders of Common
Stock of rights, options or warrants entitling them to subscribe for or purchase
Common Stock (or securities convertible into Common Stock) at less than the then
current market price (as determined in accordance with the Debentures) unless
holders of Debentures are entitled to receive the same upon conversion, (c)
subdivisions, combinations and reclassifications of Common Stock and (d)
distributions to all holders of Common Stock of evidence of indebtedness of the
Company or assets (including securities, but excluding those rights, options,
warrants, dividends and distributions referred to above, dividends and
distributions paid in cash out of the retained earnings of the Company and
regular quarterly dividends consistent with past practice). In addition to the
foregoing adjustments, the Company will be permitted to make such downward
adjustments in the Conversion Price as it considers to be advisable in order
that any event treated for United States federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the holders of the
Common Stock. Adjustments in the Conversion Price of less than $0.25 will not
be required, but any adjustment that would otherwise be required to be made will
be taken into account in the computation of any subsequent adjustment.
Fractional shares of Common Stock are not to be issued or delivered upon
conversion, but, in lieu thereof, a cash adjustment will be paid based upon the
then current market price of Common Stock. Subject to the foregoing, no
payments or adjustments will be made upon conversion on account of accrued
interest on the Debentures or for any dividends or distributions on any shares
of Common Stock delivered upon such conversion. Notice of any adjustment of the
Conversion Price will be given in the manner set forth herein under "__ Notices"
below.
Conversion Price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends under the Code to holders of Debentures or of Common Stock.
If at any time the Company makes a distribution of property to its
stockholders that would be taxable to such stockholders as a dividend for United
States federal income tax purposes (e.g., distribution of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Stock) and, pursuant to the antidilution
provisions of the Debentures, the Conversion Price of the Debentures is reduced,
such reduction may be deemed to be the payment of a
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<PAGE>
taxable dividend to holders of Debentures. Such a deemed dividend might be
subject to 30% (or then applicable) United States withholding tax unless the
holder is entitled to a reduction of the tax under a tax treaty.
In the event that the Company should merge with another company, become a
party to a consolidation or sell or transfer all or substantially all of its
assets to another company, each Debenture then outstanding would, without the
consent of any holder of Debenture, become convertible only into the kind and
amount of securities, cash and other property receivable upon the merger,
consolidation or transfer by a holder of the number of shares of Common Stock
into which such Debenture might have been converted immediately prior to such
merger, consolidation or transfer.
The Company will use its reasonable best efforts to cause all registrations
with, and to obtain any approvals by, any governmental authority under any
federal or state law of the United States that may be required in connection
with conversion of the Restricted Debentures into Common Stock and the resale
thereof. If at any time during the period in which sales under Rule 144 are not
available the registration statement described under "__ Marketability;
Registration Rights" is not effective, shares of Common Stock issued upon
conversion of Restricted Debentures ("Restricted Shares") may not be sold or
otherwise transferred except in accordance with Rule 144A or Regulation S or
pursuant to any other exemption from, or otherwise in a transaction not subject
to, the registration requirements of the Securities Act and, if such
registration statement under the Securities Act is not effective at the time of
a conversion, the Restricted Shares will bear a legend to that effect. The
Transfer Agent for the Common Stock will not be required to accept for
registration of transfer any Restricted Shares, except upon presentation of
satisfactory evidence that these restrictions on transfer have been complied
with, all in accordance with such reasonable regulations as the Company may from
time to time agree with the Transfer Agent.
REDEMPTION
Unless previously redeemed, converted or purchased and canceled by the
Company, the Debentures will mature on March 15, 2006 and shall be redeemed at
their principal amount.
Optional Redemption
The Debentures may be redeemed, at the option of the Company, in whole or
in part, at any time after April 1, 1999, at a redemption price equal to that
percentage of their principal amount set forth below, together with accrued and
unpaid interest to the date fixed for redemption and Additional Amounts, if any,
that are due and payable upon notice as described below:
<TABLE>
<CAPTION>
Redemption
After April 1, Price
-------------- -----------------
<S> <C> <C>
1999 103%
2000 102%
2001 101%
2002 and thereafter 100%
</TABLE>
In the event of a partial redemption, the Debentures to be redeemed will be
selected by the Trustee not more than 75 days before the date fixed for
redemption, by such method as the Trustee shall deem fair and appropriate.
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<PAGE>
The Debentures may also be redeemed upon the occurrence of a Change of
Control, at the option of the Company, in whole but not in part, prior to April
1, 1999 at the redemption prices (expressed as percentages of the principal
amount) set forth below, in each case, together with accrued and unpaid interest
to the date fixed for redemption and Additional Amounts, if any, that are due
and payable:
<TABLE>
<CAPTION>
Redemption
Redemption Date Price
--------------- -----------------
<S> <C> <C>
Closing Date to October 1, 1996 124.00%
October 2, 1996 to April 1, 1997 120.50%
April 2, 1997 to October 1, 1997 117.00%
October 2, 1997 to April 1, 1998 113.50%
April 2, 1998 to October 1, 1998 110.00%
October 2, 1998 to April 1, 1999 106.50%
</TABLE>
If at any time, the Company shall determine that as a result of any change
in or amendment to the laws (or any regulations or rulings promulgated
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, or any amendments to, or change
in, an official application or interpretation of such laws, regulations or
rulings, which amendment or change is announced or becomes effective on or after
the date of the commencement of the offering of the Debentures, the Company has
or will become obligated to pay Additional Amounts on any Debentures or Coupons,
as described below under "Payment of Additional Amounts," and such obligation
cannot be avoided by the Company taking reasonable measures available to it then
the Company may, at its election redeem such Debentures (as a whole but not in
part) upon notice as described below; provided, however, that no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on
which the Company would be obligated to pay such Additional Amounts were a
payment in respect of the Debentures then due; and provided further, that at the
time such notice is given, such obligation to pay such Additional Amounts
remains in effect. In case of any such redemption, the redemption price will be
100% of the principal amount of the Debentures, together in each case with
accrued and unpaid interest to the date fixed for redemption and any Additional
Amounts due and payable. The Company is required to deliver to the Trustee a
certificate stating that the Company is entitled to effect such redemption and
that the conditions precedent to the right of the Company to redeem the
Debentures have occurred and an opinion of counsel stating that the legal
conditions precedent to the right of the Company to effect such redemption have
occurred.
Mandatory Redemption
Except as set forth in the next succeeding paragraph, the Company shall
redeem the Bearer Debentures, in whole but not in part, at 100% of their
principal amount, together with accrued and unpaid interest to the date fixed
for redemption, less applicable withholding taxes, if any, plus an applicable
Additional Amounts payable, in the event the Company determines that payment of
principal, premium, if any, or interest on Bearer Debentures or related coupons
outside the United States by the Company or any paying agent would under any
present or future laws or regulations of the United States be subject to any
certification, identification or information reporting requirement with regard
to the nationality, residence or identity of the beneficial owner of such Bearer
Debenture or coupon who is a Foreign Holder (as defined below) (other than such
a requirement (a) that would not be applicable to a payment made by the Company
or any one of its paying agents (i) directly to the beneficial owner or (ii) to
any custodian, nominee or other agent of the beneficial owner or (b) that can be
satisfied by the custodian, nominee or other agent certifying that the
beneficial owner
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<PAGE>
is a Foreign Holder, provided that in each case referred to in clauses (a) (ii)
and (b), payment by such custodian, nominee or other agent of such beneficial
owner is not otherwise subject to any such requirement). The Company shall make
such determination on the basis of a written opinion of independent counsel and
will notify the Trustee thereof as soon as practicable, stating in the notice
the effective date of such requirement and the dates within which the redemption
shall occur, and the Trustee shall give prompt notice thereof to the holders of
the Debentures in accordance with "__ Notices" below. Such redemption of the
Debentures must take place on a date, determined by the Company, upon at least
75 days' notice to the Trustee, not later than one year after the publication of
the initial notice of the Company's determination of such requirement. The
Company shall not so redeem the Bearer Debentures, however, if the Company,
based on a written opinion of independent counsel, determines, not less than 30
days prior to the date fixed for redemption, that no such payment would be
subject to any such requirement, in which case the Company shall notify the
Trustee, which shall give prompt notice of that determination in accordance with
"__ Notices" below and any earlier redemption notice shall thereupon be revoked
and of no further effect.
Notwithstanding the immediately preceding paragraph, if and so long as the
certification, identification or information reporting requirement referred to
in the preceding paragraph would be fully satisfied by payment of United States
withholding, backup withholding or similar taxes, the Company may elect, prior
to publication of the notice of redemption and in lieu of redemption of the
Bearer Debentures, to pay as Additional Amounts (regardless of item (d) under
"__Payment of Additional Amounts") such amounts as are necessary in order that
every net payment made outside the United States by the Company or a paying
agent of the principal of, premium, if any, and interest on a Bearer Debenture
or related coupon to a holder thereof who is a Foreign Holder (without regard to
such certification, identification or information reporting requirement), after
deduction for United States withholding, backup withholding or similar taxes
(other than a tax (a) that would not be applicable in the circumstances referred
to in the parenthetical clause of the first sentence of the immediately
preceding paragraph or (b) imposed as a result of the presentation of such
Bearer Debenture or coupon for payment more than 15 days after the date on which
such payment becomes due and payable or on which payment thereof is duly
provided for, whichever occurs later), will not be less, than the amount
provided in such Bearer Debenture or the related coupon to be then due and
payable. If the Company elects to pay such Additional Amounts and as long as it
is obligated to pay such Additional Amounts, the Company may subsequently redeem
the Bearer Debentures, at any time, in whole but not in part, at 100% of their
principal amount, plus accrued interest to the date fixed for redemption and
Additional Amounts, if any.
Except as set forth in the two preceding paragraphs and except as set forth
under "__ Change of Control" below, the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Debentures.
Notices of Redemption
Notice of intention to redeem Debentures will be given as described under
"__ Notices" below. In the case of redemption of all Debentures, notice will be
given once not more than 60 nor less than 30 days prior to the date fixed for
redemption. In the case of a partial redemption, notice will be given twice,
the first such notice to be given not more than 90 nor less than 45 days prior
to the date fixed for redemption and the second such notice to be given not more
than 45 nor less than 30 days prior to the date fixed for redemption.
Notices of redemption will specify the date fixed for redemption, the
applicable redemption price, the date on which the conversion privilege expires
and, in the case of a partial redemption, the aggregate principal amount of
Debentures to be redeemed and the aggregate principal amount of Debentures which
will be outstanding after such partial redemption. In additional, the case of a
partial redemption, the first
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notice will specify the last date on which exchanges or transfers of Debentures
may be made pursuant to the provisions of "__ Exchange and Transfer" above and
the second notice will specify the serial numbers of the Debentures and the
portions thereof called for redemption.
As used herein, "United States" means the United States of America
(including the states and the District of Columbia), its territories and, its
possessions. The term "Foreign Holder" means any person who, for United States
federal income tax purposes, is (i) a foreign corporation, (ii) a foreign,
partnership one or more of the members of which are, for United States federal
income tax purposes, foreign corporations, non-resident alien individuals or
non-resident alien fiduciaries of a foreign estate or trust, (iii) a non-
resident alien individual or (iv) a non-resident alien fiduciary of a foreign
estate or trust.
In addition, the Company may at any time and from time to time repurchase
the Debentures in the open market or in private transactions at prices it
considers attractive. Debentures repurchased by the Company will be canceled.
CHANGE OF CONTROL
Each holder of a Debenture will have the right, at such holder's option, to
cause the Company to, purchase such Debenture, in whole but not in part, for a
cash amount equal to 100% of the principal amount, together with accrued and
unpaid interest to the repurchase date, if a Change of Control, (as defined
herein) occurs or has occurred. Notice with respect to the occurrence of a
Change of Control will be given as described under "__Notices" below and not
later than 30 days after the date of the occurrence of such Change of Control.
The date fixed for such purchase will be a date not less than 30 nor more than
60 days after notice of the occurrence of a Change of Control is given (except
as otherwise required by law). To be purchased, a Debenture must be received
with a duly executed written notice, substantially in the form provided on the
reverse side of such Debenture, at the office of a paying agent (being a paying
agent outside the United States in the case of Bearer Debentures) not later than
the fifth day prior to the date fixed for such purchase. Each Bearer Debenture
delivered for purchase must be delivered with all related unmatured coupons.
All Debentures purchased by the Company will be canceled. Holders of Debentures
who have tendered a notice of purchase will be entitled to revoke their election
by delivering a written notice of such revocation to a paying agent on or prior
to the date fixed for such purchase. In addition, holders of Debentures will
retain the right to require such Debentures to be converted into Common Stock
(or other securities, property or cash payable in lieu thereof by reference to
the adjustment price as provided under the adjustment provision, see "__
Conversion") prior to the purchase date, so long as notice to that effect,
including, such holder's nontransferable receipt for the Debentures from a
paying agent, is delivered to a paying agent on or prior to the close of
business on the fifth day next preceding the applicable Redemption Date.
The Indenture will provide that a "Change of Control" will be deemed to
have occurred (i) upon any merger or consolidation of the Company with or into
any person or any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or a series of related transactions, if,
immediately after giving effect to such transaction, any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of United States
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
applicable) is or becomes the "beneficial owner," directly or indirectly, of
more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors, managers, or trustees, as applicable, of the
transferee or surviving entity, (ii) when any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether
or not applicable) is or becomes the "beneficial owner," directly or indirectly,
of more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors of the Company, or (iii) when, during any
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<PAGE>
period of 12 consecutive months after the Closing Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or, whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
The phrase "all or substantially all" of the assets of the Company is
likely to be interpreted by reference to applicable state law at the relevant
time, and will be dependent on the facts and circumstances existing at such
time. As a result, there may be a degree of uncertainty in ascertaining whether
a sale or transfer of "all or substantially all" of the assets of the Company
has occurred. For purposes of this definition, (i) the terms "person" and
"group" shall have the meaning used for purposes of Rules 13d-3 and 13d-5 of the
Exchange Act as in effect on the Closing Date, whether or not applicable; and
(ii) the term "beneficial owner" shall have the meaning used in Rules 13d-3 and
13d-.5 under the Exchange Act as in effect on the Closing Date, whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time or upon
the occurrence of certain events.
The Change of Control provisions described above may make more difficult or
discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control provisions will not prevent a leveraged
buyout led by Company management, a recapitalization of the Company or change in
a majority of the members of the Board of Directors which is approved by then-
current Board of Directors and may not afford the holders of Debentures
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger, spin-off or similar transaction that may adversely affect
such holders, if such transaction does not constitute a Change of Control as set
for above.
The Company is required to comply with the provisions of Rule 13e-4 and any
other tender offer rules under the Exchange Act which may then be applicable and
is required to file a Schedule 13E-4 or any other schedule required thereunder
in connection with any offer by the Company to purchase Debentures at the option
of holders thereof upon a Change of Control. The Change of Control purchase
feature is not, however, as of the date of this Offering Circular, the result of
management's knowledge of any specific efforts to accumulate shares of Common
Stock or to obtain control of the Company by means of a merger, tender offer,
solicitation of proxies or consents or otherwise, or part of a plan to implement
a series of anti-takeover measures.
Certain of the Company's existing and future agreements relating to its
indebtedness could prohibit the purchase by the Company of the Debentures
pursuant to the exercise by a holder of Debentures of the foregoing option,
depending on the financial circumstances of the Company at the time any such
purchase may occur, because such purchase could cause a breach of certain
covenants contained in contained in such agreements. Such a breach may
constitute an event of default under such indebtedness as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provision of
the Debentures. See "__ Subordination." Failure of the Company to repurchase
the Debentures when required would result in an Event of Default with respect to
the Debentures whether or not such repurchase is permitted by the subordination
provisions.
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<PAGE>
PAYMENTS, PAYING AGENTS AND CONVERSION AGENTS
Principal of, premium, if any, and interest on Bearer Debentures will be
payable in United States dollars, subject to any applicable laws and
regulations, at such paying agencies outside the United States, its territories
and possessions as the Company may appoint from time to time and at which, at
the option of the holder thereof, such payment will be made by United States
dollar check drawn on a bank located in The City of New York, or (if
arrangements satisfactory to the Trustee are made) by wire transfer to a United
States dollar account maintained by the holder thereof at a bank outside the
United States, its territories and possessions.
No payment on any Bearer Debenture or coupon will be made at the corporate
trust office of the Trustee or any other paying agency maintained by the Company
in the United States, its territories and possessions, nor will any payment be
made by transfer to an account in, or by mail to an address in, the United
States, its territories or possessions. Notwithstanding the foregoing, payment
of Bearer Debentures and coupons may be made at the office of the Trustee in The
City of New York if payment at all paying agencies outside the United States is
illegal or effectively precluded by exchange controls or other similar
restrictions.
The principal of, premium, if any, and interest on Registered Debentures
will be payable in United States dollars. Payments of such principal and
premium, if any, will be made against surrender of Registered Debentures at the
corporate trust office of the Trustee in The City of New York or, subject to any
applicable laws and regulations, at the offices of the paying agents in London
or Luxembourg (or such other paying agencies as may be specified in notices to
the holders of Debentures in accordance with "__ Notices" below) by United
States dollar check drawn on, or wire transfer to a United States dollar account
maintained by the holder with, a bank located in The City of New York. Payments
of any installment of interest on Registered Debentures will be made by a United
States dollar check drawn on a bank in The City of New York mailed to the holder
at such holder's registered address or (if arrangements satisfactory to the
Company and the Trustee are made) by wire transfer to a dollar account
maintained by the holder with a bank in The City of New York. Payment of such
interest on any Interest Payment Date will be made to the person in whose name
such Registered Debenture is registered at the close of business on the Interest
Record Date prior to the relevant Interest Payment Date. Accrued interest
payable on any Registered Debenture that is redeemed will be payable against
surrender of such Registered Debenture in the manner described above with
respect to payments of principal on Registered Debentures, except Registered
Debentures that are redeemed on a date after the close of business on the
Interest Record Date immediately preceding such Interest Payment Date and on or
before the Interest Payment Date, on which interest will be paid to the holder
of record on the Interest Record Date.
The Debentures may be surrendered for conversion or exchange at the
corporate trust office of the Trustee in The City of New York or, at the option
of the holder and subject to applicable laws and regulations, at the office of
any of the conversion agents.
The Company has initially appointed the Trustee as paying agent and
conversion agent. This appointment may be terminated at any time and additional
or other paying and conversion agents may be appointed, provided that until the
Debentures have been delivered for cancellation, or monies sufficient to pay the
principal of and premium, if any, and interest on the Debentures have been made
available for payment and either paid or returned to the Company as provided in
the Indenture, a paying, conversion and transfer agent will be maintained (a) in
The City of New York for the payment of the principal of and premium, if any,
and interest on Registered Debentures only and for the surrender of Debentures
for conversion and (b) in a European city that, so long as the Debentures are
listed on the Luxembourg Stock Exchange, will be Luxembourg, for the payment of
the principal of and premium, if any, and interest on
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Debentures and for the surrender of Debentures for conversion, payment,
redemption or transfer. Notice of any such termination or appointment and of any
change in the office through which any paying, conversion, or transfer agent
will act will be given in accordance with "__ Notices" below.
Bearer Debentures should be presented for payment together with all related
unmatured coupons, failing which the amount of any missing unmatured related
coupon will be deducted from the sum due for payment. Each amount so deducted
will be paid in the manner mentioned above against surrender of the relevant
missing coupon.
All monies paid by the Company to a paying agent for the payment of
principal of, premium, if any, or interest on any Debenture that remain
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will be repaid to the Company, and the holder
of such Debenture or any related coupon will thereafter look only to the Company
for payment thereof, provided, however, that payment of interest on a Bearer
Debenture will be made only upon presentation of a coupon or upon making of any
other proper demand for payment to the Company or a paying agent, if any,
outside the United States or its territories and possessions.
PAYMENT OF ADDITIONAL AMOUNTS
The Company will pay to the holder of any Debenture or any related coupon
who is a Foreign Holder (as defined above) such additional amounts ("Additional
Amounts") as may be necessary in order that every net payment of the principal
of, interest on, or redemption price of, such Debenture, and any cash payments
made in lieu of issuing shares of Common Stock upon conversion of a Debenture,
after withholding for or on account of any present or future tax, assessment or
governmental charge imposed upon or as a result of such payment by the United
States or any political subdivision or taxing authority thereof or therein, will
not be less than the amount provided for in such Debenture or in such coupon to
be then due and payable; provided, however, that the foregoing obligations to
pay Additional Amounts shall not apply to any one or more of the following:
(a) any tax, assessment or other governmental charge which would not
have been so imposed but for (i) the existence of any present or former
connection between such holder (or between a fiduciary, settlor,
beneficiary, member or stockholder of, or a person holding a power over,
such holder, if such holder is an estate, trust, partnership or
corporation) and the United States, including, without limitation, such
holder (or such fiduciary, settlor, beneficiary, member, stockholder or
person holding a power) being or having been a citizen or resident or
treated as a resident thereof or being or having been engaged in a trade or
business therein or being or having been present therein or having had a
permanent establishment therein, (ii) such holder's present or former
status as a personal holding company, foreign personal holding company,
passive foreign investment company, foreign private foundation or other
foreign tax-exempt entity, or controlled foreign corporation for United
States federal income tax purposes or a corporation which accumulates
earnings to avoid United States federal income tax, or (iii) such holder's
status as a bank extending credit pursuant to a loan agreement entered into
in the ordinary course of business;
(b) any tax, assessment or other governmental charge which would not
have been so imposed but for the presentation by the holder of such
Debenture or any related coupon for payment on a date more than 15 days
after the date on which such payment became due and payable or on the date
on which payment thereof is duly provided, whichever occurs later;
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<PAGE>
(c) any estate, inheritance, gift, sales, transfer or personal or
intangible property tax or any similar tax, assessment or other
governmental charge;
(d) any tax, assessment or other governmental charge which would not
have been imposed but for the failure to comply with certification,
information, documentation or other reporting requirements concerning the
nationality, residence, identity or present or former connection with the
United States of the holder or beneficial owner of such Debenture or any
related coupon if such compliance is required by statute, regulation or
ruling of the United States or any political subdivision or taxing
authority thereof or therein as a precondition to relief or exemption from
such tax, assessment or other governmental charge;
(e) any tax, assessment or other governmental charge which is payable
otherwise than by deduction or withholding from payments of principal of
and premium, if any, or interest on such Debenture;
(f) any tax, assessment or other governmental charge imposed on
interest received by a person holding, actually or constructively, 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote; or
(g) any tax, assessment or other governmental charge required to be
withheld by any paying agent from any payment of principal of, or premium,
if any, or interest on any Debenture or interest on any coupon appertaining
thereto if such payment can be made without such withholding by any other
paying agent;
nor will Additional Amounts be paid with respect to payment of the principal of,
premium, if any, or interest on any such Debenture (or cash in lieu of issuance
of shares of Common Stock upon conversion) to a person other than the sole
beneficial owner of such payment, or that is a partnership or a fiduciary to the
extent such beneficial owner, member of such partnership or beneficiary or
settlor with respect to such fiduciary would not have been entitled to the
Additional Amounts had such beneficial owner, member, beneficiary or settlor
been the holder of such Debenture or any related coupon.
EVENTS OF DEFAULT
The Indenture will define an Event of Default with respect to the
Debentures as any of the following events: (i) the failure by the Company to
pay any installment of interest on, or Additional Amounts with respect to, the
Debentures as and when the same becomes due and payable and the continuance of
any such failure for a period of 30 days, (ii) the failure by the Company to pay
all or any part of the principal of, or premium, if any, on the Debentures as
and when the same becomes due and payable at maturity, redemption, by
acceleration or otherwise, (iii) the failure of the Company to perform any
conversion of Debentures required under the Indenture and the continuance of any
such failure for a period of 60 days, (iv) the failure by the Company to observe
or perform any other covenant or agreement contained in the Debentures or the
Indenture and, subject to certain exceptions, the continuance of such failure
for a period of 60 days after appropriate written notice is given to the Company
by the Trustee or to the Company and the Trustee by the holders of at least 25%
in aggregate principal amount of the Debentures outstanding, (v) certain events
of bankruptcy, insolvency or reorganization in respect of the Company or any of
its significant subsidiaries, (vi) a default in the payment of principal,
premium or interest when due that extends beyond any stated period of grace
applicable thereto or an acceleration for any other reason of the maturity of
any Indebtedness of the Company or any of its significant subsidiaries with an
aggregate principal amount in excess of $5 million, and (vii) final judgments
not
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<PAGE>
covered by insurance aggregating in excess of $2 million, at any one time
rendered against the Company or any of its significant subsidiaries and not
satisfied, stayed, bonded or discharged within 60 days.
The Debentures will provide that if an Event of Default occurs and is
continuing, then the Company will provide notice thereof to the Trustee within
five business days after the Company becomes aware of such Event of Default, and
the Trustee shall then notify the holders of Debentures thereof within 90 days
after its receipt of notice from the Company. If an Event of Default occurs and
is continuing, the Trustee or the holders of 25% in aggregate principal amount
of the Debentures then outstanding may, by notice in writing to the Company (and
to the Trustee, if given by the holders) (an "Acceleration Notice"), declare all
principal and accrued interest thereon and Additional Amounts thereof, if any,
to be due and payable immediately, whereupon such amounts shall, subject to the
right of the holders of Senior Indebtedness, become immediately due and payable.
Prior to the declaration of acceleration of the maturity of the Debentures,
the holders of a majority in aggregate principal amount of the Debentures at the
time outstanding may waive on behalf of all the holders any default, except a
default in the payment of principal of, premium, if any, or interest on or
Additional Amount with respect to any Debenture not yet cured, or a default with
respect to any covenant or provision that cannot be modified or amended without
the consent of the holder of each outstanding Debenture affected. Subject to
the provisions of the Indenture relating to the duties of the Trustee, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request, order or direction of any of the holders,
unless such holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the Debentures at the
time outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture will provide that the Company may not, directly or
indirectly, consolidate with or merge with or into another person or sell,
lease, convey or transfer all or substantially all of its assets (computed on a
consolidated basis), whether in a single transaction or a series of related
transactions, to another person or group of affiliated persons, unless (i)
either (a) the Company is the surviving entity or (b) the resulting, surviving
or transferee entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
written agreement all of the obligations of the Company in connection with the
Debentures and the Indenture; and (ii) no default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
Company will be released from its obligations under the Indenture and the
Debentures, except as to any obligations that arise from or as a result of such
transaction.
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<PAGE>
AMENDMENTS AND SUPPLEMENTS
Modifications and amendments to the Indenture or to the terms and
conditions of the Debentures may be made and future compliance with or any past
default by the Company under any of the provisions thereof may be waived, or any
acceleration thereunder annulled, with the consent of the holders of not less
than a majority in aggregate principal amount of the Debentures, at the time
outstanding (excluding for purposes of such calculation the aggregate principal
amount of Debentures held by the Company or any of its subsidiaries) or by the
adoption of a resolution, at a meeting of holders of the Debentures at which a
quorum (as defined below) is present and acting throughout, by not less than a
majority in aggregate principal amount of the Debentures present or represented
at such meeting (excluding for purposes of such calculation the aggregate
principal amount of Debentures held by the Company or any of its subsidiaries);
provided, however, that the amount approving such resolution is not less than
25% of the aggregate principal amount of the Debentures then outstanding
(excluding for purposes of such calculation the aggregate principal amount of
Debentures held by the Company or any of its subsidiaries); and provided further
that no such modification or amendment to the terms and conditions of the
Debentures may, without the consent or the affirmative vote of the holder of
each Debenture affected thereby may: (a) waive a default in the payment of
principal of, premium, if any, or interest on or Additional Amount with respect
to any Debenture; (b) change the stated maturity of the principal or premium, if
any, or any installment interest on any Debenture; (c) reduce the principal
amount of or the rate (or extend the time for payment) of interest on or any
premium payable upon redemption of or Additional Amounts payable with respect to
any such Debenture; (d) change the obligation of the Company to pay Additional
Amounts as described above (except as otherwise permitted by the Debentures or
the Indenture); (e) change the coin or currency in which any Debenture or
interest thereon is payable; (f) adversely affect the right to cause the Company
to redeem or the right to convert any such Debenture; (g) modify the obligations
of the Company to maintain an office or agency in The City of New York and
outside the United States for payment of the Debentures; (h) modify the
subordination provisions of the Debenture in a manner adverse to the holders of
Debentures; or (i) reduce the requirements under the Indenture for quorum or
voting, or reduce the percentage in principal amount of the outstanding
Debentures the consent of whose holders is required for any amendment or
modification of the Indenture or the terms and conditions of the Debentures or
the consent of whose holders is required for any waiver (of compliance with
certain provisions of the Indenture or the Debentures or certain defaults
thereunder and their consequences) provided for in the Debentures. The quorum
at any meeting called to adopt a resolution will be the persons holding or
representing a majority in aggregate principal amount of the Debentures at the
time outstanding (excluding for purposes of such calculation the aggregate
principal amount of Debentures held by the Company or any of its subsidiaries)
and the quorum at any adjourned meeting will be persons holding or representing
25% in aggregate principal amount of the Debentures at the time outstanding
(excluding for purposes of such calculation the aggregate principal amount of
Debentures held by the Company or any of its subsidiaries).
Any instrument given by or on behalf of any holder of a Debenture in
connection with any consent to any such modification, amendment or waiver will
be irrevocable once given and will be conclusive and binding on all subsequent
holders of such Debenture and related coupons. Any modifications, amendments or
waivers to the Indenture or to the terms and conditions of the Debentures will
be conclusive and binding on all holders of Debentures and related coupons,
whether or not they have given such consent or were present at any meeting, and
on holders of Debentures and related coupons, whether or not notation of such
modifications, amendments or waivers is made upon the Debentures or related
coupons.
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GOVERNING LAW
The Debentures, the related coupons and the Indenture will be governed by
and construed in accordance with the laws of the State of New York, United
States, without giving effect to its conflicts of law rules.
MARKETABILITY; REGISTRATION RIGHTS
At present there is no public market for the Restricted Debentures. The
Restricted Debentures are being sold pursuant to exemptions from registration
under the Securities Act.
The Company and the Managers entered into the Registration Rights Agreement
on the Closing Date.
Pursuant to the Registration Rights Agreement, the Company filed with the
Commission a shelf registration statement on Form S-3 (the "Shelf Registration
Statement"), to cover resales of Transfer Restricted Securities (as defined) by
the holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Shelf
Registration Statement was declared effective by the Commission on September 20,
1996. For purposes of the foregoing, "Transfer Restricted Securities"
means each Restricted Debenture and share of Common Stock issued upon conversion
thereof until the date on which such Restricted Debenture or share of Common has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or the date on which such
Restricted Debenture or share of Common Stock is distributed to the public
pursuant to Rule 144, under the Securities Act or is salable pursuant to Rule
144(k) under the Securities Act (or any similar provisions then in force).
The Shelf Registration Statement will remain effective until the earlier of
three years following the Closing Date or until the Shelf Registration Statement
is no longer required for transfer of the Transfer Restricted Securities;
however, there can be no assurance that the Company will be able to maintain an
effective and current registration statement as required. The absence of such a
registration statement may limit the holder's ability to sell such Restricted
Shares or adversely affect the price at which such Restricted Shares can be
sold.
CERTAIN DEFINITIONS
"Business Day" or "business day" means, with respect to any act to be
performed pursuant to the Indenture or the terms of the Debentures, each Monday,
Tuesday, Wednesday, Thursday or Friday that is not a day on which banking
institutions in the place where such act is to occur are authorized or obligated
by applicable law, regulation or executive order to close; provided however, if
any such action is to be taken on a day that is not a Business Day such action
shall be taken on the next succeeding Business Day.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Designated Senior Indebtedness " means (i) the Indebtedness outstanding
under the Company's financing agreement with The CIT Group/Credit Business, Inc.
and (ii) any other Senior Indebtedness having a principal amount of at least
$5,000,000 that is designated as "Designated Senior Indebtedness" by written
notice from the Company to the Trustee.
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<PAGE>
"Disqualified Capital Stock" means (a) except as set forth in clause (b)
below, with respect to any person, Capital Stock of such person that, by its
terms or by the terms of any security into which it is convertible, exercisable
or exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such person or any of its subsidiaries, in whole or in part,
on or prior to the Stated Maturity of the Debentures and (b) with respect to any
subsidiary of such person (including with respect to any subsidiary of the
Company), any Capital Stock other than any common stock with no preference,
privileges, or redemption or repayment provisions.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except such as would constitute trade payables to trade creditors in the
ordinary course of business, (iv) evidenced by bankers acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money relating
to a capitalized lease obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any letter of credit;
(b) all net obligations of such person under interest swap and hedging
obligations; (c) all liabilities of others of the kind described in the
preceding clauses (a) or (b) that such person has guaranteed or that is
otherwise its legal liability and all obligations to purchase, redeem or acquire
any Capital Stock; and (d) any and all deferrals, renewals, extensions,
refinancings and refundings, (whether direct or indirect) of any liability of
the kind described in any of the preceding clauses (a), (b) or (c), or this
clause (d), whether or not between or among the same parties.
"Junior Securities" of any person means any Qualified Capital Stock and any
Indebtedness of such person that is (i) subordinated in right of payment to the
Debentures and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
Debentures and (ii) subordinated in right of payment to all Senior Indebtedness
at least to the same extent as the Debentures.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Senior Indebtedness.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Senior Indebtedness" of the Company means any Indebtedness of the Company,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company, unless the
instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior or superior, in right of payment, to the Debentures
or to other Indebtedness which is pari passu with, or subordinated to, the
Debentures. In no event shall Senior Indebtedness include (a) indebtedness of
the Company owed or owing to any subsidiary of the Company or any officer,
director or employee of the Company or any subsidiary thereof; (b) any liability
for taxes owed or owing by the Company; or (c) trade payables to trade creditors
of the Company in the ordinary course of business.
"Stated Maturity" when used with respect to any Debenture, means March 15,
2006.
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APPLIED MAGNETICS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Applied Magnetics Corporation, a Delaware
corporation (the "Company"), hereby appoints Craig D. Crisman and Peter T.
Altavilla, and each of them, 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 6, 1998 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
matters and in the following manner as further described in the accompanying
Proxy Statement.
Either of such proxies and attorneys-in-fact, or their substitutes, as
shall be present and shall act at said meeting or any adjournment 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 1997 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.
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
or 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)
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<PAGE>
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[X] Please mark
your votes
as this
The Board of Directors unanimously recommends a vote "FOR" Proposals 1, 2, 3, 4,
5 and 6:
1. ELECTION OF DIRECTORS
NOMINEES: Craig D. Crisman,
Herbert M. Dwight, Jr., Harold R. Frank,
Jerry E. Goldress and
Dr. R.C. Mercure, Jr.
FOR the nominees listed WITHHOLD
(except as indicated to the AUTHORITY to vote
contrary): for ALL nominees
listed:
[_] [_]
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below.)
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2. Approval of the
amendment of the FOR AGAINST ABSTAIN
Company's 1994 Employee [_] [_] [_]
Stock Option Plan to
increase the number of
shares of Common Stock
reserved for the issuance
thereunder from 3,250,000 to
5,350,000.
3. Approval of the amendment FOR AGAINST ABSTAIN
of the Company's 1994 Non- [_] [_] [_]
Employee Directors' Stock
Option Plan to increase the
number of shares of Common
Stock reserved for issuance
thereunder from 150,000
to 300,000.
4. To approve an amendment FOR AGAINST ABSTAIN
to the Company's Certificate [_] [_] [_]
of Incorporation, to increase
the number of shares of
Common Stock authorized for
issuance from 40,000,000 to
80,000,000.
5. To approve and ratify the FOR AGAINST ABSTAIN
financing transaction described [_] [_] [_]
in the accompanying Proxy
Statement.
6. To ratify the appointment of FOR AGAINST ABSTAIN
Arthur Andersen LLP, [_] [_] [_]
independent certified public
accountants, as auditors for
the Company for the fiscal
year ending October 3, 1998.
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.
Dated: ____________________________________________, 1998
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Signature(s)
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.
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FOLD AND DETACH HERE
