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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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] 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 OF 75 ROBIN HILL ROAD
APPLIED MAGNETICS] GOLETA, CALIFORNIA 93117
January 5, 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,
/s/ Craig D. Crisman
Craig D. Crisman
Chairman and Chief Executive Officer
<PAGE>
APPLIED MAGNETICS CORPORATION
75 ROBIN HILL ROAD
GOLETA, CALIFORNIA 93117
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
To The Stockholders of
Applied Magnetics
Corporation:
The Annual Meeting of Stockholders of Applied Magnetics Corporation (the
"Company") will be held at the Company's facility at 75 Robin Hill Road,
Goleta, California, 93117, on Friday, February 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
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.
/s/ Craig D. Crisman
Craig D. Crisman
Chairman and Chief Executive Officer
Goleta, California
January 5, 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.
<PAGE>
APPLIED MAGNETICS CORPORATION
---------------------
PROXY STATEMENT
---------------------
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
GENERAL
The enclosed Proxy Statement is solicited on behalf of the Board of
Directors of Applied Magnetics Corporation (the "Company") for use at the
Annual Meeting of Stockholders (the "Meeting") to be held February 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 5,
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
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 23,991,686 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.
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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.
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. ...................... 29,998(1) *
Harold R. Frank.............................. 869,161(2) 3.6
Jerry E. Goldress............................ 19,999(3) *
R.C. Mercure, Jr. ........................... 36,531(1)(3) *
EXECUTIVE OFFICERS:
Craig D. Crisman............................. 344,643(4) 1.4
Peter T. Altavilla........................... 12,508(5) *
All Directors and Named Executive Officers as
a Group (6 persons)......................... 1,312,840(6) 5.4
</TABLE>
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* less than 1%
(1) Includes, as to each of Messrs. Mercure and Dwight, options, exercisable
within 60 days, to purchase 29,998 shares under the 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 1994 Directors' Plan.
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(3) Includes options, exercisable within 60 days, to purchase 19,999 shares
under the 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
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, Chairman and Chief
Executive Officer 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 has since 1996 been Chairman and Chief Executive Officer of CDM
Optics, Inc., a manufacturer of optical components and systems. Up to 1996 he
was 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.
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VOTE REQUIRED
The five nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be
elected as directors. Votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum for the
transaction of business, but have no legal effect under Delaware law. While
there is no definitive statutory or case law authority in Delaware as to the
proper treatment of abstentions in the election of directors, the Company
believes that abstentions should be counted for purposes of determining
whether a quorum is present at the Annual Meeting for the transaction of
business. In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions with respect to the election of directors in this
manner.
SPECIAL COMMITTEES AND ATTENDANCE AT MEETINGS
The Board of Directors has an Audit Committee whose members in fiscal 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
"Report of Compensation Committee". 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.
5
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO
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.
As of the date of this proxy statement, there are outstanding options under
the 1994 Plan to purchase 1,670,014 shares of Common Stock, 612,701 options
have been exercised and 967,285 shares are 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
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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 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 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.
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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 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 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
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<PAGE>
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.
9
<PAGE>
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.
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 Directors' 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
10
<PAGE>
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.
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.
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.
11
<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 23,991,686 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.
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 RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
12
<PAGE>
PROPOSAL NO. 5
APPROVAL AND RATIFICATION OF THE FINANCING TRANSACTION
BACKGROUND
On March 22, 1996, the Company completed the sale of $115,000,000 of 7%
Convertible Debentures (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 Convertible
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.
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 $51.7 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:
<TABLE>
<CAPTION>
AFTER APRIL 1, REDEMPTION PRICE
-------------- ----------------
<S> <C>
1999..................................................... 103%
2000..................................................... 102%
2001..................................................... 101%
2002 and thereafter...................................... 100%
</TABLE>
In the event of a Change of Control (as defined), 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
13
<PAGE>
thereof plus accrued and unpaid interest to the repurchase date. In the event
of a Change of Control, 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:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PRICE
--------------- ----------------
<S> <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>
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 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 (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. The Company
only recently became aware that at the time the Financing Transaction took
place, the aggregate number of shares, issuable upon exercise of the
Debentures, would exceed 20% of the shares of common stock then 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.
14
<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.
15
<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 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.
16
<PAGE>
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 $100,000, information concerning compensation paid for services to
the Company in all capacities during the fiscal year ended September 27, 1997,
as well as the total compensation paid to each such individual in each of the
Company's previous two fiscal years (if such person was the Chief Executive
Officer or an executive officer, as the case may be, during any part of such
fiscal year).
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------------- -------------
OTHER
ANNUAL RESTRICTED SECURITIES
NAME AND COMPENSATION STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) AWARDS($)(3) OPTION($)(4) PAYOUTS($)(3) COMPENSATION($)
------------------ ---- --------- -------- ------------- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Craig C. Crisman....... 1997 422,500 431,809 0 0 200,000 0 0
Chief Executive 1996 375,000 189,287 0 0 100,000 0 0
Officer 1995(1) 62,500 0 0 0 419,643 0 0
Peter T. Altavilla .... 1997 129,616 66,959 0 56,925 15,000 0 0
Controller and 1996 115,866 40,431 0 0 10,000 0 0
Secretary 1995 93,691 31,357 0 9,500 5,000 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.
(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 $450,000 per year. Upon execution of the
Employment Agreement Mr. Crisman received a grant of nonqualified options to
purchase 300,000 shares of the Company's Common Stock at the then fair market
price of the Company's Common Stock.
17
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth the stock options granted to the named
executive officers under the Company's stock option plans, and the options
exercised by such named executive officers, during the fiscal year ended
September 27, 1997.
The Option/SAR Grant Table sets forth hypothetical gains for the options at
the end of their respective ten-year terms, as calculated in accordance with
the rules of the SEC. Each gain is based on an arbitrarily assumed annualized
rate of compound appreciation of the market price of 5% and 10%, less the
exercise price, from the date the option was granted to the end of the option
term. Actual gains, if any, on option exercise are dependent on the future
appreciation in value of the Company's Common Stock which appreciation, if
any, would benefit the Company's stockholders as well as persons to whom
options have been granted.
OPTIONS GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
------------------------------------------------------ ASSUMED ANNUAL
PERCENTAGE OF RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM($)(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION -------------------
NAME GRANTED(#) 1997(1) SHARE($/SH)(2) DATE 5% 10%
- ---- ---------- ------------- -------------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Craig Crisman........... 100,000 10.0% 31.63 May 9, 2007 1,988,879 5,040,211
Craig Crisman........... 100,000 10.0% 35.56 August 8, 2007 2,236,507 5,667,747
Peter T. Altavilla...... 15,000 1.5% 31.63 May 9, 2007 322,765 794,938
</TABLE>
- ---------------------
(1) The Company did not grant SARs in fiscal 1997.
(2) Options were granted in fiscal 1997 at fair market value and are
exercisable in cumulative annual installments of 25% of the shares granted
beginning one year after date of grant, and in all cases expire ten years
from the grant date.
(3) Potential realizable value is based on an assumption that the price, of
the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the ten-year option
term. Potential realizable value is shown net of exercise price. These
numbers are calculated based on the regulations promulgated by the SEC and
do not reflect the Company's estimate of future stock price growth.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
MARKET PRICE OPTION TERM
NUMBER OF OF STOCK AT EXERCISE PRICE REMAINING AT
OPTIONS/SARS TIME OF AT TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
- ---- ----------- ------------ ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Craig Crisman........... May 9, 1997 100,000 31.63 40.00 31.63 117 months(1)
Peter T. Altavilla...... May 9, 1997 15,000 31.63 40.00 31.63 117 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 $31.63, as the cancelled options were
granted on May 9, 1977.
AGGREGATED OPTION EXERCISES FISCAL 1997 AND FISCAL 1997 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 27, 1997 SEPTEMBER 27, 1997(1)
ACQUIRED ON VALUE ------------------------------- -------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- ----------- ----------- -------------- ---------------- -------------- ----------------
<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.
18
<PAGE>
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.
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
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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.
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
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."
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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.
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 through
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.
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Long-term Incentives--As an important element in retaining and motivating
the Company's senior management the Committee believes that those persons who
have substantial responsibility for the management and growth of the Company
should be provided with an opportunity to increase their ownership of Company
stock. Therefore, executive officers and certain other key employees are
eligible to receive stock options from time to time, giving them the right to
purchase shares of Common Stock of the Company at a specified price in the
future. The number of stock options granted to executive officers is based on
various factors, including the respective scope of accountability, strategic
and operational goals and anticipated performance and contributions of the
individual executive. Each non-employee director receives annually, on a
prescribed date, options to purchase 5,000 shares of Common Stock at an
exercise price equal to the closing price of the Company's Common Stock on the
date of grant as reported on the New York Stock Exchange. Non-employee
directors constitute a committee of disinterested directors to administer the
granting of all other options under the Company's stock option plans.
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 motivate 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.
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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 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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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
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG APPLIED MAGNETICS CORP., S&P 500 INDEX AND HAMBRECHT & QUIST
COMPUTER HARDWARE
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
HAMBRECHT &
QUIST
Measurement Period APPLIED S&P COMPUTER
(Fiscal Year Covered) MAGNETICES CORP. 500 INDEX HARDWARE
- ------------------- ---------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 09/30/92 $100 $100 $100
FYE 09/93 $143 $113 $79
FYE 09/94 $ 69 $117 $104
FYE 09/95 $245 $152 $166
FYE 09/96 $284 $183 $201
FYE 09/97 $496 $257 $388
</TABLE>
- --------------------
* $100 invested on September 30, 1992 in stock or index including reinvestment
of dividends. Fiscal year ending September 27.
24
<PAGE>
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.
/s/ Craig D. Crisman
Craig D. Crisman
Chairman and Chief Executive Officer
January 5, 1998
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<PAGE>
ANNEX A
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 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 $51.7 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.
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
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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 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
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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, reorganization, 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, credited 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 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
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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 Participants, either
directly or indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of the Depository only through the
Depository's Participants 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.
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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.
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.
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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 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 "Conversion 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
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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 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
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<PAGE>
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 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>
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>
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 any 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 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
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<PAGE>
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
addition, in the case of a partial redemption, the first 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.
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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 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
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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 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.
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
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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 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
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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;
(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
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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 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.
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
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<PAGE>
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.
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
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<PAGE>
(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.
"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.
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<PAGE>
"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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<PAGE>
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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 indicated in
this sample
The Board of Directors unanimously recommends a vote "FOR" Proposals 1, 2, 3,
4, 5 and 6:
FOR the nominees listed WITHHOLD
(except as indicated to AUTHORITY to
the contrary): vote for ALL
nominees listed:
1. ELECTION OF DIRECTORS [_] [_]
NOMINEES: Craig D. Crisman, Herbert
M. Dwight, Jr., Harold R. Frank, Jerry E.
Goldress and Dr. R.C. Mercure, Jr.
(INSTRUCTION: To withhold authority
to vote for any individual nominee, write
that nominee's name in the space provided below.)
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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 of the FOR AGAINST ABSTAIN
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 FOR AGAINST ABSTAIN
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 FOR AGAINST ABSTAIN
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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