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 26, 1999 at 10:00 a.m., local time, for
the following purposes:
1. To elect five directors of the Company to serve for the ensuing
year and until their successors have been elected and qualified;
2. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock authorized
for issuance from 80,000,000 to 120,000,000;
3. To ratify the appointment of Arthur Andersen LLP, independent
certified public accountants, as auditors for the Company for the fiscal
year ending October 2, 1999; and
4. 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 January 22, 1999, 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 27, 1999
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.
-1-
<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 26, 1999, at the
Company's facility at 75 Robin Hill Road, Goleta, California, 93117, at 10:00
a.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 27, 1999 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
increase in the number of shares of Common Stock authorized under the
Certificate of Incorporation; and (iii) in favor of the ratification of Arthur
Andersen LLP as the Company's independent auditors for the fiscal year ending
October 2, 1999.
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 January 22, 1999 (the "Record Date"), the outstanding voting
securities of the Company consisted of 24,141,676 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.
-2-
<PAGE>
The cost of soliciting proxies will be borne by the Company. The Company
is retaining Chase Mellon Shareholder Services to solicit proxies for a cost of
approximately $5,000 plus out-of-pocket expenses. In addition, the Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or telegram.
Generally, stockholder approval of a matter, other than the election of
directors, requires the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote on the
matter. Directors are elected by a plurality of the votes of the shares present
in person or by proxy and entitled to vote on the election of directors. The
affirmative vote of the majority of the shares present, in person or by proxy at
the meeting and entitled to vote is required for ratification of the selection
of Arthur Andersen LLP as 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 January 22, 1999 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:
-3-
<PAGE>
Percent
Shares Beneficially of
Name Owned Class
---- ----- -----
Non-Employee Directors:
Herbert M. Dwight, Jr. 45,000(1) *
Harold R. Frank 307,222(1)(2) 1.3
Jerry E. Goldress 35,000(1)(3) *
R.C. Mercure, Jr. 50,533(1)(3) *
Executive Officers:
Craig D. Crisman 119,643(4) *
Peter T. Altavilla 7,858(5) *
All Directors and Named Executive Officers
as a Group (6 persons) 571,012(6) 2.4
(1) Includes, as to each of Messrs. Dwight and Mercure, and as to each of
Messrs. Frank and Goldress, options, exercisable within 60 days, to
purchase 45,000 shares and 35,000 shares, respectively, under the 1994
Directors' Plan.
(2) Does not include 571,012 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 35,000 shares under the 1994 Non-Employee Directors'
Stock Option Plan.
(3) Includes options, exercisable within 60 days, to purchase 35,000 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".
(5) Includes options to purchase 5,000 shares exercisable within 60 days
pursuant to options granted under employee stock option plans.
(6) Includes options to purchase 284,643 shares exercisable within 60 days.
- --------
* less than 1%
-4-
<PAGE>
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 1998 Annual Meeting.
The following table sets forth certain information concerning each person
nominated for election as director:
Name Age Director Since Position or Office
---- --- -------------- ------------------
Craig D. Crisman 57 1994 Chairman of the Board and Chief
Executive Officer of the
Company
Harold R. Frank 74 1957 Chairman Emeritus of the
Company and Director
Herbert M. Dwight, Jr. 68 1989 Director
Jerry E. Goldress 68 1995 Director
R.C. Mercure, Jr. 67 1982 Director
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 of the
Board of Directors 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 and Advanced Fiber Communications, Inc., a company engaged in
providing telecommunications systems for local access.
-5-
<PAGE>
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. 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.
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 1998
were Messrs. Frank and Goldress and Dr. Mercure. The Board of Directors also has
a Compensation Committee whose members in fiscal 1998 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 1998, 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 1998, 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 1998, 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.
-6-
<PAGE>
APPROVAL TO INCREASE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 80,000,000 TO 120,000,000
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 80,000,000 to
120,000,000. 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 one hundred twenty-five million (125,000,000),
consisting of one hundred twenty million (120,000,000) 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 January 22, 1999, of the 80,000,000 authorized shares of Common Stock,
a total of 24,141,676 shares was outstanding; 6,182,796 shares were reserved
for issuance on conversion of the Company's 7% Convertible Subordinated
Debentures Due 2006; 4,661,427 shares were reserved for issuance under the 1994
Employee Stock Option Plan and 300,000 shares were reserved under the 1994
Directors' Plan.
On November 25, 1998, the Company announced that it had entered into (i)
an Agreement and Plan of Merger with DAS Devices, Inc. ("DAS"), a Delaware
corporation, whereby DAS will merge with and into a wholly owned subsidiary of
the Company and thereby become a wholly owned subsidiary of the Company in
consideration of the issuance of 13,051,872 shares of the Company's Common Stock
to the securities holders of DAS, and (ii) a Securities Purchase Agreement with
a group of investors (the "Investors") pursuant to which the Company will issue
and sell to the Investors up to $20,000,000 (but in no event less than
$15,000,000) of shares of Common Stock. The number of shares to be sold to the
Investors will be determined by dividing (x) the aggregate purchase price by (y)
80% of the lesser of (A) $6.4682 (the average of the daily closing prices per
share of the Common Stock for the five trading days prior to the date of the
merger agreement) and (B) the average of the daily closing prices per share of
the Common Stock for the five trading days prior to the effective date of the
merger. The obligation of the Company to sell the shares to the Investors may be
terminated by the Company if the closing price per share of the Common Stock on
the trading day immediately preceding the effective date of the merger is less
than $4.00. The average daily closing prices for the five trading days prior to
November 24, 1998 was $6.4682. The closing price per share of the Common Stock
on January 22, 1999 was $6.0625. If the merger had become effective on
January 22, 1999, up to 3,865,063 shares of the Company's Common Stock would
have been issued and sold to the Investors.
Although the Company has no other 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
-7-
<PAGE>
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.
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 2, 1999, 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-two years. This firm will have representatives at the Annual
Meeting who 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 2,
1999.
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 2, 1999.
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 November 1997, Mr. Frank made a sale of 20,000 shares that was reported on a
1998 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 1998.
-8-
<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
$100,000, information concerning compensation paid for services to the Company
in all capacities during the fiscal year ended October 3, 1998, as well as the
total compensation paid to each such individual in each of the Company's
previous two fiscal years (if such person was the Chief Executive Officer or an
executive officer, as the case may be, during any part of such fiscal year).
<TABLE>
<CAPTION>
Annual Compensation Long term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other Annual Restricted Securities LTIP
Name and Compensation Stock Underlying Payouts All Other
Principal Position Year Salary ($) Bonus ($) ($) (1) Awards ($)(2) Option ($)(3) ($)(2) Compensation ($)
- ------------------ ---- ---------- --------- ------- ------------- ------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chris C. Crisman 1998 450,000 0 0 0 100,000 0 0
Chief Executive 1997 422,500 431,809 0 0 200,000 0 0
Officer 1996 375,000 189,287 0 0 100,000 0 0
Peter T. Altavilla 1998 138,316 0 0 0 30,000 0 0
Controller and 1997 129,616 66,959 0 56,925 15,000 0 0
Secretary 1996 115,866 40,431 0 0 10,000 0 0
- ----------------------------
</TABLE>
(1) The value of perquisites, if any, fell below $50,000 or 10% of reported
base salary and bonus for each executive.
(2) 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 1997 were issued with
restrictions to be lifted if Mr. Altavilla met certain performance
objectives. 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. The restrictions on 900 shares were lifted on January 2,
1998 and the aggregate value of these shares based on the closing price of
the NYSE of $12.375 on such date was $11,130.
(3) 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.
-9-
<PAGE>
On August 1, 1995, the Company entered into an employment agreement ("the
Employment Agreement"), with Mr. Crisman employing him as Chief Executive
Officer and Chairman of the Board of the Company for a term ending on July 31,
2000. Under the terms of the Employment Agreement, as amended, Mr. Crisman
receives a current base salary of $450,000 per year. Upon execution of the
Employment Agreement Mr. Crisman received a grant of nonqualified options to
purchase 300,000 shares of the Company's common stock at the then fair market
price of the Company's common stock.
Stock Option Grants and Exercises
The following tables set forth the stock options granted to the named
executive officers under the Company's stock option plans, and the options
exercised by such named executive officers, during the fiscal year ended October
3, 1998.
The Option/SAR Grant Table sets forth hypothetical gains for the options
at the end of their respective ten-year terms, as calculated in accordance with
the rules of the SEC. Each gain is based on an arbitrarily assumed annualized
rate of compound appreciation of the market price of 5% and 10%, less the
exercise price, from the date the option was granted to the end of the option
term. Actual gains, if any, on option exercise are dependent on the future
appreciation in value of the Company's common stock which appreciation, if any,
would benefit the Company's stockholders as well as persons to whom options have
been granted.
<TABLE>
Options Grants in Fiscal 1998
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Name Individual Grants Option Term($)(3)
- ---- ----------------- -----------------
Percentage of
Number of Total Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Price
Granted (#) 1998(1) Per Share ($/Sh)(2) Expiration Date 5% 10%
----------- ------- ------------------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Craig Crisman 100,000 8.1 4.38 September 17, 275,141 697,262
2008
Peter T. Altavilla 30,000 2.4 4.38 September 17, 82,542 209,179
2008
- ----------------
</TABLE>
(1) The Company did not grant SARs in fiscal 1998.
(2) Options were granted in fiscal 1998 at fair market value and are
exercisable in cumulative annual installments of 25% of the shares granted
beginning one year after date of grant, and in all cases expire ten years
from the grant date.
-10-
<PAGE>
(3) Potential realizable value is based on an assumption that the price, of
the common stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the ten-year option
term. Potential realizable value is shown net of exercise price. These
numbers are calculated based on the regulations promulgated by the SEC and
do not reflect the Company's estimate of future stock price growth.
<TABLE>
Ten-Year Option/SAR Repricings
<CAPTION>
Length of
Original
Market Price Option Term
Number of of Stock at Exercise Price Remaining at
Options/SARs Time of at Time of New Date Of
Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) 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)
February 6, 1998 100,000 11.94 15.25 11.94 96 months
February 6, 1998 100,000 11.94 31.63 11.94 111 months
February 6, 1998 100,000 11.94 35.56 11.94 114 months
September 17, 1998 300,000 4.38 8.50 4.38 83 months
September 17, 1998 300,000 4.38 11.94 4.38 113 months
September 17, 1998 100,000 4.38 6.25 4.38 119 months
Peter T. Altavilla May 9, 1997 15,000 31.63 40.00 31.63 117 months (2)
February 6, 1998 15,000 11.94 31.63 11.94 111 months
September 17, 1998 1,250 4.38 5.88 4.38 48 months
September 18, 1998 10,000 4.38 15.25 4.38 89 months
September 19, 1998 45,000 4.38 11.94 4.38 113 months
- ---------
</TABLE>
(1) Options granted to Mr. Crisman on January 20, 1997 were canceled and new
options were granted on May 9, 1997 with the same terms, except for the
change in exercise price from $40.00 to $31.63. Options granted to Mr.
Crisman on February 9, 1996, May 9, 1997 and August 8, 1997 were canceled
and new options were granted on February 6, 1998 with the same terms,
except for the change in exercise prices from $15.25,$ 31.63 and $35.56
were changed respectively to $11.94. Options granted to Mr. Crisman on
August 1, 1995, February 6, 1998 and August 7, 1998 were canceled and new
options were granted on September 17, 1998 with the same terms, except for
the change in exercise prices from $8.50, $11.94 and $6.25 respectively to
4.38.
(2) Options granted to Mr. Altavilla on January 20, 1997 were canceled and new
options were granted on May 9, 1997 with the same terms, except for the
change in exercise price from $40.00 to $31.63. Options granted to Mr.
Altavilla on May 9, 1997 were canceled and new options were granted on
February 6, 1998 with the same terms, except for the change in exercise
price from $31.63 to $11.94. Options granted to Mr. Altavilla on September
25, 1992, February 9, 1996 and February 6, 1998 were canceled and new
options were granted on September 17, 1998 with the same terms, except for
the change in exercise prices from $5.65, $15.25 and $11.94 respectively
to $4.38.
-11-
<PAGE>
<TABLE>
Aggregated Option Exercises Fiscal 1998 and
Fiscal 1998 Option Value
<CAPTION>
Number of Securities
Underlying Unexercised
Options at In-the-Money-Options at
October 3, 1998 October 3, 1998
--------------- ---------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
- ---- ------------- ------------ --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Craig C. Crisman 0 0 119,643 700,000 7,478 0
Peter T. Altavilla 0 0 5,000 56,250 1,563 0
- ---------
</TABLE>
(1) Calculated on the basis of the closing price of the Company's common stock
on the New York Stock Exchange, $4.1875 per share, at October 2, 1998.
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 October 3, 1998. 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 2, 1998, at an
exercise price of $11.6875 per share. Under the 1994 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.
-12-
<PAGE>
Certain Relationships and Related Transactions
On August 1, 1994, the Company entered into an agreement with GG&G (the
"GG&G Agreement") pursuant to which GG&G was retained by the Company to provide
crisis management and turnaround services. Mr. Crisman was the principal
consultant assigned by GG&G to perform these services and was appointed to serve
as Chief Executive Officer of the Company. Under the terms of the GG&G
agreement, GG&G was paid a monthly fee of $70,000 plus expenses through May
1995. The monthly fee was reduced to $55,000 effective June 1995 for the
services of Mr. Crisman and any other consultants assigned by GG&G to provide
services to the Company. In July 1995, the Board concluded that the turnaround
engagement of GG&G had been successfully completed, and the agreement with GG&G
was then terminated. The Company paid a total of $140,000 and $680,000 in
consulting fees to GG&G in fiscal 1994 and fiscal 1995, respectively.
In December 1994, the Company also granted an option to GG&G Equity
Partners, a partnership comprised in part of members of GG&G, to purchase
250,000 Shares of common stock at the then market price of $4.125 per share as a
success fee (the "GG&G options"). At approximately the same time, the GG&G
options were assigned to the individual partners of GG&G Equity Partners,
including Messrs. Goldress, Crisman and Brian Stone. The options, are
nonqualified options which are currently exercisable and the shares issuable
upon exercise of these options have been registered under the Securities Act of
1933, as amended, on Form S-3.
Following the termination of the GG&G Agreement on August 1, 1995, Mr.
Crisman was hired by the Company as Chief Executive Officer. On November 3,
1995, he was elected Chairman of the Board. Pursuant to the GG&G Agreement, a
recruiting fee of $131,250 was paid to GG&G upon the employment of Mr. Crisman
and final payments of $50,802 were paid during fiscal 1996.
In March, 1996, Magnetic Data Technologies, Inc. ("MDT"), a subsidiary of
the Company, (formerly "Delta Bravo, Inc.") engaged the services of Brian R.
Stone, a GG&G consultant, and formerly Acting Chief Financial Officer of the
Company, as Chief Executive Officer of MDT. In accordance with that engagement,
MDT pays to GG&G a monthly fee of $35,000. The Board of Directors of the Company
has also approved payment to GG&G of a success fee linked directly to cash
proceeds to the Company resulting from the operations of MDT and its
subsidiaries and from their sale to a third party. In the event MDT is not sold,
the success fee will be based on the earnings of MDT and its subsidiaries. MDT
paid a total of $245,000 and $420,000 in consulting fees to GG&G in fiscal 1996
and fiscal 1997, respectively.
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.
-13-
<PAGE>
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 1998, 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 Mergers."
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 1998 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:
-14-
<PAGE>
o The Company's compensation programs should be effective in
attracting, motivating and retaining key executives
o 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
o 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
o 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 no increases in base
salary for the executive officers in fiscal 1998.
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. The Compensation Committee did not award
bonuses for fiscal 1998.
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 the
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
-15-
<PAGE>
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 1998, 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
October 1, 1997 to February 6, 1998, the date the Compensation Committee
approved the cancellation and regrant of options. The market price of the
Company's Common Stock continued to decline from February 6, 1998 to September
17, 1998, at which time the Committee again approved the cancellation and
regrant of options. In light of the substantial decline in the market price, the
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 on February 6, 1998, and on September 17, 1998
were eligible to participate in the option regrants. Eligible optionees were
permitted to exchange options that were granted under the Company's stock option
plans that had been granted to the optionees prior to the respective regrant
dates. 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 the respective regrant dates. The new options
provided for the same vesting schedule and term as the existing options
commencing on the date of grant. Regranted options for Messrs. Crisman and
Altavilla provided for the purchase of 300,000 shares and 15,000 shares,
respectively, on February 6, 1998 and 700,000 shares and 56,250 shares,
respectively, on September 17, 1998. Regranted options to all employees
represented options to purchase a total of 1,140,799 shares on February 6, 1998
and 2,841,022 shares on September 17, 1998.
-16-
<PAGE>
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 1998, reviewed
his existing compensation arrangements, comparable compensation for chief
executive officers of other companies and the performance of both Mr. Crisman
and the Company. In order to provide a long-term incentive to Mr. Crisman, the
Committee granted to him nonqualified stock options to purchase 100,000 shares
of the Company's Common Stock at fair market value on the date of grant. Mr.
Crisman did not receive an increase in his base salary or a bonus during fiscal
1998.
Members of the Compensation Committee:
Herbert M. Dwight, Jr.
Harold R. Frank
Jerry E. Goldress
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 1999.
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).
-17-
<PAGE>
PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return*
Among Applied Magnetics Corporation, the S&P 500 Index
and the Hambrecht & Quist Computer Hardware Index
Cumulative Total Return
-------------------------------------------
9/93 9/94 9/95 9/96 9/97 9/98
-------------------------------------------
Applied Magnetics Corporation 100 47.95 171.23 195.89 366.44 46.58
S&P Technology Sector 100 103.69 134.53 161.89 227.37 247.93
Hambrecht & Quist Computer Hardware 100 132.22 210.53 254.70 492.40 549.65
- ----------
* $100 invested on September 30, 1993 in stock or index including
reinvestment of dividends. Fiscal year ending October 3.
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 2000 Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before September 1, 1999 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.
-18-
<PAGE>
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 26, 1999 at 10:00 a.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 1998 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 THE REVERSE SIDE AND RETURN IN THE
ACCOMPANYING ENVELOPE.
<PAGE>
X Please mark
your votes as
indicated in
this sample
The Board of Directors unanimously recommends a vote "FOR" Proposals
1, 2 and 3:
1. ELECTION OF DIRECTORS NOMINEES: FOR all WITHHOLD
Craig D. Crisman, Herbert M. Dwight, Jr. nominees AUTHORITY
Harold R. Frank, Jerry E. Goldress and listed to vote for
Dr. R.C. Mercure, Jr. (except as ALL nominees
indicated in
the space
below)
[ ] [ ]
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- ------------------------------------------
2. To approve an amendment to the
Company's Certificate of FOR AGAINST ABSTAIN
Incorporation, to increase the [ ] [ ] [ ]
number of shares of Common Stock
authorized for issuance from
80,000,000 to 120,000,000
3. To ratify the appointment of Arthur
Andersen LLP, independent certified FOR AGAINST ABSTAIN
public accountants, as auditors for [ ] [ ] [ ]
the Company for the fiscal year
ending October 2, 1999.
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: _____________________, 1999
- --------------------------------
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.
