SOLICITATION OF PROXIES
SCHEDULE 14A
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))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
.......................................................................
Applied Signal Technology, Inc.
Applied Signal Technology, Inc.
Brian M. Offi
Vice President-Finance, CFO
400 West California Avenue
Sunnyvale, CA 94086
.......................................................................
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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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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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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APPLIED SIGNAL TECHNOLOGY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 11, 1999
The 1998 Annual Meeting of Shareholders of Applied Signal
Technology, Inc. (the "Company") will be held at the Sheraton Hotel,
located at 1100 N. Mathilda Avenue, Sunnyvale, California, on March 11,
1999 at 4:00 p.m., local time, for the following purposes:
1. To elect three (3) Class I directors to hold office
until the 2001 Annual Meeting of Shareholders or
until their respective successors are elected and
qualified.
2. To vote on a proposal to ratify the appointment of
Ernst & Young LLP as the independent auditors for the
Company for the fiscal year ending October 31, 1999.
3. To vote on a propoasl to amend the Company's 1993
Employee Stock Purchase Plan to increase by 600,000
shares the maximum number of shares of Common Stock
that may be issued under the plan.
4. To transact such other business as may properly come
before the meeting, or any adjournment thereof.
Shareholders of record at the close of business on January 25,
1998 are entitled to notice of, and to vote at, this meeting and any
continuation or adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary L. Yancey
----------------------------------
Gary L. Yancey, President
Sunnyvale, California
February 2, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED
TO SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN
ENVELOPE SO THAT YOUR STOCK MAY BE REPRESENTED AT THE MEETING.
PROXY STATEMENT
1998 ANNUAL MEETING OF SHAREHOLDERS
APPLIED SIGNAL TECHNOLOGY, INC.
400 West California Avenue
Sunnyvale, California 94086
(408) 749-1888
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Applied Signal Technology, Inc., a
California corporation (the "Company"), of Proxies for use at the Annual Meeting
of Shareholders to be held on March 11, 1999, or any adjournment thereof, for
the purposes set forth in the accompanying Notice of Annual Meeting. This Proxy
Statement and accompanying Proxy are first being sent to shareholders,
on approximately, February 8, 1999. The cost of the solicitation
of Proxies will be borne by the Company. The Board may use the services of
the Company's directors, officers and others to solicit Proxies, personally or
by telephone. The Board may also arrange with brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation material to the
beneficial owners of the stock held of record by such persons and the Company
may reimburse them for their reasonable out-of-pocket expenses incurred in so
doing. The Annual Report to Shareholders for the fiscal year ended October 31,
1998, including financial statements mailed to shareholders concurrently with
the mailing of this Proxy Statement.
VOTING RIGHTS
The voting securities of the Company entitled to vote at the Annual
Meeting consist of shares of Common Stock. Only shareholders of record at the
close of business on January 25, 1999 are entitled to notice of and to vote at
the annual meeting. On that date, there were 8,342,750 shares of the Company's
Common Stock issued and outstanding. Each share of Common Stock is
entitled to one vote. The Company's Bylaws provide that a majority of
all of the shares of the stock entitled to vote, whether present in person or
by proxy, shall constitute a quorum for the transaction of business at the
meeting. If an executed Proxy is submitted without any instruction for the
voting of such Proxy, the Proxy will be voted in favor of the proposals
described.
All shares represented by valid Proxies received prior to the Annual
Meeting will be voted and, where a shareholder specifies by means of the Proxy a
choice with respect to any matter to be acted upon, the shares will be voted in
accordance with the specifications so made. A shareholder who signs and
returns a Proxy will have the power to revoke it at any time before it is
voted. A Proxy may be revoked by filing with the Secretary of
the Company a written revocation or duly executed Proxy bearing a later
date, or by appearing at the Annual Meeting and electing to vote in person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of January 4, 1999 by (i)
each person who is known by the Company to own beneficially more than 5 percent
of the outstanding Common Stock of the Company, (ii) each of the Company's
directors and director-nominees, (iii) the Chief Executive Officer and the other
executive officers of the Company whose total salary and bonus for the year
ended October 31, 1998 exceeded $100,000, and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF BENEFICIAL OWNER OF GROUP BENEFICIALLY COMMON STOCK
AND NATURE OF BENEFICIAL OWNERSHIP(1) OWNED OUTSTANDING
- -------- ---------------- ------------
<S> <C> <C>
Capital Technology 513,900 6.1
McMullen Creek Office Center
P.O. Box 472428
Charlotte, NC 28247-2428
David D. Elliman 496,256 (2) 5.9
18 East 74th Street
New York, NY 10021
John R. Treichler 504,481 (4) 6.0
Globeflex Capital LP 456,100 5.4 **
4365 Executive Dr.
Ste. 720
San Diego, CA 92121
Gary L. Yancey 441,121 (5) 5.3
Dimensional Fund ADV 426,000 5.0 **
1299 ocean Ave.
11th Floor
Santa Monica, CA 90411
James F. Collins 414,431 (3) 4.9
Bani M. Scribner, Jr. 36,727 (6) *
Kenneth Snow 32,009 (7) *
Kenway Wong 56,173 (8) *
Brian M. Offi 30,174 (9) *
Stuart G. Whittelsey, Jr. 5,001 *
John P. Devine 1,000 *
All directors and executive officers 2,037,594 (10) 24.3
as a group (11 persons)
</TABLE>
- -----------
* Less than 1%
** Form 13F Reporting
(1) Except as indicated in the footnotes to this table, the persons named
in the table possess sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject
to joint tenancy, tenancy-in-common or community property laws, where
applicable. Unless otherwise indicated, the business address of each of
the beneficial owners is 400 W. California Avenue, Sunnyvale, CA 94086.
(2) Includes 161,378 shares held by Underhill charitable Lead Trust of which
the reporting person is a trustee and a beneficiary and the reporting
person disclaims beneficial ownership of his shares in excess of his
beneficiary's interest in the trust; 118,544 shares held by Trust u/w
Isabel S. Rockefeller of which the reporting person is a trustee and a
membr of ther reporting person's immediae family is beneficiary and the
reporting person disclaims beneficial ownership of shares in excess of
the reporting person's interest in the trust; 100,000 share held by
Rama Investment Partnership of which the reporting person is a general
partner and ther reporting person disclaims beneficial ownership of
shares in excess of his partnership interest; 41,666 shares held by
Trust u/d Avery Rockefeller of which the reporting person is a trustee
and member of the repoting person's immediate family is a beneficiary,
and the reporting person disclaims beneficial ownership of shares in
excess of the reporting person's interest in the trust; 16,111 shares
held directly as a result of transfers to the reporting person of
securities previously reported as indirectly owned by Rockefeller
Charitable Lead Trust and the A.M. Rockefeller Trust; 14,147 shares
held by Rockefeller Charitable Lead Trust of which the reporting person
is a trustee and beneficial ownreship of shares of the reporting
person's interest in the trust; 14,013 shares held by A.M. Rockefeller
Trust of which the reporting person is a trustee and a beneficiary and
the reporting person disclaims beneficial ownership of sares in excess
of the reporting person's interest in the trust (the change reflects a
transfer to the reporting person); 7,275 shares held by Overhills
Partnership, Inc. of which the reporting person is a partner and the
reporting person disclaims beneficial ownership of shares in excess of
his partnership interest; 5,335 shares held by Estate of Anna M.
Rockefeller of which the reporting person is an executor and
beneficiary and the reporting person disclaims beneficial ownership
of shares in excess of his interest in the estate; 3,201 shares held
by Estate of Gladys Underhill of which the reporting person is an
executor and a beneficiary, and the reporting person disclaims
bendficial ownership of shares in excess of his interest in the estate;
2,425 shares held by Underhill Foundation of which the reporting person
is a trustee, and the reporting person disclaims beneficial ownership
of such shares; 2,425 shares held by Wild Wings Foundation of which
the reporting person is a trustee and the reporting person disclaims
beneficial ownership of such shares; 2,245 shares held by Trust u/w
Avery Rockefeller of which the reporting person is a trustee and
beneficiary, and the reporting person disclaims beneficial ownership
in excess of the reporting person's interest in the trust; and 36
shares held by PARock Limited Partnership of which the reporting
person is a general partner.
(3) Includes 1,120 shares subject to an option that is exercisable within
60 days of January 5, 1999.
(4) Includes 1,120 shares subject to an option that is exercisable within
60 days of January 5, 1999.
(5) Includes 1,120 shares subject to an option that is exercisable within
60 days of January 5, 1999.
(6) Includes 21,120 shares subject to an option that is exercisable within
60 days of January 5, 1999.
(7) Includes 6,120 shares subject to an option that is exercisable within
60 days of January 5, 1999.
(8) Includes 12,320 shares subject to an option that is exercisable within
60 days of January 5, 1999.
(9) Includes 1,120 shares subject to an option that is exercisable within
60 days of January 5, 1999.
(10) Includes 44,200 shares subject to an option that is exercisable within
60 days of January 5, 1999.
PROPOSAL ONE
NOMINATION AND ELECTION OF DIRECTORS
The Company's Articles of Incorporation, as amended, provide for a
classified Board of Directors consisting of two classes of directors. At the
1998 Annual Meeting of Shareholders, three Class II Directors were elected to
terms expiring in 2000. Three Class I Directors were elected in 1997
to terms expiring at this year's Annual Meeting. The Board has designated
three current Directors as nominees for election at this meeting as Class I
Directors (John P. Devine, David D. Elliman, Gary L. Yancey).
Directors elected at this meeting will serve until the 2001 Annual Meeting
of Shareholders and until their respective successors are duly elected and
qualified.
Management knows of no reason why any nominee should be unable or
unwilling to serve. However, if any nominee(s) should for any reason be unable
or unwilling to serve, the proxies will be voted for such substitute nominees
as the Board may designate.
If a quorum is present and voting, the nominees receiving the highest
number of votes will be elected as directors. Abstentions and shares held by
brokers that are present, but not voted because the brokers were prohibited from
exercising discretionary authority, i.e., "broker non-votes," will be counted
as present for purposes of determining if a quorum is present.
Set forth below is certain information with respect to age and
background for each of the Company's directors.
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITIONS WITH THE COMPANY AGE SINCE
- -------------------------- -------------------------------------- ----- --------
<S> <C> <C> <C>
Class I directors, who se terms will expire at the 1999 Annual Meeting of Shareh
John P. Devine Director 61 1995
David D. Elliman Director 48 1991
Gary L. Yancey President and Chairman of the Board 53 1984
Class II directors, who are nominees for election at this annual meeting:
James F. Collins Laboratory Manager and Director 56 1984
John R. Treichler Senior Scientist and Director 51 1984
Stuart G. Whittelsey, Jr. Director 69 1990
</TABLE>
John P. Devine has been a director of the Company since May,
1995. Mr. Devine served as Deputy Director, National Security Agency (NSA), for
Technology and Systems from 1992 to 1995 and as Deputy Director, NSA for
Research and Engineering from 1990 to 1992. From 1989 to 1990 he served as NSA
Chief of Staff. Mr. Devine has been a consultant to the defense industry since
his retirement from the NSA.
David D. Elliman has been a director of the Company since
1991. He founded in 1981 and continues to serve as a principal of Elmrock, Inc.,
an investment advising firm. He is a trustee of numerous trusts, the director of
closely held companies and general partner of several limited partnerships
engaged in investment activities. Mr. Elliman serves as President of several
special purpose finance affiliates of Citicorp Bank, Chase Manhattan Bank,
Sovran Financial Bank, Society Bancorp, Hyatt International and State Street
Bank and Trust.
Gary L. Yancey, a co-founder of the Company, has served the
Company as President and Chairman of the Board since the Company's incorporation
in January 1984. Prior to co-founding the Company, he was employed for ten years
by ARGOSystems Inc., a manufacturer of electronic reconnaissance systems, most
recently serving as Director of the Strategic Systems Division, and for seven
years as an engineer with GTE Sylvania Inc., a defense electronics company.
James F. Collins, a co-founder of the Company, has been a
director of and employed by the Company since its incorporation in 1984. He has
served in the position of Laboratory Manager with the Company since 1984. Prior
to co-founding the Company, Mr. Collins worked at ARGOSystems Inc., a
manufacturer of electronic reconnaissance systems, for fourteen years, most
recently serving in the Strategic Systems Division. Prior to working at
ARGOSystems, Inc., Mr. Collins served for three years as an officer in the
United States Navy.
John R. Treichler, a co-founder of the Company, has been a
director of and employed by the Company since its incorporation in 1984. He has
served in the position with of Senior Scientist with the Company since 1984.
Prior to co-founding the Company, he worked at ARGOSystems Inc. for seven years,
most recently serving as a senior scientist in the Strategic Systems Division,
and at Stanford University for three years in the Information Systems
Laboratory.
Stuart G. Whittelsey, Jr. has been a director of the Company
since 1990. Since April 1994 he has been a principal of his own consulting
firm, Whittelsey Associates, which is engaged in corporate financial
management. From July 1993 through April 1994, he was Chief Executive Officer
of Lytton Garden Inc., a residence for HUD qualified seniors combined with a
skilled nursing facility in Palo Alto, California. From January 1990 through
June 1993, he was employed by Acurex Environmental Corporation, an environmental
engineering firm, and its affiliated companies, where he most recently served
as Vice President, Finance and Administration and Chief Financial Officer.
MEETINGS OF THE BOARD OF DIRECTORS
During fiscal 1998, the Board held four meetings. During that
period, the Audit Committee of the Board held one meeting and the Compensation
Committee held one meeting. The Company does not have a nominating committee of
the Board. No director serving on the Board in fiscal 1998 attended less than
75% of such meetings of the Board and the committees on which he serves.
The members of the Audit Committee during the Company's 1998
fiscal year were Stuart G. Whittelsey, Jr., John P. Devine, and David D.
Elliman. The functions of the Audit Committee include reviewing and approving
the results of the annual audit.
The members of the Compensation Committee during fiscal 1998
were Stuart G. Whittelsey, Jr., John P. Devine, and David D. Elliman. The
function of the Compensation Committee is to set and administer the total
compensation program for the executive officers of the Company.
PROPOSAL TWO
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP to serve as
independent auditors to audit the financial statements of the Company for fiscal
1999. Ernst & Young LLP has acted in such capacity since its appointment for
fiscal 1985. Representatives of Ernst & Young LLP who will be present at the
Annual Meeting, will be given the opportunity to make a statement if the
representatives desire and will be available to respond to appropriate
questions.
THE BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL. In the event
that ratification by the shareholders of the appointment of Ernst & Young LLP as
the Company's independent auditors is not obtained, the Board will reconsider
such appointment.
The affirmative vote of a majority of the votes cast at the
annual meeting of shareholders, at which a quorum representing a majority of all
outstanding shares of Common Stock of the Company is present and voting, either
in person or by proxy, is required for approval of this proposal. Abstentions
and broker non-votes will each be counted as present for purposes of determining
the presence of a quorum, but will not be counted as having been voted on the
proposal.
PROPOSAL THREE
AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE PLAN
General
At the Annual Meeting, the shareholders will be asked to
approve an amendment to the Company's 1993 Employee Stock Purchase Plan
(the "Purchase Plan") to increase by 600,000 the maximum number of
shares of Common Stock that may be issued under the Purchase Plan.
The Company's shareholders have previously approved the
reservation of 1,600,000 shares of the Company's Common Stock (subject
to adjustment upon certain changes in the capital structure of the
Company) for issuance to employees under the Purchase Plan. As of
January 7, 1998, 1,522,043 shares of Common Stock had been issued under
the Purchase Plan, leaving 77,957 shares available for future
purchases.
The Board of Directors believes that the Purchase Plan
benefits the Company and its shareholders by providing its employees
with an opportunity to purchase shares of Common Stock that is helpful
in attracting, retaining, and motivating valued employees. To provide
an adequate reserve of shares to permit the Company to continue the
Purchase Plan, the Board of Directors has amended the Purchase Plan,
subject to approval by the shareholders, to increase the maximum number
of shares that may be issued under the Purchase Plan by 600,000 to an
aggregate of 2,200,000 shares.
Summary of the Purchase Plan, as Amended
The following summary of the Purchase Plan is qualified in
its entirety by the specific language of the Purchase Plan, a copy of
which is available to any shareholder upon request.
General. The Purchase Plan is intended to qualify as an
"employee stock purchase plan" under section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"). Each participant in the
Purchase Plan is granted at the beginning of each offering under the
plan (an "Offering") the right to purchase through accumulated payroll
deductions up to a number of shares of the Common Stock of the Company
(a "Purchase Right") determined on the first day of the Offering. The
Purchase Right is automatically exercised on each purchase date during
the Offering unless the participant has withdrawn from participation in
the Offering or the Purchase Plan prior to such date.
Shares Subject to Plan. The shareholders have previously
authorized an aggregate of 1,600,000 shares of the Company's Common
Stock for issuance upon the exercise of Purchase Rights granted under
the Purchase Plan. As amended, the Purchase Plan would provide that the
maximum aggregate number of authorized but unissued shares of Common
Stock that may be issued under the plan is 2,200,000. Appropriate
adjustments will be made to the shares subject to the Purchase Plan and
to outstanding Purchase Rights upon any stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification,
or similar change in the capital structure of the Company, or in the
event of any merger, sale of assets or other reorganization of the
Company. If any Purchase Right expires or terminates, the shares
subject to the unexercised portion of such Purchase Right will again be
available for issuance under the Purchase Plan.
Administration. The Purchase Plan is administered by the
Board of Directors or a duly appointed committee of the Board of
Directors (hereinafter referred to as the "Board"). Subject to the
provisions of the Purchase Plan, the Board determines the terms and
conditions of Purchase Rights granted under the plan. The Board will
interpret the Purchase Plan and Purchase Rights granted thereunder, and
all determinations of the Board will be final and binding on all
persons having an interest in the Purchase Plan or any Purchase Right.
Eligibility. Any employee of the Company or of any present
or future parent or subsidiary corporation of the Company designated by
the Board for inclusion in the Purchase Plan is eligible to participate
in an Offering under the plan, except for any employee who owns or
holds options to purchase, or who, as a result of participation in the
Purchase Plan, would own or hold options to purchase, five percent or
more of the total combined voting power or value of all classes of
stock of the Company or of any parent or subsidiary corporation of the
Company.
Offerings. Generally, each Offering of Common Stock under
the Purchase Plan is for a period of 24 months (an "Offering Period").
Offering Periods will generally commence on or about June 1 and
December 1 of each year (an "Offering Date"). Generally, each Offering
Period is comprised of four six-month "Purchase Periods" ending on or
about the last days of November and May (a "Purchase Date"). The Board
may establish a different term for one or more Offerings or different
commencement or ending dates for any Offering Period or Purchase
Period.
Participation and Purchase of Shares. Participation in an
Offering under the Purchase Plan is limited to eligible employees who
authorize payroll deductions prior to the Offering Date. Payroll
deductions may not exceed 10% (or such other rate as the Board
determines) of an employee's compensation on any payday during the
Offering Period. Once an employee becomes a participant in the Purchase
Plan, that employee will automatically participate in each successive
Offering Period until such time as the employee withdraws from the
Purchase Plan, becomes ineligible to participate, or terminates
employment.
Subject to certain limitations, each participant in an
Offering has a Purchase Right equal to a number of whole shares
determined by dividing $50,000 by the fair market value of a share of
Common Stock on the Offering Date. However, no participant may purchase
under the Purchase Plan shares of Common Stock having a fair market
value exceeding $25,000 in any calendar year (measured by the fair
market value of the Company's Common Stock on the first day of the
Offering Period in which the shares are purchased).
On each Purchase Date, the Company issues to each
participant in the Offering the number of shares of the Company's
Common Stock determined by dividing the amount of payroll deductions
accumulated for the participant during the Purchase Period by the
purchase price, limited in any case by the number of shares subject to
the participant's Purchase Right for that Offering. The price at which
shares are sold under the Purchase Plan is established by the Board but
may not be less than 85% of the lesser of the fair market value per
share of the Company's Common Stock on the Offering Date or on the
Purchase Date. The fair market value of the Common Stock on any
relevant date generally will be the closing sale price per share on
such date as reported on the Nasdaq National Market. Any payroll
deductions under the Purchase Plan not applied to the purchase of
shares will be returned to the participant, unless the amount remaining
is less than the amount necessary to purchase a whole share of Common
Stock, in which case the remaining amount may be applied to the next
Purchase Period.
A participant may withdraw from an Offering at any time
without affecting his or her eligibility to participate in future
Offerings. However, once a participant withdraws from an Offering, that
participant may not again participate in the same Offering.
Change in Control. The Purchase Plan provides that, in the
event of (i) a sale or exchange by the shareholders of all or
substantially all of the Company's stock, a merger or consolidation in
which the Company is a party, or the sale, exchange or transfer of all
or substantially all of the assets of the Company, wherein, upon any
such event, the shareholders of the Company before such event do not
retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company, its successor, or the
corporation to which the assets of the Company were transferred, or
(ii) a liquidation or dissolution of the Company (a "Change in
Control"), the acquiring or successor corporation may assume the
Company's rights and obligations under the Purchase Plan. However, if
the acquiring or successor corporation elects not to assume the
outstanding Purchase Rights, the Board must provide that all
outstanding Purchase Rights will become immediately exercisable prior
to the Change in Control. Any Purchase Rights that are not assumed or
exercised prior to the Change in Control will terminate.
Termination or Amendment. The Purchase Plan will continue
until terminated by the Board or until all of the shares reserved for
issuance under the plan have been issued. The Board may at any time
amend or terminate the Purchase Plan, except that the approval of the
Company's shareholders is required within twelve months of the adoption
of any amendment increasing the number of shares authorized for
issuance under the Purchase Plan, or changing the definition of the
corporations which may be designated by the Board as corporations the
employees of which may participate in the Purchase Plan.
Summary of United States Federal Income Tax Consequences
The following summary is intended only as a general guide
as to the United States federal income tax consequences under current
law of participation in the Purchase Plan and does not attempt to
describe all possible federal or other tax consequences of such
participation or tax consequences based on particular circumstances.
Generally, there are no tax consequences to an employee of
either becoming a participant in the Purchase Plan or purchasing shares
under the Purchase Plan. The tax consequences of a disposition of
shares vary depending on the period such stock is held before its
disposition. If a participant disposes of shares within two years after
the Offering Date or within one year after the Purchase Date on which
the shares are acquired (a "disqualifying disposition"), the
participant recognizes ordinary income in the year of disposition in an
amount equal to the difference between the fair market value of the
shares on the Purchase Date and the purchase price. Such income may be
subject to withholding of tax. Any additional gain or resulting loss
recognized by the participant from the disposition of the shares is a
capital gain or loss. If the participant disposes of shares at least
two years after the Offering Date and at least one year after the
Purchase Date on which the shares are acquired, the participant
recognizes ordinary income in the year of disposition in an amount
equal to the lesser of (i) the difference between the fair market value
of the shares on the date of disposition and the purchase price or (ii)
15% of the fair market value of the shares on the Offering Date. Any
additional gain recognized by the participant on the disposition of the
shares is a capital gain. If the fair market value of the shares on the
date of disposition is less than the purchase price, there is no
ordinary income, and the loss recognized is a capital loss. If the
participant owns the shares at the time of the participant's death, the
lesser of (i) the difference between the fair market value of the
shares on the date of death and the purchase price or (ii) 15% of the
fair market value of the shares on the Offering Date is recognized as
ordinary income in the year of the participant's death.
If the exercise of a Purchase Right does not constitute an
exercise pursuant to an "employee stock purchase plan" under section
423 of the Code, the exercise of the Purchase Right will be treated as
the exercise of a nonqualified stock option. The participant would
therefore recognize ordinary income on the Purchase Date equal to the
excess of the fair market value of the shares acquired over the
purchase price. Such income is subject to withholding of income and
employment taxes. Any gain or loss recognized on a subsequent sale of
the shares, as measured by the difference between the sale proceeds and
the sum of (i) the purchase price for such shares and (ii) the amount
of ordinary income recognized on the exercise of the Purchase Right,
will be treated as a capital gain or loss, as the case may be.
A capital gain or loss will be long-term depending on the
participant's holding period and date of sale. Both long-term and
short-term capital gains are at present generally subject to the same
tax rates as ordinary income, except that applicable long-term capital
gains are currently subject to a maximum tax rate of 20%.
If the participant disposes of the shares in a
disqualifying disposition the Company should be entitled to a deduction
equal to the amount of ordinary income recognized by the participant as
a result of the disposition, except to the extent such deduction is
limited by applicable provisions of the Code or the regulations
thereunder. In all other cases, no deduction is allowed the Company.
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the votes cast at the
Annual Meeting of Shareholders, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is
present and voting, either in person or by proxy, is required for
approval of this proposal. Abstentions and broker non-votes will each
be counted as present for purposes of determining the presence of a
quorum, but will not be counted as having been voted on the proposal.
The Board of Directors believes that the continued
opportunity to purchase shares under the Purchase Plan at a discount
from market price is important to attracting and retaining qualified
officers and employees essential to the success of the Company, and
that stock ownership is important to providing such persons with
incentive to perform in the best interest of the Company. THEREFORE,
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO AMEND THE PURCHASE PLAN TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF
SHARES OF COMMON STOCK ISSUABLE UNDER THE PLAN TO 2,200,000.
EXECUTIVE COMPENSATION AND OTHER MATTERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information for each of the
Company's last three fiscal years concerning the compensation of the chief
executive officer of the Company and the other executive officers of the Company
whose total salary and bonus for service in all capacities to the Company for
the fiscal year ended October 31, 1998 exceeded $100,000 during such fiscal
year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------- ------------
Securities
Other Underlying
Fiscal Salary Bonus Annual Options
Name and Principal Position Year ($) ($) Compensation(*) (#)
- ----------------------------- --------- --------- --------- --------------------------
<S> <C> <C> <C> <C> <C>
Gary L. Yancey 1998 $371,534 $25,442 $17,395 5,600
President and Chief Executive 1997 334,720 12,051 15,592 0
Officer 1996 308,516 998 15,249 0
Kenneth Snow 1998 223,395 15,097 9,523 5,600
Vice President-Operations 1997 205,572 5,141 8,071 0
1996 182,710 2,215 7,166 1,000
Brian M. Offi 1998 227,347 15,100 9,523 5,600
Vice President Finance and 1997 205,578 5,192 8,122 0
Chief Financial Officer 1996 185,159 2,324 7,834 6,000
Bani M. Scribner, Jr. 1998 233,645 14,970 9,523 5,600
Vice President-Strategic 1997 204,382 4,020 7,229 20,000
Systems Division 1996 120,549 1,658 4,771 20,000
Kenway Wong 1998 209,730 13,613 7,902 5,600
Vice President-Communication 1997 179,015 4,591 6,903 0
Systems Division
* Company funded Applied Signal Technology 401K Retirement Plan contribution.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR - 1998
Options were granted in fiscal 1998 to the persons named in
the Option Grants Table.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Apperciation for
Individual Grants Option Term (1)
- ---------------------------------------------------------------------------- ------------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise or
Options to Employees Base Price
Name Granted (#) in Fiscal Year ($/Sh) (2) Expiration date 5% ($) 10% ($)
- ---------------- ------------ --------------- ----------- -------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Brian Offi 5,600 1.9% $15.50 11/20/05 (3) $128,243 $186,064
Ben Scribner 5,600 1.9% $15.50 11/20/05 (3) $128,243 $186,064
Ken Snow 5,600 1.9% $15.50 11/20/05 (3) $128,243 $186,064
Ken Wong 5,600 1.9% $15.50 11/20/05 (3) $128,243 $186,064
Gary Yancey 5,600 1.9% $15.50 11/20/05 (3) $128,243 $186,064
</TABLE>
(1) These gains are based on assumed rates of stock appreciation of five percent
and ten percent, compounded annually from the date the options were granted
to the date of their expieration. The gains shown are net of the option
price, but do not include deductions for taxes and other expenses that may
be associated with the exercise. Actual gains, if any, on stock option
exercises will depend on future performance of the common stock, the option
holder's continued employemnt through the option period, and the date
which the options are exercised.
(2) All options were granted at market value on date of grant.
(3) Option grant pursuant to the Company's 1991 Stock Option Plan. Options
vest on a basis of one-fifth per year date over a period of 5 years while
optionee remains an employee of the Company/
OPTION EXERCISES AND FISCAL 1998 YEAR-END VALUES
OPTION EXERCISES
AND FISCAL 1998 YEAR-END VALUES
<TABLE>
<CAPTION> Option Exercises in Fiscal 1998 and FY-End Option Value
-------------------------------------------------
Number of Securities Value of Unexercised
Underlying Options at In-the-Money Options at
October 31, 1998 October 31, 1998 (1)
------------------------------- -------------------------------
Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired on Realized ($) (2) (#) (#) ($) ($)
Name Exercise (#)
- ------------------------------------ --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Brian M. Offi 8,270 $54,830 5,600 0 0
Ken Snow 360 2,362 5,000 5,600 46,550 0
Ken Wong 360 2,362 11,200 5,600 84,827 0
Gary L. Yancey 360 2,362 0 5,600 0 0
Ben Scribner 0 0 20,000 25,600 116,200 136,200
</TABLE>
----------
(1) The closing sale price for the common stock as reported by the
the Nasdaq National Market on October 31, 1998 was $11.31.
October 31, 1998 was $11.31. Value is calculated on the basis
of the difference between the option exercise price and $11.31
multiplied by the number of shares of common stock underlying
the option.
(2) The values in this column are based on the last reported sale
price of the common stock on the respective dates of exercise
as reported by the Nasdaq National Market, less the
respective option exercise prices.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not compensated by the
Company for services provided as a director. Each of the Company's directors who
are not employees was paid $18,000 in annual retainer fees during fiscal 1998.
The Company expects to pay an annual retainer of approximately $19,200 to its
non-employee directors in fiscal 1999. In addition, the Company reimburses
out-of-pocket travel expenses of non-employee directors not residing in the San
Francisco Bary area in accordance with the Company's travel policy.
Outside directors, Messrs. Elliman, Devine, and Whittelsey were
granted 2,000 shares each which vests 1/5 per year on the date of grant for a
period of five years.
CHANGE OF CONTROL ARRANGEMENTS
Under the Company's 1991 Stock Option Plan (the "Option Plan"), upon
a change of control of the Company pursuant to a merger or acquisition of the
Company, the acquiring or surviving company must either assume the Company's
obligations under outstanding options or substitute options for its own shares.
For options granted by the Company under the Option Plan prior to January 4,
1992, if the acquiring or surviving company in certain transactins does not
either assume these obligations or substitute these options, the Board must
accelerate the vesting and exercisability of unvested and unexercisable options
to a date prior to the completion of the transaction. Under these terms of
the Option Plan, all accelerated options not exercised prior to the completion
of the transaction will terminate. Of the officers named in the Summary
Compensation Table, Mr. Snow and Mr. Wong hold options granted under the Option
Plan prior to January 4, 1992 to purchase 4,000 and 4,700 shares, respectively.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors set
compensation for the Company's executive officers for fiscal 1997. The
Committee is comprised of the three non-employee directors of the Company,
Messrs. Elliman, Devine and Whittelsey.
The Compensation Committee is responsible for setting and
administering the total compensation program for the executive officers of the
Company. Recommendations for annual salary for the executive officers are made
to the Compensation Committee by the Chief Executive Officer ("CEO") and the
Company's Human Resources Manager.
Salaries are generally set for the executive officers by evaluating
their performance, evaluating their goals, evaluating the importance of each
position to the achievement of the Company's strategic goals, and comparing
compensation for the same positions at similarly sized electronics companies.
The compensation of the Company's executive officers consists of
salaries which are set toward the upper end of the appropriate salary ranges
observed at similarly sized electronics companies and relatively modest bonuses
received under plans in which all employees of the Company participate
(under which bonuses are determined using a common objective formula
based upon the entire Company's profit performance), thereby leading to
total cash compensation (salary and bonus) of the Company's executive
officers within the range of the total cash compensation of similarly situated
counterparts at other electronics companies.
For fiscal 1998 the Committee again considered whether to change the
historical compensation structure for the executive officers to provide for
discretionary cash bonuses or equity awards such as stock options based on
personal performance goals. The Committee has decided to increase the use
of stock options for executive compensation. It believes this will
more closely align the compensation of Company executives with Company
performance, as well as with the compensation packages offered executives at
other similarly sized electronic companies. Details of option grants to
officers and directors is disclosed in the table of "Option Grants in Last
Fiscal Year - 1998".
With the background of this philosophy, the Compensation Committee
used the following criteria to establish compensation for fiscal 1998 for its
executive officers. First, the Committee considered the current importance of
each position held by an executive officer to the ability of the Company to
achieve its strategic objectives, including not only the importance of the
function of the group managed by the executive officer, but also the group's
management needs, considering its organization and operation.
Second, the Committee received and considered compensation survey data
covering the total cash compensation (salary and bonus) paid by companies in the
electronics industry with similar annual revenues to the Company. Finally,
the Committee reviewed the self-evaluations of each executive officer and the
CEO's annual review of all other executive officers.
With respect to the Company's CEO Gary Yancey , the Committee
evaluated his performance during fiscal year 1998 with respect to the Company's
revenues, Company's profit margin, the size and progress of the Company's
research anddevelopment efforts, and the quality of the CEO's management of his
line managers. The Committee unanimously concluded that the CEO had a
successful fiscal year, and approved a percentage increase in the CEO's
salary which was in line with the Company's average salary increase for
the fiscal year and placed the CEO in approximately the 75-80th percentile
in terms of total cash compensation as compared to his peers at similarly
sized electronics companies.
The Company's policy with respect to compensation paid to its
executive officers is to deduct such compensation which qualifies under
Section 162(m) of the Internal Revenue Code, as amended, as an expense.
THE COMPENSATION COMMITTEE
David D. Elliman
John P. Devine
Stuart G. Whittelsey, Jr.
COMPARISON OF SHAREHOLDER RETURN
Set forth below is a line graph comparing the annual
percentage change in the cumulative total return on the Company's Common Stock
with the cumulative total return of the Standard & Poor's 400 Mid-Cap Index
("S&P 400") and the Standard & Poor's Aerospace and Defense Index ("S&P
Aerospace and Defense") for the period commencing on October 29, 1993, and
ending on October 31, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM OCTOBER 29, 1993
THROUGH OCTOBER 31, 1998(1)
APPLIED SIGNAL TECHNOLOGY, INC., S&P 400, S&P AEROSPACE AND DEFENSE
[CHART 1]
PLOT POINTS
<TABLE>
<CAPTION>
Applied S&P
Signal S&P 400 Aerospace
Date Technology Mid-Cap and Defense
- ---------------- ------------- ------------ ------------
<S> <C> <C> <C>
29 Oct. 1993 $100.00 $100.00 $100.00
31 Oct. 1994 $110.12 $100.34 $69.57
31 Oct. 1995 $159.28 $119.32 $82.61
31 Oct. 1996 $213.53 $137.76 $82.61
31 Oct. 1997 $225.48 $180.14 $209.78
31 Oct. 1998 $228.98 $189.90 $196.70
</TABLE>
- - ------------
(1) Assumes that $100.00 was invested on October 29, 1993, in the Company's
Common Stock and each index and that all dividends were reinvested. No
dividends have been declared on the Company's Common Stock. Shareholder returns
over the indicated period should not be considered indicative of future
shareholder returns.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the next
annual meeting of shareholders of the Company (i) must be received by the
Company at its offices at 400 West California Avenue, Sunnyvale, California
94086 no later than October 5, 1999 and (ii) must satisfy the conditions
established by the Securities and Exchange Commission for shareholder proposals
to be included in the Company's Proxy Statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which
the Board intends to present or knows that others will present at the Annual
Meeting is as set forth above. If any other matter or matters are properly
brought before the Annual Meeting, or any adjournment thereof, it is the
intention of the persons named in the accompanying form of Proxy to vote the
Proxy on such matters in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary L. Yancey
----------------------------------
Gary L. Yancey, President
Dated: February 2, 1998
APPLIED SIGNAL TECHNOLOGY, INC.
Proxy for Annual Meeting of Shareholders
Solicited by the Board of Directors
The undersigned hereby appoints Gary L. Yancey and Brian M. Offi, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of stock in Applied Signal Technology, Inc. (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of said Company to be held at the Sheaton Hotel,
1100 N. Mathilda Avenue, Santa Clara, California on Thursday,
March 11, 1999 at 4:00 p.m. local time, and at any adjournment thereof
(1) as hereinafter specified upon the proposals listed below and as more
particularly described in the Company's Proxy Statement, receipt of which is
hereby acknowledged and (2) in their discretion upon such other matters
as may properly come before the meeting.
A vote FOR the following proposals is recommended by the Board of
Directors:
1. Election of Class II directors listed below.
Nominees: John P. Devine, David D. Elliman, Gary L. Yancey
[ ] FOR [ ] WITHHELD
[ ] ______________________________________________________
INSTRUCTION: To withhold authority to vote for any nominee,
mark the above box and list the name(s) of the nominee(s) in
the space provided.
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the Company for the fiscal year ending
October 31, 1998.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
3. To approve the proposal to amend the Company's 1993 Employee Stock
Purchase Plan to increase by 600,000 shares the maximum number of
shares of common stock that may be issued under the plan.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
The shares represented hereby shall be voted as specified. If no
specification is made, such shares shall be voted FOR proposals 1, 2 and 3.
Dated _______________________, 1999
(Be sure to date Proxy)
_________________________________
Signature(s)
Sign exactly as your name(s) appears on your stock certificate. If
shares of stock stand on record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the above Proxy. If shares of stock are held of record
by a corporation, the Proxy should be executed by the President or Vice
President and the Secretary or Assistant Secretary, and the corporate seal
should be affixed thereto. Executors or administrators or other fiduciaries
who execute the above Proxy for a deceased stockholder should give their full
title. Please date the Proxy.
Even if you are planning to attend the meeting in person, you are
urged to sign and mail the Proxy in the return envelope so that your stock
may be represented at the meeting.
