<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
APPLIED MICROSYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
APPLIED MICROSYSTEMS CORPORATION
5020 148TH AVENUE N.E.
REDMOND, WASHINGTON 98052
--------------------------------
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
--------------------------------
To the Shareholders
OF APPLIED MICROSYSTEMS CORPORATION:
The Annual Meeting of Shareholders of Applied Microsystems Corporation,
a Washington corporation (the "Company"), will be held on May 25, 1999, at 11:00
am, Pacific Daylight Time, at the Company's headquarters, 5020 148th Avenue
N.E., Redmond, WA, for the following purposes as more fully described in the
accompanying Proxy Statement:
1. To consider and act upon a proposal to amend the Company's
Restated Articles of Incorporation to establish a classified
Board of Directors and to provide for removal of directors
before their specified class date only for cause, all as more
fully described in the accompanying Proxy Statement.
2. To elect five directors;
3. To consider and approve an amendment to the Company's 1992
Performance Stock Plan;
4. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company's fiscal year ending December 31,
1999; and
5. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 31, 1999
will be entitled to vote at the meeting. A list of shareholders as of that date
will be available at the meeting and for ten days prior to the meeting at the
Company's headquarters, 5020 148th Avenue N.E., Redmond, Washington 98052.
By order of the Board of Directors
Robert L. Deinhammer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Redmond, Washington
April 12, 1999
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE>
--------------------------------
PROXY STATEMENT
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL MEETING AND PROXY SOLICITATION INFORMATION...........................1
BOARD OF DIRECTORS..........................................................2
Compensation of Directors..........................................2
Committees of the Board............................................3
Nominees for Director..............................................3
VOTING SECURITIES AND PRINCIPAL HOLDERS.....................................4
Ownership Information..............................................4
Section 16(a) Beneficial Ownership Reporting Compliance............6
COMPENSATION AND BENEFITS...................................................6
Executive Officer Compensation.....................................6
Compensation Committee Report on Executive Compensation............8
Comparative Performance Graph.....................................10
PROPOSAL 1 - AMENDMENT TO CLASSIFY THE BOARD OF DIRECTORS..................11
PROPOSAL 2 - ELECTION OF DIRECTORS.........................................13
PROPOSAL 3 - APPROVAL OF AMENDMENT TO 1992 PERFORMANCE STOCK PLAN..........14
PROPOSAL 4 - APPOINTMENT OF INDEPENDENT AUDITORS...........................16
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING..............................17
EXHIBIT A..................................................................18
</TABLE>
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<PAGE>
PROXY STATEMENT
ANNUAL MEETING AND PROXY SOLICITATION INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Applied Microsystems Corporation, a
Washington corporation (the "Company"), for use at the Annual Meeting of
Shareholders on May 25, 1999, and at any adjournments thereof. This Proxy
Statement, a proxy card, and the Report of the President together with the
Company's Form 10-K as filed with the Securities and Exchange Commission on,
March 31, 1999 (hereinafter, the "Annual Report"), including financial
statements for its fiscal year ended December 31, 1998, are being sent to all
shareholders of record as of the close of business on March 31, 1999, for
delivery beginning on or about April 15, 1999.
At the close of business on March 1, 1999, there were 6,680,688 shares
of Common Stock of the Company outstanding. Only holders of record of the shares
outstanding at such time will be entitled to vote at the meeting. The presence
at the meeting of at least a majority of such shares, either in person or by
proxy, is required for a quorum. Proxies are solicited to give all shareholders
who are entitled to vote on the matters that come before the meeting the
opportunity to do so, whether or not they choose to attend the meeting in
person.
If you are a shareholder of record, you may vote by using the proxy
card enclosed with this Proxy Statement. When your proxy card is returned
properly signed, the shares represented will be voted according to your
directions. You can specify how you want your shares voted on each proposal by
marking the appropriate boxes on the proxy card. The proposals are identified by
number and a general subject title on the proxy card. Please review the voting
instructions on the proxy card and read the text of the proposals and the
position of the Board of Directors in the Proxy Statement prior to marking your
vote. If your proxy card is signed and returned without specifying a vote or an
abstention on any proposal, it will be voted according to the recommendations of
the Board of Directors on that proposal. That recommendation is shown for each
proposal on the proxy card.
For the reasons stated in more detail later in the Proxy Statement, the
Board of Directors recommends a vote FOR the proposal to amend the Articles of
Incorporation to provide for a classified Board of Directors, FOR each of the
five individuals nominated to serve as a director, FOR approval of the amendment
to the Company's 1992 Performance Stock Plan, and FOR ratification of the
appointment of Ernst & Young LLP as independent auditors. If you hold shares of
Common Stock through a brokerage firm or other intermediary, you must provide
instructions on voting to your nominee holder.
The Board of Directors knows of no other matters which are to be
presented at the meeting. However, if any other matters are properly presented
for action, the proxies named on the proxy card will be authorized by your proxy
to vote on them in their discretion.
On each matter properly brought before the meeting, shareholders will
be entitled to one vote for each share of Common Stock held. Under Washington
law and the Company's Articles of Incorporation and Bylaws, if a quorum exists
at the meeting: (a) the amendment to the Articles of Incorporation will be
approved if it receives the affirmative votes of at least a majority of all
outstanding shares of Common Stock; (b) the five nominees for director who
receive the greatest number of votes cast in the election of directors will be
elected; (c) the proposal to approve the amendment to the Company's 1992
Performance Stock Plan will be approved if the number of votes cast in favor of
the proposal exceeds the number of votes cast against it; and (d) the proposal
to ratify the appointment of auditors will be approved if the number of votes
cast in favor of the proposal exceeds the number of votes cast against it.
Shareholders may abstain from voting on the proposal to amend the
Articles of Incorporation, or on one or more of the nominees for director and
may abstain from voting on the proposals to approve the
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<PAGE>
amendment to the Company's 1992 Performance Stock Plan, or to ratify the
appointment of auditors. Abstentions and broker non-votes will be considered
represented at the Annual Meeting for the purpose of calculating a quorum.
Broker non-votes will have the practical effect of votes "against" the
proposal to amend the Articles of Incorporation because each such abstention
or broker non-vote represents one less vote in favor of such proposal.
Abstention from voting or a broker non-vote for a nominee for director may
make it less likely that the nominee will be one of the five nominees for
director who receive the greatest number of votes cast. Abstention from
voting or a broker non-vote on the proposal to approve the amendments to the
Company's 1992 Performance Stock Plan, or the proposal to ratify the
appointment of auditors will have no effect, since approval of these proposal
are based solely on the number of votes actually cast.
If you execute a proxy, you may revoke it by taking one of the
following three actions: (a) by giving written notice of the revocation to the
Secretary of the Company at its principal executive offices; (b) by executing a
proxy with a later date and delivering it to the Secretary of the Company at its
principal executive offices; or (c) by personally attending and voting at the
meeting.
The Company will bear the expense of preparing, printing and
distributing proxy materials to its shareholders. In addition to solicitations
by mail, a number of regular employees of the Company may solicit proxies on
behalf of the Board of Directors in person or by telephone. The Company will
also reimburse brokerage firms and other intermediaries for their expenses in
forwarding proxy materials to beneficial owners of the Company's Common Stock.
BOARD OF DIRECTORS
The business of the Company is managed under the direction of a Board
of Directors consisting of five directors. The following individuals are
currently serving as directors: Robert L. Deinhammer, Charles H. House,
Elwood D. Howse, Jr., Anthony Miadich (Chairman), and Paul N. Risinger.
The full Board of Directors met seven times during the Company's fiscal
year ended December 31, 1998. No incumbent member attended fewer than 75% of the
total number of meetings of the Board of Directors and of any Board committees
of which he was a member during that fiscal year.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or representatives of
shareholders of the Company receive $500 for each Board meeting attended ($200
for each Board meeting at which such director participated by telephone or
teleconference). Messrs. House, Howse and Risinger are currently the only such
directors.
The Company also has established a Directors Stock Option Plan (the
"Director Plan"), under which a grant of a nonqualified stock option covering
2,500 shares of Common Stock is automatically made to each outside director on
the date of each annual meeting of shareholders. During the fiscal year ended
December 31, 1998, 7,500 options were granted under the Director Plan. In
addition, Mr. House was granted a 10,000 share stock option under the Company's
1992 Performance Stock Plan upon becoming a board member in 1998.
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<PAGE>
COMMITTEES OF THE BOARD
Committees of the Board consist of an Audit Committee and a
Compensation Committee. The Company does not have a Nominating Committee. The
Audit Committee, currently composed of Messrs. House, Howse (Chairman), Miadich
and Risinger, reviews the Company's internal accounting procedures and consults
with and reviews the services provided by the Company's independent auditors.
The Audit Committee met once during the fiscal year ended December 31, 1998. The
Compensation Committee, currently composed of Messrs. House, Howse, Miadich, and
Risinger, reviews and recommends to the Board the compensation and benefits to
be provided to the Company's officers and reviews general policy matters
relating to employee compensation and benefits. The Compensation Committee acted
six times during the fiscal year ended December 31,1998.
NOMINEES FOR DIRECTOR
The following individuals, each of whom currently serves as a director
of the Company, have been nominated for re-election at the meeting:
ROBERT L. DEINHAMMER joined the Company in July 1992 and has served as
its President, Chief Executive Officer and a Director since July 1992. Before
joining the Company, he served as an independent consultant from January 1991 to
July 1992, and held senior management positions at several high-technology
companies, including President and Chief Operating Officer of ADAC Laboratories
from May 1985 to December 1990. From April 1984 to May 1985, Mr. Deinhammer
served as President and Chief Operating Officer of Silicon General, after
serving as Vice President and General Manager of one of its operating divisions
from April 1979 to March 1984.
CHARLES H. HOUSE has served as a Director of the Company since July
1998. Mr. House presently serves as Executive Vice President of Core Systems
Development for Dialogic Corp. in Parsippany, New Jersey, a position to which he
was appointed in November 1997. House joined Dialogic in December 1995, serving
first as President of Spectron MicroSystems in Santa Barbara, CA, a wholly-owned
subsidiary of Dialogic which was sold to Texas Instruments in February 1998.
Prior to that, he served as Senior Vice President and General Manager of the
VISTA Division of Veritas Software, from December 1993 until its sale to
Centerline Software in 1995. From May 1991 through December 1993, House was
Senior Vice President of Product Development and Management of Informix
Software. House also was with Hewlett-Packard from 1962 to April 1991, first
as a member of the technical staff, and then as founder and, later as General
Manager of HP's Logic Systems division. He then served for 10 years as
corporate Engineering Director and General Manager of HP's Software
Engineering Systems division.
ELWOOD D. HOWSE, JR. has served as a Director of the Company since
February 1992. Mr. Howse has served as President of Cable & Howse Ventures, a
Northwest venture capital management firm, since 1981, and as General Partner of
the CH Partners venture funds. He is also a Director of OrthoLogic Corporation,
which is listed on the Nasdaq National Market, as well as other private
companies.
ANTHONY MIADICH has served as a Director of the Company since January
1990, and as its Chairman of the Board since August 1992. In addition, Mr.
Miadich served as the Company's Interim Chief Executive Officer from April 1992
to July 1992. Since 1987, he has served as the Managing Partner of Orien
Ventures, a venture capital firm, and since 1988, has been a General Partner of
Orien II, L.P., a venture capital fund ("Orien"). Mr. Miadich has also served as
Chairman of the Investment Committee of the Indonesian Growth Fund, a venture
firm, since 1993. He is also a director of other private portfolio companies.
-3-
<PAGE>
PAUL N. RISINGER has served as a Director of the Company since December
1993. From 1989 to 1996, he was Vice Chairman of the Board of SymmetriCom, Inc.,
which is listed on the Nasdaq National Market, as well as a Director of several
of that company's subsidiaries, including Linfinity Microelectronics, Inc. He
was also a founder of Telecom Solutions. He is presently a consultant.
VOTING SECURITIES AND PRINCIPAL HOLDERS
OWNERSHIP INFORMATION
The following table sets forth, as of March 1, 1999, certain
information regarding beneficial ownership of the Company's Common Stock (a) by
each person known to the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (b) by each director and nominee for
director, (c) by the Chief Executive Officer and the other executive officers of
the Company whose total annual salary and bonus, for the fiscal year ended
December 31, 1998, exceeded $100,000, and (d) by all of the Company's executive
officers and directors as a group. Unless otherwise noted, the named beneficial
owner has sole voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF COMMON
NAME AND ADDRESS BENEFICIALLY OWNED(1) STOCK OUTSTANDING
<S> <C> <C>
Anthony Miadich(2) 1,311,257 19.6%
Orien II, L.P.
c/o Orien Ventures
300 Oswego Point Dr., Suite 100
Lake Oswego, OR 97034
Kopp Investment Advisors, Inc. (3) 850,850 12.7
7701 France Avenue South, Suite 500
Edina, MN 55435
Robert L. Deinhammer 567,494 8.5
c/o Applied Microsystems Corporation
5020 148th Avenue N.E.
Redmond, WA 98073-9072
A. James Beach(4) 113,174 1.7
Douglas A. Fullaway(5) 71,515 1.1
John Stressing (6) 68,436 1.0
Larry Ritter(7) 44,134 *
Elwood D. Howse, Jr.(8) 40,731 *
Paul N. Risinger(9) 17,500 *
Charles H. House(10) 10,000 *
All executive officers and Directors as a group 2,244,241 33.6%
(9 individuals)(11)
</TABLE>
- ----------------------------------------------
* Less than 1%.
-4-
<PAGE>
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes shares over which the
indicated beneficial owner exercises voting and/or investment power.
Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days are deemed outstanding for computing the
percentage ownership of the person holding the options but are not
deemed outstanding for computing the percentage ownership of any other
person. Except as indicated, and subject to community property laws
where applicable, the persons named in the table above have sole voting
and investment power with respect to all shares of Common Stock shown
as beneficially owned by them.
(2) Includes 7,500 shares subject to presently exercisable options issued
to Mr. Miadich, 2,500 of which option shares are subject to the
Company's right to repurchase under specified circumstances. Mr.
Miadich is a Managing General Partner of Orien Venture Partners, L.P.,
the general partner of Orien II Partners, L.P., which is the General
Partner of Orien, and shares voting and investment power over shares
held by Orien with George Kalan, a General Partner of Orien Venture
Partners, L.P.
(3) Based entirely on information contained in the Schedule 13G filed, by
Kopp Investment Advisors. Kopp Investment Advisors disclaims beneficial
ownership of such shares.
(4) Includes 50,000 shares subject to presently exercisable options, 42,500
of which are subject to the Company's right to repurchase under
specified circumstances, which right to repurchase does not apply in
the event of termination of employment on account of death or
disability or certain involuntary termination occurring within 18
months following a change of control of the Company.
(5) Includes 64,000 shares subject to presently exercisable options, 42,500
of which are subject to the Company's right to repurchase under
specified circumstances, which right to repurchase does not apply in
the event of termination of employment on account of death or
disability or certain involuntary termination occurring within 18
months following a change of control of the Company.
(6) Represents 67,000 shares subject to presently exercisable options,
67,000 of which are subject to the Company's right to repurchase under
specified circumstances.
(7) Includes 35,000 shares subject to presently exercisable options, 31,250
of which are subject to the Company's right to repurchase under
specified circumstances, which right to repurchase does not apply in
the event of termination of employment on account of death or
disability or certain involuntary termination occurring within 18
months following a change of control of the Company.
(8) Represents 10,000 shares subject to presently exercisable options,
2,500 of which are subject to the Company's right to repurchase under
specified circumstances.
(9) Represents 17,500 shares subject to presently exercisable options,
2,500 of which are subject to the Company's right to repurchase under
specified circumstances.
(10) Represents 10,000 shares subject to presently exercisable options,
10,000 of which are subject to the Company's right to repurchase under
specified circumstances.
(11) Includes 261,000 shares subject to presently exercisable options,
200,750 of which are subject to the Company's right to repurchase under
specified circumstances.
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<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), requires that the Company's officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities, file reports of ownership and changes of ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish the
Company with copies of all such reports they file.
Based solely on its review of the copies of such reports received by
the Company, and on written representations by the Company's officers and
directors regarding their compliance with the applicable reporting requirements
under Section 16(a) of the Exchange Act, the Company believes that, with respect
to its fiscal year ended December 31, 1998, all of the Company's officers and
directors, and all of the persons known to the Company to own more than ten
percent of its Common Stock, complied with all such reporting requirements.
COMPENSATION AND BENEFITS
EXECUTIVE OFFICER COMPENSATION
COMPENSATION SUMMARY. The following table sets forth information
regarding compensation earned during the Company's fiscal year ended December
31, 1998, and during the two preceding fiscal years, by the Chief Executive
Officer and the other executive officers whose total annual salary and bonus
exceeded $100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ -----------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS(1)($) STOCK OPTIONS (#) COMPENSATION(2)($)
------------------ ------ --------- ----------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Robert L. Deinhammer 1998 $310,000 $75,500 0 $6,231
President and Chief 1997 $310,000 $0 0 $7,918
Executive Officer 1996 $294,613 $275,000 0 $7,804
Douglas A. Fullaway 1998 $142,696 $28,438 20,000 $3,831
Executive 1997 $130,000 $0 0 $4,514
Vice President 1996 $115,893 $89,500 30,000 $3,777
A. James Beach 1998 $132,266 $31,252 20,000 $3,124
Vice President,Secretary, 1997 $125,000 $0 0 $3,132
Treasurer and Chief 1996 $112,356 $94,200 30,000 $3,544
Financial Officer
Larry Ritter 1998 $136,086 $19,250 20,000 $2,307
Vice President 1997 $125,000 $0 0 $2,156
Marketing 1996 $99,996 $22,000 15,000 $2,596
John Stressing (3) 1998 $79,620 $77,771(4) 67,000 $120
Vice President World
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<PAGE>
Wide Sales
</TABLE>
(1) Bonuses are reflected in the year they were earned, without regard to
when the amounts were received.
(2) Represents employer 401K matching contribution and term life insurance
premiums.
(3) Mr. Stressing joined the company in June 1998.
(4) Bonus consists entirely of commissions.
OPTION GRANTS. The following table shows information concerning option
grants to purchase Common Stock made to each of the named executive officers
during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1998
INDIVIDUAL GRANTS
------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM (3)
GRANTED EMPLOYEES PRICE EXPIRATION -----------------
NAME (#)(1) IN 1995 ($/SH)(2) DATE 5%($) 10%($)
---- --------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Deinhammer -- -- -- -- -- --
Douglas A. Fullaway 20,000 3.8% $4.56 5/22/08 $57,393 $145,445
A. James Beach 20,000 3.8% 4.56 5/22/08 57,393 145,445
Larry Ritter 20,000 3.8% 4.56 5/22/08 57,393 145,445
John Stressing 67,000 12.8% 4.00 6/10/08 168,544 427,123
</TABLE>
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(1) The options were granted under the 1992 Performance Stock Plan. Each
option is exercisable upon issuance, but shares acquired under the
option may be repurchased by the Company or its assignee if the
officer's employment terminates within the four-year period following
the date of grant. Such shares are released from repurchase provisions
at the rate of 25% of the shares subject to the option on each of the
first four anniversaries of the grant date.
(2) The exercise price of each option is the closing price on the grant
date.
(3) Potential gains are net of exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded
stock appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of the future price of the Common Stock. Actual gains, if
any, on stock option exercises are dependent on the future financial
performance of the Company, overall market conditions and the option
holders' continued employment through the repurchase periods. The
actual value realized may be greater or less than the potential
realizable value set forth in the table.
OPTION EXERCISES. The following table shows information concerning
stock options exercised by the named executive officers during the Company's
fiscal year ended December 31, 1998, including the aggregate value of any gains
realized on such exercise. The table also shows information regarding the number
and value of unexercised options held by the named executive officers at the end
of that fiscal year.
-7-
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END(#) FISCAL YEAR-END($)(2)
ON VALUE -----------------------------------------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Deinhammer - - - - - -
Douglas A. Fullaway - - 64,000 - $ 51,450 $ -
A. James Beach 7,800 $34,515 50,000 - - -
Larry Ritter 3,750 19,643 35,000 - - -
John Stressing 67,000 - - -
</TABLE>
- --------------------------------
(1) Represents the aggregate estimated fair value, on the date of exercise,
of the shares of Common Stock received on exercise of options, less the
aggregate option exercise price.
(2) Represents the aggregate estimated fair value, on December 31, 1998, of
the shares of Common Stock subject to outstanding in-the-money options,
less the aggregate option exercise price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
setting and administering the policies governing annual compensation of the
executive officers, including the annual management bonus plan and the Company's
Stock Option Plan. The Committee is composed exclusively of directors who are
neither employees nor former employees of the Company nor eligible to
participate in any of the Company's executive compensation programs.
The Committee's compensation philosophy is to provide salary, bonus and
equity incentives to the Company's officers and other employees through programs
designed to attract and retain the best personnel to allow the Company to
achieve its goals and maintain its competitive posture. The Company seeks to
foster an environment that rewards superior performance and joins the interests
of employees to that of the stockholders through equity incentives.
At the beginning of every year, the Committee reviews with the Chief
Executive Officer and approves, with modifications it deems appropriate, an
annual compensation plan for the Company's executive officers. In making
individual base salary decisions, the Compensation Committee considers each
officer's duties, the quality of the individual's performance, the individual's
potential, external market compensation practices, and the contribution the
officer has made to the Company's overall performance. The Compensation
Committee also compares the salary of each officer with other officers'
salaries, taking into account the number of years employed by the Company, the
possibility of future promotions and the extent and frequency of prior salary
adjustments.
The Company's bonus plan is a material element to the annual
compensation program and is based upon achieving earnings targets and individual
goals. Individual goals relate to such matters as sales or earnings targets,
business and opportunity development, and staff recruitment, development and the
like. Officers are eligible to receive bonuses semiannually, subject to
successful achievement against these targets and individual goals.
In determining the amount of equity compensation to be awarded to
executive officers in any fiscal year, the Committee considers the current stock
ownership of the officer, relevant industry experience, the impact of the
officer's contribution, the number of years each officer has been employed by
the Company, the possibility of future promotions, and the extent and frequency
of prior option grants.
-8-
<PAGE>
The Committee reviews and sets the base salary of the Chief
Executive Officer based on the assessment of his past performance, its
expectations as to his future contributions in leading the Company and its
business, and to the competitive compensation environment for chief executive
officers. Based upon the noted criteria, in January, 1998, the Committee
established a base salary of $310,000 for Mr. Deinhammer for 1998 which was
the same as 1997. In addition, the Committee established a progressive bonus
program for 1998 based upon advancing the Company's strategy, strengthening
the management team and achieving financial goals, qualified Mr. Deinhammer
to receive a bonus calculated against base salary. The Committee concluded
that Mr. Deinhammer earned a bonus of $75,500 based upon performance with
respect to such criteria.
COMPENSATION COMMITTEE
Charles H. House
Elwood D. Howse, Jr.
Anthony Miadich
Paul N. Risinger
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COMPARATIVE PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total return to shareholders
on the Company's Common Stock with the cumulative total return of the Nasdaq
Stock Market (U.S. Companies) ("Nasdaq Market Index") and the Nasdaq Computer
and Data Processing Index for the period beginning on November 14, 1995(1), the
date of the Company's initial public offering, and ended on December 31, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG APPLIED MICROSYSTEMS CORPORATION COMMON STOCK,
THE NASDAQ MARKET INDEX AND
THE NASDAQ COMPUTER & DP INDEX
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C>
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11/14/95 (2) 12/31/95 12/31/96 12/31/97 12/31/98
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Applied Microsystems Corporation $100.00 $90.00 $132.50 $56.09 $38.75
Nasdaq Market Index $100.00 $101.13 $124.36 $152.57 $214.47
Nasdaq Computer and DP Index $100.00 $99.36 $122.63 $150.65 $269.60
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</TABLE>
(1) For purposes of this presentation, the Company has assumed that its
initial offering price of $10.00 per share would have been the closing
sales price on November 14, 1995, the day prior to commencement of
trading.
(2) The total return on the Company's Common Stock and each index assumes
the value of each investment was $100 on November 14, 1995. Return
information is historical and not necessarily indicative of future
performance.
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PROPOSAL 1 - AMENDMENT TO CLASSIFY THE BOARD OF DIRECTORS
At the Annual Meeting, the shareholders of the Company will be asked to
approve a proposal to amend the Articles of Incorporation to establish a
classified Board of Directors and to provide for removal of directors before
their specified class date only for cause.
The Proposed Amendment
On February 2, 1999, the Company's Board of Directors approved an
amendment to the Articles of Incorporation to classify the Company's Board of
Directors into three classes and to provide for removal of directors before
their specified class date only for cause, as more fully described below (the
"Proposed Amendment"). Under Washington law, the affirmative vote of at least a
majority of all outstanding shares of Common Stock is required for approval of
the Proposed Amendment. The Proposed Amendment may have an impact upon the
rights of shareholders and may be characterized as an anti-takeover measure
which, if adopted, may tend to insulate management and make the accomplishment
of certain transactions involving a potential change of control of the Company
more difficult. Each shareholder should carefully study the description of the
Proposed Amendment contained herein and the text of the Proposed Amendment as
set forth in Exhibit A to this Proxy Statement. See "Proposed Amendment to
Classify the Board of Directors --Anti-takeover Considerations." The description
of the Proposed Amendment set forth below is qualified in its entirely by
reference to the text of the Proposed Amendment set forth in Exhibit A.
Reasons For The Proposal; Anti-Takeover Effects
The Company's existing charter documents provide that directors are to
be elected annually for one-year terms. Approving the proposal to classify the
Board of Directors will divide the Board of Directors into three classes,
consisting of two Directors, two Directors, and one Director, respectively.
Except during the initial phase-in period, and for Directors elected to fill
vacancies, the term of office of the Directors of each class shall expire at the
third annual meeting of shareholders after their election. Any Director elected
by the board to fill a vacancy will, pursuant to the Washington Business
Corporation Act ("WBCA"), stand for election by shareholders at the next meeting
of shareholders at which directors are elected.
The increased used of tender offers to obtain corporate control has
prompted many companies to adopt defensive techniques to fend off hostile
offers. Some of these techniques, such as the Company's existing shareholder
rights plan ("Rights Plan"), described below, operate only after there has been
an attempt to gain control of a company. Staggering the terms of the Board of
Directors, on the other hand, will affect every election of Directors and is not
triggered by a particular event such as a takeover attempt. The Company is not
aware of any effort to accumulate its securities or to gain control of the
Company, and the proposal to stagger the terms of directors is not being
proposed to block any particular effort. Anti-takeover measures are to some
extent cumulative, however, and one reason for adopting them is to encourage
potential acquirers to negotiate with the Company.
Classification of the Board of Directors will have the effect of making
it more difficult to change the composition of the Board of Directors. The
present provision requires that the entire Board of Directors be nominated and
elected each year, which currently permits the entire Board of Directors to be
replaced at one shareholders' meeting. If the proposal to stagger the terms of
the Board of Directors is approved, at least two annual meetings will be
required to effect a change in the majority of the Board of Directors, unless
members are removed for cause at a meeting called for that purpose. The Company
believes that the proposal to stagger the terms of the Board of Directors will
help maximize shareholder value by ensuring continuity of experience and
stability of management, which is desirable and in the best interests of the
Company and its shareholders generally.
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<PAGE>
The proposed amendment may have the effect of making it more difficult
to replace Directors for reasons that are unrelated to a change in control, and
without regard to whether a majority of shareholders believe that such a change
would be desirable. To the extent that providing for staggered terms of
Directors deters a change in control of the Company, for example, through an
unsolicited takeover, the proposed amendment may also make it less likely that a
merger will be consummated. On balance, however, the Board of Directors believes
that the advantages received from ensuring continuity of management, avoiding
undue disruption of the Company's business, and encouraging negotiations with
management and the Board of Directors outweigh potential disadvantages.
The proposed amendment is consistent with other provisions of the
Company's current Charter and Bylaws, and provisions of Washington law,
described below.
Charter Provisions
The Restated Articles of Incorporation currently provide that
shareholders do not have the right to cumulate votes in the election of
directors. The Restated Articles of Incorporation provide that the authorized
capital of the Company consists of 30,000,000 shares of stock, of which
25,000,000 shares are common stock and 5,000,000 shares are "blank check"
preferred stock that the board may issue from time to time in one or more
classes or series without shareholder approval. Of these 5,000,000 shares of
preferred stock, 1,000,000 shares have been designated Series A Preferred Stock.
See "Shareholder Rights Plan," below.
The Company's charter documents also includes provisions that limit the
right of a shareholder to raise a proposal at a shareholders' meeting, to
nominate a candidate for the board, and providing that special meetings of
shareholders may be called only by the board, its chairman, the president of the
Company or by holders of 10% or more of the outstanding shares of common stock.
Shareholder Rights Plan
In 1998, the Company adopted a Rights Plan, declaring a dividend of one
preferred share purchase right ("Right") for each outstanding share of the
Company's common stock. The Rights become exercisable upon the earlier of a
person or group announcing (1) an acquisition of 15% or more of the common stock
of the Company or (2) the commencement of a tender or exchange offer that would
result in such person acquiring ownership of 15% or more of the common stock of
the Company. Each Right entitles the holder to purchase 1/100th of a preferred
share at a current price of $30. Upon a triggering event, each holder of a Right
shall be entitled to purchase common stock that has a market value equal to 2x
the exercise price of the Right. For example, after a triggering event, a holder
would be entitled to receive common stock with an aggregate fair market value of
$60 upon payment of the $30 exercise price. In addition, an acquiring person may
be required to assume the obligations under the Rights Plan, such that Rights
may be exchanged for securities of an acquiring company under certain
circumstances. The Company is entitled to redeem the Rights at $0.01 each under
specified circumstances. In adopting the Rights Plan it was the intention of the
Board of Directors to encourage negotiation with the Company, ensure that
shareholders are treated equitably in the event of any proposed takeover, and
guard against partial or two-tiered tender offers that can result in a change in
control without payment to shareholders of fair value.
Washington State Law
The Company was incorporated in the state of Washington in 1979.
Washington law contains provisions that may have the effect of delaying or
discouraging a hostile takeover of the Company. Chapter 23B.19 of the WBCA
generally prohibits a merger, sale of assets or liquidation of a corporation
involving an "Interested Shareholder" (defined generally as a person or
affiliated group who beneficially own 20% or more of the corporation's
outstanding voting securities), unless determined to be at a "fair price" or
otherwise approved by a majority of the Company's disinterested directors or the
holders of
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<PAGE>
two-thirds of the votes of each voting group entitled to vote
separately on the transaction, excluding the votes of the Interested
Shareholder.
Chapter 23B.19 of the WBCA prohibits a corporation, with some
exceptions, from engaging in certain significant business transactions with a
person or group of persons who beneficially acquire 10% or more of the
corporation's outstanding voting securities for a period of five years after
such acquisition. The prohibited transactions include, among others, a merger
with, disposition of assets to, or issuance or redemption of stock to or from
such person or group of persons to receive any disproportionate benefit as a
shareholder.
Section 23B.07.040 of the WBCA and the Company's charter documents
prohibit the Company from taking shareholder action by written consent without a
meeting. The effect of this provision is to require a potential buyer to hold a
meeting to obtain shareholder approval which may delay action and increase the
cost to an acquirer of gaining control of the Company and, therefore, be a
deterrent.
The provisions of the WBCA regarding the prohibition of significant
business transactions and taking action by shareholder consent in lieu of a
meeting apply automatically to the Company by virtue of its incorporation in
Washington. The WBCA does not permit Washington corporations to "opt out" of
these provisions by director or shareholder vote. The proposal to classify the
Company's board, together with the Rights Plan and certain provisions, described
above, of the Company's charter documents and the WBCA, may have the effect of
delaying, deterring or preventing a hostile takeover or change of control of
management of the Company. This effect could deprive shareholders of
opportunities to sell their shares at higher-than-market prices. These items may
also, however, tend to ensure continuity of management and policies for the
Company and encourage those seeking control of the Company to negotiate with
management and the Board of Directors.
Recommendation Of The Board Of Directors
As discussed below in connection with Proposal 2, Election of
Directors, the Company intends to implement the staggered Board of Directors
provisions immediately following the effective date of the proposed amendment to
the Company's Restated Articles of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
ADOPTION OF PROPOSAL 1.
PROPOSAL 2--ELECTION OF DIRECTORS
If the shareholders approve Proposal 1 to classify the Board of
Directors, the board will be divided into three classes (Class 1, Class 2, and
Class 3), consisting of two directors, two directors, and one director,
respectively.
The Board of Directors has unanimously approved the nominees named
below for the terms indicated. Unless instructions to the contrary are given on
the proxy card, a vote "FOR" the slate of nominees will result in their election
to Class 1, Class 2, or Class 3, as indicated below. If Proposal 1 is not
approved by shareholders, each Director elected at the annual meeting will hold
office until the next annual meeting of shareholders or until a successor shall
have been elected and qualified. If any nominee shall not be a candidate for
election as a Director at the Annual Meeting, it is intended that votes will be
cast pursuant to the enclosed proxy for such substitute nominee as may be
nominated by the existing Directors. No circumstances are presently known which
would render any nominee named herein unavailable.
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<PAGE>
NOMINEES FOR ELECTION AS CLASS 1 DIRECTORS. The following are the
nominees of the Board of Directors to serve, following the effectiveness of the
amendment to the Restated Articles of Incorporation, as Class 1 Directors until
the Annual Meeting in 2000:
NAME AGE POSITION
Paul N. Risinger 65 Director
NOMINEES FOR ELECTION AS CLASS 2 DIRECTORS. The following are the
nominees of the Board of Directors to serve, following the effectiveness of the
amendment to the Restated Articles of Incorporation, as Class 2 Directors until
the Annual Meeting in 2001:
NAME AGE POSITION
Charles H. House 58 Director
Elwood D. Howse, Jr. 59 Director
NOMINEES FOR ELECTION AS CLASS 3 DIRECTOR. The following is the nominee
of the Board of Directors to serve, following the effectiveness of the amendment
to the Restated Articles of Incorporation, as Class 3 Director until the Annual
Meeting in 2002:
NAME AGE POSITION
Robert L. Deinhammer 53 Director, CEO, & President
Anthony Miadich 56 Director, Chairman
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
ADOPTION OF PROPOSAL 2.
PROPOSAL 3 - APPROVAL OF AMENDMENT TO 1992 PERFORMANCE STOCK PLAN
The Board of Directors has adopted an amendment to the Company's 1992
Performance Stock Plan (the "1992 Plan") that, subject to shareholder approval,
increases by 250,000 shares the number of shares of Common Stock reserved for
issuance upon exercise of options under the 1992 Plan. The Board of Directors
believes that the additional shares will, among other things, promote the
interests of the Company and its shareholders by assisting the Company in
attracting, retaining and stimulating the performance of officers and employees.
As of March 1, 1999, a total of 1,621,268 shares of Common Stock (inclusive of
the additional shares) were available for issuance upon exercise of options
granted or to be granted under the 1992 plan.
SUMMARY OF PLAN
The 1992 Plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Code, nonstatutory stock options, stock
appreciation and stock purchase rights, cash bonus rights and stock bonuses to
eligible directors, employees, consultants, advisors and contractors of the
Company and its subsidiaries (collectively, the "Grantees"). The 1992 Plan is
administered by the Compensation Committee of the Board of Directors (the
"Administrator"), which selects the Grantees and determines the type of grant,
number of shares, exercise price, duration, vesting and other relevant terms
subject to the provisions of the 1992 Plan. The plan provides that no Grantee
will receive options to acquire more than 375,000 shares of Common Stock in any
calendar year. The exercise price of all incentive stock options granted under
the 1992 Plan must be at least equal to the fair market value of the Common
Stock on the date of grant. The exercise price of all nonstatutory stock options
and other grants under the 1992 Plan is determined by the Administrator. The
exercise price of any incentive stock option granted to a Grantee holding more
than 10% of the voting power of the capital stock of the Company must equal at
least 110% of the fair market value of the Common Stock on the grant date, and
the term of
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<PAGE>
the option must not exceed five years. The term of all other options granted
under the 1992 Plan may not exceed ten years.
In the event of certain changes in control of the Company, the 1992
Plan and any options or other unexercised rights granted thereunder will
terminate unless the 1992 Plan is continued and such options and other
unexercised rights are assumed, or new options or rights relating to securities
of the successor entity are substituted for such options and other unexercised
rights, with appropriate adjustments. If, in the event of such change in
control, provision is not made for such continuance and assumption or
substitution, the 1992 Plan provides that the rights of each Grantee thereunder
will be accelerated.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
With respect to incentive stock options, the tax consequences to an
optionee will vary depending on whether certain holding period requirements are
met. In addition, an option will cease to be an incentive stock option, and
thereafter be taxed as a nonqualified stock option, if the optionee exercises
the option more than three months following termination of employment for any
reason other than death or disability or more than one year following
termination of employment on account of disability.
If an optionee acquiring stock pursuant to an incentive stock option
does not dispose of the stock until at least one year after the transfer of the
stock to the optionee and at least two years from the date of grant of the
option, then, subject to the alternative minimum tax rules discussed below,
there will be no tax consequences to the optionee or the Company when the
incentive stock option is granted or when it is exercised. When the stock is
ultimately sold, gain or loss will be determined, based on the difference
between the net proceeds of the sale and the aggregate exercise price paid for
the stock, and the optionee will be required to report such gain or loss as
long-term capital gain or loss on his or her federal income tax return for the
year in which the sale occurs.
If stock acquired upon exercise of an incentive stock option is sold by
the optionee and, at the time of the sale, the holding period requirements
described in the preceding paragraph have not been met, the federal income tax
consequences to the optionee will be as follows:
(a) The optionee will be required to report, on his or her federal
income tax return for the year in which the sale occurs,
additional compensation income equal to the difference between
the fair market value of the stock at the time of exercise of
the option and the exercise price at which the stock was
acquired (the Company will generally be entitled to a
compensation deduction in an equivalent amount.)
(b) For purposes of determining gain or loss upon sale of the
stock, an amount equal to this compensation income will be
added to the exercise price at which the stock was acquired,
and the total will be the optionee's adjusted cost of the
stock. Gain or loss will be determined, based upon the
difference between the optionee's adjusted cost of the stock
and the net proceeds of the sale, and the optionee will be
required to report such gain or loss as long-term or
short-term (depending on how long the optionee held the stock)
capital gain or loss on his or her federal income tax return
for the year in which the sale occurs.
When an optionee exercises an incentive stock option, the difference
between the fair market value of the stock on the date of exercise and the
exercise price paid results in an adjustment in computing alternative minimum
taxable income for purposes of Sections 55 ET SEQ. of the Code, which may
trigger alternative minimum tax consequences for optionees. Any alternative
minimum tax that is payable may ultimately be credited against future taxes
owed.
With respect to nonqualified stock options, there are generally no tax
consequences to the optionee or the Company when the option is granted. Upon
exercise of the option, the optionee will be
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<PAGE>
required to report, on his or her federal income tax return for the year in
which the exercise occurs, additional compensation or self-employment income
equal to the difference between the fair market value of the stock at the
time of exercise of the option and the exercise price at which the stock was
acquired (the Company will generally be entitled to a deduction in an
equivalent amount). When the stock is ultimately sold, the transaction will
be taxed in the manner described in subparagraph (b) above for incentive
stock options.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE 1992 PERFORMANCE STOCK PLAN.
PROPOSAL 4 - APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP as
independent auditors for the Company's fiscal year ending December 31, 1999.
This firm has audited the accounts of the Company since 1986. The firm performed
audit services in connection with the examination of the consolidated financial
statements of the Company for its fiscal year ended December 31, 1998. In
addition, the firm has rendered and will render other services, including the
review of financial statements and related information in various registration
statements and filings with the SEC and limited review of financial statements
and related information contained in quarterly reports provided to shareholders
and the SEC.
If this proposal does not receive the affirmative approval of a
majority of the votes cast on the proposal, the Board of Directors will
reconsider the appointment. Representatives of Ernst & Young LLP are expected to
be present at the annual meeting, will have the opportunity to make a statement
if they desire to do so, and will be available to respond to appropriate
questions from shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP.
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<PAGE>
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
An eligible shareholder who desires to have a qualified proposal
considered for inclusion in the proxy statement prepared in connection with the
Company's 2000 Annual Meeting of Shareholders must deliver a copy of the
proposal to the Secretary of the Company, at the Company's principal executive
offices, no later than December 10, 1999. A shareholder must have been a record
or beneficial owner of at least one percent of the Company's outstanding Common
Stock, or shares of Common Stock having a market value of at least $1,000, for a
period of at least one year prior to submitting the proposal, and the
shareholder must continue to hold the shares through the date on which the
meeting is held.
The Company's Restated Bylaws outline procedures, including minimum
notice provisions, that govern the nomination of directors by shareholders and
certain other matters that a shareholder proposes to bring before the annual
meeting. A copy of the pertinent provisions of the Restated Bylaws is available
upon request to A. James Beach, Corporate Secretary, Applied Microsystems
Corporation, 5020 148th Avenue N.E., Redmond, Washington 98052.
IT IS IMPORTANT THAT PROXIES ARE RETURNED PROMPTLY AND THAT YOUR SHARES
ARE REPRESENTED. SHAREHOLDERS ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED
PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
APPLIED MICROSYSTEMS CORPORATION
April 12, 1999
Redmond, Washington
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<PAGE>
EXHIBIT A
5.1.1 When the Board of Directors shall consist of four or more
members, the directors shall be divided into three classes: Class 1, Class 2 and
Class 3. Each class shall be as nearly equal in number of directors as possible.
Except as otherwise provided in this section 5.1, each director shall serve for
a term ending at the third annual meeting of shareholders following the
director's election; provided, that at the 1999 annual meeting of shareholders,
the following classes shall be elected for the terms set forth below:
CLASS TERM
Class 1 1 year
Class 2 2 years
Class 3 3 years
5.1.2 At each annual meeting of shareholders, the directors nominated
to succeed those whose terms then expire shall be identified as being of the
same class as the directors they succeed unless, by reason of any intervening
changes in the authorized number of directors, the Board of Directors shall
designate one or more directorships whose terms then expire as directorships of
another class in order more nearly to achieve equality in the number of
directors in the respective classes. When the Board of Directors fills a vacancy
resulting from the death, resignation or removal of a director, the director
chosen to fill that vacancy shall be of the same class as the director he
succeeds.
5.1.3 Notwithstanding the foregoing provisions of this section 5.1, in
all cases, including upon any change in the authorized number of directors, each
director then continuing to serve as such will nevertheless continue as a
director of the class of which he is a member until the expiration of his or her
term or his or her earlier death, resignation or removal. Any vacancy in any
class resulting from the death, resignation or removal of a director or an
increase in the number of authorized directors may be filled by the directors in
any manner permitted by the Act; provided, if the term of the director or
directors in that class is not scheduled to expire at the next annual meeting of
shareholders, the term of the director chosen to fill such vacancy shall
continue only until the next annual meeting of shareholders at which a successor
shall be chosen for a term to expire at the scheduled date for expiration of the
term of the director or directors in that class.
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