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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 30, 1996,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 0-27482
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XETEL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2310781
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2525 BROCKTON DRIVE
AUSTIN, TEXAS 78758
(Address of principal executive offices, including zip code)
(512) 435-1000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.0001 Par Value Per Share
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K / /.
At June 5, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $24,425,856. At June 5, 1996,
there were 8,547,943 outstanding shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN INFORMATION IS INCORPORATED INTO PART III OF THIS REPORT BY REFERENCE TO
THE PROXY STATEMENT FOR THE REGISTRANT'S 1996 ANNUAL MEETING OF STOCKHOLDERS TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A
NOT LATER THAN 120 DAYS AFTER THE END OF THE FISCAL YEAR COVERED BY THE FORM
10-K.
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PART I
ITEM 1. BUSINESS
THE COMPANY
XeTel Corporation ("XeTel" or the "Company") provides advanced design and
prototype services, manufactures sophisticated surface mount assemblies and
supplies turnkey solutions to original equipment manufacturers ("OEMs")
primarily in the telecommunications, networking and computer industries. The
Company's design and prototype services support customers in the product
development phase and assist in their efforts to reduce time to market and time
to volume, as well as production costs. The Company believes that as a result of
providing design and prototype services, it is well positioned to provide value
added manufacturing of products through production volumes. In its assembly
operations, the Company employs advanced surface mount technologies and
manufacturing processes, and has developed capabilities in next-stage
technologies such as ball grid array ("BGA"). XeTel incorporates its design and
prototype services and assembly capabilities, together with materials
management, advanced testing and systems integration services, to provide
turnkey solutions for its customers. The Company believes that its turnkey
operations provide its customers with quick turnaround, greater production
flexibility and shorter delivery cycles. The Company's principal OEM customers
include Aspect Telecommunications, Dell Computer, Ericsson, Motorola, Optical
Data Systems, Primary Access Corporation, a subsidiary of 3Com Corporation
("3Com/Primary Access"), VTEL and Westinghouse Electric.
XeTel was incorporated in Texas in 1984 and reincorporated in Delaware in 1995.
The Company maintains its principal executive offices at 2525 Brockton Drive,
Austin, Texas 78758, and its telephone number is (512) 435-1000.
RISK FACTORS
The following summary of risk factors relevant to an investment in shares of the
Company's common stock is derived, in part, from the section captioned "Risk
Factors" in the prospectus of the Company dated February 13, 1996 (the
"Prospectus"), as filed with the Securities and Exchange Commission (the
"Commission") pursuant to the initial registration of shares of common stock
under the Securities Act of 1933, as amended (the "Securities Act"). This
discussion does not purport to be complete and is subject to, and qualified by,
the discussion of risk factors set forth in the Prospectus. A copy of the
Prospectus may be inspected without charge at the Commission's principal offices
in Washington, D.C. and copies of all or any part thereof may be obtained from
such office upon payment of prescribed fees.
Fluctuations in Operating Results. The Company's results of operations have
varied significantly and may continue to fluctuate significantly from period to
period, including on a quarterly basis. Operating results are affected by a
number of factors, including timing of orders from and shipments to major
customers, availability of materials and components, the volume of orders
relative to the Company's capacity, timing of expenditures in anticipation of
future sales, the gain or loss of significant customers, variations in the mix
between consignment and component purchase arrangements with customers,
variations in the demand for products in the industries served by the Company
and general economic conditions. Operating results can also be significantly
influenced by the development and introduction of new products or technologies
by the Company's customers, or such customer's competitors, which may materially
and adversely affect the demand for the Company's services. The Company's
customers generally require short delivery cycles, and a substantial portion of
the Company's backlog is typically scheduled for delivery within 120 days. In
the absence of substantial backlog, quarterly sales and operating results depend
on the volume and timing of bookings received during the quarter which can be
difficult to forecast. Backlog fluctuations affect the Company's ability to plan
production and inventory levels, which could lead to fluctuations in operating
results. Variations in the size and delivery schedules of purchase orders
received by the Company, as well as changes in customers delivery requirements
or the rescheduling or cancellation of orders and commitments, may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that backlog cannot be considered a meaningful indicator of
future operating results.
A significant portion of the Company's expenses is relatively fixed in nature
and planned expenditures are based in part on anticipated orders. The inability
to adjust expenditures quickly enough to compensate for a decline in net sales
may magnify the adverse impact of such decline in the Company's results of
operations. Results of operations in any period should not be considered
indicative of the results for any future period, and fluctuations in operating
results may result in fluctuations in the price of the Company's common stock.
Due to the foregoing factors, among others, the Company's operating results in
some future quarters may be below the expectations of stock market analysts and
investors. In such event, there could be an immediate and significant adverse
effect on the trading price of the common stock.
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Concentration of Customers. The Company's customer base is highly concentrated.
In aggregate, the Company's three largest customers accounted for approximately
34%, 10% and 7%, respectively, of net sales for its fiscal year ended April 1,
1995 ("fiscal 1995"). For the year ended March 30, 1996 ("fiscal 1996"), the
Company's three largest customers accounted for approximately 24%, 18% and 15%,
of its net sales. The loss of, or a significant curtailment of purchases by, one
or more of these customers, or any other significant customer of the Company,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company anticipates that a significant
portion of its sales will continue to be concentrated in a small number of
customers for the foreseeable future.
Unavailability of Components and Materials. Components and material used by
XeTel in producing surface mount assemblies and turnkey solutions are purchased
by XeTel from approved suppliers of its customers. Any failure on the part of
suppliers to deliver required components to the Company or any failure of such
components to meet performance requirements could impair the Company's ability
to meet scheduled shipment dates and could delay sales of systems by the
Company's customers and thereby adversely affect the Company's business,
financial condition and results of operations. The Company has in the past
experienced shortages of certain types of electronic components, and currently
experiences shortages of certain electronic components that are in short supply
generally within the electronics industry. Component shortages or price
fluctuations, to the extent not absorbed by the customer under its agreements
with the Company, could have a material adverse effect on the Company's
business, financial condition and results of operations. Certain components used
in a number of the Company's customer programs are obtained from a single
source. An interruption or loss of any such component supply could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Variability of Customer Requirements; Absence of Long-Term Purchase Orders. The
level and timing of purchase orders placed by the Company's customers are
affected by a number of factors, including variation in demand for the
customer's products, customer attempts to manage inventory and changes in the
customer's manufacturing strategies. Many of such factors are outside of the
control of the Company. The Company typically does not obtain long-term purchase
orders or commitments, but instead works with its customers to develop
nonbinding forecasts of the future volume of orders. Based on such nonbinding
forecasts, the Company makes commitments regarding the level of business that it
will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. Generally, customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased or procured and, in certain
circumstances, charges associated with such cancellation, reduction or delay.
Subsequent to the fiscal year ended March 30, 1996, one of the Company's largest
customers reduced a significant order with the Company due to a large order
which did not materialize for this customer. Significant or numerous
cancellations, reductions or delays in orders by customers, or inability by
customers to pay for services provided by the Company or to pay for components
and materials purchased by the Company on such customer's behalf, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Management of Growth and Expansion. The Company's design, prototype, assembly
and turnkey solutions business has grown rapidly in recent years. This growth
has increased the Company's fixed costs and required it to hire additional
personnel. Furthermore, the Company plans to establish one or more regional
design and prototype centers which will increase the Company's fixed costs and
will require additional personnel. A continuing period of rapid growth,
including geographic expansions, could place a significant strain on the
Company's management, operations and other resources. The Company's ability to
manage its growth will require it to manage its existing resources more
efficiently, to continue to invest in its operations, including its financial
and management information systems and internal process controls, and to retain,
motivate and manage its employees. If the Company's management is unable to
manage growth effectively, the quality of the Company's services and its ability
to retain key personnel could be materially and adversely affected, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company may from time to time pursue the
acquisition of other companies or assets that complement or expand its existing
business. Acquisitions involve a number of risks that could adversely affect the
Company's operating results, including the diversion of management's attention
and resources and the assimilation of the operations and personnel of the
acquired companies. XeTel is currently negotiating the purchase of another
company which is expected to occur in the second quarter of the fiscal year
ending March 29, 1997 ("fiscal 1997"). No assurance can be given that any
acquisition by the Company will not materially and adversely affect the
Company's business, financial condition and results of operations or that any
such acquisition will enhance the Company's business.
INDUSTRY OVERVIEW
The electronics manufacturing services market emerged over 20 years ago as a
result of the need by OEMs to utilize additional manufacturing sources for
excess production capacity when in-house capacity was insufficient to meet
product demand. Small, local manufacturers were often used by OEMs for temporary
and unpredictable capacity overruns and for specialty work, when required. As a
result of the capital intensive requirements of the manufacturing process, in
addition to the demand for more complex and sophisticated
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technologies, outsourcing by OEMs has continued to gain acceptance. Today, many
OEMs consider the electronics manufacturing services industry an integral part
of their business and manufacturing strategy and have established long-term
relationships with electronics manufacturers. As a result, the electronics
manufacturing services industry has experienced significant growth. The
Institute for Interconnecting and Packaging Electronic Circuits ("IPC")
estimates the market for providing electronics manufacturing services was $11.4
billion in 1995, $7.2 billion or 63% of which was attributable to the
approximately 25 companies in the industry that achieved net sales in 1995 of
over $100 million. According to IPC, sales for companies in the electronics
manufacturing services industry have grown since 1984, and will continue to grow
through 2000, at an average rate of 20% per year.
The Company believes that there are four principal factors supporting the trend
by OEMs in the electronics industry to establish continuing relationships with
independent manufacturers for design, engineering and volume production of
sophisticated electronics products. First, the demand for more complex
electronics products has increased significantly due to the continued
development of more advanced telecommunications, networking and computer systems
and other devices for rapidly growing markets. The manufacture of these products
requires increasingly advanced engineering and manufacturing expertise and
substantial capital investment. By using independent manufacturers, OEMs can
reduce their overall capital equipment requirements while maintaining access to
advanced manufacturing facilities. Second, due to intense competitive pressures
and shorter life cycles for products in the electronics industry, OEMs are
required to reduce the time needed to both introduce new products to market and
manufacture such products in volume. OEMs can reduce product time to market and
time to volume by using the specialization and flexibility afforded by an
independent manufacturer's design, prototype and manufacturing expertise. Third,
as OEMs experience greater levels of competition, many OEMs seek to focus their
resources on their core competencies in technology and product development and
marketing. By offering comprehensive electronics assembly and turnkey
manufacturing services, independent manufacturers enable OEMs to concentrate
their efforts on such activities. Finally, OEMs in the electronics industry are
faced with increased difficulties in reducing overhead while planning, procuring
and managing their inventories efficiently due to frequent design changes, short
product life cycles, large investments in electronics components, component
price fluctuations and the need to achieve economies of scale in materials
procurement. OEMs can reduce product costs by using an independent
manufacturer's volume procurement, materials management and manufacturing
capabilities.
In response to the intense competition in the electronics manufacturing services
industry, an increasing number of independent manufacturers have expanded the
range of their value added services to serve as a single source provider of a
comprehensive set of services, or turnkey solutions, for their customers. For
example, by developing design and prototype expertise, an independent
manufacturer can assist an OEM customer in the critical preproduction planning
phase of product development, and follow on with traditional volume production
services. The expansion in the types of value added services offered by
independent electronics manufacturers has enabled OEMs to streamline their
production processes by utilizing fewer independent service providers to meet
their production needs. As a result, the establishment of mutually beneficial
strategic relationships between OEMs and independent manufacturers are
increasingly becoming an important competitive factor for both OEMs and
independent manufacturers within their respective industries.
In addition, rapid advances in technology have further supported the trend by
OEMs to utilize independent electronics manufacturers. OEMs in the advanced
electronics industries continue to devote considerable resources to the
development of new technologies to incorporate into their products. Due to their
reduced size and higher performance standards, these products require
state-of-the-art assembly, manufacturing and process technologies to achieve
targeted levels of performance. OEMs are increasingly utilizing independent
electronics manufacturers that have demonstrated capabilities in these
developing technologies.
XETEL STRATEGY
The Company's objective is to establish and expand long-term relationships with
OEMs of advanced electronics products primarily in the telecommunications,
networking and computer industries by providing a wide range of sophisticated
design and manufacturing services. In order to attain this goal and assist
customers in continually improving time to market and time to volume production,
the Company's strategy includes the following elements:
Implement Advanced Manufacturing Process Technologies. To meet anticipated
long-term market demands, the Company has invested and intends to continue to
invest in advanced manufacturing process technologies. The Company expects that
it will continue to work closely with its customers to identify and implement
the next-stage process technologies needed for the design and manufacture of
complex new products. The Company will continue to expand its capabilities in
leading surface mount technologies such as fine pitch surface mount and intends
to further develop its capabilities in BGA. Moreover, the Company plans to
devote additional resources to the development of capabilities in chip-on-board
("COB") process technologies.
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Develop Design and Prototype Centers in Targeted Geographic Areas. XeTel has
expanded the range of its value added services by establishing a custom
engineering services organization in Austin, Texas to focus on design, prototype
and preproduction services. By offering these services, the Company believes
that it is well positioned with its customers to provide value added
manufacturing of their products through production volumes. The Company plans to
establish similar design and prototype centers in geographic areas which have a
high current customer concentration, or in certain select geographic markets
where design and prototype capabilities will help establish relationships with
targeted customers. This expansion may be implemented by acquisitions of
existing design companies or the commencement of new operations in these areas.
XeTel is currently negotiating the purchase of another company which is expected
to occur in the second quarter of fiscal 1997. No assurance can be given that
any acquisition by the Company will not materially and adversely affect the
Company's business, financial condition and results of operations or that any
such acquisition will enhance the Company's business.
Expand State-of-the-Art Manufacturing Capacity. The Company intends to increase
its manufacturing throughput capacity by investing in advanced test, surface
mount ("SMT") and other equipment and by leasing additional space to support its
needs for additional capacity. The Company has recently expanded its
manufacturing facility in Austin by occupying an additional 25,000 square feet.
The Company expects to continue to expand its manufacturing facilities with
state-of-the-art equipment and retain additional personnel to increase its
production capacity and enhance its customer service.
Continue to Improve Production and Business Processes. The Company continually
seeks to improve production quality and reduce cycle time. The Company combines
materials management and continuous flow manufacturing with sophisticated
computer-aided design and manufacturing capabilities to shorten the time from
receipt of customers' electronic design data to manufacturing. The Company will
continue to coordinate its design, prototype, manufacturing and support
operations to provide customers with quick turnaround, greater production
flexibility and shorter delivery cycles. In addition, the Company seeks to
refine its computer integrated manufacturing processes, including management
resources planning ("MRP II"), materials procurement and order fulfillment. The
Company's quality management system received ISO 9002 certification in 1995.
Expand Services to Targeted Customers. The Company targets customers with which
it can establish long-term, primary or sole source relationships and endeavors
to provide such customers with turnkey solutions for existing and new products.
The Company intends to expand the range of services that it provides by
developing expertise in areas complementary to the Company's existing
capabilities and identify additional market opportunities where its capabilities
can improve customer time to market, time to volume, product yields and
utilization.
MANUFACTURING CAPABILITIES AND SERVICES
XeTel seeks to establish strategic relationships with its customers primarily in
the telecommunications, networking and computer industries by providing advanced
manufacturing process technologies and high quality, responsive and flexible
manufacturing services. Such technologies and services include the following:
Design and Prototype Services. As XeTel's customers experience greater
competition and shorter product life cycles in their respective industries,
XeTel has responded by expanding its design, prototype and preproduction
services. The Company's engineers work closely with customers to design products
that will meet customers' specifications for functionality and reliability,
while providing optimal manufacturability under planned production requirements.
By applying its computer-aided design and manufacturing capabilities and quick
turnaround techniques in manufacturing and surface mount assembly to the design
and prototype of a customer's product, the Company's engineering team assists
the customer in improving the manufacturability and performance reliability of
the product and thereby reducing production time and costs. Following completion
of the design and engineering of a product, the Company can, as requested by the
customer, manufacture prototypes or preproduction versions of the product. The
Company believes that as a result of its involvement in the design and prototype
of a customer's product, it is well positioned to provide value added
manufacturing of the product through production volumes.
Surface Mount Assembly Services. XeTel has made a substantial investment in
specialized equipment which includes 14 SMT machines, GenRad and Realm testers
and nitrogen atmosphere reflow soldering machines. In addition, the Company
employs advanced manufacturing processes, including sophisticated surface mount
technologies. SMT has generally replaced pin-through-hole technology as the
preferred method for printed circuit board assemblies. Using SMT, the leads on
integrated circuits and other electronic components are soldered to the surface
of the printed circuit board rather than inserted into holes, thereby
accommodating a substantially greater component density than can be achieved
with pin-through-hole technology. This permits a reduction in the size of the
printed circuit board which, in turn, enhances the performance of the product
and can reduce the costs of materials. Advanced surface mount technologies,
which include double-sided component attachment and fine pitch SMT component
placement, have further increased the
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component density and reduced the printed circuit board size. Double-sided
component attachment consists of SMT components placed on both sides of the
printed circuit board, and fine pitch SMT involves placing components with
tightly spaced leads, typically less than 30 mil lead-to-lead spacing.
Currently, the most common fine pitch surface mount device is a quad flat pack
("QFP"), which is a device with tightly spaced leads around the periphery.
Substantially all of the printed circuit boards assembled by the Company utilize
SMT, and an increasing percentage employ fine pitch SMT and double-sided SMT
attachment. In addition, XeTel continues to devote resources to develop new
process technologies to support customer requirements.
XeTel has recently developed BGA placement capabilities and anticipates that, if
customers proceed with planned utilization of BGA, it will manufacture BGA
printed circuit board assemblies in volume in fiscal 1997. A BGA component has
leads arrayed on the underside of the component which supports higher speed
devices and results in better assembly yields than fine pitch surface mount
placement. XeTel is currently directing additional resources into the
development of COB technology and has produced engineering samples utilizing
this technology. Two methods of COB technology exist: direct chip attachment
("DCA") and wirebonding. Specifically, DCA (commonly known as "flip-chip")
involves placing the chip (or integrated circuit) with the leads facing down so
that the electrical interconnects are in direct contact with the printed circuit
board. In comparison, wirebonding involves sequentially bonding wires from the
chip leads to the printed circuit board.
Turnkey Solutions. To meet the diverse requirements and specifications of its
customers, the Company has broadened the range of its electronics manufacturing
services to provide turnkey solutions. The Company's turnkey solutions generally
consist of product design and prototype, component procurement, utilization of
the components to manufacture printed circuit board assemblies, testing, systems
integration services, and distribution to the OEM or directly to its customers.
The Company's testing services include test development, board-level in-circuit
testing and functional and environmental stress screening of both board-level
and system-level products.
Advanced Manufacturing Processes. XeTel has applied statistical process control
("SPC") and design of experiment ("DOE") techniques in order to control its
critical process parameters. Additionally, the Company's total quality
management ("TQM") approach supports continuous improvement in key processes
such as cycle time reduction. To improve production efficiencies, a variety of
computer-aided manufacturing methods have been implemented. For example, the
Company has implemented an innovative automated system to reduce the set-up time
and improve the quality of loading components on its SMT placement machines, and
has also internally developed a data collection system which utilizes
touchscreen technology to gather data to maintain process controls and provide
quality feedback. The quality management system employed at the Company's
facility in Austin is ISO 9002 certified.
Materials Management. XeTel's materials management organization focuses on
supply and inventory management. The Company's services include planning,
purchasing and warehousing of electronic components. XeTel's materials
management system combines traditional approaches such as MRP II with responsive
procurement strategies, including just-in-time inventory management techniques
and dock-to-stock shipments from qualified suppliers. XeTel actively manages its
materials pipeline and supplier base to enable the Company's customers to adjust
production requirements within established frameworks. The Company maintains
more than one supply source wherever possible, however, components for certain
major OEM contracts are only obtainable from a single source. The Company's
computer integrated information systems facilitate the tracking of components
and materials from forecast to delivery, thus enabling the Company to
efficiently procure components and materials, determine inventory levels by
customer and monitor the flow of parts through each major step of the production
process. The Company provides its customers with flexible inventory
arrangements, including in certain circumstances the acceptance of components on
a consignment basis, or the purchase of components in advance of lengthy
manufacturing programs. An interruption or loss of any such component supply
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Program Management. Customer responsiveness is a key priority at XeTel. To
provide better service to its customers, XeTel has implemented a customer team
approach. Each customer team typically consists of a program manager, a customer
engineer and a materials planner, resulting in a cohesive group with expertise
in the production process. Customer teams interact with customers on a regular
basis and work with XeTel's engineering, materials management and manufacturing
personnel to enhance responsiveness to customers.
CUSTOMERS AND MARKETING
XeTel has over ten years of experience in the electronics manufacturing services
industry. The Company serves a diversified customer base consisting of
approximately 100 customers spread over a variety of growing industries,
including the telecommunications, networking and computer industries.
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Although XeTel serves a large and varied group of customers, a substantial
portion of the Company's sales are derived from a small number of customers.
Three of the Company's customers, Motorola (certain divisions and groups),
Westinghouse and 3Com/Primary Access, accounted for 18%, 15% and 24% of the
Company's net sales for fiscal 1996, respectively, and 34%, 3% and 10% of net
sales for fiscal 1995, respectively. In addition, the Company's fifteen largest
customers (including Motorola, Westinghouse and 3Com/Primary Access)
collectively accounted for approximately 83% of the Company's net sales during
fiscal 1996. The loss of, or a significant curtailment of purchases by, one or
more of these customers, or any other significant customer of the Company, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's customers typically enter into a manufacturing services agreement
("MSA") with XeTel to provide the general terms and conditions applicable to
purchase orders delivered to the Company. A MSA is not an authorization for the
Company to provide services or ship product, but provides the contractual
framework for the future relationship between the parties. Although the terms of
MSAs will vary from customer to customer depending on the particular
requirements of each customer, the Company's standard MSA provides that (i) the
Company will provide price quotations for services to the customer, (ii) if the
customer determines to proceed with ordering services based on such price
quotations, the customer then will provide a purchase order to the Company and,
(iii) the Company may then accept such purchase order, at which time the Company
is authorized to ship product or provide services in accordance with the terms
of the purchase order. Upon execution of a MSA, the customer will typically
provide the Company with a binding purchase order for required deliveries for a
minimum of 90 days, and will further provide a nonbinding forecast of its
requirements for an additional 180 to 270 day period, updated monthly. In the
event of the modification or cancellation of a purchase order, the customer is
generally liable for services rendered, materials purchased or procured and, in
certain circumstances, charges associated with such modification or
cancellation. MSAs typically are terminable by either party upon 120 days prior
written notice to the other for convenience or within 30 days prior written
notice to the other for cause. Significant cancellations, reductions or delays
in orders by customers, or inability by customers to pay for services provided
by the Company or to pay for components and materials purchased by the Company
on such customer's behalf, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company markets its services through its sales and marketing organization
consisting of 12 employees, and its customer support and service organization
consisting of 26 employees. The Company utilizes 10 independent sales
representative organizations located in the major electronics market areas in
the United States to develop new customer introductions and generate new orders
from existing customers.
COMPETITION
XeTel competes in the electronics manufacturing services industry which is
highly fragmented and is characterized by intense competition. The Company
competes against numerous domestic independent electronics manufacturers,
including ACT Manufacturing, Atlantic Design, AVEX Electronics, Benchmark
Electronics, DII Group, IEC Electronics, Lockheed Martin Corporation, SCI
Systems, Solectron and numerous regional manufacturers. Certain of these
competitors have substantially greater manufacturing, financial and marketing
resources than the Company. In addition, the Company may be operating at a cost
disadvantage compared to manufacturers who have greater direct buying power with
component suppliers or who have lower cost structures. Current and prospective
customers continually evaluate the merits of manufacturing products internally
and will from time to time offer manufacturing services to third parties in
order to utilize excess capacity. During downturns in the electronics industry,
OEMs may become more price sensitive.
The Company believes that the principal competitive factors in the electronics
manufacturing services industry are quality, service, technology, manufacturing
capability, price, reliability, timeliness and regional access. There can be no
assurance that competition from existing or potential competitors will not have
a material adverse effect on the Company's business, financial condition or
results of operations. The introduction of lower priced competition or
significant price reductions by the Company's competitors could result in price
reductions that would adversely affect the Company's business, financial
condition and results of operations, as could the introduction of new
technologies which would render the Company's manufacturing process technology
less competitive or obsolete.
BACKLOG
The Company's backlog as of March 30, 1996 was approximately $80.7 million
compared to approximately $58.3 million as of April 1, 1995. Backlog consists of
purchase orders received by the Company and commitments under scheduled
releases, both of which generally specify delivery dates within twelve months.
Variations in the size and delivery schedules of purchase orders received by the
Company, as well as changes in customers' delivery requirements or the
rescheduling or cancellation of orders and commitments, has resulted in the past
and may result in substantial fluctuation in backlog from period to period.
Subsequent to the fiscal year ended March 30, 1996, one of the Company's largest
customers reduced a significant order with the Company due to a large order
which did
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not materialize for this customer. Accordingly, the Company believes that
backlog cannot be considered a meaningful indicator of future financial results.
EMPLOYEES
As of March 30, 1996, the Company had 530 full-time employees supplemented from
time to time by part-time employees. The employees are not represented by a
union, and the Company believes its employee relations to be satisfactory.
FACILITIES
XeTel leases a 105,000 square foot facility in Austin, Texas for its executive
offices and manufacturing operations. The Company believes that its existing
facilities are adequate for its current level of business. The Company
anticipates that additional space will be needed to meet increases in customers'
requirements and to expand into targeted geographic markets currently not served
by the Company.
Since the Company does not currently operate manufacturing facilities in
different geographic areas, a disruption of the Company's manufacturing
operations resulting from sustained process abnormalities, human error, theft,
government intervention or a natural disaster such as fire, earthquake, or flood
could cause the Company to cease or limit its manufacturing operations and
consequently have a material adverse effect on the Company's business, financial
condition and results of operations.
ENVIRONMENTAL MATTERS
In the past, electronics manufacturing services companies have used
chlorofluorocarbon ("CFC") cleaners which are believed to contribute to
depletion of the ozone layer in the atmosphere. In 1993, the Company eliminated
the use of CFC-based chemicals in its manufacturing operations.
The Company is required to comply with all federal, state, county and municipal
regulations regarding protection of the environment. The Company believes that
its facility currently complies with all applicable regulations regarding
environmental protection. The cost to the Company of such compliance to date has
not materially affected the Company's business, financial condition or results
of operations. However, there can be no assurance that violations will not occur
in the future as a result of human error, equipment failure or other causes. The
Company cannot predict the nature, scope or effect of environmental legislation
or regulatory requirements that could be imposed or how existing or future laws
or regulations will be administered or interpreted. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies, could require substantial expenditures by the Company and
could adversely affect the Company's business, financial condition and results
of operations.
ACQUISITIONS
XeTel is currently negotiating the purchase of another company which is expected
to occur in the second quarter of fiscal 1997. It is expected that the
acquisition will further establish and expand long-term relationships with OEMs
of advanced electronic products by increasing design and prototype centers in
targeted geographic areas.
ITEM 2. PROPERTIES
XeTel's 105,000 square foot manufacturing and executive facility is located in
Austin, Texas. The facility is leased with an expiration of March 31, 2002 which
may be extended at the Company's option.
The Company believes that its existing facilities are adequate for its current
level of business. The Company anticipates that additional space will be needed
to meet increases in customers' requirements and to expand into targeted
geographic markets currently not served by the Company.
ITEM 3. LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings to which it
is a party or to which any of its property is subject that are material to the
Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
7
<PAGE> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
COMMON STOCK INFORMATION
The following table sets forth the quarterly high and low per share sales prices
of the Company's common stock for the fourth quarter ended March 30, 1996, as
quoted on the NASDAQ Stock Exchange.
Per share trading price range:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
FISCAL YEAR 1996
Fourth Quarter 10 8
</TABLE>
The Company's stock began trading on NASDAQ on February 14, 1996. Therefore,
there is no price information for the first three quarters of fiscal 1996 or for
all of fiscal 1995.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements, including the notes to financial statements. The
information set forth below is not necessarily indicative of results of future
operations. The information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FIVE YEAR SELECTED FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------------
MARCH 30, April 1, April 2, April 3, March 31,
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $117,846 $ 64,507 $ 52,451 $ 57,791 $ 46,610
Cost of sales 102,605 58,689 49,801 52,904 41,110
-------- -------- -------- -------- --------
Gross profit 15,241 5,818 2,650 4,887 5,500
Selling, general and administrative expenses 5,875 4,146 4,059 4,110 4,222
-------- -------- -------- -------- --------
Income (loss) from operations 9,366 1,672 (1,409) 777 1,278
Interest expense and other, net 605 411 323 341 335
-------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary
item 8,761 1,261 (1,732) 436 943
Provision (benefit) for income taxes 3,106 319 (252) 196 358
-------- -------- -------- -------- --------
Income (loss) before extraordinary item 5,655 942 (1,480) 240 585
Extraordinary item: utilization of net operating loss
carryforward -- -- -- -- 143
-------- -------- -------- -------- --------
Net income (loss) $ 5,655 $ 942 $ (1,480) $ 240 $ 728
======== ======== ======== ======== ========
Net income (loss) per
share $ 0.76 $ 0.14 $ (0.53) $ 0.04 $ 0.11
======== ======== ======== ======== ========
Weighted average shares outstanding 7,411 6,646 2,764(1) 6,645 6,618
Balance Sheet Data:
Working capital $ 20,560 $ 1,007 $ 1,137 $ 2,362 $ 1,996
Total assets 45,156 22,950 15,282 18,735 12,293
Notes payable and current portion of long-term debt -- 7,016 5,612 6,981 3,470
Long-term debt, less current portion -- -- 379 854 55
Stockholders equity 24,922 4,403 3,446 4,926 4,664
</TABLE>
- ---------------
(1) Weighted average shares outstanding excludes shares of common stock issuable
upon the conversion of the outstanding shares of Series A Preferred Stock
because the inclusion of such shares would be antidilutive.
8
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion in this document contains trend analysis and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward-looking statements throughout this document as a result of the risk
factors set forth above and elsewhere.
OVERVIEW
XeTel was founded in 1984. In 1986, Rohm U.S.A., Inc., ("Rohm") a subsidiary of
Rohm Co., Ltd., Japan, a diversified electronics company, acquired a controlling
interest in the Company. Since its inception, the Company has manufactured
surface mount assemblies and performed other manufacturing services for OEMs in
the electronics industry. In a number of cases, such services were rendered
during periods in which customers were experiencing fluctuations in demand for
their products. During such periods, the Company's net sales and operating
results were and are subject to significant fluctuations that often were and are
tied to the market demand for its customers' products and their need to utilize
independent manufacturers to maintain sufficient product supply to meet such
demand. In addition, during these periods, the Company's customer base was
concentrated within the computer industry. Due to intense competitive pressures
within the computer industry, as well as fluctuations in overall demand and
lower production volumes, the Company generally experienced lower gross margins.
In an effort to achieve greater stability and higher gross margins, the Company
made the strategic decision in 1993 to reduce its dependence on the computer
industry and expand its service offerings in order to establish long-term
relationships with targeted customers in diversified markets.
The development and growth of the Company's business has generally followed the
trend by OEMs in the electronics industry to outsource certain of their
manufacturing requirements. Recognizing the benefits offered by using
independent manufacturers, OEMs in the electronics industry have increasingly
relied on independent manufacturers not only as a source of additional
manufacturing capacity during periods of fluctuating demand, but as the primary
source for their manufacturing and assembly needs. In addition, the Company has
developed competencies in additional areas where it can add value to its
customers' requirements, such as design, prototype and systems integration, and
has sought to use such competencies to forge long-term relationships as a single
source provider of turnkey solutions for its customers. As discussed in Item 1,
XeTel is currently negotiating the purchase of another company to further
establish and expand its long-term relationships with OEM's of advanced
electronic products by increasing design and prototype centers in targeted
geographic areas.
With the addition of new management personnel in 1993, including a new President
in September 1993, the Company focused certain of its resources to establish
capabilities in product design and prototype and to expand and diversify its
customer base. The Company has reduced its role as a source of additional
capacity for OEMs during periods of fluctuating product demand and has
positioned itself to provide a more comprehensive set of services within the
electronics manufacturing services industry. This shift in strategic focus,
combined with improved materials management processes, a restructuring of the
Company's management organization and the establishment of dedicated customer
teams, have enabled the Company to offer additional services to support its
customers' products throughout their life cycles. As a result of these and other
factors, the Company has generally experienced increased shipments, reduced
cycle times and improved manufacturing efficiency.
9
<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of certain items in
the Statement of Income. The financial information and the discussion below
should be read in conjunction with the financial statements and notes thereto.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
MARCH 30, April 1, April 2,
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 87.1 91.0 94.9
----- ----- -----
Gross Profit 12.9 9.0 5.1
Selling, general and administrative expenses 5.0 6.4 7.7
----- ----- -----
Income (loss) from operations 7.9 2.6 (2.6)
Interest expense and other, net 0.5 0.6 0.7
----- ----- -----
Income (loss) before income taxes 7.4 2.0 (3.3)
Provision (benefit) for income taxes 2.6 0.5 0.5
----- ----- -----
Net income 4.8% 1.5% (2.8)%
===== ===== =====
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 increased 82.7% to $117.8 million from $64.5 million
for fiscal 1995. The increase in net sales was primarily due to increased
shipments to the Company's major customers in the telecommunications and
networking segments of the electronics market. The Company's sales to its three
largest customers for fiscal 1996 represented 24%, 18% and 15%, respectively, of
net sales for such year. Sales to the Company's three largest customers for
fiscal 1995 represented 34%, 10% and 7%, respectively, of net sales for such
year.
Gross profit for fiscal 1996 increased 162.0% to $15.2 million from $5.8 million
in fiscal 1995. Gross profit is defined as net sales less cost of sales. Cost of
sales consists of direct labor, direct material and manufacturing overhead
(which includes manufacturing and process engineering expenses). Gross margin
(gross profit as a percentage of net sales) increased to 12.9% for fiscal 1996
from 9.0% for fiscal 1995. The improvement in the Company's gross profit and
gross margin was primarily attributable to two factors: (i) increased shipments
resulting from a focused strategy on key markets which contributed to a better
absorption of fixed costs, and (ii) manufacturing efficiencies resulting from
productivity and product yield improvements. The significant increase in net
sales contributed to an increase in inventory to $14.7 million at March 30, 1996
from $7.3 million at April 1, 1995. Although there can be no assurance that the
Company will maintain its current levels of gross profit and gross margin in the
future, management intends to continue to expand the range of services it
provides and focus on market opportunities where its capabilities in rendering
value added services in a cost effective manner can improve productivity,
product yields and utilization.
Selling, general and administrative ("SG&A") expenses for fiscal 1996 increased
41.7% to $5.9 million from $4.1 million in fiscal 1995. SG&A expenses consist
primarily of salaries and related expenses, marketing and promotional expenses,
and sales commissions paid to direct sales personnel and independent sales
representative organizations. SG&A expenses represented 5.0% of net sales for
fiscal 1996 as compared to 6.4% for fiscal 1995. The increase in the dollar
amount of SG&A expenses was attributable to increased expenses primarily
associated with higher net sales. The decrease in SG&A expenses as a percentage
of net sales was principally attributable to higher net sales for fiscal 1996.
Interest expense and other, net for fiscal 1996 increased 47.3% to $605,000 from
$411,000 for fiscal 1995. This increase was due primarily to increased interest
expense associated with the $8.0 million of average debt outstanding during
fiscal 1996 as compared to $6.5 million during fiscal 1995. The increased
borrowings in 1996 were used primarily to fund the Company's working capital
requirements and the purchase of additional capital equipment. All debt was paid
off in February 1996 with proceeds from the initial public offering.
The provision for income taxes of $3.1 million and $319,000 reflects an
effective tax rate of 35.5% and 25.3% for fiscal 1996 and fiscal 1995,
respectively. The lower effective tax rate for the year ended April 1, 1995 was
due to the utilization of alternative minimum tax ("AMT") credit carryforwards.
There were no remaining AMT credit carryforwards available to be utilized during
fiscal 1996.
10
<PAGE> 12
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 increased 23.0% to $64.5 million from $52.5 million
for the fiscal year ended April 2, 1994 (fiscal 1994). The increase in net sales
was primarily due to an increase in sales to major OEMs in the
telecommunications, networking and computer industries. The Company's sales to
its three largest customers in fiscal 1995 represented 34%, 10% and 7%,
respectively, of net sales for fiscal 1995. Sales to the Company's three largest
customers in fiscal 1994 represented 31%, 10% and 9%, respectively, of net sales
for fiscal 1994.
Gross profit for fiscal 1995 increased 119.5% to $5.8 million from $2.7 million
for fiscal 1994. Gross margin increased to 9.0% in fiscal 1995 from 5.1% in
fiscal 1994. The improvement in the Company's gross margin resulted in part from
increased shipments which contributed to a better absorption of fixed costs and
enhanced manufacturing efficiencies. In addition, the Company experienced lower
gross profits in fiscal 1994 due to a write-off of $1.3 million of inventory in
that year. The write-off represented inventory levels of parts and components
which management believed were in excess of amounts recoverable under the
Company's sales agreements with such customers. Since this time, the Company has
modified its inventory management practices to include the identification of
parts and components on a per customer basis. Management believes these factors,
among others, will reduce the likelihood of such inventory write-offs in the
future. However, there can be no assurance that the Company will not from time
to time be required to write-off inventories in the future in the event the
Company purchases components and materials for use in a customer program in
excess of that which the customer agrees to pay for in its agreements with the
Company or that are otherwise disputed by the customer.
Selling, general and administrative expenses increased 2.1% to $4.1 million for
fiscal 1995 as compared to fiscal 1994. SG&A expenses represented 6.4% of net
sales for fiscal 1995 as compared to 7.7% of net sales for fiscal 1994. The
decrease in SG&A expenses as a percentage of net sales was primarily the result
of higher net sales and the Company's efforts to control expenses.
Interest expense and other, net for fiscal 1995 increased 27.2% to $411,000 from
$323,000 for fiscal 1994. This increase reflects a higher average interest rate
on the Company's revolving credit line with Rohm which is adjusted for changes
in the prime rate of interest of a designated major bank. The increase was
partially offset by a decrease in average debt outstanding to $6.5 million
during fiscal 1995 from $6.8 million of average debt outstanding during fiscal
1994.
The provision for income taxes for fiscal 1995 was $319,000 compared to an
income tax benefit of $252,000 in fiscal 1994. The income tax benefit for fiscal
1994 was generated as a result of a pretax net loss of $1.7 million for the
period. The fiscal 1995 provision reflects an effective tax rate of 25.3%. This
rate differs from the statutory federal rate of 34% primarily due to the
utilization of AMT credit carryforwards and a reduction in the deferred tax
asset valuation allowance.
QUARTERLY RESULTS
The following table sets forth certain quarterly financial data for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
MARCH 30, December 30, September 30, July 1,
1996 1995 1995 1995
--------- ------------ ------------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
FISCAL 1996
Statement of Operations Data:
Net Sales $34,800 $ 33,416 $28,498 $21,132
Gross Profit 4,665 4,261 3,642 2,673
Income from operations 2,905 2,704 2,315 1,442
Net income 1,860 1,601 1,360 834
======= ======= ======= =======
Net income per share $ 0.22 $ 0.22 $ 0.18 $ 0.12
======= ======= ======= =======
Weighted average shares outstanding 7,411 7,337 7,265 6,646
======= ======= ======= =======
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
APRIL 1, December 31, October 1, July 2,
1995 1994 1994 1994
-------- ------------ ---------- -------
<S> <C> <C> <C> <C>
FISCAL 1995
Statement of Operations Data:
Net Sales $ 17,543 $ 15,181 $ 14,676 $17,107
Gross Profit 1,588 1,191 1,228 1,811
Income from operations 527 198 257 690
Net income 301 71 120 450
======= ======= ======= =======
Net income per share $ 0.04 $ 0.01 $ 0.02 $ 0.07
======= ======= ======= =======
Weighted average shares outstanding 6,646 6,646 6,646 6,646
======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since 1986 when Rohm acquired a controlling interest in the Company, XeTel has
financed its business through cash generated by operations and a line of credit
and other borrowings provided by Rohm. In February 1996, the Company made an
initial public offering of its common stock. Net proceeds from the offering were
$14.8 million.
Net cash used in operating activities during fiscal 1996 of $1.5 million
resulted primarily from an increase in accounts receivable and inventory arising
from higher sales levels. Net cash provided by operating activities was $1.9
million and $2.6 million in fiscal 1995 and fiscal 1994, respectively.
During fiscal 1996, additional borrowings were made from Rohm for working
capital and capital equipment. The Company used a portion of the net proceeds of
its initial public offering, effective February 14, 1996, to repay all amounts
outstanding under the revolving line of credit and notes payable to Rohm. Net
borrowings from Rohm increased $1.0 million in fiscal 1995 to fund working
capital requirements and the purchase of additional capital equipment. As of
March 30, 1996 and April 1, 1995, total debt owed to Rohm was $-- million and
$7.0 million, respectively.
As of March 30, 1996 and April 1, 1995, the Company's primary source of
liquidity consisted of cash and cash equivalents of $5.1 million and $1.3
million, respectively. Working capital was $20.4 million and $1.0 million as of
March 30, 1996 and April 1, 1995, respectively, including short-term debt owed
to Rohm in the amount of $7.0 million, at April 1, 1995.
Capital expenditures during fiscal 1996, fiscal 1995 and fiscal 1994 were $2.5
million, $2.0 million and $0.7 million, respectively. Management anticipates
that capital expenditures in each of its 1997 and 1998 fiscal years will exceed
the level of capital expenditures made in fiscal 1996. The Company's
expenditures on research and development in fiscal 1996, fiscal 1995 and fiscal
1994 were $174,000, $188,000 and $124,000, respectively.
The Company has obtained a revolving line of credit for $3 million from Rohm and
an equipment financing facility for $4 million from a financial services
company. The Company is also in the process of negotiating an additional
revolving line of credit for $7 million from a commercial bank.
The line of credit from Rohm is secured by certain equipment, bears interest at
LIBOR plus 1.25%, is payable on demand and expires on March 31, 1997. The
equipment financing facility provides for the leasing of equipment over a
five-year period commencing on the date of acceptance of such equipment. The $7
million line of credit that is being negotiated with a commercial bank is
expected to bear interest at LIBOR plus 1.25% and/or prime (such rate determined
based upon the amounts and period of loans), mature in two years and be secured
by certain assets of the Company. It is also expected that this facility will
require the payment of commitment fees equal to one-eighth of 1% on the unused
balance, and borrowings will be limited based upon certain collateral
availability requirements.
The equipment financing facility and the commercial bank line of credit facility
contain certain restrictions which, among other things, require maintenance of a
minimum level of tangible net worth and various other operating and financial
ratios.
The Company believes that its working capital, together with cash generated from
operations and the net proceeds received from the offering, will be sufficient
to satisfy anticipated sales growth and investment in manufacturing facilities
and equipment through its 1997 fiscal year.
12
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information required by item 8 of form 10-K is presented here in the
following order:
<TABLE>
<S> <C>
Report of Independent Accountants...................................................................................... 14
Balance Sheet as of March 30, 1996 and April 1, 1995................................................................... 15
Statement of Operations for the fiscal years ended March 30, 1996, April 1, 1995 and April 2, 1994..................... 16
Statement of Changes in Stockholders' Equity for the fiscal years ended March 30, 1996, April 1, 1995 and April 2,
1994................................................................................................................. 17
Statement of Cash Flows for the fiscal years ended March 30, 1996, April 1, 1995 and April 2, 1994..................... 18
Notes to Financial Statements.......................................................................................... 19
</TABLE>
13
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of XeTel Corporation
In our opinion, the financial statements listed in the accompanying index,
present fairly, in all material respects, the financial position of XeTel
Corporation (the "Company") at March 30, 1996 and April 1, 1995 and the results
of its operations and its cash flows for each of the three fiscal years ended
March 30, 1996 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
---------------------------------------
Price Waterhouse LLP
Austin, Texas
April 19, 1996
14
<PAGE> 16
XETEL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,142 $ 1,322
Trade accounts receivable, net of allowance for doubtful accounts of $240,000 and $240,000,
respectively 19,547 10,297
Inventories 14,721 7,308
Prepaid expenses and other 1,220 466
------- -------
Total current assets 40,630 19,393
Property and equipment, net 4,488 3,519
Land held for investment 38 38
------- -------
Total assets $45,156 $ 22,950
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $14,601 $ 10,679
Notes payable and current portion of long-term debt -- 7,016
Accrued federal income tax 2,674 --
Accrued expenses and other liabilities 2,795 691
------- -------
Total current liabilities 20,070 18,386
Deferred income taxes 164 161
Commitments (Note 7)
Stockholders' equity:
Preferred stock, $0.0001 par value, 4,000,000 shares authorized, -- and 3,863,996 shares
issued and outstanding, respectively -- 3,235
Common stock, $0.0001 par value, 25,000,000 shares authorized, 8,542,168 and 2,531,247 shares
issued and outstanding, respectively 19,430 1,276
Retained earnings (accumulated deficit) 5,547 (108)
Deferred compensation (55) --
------- -------
Total stockholders' equity 24,922 4,403
======= =======
Total liabilities and stockholders' equity $45,156 $ 22,950
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 17
XETEL CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
MARCH 30, April 1, April 2,
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Net Sales $117,846 $ 64,507 $ 52,451
Cost of Sales 102,605 58,689 49,801
--------- -------- --------
Gross Profit 15,241 5,818 2,650
Selling, general and administrative expenses 5,875 4,146 4,059
--------- -------- --------
Income (loss) from operations 9,366 1,672 (1,409)
Interest expense and other, net 605 411 323
--------- -------- --------
Income (loss) before income taxes 8,761 1,261 (1,732)
Provision (benefit) for income taxes 3,106 319 (252)
--------- -------- --------
Net income (loss) $ 5,655 $ 942 $ (1,480)
=========== ======== ========
Net income (loss) per share $ 0.76 $ 0.14 $ (0.53)
=========== ======== ========
Weighted average shares outstanding 7,411 6,646 2,767
=========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 18
XETEL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Series A Retained
Preferred Stock Common Stock Earnings Total
-------------------- -------------------- Deferred (Accumulated Stockholders'
Shares Amount Shares Amount Comp Deficit) Equity
------ ------- ------ ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 3, 1993 3,864 $ 3,235 2,502 $ 1,261 $ -- $ 430 $ 4,926
Net loss -- -- -- -- -- (1,480) (1,480)
----- ------ ----- ------- ---- ------- -------
Balance, April 2, 1994 3,864 3,235 2,502 1,261 -- (1,050) $ 3,446
Stock options exercised -- -- 10 15 -- -- 15
Net income -- -- -- -- -- 942 942
----- ------ ----- ------- ---- ------- -------
Balance, April 1, 1995 3,864 3,235 2,512 1,276 -- (108) 4,403
Stock options exercised 53 65 -- -- 65
Deferred compensation -- -- -- 64 (64) -- --
Amortization of deferred
compensation -- -- -- -- 9 -- 9
Net income -- -- -- -- -- 5,655 5,655
Conversion of preferred
stock (3,864) (3,235) 3,864 3,235 -- -- --
Issuance of common stock
under initial public
offering -- -- 2,094 14,790 -- -- 14,790
----- ------ ----- ------- ---- ------- -------
Balance, March 30, 1996 -- $ -- 8,523 $19,430 $(55) $ 5,547 $24,922
===== ====== ===== ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 19
XETEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------
MARCH 30, April 1, April 2,
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,655 $ 942 $(1,480)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,453 1,341 1,307
Deferred income tax benefit (323) -- (82)
Loss (gain) on disposal of equipment 94 (2) --
Changes in operating assets and liabilities:
(Increase) decrease in --
Trade accounts receivable (9,250) (3,573) (902)
Inventories (7,413) (2,466) 3,877
Prepaid expenses and other (428) (4) 62
Increase (decrease) in --
Trade accounts payable 3,922 6,082 29
Accrued expenses and other liabilities 4,778 (392) (241)
-------- ------- -------
Cash (used in) provided by operating activities (1,512) 1,928 2,570
-------- ------- -------
Cash flows from investing activities:
Proceeds from the sale of equipment -- 2 --
Purchases of property and equipment (2,507) (2,049) (660)
-------- ------- -------
Cash used in investing activities (2,507) (2,047) (660)
-------- ------- -------
Cash flows from financing activities:
Net borrowings (repayments) under debt agreements (7,016) 1,025 (1,844)
Proceeds from stock options exercised 65 15 --
Net proceeds from initial public offering 14,790 -- --
-------- ------- -------
Cash provided by (used in) financing activities 7,839 1,040 (1,844)
-------- ------- -------
Increase in cash and cash equivalents 3,820 921 66
Cash and cash equivalents, beginning of period 1,322 401 335
-------- ------- -------
Cash and cash equivalents, end of period $ 5,142 $ 1,322 $ 401
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 20
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
As of March 30, 1996, XeTel ("XeTel" or the "Company") was a 51% owned
subsidiary of Rohm U.S.A., Inc. ("Rohm"), which is a wholly-owned subsidiary of
Rohm Co. Ltd., Japan. XeTel provides advanced design and prototype services,
manufactures sophisticated surface mount assemblies and supplies turnkey
solutions to original equipment manufacturers primarily in the
telecommunications, networking and computer industries. XeTel incorporates its
design and prototype services and assembly capabilities together with materials
management, advanced testing and systems integration services, to provide
turnkey solutions for its customers. On February 13, 1996, the Company completed
an initial public offering of shares of its common stock. The offering and the
exercise of the overallotment option by the underwriters generated net cash
proceeds of $14.8 million.
CASH EQUIVALENTS
All highly liquid investments purchased with original maturities of three months
or less are classified as cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (principally standard cost which
approximates actual cost on a first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization on
property and equipment is calculated on the straight-line method over the
estimated useful lives of the assets, which ranges from three to seven years.
REVENUE RECOGNITION
Sales are recognized on the date of shipment to customers. Sales returns are not
material.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes ("SFAS No. 109"). Under SFAS No. 109, deferred income taxes are
provided for temporary differences between the bases of assets and liabilities
for financial reporting and tax purposes.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average number of
outstanding common stock and common equivalent shares, which includes preferred
stock and stock options, and gives effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculation
where the effect of their inclusion would be antidilutive, except that, in
conformity with Securities and Exchange Commission ("SEC") requirements, stock
options issued during the twelve-month period prior to the filing of the
Company's initial public offering have been included in the calculation as if
they were outstanding for all periods, using the treasury stock method and the
initial offering price of $8.00 per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, trade accounts receivable and payable, and notes payable and
long-term debt, approximate fair values.
USE OF ESTIMATES
Judgments and estimates by management are required in the preparation of
financial statements to conform with generally accepted accounting principles.
The estimates and underlying assumptions effect the reported amounts of assets
and liabilities, the disclosure of
19
<PAGE> 21
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contingencies at the balance sheet date and the reported revenues and expenses
for the period. Actual results could differ from those estimates.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"). The Company has not
elected early adoption of SFAS No. 123. SFAS No. 123 permits companies to
continue to measure compensation expense for stock-based employee compensation
plans using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, or measure such
expense using the fair value-based method prescribed by SFAS No. 123. The
Company has determined that it will continue to use the intrinsic value method
and does not believe that the adoption of SFAS No. 123 will have a material
effect on the Company's financial position or results of operations.
NOTE 2 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Raw materials $11,037 $5,665
Work in progress 3,396 1,415
Finished goods 288 228
------- ------
$14,721 $7,308
======= ======
</TABLE>
As of March 30, 1996 and April 1, 1995, the Company had allowances for obsolete
raw materials (principally printed circuit board components) of $490,000 and
$320,000, respectively. Cost of sales for fiscal 1996, 1995 and 1994 include
provisions to the allowance for obsolete materials of $318,000, $-- and
$1,282,000, respectively.
NOTE 3 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Machinery and equipment $11,397 $ 10,301
Furniture and fixtures 334 341
Leasehold improvements 405 432
------- -------
12,136 11,074
Less: Accumulated depreciation and amortization (7,648) (7,555)
------- -------
$ 4,488 $ 3,519
======= =======
</TABLE>
20
<PAGE> 22
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
$6,500,000 revolving line of credit with Rohm which
was fully utilized as of April 1, 1995, due on demand,
bearing interest at Rohm's reference rate, secured by
bank deposit accounts, accounts receivable, inventory
and certain equipment. This line of credit was
canceled in February of 1996. $ -- $6,637
Notes payable to Rohm in monthly principal installments
ranging from $21,000 to $52,000 through August 17, 1997,
bearing interest ranging from 6.25% to 7.46%, secured by
certain equipment -- 379
------- ------
-- 7,016
Less: Current portion -- 7,016
------- ------
Long-term portion $ -- $ --
======= ======
</TABLE>
Interest paid totaled $704,000, $425,000 and $367,000 for fiscal 1996, 1995 and
1994, respectively.
On February 21, 1996, The Company used approximately $10.1 million of the net
proceeds from its initial public offering to repay all of its outstanding
indebtedness to Rohm. In addition, the $6.5 million letter of credit was
canceled. This indebtedness had been incurred for working capital purposes,
leasehold improvements and capital equipment purchases.
The Company has obtained a revolving line of credit for $3 million from Rohm,
and is currently negotiating an equipment financing facility for $4 million from
a financial services company and an additional revolving line of credit for $7
million from a commercial bank.
The line of credit from Rohm is secured by certain equipment, bears interest at
LIBOR plus 1.25%, is payable on demand and expires March 31, 1997. The equipment
financing facility will provide for the leasing of equipment over a five-year
period commencing on the date of acceptance of such equipment. The $7 million
line of credit that is being negotiated with a commercial bank is expected to
bear interest at LIBOR plus 1.25% and/or prime (such rate determined based upon
the amounts and period of loans), mature in two years and be secured by certain
assets of the Company. It is also expected that this facility will require the
payment of a commitment fee equal to one-eighth of 1% on the unused balance, and
borrowings will be limited based upon certain collateral availability
requirements.
The equipment financing facility and the commercial bank line of credit facility
contain certain restrictions which, among other things, require maintenance of a
minimum level of tangible net worth and various other operating and financial
ratios.
NOTE 5 INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
MARCH 30, April 1, April 2,
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Federal
Current $ 3,013 $295 $ (170)
Deferred (280) -- (82)
State
Current 416 24 --
Deferred (43) -- --
------ ---- -----
$ 3,106 $319 $ (252)
====== ==== =====
</TABLE>
21
<PAGE> 23
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The differences in income taxes provided and the amounts determined by applying
the federal statutory tax rate to income (loss) before income taxes result from
the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
MARCH 30, April 1, April 2,
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Tax at statutory rate $ 2,979 $429 $ (589)
Add (deduct) the effect of -- State income tax 275 8 --
Alternative minimum tax carryforward -- (56) 56
Change in valuation allowance (162) (52) 214
Nondeductible expenses and other, net 14 (10) 67
------- ---- -----
$ 3,106 $319 $ (252)
======= ==== =====
</TABLE>
The components of deferred income tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Reserves $ 160 $ 140
Franchise tax 157 13
Accrued vacation 53 61
Other 117 109
----- -----
Gross current deferred tax asset 487 323
----- -----
Deferred tax liabilities:
Depreciation (145) (142)
Other (19) (19)
----- -----
Gross long-term deferred tax liability (164) (161)
----- -----
Valuation allowance -- (162)
----- -----
$ 323 $ --
===== =====
</TABLE>
Prior to fiscal 1996, the Company placed a valuation allowance against its
otherwise recognizable net deferred tax assets due to the uncertainty
surrounding the timing of realizing the benefits of its favorable tax attributes
in future tax returns. During fiscal 1996, management determined that such
uncertainties were no longer present and reduced the valuation allowance
accordingly.
Income taxes totaling $360,000, $447,000 and $-- were paid for fiscal 1996, 1995
and 1994, respectively.
NOTE 6 CAPITAL STOCK
PREFERRED AND COMMON STOCK
XeTel was incorporated on April 3, 1984 under the laws of the state of Texas. On
January 20, 1995, XeTel was reincorporated in Delaware which resulted in a
change in the par value of the preferred stock from $0.10 per share to $0.0001
per share, and a change in the par value of the common stock from no par to
$0.0001 per share. The reincorporation decreased authorized preferred and common
stock from 6,000,000 and 10,000,000 shares to 4,000,000 and 8,000,000 shares,
respectively. The Company filed a restatement of its certificate of
incorporation in December 1995 which, among other things, increased the
authorized shares of common stock to 25 million and provided for automatic
conversion of the outstanding shares of Series A Preferred Stock to common stock
upon closing of the Company s initial public offering.
As a result of the initial public offering, effective February 13, 1996, all
outstanding shares of Series A Preferred Stock were converted, on a one-for-one
basis, to common stock.
22
<PAGE> 24
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The board of directors has the authority to issue the preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the Company s stockholders. The issuance of
the preferred stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of common stock.
STOCK OPTION PLAN
XeTel's 1992 Stock Option Plan (the "Option Plan") provides for the grant of
common stock options to key employees. The exercise price of each option is the
fair market value of a share of common stock on the date of grant. The term of
each option can be no more than 10 years from the date of grant and expires 90
days after the termination of employment. Each option vests equally over a
period of four years from the date of grant. As of March 30, 1996, the Company
has reserved 1,750,000 shares of common stock for the Option Plan.
A summary of changes under the Option Plan is as follows:
<TABLE>
<CAPTION>
SHARES PRICE($)
--------- ------------
<S> <C> <C>
Options outstanding as of April 3, 1993 698,850 1.00 - 1.50
Granted 496,500 1.23
Canceled (247,550) 1.00 - 1.50
-------- -----------
Options outstanding as of April 2, 1994 947,800 1.00 - 1.50
Granted 80,000 1.23
Exercised (10,450) 1.00 - 1.50
Canceled (79,100) 1.00 - 1.50
-------- -----------
Options outstanding as of April 1, 1995 938,250 1.00 - 1.50
Granted 321,000 1.22 - 6.00
Exercised (52,675) 1.00 - 1.50
Canceled (34,575) 1.00 - 1.50
-------- -----------
Options outstanding as of March 30, 1996 1,172,000 1.22 - 6.00
======== ===========
Options exercisable as of March 30, 1996 517,250 1.22 - 1.33
======== ===========
</TABLE>
In connection with options issued in fiscal 1996, the Company is recognizing
compensation expense totaling $64,000 over the vesting period.
NOTE 7 LEASE COMMITMENTS
XeTel leases its operating facility and certain office equipment under
noncancellable operating leases. Rental expense under all operating leases was
approximately $779,000, $574,000 and $522,000 during fiscal 1996, 1995 and 1994,
respectively. Future noncancellable minimum rental payments under all operating
leases with initial terms of greater than one year are $750,000 in 1997,
$749,000 in 1998, $776,000 in 1999, $796,000 in 2000, $805,000 in 2001 and an
aggregate of $824,000 thereafter. As of March 30, 1996, Rohm has guaranteed
rental payments of $1,024,000 related to the lease of the Company's operating
facility.
23
<PAGE> 25
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 SALES TO MAJOR CUSTOMERS
XeTel's sales are concentrated in the electronics industry; however, the
customers operate in diverse markets and geographic areas. The following table
summarizes the percentage of gross revenues generated by sales to customers that
account for more than 10% of sales in fiscal 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
MARCH 30, April 1, April 2,
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Customer A 24% 10% 10%
Customer B 18 34 31
Customer C 15 -- --
</TABLE>
Accounts receivable from customers A, B and C represented 46% of the Company's
trade accounts receivable as of March 30, 1996.
NOTE 9 RELATED PARTY TRANSACTIONS
In addition to the debt arrangements with Rohm described in Note 4 and the
operating facility lease guarantee by Rohm described in Note 7, the Company has
transactions with certain divisions of Rohm Corporation, a wholly-owned
subsidiary of Rohm, during the normal course of business. Purchases from such
divisions were $908,000, $615,000 and $312,000 for fiscal 1996, 1995 and 1994,
respectively. Accounts payable to such divisions were $141,000 and $131,000 as
of March 30, 1996 and April 1, 1995, respectively. Accounts receivable from such
divisions were not significant.
NOTE 10 EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution retirement plan (the "401(k) Plan")
pursuant to Section 401(k) of the Internal Revenue Code. The 401(k) Plan was
amended effective July 1, 1995 whereby substantially all employees are eligible
to participate if they are at least 21 years of age, and such participants may
contribute up to 12% of their compensation. Also in connection with this
amendment, the Company elected to make matching contributions to participants
after the participants have completed one year of service. The matching
contribution is 25% of participant contributions, which are applied to a maximum
of 5% of each participant's compensation. The Company may also make profit
sharing and other contributions to the 401(k) Plan for the benefit of the
participants. Company contributions vest ratably over a five-year period.
Company contributions charged to operations were $70,000, $42,000 and $37,000
for fiscal 1996, 1995 and 1994, respectively.
24
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The directors and executive officers of the Company and their ages as of March
30, 1996, are as follows:
<TABLE>
<S> <C> <C>
Kozo Sato 55 Chairman of the Board of Directors (Class II Director)
Angelo A. DeCaro, Jr. 44 President, Chief Executive Officer and a Director (Class III)
Julian C. Hart 56 Senior Vice President, Chief Technical Officer and a Director
(Class I)
Richard S. Chilinski 44 Vice President, Chief Financial Officer and Assistant Secretary
David W. Gault 51 Vice President -- Strategic Relations
William A. Peten 49 Vice President -- Material Acquisition and Control
Mark A. Trutna 33 Vice President -- Marketing and Product Design
Francis A. Crea 44 Vice President -- Austin Manufacturing Operations
Ronald W. Guire 47 Secretary and a Director (Class III)
Raimon L. Conlisk 73 Director (Class II)
</TABLE>
Mr. Sato has served as Chairman of the Board of Directors of the Company since
1986 and previously served as its Chief Executive Officer from 1986 to August
1995. Since 1984, Mr. Sato has also served as the Chief Executive Officer and
President and as a director of Rohm U.S.A., Inc., a wholly owned subsidiary of
Rohm Co., Ltd., Japan, a diversified electronics company. Mr. Sato also serves
as Managing Director of International Operations of Rohm Co., Ltd., Japan.
Mr. DeCaro has served as a Director and President of the Company since 1993, and
in August 1995 was elected its Chief Executive Officer. Mr. DeCaro was employed
by IBM from 1974 to 1993, and served as Director of Operations -- Printed Wiring
Board and Services at IBM's circuit board facility in Austin, Texas from 1992 to
1993, and Plant Manager of the same facility from 1989 to 1992.
Mr. Hart, a founder of the Company, has served as a Director and Senior Vice
President of the Company since 1984 and its Chief Technical Officer since
November 1995. From 1964 to 1984, he was employed by Texas Instruments ("TI") in
various development engineering positions, including in the development of TI's
Advanced Scientific Computer. Mr. Hart is a registered Professional Engineer and
a member of The International Society for Hybrid Microelectronics.
Mr. Chilinski has served as Vice President and Chief Financial Officer of the
Company since January 1995 and its Assistant Secretary since November 1995. He
previously served as Chief Financial Officer/Controller of IBM PC Company
Austin, a manufacturer of personal computers, from 1993 to 1994, and Vice
President -- Finance and Administration and Assistant Secretary of TN
Technologies, a subsidiary of Baker Hughes Technology Products Division, engaged
in the manufacture of process control technology, from 1988 to 1993. He is a
Certified Public Accountant.
Mr. Gault, a founder of the Company, has served as Vice President -- Strategic
Relations since 1984. From 1969 to 1984, he was employed by TI in a variety of
electronic equipment design, manufacturing and support positions.
Mr. Peten has served as Vice President -- Material Acquisition and Control since
joining the Company in 1993. Prior to joining XeTel, Mr. Peten was employed by
IBM for approximately 23 years where he held numerous management assignments
including Materials Manager for the IBM Printed Circuit Panel Plant in Austin
from 1989 to 1993.
Mr. Trutna has served as Vice President -- Marketing and Product Design since
1994. Mr. Trutna joined the Company in 1987 as Director of Sales and Marketing
and held that position until 1994. Prior to 1987, he held marketing and
administrative positions at TI and IBM. He serves on IPC's Assembly Marketing
Research Council's Steering Committee and IPC's Electronics Manufacturing
Services Industry Steering Committee.
Mr. Crea has served as Vice President -- Austin Manufacturing Operations since
November 1995. Mr. Crea joined the Company in 1994 as the Director of Custom
Engineering Services and in July 1995 was appointed Director of Engineering.
From 1984 to 1993, he served as Operations Manager for Sprague Electric Company,
a manufacturer of electronic components, at its plant in North Adams,
Massachusetts.
25
<PAGE> 27
Mr. Guire has served as a Director of the Company since 1986 and as Secretary
since 1991. Mr. Guire has served with EXAR Corporation ("EXAR"), a semiconductor
designer and manufacturer, since 1984 including as Executive Vice President
since June 1995, as Senior Vice President from 1989 to 1995 and as a director,
Secretary of the Board of Directors and Chief Financial Officer since 1985. Mr.
Guire was formerly a partner in the public accounting firm of Graubart & Co.
from 1979 to 1985.
Mr. Conlisk has served as a Director of the Company since 1991. Since 1977, Mr.
Conlisk has served as President of Conlisk Associates, an international
management consulting firm serving high technology companies. Mr. Conlisk
formerly served with Quantic Industries, Inc., a privately held manufacturer of
electronic systems and devices, as a Director from 1970 until his retirement in
1990, as Chairman from 1984 until his retirement and as President from 1984 to
1989. From 1970 to 1973, and from 1987 to 1990, Mr. Conlisk served as a director
of the American Electronics Association. Mr. Conlisk is the Chairman of the
Board of EXAR and a director of SBE, Inc., a manufacturer of communications and
computer products.
There is no family relationship among any of the foregoing individuals.
ITEM 11. EXECUTIVE COMPENSATION
The information required by item 11 of Form 10-K is incorporated by reference to
the information contained in the section captioned "Executive Officer
Compensation" of the Registrant's definitive Proxy Statement (Notice of Annual
Meeting of Shareholders) for the fiscal year ended March 30, 1996 to be held
August 13, 1996 which the Company will file with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding this item is incorporated herein by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Registrant's definitive Proxy Statement (Annual Meeting of
Shareholders) for the fiscal year ended March 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has engaged in a number of transactions with Rohm, its majority
stockholder. The Company believes that these transactions were on terms no less
favorable to the Company than would have been obtained from unaffiliated third
parties. All significant transactions in the past and future, if any, between
the Company and its officers, Directors, principal stockholders and affiliates
(including Rohm) will be approved by a majority of the Company's independent
Directors and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
Rohm guarantees rental payments under the Company's operating lease for its
facility. As of March 30, 1996, Rohm had guaranteed lease payments of
$1,024,000.
In addition, Rohm has provided financing to the Company as summarized by the
following table:
<TABLE>
<CAPTION>
MARCH 30, 1996 April 1, 1995 April 2, 1994
-------------- ------------- -------------
<S> <C> <C> <C>
$6,500,000 revolving line of credit with Rohm
which was fully utilized as of April 1,
1995, due on demand, bearing interest at
Rohm's reference rate, secured by bank
deposit accounts, accounts receivable, $ -- $ 6,637,000 $ 5,137,000
inventory and certain equipment. This line
of credit was canceled in February of 1996.
-- 379,000 854,000
Notes payable to Rohm in monthly principal ---------- ---------- ----------
installments ranging from $3,000 to $52,000 -- 7,016,000 5,991,000
through August 17, 1997, bearing interest -- 7,016,000 5,612,000
ranging from 6.25% to 8.25%, secured by ---------- ---------- ----------
certain equipment $ -- $ -- $ 379,000
========== ========== ==========
Less: Current portion
Long-term portion
</TABLE>
26
<PAGE> 28
Interest paid to Rohm under the credit facilities described above was
approximately $704,000, $425,000 and $367,000 in fiscal years 1996, 1995 and
1994, respectively.
In addition to the arrangements described above, the Company has entered into
transactions in the ordinary course of business with certain divisions of Rohm
Corporation, a wholly owned subsidiary of Rohm. Component purchases from such
divisions were $908,000, $615,000 and $312,000 for fiscal years 1996, 1995 and
1994, respectively.
27
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements. The financial statements listed in ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, above are filed as part of this
Annual Report on Form 10-K.
2. Financial Statement Schedules. All schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
3. Exhibits. The exhibits listed in the accompanying Index to Exhibits are filed
as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
During the fiscal quarter ended March 30, 1996 no current reports on Form 8-K
were filed.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
XETEL CORPORATION
(Registrant)
Date: June 5, 1996 By: /s/ ANGELO A. DECARO, JR.
---------------------------------------
Angelo A. DeCaro, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------- -------------------------------------------- --------------
<C> <S> <C>
/s/ RICHARD S. CHILINSKI Vice President, Chief Financial Officer and June 5, 1996
- ------------------------------------------------------ Assistant Secretary
Richard S. Chilinski
/s/ KOZO SATO Chairman of the Board June 5, 1996
- ------------------------------------------------------
Kozo Sato
/s/ JULIAN C. HART Director June 5, 1996
- ------------------------------------------------------
Julian C. Hart
/s/ RONALD W. GUIRE Secretary and Director June 5, 1996
- ------------------------------------------------------
Ronald W. Guire
/s/ RAIMON L. CONLISK Director June 5, 1996
- ------------------------------------------------------
Raimon L. Conlisk
</TABLE>
29
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ --------------------------------------------------------------------------------------------------
<C> <S>
3.2(*) -- Second Restated Certificate of Incorporation.
3.3(*) -- Restated Bylaws of the Registrant, as amended.
3.4(*) -- Registration Rights dated June 18, 1986 among the Registrant Rohm Corporation, Julian C. Hart,
David W. Gault and Emory C. Garth.
4.1(*) -- Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(*) -- Specimen Common Stock certificate.
10.1(*) -- Company's 1992 Stock Option Plan.
10.2(*) -- Form of Indemnification Agreement between the Registrant and each of its directors and certain
executive officers.
10.3(*) -- Lease Agreement dated September 22, 1992 between Mellon Bank, N.A., Trustee for the
Consolidation Retirement Trust for the LTV Corporation and Affiliates (the "LTV Trust"), as
Landlord, and the Registrant, as Tenant.
10.4(*) -- First Amendment to Lease Agreement effective April 1, 1994 between the LTV Trust, as Landlord,
and the Registrant, as Tenant.
10.5(*) -- Amended and Restated Guaranty of Lease effective April 1, 1994 between Rohm USA, Inc., as
Guarantor, and the LTV Trust, as Landlord.
10.6(*) -- Waiver of Right of First Refusal dated May 2, 1994 by the Registrant, as Tenant, and the LTV
Trust, as Landlord.
10.7(*) -- Security Agreement dated October 14, 1992 between the Registrant and Rohm Corporation.
10.8(*) -- $570,000 Secured Promissory Note issued October 14, 1992 by the Registrant in favor of Rohm
Corporation.
10.9(*) -- $110,000 Secured Promissory Note issued October 22, 1992 by the Registrant in favor of Rohm
Corporation.
10.10(*) -- Security Agreement dated November 4, 1992 between Rohm Corporation, as Secured Party, and the
Registrant.
10.11(*) -- $6,500,000 Secured Promissory Note issued November 4, 1992 by the Registrant in favor of Rohm
Corporation.
10.12(*) -- $722,000 Secured Promissory Note issued March 1, 1993 by the Registrant in favor of Rohm
Corporation.
10.13(*) -- Security Agreement dated May 17, 1995 between Rohm U.S.A., Inc., as Secured Party, and the
Registrant, as Debtor.
10.14(*) -- $2,500,000 Secured Promissory Note issued May 17, 1995 by the Registrant in favor of Rohm
U.S.A., Inc.
10.15(*) -- Security Agreement dated August 16, 1995 between Rohm U.S.A., Inc., as Secured Party, and the
Registrant, as Debtor.
10.17(*) -- $1,155,000 Secured Promissory Note issued August 16, 1995 by the Registrant in favor of Rohm
U.S.A., Inc.
10.18(*) -- Manufacturing Services Agreement dated November 18, 1994 between Primary Access and the
Registrant.
10.19(*) -- Consent Agreement dated March 29, 1995 between Primary Access Corporation and the Registrant,
as the Consenting Party.
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ --------------------------------------------------------------------------------------------------
<C> <S>
10.20(*) -- Manufacturing Services Agreement February 22, 1989 between Motorola, Inc., MOS Memory Products
Division and the Registrant, and letter from Motorola, Inc., Fast Static RAM Module Division
related thereto.
10.21(*) -- Mobile Communication Standard Terms and Conditions dated August 5, 1994 for Westinghouse
Electric.
10.22 -- Master Lease Agreement between XeTel Corporation and General Electric Capital Corporation.
10.23 -- $3,000,000 Promissory Note between XeTel Corporation and Rohm U.S.A.
11.1(*) -- Computation of Net Income (Loss) per Share.
16.1(*) -- Letter regarding change in certifying accountant from KPMG Peat Marwick LLP.
23.1 -- Consent of Price Waterhouse LLP.
24.1(*) -- Power of Attorney (see page II-4 of the Registration Statement as filed on November 20, 1995).
24.2(*) -- Assistant Secretary's Certificate of Resolutions of the Board of Directors.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
(*) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1, No. 33-99632 filed
with the Securities and Exchange Commission on February 14, 1996.
31
<PAGE> 1
EXHIBIT 10.22
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT, dated as of 04/30/96 ("AGREEMENT"), between
GENERAL ELECTRIC CAPITAL CORPORATION, with an office at 303 INTERNATIONAL
CIRCLE SUITE 300, HUNT VALLEY, MD 21031 (hereinafter called, together with its
successors and assigns, if any, "LESSOR"), and XETEL CORPORATION, a CORPORATION
organized and existing under the laws of the State of DELAWARE with its mailing
address and chief place of business at 2525 BROCKTON DRIVE , AUSTIN, TX 78756
(hereinafter called "LESSEE").
WITNESSETH:
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees
to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment
("EQUIPMENT") described in Annex A to any schedule hereto ("SCHEDULE"). Terms
defined in a Schedule and not otherwise defined herein shall have the meanings
ascribed to them in such Schedule.
(b) The obligation of Lessor to purchase Equipment from the
manufacturer or supplier thereof ("SUPPLIER") and to lease the same to Lessee
under any Schedule shall be subject to receipt by Lessor, prior to the Lease
Commencement Date (with respect to such Equipment), of each of the following
documents in form and substance satisfactory to Lessor: (i) a Schedule
relating to the Equipment then to be leased hereunder, (ii) a Purchase Order
Assignment and Consent in the form of Annex B to the applicable Schedule,
unless Lessor shall have delivered its purchase order for such Equipment, (iii)
evidence of insurance which complies with the requirements of Section X, and
(iv) such other documents as Lessor may reasonably request. As a further
condition to such obligations of Lessor, Lessee shall, upon delivery of such
Equipment (but not later than the Last Delivery Date specified in the
applicable Schedule) execute and deliver to Lessor a Certificate of Acceptance
(in the form of Annex C to the applicable Schedule) covering such Equipment,
and, if requested by Lessor, deliver to Lessor a bill of sale therefor (in form
and substance satisfactory to Lessor). Lessor hereby appoints Lessee its agent
for inspection and acceptance of the Equipment from the Supplier. Upon
execution by Lessee of any Certificate of Acceptance, the Equipment described
thereon shall be deemed to have been delivered to, and irrevocably accepted by,
Lessee for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent payable hereunder and Lessee's right to use the Equipment
shall commence on the date of execution by Lessee of the Certificate of
Acceptance for such Equipment ("LEASE COMMENCEMENT DATE"). The term of this
Agreement shall be the period specified in the applicable Schedule. If any
term is extended, the word "term" shall be deemed to refer to all extended
terms, and all provisions of this Agreement shall apply during any extended
terms, except as may be otherwise specifically provided in writing.
(b) Rent shall be paid to Lessor at its address stated above, except as
otherwise directed by Lessor. Payments of rent shall be in the amount set
forth in, and due in accordance with, the provisions of the applicable
Schedule. If one or more Advance Rentals are payable, such Advance Rental
shall be (i) set forth on the applicable Schedule, (ii) due upon acceptance by
Lessor of such Schedule, and (iii) when received by Lessor, applied to the
first rent payment and the balance, if any, to the final rental payment(s)
under such Schedule. In no event shall any Advance Rental or any other rent
payments be refunded to Lessee. If rent is not paid within ten days of its due
date, Lessee agrees to pay a late charge of five cents ($.05) per dollar on,
and in addition to, the amount of such rent but not exceeding the lawful
maximum, if any.
III. RENT ADJUSTMENT:
(a) The periodic rent payments in each Schedule have been calculated on
the assumption (which, as between Lessor and Lessee, is mutual) that the
maximum effective corporate income tax rate (exclusive of any minimum tax rate)
for calendar-year taxpayers ("EFFECTIVE RATE") will be thirty-five percent
(35%) each year during the lease term.
(b) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Internal Revenue Code of 1986, as amended, (the "CODE")), the Effective
Rate is higher than thirty-five percent (35%) for any year during the lease
term, then Lessor shall have the right to increase such rent payments by
requiring payment of a single additional sum equal to the product of (i) the
Effective Rate (expressed as a decimal) for such year less .35 (or, in the
event that any adjustment has been made hereunder for any previous year, the
Effective Rate (expressed as a decimal) used in calculating the next previous
adjustment) times (ii) the adjusted Termination Value, divided by (iii) the
difference between the new Effective Tax Rate (expressed as a decimal) and one
(1). The adjusted Termination Value shall be the Termination Value (calculated
as of the first rental due in the year for which such adjustment is being made)
less the Tax Benefits that would be allowable under Section 168 of the Code (as
of the first day of the year for which such adjustment is being made and all
subsequent years of the lease term). Lessee shall pay to Lessor the full
amount of the additional rent payment on the later of (i) receipt of notice or
(ii) the first day of the year for which such adjustment is being made.
(c) Lessee's obligations under this Section III shall survive any
expiration or termination of this Agreement.
<PAGE> 2
IV. TAXES: Except as provided in Sections III and XV(c), Lessee shall have no
liability for taxes imposed by the United States of America or any State or
political subdivision thereof which are on or measured by the net income of
Lessor. Lessee shall report (to the extent that it is legally permissible) and
pay promptly all other taxes, fees and assessments due, imposed, assessed or
levied against any Equipment (or the purchase, ownership, delivery, leasing,
possession, use or operation thereof), this Agreement (or any rentals or
receipts hereunder), any Schedule, Lessor or Lessee by any foreign, federal,
state or local government or taxing authority during or related to the term of
this Agreement, including, without limitation, all license and registration
fees, and all sales, use, personal property, excise, gross receipts, franchise,
stamp or other taxes, imposts, duties and charges, together with any penalties,
fines or interest thereon (all hereinafter called "TAXES"). Lessee shall (i)
reimburse Lessor upon receipt of written request for reimbursement for any
Taxes charged to or assessed against Lessor, (ii) on request of Lessor, submit
to Lessor written evidence of Lessee's payment of Taxes, (iii) on all reports
or returns show the ownership of the Equipment by Lessor, and (iv) send a copy
thereof to Lessor.
V. REPORTS:
(a) Lessee will notify Lessor in writing, within ten (10) days after
any tax or other lien shall attach to any Equipment, of the full particulars
thereof and of the location of such Equipment on the date of such notification.
(b) Lessee will within ninety (90) days of the close of each fiscal
year of Lessee, deliver to Lessor, Lessee's balance sheet and profit and loss
statement, certified by a recognized firm of certified public accountants.
Upon request Lessee will deliver to Lessor quarterly, within ninety (90) days
of the close of each fiscal quarter of Lessee, in reasonable detail, copies of
Lessee's quarterly financial report certified by the chief financial officer of
Lessee.
(c) Lessee will permit Lessor to inspect any Equipment during normal
business hours.
(d) Lessee will keep the Equipment at the Equipment Location (specified
in the applicable Schedule) and will promptly notify Lessor of any relocation
of Equipment. Upon the written request of Lessor, Lessee will notify Lessor
forthwith in writing of the location of any Equipment as of the date of such
notification.
(e) Lessee will promptly and fully report to Lessor in writing if any
Equipment is lost or damaged (where the estimated repair costs would exceed ten
percent (10%) of its then fair market value), or is otherwise involved in an
accident causing personal injury or property damage.
(f) Within sixty (60) days after any request by Lessor, Lessee will
furnish a certificate of an authorized officer of Lessee stating that he has
reviewed the activities of Lessee and that, to the best of his knowledge, there
exists no default (as described in Section XII) or event which with notice or
lapse of time (or both) would become such a default.
VI. DELIVERY, USE AND OPERATION:
(a) All Equipment shall be shipped directly from the Supplier to
Lessee.
(b) Lessee agrees that the Equipment will be used by Lessee solely in
the conduct of its business and in a manner complying with all applicable
federal, state, and local laws and regulations.
(c) LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR HYPOTHECATE ANY
EQUIPMENT, OR THE INTEREST OF LESSEE HEREUNDER, NOR SHALL LESSEE REMOVE ANY
EQUIPMENT FROM THE CONTINENTAL UNITED STATES, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE LESSOR.
(d) Lessee will keep the Equipment free and clear of all liens and
encumbrances other than those which result from acts of Lessor.
VII. SERVICE:
(a) Lessee will, at its sole expense, maintain each unit of Equipment
in good operating order, repair, condition and appearance in accordance with
manufacturer's recommendations, normal wear and tear excepted. Lessee shall,
if at any time requested by Lessor, affix in a prominent position on each unit
of Equipment plates, tags or other identifying labels showing ownership thereof
by Lessor.
(b) Lessee will not, without the prior consent of Lessor, affix or
install any accessory, equipment or device on any Equipment if such addition
will impair the originally intended function or use of such Equipment. All
additions, repairs, parts, supplies, accessories, equipment, and devices
furnished, attached or affixed to any Equipment which are not readily removable
shall be made only in compliance with applicable law, including Internal
Revenue Service guidelines, and shall become the property of Lessor. Lessee
will not, without the prior written consent of Lessor and subject to such
conditions as Lessor may impose for its protection, affix or install any
Equipment to or in any other personal or real property.
(c) Any alterations or modifications to the Equipment that may, at any
time during the term of this Agreement, be required to comply with any
applicable law, rule or regulation shall be made at the expense of Lessee.
<PAGE> 3
VIII. STIPULATED LOSS VALUE: Lessee shall promptly and fully notify Lessor in
writing if any unit of Equipment shall be or become worn out, lost, stolen,
destroyed, irreparably damaged in the reasonable determination of Lessee, or
permanently rendered unfit for use from any cause whatsoever (such occurrences
being hereinafter called "CASUALTY OCCURRENCES"). On the rental payment date
next succeeding a Casualty Occurrence (the "PAYMENT DATE"), Lessee shall pay
Lessor the sum of (x) the Stipulated Loss Value of such unit calculated as of
the rental next preceding such Casualty Occurrence ("CALCULATION DATE"); and
(y) all rental and other amounts which are due hereunder as of the Payment
Date. Upon payment of all sums due hereunder, the term of this lease as to
such unit shall terminate and (except in the case of the loss, theft or
complete destruction of such unit) Lessor shall be entitled to recover
possession of such unit.
IX. LOSS OR DAMAGE: Lessee hereby assumes and shall bear the entire risk of
any loss, theft, damage to, or destruction of, any unit of Equipment from any
cause whatsoever from the time the Equipment is shipped to Lessee.
X. INSURANCE: Lessee agrees, at its own expense, to keep all Equipment
insured for such amounts and against such hazards as Lessor may require,
including, but not limited to, insurance for damage to or loss of such
Equipment and liability coverage for personal injuries, death or property
damage, with Lessor named as additional insured and with a loss payable clause
in favor of Lessor, as its interest may appear, irrespective of any breach of
warranty or other act or omission of Lessee. The insurance shall provide (i)
liability coverage in an amount equal to at least ONE MILLION U.S. DOLLARS
($1,000,000.00) total liability per occurrence, and (ii) casualty/property
damage coverage in an amount equal to the higher of the Stipulated Loss value
or the full replacement cost of the Equipment; or at such other amounts as may
be required by Lessor. All such policies shall be with companies, and on
terms, satisfactory to Lessor. Lessee agrees to deliver to Lessor evidence of
insurance satisfactory to Lessor. No insurance shall be subject to any co-
insurance clause. Lessee hereby appoints Lessor as Lessee's attorney-in-fact
to make proof of loss and claim for insurance, and to make adjustments with
insurers and to receive payment of and execute or endorse all documents, checks
or drafts in connection with payments made as a result of such insurance
policies. Any expense of Lessor in adjusting or collecting insurance shall be
borne by Lessee. Lessee will not make adjustments with insurers except (i)
with respect to claims for damage to any unit of Equipment where the repair
costs do not exceed ten percent (10%) of such unit's fair market value, or (ii)
with Lessor's written consent. Said policies shall provide that the insurance
may not be altered or canceled by the insurer until after thirty (30) days
written notice to Lessor. Lessor may, at its option, apply proceeds of
insurance, in whole or in part, to (i) repair or replace Equipment or any
portion thereof, or (ii) satisfy any obligation of Lessee to Lessor hereunder.
XI. RETURN OF EQUIPMENT:
(a) Upon any expiration or termination of this Agreement or any
Schedule, Lessee shall promptly, at its own cost and expense: (i) perform any
testing and repairs required to place the affected units of Equipment in the
same condition and appearance as when received by Lessee (reasonable wear and
tear excepted) and in good working order for their originally intended purpose;
(ii) if deinstallation, disassembly or crating is required, cause such units to
be deinstalled, disassembled and crated by an authorized manufacturer's
representative or such other service person as is satisfactory to Lessor; and
(iii) return such units to a location within the continental United States as
Lessor shall direct.
(b) Until Lessee has fully complied with the requirements of Section
XI(a) above, Lessee's rent payment obligation and all other obligations under
this Agreement shall continue from month to month notwithstanding any
expiration or termination of the lease term. Lessor may terminate such
continued leasehold interest upon ten (10) days notice to Lessee.
XII. DEFAULT:
(a) Lessor may in writing declare this Agreement in default if: Lessee
breaches its obligation to pay rent or any other sum when due and fails to cure
the breach within ten (10) days; Lessee breaches any of its insurance
obligations under Section X; Lessee breaches any of its other obligations and
fails to cure that breach within thirty (30) days after written notice thereof;
any representation or warranty made by Lessee in connection with this Agreement
shall be false or misleading in any material respect; Lessee becomes insolvent
or ceases to do business as a going concern; any Equipment is illegally used;
or a petition is filed by or against Lessee or any guarantor of Lessee's
obligations to Lessor under any bankruptcy or insolvency laws. Such
declaration shall apply to all Schedules except as specifically excepted by
Lessor.
(b) After default, at the request of Lessor, Lessee shall comply with
the provisions of Section XI(a). Lessee hereby authorizes Lessor to enter,
with or without legal process, any premises where any Equipment is believed to
be and take possession thereof. Lessee shall, without further demand,
forthwith pay to Lessor (i) as liquidated damages for loss of a bargain and not
as a penalty, the Stipulated Loss Value of the Equipment (calculated as of the
rental next preceding the declaration of default), and (ii) all rentals and
other sums then due hereunder. Lessor may, but shall not be required to, sell
Equipment at private or public sale, in bulk or in parcels, with or without
notice, and without having the Equipment present at the place of sale; or
Lessor may, but shall not be required to, lease, otherwise dispose of or keep
idle all or part of the Equipment; and Lessor may use Lessee's premises for any
or all of the foregoing without liability for rent, costs, damages or
otherwise. The proceeds of sale, lease or other disposition, if any, shall be
applied in the following order of priorities: (1) to pay all of Lessor's
costs, charges and expenses incurred in taking, removing, holding, repairing
and selling, leasing or otherwise disposing of Equipment; then, (2) to the
extent not previously paid by Lessee, to pay Lessor all sums due from Lessee
hereunder; then (3) to reimburse to Lessee any sums previously paid by Lessee
as liquidated damages; and (4) any surplus shall be retained by Lessor. Lessee
shall pay any deficiency in (1) and (2) forthwith.
<PAGE> 4
(c) The foregoing remedies are cumulative, and any or all thereof may
be exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute. Lessee waives notice of sale or other disposition
(and the time and place thereof), and the manner and place of any advertising.
Lessee shall pay Lessor's actual attorney's fees incurred in connection with
the enforcement, assertion, defense or preservation of Lessor's rights and
remedies hereunder, or if prohibited by law, such lesser sum as may be
permitted. Waiver of any default shall not be a waiver of any other or
subsequent default.
(d) Any default under the terms of this or any other agreement between
Lessor and Lessee may be declared by Lessor a default under this and any such
other agreement.
XIII. ASSIGNMENT: Lessor may, without the consent of Lessee, assign this
Agreement or any Schedule. Lessee agrees that if Lessee receives written
notice of an assignment from Lessor, Lessee will pay all rent and all other
amounts payable under any assigned Equipment Schedule to such assignee or as
instructed by Lessor. Lessee further agrees to confirm in writing receipt of
the notice of assignment as may be reasonably requested by assignee. Lessee
hereby waives and agrees not to assert against any such assignee any defense,
set-off, recoupment claim or counterclaim which Lessee has or may at any time
have against Lessor for any reason whatsoever.
XIV. NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's
obligation to pay rent and other amounts due hereunder shall be absolute and
unconditional. Lessee shall not be entitled to any abatement or reductions of,
or set- offs against, said rent or other amounts, including, without
limitation, those arising or allegedly arising out of claims (present or
future, alleged or actual, and including claims arising out of strict tort or
negligence of Lessor) of Lessee against Lessor under this Agreement or
otherwise. Nor shall this Agreement terminate or the obligations of Lessee be
affected by reason of any defect in or damage to, or loss of possession, use or
destruction of, any Equipment from whatsoever cause. It is the intention of
the parties that rents and other amounts due hereunder shall continue to be
payable in all events in the manner and at the times set forth herein unless
the obligation to do so shall have been terminated pursuant to the express
terms hereof.
XV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor,
its agents, employees, successors and assigns from and against any and all
losses, damages, penalties, injuries, claims, actions and suits, including
legal expenses, of whatsoever kind and nature, in contract or tort, whether
caused by the active or passive negligence of Lessor or otherwise, and
including, but not limited to, Lessor's strict liability in tort, arising out
of (i) the selection, manufacture, purchase, acceptance or rejection of
Equipment, the ownership of Equipment during the term of this Agreement, and
the delivery, lease, possession, maintenance, uses, condition, return or
operation of Equipment (including, without limitation, latent and other
defects, whether or not discoverable by Lessor or Lessee and any claim for
patent, trademark or copyright infringement or environmental damage) or (ii)
the condition of Equipment sold or disposed of after use by Lessee, any
sublessee or employees of Lessee. Lessee shall, upon request, defend any
actions based on, or arising out of, any of the foregoing.
(b) Lessee hereby represents, warrants and covenants that (i) on the
Lease Commencement Date for any unit of Equipment, such unit will qualify for
all of the items of deduction and credit specified in Section C of the
applicable Schedule ("TAX BENEFITS") in the hands of Lessor (all references to
Lessor in this Section XV include Lessor and the consolidated taxpayer group of
which Lessor is a member), and (ii) at no time during the term of this
Agreement will Lessee take or omit to take, nor will it permit any sublessee or
assignee to take or omit to take, any action (whether or not such act or
omission is otherwise permitted by Lessor or the terms of this Agreement),
which will result in the disqualification of any Equipment for, or recapture
of, all or any portion of such Tax Benefits.
(c) If as a result of a breach of any representation, warranty or
covenant of the Lessee contained in this Agreement or any Schedule (x) tax
counsel of Lessor shall determine that Lessor is not entitled to claim on its
Federal income tax return all or any portion of the Tax Benefits with respect
to any Equipment, or (y) any such Tax Benefit claimed on the Federal income tax
return of Lessor is disallowed or adjusted by the Internal Revenue Service, or
(z) any such Tax Benefit is recomputed or recaptured (any such determination,
disallowance, adjustment, recomputation or recapture being hereinafter called a
"LOSS"), then Lessee shall pay to Lessor, as an indemnity and as additional
rent, such amount as shall, in the reasonable opinion of Lessor, cause Lessor's
after-tax economic yields and cash flows, computed on the same assumptions,
including tax rates (unless any adjustment has been made under Section III
hereof, in which case the Effective Rate used in the next preceding adjustment
shall be substituted), as were utilized by Lessor in originally evaluating the
transaction (such yields and flows being hereinafter called the "NET ECONOMIC
RETURN") to equal the Net Economic Return that would have been realized by
Lessor if such Loss had not occurred. Such amount shall be payable upon demand
accompanied by a statement describing in reasonable detail such Loss and the
computation of such amount.
(d) All of Lessor's rights, privileges and indemnities contained in
this Section XV shall survive the expiration or other termination of this
Agreement and the rights, privileges and indemnities contained herein are
expressly made for the benefit of, and shall be enforceable by Lessor, its
successors and assigns.
XVI. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT
WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT
MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE,
<PAGE> 5
ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL,
WITH RESPECT TO THE EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH
SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS
FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT
INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to
be borne by Lessee. Without limiting the foregoing, Lessor shall have no
responsibility or liability to Lessee or any other person with respect to any
of the following, regardless of any negligence of Lessor (i) any liability,
loss or damage caused or alleged to be caused directly or indirectly by any
Equipment, any inadequacy thereof, any deficiency or defect (latent or
otherwise) therein, or any other circumstance in connection therewith; (ii) the
use, operation or performance of any Equipment or any risks relating thereto;
(iii) any interruption of service, loss of business or anticipated profits or
consequential damages; or (iv) the delivery, operation, servicing, maintenance,
repair, improvement or replacement of any Equipment. If, and so long as, no
default exists under this Lease, Lessee shall be, and hereby is, authorized
during the term of this Lease to assert and enforce, at Lessee's sole cost and
expense, from time to time, in the name of and for the account of Lessor and/or
Lessee, as their interests may appear, whatever claims and rights Lessor may
have against any Supplier of the Equipment.
XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and
warrants to Lessor that on the date hereof and on the date of execution of each
Schedule:
(a) Lessee has adequate power and capacity to enter into, and perform
under, this Agreement and all related documents (together, the "DOCUMENTS") and
is duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Equipment is
or is to be located.
(b) The Documents have been duly authorized, executed and delivered by
Lessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy and
insolvency laws.
(c) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into or
performance by Lessee of the Documents except such as have already been
obtained.
(d) The entry into and performance by Lessee of the Documents will not:
(i) violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result
in any breach of, constitute a default under or result in the creation of any
lien, charge, security interest or other encumbrance upon any Equipment
pursuant to any indenture, mortgage, deed of trust, bank loan or credit
agreement or other instrument (other than this Agreement) to which Lessee is a
party.
(e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or
affecting Lessee, which will have a material adverse effect on the ability of
Lessee to fulfill its obligations under this Agreement.
(f) The Equipment accepted under any Certificate of Acceptance is and
will remain tangible personal property.
(g) Each Balance Sheet and Statement of Income delivered to Lessor has
been prepared in accordance with generally accepted accounting principles, and
since the date of the most recent such Balance Sheet and Statement of Income,
there has been no material adverse change.
(h) Lessee is and will be at all times validly existing and in good
standing under the laws of the State of its incorporation (specified in the
first sentence of this Agreement).
(i) The Equipment will at all times be used for commercial or business
purposes.
XVIII. EARLY TERMINATION:
(a) On or after the First Termination Date (specified in the applicable
Schedule), Lessee may, so long as no default exists hereunder, terminate this
Agreement as to all (but not less than all) of the Equipment on such Schedule
as of a rent payment date ("TERMINATION DATE") upon at least ninety (90) days
prior written notice to Lessor.
(b) Lessee shall, and Lessor may, solicit cash bids for the Equipment
on an AS IS, WHERE IS BASIS without recourse to or warranty from Lessor,
express or implied ("AS IS BASIS"). Prior to the Termination Date, Lessee
shall (i) certify to Lessor any bids received by Lessee and (ii) pay to Lessor
(A) the Termination Value (calculated as of the rental due on the Termination
Date) for the Equipment, and (B) all rent and other sums due and unpaid as of
the Termination Date.
(c) Provided that all amounts due hereunder have been paid on the
Termination Date, Lessor shall (i) sell the Equipment on an AS IS BASIS for
cash to the highest bidder and (ii) refund the proceeds of such sale (net of
any related expenses) to Lessee up to the amount of the Termination Value. If
such sale is not consummated, no termination shall occur and Lessor shall
refund the Termination Value (less any expenses incurred by Lessor) to Lessee.
<PAGE> 6
(d) Notwithstanding the foregoing, Lessor may elect by written notice,
at any time prior to the Termination Date, not to sell the Equipment. In that
event, on the Termination Date Lessee shall (i) return the Equipment (in
accordance with Section XI) and (ii) pay to Lessor all amounts required under
Section XVIII(b) less the amount of the highest bid certified by Lessee to
Lessor.
XIX. PURCHASE OPTION:
(a) So long as no default exists hereunder and the lease has not been
earlier terminated, Lessee may at lease expiration, upon at least one hundred
eighty (180) days prior written notice to Lessor, purchase all (but not less
than all) of the Equipment in any Schedule on an AS IS WHERE IS BASIS, without
recourse to or warranty from Lessor, express or implied, for cash equal to its
then Fair Market Value (plus all applicable sales taxes).
(b) "FAIR MARKET VALUE" shall mean the price which a willing buyer (who
is neither a lessee in possession nor a used equipment dealer) would pay for
the Equipment in an arm's-length transaction to a willing seller under no
compulsion to sell; provided , however , that in such determination: (i) the
Equipment shall be assumed to be in the condition in which it is required to be
maintained and returned under this Agreement; (ii) in the case of any installed
Equipment, that Equipment shall be valued on an installed basis; and (iii)
costs of removal from current location shall not be a deduction from such
valuation. If Lessor and Lessee are unable to agree on the Fair Market Value at
least one hundred thirty-five (135) days before lease expiration, Lessor shall
appoint an independent appraiser (reasonably acceptable to Lessee) to determine
Fair Market Value, and that determination shall be final, binding and
conclusive. Lessee shall bear all costs associated with any such appraisal.
(c) Lessee shall be deemed to have waived this option unless it
provides Lessor with written notice of its irrevocable election to exercise the
same within fifteen (15) days after Fair Market Value is determined (by
agreement or appraisal).
XX. MISCELLANEOUS:
(a) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN
LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY
RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION,
THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(b) Unless and until Lessee exercises its rights under Section XIX
above, nothing herein contained shall give or convey to Lessee any right, title
or interest in and to any Equipment except as a lessee. Any cancellation or
termination by Lessor, pursuant to the provision of this Agreement, any
Schedule, supplement or amendment hereto, or the lease of any Equipment
hereunder, shall not release Lessee from any then outstanding obligations to
Lessor hereunder. All Equipment shall at all times remain personal property of
Lessor regardless of the degree of its annexation to any real property and
shall not by reason of any installation in, or affixation to, real or personal
property become a part thereof.
(c) Time is of the essence of this Agreement. Lessor's failure at any
time to require strict performance by Lessee of any of the provisions hereof
shall not waive or diminish Lessor's right thereafter to demand strict
compliance therewith. Lessee agrees, upon Lessor's request, to execute any
instrument necessary or expedient for filing, recording or perfecting the
interest of Lessor. All notices required to be given hereunder shall be deemed
adequately given if sent by registered or certified mail to the addressee at
its address stated herein, or at such other place as such addressee may have
designated in writing. This Agreement and any Schedule and Annexes thereto
constitute the entire agreement of the parties with respect to the subject
matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF
ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND
SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.
(d) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, but shall not be obligated, to effect
such compliance, in whole or in part; and all moneys spent and expenses and
obligations incurred or assumed by Lessor in effecting such compliance shall
constitute additional rent due to Lessor within five days after the date Lessor
sends notice to Lessee requesting payment. Lessor's effecting such compliance
shall not be a waiver of Lessee's default.
(e) Any rent or other amount not paid to Lessor when due hereunder
shall bear interest, both before and after any judgment or termination hereof,
at the lesser of eighteen percent (18%) per annum or the maximum rate allowed
by law. Any provisions in this Agreement and any Schedule which are in
conflict with any statute, law or applicable rule shall be deemed omitted,
modified or altered to conform thereto.
<PAGE> 7
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION XETEL CORPORATION
By: By:
----------------------------- -----------------------------
Title: Title:
----------------------------- -----------------------------
<PAGE> 8
AMENDMENT NO. 001
TO
MASTER LEASE AGREEMENT
DATED 04/30/96 (THE "LEASE")
BY AND BETWEEN
XETEL CORPORATION ("LESSEE")
AND
GENERAL ELECTRIC CAPITAL CORPORATION ("LESSOR")
WHEREAS, Lessor and Lessee desire to amend a certain provision of the Lease as
hereinafter provided;
NOW THEREFORE, for good and valuable consideration, receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee hereby agree to amend the
Lease by adding the following language to Section XII of the Lease:
(e) Any default by Lessee under any loan, lease, note, contract or
other monetary obligation which is now or may hereafter be in effect
as to any obligee, where obligee has accelerated payment of the
obligation with or without first giving notice to Lessee, shall
constitute a default under this Lease. Accelarated, as defined
herein, shall mean, declared immediately due and payable. Lessee also
hereby agrees to notify the Lessor immediately upon the occurrence of
any such default. Failure to do so shall constitute an immediate
default under this Lease.
This Amendment shall be deemed to have been entered into contemporaneously with
and integrated into the terms and conditions of the Lease.
Except as set out herein, the terms and conditions of the Lease shall remain in
full force and effect as entered into by the parties on or prior to the date
hereof.
Dated: 04/30, 1996
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL XETEL CORPORATION
CORPORATION
By: By:
----------------------------- -----------------------------
Name: Name:
----------------------------- -----------------------------
Title: Title:
----------------------------- -----------------------------
<PAGE> 9
AMENDMENT NO. 002
TO
MASTER LEASE AGREEMENT
DATED AS OF 04/30, 1996
THIS AMENDMENT amends and supplements the above lease (the "Lease"),
between GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor") and XeTel Corporation,
("Lessee") and is hereby incorporated into the Lease as though fully set forth
therein. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Lease.
Section XXI is added to the Lease to include the following:
Financial Covenants of Lessee. Until such time as the expiration or
termination of this Lease, including payment of all fees due thereunder and the
fulfillment of all obligations, the Lessee agrees:
1.) Liabilities to Net Worth Ratio. Not to permit the ratio of the
Lessee's consolidated total liabilities to the Lessee's consolidated
net worth to exceed 2.0 to 1.0, measured on a fiscal quarter basis
beginning with the fiscal quarter ending 3/31/96.
2.) Consolidated Net Loss. The lessee will not incurr a net loss, in
any two consecutive fiscal quarters beginning with the fiscal quarter
ending 3/31/96.
Unless otherwise defined herein, accounting terms used in the Financial
Covenants of Lessee shall have the meanings given to them pursuant to GAAP.
GAAP means generally accepted accounting principles as applied in the
preparation of the financial statements of the Lessee referred to in Section V
of the Master Lease Agreement.
Determination of compliance under Section XXI shall be made by Lessor based
upon information contained in the financial reports and other information and
reports furnished under Section V of the Master Lease Agreement.
Except as expressly modified hereby, all terms and provisions of the
Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL XETEL CORPORATION
CORPORATION
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
Attest:
By:
---------------------------------
Name:
-------------------------------
<PAGE> 10
AMENDMENT NO. 003
TO MASTER LEASE AGREEMENT
DATED AS OF 04/30/96
THIS ADDENDUM (this "ADDENDUM") amends and supplements the above
referenced lease (the "LEASE"), between GENERAL ELECTRIC CAPITAL CORPORATION
("LESSOR") and XeTel Corporation ("LESSEE") and is hereby incorporated into
the Lease as though fully set forth therein. Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Lease.
For purposes of all Schedules to the Lease entered into following the date
hereof, Section III(a) and (b) of the Lease is hereby amended to read in its
entirety as follows:
(a) The periodic rent payments in each Schedule have been calculated on
the assumption (which, as between Lessor and Lessee, is mutual) that the
maximum effective corporate income tax rate (exclusive of any minimum tax rate)
for calendar-year taxpayers ("EFFECTIVE RATE") will be thirty-five (35%) each
year during the lease term.
(b) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Internal Revenue Code of 1986, as amended, (the "CODE")), the Effective
Rate is higher than thirty-five percent (35%) for any year during the lease
term, then Lessor shall have the right to increase such rent payments by
requiring payment of a single additional sum equal to the product of (i) the
Effective Rate (expressed as a decimal) for such year less .35 (or, in the
event that any adjustment has been made hereunder for any previous year, the
Effective Rate (expressed as a decimal) used in calculating the next previous
adjustment) times (ii) the adjusted Termination Value, divided by (iii) the
difference between the new Effective Tax Rate (expressed as a decimal) and one
(1). The adjusted Termination Value shall be the Termination Value (calculated
as of the first rental due in the year for which such adjustment is being made)
less the Tax Benefits that would be allowable under Section 168 of the Code (as
of the first day of the year for which such adjustment is being made and all
subsequent years of the lease term). Lessee shall pay to Lessor the full
amount of the additional rent payment on the later of (i) receipt of notice or
(ii) the first day of the year for which such adjustment is being made.
(c) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or
addition to, the Internal Revenue Code of 1986, as amended, (the
"Code")), the Effective Rate is lower than thirty-five percent (35%) for
any year during the lease term, then Lessee shall have the right to
request a decrease in the rent payments by requiring the Lessor to make a
payment of a single sum equal to the product of (i) the Effective Rate
(expressed as a decimal) for such year less .35 (or, in the event that
any adjustment has been made hereunder for any previous year, the
Effective Rate (expressed as a decimal) used in calculating the next
previous adjustment) times (ii) the adjusted Termination Value divided by
the difference between the new Effective Tax Rate (expressed as a
decimal) and one (1). The adjusted Termination Value shall be the
Termination Value (calculated as of the first rental due in the year for
which such adjustment is being made) less the Tax Benefits that would be
allowable under Section 168 of the Code (as of the first day of the year
for which such adjustment is being made and all subsequent years of the
lease term). Lessor shall pay to Lessee the full amount of the
reduction rent payment on the later of (i) receipt of notice or (ii) the
first day of the year for which such adjustment is being made.
(d) Lessee's obligation under this Section III shall survive any
expiration or termination of this Agreement.
Except as expressly modified hereby, all terms and provisions of the Lease
shall remain in full force and effect. This Addendum is not binding nor
effective with respect to the Lease or the Equipment until executed on behalf
of Lessor and Lessee by authorized representatives of Lessor and Lessee.
<PAGE> 11
IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION XeTel Corporation
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
Attest:
By:
---------------------------------
Name:
-------------------------------
<PAGE> 12
CORPORATE LESSEE'S
BOARD OF DIRECTORS RESOLUTION
The undersigned hereby certifies: (i) that she/he is the Secretary of
XETEL CORPORATION; (ii) that the following is a true and correct copy of
resolutions duly adopted at a meeting of the Board of Directors of said
Corporation duly held on the ____________________ day of ____________________,
19_____; and (iii) that said resolutions have not been amended, rescinded,
modified or revoked, and are in full force and effect:
"RESOLVED, that each of the officers of this Corporation, whose name
appears below:
- ----------------------------------- ----------------------------------
President Treasurer
- ----------------------------------- ----------------------------------
Vice President Secretary
or the duly elected or appointed successor in office of any or all of them, be,
and hereby is, authorized and empowered in the name and on behalf of this
Corporation to enter into, execute and deliver a master lease agreement with
GENERAL ELECTRIC CAPITAL CORPORATION ("LESSOR") as Lessor, providing for the
leasing to (or sale and leaseback by) this Corporation, from time to time, of
certain equipment, and further providing for this Corporation to indemnify said
Lessor against certain occurrences and against the loss of contemplated tax
treatment; and
FURTHER RESOLVED, that each officer of this Corporation be, and hereby
is, authorized and empowered in the name and on behalf of this Corporation to
enter into, execute and deliver any documents and to do and perform all other
acts and deeds which may be necessary or appropriate to effectuate the lease
(or sale and leaseback) of equipment from Lessor; and
FURTHER RESOLVED, that the Lessor may rely upon the aforesaid resolutions
until receipt by it of written notice of any change.
IN WITNESS WHEREOF, I have set my hand and affixed the seal of said
Corporation this ____________________ day of ____________________, 19_____.
(CORPORATE SEAL)
- ------------------------------
Secretary
<PAGE> 13
ELECTRONIC AND TEST EQUIPMENT SCHEDULE
SCHEDULE NO. 001
DATED THIS 04/30/96
TO MASTER LEASE AGREEMENT
DATED AS OF 04/30/96
Lessor & Mailing Address: Lessee & Mailing Address:
GENERAL ELECTRIC CAPITAL CORPORATION XETEL CORPORATION
303 INTERNATIONAL CIRCLE SUITE 300 2525 BROCKTON DRIVE
HUNT VALLEY, MD 21031 AUSTIN, TX 78756
Capitalized terms not defined herein shall have the meanings assigned to them
in the Master Lease Agreement identified above ("AGREEMENT"; said Agreement and
this Schedule being collectively referred to as "LEASE").
A. EQUIPMENT
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to
Lessee the Equipment listed on Annex A attached hereto and made a part
hereof.
B. FINANCIAL TERMS
1. Advance Rent (if any): $34,205.10.
2. Capitalized Lessor's Cost: $1,974,286.12.
3. Basic Term Lease Rate Factor: 1.73253.
4. Daily Lease Rate Factor: .057751.
5. Basic Term (No. of Months): 60.
6. Basic Term Commencement Date: 05/01/96.
7. Equipment Location: 2525 BROCKTON DRIVE, AUSTIN, TX 78758.
8. Lessee Federal Tax ID No: 74-2310781.
9. Last Delivery Date: 04/30/96.
10. First Termination Date: THIRTY-SIX (36) MONTHS AFTER THE BASIC
TERM COMMENCEMENT DATE.
C. TAX BENEFITS
Depreciation Deductions:
a. Depreciation Method (check one):
[ ] The 200% declining balance method, switching to straight line
method for the 1st taxable year for which using the straight line
method with respect to the adjusted basis as of the beginning of
such year will yield a larger allowance; OR
[ ] The method determined by applying to the unadjusted basis the
applicable percentages set forth in Section 168(b)(1) of the
Code, as in effect prior to the adoption of the Tax Reform Act of
1986.
b. Recovery Period: 5 YEARS.
c. Basis: 100% of Capitalized Lessor's Cost.
D. TERM AND RENT
<PAGE> 14
1. Interim Rent. For the period from and including the Lease
Commencement Date to the Basic Term Commencement Date ("INTERIM
PERIOD"), Lessee shall pay as rent ("INTERIM RENT") for each unit of
Equipment, the product of the Daily Lease Rate Factor times the
Capitalized Lessor's Cost of such unit times the number of days in the
Interim Period. Interim Rent shall be due on N/A.
2. Basic Term Rent. Commencing on 05/01/96 and on the same day of each
month thereafter (each, a "RENT PAYMENT DATE") during the Basic Term,
Lessee shall pay as rent ("BASIC TERM RENT") the product of the Basic Term
Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on
this Schedule.
3. Adjustment to Capitalized Lessor's Cost. Lessee hereby irrevocably
authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no
more than ten percent (10%) to account for equipment change orders,
equipment returns, invoicing errors, and similar matters. Lessee
acknowledges and agrees that the Rent shall be adjusted as a result of
such change in the Capitalized Lessor's Cost (pursuant to paragraphs 1 and
2 above). Lessor shall send Lessee a written notice stating the final
Capitalized Lessor's Cost, if different from that disclosed on this
Schedule.
E. INSURANCE
1. Public Liability: $1,000,000 total liability per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of the
Stipulated Loss Value or the full replacement cost of the Equipment.
F. MODIFICATIONS AND ADDITIONS TO LEASE
For purposes of this Schedule only, the Agreement is amended as follows:
1. Section I(b) of the Agreement is hereby deleted in its entirety and
the following substituted in its stead:
(b) The obligation of Lessor to purchase the Equipment from
Lessee and to lease the same to Lessee shall be subject to receipt by
Lessor, on or prior to the earlier of the Lease Commencement Date or
Last Delivery Date therefor, of each of the following documents in
form and substance satisfactory to Lessor: (i) a Schedule relating to
the Equipment then to be leased hereunder, (ii) a Bill of Sale, in the
form of Annex B to the applicable Schedule, transferring title to the
Equipment to Lessor, (iii) evidence of insurance which complies with
the requirements of Section X, and (iv) such other documents as Lessor
may reasonably request. Simultaneously with the execution of the Bill
of Sale, Lessee shall also execute a Certificate of Acceptance, in the
form of Annex C to the applicable Schedule, covering all of the
Equipment described in the Bill of Sale.
2. Section VI(a) shall be deleted and the following substituted in its
stead:
(a) The parties acknowledge that this is a sale/leaseback
transaction and the Equipment is in Lessee's possession as of the
Lease Commencement Date.
3. Section VII of the Lease is amended by adding the following as the
third sentence in subsection (a):
Lessee agrees that upon return of the Equipment, it will comply with
all original manufacturer's performance specifications for new
Equipment without expense to Lessor. Lessee shall, if requested by
Lessor, obtain a certificate or service report from the manufacturer
attesting to such condition.
4. Each reference contained in this Agreement to:
(a) "Adverse Environmental Condition" shall refer to (i) the
existence or the continuation of the existence, of an Environmental
Emission (including, without limitation, a sudden or non-sudden
accidental or non-accidental Environmental Emission), of, or exposure
to, any substance, chemical, material, pollutant, Contaminant, odor or
audible noise or other release or emission in, into or onto the
environment (including, without limitation, the air, ground, water or
any surface) at, in, by, from or related to any Equipment, (ii) the
environmental aspect of the transportation, storage, treatment or
disposal of materials in connection with the operation of any
Equipment or (iii) the violation, or alleged violation of any
statutes, ordinances, orders, rules regulations, permits or licenses
of, by or from any governmental authority, agency or court relating to
environmental matters connected with any Equipment.
(b) "Affiliate" shall refer, with respect to any given Person,
to any Person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such Person.
(c) "Contaminant" shall refer to those substances which are
regulated by or form the basis of liability under any Environmental
Law, including, without limitation, asbestos, polychlorinated
biphenyls ("PCBs"), and radioactive substances, or other material or
substance which has in the past or could in the future constitute a
health, safety or environmental hazard to any Person, property or
natural resources.
<PAGE> 15
(d) "Environmental Claim" shall refer to any accusation,
allegation, notice of violation, claim, demand, abatement or other
order on direction (conditional or otherwise) by any governmental
authority or any Person for personal injury (including sickness,
disease or death), tangible or intangible property damage, damage to
the environment or other adverse effects on the environment, or for
fines, penalties or restrictions, resulting from or based upon any
Adverse Environmental Condition.
(e) "Environmental Emission" shall refer to any actual or
threatened release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, or into or out of any of the
Equipment, including, without limitation, the movement of any
Contaminant or other substance through or in the air, soil, surface
water, groundwater or property.
(f) "Environmental Law" shall mean any federal, foreign, state
or local law, rule or regulation pertaining to the protection of the
environment, including, but not limited to, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq .), the Hazardous Material Transportation
Act (49 U.S.C. Section 1801 et seq .), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq .), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq .), the
Clean Air Act (42 U.S.C. Section 7401 et seq .), the Toxic Substances
Control Act (15 U.S.C. Section 2601 et seq .), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et
seq .), and the Occupational Safety and Health Act (19 U.S.C. section
651 et seq .), as these laws have been amended or supplemented, and
any analogous foreign, federal, state or local statutes, and the
regulations promulgated pursuant thereto.
(g) "Environmental Loss" shall mean any loss, cost, damage,
liability, deficiency, fine, penalty or expense (including, without
limitation, reasonable attorneys' fees, engineering and other
professional or expert fees), investigation, removal, cleanup and
remedial costs (voluntarily or involuntarily incurred) and damages to,
loss of the use of or decrease in value of the Equipment arising out
of or related to any Adverse Environmental Condition.
(h) "Person" shall include any individual, partnership,
corporation, trust, unincorporated organization, government or
department or agency thereof and any other entity.
5. Lessee shall fully and promptly pay, perform, discharge, defend,
indemnify and hold harmless Lessor and its Affiliates, successors and
assigns, directors, officers, employees and agents from and against
any Environmental Claim or Environmental Loss.
6. The provisions of this Schedule shall survive any expiration or
termination of the Lease and shall be enforceable by lessor, its
successors and assigns.
7. RETURN CONDITIONS: In addition to the provisions provided for in
Section XI of the Lease, and provided that the Lessee has not elected
its option to purchase the Equipment, Lessee shall, at its expense:
(a) Upon the request of Lessor, Lessee shall no later than one hundred
eighty (180) days prior to the expiration or other termination of the
Lease provide:
(i) a detailed inventory of the Equipment (including the model and
serial number of each major component thereof), including, without
limitation, all internal circuit boards, module boards, and
software features;
(ii) a complete and current set of all manuals, blue
prints, process flow diagrams, equipment configuration, setup and
operation diagrams, maintenance records and other data that may be
reasonably requested by Lessor concerning the configuration and
operation of the Equipment; and
(iii) a certification of the manufacturer or of a
maintenance provider acceptable to Lessor that the Equipment (1)
has been tested and is operating in accordance with manufacturers
specifications (together with a report detailing the condition of
the Equipment), the results of such test(s) and inspection(s) and
all repairs that were performed as a result of such test(s) and
inspection(s) and (2) that the Equipment qualifies for the
manufacturers used equipment maintenance program.
(b) Upon the request of Lessor, Lessee shall, no later than one
hundred twenty (120) days prior to the expiration or other termination
of the Lease, make the Equipment available for on-site operational
inspection by persons designated by the Lessor who shall be duly
qualified to inspect the Equipment in its operational environment.
(c) Provide that all Equipment shall be cleaned and treated with
respect to rust, corrosion and appearance in accordance with
manufacturers recommendations and consistent with the best practices
of dealers in used equipment similar to the Equipment; shall have no
Lessee installed markings or labels which are not necessary for the
operation, maintenance or repair of the Equipment; and shall be in
compliance with all applicable governmental laws, rules and
regulations.
<PAGE> 16
(d) Provide that the Equipment shall be deinstalled and packed, free
of all Contaminants, by or under the supervision of the manufacturer
or such other person acceptable to Lessor in accordance with
manufacturers recommendations. Without limitation, all internal
fluids will either be drained and disposed of or filled and secured in
accordance with manufacturers recommendations and applicable
governmental laws, rules and regulations.
(e) Provide for transportation of the Equipment in a manner consistent
with the manufacturer's recommendations and practices, or, if
specified by Lessor, in a manner consistent with standard industry
practices, to any locations within the continental United States as
Lessor shall direct; and shall have the Equipment unloaded at such
locations.
Except as expressly modified hereby, all terms and provisions of the Agreement
shall remain in full force and effect. This Schedule is not binding or
effective with respect to the Agreement or Equipment until executed on behalf
of Lessor and Lessee by authorized representatives of Lessor and Lessee,
respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION XETEL CORPORATION
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
Attest:
By:
---------------------------------
Name:
-------------------------------
<PAGE> 17
ADDENDUM
TO SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF 04/30/96
THIS ADDENDUM (this "ADDENDUM") amends and supplements the above
referenced schedule (the "SCHEDULE") to the above referenced lease (the
"LEASE"), between GENERAL ELECTRIC CAPITAL CORPORATION ("LESSOR") and XETEL
CORPORATION ("LESSEE") and is hereby incorporated into the Schedule as though
fully set forth therein. Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Lease.
For purposes of this Schedule only, the Lease is amended by adding the
following thereto:
FAIR MARKET VALUE RENTAL RENEWAL
(a) So long as no default exists hereunder and the lease has not been
earlier terminated, Lessee may at lease expiration, upon at least 120 days but
not more than 270 days prior written notice to Lessor, extend the term of the
Lease with respect to all (but not less than all) of the Equipment in this
Schedule for a mutually acceptable term (the "RENEWAL PERIOD") for a scheduled
monthly rental equal to the monthly Fair Market Rental Value thereof determined
as of the end of the pre-extension Lease term.
(b) "FAIR MARKET RENTAL VALUE" shall mean the price which a willing
lessee would pay for the rental of the Equipment in an arms-length transaction
to a willing lessor under no compulsion to lease for a time period similar to
the Renewal Period; provided, however, that in such determination: (i) the
Equipment shall be assumed to be in the condition in which it is required to be
maintained and returned under this Lease (ii) in the case of any installed
additions to the Equipment, same shall be valued on an installed basis; and
(iii) costs of removal of the Equipment from the current location shall not be
a deduction from such valuation. If Lessor and Lessee are unable to agree on
the Fair Market Rental Value at least 135 days before Lease expiration, Lessor
shall appoint an independent appraiser (reasonably acceptable to Lessee) to
determine Fair Market Rental Value, and that determination shall be final,
binding and conclusive. Lessee shall bear all costs associated with any such
appraisal.
(c) Lessee shall be deemed to have waived this option unless it provides
Lessor with written notice of its irrevocable election to exercise the same
within 15 days after Fair Market Rental Value is determined (by agreement or
appraisal).
Except as expressly modified hereby, all terms and provisions of the
Lease shall remain in full force and effect. This Addendum is not binding nor
effective with respect to the Lease or the Equipment until executed on behalf
of Lessor and Lessee by authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Addendum to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION XETEL CORPORATION
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
Attest
By:
---------------------------------
Name:
-------------------------------
<PAGE> 18
ANNEX B
TO
SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT
DATED AS OF 04/30/96
BILL OF SALE
XETEL CORPORATION (the "SELLER"), in consideration of the sum of ONE MILLION
NINE HUNDRED SEVENTY-FOUR THOUSAND TWO HUNDRED EIGHTY-SIX DOLLARS AND 12/100
DOLLARS ($1,974,286.12) plus sales taxes in the amount of ZERO DOLLARS
($00/100) (if exemption from sales tax is claimed, an exemption certificate
must be furnished to Buyer herewith), paid by GENERAL ELECTRIC CAPITAL
CORPORATION (the "BUYER"), receipt of which is acknowledged, hereby grants,
sells, assigns, transfers and delivers to Buyer the equipment (the "EQUIPMENT")
described in the above schedule (said schedule and related lease being
collectively referred to as "LEASE"), along with whatever claims and rights
Seller may have against the manufacturer and/or supplier of the Equipment (the
"SUPPLIER"), including but not limited to all warranties and representations.
At Buyer's request, Seller will cause Supplier to execute the attached
Acknowledgment.
Buyer is purchasing the Equipment for leasing back to Seller pursuant to the
Lease. Seller represents and warrants to Buyer that (1) Buyer will acquire by
the terms of this Bill of Sale good title to the Equipment free from all liens
and encumbrances whatsoever; (2) Seller has the right to sell the Equipment;
and (3) the Equipment has been delivered to Seller in good order and condition,
and conforms to the specifications, requirements and standards applicable
thereto; and (4) the equipment has been accurately labeled, consistent with the
requirements of 40 CFR part 82 Subpart E, with respect to products manufactured
with a controlled (ozone-depleting) substance.
Seller agrees to save and hold harmless Buyer from and against any and all
federal, state, municipal and local license fees and taxes of any kind or
nature, including, without limiting the generality of the foregoing, any and
all excise, personal property, use and sales taxes, and from and against any
and all liabilities, obligations, losses, damages, penalties, claims, actions
and suits resulting therefrom and imposed upon, incurred by or asserted against
Buyer as a consequence of the sale of the Equipment to Buyer.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this
____________________ day of ____________________, 19_____.
SELLER:
XETEL CORPORATION
By:
----------------------------
Title:
----------------------------
<PAGE> 19
PAYMENT AUTHORIZATION
General Electric Capital Corporation
303 International Circle Suite 300
Hunt Valley, MD 21031
You are hereby authorized to pay the proceeds from our sale to you of
certain Equipment as evidenced on the attached Bill of Sale to the following
parties in the amount(s) designated below.
MPM CORPORATION $ 1,380.75
Dept. CH 10497
Palatine, IL 60055-0497
Payment in Full of Invoice No.
64684 dated 3/14/96 and Invoice
No. 65261 dated 3/28/96.
CAMELOT SYSTEMS, INC. $ 122,166.67
145 Ward Hill Avenue
Havehill, MA 01835
Payment in Full of Invoice No.
004247 dated 3/13/96.
CONVEYOR TECHNOLOGIES $ 111,750.00
5313 Womack Road
Sanford, NC 27330
Payment in Full of Invoice No.
AA-01500 dated 3/17/96.
ELECTROVERT U.S.A. CORP. $ 64,750.00
Dept. AT 40037
Atlanta, GA 31192-0037
Payment in Full of Invoice No.
205855 dated 3/5/96.
PAC, INC. $ 62,475.00
1263 North Plano Road
Richardson, TX 75081-2424
Payment in Full of Invoice No.
73077 dated 4/22/96.
FUJI AMERICA CORPORATION $1,266,655.50
P.O. Box A3938
Chicago, IL 60690
<PAGE> 20
Payment in Full ov Invoice No.
13113 dated 4/19/96.
UNITED VAN LINES, INC. $ 2,613.88
One United Drive
Fenton, MO 63026
Payment in Full of Invoice No.
0301 00201 6 01 dated 3/22/96.
XETEL CORPORATION $ 342,494.32
2525 Brockton Drive
Austin, TX 78758
Reimbursement of monies previously
paid to MPM Corporation, Mayflower
Transit and Camelot Systems, Inc.
TOTAL $1,974,286.12
Very truly yours,
XETEL CORPORATION
BY:
----------------------------------
TITLE:
----------------------------------
DATE:
----------------------------------
<PAGE> 21
April 25, 1996
XeTel Corporation
2525 Brockton Drive
Austin, TX 78756
Attn: Mr. Richard Chilinski
Dear Chilinski:
GENERAL ELECTRIC CAPITAL CORPORATION is entering into an agreement to
lease certain equipment set forth on the attached Annex A (the "EQUIPMENT")
pursuant to that certain Master Lease Agreement dated 04/30/96 (the
"AGREEMENT") with XETEL CORPORATION. In accordance with the requirements of
Article 2A of the Uniform Commercial Code, Lessor hereby makes the following
disclosures to Lessee prior to execution of the Agreement, (a) the person
supplying the Equipment is VARIOUS (the "SUPPLIER"), (b) Lessee is entitled to
the promises and warranties, including those of any third party, provided to
the Lessor by Supplier, which is supplying the Equipment in connection with or
as part of the contract by which Lessor acquired the Equipment and (c) with
respect to such Equipment, Lessee may communicate with Supplier and receive an
accurate and complete statement of such promises and warranties, including any
disclaimers and limitations of them or of remedies.
GENERAL ELECTRIC CAPITAL CORPORATION
By:
----------------------------------
Its:
----------------------------------
ACKNOWLEDGED AND AGREED:
XETEL CORPORATION
By:
-------------------------------------
Its:
-------------------------------------
<PAGE> 22
CERTIFICATE CONCERNING
PAYMENT OF PERSONAL PROPERTY TAXES
(LESSEE REPORTS EQUIPMENT)
To: General Electric Capital Corporation
To insure Lessee's compliance with the provisions of the Master Lease
Agreement dated as of 04/30/96 (the "LEASE") by and between the undersigned,
as Lessee, and GENERAL ELECTRIC CAPITAL CORPORATION, as Lessor, with respect
to the payment of personal property taxes on the Equipment described in Annex
A to Schedule No. 001 to the Lease, Lessee hereby agrees that it will (a)
list all such Equipment, (b) report all property taxes assessed against such
Equipment and (c) pay all such taxes when due directly to the appropriate
taxing authority until Lessor shall otherwise direct in writing. Upon
request of Lessor, Lessee shall promptly provide proof of filing and proof of
payment to Lessor.
LESSEE: XETEL CORPORATION
By:
-------------------------
Title:
-------------------------
Date:
-------------------------
<PAGE> 1
EXHIBIT 10.23
SECURED PROMISSORY NOTE
February 26, 1996 $3,000,000.00
The undersigned, XeTel Corporation, a Delaware corporation ("Maker"), for value
received, promises to pay to Rohm U.S.A., Inc., a Delaware corporation (the
"Company"), or any person or entity to whom this Note has been endorsed for
payment or order (collectively the "Holder"), in the manner and at the place
hereinafter provided, UPON DEMAND, the principal amount of Three Million
Dollars ($3,000,000.00) or so much as may be outstanding upon demand (the
"principal sum"), together with simple interest on the unpaid balance thereof
until paid in full, at the Libor Rate plus 125 basis points as set forth
herein.
This Note evidences an agreement by the Company to make advances to Maker on or
before March 31, 1997, subject to the sole discretion of the Company, up to the
total principal amount of the Note. Advances under this Note must be requested
in writing by Maker or by an authorized person of Maker. Interest under this
Note for each advance shall be fixed at the Libor Rate plus 125 basis points
and accrue from the day of the advance. All payments made hereunder shall
first be applied to interest then due and payable and any excess payments shall
then be applied to reduce the principal amount payable on this Note.
Interest due hereunder shall be paid monthly. All computations of interest
shall be on the basis of a 365 day year for the actual number of days elapsed
in the relevant period (including the first day but excluding the last day).
In no event shall the interest rate payable on this Note exceed the maximum
rate of interest permitted to be charged under applicable law.
Principal and interest will be paid in lawful money of the United States of
America at the address of the Holder of the Note as shown on the books of the
Company. Maker shall have the right to prepay all or any portion (in minimum
increments of $100,000) of the indebtedness represented hereby without premium
or penalty.
The following is a statement of the rights of the Holder of the Note and the
conditions to which this Note is subject, to which the Holder hereof, by the
acceptance of the Note, agrees:
1. Attorneys' Fees. If the indebtedness represented hereby is not
paid in full when due, Maker promises to pay all costs of collection,
including, but not limited to, reasonable attorneys' fees.
2. Replacement. On receipt of evidence reasonably satisfactory to
Maker of the loss, theft, destruction or mutilation of the Note and, in the
case of loss, theft or destruction, on delivery of an indemnity agreement or
bond reasonable satisfactory in form and amount to the Company, or in the case
of mutilation, on surrender and cancellation of the Note, Maker, at its
expense, will execute and deliver, in lieu of this Note, a new Note of like
tenor.
3. Right to Accelerate Payment. This Note shall become immediately
due and payable in the full amount of principal then unpaid, together with all
accrued and unpaid interest thereon, at the option of the Holder of the Note,
upon occurrence of any of the following events (an "Event of Default")":
(a) Maker becomes insolvent in that either a petition is
filed by or against Maker under any bankruptcy law, or Maker is unable to pay
debts as they become due, or Maker makes a general assignment for the benefit
of its creditors, or Maker takes any other action to take advantage of any
insolvency laws; or
<PAGE> 2
(b) Maker fails to make payment when due of any part or
installment of principal or interest, and such default is not cured within five
(5) days of the Holder giving notice of such default to Maker; or
(c) any default by Maker under the terms of the Security
Agreement (described below) which is not otherwise specified in paragraphs (a)
or (b) above, provided that Maker fails to cure any such default within five
(5) days of the Holder giving notice of such default to Maker.
4. Modification. This Note and any of its terms may be changed,
waived or terminated only by a written instrument signed by the party against
which enforcement of theft change, waiver or termination is sought.
5. Security. This Note is secured by certain collateral as agreed
upon under the terms of a Security Agreement of even date herewith made between
Maker and the Company. The Holder shall be entitled to all the benefits of the
security as provided in the Security Agreement. In the event the Holder
proceeds against the collateral and the proceeds of same are adequate to pay
any amounts due on this Note, Maker shall remain liable for any deficiency.
Under certain conditions stated in the Security Agreement, the entire amount of
this Note may become payable prior to the maturity date stated herein.
6. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of California, as such laws
are applied to contracts entered into by residents of such state and performed
in such state. Maker consents to and agrees that jurisdiction shall be those
state and/or federal courts in the County of Santa Clara, State of California,
for any dispute arising hereunder.
7. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or on the day sent by facsimile transmission if a true
and correct copy is sent the same day by first class mail, postage prepaid, or
by dispatch by an internationally recognized express courier service, to the
parties at the appropriate business address.
8. Severability. If any provision of the Note should be found to be
invalid or unenforceable, all other provisions shall nevertheless remain in
full force and effect to the maximum extent permitted by law.
XeTel Corporation
By:
Angelo DeCaro
President
Address: 2525 Brockton Drive
Austin, TX 78758
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-1952) of XeTel Corporation of our report dated
April 19, 1996 appearing on page 18 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Austin, Texas
June 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> APR-02-1995
<PERIOD-END> MAR-30-1996
<CASH> 5,142
<SECURITIES> 0
<RECEIVABLES> 19,787
<ALLOWANCES> 240
<INVENTORY> 14,721
<CURRENT-ASSETS> 40,630
<PP&E> 12,136
<DEPRECIATION> 7,648
<TOTAL-ASSETS> 45,156
<CURRENT-LIABILITIES> 20,070
<BONDS> 0
<COMMON> 19,432
0
0
<OTHER-SE> 5,490
<TOTAL-LIABILITY-AND-EQUITY> 45,156
<SALES> 117,846
<TOTAL-REVENUES> 117,846
<CGS> 102,605
<TOTAL-COSTS> 108,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 605
<INCOME-PRETAX> 8,761
<INCOME-TAX> 3,106
<INCOME-CONTINUING> 5,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,655
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
