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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 29, 1997,
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
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
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 4 , 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $23,021,769. At June 4, 1997, there were
8,835,810 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 1997 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") holds ISO 9002 and BABT
certifications and provides advanced design and prototype services,
manufactures sophisticated surface mount assemblies and supplies full-service
manufacturing 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. In its assembly operations, the Company employs
advanced surface mount technologies and manufacturing processes and has
developed production capabilities using advanced packaging technologies such as
ball grid array (BGA). The Company incorporates its design and prototype
services and assembly capabilities, together with materials management,
advanced testing, systems integration and order fulfillment services, to
provide turnkey solutions for its customers. 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. 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 Advanced Micro Devices, Aspect
Telecommunications, Emerson Electric, General Instrument, Motorola, Primary
Access Corporation, a subsidiary of 3Com Corporation ("3Com/Primary Access"),
SBE, Telematics, a subsidiary of ECI Telecom Ltd., Titan, and Westinghouse
Electric. The Company is headquartered in Austin, Texas with manufacturing
services operations in Austin and Dallas, Texas and San Ramon, California.
The Company 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 of
the Company 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. XeTel's 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, 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 may not be 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 of the Company.
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CONCENTRATION OF CUSTOMERS. The Company's customer base is highly concentrated.
The Company's three largest customers accounted for approximately 14%, 9% and
8%, respectively, of net sales for its fiscal year ended March 29, 1997
("fiscal 1997"). 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, could 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 may
experience 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 customers 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.
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.
During fiscal 1997, certain major customers reduced significant orders with the
Company due to competitive factors and efforts to rebalance inventories.
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 and multi-site locations have 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
additional regional manufacturing services 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.
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 and the demand for more complex and sophisticated
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 $14
billion in 1996, 63% of which was attributable to the approximately 25
companies in the industry that achieved net sales in 1996 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
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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.
DEVELOP DESIGN, PROTOTYPE, AND MANUFACTURING SERVICES CENTERS IN TARGETED
GEOGRAPHIC AREAS. XeTel has expanded the range of its value added services to
include design, prototype and preproduction services, volume production,
testing, system integration, and order fulfillment. During fiscal 1997,
additional full-service manufacturing centers were acquired in Dallas, Texas
and San Ramon, California. 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, prototype and manufacturing service centers in
other geographic areas which have a high current customer concentration, or in
certain other targeted geographic markets. This expansion may be implemented by
acquisitions of existing companies or the commencement of new operations in
these areas. 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 is in the process of relocating
its manufacturing operations in Austin into a new 92,500 square foot facility
during fiscal 1998. 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.
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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. All
of the quality management systems at the Company's three sites are ISO 9002
certified.
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 identifying 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 18 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 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 integrated BGA placement capabilities into its manufacturing
processes. 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, order fulfillment and distribution to
the OEM or directly to its customers. The Company's testing services include
test
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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 systems at the Company's three
facilities are 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, the Company has implemented a customer
team approach. Each customer team typically consists of a program manager, an
assigned 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 13 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.
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, Aspect Telecommunications, General
Instrument, and 3Com/Primary Access, accounted for 14%, 9% and 8% of the
Company's net sales for fiscal 1997, respectively, and 7%, 0% and 24% of net
sales for fiscal 1996, respectively. In addition, the Company's fifteen largest
customers (including Aspect Telecommunications, General Instrument, and
3Com/Primary Access) collectively accounted for approximately 75% of the
Company's net sales during fiscal 1997. 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.
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The Company markets its services through its sales and marketing organization
and its customer support and service organization. The Company also utilizes
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, Flextronics, IEC Electronics, Jabil Circuit, 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 29, 1997 was approximately $66.1 million
compared to approximately $80.7 million as of March 30, 1996. 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. Accordingly, the Company believes that backlog may not be a meaningful
indicator of future financial results. See "Variability of Customer
Requirements" and "Fluctuations in Operating Results."
EMPLOYEES
As of March 29, 1997, the Company had 546 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.
The Company's success depends to an extent upon the continued services of
several key employees. The loss of certain key personnel could have a material
adverse effect on the Company. The Company's business also depends upon its
ability to continue to attract and retain senior managers and skilled
employees. Failure to do so could adversely affect the Company's 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 facilities currently comply 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.
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ACQUISITIONS
In July 1996, the Company acquired Maxtron Corporation located in Dallas,
Texas. Maxtron was a contract manufacturer focusing on high complexity, custom
assemblies. In December 1996, the Company acquired the manufacturing operations
of SBE, Inc. located in San Ramon, California. Under the asset purchase
agreement related to the SBE, Inc. transaction, the Company acquired all
manufacturing activities, including production. The companies have entered into
a long term purchasing agreement under which SBE, Inc. will purchase contract
manufacturing services from the Company. The Company believes these recent
acquisitions will further establish and expand long-term relationships with
OEM's of advanced electronic products in targeted geographic areas. However, no
assurance can be given that such expansion will have a positive effect on the
Company's operating results.
ITEM 2. PROPERTIES
XeTel leases a 105,000 square foot facility in Austin, Texas for its executive
offices and manufacturing operations. In October of 1996, construction began on
a new 92,500 square foot manufacturing facility in Austin, Texas to be leased
by the Company over a twelve-year term. The Company plans on subleasing the
existing space currently utilized by Austin manufacturing operations.
Additional manufacturing plants are located in Dallas, Texas (22,000 square
feet) and San Ramon, California (25,000 square feet).
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 limit
its manufacturing operations and consequently have a material adverse effect on
the Company.
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 increased demand associated with 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.
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 by quarter for fiscal 1997 and the fourth
quarter of fiscal 1996 as quoted on the NASDAQ Stock Exchange. The Company's
stock began trading on NASDAQ under the symbol XTEL on February 14, 1996.
Therefore, there is no price information for the first three quarters of fiscal
1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
QUARTER HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First .... $10 $6 5/8 n/a n/a
Second ... 7 7/8 3 3/4 n/a n/a
Third .... 5 3 1/4 n/a n/a
Fourth ... 6 1/8 3 3/4 $10 $8
</TABLE>
XeTel has not paid any dividends since its inception and does not intend to pay
any dividends in the foreseeable future. As of June 18, 1997, the approximate
number of record shareholders was 2,086 based upon the information obtained
from the Company's transfer agent.
<PAGE> 9
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 29, March 30, April 1, April 2, April 3,
1997 1996 1995 1994 1993
------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $90,453 $ 117,846 $ 64,507 $ 52,451 $ 57,791
Cost of sales 83,442 102,605 58,689 49,801 52,904
------- --------- -------- -------- --------
Gross profit 7,011 15,241 5,818 2,650 4,887
Selling, general and administrative expenses 6,573 5,875 4,146 4,059 4,110
------- --------- -------- -------- --------
Income (loss) from operations 438 9,366 1,672 (1,409) 777
Interest income (expense), net 268 (605) (411) (323) (341)
------- --------- -------- -------- --------
Income (loss) before income taxes 706 8,761 1,261 (1,732) 436
Provision (benefit) for income taxes 257 3,106 319 (252) 196
------- --------- -------- -------- --------
Net income (loss) $ 449 $ 5,655 $ 942 $ (1,480) $ 240
======= ========= ======== ======== ========
Net income (loss) per share $ 0.05 $ 0.76 $ 0.14 $ (0.53) $ 0.04
======= ========= ======== ======== ========
Weighted average shares outstanding 9,575 7,411 6,646 2,764(1) 6,645
Balance Sheet Data:
Working capital $20,384 $ 20,560 $ 1,007 $ 1,137 $ 2,362
Total assets 39,802 45,156 22,950 15,282 18,735
Notes payable and current portion of long-term debt -- -- 7,016 5,612 6,981
Long-term debt, less current portion 42 -- -- 379 854
Stockholders' equity $26,661 $ 24,922 $ 4,403 $ 3,446 $ 4,926
</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.
<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, competitive factors and the customers' need to utilize
independent manufacturers to maintain sufficient product supply to meet such
demand. In addition, in the past, 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.
Gross margins and operating results are also affected by the level of capacity
utilization of manufacturing facilities, indirect labor and selling, general
and administrative expenses. Accordingly, gross margins and operating income
margins have generally improved during periods of high volume and high capacity
utilization. XeTel generally has idle capacity and reduced operating margins
during periods of lower-volume production.
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. 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, improve materials management processes,
restructure the Company's management organization, establish dedicated customer
teams, 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.
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, systems integration and
order fulfillment and has sought to use such competencies to forge long-term
relationships as a single source provider of turnkey solutions for its
customers. During fiscal 1997, XeTel acquired two full-service manufacturing
services centers in Dallas, Texas and San Ramon, California to further
establish and expand its long-term relationships with OEM's of advanced
electronic products.
<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 29, March 30, April 1,
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 92.2 87.1 91.0
----- ----- -----
Gross profit 7.8 12.9 9.0
Selling, general and administrative expenses 7.3 5.0 6.4
----- ----- -----
Income from operations 0.5 7.9 2.6
Interest income (expense), net 0.3 (0.5) (0.6)
----- ----- -----
Income before income taxes 0.8 7.4 2.0
Provision for income taxes 0.3 2.6 0.5
----- ----- -----
Net income 0.5% 4.8% 1.5%
===== ===== =====
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 decreased 23.2% to $90.5 million from $117.8 million
for fiscal 1996. The decrease in net sales was primarily due to cancellations
and rescheduled orders from certain of the Company's major telecommunications
and networking customers. The Company's sales to its three largest customers
for fiscal 1997 represented 14%, 9% and 8%, respectively, of net sales for such
year. Sales to the Company's three largest customers for fiscal 1996
represented 24%, 18% and 15%, respectively, of net sales for such year.
Gross profit for fiscal 1997 decreased 53.9% to $7.0 million from $15.2 million
in fiscal 1996. 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) decreased to 7.8% for fiscal 1997
from 12.9% for fiscal 1996. The decrease in the Company's gross margin reflects
the effects of lower sales levels and the lower absorption of fixed costs. The
lower sales levels also contributed to lower inventory and accounts receivable
balances. 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 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 for fiscal 1997 increased 10.2% to $6.5 million
from $5.9 million in fiscal 1996. SG&A expenses represented 7.3% of net sales
for fiscal 1997 as compared to 5.0% for fiscal 1996. Higher SG&A expenses were
primarily attributable to increased public company expenses and additional
expenses associated with newly acquired businesses.
Interest income for fiscal 1997 was $268,000 versus an expense of $605,000 for
fiscal 1996. The change was due to interest earned from an increase in cash and
cash equivalents and a decrease in interest paid resulting from the payment of
amounts outstanding under the Company's revolving line of credit and notes
payable. This debt was paid off in February, 1996 with a portion of proceeds
from the Company's initial public offering.
The provision for income taxes of $257,000 and $3.1 million reflects an
effective tax rate of 36.4% and 35.5% for fiscal 1997 and fiscal 1996,
respectively. The lower effective tax rate for fiscal 1996 was due to a
decrease in the Company's valuation allowance. As a result of the decrease, the
Company had no valuation allowance at March 30, 1996 or March 29, 1997.
<PAGE> 12
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 increased 82.7% to $117.8 million from $64.5 million
for the year ended April 1, 1995 ("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 margin 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.
SG&A expenses for fiscal 1996 increased 41.7% to $5.9 million from $4.1 million
in fiscal 1995. 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.
QUARTERLY RESULTS
The following table sets forth certain quarterly financial data for the periods
indicated (in thousands, except per share data).
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
March 29, Dec. 28, Sept. 28, June 29,
FISCAL 1997 1997 1996 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $24,083 $17,979 $20,129 $28,262
Gross Profit 2,276 972 857 2,906
Income (loss) from operations 432 (624) (674) 1,304
Net income (loss) 305 (334) (368) 846
======= ======= ======= =======
Net income (loss) per share $ 0.03 $ (0.04) $ (0.04) $ 0.09
======= ======= ======= =======
Weighted average shares outstanding 9,587 8,773 8,742 9,503
======= ======= ======= =======
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
March 30, Dec. 30, Sept. 30, July 1,
FISCAL 1996 1996 1995 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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 8,426 7,337 7,265 6,646
======== ======== ======== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $20.4 million at the end of fiscal 1997, compared to $20.6
million at the end of fiscal 1996. In addition to the Company's working capital
as of March 29, 1997, which includes cash and cash equivalents of $7.0 million,
the Company also has $20 million available from unused credit facilities.
Net cash provided by operating activities during fiscal 1997 was $4.9 million.
Net cash used in operating activities was $1.5 million in fiscal 1996 and net
cash provided by operating activities was $1.9 million in fiscal 1995.
Prior to the Company's initial public offering in February, 1996, XeTel
financed its business through cash generated by operations and a line of credit
and other borrowings provided by Rohm. Net proceeds from the offering were
$14.8 million. 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. No loan amounts were outstanding to Rohm as of March 29, 1997
and March 30, 1996.
Capital expenditures during fiscal 1997, 1996 and 1995 were $1.4 million, $2.5
million and $2.0 million, respectively. Management anticipates capital
expenditures in 1998 will exceed the level of capital expenditures made in
fiscal 1997. The Company's expenditures on research and development in fiscal
1997, 1996 and 1995 were $180,000, $174,000 and $188,000, respectively.
The Company has (i) a revolving line of credit for $10 million from a
commercial bank, (ii) a $2.5 million term loan facility, (iii) an unused
equipment financing facility for $4 million from a financial services company,
and (iv) a revolving line of credit for $3 million from Rohm. There were no
outstanding loan balances under the commercial bank or Rohm lines of credit as
of March 29, 1997 and March 30, 1996.
The bank facility bears interest at LIBOR plus 1.25% or 1.75% and/or prime
(such rate determined based upon the amounts and period of loans), matures
August 1998 and is secured by certain assets of the Company. The bank facility
requires the payment of a monthly commitment fee equal to one-eighth of one
percent (1/8%) on the unused balance, and borrowings are limited based upon
certain collateral availability requirements. The term loan facility bears
interest at 9.2% with a maturity of August 31, 2000. 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, 1998. 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 financing facilities contain certain restrictions which, among other
things, require maintenance of a minimum level of tangible net worth and other
operating and financial ratios.
The Company believes that its working capital, together with cash generated
from operations and financing facilities, will be sufficient to satisfy
anticipated sales growth and investment in manufacturing facilities and
equipment through its 1998 fiscal year.
<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 ..................................................................... 16
Balance Sheet as of March 29, 1997 and March 30, 1996 ................................................. 17
Statement of Income for the fiscal years ended March 29, 1997, March 30, 1996 and April 1,1995 ........ 18
Statement of Changes in Stockholders' Equity for the fiscal years ended March 29, 1997,
March 30, 1996 and April 1, 1995 .............................................................. 19
Statement of Cash Flows for the fiscal years ended March 29, 1997, March 30, 1996 and April 1,1995 .... 20
Notes to Financial Statements ......................................................................... 21
</TABLE>
<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 29, 1997 and March 30, 1996 and the
results of its operations and its cash flows for each of the three fiscal years
in the period ended March 29, 1997 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 29, 1997
<PAGE> 16
XETEL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,032 $ 5,142
Trade accounts receivable, net of
allowance for doubtful accounts
of $240 and $240, respectively 13,886 19,547
Inventories 10,499 14,721
Prepaid expenses and other 1,836 1,220
-------- --------
Total current assets 33,253 40,630
Property and equipment, net 5,599 4,526
Goodwill 950 --
-------- --------
Total assets $ 39,802 $ 45,156
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 9,940 $ 14,601
Accrued federal income tax -- 2,674
Accrued expenses and other liabilities 2,929 2,795
-------- --------
Total current liabilities 12,869 20,070
Deferred income taxes 230 164
Long term debt 42 --
Commitments (Note 7) -- --
Stockholders' equity:
Common stock, $0.0001 par value,
25,000,000 shares authorized,
8,816,085 and 8,542,168 shares
issued and 8,795,589 and 8,523,418
shares outstanding, respectively
20,998 19,430
Retained earnings
5,996 5,547
Deferred compensation (333) (55)
-------- --------
Total stockholders' equity 26,661 24,922
-------- --------
Total liabilities and
stockholders' equity $ 39,802 $ 45,156
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
XETEL CORPORATION
STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
March 29, March 30, April 1,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 90,453 $ 117,846 $ 64,507
Cost of sales 83,442 102,605 58,689
------------ ------------ ------------
Gross profit 7,011 15,241 5,818
Selling, general and
administrative
expenses 6,573 5,875 4,146
------------ ------------ ------------
Income from operations 438 9,366 1,672
Interest income (expense), net 268 (605) (411)
------------ ------------ ------------
Income before income taxes 706 8,761 1,261
Provision for income taxes 257 3,106 319
------------ ------------ ------------
Net income $ 449 $ 5,655 $ 942
============ ============ ============
Net income per share $ 0.05 $ 0.76 $ 0.14
============ ============ ============
Weighted average 9,575 7,411 6,646
shares outstanding ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 18
XETEL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Retained
Series A Earnings Total
Preferred Stock Common Stock Deferred (Accumulated Stockholders'
Shares Amount Shares Amount Comp Deficit) Equity
------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Stock options exercised -- -- 68 77 -- -- 77
Tax benefit on disqualifying
dispositions -- -- -- 46 -- -- 46
Amortization of deferred
compensation -- -- -- -- 16 -- 16
Acquisition- XeTel Dallas -- -- 207 1,448 (294) -- 1,154
Net Income -- -- -- -- -- 449 449
Other -- -- (2) (3) -- -- (3)
------- -------- -------- -------- ------- -------- --------
Balance, March 29, 1997 -- $ -- 8,796 $ 20,998 $ (333) $ 5,996 $ 26,661
======= ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 19
XETEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
March 29, March 30, April 1,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 449 $ 5,655 $ 942
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,080 1,453 1,341
Deferred income tax benefit 5 (323) --
(Gain) loss on disposal of equipment 16 94 (2)
Change in operating assets and liabilities:
(Increase) decrease in--
Trade accounts receivable 5,949 (9,250) (3,573)
Inventories 4,524 (7,413) (2,466)
Prepaid expenses and other (509) (428) (4)
Increase (decrease) in--
Trade accounts payable (4,745) 3,922 6,082
Accrued expenses, taxes, and other
liabilities (2,799) 4,778 (392)
---------- ---------- ----------
Cash provided by (used in) operating activities 4,970 (1,512) 1,928
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment -- -- 2
Purchases of property and equipment (1,416) (2,507) (2,049)
Acquisition, net of cash acquired - XeTel Dallas (18) -- --
Acquisition, net of cash acquired - XeTel West (1,631) -- --
---------- ---------- ----------
Cash used in investing activities (3,065) (2,507) (2,047)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings under debt agreements (92) (7,016) 1,025
Proceeds from stock options exercised 77 65 15
Net proceeds from initial public offering -- 14,790 --
---------- ---------- ----------
Cash provided by financing activities (15) 7,839 1,040
---------- ---------- ----------
Increase in cash and cash equivalents 1,890 3,820 921
---------- ---------- ----------
Cash and cash equivalents, beginning of period 5,142 1,322 401
---------- ---------- ----------
Cash and cash equivalents, end of period $ 7,032 $ 5,142 $ 1,322
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 20
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
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, systems integration services and order fulfillment to provide turnkey
solutions for its customers. On February 14, 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 range 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.
EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding (if dilutive)
during the period. Common share equivalents include stock options. The number
of common share equivalents outstanding relating to stock options is computed
using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128").
The new standard, which is effective for financial statements issued for
periods ending after December 15, 1997, establishes standards for computing and
presenting earnings per share (EPS) and upon adoption requires restatement of
all prior period EPS data presented. The Company will implement this standard
in fiscal 1998. The implementation of the standard will result in the
presentation of a basic EPS calculation in the financial statements as well as
a diluted EPS calculation. Under SFAS No. 128, basic and diluted earnings per
share will not differ materially from the amounts currently reported.
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.
<PAGE> 21
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 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
The Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123"), Accounting and Disclosure of Stock-Based Compensation for the fiscal
year ended March 29, 1997. SFAS No. 123 introduces a fair-value based method of
accounting for stock-based compensation. It encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options,
and other equity instruments to employees based on their estimated fair market
value on the date of grant. The Company has opted to apply the accounting rules
contained in APB Opinion No. 25, Accounting for Stock Issued to Employees. As
such, SFAS No. 123 did not have any effect on the Company's financial position
or results of operations.
NOTE 2 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
-------- --------
<S> <C> <C>
Raw materials $ 7,795 $11,037
Work in progress 2,567 3,396
Finished goods 137 288
------- -------
$10,499 $14,721
======= =======
</TABLE>
As of March 29, 1997 and March 30, 1996, the Company had allowances for
obsolete raw materials (principally printed circuit board components) of
$490,000 and $490,000, respectively. Cost of sales for fiscal 1997, 1996 and
1995 include provisions to the allowance for obsolete materials of $168,000,
$318,000 and $--, respectively.
NOTE 3 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
-------- --------
<S> <C> <C>
Machinery and equipment $ 14,373 $ 11,435
Furniture and fixtures 335 334
Leasehold improvements 409 405
-------- --------
15,117 12,174
Less: Accumulated depreciation
and amortization (9,518) (7,648)
-------- --------
$ 5,599 $ 4,526
======== ========
</TABLE>
<PAGE> 22
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 NOTES PAYABLE AND LONG-TERM DEBT
The Company has obtained a (i) revolving line of credit for $10 million from a
commercial bank, (ii) a term loan facility for $2.5 million, and (iii) an
equipment financing facility from a financial services company, and (iv) a
revolving line of credit for $3 million from Rohm U.S.A., Inc. ("Rohm"), which
is a wholly-owned subsidiary of Rohm Co. Ltd., Japan. At March 29, 1997 or
March 30, 1996, the Company had no outstanding balances under the commercial
bank revolving line of credit, the term loan facility or the revolving line of
credit with Rohm.
The $10 million line of credit bears interest at LIBOR plus 1.25% or 1.75%
and/or prime (such rate determined based upon the amounts and period of loans),
matures on August 31, 1998 and is secured by certain assets of the Company. The
facility requires payment of a commitment fee equal to one-eighth of 1% (1/8%)
on the unused balance, and borrowings are limited based upon certain collateral
availability requirements. The term loan facility bears interest at 9.2%, is
secured by certain assets, and matures on August 31, 2000. The equipment
financing facility provides for the leasing of equipment over a five-year
period commencing on the date of acceptance of such equipment. All equipment
leased to date under this facility has qualified for operating lease treatment.
The line of credit from Rohm is secured by certain equipment, bears interest at
LIBOR plus 1.25%, is payable upon demand and expires on March 31, 1998.
The financing facilities contain certain restrictions which include maintenance
of a minimum level of tangible net worth and other operating and financial
ratios.
Interest paid totaled $18,000, $704,000 and $425,000 for fiscal 1997, 1996 and
1995, respectively.
NOTE 5 INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------
March 29, March 30, April 1,
1997 1996 1995
------- ------- ----
<S> <C> <C> <C>
Federal
Current $ 255 $ 3,013 $295
Deferred (37) (280) --
State
Current 7 416 24
Deferred 32 (43) --
------- ------- ----
$ 257 $ 3,106 $319
======= ======= ====
</TABLE>
The differences in income taxes provided and the amounts determined by applying
the federal statutory tax rate to income before income taxes result from the
following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
March 29, March 30, April 1,
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0%
Add (deduct) the effect of state income tax 3.8 3.2 0.6
Alternative minimum tax carryforward -- -- (4.4)
Change in valuation allowance -- (1.8) (4.1)
Other, net (1.4) 0.1% (0.8)
---- ---- ----
36.4% 35.5% 25.3%
==== ==== ====
</TABLE>
<PAGE> 23
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The components of deferred income tax assets, included in prepaid expenses and
other current assets, and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
----- -----
<S> <C> <C>
Deferred tax assets:
Reserves $215 $160
Franchise tax 151 157
Accrued vacation 69 53
Other 165 117
---- ----
Gross current deferred tax asset 600 487
---- ----
Deferred tax liabilities:
Depreciation (230) (145)
Other -- (19)
---- ----
Gross long-term deferred tax liability (230) (164)
---- ----
Net deferred tax asset $370 $323
==== ====
</TABLE>
Income taxes totaling $3,157,000, $360,000 and $447,000 were paid in fiscal
1997, 1996 and 1995, 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 14, 1996, all
outstanding shares of Series A Preferred Stock were converted, on a one-for-one
basis, to common stock.
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.
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 $1,233,000, $779,000 and $574,000 during fiscal 1997, 1996 and
1995, respectively. Future noncancellable minimum rental payments under all
operating leases with initial terms of greater than one year are $1,931,000 in
1998, $2,006,000 in 1999, $2,023,000 in 2000, $2,024,000 in 2001, $1,557,000 in
2002 and an aggregate of $5,230,000 thereafter. As of March 29, 1997, Rohm has
guaranteed rental payments of $481,000 related to the lease of the Company's
Austin facility.
<PAGE> 24
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 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
March 29, March 30, April 1,
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Customer A 14% 24% 10%
Customer B -- 18 34
Customer C -- 15 --
</TABLE>
Accounts receivable from customer A represented 12% of the Company's trade
accounts receivable as of March 29, 1997.
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 $526,000, $908,000 and $615,000 for fiscal 1997, 1996 and 1995,
respectively. Accounts payable to such divisions were $54,000 and $141,000 as
of March 29, 1997 and March 30, 1996, respectively.
Accounts receivable from such divisions were not significant.
NOTE 10 EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plan, which is described below. Accordingly, no
compensation cost has been recognized for its stock option plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair market value at the date of grant for awards under that plan been
consistent with the method provided for by SFAS No. 123, the Company's net
income and the net income per share would have reflected the following pro
forma amounts for fiscal 1997 and fiscal 1996 (in thousands except per share
data):
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------
March 29, March 30,
1997 1996
---- ----
<S> <C> <C>
Net Income As reported $449 $5,655
Pro forma $357 $5,642
Net income per share As reported $.05 $.76
Pro forma $.04 $.76
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------
March 29, March 30,
1997 1996
---- ----
<S> <C> <C>
Dividend yield -- --
Expected volatility 40.35% 0.00%
Risk-free rate of 6.34% 6.13%
return
Expected life 5 years 5 years
</TABLE>
<PAGE> 25
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
XeTel's 1992 Stock Option Plan (the "Option Plan") provides for the grant of
common stock options to key employees. The exercise price of each option is the
fair market value of a share of common stock on the date of grant. The term of
each option can be no more than 10 years from the date of grant and expires 90
days after the termination of employment. Each option vests equally over a
period of four years from the date of grant. As of March 29, 1997, the Company
has reserved 1,750,000 shares of common stock for the Option Plan.
A summary of changes under the Option Plan is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF SHARES AVERAGE
UNDER EXERCISE
OPTION PRICE ($)
<S> <C> <C>
Options outstanding as of April 2, 1994 947,800 1.27
Granted 80,000 1.23
Exercised (10,450) 1.50
Canceled (79,100) 1.33
-------- ----
Options outstanding as of April 1, 1995 938,250 1.26
Granted 321,000 1.52
Exercised (52,675) 1.13
Canceled (34,575) 1.18
-------- ----
Options outstanding as of March 30, 1996 1,172,000 1.34
Granted 418,500 5.06
Exercised (67,525) 1.28
Canceled (37,875) 2.68
-------- ----
Options outstanding as of March 29, 1997 1,485,100 2.36
========= ====
Options exercisable at:
April 1, 1995 351,000 1.26
March 30, 1996 517,250 1.28
March 29, 1997 758,975 1.38
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
Weighted average, grant date fair value of options FAIR VALUE ($)
granted during: --------------
<S> <C>
Fiscal 1995 80,000 --
Fiscal 1996 321,000 .40
Fiscal 1997 418,500 2.28
</TABLE>
<PAGE> 26
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
March 29, 1997
- ---------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------ ---------------------------------
Weighted
Weighted average
Number of average remaining Number of Weighted
options exercise contractual options average
Exercise price outstanding price life (yrs) exercisable exercise price
<S> <C> <C> <C> <C> <C> <C> <C>
$1.22 - 1.22 251,500 $1.22 5.19 58,750 $1.22
1.23 - 1.23 475,750 1.23 3.69 346,375 1.23
1.33 - 1.33 333,850 1.33 2.60 333,850 1.33
4.50 - 5.00 362,000 4.84 6.54 15,000 5.00
6.00 - 7.00 62,000 6.68 6.06 5,000 6.00
------ ---- ---- ----- ----
$1.22 - 7.00 1,485,100 $2.36 4.49 758,975 $1.38
========= ===== ==== ======= =====
</TABLE>
In connection with options issued in fiscal 1996, the Company has recognized
compensation expense totaling $16,000 and $9,000 in fiscal 1997 and fiscal
1996, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan ("Purchase Plan"), employees
meeting specific employment qualifications are eligible to participate and can
purchase shares semi-annually through payroll deductions at the lower of 85% of
the fair market value of the stock at the commencement or end of the offering
period. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions for up to 10% of qualified compensation to a maximum
of 1,500 shares per enrollment period. As of March 29, 1997, 1,000,000 shares
were available for issuance and no shares had been issued under the Purchase
Plan.
401 K 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 $85,000, $70,000 and $42,000
for fiscal 1997, 1996 and 1995, respectively.
NOTE 11 ACQUISITIONS
In July of 1996, the Company acquired Maxtron Corporation located in Dallas,
Texas for $500,000 in cash and $1,154,000 in common stock. The fair value of
the assets acquired, excluding cash, amounted to approximately $1 million. The
cost in excess of net assets acquired amounted to approximately $637,000 and
will be amortized as goodwill over a five-year period. The Company may pay
additional contingent consideration upon the achievement of certain performance
goals. This transaction was accounted for under the purchase method of
accounting with the results of operations from the acquired business included
in the Company's results of operations from the acquisition date forward.
In December 1996, the Company acquired the manufacturing operations of SBE,
Inc. ("SBE"), located in San Ramon, California for approximately $1.6 million
in cash. The fair value of the assets acquired amounted to approximately $1.2
million. The costs, including acquisition costs, in excess of assets acquired
amounted to approximately $431,000 and will be amortized as goodwill over a
five-year period. The Company may pay additional contingent consideration upon
the achievement of certain performance goals. The companies have also entered
into a long term purchasing agreement under which SBE will purchase contract
manufacturing services from XeTel. The transaction was accounted for under the
purchase method of accounting with the results of operations from the acquired
manufacturing operations included in the Company's results of operations from
the acquisition date forward.
<PAGE> 27
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 are as
follows:
<TABLE>
<S> <C> <C>
Kozo Sato 57 Chairman of the Board of Directors (Class II)
Angelo A. DeCaro, Jr. 45 President, Chief Executive Officer and Director (Class III)
Julian C. Hart 57 Senior Vice President, Chief Technical Officer, and Secretary
Richard S. Chilinski 45 Vice President, Chief Financial Officer and Assistant Secretary
William A. Nabors 55 Vice President - Austin Volume Manufacturing
William A. Peten 49 Vice President - Material Acquisition and Control
Mark A. Trutna 34 Vice President - Sales and Marketing
Norman E. O'Shea 49 Vice President - General Manager XeTel West
Malcolm A. Hargrave 52 Vice President - General Manager XeTel Dallas
Ronald W. Guire 48 Director (Class III)
Raimon L. Conlisk 74 Director (Class II)
Sam L. Densmore 56 Director (Class I)
</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. 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 Senior Vice President of the
Company since 1984, its Chief Technical Officer since November 1995 and
Secretary since September 1996. Mr. Hart served as a Director of the Company
from 1984 until May 1997. 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. Nabors has served as Vice President- Austin Volume Manufacturing of the
Company since April 1997. He previously served as Vice President- Manufacturing
of Tanisys Technology from 1996 to 1997, and President and Chief Operating
Officer of Bartco Inc., a printing company serving small businesses from 1992
to 1996. From 1984 to 1992, Mr. Nabors was employed at Compaq Computer
Corporation where he served as Director of Board Shop Operations from 1984 to
1987 and Director of U.S. Manufacturing from 1987 to 1992.
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 - Sales and Marketing 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.
<PAGE> 28
Mr. O'Shea has served as Vice President - General Manger XeTel West since
December 1996. Mr. O'Shea joined the Company as part of the acquisition of the
manufacturing operations of SBE. Prior to joining XeTel, Mr. O'Shea served as
Vice President of Manufacturing of SBE. From 1987 to 1993, Mr. O'Shea was
employed at NeXT Computer in Fremont, California, where he served as Process
Engineering Manager from 1987 to 1991 and Materials Manager from 1991 to 1993.
From 1979 to 1987 he was employed by Motorola where he held various management
positions.
Mr. Hargrave has served as Vice President - General Manger XeTel Dallas since
July 1996. Mr. Hargrave joined the Company as a part of the acquisition of
Maxtron Corporation. Mr. Hargrave founded Maxtron Corporation and has served as
President from 1982 to 1996. Prior to Maxtron, he held the position of Vice
President at Solid State Electronics Company in Dallas, Texas.
Mr. Guire has served as a Director of the Company since 1986 and as Secretary
from 1991 to September 1996. 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 has served as
Chairman of the Board of EXAR since 1994, after serving as a Director from 1985
and Vice Chairman of the Board of EXAR from 1990. He has served as Chairman of
the Board of SBE, since 1997, after serving as a Director of SBE from 1991.
Mr. Densmore has served as a Director of the Company since May 1997. Mr.
Densmore has served with RF Monolithics, Inc., a radio frequency component and
module designer and manufacturer, since 1993 including as President and Chief
Executive Officer since 1996, Director since 1994 and Executive Vice President,
Chief Operating Officer, Chief Financial Officer and Secretary from 1993 to
1996. In 1991, Mr. Densmore founded the IBC Group, a private consulting
company, and served as its President from 1991 to 1993. From 1984 to 1990, Mr.
Densmore was employed at Recognition International, Inc., a document image
processing company. During that period, Mr. Densmore served as Senior Vice
President, Treasurer and Chief Financial Officer from 1989 to 1990 and Vice
President of Corporate Development from 1984 to 1989. Mr. Densmore is a
Certified Public Accountant.
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 29, 1997 to be held
August 12, 1997 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 29, 1997.
<PAGE> 29
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 29, 1997, Rohm had guaranteed lease payments of $481,000.
In addition, Rohm has provided financing to the Company as summarized by the
following table:
<TABLE>
<CAPTION>
March 29, March 30, April 1,
1997 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 $3,000 to
$52,000 through August 17, 1997, bearing interest ranging from 6.25%
to 8.25%, secured by certain equipment -- -- 379
---- ---- ------
-- -- 7,016
Less: Current portion -- -- 7,016
---- ---- ------
Long-term portion $ -- $ -- $ --
==== ==== ======
</TABLE>
The Company also has a $3 million revolving line of credit with Rohm that bears
interest at LIBOR plus 1.25%, is payable on demand and expires on March 31,
1998 and is secured by certain equipment. There were no outstanding balances
under the Rohm line of credit at March 29, 1997.
Interest paid to Rohm under the credit facilities described above was
approximately $0, $704,000 and $425,000 in fiscal years 1997, 1996 and 1995,
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 $526,000, $908,000 and $615,000 for fiscal years 1997, 1996 and
1995, respectively.
<PAGE> 30
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 29, 1997 no current reports on Form 8-K
were filed.
<PAGE> 31
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 4 , 1997 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
<S> <C> <C>
/s/ Richard S. Chilinski
----------------------------
Richard S. Chilinski Vice President, June 4, 1997
Chief Financial Officer
and Assistant Secretary
(principal financial and
accounting officer)
/s/ Kozo Sato
------------------------
Kozo Sato Chairman of the Board of Directors June 4, 1997
/s/ Ronald W. Guire
------------------------
Ronald W. Guire Director June 4, 1997
/s/ Raimon L. Conlisk
-------------------------
Raimon L. Conlisk Director June 4, 1997
/s/ Sam L. Densmore
------------------------
Sam L. Densmore Director June 4, 1997
</TABLE>
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.2(1) Second Restated Certificate of Incorporation.
3.3(1) Restated Bylaws of the Registrant, as amended.
3.4(1) Registration Rights, dated June 18, 1986 among the Registrant Rohm
Corporation, Julian C. Hart, David W. Gault and Emory C. Garth.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen Common Stock certificate.
10.1(1) Company's 1992 Stock Option Plan.
10.2(1) Form of Indemnification Agreement between the Registrant and each of
its directors and certain executive officers.
10.3(1) 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(1) First Amendment to Lease Agreement effective April 1, 1994 between the
LTV Trust, as Landlord, and the Registrant, as Tenant.
10.5(1) Amended and Restated Guaranty of Lease effective April 1, 1994 between
Rohm USA, Inc., as Guarantor, and the LTV Trust, as Landlord.
10.6(1) Waiver of Right of First Refusal dated May 2, 1994 by the Registrant,
as Tenant, and the LTV Trust, as Landlord.
10.7(1) Security Agreement dated October 14, 1992 between the Registrant and
Rohm Corporation.
10.8(1) $570,000 Secured Promissory Note issued October 14, 1992 by the
Registrant in favor of Rohm Corporation.
10.9(1) $110,000 Secured Promissory Note issued October 22, 1992 by the
Registrant in favor of Rohm Corporation.
10.10(1) Security Agreement dated November 4, 1992 between Rohm Corporation, as
Secured Party, and the Registrant.
10.11(1) $6,500,000 Secured Promissory Note issued November 4, 1992 by the
Registrant in favor of Rohm Corporation.
10.12(1) $722,000 Secured Promissory Note issued March 1, 1993 by the
Registrant in favor of Rohm Corporation.
10.13(1) Security Agreement dated May 17, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.14(1) $2,500,000 Secured Promissory Note issued May 17, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.15(1) Security Agreement dated August 16, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.17(1) $1,155,000 Secured Promissory Note issued August 16, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.18(1) Manufacturing Services Agreement dated November 18, 1994 between
Primary Access and the Registrant.
10.19(1) Consent Agreement dated March 29, 1995 between Primary Access
Corporation and the Registrant, as the Consenting Party.
10.20(1) 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(1) Mobile Communication Standard Terms and Conditions dated August 5,
1994 for Westinghouse Electric.
10.22(2) Master Lease Agreement between the Registrant and General Electric
Capital Corporation.
10.23(2) $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
10.24(3) $7,000,000 Promissory Note between the Registrant and Texas Commerce
Bank National Association
10.25(3) Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
10.26 Lease Agreement between Delta HP Limited, as Landlord, and the
Registrant, as Tenant.
10.27 First Amendment to Credit Agreement between the Registrant and Texas
Commerce Bank National Association
10.28 Letter of Commitment between the Registrant and General Electric Capital
Corporation.
10.29 Amended $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
11.1 Computation of Net Income per Share.
23.1 Consent of Price Waterhouse, LLP.
24.1(1) Power of Attorney (see page II-4 of the Registration Statement as filed
on November 20, 1995).
24.2(1) Assistant Secretary's Certificate of Resolutions of the Board of
Directors.
27.1 Financial Data Schedule
</TABLE>
(1) 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.
(2) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1996 Form 10-K.
(3) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's September 1996 Form 10-Q.
<PAGE> 1
Exhibit 10.26
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT ("Amendment") is effective as
of June 1, 1997 by and between DELTA HP LIMITED, a Texas limited partnership
("Landlord"), and XETEL CORPORATION, a Delaware corporation ("Tenant").
RECITALS:
1. Landlord's predecessor in interest and Tenant entered into a
Lease Agreement ("Original Lease") dated September 22, 1992,
pursuant to which Tenant leased from Landlord and Landlord leased
to Tenant approximately 61,832 square feet of Useable Area in the
Buildings known as Brockton Business Center.
2. The Original Lease was amended pursuant to the terms of a
First Amendment to Lease Agreement ("First Amendment") effective
April 1, 1994 to, among other things, increase the square footage
leased to Tenant under the Lease to 103,988 square feet, extend
the term of the Lease to March 31, 2002, and modify the Base Rent
as provided therein (the Original Lease and the First Amendment
being hereinafter collectively referred to as the "Lease").
3. Landlord and Tenant desire to further amend the Lease to reduce
the square footage leased to Tenant under the Lease and modify
the Lease in certain other respects.
AGREEMENTS:
NOW, THEREFORE, for and in consideration of the agreements contained
herein and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. The second grammatical paragraph on page 1 of the Lease is deleted in
its entirety and the following is substituted in lieu thereof:
Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord
the following Premises (herein so called) as depicted on the floor plan
attached hereto as Exhibit "A" containing approximately 91,588 square
feet of Useable Area (hereinafter defined), being part of certain
buildings and other improvements (each, a "Building" and collectively,
the
<PAGE> 2
"Buildings") collectively known as "Brockton Business Center," located
at 2525 and 2535 Brockton Drive, respectively, in the City of Austin,
Travis County, Texas situated on the real property more fully described
on Exhibit "B" attached hereto (the "Land").
In connection with the foregoing modification of the Lease, the floor plan
attached as Exhibit "A" to the Lease is deleted in its entirety and the floor
plan attached to this Amendment as Exhibit "A" is substituted in lieu thereof.
2. Section 1.1 d. is deleted in its entirety and the following is
substituted in lieu thereof:
"Area of the Premises" shall mean (i) for the period from the
Lease Commencement Date through March 31, 1994, 61,832 square feet of
Useable Area contained in the Premises, as the same may be amended
pursuant to Section 3.2(g), (ii) for the period from April 1, 1994
through December 31, 1994, 65,832 square feet of Useable Area contained
in the Premises, as the same may be amended pursuant to Section 3.2(g),
(iii) for the period from January 1, 1995 through February 28, 1997,
103,988 square feet of Useable Area contained in the Premises, as the
same may be amended pursuant to Section 3.2(g) and (iv) commencing March
1, 1997, 91,588 square feet of Useable Area contained in the Premises,
as the same may be amended pursuant to Section 3.2(g); provided,
however, with respect to Sections 6.2, 12.1 and 13.2, Area of the
Premises shall mean from April 1, 1994 to February 28, 1997, 103,988
square feet of Useable Area contained in the Premises and from and after
March 1, 1997, 91,588 square feet of Useable Area contained in the
Premises.
3. The first sentence in Section 3.1 entitled "Base Rental" is deleted in
its entirety and the following is substituted in lieu thereof:
Commencing with the Rent Commencement Date, Tenant promises and
agrees to pay to Landlord, without offset or deduction (other than
pursuant to express, limited rental abatement, offset or credit
provisions contained in this Lease), in lawful money of the United
States of America, a base annual rental ("Base Rental") of the following
amounts for the following Lease Years, in monthly installments as
indicated for each such Lease Year:
<TABLE>
<CAPTION>
LEASE YEAR BASE ANNUAL RENTAL MONTHLY INSTALLMENTS
<S> <C> <C>
Lease Year 1 -0- -0-
(September 22 , 1992
through December 31,
1992)
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
<S> <C> <C>
Lease Year 2 $445,190.40 $37,099.20
(January 1, 1993
through December 31, 1993)
Lease Year 3 $463,190.40 $37,099.20 (Jan 1.-
January 1, 1994 through Mar. 31)
December 31, 1994 $39,099.20 (Apr. 1-
Dec. 31)
Lease Year 4 $698,126.40 $58,177.20
(January 1, 1995 through
December 31, 1995)
Lease Year 5 $698,126.40 $58,177.20
(January 1, 1996 through
December 31, 1996
Lease Year 6 (Part I) $290,886.00 $58,177.20
(January 1, 1997 through
May 31, 1997)
Lease Year 6 (Part II) $358,680.00 $51,240.00
June 1, 1997 through
December 31, 1997
Lease Year 7 $659,436.00 $54,953.00
(January 1, 1998 through
December 31, 1998)
Lease Year 8 $681,420.00 $56,785.00
(January 1, 1999 through
December 31, 1999)
Lease Year 9 $703,392.00 $58,616.00
(January 1, 2000 through
December 31, 2000)
Lease Year 10 $725,856.00 $60,488.00
(January 1, 2001 through
December 31, 2001)
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<S> <C> <C>
Lease Year 1 $181,464.00 $60,488.00
(January 1, 2002 through
March 31, 2002)
</TABLE>
4. The last paragraph of Section 3.1 shall be modified to read as follows:
If Tenant does not notify Landlord by March 31, 2001 that Tenant
has exercised the option to extend the term of the Lease as provided in
Rider 301, or if Landlord and Tenant have not otherwise agreed to an
extension of the term of the Lease in writing that releases Tenant from
the Deferred Rent by March 31, 2002; then on the expiration or earlier
termination of the Lease, Tenant shall pay to Landlord the sum of
$211,200.00. Landlord and Tenant acknowledge and agree that the
Deferred Rent represents all or a portion of the rent on the 38,156
square feet of Useable Area being rented to Tenant hereunder and for
which Tenant is not required to pay any rent from April 1, 1994 to
December 31, 1994.
5. Section 4.6 of the Lease is deleted in its entirety and the following is
substituted in lieu thereof:
4.6 Walkway. Tenant shall possess the Walkway on a
nonexclusive basis with any other tenants of the Project, if any, and
shall specifically permit such tenants' employees, agents, contractors
and invitees to enter and exit the exterior Walkway doors which provide
access to the Common Areas, if any, on each side of the Walkway. As of
the date hereof, there are no Common Areas within the Premises on either
side of the Walkway.
6. The first sentence of Section 7.1 c. is deleted in its entirety and the
following is substituted in lieu thereof:
Tenant shall not permit any mechanic's and materialmen's lien to be
placed on the Premises, Buildings or Land resulting from any work
performed, materials furnished, or obligation incurred by or at the
request of Tenant.
7. Sections 11.1 and 11.2 of the Lease are modified by deleting the phrase
"and the Project" after each occurrence of the word "Premises."
8. This Lease is amended by changing all occurrences of "Project" Sections
20.2f., 20.3d., 20.3e., 20.3f., 20.4 and 20.6 to "Premises".
Additionally, the use of "Project" in Section 20.3a is changed to
"Property."
9. Section 25.8 of the Lease is modified by deleting the phrase "the
Project or the
- 4 -
<PAGE> 5
Premises" at the end of the first sentence thereof, and substituting the
phrase "the Land, the Buildings or the Premises" in lieu thereof.
10. Landlord and Tenant acknowledge and agree that with respect to the
12,400 square feet relinquished by Tenant pursuant to this Amendment,
the Lease is terminated as to that 12,400 square feet and Tenant shall
have no further obligations, duties or liabilities to Landlord with
respect thereto. Further, such 12,400 square feet is delivered to
Landlord by Tenant AS IS, WHERE IS, AND WITH ALL FAULTS, AND TENANT
EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES WITH
RESPECT TO SUCH SPACE. Landlord will use all reasonable efforts to
obtain the consent of any lenders of the Project to this Amendment.
Notwithstanding anything contained herein to the contrary, if such
lenders shall not so consent to this Amendment, then, nevertheless, the
provisions of this Amendment shall continue to be binding upon Landlord
and its successors and assigns (excluding such lenders), and Landlord
hereby covenants and agrees to notify any such successor, assign of this
provision.
11. Except as otherwise expressly provided in this Amendment to the
contrary, the Lease is not modified or amended in any respect and the
same shall remain enforceable as written.
12. Capitalized terms that are not defined herein have the meanings given to
them in the Lease unless the context clearly requires otherwise. Words
of any gender used in this Amendment include any other gender, and words
in the singular include the plural, unless the context otherwise
requires. This Amendment and the rights and obligations of the parties
hereto shall be interpreted, construed, and enforced in accordance with
the laws of Texas. This Amendment may not be changed or terminated
orally, but only in writing executed by Landlord and Tenant. THIS
AMENDMENT, INCLUDING ONLY THE ATTACHMENTS HERETO SPECIFIED HEREIN,
EMBODIES THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES ALL
PRIOR AGREEMENTS AND UNDERSTANDINGS, INCLUDING ANY LETTERS OF INTENT, IF
ANY, RELATING TO THE SUBJECT MATTER HEREOF. This Amendment may be
executed in multiple counterparts, all of which taken together shall
constitute one and the same agreement. It is not necessary for landlord
and tenant to execute the same counterparts.
- 5 -
<PAGE> 6
EXECUTED THIS 24 DAY OF March, 1997.
LANDLORD:
DELTA HP LIMITED, a Texas limited
partnership
BY: 1826, Inc., a Texas corporation,
General Partner
By: /s/ D. Kent Lance, Jr.
--------------------------
D. Kent Lance, Jr.
Vice President
TENANT:
XETEL CORPORATION, a Delaware
corporation
By: /s/ Angelo Decaro, Jr.
--------------------------
Angelo Decaro, Jr.
President/ceo
- 6 -
<PAGE> 1
Exhibit 10.27
FIRST AMENDMENT TO CREDIT AGREEMENT
(Borrowing Base)
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (Borrowing Base)(this
"Amendment") dated effective as of April 15, 1997 (the "Effective Date"), is by
and between XETEL CORPORATION ("Borrower"), and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association whose principal office is located
in Houston, Texas (the "Bank").
PRELIMINARY STATEMENT
The Bank and the Borrower have entered into a Credit Agreement (with
Borrowing Base) dated as of August 23, 1996 (the "Credit Agreement"). The
"Agreement", as used in the Credit Agreement, shall also refer to the Credit
Agreement as amended by this Amendment. All capitalized terms defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
herein as in the Credit Agreement. The Bank and the Borrower have agreed to
amend the Credit Agreement to the extent set forth herein, and in order to,
among other things, renew, modify and increase the Commitment.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Bank and the Borrower hereby agree as
follows:
Section 1. Revolving Credit Note. Section 1.1 of the Credit Agreement
is amended by redesignating the same as Section 1.1.A and by substituting the
following for the Section 1.1.A of the Credit Agreement:
"Subject to the terms and conditions hereof, the Bank agrees to make
loans ("Revolving Loan" or "Revolving Loans") to Borrower from time to
time before the Termination Date, not to exceed at any one time
outstanding for Borrower the lesser of the Borrowing Base or
$10,000,000.00 (the "Commitment"), Borrower having the right to borrow,
repay and reborrow. Each Revolving Loan and Repayment must be at least
the minimum amount required in the Revolving Note. The Revolving Loans
may only be used for supporting Borrower's accounts receivable and
inventory. The Bank and the Borrower agree that Chapter 15 of the Texas
Credit Code shall not apply to this Agreement, the Revolving Note or any
Revolving Loan. The Revolving Loans shall be evidenced by and shall
bear interest and be payable as provided in the promissory note of
Borrower dated the Effective Date (together with any and all renewals,
extensions, modifications, replacements, and rearrangements thereof and
substitutions therefor, the "Revolving Note") which is given in renewal,
modification and increase of that certain promissory note dated August
23, 1996 in the original principal amount of $7,000,000.00 (including
all prior notes of which said note represents a renewal, extension,
modification, increase, substitution, rearrangement or replacement
thereof, the "Renewed Note"). The parties hereto agree that there is as
of the Effective Date an outstanding principal balance of $-0- under the
Revolving Note leaving a balance as of the Effective Date of
$10,000,000.00 under the Commitment available for Revolving Loans
subject to the terms and conditions of this Agreement. "Termination
Date" means the earlier of (a) August 31, 1998; or (b) the date
specified by Bank pursuant to Section 6.1 hereof.
Section 2. The Credit Agreement is amended by adding a new Section
1.1.B to read as follows:
"ADVANCE TERM NOTE 1.1.B Bank agrees to extend an advance loan
converting to a term loan on the Advance Termination Date (as defined
in the Advance Term Note) in the amount of $2,500,000.00 ("Advance/Term
Loan" or "Advance/Term Loans") to Borrower as evidenced by a promissory
note in proper form in the original principal amount of $2,500,000.00
dated April 3, 1997 and maturing August 31, 2000 (together with any and
all renewals, extensions, modifications and replacements thereof and
substitutions therefor, the "Advance/Term Note")." The Advance/Term
Loans shall be for the purpose of financing Borrower's leasehold
improvements."
Page 1 of 3
<PAGE> 2
Section 3. The Credit Agreement is amended by adding a new Section
1.1.C to read as follows:
"LOANS AND NOTES 1.1.C "Loan" or "Loans" shall refer to each and all
Revolving Loans and all Advance/Term Loans. "Note" or "Notes" shall
refer to each and both of the Revolving Note and the Advance/Term Note."
Section 3. Section 1.4 of the Credit Agreement is amended by
substituting the following for Section 1.4 of the Credit Agreement:
"In consideration of the Commitment, Borrower will pay a Commitment Fee
(computed on the basis of the actual number of days elapsed in a year
comprised of 360 days) of one-eighth (1/8) of one percent (1%) on the
Revolving Loan based on the daily average difference between the
Commitment and the principal balance of the Revolving Note from the date
hereof to the Termination Date. The Commitment Fee is due and payable
quarterly in arrears beginning on September 30, 1996."
Section 4. Section 7.4 of the Credit Agreement is amended as follows:
"All representations, warranties, covenants and agreements made by or on
behalf of Borrower in connection with the Loan Documents will survive
the execution and delivery of the Loan Documents; will not be affected
by any investigation made by any Person, and will bind Borrower and the
successors, trustees, receivers and assigns of Borrower and will benefit
the successors and assigns of the Bank; provided that Bank's agreement
to make Loans to Borrower will not inure to the benefit of any successor
or assign of Borrower except for an approved merger or business
combination. Except as otherwise provided herein, the term of this
Agreement will be until the later of the final maturity of the Revolving
Note or the Term Note, whichever is later and the full and final payment
of all Obligations and all amounts due under the Loan Documents."
Section 5. Section 7.6 of the Credit Agreement is amended as follows:
"EXPENSES 7.6 Any provision to the contrary notwithstanding, and
whether or not the transactions contemplated by this Agreement are
consummated, Borrower agrees to pay on demand all reasonable, direct
out-of-pocket expenses (including, without limitation, the fees and
expenses of counsel for Bank) in connection with the negotiation,
preparation, execution, filing, recording, modification, supplementing
and waiver of the Loan Documents and the making, servicing and
collection of the Loans. Notwithstanding anything contained herein to
the contrary, Borrower shall not pay more than $1,500.00 for any single,
annual field analysis of Borrower's assets. Borrower agrees to pay
Bank's standard Documentation Preparation and Processing Fee for
preparation, negotiation and handling of this Agreement not to exceed
the amount of $1,500.00. Borrower also agrees to pay Bank a transaction
fee of $8,500.00, which fee is due and payable upon the execution of
this Amendment. The obligations of the Borrower under this and the
following section will survive the termination of this Agreement."
Section 6. Exhibit A of the Credit Agreement is hereby amended by
replacing prior Exhibit A with the Exhibit A attached hereto and hereby
incorporated into this Amendment and the Credit Agreement for all purposes.
Section 7. Exhibit C of the Credit Agreement is hereby amended by
replacing prior Exhibit C with the Exhibit C attached hereto and hereby
incorporated into this Amendment and the Credit Agreement for all purposes.
Section 8. The Borrower hereby represents and warrants to the Bank that
after giving effect to the execution and delivery of this Amendment: (a) the
representations and warranties set forth in the Credit Agreement are true and
correct on the date hereof as though made on and as of such date; and (b) no
Event of Default, or event which with passage of time, the giving of notice or
both would become an Event of Default, has occurred and is continuing as of the
date hereof.
Section 9. This Amendment shall become effective as of the Effective
Date upon its execution and delivery by each of the parties named in the
signature lines below.
Page 2 of 3
<PAGE> 3
Section 10. The Borrower further acknowledges that each of the other
Loan Documents is in all other respects ratified and confirmed, and all of the
rights, powers and privileges created thereby or thereunder are ratified,
extended, carried forward and remain in full force and effect except as the
Credit Agreement is amended by this Amendment.
Section 11. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed an original and all of which taken
together shall constitute but one and the same agreement.
Section 12. This Amendment shall be included within the definition of
"Loan Documents" as used in the Agreement.
Section 13. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF
THE UNITED STATES OF AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE
CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed effective as of the Effective Date.
BORROWER: XETEL CORPORATION
By: /s/ Richard S. Chilinski
Name: Richard S. Chilinski
Title: Chief Financial Officer
BANK: TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By: /s/ Ralph T. Beasley
Name: Ralph T. Beasley
Title: Vice President
Page 3 of 3
<PAGE> 1
Exhibit 10.28
March 17, 1997
Xetel Corporation
2525 Brockton Drive
Austin, TX 78758
Att: Mr. Rich Chilinski
LETTER OF COMMITMENT
Dear Mr. Chilinski:
General Electric Capital Corporation and its Nominee, KeyCorp Leasing
Ltd., (the "Lessors") are pleased to submit the following commitment to Xetel
Corporation (the "Lessee") to enter in to a lease (the "Lease") of the
equipment acceptable to the Lessor based on the Lessor's sole discretion (the
"Equipment").
The economics of the commitment are summarized in this letter which include the
relevant assumptions on which the lease rates for this transaction are based.
These assumptions and the following general conditions, are, therefore, an
essential part of our commitment and the lease rates quoted herein are
specifically based on these assumptions and the terms of this commitment.
FINANCIAL TERMS
Transaction: Single Investor Guideline Tax Lease
Lessee: Xetel Corporation
Lessor A: GE Capital or one of its wholly-owned subsidiaries
or assignees
Lessor B: Key Corp Leasing Ltd.
Equipment Location: To be determined
Capitalized Lessor A's Cost: $2,000,000
Capitalized Lessor B's Cost: $2,000,000
Basic Lease Term: Sixty (60) Months
Lease Rate Factor (s): (A) April - June 1.72143%
(B) July - Sept. 1.71499%
(C) Oct. - Dec. 1.70258%
Note: The Lease Rate Factor(s) are based on an
assumption that, at the time of the funding, the
then most recent weekly average of 5 years
Treasury Note rates will be 6.36%. If this is
not the case, then the Lease Rate Factors will be
adjusted accordingly.
<PAGE> 2
Lease Commencement Date: The date of execution by Lease of the
Certificate of Acceptance for the Equipment.
Basic Term Commencement Date: The first day of the month following the
Lease Commencement Date, unless the Lease
Commencement Date is the first day of a
calendar month; in which case the Basic Term
Commencement Date shall be the Lease
Commencement.
Basic Term Rentals: Each such payment would be equal to the
Original Acquisition Cost multiplied by the
Lease Rate Factor with applicable taxes paid
monthly in advance.
Interim Period: The period from and including the Lease
Commencement Date to the Basic Term
Commencement Date.
Interim Rentals: The product of the Daily Lease Rate Factor
times the Original Acquisition Cost of
Equipment times the number of days in the
Interim Period. Interim Rent, plus
applicable taxes, would be payable on the
Basic Term Commencement Date.
Last Delivery Date: September 30, 1997
End of Lease Purchase Option: So long as no default exists hereunder and
the lease has not been earlier terminated,
Lessee may at lease expiration, upon at
least 180 days prior written notice to
Lessor, purchase all (but not less than all)
of the Equipment in any Schedule for cash
equal to its then Fair Market Value (plus
all applicable sales taxes).
Tax Benefits: It is assumed that the Equipment is eligible
for and that Lessor will be entitled to the
following tax benefits of ownership:
(1)Depreciation Method: 200% declining
balance method over the Recovery Period,
switching to straight line method for the
first 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.
(2)Recovery Period: 5 Years
(3)Basis: 100% of Equipment Cost
Covenants: Covenants identical to those on the Master
Lease Agreement between GE Capital
("Lessor") and Xetel Corporation ("Lessee")
dated April 30,1996.
<PAGE> 3
**************
GENERAL PROVISIONS
1. Net Lease: The Lease will be a "net lease" with the Lessee
responsible for paying rent under all circumstances. Lessee is specifically
responsible for all expenses, maintenance, insurance and taxes relating to the
purchase, leas, possession and use of the Equipment excluding, however, taxes
based solely on the net income of lessor.
2. Tax Benefits and Indemnification: It is assumed, and Lessee will
represent to Lessor in the Lease, that Lessor will be considered the owner of
the Equipment for state law and federal income tax purposes and that the most
accelerated depreciation or cost recovery deductions on the full amount of the
Equipment Cost will be available to Lessor. Lessee shall indemnify Lessor for
loss of Tax Benefits due to Lessee's acts or omissions or breach of
representation, as well as for any reduction in Lessor's economic return
resulting from changes in Federal income tax rates after the date of this
proposal.
3. Maintenance and Insurance: All maintenance and insurance (fire
and theft, extended coverage and liability) are the responsibility of Lessee.
Lessee will be responsible for maintaining in force property and liability
insurance with companies and in amounts and coverage's satisfactory to Lessor.
4. Warranties: All warranties, guaranties, services, instructions,
etc. made available by the manufacturer or vendor of the Equipment will be
passed on to Lessee for Lessee to enforce so long as Lessee is not in default.
5. Documentation: It is anticipated that the Lessor's current
standard lease documentation for this type of Equipment and transaction will be
used. Any changes to this document must be approved by Lessor.
6. Transaction Costs: Lessor will be responsible for all of its
closing and transactions costs. Lessee will be responsible for all its closing
and transaction costs.
7. Commitment Fee: By signing below, Lessee acknowledges the terms
and conditions of this commitment and agrees to pay a commitment fee of $0.00
(the "Commitment Fee"). The Commitment Fee will be applied to the initial
payment(s) of rent, except for a documentation charge of $0.00. The Commitment
Fee is not refundable and deemed earned . It shall be retained by Lessor
whether or not the Lease transaction is closed.
8. Tax Law Change: Since the commitment and its economics are based
on the provisions of the Internal Revenue Code (the "Code"), and the
regulations adopted thereunder (the "Regulations") in effect on the date of
this commitment letter, Lessor reserves the right to modify or revoke this
commitment in the event its economics are, in Lessor's judgment, adversely
affected by any amendment to the Code or the Regulations occurring after the
date of this commitment letter, but prior to the commencement date of any
Schedule to Lease. In the event Lessor revokes this commitment, Lessee shall
repay to Lessor any progress payments, taxes and any other sums which Lessor
has paid in connection with any assignment, purchase agreement or any other
document related to the Equipment.
<PAGE> 4
9. Tax Base Unavailability: Lessor reserves the right to terminate
this commitment if Lessor determines, in its sole discretion, that it has
insufficient tax base available to permit it to lease the Equipment hereunder
while preserving the net yields and cash flows on which this commitment is
premised.
If Lessor elects to terminate the commitment as provided in
this paragraph, it may offer to provide Lessee with secured loan or non-tax-
oriented lease financing up to the amount of the Capitalized Lessor's Cost of
the Equipment, at Lessor's discretion.
10. Representations and Warranties: Lessee warrants and represents
that all information submitted to Lessor prior to or concurrent
with this commitment letter is true and correct.
11. Approval of Documents: All documents required hereby or relating
to Lessee's capacity and authority to enter into the Lease and to
execute the documents relating thereto, and such other documents,
instruments, certificates opinions and assurances as Lessor may
request and all procedures in connection herewith, will be
subject to the approval of Lessor and its counsel as to form and
substance.
12. No Assignment: This commitment letters shall not be assigned by
Lessee by operation of law or otherwise without the prior written
consent of Lessor.
13. Commencement of Commitment: This commitment and all of its terms
shall not commence unless and until Lessor has received your
acknowledgment hereof and the above Commitment Fee no later than
March 31st, 1997.
14. Termination: Lessor may terminate this commitment by written or
telegraphic notice to Lessee if:
(a) There has been a material adverse change in or damage to the
business or financial condition of Lessee, any guarantor or other
primary or secondary obligor in the sole judgment of Lessor, or
(b) Lessee shall fail to comply with any term or condition hereof; or
(c) Lessee, any guarantor or other primary or secondary obligor shall
(I) apply for or consent to the appointment of a receiver,
trustee or liquidator for it or for any of its property, (ii)
make a general assignment for the benefit of creditors, (iii) be
adjudicated a bankrupt or insolvent or (iv) file or to take
advantage of any bankruptcy, reorganization, insolvency, or
liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding
under any such law, or if applicable, if corporate action shall
be taken by Lessee, any guarantor or other primary or secondary
obligor for the purpose of effecting any of the foregoing; or
(d) A default or breach of any other agreement between Lessee and
Lessor shall have occurred
15. Miscellaneous: This commitment letter sets forth the entire
agreement of the parties with respect to the subject to the subject matter
hereof, and supersedes all prior written or oral understandings with respect
thereto, provided, however, that all written and oral representations made by
Lessee to Lessor with respects to the subject matter hereof shall survive the
issuance of this commitment letter. No modification or waiver of any provision
of this commitment letter shall be effective unless the same shall be in
writing signed by the parties hereto.
<PAGE> 5
16. No Reliance: Unless specifically agrees in writing by Lessor,
no third party can rely upon this commitment letter.
17. Lessee Commitment to Enter into Transaction: If the forgoing
terms and conditions as acceptable to you, please sign and return a copy of
this commitment letter along with the Commitment Fee whereupon this letter
shall constitute our commitment to provide and your commitment to accept the
financing substantially on the terms and conditions set forth herein.
We would appreciate the opportunity to discuss this commitment in more
detail at your earliest convenience. We look forward to your early review and
response. If there are any questions, please do not hesitate to contact us at
(410) 527-9300.
Very truly yours,
GECC Capital Market Group, INC.
By: /s/ Stephen E. White
--------------------------
Stephen E. White
Title: Vice President
COMMITMENT ACCEPTED:
Xetel Corporation
By: /s/ Richard S.Chilinski
---------------------------
Title: Chief Financial Officer
<PAGE> 1
Exhibit 10.29
SECURED PROMISSORY NOTE
March 26, 1997 $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 principal 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 August 31, 1998, 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 this 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 this Note and the
conditions to which this Note is subject, to which the Holder hereof, by the
acceptance of this 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.
Page 1 of 3
<PAGE> 2
PROMISSORY NOTE
XETEL CORPORATION AND ROHM U.S.A., INC.
MARCH 26, 1997
PAGE 2
================================================================================
2. Replacement. On receipt of evidence reasonably satisfactory to Maker
of the loss, theft, destruction or mutilation of this Note and, in the case of
loss, theft or destruction, on delivery of an indemnity agreement or bond
reasonably satisfactory in form and amount to the Company, or in the case of
mutilation, on surrender and cancellation of this 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 this 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
(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 that 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 inadequate 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
Page 2 of 3
<PAGE> 3
PROMISSORY NOTE
XETEL CORPORATION AND ROHM U.S.A., INC.
MARCH 26, 1997
PAGE 3
================================================================================
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. Financial Covenants. Maker agrees to: (i) maintain a minimum Tangible
Net Worth starting at $21,500,000 effective March 31, 1996 with a step up of
50% of net income generated determined at the end of each fiscal year and 100%
of all equity created from stock issuance and acquisitions (net of goodwill);
(ii) no more than a $3,000,000 quarterly loss, and no more than two consecutive
quarterly losses, which losses cannot exceed $4,000,000 in two consecutive
quarters; and, (iii) XeTel will provide a certification of compliance with the
restrictive covenants.
8. 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
proper parties at the appropriate business address.
9. Severability. If any provision of this 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: /s/ Angelo Decaro
Angelo DeCaro
President
Address: 2525 Brockton Drive
Austin, TX 78758
Page 3 of 3
<PAGE> 1
Exhibit 11.1
XETEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
March 29, March 30, April 1,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Shares issued and outstanding (1) 8,709 6,673 2,531
Common Stock Equivalents:
Series A preferred stock (2) -- -- 3,864
Stock options (3) 866 738 251
----- ------ -----
Weighted average shares outstanding 9,575 7,411 6,646
===== ====== =====
Net income $449 $5,655 $942
===== ====== =====
Earnings per share $.05 $.76 $.14
===== ====== =====
</TABLE>
(1) Shares issued and outstanding based on the weighted average method.
(2) Represents common stock issuable upon the conversion of the outstanding
shares of Series A Preferred Stock.
(3) Stock options based on the treasury stock method using average market
price.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 333-1952 and No. 333-20331) of XeTel Corporation of our report
dated April 29, 1997 in this Annual Report on Form 10-K for the fiscal year
ended March 29, 1997.
/s/ PRICE WATERHOUSE LLP
Austin, Texas
June 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-29-1997
<CASH> 7,032
<SECURITIES> 0
<RECEIVABLES> 13,886
<ALLOWANCES> 240
<INVENTORY> 10,499
<CURRENT-ASSETS> 33,253
<PP&E> 15,117
<DEPRECIATION> 9,518
<TOTAL-ASSETS> 39,802
<CURRENT-LIABILITIES> 12,869
<BONDS> 0
0
0
<COMMON> 20,998
<OTHER-SE> 5,663
<TOTAL-LIABILITY-AND-EQUITY> 39,802
<SALES> 90,453
<TOTAL-REVENUES> 90,453
<CGS> 83,442
<TOTAL-COSTS> 90,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 706
<INCOME-TAX> 257
<INCOME-CONTINUING> 449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 449
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
