<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
XETEL CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
XETEL LOGO
July 11, 1997
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of XeTel Corporation, a Delaware Corporation (the "Company"),
which will be held at 10:30 A.M. Central Time on Tuesday, August 12, 1997, at
the Company's offices located at 2105 Gracy Farms Lane, Austin, Texas 78758.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote FOR each such
proposal.
Your vote is important to the Company. After reading the Proxy Statement,
please mark, date, sign and return by no later than July 23, 1997, the enclosed
proxy card in the accompanying reply envelope. If you decide to attend the
Annual Meeting, please notify the Secretary of the Company that you wish to vote
in person and your proxy will not be voted. YOUR SHARES CANNOT BE VOTED UNLESS
YOU MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING
IN PERSON.
A copy of the Company's Fiscal Year 1997 Annual Report to Stockholders is
also enclosed.
The Board of Directors and Management look forward to seeing you at the
Annual Meeting.
Sincerely,
/s/ ANGELO A. DECARO, JR.
Angelo A. DeCaro, Jr.
President and Chief Executive
Officer
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2525 BROCKTON DRIVE - AUSTIN, TEXAS 78758 - (512) 435-1000 - FAX (512)
834-9250
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<PAGE> 3
XETEL LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 12, 1997
To the Stockholders of XeTel Corporation:
The Annual Meeting of Stockholders ("Annual Meeting") of XeTel Corporation,
will be held at 10:30 A.M. Central Time on Tuesday, August 12, 1997, at the
Company's offices located at 2105 Gracy Farms Lane, Austin, Texas 78758 for the
following purposes:
(i) to elect one Director to serve until the annual stockholders'
meeting in 1999, and two Directors to serve until the annual
stockholders' meeting in 2000, or in each case until their
successors are elected and qualified;
(ii) to approve the Company's 1997 Stock Incentive Plan;
(iii) to approve the Company's Employee Stock Purchase Plan; and
(iv) to transact such other business as may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice.
The record date for determining those stockholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournment thereof is June 18, 1997.
A list of the stockholders entitled to vote at the Annual Meeting will be
available for inspection at the Company's principal executive offices located at
2525 Brockton Drive, Austin, Texas 78758 for at least 10 days prior to the
Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read the
accompanying proxy statement, which describes the matters to be voted upon at
the Annual Meeting, and mark, date, sign and return the enclosed proxy card in
the reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to ensure that all your shares will be voted. If you attend the Annual
Meeting and vote by ballot, your proxy vote will be revoked automatically and
only your vote at the Annual Meeting will be counted. The prompt return of your
proxy card will assist us in preparing for the Annual Meeting.
By order of the Board of Directors,
/s/ JULIAN C. HART
Julian C. Hart
Secretary
Austin, Texas
July 11, 1997
YOUR VOTE IS IMPORTANT
IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, OR IF YOU DO PLAN TO
ATTEND BUT WISH TO VOTE BY PROXY, PLEASE COMPLETE, SIGN, DATE AND RETURN
PROMPTLY THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 4
XETEL CORPORATION
---------------------
PROXY STATEMENT
---------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 12, 1997
GENERAL INFORMATION FOR STOCKHOLDERS
THE ENCLOSED PROXY ("PROXY") IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS (THE "BOARD") OF XETEL CORPORATION, A DELAWARE CORPORATION (THE
"COMPANY"), FOR USE AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS (THE "ANNUAL
MEETING") TO BE HELD AT 10:30 A.M. CENTRAL TIME ON TUESDAY, AUGUST 12, 1997, AT
THE COMPANY'S OFFICES LOCATED AT 2105 GRACY FARMS LANE, AUSTIN, TEXAS 78758, AND
AT ANY ADJOURNMENT THEREOF.
This proxy statement and the accompanying form of Proxy are to be first
mailed to the stockholders entitled to vote at the Annual Meeting on or about
July 11, 1997.
RECORD DATE AND VOTING
Stockholders of record at the close of business on June 18, 1997 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. As
of the close of business on such date, there were 8,835,810 shares of the
Company's common stock, $0.0001 par value per share (the "Common Stock"),
outstanding and entitled to vote, held by 119 registered stockholders of record
in street name for the benefit of approximately 2,100 owners. Each stockholder
is entitled to one vote for each share of Common Stock held by such stockholder
as of the Record Date. If a choice as to the matters coming before the Annual
Meeting has been specified by a stockholder on the Proxy, the shares will be
voted accordingly. If no choice is specified, the shares will be voted IN FAVOR
OF the approval of the proposals described in the notice of annual meeting and
in this proxy statement. Abstentions and broker non-votes (i.e., the submission
of a Proxy by a broker or nominee specifically indicating the lack of
discretionary authority to vote on the matter) are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Abstentions will be counted towards the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes,
whereas broker non-votes will not be counted for purposes of determining whether
a proposal has been approved or not.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Investor Relations in writing at
2525 Brockton Drive, Austin, Texas 78758 or by telephone at (512) 435-1228. To
provide the Company sufficient time to arrange for reasonable assistance, please
submit such requests by July 29, 1997.
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED,
POSTAGE-PREPAID, RETURN ENVELOPE BY NO LATER THAN JULY 23, 1997, SO THAT IF YOU
ARE UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
REVOCABILITY OF PROXIES
Any stockholder giving a Proxy pursuant to this solicitation may revoke it
at any time prior to its exercise by filing with the Assistant Secretary of the
Company at its offices at 2525 Brockton Drive, Austin, Texas 78758 a written
notice of such revocation or a duly executed Proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
<PAGE> 5
SOLICITATION
This solicitation of proxies is made for the Board, and the Company will
bear the costs of the solicitation, including the expense of preparing,
assembling, photocopying and mailing this proxy statement and the material used
in this solicitation of Proxies. It is contemplated that Proxies will be
solicited principally through the mails, but directors, officers and regular
employees of the Company may solicit Proxies personally or by telephone.
Although there is no formal agreement to do so, the Company may reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding the proxy materials to their principals. The
Company may pay for and use the services of individuals or companies not
regularly employed by the Company in connection with the solicitation of Proxies
if the Board determines that it is advisable.
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED MARCH 29,
1997 (THE "ANNUAL REPORT") HAS BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO
NOTICE OF AND TO VOTE AT THE ANNUAL MEETING. THE ANNUAL REPORT IS NOT
INCORPORATED INTO THIS PROXY STATEMENT AND IS NOT CONSIDERED PROXY SOLICITING
MATERIAL.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE -- ELECTION AND RATIFICATION OF
APPOINTMENT OF DIRECTORS
GENERAL
The Board is divided into three classes, with the term of office of one
class expiring each year. The Company currently has five Directors, with one (1)
Director in Class I, two (2) Directors in Class II and two (2) Directors in
Class III. Julian C. Hart, formerly a Class I Director, resigned his position on
the Board effective May 8, 1997 and on such date the remaining members of the
Board appointed Sam L. Densmore to serve as Director for the remainder of the
term of office for a Class I Director. The terms of office of Directors Kozo
Sato and Raimon L. Conlisk expire at the Annual Meeting, and the terms of office
of each of Ronald W. Guire and Angelo A. DeCaro, Jr. expire at the 1998 annual
meeting. At the Annual Meeting, stockholders will be asked to elect two (2)
Directors with a term of three (3) years and elect one (1) Director with a term
of two (2) years by ratifying the Board appointment to fill the vacant Class I
Board seat.
VOTE REQUIRED
Each nominee receiving the affirmative votes of a majority of the shares
present in person or represented by Proxy at the Annual Meeting and entitled to
vote on the election of directors shall be elected to the Board. Votes withheld
from any Director are counted for purposes of determining the presence or
absence of a quorum, but have no legal effect under Delaware law. While there is
no definitive statutory or case law authority in Delaware as to the proper
treatment of abstentions and broker non-votes in the election of directors, the
Company believes that both abstentions and broker non-votes should be counted
for purposes of whether a quorum is present at the Annual Meeting. In the
absence of precedent to the contrary, the Company intends to treat abstentions
and broker non-votes with respect to the election of Directors in this manner.
Unless otherwise instructed, the proxy holders will vote the Proxies
received by them for the Company's nominees named below, all of which are
presently Directors of the Company. If any nominee of the Company is unable or
declines to serve as a Director at the time of the Annual Meeting, the Proxies
will be voted for any nominee who is designated by the present Board to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a Director. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
NOMINEES LISTED BELOW.
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NOMINEES FOR ELECTION AT THE ANNUAL MEETING
The name of the nominees and certain information about each are set forth
below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION/PRINCIPAL OCCUPATION
--------------- --- -----------------------------
<S> <C> <C>
Kozo Sato.......................... 57 Chairman of the Board of Directors (Class II)
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. 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 Corporation ("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, Inc. ("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 form 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.
INCUMBENT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE ANNUAL MEETING
The names and certain other information about the Directors whose terms of
office continue after the Annual Meeting are set forth below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION/PRINCIPAL OCCUPATION
--------------- --- -----------------------------
<S> <C> <C>
Angelo A. DeCaro, Jr.... 45 President, Chief Executive Officer and Director (Class III)
Ronald W. Guire......... 48 Director (Class III)
</TABLE>
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. 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, 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.
There is no family relationship between any Director of the Company.
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PROPOSAL TWO -- APPROVAL OF THE COMPANY'S
1997 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve the 1997 Stock
Incentive Plan (the "1997 Plan") as the successor to the Company's existing 1992
Stock Option Plan (the "Predecessor Plan") effective as the close of the Annual
Meeting. The 1997 Plan will become effective immediately upon such stockholder
approval, and all outstanding options under the Predecessor Plan will be
incorporated into the 1997 Plan at that time. The Predecessor Plan will
terminate, and no further option grants or share issuances will be made under
the Predecessor Plan. However, all outstanding options under the Predecessor
Plan will continue to be governed by the terms and conditions of the existing
option agreements for those grants except to the extent the Board or an
appropriately designated committee of the Board (the "Committee") elects to
extend one or more features of the 1997 Plan to those options.
The 1997 Plan was adopted by the Board on June 18, 1997 and is designed to
serve as a comprehensive equity incentive program to attract and retain the
services of individuals essential to the Company's long-term growth and
financial success. Accordingly, officers and other key employees, non-employee
Board members and consultants and other advisors in the service of the Company
or any subsidiary corporation will have the opportunity to acquire a meaningful
equity interest in the Company through their participation in the 1997 Plan.
The following is a summary of the principal features of the 1997 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1997 Plan. Any shareholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the
Secretary at the Company's principal executive offices in Austin, Texas.
EQUITY INCENTIVE PROGRAMS
The 1997 Plan contains four separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Salary Investment Option Grant
Program, (iii) a Stock Issuance Program and (iv) an Automatic Option Grant
Program. The principal features of these programs are described below. The 1997
Plan (other than the Automatic Option Grant Program) will be administered by the
Committee. The Committee will have complete discretion (subject to the
provisions of the 1997 Plan) to authorize option grants and direct stock
issuances under the 1997 Plan. However, all grants under the Automatic Option
Grant Program will be made in strict compliance with the provisions of that
program, and no administrative discretion will be exercised by the Committee
with respect to the grants made thereunder.
SHARE RESERVE
2,065,000 shares of Common Stock have been reserved for issuance over the
ten (10) year term of the 1997 Plan. This reserve increases the approximately
1,565,000 shares of Common Stock for issuance under the Predecessor Plan by
500,000 shares which increase was approved by the Board on June 18, 1997. Of the
500,000 share increase under the 1997 Plan, 100,000 shares will be reserved for
issuance under the Stock Issuance and Automatic Option Grant Programs and the
remaining 400,000 shares will be reserved for issuance under the Discretionary
Option Grant and Salary Investment Option Grant Programs. In no event may any
one participant in the 1997 Plan be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
400,000 shares in any calendar year beginning with the 1997 calendar year.
As of March 29, 1997, options for 1,485,100 shares of Common Stock were
outstanding under the Predecessor Plan, and approximately 80,000 shares of
Common Stock remained available for future option grants.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
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made to the securities issuable (in the aggregate and to each participant) under
the 1997 Plan and to the securities and exercise price under each outstanding
option.
ELIGIBILITY
Officers and employees, non-employee Board members and consultants and
independent advisors in the service of the Company or any parent or subsidiary
corporation (whether now existing or subsequently established) will be eligible
to participate in the Discretionary Option Grant and Stock Issuance Programs,
and officers and other selected employees will also be eligible to participate
in the Salary Investment Option Grant Program. Only non-employee members of the
Board will be eligible to participate in the Automatic Option Grant Program.
As of March 29, 1997 approximately seven (7) executive officers, 543 other
employees and three (3) non-employee Board members were eligible to participate
in the 1997 Plan, and three (3) non-employee Board members were eligible to
participate in the Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1997 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On March 27, 1997, the closing selling price per share
was $5.00.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than eighty five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Committee will have complete discretion to
extend the period following the optionee's cessation of service during which his
or her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
The Committee is authorized to issue limited stock appreciation rights in
connection with option grants made to officers of the Company under the
Discretionary Option Grant Program. Any option with such a limited stock
appreciation right in effect may be surrendered to the Company upon the
successful completion of a hostile take-over of the Company. In return for the
surrendered option, the officer will be entitled to a cash distribution from the
Company in an amount per surrendered option share equal to the excess of (a) the
take-over price per share over (b) the exercise price payable for such share.
The Committee will have the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant.
SALARY INVESTMENT OPTION GRANT PROGRAM
The Committee will have complete discretion in implementing the Salary
Investment Option Grant Program for one or more calendar years and in selecting
the officers and other eligible individuals who are to participate in the
program for those years. As a condition to such participation, each selected
individual must, prior to the start of the calendar year of participation, file
with the Committee an irrevocable authorization directing the Company to reduce
his or her base salary for the upcoming calendar year by a designated multiple
of one percent (1%). However, the salary reduction amount may not be less than
Five Thousand Dollars ($5,000) and may not be more than Fifty Thousand Dollars
($50,000). To the extent the Committee
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approves the salary reduction authorization, the individual who filed that
authorization will be granted an option under the Salary Investment Option Grant
Program on or before the last trading day in January of the calendar year for
which that salary reduction is to be in effect.
Each option will be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
- The exercise price per share will be equal to one-third of the fair
market value per share of Common Stock on the option grant date, and the
number of option shares will be determined by dividing the total dollar
amount of the authorized reduction in the participant's base salary by
two-thirds of the fair market value per share of Common Stock on the
option grant date. As a result, the total spread on the option (the fair
market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will equal the dollar amount of
the optionee's base salary invested in the option.
- The option will become exercisable for the option shares in a series of
12 successive equal monthly installments upon the optionee's completion
of each calendar month of service in the calendar year for which the
salary reduction is in effect.
- Each option will remain outstanding for vested shares until the earlier
of (i) the expiration of the ten (10) year option term or (ii) the
expiration of the three (3) year period measured from the date the
optionee's service terminates.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than eighty five percent (85%) of fair market value per share of Common
Stock, payable in cash or through a promissory note payable to the Company.
Shares may also be issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Committee will, however, have the discretionary authority
at any time to accelerate the vesting of any unvested shares.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member on or after the Annual Meeting, whether through
election by the stockholders or appointment by the Board, will receive, at the
time of such initial election or appointment, an automatic option grant for
15,000 shares of Common Stock. In addition, on the date of each Annual
Shareholders Meeting beginning with the Annual Meeting, each non-employee Board
member (including individuals who first joined the Board prior to the Annual
Meeting) who is to continue to serve as a non-employee Board member after such
meeting, will automatically be granted an option grant for 5,000 shares provided
each individual has served as a non-employee Board member for at least six (6)
months. There will be no limit on the number of such 5,000 share option grants
any one non-employee Board member may receive over his or her period of Board
service.
Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten (10) years measured from the option grant date.
Each option will be immediately exercisable for all the option shares, but
any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
Each initial 15,000 share option grant will vest (and the Company's repurchase
rights will lapse) in three (3) successive equal installments upon completion of
each year of Board service measured from the option grant date. Each annual
5,000 share option grant will vest (and the Company's repurchase rights will
lapse) upon completion of one (1) year of service measured from the option grant
date.
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<PAGE> 10
The shares subject to each automatic option grant will immediately vest
upon the optionee's death or permanent disability. In addition, upon the
successful completion of a hostile take-over, each automatic option grant may be
surrendered to the Company for a cash distribution per surrendered option share
in an amount equal to the excess of (a) the take-over price per share over (b)
the exercise price payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. The Committee will have complete discretion to grant one
or more options under the Discretionary Option Grant Program which will become
fully exercisable for all option shares in the event those options are assumed
in the acquisition and the optionee's service is involuntarily terminated within
a designated period (not to exceed 18 months) following such acquisition. The
Committee will have similar discretion to grant options which will become fully
exercisable for all the option shares upon a hostile change in control of the
Company (whether by successful tender offer for more than 50% of the outstanding
voting stock or by proxy contest for the election of Board members) or upon the
subsequent termination of the individual's service within a designated period
(not to exceed 18 months). The Committee may also provide for the automatic
vesting of any outstanding shares under the Stock Issuance Program upon similar
terms and conditions. Each option outstanding under the Salary Investment Option
Grant and Automatic Option Grant Programs will automatically accelerate in the
event of such an acquisition or hostile change in control of the Company.
The Committee intends to extend these acceleration provisions to options
incorporated into the 1997 Plan from the Predecessor Plan.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Committee may permit one or more officers of the Company to pay the
exercise price of outstanding options or the purchase price of shares under the
1997 Plan by delivering a promissory note payable in installments. The Committee
will determine the terms of any such promissory note. However, the maximum
amount of financing provided any such officer may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares. Any such promissory note may
be subject to forgiveness in whole or in part, at the discretion of the
Committee, over the participant's period of service.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1997 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the 1997 Plan at any time, and the 1997 Plan will in all events terminate on
June 17, 2007.
7
<PAGE> 11
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted between
March 31, 1996 and the Record Date under the Predecessor Plan together with the
weighted average exercise price payable per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
NAME OPTION SHARES ($/SHARE)
---- ------------- ----------------
<S> <C> <C>
Angelo A. DeCaro, Jr.
President, Chief Executive Officer and Director...... 70,000 4.64
William A. Peten
Vice President -- Material Acquisition and Control... 30,000 4.67
Julian C. Hart
Senior Vice President, Chief Technical Officer and
Secretary............................................ 10,000 5.00
Richard S. Chilinski
Vice President, Chief Financial Officer and Assistant
Secretary............................................ 30,000 4.67
Mark A. Trutna
Vice President -- Sales and Marketing................ 10,000 5.00
All current executive officers as a group (8
persons)............................................. 282,000 5.21
All current non-employee Directors as a group (4
persons)............................................. 15,000 5.00
All employees, including current officers who are not
executive officers as a group (35 persons)........... 181,500 5.01
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1997 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized
at the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or
otherwise disposed of. For Federal tax purposes, dispositions are divided
into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two years after the option grant
date and more than one year after the exercise date. If either of these two
holding periods is not satisfied, then a disqualifying disposition will
result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, equal to the excess of
(a) the fair market value of such shares on the option exercise date over
(b) the exercise price paid for the shares. In no other instance will the
Company be allowed a deduction with respect to the optionee's disposition
of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised,
equal to the excess of the fair market value of the purchased shares on the
exercise date over the exercise price paid for the shares, and the optionee
will be required to satisfy the tax withholding requirements applicable to
such income.
8
<PAGE> 12
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1997 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
compensation expense to the Company's earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the grant
or issue date. Such expense will be accruable by the Company over the period
that the option shares or issued shares are to vest. Option grants or stock
issuances at 100% of fair market value will not result in any charge to the
Company's earnings. Footnote disclosure on the Company's financial statements
will be required as to the impact the outstanding options under the 1997 Plan
would have upon the Company's reported earnings if the value of those options
were required to be treated as compensation expense. Whether or not granted at a
discount, the number of outstanding options may be a factor in determining the
Company's earnings per share on a fully-diluted basis.
9
<PAGE> 13
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the 1997 Plan. Should such stockholder approval not be
obtained, then the 1997 Plan will not be implemented. The Company's Predecessor
Plan will, however, continue to remain in effect, and option grants and stock
issuances may continue to be made pursuant to the provisions of that plan until
the available reserve of Common Stock under such plan is issued.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
1997 PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY TO
IMPLEMENT A COMPREHENSIVE EQUITY INCENTIVE PROGRAM FOR THE COMPANY WHICH WILL
PROVIDE A MEANINGFUL OPPORTUNITY FOR OFFICERS, EMPLOYEES, NON-EMPLOYEE BOARD
MEMBERS AND CONSULTANTS TO ACQUIRE A PROPRIETARY INTEREST IN THE ENTERPRISE AND
THEREBY ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN THE COMPANY'S SERVICE AND MORE
CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE SHAREHOLDERS.
NEW PLAN BENEFITS
No options have been granted under the 1997 Plan. However, each individual
who is to continue to serve as a non-employee Board member after the Annual
Meeting and who has served as a non-employee Board member for at least six (6)
months prior to the Annual Meeting will receive an option grant for 5,000 shares
under the Automatic Option Grant Program on the date of the meeting at an
exercise price equal to the closing selling price per share of Common Stock on
that date on the Nasdaq National Market.
PROPOSAL THREE -- APPROVAL OF THE COMPANY'S
EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to approve the Company's Employee Stock
Purchase Plan (the "Purchase Plan"), pursuant to which one million (1,000,000)
shares of Common Stock have been reserved for issuance. The Purchase Plan is
intended to provide eligible employees of the Company with the opportunity to
acquire a proprietary interest in the Company through participation in a
payroll-deduction based employee stock purchase plan designed to operate in
compliance with Section 423 of the Internal Revenue Code. The Purchase Plan was
adopted by the Board on November 4, 1996, and became effective on January 17,
1997 (the "Effective Date"), subject to approval of this Proposal by the
stockholders at the Annual Meeting.
The following is a summary of the principal features of the Purchase Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the Purchase Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
attention of the Secretary of the Company at the Company's principal executive
offices in Austin, Texas.
ADMINISTRATION
The Purchase Plan will be administered by an appropriate Committee of the
Board (the "Committee"). The Committee will have full authority to adopt such
rules and procedures as it may deem necessary to interpret and construe any
provision of the Purchase Plan. The Committee may designate one or more
employees of the Company to carry out the day to day administration of the
Purchase Plan.
All costs and expenses incurred in the administration of the Purchase Plan
will be paid by the Company.
10
<PAGE> 14
SHARE RESERVE
A total of one million (1,000,000) shares of Common Stock have been
reserved for issuance over the term of the Purchase Plan. This share reserve
will be drawn from either newly-issued shares of Common Stock or shares of
Common Stock repurchased by the Company, including shares repurchased on the
open market.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and class of securities
issuable under the Purchase Plan, (ii) the maximum number and class of
securities purchasable per participant on any one purchase date and (iii) the
number and class of securities and the price per share in effect under each
outstanding purchase right.
PURCHASE PERIODS
The Purchase Plan is comprised of a series of successive purchase periods.
The duration of each purchase period will be determined by the Committee. The
first purchase period began on January 17, 1997 and will end on the last
business day of the Company's second fiscal quarter for its 1998 fiscal year;
the next purchase period will begin on the first business day of the Company's
third fiscal quarter for its 1998 fiscal year and will end on the last business
day of the Company's fourth quarter for its 1998 fiscal year. Until otherwise
designated by the Committee prior to the start date, subsequent purchase periods
will begin on the first business day of the Company's first and third fiscal
quarters for each fiscal year and end on the last business day of the Company's
second and fourth fiscal quarters for each fiscal year.
ELIGIBILITY
Any individual who is expected to work for more than twenty (20) hours per
week for more than five (5) months per calendar year in the employ of the
Company or any participating affiliate ("Eligible Employee") will be eligible to
participate in the Purchase Plan. Each Eligible Employee will be eligible to
enter a purchase period under the Purchase Plan which begins on or after his or
her completion of any minimum service period established by the Committee as a
condition to participation in that purchase period.
Participating affiliates include any parent or subsidiary corporations of
the Company, whether now existing or hereafter organized, which elect, with the
approval of the Committee to extend the benefits of the Purchase Plan to their
eligible employees.
As of March 29, 1997, approximately 550 employees, including seven (7)
executive officers, were eligible to participate in the Purchase Plan.
PURCHASE PROVISIONS
A participant will be granted a separate purchase right for each purchase
period in which he or she participates. The purchase right will be granted on
the start date of each purchase period in which he or she participates and will
be automatically exercised on the last business day of that purchase period.
Each participant may authorize payroll deductions in any multiple of one
percent (1%) of his or her cash earnings (including base salary, overtime
payments, commissions and bonuses) paid during that purchase period, up to the
maximum established by the Committee for that purchase period. However, in no
event will the maximum percentage exceed fifteen percent (15%).
On the last business day of each purchase period, the accumulated payroll
deductions of each participant will automatically be applied to the purchase of
shares of Common Stock at the purchase price in effect for that purchase period.
No participant may, during any one purchase period, purchase more than 1,500
shares of Common Stock.
11
<PAGE> 15
PURCHASE PRICE
The purchase price per share at which Common Stock will be purchased on the
participant's behalf on each purchase date will be equal to eighty-five percent
(85%) of the lower of (i) the fair market value per share of Common Stock on the
start date of the purchase period in which the purchase date occurs or (ii) the
fair market value per share of Common Stock on the purchase date.
VALUATION
The fair market value per share of Common Stock on any relevant date will
be the closing selling price per share on such date on the Nasdaq National
Market. On March 27, 1997, the fair market value per share of Common Stock was
$5.00 per share.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's rights
to acquire Common Stock, including the following limitations:
(i) No purchase right may be granted to any individual who,
immediately after the grant, would own stock (including stock purchasable
under any outstanding purchase rights) possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or any corporate affiliate.
(ii) No purchase right granted to a participant may permit such
individual to purchase rights at a rate equal to $25,000 worth of such
Common Stock (valued at the time such purchase right is granted) for each
calendar year such purchase rights were at any time outstanding.
TERMINATION OF PURCHASE RIGHTS; WITHDRAWAL
The purchase right will immediately terminate upon the participant's
termination of employment or loss of eligible employee status. The payroll
deductions collected for the purchase period in which the purchase right
terminates will be applied to the purchase of shares on the next scheduled
purchase date. If the participant takes an approved unpaid leave of absence
during a purchase period, all payroll deductions collected to date on his or her
behalf for that purchase period will be held for the purchase of shares on his
or her behalf on the next scheduled purchase date but no further payroll
deductions may be collected on the participant's behalf during such leave. Upon
return to active service, the participant must re-enroll in the Purchase Plan
during the appropriate enrollment period to resume participation for any
purchase period commencing after such return.
A participant may withdraw from the Purchase Plan at any time prior to the
last day of the purchase period. The payroll deductions collected for the
purchase period in which such withdrawal occurs will be applied to the purchase
of shares on the next scheduled purchase date. Such withdrawal is irrevocable
and the participant must re-enroll in the Purchase Plan to participate in any
subsequent purchase period.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the shares
of Common Stock covered by his or her purchase right until the shares are
actually purchased on the participant's behalf and the participant has become a
holder of record of the purchased shares. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
ASSIGNABILITY
No purchase right will be assignable or transferable other than in
connection with the participant's death and will be exercisable only by the
participant during his or her lifetime.
12
<PAGE> 16
ACQUISITION
Should the Company be acquired by merger or asset sale during any purchase
period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The purchase price
will be eighty-five percent (85%) of the lower of (i) the fair market value per
share of Common Stock on the start date of that purchase period or (ii) the fair
market value per share of Common Stock immediately prior to such acquisition.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest to occur of (i) the last
business day of the Company's fiscal year 2007, (ii) the date on which all
available shares are issued or (iii) the date on which all outstanding purchase
rights are exercised in connection with an acquisition of the Company.
The Board may at any time alter, amend, suspend or discontinue the Purchase
Plan. However, the Board may not, without stockholder approval, (i) materially
increase the number of shares issuable under the Purchase Plan or the number of
shares purchasable per participant during any one purchase period, except in
connection with certain changes in the Company's capital structure, (ii) alter
the purchase price formula so as to reduce the purchase price, (iii) materially
increase the benefits accruing to participants or (iv) materially modify the
requirements for eligibility to participate in the Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, in connection with the grant or
the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period in which such
shares were acquired, then the participant will recognize ordinary income in the
year of sale or disposition equal to the amount by which the fair market value
of the shares on the purchase date exceeded the purchase price paid for those
shares, and the Company will be entitled to an income tax deduction, for the
taxable year in which such sale or disposition occurs, equal in amount to such
excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the purchase period in which such shares were
acquired, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) fifteen percent (15%) of the fair market
value of the shares on the start date of the purchase period, and any additional
gain upon the disposition will be taxed as a long-term capital gain. The Company
will not be entitled to any income tax deduction with respect to such sale or
disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on the start date of the purchase period in
which those shares were acquired will constitute ordinary income in the year of
death.
13
<PAGE> 17
ACCOUNTING TREATMENT
The issuance of Common Stock under the Purchase Plan will not result in a
compensation expense chargeable against the Company's reported earnings.
However, footnote disclosure in the Company's financial statements will be
required as to the impact the purchase rights granted under the Purchase Plan
would have upon the Company's reported earnings if the value of those purchase
rights were required to be treated as compensation expense.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Annual Meeting is required for approval of the Purchase
Plan. Should such stockholder approval not be obtained, then the Purchase Plan
will terminate, all outstanding purchase rights will terminate without being
exercised and all payroll deductions made during the initial purchase period
will be refunded.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
PURCHASE PLAN. NEW PLAN BENEFITS THE BOARD BELIEVES THAT IT IS IN THE BEST
INTERESTS OF THE COMPANY TO IMPLEMENT A PROGRAM OF STOCK OWNERSHIP FOR THE
COMPANY'S EMPLOYEES WHICH PROVIDES THEM WITH AN OPPORTUNITY TO ACQUIRE A
PROPRIETARY INTEREST IN THE COMPANY AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO
REMAIN IN THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR INTERESTS WITH
THOSE OF THE SHAREHOLDERS.
The fair market value per share of Common Stock on the January 17, 1997
start date of the initial offering period under the Purchase Plan was $4.38, and
each participant has the right to purchase up to a maximum of 1,500 shares of
Common Stock on the plan's purchase date at the end of the Company's second
quarter. However, neither the actual number of shares of Common Stock which may
be issued per participant on the plan's purchase date nor the actual purchase
price to be paid per share is determinable at this time.
14
<PAGE> 18
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or awarded by the
Company during fiscal 1997 to the President and Chief Executive Officer and each
of the four other most highly compensated officers of the Company whose total
annual compensation in such year exceeded $100,000 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($)(1) OPTIONS(#) ($)(2)
--------------------------- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Angelo A. DeCaro, Jr.
President and Chief Executive
Officer................................ 168,462 10,000 4,800 70,000 2,106
William A. Peten
Vice President -- Material Acquisition
and Control............................ 122,855 10,000 -- 30,000 1,903
Julian C. Hart
Senior Vice President, Chief Technical
Officer and Secretary.................. 130,000 -- -- 10,000 --
Richard S. Chilinski
Vice President, Chief Financial
Officer and Assistant Secretary........ 104,807 10,000 -- 30,000 370
Mark A Trutna
Vice President -- Sales & Marketing.... 106,153 -- 4,800 10,000 1,040
</TABLE>
- ---------------
(1) Represents car allowances.
(2) Represents matching contributions under the Company's 401(k) Profit Sharing
Plan.
15
<PAGE> 19
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Predecessor Plan to the Named Executive Officers during the
1997 fiscal year. No SARs were granted during the 1997 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
-------------------------- ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONAL APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM ($) (2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE (1) 5% 10%
---- ----------- ------------ -------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Angelo A. DeCaro, Jr.... 20,000 4.78 5.00 8/13/03 40,710 94,872
50,000 11.95 4.50 12/20/03 91,598 213,461
William A. Peten........ 10,000 2.39 5.00 8/13/03 20,355 47,436
20,000 4.78 4.50 1/21/04 36,640 85,384
Julian C. Hart.......... 10,000 2.39 5.00 8/13/03 20,355 47,436
Richard S. Chilinski.... 10,000 2.39 5.00 8/13/03 20,355 47,436
20,000 4.78 4.50 1/21/04 36,640 85,384
Mark A. Trutna.......... 10,000 2.39 5.00 8/13/03 20,355 47,436
</TABLE>
- ---------------
The above-described option grants to Mr. DeCaro were for 20,000 and 50,000
shares of Common Stock and were granted on August 13, 1996 and December 20, 1996
respectively. The above-described option grants to Mr. Peten were for 10,000 and
20,000 shares of Common Stock and were granted on August 13, 1996 and January
21, 1997 respectively. The above-described option grant to Mr. Hart was for
10,000 shares of Common Stock and was granted on August 13, 1996. The
above-described option grants to Mr. Chilinski were for 10,000 and 20,000 shares
of Common Stock and were granted on August 13, 1996 and January 21, 1997
respectively. The above-described option grant to Mr. Trutna was for 10,000
shares of Common Stock and was granted on August 13, 1996.
During the fiscal year ended March 29, 1997, the above options were granted
to the Named Executive Officers pursuant to the Predecessor Plan, which options
may become exercisable in annual installments of twenty-five percent (25%) each
over the four (4) year period following the date of grant.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended March 29, 1997 for each of the Named
Executive Officers. No SARs were exercised or outstanding at any time during the
fiscal year ended March 29, 1997.
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF SECURITIES
(MARKET PRICE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
AT EXERCISE OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DATE LESS FISCAL YEAR END(#)(1) FISCAL YEAR END($)(2)
ACQUIRED EXERCISE PRICE) --------------------------- ---------------------------
NAME ON EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Angelo A. DeCaro, Jr................ -- -- 100,000 120,000 377,050 213,650
William A. Peten.................... -- -- 63,000 59,000 237,540 119,420
Julian C. Hart...................... -- -- 33,000 24,000 122,940 52,870
Richard S. Chilinski................ -- -- 18,000 84,000 68,040 214,120
Mark A. Trutna...................... -- -- 52,750 28,250 195,908 68,923
</TABLE>
- ---------------
(1) All options were granted with exercise prices equal to the fair value, as
determined by the Board, on the date of grant. In making its determination
of fair value, the Board relied in part on a valuation prepared by an
independent appraiser.
(2) Based on the fair value of the Company's Common Stock as of March 27, 1997
of $5.00 per share, less the exercise price for such shares.
16
<PAGE> 20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was comprised of Messrs. Sato, Guire and Conlisk
in fiscal 1997. Mr. Conlisk is also a member of the Compensation Committees of
the Board of Directors of both EXAR and SBE. Mr. Guire is a director of EXAR and
serves as the Secretary of the Board of Directors, Executive Vice President and
Chief Financial Officer of EXAR. Mr. Sato, the Chairman of the Company, served
as its Chief Executive Officer from 1986 to August 1995. Mr. Sato, the Chief
Executive Officer, President and a Director of Rohm, is the controlling
stockholder of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
Directors, and persons who own more than ten percent (10%) of a registered class
of the Company's equity securities, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the Securities and Exchange
Commission ("SEC"). Such officers, Directors and 10% stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file. On February 21, 1996, the spouse of Mr. William A. Peten
purchased 300 shares of Common Stock. A Form 4 pursuant to Section 16(a) of the
Exchange Act to disclose such purchase which was required to be filed within ten
(10) days of the date of such purchase will be filed in July 1997. Based solely
on its review of the copies of such forms received by it, the Company believes
that, during the fiscal year ended March 29, 1997, all Section 16(a) filing
requirements applicable to its officers, Directors and 10% stockholders were
satisfied except as noted in this paragraph.
REPORT OF COMPENSATION COMMITTEE
GENERAL
The Compensation Committee of the Board of Directors (the "Compensation
Committee"), is comprised of non-employee Directors. The current members of the
Committee are Messrs. Sato, Guire and Conlisk. The Compensation Committee is
responsible for recommending to the Board the compensation programs and levels
of pay for Executive officers. The Compensation Committee administers the
Company's stock option plan, including the awarding of grants thereunder. The
Compensation Committee also advises management on pay programs and levels for
other employees.
COMPENSATION PHILOSOPHY AND OBJECTIVES
Through the Compensation Committee, the Company has developed and
implemented compensation policies, plans and programs which seek to tie
executive compensation to the attainment of Company-wide, business unit and
individual performance objectives, while providing compensation sufficient to
attract, motivate and retain talented executives who will contribute to the
Company's long-term success. In furtherance of these goals, annual base salaries
are generally set at levels that take into account both competitive and
performance factors. The Company also relies to a significant degree on annual
and longer-range incentive compensation to attract and motivate its executives.
Annual incentive compensation is variable and is closely tied to corporate
performance to encourage profitability, growth and the enhancement of
stockholder value. During fiscal 1997, compensation for the Company's executive
officers consisted of base salary, annual cash incentive opportunities,
longer-term equity incentives, participation as eligible employees (with all
other eligible employees of the Company) in the Company's 401(k) Savings Plan,
an auto allowance for certain executive officers, and certain benefits available
generally to employees of the Company.
BASE SALARY
The Compensation Committee fixes the base salary of the President and Chief
Executive Officer and reviews and approves base salaries for each of the
Company's other executive officers annually in connection with annual
performance reviews. In adjusting these base salaries, the Compensation
Committee examines both qualitative and quantitative factors relating to
corporate and individual performance. In many instances, the qualitative factors
necessarily involve a subjective assessment by the Committee. The Committee
17
<PAGE> 21
considers a mix of factors and evaluates individual performance against that mix
both in absolute terms, in relation to the executive's peers within the Company
and competitive salary survey information.
To assist in recruiting highly qualified management, the Compensation
Committee generally targets base salaries paid to executive officers at
competitive levels, depending on individual qualifications and experience.
During fiscal 1997, the Compensation Committee increased the salary of the
President and Chief Executive Officer, resulting in an adjusted salary
comparable to mid-range salaries paid to chief executive officers of
comparable-sized high technology companies. Based on the Compensation
Committee's conclusion that salaries of the Company's other executive officers
should be aligned with the salaries of executive officers at comparable-sized
high technology companies, salary adjustments for the other executive officers
ranged up to 16% in fiscal 1997.
ANNUAL INCENTIVE OPPORTUNITIES
The Company maintains annual cash incentive bonus programs to reward
executive officers and other key employees for attaining defined performance
goals. For most executive officers and other key employees, bonuses are based
primarily on Company-wide performance targets. For senior management personnel,
while Company-wide performance is a factor, weight is also given to individual
performance and the performance of particular operational groups within the
Company. Typically company-wide, operating group and individual targets are
established annually for these bonus programs.
The Company maintains an annual incentive award program designed to reward
management and other key employees for Company-wide, business unit and
individual performance. Under the program, executive officers (including the
Chief Executive Officer) receive a percentage of their base salary based upon
the achievement of targeted levels of performance. These levels of performance
include but are not limited to, the Company's level of net sales and earnings
and other criteria related to asset management, productivity, quality and
throughput to the extent that achievement of such goals are affected by the
individual's performance. For the Chief Executive Officer, the target percentage
for fiscal 1997 was 45% of base salary, and the target percentage was 30% for
the other executive officers. Target awards are subject to a multiplier,
calculated on the basis of actual results against each of the performance
criteria in the cases of the Chief Executive officer and other officers.
EQUITY INCENTIVES
The Company has utilized the Predecessor Plan and intends to utilize the
1997 Plan to further align the interests of stockholders and management by
creating common incentives related to the possession by management of an
economic interest in the long-term appreciation of the Company's stock.
Generally, options under the Predecessor Plan are granted with exercise prices
set at the fair market value of the underlying stock on the date of grant, have
a term of seven (7) years, and are subject to vesting over four (4) years. In
determining the size of an option to be granted to an executive officer, the
Compensation Committee takes into account the officer's position and level of
responsibility within the Company, the officer's existing stock and unvested
option holdings, the potential reward to the officer if the stock price
appreciates in the public market, and the competitiveness of the officer's
overall compensation arrangements, including stock options, although outstanding
performance by an individual may also be taken into consideration. Option grants
may also be made to new executives upon commencement of employment and, on
occasion, to executives in connections with a significant change in job
responsibility.
In fiscal 1997, the Compensation Committee granted stock options to
executive officers. After considering the criteria discussed above, the
Compensation Committee granted to Mr. DeCaro options to purchase 70,000 shares.
The Compensation Committee also granted options to other executive officers to
acquire shares ranging in aggregate amounts from 10,000 to 42,000 shares. In
general, in determining the size of all such grants, the Compensation Committee
focused in particular on its conclusion, based on experience and informal
information subjectively evaluated, that the stock and option holdings of the
Company's executive officers were below the levels needed to provide appropriate
equity incentives.
18
<PAGE> 22
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), imposes a limit on tax deductions for annual compensation in excess of
one million dollars paid by a corporation to its chief executive officer and its
other four (4) most highly compensated executive officers. The Company has not
established a policy with regard to Section 162(m) of the Code, since the
Company has not and does not currently anticipate paying cash compensation in
excess of one million dollars per annum to any employee. None of the
compensation paid by the Company in fiscal 1997 was subject to the limitation on
deductibility. At the Annual Meeting, the stockholders are being asked to
approve the 1997 Plan which contains provisions intended to assure that any
compensation deemed paid in connection with the exercise of stock options
granted under that plan with an exercise price equal to the market price of the
option shares on the grant date will qualify as performance-based compensation
and will not be subject to the limitations of Section 162(m). The Compensation
Committee will continue to assess the impact of Section 162(m) of the Code on
its compensation practices and determine what further action, if any, is
appropriate.
KOZO SATO
RONALD W. GUIRE
RAIMON L. CONLISK
19
<PAGE> 23
STOCK PERFORMANCE GRAPH
The graph below depicts the Company's stock price as an index assuming $100
invested on February 14, 1996 (the date of the Company's initial public
offering), along with the composite prices of companies listed in the Nasdaq
Electronics Component Index and Nasdaq Stock Composite Index - US. This
information has been provided to the Company by Nasdaq. The comparisons in the
graph are required by regulations of the Securities and Exchanges Commission and
are not intended to forecast or be indicative of the possible future performance
of the Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE FEB. 14, 1996**
Among XeTel Corporation,
the Nasdaq Electronics Component Index and
The Nasdaq Stock Composite Index - US
[CHART]
<TABLE>
<CAPTION>
NASDAQ STOCK
MEASUREMENT PERIOD NASDAQ ELECTRONICS COMPOSITE INDEX -
(FISCAL YEAR COVERED) XETEL CORPORATION COMPONENT INDEX US
<S> <C> <C> <C>
2/14/96 100 100 100
3/29/96 111 96 103
3/27/97 63 170 112
</TABLE>
** $100 invested on February 14, 1996 in stock or index, including reinvestment
of dividends
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Report of the Compensation
Committee and the Company Stock Performance Graph will not be incorporated by
reference into any of those prior filings, nor will such report or graph be
incorporated by reference into any future filings made by the Company under
those acts.
20
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date (i) by each person
or group who is known by the Company to be the beneficial owner of more than 5%
of the Common Stock, (ii) by each Director of the Company and each Named
Executive Officer of the Company who beneficially held shares of the Common
Stock as of such date, and (iii) by all current executive officers and Directors
of the Company as a group. Except as otherwise noted, each person's address is
c/o XeTel Corporation, 2525 Brockton Drive, Austin, Texas 78758, and each person
has sole voting and investment power over the shares shown as beneficially
owned, except to the extent authority is shared by his or her spouse under
applicable community property laws.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF --------------------------
BENEFICIAL OWNER NUMBER PERCENT
------------------- ----------- ---------
<S> <C> <C>
Rohm U.S.A., Inc.(1)
2150 Commerce Drive
San Jose, CA 95131........................................ 4,422,411 47.1
Kozo Sato(2)(3)
2150 Commerce Drive
San Jose, CA 95131........................................ 4,422,411 47.1
David W. Gault(4)........................................... 613,500 6.5
Julian C. Hart(5)(6)........................................ 610,300 6.5
Angelo A. DeCaro, Jr.(2)(5)(9).............................. 110,000 1.2
Ronald W. Guire(2)(7)
235 Belgates Road
Los Gatos, CA 95031....................................... 84,750 *
Raimon L. Conlisk(2)(8)
12741 Leander Drive
Los Altos Hills, CA 94022................................. 68,750 *
Mark A. Trutna(5)(10)....................................... 78,250 *
William A. Peten(5)(11)..................................... 68,800 *
Richard S. Chilinski(5)(12)................................. 35,500 *
Malcolm A. Hargrave(13)..................................... 176,944 1.9
All current executive officers and Directors as a group..... 1,329,294 14.1
</TABLE>
- ---------------
* Represents less than one percent of the outstanding shares of Common Stock.
(1) Includes 96,000 shares which may be acquired by Mr. Sato, Chief Executive
Officer, President and director of Rohm, pursuant to options currently
exercisable or exercisable within 60 days after the Record Date, as to
which shares Rohm disclaims beneficial ownership. Also includes 4,326,411
shares owned by Rohm, of which Mr. Sato is the Chief Executive Officer,
President and a director. In addition to Mr. Sato, Messrs. Keizo Ueda, a
Director of Rohm, and Jerry Fielder, the Chief Financial Officer of Rohm,
may be deemed beneficial owners of the shares beneficially held by Rohm,
although each individual disclaims beneficial ownership.
(2) Director of the Company.
(3) Includes 96,000 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date. Also
include 4,326,411 shares owned by Rohm, of which Mr. Sato is the Chief
Executive Officer, President and Director, as to which Mr. Sato disclaims
beneficial ownership. Mr. Sato previously served as Chief Executive Officer
of the Company from 1986 until August 1995.
21
<PAGE> 25
(4) Includes 36,000 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date, and
includes 130,165 shares owned by JDG Properties, Inc., Mr. Gault's defined
benefit plan.
(5) Named Executive Officer of the Company.
(6) Includes 38,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date, and
includes 27,958 shares owned by Hart & Hart, Inc., Mr. Hart's defined
benefit plan.
(7) Includes 84,750 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date.
(8) Includes 68,750 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date.
(9) Includes 110,000 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date.
(10) Includes 59,250 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date.
(11) Includes 68,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date.
(12) Includes 35,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after the Record Date.
(13) Includes 84,000 shares that were unvested as of the Record Date, and
therefore subject to a right of repurchase at no cost to and in favor of
the Company, and 23,236 shares that were subject to potential claims of the
Company as of the Record Date pursuant to an indemnification arrangement
between Mr. Hargrave and the Company that was entered into in connection
with the Company's acquisition of Maxtron Corporation in July 1996.
BOARD MEETINGS AND COMMITTEES
The Board held a total of six (6) meetings during fiscal 1997. During
fiscal 1997, the Board had an Audit Committee, a Compensation Committee and a
Nominating Committee.
The Audit Committee, currently comprised of Messrs. Guire, Conlisk, and
Densmore met two (2) times during fiscal 1997. The Audit Committee recommends to
the Board the engagement of the Company's independent accountants and reviews
with such accountants the plan, scope and results of their examination of the
financial statements.
The Compensation Committee, currently comprised of Messrs. Sato, Guire and
Conlisk met six (6) times during fiscal 1997. The Compensation Committee sets
the level of compensation of executive officers and advises management with
respect to compensation levels for key employees. The Compensation Committee
also, currently administers the Predecessor Plan and may administer the 1997
Plan.
The Nominating Committee, currently comprised of Messrs. DeCaro and Conlisk
met one (1) time during fiscal 1997. The Nominating Committee reviews the
qualifications of, and makes recommendations to the Board with respect to,
Director nominees who are properly presented to such committee.
During the time period served by each respective Director, no Director
attended fewer than 100% of the total number of meetings of the Board or the
total number of meetings held by all committees of the Board on which he served.
BOARD COMPENSATION
Directors who are full-time salaried employees of the Company are not
compensated for their service on the Board or on any Board committee. Directors
who are not employees of the Company receive a quarterly retainer of $3,000 for
their services and a fee of $1,000 for each Board meeting and $500 for each
committee
22
<PAGE> 26
meeting attending, plus travel and lodging expenses where appropriate. In
addition, on the date of each annual stockholders meeting each individual who is
to continue to serve as a non-employee Board member after the meeting shall be
granted a non-statutory option to purchase an additional 5,000 shares of Common
Stock, the exercise price per share being equal to the fair market value per
share on the option grant date, provided each individual has served as a
non-employee Board member for at least six (6) months. Each individual who is
first elected or appointed as a non-employee Board member shall be granted a
non-statutory option to purchase 15,000 shares of Common Stock.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company to be presented by such
stockholders at the Company's 1998 Annual Meeting must have been received by the
Company no later than March 14, 1997 in order that they be included in the proxy
statement and form of proxy relating to that meeting.
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders for the year ended
March 29, 1997 has been mailed concurrently with this proxy statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this proxy statement and is not considered proxy
soliciting material.
CERTAIN TRANSACTIONS
The Company has engaged in a number of transactions with Rohm in the past
and expects to in the future. The Company believes that these transactions were
on terms no less favorable to the Company than would have been obtained from
unaffiliated third parties. The Company has obtained a revolving line of credit
for $3 million from Rohm. The line of credit is secured by certain equipment,
bears interest at LIBOR plus 1.25%, is payable on demand and expires March 31,
1998. 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.
ACCOUNTANTS
The Company's financial statements have been audited by Price Waterhouse
LLP as independent accountants. Representatives of Price Waterhouse LLP are
expected to be present at the Annual Meeting. They do not expect to make any
statement, but will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: July 11, 1997
23
<PAGE> 27
EXHIBIT 10.30
XETEL CORPORATION
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the
interests of Xetel Corporation, a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for
them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity
programs:
(i) the Discretionary Option Grant
Program under which eligible persons may, at the discretion of the
Committee, be granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant
Program under which eligible employees may elect to have a portion of
their base salary invested each year in options to purchase shares of
Common Stock,
(iii) the Stock Issuance Program under
which eligible persons may, at the discretion of the Committee, be
issued shares of Common Stock directly, either through the immediate
purchase of such shares or as a bonus for services rendered the
Corporation (or any Parent or Subsidiary), and
(iv) the Automatic Option Grant Program
under which Eligible Directors shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
<PAGE> 28
B. The provisions of Articles One and Six shall apply to
all equity programs under the Plan and shall accordingly govern the interests
of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders and shall have sole and exclusive
authority to administer the Salary Investment Option Grant Program with respect
to all eligible individuals.
B. Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power
to administer those programs with respect to all such persons.
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Committee shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant, Salary Investment Option
Grant and Stock Issuance Programs and to make such determinations under, and
issue such interpretations of, the provisions of such programs and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Committee within the scope of its administrative
functions under the Plan shall be final and binding on all parties who have an
interest in the Discretionary Option Grant, Salary Investment Option Grant or
Stock Issuance Program under its jurisdiction or any option or stock issuance
thereunder.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
F. Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the terms of that program, and no
Committee shall exercise any discretionary functions with respect to option
grants made under that program.
2.
<PAGE> 29
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other
highly compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Committee shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be
made, the number of shares to be covered by each such grant, the status of the
granted option as either an Incentive Option or a Non-Statutory Option, the
time or times at which each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for
which the option is to remain outstanding and (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible persons are to
receive stock issuances, the time or times when such issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration to be paid for such
shares.
D. The Committee shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
E. The individuals eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
are serving as non-employee Board members on the Plan Effective Date, (ii)
those individuals who first become non-employee Board members on or after the
Plan Effective Date, whether through appointment by the Board or election by
the Corporation's stockholders, and (iii) those individuals who are to continue
to serve as non-employee Board members after one or more Annual Stockholders
Meetings held after the Plan Effective Date. A non-employee Board member who
has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an initial option grant under the
Automatic Option Grant Program on the Plan Effective Date or (if later) at the
time he or she first becomes a non-employee Board
3.
<PAGE> 30
member, but such individual shall be eligible to receive periodic option grants
under the Automatic Option Grant Program upon his or her continued service as a
non-employee Board member after one or more Annual Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock reserved for issuance over the term of the Plan shall
not exceed 2,065,000 shares. Such authorized share reserve is the number of
shares which remain available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's shareholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for
future grant, plus an additional increase of 500,000 shares authorized by the
Board. Of such 500,000 share increase, 100,000 shares shall be reserved for
issuance under the Stock Issuance and Automatic Option Grant Programs and
400,000 shares shall be reserved for issuance under the Discretionary Option
Grant and Salary Investment Option Grant Programs.
B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 400,000 shares of Common Stock per calendar year
beginning with the 1997 calendar year.
C. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii)
the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently repurchased by the Corporation at the original issue price paid
per share pursuant to the Corporation's repurchase rights under the Plan shall
be added back to the number of shares of Common Stock reserved for issuance
under the Plan and shall accordingly be available for reissuance through one or
more subsequent option grants or direct stock issuances under the Plan.
D. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances per calendar year, (iii) the
number and/or class of securities for which automatic option grants are to be
made subsequently per Eligible Director under the Automatic Option Grant
Program and (iv) the number and/or class of securities and the exercise price
per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Committee shall be final, binding and conclusive.
4.
<PAGE> 31
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Committee; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall not be
less than eighty-five percent (85%) of the Fair Market Value per share of
Common Stock on the option grant date unless otherwise determined by the
Committee.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Six and the documents evidencing the option, be payable in one or
both of the forms specified below:
(i) cash or check made payable to the
Corporation, or
(ii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable written instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by
5.
<PAGE> 32
the Committee and set forth in the documents evidencing the option. However,
no option shall have a term in excess of ten (10) years measured from the
option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Committee and set forth in the documents evidencing the option,
but no such option shall be exercisable after the expiration of the
option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be exercised
subsequently by the personal representative of the Optionee's estate
or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
2. The Committee shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the period otherwise in effect for that option to such
greater period of time as the Committee shall deem appropriate, but in
no event beyond the expiration of the option term, and/or
6.
<PAGE> 33
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested under the option had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. Repurchase Rights. The Committee shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall
be established by the Committee and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death. However,
a Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for the benefit of one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Committee may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
A. Eligibility. Incentive Options may only be granted
to Employees.
7.
<PAGE> 34
B. Exercise Price. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive Options
shall be applied on the basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall NOT
so accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares
of the capital stock of the successor corporation (or parent thereof), (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares
at the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii)
the acceleration of such option is subject to other limitations imposed by the
Committee at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Committee, and its
determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such
8.
<PAGE> 35
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Committee at the time the repurchase right is
issued.
C. Notwithstanding Section III.A. and Section III.B. of
this Article Two, the Committee shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed or replaced (or those repurchase
rights are to be assigned) in the Corporate Transaction. The Committee shall
also have the discretion to grant options which do not accelerate whether or
not such options are assumed (and to provide for repurchase rights that do not
terminate whether or not such rights are assigned) in connection with a
Corporate Transaction.
D. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction, (ii) the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same and (iii) the maximum number
of securities and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan.
F. The Committee shall have the discretion, exercisable
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of any options which are
assumed or replaced in a Corporate Transaction and do not otherwise accelerate
at that time (and the termination of any of the Corporation's outstanding
repurchase rights which do not otherwise terminate at the time of the Corporate
Transaction) in the event the Optionee's Service should subsequently terminate
by reason of an Involuntary Termination within a designated period (not to
exceed eighteen (18) months) following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
9.
<PAGE> 36
G. The Committee shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to (i) provide for the automatic acceleration of one or
more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the occurrence of a Change in
Control or (ii) condition any such option acceleration (and the termination of
any outstanding repurchase rights) upon the subsequent Involuntary Termination
of the Optionee's Service within a designated period (not to exceed eighteen
(18) months) following the effective date of such Change in Control. Any
options accelerated in connection with a Change in Control shall remain fully
exercisable until the expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated portion of such option
shall be exercisable as a Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Committee shall have full power and authority to
grant to selected Optionees limited stock appreciation rights.
B. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with respect to their
outstanding options.
10.
<PAGE> 37
(ii) Upon the occurrence of a Hostile
Take-Over, each such individual holding one or more options with such
a limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount
equal to the excess of (a) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) Neither the approval of the
Committee nor the consent of the Board shall be required in connection
with such option surrender and cash distribution.
(iv) The balance of the option (if any)
shall continue in full force and effect in accordance with the
documents evidencing such option.
11.
<PAGE> 38
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Program is to be in effect and to select the Employees
eligible to participate in the Salary Investment Option Grant Program for those
calendar year or years. Each selected Employee who elects to participate in
the Salary Investment Option Grant Program must, prior to the start of each
calendar year of participation, file with the Committee (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated percentage (in multiples of one
percent (1%)). However, the amount of such salary reduction must be not less
than Five Thousand Dollars ($5,000.00) and must not be more than Fifty Thousand
Dollars ($50,000.00). The Primary Committee shall have complete discretion to
determine whether to approve the filed authorization in whole or in part. To
the extent the Primary Committee approves the authorization, the individual who
filed that authorization shall be granted an option under this Salary
Investment Option Grant Program on or before the last trading day in January of
the calendar year for which that salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Committee; provided, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):
12.
<PAGE> 39
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the Optionee's base salary
reduction for the calendar year, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall
become exercisable in a series of twelve (12) successive equal monthly
installments upon the Optionee's completion of each calendar month of Service
in the calendar year for which the salary reduction is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant
date.
D. EFFECT OF TERMINATION OF SERVICE. Should the
Optionee cease Service for any reason while holding one or more options under
this Article Three, then each such option shall remain exercisable, for any or
all of the shares for which the option is exercisable at the time of such
cessation of Service, until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Service. Should the Optionee die
while holding one or more options under this Article Three, then each such
option may be exercised, for any or all of the shares for which the option is
exercisable at the time of the Optionee's cessation of Service (less any shares
subsequently purchased by the Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III . CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become fully exercisable for all of the
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. Each
such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested
13.
<PAGE> 40
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the three (3)-year period measured from the date of Optionee's
cessation of Service.
B. In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall immediately become fully exercisable
for all of the shares of Common Stock at the time subject to such option and
may be exercised for any or all of such shares as fully-vested shares of Common
Stock. The option shall remain so exercisable until the earlier of (i) the
expiration of the option term or (ii) the expiration of the three (3)-year
period measured from the date of Optionee's cessation of Service.
C. The grant of options under the Salary Investment
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
14.
<PAGE> 41
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed
by the Committee, but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of
Article Six, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Committee may
deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Committee, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Committee and incorporated into the Stock Issuance Agreement.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange
15.
<PAGE> 42
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the Committee shall
deem appropriate.
3. The Participant shall have full shareholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further shareholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.
5. The Committee may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding
repurchase/cancellation rights under the Stock Issuance Program shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent (i) those repurchase/cancellation rights are
to be assigned to the successor corporation (or parent thereof) in connection
with such Corporate Transaction or (ii) such accelerated vesting is precluded
by other limitations imposed in the Stock Issuance Agreement.
B. The Committee shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to
16.
<PAGE> 43
provide that those rights shall automatically terminate in whole or in part,
and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase/cancellation rights are
assigned to the successor corporation (or parent thereof).
C. The Committee shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, upon the occurrence of a Change in
Control or condition any such termination of the repurchase/cancellation rights
upon the subsequent Involuntary Termination of the Participant's Service within
a designated period (not to exceed eighteen (18) months) following the
effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Committee's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
17.
<PAGE> 44
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the
dates specified below:
1. Each individual who is first elected or
appointed as a non-employee Board member on or after the date of the 1997
Annual Stockholders Meeting shall automatically be granted, on the date of such
initial election or appointment, a Non-Statutory Option to purchase 15,000
shares of Common Stock.
2. On the date of each Annual Stockholders
Meeting beginning with the 1997 Annual Stockholders Meeting, each individual
who is to continue to serve as an Eligible Director after that meeting, shall
automatically be granted a Non-Statutory Option to purchase an additional 5,000
shares of Common Stock. There shall be no limit on the number of such
5,000-share option grants any one Eligible Director may receive over his or her
period of Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall
be immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
15,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of three (3) successive equal annual installments upon the
Optionee's completion of each year of Board service over the three (3)-year
period measured from the option grant
18.
<PAGE> 45
date. Each annual 5,000-share grant shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's completion of one (1) year of
Board service measured from the automatic grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The
following provisions shall govern the exercise of any options held by the
Optionee at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion
of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of any Corporate
Transaction, to the extent not otherwise fully exercisable, shall automatically
accelerate in full so that each such option shall, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable for all
of the shares of Common Stock at the time subject to such
19.
<PAGE> 46
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
B. In connection with any Change in Control, each
outstanding option shall, to the extent not otherwise fully exercisable,
automatically accelerate in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of those shares as fully-vested shares
of Common Stock. Each such option shall remain exercisable for such
fully-vested option shares until the expiration or sooner termination of the
option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding automatic option grants. The
Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to each surrendered option (whether
or not the option is otherwise at the time exercisable for those shares) over
(ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any
Committee shall be required in connection with such option surrender and cash
distribution.
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
20.
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ARTICLE SIX
MISCELLANEOUS
I. FINANCING
A. The Committee may permit any Optionee or Participant
who is an officer of the Corporation to pay the option exercise price under the
Discretionary Option Grant Program or the purchase price for shares issued
under the Stock Issuance Program by delivering a full-recourse, interest
bearing promissory note payable in one or more installments. The terms of any
such promissory note (including the interest rate and the terms of repayment)
shall be established by the Committee in its sole discretion. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for
the purchased shares plus (ii) any Federal, state and local income and
employment tax liability incurred by the Optionee or the Participant in
connection with the option exercise or share purchase.
B. The Committee may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Committee may deem
appropriate.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on June 18, 1997.
The Plan shall become effective upon stockholder approval of the Plan at the
1997 Annual Stockholders Meeting. If such stockholder approval is not
obtained, the Plan shall terminate.
B. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants or direct stock issuances shall
be made under the Predecessor Plan after the date of the 1997 Annual
Stockholders Meeting. All options outstanding under the Predecessor Plan on
that date shall be incorporated into the Plan at that time and shall be treated
as outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including
(without limitation) the option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control, may, in the
Committee's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
21.
<PAGE> 48
D. The Plan shall terminate upon the earliest of (i)
June 17, 2007, (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Upon
such Plan termination, all outstanding options and unvested stock issuances
shall continue to have force and effect in accordance with the provisions of
the documents evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect any rights and obligations
with respect to options, stock appreciation rights or unvested stock issuances
at the time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification. In addition, amendments to the
Plan shall be subject to approval of the Corporation's stockholders to the
extent required by applicable laws or regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and shares of Common Stock
may be issued under the Stock Issuance Program that are in each instance in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs are held in
escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess grants or issuances are
made, then (i) any unexercised options granted on the basis of such excess
shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
option or stock appreciation right under the Plan and the issuance of any
shares of Common Stock (i) upon the exercise of any option or stock
appreciation right or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits
22.
<PAGE> 49
required by regulatory authorities having jurisdiction over the Plan, the
options and stock appreciation rights granted under it and the shares of Common
Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws and all applicable listing requirements of any stock exchange (or the
Nasdaq National Market, if applicable) on which Common Stock is then listed for
trading.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person's Service at any time for any reason, with or
without cause.
23.
<PAGE> 50
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders,
which the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMITTEE shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Plan with respect to one or more classes of eligible persons, to
the extent such entity is carrying out its administrative functions under the
Plan with respect to the persons under its jurisdiction.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
A-1.
<PAGE> 51
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
H. CORPORATION shall mean Xetel Corporation, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Xetel Corporation which shall by appropriate action
adopt the Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance
with the eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Committee to be the primary market
for the Common
A-2.
<PAGE> 52
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date
for which such quotation exists.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her level of responsibility, (B) a
reduction in his or her level of compensation (including base salary,
fringe benefits and participation in corporate-performance based bonus
or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
A-3.
<PAGE> 53
S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Automatic Option Grant or Director Fee
Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for the purposes of the Automatic
Option Grant Program, Permanent Disability or Permanently Disabled shall mean
the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1997 Stock Incentive Plan,
as set forth in this document.
Y. PLAN EFFECTIVE DATE shall mean the date of the 1997 Annual
Stockholders Meeting.
Z. PREDECESSOR PLAN shall mean the Corporation's existing 1992
Stock Option Plan.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
AB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment grant program in effect under the Plan.
A-4.
<PAGE> 54
AC. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AE. SERVICE shall mean the performance of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AF. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AI. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
AJ. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AK. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-5.
<PAGE> 55
EXHIBIT 10.31
XETEL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of XeTel Corporation by providing eligible employees of the
Corporation with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan. The Plan
Administrator may designate one or more employees of the Corporation to carry
out the day to day administration of the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased on the open market. The maximum number of shares of
Common Stock which may be issued over the term of the Plan shall not exceed One
Million (1,000,000) shares.
B. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and class of
securities issuable under the Plan, (ii) the maximum number and class of
securities purchasable per Participant on any one Purchase Date and (iii) the
number and class of securities and the price per share in effect under each
outstanding purchase right in order to prevent the dilution or enlargement of
benefits thereunder.
<PAGE> 56
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase
under the Plan through a series of successive purchase periods until such time
as (i) the maximum number of shares of Common Stock available for issuance
under the Plan shall have been purchased or (ii) the Plan shall have been
sooner terminated.
B. The duration of each purchase period shall be
determined by the Plan Administrator. The initial purchase period shall
commence on the Effective Date and shall end on the last business day of the
Corporation's second fiscal quarter for its 1998 fiscal year; the next purchase
period shall commence on the first business day of the Corporation's third
fiscal quarter for its 1998 fiscal year and shall end on the last business day
of the Corporation's fourth quarter for its 1998 fiscal year. Until otherwise
designated by the Plan Administrator prior to the start date, subsequent
purchase periods shall commence on the first business day of the Corporation's
first and third fiscal quarters for each fiscal year and end on the last
business day of the Corporation's second and fourth fiscal quarters for each
fiscal year.
V. ELIGIBILITY
A. Each Eligible Employee shall be eligible to enter a
purchase period under the Plan which begins on or after his or her completion
of any minimum Service period established by the Plan Administrator as a
condition to participation in that purchase period, provided he or she remains
an Eligible Employee on the start date of that period.
B. To participate in the Plan for a particular purchase
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or
its designate) during the enrollment period established for that purchase
period by the Plan Administrator.
VI. PAYROLL DEDUCTIONS
A. The Plan Administrator shall, prior to the start of
each purchase period, determine the maximum percentage of Cash Earnings which
each Participant may contribute to the Plan through payroll deductions during
that purchase period; provided, however, that the maximum percentage shall in
no event exceed fifteen percent (15%) of such Cash Earnings. Each Participant
may then authorize a level of payroll deduction to be in effect for such
purchase period in any multiple of one percent (1%) of the Cash Earnings paid
to him or her during that purchase period, up to the maximum percentage
established by the Plan Administrator for such purchase period. The rate of
payroll deduction authorized by each Participant shall continue in effect from
purchase period to purchase period, except to the extent such rate is changed
in accordance with the following guidelines:
2.
<PAGE> 57
(i) The Participant may, during the enrollment
period prior to the commencement of any new purchase period, increase
the rate of his or her payroll deduction by filing the appropriate
form with the Plan Administrator. The new rate (which may not exceed
the maximum percentage authorized by the Plan Administrator for that
purchase period and must be in one percent (1%) increments) shall
become effective on the first purchase period following the filing of
such form.
(ii) The Participant may, during the enrollment
period prior to the commencement of any new purchase period, decrease
the rate of his or her payroll deduction by filing the appropriate
form with the Plan Administrator. The new rate (which must be at
least one percent (1%) of his or her Cash Earnings) shall become
effective on the first purchase period following the filing of such
form.
B. Payroll deductions shall begin on the first pay day
following the start date of the purchase period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the purchase period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under
the Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be
granted a separate purchase right on the start date of each purchase period in
which he or she participates. The purchase right shall provide the Participant
with the right to purchase shares of Common Stock on the Purchase Date upon the
terms set forth below. The Participant shall execute a stock purchase
agreement embodying such terms and such other provisions (not inconsistent with
the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (directly or indirectly within the meaning of Code Section
424(d)), or hold outstanding options or other
3.
<PAGE> 58
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or
any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right
shall be automatically exercised on the Purchase Date, and shares of Common
Stock shall accordingly be purchased on behalf of each Participant on such
date. The purchase shall be effected by applying the Participant's payroll
deductions for the purchase period ending on such Purchase Date to the purchase
of whole shares of Common Stock (subject to the limitation on the maximum
number of shares purchasable per Participant on any one Purchase Date and any
other limitation imposed by the Plan Administrator) at the purchase price in
effect for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at
which Common Stock will be purchased on the Participant's behalf on each
Purchase Date shall not be less than eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the start date of the
purchase period or (ii) the Fair Market Value per share of Common Stock on that
Purchase Date. The Plan Administrator shall determine the exact percentage
discount prior to the start of each purchase period.
D. NUMBER OF PURCHASABLE SHARES. The number of shares
of Common Stock purchasable by a Participant on each Purchase Date shall be the
number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the purchase period ending with
that Purchase Date by the purchase price in effect for the Participant for that
Purchase Date. However, the maximum number of shares of Common Stock
purchasable per Participant on any one Purchase Date shall not exceed the
number specified by the Plan Administrator for that Purchase Date prior to the
start date of the purchase period ending with that Purchase Date. Until
otherwise designated by the Plan Administrator, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,500 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions
not applied to the purchase of shares of Common Stock on any Purchase Date
because they are not sufficient to purchase a whole share of Common Stock shall
be held for the purchase of Common Stock on the next Purchase Date. However,
any payroll deductions not applied to the purchase of Common Stock by reason of
the limitation on the maximum number of shares purchasable by the Participant
on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following
provisions shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior
to the last day of the purchase period, terminate his or her
outstanding purchase right by filing the appropriate form with the
Plan Administrator (or its designate),
4.
<PAGE> 59
and no further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right. Any
payroll deductions collected during the purchase period in which such
termination occurs shall be applied to the purchase of shares on the
next scheduled Purchase Date.
(ii) The termination of such purchase
right shall be irrevocable, and the Participant may not subsequently
rejoin the purchase period for which the terminated purchase right was
granted. In order to resume participation in any subsequent purchase
period, such individual must re-enroll in the Plan (by making a
timely filing of the prescribed enrollment forms) during the
enrollment period for that new purchase period.
(iii) Should the Participant voluntarily
or involuntarily cease to remain an Eligible Employee for any reason
(including death, disability or change in status) while his or her
purchase right remains outstanding, then that purchase right shall
immediately terminate. All of the Participant's payroll deductions
for the purchase period in which the purchase right so terminates
shall be applied to the purchase of shares on the next scheduled
Purchase Date.
(iv) Should the Participant cease to
remain in active service by reason of an approved unpaid leave of
absence during a purchase period, then all the payroll deductions
collected to date on his or her behalf for that purchase period shall
be held for the purchase of shares on his or her behalf on the next
scheduled Purchase Date. In no event, however, shall any further
payroll deductions be collected on the Participant's behalf during
such leave. Upon the Participant's return to active service, he or
she may resume participation in any purchase period commencing after
such return by re-enrolling in the Plan during the enrollment period
for that purchase period.
G. CORPORATE TRANSACTION. Each outstanding purchase
right shall automatically be exercised, immediately prior to the effective date
of any Corporate Transaction, by applying the payroll deductions of each
Participant for the purchase period in which such Corporate Transaction occurs
to the purchase of whole shares of Common Stock at a purchase price per share
equal to eighty-five percent (85%) (or such greater percentage as the Plan
Administrator may have established for the purchase period in which such
Corporate Transaction occurs) of the lower of (i) the Fair Market Value per
share of Common Stock on the start date of the purchase period in which such
Corporate Transaction occurs or (ii) the Fair Market Value per share of Common
Stock immediately prior to the effective date of such Corporate Transaction.
However, the applicable limitation on the number of shares of Common Stock
purchasable per Participant shall continue to apply to any such purchase.
5.
<PAGE> 60
The Corporation shall use reasonable efforts to provide prior
written notice of the occurrence of any Corporate Transaction, and Participants
shall, following the receipt of such notice, have the right to terminate their
outstanding purchase rights prior to the effective date of the Corporate
Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total
number of shares of Common Stock to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. ASSIGNABILITY. No purchase right granted under the
Plan shall be assignable or transferable by the Participant other than by will
or by the laws of descent and distribution following the Participant's death,
and during the Participant's lifetime, the purchase right shall be exercisable
only by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no
stockholder rights with respect to the shares subject to his or her outstanding
purchase right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans within
the meaning of Code Section 423 of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on
the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
B. For purposes of applying such accrual limitations to
the purchase rights granted under the Plan, the following provisions shall be
in effect:
(i) The right to acquire Common Stock
under each outstanding purchase right shall accrue on the Purchase
Date in effect for the purchase period for which such right is
granted.
(ii) No right to acquire Common Stock
under any outstanding purchase right shall accrue to the extent the
Participant has
6.
<PAGE> 61
already accrued in the same calendar year the right to acquire Common
Stock under one (1) or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the
date or dates of grant) for each calendar year such rights were at any
time outstanding.
C. If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular purchase
period, then the payroll deductions which the Participant made during that
purchase period with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the
provisions of this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on November 4, 1996
and shall become effective on the Effective Date, provided no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected,
within ten (10) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect, and all
sums collected from Participants during the initial purchase period hereunder
shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day of the Corporation's
fiscal year 2007, (ii) the date on which all shares available for issuance
under the Plan shall have been sold pursuant to purchase rights exercised under
the Plan or (iii) the date on which all purchase rights are exercised in
connection with a Corporate Transaction. No further purchase rights shall be
granted or exercised, and no further payroll deductions shall be collected,
under the Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any purchase
period. However, the
7.
<PAGE> 62
Board may not, without the approval of the Corporation's stockholders, (i)
materially increase the number of shares of Common Stock issuable under the
Plan or the maximum number of shares purchasable per Participant on any one
Purchase Date, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) alter the purchase price
formula so as to reduce the purchase price payable for the shares of Common
Stock purchasable under the Plan or (iii) materially increase the benefits
accruing to Participants under the Plan or materially modify the requirements
for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration
of the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant
any right to continue in the employ of the Corporation or any Corporate
Affiliate for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Corporate Affiliate
employing such person) or of the Participant, which rights are hereby expressly
reserved by each, to terminate such person's employment at any time for any
reason, with or without cause.
8.
<PAGE> 63
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE DATE
XeTel Corporation
<PAGE> 64
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) gross base salary
payable to a Participant by one or more Participating Corporations during such
individual's period of participation in one or more purchase periods under the
Plan before deduction of any income or employment taxes plus (ii) any pre-tax
contributions made by the Participant to any Code Section 401(k) salary
deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate plus (iii)
all gross overtime payments, bonuses, commissions, current profit-sharing
distributions and other incentive-type payments before deduction of any income
or employment taxes. However, Cash Earnings shall NOT include any
contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or hereafter
established.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common
stock.
E. CORPORATE AFFILIATE shall mean any parent or
subsidiary corporation of the Corporation as determined in accordance with Code
Section 424, whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the
following stockholder-approved transactions to which the Corporation is a
party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
<PAGE> 65
G. CORPORATION shall mean XeTel Corporation, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of XeTel Corporation which shall by appropriate action
adopt the Plan.
H. EFFECTIVE DATE shall mean January 17, 1997.
I. ELIGIBLE EMPLOYEE shall mean any person who is
employed by a Participating Corporation on a basis under which he or she is
regularly expected to render more than twenty (20) hours of service per week
for more than five (5) months per calendar year for earnings considered wages
under Code Section 3401(a).
J. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
K. 1933 ACT shall mean the Securities Act of 1933, as
amended.
L. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the Corporation
and such Corporate Affiliate or Affiliates as may be authorized from time to
time by the Board to extend the benefits of the Plan to their Eligible
Employees. The Participating Corporations in the Plan as of the Effective Time
are listed in attached Schedule A.
A-2
<PAGE> 66
N. PLAN shall mean the Corporation's Employee Stock
Purchase Plan, as set forth in this document.
O. PLAN ADMINISTRATOR shall mean the committee of two
(2) or more Board members appointed by the Board to administer the Plan.
P. PURCHASE DATE shall mean the last business day of
each purchase period.
Q. SERVICE shall mean an individual's performance of
services for the Corporation or any Corporate Affiliate as an employee, subject
to the control and direction of the employer entity as to both the work to be
performed and the manner and method of performance.
R. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
A-3
<PAGE> 67
XETEL CORPORATION
PROXY
ANNUAL MEETING OF STOCKHOLDERS, AUGUST 12, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
XETEL CORPORATION
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held August 12, 1997 and the
Proxy Statement and appoints Kozo Sato and Angelo A. DeCaro, Jr., and each of
them, the Proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of XeTel Corporation (the "Company") which the
undersigned is entitled to vote, either on his or her own behalf or on behalf
of any entity or entities, at the Annual Meeting of Stockholders of the Company
to be held at XeTel Corporation, 2105 Gracy Farms Lane, Austin, Texas 78758 on
Tuesday, August 12, 1997 at 10:30 A.M. Central Time (the "Annual Meeting"), and
at any adjournment or postponement thereof, with the same force and effect as
the undersigned might or could do if personally present thereat. The shares
represented by this proxy shall be voted in the manner set forth on the reverse
side.
<PAGE> 68
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
WITHHOLD
AUTHORITY
TO VOTE
FOR ALL
FOR NOMINEES
1. To elect a Class I director to serve on the [ ] [ ]
Board of Directors for two years or until his
respective successor is duly elected and
qualified and to elect two (2) Class II
directors to serve on the Board of Directors
for three years or until the respective
successor of each such Class II director is
duly elected and qualified to serve on the
Board of Directors:
Sam L. Densmore (Class I)
Kozo Sato (Class II)
Raimon L. Conlisk (Class II)
WITHHOLD AUTHORITY for the following nominee(s) only: (write the name of
the nominee(s)in this space)
----------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve the Company's 1997 Stock Incentive [ ] [ ] [ ]
Plan effective as of August 12, 1997.
FOR AGAINST ABSTAIN
3. To approve the Company's Employee Stock [ ] [ ] [ ]
Purchase Plan effective as of January 17,
1997.
The Board of Directors recommends a vote FOR the directors listed above and a
vote FOR the other proposals. This proxy, when properly executed, will be voted
as specified above. If no specification is made, this Proxy will be voted FOR
the election of the directors listed above and FOR the other proposals.
- ------------------------------------- -----------------------------------------
SIGNATURE SIGNATURE, IF HELD JOINTLY
Date: , 1997
----------------
Please sign above exactly as your name appears on your stock certificate. When
shares are held jointly, each person should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
An authorized person should sign on behalf of corporations, partnerships,
limited liability companies and associations and give his or her title.
