XETEL CORP, S-8, 1998-11-12

XETEL CORP
S-8, 1998-11-12
ELECTRONIC COMPONENTS & ACCESSORIES

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<PAGE> 1
As filed with the Securities and Exchange Commission on November 12, 1998
Registration No. 333-___________

===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933

----------

XETEL CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 75-229445
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

2105 GRACY FARMS LANE
AUSTIN, TX 78758
(Address of principal executive offices) (Zip Code)
----------

1997 STOCK INCENTIVE PLAN
(Full title of the Plan)
------------

ANGELO A. DECARO, JR.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
XETEL CORPORATION
2105 GRACY FARMS LANE, AUSTIN, TX 78758
(Name and address of agent for service)
(512) 435-1000
(Telephone number, including area code, of agent for
service)

-----------

CALCULATION OF REGISTRATION FEE

===============================================================================
<TABLE>

<S> <C> <C> <C> <C> <C>
Title of Amount Proposed Proposed Amount of
Securities to be Maximum Maximum Registration
to be Registered(1) Offering Aggregate Fee
Registered Price Offering
per Share Price

1997 Stock Incentive Plan:
- --------------------------

Common Stock, $0.0001 par value 1,000,000 shares $2.8125(2) $ 2,812,500(2) $ 781.88

Common Stock, $0.0001 par value 1,412,100 shares N/A (3) N/A (3) N/A (3)
</TABLE>

===============================================================================
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the XeTel Corporation 1997
Stock Incentive Plan, by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the
receipt of consideration which results in an increase in the number of
the outstanding shares of Common Stock of XeTel Corporation.

(2) Calculated solely for purposes of this offering under Rule 457(h) of
the Securities Act of 1933, as amended (the "Securities Act"), on the
basis of the average of the high and low selling prices per share of
Common Stock of XeTel Corporation on November 6, 1998, as reported
on the Nasdaq National Market.

(3) Under General Instruction E, the Registration Fee is calculated solely
on the basis of the additional 1,000,000 shares of Common Stock
authorized for issuance under the 1997 Stock Incentive Plan, which is
the successor to Registrant's 1992 Stock Option Plan (the "Predecessor
Plan"). The applicable filing fees have been paid for the remaining
shares in connection with their registration on the Form S-8
Registration Statement covering Registrant's Predecessor Plan,
Registration No. 333-1952.

<PAGE> 2

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. Incorporation of Documents by Reference

XeTel Corporation (the "Registrant") hereby incorporates by reference
into this Registration Statement the following documents previously filed with
the Securities and Exchange Commission (the "Commission"):

(a) The Registrant's Annual Report on Form 10-K for the fiscal
year ended March 28, 1998, filed with the Commission on June
26, 1998;

(b) The Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 27, 1998, filed with the Commission on
August 11, 1998; and

(c) The Registrant's Registration Statement No. 00-27482 on Form
8-A filed with the Commission on January 3, 1996, pursuant to
Section 12(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), in which there is described the terms, rights
and provisions applicable to the Registrant's outstanding
Common Stock.

All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.

Item 4. Description of Securities

Not Applicable.

Item 5. Interests of Named Experts and Counsel

Not Applicable.

Item 6. Indemnification of Directors and Officers

Pursuant to the Delaware General Corporation Law (the "Delaware Law"),
the Registrant has adopted provisions in its Second Restated Certificate of
Incorporation and Restated Bylaws that purport to eliminate the personal
liability of the directors to the Registrant and its stockholders for monetary
damages for breach of the directors' fiduciary duties in certain circumstances.
These provisions do not eliminate the directors' fiduciary duties to the
Registrant, and in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware Law. The Registrant's Restated Bylaws require the Registrant to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware Law and permits indemnification of employees and other agents.
Notwithstanding such provisions in the Registrant's Second Restated Certificate
of Incorporation and Restated Bylaws, each director will continue to be subject
to liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware Law. These provisions also are not
applicable to, and therefore do not affect, a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws. The Registrant has also entered into indemnification
agreements with each of its current directors and executive officers that
provide for such indemnification, including circumstances in which
indemnification and the advancement of expenses are discretionary under the
Delaware Law. The Registrant believes that the limitation of liability
provisions in its Second Restated Certificate of Incorporation and Restated
Bylaws and

II-2

<PAGE> 3

the indemnification agreements will enhance the Registrant's ability
to continue to attract and retain qualified individuals to serve as directors
and executive officers. The Registrant is not aware of any pending litigation or
proceeding involving a director, officer or employee of the Registrant to which
any of such indemnification agreements would apply.

Item 7. Exemption from Registration Claimed

Not Applicable.
<TABLE>
<CAPTION>

Item 8. Exhibits
<S> <C>
Exhibit Number Exhibit

4 Instruments Defining the Rights of Stockholders. Reference is made to Registrant's
Registration Statement No. 00-27482 on Form 8-A, together with any exhibits thereto, which are
incorporated herein by reference pursuant to Item 3(c) to this Registration Statement.
5.1 Opinion and Consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-5 of this Registration Statement.
99.1 XeTel Corporation 1997 Stock Incentive Plan.
99.2 Amendment No. 1 to XeTel Corporation 1997 Stock Incentive Plan.
99.3 Form of Notice of Grant of Stock Option.
99.4 Form of Stock Option Agreement.
99.5 Form of Addendum to Stock Option Agreement (Limited Stock Appreciation Right).
99.6 Form of Stock Issuance Agreement.
99.7 Form of Notice of Grant of Automatic Stock Option (Initial).
99.8 Form of Notice of Grant of Automatic Stock Option (Annual).
99.9 Form of Automatic Stock Option Agreement.
</TABLE>

Item 9. Undertakings

A. The undersigned Registrant hereby undertakes: (1) to file, during
any period in which offers or sales are being made, a post-effective amendment
to this Registration Statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act, (ii) to reflect in the prospectus any facts or
events arising after the effective date of this Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided, however, that clauses (1)(i) and (1)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the Securities Act each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
Registrant's 1997 Stock Incentive Plan.

B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference into this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

C. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons of
the Registrant pursuant to the indemnification provisions summarized in Item 6,
or otherwise, the Registrant has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant

II-3

<PAGE> 4

will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

II-4

<PAGE> 5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in City of Austin, State of Texas, on this 12th day of
November, 1998.

XETEL CORPORATION

By: /s/ ANGELO A. DECARO, JR.
------------------------------------
Angelo A. DeCaro, Jr.
President, Chief Executive
Officer and Director

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS:

That the undersigned officers and directors of XeTel Corporation, a
Delaware corporation, do hereby constitute and appoint Angelo A. DeCaro, Jr.,
the lawful attorney-in-fact and agent with full power and authority to do any
and all acts and things and to execute any and all instruments which said
attorney and agent determines may be necessary or advisable or required to
enable said corporation to comply with the Securities Act of 1933, as amended,
and any rules or regulations or requirements of the Securities and Exchange
Commission in connection with this Registration Statement. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned officers and directors
in the capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
all that said attorney and agent, shall do or cause to be done by virtue hereof.
This Power of Attorney may be signed in several counterparts.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the dates indicated.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>

<S> <C> <C>
Signature Title Date
- --------- ----- ----

/s/ ANGELO A. DECARO, JR.
- ------------------------- President, Chief Executive November 12, 1998
Angelo A. DeCaro, Jr. Officer and Director
(Principal Executive Officer)

/s/ RICHARD S. CHILINSKI
- ------------------------- Vice President, Chief Financial November 12, 1998
Richard S. Chilinski Officer and Assistant Secretary
(Principal Financial and
Accounting Officer)
</TABLE>

II-5

<PAGE> 6

<S> <C> <C>
Signature Title Date
- --------- ----- ----

/s/ RONALD W. GUIRE
- ------------------------- Chairman of the Board of Directors November 12, 1998
Ronald W. Guire

/s/ SAM L. DENSMORE
- ------------------------- Director November 12, 1998
Sam L. Densmore

/s/ KOZO SATO
- ------------------------- Director November 12, 1998
Kozo Sato

/s/ ALAN R. SCHUELE
- ------------------------- Director November 12, 1998
Alan R. Schuele

</TABLE>

II-6

<PAGE> 7

INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
<S> <C>
Exhibit Number Exhibit

<PAGE> 1

EXHIBIT 5.1

OPINION AND CONSENT OF BROBECK, PHLEGER & HARRISON LLP

November 12, 1998

XeTel Corporation
2105 Gracy Farms Lane
Austin, Texas 78758

Re: XeTel Corporation -- Registration Statement on Form
S-8 for Offering of 2,412,100 Shares of Common Stock

Ladies and Gentlemen:

We have acted as counsel to XeTel Corporation, a Delaware
corporation (the "Company") in connection with the registration on Form S-8 (the
"Registration Statement") under the Securities Act of 1933, as amended, of
2,412,100 shares of common stock and related stock options for issuance (the
"Shares") under the Company's 1997 Stock Incentive Plan (the "Plan").

This opinion is being furnished to you in accordance with the
requirements of Item 8 of Form S-8 and Item 601(b)(5)(i) of Regulation S-K.

We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the establishment
of the Plan. Based on such review, we are of the opinion that, if, as and when
the Shares have been issued and sold (and the consideration therefor received)
pursuant to (a) the provisions of option agreements duly authorized under the
Plan and in accordance with the Registration Statement, or (b) duly authorized
direct stock issuances in accordance with the Plan and in accordance with the
Registration Statement, such Shares will be duly authorized, legally issued,
fully paid and nonassessable.

We consent to the filing of this opinion letter as Exhibit 5
to the Registration Statement.

This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company, the Plan or the Shares.

Very truly yours,

/s/ Brobeck, Phleger & Harrison LLP

BROBECK, PHLEGER & HARRISON LLP

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated April 25, 1998 appearing on page 16
of XeTel Corporation's Annual Report on Form 10-K for the year ended March 28,
1998.

PRICEWATERHOUSECOOPERS LLP

Austin, TX
November 12, 1998

<PAGE> 1
EXHIBIT 99.1

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.

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.

<PAGE> 2

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.

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:

(i) Employees,

<PAGE> 3

(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 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

<PAGE> 4

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.

<PAGE> 5

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 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.

<PAGE> 6

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

(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

<PAGE> 7

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.

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

<PAGE> 8

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 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

<PAGE> 9

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.

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.

<PAGE> 10

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.

(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.

10.

<PAGE> 11

(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> 12

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> 13

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 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.

13.

<PAGE> 14

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> 15

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 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

15.

<PAGE> 16

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 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

16.

<PAGE> 17

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> 18

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 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.

18.

<PAGE> 19

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 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).

19.

<PAGE> 20

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.

<PAGE> 21

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> 22

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 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.

22.

<PAGE> 23

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> 24

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> 25

(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.

A-2.

<PAGE> 26

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 ten percent (10%) 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.

S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.

A-3.

<PAGE> 27

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.

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

A-4.

<PAGE> 28

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> 1
EXHIBIT 99.2

XETEL CORPORATION
1997 STOCK INCENTIVE PLAN

AMENDMENT NO. 1

The XeTel Corporation 1997 Stock Incentive Plan (the "Plan") is hereby
amended, effective April 20, 1998 as follows:

1. Section V.A. of Article One is hereby amended as follows:

(i) The second sentence of such section is hereby amended in its
entirety to read as follows:

"The maximum number of shares of Common Stock reserved for
issuance over the term of the Plan shall not exceed 2,565,000 shares."

IN WITNESS WHEREOF, XeTel Corporation has caused this plan amendment to
the executed on its behalf by its duly-authorized officer effective as of April
20, 1998, subject to stockholder approval of the amendment at the 1998 Annual
Stockholders Meeting.

XETEL CORPORATION

By: /s/ ANGELO A. DECARO, JR.
-----------------------------------------
Angelo A. DeCaro, Jr.

Title: President and Chief Executive Officer

<PAGE> 1
EXHIBIT 99.3

XETEL CORPORATION
NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of XeTel Corporation (the
"Corporation"):

Optionee:
-------- --------------------------------------------------
Grant Date:
---------- ------------------------------------------------
Vesting Commencement Date:
------------------------- ---------------------------------
Exercise Price: $ per share
-------------- ----------------------------------
Number of Option Shares: shares
----------------------- ----------------------------
Expiration Date:
--------------- -------------------------------------------
Type of Option: Incentive Stock Option
-------------- ---------
Non-Statutory Stock Option
---------
Exercise Schedule: The Option shall become exercisable with
respect to twenty five percent (25%) of the Option Shares upon
Optionee's completion of one (1) year of Service measured from
the Vesting Commencement Date and shall become exercisable for
the balance of the Option Shares in three (3) successive equal
annual installments upon Optionee's completion of each
additional year of Service over the three (3)-year period
measured from the first anniversary of the Vesting
Commencement Date. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's
cessation of Service.

Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the XeTel Corporation 1997 Stock
Incentive Plan (the "Plan"). Optionee further agrees to be bound by the terms of
the Plan and the terms of the Option as set forth in the Stock Option Agreement
attached hereto as Exhibit A. A copy of the Plan is available upon request made
to the Corporate Secretary or Corporate Assistant Secretary at the Corporation's
principal offices.

No Employment or Service Contract. Nothing in this Notice or
in the attached Stock Option Agreement or in the Plan shall confer upon Optionee
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 Optionee) or of

<PAGE> 2

Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason, with or without cause.

Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Stock Option
Agreement.

DATED , 199
-------------------------------

XETEL CORPORATION

By:
----------------------------------
Title:
--------------------------------

-------------------------------------
OPTIONEE

Address:
----------------------------

-------------------------------------

ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT AND ADDENDUM

<PAGE> 1
EXHIBIT 99.4

XETEL CORPORATION
STOCK OPTION AGREEMENT

RECITALS
- --------

A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).

B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.

C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1. GRANT OF OPTION. The Corporation hereby grants to Optionee,
as of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.

2. OPTION TERM. This option shall have a maximum term of seven
(7) years measured from the Grant Date and shall accordingly expire at the close
of business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.

3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with the Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of the Optionee's immediate family or
to a trust established for the exclusive benefit of one or more such family
members. The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for this option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.

<PAGE> 2

4. DATES OF EXERCISE. This option shall become exercisable for
the Option Shares in one or more installments as specified in the Grant Notice.
As the option becomes exercisable for such installments, those installments
shall accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.

5. CESSATION OF SERVICE. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date should any of the following provisions become
applicable:

(i) Should Optionee cease to remain in
Service for any reason (other than death, Permanent Disability or
Misconduct) while this option is outstanding, then Optionee shall have
a period of three (3) months (commencing with the date of such
cessation of Service) during which to exercise this option, but in no
event shall this option be exercisable at any time after the Expiration
Date.

(ii) If Optionee dies while this
option is outstanding, then the personal representative of Optionee's
estate or the person or persons to whom the option is transferred
pursuant to Optionee's will or in accordance with the laws of descent
and distribution shall have the right to exercise this option. Such
right shall lapse, and this option shall cease to be outstanding, upon
the earlier of (A) the expiration of the twelve (12)- month period
measured from the date of Optionee's death or (B) the Expiration Date.

(iii) Should Optionee cease Service by
reason of Permanent Disability while this option is outstanding, then
Optionee shall have a period of twelve (12) months (commencing with the
date of such cessation of Service) during which to exercise this
option. In no event shall this option be exercisable at any time after
the Expiration Date.

(iv) During the limited period of
post-Service exercisability, this option may not be exercised in the
aggregate for more than the number of vested Option Shares for which
the option is exercisable at the time of Optionee's cessation of
Service. Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding for any vested Option Shares for which the
option has not been exercised. However, this option shall, immediately
upon Optionee's cessation of Service for any reason, terminate and
cease to be outstanding with respect to any Option Shares in which
Optionee is not otherwise at that time vested or for which this option
is not otherwise at that time exercisable.

<PAGE> 3

(v) Should Optionee's Service be
terminated for Misconduct, then this option shall terminate immediately
and cease to remain outstanding.

6. SPECIAL ACCELERATION OF OPTION.

(a) This option, to the extent outstanding at the
time of a Corporate Transaction but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares at the time subject to this option and may be exercised for any or
all of those Option Shares as fully-vested shares of Common Stock. No such
acceleration of this option, however, shall occur if and to the extent: (i) this
option is, in connection with the Corporate Transaction, 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) or (ii) this 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 (the excess of
the Fair Market Value of those Option Shares over the aggregate Exercise Price
payable for such shares) and provides for subsequent pay-out in accordance with
the same option exercise/vesting schedule set forth in the Grant Notice.

(b) Immediately following the Corporate Transaction,
this option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.

(c) If this option is assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.

(d) If this option is assumed by the successor entity
(or its parent company), then immediately upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following such Corporate
Transaction, this option (or any replacement grant), to the extent outstanding
at the time but not otherwise fully exercisable, shall automatically accelerate
so that this option shall become immediately exercisable for all the Option
Shares at the time subject to this option and may be exercised for any or all of
those Option Shares as fully-vested shares of Common Stock. This option shall
remain so exercisable until the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the date of such Involuntary
Termination.

<PAGE> 4

(e) Immediately upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following a Change in Control,
this option, to the extent outstanding at the time but not otherwise fully
exercisable, shall automatically accelerate so that this option shall become
immediately exercisable for all of the Option Shares at the time subject to this
option and may be exercised for any or all of those Option Shares as
fully-vested shares of Common Stock. This option, as so accelerated, shall
remain exercisable until the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the date of such Involuntary
Termination.

(f) This Agreement shall not in any 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.

7. ADJUSTMENT IN OPTION SHARES. 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 total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.

8. STOCKHOLDER RIGHTS. The holder of this option shall not
have any stockholder rights with respect to the Option Shares until such person
shall have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.

9. MANNER OF EXERCISING OPTION.

(a) In order to exercise this option with respect to
all or any part of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons exercising the option)
must take the following actions:

(i) Execute and deliver to the
Corporation a Notice of Exercise for the Option Shares for which the
option is exercised.

(ii) Pay the aggregate Exercise Price
for the purchased shares in one or more of the following forms:

(A) cash or check made payable to
the Corporation;

(B) a promissory note payable to the
Corporation, but only to the extent authorized by the Plan
Administrator in accordance with Paragraph 13; or

<PAGE> 5

(C) through a special sale and
remittance procedure pursuant to which Optionee (or any other
person or persons exercising the option) shall concurrently
provide irrevocable written instructions (I) to 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 (II) to 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 the sale and remittance
procedure is utilized in connection with the option exercise,
payment of the Exercise Price must accompany the Notice of
Exercise delivered to the Corporation in connection with the
option exercise.

(iii) Furnish to the Corporation
appropriate documentation that the person or persons exercising the
option (if other than Optionee) have the right to exercise this option.

(iv) Make appropriate arrangements
with the Corporation (or Parent or Subsidiary employing or retaining
Optionee) for the satisfaction of all Federal, state and local income
and employment tax withholding requirements applicable to the option
exercise.

(b) Except to the extent the sale and remittance
procedure is utilized in connection with the option exercise, as soon as
practical after the Exercise Date, the Corporation shall issue to or on behalf
of Optionee (or any other person or persons exercising this option) a
certificate for the purchased Option Shares, with the appropriate legends
affixed thereto.

10. COMPLIANCE WITH LAWS AND REGULATIONS.

(a) The exercise of this option and the issuance of
the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.

<PAGE> 6

any liability with respect to the non-issuance or sale of the Common Stock as to
which such approval shall not have been obtained. The Corporation, however,
shall use its best efforts to obtain all such approvals.

11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.

12. NOTICES. Any notice required to be given or delivered to
the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.

13. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse
promissory note payable to the Corporation. The terms of any such promissory
note (including the interest rate, the requirements for collateral and the terms
of repayment) shall be established by the Plan Administrator in its sole
discretion.

14. CONSTRUCTION. This Agreement and the option evidenced
hereby are made and granted pursuant to the Plan and are in all respects limited
by and subject to the terms of the Plan. All decisions of the Plan Administrator
with respect to any question or issue arising under the Plan or this Agreement
shall be conclusive and binding on all persons having an interest in this
option.

15. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Texas without resort to that State's conflict-of-laws rules.

16. EXCESS SHARES. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may without stockholder approval be issued under the Plan, then this
option shall be void with respect to those excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.

17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the
event this option is designated an Incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:

<PAGE> 7

(i) This option shall cease to qualify
for favorable tax treatment as an Incentive Option if (and to the
extent) this option is exercised for one or more Option Shares: (A)
more than three (3) months after the date Optionee ceases to be an
Employee for any reason other than death or Permanent Disability or (B)
more than twelve (12) months after the date Optionee ceases to be an
Employee by reason of Permanent Disability.

(ii) No installment under this option
shall qualify for favorable tax treatment as an Incentive Option if
(and to the extent) the aggregate Fair Market Value (determined at the
Grant Date) of the Common Stock for which such installment first
becomes exercisable hereunder would, when added to the aggregate value
(determined as of the respective date or dates of grant) of the Common
Stock or other securities for which this option or any other Incentive
Options granted to Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should
such One Hundred Thousand Dollar ($100,000) limitation be exceeded in
any calendar year, this option shall nevertheless become exercisable
for the excess shares in such calendar year as a Non-Statutory Option.

(iii) Should the exercisability of
this option be accelerated upon a Corporate Transaction, then this
option shall qualify for favorable tax treatment as an Incentive Option
only to the extent the aggregate Fair Market Value (determined at the
Grant Date) of the Common Stock for which this option first becomes
exercisable in the calendar year in which the Corporate Transaction
occurs does not, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other
securities for which this option or one or more other Incentive Options
granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary)
first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate. Should the
applicable One Hundred Thousand Dollar ($100,000) limitation be
exceeded in the calendar year of such Corporate Transaction, the option
may nevertheless be exercised for the excess shares in such calendar
year as a Non- Statutory Option.

(iv) Should Optionee hold, in addition
to this option, one or more other options to purchase Common Stock
which become exercisable for the first time in the same calendar year
as this option, then the foregoing limitations on the exercisability of
such options as Incentive Options shall be applied on the basis of the
order in which such options are granted.

<PAGE> 8

EXHIBIT I
NOTICE OF EXERCISE

I hereby notify XeTel Corporation (the "Corporation") that I elect to
purchase___________ shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $__________ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me under the
Corporation's 1997 Stock Incentive Plan on __________________, 199 .

Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.

___________________________, 199_
Date

--------------------------------------
Optionee

Address:
------------------------------

--------------------------------------

Print name in exact manner
it is to appear on the
stock certificate:
--------------------------------------
Address to which certificate
is to be sent, if different
from address above:
--------------------------------------

Social Security Number:
--------------------------------------
Employee Number:
--------------------------------------

<PAGE> 9

APPENDIX

The following definitions shall be in effect under the
Agreement:

A. AGREEMENT shall mean this Stock Option Agreement.

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, or is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) 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 (i) have been Board members continuously since
the beginning of such period or (ii) 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 (i) who were still in office at
the time such election or nomination was approved by the Board.

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. COMMON STOCK shall mean the Corporation's common stock.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

A-1.

<PAGE> 10

(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.

G. CORPORATION shall mean XeTel Corporation, a Delaware corporation.

H. 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.

I. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.

J. EXERCISE PRICE shall mean the exercise price per share as specified
in the Grant Notice.

K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.

L. 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 the
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.

M. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.

A-2.

<PAGE> 11

N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

P. INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service by reason of:

(i) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or

(ii) Optionee's voluntary resignation following (A) a
change in Optionee's position with the Corporation (or Parent or
Subsidiary employing Optionee) which materially reduces Optionee's
level of responsibility, (B) a reduction in Optionee's level of
compensation (including base salary, fringe benefits and target bonus
under any corporate-performance based bonus or incentive programs) by
more than ten percent (10%) or (C) a relocation of Optionee'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
Optionee's consent.

Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee 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
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).

R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.

T. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.

U. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option as specified in the Grant Notice.

A-3.

<PAGE> 12

V. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.

W. 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.

X. PERMANENT DISABILITY shall mean the inability of Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.

Y. PLAN shall mean the Corporation's 1997 Stock Incentive Plan.

Z. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its administrative capacity under the Plan.

AA. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.

AB. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.

AC. 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.

A-4.

<PAGE> 1
EXHIBIT 99.5

ADDENDUM
TO
STOCK OPTION AGREEMENT

The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated (the "Option
Agreement") by and between XeTel Corporation (the "Corporation") and
("Optionee") evidencing the stock option (the "Option") granted on to Optionee
under the terms of the Corporation's 1997 Stock Incentive Plan, and such
provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to them in the Option Agreement.

LIMITED STOCK APPRECIATION RIGHT

1. Optionee is hereby granted a limited stock appreciation
right exercisable upon the following terms and conditions:

(i) Optionee shall have the unconditional
right (exercisable at any time during the thirty (30)-day period
immediately following a Hostile Take-Over) to surrender the 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, 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 the
surrendered Option (or surrendered portion) over (B) the aggregate
Exercise Price payable for such shares.

(ii) To exercise this limited stock
appreciation right, Optionee must, during the applicable thirty
(30)-day exercise period, provide the Corporation with written notice
of the option surrender in which there is specified the number of
Option Shares as to which the Option is being surrendered. Such notice
must be accompanied by the return of Optionee's copy of the Option
Agreement, together with any written amendments to such Agreement. The
cash distribution shall be paid to Optionee within five (5) business
days following such delivery date. The exercise of the limited stock
appreciation right in accordance with the terms of this Addendum is
hereby approved by the Plan Administrator in advance of such exercise.
No further approval of the Plan Administrator shall be required at the
time of the actual option surrender and cash distribution. Upon receipt
of such cash distribution, the Option shall be cancelled with respect
to the Option Shares for which the Option has been surrendered, and
Optionee shall cease to have any further right to acquire those Option
Shares under the Option Agreement. The Option shall, however, remain
outstanding and exercisable for the balance of the Option Shares (if
any) in accordance with the terms of the

<PAGE> 2

Option Agreement, and the Corporation shall issue a new stock option
agreement (substantially in the same form of the surrendered Option
Agreement) for those remaining Option Shares.

(iii) In no event may this limited stock
appreciation right be exercised when there is not a positive spread
between the Fair Market Value of the Option Shares and the aggregate
Exercise Price payable for such shares. This limited stock appreciation
right shall in all events terminate upon the expiration or sooner
termination of the option term and may not be assigned or transferred
by Optionee.

2. For purposes of this Addendum, the following definitions
shall be in effect:

(i) A HOSTILE TAKE-OVER shall be deemed to
occur in the event 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)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) 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.

(ii) The TAKE-OVER PRICE per share shall be
deemed to be equal to the greater of (A) the Fair Market Value per
Option Share on the option surrender date or (B) the highest reported
price per share of Common Stock paid by the tender offeror in effecting
the Hostile Take-Over. However, if the surrendered Option is designated
as an Incentive Option in the Grant Notice, then the Take-Over Price
shall not exceed the clause (A) price per share.

<PAGE> 3

IN WITNESS WHEREOF, XeTel Corporation has caused this Addendum
to be executed by its duly-authorized officer, and Optionee has executed this
Addendum, all as of the Effective Date specified below.

XETEL CORPORATION

By:
-----------------------------------
Title:
--------------------------------

--------------------------------------
OPTIONEE

EFFECTIVE DATE:________________, 199_

<PAGE> 1
EXHIBIT 99.6

XETEL CORPORATION

STOCK ISSUANCE AGREEMENT
------------------------

AGREEMENT made this _____day of_________ 19__, by and between
XeTel Corporation, a Delaware corporation, and ___________________________, a
Participant in the Corporation's 1997 Stock Incentive Plan.

All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.

A. PURCHASE OF SHARES

1. PURCHASE. Participant hereby purchases___________ shares
of Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $___ per share (the "Purchase Price").

2. PAYMENT. Concurrently with the delivery of this Agreement
to the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or check payable to the Corporation and shall deliver a
duly-executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit I) with respect to the Purchased Shares.

3. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right, Participant (or any successor in interest) shall
have all the rights of a stockholder (including voting, dividend and liquidation
rights) with respect to the Purchased Shares, subject, however, to the transfer
restrictions of this Agreement.

4. ESCROW. The Corporation shall have the right to hold the
Purchased Shares in escrow until those shares have vested in accordance with the
Vesting Schedule.

5. COMPLIANCE WITH LAW. Under no circumstances shall shares of
Common Stock or other assets be issued or delivered to Participant pursuant to
the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its successors, there shall have been compliance with all
applicable requirements of Federal and state securities laws, all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is at the time listed for trading and all
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery.

B. TRANSFER RESTRICTIONS

1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right.

<PAGE> 2

2. RESTRICTIVE LEGEND. The stock certificate for the Purchased
Shares shall be endorsed with the following restrictive legend:

"The shares represented by this certificate are
unvested and subject to certain repurchase rights granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated,___199_ between the Corporation an
the registered holder of the shares (or the predecessor in interest to
the shares). A copy of such agreement is maintained at the
Corporation's principal corporate offices."

3. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
the Repurchase Right to the same extent such shares would be so subject if
retained by Participant.

C. REPURCHASE RIGHT

1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service, vested
in accordance with the Vesting Schedule (such shares to be hereinafter referred
to as the "Unvested Shares").

2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right
shall be exercisable by written notice delivered to each Owner of the Unvested
Shares prior to the expiration of the ninety (90)-day exercise period. The
notice shall indicate the number of Unvested Shares to be repurchased and the
date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of such notice. The certificates representing
the Unvested Shares to be repurchased shall be delivered to the Corporation
prior to the close of business on the date specified for the repurchase.
Concurrently with the receipt of such stock certificates, the Corporation shall
pay to Owner, in cash or cash equivalent (including the cancellation of any
purchase-money indebtedness), an amount equal to the Purchase Price previously
paid for the Unvested Shares to be repurchased from Owner.

3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph C.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:

<PAGE> 3

Participant shall acquire a vested interest in, and
the Repurchase Right shall lapse with respect to, the Purchased Shares
in a series of four (4) successive equal annual installments upon
Participant's completion of each year of Service over the four (4)-year
period measured from __________________, 199__.

4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right, but
only to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of securities subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.

5. CORPORATE TRANSACTION/CHANGE IN CONTROL.

(a) Immediately prior to the consummation of any
Corporate Transaction, the Repurchase Right shall automatically lapse in its
entirety and the Purchased Shares shall vest in full, except to the extent the
Repurchase Right is to be assigned to the successor corporation (or parent
thereof) in connection with the Corporate Transaction.

(b) To the extent the Repurchase Right remains in
effect following a Corporate Transaction, such right shall apply to the new
capital stock or other property (including any cash payments) received in
exchange for the Purchased Shares in consummation of the Corporate Transaction,
but only to the extent the Purchased Shares are at the time covered by such
right. Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate purchase price shall remain the same. The new securities or other
property (including cash payments) issued or distributed with respect to the
Purchased Shares in consummation of the Corporate Transaction shall immediately
be deposited in escrow with the Corporation (or the successor entity) and shall
not be released from escrow until Participant vests in such securities or other
property in accordance with the same Vesting Schedule in effect for the
Purchased Shares.

(c) To the extent the Repurchase Right is assigned to
the successor entity (or parent company) in connection with a Corporate
Transaction, then immediately upon an Involuntary Termination of Participant's
Service within eighteen (18) months following the Corporate Transaction, the
Repurchase Right shall terminate automatically and all the Purchased Shares
shall vest in full.

<PAGE> 4

(d) Immediately upon an Involuntary Termination of
Participant's Service within eighteen (18) months following a Change in Control,
the Repurchase Right shall automatically lapse in its entirety and the Purchased
Shares shall vest in full.

D. SPECIAL TAX ELECTION

1. SECTION 83(b) ELECTION . Under Code Section 83, the excess
of the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the fair market value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-
DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE FORFEITURE
RESTRICTIONS LAPSE.

2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(B), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.

E. GENERAL PROVISIONS

1. ASSIGNMENT. The Corporation may assign the Repurchase Right
to any person or entity selected by the Board, including (without limitation)
one or more stockholders of the Corporation.

2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this
Agreement or in the Plan shall confer upon 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 Participant) or of Participant, which rights are hereby
expressly reserved by each, to terminate Participant's Service at any time for
any reason, with or without cause.

3. NOTICES. Any notice required to be given under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice

<PAGE> 5

at the address indicated below such party's signature line on this Agreement or
at such other address as such party may designate by ten (10) days advance
written notice under this paragraph to all other parties to this Agreement.

4. NO WAIVER. The failure of the Corporation in any instance
to exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.

5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.

6. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.

7. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes
the entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.

8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas without resort to
that State's conflict-of-laws rules.

9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.

10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.

<PAGE> 6

IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first indicated above.

XETEL CORPORATION

By:
-----------------------------------
Title:
--------------------------------
Address:
------------------------------

--------------------------------------

--------------------------------------
PARTICIPANT

Address:
------------------------------

--------------------------------------

<PAGE> 7

EXHIBIT I

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED________________ hereby sell(s), assign(s)
and transfer(s) unto XeTel Corporation (the "Corporation"),
______________(_____) shares of the Common Stock of the Corporation standing in
his or her name on the books of the Corporation represented by Certificate
No.______________ herewith and do(es) hereby irrevocably constitute and appoint
____________________ Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises. Dated:_________ ,
199_ .

Signature
-----------------------------

INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.

<PAGE> 8

EXHIBIT II

SECTION 83(b) TAX ELECTION

This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:
Address:
Taxpayer Ident. No.:

(2) The property with respect to which the election is being made is
____________ shares of the common stock of XeTel Corporation.

(3) The property was issued on ____________ , 199_ .

(4) The taxable year in which the election is being made is the calendar
year 199_ .

(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
installments over a four (4)-year period ending on .

(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms
will never lapse) is $______ per share.

(7) The amount paid for such property is $__________ per share.

(8) A copy of this statement was furnished to XeTel Corporation for whom
taxpayer rendered the services underlying the transfer of property.

(9) This statement is executed on ________________________, 199__.

__________________________________ ______________________________________
Spouse (if any) Taxpayer

This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.

<PAGE> 9

APPENDIX

The following definitions shall be in effect under the
Agreement:

A. AGREEMENT shall mean this Stock Issuance Agreement.

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 Securities Exchange Act of
1934, as amended) 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 such election or nomination was approved by the Board.

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. COMMON STOCK shall mean the Corporation's common stock.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:

(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

A-1.

<PAGE> 10

(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.

G. CORPORATION shall mean XeTel Corporation, a Delaware corporation.

H. INVOLUNTARY TERMINATION shall mean the termination of Participant's
Service by reason of:

(i) Participant's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or

(ii) Participant's voluntary resignation
following (A) a change in Participant's position with the Corporation
(or Parent or Subsidiary employing Participant) which materially
reduces Participant's level of responsibility, (B) a reduction in
Participant's level of compensation (including base salary, fringe
benefits and participation in any corporate-performance based bonus or
incentive programs) by more than ten percent (10%) or (C) a relocation
of Participant'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 Participant's consent.

I. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Participant, any unauthorized use or disclosure by
Participant of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by Participant
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
Participant or other person in the Service of the Corporation (or any Parent or
Subsidiary).

J. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

K. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.

L. 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.

M. PARTICIPANT shall mean the person to whom the Purchased Shares are
issued under the Stock Issuance Program.

A-2.

<PAGE> 11

N. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.

O. PLAN shall mean the Corporation's 1997 Stock Incentive Plan.

P. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its administrative capacity under the Plan.

Q. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.

R. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.

S. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.

T. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article C.

U. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of 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, a non-employee member
of the board of directors or a consultant.

V. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under
the Plan.

W. 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.

X. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph C.3, subject to the acceleration provisions of Paragraph C.5.

Y. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph C.1.

A-3.

<PAGE> 1
EXHIBIT 99.7

INITIAL GRANT

XETEL CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION

Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of XeTel Corporation (the
"Corporation"):

Optionee:
---------------------------------------------------
Grant Date:
---------------------------------------------------

Exercise Price: $ per share
-----------------------------------

Number of Option Shares: 15,000 shares

Expiration Date:
--------------------------------------------

Type of Option: Non-Statutory Stock Option

Date Exercisable: Immediately Exercisable

Vesting Schedule: The Option Shares shall initially be
unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share. Optionee shall acquire a
vested interest in, and the Corporation's repurchase right
shall accordingly lapse with respect to, the Option Shares in
a series of three (3) successive equal annual installments
upon Optionee's completion of each year of service as a member
of the Corporation's Board of Directors (the "Board") over the
three (3)-year period measured from the Grant Date. In no
event shall any additional Option Shares vest after Optionee's
cessation of Board service.

Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the automatic option grant
program under the XeTel Corporation 1997 Stock Incentive Plan (the "Plan").
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the Automatic Stock Option Agreement attached hereto
as Exhibit A. A copy of the Plan is available upon request made to the
Corporate Secretary at the Corporation's principal offices.

REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE
TRANSFERABLE AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE
EXERCISE PRICE PAID PER SHARE, UPON
<PAGE> 2
OPTIONEE'S TERMINATION OF SERVICE AS A MEMBER OF THE CORPORATION'S BOARD OF
DIRECTORS PRIOR TO VESTING IN THOSE SHARES. THE TERMS AND CONDITIONS OF SUCH
REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND
SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF
THE OPTION EXERCISE.

No Impairment of Rights. Nothing in this Notice or in the
attached Automatic Stock Option Agreement or the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation or the
Corporation's stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.

Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.

DATED: , 199
------------------------------------ --

XETEL CORPORATION

By:
-------------------------

Title:
----------------------

-----------------------
OPTIONEE

Address:
-------------------

-------------------

ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT

<PAGE> 1
EXHIBIT 99.8

ANNUAL GRANT

XETEL CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION

Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of XeTel Corporation (the
"Corporation"):

Optionee:
----------------------------------------------------
Grant Date:
--------------------------------------------------
Exercise Price: $ per share
---------------------------------
Number of Option Shares: 5,000 shares
Expiration Date:
---------------------------------------------
Type of Option: Non-Statutory Stock Option

Date Exercisable: Immediately Exercisable

Vesting Schedule: The Option Shares shall initially be
unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share. Optionee shall acquire a vested
interest in, and the Corporation's repurchase right shall
accordingly lapse with respect to, the Option Shares upon the
Optionee's completion of one year of service as a member of
the Corporation's Board of Directors (the "Board") measured
from the Grant Date. In no event shall any additional Option
Shares vest after Optionee's cessation of Board service.

Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the automatic option grant
program under the XeTel Corporation 1997 Stock Incentive Plan (the "Plan").
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the Automatic Stock Option Agreement attached hereto
as Exhibit A. A copy of the Plan is available upon request made to the Corporate
Secretary at the Corporation's principal offices.

<PAGE> 2

REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE
AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE
PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE AS A MEMBER OF THE
CORPORATION'S BOARD OF DIRECTORS PRIOR TO VESTING IN THOSE SHARES. THE TERMS AND
CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE
AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY
OPTIONEE AT THE TIME OF THE OPTION EXERCISE.

No Impairment of Rights. Nothing in this Notice or in the
attached Automatic Stock Option Agreement or the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation or the Corporation's
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.

Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.

DATED: , 199_
------------------------

XETEL CORPORATION

By:
---------------------------------------

Title:
------------------------------------

---------------------------------------
OPTIONEE

Address:
----------------------------------

----------------------------------

ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT

<PAGE> 1
EXHIBIT 99.9

XETEL CORPORATION
AUTOMATIC STOCK OPTION AGREEMENT

RECITALS

A. XeTel Corporation has implemented an automatic option grant program
under the Corporation's 1997 Stock Incentive Plan pursuant to which eligible
non-employee members of the Corporation's Board will automatically receive
special option grants at designated intervals over their period of Board service
in order to provide such individuals with a meaningful incentive to continue to
serve as a member of the Board.

B. Optionee is an eligible non-employee Board member, and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the automatic grant of a stock option to purchase
shares of the Corporation's Common Stock under the Plan.

C. The granted option is intended to be a non-statutory option which
does not meet the requirements of Section 422 of the Internal Revenue Code.

D. All capitalized terms in this Agreement, to the extent not otherwise
defined in the Agreement, shall have the meaning assigned to them in the
attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1. GRANT OF OPTION. The Corporation hereby grants to Optionee,
as of the Grant Date, a Non-Statutory Option to purchase up to the number of
Option Shares specified in the Grant Notice. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2 at
the Exercise Price.

2. OPTION TERM. This option shall have a maximum term of ten
(10) years measured from the Grant Date and shall accordingly expire at the
close of business on the Expiration Date, unless sooner terminated in accordance
with Paragraph 5, 6 or 7.

3. LIMITED TRANSFERABILITY. This option may, in connection
with the Optionee's estate plan, be assigned in whole or in part during
Optionee's lifetime to one or more members of the Optionee's immediate family or
to a trust established for the exclusive benefit of one or more such family
members. The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for this option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Corporation may deem
appropriate. Should the Optionee die while holding this option, then this option
shall be transferred in accordance with Optionee's will or the laws of descent
and distribution.

<PAGE> 2

4. EXERCISABILITY/VESTING.

(a) This option shall be immediately exercisable for
any or all of the Option Shares, whether or not the Option Shares are vested in
accordance with the Vesting Schedule set forth in the Grant Notice, and shall
remain so exercisable until the Expiration Date or the sooner termination of the
option term under Paragraph 5, 6 or 7.

(b) Optionee shall, in accordance with the Vesting
Schedule set forth in the Grant Notice, vest in the Option Shares in a series of
installments over his or her period of Board service. Vesting in the Option
Shares may be accelerated pursuant to the provisions of Paragraph 5, 6 or 7. In
no event, however, shall any additional Option Shares vest following Optionee's
cessation of service as a Board member.

5. CESSATION OF BOARD SERVICE. Should Optionee's service as a
Board member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:

(i) Should Optionee cease to serve as a Board
member for any reason (other than death or Permanent Disability) while
holding this option, then the period for exercising this option shall
be reduced to a twelve (12)-month period commencing with the date of
such cessation of Board service, but in no event shall this option be
exercisable at any time after the Expiration Date. During such limited
period of exercisability, this option may not be exercised in the
aggregate for more than the number of Option Shares (if any) in which
Optionee is vested on the date of his or her cessation of Board
service. Upon the earlier of (i) the expiration of such twelve (12)-
month period or (ii) the specified Expiration Date, the option shall
terminate and cease to be exercisable with respect to any vested Option
Shares for which the option has not been exercised.

(ii) Should Optionee die during the twelve
(12)-month period following his or her cessation of Board service, then
the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have
the right to exercise this option for any or all of the Option Shares
in which Optionee is vested at the time of Optionee's cessation of
Board service (less any Option Shares purchased by Optionee after such
cessation of Board service but prior to death). Such right of exercise
shall terminate, and this option shall accordingly cease to be
exercisable for those vested Option Shares, upon the earlier of (i) the
expiration of the twelve (12)- month period measured from the date of
Optionee's cessation of Board service or (ii) the specified Expiration
Date of the option term.

(iii) Should Optionee cease service as a Board
member by reason of death or Permanent Disability, then all Option
Shares at the time subject to this option

<PAGE> 3

but not otherwise vested shall immediately vest in full so that
Optionee (or the personal representative of Optionee's estate or the
person or persons to whom the option is transferred upon Optionee's
death) shall have the right to exercise this option for any or all of
the Option Shares as fully-vested shares of Common Stock at any time
prior to the earlier of (i) the expiration of the twelve (12)-month
period measured from the date of Optionee's cessation of Board service
or (ii) the specified Expiration Date.

(iv) Upon Optionee's cessation of Board
service for any reason other than death or Permanent Disability, this
option shall immediately terminate and cease to be outstanding with
respect to any and all Option Shares in which Optionee is not otherwise
at that time vested in accordance with the normal Vesting Schedule set
forth in the Grant Notice or the special vesting acceleration
provisions of Paragraph 6 or 7 below.

6. CORPORATE TRANSACTION.

(a) In the event of a Corporate Transaction, all
Option Shares at the time subject to this option but not otherwise vested shall
automatically vest so that this option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable for all
of the Option Shares at the time subject to this option and may be exercised for
all or any portion of such shares as fully-vested shares of Common Stock.
Immediately following the consummation of the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or its parent company.

(b) If this option is assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.

7. CHANGE IN CONTROL/HOSTILE TAKE-OVER.

(a) All Option Shares subject to this option at the
time of a Change in Control but not otherwise vested shall automatically vest so
that this option shall, immediately prior to the effective date of such Change
in Control, become fully exercisable for all of the Option Shares at the time
subject to this option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock. This option shall remain
exercisable for such fully-vested Option Shares until the earliest to occur of
(i) the specified Expiration Date, (ii) the sooner termination of this option in
accordance with Paragraph 5 or 6 or (iii) the surrender of this option under
Paragraph 7(b).

<PAGE> 4

(b) Optionee shall have an unconditional right
(exercisable during the thirty (30)-day period immediately following the
consummation of a Hostile Take-Over) to surrender this option to the Corporation
in exchange for a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the Option Shares at the time subject
to the surrendered option (whether or not those Option Shares are otherwise at
the time vested) over (ii) the aggregate Exercise Price payable for such shares.
This Paragraph 7(b) limited stock appreciation right shall in all events
terminate upon the expiration or sooner termination of the option term and may
not be assigned or transferred by Optionee.

(c) To exercise the Paragraph 7(b) limited stock
appreciation right, Optionee must, during the applicable thirty (30)-day
exercise period, provide the Corporation with written notice of the option
surrender in which there is specified the number of Option Shares as to which
the option is being surrendered. Such notice must be accompanied by the return
of Optionee's copy of this Agreement, together with any written amendments to
such Agreement. The cash distribution shall be paid to Optionee within five (5)
business days following such delivery date, and neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option surrender and cash distribution. Upon receipt of such cash
distribution, this option shall be cancelled with respect to the shares subject
to the surrendered option (or the surrendered portion), and Optionee shall cease
to have any further right to acquire those Option Shares under this Agreement.
The option shall, however, remain outstanding for the balance of the Option
Shares (if any) in accordance with the terms and provisions of this Agreement,
and the Corporation shall accordingly issue a new stock option agreement
(substantially in the same form as this Agreement) for those remaining Option
Shares.

8. ADJUSTMENT IN OPTION SHARES. 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 number and/or
class of securities subject to this option and (ii) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder; provided, however, that the aggregate Exercise Price shall
remain the same.

9. STOCKHOLDER RIGHTS. The holder of this option shall not
have any stockholder rights with respect to the Option Shares until such person
shall have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.

10. MANNER OF EXERCISING OPTION.

(a) In order to exercise this option for all or any
part of the Option Shares for which the option is at the time exercisable,
Optionee or, in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be, must take the
following actions:

<PAGE> 5

(i) To the extent the option is
exercised for vested Option Shares, the Secretary of the Corporation
shall be provided with written notice of the option exercise (the
"Exercise Notice") in substantially the form of Exhibit I attached
hereto, in which there is specified the number of vested Option Shares
to be purchased under the exercised option. To the extent that the
option is exercised for one or more unvested Option Shares, Optionee
(or other person exercising the option) shall deliver to the Secretary
of the Corporation a Purchase Agreement for those unvested Option
Shares.

(ii) The Exercise Price for the
purchased shares shall be paid in one or more of the following
alternative forms:

(A) cash or check made payable to
the Corporation's order; or

(B) to the extent the option is
exercised for vested Option Shares, through a special sale and
remittance procedure pursuant to which Optionee shall provide
irrevocable written instructions (I) to a
Corporation-designated brokerage firm to effect the immediate
sale of the vested shares purchased under the option 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 those shares plus the applicable
Federal, state and local income taxes required to be withheld
by the Corporation by reason of such exercise and (II) to the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale.

(iii) Appropriate documentation
evidencing the right to exercise this option shall be furnished the
Corporation if the person or persons exercising the option is other
than Optionee.

(iv) Appropriate arrangement must be
made with the Corporation for the satisfaction of all Federal, state
and local income tax withholding requirements applicable to the option
exercise.

(b) Except to the extent the sale and remittance
procedure specified above is utilized in connection with the exercise of the
option for vested Option Shares, payment of the Exercise Price for the purchased
shares must accompany the Exercise Notice or Purchase Agreement delivered to the
Corporation in connection with the option exercise.

(c) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate or certificates representing the
purchased Option Shares. To the extent any such

<PAGE> 6

Option Shares are unvested, the certificates for those Option Shares shall be
endorsed with an appropriate legend evidencing the Corporation's repurchase
rights and may be held in escrow with the Corporation until such shares vest.

(d) In no event may this option be exercised for
fractional shares.

11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.

12. COMPLIANCE WITH LAWS AND REGULATIONS.

(b) The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. However, the Corporation shall use its best efforts to
obtain all such applicable approvals.

13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraph 3 or 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.

14. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
evidenced hereby are made and granted pursuant to the automatic option grant
program in effect under the Plan and are in all respects limited by and subject
to the express terms and provisions of that program. The interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the State of Texas without resort to that State's conflict-of-laws rules.

15. NOTICES. Any notice required to be given or delivered to
the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the

<PAGE> 7

Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.

<PAGE> 8

EXHIBIT I

NOTICE OF EXERCISE

I hereby notify XeTel Corporation (the "Corporation") that I
elect to purchase _______ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $______ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
pursuant to the automatic option grant program under the Corporation's 1997
Stock Incentive Plan on____________ , 199__.

Concurrently with the delivery of this Exercise Notice to the
Secretary of the Corporation, I shall hereby pay to the Corporation the Exercise
Price for the Purchased Shares in accordance with the provisions of my agreement
with the Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
any Purchased Shares in which I am vested at the time of exercise.

, 199_
- --------------------------------
Date

-------------------------------------
Optionee

Address:
-----------------------------

-------------------------------------

Print name in exact manner
it is to appear on the
stock certificate: -------------------------------------

Address to which certificate
is to be sent, if different
from address above: -------------------------------------

-------------------------------------

Social Security Number: -------------------------------------

<PAGE> 9

APPENDIX

The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Automatic Stock Option Agreement.

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

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. COMMON STOCK shall mean the Corporation's common stock.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

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(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.

G. CORPORATION shall mean XeTel Corporation, a Delaware corporation.

H. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 10 of the Agreement.

I. EXERCISE PRICE shall mean the exercise price payable per share as
specified in the Grant Notice.

J. EXPIRATION DATE shall mean the date on which the option term expires
as specified in the Grant Notice.

K. 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 the
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.

L. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.

M. GRANT NOTICE shall mean the Notice of Grant of Automatic Stock
Option accompanying this Agreement, pursuant to which Optionee has been informed
of the basic terms of the option evidenced hereby.

N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than XeTel
Corporation or a person that directly or indirectly

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controls, is controlled by, or is under common control with, XeTel 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 XeTel Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to XeTel Corporation's stockholders which the Board
does not recommend such stockholders to accept.

O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

P. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.

Q. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option.

R. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.

S. PERMANENT DISABILITY shall mean the inability of Optionee to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.

T. PLAN shall mean Corporation's 1997 Stock Incentive Plan.

U. PURCHASE AGREEMENT shall mean the stock purchase agreement (in form
and substance satisfactory to the Corporation) which must be executed at the
time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of service as a Board member and (ii)
preclude the sale, transfer or other disposition of any of the Option Shares
purchased under such agreement while those Option Shares remain subject to the
repurchase right.

V. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.

W. 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 the
Hostile Take-Over.

X. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice, pursuant to which Optionee will vest in the Option Shares in one
or more installments over his or her period of Board service, subject to
acceleration in accordance with the provisions of the Agreement.

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