<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Xetel Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[XETEL LOGO]
July 10, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of XeTel Corporation, a Delaware Corporation (the "Company"),
which will be held at 10:30 A.M. Central Time on Tuesday, August 11, 1998, at
the Company's offices located at 2105 Gracy Farms Lane, Austin, Texas 78758.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote FOR each such
proposal.
Your vote is important to the Company. After reading the Proxy Statement,
please mark, date, sign and return by no later than July 22, 1998, the enclosed
proxy card in the accompanying reply envelope. If you decide to attend the
Annual Meeting, please notify the Secretary of the Company that you wish to vote
in person and your proxy will not be voted. YOUR SHARES CANNOT BE VOTED UNLESS
YOU MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING
IN PERSON.
A copy of the Company's Fiscal Year 1998 Annual Report to Stockholders is
also enclosed.
The Board of Directors and Management look forward to seeing you at the
Annual Meeting.
Sincerely,
/s/ ANGELO A. DECARO, JR.
Angelo A. DeCaro, Jr.
President and Chief Executive
Officer
- --------------------------------------------------------------------------------
2105 GRACY FARMS LANE - AUSTIN, TEXAS 78758 - (512) 435-1000 - FAX (512)
834-9250
- --------------------------------------------------------------------------------
<PAGE> 3
[Xetel Logo]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 11, 1998
To the Stockholders of XeTel Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of XeTel Corporation, a Delaware corporation (the "Company"), will be
held at 10:30 A.M. Central Time on Tuesday, August 11, 1998, at the Company's
offices located at 2105 Gracy Farms Lane, Austin, Texas 78758 for the following
purposes, as more fully described in the Proxy Statement accompanying this
Notice:
(i) to elect two Class III Directors to serve until the annual
stockholders' meeting in the year 2001, or until their
successors are elected and qualified;
(ii) to approve an amendment to the Company's 1997 Stock Incentive
Plan (the "1997 Plan") to increase the number of shares of
Common Stock authorized for issuance over the term of the 1997
Plan by an additional 500,000 shares;
(iii) to transact such other business as may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice.
Only stockholders of record at the close of business on June 19, 1998 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of the stockholders entitled to vote at the Annual Meeting
will be available for inspection at the Company's offices, 2105 Gracy Farms
Lane, Austin, Texas 78758 for at least 10 days prior to the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read the
accompanying proxy statement, which describes matters to be voted upon at the
Annual Meeting, and mark, date, sign and return the enclosed proxy card in the
reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to ensure that all your shares will be voted. You may revoke your proxy
at any time prior to the Annual Meeting. If you attend the Annual Meeting and
vote by ballot, your proxy vote will be revoked automatically and only your vote
at the Annual Meeting will be counted. The prompt return of your proxy card will
assist us in preparing for the Annual Meeting.
By order of the Board of Directors,
/s/ JULIAN C. HART
Julian C. Hart
Secretary
Austin, Texas
July 10, 1998
YOUR VOTE IS IMPORTANT
IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, OR IF YOU DO PLAN TO
ATTEND BUT WISH TO VOTE BY PROXY, PLEASE COMPLETE, SIGN, DATE AND RETURN
PROMPTLY THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 4
XETEL CORPORATION
---------------------
PROXY STATEMENT
---------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 11, 1998
GENERAL INFORMATION FOR STOCKHOLDERS
THE ENCLOSED PROXY ("PROXY") IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS (THE "BOARD") OF XETEL CORPORATION, A DELAWARE CORPORATION (THE
"COMPANY"), FOR USE AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS (THE "ANNUAL
MEETING") TO BE HELD AT 10:30 A.M. CENTRAL TIME ON TUESDAY, AUGUST 11, 1998, AT
THE COMPANY'S OFFICES LOCATED AT 2105 GRACY FARMS LANE, AUSTIN, TEXAS 78758, AND
AT ANY ADJOURNMENT THEREOF.
This proxy statement and the accompanying form of Proxy are to be first
mailed to the stockholders entitled to vote at the Annual Meeting on or about
July 10, 1998.
RECORD DATE AND VOTING
Stockholders of record at the close of business on June 19, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. As
of the close of business on such date, there were 9,067,922 shares of the
Company's common stock, $0.0001 par value per share (the "Common Stock"),
outstanding and entitled to vote, held by 107 registered stockholders of record
in street name for the benefit of approximately 1,900 owners. No shares of the
Company's preferred stock, par value $0.0001, were outstanding. Each stockholder
is entitled to one vote for each share of Common Stock held by such stockholder
as of the record date. If a choice as to the matters coming before the Annual
Meeting has been specified by a stockholder on the Proxy, the shares will be
voted accordingly. If no choice is specified, the shares will be voted IN FAVOR
OF the approval of the proposals described in the notice of annual meeting and
in this proxy statement. Abstentions and broker non-votes (i.e., the submission
of a Proxy by a broker or nominee specifically indicating the lack of
discretionary authority to vote on the matter) are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Abstentions will be counted towards the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes,
whereas broker non-votes will not be counted for purposes of determining whether
a proposal has been approved or not.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Investor Relations in writing at
2105 Gracy Farms Lane, Austin, Texas 78758 or by telephone at (512) 435-1228. To
provide the Company sufficient time to arrange for reasonable assistance, please
submit such requests by July 28, 1998.
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED,
POSTAGE-PREPAID, RETURN ENVELOPE BY NO LATER THAN JULY 22, 1998, SO THAT IF YOU
ARE UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
REVOCABILITY OF PROXIES
Any stockholder giving a Proxy pursuant to this solicitation may revoke it
at any time prior to its exercise by filing with the Assistant Secretary of the
Company at its offices at 2105 Gracy Farms Lane, Austin, Texas 78758 a written
notice of such revocation or a duly executed Proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
<PAGE> 5
SOLICITATION
This solicitation of Proxies is made for the Board, and the Company will
bear the costs of the solicitation, including the expense of preparing,
assembling, printing and mailing this proxy statement and the material used in
this solicitation of proxies. It is contemplated that proxies will be solicited
principally through the mails, but directors, officers and regular employees of
the Company may solicit proxies personally or by telephone. Although there is no
formal agreement to do so, the Company may reimburse banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding the proxy materials to their principals. The Company may pay for and
use the services of individuals or companies not regularly employed by the
Company in connection with the solicitation of proxies if the Board determines
that it is advisable.
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED MARCH 28,
1998 (THE "ANNUAL REPORT") HAS BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO
NOTICE OF AND TO VOTE AT THE ANNUAL MEETING. THE ANNUAL REPORT IS NOT
INCORPORATED INTO THIS PROXY STATEMENT AND IS NOT CONSIDERED PROXY SOLICITING
MATERIAL.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE -- ELECTION OF CLASS III DIRECTORS
GENERAL
The Company's Board is divided into three classes, with the term of office
of one class expiring each year. The Company currently has five Directors, with
one Director in Class I, two Directors in Class II and two Directors in Class
III. The terms of office of Directors Angelo A. DeCaro, Jr. and Ronald W. Guire
expire at this Annual Meeting. The term of office of Sam L. Densmore expires at
the 1999 annual meeting and the terms of office of Kozo Sato and Raimon L.
Conlisk expire at the 2000 annual meeting. At this Annual Meeting, stockholders
will be asked to elect two (2) Directors with a term of three (3) years.
VOTE REQUIRED
Each nominee receiving the affirmative votes of a majority of the shares
present in person or represented by proxy at the Annual Meeting and entitled to
vote on the election of directors shall be elected to the Board of Directors.
Votes withheld from any Director are counted for purposes of determining the
presence or absence of a quorum, but have no legal effect under Delaware law.
While there is no definitive statutory or case law authority in Delaware as to
the proper treatment of abstentions and broker non-votes in the election of
Directors, the Company believes that both abstentions and broker non-votes
should be counted for purposes of whether a quorum is present at the Annual
Meeting. In the absence of precedent to the contrary, the Company intends to
treat abstentions and broker non-votes with respect to the election of directors
in this manner.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's nominees named below, two of whom are
presently directors of the Company. If any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who is designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director.
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<PAGE> 6
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE NOMINEES LISTED BELOW.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
The name of the nominees and certain information about each are set forth
below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION/PRINCIPAL OCCUPATION
- --------------- --- -----------------------------
<S> <C> <C>
Angelo A. DeCaro, Jr.... 46 President, Chief Executive Officer and Director (Class III)
Ronald W. Guire......... 49 Chairman of the Board of Directors (Class III)
</TABLE>
MR. DECARO has served as a Director and President of the Company since
1993, and in August 1995 was elected its Chief Executive Officer. Mr. DeCaro was
employed by IBM from 1974 to 1993, and served as Director of Operations-Printed
Wiring Board and Services at IBM's circuit board facility in Austin, Texas from
1992 to 1993, and Plant Manager of the same facility from 1989 to 1992.
MR. GUIRE has served as Chairman of the Board of Directors since April
1998. Prior to April 1998, Mr. Guire served as a Director of the Company from
1986 to April 1998 and as Secretary from 1991 to September 1996. Mr. Guire has
served with EXAR Corporation ("EXAR"), a semiconductor designer and
manufacturer, since 1984 including as Executive Vice President since June 1995,
as Senior Vice President from 1989 to 1995 and as a director, Secretary of the
Board of Directors and Chief Financial Officer since 1985. Mr. Guire was
formerly a partner in the public accounting firm of Graubart & Co. from 1979 to
1985.
INCUMBENT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE ANNUAL MEETING
The names and certain other information about the Directors whose terms of
office continue after the Annual Meeting are set forth below:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION/PRINCIPAL OCCUPATION
- --------------- --- -----------------------------
<S> <C> <C>
Kozo Sato.................................. 58 Director (Class II)
Raimon L. Conlisk.......................... 75 Director (Class II)
Sam L. Densmore............................ 57 Director (Class I)
</TABLE>
MR. SATO has served as a Director of the Company since 1986 and as Chairman
of the Board of Directors from 1986 to April 1998. Mr. Sato previously served as
the Company's Chief Executive Officer from 1986 to August 1995. Mr. Sato has
served as a director of Rohm Americas, Inc., a wholly-owned subsidiary of Rohm
Co., Ltd., Japan, a diversified electronics company since February 1997. From
1984 to October 1997, Mr. Sato also served as the Chief Executive Officer and
President of Rohm U.S.A., Inc. ("Rohm"), a wholly-owned subsidiary of Rohm Co.,
Ltd., Japan.
MR. CONLISK has served as a Director of the Company since 1991. Since 1977,
Mr. Conlisk has served as President of Conlisk Associates, an international
management consulting firm serving high technology companies. Mr. Conlisk
formerly served with Quantic Industries, Inc., a privately held manufacturer of
electronic systems and devices, as a Director from 1970 until his retirement in
1990, as Chairman from 1984 until his retirement and as President from 1984 to
1989. From 1970 to 1973, and from 1987 to 1990, Mr. Conlisk served as a director
of the American Electronics Association. Mr. Conlisk has served as Chairman of
the Board of EXAR since 1994, after serving as a Director from 1985 and Vice
Chairman of the Board of EXAR from 1990. He has served as Chairman of the Board
of SBE, since 1997, after serving as a Director of SBE from 1991.
MR. DENSMORE has served as a Director of the Company since May 1997. Mr.
Densmore has served with RF Monolithics, Inc., a radio frequency component and
module designer and manufacturer, since 1993 including as President and Chief
Executive Officer since 1996, Director since 1994 and Executive Vice President,
Chief Operating Officer, Chief Financial Officer and Secretary from 1993 to
1996. In 1991, Mr. Densmore founded the IBC Group, a private consulting company,
and served as its President from 1991
3
<PAGE> 7
to 1993. From 1984 to 1990, Mr. Densmore was employed at Recognition
International, Inc., a document image processing company. During that period,
Mr. Densmore served as Senior Vice President, Treasurer and Chief Financial
Officer from 1989 to 1990 and Vice President of Corporate Development from 1984
to 1989. Mr. Densmore is a Certified Public Accountant.
There is no family relationship between any Director of the Company.
PROPOSAL TWO -- APPROVAL OF AN AMENDMENT TO THE COMPANY'S
1997 STOCK INCENTIVE PLAN
The Company's shareholders are being asked to approve an amendment to the
Company's 1997 Stock Incentive Plan (the "1997 Plan") to increase the maximum
number of shares of Common Stock authorized for issuance over the term of the
1997 Plan by an additional 500,000 shares to 2,412,100 shares reserved after
approval at this Annual Meeting.
The 1997 Plan was adopted by the Board on June 18, 1997 as the successor to
the Company's 1992 Stock Option Plan (the "1992 Plan") and was approved by the
stockholders in August 1997. The 1997 Plan became effective on August 12, 1997,
and at that time all outstanding options under the 1992 Plan were incorporated
into the 1997 Plan and the 1992 Plan was accordingly terminated as to all future
option grants. The 1997 Plan is designed to serve as a comprehensive equity
incentive program to attract and retain the services of individuals essential to
the Company's long-term growth and financial success. Accordingly, officers and
other key employees, non-employee Board members and consultants and other
advisors in the service of the Company or any subsidiary corporation have the
opportunity to acquire a meaningful equity interest in the Company through their
participation in the 1997 Plan.
The amendment to the 1997 Plan for which stockholder approval is sought
under this Proposal Two was adopted by the Board on April 20, 1998, subject to
stockholder approval at this Annual Meeting. The proposed share increase will
assure that a sufficient reserve of Common Stock is available under the 1997
Plan in order to achieve the objectives of the 1997 Plan.
The following is a summary of the principal features of the 1997 Plan
including the amendment which will become effective upon stockholder approval of
this Proposal Two. The summary, however, does not purport to be a complete
description of all the provisions of the 1997 Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Corporate Secretary at the Company's principal executive
offices in Austin, Texas.
EQUITY INCENTIVE PROGRAMS
The 1997 Plan contains four separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Salary Investment Option Grant
Program, (iii) a Stock Issuance Program and (iv) an Automatic Option Grant
Program. The principal features of these programs are described below. The 1997
Plan (other than the Automatic Option Grant Program) is administered by the
Compensation Committee of the Board (the "Committee"). The Committee has
complete discretion (subject to the provisions of the 1997 Plan) to authorize
option grants and direct stock issuances under the 1997 Plan. However, all
grants under the Automatic Option Grant Program are and will be made in strict
compliance with the provisions of that program, and no administrative discretion
will be exercised by the Committee with respect to the grants made thereunder.
SHARE RESERVE
2,412,100 shares of Common Stock have been reserved for issuance over the
ten-year term of the 1997 Plan, including the 500,000 share increase subject to
stockholder approval of this Proposal Two. Of the 500,000 share increase,
100,000 shares will be reserved for issuance under the Stock Issuance and
Automatic Option Grant Programs and the remaining 400,000 shares will be
reserved for issuance under the Discretionary Option Grant and Salary Investment
Option Grant Programs. In no event may any one participant in the
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<PAGE> 8
1997 Plan be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances for more than 400,000 shares in any calendar
year.
As of June 1, 1998, options for 1,532,075 shares of Common Stock were
outstanding under the 1997 Plan, and approximately 380,025 shares of Common
Stock remained available for future option grants; 70,000 shares for the Stock
Issuance and Automatic Option Grant Programs and 310,025 shares for the
Discretionary and Salary Investment Option Grant Programs.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate and to each participant) under
the 1997 Plan and to the securities and exercise price under each outstanding
option.
ELIGIBILITY
Officers and employees, non-employee Board members and consultants and
independent advisors in the service of the Company or any parent or subsidiary
corporation (whether now existing or subsequently established) are eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs, and
officers and other selected employees are also be eligible to participate in the
Salary Investment Option Grant Program. Only non-employee members of the Board
are eligible to participate in the Automatic Option Grant Program.
As of March 28, 1998 approximately 7 executive officers, 519 other
employees and 4 non-employee Board members were eligible to participate in the
1997 Plan, and 4 non-employee Board members were eligible to participate in the
Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1997 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On June 1, 1998, the closing selling price per share was
$4.38.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than eighty five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Committee has complete discretion to extend
the period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
The Committee is authorized to issue limited stock appreciation rights in
connection with option grants made to officers of the Company under the
Discretionary Option Grant Program. Any option with such a limited stock
appreciation right in effect may be surrendered to the Company upon the
successful completion of a hostile take-over of the Company. In return for the
surrendered option, the officer will be entitled to a cash distribution from the
Company in an amount per surrendered option share equal to the excess of (a) the
take-over price per share over (b) the exercise price payable for such share.
The Committee has the authority to effect the cancellation of outstanding
options under the Discretionary Option Grant Program which have exercise prices
in excess of the then current market price of Common Stock and to issue
replacement options with an exercise price based on the market price of Common
Stock at the time of the new grant.
5
<PAGE> 9
SALARY INVESTMENT OPTION GRANT PROGRAM
The Committee has complete discretion in implementing the Salary Investment
Option Grant Program for one or more calendar years and in selecting the
officers and other eligible individuals who are to participate in the program
for those years. As a condition to such participation, each selected individual
must, prior to the start of the calendar year of participation, file with the
Committee an irrevocable authorization directing the Company to reduce his or
her base salary for the upcoming calendar year by a designated multiple of one
percent (1%). However, the salary reduction amount may not be less than Five
Thousand Dollars ($5,000) and may not be more than Fifty Thousand Dollars
($50,000). To the extent the Committee approves the salary reduction
authorization, the individual who filed that authorization will be granted an
option under the Salary Investment Option Grant Program on or before the last
trading day in January of the calendar year for which that salary reduction is
to be in effect.
Each option will be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
- The exercise price per share will be equal to one-third of the fair
market value per share of Common Stock on the option grant date, and the
number of option shares will be determined by dividing the total dollar
amount of the authorized reduction in the participant's base salary by
two-thirds of the fair market value per share of Common Stock on the
option grant date. As a result, the total spread on the option (the fair
market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will equal the dollar amount of
the optionee's base salary invested in the option.
- The option will become exercisable for the option shares in a series of
twelve successive equal monthly installments upon the optionee's
completion of each calendar month of service in the calendar year for
which the salary reduction is in effect.
- Each option will remain outstanding for vested shares until the earlier
of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date the
optionee's service terminates.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than eighty five percent (85%) of fair market value per share of Common
Stock, payable in cash or through a promissory note payable to the Company.
Shares may also be issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Committee, however, has the discretionary authority at
any time to accelerate the vesting of any unvested shares.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member, whether through election by the stockholders or
appointment by the Board, will receive, at the time of such initial election or
appointment, an automatic option grant for 15,000 shares of Common Stock. In
addition, on the date of each Annual Stockholders Meeting each non-employee
Board member (including individuals who first joined the Board prior to the 1997
Annual Stockholders Meeting) who is to continue to serve as a non-employee Board
member after such meeting, will automatically be granted an option grant for
5,000 shares. There is no limit on the number of such 5,000 share option grants
any one non-employee Board member may receive over his or her period of Board
service.
Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten years measured from the option grant date.
6
<PAGE> 10
Each option will be immediately exercisable for all the option shares, but
any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
Each initial 15,000-share option grant will vest (and the Company's repurchase
rights will lapse) in three (3) successive equal installments upon completion of
each year of Board service measured from the option grant date. Each annual
5,000-share option grant will vest (and the Company's repurchase rights will
lapse) upon completion of one (1) year of service measured from the option grant
date.
The shares subject to each automatic option grant will immediately vest
upon the optionee's death or permanent disability. In addition, upon the
successful completion of a hostile take-over, each automatic option grant may be
surrendered to the Company for a cash distribution per surrendered option share
in an amount equal to the excess of (a) the take-over price per share over (b)
the exercise price payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are to be assigned to the successor corporation. The
Committee has complete discretion to grant one or more options under the
Discretionary Option Grant Program which will become fully exercisable for all
option shares in the event those options are assumed in the acquisition and the
optionee's service is involuntarily terminated within a designated period (not
to exceed 18 months) following such acquisition. The Committee has similar
discretion to grant options which will become fully exercisable for all the
option shares upon a hostile change in control of the Company (whether by
successful tender offer for more than 50% of the outstanding voting stock or by
proxy contest for the election of Board members) or upon the subsequent
termination of the individual's service within a designated period (not to
exceed 18 months). The Committee may also provide for the automatic vesting of
any outstanding shares under the Stock Issuance Program upon similar terms and
conditions. Each option outstanding under the Salary Investment Option Grant and
Automatic Option Grant Programs will automatically accelerate in the event of
such an acquisition or hostile change in control of the Company.
The Committee extended these acceleration provisions to options
incorporated into the 1997 Plan from the 1992 Plan.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Committee may permit one or more officers of the Company to pay the
exercise price of outstanding options or the purchase price of shares under the
1997 Plan by delivering a promissory note payable in installments. The Committee
will determine the terms of any such promissory note. However, the maximum
amount of financing provided any such officer may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares. Any such promissory note may
be subject to forgiveness in whole or in part, at the discretion of the
Committee, over the participant's period of service.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1997 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the 1997 Plan at any time, and the 1997 Plan will in all events terminate on
June 17, 2007.
7
<PAGE> 11
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted between
March 30, 1997 and June 1, 1998, together with the weighted average exercise
price payable per share. During the 1998 fiscal year, options were granted to
eligible employees under the 1997 Plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
---- ------------- --------------
<S> <C> <C>
Angelo A. DeCaro, Jr.
President, Chief Executive Officer and Director.......... 25,000 5.00
William A. Peten
Senior Vice President, Corporate Materials and Systems... 10,000 5.00
Richard S. Chilinski
Vice President, Chief Financial Officer and Assistant
Secretary................................................ 10,000 5.00
Norman E. O'Shea
Vice President, General Manager XeTel West............... 15,000 5.00
Julian C. Hart
Senior Vice President and Chief Technical Officer........ 10,000 5.00
All current executive officers as a group (7 persons)...... 160,000 4.75
All non-employee Directors as a group (4 persons).......... 30,000 5.00
All employees, including current officers who are not
executive officers as a group (39 persons)............... 225,500 5.14
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1997 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized
at the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or
otherwise disposed of. For Federal tax purposes, dispositions are divided
into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two years after the option grant
date and more than one year after the exercise date. If either of these two
holding periods is not satisfied, then a disqualifying disposition will
result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for
the taxable year in which such disposition occurs, equal to the excess of
(i) the fair market value of such shares on the option exercise date over
(ii) the exercise price paid for the shares. In no other instance will the
Company be allowed a deduction with respect to the optionee's disposition
of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised,
equal to the excess of the fair market value of the purchased shares on the
exercise date over the exercise price paid for the shares, and the optionee
will be required to satisfy the tax withholding requirements applicable to
such income.
8
<PAGE> 12
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1997 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will not qualify as performance-based
compensation for purposes of Code Section 162(m) and will have to be taken into
account for purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
compensation expense to the Company's earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the grant
or issue date. Such expense will be accruable by the Company over the period
that the option shares or issued shares are to vest. Option grants or stock
issuances at 100% of fair market value will not result in any charge to the
Company's earnings. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis. Footnote disclosure will be required as to the
impact the outstanding options under the 1997 Plan would have upon the Company's
reported earnings were the value of those options treated as compensation
expense.
NEW PLAN BENEFITS
As of June 1, 1998, no options have been granted, and no direct stock
issuances have been made, on the basis of the 500,000-share increase summarized
in this Proposal Two. At the 1998 Annual Meeting, each individual who is to
continue to serve as a non-employee Board member will receive an option grant
under the Automatic Option Grant Program on the date of the meeting to purchase
5,000 shares of Common Stock at an exercise price equal to the fair market value
per share of Common Stock on the grant date.
9
<PAGE> 13
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1998 Annual Meeting
is required for approval of the amendment to the 1997 Plan. Should such
stockholder approval not be obtained, then the 500,000-share increase to the
1997 Plan will not be implemented and any stock options granted on the basis of
the 500,000-share increase to the 1997 Plan will immediately terminate without
becoming exercisable for the shares of Common Stock subject to those options,
and no additional options will be granted on the basis of such share increase.
The 1997 Plan will, however, continue to remain in effect, and option grants and
stock issuances may continue to be made pursuant to the provisions of the 1997
Plan in effect prior to the amendment summarized in this Proposal Two, until the
available reserve of Common Stock as last approved by the stockholders has been
issued pursuant to option grants and direct stock issuances made under the 1997
Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 1997 PLAN.
10
<PAGE> 14
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or awarded by the
Company during fiscal 1998 to the President and Chief Executive Officer and each
of the four other most highly compensated officers of the Company whose total
annual compensation in such year exceeded $100,000 (collectively, the "Named
Executive Officers") for services rendered in all capacities to the Company and
its subsidiaries for the fiscal years ended March 30, 1996, March 29, 1997 and
March 28, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
-------------------------------- -----------------------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION RESTRICTED STOCK UNDERLYING COMPENSATION
YEAR SALARY BONUS ($)(1) ($)(2) OPTIONS(#) ($)(3)
------ ------- ------ ------------ ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Angelo A. DeCaro, Jr. .... 1998 180,000 10,000 4,800 29,688 25,000 2,375
President and Chief 1997 168,462 10,000 4,800 -- 70,000 2,106
Executive Officer and 1996 161,538 66,083 4,800 -- 20,000 27,457
Director
William A. Peten.......... 1998 134,904 5,000 -- 14,844 10,000 1,811
Senior Vice President, 1997 122,855 10,000 -- -- 30,000 1,903
Corporate Materials and 1996 112,115 29,370 -- -- 12,000 1,449
Systems
Richard S. Chilinski...... 1998 132,500 5,000 -- 14,844 10,000 1,781
Vice President, Chief 1997 104,807 10,000 -- -- 30,000 370
Financial Officer and 1996 95,000 25,365 -- -- 72,000(5) 20,000
Assistant Secretary
Norman E. O'Shea.......... 1998 135,562 -- 4,000 -- 15,000 1,585
Vice President, General 1997 40,872(4) 14,762 1,600 -- 40,000(4) 1,226
Manager XeTel West
Julian C. Hart............ 1998 137,750 -- -- -- 10,000 --
Senior Vice President 1997 130,000 -- -- -- 10,000 --
and Chief Technical 1996 117,610 33,040 -- -- 12,000 780
Officer
</TABLE>
- ---------------
(1) Represents car allowances.
(2) Messrs. DeCaro, Peten and Chilinski were issued 5,000, 2,500 and 2,500,
respectively, shares of Common Stock on April 20, 1998, based on fiscal 1998
performance. The market price of the shares on the award date was $5.94. The
shares will vest in full upon completion of two years of continued service.
As of the last day of fiscal 1998, Messrs. DeCaro, Peten and Chilinski had
no shares of restricted stock of the Company.
(3) Represents matching contributions under the Company's 401(k) Profit Sharing
Plan and special transaction bonuses for Messrs. DeCaro and Chilinski in
fiscal 1996.
(4) Mr. O'Shea joined the Company in December 1996, and at such time was granted
40,000 options in connection with his joining the Company.
(5) For Mr. Chilinski, includes 60,000 options granted in April, 1995 in
connection with his joining the Company in January, 1995.
11
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the 1997 Plan to the Named Executive Officers during the 1998
fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------- ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM ($)(5)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SHARE)(3) DATE(4) 5% 10%
---- ---------- -------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Angelo A. DeCaro, Jr....... 25,000 6.02% 5.00 8/12/04 50,888 118,590
William A. Peten........... 10,000 2.41% 5.00 8/12/04 20,355 47,436
Richard S. Chilinski....... 10,000 2.41% 5.00 8/12/04 20,355 47,436
Norman E. O'Shea........... 15,000 3.61% 5.00 8/12/04 30,533 71,154
Julian C. Hart............. 10,000 2.41% 5.00 8/12/04 20,355 47,436
</TABLE>
- ---------------
(1) Each option was granted on August 12, 1997 under the 1997 Plan. Each option
will become exercisable as to twenty-five percent (25%) of the shares upon
the optionee's completion of one (1) year of service measured from the grant
date and with respect to the balance of the shares in a series of equal
annual installments over three (3) years of service thereafter. The option
will become immediately exercisable upon an acquisition of the Company by
merger or asset sale, unless the option is assumed by the acquiring entity.
Any assumed options will become immediately exercisable following an
optionee's involuntary termination of service, other than for cause, if such
involuntary termination occurs within 18 months, following the acquisition
of the Company by merger or asset sale or a change in control of the
Company.
(2) The Company granted options to purchase an aggregate of 415,500 shares of
Common Stock to employees during fiscal 1998, including options granted to
Named Executive Officers.
(3) The exercise price may be paid in cash or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Plan
Administrator may also assist an optionee in the exercise of an option by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares, together with any federal and state income tax liability
incurred by the optionee in connection with such exercise. The Plan
Administrator has the discretionary authority to reprice outstanding options
under the Plan through the cancellation of those options and the grant of
replacement options with an exercise price based on the lower fair market
value of the option shares on the regrant date.
(4) Each option has maximum term of seven (7) years, subject to earlier
termination in the event of the optionee's cessation of service with the
Company.
(5) Potential realizable value is based on assumption that the market price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the seven (7) year option term.
There can be no assurance that the actual stock price appreciation over the
seven (7) year option term will be at the assumed five percent (5%) and ten
percent (10%) levels or at any other defined level.
12
<PAGE> 16
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended March 28, 1998 for each of the Named
Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
VALUE REALIZED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES (MARKET PRICE AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
ACQUIRED ON EXERCISE DATE LESS --------------------------- ---------------------------
NAME EXERCISE (#) EXERCISE PRICE) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Angelo A. DeCaro, Jr...... -- -- 157,500 87,500 352,900 25,300
William A. Peten.......... -- -- 93,500 38,500 216,780 15,180
Richard S. Chilinski...... -- -- 43,500 68,500 91,080 91,080
Norman E. O'Shea.......... -- -- 10,000 45,000 -- --
Julian C. Hart............ -- -- 43,500 23,500 101,880 15,180
</TABLE>
- ---------------
(1) Based on the fair value of the Company's Common Stock as of March 27, 1998
of $3.75 per share, less the exercise price for such shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was comprised of Messrs. Sato, Guire and Conlisk
in fiscal 1998. Mr. Conlisk is also a member of the Compensation Committees of
the Board of Directors of both EXAR and SBE, Inc. Mr. Guire, the Chairman of the
Company, is a director of EXAR and serves as the Secretary of the Board of
Directors, Executive Vice President and Chief Financial Officer of EXAR. Mr.
Sato, a director, served as Chairman of the Board of Directors from 1986 to
April 1998, he also served as its Chief Executive Officer from 1986 to August
1995.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers
and Directors, and persons who own more than ten percent (10%) of a registered
class of the Company's equity securities, to file reports of ownership on Form 3
and changes in ownership on Form 4 or Form 5 with the Securities and Exchange
Commission ("SEC"). Such officers, Directors and 10% stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms received
by it, the Company believes that, during the fiscal year ended March 28, 1998,
all reporting requirements under Section 16(a) were met in a timely manner by
its officers, Directors and greater than ten percent beneficial owners.
REPORT OF COMPENSATION COMMITTEE
GENERAL
The Compensation Committee of the Board of Directors (the "Committee"), is
comprised of non-employee Directors. The current members of the Committee are
Messrs. Sato, Guire and Conlisk. No current executive officer has ever served as
a member of the board of directors or compensation committee of any other entity
that has or has had one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee. The Committee is
responsible for recommending to the Board the compensation programs and levels
of pay for executive officers. The Committee administers the Company's stock
option plan, including the awarding of grants thereunder. The Committee also
advises management on pay programs and levels for other employees.
COMPENSATION PHILOSOPHY AND OBJECTIVES
Through the Compensation Committee, the Company has developed and
implemented compensation policies, plans and programs which seek to tie
executive compensation to the attainment of Company-wide,
13
<PAGE> 17
business unit and individual performance objectives, while providing
compensation sufficient to attract, motivate and retain talented executives who
will contribute to the Company's long-term success. In furtherance of these
goals, annual base salaries are generally set at levels that take into account
both competitive and performance factors. The Company also relies to a
significant degree on annual and longer-range incentive compensation to attract
and motivate its executives. Annual incentive compensation is variable and is
closely tied to corporate performance to encourage profitability, growth and the
enhancement of stockholder value. During fiscal 1998, compensation for the
Company's executive officers consisted of base salary, annual cash incentive
opportunities, longer-term equity incentives, participation as eligible
employees (with all other eligible employees of the Company) in the Company's
401(k) Savings Plan, an auto allowance for certain executive officers, and
certain benefits available generally to employees of the Company.
BASE SALARY
The Compensation Committee fixes the base salary of the President and Chief
Executive Officer and reviews and approves base salaries for each of the
Company's other executive officers annually in connection with annual
performance reviews. In adjusting these base salaries, the Compensation
Committee examines both qualitative and quantitative factors relating to
corporate and individual performance. In many instances, the qualitative factors
necessarily involve a subjective assessment by the Committee. The Committee
considers a mix of factors and evaluates individual performance against that mix
both in absolute terms, in relation to the executive's peers within the Company
and competitive salary survey information.
To assist in recruiting highly qualified management, the Committee
generally targets base salaries paid to executive officers at competitive
levels, depending on individual qualifications and experience.
During fiscal 1998, the Compensation Committee increased the salary of the
President and Chief Executive Officer, resulting in an adjusted salary
comparable to mid-range salaries paid to chief executive officers of
comparable-sized high technology companies. Based on the Compensation
Committee's conclusion that salaries of the Company's other executive officers
should be aligned with the salaries of executive officers at comparable-sized
high technology companies, salary adjustments for the other executive officers
ranged up to 12% in fiscal 1998.
ANNUAL INCENTIVE OPPORTUNITIES
The Company maintains annual cash incentive bonus programs to reward
executive officers and other key employees for attaining defined performance
goals. For most executive officers and other key employees, bonuses are based
primarily on Company-wide performance targets. For senior management personnel,
while Company-wide performance is a factor, significant weight is also given to
individual performance and the performance of particular operation groups within
the Company. Company-wide, operating group and individual targets are
established annually for these bonus programs.
The Company maintains an annual incentive award program designed to reward
management and other key employees for Company-wide, business unit and
individual performance. Under the program, executive officers (including the
Chief Executive Officer) receive a percentage of their base salary based upon
the achievement of targeted levels of performance. These levels of performance
include but are not limited to, the Company's level of net sales and earnings
and other criteria related to asset management, productivity, quality and
throughput to the extent that achievement of such goals are affected by the
individual's performance. For the Chief Executive Officer, the target percentage
for fiscal 1998 was 45% of base salary, and the target percentage was 30% for
the other executive officers. Target awards are subject to a multiplier,
calculated on the basis of actual results against each of the performance
criteria in the cases of the Chief Executive officer and other officers. For
fiscal 1998, no bonuses were paid under this program based upon the Company's
performance.
EQUITY INCENTIVES
The Company has utilized the 1997 Plan to further align the interests of
stockholders and management by creating common incentives related to the
possession by management of substantial economic interest in
14
<PAGE> 18
the long-term appreciation of the Company's stock. Generally, options under the
Plan are granted with exercise prices set at the fair market value of the
underlying stock on the date of grant, have a term of seven years, and are
subject to vesting over four years. In determining the size of an option to be
granted to an executive officer, the Committee takes into account the officer's
position and level of responsibility within the Company, the officer's existing
stock and unvested option holdings, the potential reward to the officer if the
stock price appreciates in the public market, and the competitiveness of the
officer's overall compensation arrangements, including stock options, although
outstanding performance by an individual may also be taken into consideration.
Option grants may also be made to new executives upon commencement of employment
and, on occasion, to executives in connection with a significant change in job
responsibility.
In fiscal 1998, the Committee granted stock options to executive officers.
After considering the criteria discussed above, the Committee granted to Mr.
DeCaro options to purchase 25,000 shares. In addition to amounts granted
associated with joining the Company, the Committee also granted options to other
executive officers to acquire shares ranging in aggregate amounts from 10,000 to
50,000 shares. In general, in determining the size of all such grants, the
Committee focused in particular on its conclusion, based on experience and
informal information subjectively evaluated, that the stock and option holdings
of the Company's executive officers were below the levels needed to provide
appropriate equity incentives.
COMPLIANCE WITH INTERNAL REVENUE CODE 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
compensation paid to the Company's executive officers for the 1998 fiscal year
did not exceed the $1 million limit per officer, nor is it expected that the
compensation to be paid to the Company's executive officers for fiscal 1999 will
exceed that limit. Because it is very unlikely that the cash compensation
payable to any of the Company's executive officers in the foreseeable future
will approach the $1 million limit, the Compensation Committee has decided at
this time not to take any other action to limit or restructure the elements of
cash compensation payable to the Company's executive officers. The Compensation
Committee will reconsider this decision should the individual compensation of
any executive officer ever approach the $1 million level.
RONALD W. GUIRE
KOZO SATO
RAIMON L. CONLISK
15
<PAGE> 19
STOCK PERFORMANCE GRAPH
The graph below depicts the Company's stock price as an index assuming $100
invested on February 14, 1996 (the date of the Company's initial public
offering), along with the composite prices of companies listed in the Nasdaq
Electronic Component Index and Nasdaq Stock Composite Index. This information
has been provided to the Company by Nasdaq. The comparisons in the graph are
required by regulations of the Securities and Exchange Commission and are not
intended to forecast or be indicative of the possible future performance of the
Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE FEB. 14, 1996**
Among XeTel Corporation,
the Nasdaq Electronics Component Index and
The Nasdaq Stock Composite Index - US
<TABLE>
<CAPTION>
Nasdaq
Electronics Nasdaq Stock
Measurement Period XeTel Component Composite
(Fiscal Year Covered) Corporation Index Index - US
<S> <C> <C> <C>
2/14/96 100 100 100
3/29/96 111 96 103
3/27/97 63 170 115
3/27/98 47 194 170
</TABLE>
** $100 invested on February 14, 1996 in stock or index, including reinvestment
of dividends.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Report of the Compensation
Committee and the Company Stock Performance Graph will not be incorporated by
reference into any of those prior filings, nor will such report or graph be
incorporated by reference into any future filings made by the Company under
those statutes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 1, 1998 (i) by each person or
group who is known by the Company to be the beneficial owner of more than 5% of
the Common Stock, (ii) by each Director of the Company and each Named Executive
Officer of the Company who beneficially held shares of the Common Stock as of
such date,
16
<PAGE> 20
and (iii) by all current executive officers and Directors of the Company as a
group. Except as otherwise noted, each person's address is c/o XeTel
Corporation, 2105 Gracy Farms Lane, Austin, Texas 78758, and each person has
sole voting and investment power over the shares shown as beneficially owned,
except to the extent authority is shared by his or her spouse under applicable
community property laws.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF --------------------------
BENEFICIAL OWNER NUMBER PERCENT
------------------- ----------- ---------
<S> <C> <C>
Rohm U.S.A., Inc.(1)
149 Kifer Court
Sunnyvale, CA 94086-5120.................................. 4,326,411 43.2
Julian C. Hart(5)(3)........................................ 618,300 6.2
David W. Gault(4)........................................... 587,500 5.9
Angelo A. DeCaro, Jr.(2)(5)(6).............................. 165,077 1.6
Kozo Sato(1)(2)(7)
1053 Mt. George Ave.
Napa, CA 94558............................................ 106,000 1.1
William A. Peten(5)(8)...................................... 97,471 *
Ronald W. Guire(2)(9)
235 Belgatos Road
Los Gatos, CA 95032....................................... 93,500 *
Raimon L. Conlisk(2)(10)
12741 Leander Drive
Los Altos Hills, CA 94022................................. 77,500 *
Richard S. Chilinski(5)(11)................................. 64,000 *
Sam L. Densmore(2)(12)
10666 Cox Lane
Dallas, Texas 75229....................................... 15,000 *
Norman E. O'Shea(5)(13)..................................... 11,937 *
All current executive officers and Directors as a group..... 1,248,785 12.4
</TABLE>
- ---------------
* Represents less than one percent of the outstanding shares of Common Stock
plus all options currently exercisable or exercisable within 60 days after
June 1, 1998.
(1) Mr. Sato, a Director of the Company, is also a director or Rohm Americas,
Inc., of which Rohm U.S.A., Inc. is a wholly-owned subsidiary.
(2) Director of the Company.
(3) Includes 46,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998, and includes
27,958 shares owned by Hart & Hart, Inc., Mr. Hart's defined benefit plan.
(4) Includes 44,000 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998, and includes
130,165 shares owned by JDG Properties, Inc., Mr. Gault's defined benefit
plan.
(5) Named Executive Officer of the Company.
(6) Includes 162,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998.
(7) Includes 106,000 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998, which may be
subject to certain repurchase rights in accordance with the Automatic
Option Grant Program.
(8) Includes 96,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998.
17
<PAGE> 21
(9) Includes 93,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998, which may be
subject to certain repurchase rights in accordance with the Automatic
Option Grant Program.
(10) Includes 77,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998, which may be
subject to certain repurchase rights in accordance with the Automatic
Option Grant Program.
(11) Includes 58,500 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998.
(12) Includes 15,000 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998, which are
subject to certain repurchase rights in accordance with the Automatic
Option Grant Program.
(13) Includes 10,000 shares which may be acquired pursuant to options currently
exercisable or exercisable within 60 days after June 1, 1998.
BOARD MEETINGS AND COMMITTEES
The Board held a total of nine (9) meetings during fiscal 1998. During
fiscal 1998, the Board had an Audit Committee, a Compensation Committee, a
Special Committee and a Nominating Committee.
The Audit Committee currently comprised of Messrs. Conlisk, Guire and
Densmore met one (1) time during fiscal 1998. The Audit Committee recommends to
the Board the engagement of the Company's independent accountants and reviews
with such accountants the plan, scope and results of their examination of the
financial statements.
The Compensation Committee, currently comprised of Messrs. Guire, Sato and
Conlisk met six (6) times during fiscal 1998. The Compensation Committee sets
the level of compensation of executive officers and advises management with
respect to compensation levels for key employees. The Compensation Committee
also administers the Company's Option Plan.
The Special Committee, currently composed of Messrs. Densmore and Guire met
one (1) time during fiscal 1998. The Special Committee reviews and makes
recommendations to the Board on significant matters between the Company and its
officers, directors, principal stockholders and affiliates (including Rohm).
The Nominating Committee, currently comprised of Messrs. DeCaro, Conlisk
and Densmore, met one (1) time during fiscal 1998. The Nominating Committee
reviews the qualifications of, and makes recommendations to the Board with
respect to, Director nominees who are properly presented to such committee.
Each director attended or participated in 85% or more of the aggregate of
(i) the total number of meetings of the Board and (ii) the total number of
meetings held by all committees of the Board on which such director served
during fiscal 1998.
BOARD COMPENSATION
Directors who are full-time salaried employees of the Company are not
compensated for their service on the Board or on any Board committee. Directors
who are not employees of the Company receive a quarterly retainer of $3,000 for
their services and a fee of $1,000 for each Board meeting and $500 for each
committee meeting attending, plus travel and lodging expenses where appropriate.
In addition, on the date of each annual stockholders meeting each individual who
is to continue to serve as a non-employee Board member after the meeting shall
be granted a non-statutory option to purchase an additional 5,000 shares of
Common Stock, the exercise price per share being equal to the fair market value
per share on the option grant date, provided each individual has served as a
non-employee Board member for at least six (6) months. Each individual who is
first elected or appointed as a non-employee Board member shall be granted a
non-statutory option to purchase 15,000 shares of Common Stock.
18
<PAGE> 22
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company to be presented by such
stockholders at the Company's 1999 Annual Meeting must be received by the
Company no later than March 14, 1999 in order to be considered for inclusion in
the proxy statement and form of proxy relating to that meeting. Such proposals
may be included in next year's Proxy Statement if they comply with certain rules
and regulations promulgated by the Securities and Exchange Commission and the
procedure set forth in the Bylaws of the Company.
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders for the year ended
March 28, 1998 has been mailed concurrently with this proxy statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this proxy statement and is not considered proxy
solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about June 26, 1998. Stockholders may obtain a copy of
this report, without charge, by writing to Investor Relations, XeTel
Corporation, 2105 Gracy Farms Lane, Austin, Texas 78758.
CERTAIN TRANSACTIONS
The Company has engaged in a number of transactions with Rohm in the past
and expects to in the future. The Company believes that these transactions were
on terms no less favorable to the Company than would have been obtained from
unaffiliated third parties. All significant transactions in the past and future,
if any, between the Company and its officers, Directors, principal stockholders
and affiliates (including Rohm) will be approved by a majority of the Company's
independent Directors and will be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
ACCOUNTANTS
The Company's financial statements have been audited by Price Waterhouse
LLP as independent accountants. Representatives of Price Waterhouse LLP are
expected to be present at the Annual Meeting of Stockholders. They do not expect
to make any statement, but will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: July 10, 1998
19
<PAGE> 23
XETEL CORPORATION
PROXY
ANNUAL MEETING OF STOCKHOLDERS, AUGUST 11, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
XETEL CORPORATION
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held August 11, 1998 and the
Proxy Statement and appoints Ronald W. Guire and Angelo A. DeCaro, Jr., and
each of them, the Proxy of the undersigned, with full power of substitution,
to vote all shares of Common Stock of Xetel Corporation (the "Company") which
the undersigned is entitled to vote, either on his or her behalf or on behalf
of any entity or entities, at the Annual Meeting of Stockholders of the Company
to be held at Xetel Corporation, 2105 Gracy Farms Lane, Austin, Texas 78758 on
Tuesday, August 11, 1998 at 10:30 A.M. Central Time (the "Annual Meeting"), and
at any adjournment or postponement thereof, with the same force and effect as
the undersigned might or could do if personally present thereat. The shares
represented by this proxy shall be voted in the manner set forth on the reverse
side.
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
WITHHOLD
AUTHORITY TO VOTE FOR
FOR ALL NOMINEES FOR AGAINST ABSTAIN
1. To elect two (2) [ ] [ ] ANGELO A. DECARO, JR. (CLASS III) 2. To approve the amendment [ ] [ ] [ ]
Class III Directors to the Company's 1997
to serve on the RONALD W. GUIRE (CLASS III) Stock Incentive Plan
Board of Directors effective as of August 11, 1998
for three years or until the respective successor of each such Class
III director is duly elected and qualified to serve on the Board of
Directors:
WITHHOLD AUTHORITY for the following nominee(s) only: (write the
name(s) of the nominee(s) in this space)
--------------------------------------------------------------------
The Board Of Directors recommends a vote FOR the directors
listed above and a vote FOR the other proposals. This
proxy, when properly executed, will be voted as specified
above. If no specification is made, this Proxy will be
voted FOR the election of the directors listed above and
FOR the other proposals.
Date: 1998
--------------------------------------- -------------------------------------------------------------------- --------,
SIGNATURE SIGNATURE, IF HELD JOINTLY
Please sign above exactly as your name appears on your stock certificate. When shares are held jointly, each person should sign.
When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. An authorized person
should sign on behalf of corporations, partnerships, limited liability companies and associations and give his or her title.
</TABLE>
