SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.__)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ]Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HYTEK MICROSYSTEMS, INC.
(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:
--------------------------------
(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.:_____________
(3) Filing Party:____________
(4) Date Filed:______________
<PAGE>
HYTEK MICROSYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Hytek
Microsystems, Inc. (the "Company"), a California corporation, will be held
on Friday, May 15, 1998 at 10:00 a.m., local time, in the Bayshore Room of
the Clarion Hotel, 401 E. Millbrae Ave., Millbrae, California (telephone
number (650) 692-9745), for the following purposes:
1. To elect five (5) directors to serve for the ensuing year and until
their successors are elected.
2. To approve an amendment to the Company's 1991 Directors' Stock
Option Plan for the purpose of (i) increasing the number of shares reserved
for issuance under the plan by 100,000 shares to a total of 200,000 shares
and (ii) providing that each non-employee director of the Company who has
been in continuous service as a director of the Company for a period of
five or more years on the last business day of each fiscal year shall
automatically be granted an option to purchase 5,000 shares on such date.
3. To ratify the appointment of Ernst & Young, LLP as independent
auditors of the Company for the fiscal year ending January 2, 1999.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on March 16, 1998
are entitled to notice of, and to vote at, the meeting and any adjournment
thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
vote, sign, date and return the enclosed Proxy as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. Any shareholder
attending the meeting may vote in person even if he or she returned a
Proxy.
By Order of the Board of Directors
/s/ Charles S. Byrne
CHARLES S. BYRNE, Secretary
Carson City, Nevada
April 6, 1998
<PAGE>
HYTEK MICROSYSTEMS, INC.
400 Hot Springs Road
Carson City, Nevada 89706
PROXY STATEMENT
PROCEDURAL MATTERS
Annual Meeting
- --------------
The enclosed Proxy is solicited on behalf of Hytek Microsystems, Inc.
(the "Company" or "Hytek") for use at the Annual Meeting of Shareholders to be
held Friday, May 15, 1998 at 10:00 a.m., local time, or at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held in the Bayshore
Room at the Clarion Hotel, 401 E. Millbrae Ave., Millbrae, California (adjacent
to the San Francisco International Airport).
The Company's principal executive offices are located at 400 Hot
Springs Road, Carson City, Nevada 89706. Hytek's telephone number at that
address is (702) 883-0820.
These proxy solicitation materials and the Company's 1997 Annual Report
to Shareholders (consisting of a letter from the President and the Company's
Annual Report on Form 10-KSB for the fiscal year ended January 3, 1998, without
exhibits) were mailed on or about April 6, 1998 to all shareholders entitled to
vote at the meeting.
Record Date; Outstanding Shares
- -------------------------------
Shareholders of record at the close of business on March 16, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 2,944,758 shares of the Company's Common Stock, no par value, were
issued and outstanding.
Revocability of Proxies
- -----------------------
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
Quorum; Abstentions; Broker Non-Votes
- -------------------------------------
The required quorum for the transaction of business at the Annual
Meting is a majority of the shares of Common Stock issued and outstanding on the
Record Date. Shares that are voted "FOR", "AGAINST" or "WITHHELD FROM" a matter
are treated as being present at the meeting for the purposes of establishing a
quorum and are also treated as shares "represented and voting" at the Annual
Meeting (the "Votes Cast") with respect to such matter.
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<PAGE>
The Company believes that abstentions should be counted for the purpose
of determining the presence or absence of a quorum for the transaction of
business, but should not be counted as Votes Cast with respect to a proposal as
to which the shareholder has expressly abstained from voting.
Similarly, broker non-votes will be counted for the purpose of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for the purpose of determining the number of Votes Cast
with respect to the proposal on which the broker has expressly not voted. Thus,
abstentions and broker non-votes will not affect the outcome of the voting on a
proposal that requires a majority of the Votes Cast.
Voting and Solicitation
- -----------------------
Every shareholder voting in the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (5) multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than the number of directors to be elected.
However, no shareholder shall be entitled to cumulate votes for a candidate
unless such candidate's name has been properly placed in nomination prior to the
voting and in accordance with the procedures set forth in the bylaws.
Furthermore, no shareholder shall be entitled to cumulate votes unless the
shareholder, or any other shareholder, has given notice at the meeting prior to
the voting of the intention to cumulate the shareholder's votes.
On all other matters, each share has one vote.
Under the bylaws of the Company, nominations for the election of
directors may be made by any shareholder entitled to vote in the election of
directors, but only if written notice of such shareholder's intent to make such
nominations has been received by the Company at its principal executive office
not less than 20 days nor more than 60 days prior to the meeting at which
directors are to be elected; provided, however, that in the event that less than
30 days notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth: (a) with respect to each
proposed nominee, the name, age, business and residence address, principal
occupation or employment, class and number of shares of stock of the Company
owned and any other information that is required to be disclosed in
solicitations of proxies for election of directors pursuant to Regulation 14A of
the Securities Exchange Act of 1934; and (b) with respect to the shareholder
giving the notice, the name, address and class and number of shares of the
Company that are beneficially owned by such shareholder. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
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The cost of soliciting proxies will be borne by the Company. The
Company will, in accordance with applicable regulations, reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone,
telegram or electronic mail.
Shareholder Proposals
- ---------------------
Proposals of shareholders intended to be presented at next year's
Annual Meeting of Shareholders of the Company must be received at the principal
executive offices of the Company no later than December 7, 1998, in order to be
considered for possible inclusion in the proxy statement and form of proxy
relating to that meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees for Director
- ---------------------
A Board of five directors is to be elected at the meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's five nominees named below, all of whom are currently directors
of the Company. In the event that any Company nominee is unable or declines to
serve as a director at the time of the meeting, the proxies will be voted for
any nominee who shall be designated by the current Board of Directors to fill
the vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner, in accordance with cumulative voting, as will ensure the election of
as many of the nominees listed below as possible. In such event, the specific
nominees for whom such votes will be cumulated will be determined by the proxy
holders. It is not expected that any nominee will be unable or will decline to
serve as a director.
The following table sets forth certain information as of the Record
Date with respect to each director:
<TABLE>
Name Director Since Age
- ---- -------------- ---
<S> <C> <C>
Shou-Chen Yih 1976 63
Charles S. Byrne 1994 53
Robert Boschert 1990 61
Edward W. Moose 1988 68
Edward Y. Tang 1990 58
</TABLE>
Mr. Yih, who was elected Chairman of the Board of Directors of the Company
in October 1990, has been self-employed as a real estate investor for more than
the last five years. Mr. Yih also serves as Chairman of Biocare, LLC, a small
limited liability corporation producing medical reagents.
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<PAGE>
Mr. Byrne has served as Chief Financial Officer and Secretary of the
Company since October 1990. He was elected President and Chief Executive Officer
and a Director of the Company effective September 1, 1994. Mr. Byrne served as
Director of Finance for the Company between January 1988 and October 1990.
Between July 1987 and January 1988, he was acting Controller of Topaz
Semiconductor, Inc., a wholly-owned subsidiary of the Company during that
period. Prior to that, Mr. Byrne had 20 years experience as a chief financial
officer, division controller and cost accountant in the aerospace, electronics
and scientific instrument industries.
Mr. Boschert, who was the founder of Boschert, Inc., a developer and
manufacturer of low-cost volume usage switch mode power supplies, retired from
the Board of Directors of that company in 1984 and has traveled extensively
since then. From June 1986 until June 1988, Mr. Boschert served as an
independent consultant to Unison Technology, a manufacturer of uninterrupted
power supplies.
Mr. Moose has been President of E. M. Moose, Inc., a restaurant operating
firm, since May 1992. From April 1991 through April 1992, Mr. Moose served as a
private consultant in the restaurant industry. From September 1973 through March
1991, Mr. Moose served as President and Chief Executive Officer of Washington
Square Park Corporation, a restaurant operating firm.
Mr. Tang is a founder of Answer Software Company, a developer of
database products and applications for computers that was founded in 1982, and
has served as President, Chief Executive Officer and a director of such company
since its formation.
All directors will hold office until the next annual meeting of
shareholders of the Company (or until the effectiveness of their resignation or
removal from the Board of Directors) and until their successors have been
elected and qualified. There are no family relationships among the directors and
officers of the Company.
Vote Required
- -------------
The five nominees receiving the highest number of affirmative votes of
the shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum, but have no other legal effect under California law.
Recommendation
- --------------
The Board of Directors recommends that the shareholders vote "FOR" the
proposed slate of directors.
Security Ownership
- ------------------
The following table sets forth certain information, as of the Record
Date, with respect to ownership of the Company's Common Stock by each director,
by all current directors and officers of the Company as a group, and by each
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<PAGE>
person known to the Company to be the beneficial owner of more than five percent
(5%) of the Company's outstanding Common Stock:
<TABLE>
Shares of Common Stock
Beneficially Owned (1)
Name and Address of Beneficial Owner Number of Shares Percent of Total
- ------------------------------------ ---------------- -------------------
<S> <C> <C>
Allen & Company Incorporated ("ACI")
and affiliates...................... 796,302(2) 27.0%
.
711 Fifth Avenue
New York, New York 10022
Norman J. Mercer.................... 260,000(3) 8.8%
PO Box 959
East Hampton, New York 11937
Shou-Chen Yih....................... 223,066(4) 7.5%
930 Cumberland Court
Foster City, California 94404
Charles S. Byrne.................... 71,250(5) 2.4%
Robert Boschert..................... 21,666(6) *
Edward W. Moose..................... 17,166(7) *
Edward Y. Tang...................... 16,666(8) *
All current officers and directors 410,564(4) (5) 13.3%
as a group (6 persons) (6) (7)
(8) (9)
- ------------------
* Less than one percent
</TABLE>
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<PAGE>
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them
(subject to community property law, where applicable), except as otherwise
noted in the footnotes to this table.
(2) Represents (a) the number of shares reported in Amendment No. 5 to
Schedule 13D dated June 16, 1989 filed by ACI and its affiliates and (b)
10,000 shares acquired by Paul A. Gould, an affiliate of ACI, subsequent
to the filing of Amendment No. 5, the acquisition of which was orally
confirmed by Paul A. Gould on March 17, 1992, but which shares have not
been included in a subsequent amendment to Schedule 13D. Includes shares
beneficially owned by the following persons, each of whom has sole voting
and investment power with respect to the shares beneficially owned by such
person: (i) ACI, which holds 589,365 shares (20.0%) (all of such shares
are indirectly owned by Allen Holding Inc. ("Holding")); (ii) Paul A.
Gould, who is a Managing Director and an officer of ACI and Holding and
who holds 189,455 shares (6.4%); (iii) Thalia V. Crooks, who is a director
and an officer of ACI and Holding; (iv) John M. Simon, who is a Managing
Director and officer of ACI and Holding; (v) Denise Calvo, who is a
director and an officer of ACI and Holding; (vi) Susan Kathleen Wilson;
and (vii) the estate of a deceased former officer of ACI and Holding.
(3) As reported in Amendment No. 2 to Schedule 13D dated April 8, 1992 filed
by Norman J. Mercer.
(4) As reported in Amendment No. 8 to Schedule 13G dated January 20, 1994
filed by Shou-Chen Yih. Includes 16,666 shares (of which 1,666 shares are
subject to shareholder approval) issuable upon exercise of options held by
Mr. Yih, which options are exercisable within 60 days of the Record Date.
(5) Includes 56,250 shares issuable upon exercise of options held by Mr.
Byrne, all of which are exercisable within 60 days of the Record Date.
(6) Includes 16,666 shares (of which 1,666 shares are subject to shareholder
approval) issuable upon exercise of options held by Mr. Boschert, which
options are exercisable within 60 days of the Record Date.
(7) Includes 1,666 shares issuable upon exercise of options held by Mr. Moose
(subject to shareholder approval) within 60 days of the Record Date.
(8) Represents shares (of which 1,666 shares are subject to shareholder
approval) issuable upon exercise of options held by Mr. Tang, which
options are exercisable within 60 days of the Record Date.
(9) Includes 28,750 shares issuable upon exercise of options held by one
non-director executive officer of the Company, all of which are
exercisable within 60 days of the Record Date.
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Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of the
Company's Common Stock, to file initial reports of ownership of the Company's
securities on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC"). Such officers, directors and 10%
shareholders are also required by SEC rules to furnish the Company with copies
of all Section 16 (a) forms that they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons, the Company believes that, during the last fiscal year, all
Section 16(a) filing requirements applicable to its officers, directors and 10%
shareholders were complied with.
Board Meetings and Committees
- -----------------------------
The Board of Directors of the Company held a total of five meetings
during the fiscal year ended January 3, 1998 (the "Last Fiscal Year"). The Board
of Directors has an Audit Committee and a Compensation Committee. There is no
nominating committee or committee performing the functions of a nominating
committee.
The Audit Committee recommends engagement of the Company's independent
public accountants, reviews the scope of the audit, considers comments made by
the independent public accountants with respect to accounting procedures and
internal controls and the consideration given thereto by the Company, reviews
internal accounting procedures and controls with the Company's financial and
accounting staff and reviews non-audit services provided by the Company's
independent public accountants. This Committee, currently consisting of Messrs.
Yih and Tang, held one meeting during the Last Fiscal Year.
The Compensation Committee reviews and approves the Company's executive
compensation and administers the Company's 1981 Incentive Stock Option Plan and
1991 Stock Option Plan with respect to the Company's officers and directors.
This Committee, currently consisting of Messrs. Boschert and Moose, held three
meetings during the Last Fiscal Year.
During the Last Fiscal Year, each director attended at least 75% of the
aggregate of all meetings of the Board of Directors and the committees, if any,
upon which such director served.
Executive Officers of the Company
- ---------------------------------
The executive officers of the Company are as follows:
Name Position Age
- ---------------- --------------------------------- ----
Charles S. Byrne President, Chief Executive Officer, 53
Chief Financial Officer and Secretary
Jon B. Presnell Vice-President and General Manager, Custom Products 47
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Mr. Presnell was promoted to the position of Vice-President and General
Manager of Custom Products in October 1993. He has been an employee of the
Company since 1980. During that time, he served as General Manager of the Carson
City facility from May 1987 through December 1988 and as Director of Sales and
Marketing for the Company from January 1989 until October 1993. Prior to joining
Hytek, Mr. Presnell was employed as an Electrical Engineer for Texas
Instruments, Inc.
Executive Compensation
- ----------------------
The following tables set forth certain information for the Last Fiscal
Year as to the only executive officer of the Company whose compensation is
reportable under current requirements of the Securities and Exchange Commission
( the "Named Executive Officer"):
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Long-Term Compensation
Compensation Awards
------------ ----------------------
Name and Securities Underlying
Principal Position Year Salary ($) Bonus ($) Options (#)
- ------------------ ---- ---------- --------- ---------------------
<S> <C> <C> <C> <C>
Charles S. Byrne
President, Chief Executive 1997 $84,376 $15,000 0
Officer, Chief Financial
Officer and Secretary 1996 $82,161 $15,000 25,000 (1)
1995 $69,719 0 50,000 (2)
</TABLE>
(1) In May 1996, the Compensation Committe awarded Charles S. Byrne an
option to purchase 25,000 shares of Common Stock at an exercise price of $3.07
per share. This option becomes exercisable over a four-year period and expires
in May 2001.
(2) In February 1995, the Compensation Committee amended the
outstanding options held by Charles S. Byrne and Jonathan B. Presnell, executive
officers of the Company, each to purchase 50,000 shares of Common Stock at an
exercise price of $0.375 per share, in order to extend the term of such
five-year options to ten years. Accordingly, such options, as amended, shall now
expire in October 2000 instead of October 1995. Neither of such options were
in-the-money on the date of the extension.
No options were granted to the Named Executive Officer during the Last
Fiscal Year.
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<PAGE>
The following table sets forth the value of all unexercised stock options held
by the Named Executive Officer at the end of the Last Fiscal Year:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
---------------------- --------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles S. Byrne 0 -- 56,250/18,750(1) $114,000/0
</TABLE>
(1) Includes (i) an Employee Incentive Stock Option to purchase 50,000 shares of
Common Stock at the exercise price of $0.375 per share (fair market value at the
date of grant) that is fully exercisable and that expires October 24, 2000, and
(ii) an Employee Incentive Stock Option to purchase 25,000 shares of Common
Stock at the exercise price of $3.07 per share (fair market value at the date of
grant), of which 6,250 shares were exercisable at fiscal year end. The average
of the last available bid and ask prices on January 3, 1998 was $2.28 per share.
Directors' Compensation
- -----------------------
Each director of the Company who is not an employee (currently four
persons) receives a fee of $1,000 per calendar quarter for service on the Board
of Directors and attendance at all board meetings. In addition, the non-employee
directors participate in the 1991 Directors' Stock Option Plan and received
option grants thereunder in February 1991, which options are fully vested, and
additional grants on January 2, 1998, which options shall not be exercisable
until shareholder approval of the amendment to the 1991 Directors' Stock Option
Plan is obtained. See "Proposal 2 - Amendment to the 1991 Directors' Stock
Option Plan."
Directors' Option Plan
- ----------------------
The Company's 1991 Directors' Stock Option Plan (the "Directors' Plan")
was adopted by the Board of Directors in February 1991 and approved by the
shareholders in May 1991. A total of 100,000 shares of Common Stock were
initially reserved for issuance thereunder. On September 11, 1997, the Board of
Directors amended the 1991 Directors Stock Option Plan to increase the number of
shares reserved for issuance thereunder by 100,000 shares to a total of 200,000
shares and to provide that each non-employee director of the Company who, on the
last business day of each fiscal year, has been in continuous service as a
director of the Company for a period of five years or more shall automatically
be granted an option to purchase 5,000 shares on such date of each fiscal year.
9
<PAGE>
An option to purchase 15,000 shares at an exercise price of
$0.1875 per share was automatically granted under the Directors' Plan to each of
directors Yih, Boschert, Moose and Tang during fiscal 1991. Such options expire
in February 2001. Additional options to purchase 5,000 shares each at an
exercise price of $2.28 per share were granted to the above directors on January
2, 1998, which options shall not be exercisable until shareholder approval of
the amendment to the Directors' Plan is obtained.. At January 3, 1998, options
to purchase 15,000 shares had been exercised, options to purchase 65,000 shares
were outstanding and 120,000 shares remained available for future grant under
the Directors' Plan. See "Proposal 2 - Approval of Amendment to 1991 Directors'
Stock Option Plan."
PROPOSAL NO. 2
AMENDMENT TO THE 1991 DIRECTORS' STOCK OPTION PLAN
The Company's 1991 Directors' Stock Option Plan (the "Directors' Plan")
was adopted in February 1991 by the Board of Directors and approved by the
shareholders in May 1991. An aggregate of 100,000 shares of Common Stock was
originally reserved for issuance under the 1991 Directors' Plan. Under the
Directors' Plan, as originally adopted, each non-employee director (an "Outside
Director") is automatically granted an option to purchase 15,000 shares on the
date on which such person first becomes an Outside Director.
Proposed Amendment
- ------------------
At the Annual Meeting, the shareholders are being requested to ratify
and approve an amendment to the Directors' Plan to (i) increase the number of
shares available for issuance by 100,000 shares to a total of 200,000 shares and
(ii) provide that each Outside Director who has been in continuous service as a
director for a period of five years or more as of the last business day of each
fiscal year shall automatically be granted an option to purchase 5,000 shares on
such date (the "Amendment"). The Amendment was approved by the Board of
Directors in September 1997. The Board believes the Amendment is necessary in
order to attract and retain qualified Outside Directors and unanimously
recommends approval of the Amendment.
Description of the Directors' Plan, as Amended
- ----------------------------------------------
Purpose
In light of competition among companies for directors with appropriate
experience, the Directors' Plan is designed to attract and retain the best
available personnel for service as Outside Directors of the Company, to provide
additional incentive to the Outside Directors of the Company to serve as
directors and to encourage their continued service on the Board.
Administration
The Directors' Plan is designed to work automatically and not to
require administration. However, to the extent administration is necessary, it
will be provided by the Board.
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<PAGE>
Eligibility
Only Outside Directors are eligible to participate in the Directors'
Plan. The Company currently has four Outside Directors. During the term of the
Directors' Plan, each Outside Director is automatically granted an option to
purchase 15,000 shares of the Company's Common Stock (the "First Option") on the
date on which such person first becomes an Outside Director, whether through
election by the shareholders of the Company, appointment by the Board of
Directors to fill a vacancy or resignation of a Director as an employee but not
as a director. Furthermore, each Outside Director who has been in continuous
service as a director for a period of five years or more as of the last business
day of each fiscal year shall automatically be granted an option to purchase
5,000 shares on such date of each fiscal year (commencing with fiscal 1997) (a
"Subsequent Option"). As a result of the Amendment, Subsequent Options to
purchase an aggregate of 20,000 shares at an exercise price of $2.28 per share
were granted to the Outside Directors on January 2, 1998, which options shall
not be exercisable unless and until shareholder approval of the Amendment has
been obtained.
Exercisability of Options
First Options become exercisable cumulatively in installments with
respect to 5,000 shares on the first, second and third anniversary dates of the
date of grant of such Option. Each Subsequent Option shall become exercisable
cumulatively as to approximately 1/12 of the shares subject to the Subsequent
Option (rounded to the nearest share) per month following the date of grant. An
Option is exercised by giving notice of exercise to the Company, specifying the
number of full shares of Common Stock to be purchased and tendering payment to
the Company of the purchase price.
Shares Reserved for Issuance
As a result of the Amendment, an aggregate of 200,000 shares of Common
Stock of the Company are reserved for issuance under the Directors' Plan (of
which 100,000 shares are subject to shareholder approval). As of the Record
Date, Options to purchase an aggregate of 65,000 shares were issued and
outstanding (including the grants made in January 1998, which are subject to
shareholder approval) and 120,000 shares remained available for future grants.
On March 16, 1998, the mean between the bid and asked price for the Company's
Common Stock was $2.73 per share, as reported on the non-Nasdaq over-the-counter
market.
Terms of Options
Options granted under the Directors' Plan are nonstatutory options, and
do not qualify as "incentive stock options," as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
Term. All options granted under the Directors' Plan (the "Options")
-----
have a term of ten years.
Consideration. The consideration to be paid for shares to be issued
--------------
upon exercise of an Option, including the method of payment, shall consist of
(1) cash, (2) check, (3) other shares of the Company's Common Stock that have a
fair market value on the date of surrender equal to the aggregate exercise price
of the shares as to which the Option is being exercised, or (4) any combination
of the foregoing methods of payment.
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<PAGE>
Exercise Price. The per share exercise for optioned stock shall be 100%
---------------
of the fair market value per share of Common Stock on the date of grant of the
Option, determined in accordance with the Directors' Plan.
Termination of Status as a Director. Under the Directors' Plan, in the
------------------------------------
event an optionee ceases to serve as a director of the Company for any reason
other than death, an option may thereafter be exercised to the extent entitled
at the date of such termination, but only within one year after the date he or
she ceases to be a director of the Company. If an optionee's service as a
director of the Company is terminated by reason of the optionee's death, the
option will be exercisable by the optionee's estate or successor at any time
within one year following the date of death. The exercisability of the Option
shall be accelerated such that the Option shall be exercisable during such
one-year period with respect to all shares that were exercisable as of the date
of death plus such additional shares as would have become exercisable had the
Optionee continued living and remained in continuous status a director for a
period of one year after the date of death. However, in no event may an Option
be exercised once its 10-year term has expired.
Nontransferability of Options. Except as may be otherwise provided in a
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resolution duly adopted by the Board, Options granted pursuant to the Directors'
Plan are nontransferable by the optionee, other than by will, the laws of
descent and distribution or pursuant to a qualified domestic relations order and
may be exercised, during the lifetime of the optionee, only by the optionee or
permitted transferee.
Changes in Capitalization
In the event any change, such as a stock split or payment of a stock
dividend, is made in the Company's capitalization that results in an increase or
decrease in the number of outstanding shares of Common Stock without receipt of
consideration by the Company, an appropriate proportionate adjustment will be
made in the exercise price of outstanding Options and in the number of shares
reserved for issuance under outstanding Options and available for future grant
under the Directors' Plan.
Change-in-Control Provisions
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such proposed
action. In the event of a proposed sale of all or substantially all the assets
of the Company, or the merger of the Company into another corporation, the
successor corporation must either assume all outstanding Options or substitute
equivalent options therefor. However, if such successor corporation or a parent
or subsidiary of such successor corporation does not assume or substitute an
equivalent option, then the optionee shall have the right to exercise his or her
Options as to all stock subject to such Options, including shares that would not
otherwise be exercisable, for a period of thirty days following notice to such
optionee.
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Amendment and Termination
The Board may amend, alter, suspend or discontinue the Directors' Plan
at any time, but such amendment, alteration, suspension or discontinuation may
not adversely affect any Option then outstanding under the Directors' Plan,
without the consent of the holder of such Option.
Federal Income Tax Consequences
The following is only a brief summary of the effect of the federal
income tax consequences of transactions under the Directors' Plan based on
income tax law in effect on the date of this Proxy Statement. This summary is
not intended to be exhaustive, and does not discuss the tax consequences of a
participant's death or provisions of the income tax laws of any municipality,
state or foreign country in which an optionee may reside.
Options granted under the Directors' Plan are nonstatutory stock
options. An optionee will not recognize any taxable income at the time he or she
is granted a nonstatutory stock option. Upon exercise of the option, the
optionee will generally recognize compensation income for federal tax purposes
measured by the excess, if any, of the then fair market value of the shares over
the exercise price. Because the optionee is a director of the Company, the date
of taxation (and the date of measurement of taxable ordinary income) may be
deferred for up to six months from the date of grant unless the Optionee files
an election under Section 83(b) of the Code within 30 days of the date of
exercise. Upon resale of such shares by the Optionee, any difference between the
sale price and the exercise price, to the extent not recognized as compensation
income as provided above, will be treated as capital gain or loss, and will
qualify for long-term capital gain or loss treatment depending on how long the
shares have been held.
The Company will be entitled to a tax deduction in the amount of the
ordinary income that an optionee recognizes with respect to shares issued upon
exercise of Options under the Directors' Plan.
Participation in the Directors' Plan
The grant of Options under the Directors' Plan is automatic, as
described above. Only Outside Directors are eligible to receive options under
the Directors' Plan. The Company currently has four Outside Directors, each of
whom has served as a director for more than five years. As a result, by
operation of the Directors' Plan, as amended, the four current Outside Directors
would each receive a Subsequent Option to purchase 5,000 shares of Common Stock
per year for so long as such person continues to serve as a director. During
fiscal 1997, such four Outside Directors were granted options to purchase 20,000
shares in the aggregate at an exercise price of $2.28 per share.
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Vote Required
While the Amendment does not require shareholder approval under
applicable law, the Board is seeking shareholder approval pursuant to Section
310(a)(1) of the California Corporations Code, relating to transactions between
a corporation and its directors. Pursuant to such provision, the affirmative
votes constituting a majority of the Votes Cast (excluding, for this purpose,
shares held by Outside Directors) will be required to ratify and approve the
proposed Amendment to the Directors' Plan.
Recommendation of Board of Directors
Management and the Board recommend voting "FOR" ratification and
approval of the Amendment to the Directors' Plan as an important means to
attract and retain qualified Outside Directors.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young, LLP as independent
auditors to examine the financial statements of the Company for the year ending
January 2, 1999. If the shareholders, by the affirmative vote of a majority of
the Votes Cast at the Annual Meeting, do not vote to retain Ernst & Young, the
selection of independent auditors will be reconsidered by the directors.
Ernst & Young (or its predecessor, Arthur Young & Company) has examined
the financial statements of the Company for 1979 and subsequent years. It is
anticipated that a representative of Ernst & Young will be present at the Annual
Meeting with the opportunity to make a statement and to respond to appropriate
questions.
Recommendation
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The Board of Directors recommends that the shareholders vote "FOR" the
ratification of Ernst & Young.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
Under the Company's bylaws, in order for a matter to be deemed properly
presented at a shareholder meeting, notice must be delivered to, or mailed and
received by, the Company not less than 60 days nor more than 90 days prior to
the Annual Meeting. If, however, less than 50 days notice or prior public
disclosure of the date of the Annual Meeting has been given, notice by the
shareholder must be received by the Company not later than the close of business
on the tenth day following the date on which notice of the Annual Meeting was
mailed or publicly disclosed. The shareholder's notice must set forth, as to
each proposed matter, a brief description of the matter and reason for
conducting such business at the meeting, the name and address of such
shareholder proposing such business as they appear on the Company's books, the
number of shares beneficially owned by the shareholder, any material interest of
the shareholder in such proposal, and any other information that would have been
required pursuant to Regulation 14A promulgated under the Exchange Act if such
shareholder had requested inclusion of such proposal in the Company's proxy
materials.
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ANNUAL REPORT ON FORM 10-KSB
Hytek is a "small business issuer" within the meaning of Item 10 (a)
(1) of Regulation S-B.
Accordingly, the Company is complying with the executive compensation disclosure
requirements applicable to small business issuers (adopted by the SEC on October
15, 1992) in this year's proxy statement.
A copy of the Company's Annual Report on Form 10-KSB for the fiscal
year ended January 3, 1998 (the "1997 Form 10-KSB") and the President's Letter
to the Shareholders dated April 6, 1998, which together comprise the Company's
1997 Annual Report to Shareholders, is being delivered herewith. Copies of the
1997 Form 10-KSB (without exhibits) may be obtained at no charge upon request
to: Charles S. Byrne, Secretary, Hytek Microsystems, Inc., 400 Hot Springs Road,
Carson City, Nevada 89706.
April 6, 1998 By Order of the Board of Directors
Carson City, Nevada
/s/ Charles S. Byrne
CHARLES S. BYRNE, Secretary
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