NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of XETA Technologies, Inc. will be held at the Renaissance Tulsa Hotel and Convention Center located at 6808 South 107th East Avenue, Tulsa, Oklahoma, on April 6, 200412, 2005 at 6:30 p.m., local time, for the following purposes:
1. | To elect five (5) members to the Company’s Board of Directors to serve until the next Annual Meeting of Shareholders and until their successors have been elected and qualified; | ||
2. | |||
To ratify the selection of Grant Thornton LLP as independent certified public accountants for the Company for the | |||
3. | To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof. |
The Board of Directors has fixed the close of business on February 24, 2004,25, 2005, as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting or any adjournment or adjournments thereof. Only shareholders of record at such time will be so entitled to vote. The Company’s Proxy Statement is attached. The Proxy Statement and form of proxy will first be sent to shareholders on or about March 12, 2004.11, 2005.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE ANNUAL MEETING REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. THE GIVING OF THIS PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE MEETING.
By OrderIt is important that your stock be represented at the Annual Meeting regardless of the number of shares you hold. If you do not expect to attend the meeting in person, please sign, date, and return the enclosed proxy in the accompanying envelope or you may vote via the internet in accordance with the instructions on your proxy card. The giving of this proxy does not affect your right to vote in person in the event you attend the meeting.
By Order of the Board of Directors
February 18, 2005
| ||||||||||||||||||||||||
PROXY STATEMENT
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to shareholders of XETA Technologies, Inc. (the “Company”) by its Board of Directors to solicit proxies for use at the Annual Meeting of Shareholders (the “Annual Meeting”) to be held on April 6, 2004,12, 2005, at the Renaissance Tulsa Hotel and Convention Center located at 6808 South 107th East Avenue, Tulsa, Oklahoma, at 6:30 p.m., local time, or at such other time and place to which the Annual Meeting may be adjourned.
The purpose of the Annual Meeting is (i) to elect five (5) members to the Company’s Board of Directors (the “Board”) to serve for the ensuing year and until their successors are elected; (ii) to approve the XETA Technologies 2004 Omnibus Stock Incentive Plan; (iii) to amend the XETA Technologies 2000 Stock Option Plan to permit the exchange of outstanding stock options for new stock options or restricted stock; (iv) to amend the terms of the Company’s February 1, 2000 Stock Option Agreement with Larry Patterson to permit the Company to exchange the option for shares of restricted stock; (v) to ratify the selection of Grant Thornton LLP as the Company’s independent certified public accountants for the fiscal year ending October 31, 2004;2005; and (vi)(iii) at the discretion of the proxy holders, to transact any other business that may properly come before the Annual Meeting or any adjournment thereof.
YouYour vote is important. Shares may be voted at the Annual Meeting only if you are urged topresent in person or represented by proxy. Stockholders of record can vote their shares either by promptly completecompleting and returnreturning the accompanying proxyenclosed Proxy card in the envelope provided, whether or not you intend to be present atby following the Annual Meeting.internet voting procedures and instructions described on the Proxy card. If you are present at the Annual Meeting and wish to votehold your shares in person, the accompanying Proxy will, at your request, be returned toname of a bank or a broker, please follow the voting instructions on the form you at the Annual Meeting.receive from them. Any shareholder giving a Proxy has the power to revoke it at any time before it is exercised by executing a subsequently dated proxy, submitting a notice of revocation to the Company, or attending the Annual Meeting and voting in person.
Proxies properly executed and returnedreceived by the Company will be voted in accordance with the specifications marked on the Proxy card. Proxies containing no specifications will be voted in favor of the proposals described in this Proxy Statement.
It is expected that this Proxy Statement and the accompanying Proxy card will first be mailed to shareholders on or about March 12, 2004.11, 2005. The cost of soliciting proxies will be borne by the Company. The Company will reimburse brokerage firms, banks and other nominees, custodians and fiduciaries for their reasonable expenses incurred in sending proxy materials to beneficial owners of shares and obtaining their instructions. The Company has retained UMB Bank, n.a. to assist in the distribution of the Proxy cards and Proxy Statements for an estimated fee of $1,000.Statements. Votes will be tabulated by UMB Bank, n.a.
VOTING SECURITIES
Only shareholders of record at the close of business on February 24, 200425, 2005 (the record date) are entitled to vote at the Annual Meeting and any adjournment thereof. As of January 30, 2004,31, 2005, there were 10,002,95210,045,487 shares of Common Stock of the Company outstanding (excluding 1,018,788 shares held in treasury). Shareholders are entitled to one vote per share of Common Stock registered in their name on the record date. A majority of the shares entitled to vote, present in person or represented by proxy, is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted as shares present in determining whether the quorum requirement is satisfied but are not counted as votes cast in the tabulation of votes on any matter brought before the Meeting. The affirmative vote of a majority of the shares of the Company’s Common Stock represented at the Annual Meeting is required for the election of directors and for each of the other Proposals presented.directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company as of DecemberJanuary 31, 20032005 regarding beneficial ownership of the Company’s Common Stock, par value $.001 per share, by (a) each person known by the Company to own more than five percent (5%) of the Company’s Common Stock, (b) each director and nominee for election as a director of the Company, (c) each executive officer named in the Summary Compensation Table, and (d) all directors and executive officers of the Company as a group.
| Amount and Nature | |||||||||
| Name and Address | of Beneficial | Percent of | |||||||
| of Beneficial Owner(1) | Ownership(2) | Class | |||||||
Directors and Executive Officers (b), (c) and (d) above | |||||||||
| Jack R. Ingram | 1,276,579 | (3) | 12.76 | % | |||||
| Ronald L. Siegenthaler | 1,166,000 | (4) | 11.65 | % | |||||
| P.O. Box 571300, Tulsa, OK 74157 | |||||||||
| Robert B. Wagner | 117,391 | (5) | 1.16 | % | |||||
| Ron B. Barber | 110,472 | 1.10 | % | ||||||
| 525 S. Main Street, Suite 800 | |||||||||
| Tulsa, OK 74103 | |||||||||
| Larry N. Patterson | 112,875 | (6) | 1.12 | % | |||||
| Robert D. Hisrich | 52,150 | (7) | * | ||||||
| 10900 Euclid Avenue, Cleveland, OH 44106 | |||||||||
| Donald T. Duke | 42,500 | * | |||||||
| 1505 Vandivort, Edmond, OK 73034 | |||||||||
| Donald E. Reigel | 105,052 | (8) | 1.04 | % | |||||
| 5350 Manhattan Circle, Suite 210, | |||||||||
| Boulder, CO 80303 | |||||||||
| James J. Burke | 19,521 | (9) | * | ||||||
| 2737 Dos Lomas, Fallbrook, CA | 92028 | ||||||||
| All officers and directors as a group | 2,877,967 | 28.29 | % | ||||||
| (7 persons) | |||||||||
Others Known to Own 5% | |||||||||
(a) above | |||||||||
| FMR Corp. | 969,869 | (10) | 9.69 | % | |||||
| 82 Devonshire St. | |||||||||
| Boston, MA 02109 | |||||||||
| Jon A. Wiese | 580,000 | (11) | 5.48 | % | |||||
| 11509 S. Granite Ave., Tulsa, OK 74137 | |||||||||
Name and Address Amount and Nature Percent of Directors and Executive Officers (b), (c) and (d) above Jack R. Ingram 1,290,579 (3) 12.80 % Ronald L. Siegenthaler 1,117,003 (4) 11.11 % Larry N. Patterson 154,827 (5) 1.52 % Robert B. Wagner 126,046 (6) 1.24 % Ron B. Barber 118,472 1.18 % Robert D. Hisrich 56,550 * Donald T. Duke 44,500 * All officers and directors as a group 2,907,977 28.08 % Others Known to Own 5% FMR Corp. 974,969 (7) 9.71 % Jon A. Wiese 580,000 (8) 5.46 %
of Beneficial Owner(1)
of Beneficial
Ownership(2)
Class
P.O. Box 571300
Tulsa, OK 74157
525 S. Main Street, Suite 800
Tulsa, OK 74103
10900 Euclid Avenue
Cleveland, OH 44106
1505 Vandivort
Edmond, OK 73034
(7 persons)
(a) above
82 Devonshire St.
Boston, MA 02109
11509 S. Granite Ave.
Tulsa, OK 74137
| * | Less than one percent of the shares outstanding. | |
(1) | Address is that of the Company’s principal office at 1814 W. Tacoma, Broken Arrow, Oklahoma 74012 unless otherwise indicated. | |
(2) | Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community |
2
| property laws where applicable. The number of shares beneficially owned includes the number of shares of Common Stock that such persons |
2
(3) | Includes 10,000 shares held by Mr. Ingram’s wife. | |
(4) | Includes | |
(5) | Includes 9,189 shares, the equivalent number of shares held as units for Mr. Patterson’s account by the Company’s 401(k) retirement plan, over which Mr. Patterson has shared investment power and no voting power. | |
(6) | Includes | |
(7) | ||
This information is based upon a Schedule 13G dated February | ||
(8) | Reflects options which are presently exercisable. Mr. Wiese is shown as a 5% beneficial owner solely by reason of these outstanding options, of which the Company has direct knowledge. Except for these outstanding options, the Company has no other information or knowledge regarding Mr. Wiese’s security holdings, if any, in the Company. |
PROPOSAL 1
ELECTION OF DIRECTORS
Information Concerning the Nominees
The Company’s certificate of incorporation and bylaws provide that the Board of Directors shall consist of such number of directors as is fixed from time to time by resolution of the Board of Directors. The current Board of Directors consists of six members, three of whom are independent under current Nasdaq rules. Effective with the Annual Meeting, Nasdaq rules require that the Company’s Board of Directors consist of at least a majority of independent directors. As a result, the Board has fixed theauthorized number of directors to comprise the Board to be elected at the Annual Meetingis currently set at five members. Members of the Board are elected for one-year terms.
The nominees for election to the Board of Directors are set forth below. Three of the nominees are independent in accordance with Nasdaq rules. All of the nominees have been recommended by the Board of Directors and all have indicated a willingness to serve if elected. If any nominee should become unavailable for election for any presently unforeseen reason, the persons designated as proxies will have full discretion to cast votes for another person designated by the Board. All of the nominees are currently directors of the Company. None of the nominees have any family relationship to any other nominee, and there are no arrangements or understandings between any of the nominees and any other person(s) pursuant to which any of the nominees are to be elected as directors.
3
Name | Positions With Company | Director Since | ||
Ron B. Barber | Director | March 1987 | ||
Donald T. Duke | Director | March 1991 | ||
Dr. Robert D. Hisrich | Director | March 1987 | ||
Jack R. Ingram | Chairman of the Board, | |||
Chief Executive Officer and President | March 1989 | |||
Ronald L. Siegenthaler | Director | September 1981 |
3
Mr. Barber, age 49,50, has been a director of the Company since March 1987. He has been engaged in the private practice of law since October 1980 and is a shareholder in the law firm of Barber & Bartz, a Professional Corporation, in Tulsa, Oklahoma, which serves as counsel to the Company. Mr. Barber is also a Certified Public Accountant licensed in Oklahoma.
Mr. Duke, age 54,55, has been a director of the Company since March 1991. From 1980 until August, 2002, he was in senior management in the oil and gas industry, including time as President and Chief Operating Officer of Hadson Petroleum (USA), Inc., a domestic oil and gas subsidiary of Hadson Corporation, where he was responsible for all phases of exploration and production, land, accounting, operations, product marketing and budgeting and planning. Since then, through Duke Resources Co. L.L.C., he has been a consultant to the oil and gas industry.
Dr. Hisrich, age 59,60, has been a director of the Company since March 1987. He occupies the A. Malachi Mixon III Chair in Entrepreneurial Studies and is Professor of Marketing and Policy Studies at the Weatherhead School of Management at Case Western Reserve University in Cleveland, Ohio. Prior to assuming such positions, he occupied the Boviard Chair of Entrepreneurial Studies and Private Enterprise and was Professor of Marketing at the College of Business Administration for the University of Tulsa. He is also a marketing and management consultant. He is a member of the Board of Directors of Jameson Inn, Inc. and, Noteworthy Medical Systems, Inc., and NeoMed Technologies, and is a member of the Editorial Boards of the Journal of Venturing and the Journal of Small Business Management, and a member of the Board of Directors of Enterprise Development, Inc.Management.
Mr. Ingram, age 60,61, has been the Company’s Chief Executive Officer since July 1990. He also served as the Company’s President from July 1990 until August 1999 and re-assumed that position in June 2001. He has been a director of the Company since March 1989. Mr. Ingram’s business experience prior to joining the Company was concentrated in the oil and gas industry.
Mr. Siegenthaler, age 60,61, has been a director of the Company since its incorporation. He also served as the Company’s Executive Vice President from July 1990 until March 1999. Since 1974, through SEDCO Investments, a partnership in which Mr. Siegenthaler is a partner, and as an individual, Mr. Siegenthaler has been involved as partner, shareholder, officer, director, or sole proprietor of a number of business entities with significant involvement in fabrication and marketing of steel, steel products and other raw material, real estate, oil and gas, and telecommunications.
RECOMMENDATION
The Board of Directors unanimously recommends that shareholders vote “For” the election of all of the nominees listed above as directors of the Company.
4
BOARD OF DIRECTORS AND COMMITTEES
Board Meetings
The Board of Directors of the Company held three meetings during the fiscal year ended October 31, 2003. All of the directors were present at each meeting.2004. None of the directors attended fewer than 75% of the combined total of all Board meetings and meetings of Committees of which they were a member during fiscal 2003.2004. All other action taken by the Board of Directors was consented to in writing by a Memorandum of Action in lieu of a meeting, to which all incumbent directors subscribed. Directors meet their responsibilities not only by attending Board and committee meetings but also through communication with members of management on matters affecting the Company.
The Company encourages its fourthree local directors to attend the annual meeting of shareholders. All of these members were present at the Company’s April 2, 20036, 2004 Annual Meeting. In addition, Mr. Duke traveled from Oklahoma City to attend the Annual Meeting.
Committees
The Board of Directors has an Audit Committee, Compensation Committee, and Nominating Committee.
4
Audit Committee.The Audit Committee consists of directors Donald T. Duke, Robert D. Hisrich and Ronald L. Siegenthaler, all of whom qualify as independent directors under Nasdaq’s current listing standards for audit committee membership. The Board of Directors has determined that the Committee has at least one “audit committee financial expert” serving on the Committee, Donald T. Duke. Mr. Duke is independent as that term is defined in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934. The Audit Committee met five times independently of meetings of the Board of Directors during the 2003 fiscal year or in connection with the audit of the 20032004 fiscal year.
The Committee operates under a written charter adopted by the Board of Directors. The Board revised the charter during the past year in accordance with corporate governance regulatory changes issued by Nasdaq and the Securities and Exchange Commission following the passage by Congress of the Sarbanes-Oxley Act of 2002. A copy of the Audit Committee charter as revised in October 2003 is attached to this Proxy Statement as Appendix A. The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company. Among other things, the Audit Committee is responsible for selecting and retaining the Company’s independent public accountants; pre-approving the engagement of the independent accountants for all audit-related services and permissible, non-audit related services; reviewing in advance the scope and focus of the annual audit; reviewing and discussing with management and the auditors the financial reports of the Company, the audited financial statements, the auditor’s report, the management letter and the quality and adequacy of the Company’s internal controls; and reviewing and approving all related-party transactions. A copy of the Audit Committee’s written charter was included as an appendix to the Company’s proxy statement for last year’s annual meeting, which was filed with the Securities and Exchange Commission on February 26, 2004.
Nominating Committee. The Company’s Nominating Committee was established on January 15, 2004 for the purpose of identifying and recommending nominees to the Board of Directors. Ronald L. Siegenthaler is the Committee’s Chairman and sole member, and is independent as defined by Nasdaq’s listing standards for nominating committee members. A copy of the Nominating Committee’s charter is included with this Proxy Statement as Appendix B. The Committee does not have specific minimum qualifications that must be met by a candidate for election to the Board of Directors in order to be considered for nomination by the Committee. In identifying and evaluating nominees for director, the Committee considers each candidate’s experience, integrity, background and skills, as well as any other qualities that the candidate may possess and factors that the candidate may be able to bring to the Board. The Company has not paid a fee to any third party for the identification or evaluation of candidates. To date, the Company has never received a recommendation from a shareholder for nomination to the Board. In light of this fact, the Nominating Committee does not have a formal process for receiving director nominations from shareholders, although the Board would consider any candidate proposed in good faith by a shareholder. A copy of the Nominating Committee’s charter was included as an appendix to the Company’s proxy statement filed with the Securities and Exchange Commission on February 26, 2004 in connection with last year’s annual meeting.
Compensation Committee. The Compensation Committee consists of directors Ron B. Barber, Donald T. Duke, Robert D. Hisrich and Ronald L. Siegenthaler. All of the members except Mr. Barber are independent as defined by Nasdaq’s current listing standards for compensation committee membership. Mr. Barber serves on the Committee
5
under an exception to such listing standards. In appointing Mr. Barber pursuant to this exception, the Board determined that Mr. Barber’s professional training as a lawyer and a certified public accountant, his vast experience in counseling a variety of businesses with regard to executive employment arrangements and equity ownership plans, and his former service to the Company as its Chief Financial Officer and Senior Vice President in the mid to late 1980’s, make him uniquely qualified to understand and provide guidance and advice with respect to the tasks for which the Committee is responsible. Under current Nasdaq rules, Mr. Barber may not serve longer than two years on the Committee under this exception. The Compensation Committee works with Company management and provides advice and assistance to the Board regarding establishment of the Company’s compensation philosophy, objectives and strategy; administration of executive and management compensation programs; significant changes in employee benefit plans; executive employment and severance agreements; and appointments to the Committee. The Committee is also responsible for recommending for full Board approval the compensation of the Chairman and Chief Executive Officer, all other executive officers, and directors of the Company, and for providing an annual report on executive compensation to the Board. During fiscal 2003,2004, the Compensation Committee did not meet independently of meetings of the Board of Directors. The Committee conducted all of its business during the 20032004 fiscal year in conjunction with meetings of the Board, via telephone and e-mail communications, and by written Memorandum of Action.
Director Compensation
The Company currently compensates its directors who are not officers of the Company $9,600 per year for Board membership. In addition, Board members serving on a Committee receive $8,000 per year and Board members serving as Chairman of a Committee receive an additional $16,000 per year. These rates have been in effect since May 20, 2001, when the Company reduced directors’ fees by 20% as part of its cost containment and reduction program. The Company also reimburses Mr. Duke and Dr. Hisrich, who are not residents of the Tulsa area, for travel expenses actually incurred to attend Board and Committee meetings and the Annual Shareholders’ Meeting.
5
The Company has also on occasion granted stock options to its outside directors. On November 1, 2001,No such options were granted during the Company granted three2004 fiscal year. The last grant of its outside Board membersstock options to purchase 8,000 shares each of the Company’s common stock, and the remaining outside Board member options to purchase 12,000 shares of the Company’s common stock, at an exercise price of $3.63 per share, the then current market value of the Company’s common stock. These options are not exercisable until November 1, 2004 and expiredirectors was made on November 1, 2011.2001.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are those named above. There are no “interlocks” (as defined by the rules of the Securities and Exchange Commission) with respect to any member of the Compensation Committee of the Board of Directors. No member of this Committee was at any time during the 20032004 fiscal year an officer or employee of the Company.
No member of the Committee is a former officer or employee of the Company, except as follows: Mr. Barber served as Chief Financial Officer and Senior Vice President of the Company from August 17, 1987 to March 1991, and is a shareholder in the law firm of Barber & Bartz, a Professional Corporation, which serves as outside general counsel to the Company; and Mr. Siegenthaler served as Executive Vice President of the Company from July 1990 to March 1999.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth information concerning the compensation of the Company’s Chief Executive Officer and the next four most highly compensatedCompany’s other two executive officers of the Company.
6
officers.
SUMMARY COMPENSATION TABLE
| Annual Compensation | Long Term Compensation | ||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (g) | (i) | |||||||||||||||||||
| Name and | Common Stock | All | |||||||||||||||||||||||
| Principal | Underlying | Other | |||||||||||||||||||||||
| Position | Year | Salary | Bonus | Other | Options (#) | Compensation (1) | |||||||||||||||||||
| Jack R. Ingram | 2003 | $ | 165,635 | $ | 19,000 | $ | 301,000 | (2) | — | — | |||||||||||||||
| Chief Executive | 2002 | 165,725 | 17,000 | 486,000 | (2) | 35,000 | $ | 8,000 | |||||||||||||||||
| Officer | 2001 | 194,025 | — | 926,838 | (2) | — | 6,800 | ||||||||||||||||||
| Larry N. Patterson | 2003 | 138,029 | 19,000 | 10,577 | (3) | — | — | ||||||||||||||||||
| Senior Vice President | 2002 | 137,991 | 14,000 | 7,932 | (3) | 25,000 | 6,394 | ||||||||||||||||||
| - Sales & Marketing | 2001 | 130,615 | 12,500 | — | 50,000 | 5,727 | |||||||||||||||||||
| Robert B. Wagner | 2003 | 110,423 | 19,000 | 2,693 | (3) | — | — | ||||||||||||||||||
| Chief Financial | 2002 | 110,393 | 14,000 | — | 25,000 | 4,974 | |||||||||||||||||||
| Officer and Vice | 2001 | 104,492 | 12,500 | 3,592 | (3) | — | 4,826 | ||||||||||||||||||
| President of Finance | |||||||||||||||||||||||||
Donald E. Reigel (6) | 2003 | 100,385 | 127,114 | 1,731 | (3) | — | — | ||||||||||||||||||
| Director of Sales, | 2002 | 100,357 | 37,367 | 1,131 | (3) | 8,000 | 5,552 | ||||||||||||||||||
| Western Region | 2001 | 95,797 | 89,685 | 358,947 | (2) | — | 6,800 | ||||||||||||||||||
James J. Burke (7) | 2003 | 72,693 | 89,745 | 18,975 | (4) | — | — | ||||||||||||||||||
| Sales Manager | 2002 | 100,357 | 37,367 | — | 8,000 | 5,507 | |||||||||||||||||||
| 2001 | 93,585 | 89,685 | 11,326 | (5) | — | 6,800 | |||||||||||||||||||
Annual Compensation Long Term Compensation (a) (b) (c) (d) (e) (g) (i) Name and Year Salary Bonus Other Common Stock All Jack R. Ingram 2004 $ 165,000 $ 19,000 (2) $ — — $ 6,242 Chief Executive 2003 165,635 19,000 301,000 (3) — 6,917 Officer 2002 165,725 17,000 486,000 (3) 35,000 8,000 Larry N. Patterson 2004 137,500 19,000 (2) 6,611 (4) — 6,524 Executive Director 2003 138,029 19,000 10,577 (4) — 6,695 of Operations 2002 137,991 14,000 7,932 (4) 25,000 6,394 Robert B. Wagner 2004 110,000 19,000 (2) — — 5,160 Chief Financial 2003 110,423 19,000 2,693 (4) — 4,231 Officer 2002 110,393 14,000 — 25,000 4,974
Principal Position
Underlying
Options (#)
Other
Compensation (1)
(1) | Represents the Company’s contributions to the employee’s account under the Company’s 401(k) plan. | |
(2) | Represents bonus amount awarded for 2004 fiscal year performance, to be paid in quarterly installments. Bonus payments are subject to forfeiture if the employee is not employed at the time of payment. | |
(3) | Represents the dollar value of the difference between the price paid for shares of the Company’s common stock upon exercise of stock options and the market value of such stock on the date of exercise. | |
(4) | Represents unused vacation time for which the employee was paid in cash. | |
6
7
Stock Options
There were no stock options or stock appreciation rights granted during the 20032004 fiscal year to any of the persons named in the Summary Compensation Table.
Option Exercises and Holdings
The following table sets forth certain information regarding stock options exercised during the 20032004 fiscal year by persons named in the Summary Compensation Table and the number and value of unexercised options held by such persons as of the fiscal year-end. The Company has not granted stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
| (a) | (b) | (c) | (d) | (e) | ||||||||||||||||||||
| Number of Securities | Value of Unexercised | |||||||||||||||||||||||
| Underlying Unexercised | In-the-Money Options | |||||||||||||||||||||||
| Options at FY-End (#) | at FY-End ($)(2) | |||||||||||||||||||||||
| Shares Acquired | Value Realized | |||||||||||||||||||||||
| Name | on Exercise (#) | ($)(1) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
| Jack R. Ingram | 100,000 | $ | 276,000 | — | 35,000 | — | $ | 72,450 | ||||||||||||||||
| Larry N. Patterson | — | — | 83,333 | 41,667 | $ | 12,917 | 58,208 | |||||||||||||||||
| Robert B. Wagner | — | — | 68,000 | 25,000 | 156,231 | 51,750 | ||||||||||||||||||
| Donald E. Reigel | — | — | 77,400 | 8,000 | 347,765 | 16,560 | ||||||||||||||||||
| James J. Burke | — | — | 8,600 | 8,000 | — | 16,560 | ||||||||||||||||||
(a) (b) (c) (d) (e) Number of Securities Value of Unexercised Name Shares Acquired Value Realized Exercisable Unexercisable Exercisable Unexercisable Jack R. Ingram — — 35,000 — $ — — Larry N. Patterson — — 125,000 — — — Robert B. Wagner — — 93,000 — 58,500 —
Underlying Unexercised
Options at FY-End (#)
In-the-Money Options
at FY-End ($)(1)
on Exercise (#)
($)
(1) | |||
Based upon the difference between the fair market value of the securities underlying the “in-the-money” options at fiscal year-end ($ | |||
Employment Agreements
The Company has no formal employment agreements with any of the officers named in the Summary Compensation Table.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is the focal point for senior management and the Board of Directors to address corporate compensation issues. The Committee’s primary responsibility is to make recommendations to the Board regarding remuneration of executive officers and to evaluate the design and competitiveness of the Company’s compensation plans. The Committee consists of three independent directors and a fourth director who is affiliated with the Company’s outside counsel.
Compensation Philosophy.The heart of the Company’s compensation philosophy is the enhancement of shareholder value. Consequently, the interests of shareholders and the need to be competitive in recruiting and retaining quality managers and to motivate management to improve shareholder value drive the design of executive compensation programs. A primary component of the Company’s compensation philosophy is to structure compensation programs so that a high percentage of remuneration is “at risk”. Near term cash compensation reflects corporate performance and larger long-term incentives are tied directly to share value.
87
Executive Compensation Program.Compensation for executive officers is comprised of base salary, competitive employee benefits, an annual incentive compensation opportunity, and long terma long-term incentive compensation in the form of stock options.equity based awards. Under the Company’s incentive compensation program, the higher an executive’s level of responsibility, the greater his compensation will be dependent on performance.
The Compensation Committee reviews executive compensation levels with respect to corporate and individual performance, as well as competitive pay practices. The Company’s Human Resources Department assists the Committee in this analysis and, from time to time,in the past, the Committee retainshas, also, retained the services of a third party compensation-consulting firm. In addition, the Committee considers general industry conditions, as well as the Company’s recent recruiting experiences. From its review, the Committee believes the Company’s executive compensation program to be generally competitive with similarly situated companies.
The Committee reviews annually the base salaries of XETA’s executive officers and recommends any adjustments it may deem appropriate, for approval by the full Board of Directors. In its review, the Committee takes into account individual factors such as: experience; performance, both during the preceding twelve months and future potential; retention considerations; and otherothers issues particular to the executive and XETA. Additionally, the Committee considers the growth and performance of the Company as it assesses the market basis for executive salaries.
FiscalDuring fiscal year 20032004, XETA continued to experience pressure on gross margins, and while some traction was the third consecutive year of weak market fundamentals for the entire industry, and as a result, XETA gained little traction in attaining itswith top line growth initiatives. However, XETA, unlike most ininitiatives, the industry, continued to be profitable. In fact, because of solid margin improvement, fiscal year 2003 net income rose a promising 77 per cent. Additionally, by year’s end, the Company returned to solid financial footing as total debt was reduced by $8.9 million or 60 percent, through continued aggressive cost containment and strong cash flow. With the business climate improving modestly, the Company implemented a 3% performance salary adjustment, effective November 1, 2003. However,Company’s bottom line goals were not achieved. Therefore, the freeze instituted in 2001 on salaries of senior executives and the cash compensation of directors remains in effect.
Due to poor business visibility, the Company, as reported in In fiscal year 2001, the Company suspended indefinitely its defined incentive compensation program for non-sales employees.employees due to poor business visibility. Although fiscal year 2004 saw some gradual improvement in the economy, this suspension remains in effect. However, the Company still believes it is essential to appropriately recognize the leadership and sacrifice of many of its key employees. To achieve that recognition, the Board, again, authorized a small discretionary bonus pool ($235,000)235,700). From the pool, a total of $72,000$57,000 was awarded to four executivesthe Company’s three senior officers with the remaining $163,000$178,700 being distributed to numerous other key employees. In keeping with the Company’s compensation philosophy, the Committee will continue to support this practice at current levels of profitability.
As Additionally, as the Company returns to healthy business growth, the Committee believes a new incentive compensation program for senior executives will be necessary. To that end, it is evaluating a plan based on a percentage of pre-tax net income and its growth. The Company hopes business conditions will permit the implementation of a new incentive program in fiscal year 2004.
The Company’s sales executives are provided an annual incentive compensation opportunity under the compensation plan for all sales professionals, which went into effect December 1, 1999. The purpose of this incentive compensation plan is to provide an incentive to the Company’s sales force to help XETA achieve its targeted strategic and margin sales objectives. Award levels under the plan are set so as to be competitive with the market and are paid on a prorated basis. The Committee believes the plan’s provisions are consistent with XETA’s executive compensation philosophy and that the plan has been effective for its stated purpose.
As a long-term incentive, the Company grantshas in the past granted options to purchase shares of Common Stock to directors, executive officers, and other key employees. These stock options have been awarded in two ways under plans approved by the Board of Directors. The first is under the shareholder approved stock option plans, and the second is through special grants of non-qualified options. Most of the grants are subject to a vesting period and carry a ten-year exercise term. Additionally, strike prices for grants are determined by the closing market price of the Company’s stock on the date of the grant.
TheAlthough the Company granted 5,000 new incentive options for only 1,500 shares during fiscal year 2003 at an exercise price of $3.00, the market price on the date of grant. As of December 9, 2003,2004, the Company’s employees currently hold valid and unexercised option grants for a total of 1,300,2801,243,572 shares of common stock and are vested in options for 1,034,973
9
1,242,072 shares. Of these totals the Company’s executives presently possess option grants for 253,000 shares, andall of which are vested in options for 151,133 shares.vested. The strike prices of the option grants currently outstanding range from a high of $18.13 per share to a low of $0.31 per share.
The Committee believes that stock options are ana very effective compensation tool for the purpose of enhancing shareholder value. However, pendingnew regulations regarding financial accounting for options couldhas significantly reducereduced their usefulness as a compensation tool.tool for smaller companies such as XETA. Therefore, the Committee is working towardCompany developed the development2004 Omnibus Stock Incentive Plan, approved by the shareholders at last year’s annual meeting. Under the new plan, the Company can now award executives and other employees many forms of a restricted stock grant program.incentive equity compensation, such as SAR’s, Phantom Stock, Restricted Stock, Stock Bonuses, and Stock Options. The Company has not yet made any awards under this new plan.
20032004 CEO Compensation.The compensation package for the Company’s CEO, Mr. Jack Ingram, is consistent in all material aspects with the program for the Company’s other executive officers. His current annual base salary is $165,000, down from $220,000 as part of the fiscal year 2001 reductions discussed earlier. Additionally, he was granted a cash bonus of $18,000$19,000 for his performance during fiscal year 20032004 from the small Board-authorized discretionary bonus pool, outlined above.
8
As part of his original compensation package with the Company at the time of his employment in 1990, Mr. Ingram was granted options to purchase an aggregate of 200,000 shares of Common Stock pursuant to a special non-qualified grant approved by the Board of Directors. These options, which had a 10-year exercise period, were subsequently adjusted proportionately in number and exercise price in accordance with a 2-for-1 stock split in 1999 and a 2-for-1 stock split in 2000. At this time, Mr. Ingram has fully exercised these options. On November 1, 2001, he was granted an additional option to purchase 35,000 shares of the Company’s stock at a price of $3.63 per share. He is not yet vested in this grant.grant on November 1, 2004. Mr. Ingram has purchased the balance of his stock holdings in the Company on the open market.
In evaluating the compensation package of the Company’s CEO, the Committee considers such factors as XETA’s strategic and financial performance, his compensation in relation to that of CEO’s at other comparable companies, his personal contribution to XETA’s success, and the Company’s overall executive compensation philosophy. For fiscal year 2003,2004, the Committee believes the compensation package of the CEO was consistent with the Company’s objectives.
Conclusion.The Compensation Committee believes the Company’s executive compensation program has been consistent with the philosophy outlined in this report and has been effective overall in achieving its objectives during fiscal 2003.2004. The Committee hereby submits this report to XETA’s Board of Directors for approval.
The Compensation Committee, | |
Donald T. Duke, Chairman | |
Ron B. Barber | |
Robert D. Hisrich | |
Ronald L. Siegenthaler |
9
PROPOSAL 22004 OMNIBUS STOCK INCENTIVE PLAN
The Company’s stockholders are being asked to approve the XETA Technologies 2004 Omnibus Stock Incentive Plan (the “2004 Plan” or the “Plan”), which provides for the issuance of awards initially covering up to 600,000 shares of the Company’s common stock. The purpose of the 2004 Plan is to provide for a stock based compensation plan that, together with the other compensation policies of the Company, is designed to attract and retain the services of individuals essential to the Company’s long-term growth and success.
The following is a brief summary of the principal features of the 2004 Plan, together with the applicable tax and accounting implications for the Company and the participants in the Plan. The summary, however, does not purport to be a complete description of all the provisions of the 2004 Plan. A copy of the 2004 Plan is included with this Proxy Statement as Appendix C. Stockholders should review the Plan itself for additional information. Capitalized terms used in this summary have the meanings set forth in the 2004 Plan.
10
GENERAL
The 2004 Plan is intended to promote the interests of the Company and its stockholders by providing directors, officers, employees and other persons, including outside consultants, who are expected to make a long-term contribution to the success of the Company, with appropriate incentives and rewards to encourage them to enter into and continue in the employ of the Company. Under the 2004 Plan, these persons can acquire a proprietary interest in the long-term success of the Company, thereby aligning their interests more closely to the interests of the Company’s stockholders. The Plan will be administered by the Compensation Committee of the Board of Directors.
In addition to the 2004 Plan, the Company has the XETA Technologies, Inc. 2000 Stock Option Plan (the “2000 Plan”), which the shareholders approved at the annual meeting of shareholders in April 2000. As of December 31, 2003, the Company has granted options to purchase a total of 720,350 shares of common stock under the 2000 Plan. Options to acquire 223,010 shares have been exercised or cancelled and options to acquire 497,340 shares remain outstanding. In addition, the Company still has 102,660 shares available to grant under the 2000 Plan.
SHARES COVERED BY THE 2004 PLAN
The 2004 Plan authorizes the grant of Incentive Awards with respect to an aggregate of 600,000 shares of Common Stock, and contains an “evergreen” feature so that such number will automatically increase on November 1st of each year during the term of the Plan, by three percent (3%) of the total number of shares of Common Stock of the Company outstanding on the previous October 31st. In addition, shares subject to an Incentive Award that remain unissued upon expiration, cancellation, surrender, exchange, or termination of the Incentive Award will generally be available for other Incentive Awards under the 2004 Plan. Shares issued pursuant to the 2004 Plan may be authorized and unissued shares, treasury shares or shares acquired by the Company for purposes of the 2004 Plan.
CHANGES IN CAPITALIZATION
In the event that the Compensation Committee determines that any dividend or other distribution, stock split, reverse stock split, recapitalization, reorganization, merger, spin-off, combination, repurchase, share exchange, or other similar corporate transaction or event affects the Common Stock such that an adjustment is appropriate to prevent dilution or enlargement of the rights of Participants under the 2004 Plan, then the Compensation Committee will make such equitable changes or adjustments as it deems necessary to the aggregate number of shares available under the 2004 Plan, the number and kinds of shares that may thereafter be used for any Incentive Award, the number of shares subject to each outstanding Incentive Award, and the exercise price, grant price, or purchase price of each outstanding Incentive Award.
ADMINISTRATION
The 2004 Plan is administered by the Compensation Committee, whose members serve at the discretion of the Board. The Committee is authorized, among other things, to do the following:
The 2004 Plan provides that no member of the Committee shall be liable for any action, omission or determination relating to the 2004 Plan and that the Company will indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the 2004 Plan has been delegated, against any cost, expense or liability arising out of any action, omission or determination relating to the 2004 Plan. The Company will only be obligated to
11
indemnify such persons, however, if any such action, omission or determination was taken or made by such persons in good faith and in a manner such member, director or employee reasonably believed to be in or not opposed to the best interests of the Company.
ELIGIBILITY; TERM OF PLAN
The persons who are eligible to receive awards pursuant to the 2004 Plan include all employees and directors of the Company and its subsidiaries and such other persons, including outside consultants, whom the Committee determines are expected to make a contribution to the Company. The Committee may grant Incentive Awards to any, all or none of such eligible persons at any time, from time to time, during the term of the 2004 Plan. No Incentive Awards may be granted under the Plan after its expiration ten years from the Effective Date.
AWARDS UNDER THE 2004 PLAN
The 2004 Plan permits the award of Stock Options, Tandem SAR’s , Stand-Alone SAR’s, Restricted Stock, Phantom Stock Rights, and Stock Bonuses. Stock awards may have an exercise price or calculation equal to, less than, or greater than the Fair Market Value of the Common stock on the date of grant, except that the exercise price of Incentive Stock Options must be equal to or greater than the Fair Market Value of the Common Stock as of the date of grant.
Unless the specific grant provides otherwise, Options and Stand-Alone SAR’s granted under the 2004 Plan vest and become cumulatively exercisable with respect to 25% of the shares covered thereby on the first, second, third and fourth anniversaries of the date of grant. The Vesting Date of other awards under the 2004 Plan is generally subject to the specific provisions of the individual Award Agreement.
Awards to any individual Participant are limited to a maximum of 250,000 shares of Common Stock in any one tax year of the Company. Options can be exercised by (i) delivery of cash or wire transfer for the aggregate exercise price; (ii) delivering a notice of exercise together with irrevocable instructions to a broker to deliver sales proceeds in the amount of the aggregate exercise price to the Company; (iii) delivery of shares of Common Stock previously owned by the Participant for at least six months with a fair market value equal to the aggregate exercise price; (iv) by any other means which the Committee, in its sole discretion, determines to provide legal consideration for the Common Stock and to be consistent with the purposes of the Plan, or (v) any combination of the foregoing methods.
AMENDMENT TO INDIVIDUAL AWARDS
The Committee may alter the terms of an Incentive Award or waive the operation of certain provisions of the Plan upon an Incentive Award without amending the Plan. In either case, however, no change may be made that reduces the Participant’s rights under any outstanding Incentive Award without the consent of the Participant. The Committee may also grant Incentive Awards in replacement of Incentive Awards previously granted under the Plan or under any other plan of the Company, including without limitation a grant of Stock Options or Restricted Stock in exchange for a Participant’s agreement to cancel higher-priced stock option(s) previously granted to such Participant.
AMENDMENT OR TERMINATION OF THE 2004 PLAN
The Board of Directors may suspend, terminate, revise or amend the 2004 Plan at any time;provided, however,that stockholder approval must be obtained if and to the extent that the Board deems it appropriate to satisfy Section 162(m) of the Code, Section 422 of the Code, or the rules of Nasdaq or any stock exchange on which the Common Stock is listed.
TRANSFERABILITY OF AWARDS DURING PARTICIPANT’S LIFETIME/FORFEITURE FOR FAILURE TO COMPLY
Rights with respect to Incentive Awards granted under the 2004 Plan generally may not be transferred, assigned or pledged during the Participant’s lifetime. Subject to any conditions the Committee imposes, Options granted under the 2004 Plan, other than Incentive Stock Options, may be transferred to an immediate family member, if notice of such transfer is given to the Company and no consideration is given for the transfer.
12
WITHHOLDING TAXES
Whenever cash is to be paid pursuant to an Incentive Award, the Company has the right to deduct from such cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever shares of Common Stock are to be delivered pursuant to an Incentive Award, the Company has the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Committee, a Participant may satisfy the foregoing requirement, up to the minimum required withholding, by electing to have the Company withhold from delivery shares of Common Stock having a fair market value equal to the amount of tax to be withheld (anything in excess of the minimum required withholding will cause an issue under generally accepted accounting principles).
COMPLIANCE WITH TAX LAWS
With regard to awards of Restricted Stock and Phantom Stock, the 2004 Plan is intended to provide performance-based compensation and thereby avoid the limitations of Section 162(m) of the Code. Section 162(m) denies a deduction by a publicly-traded employer for certain compensation in excess of $1 million per year paid to the following individuals who are employed at the end of the employer’s taxable year (“Covered Employees”): the chief executive officer and the four most highly compensated executive officers (other than the chief executive officer) for whom compensation disclosure is required under the proxy rules. Certain compensation, including compensation based on the attainment of performance goals, is excluded from this deduction limit if certain requirements are met. Among the requirements for compensation to qualify for the “performance-based” exception to Section 162(m) of the Code is that the material terms pursuant to which the compensation is to be paid be disclosed to and approved by the stockholders in a separate vote prior to the payment. The material terms are set forth in the 2004 Plan and include the following list of business criteria upon which specific performance goals established by the Committee may be based: specified levels of or increases in the Company’s (i) return on equity, (ii) earnings per share, (iii) total earnings, (iv) earnings growth, (v) return on capital, (vi) return on assets, (vii) economic value added, (viii) earnings before interest and taxes, (ix) sales growth, (x) gross margin return on investment, (xi) increase in the fair market value of the shares, (xii) share price (including, but not limited to, growth measures and total shareholder return), (xiii) net operating profit, (xiv) net income, (xv) cash flow (including, but not limited to, operating cash flow and free cash flow), (xvi) cash flow return on investments (which equals net cash flow divided by total capital), (xvii) internal rate of return, or (xviii) increase in net present value or expense targets. Accordingly, assuming that the 2004 Plan is approved by the stockholders of the Company and assuming the Committee administers the 2004 Plan so that the other conditions of Section 162(m) of the Code relating to performance-based compensation are satisfied, compensation paid to Covered Employees pursuant to the 2004 Plan will not be subject to the deduction limit of Section 162(m).
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United States Federal income tax consequences relating to awards under the 2004 Plan. This discussion is based on currently existing provisions of the Code, existing and proposed Treasury Regulations promulgated thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to stockholders described herein. Stockholders should be aware that this discussion does not deal with all United States Federal income tax considerations that may be relevant to an individual award granted pursuant to the 2004 Plan.
Non-Qualified Stock Options.An optionee will not recognize any taxable income upon the grant of a non-qualified stock option. The Company will not be entitled to a tax deduction with respect to the grant of a non-qualified stock option. Upon exercise of a non-qualified stock option, the excess of the fair market value of the common stock on the exercise date over the option exercise price will be taxable as compensation income to the optionee and will be subject to applicable withholding taxes. The Company will generally be entitled to a tax deduction at such time in the amount of such compensation income. The optionee’s tax basis for the common stock received pursuant to the exercise of a non-qualified stock option will equal the sum of the compensation income recognized and the exercise price.
In the event of a sale of common stock received upon the exercise of a non-qualified stock option, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term capital gain or loss if the holding period for such common stock is more than one year.
13
Incentive Stock Options.An optionee generally will not recognize any taxable income at the time of grant or timely exercise of an incentive stock option for regular U.S. Federal income tax purposes, and the Company will not be entitled to a tax deduction with respect to such grant or exercise. Exercise of an incentive stock option may, however, give rise to taxable compensation income subject to applicable reporting, and a tax deduction to the Company, if the optionee subsequently engages in a “disqualifying disposition,” as described below. Additionally, the spread between the fair-market value of shares obtained upon exercise of an incentive stock option and the exercise price is an adjustment to alternative minimum taxable income and may result in the option holder having to pay federal alternative minimum tax for the year of exercise.
A sale or exchange by an optionee of shares acquired through the exercise of an incentive stock option more than one year after the transfer of the shares to such optionee and more than two years after the date of grant of the incentive stock option will result in any difference between the net sale proceeds and the exercise price paid being treated as a long-term capital gain (or loss) to the optionee. If such sale or exchange (including inter vivos gifts) takes place within two years after the date of grant of the incentive stock option or within one year from the date of transfer of the incentive stock option shares to the optionee, such sale or exchange will generally constitute a “disqualifying disposition” of such shares. A disqualifying disposition will have the following results: any excess of: (i) the lesser of (a) the fair market value of the shares at the time of exercise of the incentive stock option and (b) in the case of a sale, the amount realized on such disqualifying disposition of the shares; over (ii) the option exercise price of such shares, will be ordinary income to the optionee, subject to applicable reporting requirements, and the Company will be entitled to a tax deduction in the amount of such income. Any further gain generally will qualify as capital gain and will not result in any deduction by the Company.
Restricted Stock.A grantee of restricted stock will not recognize any income upon the receipt of restricted stock unless the grantee elects under Section 83(b) of the Code within thirty days of such receipt, to recognize ordinary income subject to withholding taxes in an amount equal to the fair market value of the restricted stock at the time of receipt. If the election is made, the Company will be entitled to a deduction in the same amount, but the holder will not be allowed a deduction for amounts subsequently required to be returned to the Company. Any Section 83(b) election must be filed with the IRS within the applicable 30-day period. If the Section 83(b) election is not made, the holder will generally recognize ordinary income, on the date that the restrictions to which the restricted stock are subject are removed, in an amount equal to the fair market value of such shares on such date, less any amount paid for the shares. At that time the holder will recognize ordinary income, subject to applicable reporting and withholding requirements, and the Company generally will be entitled to a deduction in the same amount.
Generally, upon a sale or other disposition of restricted stock with respect to which the holder has recognized ordinary income (i.e.,a Section 83(b) election was previously made or the restrictions were previously removed), the holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the holder’s basis in such shares. Such gain or loss will be long-term capital gain or loss if the holding period for such shares is more than one year.
Other Incentive Awards.The grant of a stock appreciation right or phantom stock award will not result in taxable income to the grantee or in a tax deduction for the Company. Upon the settlement of such a right or award, the grantee will recognize ordinary income equal to the aggregate value of the payment received, subject to applicable reporting and withholding requirements, and the Company generally will be entitled to a tax deduction in the same amount. A stock bonus generally will result in compensation income for the grantee, subject to reporting and withholding taxes, and a tax deduction for the Company, equal to the fair market value of the shares of common stock granted.
Change in Control.Any acceleration of the vesting or payment of awards under the 2004 Plan in the event of a change in control in the Company may cause part or all of the consideration involved to be treated as an “excess parachute payment” under the Internal Revenue Code, which may subject the participant to a 20% excise tax and which may not be deductible by the Company.
VALUE OF BENEFITS TO CERTAIN PERSONS
Members of the Board of Directors and the Company’s executive officers are entitled to participate in the 2004 Omnibus Stock Incentive Plan. However, awards under the 2004 Plan will be made by the Compensation Committee at a future time so the Company is currently unable to determine the potential benefits to these
14
individuals under the 2004 Plan. No awards to date have been made to the foregoing individuals under the 2004 Plan. If the 2004 Plan is approved by the stockholders and if either or both Proposals 3 and 4 below are approved by the stockholders, shares of restricted stock authorized under the 2004 Plan will likely be used in an offer to certain Company employees, including certain officers and directors, to exchange outstanding options held by such persons for a lesser number of shares of restricted stock (see discussions under Proposals 3 and 4 below). The Compensation Committee has not yet determined the scope of any such exchange offer. Therefore, the Company is currently unable to determine the potential benefits to members of the Company’s Board of Directors or executive officers, other than as discussed under Proposals 3 and 4 below.
RECOMMENDATION
The Company’s Board of Directors unanimously recommends a vote “For” the approval of the 2004 Omnibus Stock Incentive Plan.
PROPOSAL 3AMENDMENT TO THE COMPANY’S 2000 STOCK OPTION PLAN TO PERMIT THE EXCHANGEOF OUTSTANDING OPTIONS FOR NEW OPTIONS OR RESTRICTED STOCK
The Company’s stockholders are being asked to approve an amendment to the XETA Technologies, Inc. 2000 Stock Option Plan to permit the exchange of outstanding options for new options or shares of restricted stock in substitution therefore.
GENERAL
Stock options are a critical component of the Company’s compensation arrangements for its key employees. They encourage the Company’s employees to act as owners, which helps to align their interests with those of the stockholders. The Company grants stock options to recognize, reward and motivate its employees’ performance and to encourage them to continue their employment with the Company.
The price at which shares of stock may be purchased under an option granted under the 2000 Plan may not be less than the fair market value of the stock on the date the option is granted. Currently, over 100 Company employees hold outstanding stock options granted under the 2000 Plan with exercise prices which are significantly higher than the current trading price of the Company’s Common Stock. These options, whose exercise prices range from $18.13 to $9.06, were granted between February 1, 2000 and August 11, 2000. These grants coincided with a period during which the U.S. stock markets experienced an historically unusual bubble. This rise in the U.S. stock markets commenced in the first half of the 1990’s, peaked in 2000 and was followed by a collapse. As a result, the options held by these employees are perceived as having no value and therefore, no longer effectively provide the employee motivation and retention incentive that they were intended to provide. The Compensation Committee of the Board of Directors (the “Committee”) believes that the 2000 Plan should be amended to enable the Committee to address these issues. Any such amendment requires the approval of shareholders. A copy of the 2000 Plan is filed with the Securities and Exchange Commission as Exhibit 10.11 to the Company’s report on Form 10-Q for the fiscal quarter ended April 30, 2000.
The Committee has researched several alternatives for addressing the issue of “underwater” options. These alternatives include cancellation of the underwater options and issuing new replacement options; issuing new options without cancellation of the underwater options; and exchanging the underwater options for restricted shares of common stock based upon an exchange ratio. The Committee believes the latter alternative is suitable because it restores the employees’ compensation incentive, reduces the potential dilution to the shareholders, provides an acceptable accounting and tax result for the Company, and provides an acceptable income tax result to the employees affected. The exact terms of such an exchange offer would depend upon the current market price of the stock at the time, the exercise price of the options to be exchanged, and the number of options to be exchanged. In general, however, the exchange ratio would reflect the relative value of the underwater options, i.e., those options with higher exercise prices would be exchanged for fewer restricted shares than options with exercise prices closer to the current market price of the stock. Participation in any exchange program by employees holding eligible stock options would be voluntary.
15
PROPOSED PLAN AMENDMENT
The 2000 Plan does not either expressly permit or prohibit the cancellation of a stock option issued under the Plan in exchange for a new option or other form of equity award. Therefore, in order for the Committee to restore the value of these incentive awards while limiting the potential dilution to existing shareholders, both now and in the future, the 2000 Plan must be amended to expressly permit cancellation of an outstanding stock option in exchange for a new option or restricted stock. Under this Proposal 3, stockholders are being asked to approve such an amendment to the 2000 Plan.
VALUE OF BENEFITS TO CERTAIN PERSONS
Any potential benefit to the Company’s officers and directors as a result of amending the 2000 Plan as proposed would depend upon the terms of any plan authorized by the Committee, either now or in the future, to exchange underwater options for a new incentive award. While the Committee is currently considering an exchange of underwater options for shares of restricted stock, the scope of such an exchange offer and the ratio of exchange has not been determined. Therefore, it is impossible to determine the potential benefits to the Company’s directors and executive officers if the 2000 Plan is amended. Assuming, however, that the Committee proceeds with an exchange offer that includes the underwater options described above (i.e., options whose exercise prices range from $18.13 to $9.06 and were granted between February 1, 2000 and August 11, 2000), executive officers and directors would be eligible to participate to the extent presented in the table below:
| Name | No. of Options | Exercise Price Per Share | |||||||
| Jack R. Ingram, CEO | 0 | — | |||||||
| Director Nominees | 20,000 | $ | 18.13 | ||||||
| (4 persons) | |||||||||
| All Executive Officers | 42,600 | $ | 9.06-$18.13 | ||||||
| (named in Summary Compensation Table) | |||||||||
| All Employees as a group | 136,300 | $ | 9.06-$18.13 | ||||||
| (excluding executive officers and directors) | |||||||||
FEDERAL INCOME TAX CONSEQUENCES
The proposed amendment to the 2000 Plan itself will not trigger any federal income tax consequences. The cancellation of any outstanding stock options pursuant to an exchange offer conducted after approval of the proposed amendment would not be a taxable event. In the event a new stock option is issued in substitution of the cancelled option, the federal income tax consequences would be the same as described under the section heading “Federal Income Tax Consequences” set forth in Proposal 2 above, depending upon whether the newly issued option is a non-qualified stock option or an incentive stock option. In the event restricted stock is issued in substitution of the cancelled option, the federal income tax consequences would be the same as described under the section heading “Federal Income Tax Consequences” set forth in Proposal 2 above, and would vary depending upon whether the grantee of the restricted stock has made a Section 83(b) election under the Internal Revenue Code as discussed in the subsection regarding “Restricted Stock” under the “Federal Income Tax Consequences” section of Proposal 2.
RECOMMENDATION
The Company’s Board of Directors unanimously recommends a vote “For” the proposed amendment to the 2000 Stock Option Plan.
16
PROPOSAL 4AMENDMENT TO THE COMPANY’S FEBRUARY 1, 2000 STOCK OPTION AGREEMENT WITHLARRY PATTERSON TO PERMIT THE EXCHANGE OF SUCH OPTION FOR RESTRICTED STOCK
The Company’s stockholders are being asked to approve an amendment to the February 1, 2000 stock option granted to Larry Patterson as an inducement to his initial employment with the Company, in order to permit the Compensation Committee to exchange such stock option for a lesser number of shares of restricted stock.
GENERAL
At the time of his initial employment by the Company, the Company granted Larry Patterson, its Senior Vice President of Sales and Marketing, an option to purchase 40,000 shares of the Company’s Common Stock at an exercise price of $15.53, the then current market value of the Company’s Common Stock on the date of grant. This option is evidenced by a Stock Option Agreement dated February 1, 2000, a copy of which is filed with the Securities and Exchange Commission as Exhibit 10.9 to the Company’s report on Form 10-Q for the fiscal quarter ended April 30, 2000. These options became exercisable in three equal installments on March 1 of each year commencing in 2001. These options were a critical portion of Mr. Patterson’s compensation package and provided a significant portion of the necessary inducement for Mr. Patterson to accept employment with the Company. When the first installment of options became exercisable on March 1, 2001, the Company’s Common Stock was trading at $6.94 per share, reflecting the collapse of the U.S. stock market discussed in Proposal 3 above. The exercise price of Mr. Patterson’s options continues to be significantly higher than the current trading price of the Company’s Common Stock. As such, Mr. Patterson’s stock option has no value and therefore, no longer effectively provides the motivation and retention incentives it was intended to provide.
The Compensation Committee believes that by offering Mr. Patterson an opportunity to exchange these underwater stock options for a lesser number of shares of restricted stock, the value of this important incentive award can be restored. Although the exact terms of this exchange offer have not yet been determined by the Compensation Committee, the Compensation Committee is currently considering an exchange offer of a large group of underwater stock options as mentioned in Proposal 3 above. It is likely that any exchange of Mr. Patterson’s options will be based upon the same exchange ratio formula as is used in connection with any simultaneous exchange of options under the 2000 Plan as discussed in the preceding Proposal.
PROPOSED AMENDMENT
The terms of Mr. Patterson’s stock option agreement do not either expressly permit or prohibit the cancellation of the stock option in exchange for a new incentive award. Therefore, the Company is asking the stockholders to approve an amendment to the terms of Mr. Patterson’s option agreement to permit the Compensation Committee to offer to exchange Mr. Patterson’s options for a smaller number of shares of restricted stock. Because the Compensation Committee has not yet determined the exchange ratio by which Mr. Patterson’s option will be substituted for restricted stock, the exact value of the benefit to Mr. Patterson cannot be determined.
FEDERAL INCOME TAX CONSEQUENCES
If the foregoing proposed amendment is approved and Mr. Patterson elects to accept an offer from the Company to exchange his February 1, 2000 stock option, the cancellation of this option pursuant to such an exchange would not be a taxable event. Upon the issuance of restricted stock in substitution of the cancelled option, the federal income tax consequences would be the same as described under the section heading “Federal Income Tax Consequences” set forth in Proposal 2 above, and would vary depending upon whether Mr. Patterson makes a Section 83(b) election under the Internal Revenue Code as discussed in the subsection regarding “Restricted Stock” under the “Federal Income Tax Consequences” section of Proposal 2.
RECOMMENDATION
The Company’s Board of Directors unanimously recommends a vote “For” the proposed amendment to the Company’s February 1, 2000 Stock Option Agreement with Mr. Patterson.
17
PROPOSAL 5
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected Grant Thornton LLP (“GT”) as the independent public accountants to perform an integrated audit of the Company’s financial statements and of the internal controls over financial reporting for the fiscal year ending October 31, 2004.2005. Representatives of GT are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and to respond to appropriate questions. While ratification of the Company’s selection of accountants by the Company’s shareholders is not required, in the event of a negative vote on such ratification, the Company’s Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such change would be in the best interests of the Company and its shareholders. GT audited the Company’s financial statements for the years ended October 31, 2003 and 2002.
The Company first engaged GT as its independent auditors on August 9, 2002 after dismissing Arthur Andersen LLP (“Andersen”) as its independent auditors on that same date. During the years ended October 31, 2000 and 2001 and through the date of GT’s appointment as the Company’s independent auditors, the Company did not consult with GT with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any other matters or reportable events as set forth in Items 304 (a)(2)(i) and (ii) of Regulation S-K.
The reports of Andersen on the Company’s consolidated financial statements for each of the Company’s fiscal years ended October 31, 20002004 and 2001 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended October 31, 2000 and 2001 and through the interim period from November 1, 2001 through August 9, 2002, (i) there were no disagreements with Andersen on any matter of accounting principle or practice, financial statement disclosure or auditing scope or procedure that, if not resolved to the satisfaction of Andersen, would have caused Andersen to make reference to the subject matter in connection with its report on the Company’s consolidated financial statements for such years and (ii) there were no reportable events as defined in Item 304 (a)(1)(v) of Regulation S-K. Following Andersen’s dismissal as the Company’s auditors on August 9, 2002, the Company relied on the provisions of Item 304T(b)(2) since Andersen no longer provided the required letter confirming whether it agrees or disagrees with the statements made in the foregoing disclosure.2003.
Fees and Independence
Audit Fees.GT billed the Company an aggregate of $115,045 and $80,500 for the 2004 and 2003 fiscal years, respectively, for professional services rendered for the audit of the Company’s financial statements for thethose fiscal year ended October 31, 2003,years and in conjunction with itsto review of the Company’s financial statements included in the Company’s Forms 10-Q forduring those fiscal 2003.years.
Audit Related Fees. GT billed the Company an aggregate of $63,000$9,900 in fiscal 2004 for professionalaudit-related services rendered for the audit of the Company’s financial statements for the fiscal year ended October 31, 2002 and its review of the Company’s financial statementsnot included in the Company’s Form 10-Q during the third quarter of fiscal 2002. Andersen was paid $6,000 for professional services rendered in conjunction with the review of the Company’s financial statements included in the first and second quarter Forms 10-Q for fiscal 2002.
Audit Related Fees.preceding paragraph. GT did not bill the Company for any audit-relatedsuch services not included in the preceding paragraph during the 2003 and 2002 fiscal years.year.
Tax Fees. GT did not bill the Company for any tax consulting or related services during the 20032004 and 20022003 fiscal years.
All Other Fees.GT did not bill the Company for any other products or services not included in the preceding paragraphs during the 20032004 and 20022003 fiscal years.
The Audit Committee of the Board of Directors in response to new federal corporate governance regulations, has established a written policy to pre-approve audit and non-audit related services to be provided by the Company’s independent auditor prior to engaging the auditor for such purposes. Pursuant to the policy, the Audit Committee will annually review the services and fees that the auditor may provide to the Company during the following 12 months. Following such review, the Committee will issue a statement to the Company’s Chief Financial Officer as
18
to the general services and fees that the Committee has pre-approved. The pre-approval generally extends for a period of 12 months or such shorter period as may be specifically indicated by the Committee. All other services to be performed by the auditors that are not included in the Committee’s annual pre-approval statement must be submitted to the Committee in advance for specific approval.
RECOMMENDATION
The Board of Directors unanimously recommends that shareholders vote “For” the appointment of Grant Thornton LLP as the Company’s independent public accountants.
REPORT OF AUDIT COMMITTEE
January 8, 200415, 2005
To the Board of Directors of XETA Technologies, Inc.:
The Audit Committee oversees XETA’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. We have reviewed and discussed with management and with the independent auditors the Company’s audited financial statements as of and for the year ended October 31, 2003.2004.
We have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, by the Auditing Standards Board of the American Institute of Certified Public Accountants.
10
We have received and reviewed the written disclosures and the letter from the independent auditors required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and have discussed with the auditors the auditors’ independence.
Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2003.
The Audit Committee, | |
Donald T. Duke, Chairman | |
Ronald L. Siegenthaler | |
Robert D. Hisrich | |
RELATED TRANSACTIONS
Mr. Barber is a shareholder in the law firm of Barber & Bartz, a Professional Corporation, which serves as outside general counsel to the Company. During the fiscal year ended October 31, 2003,2004, the Company paid legal fees to Barber & Bartz in the approximate amount of $137,678.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of (i) Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year, (ii) Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and (iii) written representations made to the Company by its directors and officers, the Company knows of no director, officer, or beneficial owner of more than ten percent of the Company’s Common Stock who has failed to file on a timely basis reports of beneficial ownership of the Company’s Common Stock as required by Section 16(a) of the Securities Exchange Act of 1934, as amended.
1911
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company’s stock price as an index assuming $100 invested on November 1, 1998,1999, along with the composite prices of companies listed in the SIC Code (Telephone, Telegraph Apparatus) Index and the Nasdaq Market Index.
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | ||||||||||||||||||||
| XETA TECHNOLOGIES, INC. | 100.00 | 219.02 | 243.67 | 81.13 | 24.11 | 128.45 | |||||||||||||||||||
| SIC CODE INDEX | 100.00 | 201.85 | 229.15 | 59.00 | 24.63 | 48.92 | |||||||||||||||||||
| NASDAQ MARKET INDEX | 100.00 | 165.06 | 194.13 | 97.35 | 78.33 | 113.76 | |||||||||||||||||||
20
|
| 1999 |
| 2000 |
| 2001 |
| 2002 |
| 2003 |
| 2004 |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
XETA TECHNOLOGIES, INC. |
|
| 100.00 |
|
| 111.26 |
|
| 37.04 |
|
| 11.01 |
|
| 58.65 |
|
| 36.94 |
|
SIC CODE INDEX |
|
| 100.00 |
|
| 132.14 |
|
| 50.42 |
|
| 44.50 |
|
| 58.73 |
|
| 60.03 |
|
NASDAQ MARKET INDEX |
|
| 100.00 |
|
| 84.32 |
|
| 21.26 |
|
| 12.24 |
|
| 25.62 |
|
| 24.90 |
|
SHAREHOLDER PROPOSALS AND COMMUNICATIONS WITH DIRECTORS
Under regulations of the Securities and Exchange Commission, shareholders are entitled to submit proposals on matters appropriate for shareholder action at subsequent Annual Meetings of the Company in accordance with those regulations. In order for shareholder proposals for the Company’s next Annual Meeting to be eligible for consideration for inclusion in the proxy statement and proxy relating to such meeting, they must be received by the Company no later than October 4, 2004.15, 2005. Such proposals should be directed to XETA Technologies, Inc., 1814 West Tacoma, Broken Arrow, Oklahoma 74012, Attention: CEO.
The Board of Directors has not established a formal process for shareholders to follow to send communications to the Board or its members, as the Company’s policy has been to forward to the Board any shareholder correspondence it receives that is addressed to the Directors. Shareholders who wish to communicate with the Directors may do so by sending their correspondence to the Company’s headquarters at 1814 West Tacoma, Broken Arrow, OK 74012.
12
CORPORATE GOVERNANCE—CODE OF CONDUCT
The Company has adopted a financial officer Code of Ethics applicable to the Chief Executive Officer, Chief Financial Officer, and any principal accounting officer, controller and other persons performing similar functions. A copy of this Code of Ethics is includedposted on the Company’s website at www.xeta.com under the Investor Relations section, and was previously filed with this Proxy Statementthe Securities and Exchange Commission as Appendix D.
ANNUAL REPORT ON FORM 10-K
A complete copy of the Company’s annual report on Form 10-K, excluding exhibits, is included in the Annual Report provided to shareholders concurrently with this Proxy Statement. The Company will provide a copy of any exhibits to the Form 10-K to any shareholder who requests a copy and pays the Company’s reasonable expenses in furnishing such copy. The Company will advise the shareholder of the specific amount of such expenses after receiving the request. Shareholders may submit their requests to Corporate Secretary, XETA Technologies, Inc., 1814 W. Tacoma, Broken Arrow, OK 74012.
NO INCORPORATION BY REFERENCE
Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings made by the Company under those statutes, the preceding Compensation Committee Report on Executive Compensation, Audit Committee Report, and the Stock Performance Graph will not be incorporated by reference into any of those prior filings, nor will such reports or graph be incorporated by reference into any future filings made by the Company under those statutes.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no matter other than those described herein that will be presented for consideration at the Annual Meeting. However, should any other matters properly come before the Annual Meeting or any adjournment thereof, it is the intention of the persons named in the accompanying Proxy to vote in accordance with their best judgment in the interest of the Company.
By Order of the Board of Directors
/s/ Robert B. Wagner
By Order of the Board of Directors | ||
/s/ ROBERT B. WAGNER | ||
Robert B. Wagner | ||
Broken Arrow, Oklahoma
February 13, 200418, 2005
2113
Appendix A
XETA TECHNOLOGIES, INC.AUDIT COMMITTEE CHARTEROctober 9, 2003
In order to improve the effectiveness of the Board of Directors’ oversight of the corporate audit process of XETA Technologies, Inc. (the “Corporation”), to strengthen the independence and involvement of those Directors charged with such oversight, and to enhance mechanisms for accountability among the Corporation’s outside auditors and its management, the Board of Directors hereby adopts this formal written charter for the XETA Technologies, Inc. Audit Committee of the Board of Directors.
There is hereby created a committee of the Corporation’s Board of Directors to be known as the Audit Committee. The Committee shall be appointed by the Board of Directors in accordance with the qualifications and other rules governing membership on the Committee as set forth in Section III below.
This charter governs the operations of the Audit Committee. The Committee shall review and assess the charter at least annually and obtain the Board of Directors’ approval of the charter.
The Audit Committee shall assist the Board of Directors in fulfilling its responsibility to oversee the Corporation’s accounting and financial reporting functions by providing independent review and oversight of the financial reporting processes, internal controls and the Corporation’s independent auditors. In so doing, it is the responsibility of the Committee to maintain free and open communication between and among the Audit Committee, the Corporation’s independent auditors, and management of the Corporation.
For purposes of this Charter, “independent director” means a person that (i) does not accept, directly or indirectly, any consulting, advisory or other compensatory fee from the Corporation except in his or her capacity as a member of the Board, and (ii) who is not an “affiliated person” of the Corporation as defined by SEC regulations, and (iii) who qualifies as “independent” under the criteria of Nasdaq Rule 4200, unless the Board, under exceptional and limited circumstances, determines that it is in the best interests of the Corporation and its shareholders for an individual who does not so qualify to serve on the Committee, provided that any such person may not serve under this exception for longer than two years and may not serve as the chair of the committee, and (iv) who does not own or control 20% or more of the Corporation’s voting securities (or such lower amount as may be established by SEC regulations).
The following shall be the principal duties and responsibilities of the Audit Committee. These functions serve as a guide with the understanding that the Audit Committee may carry out additional functions and adopt additional policies and procedures as may be appropriate in light of changing business, legislative, regulatory, legal or other conditions. Notwithstanding the foregoing, the Committee is not responsible for certifying the Corporation’s financial statements or guaranteeing the independent auditor’s report. The fundamental responsibility for the Corporation’s financial statements and disclosures rests with management and the independent auditors.
2
3
4
5
The Audit Committee shall designate one (1) of its members to serve as chairman and one (1) of its members to serve as secretary to keep a record of its meetings which shall be held not less than four (4) times a year, and shall report the results of its meetings to the full board at the next regularly scheduled board meeting. Each member of the Audit Committee shall have complete access during normal business hours to such business records and information, and shall be authorized to discuss corporate matters with the Corporation’s employees and officers, as may be necessary and appropriate to carry out his responsibilities as a member of the Audit Committee and representative of the shareholders.
The Audit Committee shall annually obtain a formal written statement from the Corporation’s outside auditor (i) acknowledging the outside auditor’s ultimate accountability to the Corporation’s Audit Committee as representatives of the Corporation’s shareholders and the Audit Committee’s ultimate authority and responsibility to select, evaluate and, where appropriate, replace the outside auditor (or to nominate and propose in any proxy statement the outside auditor to be recommended for shareholder approval) and (ii) delineating all relationships between said auditors and the Corporation, consistent with Independence Standards Board Standard No. 1 and shall investigate and engage in serious dialogue with said auditors regarding any disclosed relationships or services that could reasonably impact the auditors’ objectivity or independence and, when necessary, shall take appropriate action to oversee and ensure the independence of the outside auditors.
The Committee shall review and reassess, at least annually, the adequacy of this Charter and recommend to the Board any improvements to this Charter that the Committee considers necessary or valuable.
This Audit Charter, as amended, shall become effective as of the 9th day of October, 2003.
6
Appendix “B”
XETA TECHNOLOGIES, INC.NOMINATING COMMITTEE CHARTER
Purpose
This charter (“Charter”) governs the operations of the Nominating Committee (“Committee”) of the Board of Directors (the “Board”) of XETA Technologies, Inc. (the “Company”). The Committee has been appointed by the Board to assist the Board by identifying individuals qualified to become Board members, and recommending to the Board the Director nominees for the next annual meeting of shareholders.
Organization
This Committee is organized by the Board pursuant to the National Association of Securities Dealers, Inc. (“NASD”) Rule 4200(c)4, and shall be comprised of at least one (1), and no more than five (5), Directors. All members of the Committee shall meet the independence requirements of, and satisfy all other criteria imposed on the Committee pursuant to the federal securities laws and the rules and regulations of the Securities and Exchange Commission and Nasdaq.
Further qualifications of individuals eligible to serve on the Committee shall be determined by the Board and all members shall be elected annually by the Board. The Committee shall be subject to the provisions of the Company’s Bylaws relating to committees of the Board, including those provisions relating to removing committee members and filling vacancies.
Responsibilities
This Committee shall be responsible for selecting, or recommending for the Board’s selection, qualified candidates for Board membership. Such duties shall be performed annually in time for the annual meeting of shareholders and as needed for filling vacancies that may occur between annual meetings of shareholders.
Director nominees shall be selected on the basis of broad experience, wisdom, integrity, ability to make independent analytical inquiries, understanding of the Company’s business environment and willingness to devote adequate time to Board duties. The Committee shall be responsible for assessing the appropriate balance of skills and characteristics required of Board members. The Committee shall use reasonable efforts to attract a diversified membership and shall ensure timely compliance with Nasdaq rules related to independence.
The Committee shall annually review its performance and the adequacy of this Charter and shall recommend changes to the Board as appropriate.
The Committee shall undertake all further actions and discharge all further responsibilities imposed upon it from time to time by the Board, the federal securities laws or the rules and regulations of the SEC or Nasdaq.
Meetings
The Committee will normally meet once a year, in conjunction with a regular meeting of the Board of Directors, or on a more frequent basis if necessary to carry out its responsibilities. Upon the request of the Board, the Committee shall submit the minutes of all meetings of the Committee to, or discuss the matters discussed at each Committee meeting with, the Board.
2
Appendix C
XETA TECHNOLOGIES, INC.
2004 OMNIBUS STOCK INCENTIVE PLAN
There is hereby adopted the XETA Technologies, Inc. 2004 Omnibus Stock Incentive Plan (the “Plan”). The Plan shall be in addition to the XETA Technologies 2000 Stock Option Plan. The Plan is intended to promote the interests of the Company and the stockholders of the Company by providing officers, other employees of the Company, directors who are not employees of the Company, and other persons who are expected to make a long-term contribution to the success of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ of the Company and/or to acquire a proprietary interest in the long-term success of the Company, thereby aligning their interest more closely to the interest of stockholders.
As used in the Plan, the following definitions apply to the terms indicated below:
2
3
4
5
6
The Plan shall be administered by the Committee. The Committee shall have the authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Incentive Awards; to determine the persons to whom and the time or times at which Incentive Awards shall be granted; to determine the type and number of Incentive Awards to be granted, the number of shares of Stock to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Incentive Award; to determine whether, to what extent, and under what circumstances an Incentive Award may be settled, canceled, forfeited, exchanged, or surrendered; to grant Incentive Awards in replacement of Incentive Awards previously granted under the Plan or under any other plan of the Company, including without limitation a grant of Stock Options or Restricted Stock in exchange for a Participant’s agreement to cancel a higher-priced stock option or options previously granted to such Participant; to subject shares of Stock to which an Award may relate to rights of repurchase or rights of refusal in favor of the Company under the circumstances and upon the terms set forth in an Award Agreement; to make adjustments in the performance goals in recognition of unusual or non-recurring events affecting the Company or the financial statements of the Company (to the extent in accordance with Section 162(m)of the Code, if applicable), or in response to changes in applicable laws, regulations, or accounting principles; to construe and interpret the Plan and any Incentive Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Award Agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan.
The Committee may, in its absolute discretion and without amendment to the Plan, (i) accelerate the date on which any Option or Stand-Alone SAR granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment, or otherwise adjust any of the terms of such Option or Stand-Alone SAR (provided, however, that with respect to Incentive Stock Options, no such change shall be made that would cause the Incentive Stock Options to become Non-Qualified Stock Options unless both the Participant and the Company expressly agree to such change), and (ii) accelerate the Vesting Date or Issue Date, or waive any condition imposed hereunder, with respect to any share of Restricted Stock or Phantom Stock or otherwise adjust any of the terms applicable to such share.
No member of the Committee shall be liable for any action, omission or determination relating to the Plan, and the Company shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, if, in either case, such action, omission or determination was taken or made by such member, director or employee in
7
good faith and in a manner such member, director or employee reasonably believed to be in or not opposed to the best interests of the Company.
The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be all employees and directors of the Company and its Subsidiaries and such other persons whom the Committee determines are expected to make a contribution to the Company. The Committee may grant Incentive Awards to any, all or none of such eligible persons at any time, from time to time, during the term of the Plan.
The Committee may grant Options, Tandem SARs, Stand-Alone SARs, shares of Restricted Stock, shares of Phantom Stock and Stock Bonuses, in such amounts and with such terms and conditions as the Committee shall determine, subject to the provisions of the Plan.
Each Incentive Award granted under the Plan (except an unconditional Stock Bonus) shall be evidenced by an Award Agreement that shall contain such provisions as the Committee may in its sole discretion deem necessary or desirable. By accepting an Incentive Award, a Participant thereby agrees that the award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement.
8
9
10
11
The Committee may grant in connection with any Option granted hereunder one or more Tandem SARs relating to a number of shares of Common Stock less than or equal to the number of shares of Common Stock subject to the related Option. A Tandem SAR may be granted at the same time as, or, in the case of a Non-Qualified Stock Option, subsequent to the time that, its related Option is granted.
12
13
14
15
16
17
18
19
20
21
22
23
Appendix D
Code of Ethics
Preface
The senior financial officers of XETA Technologies, Inc. (the “Company”) hold an important and elevated role in corporate governance. As leaders of the Company’s finance team, the senior financial officers are vested with both the responsibility and the authority to ensure that interests of the stakeholders (including shareholders, customers, suppliers and employees) are appropriately balanced, protected and preserved. Accordingly, this Code of Ethics provides principles that the senior financial officers are expected to adhere to as well as advocate.
Applicability
This Code of Ethics applies to the following officers of the Company:
Standards of Ethics
To the best of their knowledge and abilities, the Chief Executive Officer, Chief Financial Officer, and Other Financial Officers will:
Compliance
The Chief Executive Officer, Chief Financial Officer and Other Financial Officers shall each certify in writing annually that they have read and understand the foregoing Code of Ethics and that they will comply with the Code of Ethics for as long as they are subject to such policy. These certifications shall be filed with the Audit Committee.
Violations of this Code of Ethics should be promptly reported to the Chairman of the Audit Committee. Questions regarding this Code of Ethics should be directed to the Chairman of the Audit Committee.
Failure to comply with this Code of Ethics is grounds for disciplinary action.
2
XETA TECHNOLOGIES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
VOTING INSTRUCTIONS
YOU CAN VOTE IN ONE OF TWO WAYS:
Your vote is important. Please vote as soon as possible.
Vote-by-Internet
Log on to the Internet and go to http://www.eproxyvote.com/xeta
Have your proxy card in hand when you access the website and follow the instructions. |
|
Internet votes must be received by 5:00 p.m. (Central Time) on April 11, 2005. |
Your Internet vote works in the same manner as if you marked, | |
signed and returned your proxy card by mail. |
Vote-by-Mail | |
Mark, sign and date the proxy card on the reverse side. Detach the proxy card and return it in the postage-paid envelope. | |
| |
IF YOU ARE NOT VOTING BY INTERNET, DETACH PROXY CARD AND RETURN.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted for the two foregoing proposals.
NOTE: Signature(s) should follow exactly as your name appears on your stock certificate. In case of joint ownership, each owner should sign. Executors, administrators, guardians trustees, etc, should add their title as such and where more than one executor, etc. is named, a majority must sign. It signer is a corporation, please sign full corporate name by duly authorized officer. | |
(Signature) | |
(Print Name) | |
(Signature) | |
(Print Name) | |
Dated:__________________________________ , 2005 |
XETA TECHNOLOGIES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
April 6, 2004
12, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack R. Ingram and Donald T. Duke,Robert B. Wagner, or either of them, as proxies and attorneys for the undersigned (with full power to act alone and to designate substitutions), hereby revoking any prior Proxy, and hereby authorizes them to represent the undersigned and to vote as designated below, all the shares of Common Stock of XETA Technologies, Inc. held of record by the undersigned on February 24, 2004,25, 2005 at the Annual Meeting of Shareholders to be held on held April 6, 2004,12, 2005, or any adjournment or postponement thereof.
1. | ELECTION OF DIRECTORS: | o | FOR | o | WITHHOLD AUTHORITY |
(01) RON B. BARBER (02) DONALD T. DUKE (03) ROBERT D. HISRICH(04) JACK R. INGRAM (05) RONALD L. SIEGENTHALER
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee’s name on the space provided below.)
(01) RON B. BARBER (02) DONALD T. DUKE (03) ROBERT D. HISRICH (04) JACK R. INGRAM | |||||
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee’s name on the space provided below.) | |||||
2. | |||||||||||||
| PROPOSAL TO RATIFY THE SELECTION OF GRANT THORNTON LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE |
o | FOR | o | AGAINST | o | ABSTAIN | |||||
3. | ||||||||||
| IN THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING. | ||
NOTE: Signature(s) should follow exactly as your name appears on your stock certificate. In case of joint ownership, each owner should sign. Executors, administrators, guardians, trustees, etc. should add their title as such and where more than one executor, etc. is named, a majority must sign. If the signer is a corporation, please sign full corporate name by a duly authorized officer.
Dated: ___________________________, 2004.