SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ x ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
XYBERNAUT CORPORATION
---------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
XYBERNAUT CORPORATION
12701 Fair Lakes Circle
Fairfax, Virginia 22033
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held Tuesday, June 18, 2002
---------------
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Stockholders
(the "Meeting") of XYBERNAUT CORPORATION, a Delaware corporation (the
"Company"), will be held at the Waterford at Fair Oaks, 12025 Lee Jackson
Memorial Highway, Fairfax, Virginia 22033, on Tuesday, June 18, 2002, at 9:30
A.M., to consider and act upon the following:
1. the election of four (4) persons named in the accompanying Proxy
Statement to serve as Class II directors of the Company for a term of
three years and until their successors are duly elected and qualified;
2. the approval of the Company's 2002 Stock Incentive Plan, which provides
for up to 3,000,000 shares of the Common Stock to be issued to key
employees, consultants and directors of the Company, as more fully set
forth in the accompanying Proxy Statement;
3. the ratification of the appointment of Grant Thornton LLP as the
Company's independent accountants for the fiscal year ending December
31, 2002; and
4. to consider and transact such other business as may properly come
before the Meeting or any adjournment thereof.
A Proxy Statement, form of proxy and the Annual Report to Stockholders
of the Company for the fiscal year ended December 31, 2001 are enclosed
herewith. Only holders of record of Common Stock, $0.01 par value, of the
Company at the close of business on May 3, 2002 are entitled to receive notice
of and to attend the Meeting and any adjournments thereof. At least 10 days
prior to the Meeting, a complete list of the stockholders entitled to vote will
be available for inspection by any stockholder, for any purpose germane to the
Meeting, during ordinary business hours, at the offices of the Company. If you
do not expect to be present at the Meeting, you are requested to fill in, date
and sign the enclosed Proxy, which is solicited by the Board of Directors of the
Company, and to mail it promptly in the enclosed envelope. If you received a
proxy card with a web site address and voting codes, you may choose to vote on
the Internet at the web site indicated (for example, http://www.proxyvote.com)
or telephonically. If you vote by telephone or the Internet, you do not need to
return the proxy card. In the event you attend the Meeting in person, you may,
if you desire, revoke your Proxy and vote your shares in person.
By Order of the Board of Directors
Martin Eric Weisberg
Secretary
Dated: May ___, 2002
IMPORTANT
The return of your signed Proxy as promptly as possible will greatly facilitate
arrangements for the Meeting. No postage is required if the Proxy is returned in
the envelope enclosed for your convenience and mailed in the United States. If
you received a proxy card with a web site address and voting codes, we urge you
to vote on the Internet at the web site indicated (for example,
http://www.proxyvote.com) or telephonically to ensure that your vote is recorded
without mail delays. If you vote by telephone or the Internet you do not need to
return the proxy card.
XYBERNAUT CORPORATION
12701 Fair Lakes Circle
Fairfax, Virginia 22033
----------------------------------------
Proxy Statement
Annual Meeting of Stockholders
June 18, 2002
----------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Xybernaut Corporation, a Delaware
corporation (the "Company"), to be voted at the Annual Meeting of Stockholders
of the Company (the "Meeting") which will be held at the Waterford at Fair Oaks,
12025 Lee Jackson Memorial Highway, Fairfax, Virginia 22033 on June 18, 2002 at
9:30 A.M., local time, and any adjournment or adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders
and in this Proxy Statement.
The principal executive offices of the Company are located at 12701
Fair Lakes Circle, Fairfax, Virginia 22033. The approximate date on which this
Proxy Statement and accompanying Proxy will first be sent or given to
stockholders is May 15, 2002.
A Proxy, in the enclosed form, which is properly executed, duly
returned to the Company and not revoked will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted in favor of the proposals and in accordance with the judgment of
the person or persons voting the Proxy on any other matter that may be brought
before the Meeting. Each such Proxy granted may be revoked at any time
thereafter by writing to the Secretary of the Company prior to the Meeting, by
execution and delivery of a subsequent proxy or by attendance and voting in
person at the Meeting, except as to any matter or matters upon which, prior to
such revocation, a vote shall have been cast pursuant to the authority conferred
by such Proxy. The cost of soliciting proxies will be borne by the Company.
Following the mailing of the proxy materials, solicitation of proxies may be
made by officers and employees of the Company, or anyone acting on their behalf,
by mail, telephone, telegram or personal interview.
VOTING SECURITIES
Stockholders of record as of the close of business on May 3, 2002 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting or any
adjournments thereof. On the Record Date, there were 65,881,013 outstanding
shares of common stock, $0.01 par value per share (the "Common Stock"). Each
holder of Common Stock is entitled to one vote for each share held by such
holder. The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Meeting.
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Proxies submitted that are voted to abstain with respect to any matter
will be considered cast with respect to that matter. Proxies subject to broker
non-votes with respect to any matter will not be considered cast with respect to
that matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of April 30, 2002, certain
information regarding the ownership of voting securities of the Company by each
stockholder known to the management of the Company to be (i) the beneficial
owner of more than 5% of the Company's outstanding Common Stock, (ii) the
directors during the last fiscal year and nominees for director of the Company,
(iii) the executive officers named in the Summary Compensation Table herein
under "Executive Compensation" and (iv) all executive officers and directors as
a group. The Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares.
Amount of Shares Percentage
Name Beneficially Owned Owned
---- ------------------ -----
M. Dewayne Adams 26,666 (1) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Eugene J. Amobi 570,000 (2) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
James S. Gilmore III, Esq. 0 *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Keith P. Hicks, Esq. 324,573 (3) *
4121 Roberts Road
Fairfax, Virginia 22032
John F. Moynahan 382,898 (4) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Edward G. Newman 3,056,437 (5) 4.6%
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Steven A. Newman, M.D. 1,593,115 (6) 2.4%
12701 Fair Lakes Circle
Fairfax, Virginia 22033
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Amount of Shares Percentage
Name Beneficially Owned Owned
---- ------------------ -----
Phillip E. Pearce 115,000 (7) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
James J. Ralabate, Esq 243,726 (8) *
5792 Main Street
Williamsville, New York 14221
Jacques Rebibo 240,000 (9) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Lt. Gen. Harry E. Soyster (Ret.) 159,364 (10) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Kazuyuki Toyosato 120,000 (11) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Dr. Edwin Vogt 155,000 (12) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Martin Eric Weisberg, Esq. 157,000 (13) *
405 Lexington Avenue
New York, New York 10174
All officers and directors as a group
14 persons) 7,143,779 (14) 10.3%
- ----------
* Less than 1%
(1) Includes 26,666 shares of Common Stock issuable upon exercise of
currently exercisable options.
(2) Includes 280,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(3) Includes 90,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(4) Includes 332,898 shares of Common Stock issuable upon exercise of
currently exercisable options and 50,000 shares of Common Stock
issuable upon exercise of stock options exercisable within sixty days
of April 30, 2002.
-6-
(5) Includes (a) 707,049 shares of Common Stock issuable upon exercise of
currently exercisable options, (b) 200,000 shares beneficially owned by
an irrevocable trust established by Mr. Newman for the benefit of his
children, (c) 250,000 shares pledged as collateral pursuant to a pledge
agreement between Mr. Newman and the Company, (d) 1,765 shares
beneficially owned by Mr. Newman and his wife, Frances C. Newman, as
joint tenants and (e) 9,000 shares owned by an irrevocable trust
established by Dr. Steven A. Newman for which Mr. Newman is trustee.
Does not include (a) 761,950 shares of Common Stock beneficially owned
by Mr. Newman's wife, Frances C. Newman, (b) 28,900 shares beneficially
owned by an irrevocable trust established by Mr. Newman for the benefit
of his sister and (c) 28,900 shares beneficially owned by an
irrevocable trust established by Mr. Newman for the benefit of his
mother. Mr. Newman disclaims beneficial ownership of all such shares.
(6) Includes (a) 1,102,134 shares of Common Stock issuable upon exercise of
currently exercisable options, (b) 100,000 shares beneficially owned by
an irrevocable trust established by Dr. Newman for the benefit of his
children, for which shares Dr. Newman disclaims beneficial ownership,
and (c) 32,000 shares owned by an irrevocable trust established by
Edward G. Newman for which Dr. Newman is trustee.
(7) Includes 115,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(8) Includes 185,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(9) Includes 115,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(10) Includes 140,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(11) Includes 120,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(12) Includes 135,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(13) Includes (a) 130,000 shares of Common Stock issuable upon exercise of
currently exercisable options, (b) 18,000 shares beneficially owned by
Mr. Weisberg's children and (c) 9,000 shares beneficially owned by Mr.
Weisberg's wife. Mr. Weisberg disclaims beneficial ownership of all
shares owned by his wife and children.
(14) Includes 3,478,747 shares of Common Stock issuable to the group upon
exercise of currently exercisable options and 50,000 shares of Common
Stock issuable to the group upon exercise of stock options exercisable
within sixty days of April 30, 2002.
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ACTIONS TO BE TAKEN AT THE MEETING
--------------------------------------
PROPOSAL 1
ELECTION OF DIRECTORS
--------------------------------------
Unless otherwise indicated, the shares represented by all proxies
received by the Board of Directors will be voted at the Meeting in accordance
with their terms and, in the absence of contrary instructions, for the election
of Eugene J. Amobi, Philip E. Pearce, Lt. Gen. Harry E. Soyster (Ret.) and Dr.
Edwin Vogt as Class II directors to serve for a term of three years and/or until
their successors are elected or appointed and qualified.
All of the nominees were elected directors at the 1999 Annual Meeting
of Stockholders. The term of the current Class II directors expires at the
Meeting.
The Board of Directors has no reason to expect that any of the nominees
will be unable to stand for election at the date of the Meeting. In the event
that a vacancy among the original nominees occurs prior to the Meeting, the
Proxies will be voted for a substitute nominee or nominees named by the Board of
Directors and for the remaining nominees. Directors are elected by a plurality
of the votes cast.
The following table sets forth information about each director and
nominee for director of the Company.
Year First
Elected or
Name Age Class Appointed Position
---- --- ----- --------- --------
Keith P. Hicks, Esq. (1) 79 I 1994 Director
Kazuyuki Toyosato 55 I 1998 Executive Vice President and
Director
Martin Eric Weisberg, Esq. (1)(2)(3) 51 I 1997 Secretary and Director
Eugene J. Amobi 58 II 1996 Vice President and Director
Phillip E. Pearce (1)(3) 73 II 1995 Director
Lt. Gen. Harry E. Soyster (Ret.) 67 II 1995 Director
(1)(2)(3)
Dr. Edwin Vogt 69 II 1998 Senior Vice President and
Director
James S. Gilmore III, Esq. 52 III 2002 Director
Edward G. Newman 58 III 1990 President, Chief Executive
Officer and Chairman of the
Board of Directors
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Year First
Elected or
Name Age Class Appointed Position
---- --- ----- --------- --------
Steven A. Newman, M.D. (2)(3) 56 III 1995 Executive Vice President and
Vice Chairman of the Board of
Directors
James J. Ralabate, Esq. 74 III 1995 Director
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
The four directors nominated for Class II will serve for a three-year term
expiring in 2005, the three directors currently serving as Class I are serving a
three-year term expiring in 2004 and the four directors currently serving as
Class III are serving for a three-year term expiring in 2003, and in each case
until their successors shall be duly elected and qualified.
At each Annual Meeting of Stockholders subsequent to the Meeting, one class
of directors will be elected to succeed those directors in the class whose terms
then expire, for terms expiring at the third succeeding Annual Meeting of
Stockholders.
DIRECTOR NOMINEES
Eugene J. Amobi, P.E. has been a Vice President of the Company since
January 2000 and a director of the Company since January 1996. Since 1983, Mr.
Amobi has been President, a director and a principal stockholder of Tech
International, Inc. ("Tech International"), which provides engineering,
technical support and consulting services to government and domestic and
international clients. Mr. Amobi has been president and director of Tech
International of Virginia Inc. ("Tech Virginia"), our wholly-owned subsidiary,
since its spin-off from Tech International. Mr. Amobi also has been president of
Tech Consultants Inc. since 1988. Prior to 1983, Mr. Amobi was a Senior Engineer
with E.I. DuPont de Nemours and a Managing Director of Stanley Consultants, an
international engineering consulting firm. Mr. Amobi is a graduate of The
Technion, Israel Institute of Technology (B.S. 1969), Princeton University (M.S.
1970) and Syracuse University (M.B.A. 1973).
Phillip E. Pearce has been a director of the Company since October 1995.
Mr. Pearce has been an independent business consultant with Phil E. Pearce &
Associates, Chairman and Director of Financial Express Corporation since 1990
and since 1988 has been a principal of Pearce-Henry Capital Corp. Prior to 1988,
Mr. Pearce was Senior Vice President and a director of E.F. Hutton, Chairman of
the Board of Governors of the National Association of Securities Dealers, a
Governor of the New York Stock Exchange and a member of the Advisory Council to
the United States Securities and Exchange Commission on the Institutional Study
of the Stock Markets. Mr. Pearce also is a director of RX Medical Services,
Inc., an operator of medical diagnostic facilities and clinical laboratories,
InfoPower International, Inc., a software development company, StarBase
Corporation, a software development company and Mustang
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Software, Inc., a software and services company. Mr. Pearce is a graduate of the
University of South Carolina (B.A. 1953) and attended the Wharton School of
Investment Banking at the University of Pennsylvania.
Lt. Gen. Harry E. Soyster (Ret.) has been a director of the Company since
January 1995. From 1991 to present he has been employed by Military Professional
Resources, Incorporated currently as Director of Washington Operations and Vice
President of International Operations. From 1988 until his retirement in 1991,
Lieutenant General Soyster (Ret.) was the Director of the United States Defense
Intelligence Agency. Prior to that time, he was Commander of the United States
Army Intelligence and Security Command and a Deputy Assistant Chief of Staff for
Intelligence, Department of the Army. Lieutenant General Soyster (Ret.) is a
graduate of the United States Military Academy at West Point (B.S. 1957), Penn
State University (M.S. 1963), the University of Southern California (M.S. 1973)
and the National War College (1977).
Dr. Edwin Vogt has been a director of the Company since September 28, 1998
and joined the Company in December 1998 as a Senior Vice President. Prior to
this date, Dr. Vogt served as a consultant to the Company since 1996. In early
1996, he was appointed Director for the SBS association (Softwarezentrum
Boblingen / Sindelfingen e.V.) and directed the growth of this center to 39
member companies with over 200 experts, predominantly working in high-growth
areas such as Internet, Workflow, Process Automation and Multimedia. Dr. Vogt
joined IBM in 1961 as Development Programmer and worked in the fields of
hardware development, holding 28 patents, as well as software development. As
manager, he was responsible for hardware projects (IBM /360, /370, 433x) as well
as various software projects (voice recognition products) before being appointed
Director as manager of several Hardware and Software Product Development
Laboratories. As IBM Software Group Executive, Dr. Vogt held the worldwide
responsibility for the development and marketing of IBM Workflow products and
Reengineering tools until retiring from IBM at the end of 1995. Dr. Vogt is a
graduate of the University of Stuttgart with an M.S. in Electrical Engineering
and Mathematics and a Ph.D. in Theoretical Electrical Engineering.
The Board Recommends a Vote "FOR" the Election
of each of Eugene J. Amobi, Phillip E. Pearce, Lt. Gen.
Harry E. Soyster (Ret.) and Dr. Edwin Vogt
CURRENT CLASS I DIRECTORS
Keith P. Hicks, Esq. has been a director since July 1994 and is currently a
principal in C&H Properties and the owner of Hicks Bonding Co., Hicks
Auctioneering Co. and Hicks Cattle Company. Mr. Hicks is a graduate of the
University of Denver (B.A. 1954) and LaSalle University School of Law (L.L.B.
1969).
Kazuyuki Toyosato has been a director since 1998 and joined the Company in
October of 1996 as Executive Vice President of Asian Operations. Mr. Toyosato is
responsible for overseeing a key segment of the Company's operations in Asia.
Prior to joining the Company, Mr. Toyosato spent 27 years with Sony Corporation
in Japan where his last position was the
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Vice President of Sony USA. He previously helped manage the Sony Walkman product
line and Lithium battery business, and managed Sony's 8mm video camcorder and
peripherals product line.
Martin Eric Weisberg, Esq., who has been a director since 1997 and has
served as Secretary of the Company since that time, is a partner of the law
firm, Jenkens & Gilchrist Parker Chapin LLP, which serves as outside general
counsel to the Company. Mr. Weisberg specializes in the areas of securities,
mergers and acquisitions, financing and international transactions and has been
in the private practice of law for 25 years. Mr. Weisberg is a summa cum laude
graduate of Union College (B.A. 1972) and received his law degree from The
Northwestern University School of Law (1975), where he graduated summa cum
laude, was Articles Editor of the Law Review and was elected to the Order of the
Coif. Mr. Weisberg also attended The London School of Economics and Political
Science. In addition, Mr. Weisberg serves as a director of Tremor Entertainment
Inc., a Nevada corporation.
CURRENT CLASS III DIRECTORS
James S. Gilmore III, Esq. currently chairs the Congressional Advisory
Panel to Assess Domestic Response Capabilities for Terrorism Involving Weapons
of Mass Destruction, a national panel established by Congress in 1999 to assess
federal, state, and local governments' capability to respond to the consequences
of a terrorist attack. Mr. Gilmore served as the governor for the Commonwealth
of Virginia from 1998 to 2002 and as the attorney general from 1993 to 1997.
During his tenure as governor, he created the nation's first secretariat of
technology, established a statewide technology commission, and signed into law
the nation's first comprehensive state Internet policy. Mr. Gilmore is a
graduate of the University of Virginia (B.A. 1971) and the University of
Virginia Law School (J.D. 1977).
Edward G. Newman has been the Company's President since March 1993, Chief
Executive Officer and Chairman of the Board of Directors since December 1994 and
a director since 1990. Mr. Newman served as our Treasurer from 1993 to 1994.
From 1984 to 1992, Mr. Newman was President of ElectroTech International
Corporation, a software consulting firm. From 1973 to 1981, Mr. Newman was
employed by Xerox Corporation in several management positions in office systems
strategy, legal systems and international financial systems. Mr. Newman served
with the Central Intelligence Agency from 1966 to 1972. Mr. Newman also has been
an Executive Vice President of Tech International since 1990 and a director and
Chief Executive Officer of Tech Virginia since 1994. See "Certain Relationships
and Related Transactions." Mr. Newman is a graduate of the University of
Maryland (B.A. 1971) and the University of New Haven (M.B.A. 1984). Mr. Newman
is the brother of Steven A. Newman, M.D., an Executive Vice President and
director of the Company.
Steven A. Newman, M.D. has been an Executive Vice President of the Company
since January 2000, a director of the Company since January 1995, and the Vice
Chairman of the Board of Directors since August 1997. See "Business - Employees
and Consultants." Dr. Newman was the Executive Vice President and Secretary from
December 1994 through October 1995 and a consultant of the Company between
January 1996 and December 1999. Dr. Newman was President and Chief Executive
Officer of Fed American, Inc., a mortgage banking firm, from 1988 to 1991. Dr.
Newman has been a director of Tech Virginia since 1994. See "Certain
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Relationships and Related Transactions." Dr. Newman is a graduate of Brooklyn
College (B.A. 1967) and the University of Rochester (M.D. 1972). Dr. Newman is
the brother of Edward G. Newman, our President, Chief Executive Officer and
Chairman of the Board of Directors.
James J. Ralabate, Esq. has been a director of the Company since January
1995 and served as our Secretary until August 1997. Mr. Ralabate has been in the
private practice of patent law since 1982. Prior to that time, Mr. Ralabate was
General Patent Counsel for Xerox Corporation, responsible for worldwide patent
licensing and litigation, and an Examiner in the United States Patent Office.
Mr. Ralabate is our intellectual property counsel and is a graduate of Canisius
College (B.S. 1950) and The American University (J.D. 1959).
COMPENSATION OF DIRECTORS
The Company currently does not pay or accrue salaries or consulting fees to
outside directors for each board or committee meeting attended. While it is the
Company's intention to establish such payments eventually, it does not have any
current plans to do so. Any payments when implemented will be comparable to
those made by companies of similar size and stage. Directors receive a grant of
options for 50,000 shares of Common Stock upon election and reelection to the
Board of Directors and are entitled for each full year of service (other than
the year of election or reelection), commencing with those directors who were
elected at the 1997 Annual Meeting, to receive a grant of options to purchase
10,000 shares of Common Stock which vests at the end of such year of service.
Members of the Audit, Compensation and Nominating Committees are entitled to
receive $1,000 for each Audit, Compensation or Nominating Committee meeting
attended by such member. The Company also has adopted the 1996 Omnibus Stock
Incentive Plan, the 1997 Stock Incentive Plan, the 1999 Stock Incentive Plan and
the 2000 Stock Incentive Plan in which directors are eligible to participate.
See "Executive Compensation - Compensation Plans."
CERTAIN INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors is responsible for the management of the Company.
During the fiscal year ended December 31, 2001, the Board of Directors of the
Company held four (4) meetings. All of the directors attended all meetings of
the Board except that each of Dr. Edwin Vogt, Kazuyuki Toyosato and James J.
Ralabate, Esq. did not attend one (1) meeting. The Board has established Audit,
Compensation and Nominating Committees.
The Audit Committee's functions are to serve as an independent and
objective monitor of the Company's financial reporting process and internal
control system, to review and appraise the audit efforts of the Company's
independent auditors, and to provide an open avenue of communication among the
independent auditors, financial and senior management and the Board of
Directors. The Audit Committee currently consists of Keith P. Hicks, Esq.,
Martin Eric Weisberg, Esq., Lt. Gen. Harry E. Soyster (Ret.) and Phillip E.
Pearce. During the fiscal year ended December 31, 2001, the Audit Committee met
one (1) time and from time to time had informal discussions. The Company has
adopted an Audit Committee Charter pursuant to Nasdaq requirements for
independent audit committees.
-12-
The function of the Compensation Committee is to review and recommend to
the Board of Directors the appropriate compensation of executive officers of the
Company and to administer the 1996 Omnibus Stock Incentive Plan, the 1997 Stock
Incentive Plan, the 1999 Stock Incentive Plan and the 2000 Stock Incentive Plan.
The Compensation Committee currently consists of Dr. Steven A. Newman, Lt. Gen.
Harry E. Soyster (Ret.) and Martin Eric Weisberg, Esq. The Compensation
Committee met one (1) time during the fiscal year ended December 31, 2001.
The function of the Nominating Committee is to select and recommend to the
Board of Directors appropriate candidates for election to the Company's Board of
Directors. The Nominating Committee currently consists of Dr. Steven A. Newman,
Lt. Gen. Harry E. Soyster (Ret.), Phillip E. Pearce and Martin Eric Weisberg,
Esq.
REPORT OF THE AUDIT COMMITTEE
Grant Thornton LLP ("Grant Thornton") served as the Company's independent
public accountant for the year ended December 31, 2001. A representative of
Grant Thornton will be available to respond to appropriate questions during the
Annual Meeting.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent public accountant is responsible
for performing an independent audit of the consolidated financial statements in
accordance with generally accepted auditing standards and to issue a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes. In this context, the Audit Committee of the Board of Directors has
reviewed the audited financial statements of the Company for the fiscal year
ended December 31, 2001 with management. Management represented to the Audit
Committee that the consolidated financial statements were prepared in accordance
with generally accepted accounting principles.
The Audit Committee has discussed the consolidated financial statements
with Grant Thornton, and the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees) relating to the
conduct of the audit. The Audit Committee has also received written disclosures
and a letter from Grant Thornton regarding its independence from the Company as
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), has discussed with Grant Thornton the
independence of that firm and has considered the compatibility of non-audit
services with the independence of Grant Thornton.
Based upon the above materials and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001. The foregoing report was provided by the following directors,
who constitute the Audit Committee:
Keith P. Hicks, Esq.
Martin Eric Weisberg, Esq.
Lt. Gen. Harry E. Soyster (Ret.)
Philip E. Pearce
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they file. Based
solely on the Company's review of the copies of such reports by it, the Company
believes that during fiscal 2001 all such filings were made, except that Eugene
J. Amobi filed an Annual Statement of Beneficial Ownership on Form 5.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following sets forth the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 2001, 2000 and 1999 paid to the Company's Chief
Executive Officer ("CEO") and the registrant's four most highly compensated
executive officers other than the CEO who were serving as executive officers at
the end of the last completed fiscal year.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Awards
------------
Name and Principal Position Annual Compensation Common Stock
------------------------------------------------ Underlying
Year Salary Bonus Options All Other
-------- ----------------- ------------ ------------ ----------------
Edward G. Newman 2001 $ 275,440 (1) $ 0 240,384 $ 89,825 (3)
Chief Executive Officer, President and 2000 $ 263,476 (1) $ 50,000 (2) 50,000 $ 76,211 (3)
Chairman of the Board of Directors 1999 $ 223,294 (1) $ 0 441,665 $ 35,400 (3)
Dr. Steven A. Newman
Executive Vice President 2001 $ 248,907 (4) $ 0 540,384 $ 82,064 (6)
and Vice Chairman of the 2000 $ 240,351 (4) $ 150,000 (5) 50,000 $ 22,122 (6)
Board of Directors 1999 $ 13,476 (4) $ 0 441,750 $ 176,550 (6)
John F. Moynahan 2001 $ 180,880 $ 0 45,070 $ 44,136 (3)
Senior Vice President, Chief Financial 2000 $ 170,000 $ 25,000 (2) 0 $ 39,875 (3)
Officer and Treasurer 1999 $ 82,288 (7) $ 0 331,741 $ 16,500 (3)
Jacques Rebibo 2001 $ 116,667 (8) $ 0 300,000 $ 55,973(10)
Executive Vice President 2000 $ 99,000 (8) $ 0 0 $ 14,060(10)
1999 $ 99,234 (8) $ 33,165 (9) 0 $ 250(10)
M. Dewayne Adams 2001 $ 169,792 $ 0 0 $ 4,207 (3)
Vice President 2000 $ 47,822(11) $ 0 50,000 $ 0
1999 $ 0 $ 0 0 $ 0
-14-
- ------------------
(1) Includes $10,107, $13,476 and $13,476 paid by Tech Virginia in 2001, 2000
and 1999, respectively. Compensation does not include $88,136, $58,400
and $53,732 paid to Frances C. Newman, wife of Edward G. Newman in 2001,
2000 and 1999, respectively.
(2) Represents payment of a signing bonus as an incentive for the executive
to enter into his employment agreement.
(3) Includes payment of (i) non-accountable expense and transportation
allowances, (ii) unused vacation payouts and/or (iii) other miscellaneous
compensation.
(4) Includes compensation related to services performed as an Executive Vice
President of the Company since January 1, 2000 and $10,107, $13,476 and
$13,476 paid by Tech Virginia in 2001, 2000 and 1999, respectively.
(5) Represents payment of a $50,000 signing bonus as an incentive for the
executive to enter into his employment agreement and a $100,000 annual
bonus for services performed during 2000.
(6) Includes payment of (i) consulting fees related to services performed as
a consultant to the Company prior to January 1, 2000, (ii)
non-accountable expense and transportation allowances, (iii) unused
vacation payouts and/or (iv) other miscellaneous compensation.
(7) Mr. Moynahan resigned from his positions with the Company effective June
3, 1998 and resumed these positions effective May 10, 1999.
(8) Includes compensation related to services performed as an Executive
Officer of the Company or Xybernaut Solutions, Inc., a wholly-owned
subsidiary, from January 1999 through September 2000 and from April 2001
through December 2001.
(9) Represents bonus payments based on the operating results of Xybernaut
Solutions, Inc.
(10) Includes payment of (i) consulting fees related to services performed as
a consultant to the Company from September 2000 through April 2001, (ii)
non-accountable expense and transportation allowances and (iii) other
miscellaneous compensation.
(11) Mr. Adams joined the Company in July 2000.
-15-
Option Grants Table. The following table sets forth information on grants
of stock options during fiscal 2001 to executive officers and directors of the
Company. All such options are exercisable to purchase shares of Common Stock.
Options Percent of Total
Granted Options Granted to Exercise or Base
(Shares) Employees in Year Price ($/Share) Expiration Date
-------- ------------------ ---------------- ---------------
M. Dewayne Adams 0 - - -
Eugene J. Amobi 0 - - -
James S. Gilmore III, Esq. 0 - - -
Keith P. Hicks, Esq. 0 - - -
John F. Moynahan 45,070 1.6850% $2.2300 December 31, 2011
Edward G. Newman 240,384 8.9869% $2.2300 December 31, 2011
Steven A. Newman, M.D. 300,000 11.2157% $2.2300 April 24, 2011
240,384 8.9869% $2.2300 December 31, 2011
Phillip E. Pearce 0 - - -
James J. Ralabate, Esq. 25,000 0.9346% $2.2300 April 24, 2011
Jacques Rebibo 210,000 7.8510% $2.0700 April 16, 2011
90,000 3.3647% $4.3800 September 15, 2005
Lt. Gen Harry E. Soyster (Ret.) 0 - - -
Kazuyuki Toyosato 0 - - -
Dr. Edwin Vogt 0 - - -
Martin Eric Weisberg, Esq. 25,000 0.9346% $2.2300 April 24, 2011
Fiscal Year-End Options/Option Values Table.
Number of Securities Underlying Value of Unexercised In-The-Money
Unexercised Options at Fiscal Options at Fiscal Year-End ($)
Year End
Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------- ---------------------------------------
M. Dewayne Adams 26,666 23,334 $ - $ -
Eugene J. Amobi 280,000 110,000 $49,050 $ -
James S. Gilmore III, Esq. - - $ - $ -
Keith P. Hicks, Esq. 90,000 - $8,175 $ -
John F. Moynahan 332,898 50,000 $25,805 $ -
Edward G. Newman, 707,049 - $362,557 $ -
Steven A. Newman, M.D. 1,102,134 - $409,783 $ -
Phillip E. Pearce 115,000 - $8,175 $ -
James J. Ralabate, Esq. 185,000 - $60,975 $ -
Jacques Rebibo 115,000 185,000 $21,700 $ 43,400
Lt. Gen Harry E. Soyster (Ret.) 140,000 - $8,175 $ -
Kazuyuki Toyosato 120,000 60,000 $8,175 $ -
Dr. Edwin Vogt 135,000 60,000 $28,613 $ -
Martin Eric Weisberg, Esq. 130,000 - $66,988 $ -
The Company has no retirement, pension or profit sharing program for the
benefit of its directors, officers or other employees, but the Board of
Directors may recommend one or more such programs for adoption in the future.
-16-
EMPLOYMENT AGREEMENTS
Edward G. Newman is employed with the Company pursuant to a three-year
employment agreement expiring on December 31, 2002. This agreement calls for an
initial base salary of $250,000 with annual increases at the United States
Consumer Price Index ("CPI") percentage plus three percent, subject to a ceiling
of 10%; an annual bonus, payable at the discretion of the Board of Directors in
cash, shares of Common Stock, options to purchase shares of Common Stock, stock
appreciation rights or any combination thereof, in an amount to be determined by
the Board of Directors; a $2 million life insurance policy payable to his
designated beneficiaries; and an annual grant of stock options in an amount
equal to the greater of (i) 1.5% of the "Revenue Goal" where "Revenue Goal" is
equal to 85% of the Company's revenue goal for each fiscal year during the term
of employment, if the Revenue Goal is attained, and (ii) 2% of the increase, if
any, in the market capitalization, based on the average of the number of shares
outstanding and the closing prices of the Common Stock for the 30 days ended
December 31 of the applicable year compared to the comparable 30 day period in
the prior year, from January 1 to December 31 of the applicable fiscal year
("Performance Options"), with a limit on such grant of the greater of 500,000
shares or 1.5% of the then-outstanding shares of Common Stock in any given
fiscal year during the term of the employment agreement. The Performance Options
are exercisable at a price equal to the average of the closing price of the
Common Stock for 30 days prior to the end of the applicable fiscal year. As an
incentive to enter into this agreement, Mr. Newman received an initial payment
of $50,000. In the event of a change of control or Mr. Newman terminating his
employment for good cause, Mr. Newman is entitled to a severance payment of the
greater of two years or the remaining term of this agreement and the Performance
Options for the year of termination and the following year. This agreement
provides Mr. Newman with benefits which the Company may provide to its executive
officers, including health care insurance, automobile allowance and vacation.
Dr. Steven A. Newman is employed with the Company pursuant to a three-year
employment agreement expiring on December 31, 2002. This agreement calls for an
initial base salary of $225,000 with annual increases at the CPI percentage plus
three percent, subject to a ceiling of 10%; an annual bonus, payable at the
discretion of the Board of Directors in cash, shares of Common Stock, options to
purchase shares of Common Stock, stock appreciation rights or any combination
thereof, in an amount to be determined by the Board of Directors, with a minimum
bonus of $100,000 set for 2000; a $2 million life insurance policy payable to
his designated beneficiaries; and an annual grant of Performance Options, if
applicable, with an exercise price equal to the average of the closing price of
the Common Stock for 30 days prior to the end of the applicable fiscal year,
with a limit on such grant of the greater of 500,000 shares or 1.5% of the
then-outstanding shares of Common Stock in any given year. As an incentive to
enter into this agreement, Dr. Newman received an initial payment of $50,000. In
the event of a change of control or Dr. Newman terminating his employment for
good cause, Dr. Newman is entitled to a severance payment of the greater of two
years or the remaining term of this agreement, and the Performance Options for
the year after termination and the following year. This agreement provides Dr.
Newman with benefits which the Company may provide to its executive officers,
including health care insurance, automobile allowance and vacation.
John F. Moynahan is employed with the Company pursuant to a three-year
employment agreement expiring on December 31, 2002. This agreement calls for an
initial base salary of
-17-
$170,000 with annual increases at the CPI percentage plus three percent subject
to a ceiling of 10%; an annual cash bonus to be determined by the Board of
Directors; a $750,000 life insurance policy payable to his designated
beneficiaries; and an annual grant of stock options to be determined by
increases in revenues or market capitalization over the prior year, at the price
in effect at the time such grant is made, with a limit on such grant of the
greater of 100,000 shares or 0.33% of the then-outstanding stock in any given
year. As an incentive to enter into this agreement, Mr. Moynahan received an
initial payment of $25,000. In the event of a change of control or Mr. Moynahan
terminating his employment for good cause, Mr. Moynahan is entitled to a
severance payment of the greater of two years or the remaining term of this
agreement, the Performance Options for the year after termination and the
following year, and immediate vesting of options. This agreement provides Mr.
Moynahan with benefits which the Company may provide to its executive officers,
including health care insurance, automobile allowance and vacation.
Kazuyuki Toyosato is employed pursuant to a two-year employment agreement
expiring on September 21, 2003. Pursuant to this agreement, Mr. Toyosato
receives an annual base salary of $190,000 and is eligible to receive bonuses of
$40,000 to $60,000 annually, contingent upon completion of performance
objectives.
Dr. Edwin Vogt is employed pursuant to a five-year employment agreement
expiring on December 31, 2004. Pursuant to this agreement, Dr. Vogt receives an
annual base salary of $150,000, which can be adjusted annually at the discretion
of management.
Eugene J. Amobi is employed pursuant to a three-year employment agreement
expiring on December 31, 2002. This agreement provides for an annual base salary
of $140,000 and an annual discretionary bonus to be determined by the Company
for each full year of employment with the Company based upon the performance of
Mr. Amobi during such year as well as the Company's overall performance during
such year. As an incentive to enter into this agreement, Mr. Amobi was granted
the right to purchase 150,000 shares of Common Stock, which right will vest over
a period of three years in increments of 50,000 shares per year on December 31
of each year beginning December 31, 2000 through December 31, 2002. Any unvested
option granted to Mr. Amobi pursuant to this employment agreement will fully
vest upon a change of control or upon the termination of the employment
agreement by Mr. Amobi for good reason. This agreement provides Mr. Amobi with
benefits which the Company may provide to its executive officers, including
health care insurance, automobile allowance and vacation.
COMPENSATION PLANS
The Company has currently in effect the following compensation plans: the
1996 Omnibus Stock Incentive Plan (the "1996 Incentive Plan"); the 1997 Stock
Incentive Plan (the "1997 Incentive Plan"); the 1999 Stock Incentive Plan (the
"1999 Incentive Plan"); and the 2000 Stock Incentive Plan (the "2000 Incentive
Plan", and, together with the 1996 Incentive Plan, the 1997 Incentive Plan and
the 1999 Incentive Plan, the "Incentive Plans"). The Incentive Plans provide for
the granting of incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options, stock appreciation rights ("SARs") and
grants of shares of Common Stock subject to certain restrictions ("Restricted
Stock") to officers, directors, employees and others. The
-18-
Incentive Stock Options, nonqualified stock options, SARs and Restricted Stock
shall be collectively referred to herein as the "Awards." Incentive Stock
Options can be awarded only to employees of the Company at the time of the
grant.
The Incentive Plans are administered by the Compensation Committee of the
Board of Directors (subject to the authority of the full Board of Directors),
which determines the terms and conditions of the Awards granted under the
Incentive Plans, including the exercise price, number of shares subject to the
option and the exercisability thereof. Dr. Steven A. Newman, Lt. Gen. Harry E.
Soyster (Ret.) and Martin Eric Weisberg, Esq. currently are the members of the
Compensation Committee.
The exercise price of all Incentive Stock Options granted under the
Incentive Plans must equal at least the fair market value of the Common Stock on
the date of grant. In the case of an optionee who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company ("Substantial Stockholders"), the exercise price of Incentive Stock
Options must be at least 110% of the fair market value of the Common Stock on
the date of grant. The exercise price of all nonqualified stock options granted
under the Incentive Plans shall be determined by the Compensation Committee. The
term of any Incentive Stock Option granted under the Incentive Plans may not
exceed ten years, or, for Incentive Stock Options granted to Substantial
Stockholders, five years. The Incentive Plans may be amended or terminated by
the Board of Directors, but no such action may impair the rights of a
participant under a previously granted option.
The Incentive Plans provide the Board of Directors or the Compensation
Committee the discretion to determine when options granted thereunder shall
become exercisable and the vesting period of such options. Upon termination of a
participant's employment or relationship with the Company, options may be
exercised only to the extent exercisable on the date of such termination (within
three months), but not thereafter, unless termination is due to death or
disability, in which case the options are exercisable within one year of
termination.
The Incentive Plans provide the Compensation Committee discretion to grant
SARs to key employees, consultants and directors. Promptly after the exercise of
an SAR, the holder shall be entitled to receive in cash, by check or in shares
of Common Stock, an amount equal to the excess of the fair market value on the
exercise date of the shares of Common Stock as to which the SAR is exercised
over the base price of such shares, which shall be determined by the
Compensation Committee.
The Incentive Plans also provide the Compensation Committee discretion to
grant to key persons shares of Restricted Stock subject to certain contingencies
and restrictions as the Compensation Committee may determine.
Furthermore, the 1996 Incentive Plan provides that upon a change in control
of the Company, all previously granted options and SARs immediately shall become
exercisable in full and all Restricted Stock immediately shall vest and any
applicable restrictions shall lapse. The 1996 Incentive Plan defines a change of
control as the consummation of a tender offer for 25% or more of the outstanding
voting securities of the Company, a merger or consolidation of the Company into
another corporation less than 75% of the outstanding voting securities of which
-19-
are owned in aggregate by the stockholders of the Company immediately prior to
the merger or consolidation, the sale of substantially all of the Company's
assets other than to a wholly-owned subsidiary, or the acquisition by any
person, business or entity other than by reason of inheritance of over 25% of
the Company's outstanding voting securities. The change of control provisions of
the 1996 Incentive Plan may operate as a material disincentive or impediment to
the consummation of any transaction which could result in a change of control.
As of December 31, 2001 a total of 6,844,832 options had been issued and
were outstanding pursuant to the Incentive Plans. Each of the outstanding
options has an exercise price at least equal to the fair market value of the
Common Stock on the date of grant. As of December 31, 2001, there were no SARs
outstanding and there have been three grants of Restricted Stock of 50,000
shares of Common Stock to three officers of the Company.
-20-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee participate in all
deliberations concerning executive compensation. The Compensation Committee
consists of Lt. Gen. Harry E. Soyster (Ret.), Dr. Steven A. Newman and Martin
Eric Weisberg, Esq. No executive officer of the Company serves as a member of
the board of directors or compensation committee of another entity, which has
one or more executive officers who serve as a member of the Company's Board of
Directors or Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board of Directors with respect to
the Company's executive compensation policies. In addition, the Compensation
Committee, pursuant to authority delegated by the Board of Directors, determines
the compensation to be paid to the Chief Executive Officer and each of the other
executive officers of the Company.
The objectives of the Company's executive compensation program are to:
o Support the achievement of desired Company performance
o Provide compensation that will attract and retain superior
talent and reward performance
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the technology and software
industries, as well as with a broader group of companies of comparable size and
complexity.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of
base salary, long-term incentive compensation in the form of stock options,
specific performance-based bonuses and various benefits, including medical and
pension plans generally available to employees of the Company.
BASE SALARY
Base salary levels for the Company's executive officers are
competitively set relative to companies in the technology industry. In
determining salaries, the Committee also takes into account individual
experience and performance and specific issues particular to the Company.
-21-
STOCK OPTION PROGRAM
The stock option program is the Company's long-term incentive plan for
providing an incentive to officers, directors, employees and others.
The 1996 Incentive Plan, the 1997 Incentive Plan, 1999 Stock Incentive
Plan and the 2000 Incentive Plan authorize the Compensation Committee to award
officers, directors, employees and others stock options. Options granted under
such Plans may be granted containing terms determined by the Committee,
including exercise period and price; provided, however, that each Plan requires
that exercise price may not be less than the fair market value of the Common
Stock on the date of the grant and the exercise period may not exceed ten years,
subject to further limitations.
BENEFITS
The Company provides to executive officers, medical and pension
benefits that generally are available to Company employees.
BONUS
The Company provides to certain executive officers bonuses based on
performance and/or a change of control of the Company. During fiscal 2001 none
of the executive officers of the Company received any bonus compensation.
CHIEF EXECUTIVE OFFICER COMPENSATION
In the case of Edward G. Newman, the Company's Chief Executive Officer,
the Compensation Committee evaluates the performance of the Company, the
improvement of the Company's financial position and the Chief Executive
Officer's contributions to the Company and its growth as well as the
considerations impacting the compensation of executive officers generally
described above. Mr. Newman is employed with the Company pursuant to a
three-year employment agreement expiring on December 31, 2002. See "Employment
Agreements". Except for payments due and owing to Mr. Newman under his
employment agreement with the Company, Mr. Newman did not receive any
compensation relating to his employment with the Company during fiscal year
2001. Based on Mr. Newman's leadership efforts and commitment to the Company,
the Company's 2001 operating performance and the criteria described above, in
addition to a base salary of $275,440, payment of non-accountable expenses and
transportation allowances, unused vacation payouts and other miscellaneous
compensation of $89,825, and options to purchase 240,384 shares of the Company's
Common Stock, were granted to Mr. Newman by the Compensation Committee for the
fiscal year ending December 31, 2001.
Dr. Steven A. Newman
Lt. Gen. Harry E. Soyster (Ret.)
Martin Eric Weisberg, Esq.
Members of the Compensation Committee
-22-
PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly change in the
cumulative stockholder return on the Company's Common Stock with the Russell
2000 Index, the NASDAQ Composite Index and the Nasdaq Computer Manufacturing
Index. The graph assumes that $100 was invested on December 31, 1996 in the
Common Stock of the Company and in each index, and that all dividends were
reinvested. No cash dividends have been declared on the Common Stock. The
stockholder returns shown on the graph below are not necessarily indicative of
future performance.
CUMULATIVE TOTAL RETURN
BEGINNING DECEMBER 31, 1996
[GRAPH OMITTED]
12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/13/2000 12/31/2001
---------- ---------- ---------- ---------- ---------- ----------
Xybermaut
Corporation $100.00 $75.00 $189.47 $226.32 $71.05 $100.21
Nasdaq US $100.00 $122.48 $172.68 $320.89 $193.01 $153.15
Russell 2000 $100.00 $122.36 $119.25 $144.60 $140.23 $143.71
Nasdaq Computer
Manufacturing $100.00 $120.83 $262.78 $557.80 $314.18 $216.53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the transactions described below, the Company did not
secure an independent determination of the fairness and reasonableness of such
transactions and arrangements with affiliates of the Company. In each instance
described below, the disinterested directors (either at or following the time of
the transaction) reviewed and approved the fairness and reasonableness of the
terms of the transaction. The Company believes that each transaction
-23-
was fair and reasonable to the Company and on terms at least as favorable as
could have been obtained from non-affiliates. Transactions between any
corporation and its officers and directors are subject to inherent conflicts of
interest.
TECH INTERNATIONAL AND TECH VIRGINIA
Since December 1992, the Company has maintained various business
relationships with Tech International and since 1994, with Tech Virginia. Tech
International operates a computer software and consulting business. Until
December 30, 1994, Tech International's Virginia operations were conducted
through its Virginia business unit. On December 30, 1994, Tech International
spun-off the Virginia business unit (the "Spin-Off") as Tech Virginia, which was
subsequently purchased by the Company. Edward G. Newman, a principal
stockholder, director and the Chairman, President and Chief Executive Officer of
the Company, Steven A. Newman, an Executive Vice President and Vice Chairman of
the Board of Directors of the Company and Eugene J. Amobi, a director and Vice
President of the Company, were the stockholders, and continue as officers and
directors of Tech Virginia. Eugene J. Amobi is the sole director and stockholder
of Tech International.
MANAGEMENT PERSONNEL AGREEMENTS WITH TECH VIRGINIA
Messrs. Edward G. Newman, Steven A. Newman and Eugene Amobi each had
employment agreements with Tech Virginia under which each of them was entitled
to a salary and each was eligible to receive certain bonuses. The agreements
with Messrs. Edward G. Newman and Steven A. Newman required each of them to
devote only reasonable time and attention to Tech Virginia, provided their
activities for Tech Virginia did not interfere with their obligations to the
Company. Upon the acquisition of Tech Virginia by the Company, such employment
agreements were terminated by agreement with Messrs. Newman, Newman, and Amobi.
Messrs. Newman, Newman and Amobi have continued to provide services to Tech
Virginia since the acquisition without contract but under similar terms and
conditions as their terminated agreements.
LEGAL SERVICES
The Company uses a member of its Board of Directors as its patent counsel.
The Company had expenditures of $421,333, $174,468 and $239,598 during 2001,
2000 and 1999, respectively, in legal services payable to this Director. These
amounts represent gross payments made by the Company and the counsel is
responsible for all overhead, professional, administrative and other
expenditures incurred by his law firm. The law firm bills the Company in
accordance with its established standard billing rates used in the past with its
other clients. During 2001, the Company represented the law firm's only
significant client. The Director also serves as the Company's processing agent
for payments made to various other domestic and international law firms and
agencies used to file and maintain patents and trademarks. The director is paid
only the amount that is passed through to these other law firms and agencies and
pays administrative services related to these services. The Company made
payments of $485,827, $266,026 and $224,377 during 2001, 2000 and 1999,
respectively, to this Director's law firm related to services rendered by the
Director's law firm as the Company's processing agent for all foreign patent and
trademark filing and prosecution expenses. The Company's management believes
that the relationship with this law firm is based on arms-length terms and
conditions.
-24-
The Company uses a law firm, in which an officer and member of its Board of
Directors is a partner, for services related to financings, litigation, SEC
filings and other general legal matters. The Company had expenditures of
$392,524, $446,320 and $663,075 during 2001, 2000 and 1999, respectively, in
legal services payable to this law firm. The law firm bills the Company in
accordance with the established billing rates used with its other clients. As a
result, the Company's management believes that the relationship with this law
firm is based on arms-length terms and conditions.
In 1999, the Company used a law firm, in which a former member of its Board
of Directors was a partner, for services related to litigation and other general
legal matters. The Company had expenditures of $218,687 during 1999 in legal
services payable to this law firm. The law firm billed the Company in accordance
with the established billing rates used with its other clients. As a result, the
Company's management believes that the relationship with this law firm was based
on arms-length terms and conditions.
OTHER RELATED TRANSACTIONS
Two of the Company's executive officers were members of the board of
directors of a former customer that purchased software products and consulting
services from the Company. During 2001, this customer was forced to cease
operations when its largest customer withheld payment for ongoing services.
During 2001 and 2000, the Company recorded revenues on sales to this customer of
$29,603 and $573,955, respectively. As of December 31, 2000, the Company had a
$259,566 accounts receivable balance remaining from this customer. During 2001,
the Company collected $259,333 from this customer, recorded an additional
$29,603 in receivables and wrote off the remaining $29,836 balance. The Company
billed this customer using the established billing rates used with its other
customers. Additionally, the Company believes that the final payment received by
the Company was commensurate with those received by other similar vendors of the
customer. As a result, the Company's management believes that the relationship
with this customer was based on arms-length terms and conditions.
During 2000 and 1999, Xybernaut GmbH used a company to provide
configuration and technical support services and a separate company to act as a
distributor of the Company's hardware products. The executive officers of these
two companies are the son and daughter-in-law of one of the Company's Senior
Vice Presidents and member of its Board of Directors. During 2001, 2000 and
1999, the Company incurred expenses related to the technical support services
totaling $0, $180,456 and $294,315, respectively. During 2001, 2000 and 1999,
the Company recognized revenue related to distribution sales of its hardware
products totaling $0, $313,843 and $14,500, respectively. During 2000, the
Company terminated its relationship with these two companies and established a
reserve of $108,856 against the accounts receivable balance owed by one of the
companies. This balance was written off in 2001. The company that provided
configuration and technical support services billed the Company using the
established billing rates used with its other clients. Additionally, management
periodically compared these billings against charges it would incur if these
services were provided by a different provider. The agreement with the
distributor was reached with similar terms and conditions provided to other
resellers of the Company's products. As a result, the Company's management
believes that the relationships with these companies were based on arms-length
terms and conditions.
-25-
Periodically, the Company has borrowed from, or made loans to, certain of
its executive officers. During 1998, XSI loaned $64,254 to various officers to
fund the purchase of XSI common stock. The notes accrued interest at 8.0%
annually and required quarterly payments of interest. The outstanding principal
and interest were repaid in full prior to the merger of Xybernaut and XSI in
April 2000. On various dates during 1999, the Company borrowed $583,000 from
several officers of the Company for general working capital purposes pursuant to
non-interest bearing promissory notes or agreements. All of these borrowings had
been repaid at December 31, 1999 except for $10,000, which was repaid in
February 2000.
Between November 2000 and February 2001, the Company loaned a net balance
of $940,188 to the Company's President, Chief Executive Officer and Chairman of
the Board of Directors. The proceeds were used to prevent a forced sale of a
portion of this officer's personal common stock holdings of the Company that
secured a margin loan from an investment bank. The loan was made pursuant to a
Promissory Note that is secured by shares of the officer's personal common stock
holdings of the Company and accrued interest at 8.0% per year. On December 31,
2001, the Company's Board of Directors increased the number of shares securing
the loan from 200,000 shares to 250,000 shares, extended the maturity date from
December 31, 2001 to December 31, 2002 and reduced the interest rate to 6.0%,
reflective of a general decline in interest rates over this period. The
outstanding principal and interest owed to the Company under this Promissory
Note totaled $1,026,708 and $997,981 at December 31, 2001 and 2000,
respectively.
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PROPOSAL 2
APPROVAL OF THE 2002 STOCK
OPTION PLAN
--------------------------------------------------------------------
As of March 22, 2002 there were 446,096 shares available for issuance
under the Incentive Plans. Consequently, on April 29, 2002, the Board of
Directors adopted, subject to stockholder approval at the Meeting, the Company's
2002 Stock Incentive Plan (the "2002 Plan"). The 2002 Plan is designed to
provide an incentive to key employees (including directors and officers who are
key employees), and to consultants and directors who are not employees of the
Company and to offer an additional inducement in obtaining the services of such
persons.
The following summary of certain material features of the 2002 Plan
does not purport to be complete and is qualified in its entirety by reference to
the text of the 2002 Plan, a copy of which is set forth as Appendix A to this
Proxy Statement.
SHARES SUBJECT TO THE STOCK INCENTIVE PLAN AND ELIGIBILITY
The 2002 Plan authorizes the issuance of stock appreciation rights
("SARs") and the grant of options and restricted stock related to a maximum of
3,000,000 shares of the Company's Common Stock (subject to adjustment as
described below) to key employees (including officers and directors who are key
employees), and to consultants and directors who are not employees of the
Company. Upon expiration, cancellation, termination or forfeiture of stock
grants or options, the shares of the Common Stock subject thereto will again be
available for grant under the 2002 Plan.
TYPE OF AWARD
The following awards ("Awards") may be granted under the 2002 Plan:
stock options which are either incentive stock options ("ISOs"), within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonqualified stock options which do not qualify as ISOs ("NQSOs"),
SARs and Common Stock which may be subject to contingencies or restrictions.
ISOs, however, may only be granted to employees. The Company makes no
representations or warranties as to the qualification of any option as an
"incentive stock option" under the Code.
ADMINISTRATION
The 2002 Plan will be administered by a committee of the Board of
Directors consisting of at least two members of the Board (the "Committee"). It
is intended that each member of the Committee will be a "non-employee director"
within the meaning of Rule 16b-3 (as the same may be in effect and interpreted
from time to time, "Rule 16b-3") promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). It is also intended that each member
of the Committee will be an "outside director" within the meaning of Section
162(m) of the Code.
-27-
Among other things, the Committee is empowered to determine, within the
express limits contained in the 2002 Plan: the key employees, consultants and
directors who shall be granted Awards; the type of Award to be granted; the
times when an Award shall be granted; the number of shares of Common Stock to be
subject to each Award; the term of each option and SAR; the date each option and
SAR shall become exercisable; whether an option or SAR shall be exercisable in
whole or in installments and, if in installments, the number of shares of Common
Stock to be subject to each installment, whether the installments shall be
cumulative, the date each installment shall become exercisable and the term of
each installment; whether to accelerate the date of exercise of any option or
SAR or installment thereof; whether shares of Common Stock may be issued upon
the exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option and the base price of each SAR;
the price, if any, to be paid for a share Award; the form of payment of the
exercise price of an option; the form of payment upon exercise of an SAR;
whether to restrict the sale or other disposition of a stock Award or the shares
of Common Stock acquired upon the exercise of an option or SAR and, if so, to
determine whether such contingencies and restrictions have been met and whether
and under what conditions to waive any such contingency or restriction; whether
and under what conditions to subject all or a portion of the grant or exercise
of an option or SAR, the vesting of a stock Award or the shares acquired
pursuant to the exercise of an option or SAR to the fulfillment of certain
contingencies or restrictions, including without limitation, contingencies or
restrictions relating to entering into a covenant not to compete, to financial
objectives and/or to the period of continued employment of the Award holder, and
to determine whether such contingencies or restrictions have been met; whether
an Award holder is disabled; the amount, if any, necessary to satisfy the
obligation to withhold taxes or other amounts; the fair market value of a share
of Common Stock; with the consent of the Award holder, to cancel or modify an
Award, pursuant to the terms of the Plan and the Code; to prescribe, amend and
rescind rules and regulations relating to the Plan; and to approve any provision
which under Rule 16b-3 requires the approval of the Board of Directors, a
committee of non-employee directors or the stockholders to be exempt (unless
otherwise specifically provided herein). The Committee is also authorized to
prescribe, amend and rescind rules and regulations relating to the 2002 Plan and
to make all other determinations necessary or advisable for administering the
2002 Plan and to construe each contract ("Contract") entered into by the Company
with an Award holder under the 2002 Plan.
Terms and Conditions of Options
Options granted under the 2002 Plan will be subject to, among other
things, the following terms and conditions:
(a) The exercise price of each option will be determined by the
Committee; provided, however, that the exercise price of an
ISO may not be less than the fair market value of the Common
Stock on the date of grant (110% of such fair market value if
the optionee owns (or is deemed to own) more than 10% of the
voting power of the Company).
-28-
(b) Options may be granted for terms determined by the Committee;
provided, however, that the term of an ISO may not exceed 10
years (5 years if the optionee owns (or is deemed to own) more
than 10% of the voting power of the Company).
(c) The maximum number of shares of Common Stock for which options
and SARs may be granted to an employee in any calendar year is
350,000. In addition, the aggregate fair market value of
shares with respect to which ISOs may be granted to an
employee which are exercisable for the first time during any
calendar year may not exceed $100,000.
(d) The exercise price of each option is payable in full upon
exercise or, if the applicable Contract permits, in
installments. Payment of the exercise price of an option may
be made in cash, certified check or, if the applicable
Contract permits, in shares of Common Stock or any combination
thereof.
(e) If eligible, an optionee who uses previously acquired shares
of Common Stock to exercise a prior option granted under the
Plan shall automatically be granted an option to purchase the
same number of shares so used; provided, however, that the
exercise price of the new option shall be the fair market
value of the Common Stock on the date of grant of such new
option; and further provided that if the prior option was an
ISO and at the time the new option is granted, the optionee
owns (or is deemed to own) more than 10% of the voting power
of the Company, the exercise price of the new option shall be
110% of the fair market value of the Common Stock on the date
of grant of such new option and its terms shall not exceed
five years.
(f) Options may not be transferred other than by will or by the
laws of descent and distribution, and may be exercised during
the optionee's lifetime only by him or her (or by his or her
legal representative).
TERMS AND CONDITIONS OF SARs
SARs may be granted by the Committee, in its sole discretion, to key
employees (including officers and directors who are key employees), consultants
to, and outside directors of the Company. An SAR entitles the holder to be paid
upon exercise, in cash, check or by shares of Common Stock, as determined by the
Committee, the excess (if any) of the fair market value of the shares of Common
Stock on the date of exercise over the base price of such shares. If the
Contract so provides, such amount may be multiplied by a performance factor
which meets the requirements of the Code. The base price is determined by the
Committee upon grant, but it may not be less than the fair market value of the
Common Stock on the grant date. The term of any SAR is determined by the
Committee, but may not exceed ten years.
RESTRICTED STOCK AWARDS
The Committee may from time to time, in its sole discretion, grant
shares of Common Stock to key employees (including officers and directors who
are key employees) of, or
-29-
consultants to, the Company, which may be subject to such contingencies and
restrictions as set forth in the applicable Contract. Upon issuance of the
shares, the Award holder is considered to be the record owner of the shares and,
subject to the contingencies and restrictions set forth in the Award, has all
the rights of a shareholder. The shares shall vest in the Award holder when all
of the restrictions and contingencies lapse. Accordingly, the Committee may
require that such shares be held by the Company, together with a stock power
duly endorsed in blank by the Award holder, until the shares vest in the Award
holder.
TERMINATION OF RELATIONSHIP
Except as may otherwise be provided in the applicable Contract, if an
Award holder's relationship with the Company as an employee or consultant is
terminated for any reason (other than the death or disability of the Award
holder), the option or SAR may be exercised, to the extent exercisable at the
time of termination of such relationship, within three months thereafter, but in
no event after the expiration of the term of the option or SAR. If an Award
holder's relationship is terminated for any reason (including the death or
disability of the Award holder), the Award shall cease any further vesting and
the unvested portion shall be forfeited to the Company without consideration. If
the relationship was terminated either for cause or without the consent of the
Company, the option or SAR will terminate immediately. In the case of the death
of a holder while an employee or consultant (or, generally, within three months
after termination of such relationship, or within one year after termination of
such relationship by reason of disability), except as otherwise provided in the
Contract, his or her legal representative or beneficiary may exercise the option
or SAR, to the extent exercisable on the date of death, within one year after
such date, but in no event after the expiration of the term of the option or
SAR. Except as may otherwise be provided in the applicable Contract, an optionee
whose relationship with the Company was terminated by reason of his or her
disability may exercise the option or SAR, to the extent exercisable at the time
of such termination, within one year thereafter, but not after the expiration of
the term of the option. The holder shall have no right to continue as an
employee, consultant or director of the Company or interfere in any way with any
right of the Company to terminate the holder's relationship to the Company at
any time for any reason whatsoever without liability to the Company.
WITHHOLDING
The Company may withhold cash and/or shares of Common Stock to be
issued under an Award or upon exercise of an option or SAR, having an aggregate
value equal to the amount which the Company determines is necessary to meet its
obligations to withhold any federal, state and/or local taxes or other amounts
incurred by reasons of the grant, vesting, exercise or disposition of an Award
or the disposition of underlying shares of Common Stock. Alternatively, the
Company may require the Award holder to pay the Company such amount, in cash,
promptly upon demand.
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
Appropriate adjustments will be made in the number and kind of shares
available under the 2002 Plan, in the number and kind of shares subject to each
outstanding option or SAR and the exercise or base prices of such options or
SARs, any contingency based on the number or
-30-
kind of shares and the maximum number of options and SARs that may be granted to
an employee in any calendar year, in the event of any change in the Common Stock
by reason of any stock dividend, spinoff, split-up, combination,
reclassification, recapitalization, merger in which the Company is the surviving
corporation, exchange of shares or the like. In the event of (a) the liquidation
or dissolution of the Company, or (b) a merger in which the Company is not the
surviving corporation or a consolidation, (c) any transaction (or series of
related transactions) in which (i) more than 50% of the outstanding Common Stock
is transferred or exchanged for other consideration or (ii) shares of Common
Stock in excess of the number of shares of Common Stock outstanding immediately
preceding the transaction are issued (other than to stockholder of the Company
with respect to their shares of stock in the Company), any outstanding options
or SARs and unvested restricted stock awards shall terminate upon the earliest
of any such event, unless other provision is made therefor on the transaction.
DURATION AND AMENDMENT OF THE 2002 PLAN
No ISO may be granted under the 2002 Plan after the ten year
anniversary of the date of adoption of the 2002 Plan. The Board of Directors may
at any time terminate or amend the 2002 Plan; provided, however, that, without
the approval of the Company's stockholders, no amendment may be made which would
(a) except as a result of the anti-dilution adjustments described above,
increase the maximum number of shares available for the grant of Awards or
increase the maximum number of options or SARs that may be granted to an
employee in any year, (b) change the eligibility requirements for persons who
may receive Awards or (c) make any change for which applicable law, regulation,
ruling or interpretation by the applicable governmental agency or regulatory
authority requires stockholder approval. No termination or amendment may
adversely affect the rights of an Award holder with respect to an outstanding
Award without the holder's consent.
FEDERAL INCOME TAX TREATMENT
The following is a general summary of the federal income tax
consequences under current tax law of options, SARs and restricted stock. It
does not purport to cover all of the special rules, including special rules
relating to the exercise of an option with previously-acquired shares, or the
state or local income or other tax consequences inherent in the grant, vesting
or disposition of an Award or the ownership or disposition of the underlying
shares of Common Stock.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of an option or SAR.
Upon the exercise of a NQSO, the optionee will recognize ordinary
income in an amount equal to the excess, if any, of the fair market value of the
shares acquired on the date of exercise over the exercise price thereof, and the
Company will generally be entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of a NQSO,
he or she will recognize long-term or short-term capital gain or loss, depending
on the period for which the shares were held. Long-term capital gain is
generally subject to more favorable tax treatment than ordinary income or
short-term capital gain.
-31-
Upon the exercise of an ISO, the optionee will not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to him or her, the optionee will recognize
long-term capital gain or loss and the Company will not be entitled to a
deduction. However, if the optionee disposes of such shares within the required
holding period, all or a portion of the gain will be treated as ordinary income
and the Company will generally be entitled to deduct such amount.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax, which is payable to the
extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an ISO, the excess of the fair market value of the shares over the
exercise price therefor is an adjustment which increases alternative minimum
taxable income. In addition, the optionee's basis in such shares is increased by
such excess for purposes of computing the gain or loss on the disposition of the
shares for alternative minimum tax purposes. If an optionee is required to pay
an alternative minimum tax, the amount of such tax which is attributable to
deferral preferences (including the ISO adjustment) is allowed as a credit
against the optionee's regular tax liability in subsequent years. To the extent
the credit is not used, it is carried forward.
Upon the exercise of an SAR, the Award holder will recognize ordinary
income in an amount equal to the amount payable by the Company upon such
exercise, and the Company will generally be entitled to a deduction therefor.
An employee, consultant or director who receives a grant of stock which
is subject to a substantial risk of forfeiture will generally recognize ordinary
income equal to the fair market value of the stock at the time the restriction
lapses. Alternatively, the Award holder may elect to be taxed on the value of
unrestricted stock at the time of grant. The Company is generally entitled to a
deduction equal to the amount required to be included in income by the Award
holder.
REQUIRED VOTE
Approval of the 2002 Plan requires the affirmative vote of the holders
of a majority of the shares of Common Stock present, in person or by proxy, at
the Meeting and entitled to vote on this proposal. If the 2002 Plan is not
approved by Stockholders, the 2002 Plan will not be effective.
The Board of Directors Recommends You Vote "FOR"
Approval of the 2002 Plan.
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----------------------------------------------------------------
PROPOSAL 3
APPOINTMENT OF INDEPENDENT AUDITORS
----------------------------------------------------------------
Grant Thornton LLP served as the Company's independent auditors for the
fiscal year ended December 31, 2001 and it is expected that Grant Thornton LLP
will act in that capacity for the fiscal year ending December 31, 2002.
It is proposed that the stockholders ratify the appointment by the
Board of Directors of Grant Thornton LLP as independent auditors for the Company
for the 2002 fiscal year. A representative of Grant Thornton LLP is expected to
be present at the Meeting with the opportunity to make a statement if he or she
desires to do so and to be available to respond to appropriate questions from
shareholders.
Approval by the stockholders of the appointment of independent auditors
is not required but the Board deems it desirable to submit this matter to the
stockholders. If a majority of the Common Stock present and entitled to vote at
the meeting should not approve the selection of Grant Thornton LLP, the
selection of independent auditors will be reconsidered by the Board of
Directors.
AUDIT FEES
Grant Thornton LLP billed us $133,632 for services rendered for the
audit of our annual consolidated financial statements for fiscal 2001 included
in our Form 10-K and the reviews of the financial statements included in our
Forms 10-Q.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For fiscal 2001, Grant Thornton LLP did not perform any services which
directly or indirectly related to the operation of, or supervision of the
operation of, our information systems or management of our local area network.
ALL OTHER FEES
For fiscal 2001, Grant Thornton LLP billed us $73,538 for services
rendered for other services not covered above. These services primarily related
to domestic and foreign tax consultation and compliance for the Company and its
subsidiaries and services performed related to various registration statements
filed with the Securities and Exchange Commission.
The Board of Directors Recommends
That You Vote "FOR" the Ratification of the Appointment
of Grant Thornton LLP as
Independent Auditors of the Company
-33-
STOCKHOLDER PROPOSALS
The Company intends to hold its 2003 Annual Meeting of Stockholders on
or about June 3, 2003. Any stockholder proposal intended to be included in the
Company's proxy statement and form of proxy for presentation at the 2003 Annual
Meeting of Stockholders (the "2003 Meeting") pursuant to Rule 14a-8 ("Rule
14a-8"), as promulgated under the Securities Exchange Act of 1934, must be
received by the Company not later than January 15, 2003. As to any proposals
submitted for presentation at the 2003 Meeting outside the processes of Rule
14a-8, the proxies named in the form of proxy for the 2003 Meeting will be
entitled to exercise discretionary authority on that proposal unless the Company
receives notice of the matter on or before March 31, 2003. However, even if such
notice is timely received, such proxies nevertheless may be entitled to exercise
discretionary authority on that matter to the extent permitted by the Securities
and Exchange Commission regulations.
Any stockholder proposals, as well as any questions relating thereto,
should be directed to the Secretary of the Company at 12701 Fair Lakes Circle,
Fairfax, Virginia 22033.
OTHER MATTERS
Management does not intend to bring before the Meeting any matters
other than those specifically described above and knows of no matters other than
the foregoing to come before the Meeting. If any other matters or motions
properly come before the Meeting, it is the intention of the persons named in
the accompanying Proxy to vote such Proxy in accordance with their judgment on
such matters or motions, including any matters dealing with the conduct of the
Meeting.
By Order of the Board of Directors
-----------------------------
Martin Eric Weisberg
Secretary
May ___, 2002
-34-
APPENDIX A
2002 STOCK INCENTIVE PLAN
of
XYBERNAUT CORPORATION
1. PURPOSES OF THE PLAN. This stock incentive plan (the "Plan") is
designed to provide an incentive to key employees (including directors and
officers who are key employees) and to consultants and directors who are not
employees of XYBERNAUT CORPORATION, a Delaware corporation (the "Company"), or
any of its Subsidiaries (as defined in Paragraph 18), and to offer an additional
inducement in obtaining the services of such persons. The Plan provides for the
grant of "incentive stock options" ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options which do not qualify as ISOs ("NQSOs"), stock appreciation rights
("SARs") and stock of the Company which may be subject to contingencies or
restrictions (collectively, "Awards"). The Company makes no representation or
warranty, express or implied, as to the qualification of any option as an
"incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 11,
the aggregate number of shares of Common Stock, $.01 par value per share, of the
Company ("Common Stock") for which Awards may be granted under the Plan shall
not exceed 3,000,000. Such shares of Common Stock may, in the discretion of the
Board of Directors of the Company (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. Subject to the provisions of
Paragraph 12, any shares of Common Stock subject to an option or SAR which for
any reason expires, is canceled or is terminated unexercised or which ceases for
any reason to be exercisable or a restricted stock Award which for any reason is
forfeited, shall again become available for the granting of Awards under the
Plan. The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors or a committee of the Board of Directors consisting of not
less than two directors, each of whom shall be a "non-employee director" within
the meaning of Rule 16b-3 (as defined in Paragraph 18) (collectively, the
"Committee"). Unless otherwise provided in the By-laws of the Company or by
resolution of the Board of Directors, a majority of the members of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, and any acts approved in writing by
all members without a meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, to determine: the key employees,
consultants and directors who
-35-
shall be granted Awards; the type of Award to be granted; the times when an
Award shall be granted; the number of shares of Common Stock to be subject to
each Award; the term of each option or SAR; the date each option or SAR shall
become exercisable; whether an option or SAR shall be exercisable in whole or in
installments and, if in installments, the number of shares of Common Stock to be
subject to each installment, whether the installments shall be cumulative, the
date each installment shall become exercisable and the term of each installment;
whether to accelerate the date of exercise of any option or SAR or installment
thereof; whether shares of Common Stock may be issued upon the exercise of an
option as partly paid and, if so, the dates when future installments of the
exercise price shall become due and the amounts of such installments; the
exercise price of each option and the base price of each SAR; the price, if any,
to be paid for a share Award; the form of payment of the exercise price of an
option; the form of payment upon exercise of an SAR; whether to restrict the
sale or other disposition of a stock Award or the shares of Common Stock
acquired upon the exercise of an option or SAR and, if so, to determine whether
such contingencies and restrictions have been met and whether and under what
conditions to waive any such contingency or restriction; whether and under what
conditions to subject all or a portion of the grant or exercise of an option or
SAR, the vesting of a stock Award or the shares acquired pursuant to the
exercise of an option or SAR to the fulfillment of certain contingencies or
restrictions as specified in the contract referred to in Paragraph 10 hereof
(the "Contract"), including without limitation, contingencies or restrictions
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as defined in Paragraph 18), to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or to the period of continued
employment of the Award holder with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies or restrictions have been
met; whether an Award holder is Disabled (as defined in Paragraph 18); the
amount, if any, necessary to satisfy the obligation of the Company, a Subsidiary
or Parent to withhold taxes or other amounts; the Fair Market Value (as defined
in Paragraph 18) of a share of Common Stock; to construe the respective
Contracts and the Plan; with the consent of the Award holder, to cancel or
modify an Award, provided, that the modified provision is permitted to be
included in an Award granted under the Plan on the date of the modification, and
further, provided, that in the case of a modification (within the meaning of
Section 424(h) of the Code) of an ISO, such Award as modified would be permitted
to be granted on the date of such modification under the terms of the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
approve any provision which under Rule 16b-3 requires the approval of the Board
of Directors, a committee of non-employee directors or the stockholders to be
exempt (unless otherwise specifically provided herein); and to make all other
determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any Award granted
under the Plan or any Contract shall be determined unilaterally by the Committee
in its sole discretion. The determinations of the Committee on the matters
referred to in this Paragraph 3 shall be conclusive and binding on the parties.
No member or former member of the Committee shall be liable for any action,
failure to act or determination made in good faith with respect to the Plan or
any Award or Contract hereunder.
4. OPTIONS
(a) GRANT. The Committee may from time to time, consistent with the
purposes of the Plan, grant options to such key employees (including officers
and directors
-36-
who are key employees) of, and consultants to, the Company or any of its
Subsidiaries, and such Outside Directors, as the Committee may determine, in its
sole discretion. Such options granted shall cover such number of shares of
Common Stock as the Committee may determine, in its sole discretion, as set
forth in the applicable Contract; provided, however, that the maximum number of
shares subject to options or SARs that may be granted to any employee during any
calendar year under the Plan (the "162(m) Maximum") shall be 350,000 shares; and
further, provided, that the aggregate Fair Market Value (determined at the time
the option is granted) of the shares of Common Stock for which any eligible
employee may be granted ISOs under the Plan or any other plan of the Company, of
any of its Subsidiaries or of a Parent, which are exercisable for the first time
by such optionee during any calendar year shall not exceed $100,000. Such ISO
limitation shall be applied by taking ISOs into account in the order in which
they were granted. Any option granted in excess of such ISO limitation amount
shall be treated as a NQSO to the extent of such excess.
(b) EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee, in its sole discretion,
as set forth in the applicable Contract; provided, however, that the exercise
price per share of an ISO shall not be less than the Fair Market Value of a
share of Common Stock on the date of grant; and further, provided, that if, at
the time an ISO is granted, the optionee owns (or is deemed to own under Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, of any of its Subsidiaries or of a
Parent, the exercise price per share of such ISO shall not be less than 110% of
the Fair Market Value of a share of Common Stock on the date of grant.
(c) TERM. The term of each option granted pursuant to the Plan shall
be determined by the Committee, in its sole discretion, as set forth in the
applicable Contract; provided, however, that the term of each ISO shall not
exceed 10 years from the date of grant thereof; and further, provided, that if,
at the time an ISO is granted, the optionee owns (or is deemed to own under
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, of any of its Subsidiaries
or of a Parent, the term of the ISO shall not exceed five years from the date of
grant. Options shall be subject to earlier termination as hereinafter provided.
(d) EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its then principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due upon exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with previously acquired shares of Common Stock having an aggregate
Fair Market Value on the date of exercise equal to the aggregate exercise price
of all options being exercised, or with any combination of cash, certified check
or shares of Common Stock having such value. The Company shall not be required
to issue any shares of Common Stock pursuant to any such option until all
required payments, including any required withholding, have been made.
The Committee may, in its sole discretion, permit payment of all or a
portion of the exercise price of an option by delivery by the optionee of a
properly executed
-37-
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
An optionee entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate for such shares
or, in the case of uncertificated shares, until an entry is made on the books of
the Company's transfer agent representing such shares; provided, however, that
until such stock certificate is issued or book entry is made, any optionee using
previously acquired shares of Common Stock in payment of an option exercise
price shall continue to have the rights of a stockholder with respect to such
previously acquired shares.
In no case may an option be exercised with respect to a fraction of a
share of Common Stock. In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
(e) RELOAD OPTIONS. An optionee who, at a time when he is eligible to
be granted options under the Plan, uses previously acquired shares of Common
Stock to exercise an option granted under the Plan (the "prior option"), shall,
upon such exercise, be automatically granted an option (the "reload option") to
purchase the same number of shares of Common Stock so used (or if there is not a
sufficient number of shares available for grant under the Plan remaining, such
number of shares as are then available). Such reload options shall be of the
same type and have the same terms as the prior option (except to the extent
inconsistent with the terms of the Plan); provided, however, that the exercise
price per share of the reload option shall be equal to the Fair Market Value of
a share of Common Stock on the date of grant of the reload option, and further,
provided, that if the prior option was an ISO and at the time the reload option
is granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, of any of its Subsidiaries or of a Parent, the
exercise price per share shall be equal to 110% of the Fair Market Value of a
share of Common Stock on the date of grant and the term of such option shall not
exceed five years.
5. STOCK APPRECIATION RIGHTS.
(a) GRANT. The Committee may from time to time, consistent with the
purposes of the Plan, grant SARs to such key employees (including officers and
directors who are key employees) of, and consultants to, the Company or any of
its Subsidiaries, and such Outside Directors, as the Committee may determine in
its sole discretion. An SAR shall entitle the holder thereof to be paid,
promptly after exercise, in cash, by check or with shares of Common Stock having
an aggregate Fair Market Value on the date of exercise or any combination
thereof, as determined by the Committee, in its sole discretion, an amount equal
to the excess, if any, of the Fair Market Value on the exercise date of the
shares of Common Stock as to which the SAR is exercised over the base price of
such shares. The Contract may (but shall not be required to) provide for such
amount to be multiplied by a performance factor as set forth
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in the Contract; provided, however, that such performance factor shall meet the
requirements for "qualified performance-based compensation" within the meaning
of Section 162(m) of the Code.
(b) BASE PRICE. The base price of the shares of Common Stock subject
to each SAR shall be determined by the Committee in its sole discretion;
provided, however, that the base price per share shall not be less than the Fair
Market Value of a share of Common Stock on the date of grant.
(c) TERM. The term of each SAR granted pursuant to the Plan shall be
determined by the Committee, in its sole discretion, as set forth in the
applicable Contract; provided, however, that the term of each SAR shall not
exceed 10 years from the date of grant. SARs shall be subject to earlier
termination as provided in the Plan.
(d) EXERCISE. An SAR (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its then principle office stating which SAR is being exercised and
specifying the number of shares of Common Stock as to which such SAR is being
exercised.
The holder of an SAR who receives shares of Common Stock upon the
exercise of an SAR shall not have the rights of a stockholder with respect to
such shares of Common Stock until the date of issuance of a stock certificate
for such shares or, in the case of uncertificated shares, until an entry is made
on the books of the Company's transfer agent representing such shares.
In no case may an SAR be exercised with respect to a fraction of a
share of Common Stock.
6. RESTRICTED STOCK. The Committee may from time to time, consistent with
the purposes of the Plan, grant shares of Common Stock to such key employees
(including officers and directors who are key employees) of, or consultants to,
the Company or any of its Subsidiaries, as the Committee may determine, in its
sole discretion. The grant may cover such number of shares as the Committee may
determine, in its sole discretion, and require the Award holder to pay such
price per share therefor, if any, as the Committee may determine, in its sole
discretion. Such shares may be subject to such contingencies and restrictions as
the Committee may determine, as set forth in the Contract. Upon the issuance of
the stock certificate for a share Award, or in the case of uncertificated
shares, the entry on the books of the Company's transfer agent representing such
shares, notwithstanding any contingencies or restrictions to which the shares
are subject, the Award holder shall be considered to be the record owner of the
shares, and subject to the contingencies and restrictions set forth in the
Award, shall have all rights of a stockholder of record with respect to such
shares, including the right to vote and to receive distributions. Upon the
occurrence of any such contingency or restriction, the Award holder may be
required to forfeit all or a portion of such shares back to the Company. The
shares shall vest in the Award holder when all of the restrictions and
contingencies lapse. Accordingly, the Committee may require that such shares be
held by the Company, together with a stock power duly endorsed in blank by the
Award holder, until the shares vest in the Award holder.
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7. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, if an Award holder's relationship with the
Company, its Subsidiaries and Parent as an employee or a consultant has
terminated for any reason (other than as a result of his death or Disability),
the Award holder may exercise the options and SARs granted to him as an employee
of, or consultant to, the Company or any of its Subsidiaries, to the extent
exercisable on the date of such termination, at any time within three months
after the date of termination, but not thereafter and in no event after the date
the Award would otherwise have expired; provided, however, that if such
relationship is terminated either (a) for Cause (as defined in Paragraph 18), or
(b) without the consent of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be deemed
to exist between an individual and the Company, any of its Subsidiaries or a
Parent if, at the time of the determination, the individual was an employee of
such corporation for purposes of Section 422(a) of the Code. As a result, an
individual on military, sick leave or other bona fide leave of absence shall
continue to be considered an employee for purposes of the Plan during such leave
if the period of the leave does not exceed 90 days, or, if longer, so long as
the individual's right to reemployment with the Company, any of its Subsidiaries
or a Parent is guaranteed either by statute or by contract. If the period of
leave exceeds 90 days and the individual's right to reemployment is not
guaranteed by statute or by contract, the employment relationship shall be
deemed to have terminated on the 91st day of such leave.
Except as may otherwise be expressly provided in the applicable Contract,
options and SARs granted under the Plan shall not be affected by any change in
the status of the Award holder so long as he continues to be an employee of, or
a consultant to, the Company, or any of its Subsidiaries or a Parent (regardless
of having changed from one to the other or having been transferred from one
corporation to another).
Except as may otherwise be expressly provided in the applicable Contract,
if an Award holder's relationship with the Company as an Outside Director ceases
for any reason (other than as a result of his death or Disability) then options
and SARs granted to such holder as an Outside Director may be exercised, to the
extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after
the date the Award would otherwise have expired; provided, however, that if such
relationship is terminated for Cause, such Award shall terminate immediately. An
Award granted to an Outside Director, however, shall not be affected by the
Award holder becoming an employee of, or consultant to, the Company, any of its
Subsidiaries or a Parent.
Except as may otherwise be expressly provided in the Contract, upon the
termination of the relationship of an Award holder as an employee of, or
consultant to, the Company, and its Subsidiaries and Parent, or as an Outside
Director, for any reason (including his death or Disability), the share Award
shall cease any further vesting and the unvested portion of such Award as of the
date of such termination shall be forfeited to the Company for no consideration.
Nothing in the Plan or in any Award granted under the Plan shall confer
on any Award holder any right to continue in the employ of, or as a consultant
to, the Company, any of
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its Subsidiaries or a Parent, or as a director of the Company, or interfere in
any way with any right of the Company, any of its Subsidiaries or a Parent to
terminate the Award holder's relationship at any time for any reason whatsoever
without liability to the Company, any of its Subsidiaries or a Parent.
8. DEATH OR DISABILITY. Except as may otherwise be expressly provided in
the applicable Contract, if an Award holder dies (a) while he is an employee of,
or consultant to, the Company, any of its Subsidiaries or a Parent, (b) within
three months after the termination of such relationship (unless such termination
was for Cause or without the consent of the Company) or (c) within one year
following the termination of such relationship by reason of his Disability, the
options and SARs that were granted to him as an employee of, or consultant to,
the Company or any of its Subsidiaries, may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 18) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable Contract,
if an Award holder's relationship as an employee of, or consultant to, the
Company, any of its Subsidiaries or a Parent has terminated by reason of his
Disability, the options and SARs that were granted to him as an employee of, or
consultant to the Company or any of its Subsidiaries may be exercised, to the
extent exercisable upon the effective date of such termination, at any time
within one year after such date, but not thereafter and in no event after the
date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable Contract,
if an Award holder's relationship as an Outside Director terminates as a result
of his death or Disability, the options and SARs granted to him as an Outside
Director may be exercised, to the extent exercisable on the date of such
termination, at any time within one year after the date of termination, but not
thereafter and in no event after the date the Award would otherwise have
expired. In the case of the death of the Award holder, the Award may be
exercised by his Legal Representative.
9. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the issuance of
any share Award and exercise of any option or SAR that either (a) a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock to be issued upon such grant or
exercise shall be effective and current at the time of exercise, or (b) there is
an exemption from registration under the Securities Act for the issuance of the
shares of Common Stock upon such exercise. Nothing herein shall be construed as
requiring the Company to register shares subject to any Award under the
Securities Act or to keep any Registration Statement effective or current.
The Committee may require, in its sole discretion, as a condition to the
receipt of an Award or the exercise of any option or SAR that the Award holder
execute and deliver to the Company his representations and warranties, in form,
substance and scope satisfactory to the Committee, which the Committee
determines are necessary or convenient to facilitate the perfection of an
exemption from the registration requirements of the Securities Act, applicable
state securities laws or other legal requirement, including, without limitation,
that (a) the shares
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of Common Stock to be received under the Award or issued upon the exercise of
the option or SAR are being acquired by the Award holder for his own account,
for investment only and not with a view to the resale or distribution thereof,
and (b) any subsequent resale or distribution of shares of Common Stock by such
Award holder will be made only pursuant to (i) a Registration Statement under
the Securities Act which is effective and current with respect to the shares of
Common Stock being sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the Award
holder shall prior to any offer of sale or sale of such shares of Common Stock
provide the Company with a favorable written opinion of counsel satisfactory to
the Company, in form, substance and scope satisfactory to the Company, as to the
applicability of such exemption to the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to any Award or option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental agency or
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an Award or the issuing of shares of Common Stock
thereunder, such Award may not be granted and such option or SAR may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
10. AWARD CONTRACTS. Each Award shall be evidenced by an appropriate
Contract which shall be duly executed by the Company and the Award holder, and
shall contain such terms, provisions and conditions not inconsistent herewith as
may be determined by the Committee. The terms of each Award and Contract need
not be identical.
11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of a stock dividend, recapitalization,
merger in which the Company is the surviving corporation, spin-off, split-up,
combination or exchange of shares or the like which results in a change in the
number or kind of shares of Common Stock which is outstanding immediately prior
to such event, the aggregate number and kind of shares subject to the Plan, the
aggregate number and kind of shares subject to each outstanding Award, the
exercise price of each option, the base price of each SAR, any contingencies and
restrictions based on the number or kind of shares, and the 162(m) Maximum shall
be appropriately adjusted by the Board of Directors, whose determination shall
be conclusive and binding on all parties. Such adjustment may provide for the
elimination of fractional shares which might otherwise be subject to Awards
without payment therefor.
In the event of (a) the liquidation or dissolution of the Company, (b) a
merger in which the Company is not the surviving corporation or a consolidation,
or (c) any transaction (or series of related transactions) in which (i) more
than 50% of the outstanding Common Stock is transferred or exchanged for other
consideration or (ii) shares of Common Stock in excess of the number of shares
of Common Stock outstanding immediately preceding the transaction are issued
(other than to stockholders of the Company with respect to their shares of stock
in the Company) any outstanding options, SARs or unvested stock shall terminate
immediately prior to the earliest of any such event, unless other provision is
made therefor in the transaction.
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12. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on April 29, 2002. No ISO may be granted under the Plan after
April 29, 2012. The Board of Directors, without further approval of the
Company's stockholders, may at any time suspend or terminate the Plan, in whole
or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with the provisions of Rule 16b-3, Section 162(m) of the Code, or any change in
applicable law, regulations, rulings or interpretations of any governmental
agency or regulatory body; provided, however, that no amendment shall be
effective without the requisite prior or subsequent stockholder approval which
would (a) except as contemplated in Paragraph 11, increase the maximum number of
shares of Common Stock for which Awards may be granted under the Plan or the
162(m) Maximum, (b) change the eligibility requirements to receive Awards
hereunder, or (c) make any change for which applicable law, regulation, ruling
or interpretation by the applicable governmental agency or regulatory authority
requires stockholder approval. No termination, suspension or amendment of the
Plan shall adversely affect the rights of any Award holder under an Award
without his prior consent. The power of the Committee to construe and administer
any Awards granted under the Plan prior to the termination or suspension of the
Plan nevertheless shall continue after such termination or during such
suspension.
13. NON-TRANSFERABILITY. No option or SAR granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution, and
options and SARs may be exercised, during the lifetime of the Award holder, only
by him or his Legal Representatives. Except as may otherwise be expressly
provided in the Contract, a stock Award, to the extent not vested, shall not be
transferable otherwise than by will or the laws of descent and distribution.
Except to the extent provided above, Awards may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
14. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may withhold
(a) cash or (b) with the consent of the Committee, shares of Common Stock to be
issued under a stock Award or upon exercise of an option or SAR having an
aggregate Fair Market Value on the relevant date, or a combination of cash and
shares having such value, in an amount equal to the amount which the Committee
determines is necessary to satisfy the obligation of the Company, any of its
Subsidiaries or a Parent to withhold federal, state and local taxes or other
amounts incurred by reason of the grant, vesting, exercise or disposition of an
Award, or the disposition of the underlying shares of Common Stock.
Alternatively, the Company may require the holder to pay to the Company such
amount, in cash, promptly upon demand.
15. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or
legends upon the certificates for shares of Common Stock issued under a stock
Award or upon exercise of an option or SAR under the Plan and may issue such
"stop transfer" instructions to its transfer agent in respect of such shares as
it determines, in its discretion, to be necessary or appropriate to (a) prevent
a violation of, or to perfect an exemption from, the
-43-
registration requirements of the Securities Act and any applicable state
securities laws, (b) implement the provisions of the Plan or any agreement
between the Company and the Award holder with respect to such shares of Common
Stock, or (c) permit the Company to determine the occurrence of a "disqualifying
disposition," as described in Section 421(b) of the Code, of the shares of
Common Stock issued or transferred upon the exercise of an ISO granted under the
Plan.
The Company shall pay all issuance taxes with respect to the issuance of
shares of Common Stock under a stock Award or upon the exercise of an option or
SAR granted under the Plan, as well as all fees and expenses incurred by the
Company in connection with such issuance.
16. USE OF PROCEEDS. The cash proceeds received upon the exercise of an
option, or grant of a stock Award under the Plan shall be added to the general
funds of the Company and used for such corporate purposes as the Board of
Directors may determine.
17. SUBSTITUTIONS AND ASSUMPTIONS OF AWARDS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
Awards for prior options, SARs or restricted stock of a Constituent Corporation
(as defined in Paragraph 18) or assume the prior options or restricted stock of
such Constituent Corporation.
18. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Cause" shall mean (i) in the case of an employee or consultant,
if there is a written employment or consulting agreement between the Award
holder and the Company, any of its Subsidiaries or a Parent which defines
termination of such relationship for cause, cause as defined in such agreement,
and (ii) in all other cases, cause as defined by applicable state law.
(b) "Constituent Corporation" shall mean any corporation which engages
with the Company, any of its Subsidiaries or a Parent in a transaction to which
Section 424(a) of the Code applies (or would apply if the option assumed or
substituted were an ISO), or any Subsidiary or Parent of such corporation.
(c) "Disability" shall mean a permanent and total disability within
the meaning of Section 22(e)(3) of the Code.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Fair Market Value" of a share of Common Stock on any day shall
mean (i) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of Common
Stock on such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (ii) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on Nasdaq,
and (A) if actual sales price information is available with
-44-
respect to the Common Stock, the average of the highest and lowest sales prices
per share of Common Stock on such day on Nasdaq, or (B) if such information is
not available, the average of the highest bid and lowest asked prices per share
of Common Stock on such day on Nasdaq, or (iii) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is not
quoted on Nasdaq, the average of the highest bid and lowest asked prices per
share of Common Stock on such day as reported on the OTC Bulletin Board Service
or by National Quotation Bureau, Incorporated or a comparable service; provided,
however, that if clauses (i), (ii) and (iii) of this subparagraph are all
inapplicable, or if no trades have been made or no quotes are available for such
day, the Fair Market Value of a share of Common Stock shall be determined by the
Board of Directors by any method consistent with applicable regulations adopted
by the Treasury Department relating to stock options.
(f) "Legal Representative" shall mean the executor, administrator or
other person who at the time is entitled by law to exercise the rights of a
deceased or incapacitated optionee with respect to an option granted under the
Plan.
(g) "Nasdaq" shall mean the Nasdaq Stock Market.
(h) "Outside Director" shall mean a person who is a director of the
Company, but on the date of grant is not an employee of, or consultant to, the
Company, any of its Subsidiaries or a Parent.
(i) "Parent" shall have the same definition as "parent corporation" in
Section 424(e) of the Code.
(j) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act, as the same may be in effect and interpreted from time to time.
(k) "Subsidiary" shall have the same definition as "subsidiary
corporation" in Section 424(f) of the Code.
19. GOVERNING LAW; CONSTRUCTION. The Plan, the Awards and Contracts
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions that would defer to the substantive laws of another
jurisdiction.
Neither the Plan nor any Contract shall be construed or interpreted with
any presumption against the Company by reason of the Company causing the Plan or
Contract to be drafted. Whenever from the context it appears appropriate, any
term stated in either the singular or plural shall include the singular and
plural, and any term stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter.
20. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability of
any provision in the Plan, any Award or Contract shall not affect the validity,
legality or enforceability of any other provision, all of which shall be valid,
legal and enforceable to the fullest extent permitted by applicable law.
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21. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a majority of
the votes present in person or by proxy and entitled to vote hereon at the next
duly held meeting of the Company's stockholders at which a quorum is present. No
Award granted hereunder may vest or be exercised prior to such approval;
provided, however, that the date of grant of any Award shall be determined as if
the Plan had not been subject to such approval. Notwithstanding the foregoing,
if the Plan is not approved by a vote of the stockholders of the Company on or
before April 29, 2003, the Plan and any Awards granted hereunder shall
terminate.
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PROXY PROXY
XYBERNAUT CORPORATION
(Solicited on behalf of the Board of Directors)
The undersigned holder of Common Stock of XYBERNAUT CORPORATION,
revoking all proxies heretofore given, hereby constitutes and appoints Edward G.
Newman, Steven A. Newman and Martin E. Weisberg, and each of them, Proxies, with
full power of substitution, for the undersigned and in the name, place and stead
of the undersigned, to vote all of the undersigned's shares of said stock,
according to the number of votes and with all the powers the undersigned would
possess if personally present, at the Annual Meeting of Stockholders of
XYBERNAUT CORPORATION, to be held at the Waterford at Fair Oaks, 12025 Lee
Jackson Memorial Highway, Fairfax, Virginia 22033 on June 18, 2002, at 9:30
A.M., and at any adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the Notice of Meeting
and Proxy Statement relating to the meeting and hereby revokes any proxy or
proxies heretofore given.
Each properly executed Proxy will be voted in accordance with the
specifications made on the reverse side of this Proxy and in the discretion of
the Proxies on any other matter that may properly come before the meeting. Where
no choice is specified, this Proxy will be voted FOR all listed nominees to
serve as directors and FOR Proposals 2, 3 and 4.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
- ------------------ --------------- PLEASE MARK YOUR CHOICE LIKE |X|
ACCOUNT NUMBER COMMON THIS IN BLUE OR BLACK INK:
Will attend the meeting [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL
LISTED NOMINEES AND FOR PROPOSALS 2, 3 AND 4
(1) Election of four directors
Class II
--------
Nominees: Eugene J. Amobi
Philip E. Pearce
Lt. Gen. Harry E. Soyster (Ret.)
Dr. Edwin Vogt
FOR all nominees listed WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all listed nominees above
[ ] [ ]
(Instruction: To withhold authority to vote for any individual nominee, circle
that nominee's name in the list provided above.)
FOR AGAINST ABSTAIN
(2) The Company's 2002 Stock Incentive
Plan, which provides for up to
3,000,000 shares of Common Stock to
be issued to key employees,
consultants and directors of the
Company. [ ] [ ] [ ]
(3) Ratifying the appointment of Grant
Thornton LLP as independent
auditors for the 2002 fiscal year. [ ] [ ] [ ]
(4) In their discretion, the Proxies
are authorized to vote upon such
other business as may properly come
before the Annual Meeting. [ ] [ ] [ ]
Dated , 2002
------------------
-------------------------------
-------------------------------
Signature(s)
(Signatures should conform to names
as registered. For jointly owned
shares, each owner should sign. When
signing as attorney, executor,
administrator, trustee, guardian or
officer of a corporation, please give
full title.)
PLEASE MARK AND SIGN ABOVE AND RETURN PROMPTLY