UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
ANNUAL REPORT ON FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
COMMISSION FILE NUMBER 0-21013
XYBERNAUT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1799851
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12701 FAIR LAKES CIRCLE
FAIRFAX, VA 22033
(Address of principal executive offices) (Zip Code)
(703) 631-6925
(Issuer's telephone number, including area code)
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act: Common Stock,
$0.01 par value
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The aggregate market value of the Common Stock of the registrant, its only class
of voting stock, was $99,049,238, of which $97,512,190 was held by
non-affiliates, calculated on the basis of the closing sale price of such stock
on the National Association of Securities Dealers Automated Quotation System as
of June 30, 2003, the last business day of the registrant's most recently
completed second fiscal quarter. The market value of non-affiliates excludes
shares owned by all executive officers and directors (but includes shares owned
by their spouses) which should not be construed as indicating that all such
persons are affiliates.
The number of shares outstanding of the registrant's Common Stock as of April
23, 2004 was 176,860,152.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
EXPLANATION FOR FILING OF ANNUAL REPORT ON FORM 10-K/A
The purpose of this Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2003 of Xybernaut Corporation, a Delaware corporation (the
"Company"), is to include Part III, Items 10, 11, 12 and 13.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's directors and executive officers are:
YEAR FIRST
ELECTED OR
NAME AGE CLASS APPOINTED POSITION
- ------------------------------------------ --- ----- ---------- -------------------------------------
Marc Ginsberg (3) 53 I 2003 Director
Kazuyuki Toyosato 57 I 1998 Executive Vice President and Director
Martin Eric Weisberg, Esq. (1)(2) 53 I 1997 Secretary and Director
Noritsugu Yamaoka 62 I 2003 Director
Eugene J. Amobi 59 II 1996 Vice President and Director
Phillip E. Pearce (1)(2)(3) 74 II 1995 Director
Lt. Gen. Harry E. Soyster (Ret.) (1)(2)(3) 68 II 1995 Director
Dr. Edwin Vogt 71 II 1998 Director
Edward G. Newman 60 III 1990 Chief Executive Officer and
Chairman of the Board of Directors
Steven A. Newman, M.D. (2) 58 III 1995 President, Chief Operating Officer
and Vice Chairman of the Board
of Directors
James J. Ralabate, Esq. 76 III 1995 Director
Thomas D. Davis 34 - - Senior Vice President and
Chief Financial Officer
M. Dewayne Adams 37 - - Senior Vice President and
Chief Strategy Officer
(1) Member of the Compensation Committee.
(2) Member of the Nominating Committee.
(3) Member of the Audit Committee.
Officers are appointed by and serve at the discretion of the Board of Directors.
The Company's Board of Directors is divided into three different classes. At
each annual meeting of stockholders, 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.
CLASS I DIRECTORS
Marc Ginsberg has been a director of the Company since March 2003. Mr.
Ginsberg currently serves as CEO and Managing Director of Northstar Equity Group
in Washington, D.C., a global financial advisory and capital sourcing company,
and is President of Layalina Productions, an Arab language television production
company. Mr. Ginsberg was the U.S. Ambassador to Morocco, served as President
Clinton's Deputy Press Secretary for Foreign Affairs, was the Special Assistant
to the Secretary of State for White House Relations for the Carter
Administration, was Deputy Senior Advisor to the President for Middle East
Policy and was a Middle East foreign policy advisor to Senator Edward Kennedy.
Mr. Ginsberg has also served as Senior Partner and Chief Financial Officer at
Galland, Kharasch, Morse and Garfinkle and practiced international corporate law
in the U.S. and in the Middle East. Mr. Ginsberg speaks fluent French, Arabic
and Hebrew and holds a Bachelor of Arts degree from the American University (cum
laude), a Masters of Business Administration (candidate) degree from Georgetown
University and a Juris Doctorate from Georgetown University Law Center.
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 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. 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 28 years. Mr. Weisberg is a summa cum laude graduate
of Union College (B.A. 1972), where he was elected to Phi Beta Kappa. He
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. Mr. Weisberg serves as outside
general counsel to a number of public and private companies.
Noritsugu Yamaoka, has been a director of the Company since March 2003.
Mr. Yamaoka currently serves as a senior advisor to IBM. Mr. Yamaoka worked at
IBM for over three decades, including as General Manager for IBM Technology
Market Development from 1994 through 2003. Mr. Yamaoka speaks fluent Japanese
and English, holds a Bachelor of Science degree in Electronics Communication
from Waseda University (Tokyo, Japan) and completed advanced degree coursework
at Syracuse University (SIS) and the University of Michigan (Business
Administration).
CLASS II DIRECTORS
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. Mr. Amobi has been president and director of Tech Virginia since
1994. 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 Barrington Science Inc. (formerly known as
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 Preservation Science Inc., Bravo Foods Inc.,
Knightsbridge Fine Wines, Inc. and New York International Commerce Group, Inc.
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 March 2004 through present, Lieutenant General Soyster (Ret.)
is serving as Special Assistant to the Secretary of the Army for the World War
II 60th Anniversary Commemorations. From 1991 to 2003 he was employed by MPRI,
including 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. He also is a director of Aura Systems,
Inc. 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 1998 and
currently serves as a consultant to the Company. From December 1998 to December
2002, Dr. Vogt served as a Senior Vice President to the Company and from 1996 to
1998, he served as a consultant to the Company. In 1996, Dr. Vogt 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.
CLASS III DIRECTORS
Edward G. Newman has been the Company's Chief Executive Officer and Chairman of
the Board of Directors since December 1994 and a director since 1990. Mr. Newman
served as our President from March 1993 to December 2002 and 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, Inc. ("Tech
International"), which provides engineering, technical support and consulting
services to government and domestic and international clients, since 1990 and a
director and Chief Executive Officer of Tech International of Virginia Inc.
("Tech Virginia"), our wholly-owned subsidiary, since 1994. 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., the
President, Chief Operating Officer and Vice Chairman of the Board of Directors
of the Company.
Steven A. Newman, M.D. has been the Company's President and Chief
Operating Officer since January 2003, the Vice Chairman of the Board of
Directors since August 1997 and a director since January 1995. Dr. Newman was an
Executive Vice President of the Company from January 2000 to December 2003, an
Executive Vice President and Secretary from December 1994 to 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. 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, the Chief Executive Officer and Chairman of the Board of Directors of
the Company.
James J. Ralabate, Esq. has been a director of the Company since January
1995. 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 where he was responsible for worldwide patent licensing and
litigation and supervised a staff of 84 patent attorneys. Mr. Ralabate was also
an Examiner in the United States Patent Office. Mr. Ralabate has served as
president and on the Board of Governors of the Connecticut Patent Law
Association and was founder and president of the Connecticut Patent Counsels
Association. Mr. Ralabate is our intellectual property counsel and is a graduate
of Canisius College (B.S. 1950) and The American University (J.D. 1959).
Current Executive Officers who are not Directors
Thomas D. Davis has been the Company's Chief Financial Officer and Senior
Vice President since November 2002. Mr. Davis also served as the Company's Vice
President of Finance and Corporate Controller from August 1999 through October
2002. Prior to joining the Company, Mr. Davis held various senior finance and
accounting positions, including Director of Finance at MeriStar Hospitality
Corporation. While at MeriStar, he was active in the company's 1996 initial
public offering and played a key role in raising $3 billion through debt and
equity financings. Mr. Davis also served as a senior auditor and certified
public accountant (CPA) with Deloitte & Touche and graduated with honors from
James Madison University (B. B. A. 1991).
Dewayne Adams has been the Company's Chief Strategy Officer and Senior
Vice President since July 2000. Prior to joining the Company, Mr. Adams held the
position of Vice President of Strategic Development for Absolute Software where
he led funding and expansion to domestic markets. From 1991 to 1998, Mr. Adams
held various positions in the Office of the Chairman of Vanstar Corporation
where he led the technology strategy and the key relationships between major
vendors and key customers.
COMPENSATION OF DIRECTORS
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. Directors who are not executives of, consultants
to, or otherwise receive remuneration for professional services rendered to, the
Company also receive $1,000 for each Board of Director's meeting attended.
Members of the Audit, Compensation and Nominating Committees who are not
executives of, or consultants to, or otherwise receive remuneration for
professional services rendered to, the Company are entitled to receive $500 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, the 2000 Stock
Incentive Plan and the 2002 Stock Incentive Plan (collectively, the "Incentive
Plans") in which directors are eligible to participate. See "Executive
Compensation -- Compensation Plans."
STOCKHOLDER NOMINEES TO THE BOARD OF DIRECTORS
Stockholders may recommend nominees to the Board of Directors by sending a
written communication including the name of the nominee, together with a
biography of such nominee, addressed to the Board of Directors of Xybernaut
Corporation, c/o Xybernaut Corporation, 12701 Fair Lakes Circle, Fairfax,
Virginia 22033. This procedure for stockholders to recommend nominees was
implemented by the Board of Directors on March 11, 2004. The Board of Directors
did not previously have a policy with respect to stockholder nominees.
CODE OF ETHICS
The Company has adopted a code of ethics that applies to its Chief
Executive Officer, President and Chief Financial Officer. A copy of the
Company's code of ethics is being filed as Exhibit 14 to this annual report on
Form 10-K/A for the fiscal year ending December 31, 2003.
AUDIT COMMITTEE
The Company has an Audit Committee established in accordance with
3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The three (3)
members of the Audit Committee are Mr. Marc Ginsberg, Lt. Gen. Harry E. Soyster
(Ret.) and Mr. Phillip E. Pearce. None of the current members have been
designated by the Company's Board of Directors to be a "financial expert," as
such term is defined under rules and regulations promulgated by the Securities
and Exchange Commission. The Board of Directors is currently evaluating
candidates to potentially designate as its "financial expert." The Board of
Directors believes that the members comprising the Audit Committee, all of whom
have had distinguished careers within prominent and sophisticated business,
government or regulatory institutions, have the requisite expertise and
abilities to fulfill their responsibilities on the Audit Committee.
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 regulations 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, the Company
believes that during fiscal 2003 all such filings were made, except that: (i)
Steven A. Newman and Edward G. Newman each filed a late statement of changes in
beneficial ownership on Form 4, relating to the acquisition of an option to
purchase common stock of the Company, (ii) Steven A. Newman filed a late
statement of changes in beneficial ownership on Form 4 relating to the
disposition of 128,800 shares of the Company's common stock, (iii) James J.
Ralabate filed a late statement of changes in beneficial ownership on Form 4,
relating to the acquisition of 25,000 shares of common stock, and (iv) each of
the directors filed a late statement of changes in beneficial ownership on Form
4, relating to the acquisition of an option to purchase common stock of the
Company, all of which late filings were reported on an annual statement of
changes in beneficial ownership on Form 5.
ITEM 11. 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, 2003, 2002 and 2001 paid to the Company's Chief Executive
Officer and the registrant's other three executive officers other than the Chief
Executive Officer who were serving as executive officers at the end of the last
completed fiscal year.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Awards
Annual Compensation ------------
---------------------------------- Common Stock
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- ----------------------------- ---- ------------- ------------- ------------ -------------
Edward G. Newman 2003 $ 298,017 $ 0 350,000 $ 62,020 (2)
Chief Executive Officer and 2002 $ 254,917 (1) $ 0 35,000 $ 68,246 (2)
Chairman of the Board of 2001 $ 275,440 (1) $ 0 240,384 $ 89,825 (2)
Directors
Dr. Steven A. Newman 2003 $ 296,730 $ 0 300,000 $ 94,164 (4)
President, Chief Operating 2002 $ 229,425 (3) $ 0 35,000 $ 75,651 (4)
Officer and Vice Chairman of 2001 $ 248,907 (3) $ 0 540,384 $ 82,064 (4)
the Board of Directors
Thomas D. Davis 2003 $ 149,838 $ 3,334 (6) 0 $ 11,250 (7)
Senior Vice President and 2002 $ 115,500 (5) $ 6,666 (6) 180,000 $ 0
Chief Financial Officer 2001 $ 98,400 $ 0 0 $ 0
M. Dewayne Adams 2003 $ 173,176 $ 10,000 15,000 $ 10,096 (7)
Senior Vice President and 2002 $ 160,417 (8) $ 0 55,406 $ 4,207 (7)
Chief Strategy Officer 2001 $ 169,792 $ 0 0 $ 4,207 (7)
(1) Includes $10,107 paid by Tech Virginia, a subsidiary of the Company, in
2001. Does not include (i) $76,650 and $84,886 paid to Frances C. Newman, the
wife of the executive, in 2002 and 2001, respectively, prior to her resignation
from the Company in October 2002 or (ii) $11,084 in salary earned by the
executive in 2002 that was not paid.
(2) Other Compensation in 2003 includes payment of (i) $33,239 of unused
vacation, (ii) $23,800 of non-accountable transportation and legal/estate
planning allowances and (iii) $4,981 of life insurance premiums. Other
Compensation in 2002 includes payment of (i) $39,600 of non-accountable expense
and transportation allowances and (ii) $28,646 of unused vacation. Other
Compensation in 2001 includes payment of (i) $39,600 of non-accountable expense
and transportation allowances, (ii) $25,520 of life insurance premiums and (iii)
$24,705 of unused vacation.
(3) Includes $10,107 paid by Tech Virginia, a subsidiary of the Company, in
2001. Does not include $9,975 in salary earned in 2002 but not paid.
(4) Other Compensation in 2003 represents payment of (i) $37,664 of unused
vacation, (ii) $30,000 of life insurance premiums and (iii) $26,500 of
non-accountable expense and transportation allowances. Other Compensation in
2002 represents payment of (i) $40,000 of non-accountable transportation,
expense and legal/estate planning allowances, (ii) $24,861 of unused vacation
and (iii) $10,790 in life insurance premiums. Other Compensation in 2001
represents payment of (i) $35,196 of non-accountable expense and transportation
allowances, (ii) $25,960 of unused vacation and (iii) $20,908 of life insurance
premiums.
(5) Does not include $5,000 earned in 2002 but not paid.
(6) Represents payment of a signing bonus as an incentive for the executive to
enter into his employment agreement.
(7) Represents payment of unused vacation.
(8) Does not include $16,406 in salary earned but not paid. As consideration for
nonpayment of this salary, the Company granted the executive 16,406 options to
purchase Common Stock and is obligated to grant to the executive 44,341 shares
of Common Stock.
OPTION GRANTS TABLE. The following table sets forth information on grants of
stock options during fiscal 2003 to executive officers and directors of the
Company. All such options are exercisable to purchase shares of Common Stock. No
stock appreciation rights ("SARs") were granted during such period to such
persons.
Percent of
Total Options
Options Options Granted Exercise or Potential
Granted To Employees Base Price Expiration Realizable
(Shares) In Year ($/Share) Date Value (1)
-------- ------------- ----------- ------------- ----------
M. Dewayne Adams 15,000 1.26% $0.74 August 27, 2013 $ 10,800
Eugene J. Amobi 10,000 0.84% $1.58 December 11, 2013 $ 15,373
Thomas D. Davis 0 - - - -
Marc Ginsberg 50,000 4.21% $0.42 March 3, 2013 $ 20,433
10,000 0.84% $1.58 December 11, 2013 $ 15,373
Edward G. Newman 300,000 25.23% $0.51 January 1, 2013 $ 148,871
50,000 4.21% $1.58 December 11, 2013 $ 76,868
Steven A. Newman, M.D. 250,000 21.03% $0.51 January 1, 2013 $ 124,059
50,000 4.21% $1.58 December 11, 2013 $ 76,868
Phillip E. Pearce 10,000 0.84% $1.58 December 11, 2013 $ 15,373
James J. Ralabate, Esq. 50,000 4.21% $1.58 December 11, 2013 $ 76,868
Lt. Gen Harry E. Soyster (Ret.) 10,000 0.84% $1.58 December 11, 2013 $ 15,373
Kazuyuki Toyosato 10,000 0.84% $1.58 December 11, 2013 $ 15,373
Dr. Edwin Vogt 30,000 2.52% $0.43 February 25, 2013 $ 12,552
10,000 0.84% $1.58 December 11, 2013 $ 15,373
Martin Eric Weisberg, Esq. 10,000 0.84% $1.58 December 11, 2013 $ 15,373
Noritsugu Yamaoka 50,000 4.21% $0.42 March 3, 2013 $ 20,433
10,000 0.84% $1.58 December 11, 2013 $ 15,373
(1) The potential realizable value was calculated using the Black-Sholes
option-pricing model. The variables used in the model were as follows: i) the
risk free rate was 2.68%, which was the yield of 5-year Treasury Notes issued
May 15, 2003, and ii) the standard deviation of stock return was 195.46%, which
was the volatility of the Company's stock calculated using the end of the month
stock price for the period from January 1, 2002 through December 31, 2003.
FISCAL YEAR-END OPTIONS/OPTION VALUES TABLE.
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options
at Fiscal Year End at Fiscal Year End ($)
Exercisable Unexercisable Exercisable Unexercisable
------------------------------ --------------------------------
M. Dewayne Adams 79,406 41,000 $ 45,951 $ 24,600
Eugene J. Amobi 430,000 30,000 $ 49,550 $ 0
Thomas D. Davis 163,709 69,000 $ 147,100 $ 63,500
Marc Ginsberg 0 60,000 $ 0 $ 58,000
Edward G. Newman 150,000 200,000 $ 160,500 $ 160,500
Steven A. Newman, M.D. 1,262,134 175,000 $ 222,845 $ 133,750
Phillip E. Pearce 175,000 10,000 $ 48,675 $ 0
James J. Ralabate, Esq. 205,000 50,000 $ 10,925 $ 0
Lt. Gen Harry E. Soyster (Ret.) 200,000 10,000 $ 48,675 $ 0
Kazuyuki Toyosato 235,000 30,000 $ 29,975 $ 0
Dr. Edwin Vogt 280,000 30,000 $ 103,275 $ 0
Martin Eric Weisberg, Esq. 190,000 10,000 $ 10,313 $ 0
Noritsugu Yamaoka 0 60,000 $ 0 $ 58,000
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.
EMPLOYMENT AGREEMENTS
Mr. Edward G. Newman entered into a two-year employment agreement
effective as of January 1, 2003, and expiring on December 31, 2004, as the
Company's Chairman and Chief Executive Officer. The employment agreement
provides for a salary of $300,000. Under the employment agreement, the Company
provides for a $2 million life insurance policy on Mr. Newman's life payable to
his designated beneficiaries and he receives a car allowance in the amount of
$1,200 per month. The agreement provides Mr. Newman with the same general
benefits as the Company provides to its other senior executive officers as a
group, including health care insurance, participation in benefit plans, and six
weeks vacation. Based solely upon the Company's financial performance during the
employment term, Mr. Newman may receive, as a performance bonus, an annual grant
of stock options (or, at Mr. Newman's request, shares of common stock) in an
amount equal to the greater of: (i) 2% of the excess over the Company's revenue
goal for each fiscal year, if the revenue goal is attained, and (ii) 5% of the
excess over the Company's net profit goal for each fiscal year, if the net
profit goal is attained ((i) and (ii) together, the "Performance Options"), with
a limit on such grant of 4% of the Company's then outstanding shares of common
stock in any given fiscal year. 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. No Performance Options were
granted to Mr. Newman for the fiscal year ended December 31, 2003. As an
incentive to enter into this agreement, Mr. Newman received a grant of 300,000
options vesting in equal installments on each of December 31, 2003 and December
31, 2004.
Dr. Steven A. Newman entered into a two-year employment agreement
effective as of January 1, 2003, and expiring on December 31, 2004, assuming the
position of President and Chief Operating Officer of the Company. Dr. Newman is
also the Vice Chairman of the Company's Board of Directors. The employment
agreement provides for a salary of $300,000. The agreement provides Dr. Newman
with the same general benefits as the Company provides to its other senior
executive officers as a group, including health care insurance, participation in
benefit plans, and six weeks vacation, and a car allowance in the amount of
$1,000 per month. During 2003, the employment agreement was modified to provide
Dr. Newman with an unaccountable business expense allowance of $1,250 per month.
Based solely upon the Company's financial performance during the employment
term, Dr. Newman may receive Performance Options on the same basis as are
applicable to Mr. Edward G. Newman as described above, with a limit on such
grant of 4% of the Company's then outstanding shares of common stock in any
given fiscal year. 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. No Performance Options were granted to Mr.
Newman for the fiscal year ended December 31, 2003. As an incentive to enter
into this agreement, Dr. Newman received a grant of 250,000 options vesting in
equal installments on each of December 31, 2003 and December 31, 2004.
Thomas D. Davis is employed as the Company's Chief Financial Officer
pursuant to a 26-month employment agreement expiring on December 31, 2004. This
agreement calls for an initial salary of $150,000 with annual increases at the
CPI percentage plus three percent; bonuses payable at the sole discretion of the
Board of Directors in cash, shares of Common Stock, options to purchase shares
of common stock, or any combination thereof, in an amount to be determined by
the Board of Directors; a $500,000 life insurance policy payable to his
designated beneficiaries; and the same general benefits that the Company
provides to its other executive officers as a group, including health care
insurance and vacation. Mr. Davis is eligible to participate in bonus or other
programs that were established subsequent to the date he entered into his
employment agreement. As an incentive to enter into this agreement, Mr. Davis
received a signing bonus of $10,000, of which amount $6,666 was paid during 2002
and the remaining $3,334 was paid during 2003, and a grant of 150,000 options,
which vests in three equal installments on November 1, 2002, 2003 and 2004.
Dr. Edwin Vogt was employed with the Company pursuant to a five-year
employment agreement expiring on December 31, 2004, pursuant to which Dr. Vogt
received an annual base salary of $150,000. Effective January 1, 2003, Dr. Vogt
entered into a consulting agreement with the Company pursuant to which he
resigned his position as an employee of the Company. Pursuant to the terms of
the consulting agreement, as amended, Dr. Vogt receives consulting fees totaling
Euro 20,000 for each calendar quarter. Dr. Vogt is also eligible to receive
commissions in a manner and amount to be determined in the future. Either the
Company or Dr. Vogt can terminate the consulting agreement within 30 days of the
end of each calendar quarter.
COMPENSATION PLANS
The Company has currently in effect the following compensation plans: the
1996 Omnibus Stock Incentive Plan, the 1997 Stock Incentive Plan, the 1999 Stock
Incentive Plan, the 2000 Stock Incentive Plan and the 2002 Stock Incentive Plan
(collectively, 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 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. Lt. Gen. Harry E. Soyster (Ret.), Phillip
E. Pearce 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 within three months of the termination date, but only to the extent
exercisable on the date of termination, 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 Omnibus Stock 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
Omnibus Stock 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 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
Omnibus Stock 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, 2003, a total of 6,595,949 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, 2003, there were no SARs
outstanding and there have been grants of Restricted Stock totaling 541,477
shares of Common Stock.
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth certain information as of the Company's fiscal
year ended December 31, 2003 regarding the shares of the Company's common stock
available for grant or granted under stock option plans that were adopted by the
Company's stockholders. The Company has no stock option plan that was not
adopted by the Company's stockholders.
Number of securities remaining
available for future issuance
Number of securities to Weighted-average under equity compensation plans
be issueed upon exercise exercise price of excluding securities in the
of outstanding options outstanding options first column of this table)
----------------------- ------------------- ------------------------------
Equity Compensation plans
Approved by security holders 6,595,949 $2.75 2,973,267
Equity Compensation plans
Not approved by security holders n/a n/a n/a
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.), Phillip E. Pearce 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.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of April 23, 2004, 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 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 79,406 (1) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Eugene J. Amobi 710,000 (2) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Thomas D. Davis 169,609 (3) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Marc Ginsberg 50,000 (4) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Edward G. Newman 1,815,195 (5) 1.0%
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Steven A. Newman, M.D. 1,718,615 (6) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Phillip E. Pearce 175,000 (7) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
James J. Ralabate, Esq 398,726 (8) *
5792 Main Street, Williamsville, New York 14221
Lt. Gen. Harry E. Soyster (Ret.) 219,364 (9) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Kazuyuki Toyosato 235,000 (10) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Dr. Edwin Vogt 280,000 (11) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
Martin Eric Weisberg, Esq. 217,000 (12) *
405 Lexington Avenue, New York, New York 10174
Noritsugu Yamaoka 50,000 (4) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
All officers and directors as a group (13 persons) 6,117,915 (13) 3.4%
- -----------------------------------------
* Less than 1%
(1) Includes 79,406 shares of Common Stock issuable upon exercise of currently
exercisable options.
(2) Includes 430,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(3) Includes 168,709 shares of Common Stock issuable upon exercise of
currently exercisable options.
(4) Includes 50,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(5) Includes (a) 150,000 shares of Common Stock issuable upon exercise of
currently exercisable options, (b) 761,950 shares of Common Stock
beneficially owned by Mr. Newman's wife, Frances C. Newman, and (c) 1,765
shares beneficially owned by Mr. Newman and Frances C. Newman as joint
tenants. Mr. Newman disclaims beneficial ownership of all securities
included in (b) above.
(6) Includes (a) 1,262,134 shares of Common Stock issuable upon exercise of
currently exercisable options and (b) 75,000 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.
(7) Includes 175,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(8) Includes 205,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(9) Includes 200,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(10) Includes 235,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(11) Includes 280,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(12) Includes (a) 190,000 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.
(13) Includes 3,475,249 shares of Common Stock issuable to the group upon
exercise of currently exercisable options.
ITEM 13: 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 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.
LEGAL SERVICES
The Company retains James J. Ralabate, Esq., a member of its Board of
Directors, as its patent counsel. Since August 1, 2002, the Company and Mr.
Ralabate have entered into one-year agreements. The current agreement expires on
July 31, 2004. Under these and prior agreements, the Company had cash
expenditures of $320,000, $331,112 and $421,333 during 2003, 2002 and 2001,
respectively, in legal services payable to this Director. The Company is also
obligated to issue to this Director 50,000 shares of its common stock for the
one-year period ending July 31, 2004, which had a value of $37,500 as of the
date the agreement was entered into. The Company issued to this Director 100,000
shares of its common stock for the one-year period ended July 31, 2003, which
had a value of $50,000 as of the date the agreement was entered into. Prior to
August 1, 2002, the Director's law firm billed the Company in accordance with
its established standard billing rates used in the past with its other clients.
These cash and stock payments represent gross payments made by the Company and
the Director is responsible for all overhead, professional, administrative and
other expenditures incurred by his law firm. During 2003, 2002 and 2001, the
Company represented the law firm's only significant client. During approximately
half of 2002 and all of 2001, the Director also served as the Company's primary
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 was paid only the amount that was passed through to these other law
firms and agencies and paid administrative services related to these services.
The Company made additional payments of $17,656, $274,040 and $485,827 during
2003, 2002 and 2001, respectively, to this Director's law firm related to
services rendered by the Director's law firm as the Company's processing agent
for foreign patent and trademark filing and prosecution expenses. The Company's
management and Board of Directors believe that the relationship with this law
firm is based on arms-length terms and conditions.
The Company uses a law firm, in which Martin Eric Weisberg, Esq., the
Company's Secretary and a 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 billings of $424,574, $464,067 and $392,524 during
2003, 2002 and 2001, 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. The Company's management and Board of Directors
believe that the relationship with this law firm is based on arms-length terms
and conditions.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Exhibit Description
- ------- -----------------------------------------
10.24 Retention Agreement between Xybernaut Corporation and the Law Offices
of James J. Ralabate.
14 Code of Ethics of Xybernaut Corporation.
23.1 Consent of Grant Thornton LLP.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.3 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XYBERNAUT CORPORATION
By: /s/ EDWARD G. NEWMAN
- ----------------------------------
Edward G. Newman
Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ THOMAS D. DAVIS
- ----------------------------------
Thomas D. Davis
Senior Vice President and
Chief Financial Officer
By: /s/ STEVEN A. NEWMAN
- ----------------------------------
Steven A. Newman
President, Chief Operating Officer and
Vice Chairman of the Board of Directors
Date: April 26, 2004