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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.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):
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
XYBERNAUT CORPORATION
12701 Fair Lakes Circle
Fairfax, Virginia 22033
----------------------------------------
Notice of Annual Meeting of Stockholders
August 28, 1997
----------------------------------------
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Meeting") of XYBERNAUT CORPORATION, a Delaware corporation (the "Company"),
will be held at the offices of the Company located at 12701 Fair Lakes Circle,
Fairfax, Virginia 22033, on Thursday, August 28, 1997, 10:00 a.m., to consider
and act upon the following:
1. Approval of an amendment to the Company's Bylaws to provide for
the classification of the Board of Directors of the Company into
three classes, as more fully set forth in the accompanying Proxy
Statement;
2. The election of the nine (9) persons named in the accompanying
Proxy Statement to serve as the Board of Directors of the
Company. If the amendment to the Company's Bylaws to create a
classified Board of Directors is approved by the Stockholders,
the directors will be elected to a classified Board of
Directors, with three directors being elected for a term of one
year, three directors being elected for a term of two years and
three directors being elected for a term of three years, and
until their successors are duly elected and qualified. In the
event such proposal is not approved, all nine (9) persons named
in the accompanying Proxy Statement will be elected to serve as
the Board of Directors of the Company until the next Annual
Meeting of Stockholders and until their successors are duly
elected and qualified;
3. Approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
common stock from 30,000,000 to 40,000,000 and the number of
authorized shares of Preferred Stock from 5,000,000 to
6,000,000;
4. Approval of the Company's 1997 Stock Incentive Plan, which
provides for up to 1,650,000 shares of the Company's Common
Stock to be issued to key employees, consultants and directors
of the Company, as more fully set forth in the accompanying
Proxy Statement; and
5. The transaction of such other business as may properly come
before the Meeting or any adjournments thereof.
Only stockholders of record of the Common Stock, $.01 par value, of the Company
at the close of business on August 7, 1997 are entitled to receive notice of and
to attend the Meeting. 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, 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. In the event you decide to attend the Meeting in person, you
may, if you desire, revoke your Proxy and vote your shares in person.
Dated: August 11, 1997
By Order of the Board of Directors
JAMES J. RALABATE
Secretary
================================================================================
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.
================================================================================
<PAGE>
XYBERNAUT CORPORATION
12701 Fair Lakes Circle
Fairfax, Virginia 22033
----------------------------------------
Proxy Statement
Annual Meeting of Stockholders
August 28, 1997
----------------------------------------
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 offices of the Company
12701 Fair Lakes Circle, Fairfax, Virginia 22033 on Thursday, August 28, 1997 at
10:00 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
August 11, 1997.
A Proxy, in the accompanying 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 proxies 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 August 7, 1997
(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 14,259,112
outstanding shares of Common Stock, $.01 par value ("Common Stock"). Each holder
of Common Stock is entitled to one vote for each share held by such holder. By
virtue of their holdings of Common Stock, the officers and directors of the
Company will be able to pass the proposals being submitted at the Meeting. The
presence, in person or by
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proxy, of the holders of a majority of the outstanding shares of Common Stock is
necessary to constitute a quorum at the Meeting.
Proxies submitted that are voted to abstain with respect to the matter
will be considered cast with respect to that matter. Proxies subject to broker
non-votes with respect to such matter will not be considered cast with respect
to that matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 7, 1997 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
BENEFICIALLY
NAME(1) OWNED PERCENTAGE OWNED
- ------- ---------------- ----------------
Edward G. Newman(2)....................... 3,949,200 31.6%
John F. Moynahan(3)....................... 90,000 *
John W. Williams.......................... 10,000 *
Lt. Gen. Harry E. Soyster (Ret.).......... 25,000 *
James J. Ralabate(4)...................... 50,000 *
Keith P. Hicks............................ 368,000 2.6%
Steven A. Newman(5)....................... 1,617,940 11.3%
Phillip E. Pearce......................... --- ---
Jacques Rebibo(6)......................... 187,500 1.3%
Eugene J. Amobi........................... 300,000 2.1%
Frances C. Newman(7)...................... 776,950 5.4%
Martin Eric Weisberg...................... --- ---
Officers and directors (10 persons)....... 7,954,590 55.5%
- -----------------------
* Less than 1%
(1) The address for Messrs. Edward G. Newman and Moynahan and Mrs. Newman is
12701 Fair Lakes Circle, Suite 550, Fairfax, Virginia 22033; the address
for Mr. Steven A. Newman is 303 Avenida Cerritos, Newport Beach,
California 92660; the address for Mr. Hicks is 4121 Roberts Road,
Fairfax, Virginia 22032; the address for Mr. Rebibo is 7216
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Dulany Drive, McLean, Virginia 22101; the address for Mr. Amobi is 100
Jade Drive, Wilmington, Delaware 19810; the address for Mr. Ralabate is
5792 Main Street, Williamsville, New York 14221; the address for Mr.
Pearce is 6624 Glenleaf Court, Charlotte, North Carolina 28270; the
address for Lt. Gen. Soyster (Ret.) is 1201 E. Abingdon Drive, Suite
425, Alexandria, Virginia 22314; and the address for Mr. Weisberg is
1211 Avenue of the Americas, New York, New York 10036.
(2) Includes 200,000 shares owned by a trust for Mr. Newman's children.
Excludes 776,950 shares owned by Mr. Newman's wife, Frances C. Newman
and 580,000 shares owned by a trust established by Mr. Newman. See
footnote 7 below.
(3) Includes 80,000 shares of Common Stock subject to acquisition by Mr.
Moynahan at $.01 per share pursuant to a stock option.
(4) Does not include $93,250 fees and disbursements paid to Mr. Ralabate for
legal services rendered to the Company for the year ended December 31,
1996.
(5) Includes 100,000 shares owned by a trust for Dr. Newman's children.
(6) Includes 17,500 shares owned by Mortgage Investment Corp., an affiliate
of Mr. Rebibo, and 10,000 shares owned by the profit sharing plan of
Rebibo and another individual.
(7) Frances C. Newman is the wife of Edward G. Newman.
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ACTION TO BE TAKEN AT THE MEETING
--------------------------------------------------
Proposal 1
AMENDMENT TO THE COMPANY'S BYLAWS TO PROVIDE
FOR THE CLASSIFICATION OF THE BOARD OF DIRECTORS
--------------------------------------------------
The Board of Directors of the Company at a meeting held on February 27,
1997 adopted a resolution approving a proposal to amend, subject to stockholder
approval, Section 2.1 of Article II of the Bylaws of the Company to provide for
the division of the Board of Directors into three classes of directors serving
staggered three-year terms with each class being as nearly equal in number as
possible. As a result, approximately one-third of the Board of Directors would
be elected each year. Initially, members of all three classes will be first
elected at the Meeting. Directors then elected to the first class would serve
until the Annual Meeting of Stockholders to be held in 1998, and until their
respective successors are elected and qualified. Directors initially elected to
the second and third classes would serve until the Annual Meetings to be held in
1999 and 2000, respectively, and until their respective successors are elected
and qualified. Commencing with the election of directors to the first class in
1998, each class of directors elected at an Annual Meeting would be elected to
three-year terms.
This summary of the terms and effect of establishing a classified Board
of Directors does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the proposed amendment to Section 2.1 of Article
II of the Company's Bylaws which is set forth under the heading "Proposed New
Article II, Section 2.1 to the Company's Bylaws" in Exhibit A of this Proxy
Statement.
The Board of Directors believes that the amendment to create a
classified board are in the best interests of the Company and its stockholders.
Board classification will help lend continuity and stability to the management
of the Company and will assure continuity and stability in the Board's
leadership and policies. Following the adoption of the classified board
structure, at any given time approximately two-thirds of the members of the
Board of Directors will have had prior experience as directors of the Company.
The Board believes that this will facilitate long-range planning, strategy and
policy, because it will enhance the likelihood of continuity and stability in
the composition of the Board and its policies. The Board of Directors believes
that this, in turn, will permit the Board to more effectively represent the
interests of all stockholders.
With a classified Board of Directors, it will generally take a
stockholder two Annual Meetings of Stockholders (rather than one) to elect a
majority of the Board of Directors. As a result, a classified board may
discourage proxy contests for the election of directors or purchases of a
substantial block of stock by potential acquirers because its provisions could
operate to prevent obtaining control of the Board in a relatively short period
of time. Although this could provide the Board with more time to evaluate any
takeover or control proposal and thus enable it to better
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protect the interests of the Company and the remaining stockholders in the event
someone obtains voting control of a majority of the Company's stock, this is not
the reason why the Board is recommending Board classification. Classification is
recommended because the Board believes it will enhance the quality and stability
of the Board and will provide better opportunity for review of the Board member
performance.
As a result of classification's possible effect of discouraging some
takeover bids or block purchases of stock by potential acquirers, stockholders
may be deprived of opportunities to sell some or all of their shares in a tender
offer which might involve a purchase price higher than the then current market
price or a bidding contest between competing bidders. Moreover, to the extent
classification discourages open market purchases of the Company's stock,
stockholders may be deprived of temporary increases in the market price of the
Company's stock. Classification will also make it more difficult for
stockholders to change the Company's Board at a time when stockholders consider
it desirable, unless stockholders show cause and obtain the requisite
stockholder vote. Consequently, the proposed amendment will tend to perpetuate
present management.
The Board of Directors has considered the advantages and possible
disadvantages of this proposal and has unanimously determined that the adoption
of the proposal is in the best interest of the Company and its stockholders.
The information concerning the current nominees for election as
directors at the Meeting and the classes to which they would be elected is set
forth under the caption "Proposal 2 Election of Directors." If the proposal to
adopt a classified board is not approved and implemented, all directors elected
at the Meeting will serve for a one-year term, and until their successors are
duly elected and qualified.
REQUIRED VOTE
Approval of the bylaws amendment requires the affirmative vote 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE
COMPANY'S BYLAWS TO PROVIDE FOR THE CLASSIFICATION OF THE BOARD OF DIRECTORS OF
THE COMPANY.
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-----------------------
Proposal 2
ELECTION OF DIRECTORS
-----------------------
If the proposed amendment to the Company's Bylaws are adopted by the
stockholders (see Proposal 1), three separate classes of directors, designated
as Class I, Class II and Class III, will be elected at the Meeting. The three
directors nominated for Class I will serve for a one-year term expiring in 1997,
the three directors nominated for Class II will serve for a two-year term
expiring in 1998 and the three directors nominated for Class III will serve for
a three-year term expiring in 1999, 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. Except for Martin Eric
Weisberg, all of the nominees are currently directors of the Company whose term
as directors expires at the Meeting.
If the stockholders do not adopt the proposed amendment to the Bylaws,
nine (9) directors will be elected at the Meeting as one class, each director to
hold office until the next Annual Meeting of Stockholders and until his
successor is elected and qualified. The number of nominees was determined by the
Board of Directors pursuant to the Company's Bylaws. In such case, unless
otherwise directed, all proxies will be voted in favor of the election of
Messrs. Edward G. Newman, Steven A. Newman, Moynahan, Soyster, Ralabate, Hicks,
Pearce, Amobi and Weisberg as directors of the Company.
Except for Mr. Weisberg, all of the nominees were elected directors at
the 1996 Annual Meeting of Stockholders. The term of the current 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 executive officer,
director and nominee for director of the Company.
YEAR FIRST
ELECTED OR PRESENT POSITION WITH THE
NAME AGE CLASS APPOINTED COMPANY
- ---- --- ----- --------- -------
Edward G. Newman 54 III 1990 President, Chief Executive
Officer and Chairman of the
Board of Directors
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YEAR FIRST
ELECTED OR PRESENT POSITION WITH
NAME AGE CLASS APPOINTED THE COMPANY
- ---- --- ----- --------- -----------
John F. Moynahan 40 I 1994 Vice President, Chief
Financial Officer,
Treasurer and Director
Lt. Gen. Harry E. Soyster 61 II 1995 Director
(Ret.)(1)(3)
James J. Ralabate, Esq. 69 III 1995 Secretary and Director
Keith P. Hicks, Esq.(2) 74 I 1994 Director
Steven A. Newman, 51 III 1995 Director
M.D.(1)(2)(3)
Phillip E. Pearce (1)(2)(3) 68 II 1995 Director
Eugene J. Amobi 52 II 1996 Director
Martin Eric Weisberg 46 I --- ---
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
Officers are appointed by and served at the discretion of the Board of
Directors. Each director holds office until the next annual meeting of
stockholders or until a successor has been duly elected and qualified.
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 Treasurer of the Company
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
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., a director of the Company.
John F. Moynahan joined the Company in October 1994, has served as a
director since January 1995 and currently serves as the Company's Senior Vice
President, Chief Financial Officer and Treasurer. From 1992 to 1994 Mr. Moynahan
was Vice President and Treasurer of Joy Technologies Inc., a publicly-traded
machinery and pollution control equipment manufacturer. From 1990 to 1992 he was
Vice President and Chief Financial Officer of Sym-Tek Systems, Inc., a
publicly-traded high technology company. Prior to that time, Mr. Moynahan was
Treasurer of Fisher Scientific Group, Inc., a publicly-traded medical, health
and research equipment manufacturer and
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distributor. Mr. Moynahan is a graduate of Colgate University (B.A. 1979) and
New York University (M.B.A. 1982).
Lt. Gen. Harry E. Soyster (Ret.) has been a director of the Company
since January 1995. He is currently Director of Washington Operations and Vice
President of International Operations of Military Professional Resources,
Incorporated. 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).
James J. Ralabate, Esq. has been a director of the Company since January
1995 and currently serves as the Company's Secretary. 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 for the Patent Office. Mr.
Ralabate is intellectual property counsel to the Company, and is a graduate of
Canisius College (B.S. 1950) and The American University (J.D. 1959).
Keith P. Hicks, Esq. has been a director of the Company since July 1994
and currently is 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).
Steven A. Newman, M.D. has been a director of the Company since January
1995 and a consultant to the Company since January 1996. See "Business -
Employees and Consultants." Dr. Newman was Executive Vice President and
Secretary of the Company from December 1994 through October 1995. Dr. Newman
also provides business, management and administrative consulting services to
medical groups. Dr. Newman was President 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 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, the Company's President, Chief Executive
Officer and Chairman of the Board of Directors.
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., a publicly-traded operator of medical diagnostic
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facilities and clinical laboratories, InfoPower International, Inc., a software
development company and Starbase Company, a software development company. Mr.
Pearce is a graduate of the University of South Carolina (B.A. 1953) and
graduated from the Wharton School of Investment Banking at the University of
Pennsylvania.
Eugene J. Amobi has been a director of the Company since January 1996.
Since 1983, Mr. Amobi has been President, a director and a principal stockholder
of Tech International, which provides engineering, technical support and
consulting services to government and domestic and international commercial
clients. Mr. Amobi has been president and director of Tech Virginia since its
spin-off from Tech International. 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 (BS 1969), Princeton University (MS
1970) and Syracuse University (MBA 1973).
Martin Eric Weisberg, Esq. is a partner of the law firm, Parker Chapin
Flattau & Klimpl, LLP, which serves as 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 22 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.
ADVISORY BOARD
The Advisory Board was established to provide council and support to the
Board of Directors. The Advisory Board is established annually by the Board of
Directors and the members are appointed by the Board of Directors. Its members
include:
Maarten Heybroek has been an advisor to the Board of Directors since
1992. Since 1986, Mr. Heybroek has been employed by Citibank, as Chief of Staff
and Controller for consumer banking activities in Central Europe and, most
recently, as Director, Compliance and Risk Management for Citibank's United
States consumer banking operations. Prior to that time, Mr. Heybroek was
Director, Finance-European Operations and then Director, Corporate Finance for
Intergraph Corporation, a publicly-traded computer hardware and software firm,
and with Xerox Corporation in a variety of financial and management positions.
Mr. Heybroek is a graduate of Pace University.
Dr. Andrew Heller is an advisor to the Board of Directors for a
three-year term through May 5, 1998. Since 1989 Dr. Heller has been Chairman and
Chief Executive Officer of Heller Associates, a consulting firm to high
technology companies. From 1990 to 1993 Dr. Heller was Chairman and Chief
Executive Officer of HaL Computer Systems, Inc., a software and hardware systems
development company. From 1966 to 1989 Dr. Heller was employed by IBM (where he
was
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the youngest person ever to be selected as an IBM Fellow) in a variety of
positions including Corporate Director of Advanced Technology Systems, member of
the Executive Committee on Technology, member of the Technical Review Board, and
General Manager, Advanced Workstation Independent Business Unit. While at IBM,
Dr. Heller created and ran the business unit that created the AIX (UNIX)
operating system for IBM and the RISC RS/6000 family of workstations and
servers, from which the current Power PC was developed. Dr. Heller is a director
of Rambus, Inc., Cross/Z, Inc., Network Translation, Inc., EPR, Inc., Eco
Instrumentation, Inc. and UDI Software, Inc. Dr. Heller has a three-year
consulting agreement with the Company whereby Dr. Heller has agreed to provide
strategic planning, business management, strategic product development and
market and financial introduction services to the Company.
General Richard H. Thompson (ret.) retired from the U.S. Army in 1987
after 43 years of service. His last assignment was as the Commander of the U.S.
Army Material Command, an organization of 132,000 personnel at 171 locations
worldwide with an annual budget in excess of $35 billion. Since his retirement,
General Thompson has served on the Board of Directors of several companies, has
consulted with many others, and has participated as a member of several Study
Groups for the National Academy of Sciences and the House of Representatives. He
is currently the Chairman and Chief Executive Officer and actively engaged in
the operations of three companies he has established: Thompson Delstar Inc., TMI
Asia, and TDIS.
Dr. Will Stackhouse joined the Company in September 1996 and directs
strategic partnerships, planning and technologies. Dr. Stackhouse held
technology leadership positions with MCI and served on two Boards of Directors,
Geodynamics Corporation and IEEE-USA. Dr. Stackhouse was a colonel in the U. S.
Air Force, where he served as director of several satellite and
telecommunications projects at the Jet Propulsion Laboratory and the Pentagon,
including the multi-billion dollar MILSTAR and AFSATCOM programs, and was a
highly-decorated fighter pilot. In 1979 he received national recognition from
the President's Commission for the Handicapped for his outstanding research and
services to the handicapped. In January 1991 he received a "Laurel" from
Aviation Week and Space Technology for his efforts in "advancing critical U.S.
based technologies." In October 1991 he received a "Professional Achievement
Award" from IEEE for his work in advanced high-resolution digital systems. Dr.
Stackhouse holds a B.S. in Engineering Science from the USAF Academy, a Masters
of Science in Engineering Mechanics from the University of Michigan and a Doctor
of Philosophy degree in Engineering Design and Bio-Engineering from Oxford
University (England).
Frances C. Newman, wife of President Edward G. Newman, was a cofounder
of the corporation. Mrs. Newman has previously been a member of the board of
directors, and currently serves as both assistant secretary to the board and
manages facilities and community relations. Mrs. Newman previously held senior
management positions in the areas of office management, business systems and
marketing for Electro-Tech International Corporation and Tech International. She
received a BA from the University of Maryland in 1969.
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Vice Admiral Stephan F. Loftus (ret.) retired from the United States
Navy in May of 1994. Prior to that he served as the Deputy Chief of Naval
Operations (Logistics). Vice Admiral Loftus held previous positions with the
U.S. Navy as Commander, Fleet Air Mediterranean; Director, Office of Budget and
Reports; and Director, Office of Program Appraisal. Vice Admiral Loftus
presently serves as Executive Vice President of Quarterdeck Investment Partners,
Inc. (specializing in merger/acquisitions) and The Spectrum Group (a strategic
planning group). He consults for Lockheed Martin Corporation, SAIC, Johns
Hopkins University - Applied Physics Lab, Systems Planning Corporation, and
Global Planning Corporation. He is on the Board of Directors of AMSEC, Inc. and
LLD, Inc., and serves as a member of the Logistics Panel for the Defense Science
Board. Also, Admiral Loftus serves as the Chairman of the Board of Trustees at
NMCCG Foundation.
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
currently anticipate doing so. Any payments when implemented will be comparable
to those made by companies of similar size and stage. The Company also has
adopted an Omnibus Stock Incentive Plan in which directors are eligible to
participate. See "Executive Compensation - Omnibus Stock Incentive Plan." Steven
A. Newman has entered into a consulting agreement with the Company. See
"Executive Compensation - Consulting Agreements."
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, 1996, the Board of Directors of the
Company held five meetings. All of the directors attended all meetings of the
Board except that Eugene Amobi, Keith Hicks and Jacques Rebibo each missed one
meeting and Gen. Soyster missed four. The Board has established Audit,
Compensation and Nominating Committees.
The functions of the Audit Committee include the nomination of
independent auditors for appointment by the Board; meeting with the independent
auditors to review and approve the scope of their audit engagement; meeting with
the Company's financial management and the independent auditors to review
matters relating to internal accounting controls, the Company's accounting
practices and procedures and other matters relating to the financial condition
of the Company; and to report to the Board periodically with respect to such
matters. The Audit Committee currently consists of Keith P. Hicks, Steven A.
Newman and Phillip E. Pearce. The Audit Committee did not hold formal meetings,
but had informal discussions from time to time during the fiscal year ended
December 31, 1996.
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
Compensation Committee currently consists
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<PAGE>
of Harry E. Soyster, Steven A. Newman and Phillip E. Pearce. The Compensation
Committee did not hold formal meetings, but had informal discussions from time
to time during the fiscal year ended December 31, 1996.
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 Steven A.
Newman, Phillip E. Pearce and Lt. Gen. Harry E. Soyster (Ret.).
SECTION 16(a) REPORTING
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. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the one-year period ended December 31,
1996, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were complied with.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following sets forth the annual and
long-term compensation for services in all capacities to the Company (i) for the
fiscal year ended December 31, 1996, for the nine month transitional year ended
December 31, 1995 and the fiscal years ended March 31, 1995 and 1994 of Edward
G. Newman, the Company's President, Chief Executive Officer and Chairman of the
Board of Directors, and (ii) for the fiscal year ended December 31, 1996, for
the transitional year dated December 31, 1995 and the fiscal years ended March
31, 1995 and 1994 of John F. Moynahan, the Company's Vice President, Chief
Financial Officer, Treasurer and a director. No other officer of the Company
received annual salary and bonus exceeding $100,000 during the relevant periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(1)
------------
ANNUAL COMPENSATION (1)
NAME AND ----------------------- OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION
- ------------------ ------ ------------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Edward G. Newman 1996 $149,635(1) $- 0 - - 0 - $- 0 -
President and Chief Executive Officer 1995* $112,500 $- 0 - - 0 - $- 0 -
and Chairman of the Board of 1995 $ 68,750 $- 0 - - 0 - $- 0 -
Directors 1994 $ 26,500 $- 0 - - 0 - $- 0 -
John F. Moynahan 1996 $139,688 $- 0 - - 0 - $- 0 -
Vice President, Chief Financial 1995* $105,000 $- 0 - - 0 - $- 0 -
Officer and Treasurer 1995 $ 64,167 $- 0 - 200,000 $- 0 -
1994 --- --- --- ---
</TABLE>
- ------------
* Transitional year ended December 31, 1995.
(1) Compensation does not include (i) $50,084 paid to Frances C. Newman,
wife of Edward G. Newman in 1996, and (ii) $87,314 paid by Tech of
Virginia, as payment of accrued salaries and expenses.
Option Grants Table. The following table sets forth information on
grants of stock options during fiscal 1996 to John W. Williams, the Company's
former Vice President and Chief Operating Officer; Phillip E. Pearce, a
director; Jacques Rebibo, a director; Harry E. Soyster, a director; and Keith P.
Hicks, a director. All such options are exercisable to purchase shares of Common
Stock.
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<PAGE>
PERCENT OF TOTAL EXERCISE
OPTIONS OPTIONS GRANTED OR
GRANTED TO BASE PRICE
NAME (SHARES) EMPLOYEES IN ($/SHARE) EXPIRATION DATE
YEAR
--------- ---------------- ---------- ----------------
John W. Williams 50,000 9.2% $6.00 April 22, 2006
Phillip E. Pearce 50,000 9.2% $6.00 June 14, 2006
Jacques Rebibo 50,000 9.2% $6.00 June 14, 2006
Harry S. Soyster 25,000 4.6% $6.00 June 14, 2006
Keith P. Hicks 50,000 9.2% $6.00 June 14, 2006
Fiscal Year-End Options/Option Values Table.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END ($) (1)
-------------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
John W. Williams 0 50,000 0 0
Phillip E. Pearce 0 50,000 0 0
Jacques Rebibo 0 50,000 0 0
Harry S. Soyster 0 25,000 0 0
Keith P. Hicks 0 50,000 0 0
All of the foregoing options will vest pro-rata over the five-year
period ending either in April 2001 or June 2001. None of the foregoing options
were exercisable within 60 days of December 31, 1996.
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.
PROFIT SHARING PROGRAM
The Company intends to establish a profit sharing program to be
administered by the Board of Directors. Under this program, which will remain in
effect for five years unless extended by the Board of Directors, executives, key
employees and consultants will be eligible to participate in a cash bonus pool.
The amount of the cash bonus pool will be determined annually and will be up to
10% of the amount by which the Company's pretax income exceeds 10% of
stockholders' equity.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Edward G. Newman
and John F. Moynahan. Mr. Newman's employment agreement provides for a
three-year term through December 31, 1998; initial annual base compensation of
$150,000 subject to a minimum annual increase to $198,000 on January 1, 1997 and
of at least the annual increase in the United States Consumer Price Index
("CPI") plus two percent annually thereafter, an annual cash bonus in an amount
to be determined by the Board of Directors; and a $2,000,000 life insurance
policy payable to his designated beneficiaries. Mr. Newman received payments in
1996 for accrued salaries and expenses related to his employment with Tech
Virginia and continues to provide services to Tech Virginia without contract at
a fixed payment of $1,000 per month.
Mr. Moynahan's employment agreement provides for a three-year term
through December 31, 1998; initial annual base compensation of $140,000 subject
to a minimum annual increase to $150,000 on January 1, 1997 and of at least the
annual increase in the CPI thereafter, and an annual cash bonus in an amount to
be determined by the Board of Directors.
The employment agreements with Mr. Newman and Mr. Moynahan also entitle
them to participate in all benefits which the Company may offer to its executive
officers and employees, as a group. The Company anticipates that such benefits
will include an automobile, health insurance and expense reimbursement. Each of
the employment agreements automatically renews for an additional three-year term
unless terminated in writing by either party on or before October 31, 1998. Each
of the employment agreements also provides for termination at the option of the
employee in the event of a change of control (which is defined as Mr. Edward
Newman ceasing to serve as either the Chairman of the Company's Board of
Directors or its President and Chief Executive Officer) and that upon any such
termination the employee is entitled to at least two years of annual
compensation under his employment agreement.
OMNIBUS STOCK INCENTIVE PLAN
The 1996 Omnibus Stock Incentive Plan (the "1996 Incentive Plan") was
adopted by the Company's Board of Directors effective January 1, 1996. The 1996
Incentive Plan provides 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") up to a maximum of 650,000 shares to officers,
directors, employees and others. Incentive Stock Options can be awarded only to
employees of the Company at the time of the grant. No options, SARs or
restricted stock ("Restricted Stock") may be granted under the 1996 Incentive
Plan subsequent to December 31, 2006.
The 1996 Incentive Plan is 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 options, SARs and
Restricted Stock granted under the 1996 Incentive Plan,
16
<PAGE>
including the exercise price, number of shares subject to the option and the
exercisability thereof. Messrs. Steven A. Newman, Soyster and Pearce currently
are the members of the Compensation Committee.
The exercise price of all Incentive Stock Options granted under the 1996
Incentive Plan 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 ten percent 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 1996 Incentive Plan shall be determined by the Compensation Committee.
The term of any Incentive Stock Option granted under 1996 the Incentive Plan may
not exceed ten years, or, for Incentive Stock Options granted to Substantial
Stockholders, five years. The 1996 Incentive Plan 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 1996 Incentive Plan provides 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, all
options terminate and no longer are exercisable unless termination is due to
death or disability, in which case the options are exercisable within one year
of termination.
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
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.
The 1996 Incentive Plan provides the Board of Directors or the
Compensation Committee discretion to grant SARs in connection with any grant of
options. Upon the exercise of a SAR, the holder shall be entitled to receive a
cash payment in an amount equal to the difference between the exercise price per
share of options then exercised by him and the fair market value of the Common
Stock as of the exercise date. The holder is required to exercise options
covering the number of shares, which are subject to the SAR so exercised. SARs
are not exercisable during the first six months after the date of grant, and may
be transferred only by will or the laws of descent and distribution.
17
<PAGE>
The 1996 Incentive Plan also provides the Board of Directors or the
Compensation Committee discretion to grant to key persons shares of Restricted
Stock subject to certain limitations on transfer and substantial risks of
forfeiture.
As of December 31, 1996 a total of 993,930 options were outstanding,
650,000 of which are counted against the number of shares subject to issuance
under the 1996 Incentive Plan. Additional options of 93,930 above the current
maximum of 650,000 shares have been granted contingent upon stockholder approval
of the 1997 Stock Incentive Plan. 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 with the exception of 200,000 shares which are subject to
acquisition by an officer of the Company and 50,000 shares which are subject to
acquisition by an employee of the Company at $0.0l per share over the period
1995 through 1999. As of December 31, 1996, there were no SARs outstanding and
there has been one grant of Restricted Stock. All outstanding options vest on a
pro-rata basis over a five-year period.
ESCROWED SHARES
As a condition to the Company's initial public offering (the "IPO"),
Royce Investment Group, the Representative of the several underwriters (the
"Representative") required certain of the Company's stockholders to deposit a
total of 1,800,000 shares of Common Stock (the "Escrowed Shares"), in escrow
pursuant to an escrow agreement with Continental Stock Transfer & Trust Company,
the escrow agent and the Representative ,1,707,210 of the Escrowed Shares are
owned by officers and directors of the Company. The Escrowed Shares are subject
to incremental release to the depositing stockholders based upon the Company's
total revenues and net earnings (loss) for the 12-month periods ending September
30, 1997, 1998 and 1999. The Escrowed Shares will be released in the amounts set
forth below only upon the achievement by the Company of the following
Performance Targets:
- 300,000 shares if the Company achieves gross revenues of at least
$20,000,000 and a net loss, if any, not in excess of $500,000 for the 12 months
ending September 30, 1997;
- 750,000 shares if the Company achieves gross revenues of at least
$45,000,000, and earnings per share of at least $1.00 for the 12 months ending
September 30, 1998; and
- 750,000 shares if the Company achieves gross revenues of at least
$90,000,000 and earnings per share of at least $1.25 for the 12 months ending
September 30, 1999.
Notwithstanding the foregoing, if at any time the closing bid price of
the Common Stock reported on The Nasdaq SmallCap Market equals or exceeds $11.00
per share for 25 consecutive trading days or for 30 out of 35 consecutive
trading days (the "Nasdaq Price Target") during the period ending September 30,
1999, all Escrowed Shares then remaining in escrow will be released from the
escrow and returned to the stockholders.
18
<PAGE>
The Escrowed Shares will be subject to incremental release only in the
event the Company achieves the Performance Targets in the 12 months ending
September 30, 1997, 1998 and/or 1999. In addition, upon achieving the Nasdaq
Price Target at any time during the period ending on or prior to September 30,
1999 all then Escrowed Shares will be released. If the Performance Targets are
not met in any of the relevant 12-month periods (and the price of the Common
Stock has not met or exceeded the price described above prior to the expiration
of the applicable 12-month period), the Escrowed Shares in the amounts stated
above will be returned to the Company and cancelled. The earnings per share
calculation will be based on the fully diluted earnings per share, but excluding
shares issued pursuant to the Unit Purchase Option granted to the
Representative, extraordinary items, or any compensation expense charged to the
Company related to the release of the Escrowed Shares. The determination of
earnings per share will be made in accordance with generally accepted accounting
principles and will be based on the financial statements of the Company filed
pursuant to the Securities Exchange Act of 1934, as amended. Escrowed Shares are
not transferable or assignable although they may be voted by the holder.
The Performance Targets and the Nasdaq Price Target were determined by
negotiation between the Company and the Representative and do not imply or
predict any future performance by the Company. The market value of any Escrowed
Shares held by officers, employees or consultants at the time they are released
will be deemed to be additional compensation expense to the Company. Upon such
an occurrence the Company will recognize a potentially material charge to income
which could reduce or eliminate earnings, if any. The amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity or working capital.
Given the expected start of volume production in the current quarter,
the Company's management believes that it is likely that the Company's gross
revenues and allowable losses will not meet the Performance Targets for the
12-month period ending September 30, 1997. Accordingly, the release of the
Escrowed Shares for this period is only likely if the stock price equals or
exceeds $11.00 for 25 consecutive trading days or 30 out of 35 consecutive
trading days prior to September 30, 1997. If conditions are not met for release
from escrow, then 300,000 Escrowed Shares of stock will be returned to the
Company on September 30, 1997 and canceled, resulting in no earnings impact and
a commensurately lower number of outstanding shares.
CONSULTING AGREEMENTS
The Company and Steven A. Newman entered into a Consulting Agreement
dated as of January 1, 1996, as amended January 1, 1997. Pursuant to the
Consulting Agreement, Mr. Newman will provide consulting services which
includes, among other things, the review and assistance in the preparation of
the Company's business strategies, assisting with the recruitment and hiring of
key executives and provide. advice regarding financing, contracting, management,
overseas operations, strategic alliances and ventures. The annual consulting fee
is $150,000 payable on a monthly basis. The term of the Consulting Agreement is
four years terminating on December 31, 2000 unless renewed by the parties.
19
<PAGE>
In 1996, the Company entered into a two-year consulting agreement with
Victor J. Lombardi whereby Mr. Lombardi agreed to provide business development
and marketing services to the Company in exchange for warrants which entitle Mr.
Lombardi to purchase 100,000 shares of Common Stock at $6.00 per share through
December 31, 1999.
In May 1995, the Company entered into a three-year consulting agreement
with Dr. Andrew Heller whereby Dr. Heller agreed to provide strategic planning,
business management, strategic product development and market and financial
introductions services to the Company. In consideration of services rendered by
Dr. Heller to the Company prior to that time and as an inducement to enter into
the consulting agreement, Dr. Heller was granted 100,000 shares of Common Stock
which were valued at $5.00 per share for financial reporting purposes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee participate in all
deliberations concerning executive compensation. The Compensation Committee
consists of Gen. Harry E. Soyster (Ret.), Dr. Steven A. Newman and Phillip E.
Pearce. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors.
20
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with 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.
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. In December 30, 1994, Tech International
spun-off the Virginia business unit (the "Spin-Off") as Tech Virginia. Edward G.
Newman, a principal stockholder, director and the Chairman, President and Chief
Executive Officer of the Company and Steven A. Newman and Eugene J. Amobi,
directors 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.
CONSULTING AGREEMENT
Steven A. Newman has entered into a consulting agreement with the
Company. See "Executive Compensation - Consulting Agreements.
21
<PAGE>
------------------------------------------------
Proposal 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED COMMON STOCK AND PREFERRED STOCK
------------------------------------------------
On July 1, 1997, the Board of Directors unanimously adopted a resolution
approving a proposal to amend Article Fourth of the Company's Certificate of
Incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue from 30,000,000 to 40,000,000, and to increase the number
of shares of Preferred Stock which the company is authorized to issue from
5,000,000 to 6,000,000. The Board of Directors determined that such amendment is
advisable and directed that the proposed amendment be considered at the Meeting.
PURPOSES AND EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK AND PREFERRED STOCK.
The proposed amendment would increase the number of shares of Common
Stock which the Company is authorized to issue from 30,000,000 to 40,000,000 and
increase the number of shares of Preferred Stock which the Company is authorized
to issue from 5,000,000 to 6,000,000. The additional 10,000,000 shares of Common
Stock will be a part of the existing class of Common Stock and, if and when
issued, will have the same rights and privileges as the shares of Common Stock
presently issued and outstanding. Each share of Common Stock entitles the holder
to one vote. The holders of Common Stock of the Company are not entitled to
preemptive rights or cumulative voting.
The additional 1,000,000 shares of Preferred Stock will be a part of the
existing authorized Preferred Stock and, if and when issued, will have such
rights and privileges as may be determined by the Board of Directors at the time
of issuance thereof.
Reference is made to the proposed amendment to Article Fourth of the
Company's Certificate of Incorporation which is set forth under the heading
"Proposed New Article Fourth to the Company's Certificate of Incorporation" in
Exhibit C to this Proxy Statement.
The Company has no present plans, arrangements or understandings for the
issuance or use of the proposed additional shares of Common Stock or Preferred
Stock. However, the Board of Directors believes that the adoption of the
proposed amendment is advantageous to the Company and its stockholders. The
proposed amendment would provide additional authorized shares of Common Stock
and Preferred Stock that could be used from time to time, without further action
or authorization by the stockholders (except as may be required by law or by any
stock exchange or over-the-counter market on which the Company's securities may
22
<PAGE>
then be listed), for corporate purposes which the Board of Directors may deem
desirable, including, without limitation, stock splits, stock dividends or other
distributions, financings, acquisitions, stock grants, stock options and
employee benefit plans.
The authority possessed by the Board of Directors to issue Common Stock
and Preferred Stock could also potentially be used to discourage attempts by
others to obtain control of the Company through merger, tender offer, proxy
contest or otherwise by making such attempts more difficult or costly to
achieve.
If the proposed amendment is adopted, there would be 20,277,129
authorized shares of Common Stock that are not outstanding or reserved for
issuance and 5,997,000 authorized shares of Preferred Stock that are not
outstanding or reserved for issuance. As of the Record Date, the Company had
14,259,112 shares of Common Stock issued and 5,463,759 shares of Common Stock
reserved for future issuance upon the exercise of certain warrants and options
and 3,000 shares of Series A Preferred Stock issued and outstanding.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS
PROPOSAL.
23
<PAGE>
---------------------------------------------
Proposal 4
APPROVAL OF THE 1997 STOCK INCENTIVE PLAN
---------------------------------------------
On April 10, 1997, the Board of Directors adopted, subject to
stockholder approval at the Meeting, the Company's 1997 Stock Incentive Plan
(the "1997 Plan"). The 1997 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 1997 Plan does
not purport to be complete and is qualified in its entirety by reference to the
text of the 1997 Plan, a copy of which is set forth as Exhibit B to this Proxy
Statement.
SHARES SUBJECT TO THE STOCK INCENTIVE PLAN AND ELIGIBILITY
The 1997 Plan authorizes the issuance of stock appreciation rights
("SARs") and the grant of options and restricted stock related to a maximum of
1,650,000 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 1997 Plan. No options or stock grants have been
granted to date under the 1997 Plan, other than grants to (i) Steven A. Newman,
James J. Ralabate and Harry E. Soyster, directors of the Company, of options to
purchase 50,000, 50,000 and 25,000 shares of Common Stock, respectively, in each
case, at an exercise price of $3.00 per share, and (ii) Steven A. Newman, as
partial payment of consulting services pursuant to a Consulting Agreement dated
as of January 1, 1996, as amended January 1, 1997, of options to purchase 50,000
shares of Common Stock, at an exercise price of $2.38 per share, which grants
are subject to stockholder approval of this proposal.
TYPE OF AWARD
The following awards ("Awards") may be granted under the 1997 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.
24
<PAGE>
ADMINISTRATION
The 1997 Plan will be administered by a committee of the Board of
Directors consisting of at least two members of the Board (the "Committee").
Each member of the Committee is 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. The
initial members of the Committee shall be the members of the Compensation
Committee, who are Messrs. Steven Newman, Pearce and Soyster.
Among other things, the Committee is empowered to determine, within the
express limits contained in the 1997 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 1997 Plan and
to make all other determinations necessary or advisable for administering the
1997 Plan and to construe each contract ("Contract") entered into by the Company
with an Award holder under the 1997 Plan.
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TERMS AND CONDITIONS OF OPTIONS
Options granted under the 1997 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).
(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 option 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 or 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).
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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 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
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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 1997 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 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 1997 PLAN
No ISO may be granted under the 1997 Plan after May 31, 2007. The Board
of Directors may at any time terminate or amend the 1997 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
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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. Proposed legislation would treat long-term capital gain
even more favorably. There can be no assurance, however, that such proposed
legislation will be enacted.
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.
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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 1997 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 1997 Plan is not
approved by Stockholders, the 1997 Plan will not be effective.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL
OF THE 1997 PLAN.
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ACCOUNTANTS
Coopers & Lybrand L.L.P. served as the Company's independent auditors
for the fiscal year ended December 31, 1996, and it is expected that Coopers &
Lybrand L.L.P. will act in that capacity for the fiscal year ending December 31,
1997. A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Meeting with the opportunity to make a statement if he desires to do so and
to be available to respond to appropriate questions from shareholders.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual
Meeting must be received by the Company for inclusion in its proxy materials by
February 5, 1998.
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
James J. Ralabate
Secretary
August 11, 1997
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EXHIBIT A
PROPOSED NEW ARTICLE II, SECTION 2.1
TO THE COMPANY'S BYLAWS
Section 2.1 Number, Classification, and Term of Office. The business,
property, and affairs of the corporation shall be managed by or under the
direction of a Board of Directors consisting of no less than one and no more
than twelve; provided, however, that the Board, by resolution adopted by vote of
a majority of the then authorized number of directors, may increase or decrease
the number of directors. The Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Such classes shall be as
nearly equal in number as the then total number of directors constituting the
entire Board permits. At the August 28, 1997 annual meeting of stockholders,
Class I, Class II and Class III directors shall be elected for initial terms
expiring at the next succeeding annual meeting, the second succeeding annual and
the third succeeding annual meeting, respectively, and until their respective
successors are elected and qualified. At each annual meeting of stockholders
after August 28, 1997, the directors chosen to succeed those in the class whose
terms then expire shall be elected by the stockholders for terms expiring at the
third succeeding annual meeting after their election and until their respective
successors are elected and qualified. Newly created directorships or any
decrease in directorships resulting from increases and decreases in the number
of directors shall be so apportioned among the classes as to make all the
classes as nearly equal in number as possible; provided, that when the Board
increases the number of directors and fills the vacancies created thereby such
director will hold office for the term expiring at the annual meeting of
stockholders for the term of the class to which they have been elected expires.
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EXHIBIT B
---------
1997 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 1,650,000. 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 Bylaws 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.
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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 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 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
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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 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
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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 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
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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 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.
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6. RESTRICTED STOCK. The Committee may from 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.
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.
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<PAGE>
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 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
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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 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
B-8
<PAGE>
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. Not withstanding 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 stockholder of the Company with respect to
their shares of stock in the Company, any outstanding options, SARs or unvested
stock shall terminate upon the earliest of any such event, unless other
provision is made therefor in the transaction.
12. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on [date], 1997. No ISO may be granted under the Plan
after [date-1], 2007. 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
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<PAGE>
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 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.
B-10
<PAGE>
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 CER TAIN 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 respect to the
Common Stock, the average of the highest and lowest sales prices per share of
Common Stock on
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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.
B-12
<PAGE>
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.
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 [date - 1], 1998, the Plan and any Awards granted hereunder
shall terminate.
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EXHIBIT C
---------
PROPOSED NEW ARTICLE FOURTH TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
(Changes from current Article Fourth are underlined)
"Fourth. Authorized Shares.
A. The aggregate number of shares which the Corporation shall have
the authority to issue is 46,000,000 of which 6,000,000 shares of the par value
of $.01 shall be designated Preferred Shares and 40,000,000 shares of the par
value of $.01 shall be designated Common Shares.
B. Authority is hereby expressly granted to the Board of Directors
from time to time to issue the Preferred Shares as Preferred Shares of any
series and, in connection with the creation of each such series, to fix by the
resolution or resolutions providing for the issue of shares thereof, the number
of shares of such series, and the designations, powers, preferences, and rights,
and the qualifications, limitations, and restrictions, of such series, to the
full extent now or hereafter permitted by the laws of the State of Delaware."
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<PAGE>
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, John F. Moynahan 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 Company's offices at 12701 Fair Lakes
Circle, Fairfax, Virginia 22033 on Thursday, August 28, 1997, at 10:00 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 1 and 3.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
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__________________ _______________ PLEASE MARK YOUR |X|
ACCOUNT NUMBER COMMON CHOICE LIKE THIS IN
BLUE OR BLACK INK:
Will attend the meeting |_|
The Board of Directors Recommends a
Vote FOR all listed nominees and FOR
Proposals 1, 3 and 4.
(1) Proposal to amend the Company's Bylaws to
provide for the classification of directors into
three classes
FOR AGAINST ABSTAIN
|_| |_| |_|
(2) Election of nine Directors
FOR all nominees listed WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all listed nominees below
|_| |_|
Class I Class II Class III
Nominees: Keith P. Hicks Eugene J. Amobi Edward G. Newman
John F. Moynahan Phillip E. Pearce Steven A. Newman
Martin Eric Weisberg Harry E. Soyster James J. Ralabate
In the event the proposal to amend the Company's Bylaws to provide for
the classification of directors is not approved, a vote FOR would be for the
election of all nine directors for a term of one year and until their successors
are duly elected and qualified.
(Instruction: To withhold authority to vote for any individual nominee, circle
that nominee's name in the list provided above.)
(3) Proposal to amend the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock and Preferred Stock
FOR AGAINST ABSTAIN
|_| |_| |_|
(4) Proposal to adopt the Company's 1997 Stock
Incentive Plan
FOR AGAINST ABSTAIN
|_| |_| |_|
(5) In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before the
Annual Meeting.
Dated _____________________, 1997
__________________________________
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<PAGE>
__________________________________
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
P-3
