<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
XYBERNAUT CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(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:
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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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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
XYBERNAUT CORPORATION
12701 FAIR LAKES CIRCLE
FAIRFAX, VIRGINIA 22033
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 20, 2000
------------------------
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Meeting") of XYBERNAUT CORPORATION, a Delaware corporation (the "Company"),
will be held at the Holiday Inn Fair Oaks, 11787 Lee Jackson Memorial Highway,
Fairfax, Virginia 22030, on October 20, 2000, at 10:00 a.m., to consider and act
upon the following:
1. the election of four (4) persons named in the accompanying Proxy
Statement to serve as Class III directors of the Company for a term of
three years and until their successors are duly elected and qualified;
2. the approval of the Company's 2000 Stock Incentive Plan, which
provides for up to 3,000,000 shares of the Common Stock to be issued to key
employees, consultants and directors of the Company, as more fully set
forth in the accompanying Proxy Statement;
3. the ratification of the appointment of Grant Thornton LLP as the
Company's independent accountants for the fiscal year ending December 31,
2000; and
4. to consider and transact such other business as may properly come
before the Meeting or any adjournment thereof.
A Proxy Statement, form of proxy and the Annual Report to Stockholders of
the Company for the fiscal year ended December 31, 1999 are enclosed herewith.
Only holders of record of Common Stock, $0.01 par value, of the Company at the
close of business on August 23, 2000 are entitled to receive notice of and to
attend the Meeting and any adjournments thereof. At least 10 days prior to the
Meeting, a complete list of the stockholders entitled to vote will be available
for inspection by any stockholder, for any purpose germane to the Meeting,
during ordinary business hours, at the offices of the Company. If you do not
expect to be present at the Meeting, you are requested to fill in, date and sign
the enclosed Proxy, which is solicited by the Board of Directors of the Company,
and to mail it promptly in the enclosed envelope. In the event you attend the
Meeting in person, you may, if you desire, revoke your Proxy and vote your
shares in person.
By Order of the Board of Directors
/s/ MARTIN ERIC WEISBERG
Martin Eric Weisberg
Secretary
Dated: September 20, 2000
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> 3
XYBERNAUT CORPORATION
12701 FAIR LAKES CIRCLE
FAIRFAX, VIRGINIA 22033
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 20, 2000
------------------------
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 Holiday Inn Fair Oaks,
11787 Lee Jackson Memorial Highway, Fairfax, Virginia 22030 on October 20, 2000
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
September 27, 2000.
A Proxy, in the enclosed form, which is properly executed, duly returned to
the Company and not revoked will be voted in accordance with the instructions
contained therein and, in the absence of specific instructions, will be voted in
favor of the proposals and in accordance with the judgment of the person or
persons voting the Proxy on any other matter that may be brought before the
Meeting. Each such Proxy granted may be revoked at any time thereafter by
writing to the Secretary of the Company prior to the Meeting, by execution and
delivery of a subsequent proxy or by attendance and voting in person at the
Meeting, except as to any matter or matters upon which, prior to such
revocation, a vote shall have been cast pursuant to the authority conferred by
such Proxy. The cost of soliciting proxies will be borne by the Company.
Following the mailing of the proxy materials, solicitation of proxies may be
made by officers and employees of the Company, or anyone acting on their behalf,
by mail, telephone, telegram or personal interview.
VOTING SECURITIES
Stockholders of record as of the close of business on August 23, 2000 (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 38,511,199 outstanding
shares of common stock, $0.01 par value per share (the "Common Stock"). Each
holder of Common Stock is entitled to one vote for each share held by such
holder. The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Meeting.
Proxies submitted that are voted to abstain with respect to any matter will
be considered cast with respect to that matter. Proxies subject to broker
non-votes with respect to any matter will not be considered cast with respect to
that matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of the Record Date, 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.
<PAGE> 4
<TABLE>
<CAPTION>
AMOUNT OF SHARES PERCENTAGE
NAME BENEFICIALLY OWNED OWNED
---- ------------------ ----------
<S> <C> <C>
GEORGE ALLEN, ESQ........................................... 60,300(1) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
EUGENE J. AMOBI............................................. 430,000(2) 1.1%
12701 Fair Lakes Circle, Fairfax, Virginia 22033
KEITH P. HICKS, ESQ......................................... 399,597(3) 1.0%
4121 Roberts Road, Fairfax, Virginia 22032
JOHN F. MOYNAHAN............................................ 110,583(4) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
EDWARD G. NEWMAN............................................ 3,068,799(5) 7.9%
12701 Fair Lakes Circle, Fairfax, Virginia 22033
STEVEN A. NEWMAN, M.D....................................... 1,792,147(6) 4.6%
12701 Fair Lakes Circle, Fairfax, Virginia 22033
PHILLIP E. PEARCE........................................... 105,000(7) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
JAMES J. RALABATE, ESQ...................................... 168,726(8) *
5792 Main Street, Williamsville, New York 14221
HUSSEIN SALLAM.............................................. 0(9) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
LT. GEN. HARRY E. SOYSTER (RET.)............................ 149,364(2) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
WILLIAM TAUSKEY............................................. 110,000(10) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
KAZUYUKI TOYOSATO........................................... 70,000(11) *
Urban Square Yokohama Bldg 10F 1-1 Sakae-cho Yokohoma-shi
Kanagawa 221-0052 Japan
DR. EDWIN VOGT.............................................. 106,666(12) *
12701 Fair Lakes Circle, Fairfax, Virginia 22033
MARTIN ERIC WEISBERG, ESQ................................... 132,000(13) *
405 Lexington Avenue, New York, New York 10174
Officers and directors as a group (14 persons).............. 6,703,182(14) 16.6%
</TABLE>
---------------
* Less than 1%
(1) Includes 60,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(2) Includes 130,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(3) Includes 80,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(4) Includes 100,000 shares of Common Stock issuable upon exercise of currently
exercisable options and 10,583 shares of Common Stock issuable upon
exercise of stock options exercisable within 60 days of August 23, 2000.
(5) Includes (a) 388,888 shares of Common Stock issuable upon exercise of
currently exercisable options, (b) 13,888 shares of Common Stock issuable
upon exercise of stock options exercisable within 60 days of August 23,
2000, (c) 200,000 shares of Common Stock beneficially owned by an
irrevocable trust established by Mr. Newman for the benefit of his
children, (d) 500,000 shares registered under the name of Bear Stearns
pursuant to a pledge agreement between Mr. Newman and Bear Stearns and (e)
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<PAGE> 5
9,000 shares owned by an irrevocable trust established by Dr. Steven A.
Newman for which Mr. Newman is trustee. Does not include (a) 776,950 shares
of Common Stock beneficially owned by Mr. Newman's wife, Frances C. Newman;
(b) 28,900 shares of Common Stock beneficially owned by an irrevocable
trust established by Mr. Newman for the benefit of his sister; and (c)
28,900 shares of Common Stock beneficially owned by an irrevocable trust
established by Mr. Newman for the benefit of his mother. Mr. Newman
disclaims beneficial ownership of all such shares.
(6) Includes (a) 490,583 shares of Common Stock issuable upon exercise of
currently exercisable options, (b) 10,583 shares of Common Stock issuable
upon exercise of stock options exercisable within 60 days of August 23,
2000, (c) 100,000 shares of Common Stock beneficially owned by an
irrevocable trust established by Dr. Newman for the benefit of his
children, for which shares Dr. Newman disclaims beneficial ownership, (d)
500,000 shares registered under the name of Bear Stearns pursuant to a
pledge agreement between Dr. Newman and Bear Stearns and (e) 32,000 shares
owned by an irrevocable trust established by Edward G. Newman for which Dr.
Newman is trustee.
(7) Includes 105,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(8) Includes 110,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(9) Mr. Sallam was hired as an employee of the Company in December 1997 and
resigned from his position with the Company in December 1999.
(10) Includes 110,000 shares of Common Stock issuable upon exercise of currently
exercisable options. Mr. Tauskey was hired as an employee of the Company in
December 1999 and resigned from his position with the Company effective
June 30, 2000.
(11) Includes 70,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(12) Includes 68,333 shares of Common Stock issuable upon exercise of currently
exercisable options and 18,333 shares of Common Stock issuable upon
exercise of stock options exercisable within 60 days of August 23, 2000.
(13) Includes 95,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(14) Includes 1,937,804 shares of Common Stock issuable to the group upon
exercise of currently exercisable options and 53,387 shares of Common Stock
issuable upon exercise of options exercisable within 60 days of August 23,
2000.
ACTIONS TO BE TAKEN AT THE MEETING
------------------------
PROPOSAL 1
ELECTION OF DIRECTORS
------------------------
Unless otherwise indicated, the shares represented by all proxies received
by the Board of Directors will be voted at the Meeting in accordance with their
terms and, in the absence of contrary instructions, for the election of George
Allen, Esq., Edward G. Newman, Dr. Steven A. Newman and James J. Ralabate, Esq.
as Class III directors to serve for a term of three years and until their
successors are elected and qualified.
Except for Edward G. Newman and George Allen, Esq., who were appointed to
the Board of Directors in 1990 and 1998, respectively, all of the nominees were
elected directors at the 1995 Annual Meeting of Stockholders. The term of the
current Class III 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.
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<PAGE> 6
The following table sets forth information about each executive officer,
director and nominee for director of the Company.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
NAME AGE CLASS APPOINTED POSITION
---- --- ----- ---------- --------
<S> <C> <C> <C> <C>
Edward G. Newman..................... 57 III 1990 President, Chief Executive Officer and
Chairman of the Board of Directors
John F. Moynahan..................... 42 -- 1994 Senior Vice President, Treasurer and
Chief Financial Officer
Steven A. Newman, M.D.(1)(2)(3)...... 54 III 1995 Executive Vice President and Vice
Chairman of the Board of Directors
Kazuyuki Toyosato.................... 54 I 1998 Executive Vice President and Director
Eugene J. Amobi...................... 56 II 1996 Senior Vice President and Director
Dr. Edwin Vogt....................... 67 II 1998 Senior Vice President and Director
Martin Eric Weisberg, Esq.(1)(3)..... 49 I 1997 Secretary and Director
George Allen, Esq.................... 48 III 1998 Director
Keith P. Hicks, Esq.(2).............. 77 I 1994 Director
Phillip E. Pearce(2)................. 71 II 1995 Director
James J. Ralabate, Esq. ............. 72 III 1995 Director
Lt. Gen. Harry E. Soyster
(Ret.)(1)(3)....................... 65 II 1995 Director
</TABLE>
---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
Officers are appointed by and serve at the discretion of the Board of
Directors. The four directors nominated for Class III will serve for a
three-year term expiring in 2003, the three directors currently serving as Class
I are serving a three year term expiring in 2001 and the three directors
currently serving as Class II are serving for a three-year term expiring in
2002, 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. All of the nominees are currently directors of the Company whose
term as directors expires at the Meeting.
DIRECTOR NOMINEES
George Allen, Esq. is a partner of the law firm of McGuire Woods Battle &
Boothe, LLP. Mr. Allen was Virginia's 67th governor from 1994-1998, during which
period state taxes were cut by $1 billion and $14 billion in new investments
were made in the state resulting in 300,000 net new private sector jobs. Mr.
Allen's term in office also was noted for comprehensive reforms in primary and
secondary education, the abolition of parole, reform of the juvenile justice
systems and the replacement of the welfare system with reforms which promote
work ethic and personal responsibility. Prior to serving as Governor of
Virginia, Mr. Allen was a member of the U.S. House of Representatives in 1991
and a member of the Virginia House of Delegates from 1983-1991. Mr. Allen is a
member of the Board of Directors of Commonwealth Biotechnology, Inc. Mr. Allen
is a graduate of the University of Virginia at Charlottesville (B.A. 1974), with
distinction, and received his law degree from the University of Virginia at
Charlottesville (J.D. 1977).
Edward G. Newman has been the Company's President since March 1993, Chief
Executive Officer and Chairman of the Board of Directors since December 1994,
and a director since 1990. Mr. Newman served as our Treasurer from 1993 to 1994.
From 1984 to 1992, Mr. Newman was President of ElectroTech International
Corporation, a software consulting firm. From 1973 to 1981, Mr. Newman was
employed by Xerox Corporation in several management positions in office systems
strategy, legal systems and international
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<PAGE> 7
financial systems. Mr. Newman served with the Central Intelligence Agency from
1966 to 1972. Mr. Newman also has been an Executive Vice President of Tech
International since 1990, and a director and Chief Executive Officer of Tech
Virginia since 1994. See "Certain Relationships and Related Transactions." Mr.
Newman is a graduate of the University of Maryland (B.A. 1971) and the
University of New Haven (M.B.A. 1984). Mr. Newman is the brother of Steven A.
Newman, M.D., an Executive Vice President and director of the Company.
Steven A. Newman, M.D. has been an Executive Vice President of the Company
since January 2000, a director of the Company since January 1995, and the Vice
Chairman of the Board of Directors since August 1997. See "Business -- Employees
and Consultants." Dr. Newman was the Executive Vice President and Secretary from
December 1994 through October 1995 and a consultant of the Company between
January 1996 and December 1999. Dr. Newman was President and Chief Executive
Officer of Fed American, Inc., a mortgage banking firm, from 1988 to 1991. Dr.
Newman has been a director of Tech Virginia since 1994. See "Certain
Relationships and Related Transactions." Dr. Newman is also a director of
Kanakaris Communications Inc., an internet content company. Dr. Newman is a
graduate of Brooklyn College (B.A. 1967) and the University of Rochester (M.D.
1972). Dr. Newman is the brother of Edward G. Newman, our President, Chief
Executive Officer and Chairman of the Board of Directors.
James J. Ralabate, Esq. has been a director of the Company since January
1995 and served as our Secretary until August 1997. Mr. Ralabate has been in the
private practice of patent law since 1982. Prior to that time, Mr. Ralabate was
General Patent Counsel for Xerox Corporation, responsible for worldwide patent
licensing and litigation, and an examiner for the Patent Office. Mr. Ralabate is
our intellectual property counsel and is a graduate of Canisius College (B.S.
1950) and The American University (J.D. 1959).
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF GEORGE ALLEN, ESQ.,
EDWARD G. NEWMAN, DR. STEVEN A. NEWMAN AND JAMES J. RALABATE.
CURRENT CLASS I DIRECTORS
Keith P. Hicks, Esq. has been a director since July 1994 and is currently a
principal in C&H Properties and the owner of Hicks Bonding Co., Hicks
Auctioneering Co. and Hicks Cattle Company. Mr. Hicks is a graduate of the
University of Denver (B.A. 1954) and LaSalle University School of Law (L.L.B.
1969).
Kazuyuki Toyosato joined the Company in 1997 as Executive Vice President of
Asian Operations. Mr. Toyosato is responsible for overseeing the Company's
operations in Asia, including Japan. Prior to joining the Company, Mr. Toyosato
spent 27 years with Sony Corporation in Japan where his last position was the
Vice President of Sony USA. He previously helped manage the Sony Walkman product
line, and managed Sony's 8mm video camcorder and its battery line of products.
Martin Eric Weisberg, Esq. who currently serves as Secretary of the
Company, is a partner of the law firm, Parker Chapin 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 24 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.
CURRENT CLASS II DIRECTORS
Eugene J. Amobi has been a director of the Company since January 1996 and a
Senior Vice President since January 1, 2000. Since 1983, Mr. Amobi has been
President, a director and a principal stockholder of Tech International, Inc.
("Tech International"), which provides engineering, technical support and
consulting services to government and domestic and international commercial
clients. Mr. Amobi has been president and director of Tech International of
Virginia Inc. ("Tech Virginia"), our wholly-owned subsidiary, since its spin-
off from Tech International. 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
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<PAGE> 8
graduate of The Technion, Israel Institute of Technology (B.S. 1969), Princeton
University (M.S. 1970) and Syracuse University (M.B.A. 1973).
Phillip E. Pearce has been a director of the Company since October 1995.
Mr. Pearce has been an independent business consultant with Phil E. Pearce &
Associates, Chairman and Director of Financial Express Corporation since 1990
and since 1988 has been a principal of Pearce-Henry Capital Corp. Prior to 1988,
Mr. Pearce was Senior Vice President and a director of E.F. Hutton, Chairman of
the Board of Governors of the National Association of Securities Dealers, a
Governor of the New York Stock Exchange and a member of the Advisory Council to
the United States Securities and Exchange Commission on the Institutional Study
of the Stock Markets. Mr. Pearce also is a director of RX Medical Services,
Inc., an operator of medical diagnostic facilities and clinical laboratories,
InfoPower International, Inc., a software development company, StarBase
Corporation, a software development company and Mustang Software, Inc., a
software and services company. Mr. Pearce is a graduate of the University of
South Carolina (B.A. 1953) and attended the Wharton School of Investment Banking
at the University of Pennsylvania.
Lt. Gen. Harry E. Soyster (Ret.) has been a director of the Company since
January 1995. 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).
Dr. Edwin Vogt was appointed a director of the Company on September 28,
1998 and joined the Company in December 1998 as a Senior Vice President. Prior
to this date, Dr. Vogt served as a consultant to the Company since 1996. Dr.
Vogt joined IBM in 1961 as Development Programmer and worked in the fields of
hardware development, holding 28 patents, as well as software development. As
manager he was responsible for hardware projects (IBM /360, /370, 433x) as well
as various software projects (voice recognition products) before being appointed
Director as manager of several Hardware and Software Product Development
Laboratories. As IBM Software Group Executive, Dr. Vogt held the worldwide
responsibility for the development and marketing of IBM Workflow products and
Reengineering tools until retiring from IBM at the end of 1995. In early 1996 he
was appointed Director for the SBS association (Softwarezentrum
Boblingen / Sindelfingen e.V.) and directed the growth of this center to 39
member companies with over 200 experts, predominantly working in high-growth
areas such as Internet, workflow, process automation and multimedia. Dr. Vogt is
a graduate of the University of Stuttgart with a M.S. in Electrical Engineering
and Mathematics in Theoretical Electrical Engineering.
ADVISORY BOARD
The Company also has an Advisory Board which was established to provide
council and support to the Board of Directors. The members of the Advisory Board
are appointed by the Board of Directors. Its members currently include:
Lawrence Berk is currently Senior Managing Director of Brill Securities. He
has been a money manager and has structured and advised companies on financings
and strategic planning, having held executive positions with several investment
banking firms, including Oppenheimer & Co. where he was a partner. He was a
member of the Board of the Actors Studio for 15 years where he produced plays; a
founding Chairman of the Veterans Ensemble Theatre, a group of writers, actors
and directors from the Vietnam war; on the Board of the Association of American
Dance Companies; and a trustee of the Manhattan Theatre Club. Mr. Berk is a
member of the Financial Investment Analyst Association and the Regional
Investment Bankers Association.
Dr. Andrew Heller has been an advisor to the Board of Directors since 1995.
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
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<PAGE> 9
Systems, Inc., a software and hardware systems development company. From 1966 to
1989 Dr. Heller was employed by IBM (where he was 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 Cross/Z, Inc., Network Translation,
Inc., EPR, Inc., Eco Instrumentation, Inc. and UDI Software, Inc. We have a
three-year consulting agreement with Dr. Heller whereby he provides us with
strategic planning, business management, strategic product development and
market and financial introduction services.
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.
Dr. Steve Mann is currently a faculty member at University of Toronto,
Department of Electrical and Computer Engineering. His work in using wearable
computers to capture and enhance the world around us was highlighted in his
award-winning documentary "Shooting Back." Dr. Mann has been involved with
various forms of wearable computing since the 1970s, starting with the use of
computers in photography. Dr. Mann was the founder and Publications Chair of the
first Institute of Electrical and Electronics Engineers (IEEE) International
Symposium on Wearable Computing. Dr. Mann chaired the first Special Issue on
Wearable Computing in Personal Technologies Journal, and has given numerous
keynote addresses on wearable computers, including the Third International
Conference on Wearable Computers, the Virtual Reality conference, and the
McLuhan Conference on Culture and Technology. He received his PhD degree from
Massachusetts Institute of Technology in 1997 in the Humanistic Intelligence.
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.
COMPENSATION OF DIRECTORS
The Company currently does not pay or accrue salaries or consulting fees to
outside directors for each board or committee meeting attended. While it is the
Company's intention to establish such payments eventually, it does not have any
current plans to do so. Any payments when implemented will be comparable to
those made by companies of similar size and stage. Directors receive a grant of
options for 50,000 shares of Common Stock upon election to the Board of
Directors and are entitled for each full year of service, commencing with those
directors who were elected at the 1997 Annual Meeting, to receive a grant of
options to purchase 10,000 shares of Common Stock which vests at the end of such
year of service. Members of the Audit, Compensation and Nominating Committees
are entitled to receive $1,000 for each Audit, Compensation or Nominating
Committee meeting attended by such member. The Company also has adopted an
Omnibus Stock Incentive Plan, the 1997 Stock Incentive Plan and the 1999 Stock
Incentive Plan in which directors are eligible to participate. See "Executive
Compensation -- Omnibus Stock Incentive Plan; -- 1997 Stock Incentive Plan and
1999 Stock Incentive Plan."
7
<PAGE> 10
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, 1999, the Board of Directors of the
Company held six (6) meetings. All of the directors attended all meetings of the
Board except that George Allen, Keith Hicks and Martin Weisberg each missed one
(1) meeting and Lt. Gen. Harry Soyster missed two (2) meetings. 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, Dr. Steven A. Newman and Phillip
E. Pearce. The Audit Committee met two (2) times, and from time to time had
informal discussions, during the fiscal year ended December 31, 1999.
The function of the Compensation Committee is to review and recommend to
the Board of Directors the appropriate compensation of executive officers of the
Company and to administer the 1996 Omnibus Stock Incentive Plan, the 1997 Stock
Incentive Plan and the 1999 Stock Incentive Plan. The Compensation Committee
currently consists of Dr. Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and
Martin Eric Weisberg, Esq. The Compensation Committee met three (3) times during
the fiscal year ended December 31, 1999.
The function of the Nominating Committee is to select and recommend to the
Board of Directors appropriate candidates for election to the Company's Board of
Directors. The Nominating Committee currently consists of Dr. Steven A. Newman,
Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg, Esq.
8
<PAGE> 11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they file. 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, 1999,
certain Section 16(a) filing requirements applicable to its officers, directors
and greater than ten-percent beneficial owners were not complied with in a
timely manner by certain directors, and greater than ten-percent beneficial
owners, including the following: (i) each of Messrs. Allen, Amobi, Hicks,
Moynahan, Pearce, Ralabate, Soyster, Toyosato, Vogt and Weisberg did not timely
file a Form 5 with the SEC and (ii) Dr. Steven A. Newman did not timely file a
Form 4 with the SEC with respect to one transaction.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following sets forth the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1999, 1998 and 1997 paid to (i) Edward G.
Newman, the President, Chief Executive Officer and Chairman of the Board of
Directors of the Company, (ii) Kazuyuki Toyosato, an Executive Vice President
and Director of the Company, (iii) Dr. Steven A. Newman, an Executive Vice
President and Vice Chairman of the Board of Directors of the Company, (iv) John
F. Moynahan, Chief Financial Officer, Treasurer and a Senior Vice President of
the Company, (v) Dr. Edwin Vogt, a Senior Vice President and Director of the
Company and (vi) Hussein Sallam, a former Vice President of the Company.
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------- OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) ALL OTHER
--------------------------- ---- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C>
EDWARD G. NEWMAN....................... 1999 $223,294(1) $ 0 441,665 $ 35,400(2)
President and Chief Executive Officer 1998 $250,923(1) $ 0 0 $ 47,400(2)
and Chairman of the Board of
Directors 1997 $224,687(1) $ 0 0 $ 53,235(2)
KAZUYUKI TOYOSATO...................... 1999 $251,676 $ 0 110,000 $ 28,385(2)
Executive Vice President and Director 1998 $172,086 $ 0 10,000 $ 0
1997 $ 77,188(3) $ 0 50,000 $ 0
DR. STEVEN A. NEWMAN................... 1999 $ 13,476(4) $ 0 441,750 $ 176,550(5)
Executive Vice President and 1998 $ 13,476(4) $ 0 10,000 $ 163,476(5)
Vice Chairman of the Board of
Directors 1997 $ 13,476(4) $ 0 110,000 $ 163,476(5)
JOHN F. MOYNAHAN....................... 1999 $ 82,288(6) $ 0 331,741 $ 16,500(2)
Senior Vice President, Chief Financial 1998 $ 93,507(6) $ 0 0 $ 7,500(2)
Officer and Treasurer 1997 $142,083 $ 0 0 $ 15,465(2)
DR. EDWIN VOGT......................... 1999 $138,319 $6,538 135,000 $ 0
Senior Vice President and Director 1998 0(7) $ 0 70,000(8) $ 61,000(7)
1997 0 $ 0 0 $ 32,000(7)
HUSSEIN SALLAM......................... 1999 $117,320(9) $ 0 3,484 $ 15,000(2)
Vice President 1998 $115,000 $ 0 10,000 $ 1,727(2)
1997 $ 9,582(9) $ 0 50,000 $ 0
</TABLE>
---------------
(1) Includes $13,476 paid by Tech Virginia in each of 1999, 1998 and 1997.
Compensation does not include $53,732, $50,000 and $50,000 paid to Frances
C. Newman, wife of Edward G. Newman in 1999, 1998 and 1997, respectively.
(2) Includes payment of non-accountable expense allowances and transportation
allowances, but not reimbursement of expenses.
(3) Represents compensation for an eight month period. Mr. Toyosato joined the
Company in 1997 and joined the Board of Directors in 1998.
(4) Dr. Newman is an officer and director of Tech Virginia and was hired as an
Executive Vice President of the Company on January 1, 2000. Compensation
represents payments made to Dr. Newman in his capacity as an employee of
Tech Virginia.
(5) Compensation includes (i) consulting fees paid to Dr. Newman in his capacity
as a consultant to the Company prior to January 1, 2000 and (ii)
non-accountable expense allowances. Compensation excludes reimbursement of
expenses of $21,595, $63,469 and $23,789 during 1999, 1998 and 1997,
respectively.
(6) Mr. Moynahan resigned from his positions with the Company effective June 3,
1998 and resumed these positions effective May 10, 1999.
(7) Dr. Vogt was hired as an employee of the Company in December 1998 and joined
the Board of Directors in September 1998. Prior to December 1998, Dr. Vogt
served as a consultant to the Company. Compensation in 1998 and 1997
represents consulting fees paid to Dr. Vogt in his capacity as a consultant
to the Company prior to his employment in December 1998 and excludes
reimbursement of expenses of $10,985 and $10,250 during 1998 and 1997,
respectively.
(8) Includes a grant of 20,000 shares of Common Stock and options to purchase
50,000 shares of Common Stock.
(9) Mr. Sallam was hired as an employee of the Company in December 1997 and
resigned from his position with the Company in December 1999.
10
<PAGE> 13
Option Grants Table. The following table sets forth information on grants
of stock options during fiscal 1999 to executive officers and directors of the
Company. All such options are exercisable to purchase shares of Common Stock.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES BASE PRICE
NAME (SHARES) IN YEAR ($/SHARE) EXPIRATION DATE
---- -------- ------------- ----------- ------------------
<S> <C> <C> <C> <C>
George Allen............................. 10,000 0.3022% $1.5625 August 27, 2009
Eugene J. Amobi.......................... 60,000 1.8131% $1.5625 August 27, 2009
100,000 3.0218% $5.4375 December 28, 2009
Keith Hicks, Esq......................... 10,000 0.3022% $1.5625 August 27, 2009
John F. Moynahan......................... 150,000 4.5327% $3.7188 May 10, 2009
31,741 0.9592% $1.7800 September 10, 2009
150,000 4.5327% $4.0938 December 3, 2009
Edward G. Newman......................... 41,665 1.2590% $1.7800 September 10, 2009
300,000 9.0654% $1.3750 October 1, 2009
100,000 3.0218% $4.0938 December 3, 2009
Dr. Steven A. Newman..................... 10,000 0.3022% $1.5625 August 27, 2009
31,750 0.9594% $1.7800 September 24, 2009
300,000 9.0654% $1.3750 October 1, 2009
100,000 3.0218% $4.0938 December 3, 2009
Phillip E. Pearce........................ 10,000 0.3022% $1.5625 August 27, 2009
50,000 1.5109% $5.4375 December 28, 2009
James J. Ralabate, Esq................... 70,000 2.1153% $1.5625 August 27, 2009
Hussein Sallam(1)........................ 3,484 0.1053% $1.6000 September 24, 2009
Lt. Gen. Harry E. Soyster................ 10,000 0.3022% $1.5625 August 27, 2009
50,000 1.5109% $5.4375 December 28, 2009
William Tauskey(2)....................... 110,000 3.3240% $3.9000 December 3, 2009
Kazuyuki Toyosato........................ 10,000 0.3022% $1.5625 August 27, 2009
100,000 3.0218% $4.0938 December 3, 2009
Dr. Edwin Vogt........................... 10,000 0.3022% $1.5625 August 27, 2009
25,000 0.7555% $1.7800 September 24, 2009
50,000 1.5109% $5.4375 December 28, 2009
Martin Eric Weisberg, Esq................ 35,000 1.0577% $1.5625 August 27, 2009
</TABLE>
---------------
(1) Mr. Sallam was hired as an employee of the Company in December 1997 and
resigned from his position with the Company in December 1999.
(2) Mr. Tauskey was hired as an employee of the Company in December 1999 and
resigned from his position with the Company effective as of June 30, 2000.
11
<PAGE> 14
Fiscal Year-End Options/Option Values Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
George Allen................................... 60,000 0 38,125 0
Eugene J. Amobi................................ 130,000 100,000 383,750 0
Keith Hicks, Esq............................... 80,000 0 193,125 0
John F. Moynahan............................... 60,580 271,161 102,095 452,630
Edward G. Newman............................... 413,888 27,777 1,378,047 99,858
Dr. Steven A. Newman........................... 540,583 21,167 1,697,416 76,095
Phillip E. Pearce.............................. 130,000 0 74,375 0
James J. Ralabate, Esq......................... 140,000 0 421,875 0
Hussein Sallam(1).............................. 43,484 0 129,050 0
Lt. Gen. Harry E. Soyster...................... 130,000 0 193,125 0
William Tauskey(2)............................. 0 110,000 0 162,250
Kazuyuki Toyosato.............................. 70,000 100,000 176,875 128,120
Dr. Edwin Vogt................................. 78,333 106,667 81,833 114,917
Martin Eric Weisberg, Esq...................... 105,000 0 297,813 0
</TABLE>
---------------
(1) Mr. Sallam was hired as an employee of the Company in December 1997 and
resigned from his position with the Company in December 1999.
(2) Mr. Tauskey was hired as an employee of the Company in December 1999 and
resigned from his position with the Company effective as of June 30, 2000.
The foregoing options were exercisable within 60 days of December 31, 1999
with respect to in the aggregate 1,981,868 shares of Common Stock.
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.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Edward G. Newman
dated as of January 1, 2000 that provides for a three-year term through December
31, 2002. This agreement calls for an initial base salary of $250,000 with
annual increases at the United States Consumer Price Index ("CPI") percentage
plus three percent, subject to a ceiling of 10%; an annual bonus, payable at the
discretion of the Board of Directors in cash, shares of Common Stock, options to
purchase shares of Common Stock, stock appreciation rights or any combination
thereof, in an amount to be determined by the Board of Directors; a $2 million
life insurance policy payable to his designated beneficiaries; and an annual
grant of stock options in an amount equal to the greater of (i) 1.5% of the
"Revenue Goal" where "Revenue Goal" is equal to 85% of the Company's revenue
goal for each fiscal year during the term of employment, if the Revenue Goal is
attained, and (ii) 2% of the increase, if any, in the market capitalization,
based on the average of the number of shares outstanding and the closing prices
of the Common Stock for the 30 days ended December 31 of the applicable year
compared to the comparable 30 day period in the prior year, from January 1 to
December 31 of
12
<PAGE> 15
the applicable fiscal year ("Performance Options"), with a limit on such grant
of the greater of 500,000 shares or 1.5% of the then-outstanding shares of
Common Stock in any given fiscal year during the term of the employment
agreement. The Performance Options are exercisable at a price equal to the
average of the closing price of the Common Stock for 30 days prior to the end of
the applicable fiscal year. As an incentive to enter into this agreement, Mr.
Newman received an initial payment of $50,000. In the event of a change of
control or Mr. Newman terminating his employment for good cause, Mr. Newman is
entitled to a severance payment of the greater of two years or the remaining
term of this agreement and the Performance Options for the year of termination
and the following year. This agreement provides Mr. Newman with benefits which
the Company may provide to its executive officers, including health care
insurance, automobile allowance and vacation.
The Company has entered into an employment agreement with Dr. Steven A.
Newman dated as of January 1, 2000 that provides for a three-year term through
December 31, 2002. This agreement calls for an initial base salary of $225,000
with annual increases at the CPI percentage plus three percent, subject to a
ceiling of 10%; an annual bonus, payable at the discretion of the Board of
Directors in cash, shares of Common Stock, options to purchase shares of Common
Stock, stock appreciation rights or any combination thereof, in an amount to be
determined by the Board of Directors, with a minimum bonus of $100,000 set for
2000; a $2 million life insurance policy payable to his designated
beneficiaries; and an annual grant of Performance Options, if applicable, with
an exercise price equal to the average of the closing price of the Common Stock
for 30 days prior to the end of the applicable fiscal year, with a limit on such
grant of the greater of 500,000 shares or 1.5% of the then-outstanding shares of
Common Stock in any given year. As an incentive to enter into this agreement,
Dr. Newman received an initial payment of $50,000. In the event of a change of
control or Dr. Newman terminating his employment for good cause, Dr. Newman is
entitled to a severance payment of the greater of two years or the remaining
term of this agreement, and the Performance Options for the year after
termination and the following year. This agreement provides Dr. Newman with
benefits which the Company may provide to its executive officers, including
health care insurance, automobile allowance and vacation.
The Company has entered into an employment agreement with John F. Moynahan
dated as of January 1, 2000 that provides for a three-year term through December
31, 2002. This agreement calls for an initial base salary of $170,000 with
annual increases at the CPI percentage plus three percent subject to a ceiling
of 10%; an annual cash bonus to be determined by the Board of Directors; a
$750,000 life insurance policy payable to his designated beneficiaries; and an
annual grant of stock options to be determined by increases in revenues or
market capitalization over the prior year, at the price in effect at the time
such grant is made, with a limit on such grant of the greater of 100,000 shares
or 0.33% of the then-outstanding stock in any given year. As an incentive to
enter into this agreement, Mr. Moynahan received an initial payment of $25,000.
In the event of a change of control or Mr. Moynahan terminating his employment
for good cause, Mr. Moynahan is entitled to a severance payment of the greater
of two years or the remaining term of this agreement, the Performance Options
for the year after termination and the following year, and immediate vesting of
options. This agreement provides Mr. Moynahan with benefits which the Company
may provide to its executive officers, including health care insurance,
automobile allowance and vacation.
Mr. Toyosato was employed with the Company pursuant to a three-year
employment agreement which expired on March 3, 2000. This employment agreement
provided for a minimum annual salary of $153,575. Although the employment
agreement with Mr. Toyosato has terminated, Mr. Toyosato remains an employee of
the Company.
Dr. Vogt is employed pursuant to a five-year employment agreement expiring
on December 31, 2004. Pursuant to this agreement, Dr. Vogt shall receive an
annual base salary of $150,000, which can be adjusted annually at the discretion
of management.
Mr. Amobi is employed pursuant to a three-year employment agreement
expiring on December 31, 2002. This agreement provides for an annual base salary
of $140,000 and an annual discretionary bonus to be determined by the Company
for each full year of employment with the Company based upon the performance of
Mr. Amobi during such year as well as the Company's overall performance during
such year. As an
13
<PAGE> 16
incentive to enter into this agreement, Mr. Amobi was granted the right to
purchase 150,000 shares of Common Stock, which right will vest over a period of
three years in increments of 50,000 shares per year on December 31 of each year
beginning December 31, 2000 through December 31, 2002. Any unvested option
granted to Mr. Amobi pursuant to this employment agreement will fully vest upon
a change of control or upon the termination of the employment agreement by Mr.
Amobi for good reason. This agreement provides Mr. Amobi with benefits which the
Company may provide to its executive officers, including health care insurance,
automobile allowance and vacation.
COMPENSATION PLANS
The following are the compensation plans of the Company currently in
effect.
1996 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. To date, options have been granted to
purchase all of the 650,000 shares of Common Stock reserved for issuance under
the 1996 Incentive Plan.
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, including the exercise
price, number of shares subject to the option and the exercisability thereof.
Dr. Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg,
Esq. currently are the members of the Compensation Committee.
The exercise price of all Incentive Stock Options granted under the 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 10% of the total combined voting power of all classes of stock of the
Company ("Substantial Stockholders"), the exercise price of Incentive Stock
Options must be at least 110% of the fair market value of the Common Stock on
the date of grant. The exercise price of all nonqualified stock options granted
under the 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
Compensation Committee has granted extensions of the period before which options
may be exercised for certain terminated employees.
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
14
<PAGE> 17
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.
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.
1997 STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan (the "1997 Incentive Plan") was adopted by
the Company's Board of Directors on April 10, 1997. The 1997 Incentive Plan
provides for the granting of Incentive Stock Options within the meaning of
Section 422 of the Code, nonqualified stock options, SARs and grants of shares
of Common Stock subject to certain restrictions (collectively, "Awards") up to a
maximum of 1,650,000 shares to officers, directors, key employees and others.
Incentive Stock Options can be awarded only to employees of the Company at the
time of the grant. No ISO may be granted under the 1997 Incentive Plan after
April 9, 2007.
The 1997 Incentive Plan is administered by the Board of Directors or a
Committee of the Board of Directors, which determines the terms and conditions
of the Awards granted under the 1997 Incentive Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof.
Dr. Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg,
Esq. currently are the members of the Committee.
The exercise price of all Incentive Stock Options granted under the 1997
Incentive Plan must equal at least the fair market value of the Common Stock on
the date of grant. In the case of 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 1997 Incentive Plan shall be determined by the
Compensation Committee. The term of any Incentive Stock Option granted under the
1997 Incentive Plan may not exceed ten years, or, for Incentive Stock Options
granted to Substantial Stockholders, five years. The 1997 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 1997 Incentive Plan provides the Committee the discretion to determine
when options granted thereunder shall become exercisable and the vesting period
of such options. Upon termination of a participant's employment or relationship
with the Company, options may be exercised only to the extent exercisable on the
date of such termination (within three months), but not thereafter, unless
termination is due to death or disability, in which case the options are
exercisable within one year of termination.
The 1997 Incentive Plan provides the Committee discretion to grant SARs to
key employees, consultants and directors. Promptly after exercise of a SAR the
holder shall be entitled to receive in chase, by check or in shares of Common
Stock, an amount equal to the excess of the fair market value on the exercise
date of the shares of Common Stock as to which the SAR is exercised over the
base price of such shares, which shall be determined by the Committee.
The 1997 Incentive Plan also provides the Committee discretion to grant to
key persons shares of restricted stock subject to certain contingencies and
restrictions as the Committee may determine.
15
<PAGE> 18
1999 STOCK INCENTIVE PLAN
The 1999 Stock Incentive Plan (the "1999 Incentive Plan") was adopted by
the Company's Board of Directors on November 12, 1999. The 1999 Incentive Plan
provides for the granting of Incentive Stock Options within the meaning of
Section 422 of the Code, nonqualified stock options, SARs and grants of shares
of Common Stock subject to certain restrictions (collectively, "Awards") up to a
maximum of 3,000,000 shares to officers, directors, key employees and others.
Incentive Stock Options can be awarded only to employees of the Company at the
time of the grant. No ISO may be granted under the 1999 Incentive Plan after
November 12, 2009.
The 1999 Incentive Plan is administered by the Board of Directors or a
Committee of the Board of Directors, which determines the terms and conditions
of the Awards granted under the 1999 Incentive Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof.
Dr. Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg,
Esq. currently are the members of the Committee.
The exercise price of all Incentive Stock Options granted under the 1999
Incentive Plan must equal at least the fair market value of the Common Stock on
the date of grant. In the case of 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 1999 Incentive Plan shall be determined by the
Compensation Committee. The term of any Incentive Stock Option granted under the
1999 Incentive Plan may not exceed ten years, or, for Incentive Stock Options
granted to Substantial Stockholders, five years. The 1999 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 1999 Incentive Plan provides the Committee the discretion to determine
when options granted thereunder shall become exercisable and the vesting period
of such options. Upon termination of a participant's employment or relationship
with the Company, options may be exercised only to the extent exercisable on the
date of such termination (within three months), but not thereafter, unless
termination is due to death or disability, in which case the options are
exercisable within one year of termination.
The 1999 Incentive Plan provides the Committee discretion to grant SARs to
key employees, consultants and directors. Promptly after exercise of a SAR the
holder shall be entitled to receive in chase, by check or in shares of Common
Stock, an amount equal to the excess of the fair market value on the exercise
date of the shares of Common Stock as to which the SAR is exercised over the
base price of such shares, which shall be determined by the Committee.
The 1999 Incentive Plan also provides the Committee discretion to grant to
key persons shares of restricted stock subject to certain contingencies and
restrictions as the Committee may determine.
As of December 31, 1999 a total of 4,761,311 options had been issued and
were outstanding pursuant to the Company's stock incentive plans. Each of the
outstanding options has an exercise price at least equal to the fair market
value of the Common Stock on the date of grant. As of December 31, 1999, there
were no SARs outstanding and there has been one grant of Restricted Stock of
10,000 shares of Common Stock to a former officer of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee participate in all deliberations
concerning executive compensation. The Compensation Committee consists of Lt.
Gen. Harry E. Soyster (Ret.), Dr. Steven A. Newman and Martin Eric Weisberg,
Esq. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors.
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<PAGE> 19
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board of Directors with respect to
the Company's executive compensation policies. In addition, the Compensation
Committee, pursuant to authority delegated by the Board of Directors, determines
the compensation to be paid to the Chief Executive Officer and each of the other
executive officers of the Company.
The objectives of the Company's executive compensation program are to:
- Support the achievement of desired Company performance
- Provide compensation that will attract and retain superior talent and
reward performance
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the technology and software
industries, as well as with a broader group of companies of comparable size and
complexity.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of base
salary, long-term incentive compensation in the form of stock options, specific
performance-based bonuses and various benefits, including medical and pension
plans generally available to employees of the Company.
BASE SALARY
Base salary levels for the Company's executive officers are competitively
set relative to companies in the technology industry. In determining salaries,
the Committee also takes into account individual experience and performance and
specific issues particular to the Company.
STOCK OPTION PROGRAM
The stock option program is the Company's long-term incentive plan for
providing an incentive to officers, directors, employees and others.
The 1996 Incentive Plan, the 1997 Incentive Plan and the 1999 Stock
Incentive Plan authorize the Compensation Committee to award officers,
directors, employees and others stock options. Options granted under such Plans
may be granted containing terms determined by the Committee, including exercise
period and price; provided, however, that each Plan requires that exercise price
may not be less than the fair market value of the Common Stock on the date of
the grant and the exercise period may not exceed ten years, subject to further
limitations.
BENEFITS
The Company provides to executive officers, medical and pension benefits
that generally are available to Company employees.
BONUS
The Company provides to certain executive officers bonuses based on
performance and/or a change of control of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
In the case of Edward G. Newman, the Company's Chief Executive Officer, the
Compensation Committee evaluates the performance of the Company, the improvement
of the Company's financial position
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<PAGE> 20
and the Chief Executive Officer's contributions to the Company and its growth as
well as the considerations impacting the compensation of executive officers
generally described above. Notwithstanding the expiration of Mr. Newman's
employment agreement in December 31, 1998, Mr. Newman remained employed by the
Company during fiscal year 1999. As of January 1, 2000, the Company has entered
into an employment agreement with Mr. Newman that provides for a three-year term
through December 31, 2002. See "Employment Agreements." Based on Mr. Newman's
leadership efforts and commitment to the Company, the Company's 1999 operating
performance and the criteria described above, in addition to a base salary of
$223,294 and the payment of non-accountable expense allowances and
transportation allowances of $35,400, options to purchase 300,000 shares of the
Company's Common Stock were granted to Mr. Newman by the Compensation Committee
for the fiscal year ending December 31, 1999. In addition, during the fiscal
year ending December 31, 1999 Mr. Newman was granted (i) options to purchase
41,665 shares of the Company's Common Stock in connection with a salary deferral
by Mr. Newman for the period from September 1, 1999 through December 31, 1999
(such options are on the same terms as options granted to certain other senior
executives of the company who participated in the deferral) and (ii) options to
purchase 100,000 shares of the Company's Common Stock as compensation for Mr.
Newman's services prior to 1999, performance and commitment to the Company.
Dr. Steven A. Newman
Lt. Gen. Harry E. Soyster (Ret.)
Martin Eric Weisberg, Esq.
Members of the Compensation Committee
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<PAGE> 21
PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly change in the cumulative
stockholder return on the Company's Common Stock with the Russell 2000 Index,
the NASDAQ Composite Index and the Nasdaq Computer Manufacturing Index. The
graph assumes that $100 was invested in the Company's Common Stock and in each
index at the Company's Initial Public Offering on July 17, 1996, and that all
dividends were reinvested. No cash dividends have been declared on the Common
Stock. The stockholder returns shown on the graph below are not necessarily
indicative of future performance.
CUMULATIVE TOTAL RETURN
BEGINNING JULY 17, 1996
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
NASDAQ COMPUTER
XYBERNAUT CORPORATION NASDAQ RUSSELL 2000 MANUFACTURING
--------------------- ------ ------------ ---------------
<S> <C> <C> <C> <C>
7/17/1996 100.00 100.00 100.00 100.00
12/31/1996 61.18 118.69 114.93 127.30
12/31/1997 45.89 145.44 140.64 153.99
12/31/1998 115.92 204.94 137.06 333.64
12/31/1999 138.46 370.25 166.19 701.47
</TABLE>
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. On 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, Steven A. Newman, an Executive Vice President
and Vice Chairman of the Board of Directors of the Company and Eugene J. Amobi,
a director of the Company,
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<PAGE> 22
were the stockholders, and continue as officers and directors of Tech Virginia.
Eugene J. Amobi is the sole director and stockholder of Tech International.
MANAGEMENT PERSONNEL AGREEMENTS WITH TECH VIRGINIA
Messrs. Edward G. Newman, Steven A. Newman and Eugene Amobi each had
employment agreements with Tech Virginia under which each of them was entitled
to a salary and each was eligible to receive certain bonuses. The agreements
with Messrs. Edward G. Newman and Steven A. Newman required each of them to
devote only reasonable time and attention to Tech Virginia, provided their
activities for Tech Virginia did not interfere with their obligations to the
Company. Upon the acquisition of Tech Virginia by the Company, such employment
agreements were terminated by agreement with Messrs. Newman, Newman, and Amobi.
Messrs. Newman, Newman and Amobi have continued to provide services to Tech
Virginia since the acquisition without contract but under similar terms and
conditions as their terminated agreements.
LEGAL SERVICES
The Company incurred $239,598 in fees and disbursements for legal services
rendered to the Company for the year ended December 31, 1999, payable to James
J. Ralabate, Esq. In addition, Mr. Ralabate served as processing agent for
payments of $224,377 to domestic and international law firms during the year
ended December 31, 1999 for fees and expenses related to the filing and
maintenance of the Company's patents and trademarks.
The Company incurred $663,075 in fees and disbursements for legal services
rendered to the Company for the year ended December 31, 1999, payable to Parker
Chapin LLP, the law firm where Martin Eric Weisberg, Esq. is a partner.
The Company incurred $218,687 in fees and disbursements for legal services
rendered to the Company for the year ended December 31, 1999, payable to McGuire
Woods Battle & Boothe, LLP, the law firm in which George Allen, Esq. is a
partner.
------------------------
PROPOSAL 2
APPROVAL OF THE 2000 STOCK
OPTION PLAN
------------------------
On September 13, 2000, the Board of Directors adopted, subject to
stockholder approval at the Meeting, the Company's 2000 Stock Incentive Plan
(the "2000 Plan"). The 2000 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 2000 Plan does
not purport to be complete and is qualified in its entirety by reference to the
text of the 2000 Plan, a copy of which is set forth as Exhibit A to this Proxy
Statement.
SHARES SUBJECT TO THE STOCK INCENTIVE PLAN AND ELIGIBILITY
The 2000 Plan authorizes the issuance of stock appreciation rights ("SARs")
and the grant of options and restricted stock related to a maximum of 3,000,000
shares of the Company's Common Stock (subject to adjustment as described below)
to key employees (including officers and directors who are key employees), and
to consultants and directors who are not employees of the Company. Upon
expiration, cancellation, termination or forfeiture of stock grants or options,
the shares of the Common Stock subject thereto will again be available for grant
under the 2000 Plan.
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<PAGE> 23
TYPE OF AWARD
The following awards ("Awards") may be granted under the 2000 Plan: stock
options which are either incentive stock options ("ISOs"), within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonqualified stock options which do not qualify as ISOs ("NQSOs"), SARs and
Common Stock which may be subject to contingencies or restrictions. ISOs,
however, may only be granted to employees. The Company makes no representations
or warranties as to the qualification of any option as an "incentive stock
option" under the Code.
ADMINISTRATION
The 2000 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 members of the
Committee shall be the members of the Compensation Committee, which currently
consists of Dr. Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin
Eric Weisberg, Esq.
Among other things, the Committee is empowered to determine, within the
express limits contained in the 2000 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 2000 Plan and
to make all other determinations necessary or advisable for administering the
2000 Plan and to construe each contract ("Contract") entered into by the Company
with an Award holder under the 2000 Plan.
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<PAGE> 24
TERMS AND CONDITIONS OF OPTIONS
Options granted under the 2000 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).
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.
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TERMINATION OF RELATIONSHIP
Except as may otherwise be provided in the applicable Contract, if an Award
holder's relationship with the Company as an employee or consultant is
terminated for any reason (other than the death or disability of the Award
holder), the option or SAR may be exercised, to the extent exercisable at the
time of termination of such relationship, within three months thereafter, but in
no event after the expiration of the term of the option or SAR. If an Award
holder's relationship is terminated for any reason (including the death or
disability of the Award holder), the Award shall cease any further vesting and
the unvested portion shall be forfeited to the Company without consideration. If
the relationship was terminated either for cause or without the consent of the
Company, the option or SAR will terminate immediately. In the case of the death
of a holder while an employee or consultant (or, generally, within three months
after termination of such relationship, or within one year after termination of
such relationship by reason of disability), except as otherwise provided in the
Contract, his or her legal representative or beneficiary may exercise the option
or SAR, to the extent exercisable on the date of death, within one year after
such date, but in no event after the expiration of the term of the option or
SAR. Except as may otherwise be provided in the applicable Contract, an optionee
whose relationship with the Company was terminated by reason of his or her
disability may exercise the option or SAR, to the extent exercisable at the time
of such termination, within one year thereafter, but not after the expiration of
the term of the option. The holder shall have no right to continue as an
employee, consultant or director of the Company or interfere in any way with any
right of the Company to terminate the holder's relationship to the Company at
any time for any reason whatsoever without liability to the Company.
WITHHOLDING
The Company may withhold cash and/or shares of Common Stock to be issued
under an Award or upon exercise of an option or SAR, having an aggregate value
equal to the amount which the Company determines is necessary to meet its
obligations to withhold any federal, state and/or local taxes or other amounts
incurred by reasons of the grant, vesting, exercise or disposition of an Award
or the disposition of underlying shares of Common Stock. Alternatively, the
Company may require the Award holder to pay the Company such amount, in cash,
promptly upon demand.
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
Appropriate adjustments will be made in the number and kind of shares
available under the 2000 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 2000 PLAN
No ISO may be granted under the 2000 Plan after the ten year anniversary of
the date of adoption of the 2000 Plan by the Board of Directors. The Board of
Directors may at any time terminate or amend the 2000 Plan; provided, however,
that, without the approval of the Company's stockholders, no amendment may be
made which would (a) except as a result of the anti-dilution adjustments
described above, increase the maximum number of shares available for the grant
of Awards or increase the maximum number of options or SARs that may be granted
to an employee in any year, (b) change the eligibility requirements for persons
who may receive Awards or (c) make any change for which applicable law,
regulation, ruling or interpretation by the applicable governmental agency or
regulatory authority requires stockholder approval. No termination or
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<PAGE> 26
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.
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 2000 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 2000 Plan is not approved
by Stockholders, the 2000 Plan will not be effective.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR"
APPROVAL OF THE 2000 PLAN.
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------------------------
PROPOSAL 3
APPOINTMENT OF INDEPENDENT
AUDITORS
------------------------
Grant Thornton LLP served as the Company's independent auditors for the
fiscal year ended December 31, 1999 and it is expected that Grant Thornton LLP
will act in that capacity for the fiscal year ending December 31, 2000.
It is proposed that the stockholders ratify the appointment by the Board of
Directors of Grant Thornton LLP as independent auditors for the Company for the
2000 fiscal year. A representative of Grant Thornton LLP is expected to be
present at the Meeting with the opportunity to make a statement if he or she
desires to do so and to be available to respond to appropriate questions from
shareholders.
Approval by the stockholders of the appointment of independent auditors is
not required but the Board deems it desirable to submit this matter to the
stockholders. If a majority of the Common Stock present and entitled to vote at
the meeting should not approve the selection of Grant Thornton LLP, the
selection of independent auditors will be reconsidered by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT
OF GRANT THORNTON LLP AS
INDEPENDENT AUDITORS OF THE COMPANY
STOCKHOLDER PROPOSALS
The Company intends to hold its 2001 Annual Meeting of Stockholders on or
about May 2, 2001. Any stockholder proposal intended to be included in the
Company's proxy statement and form of proxy for presentation at the 2001 Annual
Meeting of Stockholders (the "2001 Meeting") pursuant to Rule 14a-8 ("Rule
14a-8"), as promulgated under the Exchange Act, must be received by the Company
not later than March 1, 2001. As to any proposals submitted for presentation at
the 2001 Meeting outside the processes of Rule 14a-8, the proxies named in the
form of proxy for the 2001 Meeting will be entitled to exercise discretionary
authority on that proposal unless the Company receives notice of the matter on
or before March 1, 2001. However, even if such notice is timely received, such
proxies nevertheless may be entitled to exercise discretionary authority on that
matter to the extent permitted by the Securities and Exchange Commission
regulations.
Any stockholder proposals, as well as any questions relating thereto,
should be directed to the Secretary of the Company at 12701 Fair Lakes Circle,
Fairfax, Virginia 22033.
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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
/s/ MARTIN ERIC WEISBERG
Martin Eric Weisberg
Secretary
September 20, 2000
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<PAGE> 29
EXHIBIT A
2000 STOCK INCENTIVE PLAN
OF
XYBERNAUT CORPORATION
1. PURPOSES OF THE PLAN. This stock incentive plan (the "Plan") is designed
to provide an incentive to key employees (including directors and officers who
are key employees) and to consultants and directors who are not employees of
XYBERNAUT CORPORATION, a Delaware corporation (the "Company"), or any of its
Subsidiaries (as defined in Paragraph 18), and to offer an additional inducement
in obtaining the services of such persons. The Plan provides for the grant of
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options which do not qualify as ISOs ("NQSOs"), stock appreciation rights
("SARs") and stock of the Company which may be subject to contingencies or
restrictions (collectively, "Awards"). The Company makes no representation or
warranty, express or implied, as to the qualification of any option as an
"incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 11,
the aggregate number of shares of Common Stock, $.01 par value per share, of the
Company ("Common Stock") for which Awards may be granted under the Plan shall
not exceed 3,000,000. Such shares of Common Stock may, in the discretion of the
Board of Directors of the Company (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. Subject to the provisions of
Paragraph 12, any shares of Common Stock subject to an option or SAR which for
any reason expires, is canceled or is terminated unexercised or which ceases for
any reason to be exercisable or a restricted stock Award which for any reason is
forfeited, shall again become available for the granting of Awards under the
Plan. The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board
of Directors or a committee of the Board of Directors consisting of not less
than two directors, each of whom shall be a "non-employee director" within the
meaning of Rule 16b-3 (as defined in Paragraph 18) (collectively, the
"Committee"). Unless otherwise provided in the By-laws of the Company or by
resolution of the Board of Directors, a majority of the members of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, and any acts approved in writing by
all members without a meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee shall have the
authority, in its sole discretion, to determine: the key employees, consultants
and directors who shall be granted Awards; the type of Award to be granted; the
times when an Award shall be granted; the number of shares of Common Stock to be
subject to each Award; the term of each option or SAR; the date each option or
SAR shall become exercisable; whether an option or SAR shall be exercisable in
whole or in installments and, if in installments, the number of shares of Common
Stock to be subject to each installment, whether the installments shall be
cumulative, the date each installment shall become exercisable and the term of
each installment; whether to accelerate the date of exercise of any option or
SAR or installment thereof; whether shares of Common Stock may be issued upon
the exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option and the base price of each SAR;
the price, if any, to be paid for a share Award; the form of payment of the
exercise price of an option; the form of payment upon exercise of an SAR;
whether to restrict the sale or other disposition of a stock Award or the shares
of Common Stock acquired upon the exercise of an option or SAR and, if so, to
determine whether such contingencies and restrictions have been met and whether
and under what conditions to waive any such contingency or restriction; whether
and under what conditions to subject all or a portion of the grant or exercise
of an option or SAR, the vesting of a stock Award or the shares acquired
pursuant to the exercise of an option or SAR to the fulfillment of certain
contingencies or restrictions as
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specified in the contract referred to in Paragraph 10 hereof (the "Contract"),
including without limitation, contingencies or restrictions relating to entering
into a covenant not to compete with the Company, any of its Subsidiaries or a
Parent (as defined in Paragraph 18), to financial objectives for the Company,
any of its Subsidiaries or a Parent, a division of any of the foregoing, a
product line or other category, and/or to the period of continued employment of
the Award holder with the Company, any of its Subsidiaries or a Parent, and to
determine whether such contingencies or restrictions have been met; whether an
Award holder is Disabled (as defined in Paragraph 18); the amount, if any,
necessary to satisfy the obligation of the Company, a Subsidiary or Parent to
withhold taxes or other amounts; the Fair Market Value (as defined in Paragraph
18) of a share of Common Stock; to construe the respective Contracts and the
Plan; with the consent of the Award holder, to cancel or modify an Award,
provided, that the modified provision is permitted to be included in an Award
granted under the Plan on the date of the modification, and further, provided,
that in the case of a modification (within the meaning of Section 424(h) of the
Code) of an ISO, such Award as modified would be permitted to be granted on the
date of such modification under the terms of the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to approve any provision
which under Rule 16b-3 requires the approval of the Board of Directors, a
committee of non-employee directors or the stockholders to be exempt (unless
otherwise specifically provided herein); and to make all other determinations
necessary or advisable for administering the Plan. Any controversy or claim
arising out of or relating to the Plan, any Award granted under the Plan or any
Contract shall be determined unilaterally by the Committee in its sole
discretion. The determinations of the Committee on the matters referred to in
this Paragraph 3 shall be conclusive and binding on the parties. No member or
former member of the Committee shall be liable for any action, failure to act or
determination made in good faith with respect to the Plan or any Award or
Contract hereunder.
4. OPTIONS
a) GRANT. The Committee may from time to time, consistent with the purposes
of the Plan, grant options to such key employees (including officers and
directors 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.
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d) EXERCISE. An option (or any part or installment thereof), to the extent
then exercisable, shall be exercised by giving written notice to the Company at
its then principal office stating which option is being exercised, specifying
the number of shares of Common Stock as to which such option is being exercised
and accompanied by payment in full of the aggregate exercise price therefor (or
the amount due upon exercise if the Contract permits installment payments) (a)
in cash or by certified check or (b) if the applicable Contract permits, with
previously acquired shares of Common Stock having an aggregate Fair Market Value
on the date of exercise equal to the aggregate exercise price of all options
being exercised, or with any combination of cash, certified check or shares of
Common Stock having such value. The Company shall not be required to issue any
shares of Common Stock pursuant to any such option until all required payments,
including any required withholding, have been made.
The Committee may, in its sole discretion, permit payment of all or a
portion of the exercise price of an option by delivery by the optionee of a
properly executed notice, together with a copy of his irrevocable instructions
to a broker acceptable to the Committee to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay such exercise price. In
connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
An optionee entitled to receive Common Stock upon the exercise of an option
shall not have the rights of a stockholder with respect to such shares of Common
Stock until the date of issuance of a stock certificate for such shares or, in
the case of uncertificated shares, until an entry is made on the books of the
Company's transfer agent representing such shares; provided, however, that until
such stock certificate is issued or book entry is made, any optionee using
previously acquired shares of Common Stock in payment of an option exercise
price shall continue to have the rights of a stockholder with respect to such
previously acquired shares.
In no case may an option be exercised with respect to a fraction of a share
of Common Stock. In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
(e) RELOAD OPTIONS. An optionee who, at a time when he is eligible to be
granted options under the Plan, uses previously acquired shares of Common Stock
to exercise an option granted under the Plan (the "prior option"), shall, upon
such exercise, be automatically granted an option (the "reload option") to
purchase the same number of shares of Common Stock so used (or if there is not a
sufficient number of shares available for grant under the Plan remaining, such
number of shares as are then available). Such reload options shall be of the
same type and have the same terms as the prior option (except to the extent
inconsistent with the terms of the Plan); provided, however, that the exercise
price per share of the reload option shall be equal to the Fair Market Value of
a share of Common Stock on the date of grant of the reload option, and further,
provided, that if the prior option was an ISO and at the time the reload option
is granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, of any of its Subsidiaries or of a Parent, the
exercise price per share shall be equal to 110% of the Fair Market Value of a
share of Common Stock on the date of grant and the term of such option shall not
exceed five years.
5. STOCK APPRECIATION RIGHTS.
a) GRANT. The Committee may from time to time, consistent with the purposes
of the Plan, grant SARs to such key employees (including officers and directors
who are key employees) of, and consultants to, the Company or any of its
Subsidiaries, and such Outside Directors, as the Committee may determine in its
sole discretion. An SAR shall entitle the holder thereof to be paid, promptly
after exercise, in cash, by check or with shares of Common Stock having an
aggregate Fair Market Value on the date of exercise or any combination thereof,
as determined by the Committee, in its sole discretion, an amount equal to the
excess, if any, of the Fair Market Value on the exercise date of the shares of
Common Stock as to which the SAR is exercised over the base price of such
shares. The Contract may (but shall not be required to) provide for such amount
to be multiplied by a performance factor as set forth 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.
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b) BASE PRICE. The base price of the shares of Common Stock subject to each
SAR shall be determined by the Committee in its sole discretion; provided,
however, that the base price per share shall not be less than the Fair Market
Value of a share of Common Stock on the date of grant.
c) TERM. The term of each SAR granted pursuant to the Plan shall be
determined by the Committee, in its sole discretion, as set forth in the
applicable Contract; provided, however, that the term of each SAR shall not
exceed 10 years from the date of grant. SARs shall be subject to earlier
termination as provided in the Plan.
d) EXERCISE. An SAR (or any part or installment thereof), to the extent
then exercisable, shall be exercised by giving written notice to the Company at
its then principle office stating which SAR is being exercised and specifying
the number of shares of Common Stock as to which such SAR is being exercised.
The holder of an SAR who receives shares of Common Stock upon the exercise
of an SAR shall not have the rights of a stockholder with respect to such shares
of Common Stock until the date of issuance of a stock certificate for such
shares or, in the case of uncertificated shares, until an entry is made on the
books of the Company's transfer agent representing such shares.
In no case may an SAR be exercised with respect to a fraction of a share of
Common Stock.
6. RESTRICTED STOCK. The Committee may from time, 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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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 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
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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 governmental agency or
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an Award or the issuing of shares of Common Stock
thereunder, such Award may not be granted and such option or SAR may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
10. AWARD CONTRACTS. Each Award shall be evidenced by an appropriate
Contract which shall be duly executed by the Company and the Award holder, and
shall contain such terms, provisions and conditions not inconsistent herewith as
may be determined by the Committee. The terms of each Award and Contract need
not be identical.
11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of a stock dividend, recapitalization,
merger in which the Company is the surviving corporation, spin-off, split-up,
combination or exchange of shares or the like which results in a change in the
number or kind of shares of Common Stock which is outstanding immediately prior
to such event, the aggregate number and kind of shares subject to the Plan, the
aggregate number and kind of shares subject to each outstanding Award, the
exercise price of each option, the base price of each SAR, any contingencies and
restrictions based on the number or kind of shares, and the 162(m) Maximum shall
be appropriately adjusted by the Board of Directors, whose determination shall
be conclusive and binding on all parties. Such adjustment may provide for the
elimination of fractional shares which might otherwise be subject to Awards
without payment therefor.
In the event of (a) the liquidation or dissolution of the Company, (b) a
merger in which the Company is not the surviving corporation or a consolidation,
or (c) any transaction (or series of related transactions) in which (i) more
than 50% of the outstanding Common Stock is transferred or exchanged for other
consideration or (ii) shares of Common Stock in excess of the number of shares
of Common Stock outstanding immediately preceding the transaction are issued
(other than to stockholder of the Company with respect to their shares of stock
in the Company) any outstanding options, SARs or unvested stock shall terminate
immediately prior to the earliest of any such event, unless other provision is
made therefor in the transaction.
12. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on September 13, 2000. No ISO may be granted under the Plan
after September 13, 2010. 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
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"incentive stock options" under the Code, to comply with the provisions of Rule
16b-3, Section 162(m) of the Code, or any change in applicable law, regulations,
rulings or interpretations of any governmental agency or regulatory body;
provided, however, that no amendment shall be effective without the requisite
prior or subsequent stockholder approval which would (a) except as contemplated
in Paragraph 11, increase the maximum number of shares of Common Stock for which
Awards may be granted under the Plan or the 162(m) Maximum, (b) change the
eligibility requirements to receive Awards hereunder, or (c) make any change for
which applicable law, regulation, ruling or interpretation by the applicable
governmental agency or regulatory authority requires stockholder approval. No
termination, suspension or amendment of the Plan shall adversely affect the
rights of any Award holder under an Award without his prior consent. The power
of the Committee to construe and administer any Awards granted under the Plan
prior to the termination or suspension of the Plan nevertheless shall continue
after such termination or during such suspension.
13. NON-TRANSFERABILITY. No option or SAR granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution, and
options and SARs may be exercised, during the lifetime of the Award holder, only
by him or his Legal Representatives. Except as may otherwise be expressly
provided in the Contract, a stock Award, to the extent not vested, shall not be
transferable otherwise than by will or the laws of descent and distribution.
Except to the extent provided above, Awards may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
14. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may withhold (a)
cash or (b) with the consent of the Committee, shares of Common Stock to be
issued under a stock Award or upon exercise of an option or SAR having an
aggregate Fair Market Value on the relevant date, or a combination of cash and
shares having such value, in an amount equal to the amount which the Committee
determines is necessary to satisfy the obligation of the Company, any of its
Subsidiaries or a Parent to withhold federal, state and local taxes or other
amounts incurred by reason of the grant, vesting, exercise or disposition of an
Award, or the disposition of the underlying shares of Common Stock.
Alternatively, the Company may require the holder to pay to the Company such
amount, in cash, promptly upon demand.
15. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or
legends upon the certificates for shares of Common Stock issued under a stock
Award or upon exercise of an option or SAR under the Plan and may issue such
"stop transfer" instructions to its transfer agent in respect of such shares as
it determines, in its discretion, to be necessary or appropriate to (a) prevent
a violation of, or to perfect an exemption from, the registration requirements
of the Securities Act and any applicable state securities laws, (b) implement
the provisions of the Plan or any agreement between the Company and the Award
holder with respect to such shares of Common Stock, or (c) permit the Company to
determine the occurrence of a "disqualifying disposition," as described in
Section 421(b) of the Code, of the shares of Common Stock issued or transferred
upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance of
shares of Common Stock under a stock Award or upon the exercise of an option or
SAR granted under the Plan, as well as all fees and expenses incurred by the
Company in connection with such issuance.
16. USE OF PROCEEDS. The cash proceeds received upon the exercise of an
option, or grant of a stock Award under the Plan shall be added to the general
funds of the Company and used for such corporate purposes as the Board of
Directors may determine.
17. SUBSTITUTIONS AND ASSUMPTIONS OF AWARDS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
Awards for prior options, SARs or restricted stock of a Constituent Corporation
(as defined in Paragraph 18) or assume the prior options or restricted stock of
such Constituent Corporation.
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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 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.
A-8
<PAGE> 37
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 September 13, 2001, the Plan and any Awards granted
hereunder shall terminate.
A-9
<PAGE> 38
PROXY XYBERNAUT CORPORATION
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned holder of Common Stock of XYBERNAUT CORPORATION, revoking all
proxies heretofore given, hereby constitutes and appoints Edward G. Newman,
Steven A. Newman and Martin E. Weisberg and each of them, Proxies, with full
power of substitution, for the undersigned and in the name, place and stead of
the undersigned, to vote all of the undersigned's shares of said stock,
according to the number of votes and with all the powers the undersigned would
possess if personally present, at the Annual Meeting of Stockholders of
XYBERNAUT CORPORATION, to be held at the Holiday Inn Fair Oaks, 11787 Lee
Jackson Memorial Highway, Fairfax, Virginia 22030 on October 20, 2000, 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 2 through 4.
<TABLE>
<C> <C> <S> <C>
PLEASE MARK YOUR [X]
----------------------------------------------------------- ------------------------------ CHOICE LIKE THIS IN
ACCOUNT NUMBER COMMON BLUE OR BLACK INK:
</TABLE>
Will attend the meeting [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL
LISTED NOMINEES AND FOR PROPOSALS 2 THROUGH 4
1. Election of four directors
<TABLE>
<S> <C>
FOR ALL nominees listed [ ] WITHHOLD AUTHORITY [ ]
(except as marked to the contrary) to vote for all listed nominees below
</TABLE>
<TABLE>
<CAPTION>
CLASS I
<S> <C> <C>
Nominees: George Allen, Esq. Dr. Steven A. Newman
Edward G. Newman James J. Ralabate, Esq.
</TABLE>
(Instruction: To withhold authority to vote for any individual nominee,
circle that nominee's name in the list provided above.)
Please mark, date and sign this proxy on the reverse side
<PAGE> 39
2. The Company's 2000 Stock Incentive Plan, which provides for up to 3,000,000
shares of Common Stock to be issued to key employees, consultants and
directors of the Company.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
3. Ratifying the appointment of Grant Thornton LLP as independent auditors for
the 2000 fiscal year.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
Dated , 2000
-----------------------
----------------------------------
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.
