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Updates 4/7/05 - Items to consider
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As evidenced by todays change in trading symbol from XYBR to XYBRE with no Xybernaut Corporation press release, the shareholders are taking a back seat to what is now happening at the company they own. After some thought, I offer the following suggestions to current shareholders and as always I am open for suggestions.
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1) Letter To Board of Directors with a CC: To the SEC Enforcement Division and possibly to Elliot Spitzer (NY Attorney General) - The content of this letter should address specifically, this part of the 4/1/05 Press Release "concerns brought to the Audit Committee's attention relating to the internal control environment of the Company, the propriety of certain expenditures and the documentation of certain expenses of the Chairman and CEO of the Company, the Company's transparency and public disclosure process, the accuracy of certain public disclosures, management's conduct in response to the investigation, and the propriety of certain major transactions." Authors of the letter(s) should encourage the board to seek full monitary restituion directly to Xybernaut from the CEO and Chairman as referenced in this passage in line with Xybernaut Corporation's Indemnification agree from Xybernaut's SB filing back in 1996: "LIMITATION OF IABILITY AND INDEMNIFICATION MATTERS: The Company's Certificate of Incorporation provides that directors shall not be personally liable for monetary damages to the Company or its stockholders for breach of fiduciary duty as a director, except for liability resulting from a breach of the director's duty of loyalty to the Company or its stockholders, intentional misconduct or wilfull violation of law, actions or inactions not in good faith, an unlawful stock purchase or payment of a dividend under Delaware law, or transactions from which the director derives improper personal benefit. Such limitation of liability does not affect the vailability of equitable remedies such as injunctive relief or rescission. The Company's Certificate of Incorporation also authorizes the Company to indemnify its officers, directors and other agents, by bylaws, agreements or otherwise, to the fullest extent permitted under Delaware law. The Company intends to enter into an Indemnification Agreement (the "Indemnification Agreement") with each of its directors and officers which may, in some cases, be broader than the specific indemnification provisions contained in the Company's Certificate of Incorporation or as otherwise permitted under Delaware law. Each indemnification Agreement may require the Company, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as a director or officer, against liabilities arising from willful misconduct of a culpable nature, and to obtain directors' and officers' liability insurance if available on reasonable terms. Although the Company intends to obtain directors' and officers' liability insurance, there can be no assurance that the Company will qualify for such insurance or that such insurance will be available to the Company on acceptable terms. If the Company is unable or elects not to obtain directors' and officers'liability insurance, any payments required to be made by the Company with respect to its indemnification obligations will have an adverse impact on the Company's earnings, if any. At present, there is no pending litigation or proceeding involving a director, officer, employee or agent of the Company. The Company is not aware of any threatened litigation or proceeding which may result in a claim for such indemnification. It is the position of the Securities and Exchange Commission (the "Commission") that insofar as the foregoing provisions may be invoked to indemnify against liability for damages arising under the Act, such provisions are against public policy as expressed in the Act and are unenforceable.
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2) Seek to elect one or more board members to Xybernaut's Board of Directors from our group - Briefly, assuming the company is salvageable (and we may have to await the 10-K to get a better idea on that), one option would be to get a large enough group of shareholders together to nominate and elect one or more directors, from our numbers, to the board. The board's the key to any company, as it hires and fires the management. If you can get people you trust on the board, then you've got a better chance of ensuring the company is run for the shareholders' benefit. I suspect we can expect the company to fight tooth and nail against its owners (the shareholders) actually getting control of the company through board nominations. But if there's any solution that could work, I suspect that's the one.
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3) Knowing the cash bleeding that has gone on at Xybernaut, we should consider on a second front an attempt to secure a senior equity issue, with the companies Preferred Stock (since the common is well exhausted and valueless). The security for such an issue would be the companies assests. It would be a 3 to 5 year term, bearing a 8 to 10 % cumalative dividend, payable in cash or common stock, at it's annivesary date priced at $1,000 a share. This would be the impetus of securing board representation. at the same time spending would be reduced dramatically to get close to break even. There would be a $10,000,000 cap (plus expenses defrayed to each purchaser) on the issue. The offering would first and preferably be offered to current shareholdersm based on a current common holdings ratio, at a set date of record. The caveat, by participating 1) the company continues 2) common shares regain value 3) no matter what happens barring debt financing (which would be contolled by the board representation) what ever value is there would be the preferred holders. Note: the above cash, would hopefully be supplemented by any recovery (in cash/assets re: the Indemnification) should the allegation against the current CEO and Chairman be in fact, fact. A proposal of this type secures that the current common shareholders holdings can grow with, hopeful future success and those that want assurance of what book value Xybernaut may have can benefit by any sale of assets either as a company of for scrape. Hopefully, the later will never occur.
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