SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934 (Amendment No. 1)
Check the appropriate box:
[ ] Preliminary Information Statement
[X] Definitive Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
CYBERLUX CORPORATION
(Name of Registrant As Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which the transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
CYBERLUX CORPORATION
4625 CREEKSTONE DRIVE, SUITE 100
RESEARCH TRIANGLE PARK
DURHAM, NORTH CAROLINA 27703
INFORMATION STATEMENT
PURSUANT TO SECTION 14
OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY
Durham, North Carolina
December 21, 2004
This information statement has been mailed on or about December 21, 2004
to the stockholders of record on December 13, 2004 (the "Record Date") of
Cyberlux Corporation, a Nevada corporation (the "Company") in connection with
certain actions to be taken by the written consent by the majority stockholders
of the Company, dated as of October 5, 2004. The actions to be taken pursuant to
the written consent shall be taken on or about January 10, 2005, 20 days after
the mailing of this information statement.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS AND NO STOCKHOLDER
MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN.
By Order of the Board of Directors,
/s/ Donald F. Evans
Chairman of the Board
2
NOTICE OF ACTION TO BE TAKEN PURSUANT TO THE WRITTEN CONSENT OF MAJORITY
STOCKHOLDERS IN LIEU OF A SPECIAL MEETING OF THE STOCKHOLDERS, DATED OCTOBER 5,
2004
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the following action will be taken pursuant
to a written consent of a majority of stockholders dated October 5, 2004, in
lieu of a special meeting of the stockholders. Such action will be taken on or
about January 10, 2005:
1. To Amend the Company's Articles of Incorporation, as amended, to
increase the number of authorized shares of common stock, par value $.001 per
share (the "Common Stock"), of the Company from 100,000,000 shares to
300,000,000 shares;
2. To ratify the selection of Russell Bedford Stefanou Mirchandani as
independent registered public accounting firm of the Company for the year ending
December 31, 2004; and
3. To elect four directors to the Company's Board of Directors, to hold
office until their successors are elected and qualified or until their earlier
resignation or removal.
OUTSTANDING SHARES AND VOTING RIGHTS
As of the Record Date, the Company's authorized capitalization
consisted of 100,000,000 shares of Common Stock, of which 20,745,924 shares were
issued and outstanding as of the Record Date. Holders of Common Stock of the
Company have no preemptive rights to acquire or subscribe to any of the
additional shares of Common Stock. As of the Record Date, the Company also had
800,000 shares of Series B preferred stock issued and outstanding. Each share of
Series B preferred stock is entitled to voting rights equal to ten times the
number of shares of Common Stock such holder of Series B Preferred Stock would
receive upon conversion of such holder's shares of Series B Preferred Stock. The
conversion price is $0.10 per share.
Each share of Common Stock entitles its holder to one vote on each
matter submitted to the stockholders. However, as a result of the voting rights
of the Series B preferred stockholders who hold at least a majority of the
voting rights of all outstanding shares of capital stock as of October 5, 2004,
will have voted in favor of the foregoing proposals by resolution dated October
5, 2004; and having sufficient voting power to approve such proposals through
their ownership of capital stock, no other stockholder consents will be
solicited in connection with this Information Statement. Donald F. Evans holds
275,103 shares of Series B preferred stock, Alan H. Ninneman holds 180,652
shares of Series B preferred stock, John W. Ringo holds 166,915 shares of Series
B preferred stock , Mark D. Schmidt holds 101,000 shares of Series B preferred
stock and David D. Downing holds 76,330 shares of Series B preferred stock.
Combined, they hold 83,255,000 votes out of a total of 99,915,905 possible votes
on each matter submitted to the stockholders. Donald F. Evans, Alan H. Ninneman,
John W. Ringo, Mark D. Schmidt and David D. Downing are the shareholders who
will have voted in favor of the foregoing proposals by resolution dated October
5, 2004.
Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as
amended, the proposals will not be adopted until a date at least 20 days after
the date on which this Information Statement has been mailed to the
stockholders. The Company anticipates that the actions contemplated herein will
be effected on or about the close of business on January 10, 2005.
The Company has asked brokers and other custodians, nominees and
fiduciaries to forward this Information Statement to the beneficial owners of
the Common Stock held of record by such persons and will reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.
3
This Information Statement will serve as written notice to stockholders
pursuant to Section 78.370 of the Nevada General Corporation Law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables sets forth, as of October 19, 2004, the number of and
percent of the Company's common stock beneficially owned by
o all directors and nominees, naming them,
o our executive officers,
o our directors and executive officers as a group, without naming them, and
o persons or groups known by us to own beneficially 5% or more of our common
stock:
The Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
A person is deemed to be the beneficial owner of securities that can be acquired
by him within 60 days from October 19, 2004 upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage ownership
is determined by assuming that options, warrants or convertible securities that
are held by him, but not those held by any other person, and which are
exercisable within 60 days of October 19, 2004 have been exercised and
converted.
4
TOTAL VOTES PERCENTAGE
NUMBER OF ENTITLED TO OF TOTAL
SHARES BE CAST ON VOTES ON
NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF SHAREHOLDER SHAREHOLDER
OF OWNER TITLE OF CLASS OWNED(1) CLASS (2) MATTERS (3) MATTERS (4)
---------------------------------------------------------------------------------------------------------------------
Donald F. Evans Common Stock 28,965,300 (5) 60.02% 28,965,300 (5) 28.75%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
Mark D. Schmidt Common Stock 10,300,000 (6) 33.39% 10,300,000 (6) 10.22%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
Alan H. Ninneman Common Stock 18,715,200 (7) 48.22% 18,715,200 (7) 18.58%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
John W. Ringo Common Stock 17,141,500 (8) 45.79% 17,141,500 (8) 17.01%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
David D. Downing Common Stock 8,133,000 (9) 28.66% 8,133,000 (9) 8.07%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
All Officers and Directors Common Stock 83,255,000 (10) 82.64% 83,255,000 (10) 83.33%
As a Group (5 persons)
=====================================================================================================================
Katherine Kurzman Preferred A 13 7.61%
800 West End Avenue
New York, NY 10025
Lon E. Bell Preferred A 10 5.85%
1819 N. Grand Oaks
Altadena, CA 91001
Wilson A. Knott Preferred A 10 5.85%
200 Red Bud Lane
Longwood, FL 32779
=====================================================================================================================
Donald F. Evans Preferred B 275,103 34.39%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
Mark D. Schmidt Preferred B 101,000 12.63%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
Alan H. Ninneman Preferred B 180,652 22.58%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
John W. Ringo Preferred B 166,915 20.86%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
David D. Downing Preferred B 76,330 9.54%
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, NC 27703
=====================================================================================================================
5
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of October 19, 2004 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) For purposes of calculating the percentage beneficially owned, the number of
shares of each class of stock deemed outstanding include 20,745,924 common
shares; 170.86 Preferred "A" Shares and 800,000 Preferred "B" Shares outstanding
as of October 19, 2004.
(3) This column represents the total number of votes each named shareholder is
entitled to vote upon matters presented to the shareholders for a vote.
(4) For purposes of calculating the percentage of total votes on shareholder
matters, the total number of votes entitled to vote on matters submitted to
shareholders is 100,745,924, which includes: one vote for each share of common
stock currently outstanding (20,745,924); and 100 votes for each share of Series
B preferred stock outstanding (800,000 shares of Series B stock * 100 =
80,000,000).
(5) Includes 275,103 shares of Series B convertible preferred stock convertible
into 27,510,300 shares of common stock and the right to cast 27,510,300 votes.
(6) Includes 101,000 shares of Series B convertible preferred stock convertible
into 10,100,000 shares of common stock and the right to cast 10,100,000 votes.
(7) Includes 180,652 shares of Series B convertible preferred stock convertible
into 18,065,200 shares of common stock and the right to cast 18,065,200 votes.
(8) Includes 166,915 shares of Series B convertible preferred stock convertible
into 16,691,500 shares of common stock and the right to cast 16,691,500 votes.
(9) Includes 76,330 shares of Series B convertible preferred stock convertible
into 7,633,000 shares of common stock and the right to cast 7,633,000 votes.
(10) Includes 800,000 shares of Series B convertible preferred stock convertible
into 80,000,000 shares of common stock and the right to cast 80,000,000 votes.
6
AMENDMENT TO THE ARTICLES OF INCORPORATION
On October 5, 2004, the majority stockholders of the Company approved
an amendment to the Company's Articles of Incorporation, as amended, to increase
the number of authorized shares of Common Stock from 100,000,000 to 300,000,000.
The Company currently has authorized capital stock of 100,000,000 shares and
approximately 20,745,924 shares of Common Stock are outstanding as of the Record
Date. The Board believes that the increase in authorized common shares would
provide the Company greater flexibility with respect to the Company's capital
structure for such purposes as additional equity financing, and stock based
acquisitions.
INCREASE IN AUTHORIZED COMMON STOCK
The terms of the additional shares of Common Stock will be identical to
those of the currently outstanding shares of Common Stock. However, because
holders of Common Stock have no preemptive rights to purchase or subscribe for
any unissued stock of the Company, the issuance of additional shares of Common
Stock will reduce the current stockholders' percentage ownership interest in the
total outstanding shares of Common Stock. This amendment and the creation of
additional shares of authorized common stock will not alter the current number
of issued shares. The relative rights and limitations of the shares of Common
Stock will remain unchanged under this amendment.
As of the Record Date, a total of 20,745,924 shares of the Company's
currently authorized 100,000,000 shares of Common Stock are issued and
outstanding. The increase in the number of authorized but unissued shares of
Common Stock would enable the Company, without further stockholder approval, to
issue shares from time to time as may be required for proper business purposes,
such as raising additional capital for ongoing operations, business and asset
acquisitions, stock splits and dividends, present and future employee benefit
programs and other corporate purposes.
The proposed increase in the authorized number of shares of Common
Stock could have a number of effects on the Company's stockholders depending
upon the exact nature and circumstances of any actual issuances of authorized
but unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
the Company more difficult. For example, additional shares could be issued by
the Company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of the Company, even if the persons seeking to obtain
control of the Company offer an above-market premium that is favored by a
majority of the independent shareholders. Similarly, the issuance of additional
shares to certain persons allied with the Company's management could have the
effect of making it more difficult to remove the Company's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal. The Company does not have any other provisions in its articles or
incorporation, by-laws, employment agreements, credit agreements or any other
documents that have material anti-takeover consequences. Additionally, the
Company has no plans or proposals to adopt other provisions or enter into other
arrangements, except as disclosed below, that may have material anti-takeover
consequences. The Board of Directors is not aware of any attempt, or
contemplated attempt, to acquire control of the Company, and this proposal is
not being presented with the intent that it be utilized as a type of anti-
takeover device.
Except for the following, there are currently no plans, arrangements,
commitments or understandings for the issuance of the additional shares of
Common Stock which are proposed to be authorized:
o SECURED CONVERTIBLE NOTES
To obtain funding for its ongoing operations, the Company entered into
a Securities Purchase Agreement with four accredited investors, AJW
Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners, LLC, on September 23, 2004 for the sale of
(i) $1,500,000 in convertible notes and (ii) warrants to buy 2,250,000
shares of our common stock. The investors are obligated to provide us
with an aggregate of $1,500,000 as follows:
7
o $500,000 was disbursed on September 23, 2004;
o $500,000 was disbursed on October 20, 2004; and
o $500,000 will be disbursed within five business days of the
effectiveness of the registration statement.
Accordingly, we have received a total of $1,000,000 pursuant to the
Securities Purchase Agreement. The proceeds received from the sale of
the secured convertible notes will be used for business development
purposes, working capital needs, pre-payment of interest, payment of
consulting and legal fees and purchasing inventory.
The secured convertible notes bear interest at 10%, mature two years
from the date of issuance, and are convertible into our common stock,
at the investors' option, at the lower of (i) $0.72 or (ii) 50% of the
average of the three lowest intraday trading prices for the common
stock on a principal market for the 20 trading days before but not
including the conversion date. As of October 26, 2004, the average of
the three lowest intraday trading prices for our common stock during
the preceding 20 trading days as reported on the Over-The-Counter
Bulletin Board was $.24 and, therefore, the conversion price for the
secured convertible notes was $.12. Based on this conversion price, the
$1,500,000 secured convertible notes, excluding interest, were
convertible into 12,500,000 shares of our common stock. If the
Company's stock price should decrease, the Company will be required to
issue substantially more shares, which will cause dilution to the
Company's existing stockholders. There is no upper limit on the number
of shares that may be issued, which will have the effect of further
diluting the proportionate equity interest and voting power of holders
of the Company's common stock.
The full principal amount of the convertible notes are due upon default
under certain terms of convertible notes. The Company is obligated to
register the resale of the conversion shares issuable upon conversion
of the notes under the Securities Act of 1933, as amended, no later
than thirty (30) days from September 23, 2004. The Company filed a
registration statement on Form SB-2 with the Securities and Exchange
Commission on October 13, 2004 registering the resale of the conversion
shares, which is currently being reviewed. In addition, management is
also obligated, pursuant to the Securities Purchase Agreement, to vote
in favor of an increase in the Company's common stock as well as to
recommend such increase to the Company's stockholders. In the event
that the increase in the Company's authorized common stock is not
approved, an event of default will exist upon the Company's failure to
rectify such default within ten days of receipt of a notice of default
from the investor and the investor may demand that all interest owed on
the secured convertible note be paid in either cash or common stock.
Furthermore, upon the event of default, the investors have a first
priority security interest in substantially all of our assets and can
take possession of them upon an event of default.
The following are the risks associated with entering into the
Securities Purchase Agreement:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR SECURED CONVERTIBLE NOTES AND
WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of October 19, 2004, we had 20,745,924 shares of common stock issued
and outstanding, secured convertible notes outstanding that may be converted
into an estimated 8,333,334 shares of common stock at current market prices and
an obligation to sell secured convertible notes that may be converted into an
estimated 4,166,667 shares of common stock at current market prices, Series B
convertible preferred stock outstanding that may be converted into 80,000,000
shares of common stock and outstanding warrants to purchase 1,500,000 shares of
common stock and an obligation to issue warrants to purchase 750,000 shares of
common stock in the near future. In addition, the number of shares of common
stock issuable upon conversion of the outstanding secured convertible notes may
increase if the market price of our stock declines. All of the shares, including
all of the shares issuable upon conversion of the notes and upon exercise of our
warrants, may be sold without restriction. The sale of these shares may
adversely affect the market price of our common stock.
8
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
NOTES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH
WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our secured
convertible notes is essentially limitless. The following is an example of the
amount of shares of our common stock that are issuable, upon conversion of our
secured convertible notes (excluding accrued interest), based on market prices
25%, 50% and 75% below the market price as of October 26, 2004 of $0.24 per
share.
Secured Convertible Notes
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 50% Issuable Stock
------ ----- ------ -------- -----
25% $.18 $.09 16,666,667 44.55%
50% $.12 $.06 25,000,000 54.65%
75% $.06 $.03 50,000,000 70.68%
As illustrated, the number of shares of common stock issuable upon
conversion of our secured convertible notes will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
NOTES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK, WHICH
COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The secured convertible notes are convertible into shares of our common
stock at a 50% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the investors convert and sells material amounts of common stock could
encourage short sales by investors. This could place further downward pressure
on the price of the common stock. The investors could sell common stock into the
market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise of
the secured convertible notes, but also the mere perception that these sales
could occur, may adversely affect the market price of the common stock.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE SECURED CONVERTIBLE NOTES AND
EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO
OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the secured convertible notes
and exercise of warrants may result in substantial dilution to the interests of
other stockholders since the investors may ultimately convert and sell the full
amount issuable on conversion. Although the investors may not convert their
secured convertible notes and/or exercise their warrants if such conversion or
exercise would cause them to own more than 4.9% of our outstanding common stock,
this restriction does not prevent the investors from converting and/or
exercising some of their holdings and then converting the rest of their
holdings. In this way, the investors could sell more than this limit while never
holding more than this limit. There is no upper limit on the number of shares
that may be issued which will have the effect of further diluting the
proportionate equity interest and voting power of holders of our common stock,
including investors in this offering.
9
IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE SECURED CONVERTIBLE NOTES AND REGISTERED PURSUANT TO A
REGISTRATION STATEMENT MAY NOT BE ADEQUATE AND WE MAY BE REQUIRED TO FILE A
SUBSEQUENT REGISTRATION STATEMENT COVERING ADDITIONAL SHARES. IF THE SHARES WE
HAVE ALLOCATED AND ARE REGISTERING HEREWITH ARE NOT ADEQUATE AND WE ARE REQUIRED
TO FILE AN ADDITIONAL REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN
CONNECTION THEREWITH.
Based on our current market price and the potential decrease in our
market price as a result of the issuance of shares upon conversion of the
secured convertible notes, we have made a good faith estimate as to the amount
of shares of common stock that we are required to register and allocate for
conversion of the secured convertible notes. Accordingly, we have allocated and
registered 22,222,224 shares to cover the conversion of the secured convertible
notes. In the event that our stock price decreases, the shares of common stock
we have allocated for conversion of the secured convertible notes and are
registering hereunder may not be adequate. If the shares we have allocated to
the registration statement are not adequate and we are required to file an
additional registration statement, we may incur substantial costs in connection
with the preparation and filing of such registration statement.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING SECURED CONVERTIBLE
NOTES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR
RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE SECURED CONVERTIBLE NOTES, IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIAL ASSETS.
In September 2004, we entered into a Securities Purchase Agreement for
the sale of an aggregate of $1,500,000 principal amount of secured convertible
notes. The secured convertible notes are due and payable, with 10% interest, two
years from the date of issuance, unless sooner converted into shares of our
common stock. Although we currently have $1,000,000 secured convertible notes
outstanding, the investor is obligated to purchase additional secured
convertible notes in the aggregate of $500,000. In addition, any event of
default such as our failure to repay the principal or interest when due, our
failure to issue shares of common stock upon conversion by the holder, our
failure to timely file a registration statement or have such registration
statement declared effective, breach of any covenant, representation or warranty
in the Securities Purchase Agreement or related convertible note, the assignment
or appointment of a receiver to control a substantial part of our property or
business, the filing of a money judgment, writ or similar process against our
company in excess of $50,000, the commencement of a bankruptcy, insolvency,
reorganization or liquidation proceeding against our company and the delisting
of our common stock could require the early repayment of the secured convertible
notes, including a default interest rate of 15% on the outstanding principal
balance of the notes if the default is not cured with the specified grace
period. We anticipate that the full amount of the secured convertible notes will
be converted into shares of our common stock, in accordance with the terms of
the secured convertible notes. If we are required to repay the secured
convertible notes, we would be required to use our limited working capital and
raise additional funds. If we were unable to repay the notes when required, the
note holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.
10
APPOINTMENT OF RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
The Board of Directors has appointed the firm of Russell Bedford
Stefanou Mirchandani LLP as the independent registered public accounting firm of
the Company for the year ending December 31, 2004. On October 5, 2004, the
majority stockholders ratified the selection of Russell Bedford Stefanou
Mirchandani LLP as the independent registered public accounting firm of the
Company for the year ending December 31, 2004.
The Company does not presently have an audit committee.
REVIEW OF THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2003
The Board of Directors met and held discussions with management and the
independent auditors. Management represented to the Board that the Company's
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States, and the Board reviewed and
discussed the consolidated financial statements with management and the
independent auditors. The Board also discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61
(Codification of Statements on Auditing Standards, AU 380), as amended.
In addition, the Board discussed with the independent auditors the
auditors' independence from the Company and its management, and the independent
auditors provided to the Board the written disclosures and letter required by
the Independence Standards Board Standard No. 1 (Independence Discussions With
Audit Committees).
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
met with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluation of the
Company's internal controls, and the overall quality of the Company's financial
reporting.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board has approved, that the
audited financial statements be included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2003, for filing with the Securities and
Exchange Commission.
AUDIT FEES
The aggregate fees billed by our auditors, for professional services
rendered for the audit of the Company's annual financial statements for the
years ended December 31, 2003 and 2002, and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-QSB during the
fiscal years were $31,439 and $35,025, respectively.
TAX FEES
Russell Bedford Stefanou Mirchandani LLP did not bill the Company for
tax related work during fiscal 2003 or 2002.
ALL OTHER FEES
Russell Bedford Stefanou Mirchandani LLP did not bill the Company for
any other services during fiscal 2003 or 2002.
The Board of Directors has considered whether the provision of
non-audit services is compatible with maintaining the principal accountant's
independence.
11
ELECTION OF DIRECTORS
On October 5, 2004, the majority stockholders of the Company elected
Donald F. Evans, Mark D. Schmidt, John W. Ringo and Alan H. Ninneman to the
Company's Board of Directors for a term of one year. Following is information
about each director, including biographical data for at least the last five
years.
The Board is responsible for supervision of the overall affairs of the
Company. In fiscal 2003, the Board's business was conducted at 20 meetings of
the board of directors. The Board now consists of five directors. The term of
each director continues until the next annual meeting or until successors are
elected. The directors are:
Name Age Position
--------------------------------------------------------------------------------
Donald F. Evans 69 Chief Executive Officer and Chairman of the Board
of Directors
Mark D. Schmidt 38 President, Chief Operating Officer and Director
John W. Ringo 59 Secretary, Corporate Counsel and Direector
Alan H. Ninneman 60 Senior Vice President and Director
Directors are elected at each meeting of stockholders and hold office until the
next annual meeting of stockholders and the election and qualifications of their
successors. Executive officers are elected by and serve at the discretion of the
board of directors.
DONALD F. EVANS. Mr. Evans has been our Chief Executive Officer and Chairman of
the Board since May 2000. Between 1979 and May 2000, Mr. Evans was the Managing
Partner of Research Econometrics, a North Carolina based corporation, where Mr.
Evans began an investigative research study into the feasibility of a long-term
electrochemical interim lighting system. From June 1996 until March 1999, Mr.
Evans represented the investment interest of Research Econometrics in Waste
Reduction Products Corporation, a privately held North Carolina corporation Mr.
Evans also served on the Board of Directors of Waste Reduction Products
Corporation. Mr. Evans graduated from the University of North Carolina, Chapel
Hill, NC with a BS Degree in Economics.
MARK D. SCHMIDT. Mr. Schmidt has been our President, Chief Operating Officer and
Director since May 2003. From December 1999 until December 2002, Mr. Schmidt was
a founder and executive of Home Director, Inc., the IBM Home Networking Division
spinoff company and a public company. Mr. Schmidt is a former IBM executive with
over 15 years of consumer marketing, business management and venture startup
experience. Mr. Schmidt graduated Summa Cum Laude with a Bachelor of Science
Degree in Engineering from North Carolina State University and earned an MBA
Degree from the Fuqua School of Business at Duke University.
JOHN W. RINGO. Mr. Ringo has been our Secretary, Corporate Counsel and a
Director since May 2000. Since 1990, Mr. Ringo has been in private practice in
Marietta, GA specializing in corporate and securities law. He is a former Staff
Attorney with the U. S. Securities and Exchange Commission, a member of the Bar
of the Supreme Court of the United States, the Kentucky Bar Association and the
Georgia Bar Association. Mr. Ringo graduated from the University of Kentucky in
Lexington, KY with a BA Degree in Journalism. Subsequently, he received a Juris
Doctor Degree from the University of Kentucky College of Law.
ALAN H. NINNEMAN. Mr. Ninneman has been our Senior Vice President and a Director
since May 2000. From 1992 until April 2000, Mr. Ninneman was a Chief Executive
Officer of City Software, Inc. based in Albuquerque, New Mexico. He was a senior
support analyst for Tandem Computer, San Jose, California from 1982 to 1985;
senior business analyst at Apple Computer, Cupertino, California from 1985 to
1987; and Director of Operations at Scorpion Technologies, Inc., San Jose,
California. Mr. Ninneman attended Elgin Community College, Elgin, IL and
subsequently majored in business administration at Southern Illinois University,
Carbondale, IL.
12
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended December 31, 2003, based upon an examination of the
public filings, our company's officers and directors are delinquent in filing
reports on Forms 3, 4 and 5.
The following table sets forth for the fiscal year indicated the compensation
paid by our company to our Chief Executive Officer and other executive officers
with annual compensation exceeding $100,000:
SUMMARY COMPENSATION TABLE:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) Awards($) (#) ($) Compensation
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Donald F. Evans 2003 180,000 0 0 - 700,000 - -
CEO & Chairman 2002 98,004 0 0 - - - -
2001 98,004 0 0 - 200,000 - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
John W. Ringo 2003 102,000 0 0 - 250,000 - -
Secretary and 2002 69,000 0 0 - - - -
Corporate Counsel 2001 69,000 0 0 - 150,000 - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Alan H. Ninneman 2003 102,000 0 0 - 250,000 - -
Senior Vice President 2002 78,000 0 0 - - - -
2001 78,000 0 0 - 150,000 - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Mark D. Schmidt 2003 120,000 (1) 0 0 - 550,000 - -
President & COO 2002 - - - - - - -
2001 - - - - - - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Annual compensation began accruing in the form of management fees as of
July 2000. The compensation indicated in the table is the annualized amount of
salary to be paid the respective officers in accordance with their employment
agreements. From 2001 forward, salaries have accrued in accordance with the
annualized salaries outlined in the table. Pursuant to their employment
agreements, Messrs. Evans, Ninneman and Ringo are to receive monthly salaries of
$8,167, $6,500, and $5,750 respectively. The salary accruals bear interest at
10% per annum and these obligations of the Company are to be retired from
revenues when product sales begin.
Salary accruals for Messrs. Evans, Ninneman and Ringo for the years
2001 and 2002 were $98,004, $78,000 and 69,000 respectively.
On January 1, 2003, the employment agreements of Messrs. Evans,
Ninneman and Ringo were amended to increase their annual salaries to $180,000,
$102,000 and $102,000, respectively.
(1) On May 1, 2003, Mark D. Schmidt entered into an employment agreement in
which he will be paid an annual salary of $180,000.
EMPLOYMENT AGREEMENTS
Donald F. Evans
On July 1, 2000, we entered into an eight-year employment contract with
Donald F. Evans to serve as Chief Executive Officer, which was amended on
January 1, 2003. The base salary under the agreement is $180,000 per annum, plus
benefits.
13
Alan H. Ninneman
On July 1, 2000, we entered into an eight-year employment contract with
Alan H. Ninneman to serve as Senior Vice President, which was amended on January
1, 2003. The base salary under the agreement is $102,000 per annum, plus
benefits.
John W. Ringo
On July 1, 2000, we entered into an eight-year employment contract with
John W. Ringo to serve as Secretary and Corporate Counsel, which was amended on
January 1, 2003. The base salary under the agreement is $102,000 per annum, plus
benefits.
Mark D. Schmidt
On May 1, 2003, we entered into an employment contract with Mark D.
Schmidt to serve as Executive Vice President and Chief Operating Officer until
June 30, 2008. The base salary under the agreement is $180,000 per annum, plus
benefits.
DIRECTORS' COMPENSATION
All directors are reimbursed for their reasonable expenses incurred in attending
meetings of the board of directors and its committees. Directors serve without
cash compensation and without other fixed remuneration.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted to executive
officers named in the Summary Compensation Table during the fiscal year ended
December 31, 2003:
-------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
-------------------------------------------------------------------------------
Donald F. Evans 100,000 %16.7 $0.001/Sh 2011
-------------------------------------------------------------------------------
John W. Ringo 100,000 %16.7 $0.001/Sh 2011
-------------------------------------------------------------------------------
Alan H. Ninneman 100,000 %16.7 $0.001/Sh 2011
-------------------------------------------------------------------------------
David D. Downing 50,000 %8.3 $0.001/Sh 2011
-------------------------------------------------------------------------------
STOCK OPTION PLANS
The Company has created an Employee Stock Option Plan for
incentive/retention of current key employees and as an inducement to employment
of new employees. The 2003 plan, which sets aside 2,000,000 shares of common
stock for purchase by employees, was made effective by the Board of Directors.
14
On September 2, 2003, our Board approved a 2004 Incentive Stock Option
Plan, which will provide 2,000,000 shares to underwrite options.
On April 8, 2004 our Board approved the 2005 Incentive Stock Option
Plan that provides for 12,000,000 shares to underwrite options.
The stock option plans are administered directly by our board of
directors.
Subject to the provisions of the stock option plans, the board will
determine who shall receive stock options, the number of shares of common stock
that may be purchased under the options, the time and manner of exercise of
options and exercise prices.
As of September 30, 2004, there were 2,000,000 stock options granted
under the 2003 plan that were outstanding.
15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We issued certain management fees, which were for accrued salaries for
Messrs. Evans, Ninneman, Ringo, Schmidt and Downing consistent with employment
agreements. These fees are in the form of non-interest bearing promissory notes.
$800,000 of these management fees were converted to Series B Convertible
Preferred stock with superior voting rights. Salary accruals in the form of
management fees for Messrs. Evans, Ninneman and Ringo are still owed in the
amounts of $125,401.95, $82,347.82 and $76,085.63, respectively.
Promissory notes were issued to certain officers for loans to the
Company for working capital. These Notes are listed as payable upon demand and
accrue interest at 12% per annum. Don F. Evans, David D. Downing, Alan H.
Ninneman loaned $13,100, $106,000 and $3,745, respectively. The terms of
transactions in this section are as fair to the Company as any transactions that
could have been made with unaffiliated parties.
We have no policy regarding entering into transactions with affiliated
parties.
16
ANNUAL AND QUARTERLY REPORT
Our Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 2003 and our Quarterly Reports on Form 10-QSB for the quarters ended March
31, 2004 and June 30, 2004, as filed with the SEC, excluding exhibits, are being
mailed to shareholders with this Information Statement. We will furnish any
exhibit to our Annual Report on Form 10-KSB or Quarterly Report on Form 10-QSB
free of charge to any shareholder upon written request to John W. Ringo,
Secretary, Cyberlux Corporation, 4625 Creekstone Drive, Suite 100, Research
Triangle Park, Durham, North Carolina 27703. The Annual Report and Quarterly
Report are incorporated in this Information Statement. You are encouraged to
review the Annual Report and Quarterly Report together with subsequent
information filed by the Company with the SEC and other publicly available
information.
By Order of the Board of Directors,
/s/ Donald F. Evans
Donald F. Evans
Chairman of the Board
Durham, North Carolina
December 21, 2004
17
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
CYBERLUX CORPORATION
The undersigned, being the Chief Executive Officer and Secretary of
CYBERLUX CORPORATION, a corporation existing under the laws of the State of
Nevada, do hereby certify under the seal of the said corporation as follows:
1. The certificate of incorporation of the Corporation is hereby amended by
replacing Article Fourth, in its entirety, with the following:
"FOURTH: The Corporation is authorized to issue two classes of
stock. One class of stock shall be Common Stock, par value $0.001. The
second class of stock shall be Preferred Stock, par value $0.001. The
Preferred Stock, or any series thereof, shall have such designations,
preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as shall
be expressed in the resolution or resolutions providing for the issue
of such stock adopted by the board of directors and may be made
dependent upon facts ascertainable outside such resolution or
resolutions of the board of directors, provided that the matter in
which such facts shall operate upon such designations, preferences,
rights and qualifications; limitations or restrictions of such class or
series of stock is clearly and expressly set forth in the resolution or
resolutions providing for the issuance of such stock by the board of
directors.
The total number of shares of stock of each class which the
Corporation shall have authority to issue and the par value of each
share of each class of stock are as follows:
Class Par Value Authorized Shares
----- --------- -----------------
Common $0.001 300,000,000
Preferred $0.001 5,000,000
-------------
Totals: 305,000,000"
2. The amendment of the articles of incorporation herein certified has
been duly adopted by the unanimous written consent of the Corporation's Board of
Directors and a majority of the Corporation's stockholders in accordance with
the provisions of Section 78.320 of the General Corporation Law of the State of
Nevada.
18
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment of the Corporation's Articles
of Incorporation, as amended, to be signed by Donald F. Evans, its Chief
Executive Officer, and John W. Ringo, its Secretary, this __th day of January,
2005.
CYBERLUX CORPORATION
By:
-----------------------------------------
Donald F. Evans, Chief Executive Officer
By:
-----------------------------------------
John W. Ringo, Secretary
19