EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth certain information as of the Company's fiscal year ended December 31, 2002 regarding the shares of the Company's common stock available for grant or granted under stock option plans that were adopted by the Company's stockholders. The Company has no stock option plan that was not adopted by the Company's stockholders.
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Number of securities remaining
available for future issuance
Number of securities Weighted-average under equity compensation
to be issued upon exercise exercise price of plans (excluding securities in
of outstanding options outstanding options the first column of this table)
---------------------- ------------------- -------------------------------
Equity Compensation plans approved
by security holders 7,156,367 $3.13 2,900,880
Equity Compensation plans not approved by n/a n/a n/a
security holders
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 another entity, which has one or more executive officers who serve as a member of the Company's Board of Directors or Compensation Committee.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of April 24, 2003, certain information regarding the ownership of voting securities of the Company by each stockholder known to the management of the Company to be (i) the beneficial owner of more than 5% of the Company's outstanding Common Stock, (ii) the directors during the last fiscal year and nominees for director of the Company, (iii) the executive officers named in the Summary Compensation Table herein under "Executive Compensation" and (iv) all executive officers and directors as a group. The Company believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares.
Amount of Shares Percentage
Name Beneficially Owned Owned
---- ------------------ -----
M. Dewayne Adams 66,406 (1) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Eugene J. Amobi 660,000 (2) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Thomas D. Davis 100,609 (3) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
James S. Gilmore III, Esq. 50,000 (4) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Marc Ginsberg 0 *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Edward G. Newman 1,931,995 (5) 1.5%
12701 Fair Lakes Circle
Fairfax, Virginia 22033
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Steven A. Newman, M.D. 1,581,115 (6) 1.2%
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Phillip E. Pearce 125,000 (7) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
James J. Ralabate, Esq 363,726 (8) *
5792 Main Street
Williamsville, New York 14221
Lt. Gen. Harry E. Soyster (Ret.) 169,364 (9) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Kazuyuki Toyosato 200,000 (10) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Dr. Edwin Vogt 182,500 (11) *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Martin Eric Weisberg, Esq. 207,000 (12) *
405 Lexington Avenue
New York, New York 10174
Noritsugu Yamaoka 0 *
12701 Fair Lakes Circle
Fairfax, Virginia 22033
All officers and directors as a group
(14 persons) 5,637,715 (13) 4.3%
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* Less than 1%
(1) Includes 66,406 shares of Common Stock issuable upon exercise of currently exercisable options.
(2) Includes 370,000 shares of Common Stock issuable upon exercise of currently exercisable options.
(3) Includes 99,709 shares of Common Stock issuable upon exercise of currently exercisable options.
(4) Includes 50,000 shares of Common Stock issuable upon exercise of currently exercisable options.
(5) Includes (a) 761,950 shares of Common Stock beneficially owned by Mr. Newman's wife, Frances C. Newman, (b) 200,000 shares beneficially owned by an irrevocable trust established by Mr. Newman for the benefit of his children, (c) 28,900 shares beneficially owned by an irrevocable trust established by Mr. Newman for the benefit of his sister, (d) 28,900 shares beneficially owned by an irrevocable trust established by Mr. Newman for the benefit of his mother, (e) 9,000 shares owned by an irrevocable trust established by Dr. Steven A. Newman for which Mr. Newman is trustee and (f) 1,765 shares beneficially owned by Mr. Newman and Frances C. Newman as joint tenants. Mr. Newman disclaims beneficial ownership of all securities included in (a), (b), (c) and (d) above and this disclosure shall not be deemed an admission that Mr. Newman is the beneficial owner of these securities for purposes of Section 16 or for any other purpose.
(6) Includes (a) 1,122,134 shares of Common Stock issuable upon exercise of currently exercisable options and (b) 100,000 shares beneficially owned by an irrevocable trust established by Dr. Newman for the benefit of his children, for which shares Dr. Newman disclaims beneficial ownership.
(7) Includes 125,000 shares of Common Stock issuable upon exercise of currently exercisable options.
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(8) Includes 195,000 shares of Common Stock issuable upon exercise of currently exercisable options.
(9) Includes 150,000 shares of Common Stock issuable upon exercise of currently exercisable options.
(10) Includes 200,000 shares of Common Stock issuable upon exercise of currently exercisable options.
(11) Includes 182,500 shares of Common Stock issuable upon exercise of currently exercisable options.
(12) Includes (a) 180,000 shares of Common Stock issuable upon exercise of currently exercisable options, (b) 18,000 shares beneficially owned by Mr. Weisberg's children and (c) 9,000 shares beneficially owned by Mr. Weisberg's wife. Mr. Weisberg disclaims beneficial ownership of all shares owned by his wife and children.
(13) Includes 2,740,749 shares of Common Stock issuable to the group upon exercise of currently exercisable options.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the transactions described below, the Company did not secure an independent determination of the fairness and reasonableness of such transactions and arrangements with affiliates of the Company. In each instance described below, the disinterested directors (either at or following the time of the transaction) reviewed and approved the fairness and reasonableness of the terms of the transaction. The Company believes that each transaction was fair and reasonable to the Company and on terms at least as favorable as could have been obtained from non-affiliates. Transactions between any corporation and its officers and directors are subject to inherent conflicts of interest.
LEGAL SERVICES
The Company uses James J. Ralabate, Esq., a member of its Board of Directors, as its patent counsel. The Company had expenditures of $331,112, $421,333 and $174,468 during 2002, 2001 and 2000, respectively, in legal services payable to this director. These amounts represent gross payments made by the Company and the counsel is responsible for all overhead, professional, administrative and other expenditures incurred by his law firm. The law firm bills the Company in accordance with its established standard billing rates used in the past with its other clients. During 2002 and 2001, the Company represented the law firm's only significant client. During approximately half of 2002 and all of 2001 and 2000, the director also serves as the Company's processing agent for payments made to various other domestic and international law firms and agencies used to file and maintain patents and trademarks. The director is paid only the amount that is passed through to these other law firms and agencies and pays administrative services related to these services. The Company made additional payments of $274,040, $485,827 and $266,026 during 2002, 2001 and 2000, respectively, to this director's law firm related to services rendered by the director's law firm as the Company's processing agent for all foreign patent and trademark filing and prosecution expenses. The Company's management believes that the relationship with this law firm is based on arms-length terms and conditions.
The Company uses a law firm, in which Martin Eric Weisberg, Esq., its Secretary and member of its Board of Directors is a partner, for services related to financings, litigation, SEC filings and other general legal matters. The Company had expenditures of $464,067, $392,524 and $446,320 during 2002, 2001 and 2000, respectively, in legal services payable to this law firm. The law firm bills the Company in accordance with the established billing rates used with its other clients. As a result, the Company's management believes that the relationship with this law firm is based on arms-length terms and conditions.
OTHER RELATED TRANSACTIONS
During 2000, Xybernaut GmbH used a company to provide configuration and technical support services and a separate company to act as a distributor of the Company's hardware products. The executive officers of these two companies are the son and daughter-in-law of Edwin Vogt, a current consultant and member of the Board of Directors of the Company and a former Senior Vice President. During 2000, the Company incurred expenses related to the technical support services totaling $180,456 and recognized revenue related to distribution sales of its hardware products totaling $313,843. During 2000, the Company terminated its relationship with these two companies and established a reserve of $108,856 against the accounts receivable balance owed by one of the companies. This balance was written off in 2001. The company providing configuration and technical support services billed the Company using the established billing rates used with its other clients. Additionally, management periodically compared these billings against charges it would incur if these services were provided by a different provider. The agreement with the distributor was reached with similar terms and conditions provided to other resellers of the Company's products. As a result, the Company's management believes that the relationship with these companies was based on arms-length terms and conditions.
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Between November 2000 and February 2001, the Company loaned a net balance of $940,188 to Edward G. Newman, the Company's former President and current Chief Executive Officer and Chairman of the Board of Directors. The proceeds were used to prevent a forced sale of a portion of this officer's personal common stock holdings of the Company that secured a personal margin loan from an investment bank. The loan was made pursuant to a promissory note that was secured by shares of the officer's personal common stock holdings of the Company and accrued interest at 8% per year. On December 31, 2001, the Company's Board of Directors increased the number of shares securing the loan from 200,000 shares to 250,000 shares, extended the maturity date from December 31, 2001 to December 31, 2002 and reduced the interest rate to 6%, reflective of a general decline in interest rates over this period. On December 17, 2002, the $1,086,891 in outstanding principal and interest was repaid in full through the i) transfer by the officer to the Company of 1,108,343 shares of the Company's common stock personally held by the officer, which amount includes the shares that were pledged as collateral, which were valued at $681,631,and ii) cancellation of all of the officer's 742,049 options to purchase shares of the Company's common stock that had been granted prior to the date of repayment, which were valued at $405,260. Effective December 31, 2002, the Company cancelled the 1,108,343 shares of common stock transferred through this repayment. To determine the fair market value of the transfer of shares of stock and the cancellation of stock options, the Company used the market price of the Company's common stock on the date of repayment and the Black-Scholes option-pricing model, respectively. The outstanding principal and interest owed by the officer to the Company under this promissory note totaled $0 and $1,026,708 at December 31, 2002 and 2001, respectively. |
