<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 333-4156
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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XYBERNAUT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
3571
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
54-1799851
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
12701 FAIR LAKES CIRCLE, SUITE 550
FAIRFAX, VIRGINIA 22033
(703) 631-6925
(NAME, ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES AND PRINCIPAL PLACE OF BUSINESS)
EDWARD G. NEWMAN
12701 FAIR LAKES CIRCLE, SUITE 550
FAIRFAX, VIRGINIA 22033
(703) 631-6925
(NAME, ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S AGENT FOR SERVICE)
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Copies to:
MARIO V. MIRABELLI, ESQ.
BAKER & HOSTETLER
1050 CONNECTICUT AVENUE, N.W., SUITE 1100
WASHINGTON, DC 20036
(202) 861-1500
ROBERT W. WALTER, ESQ.
BERLINER ZISSER WALTER & GALLEGOS, P.C.
1700 LINCOLN STREET, SUITE 4700
DENVER, CO 80203
(303) 830-1700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /X/
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PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL
SHARES AND WARRANTS AS MAY BECOME ISSUABLE PURSUANT TO ANTI-DILUTION PROVISIONS
OF THE WARRANTS, EXCHANGE WARRANTS AND THE UNIT PURCHASE OPTION.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
CALCULATION OF REGISTRATION FEE
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<TABLE>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE(1) FEE
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<S> <C> <C> <C> <C>
Units, each consisting of one share of Common Stock,
$.01 par value and one redeemable Warrant.......... 2,300,000 $ 5.00 $11,500,000 $ 3,965.52
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Common Stock, $.01 par value(2)...................... 2,300,000 -- -- --
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Warrants(2).......................................... 2,300,000 $ 9.00 $20,700,000 $ 7,137.93
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Common Stock, $.01 par value(3)...................... 2,300,000 -- -- --
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Units, each consisting of one share of Common Stock,
$.01 par value and one redeemable Warrant(4)....... 1,431,429 $ 1.75 $ 2,505,000 $ 863.79
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Common Stock, $.01 par value(5)...................... 1,431,429 -- -- --
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Warrants(5).......................................... 1,431,429 $ 9.00 $12,882,861 $ 4,442.37
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Common Stock, $.01 par value(6)...................... 1,431,429 -- -- --
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Common Stock, $.01 par value(7)...................... 20,000 $ 1.75 $ 35,000 $ 12.07
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Unit Purchase Option(8).............................. 200,000 -- $ 10 --
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Units, each consisting of one share of Common Stock,
$.01 par value and one redeemable Warrant(9)....... 200,000 $ 6.00 $ 1,200,000 $ 413.79
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Common Stock, $.01 par value(10)..................... 200,000 -- -- --
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Warrants(10)......................................... 200,000 $ 9.00 $ 1,800,000 $ 620.69
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Common Stock, $.01 par value(11)..................... 200,000 -- -- --
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TOTAL........................................... $50,622,871 $17,456.16
Paid With Initial Filing........................ $15,078.48
Paid With This Filing........................... $ 2,377.68
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Included in the Units.
(3) Issuable upon exercise of the Warrants included in the Units.
(4) Issuable in exchange for the Company's outstanding 7% Exchangeable
Debentures Due 1997 (the "Debentures").
(5) Included in the Units issuable in exchange for the Debentures.
(6) Issuable upon exercise of the Warrants included in the Units issued in
exchange for the Debentures.
(7) Issuable upon exercise of a warrant held by a holder of one of the
Debentures.
(8) To be issued to the Representative.
(9) Issuable upon exercise of the Unit Purchase Option.
(10) Included in the Units underlying the Unit Purchase Option.
(11) Issuable upon exercise of the Warrants underlying the Unit Purchase Option.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE STRUCTURES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 25, 1996
PROSPECTUS
2,000,000 UNITS
XYBERNAUT CORPORATION
CONSISTING OF 2,000,000 SHARES OF COMMON STOCK AND
2,000,000 REDEEMABLE WARRANTS
All of the Units offered hereby are being sold by Xybernaut Corporation (the
"Company"). Each Unit consists of one share of Common Stock, $.01 par value (the
"Common Stock") and one redeemable warrant (the "Warrant"). The Warrants will be
immediately separately transferable from the Common Stock. Each Warrant entitles
the holder to purchase at any time from the date hereof until
, 1999, subject to the Company's earlier right of redemption as described
herein, one share of Common Stock at a price of $9.00. Commencing 18 months from
the date of this Prospectus and until the expiration of the Warrants, the
Company, in its discretion, may redeem outstanding Warrants, in whole but not in
part, upon not less than 30 days' notice, at a price of $.05 per Warrant,
provided that the closing bid price of the Common Stock equals or exceeds $18.00
for 20 consecutive trading days ending five days immediately prior to such
notice. See "Description of Securities."
Prior to this offering there has been no market for the Company's
securities. For a discussion of the factors considered in determining the
initial public offering price of the Units, see "Underwriting." It is currently
anticipated that the initial public offering price will be $5.00 per Unit.
Application has been made to include the Units, Common Stock, and Warrants on
The Nasdaq SmallCap Market under the trading symbols XYBRU, XYBR and XYBRW.
There can be no assurance that an active trading market in the Company's
securities will develop or be sustained.
Concurrent with this offering, the Company is registering for resale
1,431,429 units (the "Exchange Units") to be exchanged for $2,505,000 principal
amount of the Company's outstanding 7% Exchangeable Debentures Due 1997 (the
"Debentures"). Each Exchange Unit consists of one share of Common Stock and one
Warrant (the "Exchange Warrant"). The terms of the Exchange Warrants are
identical to those of the Warrants included in the Units. The Exchange Units may
be sold 180 days from the date of this Prospectus or earlier with the consent of
Royce Investment Group, Inc., the Representative of the Underwriters (the
"Representative"). See "Description of Securities" and "Shares Eligible for
Future Sale."
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AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 AND "DILUTION" BEGINNING ON PAGE 16.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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</TABLE>
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
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Per Unit....................... $5.00 $.50 $4.50
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Total(3)....................... $10,000,000 $1,000,000 $9,000,000
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</TABLE>
(1) The Company has agreed to issue and sell to the Representative, for nominal
consideration, an option to purchase 200,000 Units exercisable at $ per
Unit, a price equal to % of the Price to Public, and to pay the
Representative a non-accountable expense allowance equal to three percent
(3%) and a consulting fee equal to one percent (1%) of the aggregate gross
proceeds from the sale of the Units, including the Over-Allotment Option.
The Company also has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$850,000, including the Representative's non-accountable expense allowance.
(3) The Company has granted the Representative a 45-day option to purchase an
aggregate of up to 300,000 additional Units solely to cover over-allotments,
if any (the "Over-Allotment Option"). If the Over-Allotment Option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $11,500,000, $1,150,000 and
$10,350,000, respectively. See "Underwriting."
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The Units are offered by the Underwriters subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to the right
of the Underwriters to withdraw, cancel or modify such offer and reject orders
in whole or in part. It is expected that delivery of certificates representing
the Units will be made at the offices of the Representative on or about
, 1996.
ROYCE INVESTMENT GROUP, INC.
KENSINGTON WELLS INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4
Front: Pictures of Mobil Assistant hardware and of workers utilizing the Mobil
Assistant while performing technical tasks.
<PAGE> 5
[FOUR COLOR PICTURES TO COME]
Mobile Assistant(R) is a registered trademark, and Mobile Inspector(TM) is
a trademark, of Xybernaut Corporation. This Prospectus also contains trademarks
of other companies.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK AND WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
On the effective date of the Registration Statement of which this
Prospectus forms a part, the Company will become a "reporting company" under the
Securities Exchange Act of 1934 (the "1934 Act"). The Company intends to
register the Units, Common Stock and Warrants under the 1934 Act as of the
effective date of the Registration Statement. The Company is a "small business
issuer" as defined under Regulation S-B adopted under the Act and will file
reports with the Commission pursuant to the 1934 Act on forms applicable to
small business issuers.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may from time to time deem appropriate or as may be required by law.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information contained in this
Prospectus assumes (i) no exercise of the Representative's Over-Allotment
Option, and (ii) issuance of the Exchange Units for the Debentures. For a
description of the various risks associated with purchase of the Company's
Common Stock, see "Risk Factors."
THE COMPANY
The Company is engaged in the research, development and commercialization
of mobile computer systems and related software solutions designed to enhance
all aspects of personal productivity, especially in commercial, industrial and
military applications. The Company's first mobile computing product is the
patented Mobile Assistant(R), which is a full function body-worn,
voice-controlled personal computer with a head-mounted video display providing
true computing mobility through hands-free operation. With the speed, memory,
data processing, multimedia and communications capabilities of a desktop PC in a
lightweight unit, the Mobile Assistant(R) combines full function PC features
with simultaneous user mobility. The Mobile Assistant(R) with application
software is designed to allow workers with minimal training to perform complex
and time consuming tasks such as maintenance, repair and inspection of complex
technological and mechanical systems, retrieval and analysis of medical
information from remote locations, and coordination of remote commercial and
industrial activities and military field operations, in a more efficient manner
than current technology allows. Purchasers of Mobile Assistants(R) have
included, among others, AT&T, Rockwell International Corporation, Eaton
Corporation, Martin Marietta (now Lockheed Martin), SRI International and the
United States Army. Recently, Rockwell International Corporation, which
manufactures the computing unit utilized in the Mobile Assistant(R), licensed
from the Company the right to manufacture and market mobile computers utilizing
the intellectual property and related technical know-how which has been
developed by the Company.
Since the introduction of the first large mainframe computers in the
1950's, there has been an ongoing evolution in the computer industry which has
resulted in both reductions in the size of computer hardware and significant
increases in the number and scope of software applications. The Company believes
the next phase in this evolution will be the commercialization of mobile,
body-worn computers which will combine portability with new and expanded
software applications. Based upon the current size and projected growth of the
market for all types of portable computers (i.e., less than eight pounds), the
Company believes that there exists the potential to develop a substantial market
for mobile computer systems and related software. The Company also believes
that, with the advent of hands-free mobile computing, the Mobile Assistant(R)
can be used to capitalize on the development of new markets by providing
computer capability in environments and applications where computer capability
previously was unavailable due to environmental constraints and hardware and
software limitations.
The Mobile Assistant(R) utilizes technologically advanced features such as
real time, two-way video and audio communications through radio frequency
transmissions, integrated cellular linkups and conventional telephone lines,
global positioning system tracking capabilities, and access to information
through the Internet and World Wide Web. The head-mounted display unit includes
a two-way audio system, weighs less than 16 ounces and presents a monochrome
image that is approximately equivalent to that of a 14" VGA monitor. The
body-worn computing unit is designed with a case allowing operation in
environmental extremes in which conventional portable computers could not
previously operate, weighs less than three pounds and is capable of running
software applications designed for Microsoft Windows and Windows 95, DOS and SCO
UNIX.
The Company intends to utilize its software development expertise acquired
through custom programming, including development of a graphical user interface
and neutral data storage systems for United States intelligence agencies, to
create standard and custom software toolkits for commercial applications.
Software toolkits provide a cost-effective platform for user customized programs
for the storage, processing and retrieval of information necessary for specific
commercial, industrial, military and other applications. The Company is the
exclusive licensee for body-worn applications of the Mobile Inspector(TM), its
first custom software toolkit, which develops protocols and procedures to
facilitate inspection of commercial, industrial and military facilities and
equipment. The Company intends to integrate its hardware and software
capabilities to provide total mobile computing solutions, thereby capitalizing
on all aspects of the Company's expertise.
3
<PAGE> 7
The Company is developing mobile computing systems to provide simultaneous
"hands-free" access to computerized data and information to technical personnel
while working in various applications including:
- Commercial maintenance: There are over 5,460,000 mechanics and
technicians (U.S. Bureau of Labor, 1996) in the United States alone
engaged in the maintenance and repair of equipment in such industries as
construction, transportation and telecommunications.
- Military: The Mobile Assistant(R) has been tested by United States Army
technicians for the maintenance and repair of the AH64 Apache Attack
helicopter. The Army also is performing feasibility studies on more
specialized versions of body-worn computers, including components of the
Mobile Assistant(R), for coordination of personnel movement and artillery
support. There are an estimated 700,000 mechanics in the U.S. Armed
Forces.
- Emergency healthcare: The Mobile Assistant(R) is designed to provide a
direct voice, video and data link between emergency medical personnel and
emergency room physicians to facilitate the remote diagnosis and
treatment of patients and can transmit global positioning and patient
information to medical helicopters and other evacuation vehicles
transporting the critically ill and injured.
The Company's objective is to become a leading supplier of integrated
mobile computing systems for use in a broad variety of commercial, industrial
and military applications. The Company intends to achieve this objective by (i)
continuing development of the functions and capabilities of the Mobile
Assistant(R), (ii) achieving market penetration for planned application
development software toolkit products, (iii) expanding and developing specific
software applications for the Mobile Assistant(R) through introduction of custom
software toolkits, such as the Mobile Inspector(TM), (iv) initiating a sustained
marketing program for its hardware and software products through value added
resellers ("VARs") and original equipment manufacturers ("OEMs"), and (v)
establishing technological leadership through continuous systems innovation to
meet the needs of a broad range of end users. Through these strategies, the
Company believes it will be well positioned to take advantage of anticipated
growth and expansion of the mobile computing industry.
THE OFFERING
<TABLE>
<S> <C>
Securities offered...................... 2,000,000 Units, each Unit consisting of one share
of Common Stock and one Warrant. Each Warrant
entitles the holder to purchase one share of Common
Stock at a price of $9.00 per share at any time
from the date hereof until , 1999,
subject to the Company's right to redeem the
Warrants under certain circumstances. See
"Description of Securities -- Warrants."
Common stock outstanding prior to this
offering(1)........................... 10,387,789 shares
Common stock outstanding after this
offering(1)(2)........................ 13,819,218 shares
Use of Proceeds......................... The net proceeds of the offering will be used for:
(i) marketing and sales, (ii) acquisition of
inventory for the Mobile Assistant, (iii) research
and development, (iv) capital expenditures, (v)
repayment of indebtedness, (vi) acquisition of an
affiliate, and (vii) working capital, including
general and administrative expenses. See "Use of
Proceeds."
</TABLE>
<TABLE>
<CAPTION>
PROPOSED SYMBOLS NASDAQ
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<S> <C>
Units............................................................................ XYBRU
Common Stock..................................................................... XYBR
Warrants......................................................................... XYBRW
</TABLE>
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(1) Includes 1,800,000 shares of Common Stock held in escrow and subject to
release upon the Company achieving certain objectives in the 12-month
periods ending September 30, 1997, 1998 and 1999. Does not include 300
shares of Tech Virginia. See "Principal Stockholders -- Escrowed Shares."
(2) Excludes (i) 921,530 shares of Common Stock issuable upon the exercise of
currently outstanding options and warrants, (ii) 2,000,000 shares of Common
Stock issuable upon the exercise of the Warrants and 1,431,429 shares of
Common Stock issuable upon exercise of the Exchange Warrants, (iii) 600,000
shares of Common Stock issuable upon exercise of the Over-Allotment Option
and the shares issuable upon the exercise of the Warrants underlying the
Units in such Option, and (iv) up to 400,000 shares of Common Stock issuable
upon full exercise of the Representative's Unit Purchase Option (as
hereinafter defined) and Warrants included in the Unit Purchase Option. See
"Management" and "Underwriting."
4
<PAGE> 8
SUMMARY COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED MARCH
YEAR ENDED MARCH 31, DECEMBER 31, 31,
------------------------- ------------------------- -------------------------
1994 1995 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data(1):
Revenues...................... $ 16,981 $ 79,324 $ 52,250 $ 352,648 $ 27,074 $ 315,371
Operating expenses............ 56,541 1,325,715 873,472 2,211,675 452,243 769,580
Cost of sales................. 8,155 61,301 35,544 263,621 25,757 228,289
Net loss...................... (47,352) (1,303,892) (853,249) (2,141,190) (450,643) (699,386)
Net loss per share............ -- $ (0.12) $ (0.08) $ (0.18) $ (0.04) $ (0.06)
Weighted average shares
outstanding................. 10,200,244 11,164,748 10,984,499 11,793,120 11,715,505 11,803,618
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
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DECEMBER 31, 1995 ACTUAL PRO FORMA(2) ADJUSTED(3)
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)...................... $ (38,534) $ (535,174) $ 324,826 $ 8,474,826
Total assets................................... 1,393,538 1,093,255 2,233,255 9,671,964
Total liabilities.............................. 2,486,491 2,882,594 4,022,594 1,222,836
Stockholders' equity (deficit)................. (1,092,953) (1,789,339) (1,789,339) 8,449,128
</TABLE>
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(1) The Company changed from a fiscal year ended March 31 to a calendar year
ended December 31 effective for the transition period ended December 31,
1995.
(2) In April 1996 the Company sold $1,000,000 in principal amount of the
Debentures. Pro forma balance sheet information was prepared assuming these
Debentures were outstanding as of March 1996. See Note 13 to Combined
Financial Statements.
(3) Adjusted to give effect to the sale of 2,000,000 Units offered hereby at an
assumed offering price of $5.00 per Unit, and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
The Company was incorporated in Virginia in October 1990 and was
reincorporated in Delaware in April 1996. The Company's principal executive
offices are located at 12701 Fair Lakes Circle, Suite 550, Fairfax, Virginia,
22033, and its telephone number is (703) 631-6925. As used herein, the term
"Company" includes references to Xybernaut Corporation and Tech International of
Virginia, Inc., an affiliate of the Company. See "Certain Transactions -- Tech
International and Tech Virginia."
5
<PAGE> 9
RISK FACTORS
Investment in the Company's securities involves substantial risks, some of
which are summarized below. Prospective investors should carefully consider the
following risks, among others, concerning the Company and this offering prior to
investing.
HISTORY AND EXPECTATION OF FUTURE LOSSES; NEED FOR ADDITIONAL FINANCING
The Company was incorporated in October 1990 and commenced operations in
November 1992. In the fiscal years ended March 31, 1994 and 1995, the Company
incurred a net loss of $47,352 and $1,303,892, respectively. In the nine months
ended December 31, 1995, the Company incurred a net loss of $2,141,190. In the
three months ended March 31, 1996, the Company incurred a net loss of $699,386.
At March 31, 1996, the Company had an accumulated deficit of $4,233,727 and a
working capital deficit of $535,174. During the nine months ended December 31,
1995 and continuing to date, the Company has experienced severe cash flow
difficulties and a corresponding lack of liquidity, which has been addressed
through the sale of $2,505,000 in principal amount of the Debentures concluded
in April 1996. The Company has a limited operating history. The Company intends
to conduct significant additional research, development and testing which,
together with establishment of marketing and distribution capabilities, are
expected to require substantial funding and to result in continuing operating
losses for the foreseeable future. There can be no assurance that,
notwithstanding these efforts and the expenditure of substantial funds, the
Company ever will achieve substantial sales of any of its products or profitable
operations. In the event the Company continues to incur losses after the
application of proceeds from this offering or requires more working capital than
is currently anticipated, the Company would be required to raise additional
capital in order to fund its operations. There can be no assurance that the
Company will be capable of raising additional capital or that the terms upon
which such capital would be available to the Company would be acceptable, in
which case the Company could be required to curtail materially, suspend or cease
operations. The success of the Company will be affected by expenses, operational
difficulties and other factors frequently encountered in the development of a
business enterprise in a competitive environment, many of which may be beyond
the Company's control. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
GOING CONCERN QUALIFICATION
The report of the Company's independent accountants contains an explanatory
paragraph as to the Company's ability to continue as a going concern. Among the
factors cited by the independent accountants as raising substantial doubt as to
the Company's ability to continue as a going concern is that the Company has
incurred losses since inception and has a working capital deficit. There can be
no assurance that the Company will ever achieve significant revenues or
profitable operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements and
Notes thereto.
UNCERTAINTY OF MARKET DEVELOPMENT AND PRODUCT ACCEPTANCE
The mobile computing market is emerging and relatively undeveloped. The
Company sold its first Mobile Assistant(R) in 1993 and as of June 18, 1996 had
sold a total of 49 Mobile Assistants(R). Approximately 10 Mobile Inspector(TM)
software packages were sold by the licensor of the software prior to the Company
licensing the rights thereto. The Company recently has initiated marketing of
the Mobile Inspector(TM) but has not sold any Mobile Inspectors(TM) to date. The
size of the mobile computing market is currently limited by the high unit prices
of mobile computers as compared to laptops and other portable computers, the
specialized nature of each application and the need for custom applications and
system integration. The potential size of the market will be limited by the rate
at which prospective customers recognize and accept the functions and
capabilities of integrated mobile computing systems. There can be no assurance
that a significant market will develop for mobile computing systems or, if a
market develops, that the Mobile Assistant(R) and any of the Company's other
products will become a significant factor in any market which develops.
The commercial success of the Mobile Assistant(R), the Mobile Inspector(TM)
and any other product which the Company may develop will depend upon acceptance
by commercial, industrial and military markets, of
6
<PAGE> 10
which there can be no assurance. The Company believes that any product
acceptance will be substantially dependent upon educating the commercial,
industrial and military markets as to the capabilities, characteristics,
benefits and efficacy of the Mobile Assistant(R) and any of the Company's other
products, of which there can be no assurance. See "Business."
COMPETITION
The computer industry is intensely competitive and is characterized by
rapid technological advances, evolving industry standards and technological
obsolescence. Many of the Company's current competitors have longer operating
histories and greater financial, technical, sales, marketing and other resources
than the Company. In addition, there exist a number of large, well-capitalized
hardware companies such as IBM, Dell Computers, Compaq, Toshiba and Apple that
could, should they choose to do so, market mobile computers in direct
competition with the Company. The Company believes that the principal immediate
competitive factor which it will encounter will be the development of a
significant market for mobile computing. Assuming the development of such a
market, the principal competitive factors which the Company will encounter
include mobility, ease of use, adaptability to applications, integration of
functions and capabilities, and reliability as well as price, service and
support, and market presence. Other present or future competitors may develop
products or alternative technologies which render the Mobile Assistant(R), the
Mobile Inspector(TM) or the Company's planned products obsolete. The Company
currently considers InterVision, Phoenix Group, Computing Devices International,
a division of Ceridian Corporation, Texas Microsystems and a consortium of
Litton and TRW as competitors. At least two of these competitors have introduced
mobile computers which compete directly with the Mobile Assistant(R). There can
be no assurance that the Company will be able to compete successfully against
its competitors or that its patent will prevail over or can be enforced against
these and other competitors. See "Business -- Competition" and
"Business -- Intellectual Property."
DEPENDENCE UPON KEY SUPPLIERS
The Company purchases numerous parts and components from various suppliers,
which the Company assembles into the Mobile Assistant(R). Certain components are
currently purchased from single suppliers. The Company has not entered into
written agreements with its suppliers except for Rockwell International
Corporation ("Rockwell International") and Kopin Corporation ("Kopin"), its
primary suppliers for computing units and head-mounted displays, respectively.
Although the Company believes there are multiple sources for many parts and
components, the Company currently depends heavily on Rockwell International and
Kopin as well as on Sony Corporation, which has supplied the lithium-ion
batteries utilized by the Mobile Assistant(R). The Company's agreement with
Kopin obligates Kopin to provide a total of 1,200 head-mounted displays for the
Company's mobile computers. The Company is vulnerable to limits in supply and
pricing and product changes by its suppliers. Although management believes that
the Company could adapt to any such occurrences, supply interruptions could
necessitate changes in product design or assembly methods for the Mobile
Assistant(R) and cause the Company to experience temporary delays or
interruptions in supply while such changes are incorporated. Further, because
the order time for certain components may range up to approximately three
months, the Company also could experience delays or interruptions in supply in
the event the Company is required to find a new supplier for any of these
components. Any disruptions in supply of necessary parts and components from the
Company's key suppliers could have a material adverse effect on the Company's
results of operations.
At various times there have been shortages of components in the computer
hardware industry and certain components have been subject to limited allocation
by some of the Company's suppliers. The Company estimates that approximately 25%
of the Mobile Assistants(R) scheduled for delivery through March 31, 1996 have
been delayed by 60 days or more as a result of such shortages and limited
allocation. Any future shortage or limited allocation of components for the
Mobile Assistant(R) could have a material adverse effect on the Company. See
"Business -- Key Suppliers."
7
<PAGE> 11
SUBSTANTIAL DEPENDENCE UPON SINGLE PRODUCT; POSSIBILITY OF UNSUCCESSFUL NEW
PRODUCT DEVELOPMENT
The Mobile Assistant(R) is the Company's principal product, and its success
will depend upon its commercial acceptance, which cannot be assured. For single
unit purchases, the Mobile Assistant(R) currently is priced from $8,749 to
$22,000, depending upon the features included. As technological developments
cause declines in hardware costs, the Company expects that mobile computer sales
will be driven by system capabilities and integration. There is no assurance
that the Mobile Assistant(R) will offer the performance capabilities or features
that customers will value and, if not, the Company could be required to modify
the design of the Mobile Assistant(R). While the Mobile Inspector(TM) and the
Company's planned software toolkits are intended for use both with the Mobile
Assistant(R) and independently, there can be no assurance that a separate market
for the Company's existing and planned software products will develop. There can
be no assurance that any products, if sold, will generate significant revenues
or any profits. The Company also intends to modify the Mobile Assistant(R) for
use in other applications and to develop other products utilizing its core
technologies. Additional product development will result in the Company
incurring significant research and development expenses that may be
unrecoverable should commercialization of new products prove unsuccessful. The
Company also could require additional funding if research and development
expenses are greater than anticipated. There can be no assurance that the
Company will be successful in its future product development efforts or in
diversifying its product line. See "Business."
UNCERTAIN PROTECTION OF PATENT AND PROPRIETARY RIGHTS; NO ASSURANCE OF
ENFORCEABILITY OR SIGNIFICANT COMPETITIVE ADVANTAGE
The Company considers its patent, trade secrets, and other intellectual
property and proprietary information to be important to its business prospects.
In September 1995 the Company received a notification from the United States
Patent and Trademark Office (the "Patent Office") entitled "office action in
reexamination" which indicated that the Company's claims under its existing
patent for the Mobile Assistant(R) were subject to reexamination and had been
preliminarily rejected. In April 1996 the Company received notification that a
second reexamination request had been filed with the Patent Office by the same
party which had initiated the prior reexamination. In April 1996 the Patent
Office essentially held that the Company's patent had been upheld with respect
to the issues raised in the September 1995 reexamination. The ultimate validity
of the patent will not be resolved until the second reexamination request has
been decided. Approximately 65% of the Company's revenue for the nine months
ended December 31, 1995 and approximately 95% of the Company's revenue for the
three months ended March 31, 1996 were derived from product based upon the
patent. A final rejection of the Company's patent could have a material adverse
effect on the Company, including, but not limited to, its license agreement with
Rockwell International. The Company has granted to Rockwell International a
nonexclusive license to the patent and related technical know-how. See
"Business -- Marketing and Sales." In October 1995 the Company filed a patent
application covering additional embodiments and extensions of the technologies
used in the Mobile Assistant(R). Notwithstanding the foregoing, there can be no
assurance that the Company's pending patent application will issue as a patent,
that any issued patent will provide the Company with significant competitive
advantages or that challenges will not be instituted against the validity or
enforceability of any patent held by the Company. The cost of litigation to
uphold the validity and prevent infringement of patents can be substantial.
There also can be no assurance that others will not independently develop
similar or more advanced products, design patentable alternatives to the
Company's products or duplicate the Company's trade secrets. The Company may in
some cases be required to obtain licenses from third-parties or to redesign its
products or processes to avoid infringement. The Company licensed exclusive
rights for body-worn applications to the Mobile Inspector(TM) from a software
developer, the president of which is now a consultant to the Company. There can
be no assurance that the license will be sufficient to protect the Company's
right to the Mobile Inspector(TM). The Company also relies on trade secrets and
proprietary technology and enters into confidentiality agreements with its
employees and consultants. There can be no assurance that the obligation to
maintain the confidentiality of such trade secrets or proprietary information
will not be breached by employees or consultants or that the Company's trade
secrets or proprietary technology will not otherwise become known or be
independently developed by competitors in such a manner that the Company has no
practical recourse. See "Business -- Intellectual Property."
8
<PAGE> 12
LIMITED MARKETING AND DIRECT SALES EXPERIENCE; DEPENDENCE ON OTHERS FOR
MARKETING AND SALES
The Company only recently has begun to develop a sales organization to
market and sell its mobile computing products to VARs, OEMs and end users and
intends to accelerate development of its sales organization following completion
of this offering. The Company intends to rely upon a network of VARs and OEMs
and to enter into joint ventures and licensing or other collaborative
arrangements to market and sell its mobile computing products. The Company
currently is a party to VAR agreements with FC Imaging, Inc., Electronic
Surveillance Technologies Corporation and NeuroSystems Europe Limited and a
license agreement with Rockwell International. Such arrangements may result in a
loss of control by the Company over the marketing and sale of its products.
There can be no assurance that the Company will be successful in entering into
any such arrangements or be able effectively to manage and maintain its
relationships with others, or that any marketing and sales efforts undertaken
for the Company by others will be successful. The Company also intends to market
its products outside of the United States. A number of risks are inherent in
international transactions, such as the imposition of governmental controls
including restrictions on the exporting of currency, fluctuations in foreign
currency exchange rates, export license requirements, political and economic
instability, trade restrictions, changes in tariffs and difficulties and
expenses in managing international operations. These and other factors beyond
the Company's control may adversely affect the Company's ability to achieve
significant sales. See "Business."
DEPENDENCE UPON AND NEED FOR KEY PERSONNEL; LIMITED MANAGEMENT TEAM
The Company's success depends to a significant extent on Edward G. Newman,
its President, Chief Executive Officer and Chairman of its Board of Directors.
The loss of Mr. Newman would have a material adverse effect on the Company's
progress and ultimate likelihood of success. Because the Company is
substantially dependent on Mr. Newman's services and there are currently only
two other executive officers of the Company, the Company may be considered to
have limited management. Although the Company has entered into a three-year
employment agreement with Mr. Newman, this agreement may not assure the Company
the continued services of Mr. Newman. The Company has obtained a key-person life
insurance policy on the life of Mr. Newman in the amount of $2,000,000. The
Company's success also will depend upon its ability to attract and retain highly
qualified and experienced management and technical personnel. The Company faces
competition for such personnel from numerous other entities, many of which have
significantly greater resources than the Company. There can be no assurance that
the Company will be successful in recruiting such personnel, or that if
recruited such persons would succeed in establishing profitable operations for
the Company. See "Business" and "Management."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company has allocated $1,900,000 (23.3% of the estimated net proceeds
from this offering) to marketing and sales; $750,000 (9.2% of estimated net
proceeds) to manufacturing inventory of the Mobile Assistant(R); $2,870,118
(35.3% of estimated net proceeds) to research and product development; $500,000
(6.1% of estimated net proceeds) to capital expenditures; $279,882 (3.4% of
estimated net proceeds) to repayment of indebtedness to the Representative;
$50,000 (0.6% of estimated net proceeds) to the acquisition of an affiliate; and
$1,800,000 (22.1% of estimated net proceeds) to working capital. The Company's
success will depend in part on the discretion and judgment of the Company's
management with respect to the application and allocation of these proceeds.
Furthermore, management will retain broad discretion over the allocation of
amounts budgeted for working capital and proceeds received from the exercise of
Warrants, if any. See "Use of Proceeds," "Business" and "Management."
CUSTOMER CONCENTRATION
For the transitional period ended December 31, 1995, three of the Company's
customers, Rockwell International, SRI International and Scientific Applications
International Corporation (SAIC), accounted for 15%, 18% and 19%, respectively,
of the Company's revenues. For the three month period ended March 31, 1996,
Rockwell International accounted for 100% of the Company's revenues.
Accordingly, the Company is significantly dependent on revenues derived from
these customers. The loss of one or more significant
9
<PAGE> 13
customers may have a material adverse effect on the ability of the Company to
achieve profitability. To the extent the Company's dependence increases on large
corporate customers in the future, the Company will be subject to an increased
risk that the loss of any such customers will have a material adverse effect on
the Company's results of operations. Because of the Company's limited historical
revenues, the Company may remain dependent in the immediate future upon a
limited number of customers (the identity of which may be subject to change from
year to year) for a material percentage of its annual operating revenue. See
"Business."
RAPID TECHNOLOGICAL CHANGE AND RISK OF OBSOLESCENCE
The market for computer products is characterized by rapid technological
advances, evolving industry standards, changes in end user requirements and
frequent new product introductions and enhancements. The introduction of
products embodying new technologies and the emergence of new industry standards
could render the Company's existing products and products currently under
development obsolete and unmarketable. The Company's success will depend upon
its ability to enhance its current products and develop and successfully
introduce and sell new products that keep pace with technological developments
and respond to evolving end user requirements. Any failure by the Company to
anticipate or respond adequately to technological developments or end user
requirements, or any significant delays in product development or introduction,
could damage the Company's competitive position in the marketplace and reduce
revenues. The Company expects to increase the size of its product development
staff in the near term to meet these challenges. There can be no assurance that
the Company will be successful in hiring and training qualified product
development personnel to meet its needs. There can be no assurance that the
Company will be successful in developing and marketing new products or product
enhancements on a timely basis. Any failure to successfully develop and market
new products and product enhancements would have a material adverse effect on
the Company's results of operations. See "Business."
INDUSTRY CYCLICALITY
The computer industry historically has been affected by general economic
downturns which have had an adverse economic effect on manufacturers of computer
hardware and software as well as upon end users of computers. In addition, the
life cycle of existing computer products and timing of new product development
and introduction can affect demand for computer products. The Company's results
of operations for any particular period may be adversely affected by numerous
factors, such as the loss of key suppliers or customers, price competition,
problems encountered in managing inventories or receivables, the timing or
cancellation of purchase orders with suppliers and the timing of expenditures in
anticipation of increased sales and customer product delivery requirements, if
any. Price competition in the computer industry in which the Company competes is
intense and could result in gross margin declines which could have an adverse
impact on the Company's financial performance. See "Business."
EFFECT OF POSSIBLE NON-CASH FUTURE CHARGE
The Company's stockholders have been required by the Representative to
deposit an aggregate of 1,800,000 shares of Common Stock (at least 1,620,000 of
which are owned by officers and directors of the Company) into an escrow account
(the "Escrowed Shares"). The Escrowed Shares will be subject to release to such
stockholders in increments over a three-year period only in the event the
Company's gross revenues and earnings (loss) per share for the 12-month periods
ending September 30, 1997, 1998 and 1999 equal or exceed certain gross revenue
and earnings (loss) per share targets which have been established through
negotiations with the Representative (the "Performance Targets"). If the
Performance Targets are not met in any of the relevant 12-month periods (and the
price of the Common Stock does not meet or exceed the price described below),
the Escrowed Shares will be returned to the Company in amounts which have been
agreed upon between the Representative and the Company for each period and
cancelled. In addition to the foregoing, all then Escrowed Shares will be
released to the stockholders if the closing price of the Common Stock as
reported on The Nasdaq SmallCap Market following this offering equals or exceeds
$11.00 for 25 consecutive trading days or 30 out of 35 consecutive trading days
during the period ending September 30, 1999. In the event any Escrowed Shares
held by officers, employees and consultants are released, the
10
<PAGE> 14
difference between the initial offering price and the market value of such
shares at the time of release will be deemed to be additional compensation
expense to the Company. Assuming the price of Common Stock is equal to or
greater than the assumed offering price of $5.00 per Unit (of which there can be
no assurance), the release of the Escrowed Shares could result in an earnings
charge which would have the effect of reducing or eliminating any earnings per
share and could have a negative effect on the market price for the Common Stock.
The earnings per share target calculation will be based on the average number of
shares issued and outstanding during each period, but excluding shares issued
pursuant to the Representative's Unit Purchase Option (as hereinafter defined),
extraordinary items, or compensation expense charged to the Company related to
the release of the Escrowed Shares. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Principal Stockholders."
CONTROL BY EXISTING STOCKHOLDERS
Following this offering, the Company's executive officers, directors and
principal stockholders will, in the aggregate, beneficially own approximately
63.4% of the Company's outstanding shares of Common Stock (assuming the exercise
of their currently exercisable options to purchase the Company's Common Stock).
These stockholders, if acting together, will be able effectively to control most
matters requiring approval by the stockholders of the Company, including the
election of directors. The voting power of these stockholders under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company. See "Management," "Principal Stockholders" and
"Description of Securities."
ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE PRICE VOLATILITY
The initial public offering price of the Units and the exercise prices and
other terms of the Warrants have been determined by negotiations between the
Company and the Representative and are not related to the Company's asset value,
net worth or results of operations or other investment criteria. The market
prices for securities of emerging technology companies historically have been
highly volatile. Future announcements concerning the Company or its competitors,
including the results of testing, technological innovations or new commercial
products, government regulations and developments concerning proprietary rights
or litigation may have a significant impact on the market price of the Company's
securities. See "Underwriting."
DILUTION
This offering will result in immediate substantial dilution of $4.40
(88.0%) per share, which amount represents the difference between the pro forma
net tangible book value per share after this offering and the assumed public
offering price of $5.00 per Unit, assuming no part of the Unit offering price is
allocated to the Warrants. See "Dilution."
LIMITATION OF LIABILITY
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable for monetary damages to the Company or
its stockholders for a breach of fiduciary duty as a director, subject to
limited exceptions. Although such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission,
these provisions of the Certificate of Incorporation could prevent the recovery
of monetary damages against directors of the Company. See "Management --
Limitation of Liability and Indemnification Matters."
WARRANT EXERCISE AND REDEMPTION PROVISIONS
Each Warrant offered hereby entitles the holder to purchase one share of
Common Stock at a price of $9.00 per share commencing on, and expiring three
years from, the date hereof. The Warrants may be exercised only if a current
prospectus relating to the Common Stock underlying the Warrants is then in
effect and only if such shares are qualified for sale under applicable state
securities laws of the states in which holders of the Warrants reside. There can
be no assurance that the Company will be successful in maintaining a current
prospectus in effect during the Warrant exercise period. The Warrants may be
rendered valueless in
11
<PAGE> 15
the event this Prospectus or another prospectus covering the shares issuable
upon exercise of the Warrants is not kept current or if the shares are not
registered or otherwise qualified in the state in which the holder of the
Warrant resides. Although during this offering the Warrants will not knowingly
be sold in any jurisdiction in which they are not registered or otherwise
qualified, purchasers of the Warrants may relocate to a jurisdiction in which
the Common Stock underlying the Warrants is not so registered or qualified. In
addition, purchasers of the Warrants in the open market may reside in a
jurisdiction in which the Common Stock underlying the Warrants is not registered
or qualified. If the Company is unable or chooses not to register or qualify or
maintain the registration or qualification of the Common Stock underlying the
Warrants for sale in all of the states in which the Warrant holders reside, the
Company would not permit such Warrants to be exercised and Warrant holders in
those states may have no choice but either to sell their Warrants or let them
expire. Prospective investors and other interested persons can inquire
concerning whether Common Stock may be issued upon the exercise of Warrants by
holders in a particular state by sending a written inquiry to the Company or the
Representative. Commencing 18 months from the date hereof, the Warrants may be
redeemed by the Company, in whole but not in part, upon 30 days prior written
notice at a price of $.05 per Warrant at such time as the closing bid price of
the Common Stock on the Nasdaq SmallCap Market has equaled or exceeded $18.00
for 20 consecutive trading days. The redemption notice must be provided not more
than five business days after the conclusion of the 20 consecutive trading days
for which the closing bid price of the Common Stock has equaled or exceeded
$18.00 per share. While the Warrants may be exercised during the 30-day notice
period prior to the date of redemption, the holder may be unable (for financial
or other reasons) to exercise the Warrants at the time of receipt of the notice
of redemption. The foregoing terms also are applicable to the Exchange Warrants.
See "Description of Securities -- Warrants."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock in
the public market following this offering could adversely affect the market
price of the Common Stock. Of the 13,819,218 shares of Common Stock to be
outstanding upon the completion of this offering, the 2,000,000 shares sold in
this offering and included in the Units will be freely tradeable and the
1,431,429 shares of Common Stock, 1,431,429 Exchange Warrants and, upon exercise
thereof, 1,431,429 shares of Common Stock underlying the Exchange Warrants, all
of which are registered on the Registration Statement of which this Prospectus
forms a part, will be freely tradeable 180 days from the date hereof, or earlier
with the consent of the Representative. The remaining 10,387,789 shares of the
Common Stock are eligible for sale in the public market, subject to compliance
with Rule 144 under the Act. Rule 144 generally provides that beneficial owners
of shares who have held such shares for two years may sell within a three-month
period a number of shares not exceeding the greater of one percent of the total
outstanding shares or the average trading volume of the shares during the four
calendar weeks preceding such sale. In the absence of agreements with the
Representative, the outstanding restricted Common Stock could be sold in
accordance with Rule 144 commencing 90 days from the date of this Prospectus and
at various times thereafter through November 1997. However, pursuant to the
terms of the Underwriting Agreement, the Representative has required that the
holders of 10,180,543 shares enter into lock-up agreements which restrict the
sale or disposition of such shares for two years from the date of this
Prospectus without the prior written consent of the Representative. The
Representative also has required that holders of the remaining 207,246
restricted shares enter into lock-up agreements which restrict the sale or
disposition of such shares for 12 months from the date of this Prospectus
without the prior written consent of the Representative. See "Shares Eligible
for Future Sale."
SECURITIES ISSUABLE PURSUANT TO OPTIONS, WARRANTS AND REPRESENTATIVE'S UNIT
PURCHASE OPTION
At the date of this Prospectus, the Company has reserved an aggregate of
921,530 shares of Common Stock for issuance on exercise of outstanding options
and warrants. The exercise prices of the options presently outstanding are $0.01
per share for 250,000 shares granted in September 1994 and $6.00 per share for
551,530 shares granted between April 1995 and June 1996. The exercise price of
the warrants is $1.75 per share for 20,000 warrants granted in November 1995 and
$6.00 per share for 100,000 warrants granted in April 1996. At the completion of
this offering, the Representative will receive an option (the "Unit Purchase
Option") to purchase 200,000 Units at a price of $ per Unit ( % of
the offering price of the Units)
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<PAGE> 16
during a period of four years commencing one year from the date of this
Prospectus. During the terms of the outstanding options, warrants and the Unit
Purchase Option, the holders are given the opportunity to profit from a rise in
the market price of the Common Stock, and their exercise may dilute the
ownership interest of existing stockholders, including investors in this
offering. The existence of the options, the warrants and the Unit Purchase
Option may adversely affect the terms on which the Company may obtain additional
equity financing. Moreover, the holders are likely to exercise their rights to
acquire Common Stock at a time when the Company would otherwise be able to
obtain capital on terms more favorable than could be obtained through the
exercise of such securities. See "Description of Securities" and "Underwriting."
NO DIVIDENDS ANTICIPATED
The Company has never paid any dividends on its securities and does not
anticipate the payment of dividends in the foreseeable future. See "Description
of Securities -- Dividend Policy."
ABSENCE OF PUBLIC MARKET
Prior to this offering, there has been no public trading market for the
Units, Common Stock or Warrants. Although the Company has applied for inclusion
of the Units, Common Stock and Warrants on The Nasdaq SmallCap Market, there can
be no assurance that an active market in any of these securities will develop
or, if such a market develops, that it will be sustained. Most of the Company's
current stockholders acquired their shares at a cost substantially below the
offering price. To the extent the Company incurs losses, investors in this
offering will bear a disproportionate risk of such losses. See "Shares Eligible
for Future Sale."
POSSIBLE RESTRICTIONS ON MARKET-MAKING ACTIVITIES IN THE COMPANY'S SECURITIES
Rule 10b-6 under the 1934 Act will prohibit the Representative from
engaging in any market-making activities with regard to the Company's securities
for the period from nine business days (or such other applicable period as Rule
10b-6 may provide) prior to any solicitation by the Representative of the
exercise of Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that the
Representative may have to receive a fee for the exercise of Warrants following
such solicitation. As a result, the Representative may be unable to make a
market in the Company's securities during certain periods while the Warrants are
exercisable. Any temporary cessation of such market-making activities could have
an adverse effect on the market prices of the Company's securities. See
"Underwriting."
RIGHTS OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of $.01 par value preferred stock (the "Preferred Stock"). As
of the date of this Prospectus, none of the shares of Preferred Stock are issued
and outstanding. The authorized and unissued Preferred Stock may be issued with
voting, conversion or other terms determined by the Board of Directors which
could be used to delay, discourage or prevent a change of control of the
Company. Such terms could include, among other things, dividend payment
requirements, redemption provisions, preferences as to dividends and
distributions and preferential voting rights. The issuance of Preferred Stock
with such rights could have the effect of limiting stockholder participation in
certain transactions such as mergers or tender offers and could discourage or
prevent a change in management of the Company. The Company has no present
intention to issue any Preferred Stock. See "Description of
Securities -- Preferred Stock."
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<PAGE> 17
USE OF PROCEEDS
The Company estimates that the cash proceeds from the sale of the 2,000,000
Units offered in this offering will be approximately $8,150,000 ($9,440,000 if
the Over-Allotment Option is exercised in full) after deducting underwriting
discounts and commissions and expenses of this offering. The Company intends to
apply the net proceeds of this offering as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
APPLICATION OF PROCEEDS AMOUNT NET PROCEEDS
- --------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Marketing and sales(1)............................................... $1,900,000 23.3%
Acquisition of inventory for the Mobile Assistant(R)................. 750,000 9.2
Research and development(2).......................................... 2,870,118 35.3
Capital expenditures................................................. 500,000 6.1
Repayment of indebtedness(3)......................................... 279,882 3.4
Acquisition of affiliate(4).......................................... 50,000 0.6
Working capital(5)................................................... 1,800,000 22.1
---------- ------
Total........................................................... $8,150,000 100.0%
========= ==========
</TABLE>
- ---------------
(1) Includes continued development of the Company's marketing capability for the
Mobile Assistant(R), the Mobile Inspector(TM) and the Company's proposed
products, expanding marketing and sales of the Mobile Assistant(R), and
establishing a distribution network or entering into joint ventures,
partnerships, licensing or similar collaborative arrangements. See
"Business."
(2) Includes (i) continued development and testing of the various custom
hardware and software applications of the Mobile Assistant(R), and (ii)
research and development of other products using Mobile Assistant(R)
technology, including the development of software toolkits.
(3) Represents commissions and expenses payable to the Representative for
serving as placement agent in the sale of the Debentures. See
"Underwriting."
(4) Simultaneous with the closing of this offering the Company will acquire all
of the issued and outstanding shares of Tech International of Virginia,
Inc., which is owned by Edward G. Newman, the Company's President, Chief
Executive Officer and Chairman of the Board of Directors, and Steven A.
Newman and Eugene J. Amobi, directors of the Company. The purchase price was
established with Messrs. Newman, Newman and Amobi and approved by the
Company's disinterested directors. See "Certain Transactions."
(5) Working capital will be used for corporate and other general and
administrative purposes including the costs attributable to the Company's
public reporting obligations and the payment of accrued salaries and expense
reimbursement from Tech Virginia as follows: Eugene J. Amobi, $145,000;
Edward G. Newman, $40,500; Steven A. Newman, $40,500. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Certain Transactions."
The net proceeds, if any, from the exercise of the Over-Allotment Option,
the Warrants, the Exchange Warrants or the Unit Purchase Option will be added to
working capital.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this offering during a minimum of the next 12 months. This
estimate is based upon certain assumptions, including that research, development
and testing of the Company's technology can be completed at anticipated costs.
Projected expenditures are estimates or approximations only. Future events,
including the delays, expenses and complications frequently encountered by
companies in an early stage of development, changes in economic, regulatory, or
competitive conditions, or the success or lack thereof of the Company's
development and sales and marketing efforts during the 12-month period following
completion of this offering or thereafter may necessitate reallocation of funds
and curtailment of certain planned expenditures. Any changes in the utilization
of the proceeds of this offering will be at the discretion of the Company.
Until used, the net proceeds of this offering will be invested in
short-term interest-bearing securities, money market funds or United States
government securities.
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<PAGE> 18
DILUTION
The following tables and discussion assume that no part of the Unit
offering price is allocated to the Warrants.
At March 31, 1996, the Company's net tangible deficit was $2,252,494, or
$0.22 per share. Net tangible deficit per share is determined by dividing the
Company's tangible assets less total liabilities by the number of shares of
Common Stock outstanding. Adjusted net tangible worth is $112,506, or $0.01 per
share, and gives effect to the exchange of all of the Company's Debentures for
1,431,429 Exchange Units. Assuming no changes in the adjusted net tangible book
value at March 31, 1996 other than to give effect to the sale of 2,000,000 Units
by the Company (based on an assumed initial public offering price of $5.00 per
Unit after deducting underwriting discounts and commissions and other estimated
offering expenses) the Company's pro forma net tangible book value at March 31,
1996 would have been $8,262,506 or $0.60 per share, representing an immediate
increase in net tangible book value of $0.82 per share to existing stockholders
and an immediate dilution of $4.40 (88.0%) per share to purchasers of Units in
this offering. Dilution to Unit purchasers is determined by subtracting pro
forma net tangible book value per share of Common Stock immediately after
completion of this offering from the assumed initial public offering price per
Unit. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Unit............................... $5.00
Net tangible deficit per share at March 31, 1996........................... $(0.22)
Increase per share attributable to Debenture exchange(1)................... 0.23
Increase per share attributable to Unit purchasers......................... 0.59
------
Pro forma net tangible book value per share after the offering............... 0.60
-----
Dilution in net tangible book value per share to Unit purchasers............. $4.40
=====
</TABLE>
- ---------------
(1) Assumes the issuance of 1,431,429 shares of Common Stock included in the
Exchange Units. Does not include the shares of Common Stock underlying the
Exchange Warrants.
The following table sets forth as of March 31, 1996 (i) the number of
shares of Common Stock issued by the Company to the existing stockholders and
the number of shares of Common Stock issuable in exchange for the Debentures,
the total consideration paid and the average price per share paid for such
shares by the existing stockholders, and (ii) the 2,000,000 shares of Common
Stock to be included in the Units, the total consideration to be paid and the
price per share to be paid by Unit purchasers:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 10,372,789 75.1% $ 2,282,634 15.4% $ 0.22
Stockholders from exchange of
Debentures(1)............................ 1,431,429 10.4 2,505,000 17.0 1.75
Unit purchasers............................ 2,000,000 14.5 $10,000,000 67.6 5.00
---------- ------- ----------- -------
Total................................. 13,804,218 100.0% $14,787,634 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) Assumes the issuance of 1,431,429 shares of Common Stock included in the
Exchange Units. Does not include the shares of Common Stock underlying the
Exchange Warrants.
The foregoing information assumes no exercise of the Over-Allotment Option,
outstanding options and warrants to purchase the Common Stock, the Warrants, the
Exchange Warrants or the Representative's Unit Purchase Option or underlying
Warrants. See "Description of Securities" and "Underwriting." To the extent that
currently outstanding options and warrants are exercised, there will be further
dilution to Unit purchasers in this offering.
15
<PAGE> 19
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
at March 31, 1996 and as adjusted to reflect (i) the sale by the Company of
2,000,000 Units offered hereby at an assumed initial public offering price of
$5.00 per Unit and the application of the net proceeds therefrom, and (ii) the
exchange of all outstanding Debentures for 1,431,429 Exchange Units (excluding
shares in exchange for accrued interest, if any). See "Use of Proceeds." The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Combined Financial Statements and Notes thereto and other
financial information included in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996(1)
--------------------------------
PRO FORMA(2) AS ADJUSTED(3)
------------- ---------------
<S> <C> <C>
Long-term debt:
Notes and loans payable..................................... $ 70,965 $ 70,965
Debentures.................................................. 2,505,000 --
------------- ---------------
Total long-term debt........................................ 2,575,965 70,965
------------- ---------------
Stockholders' equity:
Preferred Stock
5,000,000 shares authorized; no shares outstanding.......... -- --
Common Stock
30,000,000 shares authorized; 10,372,789 shares outstanding;
13,804,218 shares outstanding, as adjusted................. 103,731 138,045
Additional paid-in capital....................................... 2,340,657 12,544,810
Accumulated deficit.............................................. (4,233,727) (4,233,727)
------------- ---------------
Total stockholders' equity (deficit)........................ (1,789,339) 8,449,128
------------- ---------------
Total capitalization........................................ $ 786,626 $ 8,520,093
=========== ===========
</TABLE>
- ---------------
(1) Sets forth capitalization of the Company and Tech Virginia as of such date.
Shares of Common Stock outstanding do not include 300 outstanding shares of
Tech Virginia.
(2) In April 1996 the Company sold $1,000,000 in principal amount of the
Debentures. Pro forma balance sheet information was prepared assuming all
Debentures were outstanding in March 1996. See Note 13 to Combined Financial
Statements.
(3) Does not include (i) 600,000 shares issuable upon exercise of the
Over-Allotment Option and the shares issuable upon exercise of the Warrants
underlying the Units in such Option, (ii) 2,000,000 shares issuable upon
exercise of the Warrants and 1,431,429 shares issuable upon exercise of the
Exchange Warrants, (iii) 200,000 shares issuable upon exercise of the Unit
Purchase Option and 200,000 shares issuable upon exercise of the Warrants
included therein, and (iv) 921,530 shares of Common Stock issuable upon the
exercise of the outstanding options and warrants. See "Management,"
"Description of Securities" and "Underwriting."
16
<PAGE> 20
SELECTED FINANCIAL DATA
The combined selected historical financial data set forth below as of
December 31, 1995 and March 31, 1994 and 1995 and for the nine months ended
December 31, 1995 and for each of the two years in the period ended March 31,
1995 has been derived from the financial statements of the Company included
elsewhere herein which have been audited by Coopers & Lybrand L.L.P.,
independent accountants (whose report thereon includes an explanatory paragraph
which refers to conditions that raise substantial doubt about the Company's
ability to continue as a going concern) and should be read in conjunction with
those financial statements (including the notes thereto) and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
appearing elsewhere in this Prospectus. The statement of operations data for the
three-month periods ended March 31, 1995 and 1996 and the nine months ended
December 31, 1994 and the selected balance sheet data as of March 31, 1996 have
been derived from the Company's unaudited consolidated financial statements
which, in the opinion of management, reflect all adjustments (consisting solely
of normal recurring adjustments) necessary for a fair presentation of the
results for these periods and as of this date. The selected financial data
provided below is not necessarily indicative of the future results of the
operations or financial performance of the Company.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, DECEMBER 31, MARCH 31,
------------------------- ------------------------- -------------------------
1994 1995 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues....................... $ 16,981 $ 79,324 $ 52,250 $ 352,648 $ 27,074 $ 315,371
Cost of sales.................. 8,155 61,301 35,544 263,621 25,757 228,289
----------- ----------- ----------- ----------- ----------- -----------
Gross margin................. 8,826 18,023 16,706 89,027 1,317 87,082
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing.......... 15,521 207,377 150,934 383,960 56,443 114,010
General and administrative... 35,970 859,082 575,346 917,533 283,736 449,685
Research and development..... 5,050 259,256 147,192 910,182 112,064 205,886
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 56,541 1,325,715 873,472 2,211,675 452,243 769,580
----------- ----------- ----------- ----------- ----------- -----------
Interest income (expense)...... 363 3,800 3,517 (18,542) 283 (16,888)
----------- ----------- ----------- ----------- ----------- -----------
Net loss....................... $ (47,352) $(1,303,892) $ (853,249) $(2,141,190) $ (450,643) $ (699,386)
============ ============ ============ ============ ============ ============
Net loss per common and common
equivalent share(1).......... $ (0.00) $ (0.12) $ (0.08) $ (0.18) $ (0.04) $ (0.06)
============ ============ ============ ============ ============ ============
Weighted average number of
common and common equivalent
shares outstanding........... 10,200,244 11,164,748 10,984,499 11,793,120 11,715,505 11,803,618
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
MARCH 31, DECEMBER 31, PRO
1995 1995 ACTUAL FORMA(2)
--------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)........................... $(129,634) $ (38,534) $ (535,174) $ 324,826
Total assets........................................ 336,809 1,393,538 1,093,255 2,233,255
Total liabilities................................... 310,763 2,486,491 2,882,594 4,022,594
Stockholders' equity (deficit)...................... 26,046 (1,092,953) (1,789,339) (1,789,339)
</TABLE>
- ---------------
(1) Net loss per share of Common Stock is computed based upon the weighted
average number of shares of Common Stock outstanding during the period.
(2) Pro forma balance sheet information was prepared assuming all Debentures
were outstanding in March 1996.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
The Company was incorporated in October 1990 to develop, manufacture and
sell mobile computing systems and commenced active operations in November 1992.
Since commencing operations, the Company has incurred significant operating
losses. In April 1996, the Company was reincorporated under the laws of the
State of Delaware and its name changed to Xybernaut Corporation. The Company has
derived its revenues from sales of the Mobile Assistant(R) and from consulting
services related to application software for the Mobile Assistant(R) and other
computer platforms, together with other computing applications. During the nine
months ended December 31, 1995, the Company derived approximately 65% of its
revenues from sales of the Mobile Assistant(R) and 35% of its revenues from
consulting services. All of the Company's sales for the three months ending
March 31, 1996 were to Rockwell International. During the three months ending
March 31, 1996, the Company derived 95% of its revenues from sales of the Mobile
Assistant(R) and 5% of its revenues from consulting services. In the future, the
Company expects to derive additional revenues from the sale of software
development toolkits, software runtime modules and additional optional
components of the Mobile Assistant(R). The Company intends to increase
expenditures on research and development of additional products, especially
software development toolkits, and to establish a full-service sales and support
function. See "Business." The Company also anticipates an increase in general
and administrative expenses related to legal, auditing, investor relations and
other obligations.
The Company's revenues include sales of the Mobile Assistant(R) and related
software and consulting services which relate to the Mobile Assistant(R) and to
other software applications, less volume discounts on product sales. Cost of
sales include the cost of Mobile Assistant(R) components, direct labor and
overhead expense, manuals, diskettes and duplication, packaging materials,
assembly, paper goods and shipping. Research and development expenses consist
primarily of personnel and equipment costs required to conduct the Company's
development activities. Software development costs are expensed as incurred
until technological feasibility is established in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86 (Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed), after which any
additional costs are capitalized until the software is ready for release. The
Company has expensed all software development costs to date.
Revenues from sales to VARs and OEMs and direct sales are recognized when
products are shipped. The Company's sales agreements generally do not involve
any significant obligations to customers subsequent to delivery except as
provided in separate service or support agreements. Revenues from future
software sales will be recognized at the time the software master is delivered
in accordance with Statement of Position No. 91-1.
Research and development expenses consist primarily of consulting fees and
test components, as well as salaries and related benefits paid to Company
personnel engaged in the research and design of new products. Research and
development expenses during fiscal 1994 and 1995, the nine months ended December
31, 1994 and 1995, and the three months ended March 31, 1995 and 1996 were
$5,050, $259,256, $147,192, $910,182, $112,064 and $205,886, respectively, none
of which was capitalized. Salaries paid to the Company's software programmers
and fees paid to outside software development consulting firms for further
development and enhancement after technological feasibility of a product has
been established and related development expenses, will be capitalized in the
future in accordance with SFAS No. 86.
The Company's combined financial statements include the results of
operations of Tech International of Virginia, Inc. ("Tech Virginia"), a supplier
of software and consulting services to the United States government and others.
Tech Virginia is owned by Edward G. Newman, the Company's President, Chief
Executive Officer and Chairman of the Board of Directors, and Steven A. Newman
and Eugene Amobi, directors of the Company. Messrs. Newman, Newman and Amobi are
also the officers and directors of Tech Virginia. From December 1992 until
November 1994, the Company sublet office space and contracted for personnel
services from the Virginia business unit of Tech International, Inc. ("Tech
International"), which
18
<PAGE> 22
spun-off its Virginia operations as Tech Virginia on December 30, 1994. In
December 1994 the Company received an option to purchase Tech Virginia for
$50,000. In March 1996 the Company notified Tech Virginia that it intends to
exercise this option upon the closing of this offering. See "Certain
Transactions." The combined financial statements contain eliminations for all
material transactions between the Company and Tech Virginia in prior periods.
Prior to March 31, 1995 the Company had elected Subchapter S status under
the Internal Revenue Code. The Company has revoked its Subchapter S election and
will be taxed as a C corporation. The change in the Company's tax status may
result in the Company recording current and deferred income taxes. As of the
date of this Prospectus, the Company has a history of operating losses and has
not had any taxable income.
The Company's financial statements do not contain a provision for income
tax expense in fiscal 1994 and fiscal 1995 due to the Company's prior status as
a Subchapter S Corporation from its inception through the revocation of its
Subchapter S election. Subject to realization, the Company has generated net
operating losses that can be used to offset taxable operating income in the
future. The Company's future operations, if profitable, will be subject to
income tax expense not previously incurred by the Company. See Note 8 to
Combined Financial Statements. At March 31, 1996, the Company had approximately
$2,900,000 of net operating loss carryforwards for federal income tax purposes
which expire in 2011. The use of these carryforwards may be limited in any one
year under Internal Revenue Code sec. 382 because of significant ownership
changes.
RESULTS OF OPERATIONS
The following table sets forth certain combined financial data as a
percentage of revenues for the years ended March 31, 1994 and 1995, the
nine-month periods ended December 31, 1994 and 1995 and the three-month periods
ended March 31, 1995 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, DECEMBER 31, MARCH 31,
-------------------- -------------------- ------------------
1994 1995 1994 1995 1995 1996
------ -------- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 48.0 77.3 68.0 74.8 95.1 72.4
------ -------- -------- ------ ------- -----
Gross margin................ 52.0 22.7 32.0 25.2 4.9 27.6
------ -------- -------- ------ ------- -----
Operating expenses:
Sales and marketing......... 91.4 261.4 410.5 108.9 208.5 36.1
General and
administrative........... 211.8 1,083.0 979.5 260.2 1,048.0 142.6
Research and development.... 29.7 326.8 281.7 258.1 413.9 65.3
------ -------- -------- ------ ------- -----
Total operating expenses...... 333.0 1,671.3 1,671.7 627.2 1,670.4 244.0
------ -------- -------- ------ ------- -----
Interest income (expense)..... 2.1 4.8 6.7 (5.3) 1.0 (5.4)
------ -------- -------- ------ ------- -----
Net loss...................... (278.9)% (1,643.8)% (1,633.0)% (607.2)% 1,664.5% 221.8%
------ -------- -------- ------ ------- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Revenues. Revenues for the three months ended March 31, 1996 were
$315,371, an increase of $288,297, or 1,065%, compared to $27,074 for the
corresponding period in 1995. This increase resulted primarily from increased
sales of the Mobile Assistant(R), all of which were to one customer.
Cost of goods sold. The cost of goods sold for the three months ended
March 31, 1996 was $228,289, an increase of $202,532, or 786%, compared to
$25,757 for the corresponding period in 1995. This increase resulted primarily
from costs related to increased sales of the Mobile Assistant(R).
Research and development expense. Research and development expense for the
three months ended March 31, 1996 was $205,886, an increase of $93,822, or 84%,
from $112,064 for the corresponding period in 1995. This increase was related to
the opening of a design center in Los Gatos, California, the internal
19
<PAGE> 23
development of a head-mounted display, the development of a new body-worn
computing unit and planning and development for software toolkits.
Sales, marketing, general and administrative expenses. Sales, marketing,
general and administrative expenses for the three months ended March 31, 1996
were $563,695, an increase of $223,516, or 66%, from $340,179 for the
corresponding period in 1995. Of this increase, $67,221 was for compensation
expense related to the issuance of the Common Stock to consultants. Sales and
marketing expenses increased resulting from the establishment of a full-time
sales group and general and administrative expenses increased resulting from an
increase in staff and the use of outside service providers.
Net loss. As a result of the factors described above, the net loss for the
three months ended March 31, 1996 was $699,386, an increase of $248,743, or 55%,
from $450,643 for the corresponding period in 1995. Although the Company was
subject to taxation during the three months ended March 31, 1996, the Company
incurred a net loss during the period and no provision for taxes was made.
NINE MONTHS ENDED DECEMBER 31, 1994 AND 1995
Revenues. Revenues for the nine months ended December 31, 1995 were
$352,648, an increase of $300,398, or 575%, compared to $52,250 for the
corresponding period in 1994. This increase resulted primarily from increased
sales of the Mobile Assistant(R) and, to a lesser extent, increased consulting
revenues.
Cost of goods sold. The cost of goods sold for the nine months ended
December 31, 1995 was $263,621, an increase of $228,077, or 642%, compared to
$35,544 for the corresponding period in 1994. This increase resulted primarily
from costs related to increased sales of the Mobile Assistant(R).
Research and development expense. Research and development expense for the
nine months ended December 31, 1995 was $910,182, an increase of $762,990, or
518%, from $147,192 for the corresponding period in 1994. Of this increase,
$494,500 was for compensation expense related to the issuance of stock to
employees and a consultant involved in research and development. The remaining
increase was related to additional research and development of software toolkits
as well as power management, accessories and communication capabilities for the
Mobile Assistant(R).
Sales, marketing, general and administrative expenses. Sales, marketing,
general and administrative expenses for the nine months ended December 31, 1995
were $1,301,493, an increase of $575,213, or 79% from the corresponding period
in 1994. Of this increase, $58,022 was for compensation expense attributable to
the issuance of stock to employees and a consultant involved in sales and
marketing and general and administrative activities. The remaining increase
resulted from establishing a business plan, arranging manufacturing capacity
with third-party suppliers, establishing relationships with potential VARs and
OEMs, obtaining orders from customers, supervising beta-site tests and initial
installations of the Company's products, attending trade shows, sales
presentations and demonstrations.
Net loss. As a result of the factors described above, the net loss for the
nine months ended December 31, 1995 was $2,141,190, an increase of $1,287,941,
or 151%, from $853,249 for the corresponding period in 1994. No provision for
taxes was required for the nine months ended December 31, 1994 because the
Company was a Subchapter S corporation during that period and the Company
incurred a net loss. Although the Company was subject to taxation during the
nine months ended December 31, 1995, the Company incurred a net loss during the
period and no provision for taxes was made.
FISCAL YEARS ENDED MARCH 31, 1994 AND 1995
Revenues. Revenues increased 367% from $16,981 for the fiscal year ended
March 31, 1994 ("fiscal 1994") to $79,324 for the fiscal year ended March 31,
1995 ("fiscal 1995"). This increase is attributable primarily to increased sales
of the Mobile Assistant(R) and, to a lesser extent, increased consulting
revenues.
Cost of goods sold. Costs of goods sold increased 652% from $8,155 for
fiscal 1994 to $61,301 for fiscal 1995. This increase was related to increased
sales of the Mobile Assistant(R).
20
<PAGE> 24
Research and development expense. Research and development expense
increased 5,034% from $5,050 for fiscal 1994 to $259,256 for fiscal 1995. Of
this increase, $5,500 was for compensation expense related to the issuance of
stock and stock options to employees involved in research and development. The
remaining increase was attributable to the establishment in October 1994 of
Company operations separate from those of Tech International, the hiring of
personnel to staff the Company's research and development functions and
continued development of the Mobile Assistant(R) hardware, software and
accessories.
Sales, marketing, general and administrative expenses. Sales, marketing,
general and administrative expenses increased 1,971% from $51,491 for fiscal
1994 to $1,066,459 for fiscal 1995. Of this increase, $188,841 was for
compensation expense related to the issuance of stock and stock options to
employees involved in sales and marketing and general and administrative
activities. The remaining increase was attributable to the establishment in
October 1994 of Company operations in its current location, the hiring of
personnel to staff the Company's marketing, financial and administrative
functions and the subsequent expansion of related activities. These related
activities included establishing a business plan, arranging manufacturing
capacity with third-party suppliers, establishing relationships with potential
VARs and OEMs, obtaining orders from customers, supervising beta-site tests and
initial installations of the Company's products, attending trade shows and sales
presentations and demonstrations.
Net loss. As a result of the factors described above, the Company's net
loss increased 2,654% from $47,352 for fiscal 1994 to $1,303,892 for fiscal
1995. No provision for taxes is made for fiscal 1994 or 1995 since the Company
was not a taxable entity during these periods and the Company incurred a net
loss.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through the
private sale of its securities, from vendor credit and by short-term loans from
management, stockholders and others. Funding requirements through October 1994
were met by credit extended by Tech International for services provided to the
Company. In conjunction with the Company's business activities prior to November
1994, the Company subleased space at the offices of Tech International and used
certain equipment and facilities of Tech International. The Company contracted
for the services of certain Tech International employees in conducting its
business until October 1994 when the Company hired several of such employees
directly. The Company has continued to contract for the services of several
other Tech International employees since October 1994. See "Certain
Transactions."
From October 1994 to August 1995 the Company raised $1,243,476 from the
private sale of shares of Common Stock at $6.00 per share. From November 1995 to
April 1996 the Company raised $2,505,000 through the private sale of the
Debentures. The Company received $1,201,718 and $2,143,642 from these financings
net of offering costs, a portion of which are payable from the proceeds of this
offering. See "Use of Proceeds."
For the three months ended March 31, 1996, the Company's operating
activities used cash of $221,198 compared to $329,087 for the corresponding
period in 1995. The net use of cash during the three months ended March 31, 1996
was primarily the result of a $699,386 net loss, offset by a $300,000 licensing
fee, an increase in accounts payable and accrued expenses of $100,468 and
depreciation and amortization of $71,406. The net use of cash by operations for
the three months ended March 31, 1995 was primarily the result of a $450,643 net
loss, partially offset by an increase in accounts payable and accrued expenses
of $47,870. Cash used by investing activities in the three months ended March
31, 1996 was $4,685 for the acquisition of office equipment and $13,444 related
to the maintenance and defense of patents. Cash used by investing activities in
the three months ended March 31, 1995 was $300 for the acquisition of property
and equipment. The Company's financing activities in the three months ended
March 31, 1996 consisted primarily of $78,943 of capitalized expenses related to
the initial public offering. The Company's financing activities in the three
months ended March 31, 1995 consisted of $396,000 raised through the private
placements of Common Stock, offset by issuance costs of $41,758. As a result of
the above, cash on hand as of March 31, 1996 was $191,031, or a decrease of
$317,635 from the $508,666 of cash on hand as of December 31, 1995.
21
<PAGE> 25
For the nine months ended December 31, 1995, the Company's operating
activities used cash of $1,400,230 compared to $442,774 for the corresponding
period in 1994. The use of cash by operations for the nine months ended December
31, 1995 was primarily the result of a $2,141,190 net loss and $240,709 of cash
used by inventories, offset by $671,500 of non-cash charges for Common Stock
issued for services. The use of cash by operations for the nine months ended
December 31, 1994 was primarily the result of a $853,249 net loss offset by a
$220,950 increase in accounts payable and accrued expenses. Cash used by
investing activities in the nine months ended December 31, 1995 was $33,958 for
the acquisition of property and equipment and $45,998 related to the acquisition
of patents. Cash used by investing activities in the nine months ended December
31, 1994 was $92,756 for the acquisition of property and equipment, furniture,
leasehold improvements and fixtures related to the establishment of separate
Company offices in November 1994 and $23,878 related to the acquisition of
patents in the United States and internationally. The Company's financing
activities in the nine months ended December 31, 1995 consisted primarily of
$1,505,000 raised through the sale of the Debentures in November 1995 and
$185,924 in other loans, offset by $98,608 in deferred financing expenses in
connection with the Debentures. The Company's financing activities in the nine
months ended December 31, 1994 consisted primarily of $600,000 raised through
the private placements of Common Stock. As a result of the above, cash on hand
as of December 31, 1995 was $508,666, or an increase of $359,606 from the
$149,060 of cash on hand as of March 31, 1995.
The Company's operations generated cash for fiscal 1994 of $104 and used
cash for fiscal 1995 of $829,792. The generation of cash by operations for
fiscal 1994 was primarily the result of a $47,352 net loss that was more than
offset by a $41,943 increase in accounts payable and accrued expenses and $7,358
in depreciation and amortization. The use of cash by operations for fiscal 1995
was primarily the result of a $1,303,892 net loss offset by $194,341 of non-cash
charges for Common Stock issued for services and a $268,820 increase in accounts
payable and accrued expenses. Cash used by investing activities for fiscal 1994
was $20,215 for the acquisition of property and equipment, primarily
demonstration units, and $25,020 related to the acquisition of patents. Cash
used by investing activities for fiscal 1995 was $93,056 for the acquisition of
property and equipment, furniture, leasehold improvements and fixtures related
to the establishment of the Company's current offices in November 1994, and
$23,878 related to the acquisition of patents in the United States and
internationally. The Company's financing activities in fiscal 1994 consisted
primarily of raising $30,424 in capital contributions from stockholders of the
Company. The Company's financing activities in fiscal 1995 consisted primarily
of raising $996,000 through the private placement of Common Stock. As a result
of the above, cash on hand as of March 31, 1995 was $149,060, an increase of
$148,307 from the $753 of cash on hand as of March 31, 1994.
At March 31, 1996, the Company had no material capital commitments, a
working capital deficit of $535,174 and pro forma working capital of $324,826
after giving effect of the sale of $1,000,000 of Debentures after March 31,
1996.
The Company anticipates that its working capital needs and operating
expenses will increase as the Company implements its business plan to expand
production and sales of the Mobile Assistant(R), establishes a full sales and
service function and expands research and development, primarily of its software
development toolkits. See "Use of Proceeds." The proceeds of this offering are
expected to be sufficient to meet the Company's working capital needs and
operating expenses for a minimum of 12 months. The timing of development for the
software toolkits, the amount of working capital consumed by accounts receivable
and inventories and competitive pressures on gross margins will impact the
magnitude and timing of the Company's cash requirements. To meet working capital
needs created by anticipated increases in accounts receivable, the Company
intends to obtain a bank working capital line of credit following this offering.
There can be no assurance that the Company can or will obtain a bank working
capital line of credit.
POSSIBLE NON-CASH FUTURE CHARGE
As a condition of this offering, the Representative has required the
Company's officers, directors and certain other stockholders to deposit an
aggregate of 1,800,000 shares of Common Stock (at least 1,620,000 of which are
owned by directors and officers of the Company) into an escrow account (the
"Escrowed Shares"). The Escrowed Shares will be subject to release to such
stockholders in increments over a three-year period
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only in the event the Company's gross revenues and earnings (loss) per share for
the 12-month periods ending September 30, 1997, 1998 and 1999 equal or exceed
targets which have been established through negotiations with the Representative
(the "Performance Targets"). If the Performance Targets are not met in any of
the relevant 12-month periods (and the price of the Common Stock has not met or
exceeded the price described below), the Escrowed Shares will be returned to the
Company in amounts which have been agreed upon between the Representative and
the Company for each period and cancelled. In addition to the foregoing, all
then Escrowed Shares will be released to the stockholders if the closing price
of the Common Stock as reported on The Nasdaq SmallCap Market following this
offering equals or exceeds $11.00 for 25 consecutive trading days or 30 out of
35 consecutive trading days during the period ending September 30, 1999. In the
event any Escrowed Shares held by officers, employees or consultants are
released, the difference between the initial offering price and the market value
of such shares at the time of release will be deemed to be additional
compensation expense to the Company. Assuming the price of Common Stock is equal
to or greater than the assumed offering price of $5.00 per Unit (of which there
can be no assurance), the release of the Escrowed Shares could result in an
earnings charge which would have the effect of reducing or eliminating any
earnings per share and could have a negative effect on the market price for the
Common Stock. The earnings per share target calculation will be based on the
average number of shares issued and outstanding during each period, but
excluding shares issued pursuant to the Representative's Unit Purchase Option
(as hereinafter defined), extraordinary items, or compensation expense charged
to the Company related to the release of the Escrowed Shares. See "Risk
Factors -- Effect of Possible Non-Cash Future Charge" and Principal
Stockholders -- Escrowed Shares."
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BUSINESS
INTRODUCTION
The Company is engaged in the research, development and commercialization
of mobile computer systems and related software solutions designed to enhance
all aspects of personal productivity, especially in commercial, industrial and
military applications. The Company's first mobile computing product is the
patented Mobile Assistant(R), which is a full function body-worn,
voice-controlled "486" computer with a head-mounted video display providing true
computing mobility through hands-free operation. With the speed, memory, data
processing, multimedia and communications capabilities of a desktop PC in a
lightweight unit, the Mobile Assistant(R) combines full function PC features
with simultaneous user mobility. The Mobile Assistant(R) with application
software is designed to allow workers with minimal training to perform complex
and time consuming tasks such as maintenance, repair and inspection of complex
technological and mechanical systems, retrieval and analysis of medical
information from remote locations, and coordination of remote commercial and
industrial activities and military field operations, in a more efficient manner
than current technology allows. Purchasers of Mobile Assistants(R) have
included, among others, AT&T, Rockwell International, Eaton Corporation, Martin
Marietta (now Lockheed Martin), SRI International and the United States Army.
Recently, Rockwell International, which manufactures the computing unit utilized
in the Mobile Assistant(R), licensed from the Company the right to manufacture
and market mobile computers utilizing the intellectual property and related
technical know-how which has been developed by the Company.
The Mobile Assistant(R) utilizes technologically advanced features such as
real time, two-way video and audio communications through radio frequency
transmissions, integrated cellular linkups and conventional telephone lines,
global positioning system tracking capabilities and access to information
through the Internet and World Wide Web. The head-mounted display unit includes
a two-way audio system, weighs less than 16 ounces and presents a monochrome
image that is approximately equivalent to that of a 14" VGA monitor. The
body-worn computing unit is designed with a case allowing operation in
environmental extremes in which conventional portable computers could not
previously operate, weighs less than three pounds and is capable of running
software applications designed for Microsoft Windows and Windows 95, DOS and SCO
UNIX.
The Company intends to utilize its software development expertise acquired
through custom programming, including development of a graphical user interface
and neutral data storage systems for United States intelligence agencies, to
create standard and custom software toolkits for commercial applications.
Software toolkits provide a cost-effective platform for user customized programs
for the storage, processing and retrieval of information necessary for specific
commercial, industrial, military and other applications. The Company is the
exclusive licensee for body-worn applications of the Mobile Inspector(TM), its
first custom software toolkit, which develops protocols and procedures to
facilitate inspection of commercial, industrial and military facilities and
equipment. The Company intends to integrate its hardware and software
capabilities to provide total mobile computing solutions, thereby capitalizing
on all aspects of the Company's expertise.
INDUSTRY OVERVIEW
Since the introduction of the first large mainframe computers in the
1950's, there has been an ongoing evolution in the computer industry which has
resulted in both reductions in the size of computer hardware and significant
increases in the number and scope of software applications. The Company believes
the next phase in this evolution will be the commercialization of mobile,
body-worn computers which will combine portability with new and expanded
software applications. The Company believes it is in the forefront of the
development of mobile computing technology and that the potential to develop a
substantial market for its mobile computing hardware and software products is
demonstrated by the substantial historic and projected growth in all forms of
mobile and portable computers. According to MarkIntel, a service which compiles
market research reports, total revenues from the overall portable computer
market (20 pounds or lighter) were expected to exceed $12 billion in 1995, with
anticipated average annual growth of approximately 13% to over $23 billion
through the year 2000. MarkIntel reports that notebook computers (i.e. weighing
from 5 to 8 pounds) currently constitute over 70% of portable units sold.
MarkIntel also states that sub-notebook computers (3 to 5 pounds) currently
constitute approximately 15% of sales of portable computers and are expected to
increase to almost 19% of sales by the year 2000. Sales of mini-computing and
communication devices (3 pounds or less, and which still are considered to be in
an evolutionary cycle) are projected by
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MarkIntel to experience an average annual sales growth rate of 65% and an
average annual revenue growth rate of 33%. The Company believes that these
projected figures demonstrate the significant potential size of this
still-evolving market for various forms of mobile and portable computers.
BUSINESS STRATEGY
The Company's objective is to be a leading provider of mobile computing
systems and related software solutions to enhance productivity in a wide variety
of applications for commercial, industrial and military customers. To achieve
this objective, the Company intends to pursue the following strategies:
Provide Custom Software Solutions for Diverse Customer Needs. The
Company intends to develop software toolkits to enable its customers to
more rapidly create customized software applications for use with the
Mobile Assistant(R) and on a stand-alone basis. These toolkits will be
designed to provide prepackaged application expertise that incorporates the
end user's existing programs, procedures and technical documentation,
thereby permitting the cost-effective development of productivity-enhancing
software applications by customers. The Company believes that revenues from
custom software such as the Mobile Inspector(TM) and other application
development toolkits may become an important contributor to operating
margins in the future.
Penetrate Target Markets Through OEMs, VARs and Direct Sales. The
Company believes that its mobile computing technology is especially well
suited for the repair and maintenance of complex commercial, industrial and
military equipment and facilities. The Company intends to penetrate its
target markets through multiple sales channels, including direct sales and
by leveraging internal marketing and sales resources using OEMs and VARs.
Through implementation of this strategy, the Company will seek to achieve
rapid foreign and domestic market penetration resulting in a diversified
customer base.
Achieve Technology Leadership. The Company is committed to achieving
and maintaining technological superiority of the Mobile Assistant(R) and
its other mobile computing products through the continuous reassessment of
product performance and the utilization and integration of state of the art
components and technologies. The Company believes its substantial
expenditure of time and effort in developing the Mobile Assistant(R) has
resulted in a set of core competencies which provide the Company with an
advantage over its competition in the mobile computing industry. The
Company intends to maintain this advantage through ongoing research and
development, which will ensure that the Mobile Assistant(R) will continue
to provide a full range of PC capabilities, including two-way video
communication and access to the Internet, World Wide Web, remote databases
and other reference resources as well as additional capabilities which may
be developed in the future.
Commitment to Open Architecture. The Company utilizes standard PC
hardware and software architectures and designs its products using open
systems technologies, including industry standard operating systems and
open system computer platforms. The Company continually evaluates the
feasibility of integrating its software and hardware products with new
technologies as these are developed and accepted in the marketplace. The
Company anticipates that its current products will be upgraded to
incorporate, and its future products designed using, open architectures to
allow use with existing and emerging standards and hardware and software
technology.
Leverage Core Competencies. The Company believes its core
competencies which have been developed since its inception are the
integration and adaptation of innovative computer hardware and software
technologies into mobile computing products that enhance end user
productivity. The Company will seek to expand applications for its
technologies and to capitalize on the breadth of its expertise to develop
new hardware and software products. Consistent with this strategy, the
Company will continue to focus on integration of mobile computing hardware
with internally developed custom software applications rather than the
research and development of basic technologies or the internal mass
manufacture of its products.
Develop and Strengthen Strategic Alliances. The Company intends to
form strategic associations with VARs, OEMs and hardware and software
vendors. The benefits that the Company receives from these associations
include access to a larger potential customer base and to complementary
technologies, and reduced capital investment through utilization of outside
resources. The Company currently has strategic relationships with Rockwell
International, which supplies computing units and has purchased
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and resold Mobile Assistant(R) units, and Kopin, which supplies
head-mounted displays and has worked with the Company on joint development
projects. Recently, Rockwell International, which manufactures the
computing unit utilized in the Mobile Assistant(R), licensed from the
Company the right to manufacture and market mobile computers utilizing the
intellectual property and related technical know-how which has been
developed by the Company. See "Business -- Marketing and Sales." The
Company intends to pursue additional strategic associations to enhance its
product offerings and expand its marketing activities.
PRODUCTS AND PRODUCT DEVELOPMENT
The Company's principal existing and proposed products and applications are
summarized in the following table.
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
PRODUCT NAME DESCRIPTION/FUNCTION APPLICATIONS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
MOBILE ASSISTANT(R) Body-worn, hands-free, voice-activated Hands-free access to information
INTEGRATED MOBILE battery powered integrated hardware and while performing tasks in conditions
COMPUTING SYSTEM software computer system utilizing a that require full mobility.
head-mounted display.
- ----------------------------------------------------------------------------------------------------------
MOBILE INSPECTOR(TM) Software toolkit for the rapid user Aerospace, utilities and other
customization of simple or sophisticated commercial, industrial and military
protocols and procedures for inspection uses which rely on
of facilities and equipment. maintenance-intensive heavy or
complex equipment.
- ----------------------------------------------------------------------------------------------------------
CELLULAR AND RADIO Used for hands-free access with cellular Hands-free access to information
COMMUNICATIONS phones or radio links for wireless stored on databases or the Internet,
TOOLKIT* communications anywhere in the world or to audio and/or video
through telephone, modem or Internet communications on remote work sites.
lines.
- ----------------------------------------------------------------------------------------------------------
VOICE USER Software tools and procedures to Hands-free, voice-activated
INTERFACE(TM) TOOLKIT* integrate voice navigation capability applications with accurate voice
into existing applications or navigation and a simple voice
applications under development or for a interface on the Mobile Assistant(R)
computer system. or a computer platform.
- ----------------------------------------------------------------------------------------------------------
AUDIOVISUAL Camera and communication hardware with Capture, transfer or communication
COMMUNICATIONS voice-controlled software to allow of audio and/or video information on
TOOLKIT* hands-free capture, transmission and a real time or delayed basis.
reception of video information and
two-way teleconferencing.
- ----------------------------------------------------------------------------------------------------------
DATA CONVERSATION Software standards and procedures on Conversion of information or
TOOLKIT* converting hard copy, digital, audio existing hard copy, digital, audio
and/or visual data into suitable form for and/or video information to neutral
inclusion in a neutral database for format.
operation.
- ----------------------------------------------------------------------------------------------------------
MICROCOSM VOICE* A software shell for consistent Creation of maintenance, repair and
navigation through, and presentation of, operation applications by linking
existing computer files regardless of existing computer files without
original format, hardware or software. reprogramming or altering data in
existing files or databases.
- ----------------------------------------------------------------------------------------------------------
PRESENTATION MANAGER* Graphical user interface and navigation Expansion of the scope of
software toolkit for user customization information available on job sites
of applications with consistent, allowing performance of an expanded
easy-to-use interface to the user of a range of tasks with minimum training
computer platform. Uses HTML software by accessing information utilizing a
similar to that used on the Internet. consistent methodology and format.
- ----------------------------------------------------------------------------------------------------------
MOBILE COUNTER(TM)* Bar-code readers combined with software Performance of continuous or
and voice recognition to interface with periodic hands-free counting and
customized and existing inventory inspection of inventories with
applications. minimum personnel, time and
training.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* Product under development.
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The Mobile Assistant(R) is a combination of hardware and software
specifically designed for body-worn mobile computing. A patent has been issued
by the Patent Office regarding certain aspects of the Mobile Assistant(R). See
"Business -- Intellectual Property" and "Risk Factors -- Uncertain Protection of
Patent and Proprietary Rights; No Assurance of Enforceability or Significant
Competitive Advantage."
The Company believes that commercial, industrial and military mechanics and
technicians frequently spend a significant portion of their time searching for
and accessing needed technical data and information rather than performing the
substantive work to which the information is applied, even when conventionally
digitized manuals are used on a desktop or notebook PC. The concept for the
Mobile Assistant(R) originates from the perceived need for, and potential
significant cost savings which would result from, providing commercial,
industrial and military mechanics and technicians hands-free, immediate access
to computerized reference materials and other data necessary for completion of
maintenance and technical work.
In order to address the market which the Company believes exists for
body-worn mobile computers, the Mobile Assistant(R) has been designed with four
key features:
- Compact, lightweight and rugged hardware specifically designed for
mobile, body-worn use
- Easy to use human interface and expert systems
- Voice command control
- Head-worn miniature display
Compact Hardware for Mobile, Body-Worn Use. The Mobile Assistant(R)
currently utilizes primarily off-the-shelf miniaturized hardware components in a
body-worn package weighing approximately three pounds. The base system currently
features:
- "486" computer running at 50 MHZ
- Main memory of 4 Mb to 16 Mb RAM
- Internal hard disk (currently ranging from 540 Mb to 810 Mb)
- Internal dual PCMCIA readers (industry-standard peripheral cards)
- Enclosure to allow use in a wide range of environmental conditions
- Advanced-technology battery and power management
- Serial, parallel, keyboard and printer ports
- Compatibility with DOS, Windows(TM), Windows 95(TM) and SCO UNIX
operating systems
- Integrated pointing device (trackball)
The base system Mobile Assistant(R) utilizes advanced batteries and power
management to provide an estimated three to four hour duty cycle. Spare
batteries can be carried on the user's belt to provide additional duty cycle
time. The Company offers optional lithium-ion batteries to purchasers.
As a full-featured PC, the Mobile Assistant(R) has external serial and
parallel ports, and ports for a keyboard, printer and monitor to allow its use
as a desktop PC. The Mobile Assistant(R) has a modular design for the
incorporation of a wide range of capabilities including a portable CD ROM
reader, a bar code reader, a battery-operated printer, still and motion video
cameras, global positioning technology, cellular and radio frequency
communications and interfaces for medical and test equipment.
The Company intends to include advanced processors, such as "586," "686,"
Pentium and Power PC chips, in the Mobile Assistant(R) in the future. The
Company is developing a Mobile Assistant(R) with Pentium-class processing
capability using a "586" Cyrix chip and expects to have this system available
for sale during 1996. The Company also intends to incorporate evolving operating
systems into the Mobile Assistant(R) as they become available.
Easy to Use Human Interface and Expert Systems. The Company believes that
a consistent "look and feel" presentation and an easy, intuitive means of
navigation through the application software used in the
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Mobile Assistant(R) are critical aspects of its full productivity potential. The
presentation and means of navigation for Mobile Assistant(R) applications are
based upon software which served as a model for use by the United States
Department of Defense and several United States federal agencies. Using a United
States federal secure network similar to the Internet, and with familiar screens
and navigation techniques, this software allows personnel from one agency easily
to access the information gathered by another agency, regardless of the computer
platform or operating system used. Previously, this benefit was unavailable
largely because of the learning time required for an analyst at one agency to
learn other agencies' presentation and navigation methods.
Voice Command Control. The Mobile Assistant(R) includes the use of
proprietary and licensed state-of-the-art voice recognition software, hardware
and algorithms to communicate digitized speech as input to the processor through
an integrated analog-to-digital/digital-to-analog circuit. The voice recognition
aspect of the Mobile Assistant(R) is based upon independent software which
incorporates state-of-the-art, off-the-shelf voice recognition algorithms and
utilizes analog/digital circuitry to recognize predeveloped vocabularies.
Significant user training generally is not required because the operable
vocabulary is created in advance to be recognizable by a wide range of users.
The system can be programmed to "learn" on the fly during real time field use.
The speaker-independent approach works well for the menu and button-driven
programs used in the Mobile Assistant(R). System accuracy is improved greatly
since the words and phrases for each menu screen can be predetermined,
preprogrammed and used to limit recognition ranges to the screen at hand.
An integrated pointing device (trackball) is installed in the Mobile
Assistant(R) for environments where voice navigation is not possible. The
combination of voice recognition and head-worn display provides the user of the
Mobile Assistant(R) with hands-free access to information and the ability to
apply this information to operations and tasks with direct lines of sight and
tactile access. The Company believes that this combination results in "See and
Speak" technology which has the potential for opening additional commercial,
industrial and military markets for the Mobile Assistant(R).
Head-Worn Miniature Display. The Mobile Assistant(R) uses a lightweight,
head-worn miniature display which currently is offered in monochrome 640 X 480
pixel (VGA) 256 gray scale resolution. It is anticipated that this display will
be offered by the Company in color VGA, monochrome 1280 X 1024 pixel (SVGA)
resolution, color SVGA and eventually in color resolutions exceeding those
planned for High-Definition TV. All displays are approximately one square inch
in size. These displays are available in monocular form, and can be worn on a
mounting device similar to a runner's visor or sunglasses, or on helmets,
hardhats, soft baseball caps or similar headgear. These high quality, miniature
displays present information in a heads-up display format without occluding
vision.
Development of Software Packages. Initially, development of software for
the Mobile Assistant(R) was targeted primarily at specific military uses. The
Company has invested significant sums in converting this software to a variety
of other uses. The Company has identified the proprietary software packages
described in "Business -- Products and Product Development." The Company intends
to continue the development of these software packages through a combination of
its employees, third-party software developers and contract labor. There can be
no assurance that the Company will have sufficient capital to develop all or any
of these software packages or, even if successfully developed, that there will
be any significant market for these software packages. See "Risk Factors."
MARKETING AND SALES
Markets
The Company's marketing efforts are designed to increase awareness of and
demand for its products in the commercial, industrial and military markets.
Within these markets, the Company believes there are defined submarkets which
are well-suited to use the Company's mobile computing products. The following
are examples of select submarkets that initially will be addressed by the
Company:
Commercial Maintenance and Repairs. Information from the United
States Bureau of Labor Statistics and Bureau of Census indicates that as of
1994 there were more than 5,460,000 mechanics and
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<PAGE> 32
technicians in the United States, whom the Company believes are potential
users of the Mobile Assistant(R) and the Company's other products. There
are three sources of savings available from use of the Mobile Assistant(R)
and the Company's other products in maintenance and repair operations: less
formal training is required for a similar level of performance, the time
required for tasks is reduced as "just in time" refreshers and improved
technical information can be provided, and personnel can address a wider
range of complex tasks or products with the same level of basic training.
While these savings can be realized in most industries, the Company
anticipates that these savings will be most immediate and apparent in those
industries that require a large investment in equipment and machinery,
including the transportation, automotive, construction, power generation,
health services and agriculture industries and the military. In industries
such as construction or mining, the Company believes downtime on critical
equipment can cost $1,000 or more a minute. Accordingly, a reduction
measured in minutes or hours of downtime in these industries can, in the
Company's view, provide ample cost justification for a Mobile Assistant(R).
The telecommunications industry is expected to be a prime candidate for
mobile computing systems given the industry's complex technologies,
increased competition and assets spread over a wide geographic area. The
Mobile Assistant(R) can provide needed knowledge to workers on the top of a
telephone pole, at a remote relay station or in a conduit tunnel. Crew
locations can be monitored and coordinated in the field with the Mobile
Assistant(R) through optional global positioning system technology. Crews
at remote locations can consult with experts using two-way audio and/or
video communications.
Healthcare. It is estimated that over 13.9% of the U. S. Gross
Domestic Product, or $1 trillion, is spent annually on healthcare, with an
estimated 25% of such expenses consumed by administrative expenses.
According to the National Center for Health Statistics, Health, United
States, 1994, the United States has over 6,000 hospitals and over 540
health maintenance organizations. According to the United States Department
of Labor, in 1994 there were approximately 4,714,000 healthcare workers in
the United States. The Company believes that many of the current processing
and data systems used in healthcare, both in institutions and in the field,
are not well developed or integrated and that mobile computing systems
could reduce expenses and increase efficiency in this industry. The Mobile
Assistant(R) is believed to present great potential in field medical
operations by providing on-board and remote diagnostics, audio and/or video
communication with doctors for emergency procedures, and transmission of
locations for helicopter pickup through global positioning systems
integrated into the Mobile Assistant(R). Another anticipated benefit of the
Company's mobile computing technologies is that fewer healthcare personnel
will be needed to perform complex tasks. By providing remote delivery of
medical information, the Company's mobile computing systems can become a
key component within both managed care and telemedicine organizations,
which are two key submarkets developing within the healthcare industry.
Education. The Company believes that its mobile computing systems are
well-suited for educational applications. The Mobile Assistant(R) is
especially suited for hands-free applications, such as laboratory work,
field research and dissections and has the potential to serve as a mobile
student workstation. In addition, it can provide an ideal computing and
control platform for special education and handicapped needs.
Military. Potential military applications for the Company's mobile
computing systems include intelligence, maintenance and field operations.
The military has long been an early adopter of advanced technologies and,
as a result, was one of the first sectors to experience problems with the
ability of personnel to maintain, diagnose and repair the advanced
technology employed in both weapons and equipment. These problems have been
compounded by the downsizing of the United States military and related
budget constraints. As a result, even greater pressure will be placed upon
the military to maintain its equipment and weapons platforms with fewer
personnel. The Company believes that most of the United States' estimated
700,000 military maintenance personnel could be made more efficient and
productive by the Company's mobile computing systems.
The United States' increasingly sophisticated weapon systems require
volumes of operational and technical manuals and have dramatically
increased the importance of maintenance. The United States
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Army has purchased the Mobile Assistant(R) and has tested its use in the
maintenance and repair of the AH64 Apache Attack helicopter. The Apache can
send and receive maintenance data via an industry-standard electrical
interface which can be read by an optional interface for the Mobile
Assistant(R). Operating and performance data can be downloaded directly
from the Apache and the Mobile Assistant(R) can be used to diagnose
existing and potential maintenance and repair problems. The Company
anticipates that manufacturers of complex military equipment increasingly
will incorporate integrated data collection and transmission capabilities
into their technologies to reduce downtime and repair and maintenance
related costs.
The ability to deliver information to soldiers in combat field
operations is the focus of several development programs sponsored by the
United States Army. The Army has been conducting simulated combat maneuvers
using body-worn computing components, including those provided by the
Company, to determine effectiveness for use in coordinating troop locations
and movements, determining enemy locations, and using global positioning
systems to provide coordinates for artillery, helicopter pickup and air
support.
Marketing
Because the Company's products are frequently combined with products from
other manufacturers to form complete integrated information systems, the Company
believes that it is more effective to sell principally through multiple
distributors and resellers with defined market niche expertise and presence as
well as to end users. The Company believes that by forming relationships with
VARs and OEMS who supply various submarkets and types of end users, serve
customers or have in-place sales and distribution channels that identify new
customers and sales opportunities, the Company is able to reach end users more
rapidly in a variety of industries.
To ensure VAR and OEM quality, the Company intends to offer detailed
in-house training sessions to prepare and update personnel for field sales and
training. In addition, the Company is developing a comprehensive sales manual to
be used by VARs and OEMs. To avoid computer memory conflicts and hardware
interruptions (a potential problem when adding third-party peripherals to any
computer), the Company is developing a standard architecture with preapproved
hardware and software that can be combined on the Mobile Assistant(R) without
risk of conflict.
The Company's marketing and sales employees are responsible for
implementing direct marketing plans and sales programs, coordinating sales
activities with VARs and OEMs and customer service. The Company has had limited
sales to date and therefore has maintained a limited sales and marketing staff,
which the Company intends to increase following completion of this offering. The
Company expects to add 10 marketing and sales representatives and three customer
service personnel using the proceeds of this offering. The Company also expects
to expand its marketing activities significantly to meet anticipated increase in
product demand. These activities are expected to include increased attendance at
trade shows, preparation of advertising and sales materials, advertising in
industry literature and maintenance of its web site for technical and product
inquiries.
Sales and Backlog
As of June 18, 1996 the Company had sold and delivered approximately
$650,000 of Mobile Assistant(R) units and had a purchase order backlog of
approximately $1,500,000 which the Company anticipates to be shipped prior to
December 31, 1996. As of March 31, 1995, the Company's order backlog was
$545,000. Customers who have placed orders for these units in the past include,
among others, AT&T, Eaton Corporation, Battelle Memorial Institute, PRC Inc.,
SRI International, Rockwell International, Martin Marietta (now Lockheed
Martin), IAI Elta Electronics and the United States Army. Purchase orders are
cancellable by the customers without penalty.
The Company anticipates that for at least the immediate future, it will be
dependent upon a limited number of key customers for its revenues. The Company
believes that as more Mobile Assistant(R) units are delivered, the number of its
customers will increase and it will be less dependent upon a few key customers.
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While the Company has received letters of intent from additional prospective
customers to purchase Mobile Assistant(R) units, these letters are not binding
and there can be no assurance that it will receive purchase orders on the basis
of these letters of intent.
The Company entered into an exclusive license agreement for the Mobile
Inspector(TM) in June 1995. Prior to the execution of the license agreement, the
licensor had made approximately ten sales of Mobile Inspector(TM) software.
Although prior sales of Mobile Inspector(TM) software were for stand-alone use,
the Company intends to sell the Mobile Inspector(TM) for both stand-alone use
and for use with the Mobile Assistant(R).
Rockwell International Agreement
In March 1996 Rockwell International, which manufactures the computing unit
utilized in the Mobile Assistant(R), and the Company entered into a
non-exclusive five-year license agreement (the "License Agreement"). Pursuant to
the License Agreement, Rockwell International has been granted the nonexclusive
worldwide (excluding Germany and Japan) rights to manufacture, sell, distribute,
lease or repair under the Rockwell International name portable computers meeting
certain operating specifications utilizing and limited to the technical
information and intellectual property (including patent) rights which have been
developed by the Company as of the effective date of the License Agreement. The
License Agreement provides for an initial payment of $300,000 by Rockwell
International to the Company, the release of the Company from the obligation to
pay Rockwell International $1,395,000 pursuant to the current purchase order
between the Company and Rockwell International, and for the payment by Rockwell
International to the Company of a royalty of 4% of units sold by Rockwell
International through August 31, 1998; 3% of units sold by Rockwell
International from September 1, 1998 through August 31, 1999; 2% of units sold
by Rockwell International from September 1, 1999 through August 31, 2000; and 1%
of units sold by Rockwell International from September 1, 2000 through August
31, 2001. Pursuant to the License Agreement, Rockwell International will sell
the Company computing units meeting certain specifications on price, performance
and delivery terms no less favorable than offered by Rockwell International to
any other customer. Upon the termination of the License Agreement pursuant to
its terms, Rockwell International will receive an irrevocable, unrestricted,
perpetual license to the Company's intellectual property rights related to
mobile computers including data, designs, methodology, processes and procedures
as granted in, and as of the effective date of, the License Agreement. An
adverse determination by the Patent Office with respect to the pending
reexamination of the Company's Patent or any other material adverse development
concerning the Patent or the Company's other intellectual property rights could
have a material adverse effect upon the Company's future rights under the
License Agreement. See "Risk Factors -- Uncertain Protection of Patent and
Proprietary Rights; No Assurance of Enforceability or Significant Competitive
Advantage" and "-- Intellectual Property."
KEY SUPPLIERS
The Company currently has subcontracted the manufacture of the body-worn
computing unit, headset and battery portions of the Mobile Assistant(R) unit to
third-party vendors. These components are assembled and integrated with the
software applications for the Mobile Assistant(R) at the Company's headquarters.
The Company currently has a contract with Rockwell International for the
manufacture and supply of the body-worn mobile computing unit of the Mobile
Assistant(R). Under this contract, Rockwell International is to provide the
Company with processing units and body-worn computing systems on the most
favorable pricing, system performance and delivery terms available to any
Rockwell International customer. Rockwell International purchases and manages
parts and components inventory, manufactures computer boards, and assembles and
tests (including obtaining Federal Communications Commission certification) the
body-worn computing unit of the Mobile Assistant(R). Rockwell International also
provides warranty coverage and warranty service for the body-worn unit. The
contract between Rockwell International and the Company is terminable by mutual
agreement of the parties upon 90 days prior written notice. The Company
currently is purchasing head-mounted displays from Kopin at a fixed unit cost
pursuant to an interim agreement which expires in August 1996. This interim
agreement obligates the Company and Kopin to negotiate a further agreement for
the purchase and sale of head-mounted displays beyond August 1996. There can be
no assurance that the
31
<PAGE> 35
Company and Kopin will reach a mutually satisfactory agreement for the sale of
head-mounted displays subsequent to the expiration of the current interim
agreement. See "Risk Factors -- Dependence upon Key Suppliers."
Most of the parts and components for the current Mobile Assistant(R) are
off-the-shelf PC components that are available in high quantity from multiple
vendors. Custom-designed components and Application Specific Integrated Circuits
(ASIC) will be utilized to reduce weight, size and power consumption of the
Mobile Assistant(R) as well as to increase its capabilities and performance.
WARRANTIES
The Company provides customers with a parts and labor warranty for 90 days
and a one-year warranty on parts only. Warranty services for the body-worn
computing unit are provided by Rockwell International. Warranty services for the
head-mounted display are provided by Kopin.
COMPETITION
The Company anticipates that ultimately it will face severe competition
from laptop PC and other portable computing systems manufacturers. Several other
companies are engaged in the manufacture and development of body-mounted or
hand-held computing systems which compete with the Mobile Assistant(R),
including InterVision, Phoenix Group, Computing Devices International, a
division of Ceridian Corporation, Texas Microsystems and a consortium of Litton
and TRW. Personal digital assistants and laptop and notebook computers also are
products that could compete against the Mobile Assistant(R) in applications
where hands-free, voice-activated operation is not required. Many of these
computers are manufactured by major domestic and foreign computer manufacturers
which possess far more resources than the Company and can be expected to compete
vigorously with the Company for the market at which the Mobile Assistant(R) is
directed. The Company believes the principal competitive factors in the mobile
computing market include mobility, ease of use, adaptability to applications,
integration of functions and capabilities, reliability, price, service, support
and market presence. The Company is aware of at least two competitors which have
introduced mobile computing systems that compete directly with the Mobile
Assistant(R). There can be no assurance the Company will be able to compete
successfully against its competitors or that the competitive pressures faced by
the Company will not adversely affect its financial performance.
INTELLECTUAL PROPERTY
The Company relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect its
proprietary rights. The Company has entered into confidentiality and invention
assignment agreements with its employees, and enters into non-disclosure
agreements with its suppliers, VARs, OEMs and actual and potential customers to
limit access to and disclosure of its proprietary information. There can be no
assurance that these statutory protections and contractual arrangements will
prove sufficient to deter misappropriation of the Company's trade secrets or
independent third-party development of similar technologies. The laws of certain
foreign countries in which the Company may conduct business may not protect the
Company's products or intellectual property rights to the same extent as the
laws of the United States and thus lessen the protection of the Company's
products and intellectual property. The Company will endeavor to keep the
results of its research and development programs proprietary, but may not be
able to prevent others from using some or all of such information or technology
with or without compensation. The Company has registered its Mobile Assistant
trademark on the Principal Register of the United States Patent and Trademark
Office ("Patent Office"). The Company also has a common law trademark for the
Mobile Inspector(TM).
In April 1994 U.S. patent number 5,305,244 ("hands-free, user-supported
portable computers") (the "Patent") for the Mobile Assistant(R) was granted to
the Company. The patent application was previously assigned to the Company by
several employees of the Company. In September 1995 the Company received a
notification from the Patent Office entitled "office action in reexamination,"
which indicated that certain claims under the Patent were subject to
reexamination and were preliminarily rejected. The reexamination of
32
<PAGE> 36
the Patent was initiated as a result of a request from one of the Company's
competitors. See "Risk Factors -- Uncertain Protection of Patent and Proprietary
Rights; No Assurance of Enforceability or Significant Competitive Advantage."
The Company has been advised by its patent counsel, who is the Company's
Secretary and a director, that it is common for the Patent Office to grant
reexamination requests, which ordinarily are accompanied by a preliminary
rejection. Once a reexamination request is granted, the patent holder has an
opportunity to respond, both in writing and in person, with respect to the
reexamination and preliminary rejection. The Company filed a written response to
this request for reexamination and preliminary rejection on December 27, 1995.
Subsequently, representatives of the Company, including legal counsel, met with
representatives of the Patent Office to discuss the status of the matter. In May
1996 the Patent Office issued a Notice of Intent to Issue Reexamination
Certificate and Reexamination Reasons for Patentability/Confirmation with
respect to the September 1995 reexamination wherein it concluded that the
Company's claims are patentable with respect to the issues raised by that
request for reexamination.
On April 16, 1996 a second reexamination request was filed with the Patent
Office by the same competitor of the Company which filed the first such request
in September 1995. The Company has been advised by patent counsel that the
Patent Office permits multiple copending reexamination proceedings and that the
second request will be processed essentially in the same manner as the prior
request. If the Patent Office determines that the second request raises
substantial new questions of patentability, a second order granting request for
reexamination will be issued and the Company will have two months within which
to make an optional response to the request before the Patent Office issues a
formal office action. The Company has been advised by its patent counsel that
the prior proceeding will not be concluded until the second request has been
acted upon by the Patent Office.
The Company has been advised by its patent counsel handling this matter
that it is unlikely that the Patent Office will issue a Reexamination
Certificate (which certifies that the Company's Patent has been upheld) unless
the April 1996 reexamination request is denied. Even if the Company's patent
claims ultimately are rejected, the Company has pending another patent
application which the Company believes it may rely upon to assist in the
protection of the Company's proprietary rights. However, there is no assurance
that any patent will be granted to the Company or upheld in the future.
The Company has notified two of its competitors of the existence of the
Patent, which the Company's counsel believes may have been infringed by each of
such competitors. In the event that the Patent is upheld, the Company intends to
take any and all appropriate measures, including legal action, necessary to
maintain and enforce its rights under the Patent and to recover any damages
suffered as a result of any alleged infringement.
A second patent application for related mobile computing technology was
filed on October 2, 1995 in the United States by certain employees of the
Company, and it is anticipated that one or more of the claims in this
application may be filed as separate applications. All patents obtained by
Company employees under pending and future applications have been and will be
assigned to the Company under existing invention agreements.
The Company also has applied for patent protection for its hands-free,
body-worn mobile computing technology under the laws of European countries as
well as The People's Republic of China, Japan, Republic of Korea, Republic of
China (Taiwan), Canada and Australia.
LITIGATION
The Company is not a party to any litigation and is not aware of any
pending or threatened litigation. An "office action in reexamination" and a
second reexamination request have been filed with the Patent Office regarding
the Company's claims under the Patent for the Mobile Assistant(R). See
"-- Intellectual Property."
33
<PAGE> 37
EMPLOYEES AND CONSULTANTS
As of June 14, 1996, the Company had 22 full-time and seven part-time
employees. Of these, three are executive officers, six are administrative
employees, 10 are engaged in research and development, seven are engaged in
assembly and testing and three are engaged in marketing. None of the Company's
employees are represented by a union and management believes that the Company's
relations with its employees are good.
In November 1995 the Company entered into a consulting agreement with CMC
Services, whereby CMC Services agreed to provide sales representation and
marketing services to the Company at the Company's direction in exchange for the
payment of $5,000 a month. An affiliate of the principal of CMC Services, Pacel,
is the licensor of the Mobile Inspector(TM) software. The consulting agreement
may be terminated by either party upon 30 days prior written notice.
The Company has entered into a consulting agreement with Steven Newman, a
director of the Company, whereby Mr. Newman has agreed to provide negotiating,
strategic planning, financial advisory and general management services to the
Company through 1998. The agreement provides for an annual minimum payment of
$100,000 subject to a minimum annual increase of at least the annual increase in
the United States Consumer Price Index plus 2%; an annual cash bonus of 1% of
the Company's annual pretax income (as defined in the consulting agreement); and
a stock option bonus of one ten-year stock option to acquire one share of the
Common Stock at an exercise price of $1.75 per share for every $1.75 of cash
bonus earned. Mr. Newman's consulting agreement provides for an automatic
three-year renewal unless terminated in writing by either party on or before
October 31, 1998. Mr. Newman's consulting agreement also provides for
termination at his option in the event of a change of control (which is defined
as Edward Newman or his nominee ceasing to serve as Chairman of the Company's
Board of Directors or its president and chief executive officer) and that upon
any such termination Mr. Newman is entitled to at least two years of
compensation pursuant to his proposed agreement. While Mr. Newman's consulting
agreement has been executed the final terms of such agreement are subject to the
approval of the Representative, which has not yet been obtained.
In 1996 the Company entered into a two-year consulting agreement with
Victor J. Lombardi whereby Mr. Lombardi agreed to provide business development
and marketing services to the Company in exchange for warrants which entitle Mr.
Lombardi to purchase 100,000 shares of Common Stock at $6.00 per share through
December 31, 1999.
In May 1995 the Company entered into a three-year consulting agreement with
Andrew Heller whereby Mr. Heller agreed to provide strategic planning, business
management, strategic product development and market and financial introductions
services to the Company in exchange for 100,000 shares of Common Stock which
vest over a three-year period and which, for financial reporting purposes, are
valued at $5 per share.
FACILITIES
The Company's office and development facility consists of 7,276 square feet
located at 12701 Fair Lakes Circle, Fairfax, Virginia. The Company's current
lease is for a three-year term expiring November 1997 and requires monthly rent
of approximately $9,500. The lease is renewable at the Company's option for an
additional three years.
The Company also has a month to month tenancy agreement for the lease of
approximately 1,497 square feet located at 142 South Santa Cruz Avenue, Los
Gatos, California which is used as the Company's design and prototype center.
The tenancy agreement requires monthly base rent of $3,293 plus a pro-rata share
of building operating expenses, and that the Company give at least 60 days prior
written notice before vacating the premises. This lease is personally guaranteed
by Edward G. Newman, the Company's President, Chief Executive Officer and
Chairman of the Board of Directors. See "Certain Transactions."
The Company leases an apartment located at 4401 Sedgehurst Drive, #301,
Fairfax, Virginia 22033 pursuant to a month to month lease requiring monthly
rent of $875. The Company must give at least 45 days prior written notice before
termination of the lease.
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<PAGE> 38
BUSINESS HISTORY
The Company was incorporated in Virginia as Contemporary Products &
Services, Inc. in November 1990 and changed its name to Computer Products &
Services, Inc. in November 1992. In April 1996 the Company merged with Xybernaut
Corporation, a Delaware corporation, in order to change its name and
reincorporate in Delaware.
Simultaneously with the closing of this offering, the Company will acquire
100% of the issued and outstanding shares of Tech Virginia. Tech Virginia is the
former Virginia business unit of Tech International. In December 1994 Tech
International spun-off its Virginia business unit as Tech Virginia, and Tech
Virginia was incorporated in Delaware in June 1994. See "Certain
Transactions -- Tech International and Tech Virginia."
35
<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ ---- ------------------------------------------------
<S> <C> <C>
Edward G. Newman 53 President, Chief Executive Officer and Chairman
of the Board of Directors
John F. Moynahan 39 Vice President, Chief Financial Officer,
Treasurer and Director
John W. Williams 53 Vice President and Chief Operating Officer
Lt. Gen. Harry E. Soyster (Ret.)(1) 60 Director
James J. Ralabate, Esq. 68 Secretary and Director
Keith P. Hicks, Esq.(2) 74 Director
Steven A. Newman, M.D.(1)(2) 50 Director
Phillip E. Pearce(1)(2) 67 Director
Jacques Rebibo 56 Director
Eugene J. Amobi 51 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Officers are appointed by and serve at the discretion of the Board of
Directors. Each director holds office until the next annual meeting of
stockholders or until a successor has been duly elected and qualified. All of
the Company's officers will devote full time to the Company's business and
affairs following the completion of this offering.
Edward G. Newman has been the Company's President since March 1993, Chief
Executive Officer and Chairman of the Board of Directors since December 1994 and
a director since 1990. Mr. Newman served as Treasurer of the Company from 1993
to 1994. From 1984 to 1992 Mr. Newman was President of Electro-Tech
International Corporation, a software consulting firm. From 1973 to 1981 Mr.
Newman was employed by Xerox Corporation in several management positions in
office systems strategy, legal systems and international financial systems. Mr.
Newman served with the Central Intelligence Agency from 1966 to 1972. Mr. Newman
also has been an Executive Vice President and a director of Tech International
since 1990, and of Tech Virginia since 1994. See "Certain Transactions." Mr.
Newman is a graduate of the University of Maryland (B.A. 1971) and the
University of New Haven (M.B.A. 1984). Mr. Newman is the brother of Steven A.
Newman, M.D., a director of the Company.
John F. Moynahan joined the Company in October 1994, has served as a
director since January 1995 and currently serves as the Company's Vice
President, Chief Financial Officer and Treasurer. From 1992 to 1994 Mr. Moynahan
was Vice President and Treasurer of Joy Technologies Inc., a publicly-traded
machinery and pollution control equipment manufacturer. From 1990 to 1992 he was
Vice President and Chief Financial Officer of Sym-Tek Systems, Inc., a
publicly-traded high technology company. Prior to that time, Mr. Moynahan was
Treasurer of Fisher Scientific Group, Inc., a publicly-traded medical, health
and research equipment manufacturer and distributor. Mr. Moynahan is a graduate
of Colgate University (B.A. 1979) and New York University (M.B.A. 1982).
John W. ("Wes") Williams joined the Company in May 1996 and currently
serves as the Company's Vice President and Chief Operating Officer. From 1994 to
1996 Mr. Williams was Director of Advanced Concepts of the CACD Division of
Rockwell International, and from 1991 to 1994 he was Director of Programs of
Tecom Industries, a subsidiary of Tech-Sym Corp. Prior to 1991, Mr. Williams
served as International Marketing Manager, Deputy Director of Navigation Systems
Engineering and Avionics Integration Manager for Magnavox Advanced Products and
Systems Company. Mr. Williams is a graduate of California State University (B.S.
1980, M.B.A. 1982). It is the intention of management to nominate, and
36
<PAGE> 40
utilize its best efforts to elect, Mr. Williams as a director at the Company's
Annual Meeting of Stockholders in 1997.
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, Inc.
From 1988 until his retirement in 1991, Lieutenant General Soyster (Ret.) was
the Director of the United States Defense Intelligence Agency. Prior to that
time, he was Commander of the United States Army Intelligence and Security
Command and a Deputy Assistant Chief of Staff for Intelligence, Department of
the Army. Lieutenant General Soyster (Ret.) is a graduate of the United States
Military Academy at West Point (B.S. 1957), Penn State University (M.S. 1963),
the University of Southern California (M.S. 1973) and the National War College
(1977).
James J. Ralabate, Esq. has been a director of the Company since January
1995 and currently serves as the Company's Secretary. Mr. Ralabate has been in
the private practice of patent law since 1982. Prior to that time, Mr. Ralabate
was General Patent Counsel for Xerox Corporation, responsible for worldwide
patent licensing and litigation, and an examiner for the Patent Office. Mr.
Ralabate is intellectual property counsel to the Company, and is a graduate of
Canisius College (B.S. 1950) and The American University (J.D. 1959).
Keith P. Hicks, Esq. has been a director of the Company since July 1994 and
currently is a principal in C&H Properties and the owner of Hicks Bonding Co.,
Hicks Auctioneering Co. and Hicks Cattle Co. Mr. Hicks is a graduate of the
University of Denver (B.A. 1954) and LaSalle University School of Law (L.L.B.
1969).
Steven A. Newman, M.D. has been a director of the Company since January
1995 and a consultant to the Company since January 1996. See
"Business -- Employees and Consultants." Dr. Newman was Executive Vice President
and Secretary of the Company from December 1994 through October 1995. Dr. Newman
also provides business, management and administrative consulting services to
medical groups. Dr. Newman was President of Fed American, Inc., a mortgage
banking firm, from 1988 to 1991. In connection with the bankruptcy of Sandco
American Inc., a real estate development company in California of which he was
the principal and guarantor, Dr. Newman declared personal bankruptcy and was
discharged from liabilities in 1992. Dr. Newman has been a director of Tech
International since 1990, a director of Tech Virginia since 1994 and an employee
of Tech Virginia since 1994. See "Certain Transactions." Dr. Newman is a
graduate of Brooklyn College (B.A. 1967) and the University of Rochester (M.D.
1972). Dr. Newman is the brother of Edward G. Newman, the Company's President,
Chief Executive Officer and Chairman of the Board of Directors.
Phillip E. Pearce has been a director of the Company since October 1995.
Mr. Pearce has been an independent business consultant with Phil E. Pearce &
Associates, Chairman and Director of Financial Express Corporation since 1990
and since 1988 has been a principal of Pearce-Henry Capital Corp. Prior to 1988
Mr. Pearce was Senior Vice President and a director of E.F. Hutton, Chairman of
the Board of Governors of the National Association of Securities Dealers, a
Governor of the New York Stock Exchange and a member of the Advisory Council to
the United States Securities and Exchange Commission on the Institutional Study
of the Stock Markets. Mr. Pearce also is a director of RX Medical Services,
Inc., a publicly-traded operator of medical diagnostic facilities and clinical
laboratories, InfoPower International, Inc., a software development company and
Starbase Company, a software development company. Mr. Pearce is a graduate of
the University of South Carolina (B.A. 1953) and attended the Wharton School of
Investment Banking at the University of Pennsylvania.
Jacques Rebibo has been a director of the Company since January 1996. Since
1983 Mr. Rebibo has been Chairman of the Board and a director of Selfware, Inc.,
a software development and consulting firm, and since 1985 has been President,
Chief Executive Officer and a director of Mortgage Investment Corporation, a
mortgage banking firm. Prior to 1983 Mr. Rebibo was President of Rebibo and
Chorazy, a financial planning firm, and Executive Vice President of Systematics
General Corporation, a publicly-traded manufacturer and distributor of computer
systems. Mr. Rebibo was a director of Fairfax Bank & Trust from 1985 through
1995. Mr. Rebibo is a graduate of Memphis State University (B.S. 1962) and the
University of Maryland (M.A. 1964).
37
<PAGE> 41
Eugene J. Amobi has been a director of the Company since January 1996.
Since 1983 Mr. Amobi has been President, a director and a principal stockholder
of Tech International, which provides engineering, technical support and
consulting services to government and domestic and international commercial
clients. Mr. Amobi has been president and a director of Tech Virginia since its
spin-off from Tech International and will serve in this position until the
acquisition of Tech Virginia by the Company. Prior to 1983, Mr. Amobi was a
Senior Engineer with E.I. DuPont de Nemours and a Managing Director of Stanley
Consultants, an international engineering consulting firm. Mr. Amobi is a
graduate of The Technion, Israel Institute of Technology (B.S. 1969), Princeton
University (M.S. 1970) and Syracuse University (M.B.A. 1973).
ADVISORS
Advisors to the Board of Directors are:
Maarten Heybroek has been an advisor to the Board of Directors since 1992.
Since 1986 Mr. Heybroek has been employed by Citibank, as Chief of Staff and
Controller for consumer banking activities in central Europe and, most recently,
as Director, Compliance and Risk Management for Citibank's United States
consumer banking operations. Prior to that time, Mr. Heybroek was Director,
Finance-European Operations and then Director, Corporate Finance for Intergraph
Corporation, a publicly-traded computer hardware and software firm, and with
Xerox Corporation in a variety of financial and management positions. Mr.
Heybroek is a graduate of Pace University.
Andrew Heller is an advisor to the Board of Directors for a three-year term
through May 5, 1998. Since 1989 Mr. Heller has been Chairman and Chief Executive
Officer of Heller Associates, a consulting firm to high technology companies.
From 1990 to 1993 Mr. Heller was Chairman and Chief Executive Officer of HaL
Computer Systems, Inc., a software and hardware systems development company.
From 1966 to 1989 Mr. 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, Mr.
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. Mr. Heller is a director of Rambus,
Inc., Cross/Z, Inc., Network Translation, Inc., EPR, Inc., Eco Instrumentation,
Inc. and UDI Software, Inc. Mr. Heller has a three-year consulting agreement
with the Company whereby Mr. Heller has agreed to provide strategic planning,
business management, strategic product development and market and financial
introductions services to the Company. See "Business -- Employees and
Consultants."
LIMITATION OF LIABILITY 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 wilful 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 availability 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
38
<PAGE> 42
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.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following sets forth the annual and
long-term compensation for services in all capacities to the Company (i) for the
transitional year ended December 31, 1995 and the fiscal years ended March 31,
1995 and 1994 of Edward G. Newman, the Company's President, Chief Executive
Officer and Chairman of the Board of Directors, and (ii) for the transitional
year dated December 31, 1995 of John F. Moynahan, the Company's Vice President,
Chief Financial Officer, Treasurer and a director. No other officer of the
Company received annual salary and bonus exceeding $100,000 during the relevant
periods.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS(1)
COMPENSATION(1) ------------
NAME AND ------------------ OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION
- --------------------------------- ---- -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward G. Newman................. 1995* $112,500 $-0- -0- $-0-
President, Chief Executive 1995 $ 68,750 $-0- -0- $-0-
Officer and Chairman of the 1994 $ 26,500 $-0- -0- $-0-
Board of Directors
John F. Moynahan................. 1995* $105,000 $-0- -0- $-0-
Vice President, Chief Financial 1995 $ 64,167 $-0- 200,000 $-0-
Officer and Treasurer 1994 -- -- -- --
</TABLE>
- ---------------
* Transitional year ended December 31, 1995.
Option Grants Table. The following table sets forth information on grants
of stock options during fiscal 1995 to John F. Moynahan, the Company's Vice
President, Chief Financial Officer, Treasurer and a director. All such options
are exercisable to purchase shares of Common Stock. No options were granted to
Messrs. Edward G. Newman or John F. Moynahan during the transitional year ended
December 31, 1995.
<TABLE>
<CAPTION>
PERCENT OF TOTAL EXERCISE OR
OPTIONS GRANTED OPTIONS GRANTED TO BASE PRICE
NAME (SHARES) EMPLOYEES IN YEAR ($/SHARE) EXPIRATION DATE
- --------------------------------- --------------- ------------------ ----------- -------------------
<S> <C> <C> <C> <C>
John F. Moynahan................. 200,000(1) 80% $0.01 September 30, 2004
</TABLE>
- ---------------
(1) Mr. Moynahan's options vest pro rata over the five-year period from 1995
through 1999.
39
<PAGE> 43
Fiscal Year-End Options/Option Values Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John F. Moynahan................. 40,000 160,000 $ 199,600 $ 798,400
</TABLE>
- ---------------
(1) Dollar values are the difference between $5.00, the assumed offering price
for the Units and the exercise price of the options at issuance.
In 1996, in addition to 70,000 options granted to certain employees, the
Company has granted to an executive officer and certain directors an aggregate
of 225,000 ten-year options to purchase the Common Stock at $6.00 per share as
follows: Mr. Williams -- 50,000; Mr. Pearce -- 50,000; Mr. Rebibo -- 50,000; Mr.
Hicks -- 50,000; Mr. Soyster -- 25,000. All of the foregoing options will vest
pro-rata over the five-year period ending either in April 2001 or June 2001.
None of the foregoing options are exercisable within 60 days of the date of this
Prospectus.
The Company has no retirement, pension or profit sharing program for the
benefit of its directors, officer or other employees, but the Board of Directors
may recommend one or more such programs for adoption in the future.
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
anticipate doing so in the foreseeable future. Any payments when implemented
will be comparable to those made by companies of similar size and developmental
stage. The Company also has adopted an Omnibus Stock Incentive Plan in which
directors are eligible to participate. See "--Omnibus Stock Incentive Plan."
Steven A. Newman has entered into a consulting agreement with the Company the
final terms of which are subject to the approval of the Representative, which
has not yet been obtained. See "Business--Employees and Consultants."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Edward G. Newman
and John F. Moynahan. Mr. Newman's employment agreement provides for a
three-year term through December 31, 1998; initial annual base compensation of
$150,000 subject to a minimum annual increase to $198,000 on January 1, 1997 and
of at least the annual increase in the United States Consumer Price Index
("CPI") plus two percent annually thereafter; an annual cash bonus of 1 1/2
percent of the Company's annual pretax income (as defined in the employment
agreement) and a stock option bonus of one ten-year stock option to acquire one
share of the Common Stock at an exercise price of $1.75 per share for every
$1.75 of cash bonus earned; and a $2,000,000 life insurance policy payable to
his designated beneficiaries.
Mr. Moynahan's employment agreement provides for a three-year term through
December 31, 1998; initial annual base compensation of $140,000 subject to a
minimum annual increase to $150,000 on January 1, 1997 and of at least the
annual increase in the CPI thereafter; and an annual cash bonus in an amount to
be determined by the Company and a stock option bonus of one ten-year stock
option to acquire one share of the Common Stock at an exercise price of $1.75
per share for every $1.75 of cash bonus awarded.
The employment agreements with Mr. Newman and Mr. Moynahan also entitle
them to participate in all benefits which the Company may offer to its executive
officers and employees. The Company anticipates that such benefits will include
an automobile, health insurance and expense reimbursement. Each of the
employment agreements renew for an additional three-year term unless terminated
in writing by either party on or before October 31, 1998. Each of the employment
agreements also provides for termination at the option of the employee in the
event of a change of control (which is defined as Mr. Edward Newman or his
nominee ceasing to serve as either the Chairman of the Company's Board of
Directors or its president and chief executive officer) and that upon any such
termination the employee is entitled to at least two years of annual
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<PAGE> 44
compensation under his employment agreement. While each of these employment
agreements have been executed, the final terms of Mr. Newman's and Mr.
Moynahan's employment agreements are subject to approval by the Representative,
which has not yet been obtained.
OMNIBUS STOCK INCENTIVE PLAN
The 1996 Omnibus Stock Incentive Plan (the "Incentive Plan") was adopted by
the Company's Board of Directors effective January 1, 1996. The 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 Incentive Plan subsequent to
December 31, 2006.
The 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 Incentive Plan, including the exercise price, number of
shares subject to the option and the exercisability thereof. Messrs. Steven A.
Newman, Soyster and Pearce currently are the members of the Compensation
Committee.
The exercise price of all Incentive Stock Options granted under the
Incentive Plan must equal at least the fair market value of the Common Stock on
the date of grant. In the case of an optionee who owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company ("Substantial Stockholders"), the exercise price of Incentive Stock
Options must be at least 110% of the fair market value of the Common Stock on
the date of grant. The exercise price of all nonqualified stock options granted
under the Incentive Plan shall be determined by the Compensation Committee. The
term of any Incentive Stock Option granted under the Incentive Plan may not
exceed ten years, or, for Incentive Stock Options granted to Substantial
Stockholders, five years. The 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 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 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 Incentive Plan defines a change of control as the
consummation of a tender offer for 25% or more of the outstanding voting
securities of the Company, a merger or consolidation of the Company into another
corporation less than 75% of the outstanding voting securities of which are
owned in aggregate by the stockholders of the Company immediately prior to the
merger or consolidation, the sale of substantially all of the Company's assets
other than to a wholly-owned subsidiary, or the acquisition by any person,
business or entity other than by reason of inheritance of over 25% of the
Company's outstanding voting securities. The change of control provisions of the
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 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.
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<PAGE> 45
The Incentive Plan also provides the Board of Directors or the Compensation
Committee discretion to grant to key persons shares of Restricted Stock subject
to certain limitations on transfer and substantial risks of forfeiture.
As of June 1, 1996 a total of 801,530 options were outstanding, 400,000 of
which either will be formally reissued under the Incentive Plan or counted
against the number of shares subject to issuance under the Incentive Plan. Each
of the outstanding options has an exercise price greater than the assumed public
offering price of the Units offered hereby with the exception of 200,000 shares
which are subject to acquisition by Mr. Moynahan and 50,000 shares which are
subject to acquisition by an employee of the Company at $.01 per share over the
period 1995 through 1999. As of the date of this Prospectus there were no SARs
outstanding and there have been no grants of Restricted Stock other than 10,000
shares granted to Mr. Williams. All outstanding options vest on a pro-rata basis
over a five-year period.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information as to the beneficial ownership of the Common Stock of (i) each of
the Company's directors and executive officers, (ii) directors and executive
officers as a group, and (iii) all persons known by the Company to be the
beneficial owners of more than five percent of the outstanding Common Stock of
the Company prior to this offering and giving pro forma effect to the sale of
2,000,000 Units offered hereby and the exchange of the Debentures for 1,431,429
Exchange Units.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO OFFERING
-------------------- PERCENTAGE OWNED
NAME(1) NUMBER PERCENT AFTER OFFERING
- ----------------------------------------------------------- --------- ------- ----------------
<S> <C> <C> <C>
Edward G. Newman(2)........................................ 4,790,000 46.1% 34.7%
John F. Moynahan(3)........................................ 50,000 * *
Lt. Gen. Harry E. Soyster (Ret.)........................... 25,000 * *
James J. Ralabate.......................................... 50,000 * *
Keith P. Hicks............................................. 368,000 3.5% 2.7%
Steven A. Newman(4)........................................ 1,617,940 15.6% 11.7%
Phillip E. Pearce.......................................... -- -- --
Jacques Rebibo(5).......................................... 177,500 1.7% 1.3%
Eugene J. Amobi............................................ 300,000 2.9% 2.2%
Frances C. Newman(6)....................................... 800,000 7.7% 5.8%
Manassas Bay Trust(7)...................................... 580,000 5.6% 4.2%
Officers and directors (9 persons)......................... 8,758,440 84.3% 63.4%
</TABLE>
- ---------------
* Less than 1%
(1) The address for Messrs. Edward G. Newman and Moynahan and Mrs. Newman is
12701 Fair Lakes Circle, Suite 550, Fairfax, Virginia 22033; the address for
Mr. Steven A. Newman is 303 Avenida Cerritos, Newport Beach, California
92660; the address for Mr. Hicks is 4121 Roberts Road, Fairfax, Virginia
22032; the address for Mr. Rebibo is 7216 Dulany Drive, McLean, Virginia
22101; the address for Mr. Amobi is 100 Jade Drive, Wilmington, Delaware
19810; the address for Mr. Ralabate is 5792 Main Street, Williamsville, New
York 14221; the address for Lt. Gen. Soyster (Ret.) is 1201 E. Abingdon
Drive, Suite 425, Alexandria, Virginia 22314; and the address for the
Manassas Bay Trust is South Esplanade Street, St. Peter Port, Island of
Guernsey, United Kingdom.
(2) Includes 200,000 shares owned by a trust for Mr. Newman's children and
580,000 shares owned by the Manassas Bay Trust, a trust established by Mr.
Newman. See footnote 7 below. Excludes 800,000 shares owned by Mr. Newman's
wife, Frances C. Newman. See footnote 6 below.
(3) Includes 40,000 shares of Common Stock subject to acquisition by Mr.
Moynahan at $.01 per share pursuant to a stock option.
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<PAGE> 46
(4) Includes 100,000 shares owned by a trust for Dr. Newman's children.
(5) Includes 17,500 shares owned by Mortgage Investment Corp., an affiliate of
Mr. Rebibo.
(6) Frances C. Newman is the wife of Edward G. Newman.
(7) A trust created by Edward G. Newman. Mr. Newman disclaims beneficial
ownership of the shares of Common Stock owned by the trust.
ESCROWED SHARES
As a condition to this offering, the Representative has required the
Company's stockholders to deposit the Escrowed Shares, which are 1,800,000
shares of Common Stock (of which 1,620,000 shares are owned by officers and
directors of the Company) in escrow pursuant to an escrow agreement with
Continental Stock Transfer & Trust Company, the escrow agent and the
Representative. The Escrowed Shares will be subject to incremental release to
the depositing stockholders based upon the Company's total revenues and net
earnings (loss) for the 12-month periods ending September 30, 1997, 1998 and
1999. The Escrowed Shares will be released in the amounts set forth below only
upon the achievement by the Company of the following Performance Targets:
- 300,000 shares if the Company achieves gross revenues of at least
$20,000,000 and a net loss, if any, not in excess of $500,000 for the 12
months ending September 30, 1997;
- 750,000 shares if the Company achieves gross revenues of at least
$45,000,000, and earnings per share of at least $1.00 for the 12 months
ending September 30, 1998;
- 750,000 shares if the Company achieves gross revenues of at least
$90,000,000 and earnings per share of at least $1.25 for the 12 months
ending September 30, 1999.
Notwithstanding the foregoing, if at any time the closing bid price of the
Common Stock reported on The Nasdaq SmallCap Market equals or exceeds $11.00 per
share for 25 consecutive trading days or for 30 out of 35 consecutive trading
days (the "Nasdaq Price Target") during the period ending September 30, 1999,
all Escrowed Shares then remaining in escrow will be released from the escrow
and returned to the stockholders.
The Escrowed Shares will be subject to incremental release only in the
event the Company achieves the Performance Targets in the 12 months ending
September 30, 1997, 1998 and/or 1999. In addition, upon achieving the Nasdaq
Price Target at any time during the period ending September 30, 1999 all then-
Escrowed Shares will be released. If the Performance Targets are not met in any
of the relevant 12-month periods (and the price of the Common Stock has not met
or exceed the price described above prior to the expiration of the applicable
12-month period), the Escrowed Shares in the amounts stated above will be
returned to the Company and cancelled. The earnings per share calculation will
be based on the fully diluted earnings per share, but excluding shares issued
pursuant to the Unit Purchase Option, extraordinary items, or any compensation
expense charged to the Company related to the release of the Escrowed Shares.
The determination of earnings per share will be made in accordance with
generally accepted accounting principles and will be based on the financial
statements of the Company filed pursuant to the Securities Exchange Act of 1934,
as amended. Escrowed shares are not transferable or assignable, although they
may be voted by the holder.
The Performance Targets and the Nasdaq Price Target were determined by
negotiation between the Company and the Representative and do not imply or
predict any future performance by the Company. The market value of any Escrowed
Shares held by officers, employees or consultants at the time they are released
will be deemed to be additional compensation expense to the Company. Upon such
an occurrence the Company will recognize a potentially material charge to income
which could reduce or eliminate earnings, if any. The amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity or working capital. See "Risk Factors -- Effect of Possible
Non-Cash Future Charge."
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<PAGE> 47
CERTAIN 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. There is
no assurance that approval of such transactions by the Company's Board of
Directors will protect the best interests of the Company. The Company could be
subject to litigation or claims by stockholders or third-parties, or regulatory
action, in the event such transactions are found to be contrary to the best
interests of the Company.
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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Edward G. Newman, a principal stockholder, director, the Chairman,
President and Chief Executive Officer of the Company and Steven A. Newman and
Eugene J. Amobi, directors of the Company, are the stockholders, officers and
directors of Tech Virginia. Eugene J. Amobi is the sole director and stockholder
of Tech International.
From December 1992 until November 1994 the Company utilized, on a fee
basis, a portion of the office facilities and certain personnel, office support
and equipment of Tech International's Virginia business unit. In November 1994
the Company relocated its office to its current location and ceased using Tech
International's office facility, support and equipment. The Company continued to
use certain Tech International personnel until the Spin-Off, after which the
Company began purchasing certain consulting services from Tech Virginia.
As part of the Spin-Off, Tech Virginia acquired approximately $45,000 of
net receivables owed by the Company to Tech International for office and
personnel support. On December 31, 1994, Tech Virginia forgave those receivables
and agreed to provide six months of free consulting services to the Company in
exchange for serving as the Company's principal VAR and Small Business
contracting agent for federal government contracts accounts. The Company treated
approximately $45,000 of net payables forgiven by Tech Virginia as a
contribution to capital as of December 31, 1994 for which no additional shares
were issued.
Simultaneous with the closing of this offering the Company will acquire
100% of the issued and outstanding shares of Tech Virginia, which are owned by
Messrs. Amobi, Edward G. Newman and Steven A. Newman, for $50,000 pursuant to a
December 31, 1994 option agreement (the "Tech Virginia Option"). The Tech
Virginia Option was executed together with an agreement pursuant to which Tech
Virginia forgave the Company's net indebtedness of approximately $45,000 for
services rendered and the Company retained Tech Virginia as its VAR and
contracting agent for all sales to the United States government. The acquisition
of Tech Virginia provides the Company with the technical capability, data and
key personnel for portions of the data conversion, voice and presentation
manager toolkits and the ability to bid Company products in United States
government contracts requiring security clearances and to have Company products
listed on approved United States Government purchasing lists. Tech Virginia has
accrued salary obligations and expense reimbursement of $145,000 to Mr. Amobi,
$40,500 to Mr. Edward Newman and $40,500 to Mr. Steven Newman which will be paid
by the Company following the completion of the offering. See "Use of Proceeds."
The terms of the Tech Virginia Option were negotiated between Mr. Amobi and the
Company, and approved by the Company's disinterested directors. Upon the
conclusion of this transaction Tech Virginia will be a wholly-owned subsidiary
of the Company.
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<PAGE> 48
PATENT
In 1993 each of Messrs. Edward G. Newman, the Company's President, Chief
Executive Officer and Chairman of the Board of Directors, Gil Christian, a
former employee of the Company, and Michael Jenkins, an employee of the Company,
assigned to the Company all of their right, title and interest in and to the
Patent. In consideration of the assignment of their interests in the Patent, Mr.
Edward G. Newman, Mr. Christian and Mr. Jenkins each received 300,000 shares of
Common Stock, and $22,500 in the aggregate. In addition, Messrs. Edward G.
Newman, Jenkins and Steven J. Schwartz, who also is an employee of the Company,
have related patent applications pending in the United States and certain other
countries. Any patents obtained by employees of the Company will be assigned to
the Company under existing invention agreements. See "Business -- Intellectual
Property."
In September 1995 the Company received a notification from the Patent
Office entitled "office action in re-examination," which indicated that certain
claims were subject to re-examination and were preliminarily rejected. The
re-examination of the Patent was initiated as a result of a request from one of
the Company's competitors. A second request for re-examination was received by
the Company in April 1996. In April 1996 the Company was notified by the Patent
Office that the Patent had been upheld with respect to the issues raised by the
September 1995 re-examination. Mr. James J. Ralabate, the Company's Secretary
and a director has advised the Company with respect to legal matters concerning
the reexamination requests (and other intellectual property matters) although he
is not formally representing the Company before the Patent Office on those
matters. During the transitional period ended December 31, 1995, the Company
paid Mr. Ralabate fees, in cash or in shares of Common Stock, of $135,904 for
legal services rendered to the Company.
CONVERSION OF DEBT AND PAYABLES
On December 30, 1994, Messrs. Edward G. Newman, Steven A. Newman and Keith
P. Hicks forgave outstanding loans due to them from the Company. For financial
statement purposes, these amounts were considered to be paid-in capital which
increased the Company's paid-in capital surplus by $105,000. On December 31,
1994, the Company also agreed with Tech Virginia to forgive approximately
$45,000 of net accounts payable owed to Tech Virginia by the Company.
MANAGEMENT PERSONNEL EMPLOYMENT AGREEMENTS WITH TECH VIRGINIA
Messrs. Edward G. Newman, Steven A. Newman and Eugene Amobi each have
employment agreements with Tech Virginia under which each of them is entitled to
a salary and is eligible to receive certain bonuses. The agreements with Messrs.
Edward G. Newman and Steven A. Newman require each of them to devote only
reasonable time and attention to Tech Virginia, provided their activities for
Tech Virginia do not interfere with their obligations to the Company. Upon the
acquisition of Tech Virginia by the Company, such employment agreements will
terminate by agreement with Messrs. Newman, Newman, and Amobi.
GUARANTY OF DESIGN CENTER LEASE
Mr. Edward G. Newman, the Company's President, Chief Executive Officer and
Chairman of the Board of Directors, personally guaranteed the Company's lease of
approximately 1,497 square feet located at 142 South Santa Cruz Avenue, Los
Gatos, California which is used as the Company's design and prototype center.
Mr. Newman was not separately compensated for providing such guaranty.
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<PAGE> 49
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share. As of the date hereof, 10,387,789 shares of
Common Stock are issued and outstanding and no Preferred Stock is issued and
outstanding. The Company currently has reserved 2,352,959 shares of Common Stock
for issuance pursuant to outstanding options, a warrant and its obligations
pursuant to the Debentures. Upon completion of the offering, the Company will
have reserved 6,484,388 shares of Common Stock for issuance pursuant to
outstanding options, Warrants, Exchange Warrants and the Representative's Unit
Purchase Option.
UNITS
Each Unit consists of one share of Common Stock and one Warrant. The
Warrants will be immediately separately transferrable from the Common Stock.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. The Company's
Certificate of Incorporation and By-Laws do not provide for cumulative voting
rights in the election of directors. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in the assets remaining after payment of liabilities. Holders
of Common Stock have no preemptive, conversion or redemption rights. All of the
outstanding shares of Common Stock are fully paid and nonassessable.
WARRANTS
Each Warrant will entitle the holder to purchase one share of Common Stock
at an exercise price of $9.00 until , 1999, subject to the Company's
redemption rights described below. The Warrants will be issued pursuant to the
terms of a Warrant Agreement between the Company and Continental Stock Transfer
& Trust Company (the "Warrant Agent"). The Company has authorized and reserved
for issuance the shares of Common Stock issuable on exercise of the Warrants.
The Warrants are exercisable to purchase a total of 2,000,000 shares of Common
Stock of the Company unless the Over-Allotment Option is exercised, in which
case the Warrants are exercisable to purchase a total of up to 2,300,000 shares
of Common Stock. Upon exchange of the Debentures, 1,431,429 Exchange Warrants
will be issued to the holders of the Debentures. The terms of the Exchange
Warrants are identical to those of the Warrants.
The Warrant exercise price and the number of shares of Common Stock
purchasable upon exercise of the Warrants are subject to adjustment in the event
of, among other events, a stock dividend on, or a subdivision, recapitalization
or reorganization of, the Common Stock, the merger or consolidation of the
Company with or into another corporation or business entity or issuances of
Common Stock at a price below the Common Stock market price, subject to certain
exceptions.
Commencing 18 months from the date of this Prospectus and until the
expiration of the Warrants, the Company, in its discretion, may redeem
outstanding Warrants, in whole but not in part, upon not less than 30 days'
notice, at a price of $.05 per Warrant, provided that the closing bid price of
the Common Stock equals or exceeds $18.00 for 20 consecutive trading days ending
five days immediately prior to such notice. In the event the Company exercises
its right of redemption, the Warrants will be exercisable until the close of
business on the date fixed for redemption in such notice. If any Warrant called
for redemption is not exercised by such time, it will cease to be exercisable
and the holder thereof will be entitled only to the redemption price.
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<PAGE> 50
The Company must have on file a current registration statement with the
Commission pertaining to the Common Stock underlying the Warrants in order for a
holder to exercise the Warrants or in order for the Warrants to be redeemed by
the Company. The shares underlying the Warrants also must be registered or
qualified for sale under the securities laws of the state in which the Warrant
holder resides. The Company intends to use its best efforts to keep the
Registration Statement incorporating this Prospectus current, but there can be
no assurance that the Registration Statement (or any other registration
statement filed by the Company covering shares underlying the Warrants) can be
kept current. In the event the Registration Statement is not kept current, or if
the Common Stock underlying the Warrants is not registered or qualified for sale
in the state in which a Warrant holder resides, the Warrants may be deprived of
any value.
The Company is not required to issue any fractional shares of Common Stock
upon the exercise of Warrants or upon the occurrence of adjustments pursuant to
anti-dilution provisions. The Company will pay to holders of fractional
interests an amount equal to the cash value of such fractional interests based
upon the then-current market price of a share of Common Stock.
The Warrants may be exercised upon surrender of the certificate
representing the Warrants on or prior to the expiration date (or earlier
redemption date) of the Warrants at the offices of the Warrant Agent with form
of "Election to Purchase" on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by payment of the full exercise
price by check payable to the order of the Company for the number of Warrants
being exercised. Shares of Common Stock issued upon exercise of Warrants for
which payment has been received in accordance with the terms of the Warrants
will be fully paid and nonassessable.
The Warrants do not confer upon the Warrant holder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrant holders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants. Although this right is intended to benefit Warrant holders, to
the extent the Company exercises this right when the Warrants would otherwise be
exercisable at a price higher than the prevailing market price of the Common
Stock, the likelihood of exercise and resultant increase in the number of shares
outstanding, may impede or increase the cost of a change in control of the
Company.
DEBENTURES
As of the date of this Prospectus, the Company has issued and outstanding
$2,505,000 in principal amount of 7% Exchangeable Debentures Due 1997 (the
"Debentures"). Each Debenture entitles the holder to repayment of the principal
amount on November 16, 1997 (the "Maturity Date") and payments of interest at
the annual rate of 7% on September 30, 1996, March 30, 1997, and the Maturity
Date. Upon the closing of this offering, each Debenture will be exchanged for
one Exchange Unit consisting of one share of Common Stock and one Exchange
Warrant exercisable for one share of Common Stock for each $1.75 of outstanding
principal amount of the Debenture, which exchange shall constitute full and
complete satisfaction of the Company's obligations under the Debenture. In this
offering, the Company is registering for resale 1,431,429 shares of the Common
Stock included in the Exchange Units, the Exchange Warrants and the shares of
Common Stock underlying the Exchange Warrants. As of the completion of this
offering, there will be no outstanding Debentures. The holders of the Debentures
have agreed not to sell or otherwise dispose of the shares of the Exchange
Units, the Common Stock, the Exchange Warrants or, upon exercise thereof, the
shares of Common Stock underlying the Exchange Warrants exchanged for the
Debentures for 180 days following the completion of this offering. See "Shares
Eligible for Future Sale."
PREFERRED STOCK
The Board of Directors has the authority, without further stockholder
approval, to issue up to 5,000,000 shares of Preferred Stock from time to time
in one or more series, to establish the number of shares to be included in each
such series, and to fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock, if any, or could adversely affect the rights and
powers, including voting rights, of the holders of the Common
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<PAGE> 51
Stock. In certain circumstances, such issuances could have the effect of
decreasing the market price of the Common Stock. As of the date of this
Prospectus, the Company has not designated any shares of Preferred Stock. There
are no shares of Preferred Stock outstanding, and the Company currently has no
plans to issue any share of Preferred Stock.
DELAWARE BUSINESS COMBINATION PROVISIONS
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which regulates large
accumulations of shares, including those made by tender offers. Section 203 may
have the effect of significantly delaying a purchaser's ability to acquire the
entire interest in the Company if such acquisition is not approved by the
Company's Board of Directors. In general, Section 203 prevents an "Interested
Stockholder" (defined generally as a person with 15% or more of a corporation's
outstanding voting stock) from engaging in a "Business Combination" (defined
below) with a Delaware corporation for three years following the date such
person became an Interested Stockholder. For purposes of Section 203, the term
"Business Combination" is defined broadly to include mergers and certain other
transactions with or caused by the Interested Stockholder, sales or other
dispositions to the Interested Stockholder (except proportionately with the
corporation's other stockholders) of assets of the corporation or a subsidiary
equal to 10% or more of the aggregate market value of the corporation's
consolidated assets or its outstanding stock; the issuance or transfer by the
corporation or a subsidiary of stock of the corporation or such subsidiary to
the Interested Stockholder (except for transfers in a conversion or exchange or
a pro-rata distribution or certain other transactions, none of which increase
the Interested Stockholder's proportionate ownership of any class of series of
the corporation's or such subsidiary's stock); or receipt by the Interested
Stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on Business Combinations by Section 203
does not apply if: (a) prior to the date on which a stockholder becomes an
Interested Stockholder, the Board approves either the Business Combination or
the transaction which resulted in the person becoming an Interested Stockholder,
(b) the Interested Stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him or her an Interested Stockholder
(excluding from the 85% calculation shares owned by directors who are also
officers of the corporation and shares held by employee stock plans which do not
permit employees to decide confidentially whether to accept a tender or exchange
offer); or (c) on or after the date a person becomes an Interested Stockholder,
the Board approves the Business Combination, and it is also approved at a
stockholder meeting by two-thirds of the voting stock not owned by the
Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things, the corporation's original certificate of incorporation contains a
provision electing not to be governed by Section 203. The Company's Certificate
of Incorporation does not contain such a provision. The restrictions described
above also do not apply to certain Business Combinations proposed by an
Interested Stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an Interested Stockholder during the previous three years or who
became an Interested Stockholder with the approval of a majority of the
corporation's directors.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company anticipates that any future earnings will be retained for use in the
business of the Company or for other corporate purposes, and it is not
anticipated that cash dividends in respect to the Common Stock will be paid.
LISTING
Application has been made to have the Company's Units, Common Stock and
Warrants (including the Exchange Warrants) approved for inclusion on The Nasdaq
SmallCap Market.
48
<PAGE> 52
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company will serve as the Company's
transfer agent for the Units and Common Stock and the Warrant Agent for the
Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
approximately 13,819,218 shares of Common Stock. All of the shares of Common
Stock included in the Units offered hereby will be freely tradeable without
restriction or further registration under the Act except for any shares
purchased by any person who is or becomes an affiliate of the Company, which
shares will be subject to the resale limitations contained in Rule 144
promulgated under the Act.
Holders of the Warrants included in the Units will be entitled to purchase
an aggregate of 2,000,000 shares of Common Stock (not including the
Over-Allotment Option) upon exercise of the Warrants at any time through
, 1999 provided that the Company satisfies certain securities
registration requirements with respect to the securities underlying the
Warrants. Any and all shares of Common Stock purchased upon exercise of the
Warrants will be freely tradeable, except for any shares purchased by any person
who is or thereby becomes an affiliate of the Company, provided such
registration requirements are met.
In general under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
affiliate of the Company as that term is defined under the Act, is entitled to
sell, within any three-month period, a number of shares beneficially owned for
at least two years that does not exceed the greater of (i) one percent of the
number of the then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 also are subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. Furthermore, a person who is not deemed to
have been an affiliate of the Company during 90 days preceding a sale by such
person and who has beneficially owned such shares for at least three years is
entitled to sell such shares without regard to the volume, manner of sale or
notice requirements. Upon completion of this offering approximately 8,758,440
shares of the 13,819,218 shares of the Common Stock which will then be issued
and outstanding will be held by affiliates of the Company. The Company's
officers, directors and certain stockholders have agreed not to publicly offer,
sell or otherwise dispose of any shares of Common Stock owned by them (the
"Representative's Lock-Up") for a period of two years after the date hereof.
Certain stockholders who purchased their shares of Common Stock for at least
$6.00 per share (and who in the aggregate own 207,246 shares of the Common
Stock) have agreed to a one-year Representative's Lock-Up following the date
hereof. Holders of the Debentures exchanging their Debentures for Common Stock
pursuant to this offering have agreed to a 180-day Representative's Lock-Up
following the date hereof. Shares of the Common Stock subject to the
Representative's Lock-Up will be eligible for sale under Rule 144 at various
times commencing in , 1997. Any of the Representative's Lock-Ups are
subject to earlier release at the discretion of the Representative.
Prior to this offering, there has been no public market for the Company's
securities. Following this offering, the Company cannot predict the effect, if
any, that market sales of the Common Stock, or the availability of such shares
for sale, will have on the market price prevailing from time to time.
Nevertheless, sales by the existing stockholders of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices for the Company's securities. In addition, the availability for sale of
substantial amounts of Common Stock acquired through the exercise of the
Warrants, Exchange Warrants, options, warrants, or the Unit Purchase Option
could adversely affect prevailing market prices for the Common Stock.
49
<PAGE> 53
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for which Royce Investment Group, Inc. is acting as
representative (the "Representative"), have severally agreed to purchase from
the Company the number of Units set forth below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
---------------------------------------------------------------------- ---------------
<S> <C>
Royce Investment Group, Inc...........................................
Kensington Wells Incorporated.........................................
---------------
Total....................................................... 2,000,000
============
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all Units offered hereby (other than those covered by the
Over-Allotment Option described below) if the Underwriters purchase any Units.
The Underwriters have advised the Company that they propose to offer the
Units directly to the public at the price set forth on the cover page of this
Prospectus, and that they may allow to certain dealers which are members of the
National Association of Securities Dealers, Inc., concessions not in excess of
$ per Unit. The Underwriters may allow, and such dealers may reallow, a
concession not exceeding $ per Unit to other dealers. After the Units are
released for sale to the public, the Underwriters may change the initial price
to the public and other selling terms.
The Company has agreed to pay the Representative a nonaccountable expense
allowance of three percent of the aggregate public offering price of the Units,
including Units sold on exercise of the Over-Allotment Option, of which $50,000
previously has been paid to the Representative. The Company also has agreed to
pay all expenses in connection with qualifying the Units for sale under the laws
of such states as the Representative may designate, including expenses of
counsel to the Representative which will be retained for such purpose.
The Company has granted the Representative an option (the "Over-Allotment
Option"), exercisable for 45 days after the date of this Prospectus, to purchase
up to 300,000 additional Units at the initial public offering price of the
Units. The Representative may purchase these Units solely to cover any
over-allotments, if any, in connection with the sale of the Units offered
hereby.
The Company's officers, directors and certain stockholders have agreed not
to publicly offer, sell or otherwise dispose of any shares of capital stock
owned by them for a period of two years after the date of this Prospectus
without the prior written consent of the Representative. Certain stockholders
who purchased their shares of Common Stock for at least $6.00 per share (and who
in the aggregate own 207,246 shares of Common Stock) have agreed to similar
restriction for a one-year period following the date of this Prospectus. Holders
of the Debentures exchanging their Debentures for Exchange Units have agreed to
a similar restriction for a 180-day period following the date of this
Prospectus.
In connection with this offering the Company has agreed to issue and sell
to the Representative, for nominal consideration, the Unit Purchase Option to
purchase an aggregate of 200,000 Units. The Unit Purchase Option will be
exercisable at a price per share equal to % of the initial price to the
public of the Units commencing one year after the closing date of this offering
and will continue to be exercisable until five years from the date of this
Prospectus. During the exercise period, holders of the Unit Purchase Option are
entitled to certain demand and incidental registration rights with respect to
the securities issuable upon exercise of the Unit Purchase Option. For a period
of one year from the date of this Prospectus, the Unit Purchase Option is not
transferable except to Underwriters, selling group members and their officers
and/or partners.
50
<PAGE> 54
Upon any exercise of the Warrants after one year from the date of this
Prospectus, the Company will pay the Representative a fee of 6% of the aggregate
exercise price for Warrant exercises solicited by it if (i) the market price of
the Common Stock on the date the Warrant is exercised is greater than the
then-exercise price of the Warrant, (ii) the exercise of the Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
and the holder designates in writing on the Warrant Certificate subscription
form the broker-dealer to receive compensation for such exercise, (iii) the
Warrant is not held in a discretionary account, (iv) disclosure of compensation
arrangements was made both at the time of this offering and at the time of
exercise of the Warrant, and (v) the solicitation of exercise of the Warrant was
not in violation of Rule 10b-6 promulgated under the 1934 Act. A portion of the
6% fee may be reallowed by the Representative to participating broker-dealers.
The Company has agreed not to solicit Warrant exercises through any broker-
dealer other than the Representative. The Company will not be required to pay a
fee to the Representative with respect to any Warrant exercise solicited solely
by the Company.
Rule 10b-6 will prohibit the Representative from engaging in any
market-making activities with regard to the Company's securities for the period
commencing nine business days (or such other applicable period as Rule 10b-6 may
provide) prior to any solicitation by the Representative of the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Representative may
have to receive a fee for the exercise of Warrants following such solicitation.
As a result, the Representative may be unable to make a market in the Company's
securities during certain periods while the Warrants are exercisable.
The Company will enter into a two-year financial consulting agreement with
the Representative upon the closing of this offering for a fee of 1% of the
gross proceeds of this offering (including proceeds from exercise of the
Over-Allotment Option). Pursuant to the consulting agreement, the Representative
is not obligated to devote more than two days per month to the affairs of the
Company.
The Representative acted as placement agent in the placement of the
Debentures, for which it received a commission of $250,500 evidenced by two
promissory notes which bear interest at the rate of 9% per annum and which are
payable from proceeds of this offering. See "Use of Proceeds."
Prior to this offering, there has not been a public market for the Units,
Common Stock or Warrants. The public offering price of the Units and the
exercise price of the Warrants have been determined by arms-length negotiation
between the Company and the Representative. There is no direct relation between
the offering price of the Units or the exercise price of the Warrants and the
assets, book value or net worth of the Company. Among the factors considered by
the Company and the Representative in pricing the Units were the results of
operations, the current financial condition and future prospects of the Company,
the experience of management, the amount of ownership to be retained by present
stockholders, and the general condition of the economy and the securities
markets. The Company has agreed to list the securities offered hereby on the
Nasdaq National Market at such time, if ever, as the Company meets the listing
criteria therefor.
In connection with this offering, the Company and the Underwriters have
agreed to indemnify each other against certain liabilities, including
liabilities under the Act, and if such indemnification is unavailable or
insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements based upon relative benefits received from this
offering and relative fault resulting in such damages.
LEGAL MATTERS
The validity of the securities offered will be passed upon for the Company
by Baker & Hostetler, Washington, D.C. Certain patent and proprietary law
matters will be passed upon for the Company by James J. Ralabate, Esq.,
Williamsville, New York. James J. Ralabate is Secretary and a director of the
Company and owns 50,000 shares of Common Stock of the Company. Certain legal
matters will be passed upon for the Representative by Berliner Zisser Walter &
Gallegos, P.C., Denver, Colorado.
51
<PAGE> 55
EXPERTS
The combined balance sheets as of March 31, 1994 and 1995 and December 31,
1995 and the combined statements of operations, combined statements of
stockholders' equity (deficit) and combined statements of cash flows for the
nine months ended December 31, 1995 and for each of the two years in the period
ended March 31, 1995 included in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants
(whose report, dated March 15, 1996, except as to the information in Note 13,
for which the date is April 24, 1996, includes an explanatory paragraph which
refers to conditions that raise substantial doubt about the Company's ability to
continue as a going concern), given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a registration statement (together with all amendments
thereto, the "Registration Statement") under the Act with respect to the
securities offered by this Prospectus. This Prospectus, filed as part of the
Registration Statement, omits certain the information contained in the
Registration Statement in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement and to the financial statements and exhibits filed as a part thereof.
Copies of the Registration Statement, together with such financial statements
and exhibits, may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048, at
prescribed rates. Any statements contained herein concerning the provisions of
any document are not necessarily complete and in each instance reference is made
to the copy of such document files as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
52
<PAGE> 56
XYBERNAUT CORPORATION AND AFFILIATE
REPORT ON AUDITS OF
COMBINED FINANCIAL STATEMENTS
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.................................................... F-2
Combined Balance Sheets -- March 31, 1994 and 1995, December 31, 1995 and Pro Forma
December 31, 1995 (unaudited)...................................................... F-3
Combined Statements of Operations -- Years ended March 31, 1994 and 1995 and nine
months ended December 31, 1994 (unaudited) and nine months ended December 31,
1995............................................................................... F-4
Combined Statements of Stockholders' Equity (Deficit) -- Years ended March 31, 1994
and 1995 and the nine months ended December 31, 1995............................... F-5
Combined Statements of Cash Flows -- Years ended March 31, 1994 and 1995 and the nine
months ended December 31, 1994 (unaudited) and nine months ended December 31,
1995............................................................................... F-6
Notes to the Combined Financial Statements........................................... F-7
Combined Balance Sheets -- March 31, 1996 (unaudited) and Pro Forma March 31, 1996
(unaudited)........................................................................ F-17
Combined Statements of Operations -- Three Months ended March 31, 1996 (unaudited)
and 1995 (unaudited)............................................................... F-18
Combined Statement of Stockholders' Equity (Deficit) -- Three Months ended March 31,
1996 (unaudited)................................................................... F-19
Combined Statements of Cash Flows -- Three Months ended March 31, 1996 (unaudited)
and 1995 (unaudited)............................................................... F-20
Notes to the Combined Financial Statements........................................... F-21
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Xybernaut Corporation and Affiliate:
We have audited the accompanying combined balance sheets of Xybernaut
Corporation (formerly Computer Products & Services, Inc) and Affiliate as of
March 31, 1994 and 1995 and December 31, 1995 and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
March 31, 1994 and 1995 and the nine months ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Xybernaut
Corporation and Affiliate as of March 31, 1994 and 1995 and December 31, 1995
and the results of their operations and their cash flows the years ended March
31, 1994 and 1995 and the nine months ended December 31, 1995 in conformity with
generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1, the
Company incurred losses accumulating to $3,492,434 through December 31, 1995,
and has a working capital deficit of $38,534 at December 31, 1995. These
factors, among others, raise substantial doubt about its ability to continue as
a going concern. Management's plans concerning these matters are also described
in Note 1. The combined financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 15, 1996, except as to the information
in Note 13, for which the date is April 24, 1996
F-2
<PAGE> 59
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA
----------------------- DECEMBER 31, DECEMBER 31,
ASSETS 1994 1995 1995 1995
-------- ----------- ------------ ------------
(UNAUDITED
NOTE 13)
<S> <C> <C> <C> <C>
Current assets:
Cash...................................... $ 753 $ 149,060 $ 508,666 $ 1,508,666
Accounts receivable....................... 16,834 90,725 90,725
Inventories............................... 10,000 9,241 249,950 249,950
Prepaid and other current assets.......... 5,994 20,617 20,617
-------- ----------- ------------ ------------
Total current assets.............. 10,753 181,129 869,958 1,869,958
-------- ----------- ------------ ------------
Fixed assets:
Property and equipment.................... 24,265 130,352 164,310 164,310
Less accumulated depreciation............. 5,680 38,281 75,508 75,508
-------- ----------- ------------ ------------
18,585 92,071 88,802 88,802
-------- ----------- ------------ ------------
Debenture issuance costs, net of accumulated
amortization of $0, $0, $24,815 and
$24,815, respectively..................... 196,542 336,542
Patent costs, net of accumulated
amortization of $2,353, $5,264, $31,017
and $31,017,
respectively.............................. 39,987 61,105 184,565 184,565
Other....................................... 2,504 53,671 53,671
-------- ----------- ------------ ------------
39,987 63,609 434,778 574,778
-------- ----------- ------------ ------------
Total assets...................... $ 69,325 $ 336,809 $ 1,393,538 $ 2,533,538
======== ========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable............................. $ 263,425 $ 383,425
Accounts payable.......................... $ 162,828 420,801 440,801
Accrued expenses.......................... 147,935 224,266 224,266
----------- ------------ ------------
Total current liabilities......... 310,763 908,492 1,048,492
----------- ------------ ------------
Long-term liabilities:
Due to Tech International, Inc............ $ 41,943
Notes and loans payable................... 72,999 72,999
Debentures................................ 1,505,000 2,505,000
-------- ----------- ------------ ------------
Total long-term liabilities....... 41,943 1,577,999 2,577,999
-------- ----------- ------------ ------------
Total liabilities................. 41,943 310,763 2,486,491 3,626,491
-------- ----------- ------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock.............................. 86,197 101,763 103,725 103,725
Additional paid-in capital................ 30,444 1,317,434 2,337,663 2,337,663
Accumulated deficit....................... (89,259) (1,393,151) (3,534,341) (3,534,341)
-------- ----------- ------------ ------------
27,382 26,046 (1,092,953) (1,092,953)
-------- ----------- ------------ ------------
Total liabilities and
stockholders'
equity (deficit)................ $ 69,325 $ 336,809 $ 1,393,538 $ 2,533,538
======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-3
<PAGE> 60
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------- --------------------------
1994 1995 1994 1995
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Product sales and leases................. $ 13,650 $ 51,712 $ 25,582 $ 227,793
Consulting............................... 3,331 27,612 26,668 124,855
----------- ----------- ----------- -----------
Total revenues................... 16,981 79,324 52,250 352,648
Cost of sales.............................. 8,155 61,301 35,544 263,621
----------- ----------- ----------- -----------
Gross margin..................... 8,826 18,023 16,706 89,027
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing...................... 15,521 207,377 150,934 383,960
General and administrative............... 35,970 859,082 575,346 917,533
Research and development................. 5,050 259,256 147,192 910,182
----------- ----------- ----------- -----------
Total operating expenses......... 56,541 1,325,715 873,472 2,211,675
----------- ----------- ----------- -----------
(47,715) (1,307,692) (856,766) (2,122,648)
Interest income (expense).................. 363 3,800 3,517 (18,542)
----------- ----------- ----------- -----------
Net loss......................... $ (47,352) $(1,303,892) $ (853,249) $(2,141,190)
========== ========== ========= ==========
Net loss per common and common
equivalents share........................ $ (0.00) $ (0.12) $ (0.08) $ (0.18)
========== ========== ========= ==========
Weighted average number of common and
common equivalent shares outstanding..... 10,200,244 11,164,748 10,984,499 11,793,120
========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-4
<PAGE> 61
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995 AND
NINE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK
TECH VIRGINIA CLASS A SHARES CLASS B SHARES
------------------ ------------------- ------------------ ADDITIONAL
NUMBER OF NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ --------- ------- --------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1,
1993................ 8,579,680 $85,797 $ 20 $ (41,507) $ 44,310
Shares issued......... 40,000 400 (400) --
Contributed capital... 30,424 30,424
Net loss.............. (47,352) (47,352)
--
--- --------- ------- --------- ------ ----------- ------------ ------------
Balance, March 31,
1994................ 8,619,680 86,197 30,444 (89,259) 27,382
Contributed capital... 153,476 153,476
Shares issued for
services and
incentives.......... 1,040,400 10,404 349,920 $3,499 152,935 166,838
Shares issued in
private placements,
net of costs of
$41,758............. 166,000 1,660 952,582 954,242
Shares issued......... 300 $3 497 500
Stock options issued
for services and
incentives.......... 27,500 27,500
Net loss.............. (1,303,892) (1,303,892)
--
--- --------- ------- --------- ------ ----------- ------------ ------------
Balance, March 31,
1995................ 300 3 9,826,080 98,261 349,920 3,499 1,317,434 (1,393,151) 26,046
Shares issued......... 41,246 412 247,064 247,476
Shares issued for
services and
incentives.......... 154,943 1,550 773,165 774,715
Net loss.............. (2,141,190) (2,141,190)
--
--- --------- ------- --------- ------ ----------- ------------ ------------
Balance, December 31,
1995................ 300 $3 9,867,326 $98,673 504,863 $5,049 $ 2,337,663 $(3,534,341) $ (1,092,953)
========== ======= ========== ======== ========== ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-5
<PAGE> 62
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------- --------------------------
1994 1995 1994 1995
-------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(47,352) $(1,303,892) $ (853,249) $(2,141,190)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization...................... 7,358 35,512 23,089 87,795
Noncash charges for stock and options issued
for services..................................... 194,341 194,341 671,500
(Increase) decrease in assets:
Inventories...................................... (1,845) 759 (1,952) (240,709)
Accounts receivable.............................. (16,834) (11,038) (73,891)
Other current assets............................. (5,994) (3,121) (14,623)
Other assets..................................... (2,504) (2,504) (23,416)
Increase in liabilities:
Accounts payable and accrued expenses............ 41,943 268,820 220,950 334,304
-------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................. 104 (829,792) (433,484) (1,400,230)
-------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment................. (20,215) (93,056) (92,756) (33,958)
Acquisition of patents and related costs.............. (25,020) (23,878) (23,878) (45,998)
-------- ----------- ----------- -----------
Net cash used in investing activities......... (45,235) (116,934) (116,634) (79,956)
-------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from:
Contributed capital................................ 30,424 140,791 73,570
Issuance of stock.................................. 996,000 600,000 247,476
Issuance of debentures............................. 1,505,000
Notes payable...................................... 185,924
Debenture issuance costs.............................. (70,857)
Common stock issuance costs........................... (41,758) (27,751)
-------- ----------- ----------- -----------
Net cash provided by financing activities..... 30,424 1,095,033 673,570 1,839,792
-------- ----------- ----------- -----------
Net increase (decrease) in cash......................... (14,707) 148,307 123,452 359,606
Cash, beginning of period............................... 15,460 753 753 149,060
-------- ----------- ----------- -----------
Cash, end of period..................................... $ 753 $ 149,060 $ 124,205 $ 508,666
======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-6
<PAGE> 63
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITY:
THE COMPANY:
Since the commencement of operations in November 1992 Xybernaut Corporation
(formerly Computer Products Services, Inc.) (the "Company") has engaged in the
research, development and commercialization of products intended to bridge the
widening gap between people and knowledge. The first product to be
commercialized by the Company is the proprietary portable computer technology
and related software applications embodied in its Mobile Assistant(R) product.
Additional software products are planned for use on the Mobile Assistant(R) and
other personal computers.
During fiscal year 1995, the Company obtained $996,000 of equity financing
through private placements of common stock. Additional financing of $1,505,000
and $1,000,000 was received in November 1995 and April 1996 the issuance of 7%
convertible debentures, due 1997. The Company is attempting to sell shares of
its common stock through an initial public offering. However, there can be no
assurance that the Company's business will develop as anticipated by management
or that additional financing will be available. The combined financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classifications of
liabilities that might result if the Company is unable to continue as a going
concern.
The Company was a development stage enterprise through March 31, 1995.
Subsequently, the Company has commenced principal operations and, accordingly,
these financial statements are not presented in compliance with Statement of
Financial Accounting Standard No. 7 which describes the financial presentation
for development stage enterprises.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPALS OF COMBINATION:
The combined financial statements include the accounts of the commonly
controlled companies Xybernaut Corporation (formerly Computer Products &
Services, Inc.) and Tech International of Virginia Inc. ("Tech Virginia"),
because the Company intends to exercise its option to purchase Tech Virginia
concurrent with the closing of the contemplated initial public offering. All
significant intercompany accounts and transactions have been eliminated.
FISCAL YEAR:
In connection with the proposed initial public offering, Computer Products
and Services, Inc. changed its fiscal year end from March 31 to December 31. The
combined financial statements for the nine months ended December 31, 1994 and
the related footnote information are unaudited, but, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments, consisting of normal recurring
accruals, necessary for a fair representation of the information set forth
therein.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 64
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
INVENTORIES:
Inventories, consisting principally of component parts held for resale, are
stated at the lower of cost or market, with cost determined by the first-in,
first-out method.
PROPERTY, EQUIPMENT, FURNITURE AND FIXTURES:
Property, equipment, furniture and fixtures are stated at cost and are
depreciated using the straight-line method over the estimated useful lives of
the assets as follows:
<TABLE>
<S> <C>
Equipment......................................................... 5 years
Furniture and fixtures............................................ 5 years
Demonstrator units................................................ 2 years
Leasehold improvements............................................ 3 years
</TABLE>
Expenditures for maintenance and repairs are charged directly to the
appropriate operating account at the time the expense is incurred. Expenditures
determined to represent additions and betterments are capitalized.
SOFTWARE DEVELOPMENT COSTS:
The Company's policy is to capitalize software development costs when
technological feasibility has been established, based on a detailed program
design that is complete, has been confirmed and for which no high-risk
development issues remain in accordance with Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Cost of Computer Software to be
Sold, Leased, or Otherwise Marketed."
The establishment of technological feasibility and the ongoing assessment
of the recovery of capitalized software costs requires considerable judgment by
management with respect to certain external factors including, but not limited
to, technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technologies. Capitalization
of software costs will cease when the software is available for general release
to customers, at which time amortization of the costs begins. These costs will
be amortized using the greater of the straight-line method or the ratio of
current gross revenues from a product to the total of current and anticipated
future gross revenues from the product. Since the Company is currently in the
planning phase and has not yet prepared a product design or detailed program
design for software development tool kits, no costs have been capitalized to
date.
INTANGIBLE ASSETS:
Patent costs consist of legal fees and other direct costs incurred in
obtaining and maintaining patents and are amortized over a five-year period.
IMPAIRMENT OF LONG-LIVED ASSETS:
Management of the Company periodically reviews the carrying value of
intangible assets for potential impairment by comparing the carrying value of
these assets with their related, expected future net cash flows. Should the sum
of the related, expected future net cash flows be less than the carrying value,
management would determine whether an impairment loss should be recognized. An
impairment loss would be measured by the amount by which the carrying value of
the asset exceeds the future discounted cash flows.
F-8
<PAGE> 65
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REVENUE RECOGNITION AND WARRANTIES:
Product sales are recorded on shipment. For equipment shipped under
equipment loan agreements, revenue is recognized when equipment evaluation is
completed and accepted by the customer. Consulting revenue is recognized as the
services are performed. The Company generally provides a 90 day warranty on
parts and labor and a one year warranty on parts. The Company's suppliers for
the computing unit and the head mounted display provide the Company with similar
warranties and as a result warranty reserves are immaterial.
RESEARCH AND DEVELOPMENT PROGRAMS:
Research and development costs are charged to operations as incurred,
including the cost of components purchased for testing and product development
that are saleable but are intended for development work only.
INCOME TAXES:
Prior to March 31, 1995, the Company had elected to be taxed under
Subchapter S of the Internal Revenue Code. As a result, any federal and state
taxes are the responsibility of the shareholders. The Company has revoked its S
corporation election and will be taxed as a C corporation. Accordingly, deferred
income tax assets and liabilities are computed annually for differences between
the financial statement and income tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future. Such deferred income tax
asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect taxable
income. Income tax expense is the tax payable or refundable for the period plus
or minus the change during the period in deferred income tax assets and
liabilities.
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARES:
The net loss per common and common equivalent share is based on the
weighted average number of common and common equivalent shares outstanding
during the period. All stock options, warrants and issuances within one year
prior to the Company's initial public offering have been included in the
calculation of common equivalent shares outstanding (using the treasury stock
method assuming an initial public offering price of $5.00 per unit) as if they
were outstanding for all periods presented.
ESCROWED SHARES
Escrowed shares, if any, are considered issued and outstanding and reported
as such on the balance sheet. For purposes of computing the net loss per common
and common equivalent share, they will not be considered outstanding until the
conditions for their release are met.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximated fair value as
of December 31, 1995, March 31, 1994 and 1995 because of the relatively short
maturity of these instruments. The carrying value of the notes and loans payable
and the debentures approximated fair value as of December 31, 1995, based upon
market prices for the same or similar debt issues.
F-9
<PAGE> 66
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY AND EQUIPMENT:
PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31,
1994 1995 1995
------- ------- ------------
<S> <C> <C> <C>
Equipment............................................ $24,265 $46,197 $ 75,660
Furniture and fixtures............................... 17,696 22,191
Demonstrator units................................... 29,600 29,600
Leasehold improvements............................... 36,859 36,859
------- ------- ------------
24,265 130,352 164,310
Less accumulated depreciation........................ 5,680 38,281 75,508
------- ------- ------------
$18,585 $92,071 $ 88,802
======= ======= ===========
</TABLE>
Depreciation expense for the years ended March 31, 1994 and 1995 and for
the nine months ended December 31, 1994 and 1995 was $5,005 $32,601, $22,421,
and $37,227, respectively.
4. DEBT:
Effective November 17, 1995, the Company sold $1,505,000 of 7% convertible
debentures due in 1997 (the debenture offering). Under the terms of the
debenture offering, the debentures will convert into common stock upon the
Company's successful initial public offering ("IPO"). The rate of conversion
will be one share of common stock and one warrant to purchase a share of common
stock at $9.00 for every $1.75 of principal and accrued interest.
Under the terms of these debentures, the Company has the right to redeem
all debentures, at a price equal to 105% of principal, plus accrued interest, if
the IPO has not occurred within one year after the closing date.
Under the agreement with the placement agent, the Company paid a placement
fee of 10% of the proceeds from the debenture offering. The fee is in the form
of an interest-bearing promissory note due on the earlier of the effective date
of the proposed IPO or May 17, 1996.
5. STOCKHOLDERS' EQUITY:
OUTSTANDING COMMON STOCK:
The Company and its affiliate's outstanding common stock is summarized
below:
<TABLE>
<CAPTION>
NUMBER OF SHARES ISSUED
AND OUTSTANDING
NUMBER -------------------------
PAR VALUE OF SHARES MARCH 31, DECEMBER 31,
PER SHARE AUTHORIZED 1995 1995
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Computer Products & Services Inc.:
Class A.............................. $ 0.01 15,000,000 9,826,080 9,867,326
Class B.............................. $ 0.01 1,000,000 349,920 504,863
Tech International of Virginia, Inc.... $ 0.01 1,500 300 300
</TABLE>
Class A and Class B shares are identical except that Class B shares are
nonvoting.
On August 18, 1994, the Company's Board of Directors authorized a 40-for-1
stock split. All references in the combined financial statements to number of
shares, per share amounts and stockholders' equity have been restated to reflect
the split.
F-10
<PAGE> 67
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
5. STOCKHOLDERS' EQUITY, CONTINUED:
During fiscal year 1995, prior to the manufacture of any Mobile Assistant
products, the Company issued the following shares of stock as an inducement or
in exchange for services provided by either employees or members of the board,
independent contractors or outside counsel.
<TABLE>
<S> <C>
Class A shares................................... 1,040,400
Class B shares................................... 349,920
</TABLE>
For financial reporting purposes, these shares were valued at $0.12 per
share and operations were charged a total of $166,838 to account for the
issuance of these shares.
During fiscal year 1995, after the Company had successfully manufactured
six Mobile Assistant products, the Company issued 166,000 shares of the Class A
Common Stock in connection with private placements at $6.00 per share.
During the nine months ended December 31, 1995, the Company issued 42,499
of Class A shares and 154,943 of Class B shares. The Class A shares issued were
pursuant to private placement offerings at $6.00 per share and the Class B
shares were issued as incentives to consultants, two of whom are also board
members. For financial reporting purposes, the Class B shares were valued at
$5.00 per share and operations were charged a total of $774,715 to account for
the issuance of these shares.
6. STOCK OPTIONS:
During fiscal year 1995 and the nine months ended December 31, 1995, the
Company's Board of Directors approved stock options which become exercisable,
beginning one year after the date granted, in five equal annual installments.
Information on options is as follows:
<TABLE>
<CAPTION>
SHARES
UNDER
OPTION RANGE
------- -----------
<S> <C> <C>
Outstanding at March 31, 1994.................................. --
Granted........................................................ 250,000 $ .01
------- -----------
Outstanding at March 31, 1995.................................. 250,000 .01
Granted........................................................ 243,530 6.00
------- -----------
Outstanding at December 31, 1995............................... 493,530 $0.01-$6.00
======= ===========
</TABLE>
During the year ended March 31, 1995, 250,000 options were granted to
employees for services and incentives. For financial reporting purposes, the
value of the stock was $0.12 and operations were charged a total of $27,500 to
account for the issuance of these shares.
F-11
<PAGE> 68
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
7. SIGNIFICANT CUSTOMERS:
The percentages of total revenue from sales to customers in excess of 10%
of the total for each period were as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------- ---------------------
1994 1995 1994 1995
---- ---- ------------ ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A....................................... 80%
Customer B....................................... 20%
Customer C....................................... 46% 46% 15%
Customer D....................................... 35% 52%
Customer E....................................... 17%
Customer F....................................... 18%
Customer G....................................... 19%
</TABLE>
8. INCOME TAXES:
For the nine months ended December 31, 1995 no income tax benefit has been
provided because the losses could not be carried back and realization of the
benefit of the net operating losses carried forward was not assured. The pro
forma effects of accounting for income taxes for the years ended March 31, 1994
and 1995 and the nine months ended December 31, 1994 would not be different from
the financial statements presented herein because no income tax benefit would
have been provided.
At December 31, 1995, the Company has approximately $2.2 million of net
operating loss carryforwards for federal income tax purposes. These losses
expire in 2011. The use of these carryforwards may be limited in any one year
under Internal Revenue Code Section 382 because of significant ownership
changes.
Net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Excess of book over tax depreciation........................... $ (1,000)
Net operating loss carryforwards............................... 830,000
Adjustment to accrual basis of accounting...................... 84,000
Tax credit carryforwards....................................... 30,000
Less valuation allowance....................................... (943,000)
------------
Net deferred tax asset of temporary differences.............. --
===========
</TABLE>
F-12
<PAGE> 69
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
9. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS:
During the year ended March 31, 1995, the Company began leasing its
operating facilities and certain equipment under various operating leases
expiring on various dates through 1998. Future minimum payments under
noncancelable operating leases at December 31, 1995 are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------
<S> <C> <C>
1996.................................. $112,753
1997.................................. 9,084
1998.................................. 8,327
</TABLE>
Total rental expense charged to operations for the year ended March 31,
1995 and the nine months ended December 31, 1994 and 1995 was $89,747, $14,477
and $42,673, respectively.
Prior to entering into the operating facility lease, the Company shared
space with an affiliate.
PURCHASE COMMITMENTS:
The Company has agreements with Rockwell International Corp. and Kopin
Corporation to purchase specialized components necessary to produce the Mobile
Assistant(R). Failure of any of these parties to comply with the terms and
conditions of existing agreements could adversely affect the Company's
performance.
PATENTS:
The Company considers its patents, trade secrets, and other intellectual
property and other proprietary information to be important to its business
prospects. In September 1995, the Company received a notification from the
Patent Office entitled "office action in re-examination" which indicated that
the Company's claims under its existing patent for the Mobile Assistant(R) were
subject to re-examination and had been preliminary rejected. Based upon the
advice of its patent counsel, who also is a director of the Company, the Company
believes that the re-examination will not result in any adverse action with
respect to the patent. In October 1995, the Company filed a patent application
covering additional embodiments and extensions of the technologies used in the
Mobile Assistant(R).
10. RELATED PARTY TRANSACTIONS:
Since December 1992, the Company has had various business relationships
with Tech International, Inc. ("Tech International"), and since 1994, with Tech
Virginia.
Tech International's principal stockholder is a stockholder and a director
of the Company and a shareholder of 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 division. On December 30, 1994, Tech International spun-off
the Virginia division (the "Spin-Off ") as Tech Virginia. Certain of the
Company's stockholders are officers, directors and shareholders of Tech
Virginia.
From December 1992 until December 1994, the Company utilized, on a fee
basis, a portion of the office facilities and certain personnel, office support
and equipment of Tech International's Virginia division.
F-13
<PAGE> 70
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
10. RELATED PARTY TRANSACTIONS, CONTINUED:
As part of the Spin-Off, Tech Virginia assumed approximately $45,000 of net
receivables owed by the Company for office and personnel support which have been
eliminated in combination. On December 31, 1994, Tech Virginia forgave those
receivables and agreed to provide six months of free consulting services to the
Company in exchange for serving as the Company's principal VAR and Small
Business contracting agent for federal government contract accounts. The Company
converted approximately $45,000 of the net payables balance to equity as of
December 31, 1994.
On December 30, 1994, the Company received an option to purchase Tech
Virginia for $50,000. This option expires on July 1, 1998. The Company has
notified Tech Virginia that it intends to exercise the option concurrent with
the closing of the contemplated initial public offering.
In April 1995 a shareholder exercised an option to purchase 510,000 shares
of Class A Common Stock directly from the Company's President and majority
stockholder under an agreement dated February 28, 1994. These shares were
purchased at $0.05 per share.
In 1993, three employees assigned to the Company all of their right, title
and interest in and to a patent in consideration for 900,000 shares of Class A
Common Stock and $22,500 in cash.
The Company uses a director of the Company as its Patent Counsel. The
Company paid or issued stock of the following amounts in connection with work
performed by Patent Counsel:
<TABLE>
<CAPTION>
YEARS ENDED MARCH NINE MONTHS ENDED
31, DECEMBER 31,
------------------ ----------------------------
1994 1995 1995
------- ------- 1994 ------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
$28,865 $16,844 $ 15,710 $ 135,904
</TABLE>
CONVERSION OF DEBT AND PAYABLES:
On December 30, 1994, the Company agreed with three existing shareholders
to contribute $103,994 of outstanding loan balances. For financial statement
purposes, the amounts were assumed to be additional paid-in capital.
11. CONCENTRATION OF CREDIT RISK ARISING FROM CASH DEPOSITS:
The Company maintains cash balances at a financial institution located in
Virginia. The accounts at the institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. As of March 31, 1995, the Company's
exposure for uninsured cash balances was approximately $50,000.
12. SUPPLEMENTAL CASH FLOW DISCLOSURES:
During 1995, the Company incurred a note payable of $150,500 related to
costs in issuing $1,505,000 of debentures.
During 1995, the Company issued $194,341 in Class B common stock and stock
options in exchange for services provided.
During 1995, Tech International contributed approximately $13,000 of
furniture, fixtures and equipment to Tech Virginia.
F-14
<PAGE> 71
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
12. SUPPLEMENTAL CASH FLOW DISCLOSURES, CONTINUED:
During the nine months ended December 31, 1995, the Company issued $103,725
of Class B common stock for services provided in connection with patents and
$670,990 of Class B common stock for other services and incentives.
13. SUBSEQUENT EVENTS:
SALES OF DEBENTURES:
On April 16, 1996, the Company sold $1,000,000 principal amount of 7%
Convertible Debentures due in 1997 (the "Debentures") and incurred fees and
expenses of approximately $140,000 in a private placement. The Debentures will
convert into common stock upon the Company's successful IPO. The rate of
conversion will be one share of common stock and one warrant to purchase a share
of common stock at $9.00 for every $1.75 of principal and accrued interest.
The accompanying unaudited combined December 31, 1995 pro forma balance
sheet was prepared assuming the private placement had been completed as of
December 31, 1995; it does not assume the debentures had been converted to
common stock since the conversion will not occur unless the public offering
closes. The summarized effect of all pro forma adjustments are as follows:
<TABLE>
<CAPTION>
DEBENTURE DEBENTURE
ISSUANCE PRO FORMA CONVERSION PRO FORMA
PRO FORMA DECEMBER 31, PRO FORMA DECEMBER 31,
DECEMBER 31, ADJUSTMENTS 1995 ADJUSTMENTS 1995
1995 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets........................ $1,393,538 $ 1,140,000 $2,533,538 $ (336,542) $2,196,996
Liabilities................... 2,486,491 1,140,000 3,626,491 (2,505,000) 1,121,491
Stockholders' equity
(deficit)................... (1,092,953) (1,092,953) 2,168,458 1,075,505
</TABLE>
RECAPITALIZATION:
On January 25, 1996, the shareholders of Computer Products & Services, Inc.
approved the exchange of their common stock for shares of Xybernaut Corporation,
a Delaware Corporation, on a one for one basis to change the Company name and
reincorporate in the State of Delaware. All references in the combined financial
statements, including the number of shares and per share amounts, have been
retroactively adjusted. Additionally, 30,000,000 shares of common stock and
5,000,000 shares of preferred stock of Xybernaut Corporation have been
authorized. No such shares were issued or outstanding at December 31, 1995. The
Company expects to complete this exchange prior to the completion of the
contemplated initial public offering.
PROPOSED PUBLIC OFFERING (UNAUDITED):
The Company has entered into a Letter of Intent with an underwriter for a
public offering of up to 2,300,000 units which consists of one share of common
stock and one warrant to purchase one share of the Company's common stock.
At the completion of the offering, the underwriter will receive an option
to purchase 200,000 units at a price equal to 120% of the unit offering price
per unit during a period of four years commencing one year from the date of the
Prospectus.
In connection with this offering, the Company's stockholders have been
required to deposit an aggregate of 1,800,000 shares of Common Stock of the
Company in an escrow account (escrowed shares). The
F-15
<PAGE> 72
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
13. SUBSEQUENT EVENTS, CONTINUED:
Common Stock in the escrow account will be subject to release to such
stockholders in increments over a three year period only in the event the
Company's gross revenues and earnings (loss) per share for the twelve month
periods ending September 30, 1997, 1998 and 1999 equal or exceed performance
targets. If the performance targets are not met in any of the twelve month
periods ending September 30, 1997, 1998, or 1999, the escrowed shares will be
returned to the Company. In addition to the foregoing, all escrowed shares will
be released to the shareholders if certain stock price targets are met.
STOCK OPTION PLAN:
On April 18, 1996, the Board of Directors approved, effective January 1,
1996, the Company's 1996 Omnibus Stock Incentive Plan (the "Plan"). Under the
Plan, the Company has reserved 650,000 shares of common stock for issuance of
both incentive and non-qualified options.
F-16
<PAGE> 73
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, 1996
ASSETS MARCH 31, 1996 --------------
-------------- (NOTE 4)
<S> <C> <C>
Current Assets:
Cash......................................................... $ 191,031 $ 1,191,031
Accounts Receivable.......................................... 128,621 128,621
Inventories.................................................. 195,663 195,663
Prepaid and other current assets............................. 21,140 21,140
-------------- --------------
Total current assets................................. 536,455 1,536,455
-------------- --------------
Fixed Assets:
Property and equipment....................................... 168,995 168,995
Less accumulated depreciation................................ 87,716 87,716
-------------- --------------
81,279 81,279
-------------- --------------
Debenture issuance costs, net of accumulated amortization of
$70,900...................................................... 151,138 291,138
Patent costs, net of accumulated amortization of $42,404....... 186,623 186,623
Other.......................................................... 137,760 137,760
-------------- --------------
39,987 574,778
-------------- --------------
Total Assets......................................... $ 1,093,255 $ 2,233,255
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of deferred licensing revenue................ $ 60,000 $ 60,000
Notes payable................................................ 266,094 386,094
Accounts payable............................................. 406,305 426,305
Accrued expenses............................................. 339,230 339,230
-------------- --------------
Total current liabilities............................ 1,071,629 1,211,629
-------------- --------------
Long-term liabilities:
Deferred licensing revenue................................... 235,000 235,000
Notes and loans payable...................................... 70,965 70,965
Debentures................................................... 1,505,000 2,505,000
-------------- --------------
Total long-term liabilities.......................... 1,810,965 2,810,965
-------------- --------------
Total liabilities.................................... 2,882,594 4,022,594
-------------- --------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock................................................. 103,731 103,731
Additional paid-in capital................................... 2,340,657 2,340,657
Accumulated deficit.......................................... (4,233,727) (4,233,727)
-------------- --------------
(1,789,339) (1,789,339)
-------------- --------------
Total liabilities and stockholders' equity
(deficit).......................................... $ 1,093,255 $ 2,233,255
============ ============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-17
<PAGE> 74
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
--------------------------
1995 1996
---------- ----------
<S> <C> <C>
Revenue:
Product sales and leases........................................ $ 26,130 $ 299,888
Consulting...................................................... 944 15,483
---------- ----------
Total revenues.................................................... 27,074 315,371
Cost of sales..................................................... 25,757 228,289
---------- ----------
Gross margin............................................ 1,317 87,082
---------- ----------
Operating expenses:
Sales and marketing............................................. 56,443 114,010
General and administrative...................................... 283,736 449,685
Research and development........................................ 112,064 205,886
---------- ----------
Total operating expenses................................ 452,243 769,580
---------- ----------
Interest income (expense)......................................... 283 (16,888)
---------- ----------
Net loss................................................ $ 450,643 $ 699,386
========= =========
Net loss per common and common equivalents share.................. $ (0.04) $ (0.06)
========= =========
Weighted average number of common and common equivalent shares
outstanding..................................................... 11,715,505 11,803,618
========= =========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-18
<PAGE> 75
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK
TECH VIRGINIA CLASS A SHARES CLASS B SHARES
------------------ ------------------- ------------------ ADDITIONAL
NUMBER OF NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ --------- ------- --------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................ 300 $3 9,867,326 $98,673 504,863 $5,049 $ 2,337,663 $(3,534,341) $ (1,092,953)
--
--- --------- ------- --------- ------ ----------- ------------ ------------
Shares issued for
services and
incentives.......... 600 6 2,994 3,000
Net loss.............. (699,386) (699,386)
--
--- --------- ------- --------- ------ ----------- ------------ ------------
Balance, March 31,
1996................ 300 $3 9,867,326 $98,673 505,463 $5,055 $ 2,340,657 $(4,233,727) $ (1,789,339)
========== ======= ========== ======== ========== ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-19
<PAGE> 76
XYBERNAUT CORPORATION AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $(450,643) $(699,386)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 12,423 71,406
Noncash charges for stock and options issued for services..... 67,221 3,000
(Increase) decrease in assets:
Inventories................................................. 2,711 54,287
Accounts receivable......................................... (5,796) (37,896)
Other current assets........................................ (2,873) (523)
Other assets................................................ (7,554)
Increase in liabilities:
Accounts payable and accrued expenses....................... 47,870 100,468
Deferred licensing revenue.................................. 295,000
--------- ---------
Net cash used in operating activities.................... (329,087) (221,198)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment............................ (300) (4,685)
Acquisition of patents and related costs......................... (13,444)
--------- ---------
Net cash used in investing activities.................... (300) (18,129)
--------- ---------
Cash flows from financing activities:
Proceeds from:
Issuance of stock............................................. 396,000
Notes payable................................................. 50,635
Payment of notes payable......................................... (50,000)
Common stock issuance costs...................................... (41,758)
Deferred offering costs.......................................... (78,943)
--------- ---------
Net cash provided by (used in) financing activities...... 354,242 (78,308)
--------- ---------
Net increase (decrease) in cash.................................... 24,855 (317,635)
Cash, beginning of period.......................................... 124,205 508,666
--------- ---------
Cash, end of period................................................ $ 149,060 $ 191,031
========= =========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-20
<PAGE> 77
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITY:
THE COMPANY:
Since the commencement of operations in November 1992 Xybernaut Corporation
(the "Company") has engaged in the research development and commercialization of
products intended to bridge the widening gap between people and knowledge. The
first product to be commercialized by the Company is the proprietary portable
computer technology and related software applications embodied in its Mobile
Assistant(R) product. Additional software products are planned for use on the
Mobile Assistant(R) and other personal computers.
During the year ended March 31, 1995, the Company obtained $996,000 of
equity financing through private placements of common stock. Additional
financing of $1,505,000 and $1,000,000 was received in November 1995 and April
1996 from the issuance of 7% convertible debentures, due 1997. The Company is
attempting to sell shares of its common stock through an initial public
offering. However, there can be no assurance that the Company's business will
develop as anticipated by management or that additional financing will be
available. The combined financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classifications of liabilities that might result if the Company
is unable to continue as a going concern.
The Company was a development stage enterprise through March 31, 1995.
Subsequently, the Company has commenced principal operations and, accordingly,
these financial statements are not presented in compliance with Statement of
Financial Accounting Standard No. 7 which describes the financial presentation
for development stage enterprises.
2. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been reflected herein. For further information, refer to the financial
statements and footnotes thereto for the year ended March 31, 1995 and 1994 and
for the nine months ended December 31, 1995 included elsewhere herein. Results
of operations for the three months ended March 31, 1996 are not necessarily
indicative of results of operations expected for the full year.
3. STOCKHOLDERS' EQUITY:
OUTSTANDING COMMON STOCK:
The Company and its affiliate's outstanding common stock is summarized
below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF ISSUED AND
PAR VALUE SHARES OUTSTANDING
PER SHARE AUTHORIZED MARCH 31, 1996
---------- ----------- -----------------
<S> <C> <C> <C>
Xybernaut
Common Stock................................. $ 0.01 30,000,000 10,372,789
Preferred Stock.............................. $ no par 5,000,000 --
Tech International of Virginia, Inc............ $ 0.01 1,500 300
</TABLE>
F-21
<PAGE> 78
XYBERNAUT CORPORATION AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
3. STOCKHOLDERS' EQUITY, CONTINUED:
RECAPITALIZATION:
On January 25, 1996, the shareholders of Computer Products & Services, Inc.
approved an exchange of their common stock for shares of Xybernaut Corporation,
a Delaware Corporation, on a one-for-one basis to change the Company name and
reincorporate in the State of Delaware.
4. LICENSING AGREEMENT
In March 1996, the Company entered into a non-exclusive five-year licensing
agreement with Rockwell International. Pursuant to this agreement, the Company
received an initial payment of $300,000 which has been recorded as deferred
licensing revenue and is being recognized as revenue on a straight-line basis
over the five year term.
5. SUBSEQUENT EVENTS:
SALES OF DEBENTURES:
On April 16, 1996, the Company sold $1,000,000 principal amount of 7%
Convertible Debentures due in 1997 (the "Debentures") and incurred fees and
expenses of approximately $140,000 in a private placement. The Debentures will
convert into common stock upon the Company's successful IPO. The rate of
conversion will be one share of common stock and one warrant to purchase a share
of common stock at $9.00 for every $1.75 of principal and accrued interest.
The accompanying unaudited combined March 31, 1996 pro forma balance sheet
was prepared assuming the private placement had been completed as of March 31,
1996; it does not assume the debentures had been converted to common stock since
the conversion will not occur unless the public offering closes. The summarized
effect of all pro forma adjustments are as follows:
<TABLE>
<CAPTION>
DEBENTURE DEBENTURE
ISSUANCE PRO FORMA CONVERSION PRO FORMA
MARCH 31, PRO FORMA MARCH 31, PRO FORMA MARCH 31,
1996 ADJUSTMENTS 1996 ADJUSTMENTS 1996
----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets.......................... $ 1,093,255 $ 1,140,000 $ 2,233,255 $ (291,138) $1,942,117
Liabilities..................... 2,882,594 1,140,000 4,022,594 (2,505,000) 1,517,594
Stockholders' equity
(deficit)..................... (1,789,339) (1,789,339) 2,213,862 424,523
</TABLE>
F-22
<PAGE> 79
Back: Comparison pictures of technical tasks being performed in a traditional
manner (i.e. without the Mobil Assistant) and with the Mobil Assistant by fewer
personnel. Additional pictures of a military technician performing maintenance
on a helicopter using the Mobil Assistant.
<PAGE> 80
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Dilution.............................. 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 23
Management............................ 36
Principal Stockholders................ 42
Certain Transactions.................. 44
Description of Securities............. 46
Shares Eligible for Future Sale....... 49
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 52
Additional Information................ 52
Index to Financial Statements.........
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,000,000 UNITS
XYBERNAUT
CORPORATION
CONSISTING OF
2,000,000 SHARES
OF COMMON STOCK
AND
2,000,000 REDEEMABLE
WARRANTS
------------------------
PROSPECTUS
------------------------
ROYCE INVESTMENT
GROUP, INC.
KENSINGTON WELLS INCORPORATED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 81
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to the Certificate of Incorporation of the Company, as
amended from time to time (the "Certificate of Incorporation") (Exhibit 3.1) and
the Indemnification Agreement to be entered into with the Registrant's directors
and officers (Exhibit. 10.2).
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation which provide
that directors of the Company shall not be personally liable for monetary
damages to the Company or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of (i) a breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law, (iii) an act related to the unlawful stock repurchase or payment of a
dividend under Section 174 of Delaware General Corporation Law, and (iv)
transactions from which the director derived an improper personal benefit. Such
limitation of liability does not affect the availability 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 separate indemnification agreements with its directors and
officers which may, in some cases, be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements 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 directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened or
proceeding which may result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
See Item 28, "Undertakings."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the approximate expenses (other than the
underwriting discount and commission) expected to be incurred in connection with
the issuance and distribution of the securities being registered.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 17,456.16
NASD Fee....................................................... 4,872.78
NASDAQ Fee..................................................... 10,000.00
Representative's Non-Accountable Expense Allowance............. 300,000.00
Representative's Consulting Fee................................ 100,000.00
Printing and Engraving Expenses................................ 60,000.00
Legal Fees and Expenses........................................ 200,000.00
Accounting Fees and Expenses................................... 120,000.00
Blue Sky Fees and Expenses..................................... 30,000.00
Miscellaneous.................................................. 7,671.00
-----------
TOTAL................................................ $849,999.94
==========
</TABLE>
II-1
<PAGE> 82
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) The Company has made the following sales of its Common Stock within the
past three years to the following persons for the cash or other consideration
indicated, which sales were not registered under the Securities Act.
<TABLE>
<CAPTION>
CONSIDERATION
DATE OF -----------------------
NAME ISSUANCE TOTAL PER SHARE # SHARES
------------------------------------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Keith P. Hicks, Esq.(1).................... 7-10-94 $ 39,360 $0.12 328,000
Michael Jenkins(2)......................... 8-19-94 17,395 0.12 144,960
Steven A. Newman, M.D.(1)(2)............... 8-19-94 98,626 0.12 821,880
Grace Murphy(2)............................ 8-19-94 1,500 0.12 12,500
Charles McCarthy(2)........................ 8-19-94 1,500 0.12 12,500
James J. Ralabate, Esq.(1)(2).............. 8-19-94 3,000 0.12 25,000
Martin Cohen(2)............................ 8-19-94 49,488 0.12 412,400
Gil Christian(2)........................... 8-19-94 17,395 0.12 144,960
Eugene J. Amobi(1)(2)...................... 8-19-94 36,000 0.12 300,000
John F. Moynahan(1)(2)..................... 10-3-94 1,200 0.12 10,000
Nidus Enterprises.......................... 2-24-95 600,000 6.00 100,000
Luethi IRA................................. 2-24-95 36,000 6.00 6,000
Kleingartner............................... 2-24-95 6,000 6.00 1,000
Duessel Trust.............................. 2-24-95 24,000 6.00 4,000
Behan IRA.................................. 2-24-95 12,000 6.00 2,000
Behan...................................... 2-24-95 12,000 6.00 2,000
Henderson Trust............................ 2-24-95 12,000 6.00 2,000
Luethi..................................... 3-14-95 24,000 6.00 4,000
Gerald J. Olivet........................... 5-1-95 60,000 6.00 10,000
Summa Inc.................................. 5-1-95 150,000 6.00 25,000
Salyer Trust............................... 5-1-95 60,000 6.00 10,000
Veritas Offshore........................... 5-1-95 150,000 6.00 25,000
Gerald J. Olivet........................... 8-8-95 12,504 6.00 2,084
Andrew Heller(2)........................... 8-8-95 500,000 5.00 100,000
John W. Saunders(2)........................ 8-8-95 6,265 5.00 1,253
James J. Ralabate, Esq.(1)(2).............. 8-8-95 125,000 5.00 25,000
Lt. Gen. Harry E. Soyster (Ret.)(1)(2)..... 8-8-95 125,000 5.00 25,000
Nathaniel T. Harris, Jr.................... 8-8-95 24,972 6.00 4,162
Georgia A. Ross............................ 8-8-95 60,000 6.00 10,000
Kevin Friel(2)............................. 12-31-95 4,165 5.00 833
John W. Saunders(2)........................ 12-31-95 6,785 5.00 1,357
Chris Chinnock(2).......................... 12-31-95 6,000 5.00 1,200
Chris Chinnock(2).......................... 3-31-96 3,000 5.00 600
John W. Williams(2)........................ 4-29-96 50,000 5.00 10,000
Jen Que Louis(2)........................... 6-6-96 25,000 5.00 5,000
---------- ---------
TOTAL............................ $2,360,155 2,589,689
========== =========
</TABLE>
- ---------------
(1) Director or officer.
(2) Received as compensation for services.
II-2
<PAGE> 83
(b) The Company has made the following sales of the Debentures within the
past three years to the following persons for the cash or other consideration
indicated, which sales were not registered under the Securities Act.
<TABLE>
<CAPTION>
CONSIDERATION
-----------------------
DATE OF PER NUMBER OF
NAME ISSUANCE TOTAL DEBENTURE DEBENTURES
------------------------------------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Jacqueline L. Towell....................... 11-16-95 $ 50,000 $50,000 1
Noord Holdings, Ltd. ...................... 11-16-95 300,000 50,000 6
Keith J. Burns............................. 11-16-95 150,000 50,000 3
Ashdown Holdings Limited................... 11-16-95 330,000 50,000 6.6
Medway Investments, Ltd. .................. 11-16-95 325,000 50,000 6.5
Northwest Holdings, Ltd. .................. 11-16-95 300,000 50,000 6
Victor J. Lombardi......................... 11-16-95 50,000 50,000 1
Victor J. Lombardi......................... 4-16-96 50,000 50,000 1
Elono Portfolio S.A. ...................... 4-16-96 500,000 50,000 10
Planate Generale S.A. ..................... 4-16-96 450,000 50,000 9
---------- --------
TOTAL............................ $2,505,000 50.1
========== ========
</TABLE>
All the foregoing sales were made to individuals who, or entities which,
had access to information enabling them to evaluate the merits and risks of the
investment by virtue of their relationship to the Company or their economic
bargaining power.
The Company relied on Rule 505 and Section 4(2) of the Securities Act for
the exemption from the registration requirements of such Act and made sales
solely to accredited investors. Each investor was furnished with information
concerning the operations of the Company and each had the opportunity to verify
the information supplied. Additionally, the Company obtained a signed
representation from each of the foregoing persons of his or her intent to
acquire the Common Stock of the Company for the purpose of investment only, and
not with a view toward the subsequent distribution thereof; each of the
certificates representing the Common Stock issued to the foregoing persons has
been stamped with a legend restricting transfer of the Common Stock represented
thereby, and the Company will issue stop transfer instructions to Continental
Stock Transfer & Trust Company, the Transfer Agent for the Common Stock of the
Company, concerning all the certificates representing the Common Stock of the
Company issued and outstanding as represented by the foregoing table.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
1.1 Form of Underwriting Agreement.**
1.2 Form of Financial Consulting Agreement between the Company and the
Representative.**
1.3 Form of Selected Dealers Agreement.**
3.1 Certificate of Incorporation of the Company.**
3.2 Bylaws of the Company.**
4.1 Warrant Exercise Fee Agreement.**
4.2 Form of Forfeiture Escrow.*
4.3 Form of Unit Purchase Option between the Company and the Representative.**
4.4 Form of specimen certificate for Units.***
4.5 Form of specimen certificate for Common Stock.***
4.6 Form of specimen certificate for Warrants.***
4.7 Form of Warrant Agreement among the Company, the Representative, and the
Warrant Agent.**
4.8 Form of Debenture.**
5.1 Opinion of Baker & Hostetler re legality.***
</TABLE>
II-3
<PAGE> 84
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
10.1 December 31, 1994 Acquisition Agreement between the Company and Tech
Virginia.**
10.2 Form of Indemnification Agreement to be entered into between the Company and
each officer and director of the Company.*
10.3 Form of Employment Agreement between the Company and Edward G. Newman.*
10.4 Form of Employment Agreement between the Company and John F. Moynahan.*
10.5 November 30, 1994 Lease Agreement between Hyatt Plaza Limited Partnership and
the Company.**
10.6 March 22, 1996 Month-to-Month Tenancy Agreement between the Company and The
Original Tollhouse Historical Preservation Company.**
10.7 October 27, 1994 Residential Deed of Lease between the Company and Frank E.
and Heather H. Moxley.**
10.8 June 10, 1994 Rockwell International Corporation contract.**
10.9 January 5, 1995 Kopin Corporation contract.**
10.10 June 19, 1995 License Agreement for Mobile Inspector(TM) software.**
10.11 1996 Omnibus Stock Incentive Plan.**
10.12 May 5, 1995 Consulting Agreement with Andrew Heller.**
10.13 November 20, 1995 Consulting Agreement with CMC Services.**
10.14 Form of Consulting Agreement with Victor J. Lombardi.*
10.15 March 29, 1996 License Agreement with Rockwell International Corporation
(supersedes redacted version filed previously).*
10.16 Interim 90-Day Agreement with Kopin Corporation.*
10.17 December 7, 1995 Multicosm Ltd. software licensing agreement.*
10.18 April 4, 1996 Electronic Surveillance Technologies Corporation VAR agreement.*
10.19 January 22, 1996 FC Imaging, Inc. VAR agreement.*
10.20 Form of Consulting Agreement with Steven A. Newman.*
10.21 June 18, 1996 NeuroSystems Europe Limited VAR agreement.*
23.1 Consent of Baker & Hostetler (included in Exhibit 5.1).***
23.2 Consent of Coopers & Lybrand L.L.P.*
24.1 Power of Attorney (included in signature page hereto).**
</TABLE>
- ---------------
* Filed herewith.
** Filed previously.
*** To be filed by Amendment.
ITEM 28. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(b) For determining liability under the Securities Act, that each
post-effective amendment as a new registration statement of the securities
offered, and this Offering of the securities at that time to be the initial
bona fide Offering.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this Offering.
II-4
<PAGE> 85
(2) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act as part of this registration statement as
of the time it was declared effective.
(b) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and this Offering of such securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE> 86
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to the Registration Statement, or amendment thereto, to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Fairfax,
Commonwealth of Virginia, on June , 1996.
XYBERNAUT CORPORATION
By: /s/ EDWARD G. NEWMAN
------------------------------------
Edward G. Newman
Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
By: /s/ JOHN F. MOYNAHAN
------------------------------------
John F. Moynahan
Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting Officer)
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated as of June , 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- --------------------------------
<S> <C>
* President, Chief Executive
- ---------------------------------------- Officer, Chairman of the Board
EDWARD G. NEWMAN of Directors and a Director
(Principal Executive Officer)
* Vice President, Chief Financial
- ---------------------------------------- Officer, Treasurer and a
JOHN F. MOYNAHAN Director
(Principal Accounting Officer)
* Director
- ----------------------------------------
LT. GEN. HARRY E. SOYSTER (RET.)
* Secretary and a Director
- ----------------------------------------
JAMES J. RALABATE, ESQ.
* Director
- ----------------------------------------
KEITH HICKS, ESQ.
* Director
- ----------------------------------------
STEVEN A. NEWMAN, M.D.
</TABLE>
II-6
<PAGE> 87
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- --------------------------------
<S> <C>
* Director
- ----------------------------------------
PHILLIP E. PEARCE
* Director
- ----------------------------------------
JACQUES REBIBO
* Director
- ----------------------------------------
EUGENE AMOBI
BY: EDWARD G. NEWMAN
- ----------------------------------------
Edward G. Newman
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------------------ ---------
<S> <C> <C>
1.1 Form of Underwriting Agreement.**.......................................
1.2 Form of Financial Consulting Agreement between the Company and the
Representative.**.......................................................
1.3 Form of Selected Dealers Agreement.**...................................
3.1 Certificate of Incorporation of the Company.**..........................
3.2 Bylaws of the Company.**................................................
4.1 Warrant Exercise Fee Agreement.**.......................................
4.2 Form of Forfeiture Escrow.*.............................................
4.3 Form of Unit Purchase Option between the Company and the
Representative.**.......................................................
4.4 Form of specimen certificate for Units.***..............................
4.5 Form of specimen certificate for Common Stock.***.......................
4.6 Form of specimen certificate for Warrants.***...........................
4.7 Form of Warrant Agreement among the Company, the Representative, and the
Warrant Agent.**........................................................
4.8 Form of Debenture.**....................................................
5.1 Opinion of Baker & Hostetler re legality.***............................
10.1 December 31, 1994 Acquisition Agreement between the Company and Tech
Virginia.**.............................................................
10.2 Form of Indemnification Agreement to be entered into between the Company
and each officer and director of the Company.*..........................
10.3 Form of Employment Agreement between the Company and Edward G.
Newman.*................................................................
10.4 Form of Employment Agreement between the Company and John F.
Moynahan.*..............................................................
10.5 November 30, 1994 Lease Agreement between Hyatt Plaza Limited
Partnership and the Company.**..........................................
10.6 March 22, 1996 Month-to-Month Tenancy Agreement between the Company and
The Original Tollhouse Historical Preservation Company.**...............
10.7 October 27, 1994 Residential Deed of Lease between the Company and Frank
E. and Heather H. Moxley.**.............................................
10.8 June 10, 1994 Rockwell International Corporation contract.**............
10.9 January 5, 1995 Kopin Corporation contract.**...........................
10.10 June 19, 1995 License Agreement for Mobile Inspector(TM)software.**.....
10.11 1996 Omnibus Stock Incentive Plan.**....................................
10.12 May 5, 1995 Consulting Agreement with Andrew Heller.**..................
10.13 November 20, 1995 Consulting Agreement with CMC Services.**.............
10.14 Form of Consulting Agreement with Victor J. Lombardi.*..................
10.15 March 29, 1996 License Agreement with Rockwell International Corporation
(supersedes redacted version filed previously).*........................
10.16 Interim 90-Day Agreement with Kopin Corporation.*.......................
10.17 December 7, 1995 Multicosm Ltd. software licensing agreement.*..........
10.18 April 4, 1996 Electronic Surveillance Technologies Corporation VAR
agreement.*.............................................................
10.19 January 22, 1996 FC Imaging, Inc. VAR agreement.*.......................
10.20 Form of Consulting Agreement with Steven A. Newman.*....................
10.21 June 18, 1996 NeuroSystems Europe Limited VAR agreement.*...............
23.1 Consent of Baker & Hostetler (included in Exhibit 5.1).***..............
23.2 Consent of Coopers & Lybrand L.L.P.*....................................
24.1 Power of Attorney (included in signature page hereto).**................
</TABLE>
- ---------------
* Filed herewith.
** Filed previously.
*** To be filed by Amendment.
<PAGE> 1
EXHIBIT 4.2
ESCROW AGREEMENT
ESCROW AGREEMENT, made this _____ day of ___________, 1996, by
and among each of the shareholders (the "Stockholders" or "Stockholder") of
Xybernaut Corporation, a Delaware corporation, Xybernaut Corporation (the
"Company"), Royce Investment Group, Inc. (the "Representative") and Continental
Stock Transfer & Trust Company (the "Escrow Agent").
WHEREAS, the Stockholders are the record and beneficial owners
of Common Stock, par value $.01 per share, of the Company, as more fully
reflected on Exhibit A hereto, all of which are "restricted securities" as
defined under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, the Company and the Representative of the several
underwriters (the "Underwriters") intend to enter into an Underwriting
Agreement (the "Underwriting Agreement"; certain terms used herein which are
not defined herein and which are defined in the Underwriting Agreement are used
herein as therein defined) pursuant to which the Company will sell Units, each
Unit consisting of one share of Common Stock, par value $.01 per share (the
"Common Stock") and one Warrant (a "Warrant") in a public offering pursuant to
the registration provisions of the 1933 Act;
WHEREAS, as a condition to closing the proposed initial public
offering of the Company (the "Offering"), the Representative has required the
Stockholders to deposit an aggregate of 1,800,000 shares of Common Stock of the
Company, on a pro rata basis, owned by such Stockholders in escrow with the
Escrow Agent (the "Escrow Shares"); and
WHEREAS, the Stockholders wish to deposit their pro rata share
of the Escrow Shares in escrow in order to fulfill the requirements of the
Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, terms and conditions hereinafter set forth, the parties
hereto hereby agree as follows:
Section 1. Designation and Deposit of Escrow Shares.
a. The Escrow Shares of the Company to be deposited
in escrow pursuant to this Agreement consist of 1,800,000
shares of Common Stock and are owned of record by the
Stockholders identified on Exhibit A attached hereto.
b. On or before the date on which the Securities and
Exchange Commission declares the Company's Registration
Statement on Form SB-2 (Reg. No. 333-4156) effective under
the 1933 Act (the "Effective Date"), the Stockholders shall
deliver to the Escrow Agent any and all certificates
representing the Escrow Shares and a stock power
endorsed in blank. Promptly after the effective date of the
Offering, the Escrow Agent shall deliver a receipt therefor
and a new certificate representing the Stockholder's
nonescrowed shares of Common Stock to the Stockholder.
<PAGE> 2
Section 2. Title of Escrow Account. All certificates
representing the Escrow Shares delivered to the Escrow Agent pursuant to this
Agreement shall be deposited on the Effective Date by the Escrow Agent in an
account designated substantially as follows: "Xybernaut Corporation Stock
Certificate Escrow Account" (the "Escrow Account").
Section 3. Transfer of Escrow Shares During Escrow Period.
a. During the Escrow Period (hereinafter defined)
none of the Escrow Shares deposited in the Escrow Account
shall be sold, pledged, hypothecated or otherwise transferred
or delivered out of the Escrow Account except as follows:
i. Transfers by operation of law
occasioned by the death or incapacity of the
Stockholder shall be recorded upon presentation to the
Company by the personal representative or guardian of a
deceased or incapacitated Stockholder of appropriate
documents regarding the necessity for transfer and of
which transfer the Company has notified the Escrow
Agent and the Representative; or
ii. Transfers of ownership of
certificates representing the Escrow Shares deposited
to the Escrow Account for which the Representative has
reviewed the terms of the proposed transfer, imposed
any requirement and restriction which it may deem
necessary and appropriate and consented in writing to
such transfer and so notified the Escrow Agent of such
consent.
b. During the Escrow Period all Stockholders and
owners of the Escrow Shares, certificates for which have been
deposited to the Escrow Account, shall remain subject to the
restrictions imposed hereby, including those persons, if any,
who become holders, by any means provided herein, of the
Escrow Shares during the Escrow Period.
Section 4. Duration of Escrow Period.
a. The Escrow Period shall commence on the Effective
Date and shall terminate 60 days after the filing by the
Company of financial statements in a Form 10-QSB for the
quarter ending September 30, 1999 pursuant to the Securities
Exchange Act of 1934, as amended.
b. This Agreement shall be of no force or effect in
the event the Underwriting Agreement is not executed on the
Effective Date in accordance with its terms.
Section 5. Receipt of Distributions and Dividends. During
the term of the Escrow Period, if the Company issues any distributions,
dividends, rights or other property with respect to the Common Stock, or in the
event of a share split, recapitalization, merger, acquisition, spinoff or other
transaction affecting the capitalization of the Company then, in such event,
the Company shall be authorized to send evidence of such distributions,
dividends, rights, share
- 2 -
<PAGE> 3
certificates or other property directly to the Escrow Agent, which is hereby
authorized to hold and retain possession of all such evidences of
distributions, dividends, rights or other property until termination of the
Escrow Period in accordance with Section 6 below. In the event the Escrow
Shares are distributed to the Stockholders pursuant to Section 6(a) below, then
the Escrow Agent will distribute evidences of such distributions, dividends,
rights, Common Stock or other property in the form the Escrow Agent received
such distributions, dividends, rights, Common Stock or other property from the
Company. In the event the Escrow Period terminates pursuant to Section 6(b)
below, the Escrow Agent is hereby authorized, empowered and instructed to
deliver all such evidences of distributions, dividends, rights, Common Stock or
other property to the Company, which is hereby authorized to cancel the same on
the books of the Company at the time of receipt thereof from the Escrow Agent.
Section 6. Release and Delivery of Escrow Shares.
Shares of the Escrow Stock shall be released in the following
amounts and at the following times:
A. 300,000 shares on ____________, 1997 which shall be
returned to the shareholders if for the twelve months ending September 30, 1997
the Company achieves gross revenues of at least $20,000,000 and a net loss, if
any, not in excess of $500,000 (the "1997 Performance Target") or, if the
Company fails to achieve the 1997 Performance Target, to the Company for
cancellation in accordance with the terms hereof.
B. 750,000 shares on ____________, 1998 which shall be
returned to the shareholders if for the twelve months ending September 30, 1998
the Company achieves gross revenues of at least $45,000,000 and earnings per
share of at least $1.00 (the "1998 Performance Target") or, if the Company
fails to achieve the 1998 Performance Target, to the Company for cancellation
in accordance with the terms hereof.
C. 750,000 shares on ____________, 1999 which shall be
returned to the shareholders if for the twelve months ending September 30, 1999
the Company achieves gross revenues of at least $90,000,000 and earning per
share of at least $1.25 (the "1999 Performance Target") or, if the Company
fails to achieve the 1999 Performance Target, to the Company for cancellation
in accordance with the terms hereof.
Notwithstanding the foregoing, if at any time the
closing bid price of the Common Stock reported on the Nasdaq
SmallCap Market equals or exceeds $11.00 per share for 25
consecutive trading days or for 30 out of 35 consecutive
trading days, all Escrow Shares then remaining in the Escrow
Account will be released from the Escrow Account and returned
to the Stockholders.
c. The determination of gross revenues, net loss
and/or earnings per share by the Company for the 1997 Period,
the 1998 Period and 1999 Period shall be solely the
responsibility of the Company and the Representative, and the
Escrow Agent shall
- 3 -
<PAGE> 4
have no liability or responsibility therefor. The
determination of gross revenues, net loss and/or earnings per
share shall be made in accordance with generally accepted
accounting principles, unaudited for the twelve-month period
ending September 30 based upon the financial statements filed
by the Company with the United States Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934,
shall be based on fully diluted earnings per share, and
exclude extraordinary items and shares issued pursuant to
Underwriters' Unit Purchase Option. Further, the Company and
the Representative agree that any expense or charge to be
incurred by the Company as a result of the release of the
Escrow Shares to the Stockholders shall be excluded from the
detriments of the Performance Targets.
Section 7. Voting Rights. During the Escrow Period, the
Stockholder, or any transferee receiving all or a portion of the Escrow Shares
pursuant to Section 3 herein, shall have the right to vote the Escrow Shares in
the Escrow Account at any and all shareholder meetings without restriction.
Section 8. Limitation of Liability of Escrow Agent. In
acting pursuant to this Agreement, the Escrow Agent shall be protected fully in
every reasonable exercise of its discretion and shall have no obligation
hereunder to either the Stockholders or to any other party except as expressly
set forth herein. In performing any of its duties hereunder, the Escrow Agent
shall not incur any liability to any person for any damages, losses or
expenses, except for willful default or negligence and it shall, accordingly,
not incur any such liability with respect to (1) any action taken or omitted in
good faith upon advice of its counsel, counsel for the Company or counsel for
the Representative given with respect to any question relating to the duties
and responsibilities of the Escrow Agent under this Agreement, and (2) any
action taken or omitted in reliance upon any instrument, including written
notices provided for herein, not only to its due execution and validity and
effectiveness of its provisions, but also to the truth and accuracy of any
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed and presented by a proper person or
persons and to be in compliance with the provisions of this Agreement.
Section 9. Indemnification. The Company, the Representative
and the Stockholders shall indemnify and hold harmless the Escrow Agent against
any and all losses, claims, damages, liabilities and expenses, including
reasonable costs of investigation and counsel fees and disbursements, which may
be imposed upon the Escrow Agent or incurred by the Escrow Agent in connection
with its acceptance of appointment as Escrow Agent or the performance of its
duties hereunder, including any litigation arising from this Agreement or
involving the subject matter hereof.
Section 10. Payment of Fees. The Company shall be responsible
for all reasonable fees and expenses of the Escrow Agent incurred by it in the
course of performing hereunder.
Section 11. Change of Escrow Agent. In the event the Escrow
Agent notifies the Company and the Representative that its acceptance of the
duties of Escrow Agent has been
- 4 -
<PAGE> 5
terminated by the Escrow Agent, or in the event the Escrow Agent files for
protection under the United States Bankruptcy Code or is liquidated or ceases
operations for any reason, the Company and the Representative shall have the
right to jointly designate a replacement Escrow Agent who shall succeed to the
rights and duties of the Escrow Agent hereunder. Any such replacement Escrow
Agent shall be a trust or stock transfer company experienced in stock transfer,
escrow and related matters and shall have a minimum net worth of $1 million.
Upon appointment of such successor Escrow Agent, the Escrow Agent shall be
discharged from all duties and responsibilities hereunder.
Section 12. Notices. All notices, demands or requests
required or authorized hereunder shall be deemed given sufficiently if in
writing and sent by registered mail or certified mail, return receipt requested
and postage prepaid, or by tested telex, telegram or cable to, in the case of
the Stockholder, the address as set forth in the records of the Escrow Agent;
In the case of the Representative to:
Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, New York 11797
Attention: John D. Higgins
With a copy to:
Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P.C.
1700 Lincoln St., #4700
Denver, CO 80203
In the case of the Escrow Agent to:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
In the case of the Company to:
Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
- 5 -
<PAGE> 6
With a copy to:
Mario V. Mirabelli, Esq.
Baker & Hostetler
1050 Connecticut Avenue, N.W., Suite 1100
Washington, D.C. 20036
Section 13. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement. Facsimile signatures shall be
accepted by the parties hereto as original signatures for all purposes.
Section 14. Governing Law. The validity, interpretation and
construction of this Agreement and of each part hereof shall be governed by the
laws of the State of New York.
IN WITNESS WHEREOF, the Stockholders, the Company, the
Representative and the Escrow Agent have executed this Escrow Agreement on the
day and year first above written to be effective as of the Effective Date.
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By:
-------------------------
Title:
----------------------
XYBERNAUT CORPORATION
By:
-------------------------
Title:
----------------------
ROYCE INVESTMENT GROUP, INC.
By:
-------------------------
Title:
----------------------
THE STOCKHOLDERS:
----------------------------
Edward G. Newman
- 6 -
<PAGE> 7
Manassas Bay Trust
By:
-------------------------------
Title:
----------------------------
----------------------------------
John F. Moynahan
----------------------------------
Lt. Gen. Harry E. Soyster (Ret.)
----------------------------------
James J. Ralabate
----------------------------------
Keith P. Hicks
----------------------------------
Steven A. Newman, M.D.
----------------------------------
Phillip E. Pearce
----------------------------------
Jacques Rebibo
----------------------------------
Eugene J. Amobi
----------------------------------
Frances C. Newman
- 7 -
<PAGE> 1
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, made and entered into this
day of , 19 ("Agreement"), by and between XYBERNAUT CORPORATION,
a Delaware corporation (the "Company") and ("Indemnitee").
WHEREAS, highly competent persons are becoming more reluctant
to serve publicly-held corporations as directors or in other capacities unless
they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation,
and
WHEREAS, the Board of Directors of the Company has determined
that the inability to attract and retain such persons is detrimental to the
best interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the
Company contractually to obligate itself to indemnify such persons to the
fullest extent permitted by applicable law so that they will serve or continue
to serve the Company free from undue concern that they will not be so
indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and
to take on additional service for or on behalf of the Company on the condition
that Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including Indemnitee's
continued service to the Company, the Company and Indemnitee hereby covenant
and agree as follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms shall have
the meaning given here:
1.01 "Board" shall mean the Board of Directors of the
Company.
1.02 "Corporate Status" describes the status of a person
who is or was a director, officer, employee, agent or fiduciary of the Company
or of any other corporation, partnership, joint venture, trust, employee
benefit or other enterprise which such person is or was serving at the express
written request of the Company.
1.03 "Covered Act" means any breach of duty, neglect,
error, misstatement, misleading statement, omission or other act done or
wrongfully attempted by Indemnitee or against any of the foregoing alleged by
any claimant or any claim against Indemnitee solely by reason of being a
director or officer of the Company.
<PAGE> 2
1.04 "D&O Insurance" means the directors' and officers'
liability insurance issued by the insurer(s), and having the policy number(s),
amount(s) and deductible(s) set forth on Exhibit A hereto and any replacement
or substitute policies issued by one or more reputable insurers providing in
all respects coverage at least comparable to and in the same amount as that
provided under the policy or policies identified on Exhibit A.
1.05 "Determination" means a determination, based on the
facts known at the time, made by:
(a) a majority vote of a quorum of disinterested
directors; or
(b) Independent Counsel in a written opinion
prepared at the request of a majority of a quorum of Disinterested Directors;
or
(c) a majority of the disinterested stockholders
of the Company; or
(d) a final adjudication by a court of competent
jurisdiction.
"Determined" shall have a correlative meaning.
1.06 "Disinterested Director" means a director of the
Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
1.07 "Effective Date" means , 19 .
1.08 "Excluded Claim" means any payment for Losses or
Expenses in connection with any claim:
(a) based upon or attributable to Indemnitee
gaining in fact any personal profit or advantage to which Indemnitee is not
entitled; or
(b) for the return by Indemnitee of any
remuneration paid to Indemnitee without the previous approval of the
stockholders of the Company which is illegal; or
(c) for an accounting of profits in fact made
from the purchase or sale by Indemnitee of securities of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, or
similar provisions of any state law; or
(d) resulting from Indemnitee's knowingly
fraudulent, dishonest or willful misconduct; or
- 2 -
<PAGE> 3
(e) the payment of which by the Company under
this Agreement is not permitted by applicable law.
1.09 "Expenses" shall include all reasonable attorneys
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, or being or
preparing to be a witness in a Proceeding, but shall not include Fines.
1.10 "Fines" means any fine, penalty or, with respect to
an employee benefit plan, any excise tax or penalty assessed with respect
thereto.
1.11 "Good Faith" shall mean Indemnitee having acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, having had no reasonable cause to believe Indemnitee's conduct was
unlawful.
1.12 "Independent Counsel" means a law firm, or a member
of a law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past three years has been, retained to represent (i)
the Company or Indemnitee in any matter material to either such party or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
1.13 "Loss" means any amount which Indemnitee is legally
obligated to pay as a result of a claim or claims made against him for Covered
Acts including, without limitation, damages and judgments and sums paid in
settlement of a claim or claims, but shall not include Fines.
1.14 "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing
or any other actual threatened or completed proceeding whether civil, criminal,
administrative or investigative, other than one initiated by Indemnitee. For
purposes of the foregoing sentence, a "Proceeding" shall not be deemed to have
been initiated by Indemnitee where Indemnitee seeks pursuant to Article IX of
this Agreement to enforce Indemnitee's rights under this Agreement relating
thereto.
- 3 -
<PAGE> 4
ARTICLE II - SERVICES BY INDEMNITEE
Indemnitee agrees to serve as a(n) (director) (officer)
(employee). Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law).
ARTICLE III - MAINTENANCE OF D&O INSURANCE
3.01 DESCRIPTION OF D&O INSURANCE. Exhibit A contains a
complete and accurate description of the policies of directors' and officers'
liability insurance purchased by the Company, if any.
3.02 NAMED INSURED. In any policies of D&O Insurance
which are maintained by the Company Indemnitee shall be named as an insured in
such a manner as to provide Indemnitee the same rights and benefits, subject to
the same limitations, as are accorded to the Company's directors and officers
most favorably insured by such policy.
3.03 NO OBLIGATION. Nothing herein shall impose upon the
Company the obligation to maintain D&O Insurance if the Company determines in
good faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided, or
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit.
ARTICLE IV - INDEMNIFICATION
4.01 INDEMNIFICATION IN GENERAL. The Company shall
indemnify and hold Indemnitee harmless for any Losses, Expenses, judgments,
penalties, Fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection with such
Proceeding or any claim, issue or matter therein, if Indemnitee acted in Good
Faith.
4.02 EXCLUDED COVERAGE. The Company shall have no
obligation to indemnify and hold Indemnitee harmless from any Losses or Expense
which has been Determined to constitute an Excluded Claim. Notwithstanding the
provisions of Section 4.01, no such indemnification shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification shall nevertheless be made by the Company in such event if and
only to the extent that the Court of Chancery of the State of Delaware, or the
court in which such Proceeding shall have been brought or pending, shall
Determine.
4.03 INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement,
- 4 -
<PAGE> 5
to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a
party to and is successful, on the merits or otherwise, in any Proceeding,
Indemnitee shall be indemnified to the maximum extent permitted by law, against
all Losses, Expenses, judgments, penalties, Fines and amounts paid in
settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection therewith. If Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Company shall
indemnify Indemnitee to the maximum extent permitted by law, against all
Losses, Expenses, judgments, penalties, Fines and amounts paid in settlement,
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with each successfully resolved claim, issue or matter. For
purposes this Section 4.03 and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter, so long as there has been no finding (either adjudicated or pursuant to
Article VI) Indemnitee did not act in Good Faith.
4.04 INDEMNIFICATION FOR EXPENSES OF A WITNESS.
Notwithstanding any other provision of this Agreement to the extent that
Indemnitee is, by reason of Indemnitee's Corporate Status, a witness in a
Proceeding, Indemnitee shall be indemnified against all Losses and Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith.
ARTICLE V - ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI,
the Company shall advance all reasonable Expenses which, by reason of
Indemnitee's Corporate Status, are incurred by or on behalf of Indemnitee in
connection with any Proceeding, within twenty days after the receipt by the
Company of a statement or statements from Indemnitee requesting such advance or
advances, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses if it shall ultimately be
determined that Indemnitee is not entitled to be indemnified against such
Expenses. Any advance and undertakings to repay pursuant to this Article V
shall be unsecured and interest free.
ARTICLE VI - PROCEDURES FOR DETERMINATION OF ENTITLEMENT
6.01 INITIAL NOTICE. Promptly after receipt by Indemnitee of
notice of the commencement of or the threat of commencement of any Proceeding,
Indemnitee shall, if indemnification with respect thereto may be sought from
the Company under this Agreement, notify the Company of the commencement
thereof. Indemnitee shall include
- 5 -
<PAGE> 6
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall promptly advise the Board in writing that Indemnitee has
requested indemnification.
6.02 D&O INSURANCE. If, at the time of the receipt of
such notice, the Company has D&O Insurance in effect, the Company shall give
prompt notice of the commencement of such Proceeding to the insurers in
accordance with the procedures set forth in the respective policies in favor of
Indemnitee. The Company shall thereafter take all necessary or desirable
action to cause such insurers to pay, on behalf of Indemnitee, all Losses and
Expenses payable as a result of such Proceeding in accordance with the terms of
such policies.
6.03 EMPLOYMENT OF COUNSEL. To the extent the Company
does not, at the time of the commencement of or the threat of commencement of a
Proceeding, have applicable D&O Insurance, or if a Determination is made that
any Expenses arising out of such Proceeding will not be payable under the D&O
Insurance then in effect, the Company shall be obligated to pay the Expenses of
any such Proceeding in advance of the final disposition thereof as provided in
Article V and the Company, if appropriate, shall be entitled to assume the
defense of such Proceeding, with counsel satisfactory to Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, the Company will not be liable to Indemnitee under
this Agreement for any legal or other Expenses subsequently incurred by
Indemnitee in connection with such defense other than reasonable Expenses of
investigation provided that Indemnitee shall have the right to employ its
counsel in any such Proceeding but the fees and expenses of such counsel
incurred after delivery of notice from the Company of its assumption of such
defense shall be at Indemnitee's expense and provided further that if (i) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such Proceeding, the fees and expenses of counsel shall
be at the expense of the Company.
6.04 PAYMENT. All payments on account of the Company's
indemnification obligations under this Agreement shall be made within sixty
(60) days of Indemnitee's written request therefor unless a Determination is
made that the claims giving rise to Indemnitee's request are Excluded Claims or
otherwise not payable under this Agreement.
- 6 -
<PAGE> 7
6.05 REIMBURSEMENT BY INDEMNITEE. Indemnitee agrees that
he will reimburse the Company for all Losses and Expenses paid by the Company
in connection with any Proceeding against Indemnitee in the event and only to
the extent that a Determination shall have been made by a court in a final
adjudication from which there is no further right of appeal that Indemnitee is
not entitled to be indemnified by the Company for such Expenses because the
claim is an Excluded Claim or because Indemnitee is otherwise not entitled to
payment under this Agreement.
6.06 COOPERATION. Indemnitee shall cooperate with the
person, persons or entity making the Determination with respect to Indemnitee's
entitlement to indemnification under this Agreement, including providing to
such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected
from disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such Determination. Any costs or Expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such Determination shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
ARTICLE VII - SETTLEMENT
The Company shall have no obligation to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any Proceeding
effected without the Company's prior written consent. The Company shall not
settle any claim in any manner which would impose any Fine or other obligation
on Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee shall unreasonably withhold their consent to any proposed
settlement.
ARTICLE VIII - RIGHTS NOT EXCLUSIVE
The rights provided hereunder shall not be deemed exclusive of
any other rights to which Indemnitee may be entitled under any bylaw,
agreement, vote of stockholders or of Disinterested Directors or otherwise,
both as to action in his or her official capacity and as to action in any other
capacity by holding such office, and shall continue after Indemnitee ceases to
serve the Corporation as a director or officer.
ARTICLE IX - ENFORCEMENT
9.01 BURDEN OF PROOF. Indemnitee's right to
indemnification shall be enforceable by Indemnitee only in the state courts of
the State of Delaware and shall be enforceable notwithstanding any adverse
Determination. In any such action, if a prior adverse Determination has been
made, the burden of proving that
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<PAGE> 8
indemnification is required under this Agreement shall be on Indemnitee. The
Company shall have the burden of proving that indemnification is not required
under this Agreement if no prior adverse Determination shall have been made.
9.02 COSTS AND EXPENSES. In the event that any action is
instituted by Indemnitee under this Agreement, or to enforce or interpret any
of the terms of this Agreement, Indemnitee shall be entitled to be paid all
court costs and expenses, including reasonable counsel fees, incurred by
Indemnitee with respect to such action, unless the court determines that each
of the material assertions made by Indemnitee as a basis for such action were
not made in Good Faith or were frivolous.
ARTICLE X - GENERAL PROVISIONS
10.01 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Company and its successors and assigns and shall inure to the
benefit of Indemnitee and Indemnitee's heirs, executors and administrators.
10.02 SEVERABILITY. If any provision or provisions of this
Agreement is determined by a court to be invalid, illegal or unenforceable for
any reason whatsoever, such provision shall be limited or modified in its
application to the minimum extent necessary to avoid a violation of law, and,
as so limited or modified, such provision and the balance of this Agreement
shall be enforceable in accordance with its terms.
10.03 IDENTICAL COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
10.04 HEADINGS. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
10.05 MODIFICATION AND WAIVER. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
10.06 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given it (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have
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<PAGE> 9
been directed, or (ii) mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed.
If to Indemnitee to:
As shown with Indemnitee's Signature below
If to the Company to:
Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
Attention: Edward G. Newman, President
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
10.07 GOVERNING LAW. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws
of the State of Delaware without application of the conflict of laws principles
thereof.
10.08 CONSENT TO JURISDICTION. The Company and Indemnitee
each hereby irrevocably consent to the jurisdiction of the courts of the State
of Delaware for all purposes in connection with any Proceeding which arises out
of or relates to this Agreement, and agree that any action instituted under
this Agreement shall be brought only in the state courts of the State of
Delaware.
10.09 ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement and understanding between the parties hereto in reference to
all the matters herein agreed upon. This Agreement replaces in full all prior
indemnification agreements or understandings of the parties hereto, and any and
all such prior agreements or understandings are hereby rescinded by mutual
agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
XYBERNAUT CORPORATION
By:
--------------------------
Name:
--------------------------
Title:
-------------------------
INDEMNITEE
Address:
-------------------------------
- --------------------
- --------------------
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into effective the 1st day of
January, 1996, by and between COMPUTER PRODUCTS & SERVICES, INC., a
corporation organized under the laws of the Commonwealth of Virginia
(hereinafter referred to as "EMPLOYER"), and EDWARD G. NEWMAN (hereinafter
referred to as "EMPLOYEE").
INTRODUCTION
A. EMPLOYER is engaged in the business of developing, manufacturing and
marketing computer products including hardware, software and services.
B. EMPLOYEE has served as the President and Chief Executive Officer of
EMPLOYER since 1992.
C. EMPLOYER believes it essential to obtain during the term of this
Agreement the ongoing services of EMPLOYEE and EMPLOYEE has agreed to
continue his employment services during the term of this Agreement for
the benefit of the EMPLOYER.
D. By entering into the Agreement hereinafter set forth, the parties
hereto desire to memorialize their full agreement with respect to the
terms and conditions of the management services to be provided by
EMPLOYEE.
AGREEMENT
NOW, THEREFORE, for good and lawful consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Employment. EMPLOYER hereby employs EMPLOYEE and EMPLOYEE hereby
accepts such employment, to serve as and in the capacity of President
and Chief Executive Officer of EMPLOYER upon and subject to the terms
and conditions set forth herein.
2. Term. The term of EMPLOYEE's engagement shall be for a period of three
(3) years from the date hereof commencing January 1, 1996 and
terminating December 31, 1998, unless sooner terminated in the manner
provided herein. The term of this Agreement and of the employment of
EMPLOYEE hereunder shall be automatically renewed for an additional
three (3)-year period on terms no less favorable to EMPLOYEE than those
set forth in this Agreement, unless either party gives the other party
written notice of termination of this Agreement at least sixty (60)
days prior to the termination of the initial term of this Agreement.
3. During the term of this Agreement, EMPLOYEE, shall devote his best
efforts, time, attention and energy to the business and affairs of
EMPLOYER. When he is acting as President and Chief Executive Officer,
EMPLOYEE shall perform all duties normally and properly incident to the
office or positions held by him and such further duties as may from time
to time be assigned to him by the Board of Directors of EMPLOYER. During
the term of this Agreement, EMPLOYEE shall not engage, directly or
indirectly, in any activities competitive with any business which is now
or which
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<PAGE> 2
hereafter may be conducted by EMPLOYER. It is expressly agreed
that EMPLOYEE's position with Tech International of Virginia, Inc.
does not violate the terms of this Agreement.
4. Consideration.
a. The sum of One Hundred Fifty Thousand Dollars ($l50,000)
annually commencing January 1, 1996 and continuing
thereafter until January 1, 1997 when the annual base
compensation will be increased to One Hundred Ninety eight
Thousand Dollars ($198,000) payable in accordance with
EMPLOYER's customary payroll practice in effect for its
officers. The annual base compensation hereunder shall be
increased each year during the term of this Agreement by at
least the U.S. Consumer Price Index plus two percent (2%).
b. As additional consideration for EMPLOYEE's services,
EMPLOYER agrees to pay EMPLOYEE an annual cash bonus in an
amount equal to one and one half percent (1.5%) of
EMPLOYER's pretax income for each calendar year. Pretax
income, for purposes of the initial term of this Agreement,
shall mean the consolidated income before taxes as presented
in the EMPLOYER's audited financial statements for each
fiscal year, increased by research and development expenses
and payments required by this or other bonus or incentive
plans including non-cash charges related to warrants, stock
options and the like. For purposes of any additional term of
this Agreement, pretax income shall mean the consolidated
income before taxes as presented in EMPLOYER's audited
financial statements for each fiscal year, increased by
expenses related to this or other bonus or incentive plans,
including non-cash charges related to warrants, stock
options and the like. The total cash bonus paid hereunder
will be supplemented by the grant of a fully vested option
with a ten (10) year life to purchase shares of EMPLOYERS
common stock at a price per share equal to the average
equivalent sales price per share of EMPLOYER's common stock
during the ninety (90) day period immediately preceding the
effective date of this Agreement. The number of EMPLOYER's
shares of common stock granted to EMPLOYEE as part of this
option shall be determined by dividing the cash bonus earned
by the EMPLOYEE by the per share stock option price. In this
regard, in the event of a reorganization, recapitalization,
stock split, stock dividend, combination of shares, merger,
consolidation, rights offering or any other change in the
corporate structure or shares of EMPLOYER, or any of its
subsidiaries, the number and kind of shares subject to this
bonus and the price thereof shall be proportionately
adjusted so as to give EMPLOYEE the benefit of his agreement
to receive the stock at the stock sales price as set forth
above.
5. Expenses. EMPLOYER shall reimburse EMPLOYEE for all expenses reasonably
and necessarily incurred by him in the performance of his duties
hereunder consistent with EMPLOYER's policies covering expense
reimbursement for senior executives of the EMPLOYER, as such policies
may be modified from time to time.
6. Employment Benefits. During the term of this Agreement, EMPLOYEE shall
receive and be entitled to participate in all benefits customarily
offered to or conferred upon other executive officers and employees of
EMPLOYER also agrees to obtain a term life insurance policy on the life
of EMPLOYEE in the face amount of Two Million Dollars ($2,000,000)
which is to be made payable to the beneficiary or beneficiaries
designated by EMPLOYEE. EMPLOYER further agrees to pay all premiums on
the policy during the term of the employment provided herein.
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<PAGE> 3
7. Termination of Employment. Upon the occurrence of any of the following
events and expiration of the period, if any, specified, this Agreement
and the employment of EMPLOYEE hereunder shall terminate:
a. Death of EMPLOYEE.
b. By mutual agreement of EMPLOYER and EMPLOYEE.
c. The failure of EMPLOYEE to cure a material default under this
Agreement within thirty (30) days after receiving written notice
of default from EMPLOYER.
d. The "disability" of EMPLOYEE. The term "disability" as used
herein, shall mean the inability or failure of EMPLOYEE, by
reason of any medically demonstrable physical or mental
condition, to perform his duties hereunder. The disability of
EMPLOYEE shall be deemed to have occurred if; (1) the issuer of
any disability income policy insuring EMPLOYEE shall have
determined that EMPLOYEE is disabled, whether partially or
totally, within the meaning of the provisions of such policy; (2)
EMPLOYEE shall be absent from work for a period of one hundred
twenty (120) consecutive business days all of which in the
aggregate shall be of more than one hundred fifty (150) business
days for any reason without the written consent of EMPLOYER, and
(3) EMPLOYER shall have received written opinions from two duly
licensed physicians that EMPLOYEE, by reason of any medically
demonstrable physical or mental condition, is unable to perform
his duties hereunder and will continue to be unable to perform
his duties for the foreseeable future or that the continued
performance of his duties will endanger his life.
8. Change in Control. Should a change in control of the EMPLOYER take
place, this Agreement shall remain binding on EMPLOYER or its successor
in interest. A "Change in Control" of EMPLOYER for purposes of this
Agreement shall mean someone other than EMPLOYEE serving as EMPLOYER's
Chairman of the Board of Directors, President or Chief Executive
Officer. However, in the event of a change in control, EMPLOYEE in his
sole discretion, shall have the right to terminate this Agreement and
shall be entitled to severance pay equal to the greater of the amount
received by EMPLOYEE during the previous two (2) calendar years of the
term of this Agreement, pursuant to Section 4 above, or two (2) times
the compensation due to EMPLOYEE pursuant to Section 4, above, at the
end of the then-current fiscal year.
9. Notices. All notices, requests and other communications hereunder shall
be in writing and shall be deemed to have been given only if mailed,
certified return receipt requested, or if sent by Federal Express or
other well recognized private courier ("Courier") or if personally
delivered to, or if sent by fax with the original thereof sent by
Courier to:
If to EMPLOYER at: Computer Products & Services, Inc.
12701 Fair Lakes Circle,
Suite 550
Fairfax, VA 22033
Fax:(703) 631-7070
If to EMPLOYEE at: 9541 Fostern Lane
Manassas,VA 22111
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<PAGE> 4
All notices, requests and other communications shall be deemed received
on the date of acknowledgment or other evidence of actual receipt in
the ease of certified mail, Courier delivery or personal delivery or,
in the case of fax delivery, upon the date of fax receipt provided that
the original is delivered within two (2) business days. Any party
hereto may designate different or additional parties for the receipt of
notice, pursuant to notice given in accordance with the foregoing.
10. Attorneys' Fees. In the event of default hereunder, the defaulting
party shall be liable to the non-defaulting party for all expenses and
costs incurred by the non-defaulting party in protecting or enforcing
its right hereunder including but not limited to reasonable attorneys'
fees and costs.
11. Subject Headings. The subject headings of the paragraphs of this
Agreement are included solely for the purposes of convenience and
reference only, and shall not be deemed to explain, modify, limit,
amplify or aid the meaning, construction or interpretation of any of
the provisions of this Agreement.
12. Amendments. No supplement, modification or amendment of this Agreement
shall be binding or enforceable unless executed in writing by the
parties hereto.
13. Entire Agreement and Waiver. This Agreement contains the entire
agreement between the parties hereto concerning the subject matter
hereof and supersedes all prior and contemporaneous agreements,
arrangements, negotiations and understandings between the parties
hereto relating to the subject matter hereof. There are no other
understandings, statements, promises or inducements, oral or otherwise,
contrary to the terms of this Agreement. No representations,
warranties, covenants or conditions, express or implied, whether by
statute or otherwise, other than as set forth herein, have been made by
any party hereto. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or shall constitute, a waiver of any
other provision hereof, whether or not similar, nor shall such waiver
constitute a continuing waiver, and no waiver shall be binding unless
executed in writing by the party making the waiver.
14. Parties In Interest. Nothing in this Agreement, whether express or
implied, is intended to confer upon any person other than the parties
hereto and their respective heirs, representatives, successors and
permitted assigns, any rights or remedies under or by reason of this
Agreement.
15. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and permitted assigns.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with and shall be subject to the laws of the
Commonwealth of Virginia.
18. Further Documents. Each party agrees to execute and deliver, at any
time and from time to time, upon the request of the other parry, such
further instruments or documents as may be necessary or
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<PAGE> 5
appropriate to carry out the provisions contained herein, and to take
such other action as the party may reasonably request to effectuate the
provisions of this Agreement.
19. Severability. Should any part, term or provision of this Agreement be
declared by a court of competent jurisdiction to be invalid, void or
unenforceable at law or in equity, it is the express intention of the
parties hereto that such part, term or provision shall be construed in
such manner as to provide for the enforcement thereof to the maximum
extent and in the broadest scope permitted under law and all remaining
parts, terms and provisions hereof shall remain in full force and
effect and shall in no way be invalidated, impaired or affected
thereby.
20. Interpretations and Definitions. The parties agree that each party and
its counsel have reviewed and revised this Agreement and that any rule
of construction to the effect that ambiguities are to be resolved
against the drafting party shall not apply in the interpretation of
this agreement
21. Miscellaneous. Time is hereby declared to be of the essence of each
provision of this Agreement. This Agreement sets forth the entire
understanding between the parties hereto with respect to all matters
referred to herein and the provisions hereof may not be changed,
modified or supplemented either wholly or in part except by written
instrument signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the date set forth at the beginning.
EMPLOYER: COMPUTER PRODUCTS & SERVICES, INC.,
a Virginia Corporation
By:
-----------------------------------------------------
EMPLOYEE:
--------------------------------------------------------
EDWARD G. NEWMAN
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into effective the 1St day of
January, 1996, by and between COMPUTER PRODUCTS & SERVICES, INC., a
corporation organized under the laws of the Commonwealth of Virginia
(hereinafter referred to as EMPLOYER), and JOHN F. MOYNAHAN (hereinafter
referred to as EMPLOYEE).
INTRODUCTION
A. EMPLOYER is engaged in the business of developing, manufacturing and
marketing computer products including hardware, software and services.
B. EMPLOYEE has been serving as the Vice President, Chief Financial Officer
and Treasurer of EMPLOYER since October 1, 1994.
C. EMPLOYER believes it essential to obtain during the term of this
Agreement the ongoing services of EMPLOYEE and EMPLOYEE has agreed to
continue his employment services during the term of this Agreement for
the benefit of EMPLOYER.
D. By entering into the Agreement hereinafter set forth, the parties hereto
desire to memorialize their full agreement with respect to the terms and
conditions of the management services to be provided by EMPLOYEE.
AGREEMENT
NOW, THEREFORE, for good and lawful consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows.
1. Employment. EMPLOYER hereby employs EMPLOYEE and EMPLOYEE hereby
accepts such employment, to serve as and in the capacity of Vice
President of EMPLOYER upon and subject to the terms and conditions set
forth herein.
2. Term and Termination. The term of EMPLOYEE'S engagement shall be for a
period of three (3) years from January 1, 1996 and terminating December
31, 1998, unless sooner terminated in the manner provided herein. After
the initial three-year period, the Agreement shall automatically renew
for an additional three-year period on terms no less favorable to
EMPLOYEE than those set out in this Agreement, unless either party gives
the other party written notice of termination of this Agreement at least
sixty (60) days prior to the termination of the original term of this
Agreement. This Agreement may be terminated by (a) mutual consent, (b)
the material breach of this Agreement by EMPLOYEE that remains uncured
more than thirty (30) days after the receipt of notice from EMPLOYER of
such breach, or (c) the commission by EMPLOYEE of fraud,
misappropriation, embezzlement or the like.
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<PAGE> 2
3. Duties; During the term of this Agreement, EMPLOYEE shall devote his
best efforts, time, attention and energy to the business and affairs of
EMPLOYER. When he is acting as Vice President, EMPLOYEE shall perform
all duties normally and properly incident to the office or positions
held by him and such further duties as may from time to time be assigned
to him by the Board of Directors of EMPLOYER. During the term of this
Agreement, EMPLOYEE shall not engage, directly or indirectly, in any
activities competitive with any business which is now or which hereafter
may be conducted by EMPLOYER. EMPLOYEE shall agree to serve on
EMPLOYER's Board of Directors subject to the vote and continued
confirmation of the shareholders of EMPLOYER. EMPLOYEE also agrees to
execute and be bound by EMPLOYER's Confidentiality and Nondisclosure
Agreements.
4. Consideration
a. As consideration and compensation for EMPLOYEE's services to be
performed hereunder, EMPLOYER shall pay to EMPLOYEE during each
year of the term of this Agreement an annual base compensation in
the sum of One Hundred Forty Thousand Dollars ($140,000) payable
in equal consecutive semi-monthly payments commencing January 1,
1996 and continuing thereafter on the first and fifteenth day of
each successive month during the term of this Agreement. This
base compensation will be increased to no less than One Hundred
Fifty Thousand Dollars ($150,000) on January 1, 1997, and
thereafter on each anniversary of this Agreement in an amount no
less than the increase in the U.S. Consumer Price Index for that
year.
b. As additional consideration for EMPLOYEE's services, EMPLOYER
agrees to pay EMPLOYEE an annual cash bonus as established by
EMPLOYER's Board of Directors based on EMPLOYEE's performance and
the financial performance of EMPLOYER, as determined in the sole
discretion of EMPLOYER's Board of Directors. The total cash bonus
paid hereunder will be supplemented by the grant of a fully
vested option with a ten (10) year life to purchase shares of
EMPLOYER's common stock at a price per share equal to the average
equivalent sales price per share of EMPLOYER's common stock
during the ninety (90) day period immediately preceding the
effective date of this Agreement. The number of EMPLOYER's shares
of common stock granted to EMPLOYEE as part of this option shall
be determined by dividing the cash bonus earned by the EMPLOYEE
by the per share stock option price. In this regard, in the event
of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights
offering or any other change in the corporate structure or shares
of EMPLOYER, or any of its subsidiaries, the number and kind of
shares subject to this bonus and the price thereof shall be
proportionately adjusted so as to give EMPLOYEE the benefit of
his agreement to receive the stock at the stock sales price as
set forth above.
5. Expenses. EMPLOYER shall reimburse EMPLOYEE for all expenses reasonably
and necessarily incurred by him in the performance of his duties
hereunder, consistent with EMPLOYER's policies covering expense
reimbursement for senior executives of the EMPLOYER, as such policies
may be modified from time to time.
6. Employment Benefits. During the term of this Agreement, EMPLOYEE shall
receive and be entitled
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<PAGE> 3
to participate in all benefits customarily offered to or conferred upon
other executive officers and employees of EMPLOYER. EMPLOYEE will be
provided term life insurance coverage equal to five (5) times EMPLOYEE's
then current annual salary based on typical conditions for the issuance of
such policies.
7. Change in Control. A "change in control" of EMPLOYER for purposes of
this Agreement shall mean someone other than EDWARD NEWMAN serving as
EMPLOYER's Chairman of the Board of Directors, President and Chief
Executive Officer. However, in the event of a change of control,
EMPLOYEE, in his sole discretion, shall have the right to terminate this
Agreement and shall be entitled to severance pay equal to the greater of
the amount of compensation received by EMPLOYEE during the previous two
(2) calendar years of the term of this Agreement, pursuant to Section 4,
above, or two (2) times the amount of compensation due to EMPLOYEE
pursuant to Section 4, above, at the end of the then current fiscal
year. All unvested stock options held by EMPLOYEE at the time of such
change in control shall vest immediately.
8. Notices. All notices, requests and other communications hereunder shall
be in writing and shall be deemed to have been given only if mailed,
certified return receipt requested, or if sent by Federal Express or
other well recognized private courier ("Courier") or if personally
delivered to, or if sent by fax with the original thereof sent by
Courier to:
If to EMPLOYER: Computer Products & Services, Inc.
12701 Fair Lakes Circle, Suite550
Fairfax, VA 22033
Fax: (703) 631-7070
If to EMPLOYEE: John F. Moynahan
12302 Blair Ridge Road
Fairfax, VA 22033
Fax: (703)716-1074
All notices, requests and other communications shall be deemed received
on the date of acknowledgment or other evidence of actual receipt in the
case of certified mail, Courier delivery or personal delivery or, in the
case of fax delivery, upon the date of fax receipt provided that the
original is delivered within two (2) business days. Any party hereto may
designate different or additional parties for the receipt of notice,
pursuant to notice given in accordance with the foregoing.
9. Attorneys' Fees. In the event of default hereunder, the defaulting party
shall be liable to the nondefaulting party for all expenses and costs
incurred by the non-defaulting party in protecting or enforcing its
right hereunder including but not limited to reasonable attorneys' fees
and costs.
10. Subject Headings. The subject headings of the paragraphs of this
Agreement are included solely for the purposes of convenience and
reference only, and shall not be deemed to explain, modify, limit,
amplify or aid the meaning, construction or interpretation of any of the
provisions of this Agreement.
- 3 -
<PAGE> 4
11. Amendments. No supplement, modification or amendment of this Agreement
shall be binding or enforceable unless executed in writing by the
parties hereto.
12. Entire Agreement and Waiver. This Agreement contains the entire
agreement between the parties hereto concerning the subject matter
hereof and supersedes all prior and contemporaneous agreements,
arrangements, negotiations and understandings between the parties hereto
relating to the subject matter hereof There are no other understandings,
statements, promises or inducements, oral or otherwise, contrary to the
terms of this Agreement. No representations, warranties, covenants or
conditions, express or implied, whether by statute or otherwise, other
than as set forth herein, have been made by any party hereto. No waiver
of any term, provision or condition of this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to
be, or shall constitute, a waiver of any other provision hereof, whether
or not similar, nor shall such waiver constitute a continuing waiver,
and no waiver shall be binding unless executed in writing by the party
making the waiver.
13. Parties In Interest. Nothing in this Agreement, whether express or
implied, is intended to confer upon any person other than the parties
hereto and their respective heirs, representatives, successors and
permitted assigns, any rights or remedies under or by reason of this
Agreement.
14. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and permitted assigns.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
16. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with and shall be subject to the laws of the
Commonwealth of Virginia.
17. Further Documents. Each party agrees to execute and deliver, at any time
and from time to time, upon the request of the other party, such further
instruments or documents as may be necessary or appropriate to carry out
the provisions contained herein, and to take such other action as the
party may reasonably request to effectuate the provisions of this
Agreement.
18. Severability. Should any part, term or provision of this Agreement be
declared by a court of competent jurisdiction to be invalid, void or
unenforceable at law or in equity, it is the express intention of the
parties hereto that such part, term or provision shall be construed in
such manner as to provide for the enforcement thereof to the maximum
extent and in the broadest scope permitted under law and all remaining
parts, terms and provisions hereof shall remain in full force and effect
and shall in no way be invalidated, impaired or affected thereby.
19. Interpretations and Definitions. The parties agree that each party and
its counsel have reviewed and revised this Agreement and that any rule
of construction to the effect that ambiguities are to be resolved
against the drafting party shall not apply in the interpretation of this
Agreement.
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<PAGE> 5
20. Miscellaneous. Time is hereby declared to be of the essence of each
provision of this Agreement. This Agreement sets forth the entire
understanding between the parties hereto with respect to all matters
referred to herein and the provisions hereof may not be changed,
modified or supplemented either wholly or in part except by written
instrument signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the date set forth at the beginning hereof.
EMPLOYER: COMPUTER PRODUCTS & SERVICES, INC.,
a Virginia corporation
By:
-------------------------------------------------
EMPLOYEE:
-----------------------------------------------------
JOHN F. MOYNAHAN
- 5 -
<PAGE> 1
EXHIBIT 10.14
CONSULTING AGREEMENT
Xybernaut Corporation, a Delaware corporation (the "Company"),
and the undersigned consultant whose name and address appear below
("Consultant") hereby agree as follows:
1. Consulting Services. Consultant is hereby employed
by the Company as an independent contractor, and not as an employee, to carry
out the project specified on the Description of Work, attached hereto and made
a part hereof as Exhibit A (the "Description of Work"), on the terms and
conditions set forth in such Description of Work.
2. Term. This Agreement shall continue for the term
specified in the Description of Work; provided, however, this Agreement may be
terminated by the Company immediately in the event Consultant is not performing
in compliance with the Description of Work, or in the event of any breach of
the obligations of paragraph 4 hereof.
In the event of any termination of this Agreement by the
Company prior to completion of the term specified on the Description of Work,
the Company's sole liability thereupon will be to pay Consultant any unpaid
balance due for work performed up to and including the date of termination.
3. Independent Contractor. It is agreed that
Consultant's services are made available to the Company on the basis that
Consultant will retain Consultant's individual professional status and that
Consultant's relationship with the Company is that of an independent consultant
and not that of an employee. Consultant will not be eligible for any employee
benefits, nor will the Company make deductions from its fees to Consultant for
taxes, insurance, bonds or any other subscription of any kind. Consultant will
use Consultant's own discretion in performing the tasks assigned, within the
scope of work specified by the Company.
4. Confidential Information. Consultant agrees that he
shall keep in strictest confidence all information relating to the products,
programs, algorithms, designs, trade secrets, secret processes, customers and
markets of the Company and all other confidential knowledge, data and
information related to the business or affairs of the Company (collectively,
"Confidential Information") that may be acquired pursuant to or in connection
with this Agreement or the relationship or relationships contemplated by this
Agreement. During and after the term of this Agreement, Consultant will not,
without the prior written consent of an officer of the Company, publish,
communicate, disclose or use for any purpose any of such Confidential
Information. Upon termination of this Agreement, Consultant will return to the
Company all records, data, notes, reports, printouts, sketches, material,
equipment and other documents or property, and all reproductions of any of the
foregoing, furnished by the Company or developed or prepared pursuant to the
relationship hereunder.
Notwithstanding the foregoing, it is agreed that Confidential
Information shall not include any (i) information which is or becomes through
no fault of Consultant generally known to the public, and (ii) Consultant's
skill, knowledge, know-how and experience.
<PAGE> 2
5. Miscellaneous.
(a) Effective Date. This Agreement shall be
effective as of the effective date specified below, the date of commencement of
the consulting services, and it is expressly agreed to by Consultant and the
Company that all the provisions hereof shall appy as if this Agreement had been
entered into on such date.
(b) Survival of Terms. The provisions of
paragraph 4 hereof shall survive termination of this Agreement.
(c) Successors and Assigns. This Agreement shall
be binding on all of Consultant's associates, all of Consultant's heirs,
executors, administrators and legal representatives, and all of Consultant's
successors in interest and assigns, and shall be for the benefit of the
Company, its successors and assigns.
(d) Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware without application of conflicts of law.
(e) Severability. If one or more of the
provisions in this Agreement are deemed void by law, then the remaining
provisions will continue in full force and effect.
(f) Amendment. Neither this Agreement nor the
Description of Work may be amended except by a written agreement modifying the
appropriate document duly executed by Consultant and an officer of the Company.
This Agreement is executed on the date set forth below, and
shall be effective as of the date specified.
XYBERNAUT CORPORATION
By:
-----------------------------------------
Name: Edward G. Newman
Title: President
CONSULTANT:
Address:
- -------------------------- --------------------------------------------
Victor J. Lombardi
- --------------------------
Date:
---------------------
- 2 -
<PAGE> 3
EXHIBIT A
DESCRIPTION OF WORK
1. DETAILED DESCRIPTION OF WORK: Consultant shall provide the
Company with consulting services in the areas of business development and
marketing; and such other similar activities as may be requested from time to
time by the President of the Company; provided, however, Consultant shall not
be required to work in excess of ____ hours per month.
2. START DATE: ______________, 1996
COMPLETION DATE: ________________. However, should the
Company's efforts to register and sell its Common Stock to the public pursuant
to an effective registration statement with the Securities and Exchange
Commission currently under consideration with Royce Investment Group, Inc.
terminate, this Agreement may be cancelled unilaterally by the Company upon
written notice unless the Company has entered into a letter of intent to
register and sell its shares of Common Stock with a different underwriter
located by Consultant. In the event of such termination by the Company, no
further compensation shall be due hereunder.
3. AUTHORIZED REPRESENTATIVE OF THE COMPANY: The character of
Consultant's services shall be subject to the assignment and direction of
Edward G. Newman, President. Further, the character and scope of Consultant's
services may be revised by mutual agreement between Consultant and the Company
and such revision will be evidenced by a formal bilateral modification to the
Consulting Agreement or this Description of Work signed between Consultant and
the President. The President of the Company shall be the only individual
authorized to direct the activities of Consultant.
4. PAYMENT: As consideration for all services to be rendered and
performed under this Agreement, Consultant will receive warrants which entitle
Consultant to purchase 100,000 shares of the Company's common stock, par value
$.01 per share, at $6.00 a share through December 31, 1999. The warrants will
not be registered. Consultant shall receive the warrants upon execution of
this Agreement.
5. EXPENSES: The Company agrees to reimburse Consultant for the
following:
Yes No
--- --
Long Distance Telephone X
Routine out-of-pocket expenses X
Local travel X
Long distance travel, lodging and X
meals, upon prior request of Company
<PAGE> 1
EXHIBIT 10.15
LICENSE AGREEMENT
This License Agreement (the "Agreement") having an Effective Date of
March 29, 1996, and is made by and between ROCKWELL INTERNATIONAL CORPORATION,
a corporation organized and existing under the laws of the State of Delaware,
having a place of business at 350 Collins Road NE, Cedar Rapids, Iowa 52498
(hereinafter referred to as "Rockwell") and XYBERNAUT CORPORATION, a
corporation organized and existing under the laws of the Commonwealth of
Virginia, having a place of business at 12701 Fair Lakes Circle, Fairfax,
Virginia 22033 (hereinafter referred to as "Xybernaut").
WHEREAS, Xybernaut has developed and acquired certain proprietary know
how relating to a voice-activated portable computer system, which includes a
specific hardware configuration in combination with specified operating system
software; and
WHEREAS Rockwell desires to design, make, use and sell products using
certain portions of said Xybernaut proprietary know-how.
NOW THEREFORE, in consideration for the mutual promises contained herein,
Xybernaut and Rockwell agree as follows:
ARTICLE 1 - DEFINITIONS
- -----------------------
For the purposes of this Agreement, the following terms shall have the
following indicated meanings:
1.1 "Portable PC" shall mean a personal computer, as generally described in
U.S. Patent No. 5,305,244.
1.2 "Technical Information" shall mean all data, experience, documents,
plans, designs, drawings, reports, manuals, methods, processes,
specifications guidelines, test reports, instructions, procedures, and
other information, related to the design, manufacture, use, or marketing
of Portable PC's, provided or disclosed by Xybernaut in oral, written, or
other form to Rockwell prior to the Effective Date of this Agreement.
1.3 "Intellectual Property Rights" shall mean all rights in Technical
Information and other information provided by Xybernaut to Rockwell prior
to the Effective Date of this Agreement under Patents, the laws of
copyright, mask works, trade secret, trademark, unfair competition, and
similar rights.
1.4 "Patents" shall mean U.S. Patent 5,305,244, and any other patents now or
later owned by Xybernaut based on Technical Information as embodied in
the claims of 5,305,244, and any patents whose claims are within the
scope of the claims of U.S.
--1--
<PAGE> 2
Patent 5,305,244 and any patent whose claims cover a Unit; and shall
specifically include any continuations, divisions, or
continuations-in-part, provisionals, reexaminations, or reissues thereof,
and any patent or patents issuing thereon and any counterpart foreign
patent applications and patents heretofore or hereafter filed
corresponding to said patents and applications.
1.5 "Net Selling Price" shall mean Rockwell's selling price or the price used
to determine lease payments to its customers, F.O.B. Rockwell's factory,
after deduction of shipping, related insurance, packing, sales and excise
taxes, export duties or fees, and sales commissions to third parties as
shall be paid and enumerated on Rockwell invoices. For purposes of Units
not directly sold by the Collins Avionics and Communication Division of
Rockwell to the general public, the Net Selling Price shall be the
then-prevailing lowest price of the Unit offered to any party.
1.6 "Unit" of licensed product shall mean a Portable PC designed primarily
for use in voice-activated, body-worn, mobile information applications
comprising either a Processing Unit or the combination of a Processing
Unit, a head-mounted display and a battery cell. "Unit" shall not
include any other peripheral or attached elements or devices.
1.7 "Processing Unit" shall mean a portion of a Portable PC comprising the
logic function, power supply board, case, memory, and input-output ports.
1.8 "Rockwell Unit" shall mean a Ruggedized Unit made by or for Rockwell and
sold under the Rockwell name by Rockwell or its sales agents.
1.9 "Ruggedized" shall mean to possess the following characteristics:
(a) Start and operate within a temperature range of 0 degrees to 45
degrees Centigrade;
(b) Operate after a a single 2 foot drop onto a hard surface with
the unit landing on a single face. If a hard disk drive is
installed, the hard disk drive head will be locked or retracted.
(c) Rain resistant.
--2--
<PAGE> 3
ARTICLE 2 - LICENSES GRANTED
- ----------------------------
2.1 For the term of this Agreement, Xybernaut hereby grants to Rockwell and
its subsidiaries under its Intellectual Property Rights, a non-exclusive
license that consists of:
2.1.1 The world-wide right, with the exception of the countries of
Germany and Japan, to manufacture, make, and have made,
Rockwell Units.
2.1.2 The world-wide right to develop, repair use, sell, distribute,
lease or otherwise dispose of Rockwell Units.
2.1.3 The world-wide right to establish distributors and sales
agents, authorized to market, support, integrate hardware and
software, and to modify, Rockwell Units to meet specific
customer desires.
2.2 Xybernaut represents that it is the sole owner of all rights, title and
interest in the Intellectual Property Rights covered by the grants set
forth in Article 2.1 above and/or is empowered to enter this Agreement.
2.3 The rights contained in this Article 2 are conditioned upon adherence to
the terms of this Agreement, including payments set forth in Article 3.
2.4 Xybernaut shall own the design and the intellectual property rights
therein for the Processing Unit initially presented to Rockwell. In
addition, Xybernaut shall own the design and intellectual property rights
associated with the subsequent design alterations made to the Processing
Unit by Rockwell and used for manufacture of the first 200 units
("Initial Design") under the purchase order agreement entered into
between Rockwell and Xybernaut dated June 10, 1994, as amended February
14, 1995 (together the "Purchase Order"). For other intellectual property
rights that have been developed by either party prior to the Effective
Date that are in the Rockwell Unit, each party will be given immunity
from suit, or claim, by the developing party for use of such intellectual
property rights in adherence to the terms of this Agreement. Intellectual
property rights developed subsequent to the date of this Agreement shall
be owned by the party that developed such intellectual property.
2.5 It is specifically agreed that Rockwell shall not have the right to
sublicense third parties for the manufacture and/or sale of Units, except
to the extent that such sublicense is required for subcontracting the
manufacturing of Rockwell Units or the sale of Rockwell Units through
Rockwell's sales agents.
--3--
<PAGE> 4
ARTICLE 3 PAYMENTS
- ------------------
3.1 In consideration for the licenses granted in this Agreement, Rockwell
shall pay Xybernaut:
a.) A one time, non-refundable, lump sum payment of $300,000 that is due
on the Effective Date of this Agreement. In consideration for the royalty
rates stated below, Rockwell shall completely and immediately release
Xybernaut from payment of the $1,395,000 under the above referenced
Purchase Order.
b.) A royalty for each Rockwell Unit of licensed product produced and
sold or transferred by Rockwell, or its agents, in accordance with the
following:
4% of the Net Selling Price of the Rockwell Unit from the Effective
Date through August 31, 1998;
3% of the Net Selling Price of the Rockwell Unit from September 1,
1998 through August 31, 1999;
2% of the Net Selling Price of the Rockwell Unit from September 1,
1999 through August 31, 2000; and
1% of the Net Selling Price of the Rockwell Unit from September 1,
2000 through August 31, 2001.
c.) No royalty shall be payable on any Rockwell Unit leased or consigned
to Xybernaut.
3.2 Rockwell agrees that it will make Rockwell Units available to Xybernaut
on terms no less favorable than the pricing, performance and delivery
schedule of Rockwell Units Rockwell offers to any other customer,
including any and all discounts, rebates and the like. Payment terms for
Rockwell Units sold to Xybernaut shall be 75 days after invoice date
during the term of this Agreement.
3.3 Rockwell shall maintain accurate and written records adequate to determine
calculation of the royalties due hereunder for 3 years after the period
for which royalty payments are made.
3.4 Within 75 days after the last day of March, June, September and December
of each year, Rockwell shall provide Xybernaut a written report showing
the number of Rockwell Units distributed during the previous calendar
quarter and the calculation of royalties in the manner provided herein.
Along with its report, Rockwell shall tender payment in the amount of the
royalty owed.
--4--
<PAGE> 5
3.5 An independent auditor, acceptable to both parties, shall be allowed to
make independent verification of Rockwell's adherence to the terms of
Article 2 and Article 3 of this agreement and the accuracy of Rockwell's
submitted royalty payment and report. This right to inspection and audit
shall not occur more than once a calendar year unless discrepancies in
excess of 10% are found to exist. Overall costs of this audit shall be
born by Xybernaut, unless a payment shortage discrepancy in excess of 10%
is determined to exist.
3.6 Xybernaut and Rockwell hereby release each other from any and all claims
they may now have against each other, based on circumstances prevailing
prior to the Effective Date, relating to Portable PC's, and components
thereof, except for any claims related to delivery and payment for
equipment delivered, or to be delivered from the first 200 Units, under
the Purchase Order.
ARTICLE 4 - TERM AND TERMINATION/PAID-UP LICENSE
- ------------------------------------------------
4.1 This Agreement will commence on the Effective Date and will continue
until September 1, 2001. After the term, or any earlier termination in
accordance with this Agreement, in which Rockwell is not in default or
un-cured breach, Rockwell shall receive a fully paid-up, irrevocable,
worldwide, unrestricted, perpetual license under the Intellectual
Property Rights, as delineated in Article 2, as specifically modified to
substitute "Units" for "Rockwell Units" in each instance of use in
Articles 2.1.1; 2.1.2; and 2.1.3. Such license shall survive termination
of this Agreement.
4.2 In the event of an early termination in which Rockwell is in default of
this Agreement, this Agreement is terminated and the license granted
hereunder to Rockwell will be revoked in full.
4.3 Either party shall have the right to terminate this Agreement upon
written notice to the other, if it is determined that the other party is
in material breach of any term, condition or covenant of this Agreement
and fails to cure that breach within sixty (60) days of receipt of
written notice of such alleged breach, provided such cure can reasonably
be effected within 60 days. If such cure cannot be reasonably effected
within 60 days, then one additional 30 day period will be allowed to
effect such cure. If cure is not affected in such period, the party in
breach shall be considered in default.
4.4 Any termination of this Agreement shall be without prejudice to any rights
and remedies either party may have to performance under this Agreement,
specifically including rights contractually extended to third parties
based upon mobile information system Unit sales.
--5--
<PAGE> 6
ARTICLE 5 - CONFIDENTIALITY
- ---------------------------
5.1 In the course of carrying out their respective responsibilities under
this Agreement, it is anticipated that each party may consult the other
party's personnel about, or receive, certain of the other party's
confidential business and technical information ("Confidential
Information"), including Technical Information disclosed prior to the
date of this Agreement. Each party will keep confidential, and without
the other party's prior written consent, will not use, and will not
disclose to any person or entity any Confidential Information except as
expressly permitted by this Agreement. Each party will take reasonable
precautions to ensure that the Confidential Information of the other
party is made known in, and used by, personnel, agents, and
representatives, only insofar as is necessary for the proper performance
under this Agreement. Nothing in this Agreement shall require the party
receiving Confidential Information of the other party to exercise any
greater degree of care for such Confidential Information than such party
normally exercises for its own information of like material.
5.2 "Confidential Information" relates only to information which is not
generally available to others and which is disclosed to the receiving
party in writing and marked by stamp or legend as proprietary, or if
given orally, is identified as proprietary at the time of disclosure and
subsequently restated in full in written form, within thirty (30) days
after the oral or visual disclosure and marked by stamp or legend
accordingly. In addition, the foregoing obligations of this Article 5
will not apply to any information or data that (i) is known or available
to the general public by publication or otherwise through no act or
failure to act on the part of the recipient or its personnel, agents or
representatives; (ii) is made public by the disclosing party; (iii) is
furnished to the recipient by a third-party as a matter of right; (iv) is
already known to the recipient on a non-confidential basis; (v) is
independently developed by the recipient; (vi) is disclosed outside of
the recipient in accordance with the terms of a prior written
authorization from the supplying party; or (vii) is required to be
disclosed by applicable law or laws. The obligations not to use or
disclose information shall not apply to any information exempted by the
foregoing exceptions (i)-(vii).
5.3 The obligations of the parties under this confidentiality provision shall
continue in effect for a period of five years from the date first
disclosed above and shall survive termination of this Agreement.
ARTICLE 6 - LIMITATION OF LIABILITIES
- -------------------------------------
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL,
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES.
--6--
<PAGE> 7
ARTICLE 7 - MISCELLANEOUS
- -------------------------
7.1 This Agreement constitutes the entire and only Agreement between the
parties relating to the subject matter hereof, and all prior
negotiations, representations, agreements and understandings are
superseded hereby. No Agreement altering or supplementing the terms
hereof shall be effective, unless made by means of written document,
signed by an authorized representative of the parties.
7.2 Any notice required by this Agreement shall be effective when given by
prepaid first-class certified mail, return receipt request, addressed to
Xybernaut or Rockwell to the address first written above, or to such
other addresses as may be given from time to time under the terms of this
Notice provision.
7.3 This Agreement does not constitute a partnership, joint venture, or
agency relationship between the parties hereto. Neither party shall hold
itself out as such, contrary to the terms hereof, by advertising or
otherwise, nor shall either party be bound or become liable because of
any representation, misrepresentation, action, or omission by the other
party. In the event that any provision or part of any provision of this
Agreement is found to be invalid, then such provision, or the invalid
part thereof shall be stricken from the Agreement, and the remaining
provisions shall remain in full force and effect.
7.4 Wavier by the party of any default hereunder shall not deprive such party
of any rights arising by reason of any subsequent default.
7.5 This Agreement shall be construed and enforced in accordance with the laws
of the Commonwealth of Virginia.
7.6 Neither party shall be responsible for any delays in delivery which are
due to causes beyond its control including, but not limited to, acts of
God or of a public enemy, acts of the United States or the United States
Government, or any preference priority, or any order of any of said
Governments, or to fires, floods, epidemics, quarantine, restrictions,
strikes, embargoes, unduly severe weather, incidents of war, or delays of
suppliers due to such causes.
7.7 If any claim or controversy arises out of, or relates to, this Agreement,
the Parties shall make a good faith attempt to resolve the matter through
their management representatives. The managers of the division having
cognizance of the subject matter of the Agreement of the party shall
first meet in person and make a good faith attempt to resolve such
controversy or claim. If after such good faith attempt, such managers
cannot otherwise settle or resolve the claim or controversy, or if the
subject matter of the Agreement is not under the cognizance of such
division of the Parties, the senior management representatives of each
Party shall meet in person and make a good faith attempt to resolve the
matter.
In the event that the claim or controversy cannot otherwise be
settled by such managers or senior management of the corporation after
good faith attempt,
--7--
<PAGE> 8
the Parties agree, prior to litigation, to attempt in good faith to
resolve such claim or controversy. Any dispute, controversy or claim
arising under, out of, or relating to this Agreement, including without
limitation, its formation, validity, binding effect, interpretation,
performance, breach or termination, as well as non-contractual claims,
shall be submitted to arbitration in accordance with the World
Intellectual Property Organization (WIPO) Arbitration Rules. The place
of arbitration shall be within the continental United States of America.
7.8 Either Party to this Agreement shall have the right to publicize the
existence of the agreement, but not the material terms, subject to the
prior written approval of the other party, such approval not to be
unreasonably withheld.
7.9 This Agreement is binding upon and shall inure to the benefit of any
successors or assigns of the respective Parties, if such successor or
assign is a corporation owned by either party, or if such succession or
assignment is related to a merger or sale of that Party with/to another
entity. Neither Rockwell nor Xybernaut shall unreasonably object to a
transfer or assignment of this Agreement by the other Party to a successor
or assignee under this Article 7.9.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement.
ROCKWELL INTERNATIONAL CORP. XYBERNAUT CORPORATION
/s/ R. P. MAROVICH /s/ EDWARD G. NEWMAN
- ----------------------------------- ---------------------------------
Signature Signature
R. P. Marovich Edward G. Newman
- ----------------------------------- ---------------------------------
Printed Name Printed Name
Executive Vice President
Collins Avionics & Communications Div President
- ----------------------------------- ---------------------------------
Title Title
March 29, 1996 March 29, 1996
- ----------------------------------- ---------------------------------
Date Date
--8--
<PAGE> 9
Interim 90-Day Agreement Between Kopin Corporation and Xybernaut Corporation
Both parties agree that the intent of this interim agreement is to fashion the
basis for an effective working relationship between the two companies to cover
the next 90-Day period. Also, during this 90-Day period both companies should
focus on defining the terms and conditions under which the two companies will
deal with each other on a long term basis. During this time, the following
guidelines will govern the relationship.
1. During the 90-Day period following signature of this Agreement, Kopin
will extend to Xybernaut the right to purchase all of the prototype
monochrome monocular HMDs that Kopin manufactures for the belt worn voice
and/or thought activated computer or terminal systems for the maintenance
markets. Every two weeks, Kopin will provide Xybernaut with a
manufacturing forecast for the following two week period. Xybernaut, at
that time, will have the option of purchasing for delivery within a
30-Day period, any or all such units. If, for any reason, Xybernaut fails
to purchase any, or all, of these HMDs, Kopin retains the right to sell
the excess units to any third party other than the InterVision
Corporation or Phoenix Corporation.
2. During this 90-Day period, Xybernaut agrees to purchase a minimum of 130
units from Kopin. Kopin agrees to deliver a minimum of 30 units during
the first 30-Day period of this agreement. Units delivered to Xybernaut
during this period but which (a) fail to pass quality inspection (b) are
returned to Kopin, and (c) are not returned by Kopin prior to the end of
this 90-Day period will count toward the minimum purchase.
3. Unit pricing for this 90-Day period will be $1,550. A new agreement with
quantity pricing and other terms will be negotiated in good faith by both
parties during the period of this interim agreement.
4. Xybernaut will have 5-Days to inspect and reject any units delivered to
it by Kopin. Kopin retains the right to resell any rejected units to any
third party other than InterVision Corporation or Phoenix Corporation. In
all cases, the first business day of acceptance is the business day
(Monday) after the units have been received by Xybernaut and all
shipments of units should be arranged by Kopin for delivery to Xybernaut
on Fridays.
5. Pricing for the first 25 units will be COD. After that period, Kopin will
begin to extend credit to Xybernaut on a net 15-Day period for a sum not
to exceed $38,750 until Kopin believes that further relaxation of its
credit restrictions are warranted.
6. Kopin will have unique part numbers and serial numbers for each HMD unit
of the type to Xybernaut.
Agreed and accepted on May 13, 1996 by Agreed and accepted on May 10, 1996 by
Kopin Corporation Xybernaut Corporation
By: /s/ JOHN C. C. FAN By: /s/ EDWARD G. NEWMAN
--------------------------- -----------------------------
John C. C. Fan, CEO/President Edward G. Newman, President
<PAGE> 1
EXHIBIT 10.16
Interim 90-Day Agreement Between Kopin Corporation and Xybernaut Corporation
Both parties agree that the intent of this interim agreement is to fashion the
basis for an effective working relationship between the two companies to cover
the next 90-Day period. Also, during this 90 Day period both companies should
focus on defining the terms and conditions under which the two companies will
deal with each other on a long term basis. During this time, the following
guidelines will govern the relationship.
1. During the 90-Day period following signature of this Agreement,
Kopin will extend to Xybernaut the right to purchase all of the
prototype monochrome monocular HMDs that Kopin manufactures for the
belt worn voice and/or thought activated computer or terminal systems
for the maintenance markets. Every two weeks, Kopin will provide
Xybernaut with a manufacturing forecast for the following two week
period. Xybernaut, at that time, will have the option of purchasing
for delivery within a 30-Day period, any or all such units. If, for
any reason, Xybernaut fails to purchase any, or all, of these HMDs,
Kopin retains the right to sell the excess units to any third party
other than the InterVision Corporation or Phoenix Corporation.
2. During this 90-Day period, Xybernaut agrees to purchase a
minimum of 130 units from Kopin. Kopin agrees to deliver a minimum of
30 units during the first 30-Day period of this agreement. Units
delivered to Xybernaut during this period but which (a) fail to pass
quality inspection (b) are returned to Kopin, and (c) are not returned
by Kopin prior to the end of this 90-Day period will count toward the
minimum purchase.
3. Unit pricing for this 90-Day, period will be $1,550. A new
agreement with quantity pricing and other terms will be negotiated in
good faith by both parties during the period of this interim
agreement.
4. Xybernaut will have 5-Days to inspect and reject any units delivered
to it by Kopin. Kopin retains the right to resell any rejected
units to any third party other than InterVision Corporation or
Phoenix Corporation. In all cases, the first business day of
acceptance is the business day (Monday) after the units have been
received by Xybernaut and all shipments of units should be arranged
by Kopin for delivery to Xybernaut on Fridays.
5. Pricing for the first 25 units will be COD. After that period,
Kopin will begin to extend credit to Xybernaut on a net 15-Day period
for a sum not to exceed $38,750 until Kopin believes that further
relaxation of its credit restrictions are warranted.
6. Kopin will have unique part numbers and serial numbers for each
HMD unit of the type to Xybernaut.
Agreed and accepted on May 13, 1996 by Agreed and accepted on May 10, 1996 by
Kopin Corporation Xybernaut Corporation
By: /s/ JOHN C.C. FAN By: /s/ EDWARD G. NEWMAN
-------------------------------- ------------------------------
John C.C. Fan, CEO/President Edward G. Newman, President
<PAGE> 1
EXHIBIT 10.17
SUBJECT TO CONTRACT
SOFTWARE LICENSING AGREEMENT
BETWEEN
MULTICOSM LTD
- and -
Computing Products & Services Inc
--------------
relating to articles known as
Microcosm and Mobile Assistant
Reference No:-
MCMUSL01
<PAGE> 2
CONTENTS
Recital
Clause Title
- ------ -----
<TABLE>
<S> <C>
1 Definitions
2 Grant
3 Commencement and Duration
4 Supply of Know-How
5 Technical Assistance
6 Restrictions on the Licensee
7 Confidentiality
8 Duties of the Licensee as Distributor
9 After Sales Service
10 Warranties
11 Quality Control
12 Consideration
13 Accounts
14 Payment
15 Patents
16 Marking
17 Assignment, Sub-licensing, Transfer and Variation
18 Prior Termination
19 Effect of Termination or Expiry
20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
20 Force Majeure
21 Notices
22 Arbitration
23 Waiver
24 Proper Law
25 Validity of Agreement
26 Alteration of the Agreement
27 Implied Terms
28 No Authority
29 Counterparts
</TABLE>
Schedule: Parts 1-12
<PAGE> 4
THIS AGREEMENT is made the 7th day of Dec. One thousand nine hundred
and ninety five BETWEEN
(1) Multicosm Ltd, Town Quay House,
7 Town Quay, Southampton SO14 2PT (hereinafter called "the
Licensor") and
(2) CPSI, a company organised and existing under the laws of
the State of Virginia in the United States of America with its
registered office at 12701 Fairlakes Circle, Suite 550, Fairfax, VA
22033 and its principal place of business at same as above (the
"Licensee")
WHEREAS
The Licensor is the sole licensee from the University of
Southampton of intellectual property relating to articles known as
Microcosm, a hypermedia programming system, and has been granted the
rights to sublicense this intellectual property.
The Licensee wishes to manufacture, use, lease and sell
articles made in accordance with the said intellectual property and
the Licensor is willing to grant the right to the Licensee to do so
upon the terms and conditions hereinafter contained.
NOW IT IS HEREBY AGREED as follows
1. DEFINITIONS
In this Agreement unless the context requires otherwise:
<PAGE> 5
1.1 "Article" means any article or device incorporating the
Intellectual Property or any part thereof
1.2 "Articles sold" means all and any Article(s) sold, leased put
into use by or otherwise disposed of by the Licensee or any
sub-licensee and all references to "sell", "sale", "sold" or
similar shall be construed accordingly where the context so
requires or admits.
1.3 "Group" means the Licensee and any holding or subsidiary
company of the Licensee and any other subsidiary company of
the holding company or the Licensee all within the meaning of
Section 736 of the Companies Act 1985.
1.4 "Manufacturing Territory" means USA & future Worldwide mfg.
locations.
1.5 "Exclusive Territory" means the territory or territories (as
constituted at the date hereof) specified in Part 1 of the
Schedule at the end of this Agreement.
1.6 "Non-Exclusive Territory" means the territory or territories
(as constituted at the dated hereof) specified in Part 2 of
the Schedule.
1.7 "Field of Use" means the technical fields specified in Part 3
of the Schedule.
1.8 "Effective Date" means the date specified in Part 4 of the
Schedule.
1.9 "Patents" means the patents and applications for patents
specified in Part 5 of the Schedule.
1.10 "Copyrights" means all copyrights in works relating to
Articles, including the Software specified in Part 6 of the
Schedule.
1.11 "Know-How" means technical know-how, technical data, designs,
experience, knowledge, specifications, drawings, plans,
process sheets, procedure books, operating and instruction
manuals and such other technical and production information
and documentation which relates to the manufacture of
Articles, including that specified in Part 7 of the Schedule.
1.12 "Net Invoiced Selling Price" means the total amount invoiced
to purchasers or lessees (as appropriate) of Articles (and
where Articles are incorporated into or sold together or with
any other device Articles shall in each case be invoiced
separately) less
(i) haulage, packing costs, returns, allowances and insurance
(ii) normal quantity and trade discounts and rebates actually
allowed
<PAGE> 6
(iii) sales and excise taxes (including Value Added Tax) and
duties payable by the seller.
1.13 "Royalty Payment Date" means the 31 March, 30 June, 30
September and 31 December in each year and the date of
termination of this Agreement (whether by affluxion of time or
otherwise).
1.14 "Up Front Fee" means the capital sum specified in Part 8 of the
Schedule.
1.15 "Royalty" means in respect of each Article which is sold by or
on behalf of the Licensee pursuant to this Agreement
(including any Article sold incorporated into any other
article) a royalty calculated upon the Invoiced Price of that
Article at the rate or rates specified on Part 9 of the
Schedule.
1.16 "Minimum Royalty Payment" means the sum specified in Part 10
of the Schedule.
1.17 "Term" means the period of time after the Effective Date
specified in Part 11 of the Schedule.
1.18 Headings and commas are inserted for convenience only and
shall be ignored in construing the terms of this Agreement.
1.19 In construing this Agreement words importing the singular
shall include the plural and vice versa if the context so
permits.
1.20 References to clauses are to clauses of this Agreement,
references to sub-clauses are to sub-clauses of the clause in
which the reference appears and references to the Schedule are
to the Schedule to this Agreement.
2. GRANT
Subject to the terms and conditions of this Agreement the Licensor
hereby grants to the Licensee under the Know-How (disclosed or to be
disclosed hereunder), Trade Marks, Patents and Copyrights during the
continuance of this Agreement with effect from the Effective Date or
(if later) the date of disclosure of the same by the Licensor to the
Licensee:
2.1 a non-exclusive licence to manufacture Articles in
the Manufacturing Territory.
2.2 a non-exclusive licence to sell in the Non-Exclusive
Territory Articles so manufactured by the Licensee.
<PAGE> 7
3. COMMENCEMENT AND DURATION
This Agreement shall come into force on the Effective Date and subject
to prior determination as provided in clause 24 shall continue in
force until the expiration of the Term PROVIDED THAT either party may
by giving to the other not less than twelve (12) months' written
notice expiring at or before the expiration of the Term request
negotiations as to an extension of this Agreement but any such
extension and the terms thereof shall be subject to agreement by both
parties.
4. SUPPLY OF KNOW-HOW
4.1 Subject to the provisions of sub-clauses 3 and 4 the Licensor
shall so soon after this Agreement become effective as the
Licensee may reasonably require supply to the Licensee such of
the Know-How as the Licensor may at that time have in its
possession relating to the manufacture of Articles as the
Licensor may in its opinion reasonably think necessary.
4.2 Subject to the provisions of sub-clauses 3 and 4, during the
continuance of this Agreement the Licensor shall also from
time to time supply to the Licensee, as the Licensor may
reasonably think necessary, additional Know-How which may come
into the possession of the Licensor which shall relate
specifically to improvements or modifications to Products.
4.3 The Licensor shall not be bound to disclose or provide to the
Licensee any Know-How or other data which is not in the
possession of the Licensor or which the Licensor is precluded
from disclosing or which would or might result in the
violation of the laws of any territory.
4.4 All Know-How referred to in sub-clauses 1 and 2 in documentary
form shall be supplied in one copy free of charge from which
two (2) only other back-up copies may be taken.
5. TECHNICAL ASSISTANCE
5.1 During the continuance of this Agreement and subject to the
Licensor's other commitments, to the personnel that the
Licensor has available and to sub-clause 3, the Licensor
shall, if the Licensee so requests make available to the
Licensee at times to be mutually agreed, the services of a
consultant to advise and instruct the Licensee in the
manufacture of Articles; the Licensee shall pay the Licensor
at the rate set out in Part 12 of the Schedule for each day of
the consultant's absence from the Company plus all travelling,
hotel, residential and other expenses, any such payments to be
made to the Licensor on the following Royalty Payment Date.
6. RESTRICTIONS ON THE LICENSEE
6.1 The Licensee shall not manufacture or assemble any Articles
elsewhere than in the Manufacturing Territory.
6.2 The Licensee shall restrict exploitation of hereunder licensed
Articles to the technical fields of application set out in
Part 3 of the Schedule.
<PAGE> 8
6.3 The Licensee shall not without the Licensor's prior written
consent supply or otherwise dispose of any Articles otherwise
than by way of sale.
6.4 The Licensee shall not without the Licensor's prior written
consent manufacture or sell or be concerned or interested in
any way in the manufacture or sale of any products similar to
or of the same kind, nature or purpose as or such as are
capable of competing with Articles within one year of the
effective date of this agreement.
6.5 The Licensee shall immediately refer to the Licensor all
enquiries received by the Licensee, or by its distributors and
sales agents (if the Licensee has knowledge of these) relating
to the sale or supply of Articles for use in any area outside
the licensed territories.
7. CONFIDENTIALITY
7.1 All Know-How and other information, documents, experience and
knowledge proprietary to the Licensor supplied by or on behalf
of the Licensor under or pursuant to or in contemplation of
this Agreement shall be treated as confidential and shall be
used solely to enable the Licensee to manufacture Products in
accordance with this Agreement and during the continuance
thereof; the documents whilst in the possession of the
Licensee shall be at the Licensee's risk and the Licensee
hereby undertakes with the Licensor for the safe custody
thereof.
7.2 The Licensee shall ensure that no Know-How or other
information, documents, experience or knowledge as aforesaid
are disclosed without prior written consent of the Licensor to
any person except to responsible officers, technicians or
employees of the Licensee and shall take all responsible steps
and precautions to ensure that any such persons to whom such
Know-How and other information, documents, experience or
knowledge is disclosed are themselves bound by a prior written
undertaking in terms similar to those contained herein to keep
and will keep such Know-How and other information documents,
experience and knowledge confidential PROVIDED THAT consent
as aforesaid shall not be required in respect of Know-How:
7.2. 1 which become a matter of public knowledge other than
through the fault of the Licensee or a person to whom
the same was disclosed by the Licensee or
7.2.2 which the Licensee can prove was known to the
Licensee at the time of its disclosure to the
Licensee or have been taken by the Licensee.
7.2.3 which is required to be disclosed in any legal
proceedings provided that all reasonable legal means
of preventing disclosure have been taken by the
Licensee
7.3 If the Licensee hires any sub-contractors for the purpose of
the manufacture of any Products the Licensee shall take all
necessary reasonable steps and precautions to ensure that any
such subcontractors to whom such Know-How or other
information, documents, experience or knowledge as aforesaid
is disclosed are themselves bound by a prior written
undertaking in terms similar to those contained herein to keep
and will keep such Know-How or other information, documents,
experience and knowledge completely confidential at all times
thereafter. The Licensee is bound
<PAGE> 9
by the provisions of this paragraph for a period of 1 year
after termination of the agreement.
8. DUTIES OF THE LICENSEE AS DISTRIBUTOR
The Licensee shall use its best endeavour to promote and extend
sales of Articles throughout the licensed territories and in
particular shall:
8.1.1 work diligently to obtain orders for Articles by
personal visits, circularising, advertising and all
other means available to it.
8.1.2 use the Licensor's name only in conjunction with its
appointment under this Agreement and in carrying out
its duties hereunder but then only in relation to
Articles and with a clear reference that Articles are
manufactured under licence from the Licensor.
8.1.3 employ staff trained in the operation, demonstration
and repair of Articles.
8.1.4 immediately bring to the Licensor's attention any
improper use in the territory which the Licensee may
suspect of the Know-How, Patents, Copyrights or any
other intellectual property rights of the Licensor.
9. AFTER SALES SERVICE
The Licensee shall supply an after-sales service to customers for
Articles of such a reasonable standard as to maintain the Licensor's
reputation in the licenced territories.
10. WARRANTIES
10.1 The Licensor hereby represents and warrants to the Licensee
that the Articles conform to the Licensor's published
specifications and that the Licensor has the full power and
right to enter into this agreement with the Licensee.
(a) Limits. The above warranty is in lieu of all other
warranties, whether express, implied or statutory, including
but not limited to any warranty of merchantibility of fitness
for a particular purpose or otherwise with respect to the
Articles.
(b) Damages. In no event shall the Licensor be liable for any
consequential, incidental, indirect, exemplary or special
damages, whether in contract or in tort, related to the
Articles with respect to this Agreement. The Licensee, by
acceptance of the Licensed Rights granted herein, assumes all
liability for, and shall indemnify and hold the Licensor
harmless from and against any and all consequences arising in
connection with the sale, distribution, use or misuse of the
Articles by the Licensee, his Sublicensees, Affiliates of the
Licensee, Customers or Third Parties.
10.2 Right. Each Party hereto warrants that it has the right to grant
any rights, licenses and assurances granted or to be granted.
10.3 Disclaimer. Data and Information and related information
heretofore or hereafter disclosed by the Licensor to the
Licensee shall be accurate to the Licensor's knowledge and
belief, but the Licensor makes no warranty of any kind
whatsoever, either express or implied, as to the accuracy of
such information relating to any patents or any or all of the
said methods, techniques, processes, information, knowledge,
know-how, trade practices and any secret data communicated to
the Licensee.
<PAGE> 10
10.4 Warranty for Product Media. The Licensor warrants to the
Licensee that the medium on which a Product is furnished by the
Licensor under this Agreement is free of defects in materials
and workmanship, under normal use, for a period of ninety (90)
days after the Delivery Date of such Product ("Media Warranty
Period"). If the medium is defective, the Licensor will replace
it at no charge if is returned before the end of the Media
Warranty Period. The foregoing is the Licensee's sole and
exclusive remedy for breach of warranty by the Licensor for the
Product medium.
11. QUALITY CONTROL
The Licensee shall maintain a standard of quality reasonably
acceptable to the Licensor.
12. CONSIDERATION
12.1 In consideration of the licences and rights hereby granted
under the Know-How, Patents, Copyrights and of the other
information supplied and to be supplied hereunder the Licensee
shall pay to the Licensor:
12.1.1 the Up Front Fee as specified in Part 8 of the
Schedule and
12.1.2 the Royalties as specified in Parts 9 and 10 of
the Schedule
12.2 If any Article is sold or supplied by or on behalf of the
Licensee to any person, firm, corporation (public or private),
partnership or association which is associated directly or
indirectly with the Licensee so as not to be an arm's length
transaction the Invoiced Price thereof shall be deemed to be
the highest invoiced price of the same or any similar product
previously charged by the Licensee in the same year to
customers not associated with the Licensee (or, if none, a
reasonable commercial price for an arm's length transaction).
13. ACCOUNTS
13.1 The Licensee shall keep full and true records and accounts of
all Articles manufactured or sold or supplied or otherwise
disposed of by or on behalf of the Licensee.
13.2 The Licensee shall within one month after each Royalty Payment
Date supply to the Licensor in duplicate true copies of the
accounts referred to in sub-clause l which relate to the
period of three months ending on that Royalty Payment Date and
commencing on the immediately preceding Royalty Payment Date
(or in the case of the first accounting period the Effective
Date) together with a statement showing the amounts due to the
Licensor for Royalty over that period calculated in accordance
with Clause 12; the statement and all copy accounts supplied
to the Licensor hereunder shall bear the reference number on
the front of this Licence Agreement.
13.3 The Licensor may at its own expense at any time and from time
to time designate a representative to examine or audit the
accounts kept by the Licensee pursuant to this clause and all
other documents books or records which may be necessary or
appropriate with a view to determining or verifying the monies
due to the Licensor under this Agreement and the Licensee
shall give that
<PAGE> 11
representative all such access and facilities not more than
twice in a given year in connection with the examination or
audit as the representative may reasonably require.
14. PAYMENT
14.1 The Licensee shall pay and remit or cause to be remitted the
Up Front Fee to the Licensor within seven days of the
execution of this Agreement subject to any conditions noted in
the Schedule.
14.2 The Licensee shall pay and remit or cause to be remitted to
the Licensor any amount due to the Licensor in respect of
Royalty for each period ending with a Royalty Payment Date in
accordance with and at the same time as it delivers (or ought
to have delivered) to the Licensor the statement and copy
accounts required to be delivered under the sub-clause 13.2.
14.3 If the amount paid and remitted or caused to be paid and
remitted by the Licensee to the Licensor in respect of Royalty
during any four consecutive periods commencing on the first
Royalty Payment Date shall be less than the Minimum Annual
Royalty Payment the Licensee shall make up the final amount
for that twelve month period to that amount.
14.4 All sums payable and remitted by the Licensee under this
Agreement shall be paid and remitted subject to tax deductions
required to be made under the law of the Licensee's Territory
PROVIDED THAT the Licensee shall use its best endeavours to
procure that any such deductions do not exceed the minimum
required by any such law and that the Licensee shall in each
case furnish the Licensor with an appropriate official
certificate of deduction of tax.
14.5 Where any payments provided for under this Agreement remain
unpaid and unremitted for one month from the date upon which
they became due the Licensee shall, if so requested by the
Licensor, immediately cease to manufacture and sell any
Articles.
14.6 Without prejudice to any other rights which it may have
hereunder, the Licensor shall be entitled to charge the
Licensee and the Licensee shall pay and remit to the Licensor
interest on any sums found due but not paid in full on their
due date at the rate of two per centum (2%) per month (or part
thereof) calculated from the due date until date of payment in
full.
15. PATENTS & COPYRIGHT
15.1 The Licensee shall promptly notify the Licensor if:-
- Any infringement of the Patent Rights come to the
attention of the Licensee.
- Any suit should be commenced or threatened by any third
party against the Licensee arising out of its
exploitation of the Patent Rights herein.
15.2 In either of the events mentioned in clause 15.1 the parties
shall promptly discuss the situation to determine if and how
far the infringer shall be proceeded against or the suit
defended and which party or parties shall defray the expense
in either case.
15.3 All fees, costs, charges and expenses connected with the
Patent Application(s) and the renewal fees
<PAGE> 12
necessary to keep the Patent(s) in force shall be borne and
paid by the Licensor.
16. MARKING
The Licensee shall attach, emboss, affix or otherwise display in a
permanent manner and in a prominent position to each Article
manufactured by it hereunder the inscription "Manufactured under
licence from Multicosm Ltd" together with the appropriate Patent
Numbers. Likewise copyright text and software shall be provided with
the Licensor's copyright claim where appropriate.
17. ASSIGNMENT, SUB-LICENSING, TRANSFER AND VARIATION
17.1 The licences herein granted are personal to the Licensee which
shall not be entitled to cede, assign or otherwise transfer
the benefit of the same or to grant to any other person
whatsoever or suffer or cause the same to be assigned or
otherwise transferred to any party unless that party has at
that time a majority ownership in the Licensee's company
(whether on any amalgamation with or merger into any other
company or body corporate or otherwise howsoever) any
sub-licences or similar rights thereunder or (without the
prior written consent of the Licensor) to sub-contract the
manufacture of Articles.
17.2 This restriction is however in no way intended to restrict the
right of the Licensee to sell Articles through their own
Licensees, VARs and their respective VARs.
18. PRIOR DETERMINATION
18.1 If either party commits or knowingly permits any breach of any
of the terms of this Agreement notice to this effect may be
given to that party by the other together with the request
that the breach insofar as it can be remedied shall be
remedied and that insofar as it is incapable of being remedied
adequate compensation shall be made within a period of three
months thereafter; if the breach is not remedied and/or
adequate compensation is not made within the said period of
three months then the party aggrieved may give to the other
written notice terminating this Agreement forthwith.
18.2 Notwithstanding anything hereinbefore contained either party
may by written notice to the other terminate this Agreement
forthwith in any of the following events namely:-
18.2.1 if the other party becomes insolvent or if any motion
is made for the compulsory liquidation or winding up
of the other party or if it be voluntarily wound up
other than a voluntary winding up for the purpose of
a bona-fide reconstruction to which the first party
shall have given its prior approval
18.2.2 if a receiver or manager or administrator is
appointed of the whole or substantially the whole of
the undertaking of the other party
18.2.3 if any distress, execution or other process is levied
upon any part of the property or assets of the other
party
18.2.4 if the other party fails to make and remit any
payment due to be made by it hereunder within sixty
days after the same has become due.
19. EFFECT OF TERMINATION OR EXPIRY
<PAGE> 13
19.1 Any termination (howsoever arising) of this Agreement shall be
without prejudice to any claim or right hereunder which may
have accrued or be available to either party before
termination of this Agreement and the continued operation of
relevant clauses.
19.2 The following provisions shall apply immediately on any
termination (howsoever arising) of this Agreement:
19.2.1 all licences granted or agreed to be granted hereunder
to the Licensee shall terminate
19.2.2 the Licensee shall forthwith cease to manufacture or
sell or in any way be concerned or interested in or facilitate
the manufacture or sale of Articles or of any products similar
thereto or of the same kind, nature or purpose or such as are
capable of competing therewith
19.2.3 The Licensee shall return to the Licensor forthwith
of all specifications, working and other drawings and other
information supplied to it hereunder and all documents
containing or disclosing that information in the possession or
control of itself or any agent or sub-contractor of it or of
any third party.
20. FORCE MAJEURE
Subject always to the provisions of clause 17, neither the Licensor
nor the Licensee shall be responsible or liable for any loss, damage,
costs, charges, expenses, detention or delay caused by Act of God,
force majeure, government or legislative action, fire, strikes, civil
or military authority, insurrection or riot, embargoes, lockouts,
tempest, accident, breakdown of manufacturing machinery or delay in
delivery of goods or materials by other persons or by any other cause
whatsoever which is unavoidable or beyond its reasonable control and
shall not in any event be liable for any indirect loss or damage
arising therefrom.
21. NOTICES
Any notice which under this Agreement is to be or may be given by the
Licensor to the Licensee shall be delivered at or sent by express
courier in a prepaid letter addressed to the Licensee's registered
office and any such notice which is to be or may be given by the
Licensee to the Licensor shall be delivered at or by express courier
in a prepaid letter addressed to the Licensor marked for the attention
of the Company Secretary or such other person as may be advised to the
Licensee from time to time, and citing the reference number on the
front of this Agreement, and any notice so sent shall be deemed to
have been given on the third day following the date of sending.
22. ARBITRATION
THE parties hereto hereby agree to submit to arbitration any question
or dispute arising out of or in relation to this Agreement in
accordance with the provisions of the Arbitration Rules of the World
Intellectual Property Organisation or any statutory modification or
re-enactment thereof for the time being in force.
23. WAIVER
Any waiver by either party of any breach of any provision of this
Agreement shall not constitute a waiver of any subsequent breach or
affect in any way the effectiveness of this Agreement.
<PAGE> 14
24. PROPER LAW
This Agreement shall be governed by the Law of the Territory licensed
herein and the Licensee hereby submits to the non-exclusive
jurisdiction of the relevant Courts.
25. VALIDITY OF AGREEMENT
The Invalidity or unenforceability for any reason of any part of this
Agreement or any partial annulment shall not prejudice or affect the
validity or enforceability of the remainder.
26. ALTERATION OF THE AGREEMENT
No variation, amendment, modification or waiver of the terms of this
Agreement shall be of any effect unless the same shall have been
recorded in writing in duplicate and signed on each copy by each of
the parties hereto.
27. IMPLIED TERMS
This agreement embodies the entire understanding of the parties and
there are no promises, terms, conditions or obligations, oral or
written, express or implied other than those written here.
28. NO AUTHORITY
Nothing in this Agreement shall constitute or be deemed to constitute
a partnership between the parties hereto or constitute the Licensee as
agents for the Licensor for any purpose and the Licensee shall have no
right or authority to and shall not do any act, enter into any
contract, make any representation, give any warranty, incur any
liability, assume any obligation whether express or implied of any
kind on behalf of the Licensor or bind the Licensor in any way.
29. COUNTERPARTS
This Agreement has been executed in two counterparts each of which
shall be deemed an original.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement in
manner binding upon them the day and year first before written.
POSITION HELD
-------------
SIGNED BY : [SIG] 7 Dec 95 Director, Multicosm Ltd.
- ----------
for and on behalf of THE LICENSOR
in the presence of:-
[SIG] 12/7/95
SIGNED BY
- ---------
[SIG] 12/7/95 President
<PAGE> 15
for and on behalf of THE LICENSEE
in the presence of:-
[SIG] 12/7/95
<PAGE> 16
SCHEDULE
Part 1: Exclusive Territory: None
Note: The Licensee desires that Exclusive territory be revisited at a future
date with a view to making this license exclusive to body-worn voice-activated
computers. Should the Licensor wish to give a License to a competing
manufacturer of such equipment before such an agreement is in place, then the
Licensor will review this with the Licensee to provide a reasonable opportunity
to negotiate such exclusivity.
Part 2: Non-Exclusive Territory:
All countries in the world.
Part 3: Field of Use:
Application development for, but not restricted to, equipment and facilities
maintenance and public safety using open hypertext technology.
Part 4: Effective Date:
tbd
Part 5: Patents:
Not applicable.
Part 6: Software:
A special version of Microcosm for Windows Version 3 extended with DXF viewers
and voice activation, and subsequent versions during the currency of this
agreement.
Part 7: Other Intellectual Property:
Copyrights pertaining to the Software and related documentation.
Part 8: Up Front Fee:
1. Purchase of 7 end-user licenses (assumed end-user selling price of $7,995
each) at $3,770 each making a total of $26,390.
2. A fee of $50,000.
Note: a precondition of the above parts of the up-front fee is the approval of
additional bridging finance currently being requested by the Licensee.
3. A further fee of $200,000 within 60 days of the IPO planned for March 1996.
Upon payment of this but not before, the total fee of $250,000 will be deemed
to be applicable to the further sale of end-user licenses at the
currently agreed value accruing to the Licensor.
Note: an end-user license with an assumed selling price of $7,995
entitles the end-user to 2 (two) authoring licenses and 5 (five) run-time
licenses for the software.
Part 9: Royalty:
<PAGE> 17
A royalty will be negotiated so as to provide the Licensee with the right to
provide run-time sublicenses on all manufactured articles. The royalty is
expected to be in the range of $50-60 per unit.
Part 10: Minimum Annual Royalty Payment:
Only to be established in the context of an exclusive license at a future date.
Part 11: Term:
3 (three) years.
Part 12: Consultancy Rate:
$750 per day.
<PAGE> 1
EXHIBIT 10.18
COMPUTER PRODUCTS & SERVICES, INC.
NONEXCLUSIVE
VALUE ADDED RESELLER AGREEMENT
THIS NONEXCLUSIVE VALUE ADDED RESELLER AGREEMENT ("Agreement") is made and
entered into as of the 4th day of April, 1996 by and between COMPUTER PRODUCTS
& SERVICES, INC., a Virginia corporation, having an office at 12701 Fair Lakes
Circle, Suite 550, Fairfax, Virginia 22033 ("CPSI"), and ELECTRONIC
SURVEILLANCE TECHNOLOGIES CORPORATION., a Delaware corporation, having an
office at 3155 Grand Concourse Blvd., New York, NY 10465-1244 ("Value Added
Reseller" or "VAR").
WHEREAS, CPSI and/or Affiliates of CPSI have rights or have licensed
rights to sublicense the "Licensed Technology" (as such term is
defined below);
WHEREAS, VAR has inspected the Licensed Technology and represents
that it is equipped and in a favorable position to market "Licensed
Products" in the "Field of Use" in the "Licensed Territory" (as such
terms are defined below); and
WHEREAS, VAR desires to obtain certain rights to market the Licensed
Products, and CPSI desires to grant VAR those certain rights to
market the Licensed Products, pursuant to the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other valuable consideration the receipt and
sufficiency of which are hereby acknowledged, CPSI and VAR hereby
agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings ascribed to them below in this SECTION 1.
1.1 "Affiliate" means, with respect to a party, any corporation or other
entity that directly or indirectly, through one or more intermediaries,
controls (i.e., possesses, directly or indirectly, the power to direct or cause
the direction of the overall management and policies of an entity, whether
through ownership of voting securities, by contract or otherwise), is
controlled by, or is under common control of such party.
1.2 "Default of VAR" has the meaning set forth in SECTIONS 10.2 and 10.7
below.
1.3 "Default of CPSI" has the meaning set forth in SECTION 10.3 below.
1.4 "Effective Date" means the date ascribed in the first paragraph hereof.
1.5 "Field of Use" means the field or fields of use described in EXHIBIT B
hereto. All exhibits attached to this Agreement are incorporated herein by
reference.
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1.6 "Mobile Assistant(R) Unit" means a Licensed Product assembly consisting of
a wearable computing device, a wearable battery pack, a hands-free display
device, a user activation input device, an activation output device, along with
the systems and application support software provided thereon by CPSI.
1.7 "Licensed Technologies" means the intellectual properties described in
EXHIBIT A hereto.
1.8 "Licensed Territory" or "Territory" means the geographic territory
described in EXHIBIT C hereto.
1.9 "Proprietary and Confidential Information" has the meaning set forth in
SECTION 9.1 below.
1.10 "Sublicense" has the meaning set forth in SECTION 2.2 below.
1.11 "Sublicensee" has the meaning set forth in SECTION 2.2 below.
1.12 "Third Party" means any party other than a party to this Agreement.
1.13 "Territory Fee" means a future fee payable by VAR to CPSI in the event
this non-exclusive agreement is converted by CPSI to an exclusive agreement
for the rights granted by this License within the Territory.
1.14 "Data Information" means CPSI's trade secrets, know-how methods,
techniques, processes, knowledge, trade practices, trade names, trademarks,
marketing materials, software library, and information generally relating to
developing, manufacturing and selling the Licensed Products, now existing or
hereinafter developed or acquired by CPSI.
1.15 "Patent Rights" means any patent or patent applications, issued or filed
or which may be filed, in any jurisdiction relating to Licensed Products or to
the manufacturing processing thereof, including any improvements thereon
(whether or not patented) made or acquired by, or licensed to, CPSI. A patent
shall cease to be a Patent Right in the event of any of the following:
(i) The patent expires;
(ii) The patent is no longer maintained; or
(iii) All pertinent claims in the patent have been held to be invalid
by an unappealed or unappealable decision of a court of
competent jurisdiction.
The patents presently held by CPSI which shall be made available to VAR
through this Agreement are listed on EXHIBIT A.
1.16 "Technical Data" shall mean the information contained in the documents
listed in EXHIBIT A attached hereto and any new technical data and materials
which may be furnished to VAR by CPSI during the term of this Agreement.
1.17 "Licensed Product", both in the singular and the plural, shall mean (i)
any device or apparatus which embodies or makes use of any inventions claimed
in the Patent Rights, (ii) any device or apparatus which is made by or with
the use of any method or process claimed in the Patent Rights or (iii) any
device or apparatus which is made by or with the use of any information
contained in the Technical Data, including but not limited to, the products
described in EXHIBIT A hereto.
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1.18 "Net Sales Price" shall mean invoiced price of CPSI Licensed Products to
VAR or to other purchaser or customer upon which Discounts in EXHIBIT D1
(Discount Schedule on Net Sales Price) are based. The following items are not
included in the Net Sales Price:
(i) Quantity (but not cash) discounts allowed, provided such
discounts are shown separately on the invoice;
(ii) Packaging, transportation and insurance charges on shipments to
customers, provided they are shown separately on the invoice;
(iii) Sales and use taxes, if any, but only if such taxes are shown
separately on the invoice and are not included in the purchase
price of Licensed Product; and
(iv) Amounts refunded or credited upon purchase price of Licensed
Product provided, however, that the Net Sales Price as
hereinabove defined shall not be reduced on account of bad debts,
collection costs or sales commissions. In the event that Licensed
Product is sold to an Affiliate or Licensee or to any director or
officer of VAR or a corporation in which such director or officer
has a controlling interest, then Net Sales Price shall be the
price which would have been charged if the Licensed Product in
question had been sold on normal terms and conditions to a
purchaser dealing at arm's length with VAR. In the event Licensed
Product is sold as a component, and an unlicensed combination,
which includes a charge for Licensed Product, the Net Sales Price
of Licensed Product shall be that portion of the entire
combination which is fairly attributable to Licensed Product
component thereof, calculated according to a previously specified
agreement in writing between VAR and CPSI.
1.19 "Non-Exclusive" means that within the Licensed Territory and Field of
Use:
(I) VAR maintains, together with other VARs, CPSI-authorized sales
and support facilities for Licensed Products within the Licensed
Territory.
(ii) CPSI will not provide training for such items, consultation nor
other support services at locations within the Licensed
Territory, unless orders for such services are placed by VAR.
(iii) VAR will not attempt to sell products or services based upon
Licensed Products and Technologies in any Territory and Field of
Use exclusively licensed by CPSI to another VAR or Distributor.
Any exclusive license given subsequent to a nonexclusive license
in the same territory is granted conditioned upon the rights of
the first licensee, i.e. the nonexclusive licensee. If a
nonexclusive VAR is granted a license that is ongoing, the
subsequent exclusive VAR takes an exclusive license against the
entire world except for a previous nonexclusive licensee.
(iv) CPSI will not knowingly provide technical support to any person
or organization, other than VAR, seeking to obtain, modify or
adopt licensed products for distribution within Territory.
SECTION 2. GRANT OF RIGHTS
2.1 GRANT OF LICENSE. CPSI hereby grants to VAR, and VAR hereby accepts, a
limited, non-exclusive right and license, with rights to sublicensing as set
forth in SECTION 2.2, to market Licensed Products within the Field of Use in
the Licensed Territory. VAR shall have no property rights with respect to the
Licensed Technology or the licensed Products except as specifically designated
herein. At the expiration of the Term of this Agreement, CPSI may consider, at
its option, converting the license to an exclusive license in the same or
different Territory and with the payment of Territory Fee, grant same.
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2.2 SUBLICENSES. CPSI hereby grants to VAR the right to grant one or more
sublicenses pursuant to this Agreement, to third parties, to market Licensed
Products in the Field of Use within the Licensed Territory (each such third
party shall be referred to as a "Sublicensee"); provided, however, that each
such Sublicense shall be no greater in scope than the license granted pursuant
to SECTION 2.1 above, and that each such Sublicensee shall agree to be bound
by the terms and conditions of this Agreement. Notwithstanding the foregoing,
all potential Sublicensees must be approved in advance and in writing by CPSI
prior to executing a sublicense agreement or otherwise acquiring any rights
with respect to the Licensed Products. The rights and obligations of any
Sublicensee under this Agreement shall not be deemed to supplant or diminish
the rights and obligations of VAR hereunder.
2.3 EXERCISE OF RIGHTS BY AFFILIATES. VAR's rights to market Licensed
Products in the Field of Use in the Licensed Territory pursuant to this
Agreement may be exercised by any Affiliate of VAR; provided, however, that
VAR shall provide to CPSI prior written notice that a particular Affiliate of
VAR will exercise such rights. CPSI shall approve or disapprove in writing
such exercise of rights by any VAR Affiliate, and each such Affiliate of VAR
shall agree in writing to be bound by the terms and conditions of this
Agreement. The rights and obligations of any Affiliate of VAR under this
Agreement shall not be deemed to supplant or diminish the rights and
obligations of the VAR hereunder.
2.4 GRANT BACK CLAUSE. VAR and CPSI agree to jointly and independently work
to produce improvements, inventions, discoveries, and developments which
enhance the features, functions, and capabilities of Licensed Products. Such
efforts will be considered as follows:
(a) If during the term of this Agreement, CPSI, any Affiliate of
CPSI, or any employee of CPSI shall make an improvement, refinement,
invention, discovery and/or development which CPSI makes generally available
to its other distributors of the Licensed Product, CPSI shall furnish to VAR
technical data and operating information relating to such an improvement,
refinement, invention, discovery or development, to the extent that the same
are required for the up-to-date sale of Licensed Products. VAR's rights with
respect to such invention, discovery or development shall be co-terminus with
the term of this Agreement.
(b) Change of Design. CPSI reserves the right to improve or otherwise
change the design of any product or part thereof at any time without notice to
VAR. However, CPSI will attempt to notify all VARs of any material changes in
the Product in advance. If any such change is made, CPSI may, but shall not be
obligated to, make the change upon any Products or parts shipped thereafter on
the orders of the VAR, nor shall CPSI be obligated to make a similar change on
any Products or parts previously shipped to the VAR, or to install or furnish
any other or different parts than were thereon when shipment was made.
(c) If during the term of this Agreement, VAR, any Sublicensee or
Affiliate of VAR, or any employee of VAR, or Consultant of VAR, shall make an
invention, discovery or development which VAR, any Sublicensee, or any
Affiliate of VAR uses to enhance, refine, improve, or revise Licensed
Products, VAR shall grant a royalty-free worldwide license to CPSI for the
unrestricted use and practice and shall furnish to CPSI technical data and
operating information relating to such improvement, refinement, invention,
discovery and/or development for use or sublicensing by CPSI in conjunction
with its use and licensing of the Licensed Technology and its sale of Licensed
Products. CPSI's rights with respect to such invention, discovery or
development shall survive any termination of this Agreement.
(d) Upon written request by VAR or Third Party, CPSI shall evaluate
and assess the relative quality, completeness, ease of use and productivity
enhancement of an application or tool based on Licensed Technologies and
Products, which has been developed by VAR or a Third Party. After
certification by CPSI that the application or tool is suitable for worldwide
deployment. CPSI and VAR or Third Party may, at their option, enter into a
separate agreement defining the terms and conditions under which CPSI will
undertake worldwide distribution of the Application, and the schedule of
royalty payments to VAR or Third Party by CPSI as a consequence of such
application distribution.
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(e) If, during the term of this agreement, CPSI, any affiliate of
CPSI, or any employee of CPSI, shall jointly with VAR, any Sublicensee or
Affiliate of VAR or any employee of VAR make an improvement, refinement,
invention, discovery or development which CPSI or any VAR, Sublicensee or
Affiliate of any VAR uses in conjunction with its marketing of Licensed
Products, CPSI shall retain title and ownership of such invention, discovery
and/or development, but CPSI shall furnish to VAR technical data and operating
information.
2.5 TRADEMARKS. VAR, at its expense, shall be responsible, following
consultation with CPSI, for the selection, registration and maintenance of the
brand names to be used by it with respect to the sale of Licensed Products and
VAR shall own and control such trademarks. Notwithstanding the foregoing, in
the event of termination of this Agreement pursuant to SECTION 10.2 due to a
Default of VAR, any and all rights in and to such trademarks (including, but
not limited to, goodwill related thereto) shall be at CPSI's option
automatically assigned to CPSI and VAR agrees that it shall promptly execute
an assignment of all trademarks and any other documentation as may be required
to evidence and effectuate such assignment.
2.6 RIGHT TO USE NAME. Subject to the provisions of Subsection (c), the VAR
may use the notation "Authorized VAR of CPSI's "Mobile Assistant(R) Unit" in
connection with its distribution of Licensed Products in any sign or
advertising during the continuance of this Agreement. VAR may not make any
untrue statements of their relationship with CPSI, such as "Exclusive Agent of
CPSI" or "Branch Office of CPSI," or the like. In case of termination of this
Agreement, or upon request of CPSI, VAR shall discontinue use of CPSI
trademarked names and thereafter shall not use the name directly or indirectly
in connection with its business, nor use any other name, title, or expression
so nearly resembling it as would be likely to lead to confusion or uncertainty
or to deceive the public.
2.7 ASSIGNABILITY. This Agreement may not be assigned or transferred by VAR
in whole or in part, either voluntarily or by operation of law, without the
prior written consent of CPSI. Any attempted assignment or transfer by VAR
without the written consent of CPSI thereto shall, at CPSI's option, become
null and void, and shall, at CPSI's option, forthwith terminate and cancel
this Agreement and all rights of VAR hereunder. CPSI shall have the right to
assign its rights under this License in connection with a sale or
restructuring of its business.
2.8 NO AGENCY RELATIONSHIP It is understood and agreed that VAR is not, by
this Agreement or anything contained herein, constituted or appointed the
agent or representative of CPSI for any purpose whatsoever, nor shall anything
contained herein be deemed or construed as granting to VAR any right or
authority to assume or to create any obligation or responsibility, express or
implied, for or in behalf of or in the name of CPSI in any way or manner
whatsoever. VAR agrees not to use CPSI's name in any advertising or publicity
regarding this Agreement without CPSI's prior written consent.
2.9 PREVENTING VIOLATION OF PRODUCT LICENSE. CPSI will require of VAR (as it
has required and will require of all other licensees) full cooperation with
CPSI to prevent any violation of any exclusive Product license granted by CPSI
to others.
SECTION 3. VAR OBLIGATIONS.
3.1 TRAINING AND ADVERTISING PACKAGE. Upon execution of this Agreement, or
within a 180 day period following it execution, VAR will be required to
purchase from CPSI a VAR Preparation Package for $5,000 which includes five
(5) days of initial training for up to two (2) people, up to forty (40) man
hours of technical assistance as provided for in SECTION 5.1(b), a collection
of collateral advertising literature, CPSI videos, and special demonstrations.
At its own expense, VAR agrees to attend the required initial training, as
well as periodic Products training conducted by CPSI at least annually.
3.2 MARKETING PLAN. VAR shall furnish CPSI from time to time, general
information concerning the Licensed Territory including economic, commercial,
and industrial data affecting the business or prospects for business of
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CPSI. At least once per year on the annual anniversary of the Effective Date,
VAR shall provide to CPSI a current revision of an acceptable plan describing
VAR's development, promotion, sales, and support of Licensed Products.
3.3 FINANCIAL INFORMATION. Upon request of CPSI, VAR will complete a standard
credit application and other such financial information as CPSI may reasonably
require to establish credit.
3.4 BEST EFFORTS. VAR shall use its best efforts to promote, market and sell
the Licensed Products within the Licensed Territory for its own account and
risk, including credit risks, and vigorously pursue the promotion, marketing,
and sale of the Licensed Products.
3.5 SALES AND SUPPORT. VAR agrees to comply with CPSI guidelines, if any, for
expedient servicing and support of users of Licensed Products. VAR will use
its best efforts to promote demand for and sale of the Licensed Products and
will maintain adequate facilities and properly trained sales personnel for
these purposes. VAR may use advertising materials supplied by or purchased
from CPSI and shall display items which are representative of Licensed
Products; however, VAR may use other advertising materials from their own
sources.
3.6 BUSINESS CONDUCT. VAR shall conduct its business in a manner that will
reflect favorably on CPSI, the Licensed Products, and CPSI's good name. VAR
shall refrain from engaging in any deceptive, misleading or unethical
practice. VAR shall refrain from making any representation or warranty to a
potential buyer with respect to, or in connection with, the Licensed Products
which contains any untrue or misleading statement of material fact or omits
any material fact necessary to make the statements not misleading.
SECTION 4. COVENANTS OF VAR.
VAR represents and covenants with CPSI as follows:
4.1 TERRITORIAL USES. VAR shall sell Licensed Products solely within the
Territory Licensed and, to the extent such matter may be within the control of
VAR, shall sell Products only to purchasers who use them for purposes within
the Licensed Fields of Use described within the Territory. CPSI acknowledges
that the actions of third party purchasers are not entirely within the control
of VAR, and VAR shall not be required to police the sales of its third party
purchasers.
4.2 NO RELIANCE ON CPSI. VAR has independently investigated the market demand
for Products within the Territory and is not relying upon any market
studies or other information furnished to it by CPSI for purpose of
determining the expected volume of business to be generated from the sale of
Licensed Products.
4.3 GOOD FAITH. VAR will deal in good faith with CPSI (just as CPSI will deal
with VAR) on all matters related to this License and will not, acting alone or
in concert with other parties, seek to circumvent the intent of this License.
4.4 QUALITY STANDARDS. VAR will comply with all reasonable quality standards
with respect to Products imposed by CPSI on both itself and on VAR, in
recognition of the substantial investment made by CPSI in establishing a
reputation for Licensed Product and the potential damage to that reputation if
VAR fails to observe the quality standards imposed by CPSI with respect to
those Licensed Products sold under any trademark or trade name licensed
pursuant to this License.
4.5 INSPECTIONS. VAR agrees to provide CPSI with access to Products which
contain CPSI content each year for inspection thereof regarding ease of use,
consistency of user interface quality and robustness. Notwithstanding the
above, VAR-developed applications based, in part, on Licensed Product shall be
made available to CPSI on at least an annual basis for inspection and
evaluation. All information obtained, both written and oral, between employees
of CPSI and VAR is considered confidential between the parties as identified
in the non-disclosure and confidentiality agreement and/or sections of this
agreement.
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4.6 MARKING. VAR agrees to mark the Products sold with all applicable patent
numbers and CPSI Product Branding. All Products shipped to or sold in other
countries, with CPSI's prior written approval, shall be marked in such a
matter as to conform with the patent laws and practice of the country of
manufacture or sale.
(a) VAR shall not effect or permit the removal or alteration of any
patent numbers, trade names or trademarks, proprietary notices, nameplates or
serial numbers affixed to the Licensed Products, without CPSI's prior written
consent.
(b) VAR shall not effect or permit the affixation of any additional trade
names or trademarks, proprietary notices or nameplates to the Licensed
Products without CPSI's prior written consent.
4.7 FACILITIES, ABILITY, AND DESIRE TO BE LICENSEE. VAR represents that it
possesses and will maintain the technical facilities, properly trained staff,
and ability to promote the sale and use of Licensed Products and is desirous
of developing demand for and selling such Licensed Products in the Territory
hereinafter described.
4.8 DUTY OF INSPECTION AND TESTING. The VAR shall inspect, test, make all
modifications or adjustments and, if necessary, conduct trials prior to
delivery of the Licensed Product to the customer. VAR is not relieved of this
responsibility if the Licensed Product is delivered at a location other than
the principal place of business of VAR.
4.9 MINIMUM INITIAL ORDER. Within 180 days of the execution of this agreement
or the resale of 10 or more units, whichever occurs first, VAR shall present a
binding purchase order for a minimum of one Mobile Assistant(R) unit
accompanied by a nonrefundable down payment of 25% of the gross purchase order
amount. Such units are to be used for customer testing and demonstrations.
Delivery of these units to VAR is to be as soon as practicable.
4.10 CERTIFICATIONS. VAR agrees to obtain all relevant and necessary
approvals, certifications or licenses for end-user sales of Licensed Products
within its Territory. Costs of any required product modifications as well as
certification and inspection fees, will be borne solely by VAR. CPSI shall,
upon request by VAR, provide consultation and technical support to VAR in
matters related to local adaptation and certification of Licensed Products.
Such work shall be accomplished by CPSI in accordance with SECTION 5.1.
SECTION 5. CPSI OBLIGATIONS
5.1 TECHNICAL TRAINING AND ASSISTANCE.
(a) CPSI shall provide a maximum of five (5) days of required technical
training at CPSI's offices in Virginia for at most two (2) VAR personnel as to
the use of the Licensed Products. Such training sessions shall be scheduled at
a time mutually convenient to the parties. All costs for VAR personnel
attending this initial training session (including, but not limited to,
travel, lodging and other expenses) shall be the responsibility of VAR.
(b) CPSI agrees to furnish to VAR, at no additional cost under this
Agreement as stipulated in SECTION 3.1. up to forty (40) man-hours of
technical assistance during the first twenty-four (24) months of this
Agreement at CPSI's Fairfax, Virginia facility or at another mutually
acceptable site. VAR will reimburse CPSI for any out of pocket expenses
related to such activities.
(c) CPSI shall provide all technical training and technical assistance
requested by VAR, during 1st six months and thereafter, regarding use of the
Licensed Products at such times and locations as mutually agreed to in writing
by the parties. All such additional technical training shall be provided by
CPSI to VAR at CPSI's then-current rates for such services. VAR shall
reimburse CPSI for transportation, meals and lodging expenses incurred by CPSI
representative(s) in connection with any such additional training, only with
VAR's pre-approved written authorizations based on confirming quotation from
CPSI for requested services.
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5.2 TECHNICAL DATA. CPSI agrees to furnish to VAR, within thirty (30) days
after the receipt of minimum initial order for this Agreement, two (2) copies
each of the Technical Data hereof. All Technical Data furnished hereunder
shall be in the form normally used by CPSI for its own purposes, except
software will be provided in executable object code form only.
5.3 TRAVEL REGULATIONS. All personnel and representatives of each party while
visiting the other party shall abide by all rules and regulations of the
respective country and, where required, the espionage and security laws,
regulations and others of the visited country. Each party hereby indemnifies
and holds the other party harmless from and responsible for injuries to, or
death of, or travel, living and other expenses of its representatives and
personnel, including loss, theft, damage and destruction of property.
5.4 PATENT RIGHTS IN TERRITORY. CPSI, at its discretion, shall prepare, file
and prosecute, in the name of CPSI, and at CPSI's expense, patents and
applications for letters patent with respect to the Licensed Products in the
Territory (including, without limitation, with respect to modifications,
improvements, enhancements, variations and alterations on the Licensed
Products covered by the Patent Rights). CPSI shall also be responsible for the
expense incurred in connection with the filing, prosecution and maintenance of
patents and applications covering the Licensed Products with respect to which
VAR has entered into a license under this Agreement and any continuation-
in-part, divisionals, reissues or substitute applications thereof. CPSI
acknowledges that if CPSI does not seek patent protection within the
Territory, the Data and Information and the Patent Rights may be deemed to be
in the public domain but any such loss of rights shall not terminate VAR's
obligations hereunder.
(a) COOPERATION. VAR agrees to cooperate with CPSI to ensure that all
patent applications filed will reflect, to the best of VAR's knowledge, all
items of commercial interest and importance.
(b) NOTICE AND ADVICE. CPSI shall keep VAR advised as to all
developments with respect to all patent applications filed in the Territory,
and shall supply to VAR copies of all papers received and filed in connection
with the prosecution thereof. VAR shall have the right, either directly or
indirectly through its patent attorneys and/or agents, to advise and cooperate
with CPSI in the prosecution of such applications.
(c) OWNERSHIP OF TERRITORIAL PATENTS. All patents with respect to the
Licensed Products shall be the sole and exclusive property of CPSI, subject to
the non-exclusive license hereby granted to VAR. VAR shall, upon demand,
execute and deliver to CPSI such documents as may be deemed necessary or
advisable by counsel for CPSI, for filing in the appropriate patent offices
and elsewhere to evidence the granting and to assure the perfection and
maintenance of the license hereby granted.
5.5 ACCEPTANCE AND FILLING OF ORDERS. All orders CPSI receives for Licensed
Products from the VAR are subject to acceptance by CPSI. CPSI will use its
best efforts to fill the accepted orders as promptly as practicable, subject,
however, to delays or failure to fill the accepted order caused by
transportation conditions, labor or material shortages, strikes, riots, fires,
or any other cause beyond CPSI's control. In all cases, CPSI will use its best
efforts to advise VAR in advance of any foreseeable inability to make full and
timely delivery of any Products which VAR has ordered.
5.6 UNLICENSED ACTIVITY AND INFRINGEMENT. CPSI and VAR shall promptly inform
each other in writing of any potential infringement by a third party of which
they are aware of any patents included with the Patent Rights, and provide
each other with any available evidence of infringement. During the term of
this License, CPSI shall at its discretion prosecute, at its own expense, any
such infringement of the Patent Rights.
5.7 NEW PRODUCT INTRODUCTIONS. As CPSI introduces new products, VAR will
receive from CPSI at least 30 days advance notice regarding anticipated future
product announcements. All such future product availability information will
be considered CPSI confidential and proprietary, and will be protected by VAR
as described in SECTION 9. The VAR license will automatically be modified to
include the new product. Within 90 days of receipt of
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each future CPSI product notice, VAR will notify CPSI that either (i) it
wishes to amend its license to include the anticipated future product(s) or
(ii) it does not intend to sell products and services based on the future CPSI
product within Territory. CPSI may, at its sole discretion, accept or reject
any such proposed amendments.
SECTION 6. PAYMENTS AND DELIVERY
6.1 PURCHASE OF LICENSED PRODUCTS AND DISCOUNTS. The Licensed Products shall
be purchased by VAR from CPSI at purchase prices equal to CPSI's list prices
for the Licensed Products, less the currently applicable discounts specified
in EXHIBIT D1. CPSI shall have the right to revise the list prices and
discount schedule semi-annually upon thirty (30) days prior written notice.
CPSI has a suggested retail price (EXHIBIT D2); however, the parties
acknowledge and agree that VAR shall be free to establish the price(s) it
charges to its customers for the Licensed Product. Notwithstanding the above,
CPSI reserves the right to offer VARs limited duration, promotional, or
special situation discounts from VAR prices, in order to stimulate sales of
particular products, or applications within specific territories.
6.2 PAYMENT TERMS. VAR agrees that it will submit purchase orders for the
purchase of Licensed Products in writing by letter. However, CPSI will accept
orders from VAR by telephone, telex, telefax or other commercially reasonable
means of communication provided that such orders are confirmed in writing by
VAR as soon thereafter as practicable but no later than three (3) business
days. All orders shall be governed exclusively by the terms and conditions of
this Agreement.
(a) Absent other arrangements, standard terms of payment are net
thirty (30) days from date of invoice, such invoice date to be reasonably
proximate with receipt of Product by VAR. All payments hereunder by VAR to
CPSI shall be made in United States currency at the address specified in
SECTION 11.4 below. When deemed applicable by CPSI, Letters of Credit, advance
payments and/or progress payments will be submitted to CPSI by VAR prior to
delivery of Licensed Product by CPSI to VAR. All Letters of Credit will be
from Banks or Institutions acceptable to CPSI. All sales, use, duty, excise or
similar tax applicable to sales pursuant to this Agreement shall be paid by
VAR unless VAR provides CPSI with a tax exemption certificate acceptable to
CPSI and the applicable taxing authorities prior to shipment.
(b) VAR shall not offset any amounts against, nor delay payment of,
the purchase price or any other amounts due to CPSI without CPSI's prior
written consent.
(c) CPSI may, at any time when in its own opinion the financial
condition of VAR so warrants, or if VAR fails to make payments when due, or
otherwise defaults hereunder, either alter terms of payment (including
requiring full or partial payment in advance of delivery), suspend credit and
delay shipment, or pursue any remedies available at law or pursuant to the
terms of this Agreement. In such event, CPSI shall be entitled to
reimbursement from VAR for its reasonable expenses, including attorneys' fees.
CPSI may charge the lesser of one and one half percent (1 1/2%) per month but
not to exceed the maximum interest rate deemed non-usurious under the laws of
the Commonwealth of Virginia.
6.3 FOREIGN PAYMENTS. If VAR is not a U.S. company, VAR agrees to obtain any
required approval of relevant authorities, if necessary, and to take whatever
steps may be required to remit to CPSI in U.S. dollars the payments required
hereunder. In the event VAR is unable to remit payments due to CPSI within the
periods provided for in this Agreement because of unavoidable delays incurred
in obtaining foreign approval for payment thereof, such belated remittance
shall not constitute a breach of this Agreement provided that VAR has kept
CPSI notified of the status of same and has acted with reasonable diligence in
obtaining such approval, and otherwise has made remittance to CPSI promptly
upon receiving said approval.
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6.4 DELIVERY.
(a) Any delivery dates quoted by CPSI to VAR are predictions only of
the time within which CPSI anticipates making its deliveries and are not
guarantees of delivery by such dates. CPSI shall use reasonable efforts to
comply with such schedules BUT SHALL NOT BE LIABLE IN DAMAGES OR OTHERWISE,
nor shall VAR be relieved of its performance hereunder, because of CPSI's
failure to meet such delivery dates.
(b) All prices are F.O.B. CPSI's facility in Fairfax, Virginia or
such other location(s) as designated by CPSI. VAR is responsible for payment
of all freight charges and for holding insurance at full value for the shipped
Products. Title to the Licensed Products shall pass, and VAR shall assume all
risk of loss or damage to the Licensed Products, upon delivery of the Licensed
Products to the carrier. Notwithstanding the foregoing, VAR hereby grants to
CPSI a security interest in all of the Licensed Products after passage of
title thereto, as well as a security interest in all proceeds and accounts
receivable, as security for all payments to be made by VAR and for the
performance in full by VAR of its other obligations under this Agreement,
together with the right, without liability and with or without notice to VAR,
to repossess such Licensed Products in the event of default with respect to
any such obligations. This Agreement constitutes a security agreement with
respect to such security interest, and VAR hereby authorizes CPSI to sign and
file on VAR's behalf any financing statements or other documents that may be
necessary or appropriate to perfect CPSI's security interest, and VAR agrees
to sign all such documents and take all such actions as CPSI may reasonably
request with respect to perfection and/or enforcement of such security
interest.
(c) In the absence of specific instructions, CPSI will ship by what
it deems to be the most appropriate method. CPSI will try to accommodate VAR's
requests as to means of distribution; however, CPSI shall have the right to
select means of distribution other than as requested by VAR if CPSI reasonably
believes that such requested means of distribution are unsatisfactory for
proper shipment of the Licensed Products.
(d) Whenever CPSI shall deliver or cause to be delivered to a common
carrier any Products ordered by VAR, whether the particular carrier shall have
been designated in the shipping or routing instructions of the VAR or not,
CPSI shall not be responsible for any delays or damages in shipment and the
common carrier to which CPSI shall deliver Products for shipment to the VAR
is hereby declared to be the agent of the VAR.
(e) All claims for shortages must be made in writing within fourteen
(14) days after receipt by VAR of the shipment in which a shortage is claimed.
No claims shall be allowed if the shipment is not received by VAR, or after
expiration of said fourteen (14) days period.
6.5 RETURNS. CPSI shall not be obligated to accept from the VAR any Products
or parts returned, nor to make any exchange thereof, nor credit the License
thereof unless Product is defective under Warranty. Products may be returned
only with prior written authorization and a Return Merchandise Authorization
(RMA) number from CPSI. If unsold Products are returned in original condition,
VAR will receive credit on account; however, a fifteen percent (15%)
restocking charge will be assessed.
Except in the case of damage or defect attributable to CPSI, the VAR
shall not make any claim against the Company for any damaged or defective
product or part. VAR shall not have the right, without CPSI's prior written
consent, at any time after placing an order to purchase Products to cancel
such order (in whole or in part) or to make changes in items, quantities,
delivery schedules or methods of packaging or shipment. If CPSI consents to
cancellation or changes requested by VAR and such cancellation or changes
result in an increase or decrease in CPSI's prices or cost or time
requirements, CPSI shall make an equitable adjustment to the terms hereof.
6.6 MINIMUM PURCHASE FEE. Involving orders of Licensed Products which are
uniquely configured for VAR, or orders which amount to more than fifty (50)
Mobile Assistant(R) units, if VAR cancels such order prior to shipment,
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but after CPSI has begun production on a given amount of the Products, VAR
must accept shipment of said given amount. Specific terms will be determined
on a case by case basis.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 CPSI WARRANTY. CPSI HEREBY REPRESENTS AND WARRANTS TO VAR THAT LICENSED
PRODUCTS CONFORM TO CPSI'S PUBLISHED SPECIFICATIONS AND THAT CPSI HAS THE FULL
POWER AND RIGHT TO ENTER INTO THIS AGREEMENT WITH VAR.
(a) LIMITS. THE ABOVE WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO ANY
WARRANTY OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE
WITH RESPECT TO THE LICENSED TECHNOLOGY AND/OR THE LICENSED PRODUCTS.
(b) DAMAGES. IN NO EVENT SHALL CPSI BE LIABLE FOR ANY CONSEQUENTIAL,
INCIDENTAL, INDIRECT, EXEMPLARY OR SPECIAL DAMAGES, WHETHER IN CONTRACT OR IN
TORT, RELATED TO THE LICENSED TECHNOLOGY, THE LICENSED PRODUCTS OR OTHERWISE
WITH RESPECT TO THIS AGREEMENT. VAR, BY ACCEPTANCE OF THE LICENSE RIGHTS
GRANTED HEREIN, ASSUMES ALL LIABILITY FOR, AND SHALL INDEMNIFY AND HOLD CPSI
HARMLESS FROM AND AGAINST ANY AND ALL CONSEQUENCES ARISING IN CONNECTION WITH
THE SALE, DISTRIBUTION, USE OR MISUSE OF THE LICENSED TECHNOLOGY OR THE
LICENSED PRODUCTS BY VAR, SUBLICENSEES, AFFILIATES OF VAR, CUSTOMERS OR THIRD
PARTIES.
7.2 VAR WARRANTY. VAR WARRANTS THAT DURING THE TERM OF THE AGREEMENT AND ONE
YEAR THEREAFTER, THAT IT WILL NOT MARKET, PROMOTE, OR ADVERTISE ANY PRODUCT
COMPETITIVE WITH LICENSED PRODUCT (DEFINED AS BELT-WORN, HANDS-FREE) UNLESS
AGREED TO IN WRITING BY BOTH PARTIES.
7.3 RIGHT. EACH PARTY HERETO WARRANTS THAT IT HAS THE RIGHT TO GRANT ANY
RIGHTS, LICENSES AND ASSURANCES GRANTED OR TO BE GRANTED.
7.4 DISCLAIMER. DATA INFORMATION AND RELATED INFORMATION HERETOFORE OR
HEREAFTER DISCLOSED BY CPSI TO VAR SHALL BE ACCURATE TO CPSI'S KNOWLEDGE AND
BELIEF, BUT CPSI MAKES NO WARRANTY OF ANY KIND WHATSOEVER, EITHER EXPRESS OR
IMPLIED, AS TO THE ACCURACY OF SUCH INFORMATION RELATING TO ANY PATENTS OR ANY
OR ALL OF THE SAID METHODS, TECHNIQUES, PROCESSES, INFORMATION, KNOWLEDGE,
KNOW-HOW, TRADE PRACTICES AND ANY SECRET DATA COMMUNICATED TO VAR.
7.5 WARRANTY POLICY. ALL LICENSED PRODUCTS HAVE A 90 DAY PARTS AND LABOR
WARRANTY AND A ONE YEAR PARTS ONLY WARRANTY DUE TO MANUFACTURER'S DEFECT. AN
EXTENDED WARRANTY IS AVAILABLE. IF THE LICENSED PRODUCT SHALL BECOME DEFECTIVE
WITHIN THE SPECIFIED WARRANTY PERIOD, CPSI SHALL EVALUATE THE NATURE OF THE
DEFECT, AND EITHER ELECT TO REPAIR OR REPLACE THE DEFECTIVE PRODUCT FREE OF
CHARGE. THIS WARRANTY SHALL NOT INCLUDE DAMAGE TO THE LICENSED PRODUCT
RESULTING FROM MISUSE OR ABUSE OF VAR, SUBLICENSEES, AFFILIATES OF VAR,
CUSTOMERS OR THIRD PARTIES. CPSI SHALL RESERVE THE RIGHT TO MAKE FINAL
JUDGMENT REGARDING THE NATURE OF THE ALLEGED DEFECT. UNLESS VAR IS A CERTIFIED
WARRANTY REPAIR SITE, THEN DEFECTIVE PRODUCTS ARE TO BE RETURNED TO CPSI OR
CPSI'S DESIGNATED REPAIR SITE POSTAGE PAID. CPSI MAY, AT ITS SOLE DISCRETION,
INCUR THE COST OF SHIPPING WARRANTED LICENSED PRODUCTS WITHIN THE UNITED
STATES. VAR WILL RECEIVE NO LESS THAN THE BEST PUBLISHED WARRANTY POLICY IN
EFFECT AT TIME OF PURCHASE.
7.6 VAR AGREEMENT. VAR HAS READ AND UNDERSTANDS SAID WARRANTY AND BY
EXECUTING THIS AGREEMENT CONSENTS TO ALL OF ITS TERMS AND PROVISIONS INCLUDING
ALL WAIVERS AND DISCLAIMERS CONTAINED THEREIN.
SECTION 8. INDEMNIFICATION PROVISIONS
8.1 AGREEMENT OF VAR TO INDEMNIFY. Subject to the conditions and provisions
of this SECTION 8, VAR hereby agrees to indemnify, defend and hold harmless
CPSI, Affiliates of CPSI, and their officers, directors, employees,
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<PAGE> 12
agents and representatives (the "CPSI Indemnified Persons") from and against
and in respect to all demands, claims, actions or causes of action,
assessments, losses, damages (including, without limitation, diminution in
value), liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and other charges (collectively,
"Claims") asserted against, resulting to, imposed upon or incurred by the
CPSI Indemnified Persons, directly or indirectly, by reason of or resulting
from: (i) any use by VAR, Sublicensees or Affiliates of VAR of the Licensed
Technology or other information furnished by CPSI pursuant to this Agreement;
or (ii') any use, sale, or other disposition of Licensed Products by VAR,
Sublicensees, and/or Affiliates of VAR.
VAR shall maintain primary and noncontributing liability insurance to
cover damages and losses caused by or related to applications, specific
software, enhancements and modifications (whether to hardware or software) in
the equivalent of not less than ____________________________________________
(US$ ______________________________________) combined single limit (bodily
injury and property damage) including CPSI as an additional insured, with
provision for at least thirty (30) days prior written notice to CPSI in the
event of cancellation or material reduction in coverage. CPSI shall have the
right to demand and receive satisfactory evidence of such insurance coverage
and shall have the right to maintain such insurance coverage on VAR's behalf
and at VAR's expense in the event of nonpayment of premiums or lapse of
coverage.
8.2 AGREEMENT OF CPSI TO INDEMNIFY. Subject to the conditions and provisions
of this SECTION 8, CPSI hereby agrees to indemnify, defend and hold harmless
VAR, Sublicensees and Affiliates of VAR, and their officers, directors,
employees, agents and representatives (the "VAR Indemnified Persons") from and
against and in respect of all Claims asserted against, resulting to, imposed
upon or incurred by the VAR Indemnified Persons, directly or indirectly, by
reason of or resulting from the infringement or alleged infringement of any
Third Party patents or other proprietary rights with respect to the Licensed
Technology; provided, however, that CPSI's aggregate financial obligation
under the foregoing indemnity shall be limited to and not exceed the total
amount actually paid by VAR to CPSI or One Million U.S. Dollars ($1,000,000),
whichever is less.
8.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of CPSI
and VAR hereunder with respect to their respective indemnities pursuant to
this SECTION 8 shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written notice to the
indemnifying party of any Claim which is asserted against, resulting to,
imposed upon or incurred by such indemnified party and which may give rise to
liability of the indemnifying party pursuant to this SECTION 8, stating (to
the extent known or reasonably anticipated) the nature and basis of such Claim
and the amount thereof.
(b) The indemnified party may engage counsel or representatives of
its own choosing with respect to any such Claim, such representation
(including the compromise or settlement of any Claim) to be undertaken on
behalf of and for the account and risk of the indemnifying party. In the event
the indemnified party elects not to undertake such defense by its own
representatives, the indemnified party shall give prompt written notice of
such election to the indemnifying party, and the indemnifying party will
undertake the defense thereof by counsel or other representatives designated
by it whom the indemnified party determines in writing to be satisfactory for
such purposes. The consent of the indemnified party to the indemnifying
party's choice of counsel or other representative shall not be unreasonably
withheld.
(c) In the event that any Claim shall arise out of a transaction or
cover any period or periods wherein CPSI and VAR shall each be liable
hereunder for part of the liability or obligation arising therefrom, then the
parties shall each choose its own counsel, and shall pay its own expenses,
defend such Claim, and no settlement or compromise of such Claim may be made
without the joint consent or approval of CPSI and VAR (which consent shall not
be unreasonably withheld), except when the respective liabilities and
obligations of CPSI and VAR are clearly allocable or attributable on the basis
of objective facts.
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<PAGE> 13
8.4 SPECIFIC PERFORMANCE. VAR hereby acknowledges that the Licensed
Technology is unique, and that the harm to CPSI resulting from breaches by VAR
of its obligations hereunder cannot be adequately compensated by monetary
damages alone. Accordingly, VAR agrees that, in addition to any other remedies
which CPSI may have at law or in equity, CPSI shall have the right to have all
obligations, undertakings, agreements, covenants and other provisions of this
Agreement specifically performed by VAR and that CPSI shall have the right to
obtain an order or decree of such specific performance in any of the courts of
the United States of America or of any state or other political subdivision
thereof.
8.5 REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative and
shall not preclude the assertion by CPSI or VAR of any other rights or the
seeking of any other remedies against the other, or their respective
successors or assigns.
8.6 INDEMNIFICATION BY VAR. VAR agrees to indemnify and hold harmless CPSI
against and from any loss, cost or damage, with any and all claims or damage
or injury related to alterations and additions made on the licensed Products
by VAR, its agents, employees and subcontractors; which indemnification shall
specially include, without limitation, the obligation to hold CPSI harmless
from any and all attorneys' fees incurred by CPSI.
SECTION 9. CONFIDENTIALITY AND NON-DISCLOSURE.
9.1 DEFINITION OF PROPRIETARY AND CONFIDENTIAL INFORMATION. For purposes of
this Agreement, "Proprietary and Confidential Information" of a party means
any information that is not known by, or generally available to, the public at
large without restrictions on its use and that relates to or is used in
connection with the business and affairs of such party. Each party hereto
shall have the obligation to identify specifically its Proprietary and
Confidential Information.
9.2 PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION OF CPSI. The
Proprietary and Confidential Information of CPSI and all copies thereof are
the property of CPSI. VAR acknowledges that the Proprietary and Confidential
Information of CPSI includes valuable assets, know-how, and trade secrets of
CPSI. Accordingly, VAR agrees that, except as otherwise required by law or
provided in this Agreement, during the term of this Agreement and at all times
thereafter VAR shall:
(a) hold the Proprietary and Confidential Information of CPSI in
strict confidence or, where disclosure of specific Proprietary and
Confidential Information of CPSI is expressly authorized in writing by CPSI,
shall comply with all restrictions on the use and disclosure thereof set forth
in such written authorization;
(b) instruct its directors, officers and employees not to use, sell,
lease, assign, patent, transfer, disclose or otherwise make available to any
person or entity that is not a party hereto the Proprietary and Confidential
Information of CPSI, or the benefit thereof, except pursuant to the written
authorization of CPSI, as the case may be, or as necessary in order to
exercise its rights under SECTION 2 above; and
(c) not copy or duplicate by any means, in whole or in part, the
Proprietary and Confidential Information of CPSI except pursuant to the
written authorization of CPSI.
9.3 PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION OF VAR. The
Proprietary and Confidential Information of VAR and all copies thereof are the
property of VAR. CPSI acknowledges that the Proprietary and Confidential
Information of VAR may include valuable assets, know-how and trade secrets of
VAR. Accordingly, CPSI agrees that, except as otherwise required by law or
provided in this Agreement, during the term of this Agreement and at all times
thereafter CPSI shall:
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<PAGE> 14
(a) hold the Proprietary and Confidential Information of VAR in
strict confidence or, where disclosure of specific Proprietary and
Confidential Information is expressly authorized in writing by VAR, shall
comply with all restrictions on the use and disclosure thereof set forth in
such written authorization;
(b) instruct its directors, officers and employees not to use, sell,
lease, assign, transfer, disclose or otherwise make available to any person or
entity that is not a party hereto the Proprietary and Confidential Information
of VAR, or the benefit thereof, without the written authorization of VAR; and
(c) not copy or duplicate by any means, in whole or in part, the
Proprietary and Confidential Information of VAR except pursuant to the written
authorization of VAR.
9.4 NONDISCLOSURE OF TERMS. Without in any way limiting the foregoing, each
party hereto agrees not to disclose or otherwise make available to any person
or entity that is not a party hereto, during or after the term of this
Agreement, the terms or provisions of this Agreement, or any summary or other
description of any such terms and provisions, except pursuant to the written
authorization of the other party hereto or as otherwise provided in this
Agreement, and except as may be required by law or legal process; provided,
however, that such party shall immediately notify the other party hereto of
any such legal requirement, and upon the reasonable request of the other party
shall cooperate in not contesting any such required disclosure.
9.5 NOTICE OF DISCLOSURE. In the event that either party hereto becomes aware
that any person or entity (including, but not limited to, any employee of such
party) is taking, threatens to take or has taken any action that would violate
any of the foregoing provisions of this SECTION 9 were that person or entity a
party to this Agreement in the place of such party, such party shall promptly
and fully advise the other party hereto (with written confirmation as soon as
possible thereafter) of all facts known to such party concerning such action
or threatened action. Each party agrees that it shall not in any way aid,
abet, or encourage any such action or threatened action.
9.6 EXCEPTIONS. Notwithstanding any other provision of this Agreement, the
obligations of each party hereto pursuant to this SECTION 9 shall not apply to
any Proprietary and Confidential Information that:
(a) is known to such party or generally known to the public prior to
its disclosure to such party by any other party to this Agreement;
(b) becomes known to the public by some means other than a breach of
this Agreement, including publication and/or laying open to inspection of
any patent application or patent; or
(c) is disclosed to such party by a third party that has a lawful
right to make such disclosure, and that has not breached any obligation
to a party hereto by virtue of such disclosure.
9.7 NONCOMPETITION/NONDISCLOSURE. VAR acknowledges that it would be very
difficult for VAR to avoid using or disclosing Proprietary and Confidential
Information of CPSI in the event VAR were to manufacture or market products
similar to the Licensed Products. Therefore, in addition to and not in lieu of
VAR's other obligations hereunder with respect to Proprietary and Confidential
Information of CPSI, VAR agrees that during the term of this Agreement and for
a period of two (2) years thereafter, VAR and/or its affiliates shall not
manufacture or market products similar to or competing with the Licensed
Products. The covenants contained in this section shall be construed as a
series of separate and severable covenants which are identical in terms except
for geographic coverage. CPSI and VAR agree that if in any proceeding, the
tribunal shall refuse to enforce fully any covenants contained herein because
such covenants cover too extensive a geographic area or too long a period of
time or for any other reason whatsoever, any such covenant shall be deemed
amended to the extent (but only to the extent) required by law.
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<PAGE> 15
SECTION 9.8 NON-CIRCUMVENT PROVISION. CPSI will not attempt to market, nor to
encourage other VARs of CPSI to market Licensed Products directly to VAR's
customers for the same or similar Fields of Use as described in EXHIBIT B. It
is VAR's responsibility to inform CPSI in writing of such customers prior to
any existing obligation upon CPSI under this section. It is also the sole
responsibility of VAR to obtain appropriate agreements or covenants with its
customers that prevent said customer from approaching CPSI or other CPSI-VAR's
for any direct sale of Licensed Product.
Absent such a VAR-Customer agreement, CPSI will initially recommend that
the customer procure Licensed Product through VAR. Should the customer insist
for any sale to take place that Licensed Product be obtained directly from
CPSI, due to no fault of the VAR for performance, then CPSI will supply
customer with Licensed Product. VAR will receive a commission on such sales
(for two years from the date of said sale) which is equal to the difference in
commission between the then current Volume Discount Schedule and the VAR
Discount Schedule in EXHIBIT D1 for the quantity levels ordered.
SECTION 10. TERM AND TERMINATION.
10.1 TERM OF AGREEMENT. The term of this Agreement shall begin on the
Effective Date and shall continue until the date that is the third (3rd)
annual anniversary of the Effective Date, unless sooner terminated pursuant to
this SECTION 10. Upon expiration of this license at the end of the term, VAR
shall have first rights of refusal to enter into a subsequent agreement to
sell and support Licensed Products within Territory for applications within
the licensed fields of use, on whatever terms CPSI may at that time deem most
appropriate.
10.2 DEFAULT OF VAR. CPSI may terminate this Agreement immediately by written
notice to VAR upon the occurrence of a Default of VAR. A "Default of VAR" for
purposes of this Agreement shall occur if: VAR shall have failed to perform,
observe or satisfy in any material respect any covenant, condition, or
agreement required by this Agreement to be performed, observed, or satisfied
by VAR, and such failure to perform or breach shall have continued for a
period of ten (10) days after written notice thereof to VAR from CPSI;
provided, however, that if such failure is not reasonably susceptible to
correction within such ten-day (10-day) period, but is correctable within a
longer period not to exceed thirty (30) days, a Default of VAR shall not be
deemed to have occurred if, to CPSI's satisfaction, VAR has commenced and
diligently pursued corrective action within such ten-day (10-day) period as
soon as possible after being so notified, and such failure is corrected no
later than thirty (30) days after such notice.
10.3 DEFAULT OF CPSI. VAR may terminate this Agreement immediately by written
notice to CPSI upon the occurrence of a "Default of CPSI". A "Default of CPSI"
for purposes of this Agreement shall occur if: CPSI shall have failed to
perform, observe, or satisfy in any material respect any covenant, condition,
or agreement required by this Agreement to be performed, observed, or
satisfied by CPSI or CPSI shall have breached any warranty or representation
contained herein, and such failure to perform or breach shall have continued
for a period of ten (10) days after written notice thereof to CPSI from VAR;
provided, however, that if such failure is not reasonably susceptible to
correction within such ten (10) day period, but is correctable within a longer
period not to exceed thirty (30) days, a Default of CPSI shall not be deemed
to have occurred if CPSI has commenced and diligently pursued corrective
action within such ten-day (10-day) period as soon as possible after being so
notified, and such failure is corrected no later than thirty (30) days after
such notice;
10.4 RETURN OF PROPRIETARY AND CONFIDENTIAL INFORMATION. Upon the expiration
or termination of this Agreement for any reason: (i) VAR shall promptly return
to CPSI all Proprietary and Confidential Information of CPSI (including,
without limitation, only if CPSI so requests, all Licensed Products not sold
to Third Parties); and (ii) CPSI shall promptly return to VAR all Proprietary
and Confidential Information of VAR not otherwise licensed to CPSI hereunder.
CPSI will refund to VAR full payment less 15% restocking fee for Licensed
Products in unused and original condition and packing.
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<PAGE> 16
10.5 BANKRUPTCY. If VAR shall become bankrupt or insolvent and/or if the
business of VAR shall be placed in the hands of a receiver, assignee or
trustee for the benefit of creditors, whether by voluntary act of VAR or
otherwise, or if Payments due are unpaid, CPSI shall have the right to serve
notice upon VAR, by certified mail at an address specified in SECTION 11 of
this Agreement, of its intention to terminate this Agreement within ninety
(90) days after receipt of said notice by VAR. If VAR has not cured the
conditions leading to such notice within ninety (90) days after receipt of
said notice or termination, the rights, privileges and license granted
hereunder shall terminate as of the end of such ninety (90) day period, and
neither party shall have any further rights, duties or obligations hereunder
except as may have then accrued under this Agreement, or as otherwise provided
herein.
10.6 NO RELEASE. Upon termination of this Agreement for any reason, nothing
herein shall be construed to release either party from any obligation which
matured prior to the effective date of termination; and VAR may, after the
effective date of such termination, sell all Licensed Products and complete
all Licensed Products in the process of manufacture or modification at the
time of termination and sell the same, provided that VAR pays CPSI all amounts
due CPSI under SECTION 6 of this Agreement.
10.7 RIGHT OF TERMINATION. Either party may terminate this Agreement at any
time after the third (3rd) anniversary of the Effective Date of this Agreement
by giving written notice of termination to the other party at least six (6)
months in advance; provided, however, that if the party giving notice shall be
in default of any of the terms and conditions of this Agreement at such time
such notice is given, such notice shall be null and void and of no effect.
CPSI shall also have the right to terminate this Agreement at any time after
the first (1st) anniversary of the Effective Date of this Agreement if CPSI
determines that based on reasonable information and sales data provided by VAR
there is, or will be, insufficient sales by VAR of Licensed Products. CPSI
shall give VAR thirty (30) days prior written notice of such termination for
lack of sales for Licensed Products.
MISCELLANEOUS PROVISIONS.
11.1 INDEPENDENT CONTRACTOR. VAR's relationship hereunder shall be that of an
independent contractor and not that of an agent, representative or employee of
CPSI, and VAR shall have no power to bind CPSI or contract in CPSI's name. All
persons employed by VAR in connection with operations under this Agreement
shall be considered employees or agents of VAR, and shall in no way, either
directly or indirectly, be considered employees or agents of CPSI. VAR will
defend, indemnify and hold CPSI harmless against any and all claims, losses,
damages, liabilities and costs whatsoever (including reasonable attorneys'
fees) arising as a result of any claim that VAR's relationship hereunder is
that of an agent, representative or employee of CPSI.
11.2 FORCE MAJEURE. CPSI shall not be liable for any delay in delivery or
modification, suspension or cancellation of performance or other failure of
performance hereunder in whole or in part caused by events beyond its control,
including but not limited to acts of God or government, labor disputes or
inability to secure materials, labor or transportation.
11.3 ADDITIONAL ACTIONS AND DOCUMENTS. Each of the parties hereto shall take
or cause to be taken such further actions, shall execute, deliver, and file or
cause to be executed, delivered, and filed such further documents and
instruments (including, but not limited to, documents necessary or desirable
to record the existence of this Agreement with any authority and/or registry
which CPSI deems reasonably necessary to protect its rights hereunder), and
shall obtain such consents as may be necessary or as the other party may
reasonably request, without the payment of further consideration, in order
fully to effectuate the purposes, terms, and conditions of this Agreement.
11.4 NOTICES. All notices, demands, requests, or other communications which
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand
delivered (including delivery by courier or overnight delivery service),
mailed by first-class, registered or
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certified mail, return receipt requested, postage prepaid, telegram, telex, or
facsimile transmission, addressed as follows:
(a) If to VAR:
Electronic Surveillance Technologies Corporation
3155 Grand Concourse Blvd.
New York, New York 10468-1244
Any Authorized Officer of VAR:__________________
Tel. No. (718)295-3800
(b) If to CPSI:
Computer Products & Services, Inc.
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
Attention: Edward G. Newman, President
Tel. No. (703) 631-6925
Each party may designate by notice in writing a new address to
which any notice, demand, request or communication may thereafter be so given,
served or sent. Each notice, demand, request, or communication which shall be
mailed, delivered or transmitted in the manner described herein shall be
deemed sufficiently given, served, sent or received for all purposes at such
time as it is delivered to the addressee with the return receipt, the delivery
receipt, the affidavit of messenger or (with respect to a telex) the answer
back being deemed conclusive, but not exclusive, evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
11.5 SEVERABILITY. If fulfillment of any provision of this Agreement shall
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled or performed shall be reduced to the limit of such
validity; and if any clause or provision contained in this Agreement operates
or would operate prospectively to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein or therein contained, and the remainder of this Agreement shall
remain operative and in full force and effect.
11.6 WAIVERS. No waiver by any party of, or consent by any party to, a
variation from the requirements of any provision of this Agreement shall be
effective unless made in a written instrument duly executed by or on behalf of
such party, and any such waiver shall be limited solely to those rights or
conditions expressly waived.
11.7 EXPENSES. Each party hereto shall pay its own expenses incident to this
Agreement and the transactions contemplated hereby.
11.8 ENTIRE AGREEMENT; MODIFICATION; PRIORITY; BENEFIT.
(a) This Agreement constitutes the entire agreement of the parties
hereto with respect to the matters contemplated herein and supersedes all
prior oral and written memoranda and agreements with respect to the matters
contemplated herein.
(b) The terms and conditions of this Agreement, including the
attached Exhibits (collectively, these "Terms"), constitute an offer to sell
and do not constitute an acceptance by CPSI of any purchase order or offer to
buy, notwithstanding any reference thereto, except to the extent of the
express provisions of these Terms. This offer to sell may be accepted by VAR
either in writing or by any conduct that recognizes the existence of any
agreement. Any such acceptance is limited to the express provisions of these
Terms. CPSI hereby objects to, and rejects, any proposal for additional or
different provisions or any attempt by VAR to vary any of these Terms (whether
in a
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purchase order, offer to buy or otherwise), and any such additional or
different provisions or variances shall be deemed material. Any such proposal
or attempt by VAR that would materially change the description, quantity,
price or delivery schedule of the Products shall constitute a rejection of
this offer. Any other such proposal or attempt shall not operate as a
rejection, but this offer shall be deemed accepted by VAR without regard
thereto.
(c) No representation, promise, condition or statement not contained
in this Agreement shall be binding on CPSI unless accepted in writing by CPSI.
This Agreement can be modified, amended or rescinded only in a written
document duly signed by the parties hereto; provided, however, that CPSI shall
have the unilateral right to change the list prices specified in EXHIBIT D2
upon thirty (30) days prior written notice to VAR.
11.9 ARBITRATION. Any dispute or controversy arising out of this Agreement
shall be submitted to binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. The seat of
arbitration shall be Fairfax, Virginia. The arbitrators shall not alter, amend
or modify the terms and conditions of this Agreement but shall consider the
pertinent facts and circumstances and shall be guided by the terms and
conditions of this Agreement which shall be binding on them in resolving any
dispute or controversy hereunder.
11.10 CONSTRUCTION. This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes and resolutions relating thereto shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia (but not including the choice of law rules thereof) except that
questions affecting the validity, construction and effect of any patent shall
be determined by the laws of the country in which the patent was granted. The
parties hereto acknowledge that this instrument sets forth the entire
agreement and understanding of the parties hereto as to the subject matter
hereof, and shall not be subject to any change or modification except by the
execution of a written instrument subscribed to by the parties hereto. This
Agreement shall not be governed by the United Nations Convention on Contracts
for the International Sale of Goods.
11.11 HEADINGS. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a
part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
11.12 SUCCESSION. This Agreement shall be binding upon, and shall insure to
the benefit of the parties and their respective heirs, executors, successors,
assigns, and legal representatives.
11.13 EXECUTION. To facilitate execution, this Agreement may be executed in
as many counterparts as may be required; and it shall not be necessary that
the signatures of, or on behalf of, each party, or the signatures of all
persons required to bind any party, appear on each counterpart; but it shall
be sufficient that the signature of, or on behalf of, each party, or the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement.
11.14 SURVIVAL. Neither expiration nor termination of this Agreement shall
terminate those obligations and rights of the parties pursuant to provisions
of this Agreement which by their express terms are intended to survive and
such provisions shall survive the expiration or termination of this Agreement
including, without limitation, SECTIONS 2, 6, 7, 8, 9, 10 and 11. The parties
shall be entitled to exercise such rights and remedies as may be available at
law or in equity to enforce rights and obligations which survive expiration or
termination of this Agreement.
- 18 -
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have caused this Value Added Reseller
Agreement to be duly executed on their behalf, as of the date first written
above.
COMPUTER PRODUCTS
& SERVICES, INC.
By: [SIG]
-------------------------
Name:
---------------------
Title: President
---------------------
Date
------------------------
ELECTRONIC SURVEILLANCE TECHNOLOGIES CORPORATION
By: /s/ MICHAEL E. HANRATTY
-------------------------
Name: Michael E. Hanratty
-------------------------
Title: C.E.O.
----------------------
Date: 4 April 1996
----------------------
- 19 -
<PAGE> 20
EXHIBIT A
LICENSED TECHNOLOGIES AND PRODUCTS
LICENSED TECHNOLOGIES:
- - United States Letters Patent No. 5,305,244 issued on April 19, 1994
for Hands-Free User-Supported Portable Computer and the inventions and
improvements disclosed therein.
- - CPSI-proprietary Mobile Assistant(R) computer
- - CPSI-proprietary head-mounted displays, under license from Kopin
Display Technologies or others
- - CPSI-proprietary Display Designs, manufacturing process and tooling
- - CPSI-proprietary Voice Recognition algorithms and software
implementation
- - CPSI-proprietary Video compression algorithms and software
implementation
- - CPSI-proprietary Presentation Graphics and control interface
appearance algorithms and software implementation
- - CPSI-proprietary application development toolkits, consisting of
algorithms, capabilities and software implementations used to specify,
design, implement, capture, organize, test and quality assure
applications based in part on CPSI Mobile Assistant(R) products.
- - CPSI-proprietary knowledge engineering and rules based shell
technology
LICENSED PRODUCTS:
- - Mobile Assistant(R)
- - Options and Features per Mobile Assistant(R) Brochure and Price List
- - Toolkit Software
- 20 -
<PAGE> 21
EXHIBIT B
FIELDS OF USE
- - Aircraft Maintenance and Repair
- - Firefighting Support
- - Medical Services Delivery
- - Vehicle Maintenance and Repair
- - Manufacturing Plant Monitoring Maintenance and Repair
- - Commercial, Industrial, and Residential Real Estate Monitoring,
Maintenance, Repair, and Refurbishment
- - Residential, Commercial and Industrial Appliance Maintenance and
Repair
- - Military, Commercial and Personal naval vessel training, Maintenance
and Repair
- - Education and training
- - Such Other Areas As Mutually Agreed In Writing By CPSI and VAR
VAR's proposed field/fields of use:
Voice-activated front end to an existing Charis Filemaker Pro application,
providing thermographers with hands-free capture of visual and thermal images
and associated data entry as used for recommended applications by EPRI
(Electric Power Research Institute) in power plants and related industries.
- 21 -
<PAGE> 22
EXHIBIT C
LICENSED TERRITORY
The United States of America
- 22 -
<PAGE> 23
EXHIBIT D1
CPSI VAR DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
================================================================================
QUANTITY RANGE
- --------------------------------------------------------------------------------
Bottom Top Discount
- --------------------------------------------------------------------------------
<S> <C> <C>
1 10 10.0%
- --------------------------------------------------------------------------------
11 20 10.0%
- --------------------------------------------------------------------------------
21 50 10.0%
- --------------------------------------------------------------------------------
51 250 14.0%
- --------------------------------------------------------------------------------
251 --- 16.0%
================================================================================
</TABLE>
CPSI WHOLESALE DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
================================================================================
QUANTITY RANGE
- --------------------------------------------------------------------------------
Bottom Top Discount
- --------------------------------------------------------------------------------
<S> <C> <C>
1 10 0.0%
- --------------------------------------------------------------------------------
11 20 3.0%
- --------------------------------------------------------------------------------
21 50 5.0%
- --------------------------------------------------------------------------------
51 250 7.0%
- --------------------------------------------------------------------------------
251 --- 10.0%
================================================================================
</TABLE>
Effective as of November 1995 - 23 -
<PAGE> 24
EXHIBIT E
MINIMUM FIRST YEAR MOBILE ASSISTANT(R) UNIT PURCHASES
First annual purchase quantity: 21 units
Effective as of November 1995 - 24 -
<PAGE> 1
EXHIBIT 10.19
COMPUTER PRODUCTS & SERVICES, INC.
NONEXCLUSIVE
VALUE ADDED RESELLER AGREEMENT
THIS NONEXCLUSIVE VALUE ADDED RESELLER AGREEMENT ("Agreement") is made and
entered into as of the 22nd day of January, 1996 by and between COMPUTER
PRODUCTS & SERVICES, INC., a Virginia corporation, having an office at 12701
Fair Lakes Circle, Suite 550, Fairfax, Virginia 22033 ("CPSI"), and FC Imaging,
Inc., a Virginia corporation, having an office at 2000 N. Fourteenth Street,
Suite 310, Arlington, Virginia 22201 ("Value Added Reseller" or "VAR").
WHEREAS, CPSI and/or Affiliates of CPSI have rights or have
licensed rights to sublicense the "Licensed Technology" (as
such term is defined below);
WHEREAS, VAR has inspected the Licensed Technology and
represents that it is equipped and in a favorable position to
market "Licensed Products" in the "Field of Use" in the
"Licensed Territory" (as such terms are defined below); and
WHEREAS, VAR desires to obtain certain rights to market the
Licensed Products, and CPSI desires to grant VAR those certain
rights to market the Licensed Products, pursuant to the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and for other valuable consideration the
receipt and sufficiency of which are hereby acknowledged, CPSI
and VAR hereby agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings ascribed to them below in this SECTION 1.
1.1 "Affiliate" means, with respect to a party, any corporation or other
entity that directly or indirectly, through one or more intermediaries,
controls (i.e., possesses, directly or indirectly, the power to direct or cause
the direction of the overall management and policies of an entity, whether
through ownership of voting securities, by contract or otherwise), is
controlled by, or is under common control of such party.
1.2 "Default of VAR" has the meaning set forth in SECTIONS 10.2 AND 10.7
below.
1.3 "Default of CPSI" has the meaning set forth in SECTION 10.3 below.
1.4 "Effective Date" means the date ascribed in the first paragraph
hereof.
1.5 "Field of Use" means the field or fields of use described in EXHIBIT B
hereto. All exhibits attached to this Agreement are incorporated herein by
reference.
- 1 -
<PAGE> 2
1.6 "Mobile Assistant(R) Unit" means a Licensed Product assembly
consisting of a wearable computing device, a wearable battery pack, a
hands-free display device, a user activation input device, an activation output
device, along with the systems and application support software provided
thereon by CPSI.
1.7 "Licensed Technologies" means the intellectual properties described in
EXHIBIT A hereto.
1.8 "Licensed Territory" or "Territory" means the geographic territory
described in EXHIBIT C hereto.
1.9 "Proprietary and Confidential Information" has the meaning set forth
in SECTION 9.1 below.
1.10 "Sublicense" has the meaning set forth in SECTION 2.2 below.
1.11 "Sublicensee" has the meaning set forth in SECTION 2.2 below.
1.12 "Third Party" means any party other than a party to this Agreement.
1.13 "Territory Fee" means a future fee payable by VAR to CPSI in the event
this non-exclusive agreement is converted by CPSI to an exclusive agreement for
the rights granted by this License within the Territory.
1.14 "Data Information" means CPSI's trade secrets, know-how methods,
techniques, processes, knowledge, trade practices, trade names, trademarks,
marketing materials, software library, and information generally relating to
developing, manufacturing and selling the Licensed Products, now existing or
hereinafter developed or acquired by CPSI.
1.15 "Patent Rights" means any patent or patent applications, issued or
filed or which may be filed, in any jurisdiction relating to Licensed Products
or to the manufacturing processing thereof, including any improvements thereon
(whether or not patented) made or acquired by, or licensed to, CPSI. A patent
shall cease to be a Patent Right in the event of any of the following:
(i) The patent expires;
(ii) The patent is no longer maintained; or
(iii) All pertinent claims in the patent have been held to be
invalid by an unappealed or unappealable decision of a court
of competent jurisdiction.
The patents presently held by CPSI which shall be made available to VAR through
this Agreement are listed on EXHIBIT A.
1.16 "Technical Data" shall mean the Information contained in the documents
listed in EXHIBIT A attached hereto and any new technical data and materials
which may be furnished to VAR by CPSI during the term of this Agreement.
1.17 "Licensed Product", both in the singular and the plural, shall mean
(i) any device or apparatus which embodies or makes use of any inventions
claimed in the Patent Rights, (ii) any device or apparatus which is made by or
with the use of any method or process claimed in the Patent Rights or (iii) any
device or apparatus which is made by or with the use of any information
contained in the Technical Data, including but not limited to, the products
described in EXHIBIT A hereto.
- 2 -
<PAGE> 3
1.18 "Net Sales Price" shall mean invoiced price of CPSI Licensed Products
to VAR or to other purchaser or customer upon which Discounts in EXHIBIT D1
(Discount Schedule on Net Sales Price) are based. The following items are not
included in the Net Sales Price:
(i) Quantity (but not cash) discounts allowed, provided such
discounts are shown separately on the invoice;
(ii) Packaging, transportation and insurance charges on shipments
to customers, provided they are shown separately on the
invoice;
(iii) Sales and use taxes, if any, but only if such taxes are shown
separately on the invoice and are not included in the purchase
price of Licensed Product; and
(iv) Amounts refunded or credited upon purchase price of Licensed
Product provided, however, that the Net Sales Price as
hereinabove defined shall not be reduced on account of bad
debts, collection costs or sales commissions. In the event
that Licensed Product is sold to an Affiliate or Licensee or
to any director or officer of VAR or a corporation in which
such director or officer has a controlling interest, then Net
Sales Price shall be the price which would have been charged
if the Licensed Product in question had been sold on normal
terms and conditions to a purchaser dealing at arm's length
with VAR. In the event Licensed Product is sold as a
component, and an unlicensed combination, which includes a
charge for Licensed Product, the Net Sales Price of Licensed
Product shall be that portion of the entire combination which
is fairly attributable to Licensed Product component thereof,
calculated according to a previously specified agreement in
writing between VAR and CPSI.
1.19 "Non-Exclusive" means that within the Licensed Territory and Field of
Use:
(i) VAR maintains, together with other VARs, CPSI-authorized sales
and support facilities for Licensed Products within the
Licensed Territory.
(ii) CPSI will not provide training for such items, consultation
nor other support services at locations within the Licensed
Territory, unless orders for such services are placed by VAR.
(iii) VAR will not attempt to sell products or services based upon
Licensed Products and Technologies in any Territory and Field
of Use exclusively licensed by CPSI to another VAR or
Distributor. Any exclusive license given subsequent to a
nonexclusive license in the same territory is granted
conditioned upon the rights of the first licensee, i.e. the
nonexclusive licensee. If a nonexclusive VAR is granted a
license that is ongoing, the subsequent exclusive VAR takes an
exclusive license against the entire world except for a
previous nonexclusive licensee.
(iv) CPSI will not knowingly provide technical support to any
person or organization, other than VAR, seeking to obtain,
modify or adopt licensed products for distribution within
Territory.
SECTION 2. GRANT OF RIGHTS
2.1 GRANT OF LICENSE. CPSI hereby grants to VAR, and VAR hereby accepts, a
limited, non-exclusive right and license, with rights to sublicensing as set
forth in SECTION 2.2, to market Licensed Products within the Field of Use in
the Licensed Territory. VAR shall have no property rights with respect to the
Licensed Technology or the Licensed Products except as specifically designated
herein. At the expiration of the Term of this Agreement, CPSI may consider, at
its option, converting the license to an exclusive license in the same or
different Territory and with the payment of Territory Fee, grant same.
- 3 -
<PAGE> 4
2.2 SUBLICENSES. CPSI hereby grants to VAR the right to grant one or more
sublicenses pursuant to this Agreement, to third parties, to market Licensed
Products in the Field of Use within the Licensed Territory (each such third
party shall be referred to as a "Sublicensee"); provided, however, that each
such Sublicense shall be no greater in scope than the license granted pursuant
to SECTION 2.1 above, and that each such Sublicensee shall agree to be bound by
the terms and conditions of this Agreement. Notwithstanding the foregoing, all
potential Sublicensees must be approved in advance and in writing by CPSI prior
to executing a sublicense agreement or otherwise acquiring any rights with
respect to the Licensed Products. The rights and obligations of any
Sublicensee under this Agreement shall not be deemed to supplant or diminish
the rights and obligations of VAR hereunder.
2.3 EXERCISE OF RIGHTS BY AFFILIATES. VAR's rights to market Licensed
Products in the Field of Use in the Licensed Territory pursuant to this
Agreement may be exercised by any Affiliate of VAR; provided, however, that VAR
shall provide to CPSI prior written notice that a particular Affiliate of VAR
will exercise such rights. CPSI shall approve or disapprove in writing such
exercise of rights by any VAR Affiliate, and each such Affiliate of VAR shall
agree in writing to be bound by the terms and conditions of this Agreement.
The rights and obligations of any Affiliate of VAR under this Agreement shall
not be deemed to supplant or diminish the rights and obligations of the VAR
hereunder.
2.4 GRANT BACK CLAUSE. VAR and CPSI agree to jointly and independently
work to produce improvements, inventions, discoveries, and developments which
enhance the features, functions, and capabilities of Licensed Products. Such
efforts will be considered as follows:
(a) If during the term of this Agreement, CPSI, any Affiliate of
CPSI, or any employee of CPSI shall make an improvement, refinement, invention,
discovery and/or development which CPSI makes generally available to its other
distributors of the Licensed Product, CPSI shall furnish to VAR technical data
and operating information relating to such an improvement, refinement,
invention, discovery or development, to the extent that the same are required
for the up-to-date sale of Licensed Products. VAR's rights with respect to
such invention, discovery or development shall be co-terminus with the term of
this Agreement.
(b) Change of Design. CPSI reserves the right to improve or
otherwise change the design of any product or part thereof at any time without
notice to VAR. However, CPSI will attempt to notify all VARs of any material
changes in the Product in advance. If any such change is made, CPSI may, but
shall not be obligated to, make the change upon any Products or parts shipped
thereafter on the orders of the VAR, nor shall CPSI be obligated to make a
similar change on any Products or parts previously shipped to the VAR, or to
install or furnish any other or different parts than were thereon when shipment
was made.
(c) If during the term of this Agreement, VAR, any Sublicensee or
Affiliate of VAR, or any employee of VAR, or Consultant of VAR, shall make an
invention, discovery or development which VAR, any Sublicensee, or any
Affiliate of VAR uses to enhance, refine, improve, or revise Licensed Products,
VAR shall grant a royalty-free worldwide license to CPSI for the unrestricted
use and practice and shall furnish to CPSI technical data and operating
information relating to such improvement, refinement, invention, discovery
and/or development for use or sublicensing by CPSI in conjunction with its use
and licensing of the Licensed Technology and its sale of Licensed Products.
CPSI's rights with respect to such invention, discovery or development shall
survive any termination of this Agreement.
(d) Upon written request by VAR or Third Party, CPSI shall
evaluate and assess the relative quality, completeness, ease of use and
productivity enhancement of an application or tool based on Licensed
Technologies and Products, which has been developed by VAR or a Third Party.
After certification by CPSI that the application or tool is suitable for
worldwide deployment, CPSI and VAR or Third Party may, at their option, enter
into a separate agreement defining the terms and conditions under which CPSI
will undertake worldwide distribution of the Application, and the schedule of
royalty payments to VAR or Third Party by CPSI as a consequence of such
application distribution.
- 4 -
<PAGE> 5
(e) If, during the term of this agreement, CPSI, any affiliate of
CPSI, or any employee of CPSI, shall jointly with VAR, any Sublicensee or
Affiliate of VAR or any employee of VAR make an improvement, refinement,
invention, discovery or development which CPSI or any VAR, Sublicensee or
Affiliate of any VAR uses in conjunction with its marketing of Licensed
Products, CPSI shall retain title and ownership of such invention, discovery
and/or development, but CPSI shall furnish to VAR technical data and operating
information.
2.5 TRADEMARKS. VAR, at its expense, shall be responsible, following
consultation with CPSI, for the selection, registration and maintenance of the
brand names to be used by it with respect to the sale of Licensed Products and
VAR shall own and control such trademarks. Notwithstanding the foregoing, in
the event of termination of this Agreement pursuant to SECTION 10.2 due to a
Default of VAR, any and all rights in and to such trademarks (including, but
not limited to, goodwill related thereto) shall be at CPSI's option
automatically assigned to CPSI and VAR agrees that it shall promptly execute an
assignment of all trademarks and any other documentation as may be required to
evidence and effectuate such assignment.
2.6 RIGHT TO USE NAME. Subject to the provisions of Subsection (c), the
VAR may use the notation "Authorized VAR of CPSI's "Mobile Assistant(R) Unit"
in connection with its distribution of Licensed Products in any sign or
advertising during the continuance of this Agreement. VAR may not make any
untrue statements of their relationship with CPSI, such as "Exclusive Agent of
CPSI" or "Branch Office of CPSI," or the like. In case of termination of this
Agreement, or upon request of CPSI, VAR shall discontinue use of CPSI
trademarked names and thereafter shall not use the name directly or indirectly
in connection with its business, nor use any other name, title, or expression
so nearly resembling it as would be likely to lead to confusion or uncertainty
or to deceive the public.
2.7 ASSIGNABILITY. This Agreement may not be assigned or transferred by
VAR in whole or in part, either voluntarily or by operation of law, without the
prior written consent of CPSI. Any attempted assignment or transfer by VAR
without the written consent of CPSI thereto shall, at CPSI's option, become
null and void, and shall, at CPSI's option, forthwith terminate and cancel this
Agreement and all rights of VAR hereunder. CPSI shall have the right to assign
its rights under this License in connection with a sale or restructuring of its
business.
2.8 NO AGENCY RELATIONSHIP It is understood and agreed that VAR is not, by
this Agreement or anything contained herein, constituted or appointed the agent
or representative of CPSI for any purpose whatsoever, nor shall anything
contained herein be deemed or construed as granting to VAR any right or
authority to assume or to create any obligation or responsibility, express or
implied, for or in behalf of or in the name of CPSI in any way or manner
whatsoever. VAR agrees not to use CPSI's name in any advertising or publicity
regarding this Agreement without CPSI's prior written consent.
2.9 PREVENTING VIOLATION OF PRODUCT LICENSE. CPSI will require of VAR (as
it has required and will require of all other licensees) full cooperation with
CPSI to prevent any violation of any exclusive Product license granted by CPSI
to others.
SECTION 3. VAR OBLIGATIONS.
3.1 TRAINING AND ADVERTISING PACKAGE. Upon execution of this Agreement, or
within a 180 day period following it execution, VAR will be required to
purchase from CPSI a VAR Preparation Package for $5,000 which includes five (5)
days of initial training for up to two (2) people, up to forty (40) man hours
of technical assistance as provided for in SECTION 5.1(b), a collection of
collateral advertising literature, CPSI videos, and special demonstrations. At
its own expense, VAR agrees to attend the required initial training, as well as
periodic Products training conducted by CPSI at least annually.
3.2 MARKETING PLAN. VAR shall furnish CPSI from time to time, general
information concerning the Licensed Territory including economic, commercial,
and industrial data affecting the business or prospects for business of
- 5 -
<PAGE> 6
CPSI. At least once per year on the annual anniversary of the Effective Date,
VAR shall provide to CPSI a current revision of an acceptable plan describing
VAR's development, promotion, sales, and support of Licensed Products.
3.3 FINANCIAL INFORMATION. Upon request of CPSI, VAR will complete a
standard credit application and other such financial information as CPSI may
reasonably require to establish credit.
3.4 BEST EFFORTS. VAR shall use its best efforts to promote, market and
sell the Licensed Products within the Licensed Territory for its own account
and risk, including credit risks, and vigorously pursue the promotion,
marketing, and sale of the Licensed Products.
3.5 SALES AND SUPPORT. VAR agrees to comply with CPSI guidelines, if any,
for expedient servicing and support of users of Licensed Products. VAR will
use its best efforts to promote demand for and sale of the Licensed Products
and will maintain adequate facilities and properly trained sales personnel for
these purposes. VAR may use advertising materials supplied by or purchased
from CPSI and shall display items which are representative of Licensed
Products; however, VAR may use other advertising materials from their own
sources.
3.6 BUSINESS CONDUCT. VAR shall conduct its business in a manner that will
reflect favorably on CPSI, the Licensed Products, and CPSI's good name. VAR
shall refrain from engaging in any deceptive, misleading or unethical practice.
VAR shall refrain from making any representation or warranty to a potential
buyer with respect to, or in connection with, the Licensed Products which
contains any untrue or misleading statement of material fact or omits any
material fact necessary to make the statements not misleading.
SECTION 4. COVENANTS OF VAR.
VAR represents and covenants with CPSI as follows:
4.1 TERRITORIAL USES. VAR shall sell Licensed Products solely within the
Territory Licensed and, to the extent such matter may be within the control of
VAR, shall sell Products only to purchasers who use them for purposes within
the Licensed Fields of Use described within the Territory. CPSI acknowledges
that the actions of third party purchasers are not entirely within the control
of VAR, and VAR shall not be required to police the sales of its third party
purchasers.
4.2 NO RELIANCE ON CPSI. VAR has independently investigated the market
demand for Products within the Territory and is not relying upon any market
studies or other information furnished to it by CPSI for purpose of determining
the expected volume of business to be generated from the sale of Licensed
Products.
4.3 GOOD FAITH. VAR will deal in good faith with CPSI (just as CPSI will
deal with VAR) on all matters related to this License and will not, acting
alone or in concert with other parties, seek to circumvent the intent of this
License.
4.4 QUALITY STANDARDS. VAR will comply with all reasonable quality
standards with respect to Products imposed by CPSI on both itself and on VAR,
in recognition of the substantial investment made by CPSI in establishing a
reputation for Licensed Product and the potential damage to that reputation if
VAR fails to observe the quality standards imposed by CPSI with respect to
those Licensed Products sold under any trademark or trade name licensed
pursuant to this License.
4.5 INSPECTIONS. VAR agrees to provide CPSI with access to Products which
contain CPSI content each year for inspection thereof regarding ease of use,
consistency of user interface quality and robustness. Notwithstanding the
above, VAR-developed applications based, in part, on Licensed Product shall be
made available to CPSI on at least an annual basis for inspection and
evaluation. All information obtained, both written and oral, between employees
of CPSI and VAR is considered confidential between the parties as identified in
the non-disclosure and confidentiality agreement and/or sections of this
agreement.
- 6 -
<PAGE> 7
4.6 MARKING. VAR agrees to mark the Products sold with all applicable
patent numbers and CPSI Product Branding. All Products shipped to or sold in
other countries, with CPSI's prior written approval, shall be marked in such a
matter as to conform with the patent laws and practice of the country of
manufacture or sale.
(a) VAR shall not effect or permit the removal or alteration of
any patent numbers, trade names or trademarks, proprietary notices, nameplates
or serial numbers affixed to the Licensed Products, without CPSI's prior
written consent.
(b) VAR shall not effect or permit the affixation of any
additional trade names or trademarks, proprietary notices or nameplates to the
Licensed Products without CPSI's prior written consent.
4.7 FACILITIES, ABILITY, AND DESIRE TO BE LICENSEE. VAR represents that it
possesses and will maintain the technical facilities, properly trained staff,
and ability to promote the sale and use of Licensed Products and is desirous of
developing demand for and selling such Licensed Products in the Territory
hereinafter described.
4.8 DUTY OF INSPECTION AND TESTING. The VAR shall inspect, test, make all
modifications or adjustments and, if necessary, conduct trials prior to
delivery of the Licensed Product to the customer. VAR is not relieved of this
responsibility if the Licensed Product is delivered at a location other than
the principal place of business of VAR.
4.9 MINIMUM INITIAL ORDER. Within 180 days of the execution of this
agreement or the resale of 10 or more units, whichever occurs first, VAR shall
present a binding purchase order for a minimum of one Mobile Assistant(R) unit
accompanied by a nonrefundable down payment of 25% of the gross purchase order
amount. Such units are to be used for customer testing and demonstrations.
Delivery of these units to VAR is to be as soon as practicable.
4.10 CERTIFICATIONS. VAR agrees to obtain all relevant and necessary
approvals, certifications or licenses for end-user sales of Licensed Products
within its Territory. Costs of any required product modifications as well as
certification and inspection fees, will be borne solely by VAR. CPSI shall,
upon request by VAR, provide consultation and technical support to VAR in
matters related to local adaptation and certification of Licensed Products.
Such work shall be accomplished by CPSI in accordance with SECTION 5.1.
SECTION 5. CPSI OBLIGATIONS
5.1 TECHNICAL TRAINING AND ASSISTANCE.
(a) CPSI shall provide a maximum of five (5) days of required
technical training at CPSI's offices in Virginia for at most two (2) VAR
personnel as to the use of the Licensed Products. Such training sessions shall
be scheduled at a time mutually convenient to the parties. All costs for VAR
personnel attending this initial training session (including, but not limited
to, travel, lodging and other expenses) shall be the responsibility of VAR.
(b) CPSI agrees to furnish to VAR, at no additional cost under
this Agreement as stipulated in SECTION 3.1, up to forty (40) man-hours of
technical assistance during the first twenty-four (24) months of this Agreement
at CPSI's Fairfax, Virginia facility or at another mutually acceptable site.
VAR will reimburse CPSI for any out of pocket expenses related to such
activities.
(c) CPSI shall provide all technical training and technical
assistance requested by VAR, during 1st six months and thereafter, regarding
use of the Licensed Products at such times and locations as mutually agreed to
in writing by the parties. All such additional technical training shall be
provided by CPSI to VAR at CPSI's then current rates for such services. VAR
shall reimburse CPSI for transportation, meals and lodging expenses incurred by
CPSI representative(s) in connection with any such additional training, only
with VAR's pre-approved written authorizations based on confirming quotation
from CPSI for requested services.
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5.2 TECHNICAL DATA. CPSI agrees to furnish to VAR, within thirty (30)
days after the receipt of minimum initial order for this Agreement, two (2)
copies each of the Technical Data hereof. All Technical Data furnished
hereunder shall be in the form normally used by CPSI for its own purposes,
except software will be provided in executable object code form only.
5.3 TRAVEL REGULATIONS. All personnel and representatives of each party
while visiting the other party shall abide by all rules and regulations of the
respective country and, where required, the espionage and security laws,
regulations and others of the visited country. Each party hereby indemnifies
and holds the other party harmless from and responsible for injuries to, or
death of, or travel, living and other expenses of its representatives and
personnel, including loss, theft, damage and destruction of property.
5.4 PATENT RIGHTS IN TERRITORY. CPSI, at its discretion, shall prepare,
file and prosecute, in the name of CPSI, and at CPSI's expense, patents and
applications for letters patent with respect to the Licensed Products in the
Territory (including, without limitation, with respect to modifications,
improvements, enhancements, variations and alterations on the Licensed Products
covered by the Patent Rights). CPSI shall also be responsible for the expense
incurred in connection with the filing, prosecution and maintenance of patents
and applications covering the Licensed Products with respect to which VAR has
entered into a license under this Agreement and any continuation-in-part,
divisionals, reissues or substitute applications thereof. CPSI acknowledges
that if CPSI does not seek patent protection within the Territory, the Data and
Information and the Patent Rights may be deemed to be in the public domain but
any such loss of rights shall not terminate VAR's obligations hereunder.
(a) COOPERATION. VAR agrees to cooperate with CPSI to ensure that
all patent applications filed will reflect, to the best of VAR's knowledge, all
items of commercial interest and importance.
(b) NOTICE AND ADVICE. CPSI shall keep VAR advised as to all
developments with respect to all patent applications filed in the Territory,
and shall supply to VAR copies of all papers received and filed in connection
with the prosecution thereof. VAR shall have the right, either directly or
indirectly through its patent attorneys and/or agents, to advise and cooperate
with CPSI in the prosecution of such applications.
(c) OWNERSHIP OF TERRITORIAL PATENTS. All patents with respect to
the Licensed Products shall be the sole and exclusive property of CPSI, subject
to the non-exclusive license hereby granted to VAR. VAR shall, upon demand,
execute and deliver to CPSI such documents as may be deemed necessary or
advisable by counsel for CPSI, for filing in the appropriate patent offices and
elsewhere to evidence the granting and to assure the perfection and maintenance
of the license hereby granted.
5.5 ACCEPTANCE AND FILLING OF ORDERS. All orders CPSI receives for
Licensed Products from the VAR are subject to acceptance by CPSI. CPSI will
use its best efforts to fill the accepted orders as promptly as practicable,
subject, however, to delays or failure to fill the accepted order caused by
transportation conditions, labor or material shortages, strikes, riots, fires,
or any other cause beyond CPSI's control. In all cases, CPSI will use its best
efforts to advise VAR in advance of any foreseeable inability to make full and
timely delivery of any Products which VAR has ordered.
5.6 UNLICENSED ACTIVITY AND INFRINGEMENT. CPSI and VAR shall promptly
inform each other in writing of any potential infringement by a third party of
which they are aware of any patents included with the Patent Rights, and
provide each other with any available evidence of infringement. During the
term of this License, CPSI shall at its discretion prosecute, at its own
expense, any such infringement of the Patent Rights.
5.7 NEW PRODUCT INTRODUCTIONS. As CPSI introduces new products, VAR will
receive from CPSI at least 30 days advance notice regarding anticipated future
product announcements. All such future product availability information will
be considered CPSI confidential and proprietary, and will be protected by VAR
as described in SECTION 9. The VAR license will automatically be modified to
include the new product. Within 90 days of receipt of
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each future CPSI product notice, VAR will notify CPSI that either (i) it wishes
to amend its license to include the anticipated future product(s) or (ii) it
does not intend to sell products and services based on the future CPSI product
within Territory. CPSI may, at its sole discretion, accept or reject any such
proposed amendments.
SECTION 6. PAYMENTS AND DELIVERY
6.1 PURCHASE OF LICENSED PRODUCTS AND DISCOUNTS. The Licensed Products
shall be purchased by VAR from CPSI at purchase prices equal to CPSI's list
prices for the Licensed Products, less the currently applicable discounts
specified in EXHIBIT D1. CPSI shall have the right to revise the list prices
and discount schedule semi-annually upon thirty (30) days prior written notice.
CPSI has a suggested retail price (EXHIBIT D2); however, the parties acknowledge
and agree that VAR shall be free to establish the price(s) it charges to its
customers for the Licensed Product. Notwithstanding the above, CPSI reserves
the right to offer VARs limited duration, promotional, or special situation
discounts from VAR prices, in order to stimulate sales of particular products,
or applications within specific territories.
6.2 PAYMENT TERMS. VAR agrees that it will submit purchase orders for the
purchase of Licensed Products in writing by letter. However, CPSI will accept
orders from VAR by telephone, telex, telefax or other commercially reasonable
means of communication provided that such orders are confirmed in writing by
VAR as soon thereafter as practicable but no later than three (3) business
days. All orders shall be governed exclusively by the terms and conditions of
this Agreement.
(a) Absent other arrangements, standard terms of payment are net
thirty (30) days from date of invoice, such invoice date to be reasonably
proximate with receipt of Product by VAR. All payments hereunder by VAR to
CPSI shall be made in United States currency at the address specified in
SECTION 11.4 below. When deemed applicable by CPSI, Letters of Credit, advance
payments and/or progress payments will be submitted to CPSI by VAR prior to
delivery of Licensed Product by CPSI to VAR. All Letters of Credit will be
from Banks or Institutions acceptable to CPSI. All sales, use, duty, excise or
similar tax applicable to sales pursuant to this Agreement shall be paid by VAR
unless VAR provides CPSI with a tax exemption certificate acceptable to CPSI
and the applicable taxing authorities prior to shipment.
(b) VAR shall not offset any amounts against, nor delay payment
of, the purchase price or any other amounts due to CPSI without CPSI's prior
written consent.
(c) CPSI may, at any time when in its own opinion the financial
condition of VAR so warrants, or if VAR fails to make payments when due, or
otherwise defaults hereunder, either alter terms of payment (including
requiring full or partial payment in advance of delivery), suspend credit and
delay shipment, or pursue any remedies available at law or pursuant to the
terms of this Agreement. In such event, CPSI shall be entitled to
reimbursement from VAR for its reasonable expenses, including attorneys' fees.
CPSI may charge the lesser of one and one half percent (1 1/2%) per month but
not to exceed the maximum interest rate deemed non-usurious under the laws of
the Commonwealth of Virginia.
6.3 FOREIGN PAYMENTS. If VAR is not a U.S. company, VAR agrees to obtain
any required approval of relevant authorities, if necessary, and to take
whatever steps may be required to remit to CPSI in U.S. dollars the payments
required hereunder. In the event VAR is unable to remit payments due to CPSI
within the periods provided for in this Agreement because of unavoidable delays
incurred in obtaining foreign approval for payment thereof, such belated
remittance shall not constitute a breach of this Agreement provided that VAR
has kept CPSI notified of the status of same and has acted with reasonable
diligence in obtaining such approval, and otherwise has made remittance to CPSI
promptly upon receiving said approval.
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6.4 DELIVERY.
(a) Any delivery dates quoted by CPSI to VAR are predictions only
of the time within which CPSI anticipates making its deliveries and are not
guarantees of delivery by such dates. CPSI shall use reasonable efforts to
comply with such schedules BUT SHALL NOT BE LIABLE IN DAMAGES OR OTHERWISE, nor
shall VAR be relieved of its performance hereunder, because of CPSI's failure
to meet such delivery dates.
(b) All prices are F.O.B. CPSI's facility in Fairfax, Virginia or
such other location(s) as designated by CPSI. VAR is responsible for payment
of all freight charges and for holding insurance at full value for the shipped
Products. Title to the Licensed Products shall pass, and VAR shall assume all
risk of loss or damage to the Licensed Products, upon delivery of the Licensed
Products to the carrier. Notwithstanding the foregoing, VAR hereby grants to
CPSI a security interest in all of the Licensed Products after passage of title
thereto, as well as a security interest in all proceeds and accounts
receivable, as security for all payments to be made by VAR and for the
performance in full by VAR of its other obligations under this Agreement,
together with the right, without liability and with or without notice to VAR,
to repossess such Licensed Products in the event of default with respect to any
such obligations. This Agreement constitutes a security agreement with respect
to such security interest, and VAR hereby authorizes CPSI to sign and file on
VAR's behalf any financing statements or other documents that may be necessary
or appropriate to perfect CPSI's security interest, and VAR agrees to sign all
such documents and take all such actions as CPSI may reasonably request with
respect to perfection and/or enforcement of such security interest.
(c) In the absence of specific instructions, CPSI will ship by
what it deems to be the most appropriate method. CPSI will try to accommodate
VAR's requests as to means of distribution; however, CPSI shall have the right
to select means of distribution other than as requested by VAR if CPSI
reasonably believes that such requested means of distribution are
unsatisfactory for proper shipment of the Licensed Products.
(d) Whenever CPSI shall deliver or cause to be delivered to a
common carrier any Products ordered by VAR, whether the particular carrier shall
have been designated in the shipping or routing instructions of the VAR or not,
CPSI shall not be responsible for any delays or damages in shipment and the
common carrier to which CPSI shall deliver Products for shipment to the VAR is
hereby declared to be the agent of the VAR.
(e) All claims for shortages must be made in writing within
fourteen (14) days after receipt by VAR of the shipment in which a shortage is
claimed. No claims shall be allowed if the shipment is not received by VAR, or
after expiration of said fourteen (14) days period.
6.5 RETURNS. CPSI shall not be obligated to accept from the VAR any
Products or parts returned, nor to make any exchange thereof, nor credit the
License thereof unless Product is defective under Warranty. Products may be
returned only with prior written authorization and a Return Merchandise
Authorization (RMA) number from CPSI. If unsold Products are returned in
original condition, VAR will receive credit on account; however, a fifteen
percent (15%) restocking charge will be assessed.
Except in the case of damage or defect attributable to CPSI, the VAR
shall not make any claim against the Company for any damaged or defective
product or part. VAR shall not have the right, without CPSI's prior written
consent, at any time after placing an order to purchase Products to cancel such
order (in whole or in part) or to make changes in items, quantities, delivery
schedules or methods of packaging or shipment. If CPSI consents to
cancellation or changes requested by VAR and such cancellation or changes
result in an increase or decrease in CPSI's prices or cost or time
requirements, CPSI shall make an equitable adjustment to the terms hereof.
6.6 MINIMUM PURCHASE FEE. Involving orders of Licensed Products which are
uniquely configured for VAR, or orders which amount to more than fifty (50)
Mobile Assistant(R) units, if VAR cancels such order prior to shipment,
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<PAGE> 11
but after CPSI has begun production on a given amount of the Products, VAR must
accept shipment of said given amount. Specific terms will be determined on a
case by case basis.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 CPSI WARRANTY. CPSI HEREBY REPRESENTS AND WARRANTS TO VAR THAT
LICENSED PRODUCTS CONFORM TO CPSI'S PUBLISHED SPECIFICATIONS AND THAT CPSI HAS
THE FULL POWER AND RIGHT TO ENTER INTO THIS AGREEMENT WITH VAR.
(a) LIMITS. THE ABOVE WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO ANY
WARRANTY OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE
WITH RESPECT TO THE LICENSED TECHNOLOGY AND/OR THE LICENSED PRODUCTS.
(b) DAMAGES. IN NO EVENT SHALL CPSI BE LIABLE FOR ANY CONSEQUENTIAL,
INCIDENTAL, INDIRECT, EXEMPLARY OR SPECIAL DAMAGES, WHETHER IN CONTRACT OR IN
TORT, RELATED TO THE LICENSED TECHNOLOGY, THE LICENSED PRODUCTS OR OTHERWISE
WITH RESPECT TO THIS AGREEMENT. VAR, BY ACCEPTANCE OF THE LICENSE RIGHTS
GRANTED HEREIN, ASSUMES ALL LIABILITY FOR, AND SHALL INDEMNIFY AND HOLD CPSI
HARMLESS FROM AND AGAINST ANY AND ALL CONSEQUENCES ARISING IN CONNECTION WITH
THE SALE, DISTRIBUTION, USE OR MISUSE OF THE LICENSED TECHNOLOGY OR THE
LICENSED PRODUCTS BY VAR, SUBLICENSEES, AFFILIATES OF VAR, CUSTOMERS OR THIRD
PARTIES.
7.2 VAR WARRANTY. VAR WARRANTS THAT DURING THE TERM OF THE AGREEMENT AND
ONE YEAR THEREAFTER, THAT IT WILL NOT MARKET, PROMOTE, OR ADVERTISE ANY PRODUCT
COMPETITIVE WITH LICENSED PRODUCT (DEFINED AS BELT-WORN, HANDS-FREE) UNLESS
AGREED TO IN WRITING BY BOTH PARTIES.
7.3 RIGHT. EACH PARTY HERETO WARRANTS THAT IT HAS THE RIGHT TO GRANT ANY
RIGHTS, LICENSES AND ASSURANCES GRANTED OR TO BE GRANTED.
7.4 DISCLAIMER. DATA INFORMATION AND RELATED INFORMATION HERETOFORE OR
HEREAFTER DISCLOSED BY CPSI TO VAR SHALL BE ACCURATE TO CPSI'S KNOWLEDGE AND
BELIEF, BUT CPSI MAKES NO WARRANTY OF ANY KIND WHATSOEVER, EITHER EXPRESS OR
IMPLIED, AS TO THE ACCURACY OF SUCH INFORMATION RELATING TO ANY PATENTS OR ANY
OR ALL OF THE SAID METHODS, TECHNIQUES, PROCESSES, INFORMATION, KNOWLEDGE,
KNOW-HOW, TRADE PRACTICES AND ANY SECRET DATA COMMUNICATED TO VAR.
7.5 WARRANTY POLICY. ALL LICENSED PRODUCTS HAVE A 90 DAY PARTS AND LABOR
WARRANTY AND A ONE YEAR PARTS ONLY WARRANTY DUE TO MANUFACTURER'S DEFECT. AN
EXTENDED WARRANTY IS AVAILABLE. IF THE LICENSED PRODUCT SHALL BECOME DEFECTIVE
WITHIN THE SPECIFIED WARRANTY PERIOD, CPSI SHALL EVALUATE THE NATURE OF THE
DEFECT, AND EITHER ELECT TO REPAIR OR REPLACE THE DEFECTIVE PRODUCT FREE OF
CHARGE. THIS WARRANTY SHALL NOT INCLUDE DAMAGE TO THE LICENSED PRODUCT
RESULTING FROM MISUSE OR ABUSE OF VAR, SUBLICENSEES, AFFILIATES OF VAR,
CUSTOMERS OR THIRD PARTIES. CPSI SHALL RESERVE THE RIGHT TO MAKE FINAL
JUDGMENT REGARDING THE NATURE OF THE ALLEGED DEFECT. UNLESS VAR IS A CERTIFIED
WARRANTY REPAIR SITE, THEN DEFECTIVE PRODUCTS ARE TO BE RETURNED TO CPSI OR
CPSI'S DESIGNATED REPAIR SITE POSTAGE PAID. CPSI MAY, AT ITS SOLE DISCRETION,
INCUR THE COST OF SHIPPING WARRANTED LICENSED PRODUCTS WITHIN THE UNITED
STATES. VAR WILL RECEIVE NO LESS THAN THE BEST PUBLISHED WARRANTY POLICY IN
EFFECT AT TIME OF PURCHASE.
7.6 VAR AGREEMENT. VAR HAS READ AND UNDERSTANDS SAID WARRANTY AND BY
EXECUTING THIS AGREEMENT CONSENTS TO ALL OF ITS TERMS AND PROVISIONS INCLUDING
ALL WAIVERS AND DISCLAIMERS CONTAINED THEREIN.
SECTION 8. INDEMNIFICATION PROVISIONS
8.1 AGREEMENT OF VAR TO INDEMNIFY. Subject to the conditions and
provisions of this SECTION 8, VAR hereby agrees to indemnify, defend and hold
harmless CPSI, Affiliates of CPSI, and their officers, directors, employees,
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agents and representatives (the "CPSI Indemnified Persons") from and against
and in respect to all demands, claims, actions or causes of action,
assessments, losses, damages (including, without limitation, diminution in
value), liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and other charges (collectively,
"Claims") asserted against, resulting to, imposed upon or incurred by the CPSI
Indemnified Persons, directly or indirectly, by reason of or resulting from:
(i) any use by VAR, Sublicensees or Affiliates of VAR of the Licensed
Technology or other information furnished by CPSI pursuant to this Agreement;
or (ii') any use, sale, or other disposition of Licensed Products by VAR,
Sublicensees, and/or Affiliates of VAR.
VAR shall maintain primary and noncontributing liability insurance to
cover damages and losses caused by or related to applications, specific
software, enhancements and modifications (whether to hardware or software) in
the equivalent of not less than_________________________________________
(US$______________________________) combined single limit (bodily injury and
property damage) including CPSI as an additional insured, with provision for
at least thirty (30) days prior written notice to CPSI in the event of
cancellation or material reduction in coverage. CPSI shall have the right to
demand and receive satisfactory evidence of such insurance coverage and shall
have the right to maintain such insurance coverage on VAR's behalf and at VAR's
expense in the event of nonpayment of premiums or lapse of coverage.
8.2 AGREEMENT OF CPSI TO INDEMNIFY. Subject to the conditions and
provisions of this SECTION 8, CPSI hereby agrees to indemnify, defend and hold
harmless VAR, Sublicensees and Affiliates of VAR, and their officers,
directors, employees, agents and representatives (the "VAR Indemnified
Persons") from and against and in respect of all Claims asserted against,
resulting to, imposed upon or incurred by the VAR Indemnified Persons, directly
or indirectly, by reason of or resulting from the infringement or alleged
infringement of any Third Party patents or other proprietary rights with
respect to the Licensed Technology; provided, however, that CPSI's aggregate
financial obligation under the foregoing indemnity shall be limited to and not
exceed the total amount actually paid by VAR to CPSI or One Million U.S.
Dollars ($1,000,000), whichever is less.
8.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of CPSI
and VAR hereunder with respect to their respective indemnities pursuant to this
SECTION 8 shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written notice to the
indemnifying party of any Claim which is asserted against, resulting to,
imposed upon or incurred by such indemnified party and which may give rise to
liability of the indemnifying party pursuant to this SECTION 8, stating (to the
extent known or reasonably anticipated) the nature and basis of such Claim and
the amount thereof.
(b) The indemnified party may engage counsel or representatives of
its own choosing with respect to any such Claim, such representation (including
the compromise or settlement of any Claim) to be undertaken on behalf of and
for the account and risk of the indemnifying party. In the event the
indemnified party elects not to undertake such defense by its own
representatives, the indemnified party shall give prompt written notice of such
election to the indemnifying party, and the indemnifying party will undertake
the defense thereof by counsel or other representatives designated by it whom
the indemnified party determines in writing to be satisfactory for such
purposes. The consent of the indemnified party to the indemnifying party's
choice of counsel or other representative shall not be unreasonably withheld.
(c) In the event that any Claim shall arise out of a transaction
or cover any period or periods wherein CPSI and VAR shall each be liable
hereunder for part of the liability or obligation arising therefrom, then the
parties shall each choose its own counsel, and shall pay its own expenses,
defend such Claim, and no settlement or compromise of such Claim may be made
without the joint consent or approval of CPSI and VAR (which consent shall not
be unreasonably withheld), except when the respective liabilities and
obligations of CPSI and VAR are clearly allocable or attributable on the basis
of objective facts.
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8.4 SPECIFIC PERFORMANCE. VAR hereby acknowledges that the Licensed
Technology is unique, and that the harm to CPSI resulting from breaches by VAR
of its obligations hereunder cannot be adequately compensated by monetary
damages alone. Accordingly, VAR agrees that, in addition to any other remedies
which CPSI may have at law or in equity, CPSI shall have the right to have all
obligations, undertakings, agreements, covenants and other provisions of this
Agreement specifically performed by VAR and that CPSI shall have the right to
obtain an order or decree of such specific performance in any of the courts of
the United States of America or of any state or other political subdivision
thereof.
8.5 REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative
and shall not preclude the assertion by CPSI or VAR of any other rights or the
seeking of any other remedies against the other, or their respective successors
or assigns.
8.6 INDEMNIFICATION BY VAR. VAR agrees to indemnify and hold harmless CPSI
against and from any loss, cost or damage, with any and all claims or damage or
injury related to alterations and additions made on the Licensed Products by
VAR, its agents, employees and subcontractors; which indemnification shall
specially include, without limitation, the obligation to hold CPSI harmless
from any and all attorneys' fees incurred by CPSI.
SECTION 9. CONFIDENTIALITY AND NON-DISCLOSURE.
9.1 DEFINITION OF PROPRIETARY AND CONFIDENTIAL INFORMATION. For purposes
of this Agreement, "Proprietary and Confidential Information" of a party means
any information that is not known by, or generally available to, the public at
large without restrictions on its use and that relates to or is used in
connection with the business and affairs of such party. Each party hereto
shall have the obligation to identify specifically its Proprietary and
Confidential Information.
9.2 PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION OF CPSI. The
Proprietary and Confidential Information of CPSI and all copies thereof are the
property of CPSI. VAR acknowledges that the Proprietary and Confidential
Information of CPSI includes valuable assets, know-how, and trade secrets of
CPSI. Accordingly, VAR agrees that, except as otherwise required by law or
provided in this Agreement, during the term of this Agreement and at all times
thereafter VAR shall:
(a) hold the Proprietary and Confidential Information of CPSI in
strict confidence or, where disclosure of specific Proprietary and Confidential
Information of CPSI is expressly authorized in writing by CPSI, shall comply
with all restrictions on the use and disclosure thereof set forth in such
written authorization;
(b) instruct its directors, officers and employees not to use,
sell, lease, assign, patent, transfer, disclose or otherwise make available to
any person or entity that is not a party hereto the Proprietary and
Confidential Information of CPSI, or the benefit thereof, except pursuant to
the written authorization of CPSI, as the case may be, or as necessary in order
to exercise its rights under SECTION 2 above; and
(c) not copy or duplicate by any means, in whole or in part, the
Proprietary and Confidential Information of CPSI except pursuant to the written
authorization of CPSI.
9.3 PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION OF VAR. The
Proprietary and Confidential Information of VAR and all copies thereof are the
property of VAR. CPSI acknowledges that the Proprietary and Confidential
Information of VAR may include valuable assets, know-how and trade secrets of
VAR. Accordingly, CPSI agrees that, except as otherwise required by law or
provided in this Agreement, during the term of this Agreement and at all times
thereafter CPSI shall:
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<PAGE> 14
(a) hold the Proprietary and Confidential Information of VAR in
strict confidence or, where disclosure of specific Proprietary and Confidential
Information is expressly authorized in writing by VAR, shall comply with all
restrictions on the use and disclosure thereof set forth in such written
authorization;
(b) instruct its directors, officers and employees not to use,
sell, lease, assign, transfer, disclose or otherwise make available to any
person or entity that is not a party hereto the Proprietary and Confidential
Information of VAR, or the benefit thereof, without the written authorization
of VAR; and
(c) not copy or duplicate by any means, in whole or in part, the
Proprietary and Confidential Information of VAR except pursuant to the written
authorization of VAR.
9.4 NONDISCLOSURE OF TERMS. Without in any way limiting the foregoing,
each party hereto agrees not to disclose or otherwise make available to any
person or entity that is not a party hereto, during or after the term of this
Agreement, the terms or provisions of this Agreement, or any summary or other
description of any such terms and provisions, except pursuant to the written
authorization of the other party hereto or as otherwise provided in this
Agreement, and except as may be required by law or legal process; provided,
however, that such party shall immediately notify the other party hereto of any
such legal requirement, and upon the reasonable request of the other party
shall cooperate in not contesting any such required disclosure.
9.5 NOTICE OF DISCLOSURE. In the event that either party hereto becomes
aware that any person or entity (including, but not limited to, any employee of
such party) is taking, threatens to take or has taken any action that would
violate any of the foregoing provisions of this SECTION 9 were that person or
entity a party to this Agreement in the place of such party, such party shall
promptly and fully advise the other party hereto (with written confirmation as
soon as possible thereafter) of all facts known to such party concerning such
action or threatened action. Each party agrees that it shall not in any way
aid, abet, or encourage any such action or threatened action.
9.6 EXCEPTIONS. Notwithstanding any other provision of this Agreement, the
obligations of each party hereto pursuant to this SECTION 9 shall not apply to
any Proprietary and Confidential Information that:
(a) is known to such party or generally known to the public prior
to its disclosure to such party by any other party to this Agreement;
(b) becomes known to the public by some means other than a breach
of this Agreement, including publication and/or laying open to
inspection of any patent application or patent; or
(c) is disclosed to such party by a third party that has a lawful
right to make such disclosure, and that has not breached any
obligation to a party hereto by virtue of such disclosure.
9.7 NONCOMPETITION/NONDISCLOSURE. VAR acknowledges that it would be very
difficult for VAR to avoid using or disclosing Proprietary and Confidential
Information of CPSI in the event VAR were to manufacture or market products
similar to the Licensed Products. Therefore, in addition to and not in lieu of
VAR's other obligations hereunder with respect to Proprietary and Confidential
Information of CPSI, VAR agrees that during the term of this Agreement and for
a period of two (2) years thereafter, VAR and/or its affiliates shall not
manufacture or market products similar to or competing with the Licensed
Products. The covenants contained in this section shall be construed as a
series of separate and severable covenants which are identical in terms except
for geographic coverage. CPSI and VAR agree that if in any proceeding, the
tribunal shall refuse to enforce fully any covenants contained herein because
such covenants cover too extensive a geographic area or too long a period of
time or for any other reason whatsoever, any such covenant shall be deemed
amended to the extent (but only to the extent) required by law.
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SECTION 9.8 NON-CIRCUMVENT PROVISION. CPSI will not attempt to market, nor to
encourage other VARs of CPSI to market Licensed Products directly to VAR's
customers for the same or similar Fields of Use as described in EXHIBIT B. It
is VAR's responsibility to inform CPSI in writing of such customers prior to
any existing obligation upon CPSI under this section. It is also the sole
responsibility of VAR to obtain appropriate agreements or covenants with its
customers that prevent said customer from approaching CPSI or other CPSI-VAR's
for any direct sale of Licensed Product.
Absent such a VAR-Customer agreement, CPSI will initially recommend
that the customer procure Licensed Product through VAR. Should the customer
insist for any sale to take place that Licensed Product be obtained directly
from CPSI, due to no fault of the VAR for performance, then CPSI will supply
customer with Licensed Product. VAR will receive a commission on such sales
(for two years from the date of said sale) which is equal to the difference in
commission between the then current Volume Discount Schedule and the VAR
Discount Schedule in EXHIBIT D1 for the quantity levels ordered.
SECTION 10. TERM AND TERMINATION.
10.1 TERM OF AGREEMENT. The term of this Agreement shall begin on the
Effective Date and shall continue until the date that is the third (3rd) annual
anniversary of the Effective Date, unless sooner terminated pursuant to this
SECTION 10. Upon expiration of this license at the end of the term, VAR shall
have first rights of refusal to enter into a subsequent agreement to sell and
support Licensed Products within Territory for applications within the licensed
fields of use, on whatever terms CPSI may at that time deem most appropriate.
10.2 DEFAULT OF VAR. CPSI may terminate this Agreement immediately by
written notice to VAR upon the occurrence of a Default of VAR. A "Default of
VAR" for purposes of this Agreement shall occur if: VAR shall have failed to
perform, observe or satisfy in any material respect any covenant, condition, or
agreement required by this Agreement to be performed, observed, or satisfied by
VAR, and such failure to perform or breach shall have continued for a period of
ten (10) days after written notice thereof to VAR from CPSI; provided, however,
that if such failure is not reasonably susceptible to correction within such
ten-day (10-day) period, but is correctable within a longer period not to
exceed thirty (30) days, a Default of VAR shall not be deemed to have occurred
if, to CPSI's satisfaction, VAR has commenced and diligently pursued corrective
action within such ten-day (10-day) period as soon as possible after being so
notified, and such failure is corrected no later than thirty (30) days after
such notice.
10.3 DEFAULT OF CPSI. VAR may terminate this Agreement immediately by
written notice to CPSI upon the occurrence of a "Default of CPSI". A "Default
of CPSI" for purposes of this Agreement shall occur if: CPSI shall have failed
to perform, observe, or satisfy in any material respect any covenant,
condition, or agreement required by this Agreement to be performed, observed,
or satisfied by CPSI or CPSI shall have breached any warranty or representation
contained herein, and such failure to perform or breach shall have continued
for a period of ten (10) days after written notice thereof to CPSI from VAR;
provided, however, that if such failure is not reasonably susceptible to
correction within such ten (10) day period, but is correctable within a longer
period not to exceed thirty (30) days, a Default of CPSI shall not be deemed to
have occurred if CPSI has commenced and diligently pursued corrective action
within such ten-day (10-day) period as soon as possible after being so
notified, and such failure is corrected no later than thirty (30) days after
such notice;
10.4 RETURN OF PROPRIETARY AND CONFIDENTIAL INFORMATION. Upon the
expiration or termination of this Agreement for any reason: (i) VAR shall
promptly return to CPSI all Proprietary and Confidential Information of CPSI
(including, without limitation, only if CPSI so requests, all Licensed Products
not sold to Third Parties); and (ii) CPSI shall promptly return to VAR all
Proprietary and Confidential Information of VAR not otherwise licensed to CPSI
hereunder. CPSI will refund to VAR full payment less 15% restocking fee for
Licensed Products in unused and original condition and packing.
- 15 -
<PAGE> 16
10.5 BANKRUPTCY. If VAR shall become bankrupt or insolvent and/or if the
business of VAR shall be placed in the hands of a receiver, assignee or
trustee for the benefit of creditors, whether by voluntary act of VAR or
otherwise, or if Payments due are unpaid, CPSI shall have the right to serve
notice upon VAR, by certified mail at an address specified in SECTION 11 of
this Agreement, of its intention to terminate this Agreement within ninety (90)
days after receipt of said notice by VAR. If VAR has not cured the conditions
leading to such notice within ninety (90) days after receipt of said notice or
termination, the rights, privileges and license granted hereunder shall
terminate as of the end of such ninety (90) day period, and neither party shall
have any further rights, duties or obligations hereunder except as may have
then accrued under this Agreement, or as otherwise provided herein.
10.6 NO RELEASE. Upon termination of this Agreement for any reason, nothing
herein shall be construed to release either party from any obligation which
matured prior to the effective date of termination; and VAR may, after the
effective date of such termination, sell all Licensed Products and complete all
Licensed Products in the process of manufacture or modification at the time of
termination and sell the same, provided that VAR pays CPSI all amounts due CPSI
under SECTION 6 of this Agreement.
10.7 RIGHT OF TERMINATION. Either party may terminate this Agreement at any
time after the third (3rd) anniversary of the Effective Date of this Agreement
by giving written notice of termination to the other party at least six (6)
months in advance; provided, however, that if the party giving notice shall be
in default of any of the terms and conditions of this Agreement at such time
such notice is given, such notice shall be null and void and of no effect.
CPSI shall also have the right to terminate this Agreement at any time after
the first (1st) anniversary of the Effective Date of this Agreement if CPSI
determines that based on reasonable information and sales data provided by VAR
there is, or will be, insufficient sales by VAR of Licensed Products. CPSI
shall give VAR thirty (30) days prior written notice of such termination for
lack of sales for Licensed Products.
MISCELLANEOUS PROVISIONS.
11.1 INDEPENDENT CONTRACTOR. VAR's relationship hereunder shall be that of
an independent contractor and not that of an agent, representative or employee
of CPSI, and VAR shall have no power to bind CPSI or contract in CPSI's name.
All persons employed by VAR in connection with operations under this Agreement
shall be considered employees or agents of VAR, and shall in no way, either
directly or indirectly, be considered employees or agents of CPSI. VAR will
defend, indemnify and hold CPSI harmless against any and all claims, losses,
damages, liabilities and costs whatsoever (including reasonable attorneys'
fees) arising as a result of any claim that VAR's relationship hereunder is
that of an agent, representative or employee of CPSI.
11.2 FORCE MAJEURE. CPSI shall not be liable for any delay in delivery or
modification, suspension or cancellation of performance or other failure of
performance hereunder in whole or in part caused by events beyond its control,
including but not limited to acts of God or government, labor disputes or
inability to secure materials, labor or transportation.
11.3 ADDITIONAL ACTIONS AND DOCUMENTS. Each of the parties hereto shall
take or cause to be taken such further actions, shall execute, deliver, and
file or cause to be executed, delivered, and filed such further documents and
instruments (including, but not limited to, documents necessary or desirable to
record the existence of this Agreement with any authority and/or registry which
CPSI deems reasonably necessary to protect its rights hereunder), and shall
obtain such consents as may be necessary or as the other party may reasonably
request, without the payment of further consideration, in order fully to
effectuate the purposes, terms, and conditions of this Agreement.
11.4 NOTICES. All notices, demands, requests, or other communications
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be hand
delivered (including delivery by courier or overnight delivery service), mailed
by first-class, registered or
- 16 -
<PAGE> 17
certified mail, return receipt requested, postage prepaid, telegram, telex, or
facsimile transmission, addressed as follows:
(a) If to VAR:
FC Imaging, Inc.
2000 N. Fourteenth Street, Suite 310
Arlington, Virginia 22201
Any Authorized Officer of VAR: /s/ AFSOUN A. KUHUSMAN - President
Facsimile No.: (703) 524-6483
(b) If to CPSI:
Computer Products & Services, Inc.
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
Attention: Edward G. Newman, President
Facsimile No.: (703) 631-7070
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given, served
or sent. Each notice, demand, request, or communication which shall be mailed,
delivered or transmitted in the manner described herein shall be deemed
sufficiently given, served, sent or received for all purposes at such time as
it is delivered to the addressee with the return receipt, the delivery receipt,
the affidavit of messenger or (with respect to a telex) the answer back being
deemed conclusive, but not exclusive, evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.
11.5 SEVERABILITY. If fulfillment of any provision of this Agreement shall
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled or performed shall be reduced to the limit of such
validity; and if any clause or provision contained in this Agreement operates
or would operate prospectively to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein or therein contained, and the remainder of this Agreement shall
remain operative and in full force and effect.
11.6 WAIVERS. No waiver by any party of, or consent by any party to, a
variation from the requirements of any provision of this Agreement shall be
effective unless made in a written instrument duly executed by or on behalf of
such party, and any such waiver shall be limited solely to those rights or
conditions expressly waived.
11.7 EXPENSES. Each party hereto shall pay its own expenses incident to
this Agreement and the transactions contemplated hereby.
11.8 ENTIRE AGREEMENT; MODIFICATION; PRIORITY; BENEFIT.
(a) This Agreement constitutes the entire agreement of the parties
hereto with respect to the matters contemplated herein and supersedes all prior
oral and written memoranda and agreements with respect to the matters
contemplated herein.
(b) The terms and conditions of this Agreement, including the
attached Exhibits (collectively, these "Terms"), constitute an offer to sell
and do not constitute an acceptance by CPSI of any purchase order or offer to
buy, notwithstanding any reference thereto, except to the extent of the express
provisions of these Terms. This offer to sell may be accepted by VAR either in
writing or by any conduct that recognizes the existence of any agreement. Any
such acceptance is limited to the express provisions of these Terms. CPSI
hereby objects to, and rejects, any
- 17 -
<PAGE> 18
proposal for additional or different provisions or any attempt by VAR to vary
any of these Terms (whether in a purchase order, offer to buy or otherwise),
and any such additional or different provisions or variances shall be deemed
material. Any such proposal or attempt by VAR that would materially change the
description, quantity, price or delivery schedule of the Products shall
constitute a rejection of this offer. Any other such proposal or attempt shall
not operate as a rejection, but this offer shall be deemed accepted by VAR
without regard thereto.
(c) No representation, promise, condition or statement not
contained in this Agreement shall be binding on CPSI unless accepted in writing
by CPSI. This Agreement can be modified, amended or rescinded only in a written
document duly signed by the parties hereto; provided, however, that CPSI shall
have the unilateral right to change the list prices specified in EXHIBIT D2
upon thirty (30) days prior written notice to VAR.
11.9 ARBITRATION. Any dispute or controversy arising out of this Agreement
shall be submitted to binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. The seat of
arbitration shall be Fairfax, Virginia. The arbitrators shall not alter, amend
or modify the terms and conditions of this Agreement but shall consider the
pertinent facts and circumstances and shall be guided by the terms and
conditions of this Agreement which shall be binding on them in resolving any
dispute or controversy hereunder.
11.10 CONSTRUCTION. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes and resolutions relating thereto
shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia (but not including the choice of law rules thereof)
except that questions affecting the validity, construction and effect of any
patent shall be determined by the laws of the country in which the patent was
granted. The parties hereto acknowledge that this instrument sets forth the
entire agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
This Agreement shall not be governed by the United Nations Convention on
Contracts for the International Sale of Goods.
11.11 HEADINGS. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a
part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
11.12 SUCCESSION. This Agreement shall be binding upon, and shall insure to
the benefit of the parties and their respective heirs, executors, successors,
assigns, and legal representatives.
11.13 EXECUTION. To facilitate execution, this Agreement may be executed in
as many counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or the signatures of all persons
required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement.
11.14 SURVIVAL. Neither expiration nor termination of this Agreement shall
terminate those obligations and rights of the parties pursuant to provisions of
this Agreement which by their express terms are intended to survive and such
provisions shall survive the expiration or termination of this Agreement
including, without limitation, SECTIONS 2, 6, 7, 8, 9, 10 and 11. The parties
shall be entitled to exercise such rights and remedies as may be available at
law or in equity to enforce rights and obligations which survive expiration or
termination of this Agreement.
- 18 -
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have caused this Value Added
Reseller Agreement to be duly executed on their behalf, as of the date first
written above.
COMPUTER PRODUCTS
& SERVICES, INC.
By: /s/ JOHN MOYNAHAN
----------------------------
Name: John Moynahan
--------------------------
Title: VP & CFO
-------------------------
Date: 1/23/96
--------------------------
FC Imaging, Inc.
By: /s/ AFSAEU A. KUHUSURAN
----------------------------
Name: Afsaeu A. Kuhusuran
--------------------------
Title: President
-------------------------
Date: 1/23/96
--------------------------
- 19 -
<PAGE> 20
EXHIBIT A
LICENSED TECHNOLOGIES AND PRODUCTS
LICENSED TECHNOLOGIES:
- - United States Letters Patent No. 5,305,244 issued on April 19, 1994
for Hands-Free User-Supported Portable Computer and the inventions and
improvements disclosed therein.
- - CPSI-proprietary Mobile Assistant(R) computer
- - CPSI-proprietary head-mounted displays, under license from Kopin
Display Technologies or others
- - CPSI-proprietary Display Designs, manufacturing process and tooling
- - CPSI-proprietary Voice Recognition algorithms and software
implementation
- - CPSI-proprietary Video compression algorithms and software
implementation
- - CPSI-proprietary Presentation Graphics and control interface
appearance algorithms and software implementation
- - CPSI-proprietary application development toolkits, consisting of
algorithms, capabilities and software implementations used to specify,
design, implement, capture, organize, test and quality assure
applications based in part on CPSI Mobile Assistant(R) products.
- - CPSI-proprietary knowledge engineering and rules based shell
technology
LICENSED PRODUCTS:
- - Mobile Assistant(R)
- - Options and Features per Mobile Assistant(R) Brochure and Price List
- - Toolkit Software
- 20 -
<PAGE> 21
EXHIBIT B
FIELDS OF USE
- - Aircraft Maintenance and Repair
- - Firefighting Support
- - Medical Services Delivery
- - Vehicle Maintenance and Repair
- - Manufacturing Plant Monitoring Maintenance and Repair
- - Commercial, Industrial, and Residential Real Estate Monitoring,
Maintenance, Repair, and Refurbishment
- - Residential, Commercial and Industrial Appliance Maintenance and
Repair
- - Military, Commercial and Personal naval vessel training, Maintenance
and Repair
- - Education and training
- - Such Other Areas As Mutually Agreed In Writing By CPSI and VAR
VAR's proposed field/fields of use:
Voice-activated front end to an existing Claris Filemaker Pro application,
providing thermographers with hands-free capture of visual and thermal images
and associated data entry as used for recommended applications by EPRI
(Electric Power Research Institute) in power plants and related industries.
- 21 -
<PAGE> 22
EXHIBIT C
LICENSED TERRITORY
The United States of America
- 22 -
<PAGE> 23
EXHIBIT D1
CPSI VAR DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
================================================================================
QUANTITY RANGE
- --------------------------------------------------------------------------------
Bottom Top Discount
- --------------------------------------------------------------------------------
<S> <C> <C>
1 10 0.0%
- --------------------------------------------------------------------------------
11 20 6.0%
- --------------------------------------------------------------------------------
21 50 10.0%
- --------------------------------------------------------------------------------
51 250 14.0%
- --------------------------------------------------------------------------------
251 --- 16.0%
================================================================================
</TABLE>
CPSI WHOLESALE DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
================================================================================
QUANTITY RANGE
- --------------------------------------------------------------------------------
Bottom Top Discount
- --------------------------------------------------------------------------------
<S> <C> <C>
1 10 0.0%
- --------------------------------------------------------------------------------
11 20 3.0%
- --------------------------------------------------------------------------------
21 50 5.0%
- --------------------------------------------------------------------------------
51 250 7.0%
- --------------------------------------------------------------------------------
251 --- 10.0%
================================================================================
</TABLE>
Effective as of November 1995 - 23 -
<PAGE> 24
EXHIBIT E
MINIMUM FIRST YEAR MOBILE ASSISTANT(R) UNIT PURCHASES
First annual purchase quantity: 21 units
Effective as of November 1995 - 24 -
<PAGE> 1
EXHIBIT 10.20
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made and entered into effective the 1st day of
January,1996, by and between COMPUTER PRODUCTS & SERVICES, INC., a corporation
organized under the laws of the Commonwealth of Virginia hereinafter referred
to as "CLIENT"), and STEVEN A. NEWMAN hereinafter referred to as
"CONSULTANT").
INTRODUCTION
A. CLIENT is engaged in the business of developing, manufacturing and
marketing computer products including hardware, software and services.
B. CLIENT believes it essential to obtain during the term of this
Agreement the ongoing services of CONSULTANT and CONSULTANT has agreed
to provide his services during the term of this Agreement for the
benefit of the CLIENT.
C. By entering into the Agreement hereinafter set forth, the parties
hereto desire to memorialize their full agreement with respect to the
terms and conditions of the services to be provided by CONSULTANT.
AGREEMENT
NOW, THEREFORE, for good and lawful consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Engagement and Duties. CLIENT hereby engages CONSULTANT and CONSULTANT
hereby accepts such engagement, to provide consulting, negotiating and
advisory services including, but not limited to identification and
contracting of strategic partners, identification and hiring of
employees, financings, and general management, upon and subject to the
terms and conditions set forth herein. CONSULTANT shall perform all
duties as may, from time to time, be assigned to him by the Board of
Directors of CLIENT. During the term of this Agreement, CONSULTANT
shall not engage directly or indirectly in any activities comparative
with any business which is now or which hereafter may be conducted by
CLIENT. It is agreed that CONSULTANT's position with Tech International
Virginia, Inc. does not violate the terms of this Agreement.
2. Term. The term of CONSULTANT's engagement shall be for a period of
three (3) years commencing January 1, 1996 and terminating December 31,
1998. The term of this Agreement and of the engagement of CONSULTANT
hereunder shall be automatically renewed for an additional three (3)
year period on terms no less favorable to CONSULTANT than those set
forth in this Agreement, unless either party gives the other party
written notice of termination of this Agreement at least sixty (60)
days prior to the termination of each term of this Agreement.
3. Consideration.
a. As consideration and compensation for CONSULTANT's services to be
performed hereunder, CLIENT shall pay to CONSULTANT an annual
minimum retainer of One Hundred Thousand Dollars ($100,000) per
year payable in equal monthly payments or as invoiced by
CONSULTANT. CONSULTANT shall charge CLIENT for CONSULTANT's
- 1 -
<PAGE> 2
services as against the minimum annual retainer fee the sum of
One Thousand Dollars ($1,000) per day or Five Thousand Dollars
($5,000) per week. The minimum annual retainer hereunder and the
daily and weekly charges of CONSULTANT shall be increased each
year during the term of this Agreement by an amount no less than
the U.S. Consumer Price Index plus two percentage (2%) points.
b. As additional consideration for CONSULTANT's services, CLIENT
agrees to pay CONSULTANT an annual cash bonus in an amount of no
less than one percent (1%) of CLIENT's pretax income for each
calendar year. Pretax income, for purposes of the initial term of
this Agreement, shall mean the consolidated income before taxes
as presented in the CLIENT's audited financial statements for
each fiscal year, increased by research and development expenses
and expenses related to this or other bonus or incentive plans,
including noncash charges related to warrants, stock options and
the alike. For purposes of any additional terms of this
Agreement, pretax income shall mean the consolidated income
before taxes as presented in CLIENT's audited financial
statements for each fiscal year, increased by expenses related to
this or other bonus or incentive plans, including non-cash
charges related to warrants, stock options and the like. The
total cash bonus paid hereunder will be supplemented by the grant
of a fully vested option with a ten (10) year life to purchase
shares of CLIENT's common stock at a price per share equal to the
average equivalent sales price per share of CLIENT's common stock
during the ninety (90) day period immediately preceding the
effective date of this Agreement. The number of CLIENT's shares
of common stock granted to CONSULTANT as part of this option
shall be determined by dividing the cash bonus earned by the
CONSULTANT by the per share stock option price. In this regard,
in the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation,
rights offering or any other change in the corporate structure or
shares of CLIENT, or any of its subsidiaries, the number and kind
of shares subject to this bonus and the price thereof shall be
proportionately adjusted so as to give CONSULTANT the benefit of
his agreement to receive the stock at the stock sales price as
set forth above.
4. Expenses. During the term of this Agreement, CLIENT agrees to
reimburse CONSULTANT for reasonable and necessary expenses incurred by
CONSULTANT in the performance of his duties under this Agreement.
5. Change in Control. Should a change in control of CLIENT take place,
this Agreement shall remain binding on CLIENT or its successor in
interest. A "Change in Control" of CLIENT for purposes of this
Agreement shall mean someone other than EDWARD NEWMAN serving as
CLIENT's Chairman of the Board of Directors, President or Chief
Executive Officer, However, in the event of a change in control,
CONSULTANT, in his sole discretion, shall have the right to terminate
this Agreement and shall be entitled to severance pay equal to the
greater of the amount received by CONSULTANT during the previous two
(2) calendar years of the term of this Agreement, pursuant to Section
3, above, or two (2) times the amount of compensation due CONSULTANT
pursuant to Section 3, above, at the end of the then current fiscal
year.
6. Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been given only if
mailed, certified return receipt requested, or if sent by Federal
Express or other well recognized private courier ("Courier") or if
personally delivered to, or if sent by fax with the original thereof
sent by Courier to:
- 2 -
<PAGE> 3
If to the CLIENT: Computer Products & Services, Inc.
12701 Fair Lakes Circle, Ste 550
Fairfax, VA 22033
Fax (703) 631-7070
If to CONSULTANT: Steven A. Newman
303 Avenida Cerritos
Newport Beach Ca 92660
Fax (714) 760-3865
All notices, requests and other communications shall be deemed received
on the date of acknowledgment or other evidence of actual receipt in
the case of certified mail, Courier delivery or personal delivery or,
in the case of fax delivery, upon the date of fax receipt provided that
the original is delivered within two (2) business days. Any party
hereto may designate different or additional parties for the receipt of
notice, pursuant to notice given in accordance with the foregoing.
7. Attorneys' Fees. In the event of default hereunder, the defaulting
party shall be liable to the non-defaulting party for all expenses and
costs incurred by the non-defaulting party in protecting or enforcing
its right hereunder including but not limited to reasonable attorneys'
fees and costs.
8. Subject Headings. The subject headings of the paragraphs of this
Agreement are included solely for the purposes of convenience and
reference only, and shall not be deemed to explain, modify, limit,
amplify or aid the meaning, construction or interpretation of any of
the provisions of this Agreement.
9. Amendments. No supplement, modification or amendment of this Agreement
shall be binding or enforceable unless executed in writing by the
parties hereto.
10. Entire Agreement and Waiver. This Agreement contains the entire
agreement between the parties hereto concerning the subject matter
hereof and supersedes all prior and contemporaneous agreements,
arrangements, negotiations and understandings between the parties hereto
relating to the subject matter hereof. There are no other
understandings, statements, promises or inducements, oral or otherwise,
contrary to the terms of this Agreement. No representations, warranties,
covenants or conditions, express or implied, whether by statute or
otherwise, other than as set forth herein, have been made by any party
hereto. No waiver of any term, provision or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be
deemed to be, or shall constitute, a waiver of any other provision
hereof, whether or not similar, nor shall such waiver constitute a
continuing waiver, and no waiver shall be binding unless executed in
writing by the party making the waiver.
11. Miscellaneous. Nothing in this Agreement, whether express or implied,
is intended to confer upon any person other than the parties hereto and
their respective heirs, representatives, successors and permitted
assigns, any rights or remedies under or by reason of this Agreement.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, representatives,
successors and permitted assigns. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
This Agreement shall be governed by and construed and enforced in
accordance with and shall be subject to the laws of the Commonwealth of
Virginia. Each party
-3-
<PAGE> 4
agrees to execute and deliver, at any time and from time to time, upon
the request of the other party, such further instruments or documents as
may be necessary or appropriate to carry out the provisions contained
herein, and to take such other action as the party may reasonably request
to effectuate the provisions of this Agreement. Should any part, term or
provision of this Agreement be declared by a court of competent
jurisdiction to be invalid, void or unenforceable at law or in equity, it
is the express intention of the parties hereto that such part, term or
provision shall be construed in such manner as to provide for the
enforcement thereof to the maximum extent and in the broadest scope
permitted under law and all remaining parts, terms and provisions hereof
shall remain in full force and effect and shall in no way be invalidated,
impaired or affected thereby. The parties agree that each party and its
counsel have reviewed and revised this Agreement and that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply in the interpretation of this Agreement.
Time is hereby declared to be of the essence of each provision of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement
as of the date set forth at the beginning.
CLIENT: COMPUTER PRODUCTS & SERVICES, INC.,
A VIRGINIA CORPORATION
By:
------------------------------------------
CONSULTANT:
----------------------------------------------
STEVEN A. NEWMAN
-4-
<PAGE> 1
EXHIBIT 10.21
XYBERNAUT CORPORATION
NONEXCLUSIVE
VALUE ADDED RESELLER AGREEMENT
THIS NONEXCLUSIVE VALUE ADDED RESELLER AGREEMENT ("Agreement") is made and
entered into as of the ____ day of _____________________, 199____ by and
between Xybernaut Corporation, a Virginia corporation, having an office at
12701 Fair Lakes Circle, Suite 550, Fairfax, Virginia 22033 ("Xybernaut"),
and_________________________________________
_________________________________________________, a ___________________
corporation having an office
at______________________________________________________________________________
________________________ ("Value Added Reseller" or "VAR").
WHEREAS, Xybernaut and/or Affiliates of Xybernaut have rights or
have licensed rights to sublicense the "Licensed Technology" (as
such term is defined below);
WHEREAS, VAR has inspected the Licensed Technology and
represents that it is equipped and in a favorable position to
market "Licensed Products" in the "Field of Use" in the
"Licensed Territory" (as such terms are defined below); and
WHEREAS, VAR desires to obtain certain rights to market the
Licensed Products, and Xybernaut desires to grant VAR those
certain rights to market the Licensed Products, pursuant to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and for other valuable consideration the
receipt and sufficiency of which are hereby acknowledged,
Xybernaut and VAR hereby agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings ascribed to them below in this SECTION 1.
1.1 "Affiliate" means, with respect to a party, any corporation or other
entity that directly or indirectly, through one or more intermediaries,
controls (i.e., possesses, directly or indirectly, the power to direct or cause
the direction of the overall management and policies of an entity, whether
through ownership of voting securities, by contract or otherwise), is
controlled by, or is under common control of such party.
1.2 "Default of VAR" has the meaning set forth in SECTIONS 10.2 AND 10.7
below.
1.3 "Default of Xybernaut" has the meaning set forth in SECTION 10.3
below.
1.4 "Effective Date" means the date ascribed in the first paragraph
hereof.
1.5 "Field of Use" means the field or fields of use described in EXHIBIT B
hereto. All exhibits attached to this Agreement are incorporated herein by
reference.
1.6 "Mobile Assistant(R) Unit" means a Licensed Product assembly
consisting of a wearable computing device, a wearable battery pack, a
hands-free display device, a user activation input device, an activation output
device, along with the systems and application support software provided
thereon by Xybernaut.
1.7 "Licensed Technologies" means the intellectual properties described in
EXHIBIT A hereto.
1.8 "Licensed Territory" or "Territory" means the geographic territory
described in EXHIBIT C hereto.
1.9 "Proprietary and Confidential Information" has the meaning set forth
in SECTION 9.1 below.
1.10 "Sublicense" has the meaning set forth in SECTION 2.2 below.
1.11 "Sublicensee" has the meaning set forth in SECTION 2.2 below.
- 1 -
<PAGE> 2
1.12 "Third Party" means any party other than a party to this Agreement or
an Affiliate of a party to this Agreement.
1.13 "Territory Fee" means a future fee payable by VAR to Xybernaut in the
event this non-exclusive agreement is converted by Xybernaut to an exclusive
agreement for the rights granted by this License within the Territory.
1.14 "Data Information" means Xybernaut's trade secrets, know-how methods,
techniques, processes, knowledge, trade practices, trade names, trademarks,
marketing materials, software library, and information generally relating to
developing, manufacturing and selling the Licensed Products, now existing or
hereinafter developed or acquired by Xybernaut.
1.15 "Patent Rights" means any patent or patent applications, issued or
filed or which may be filed, in any jurisdiction relating to Licensed Products
or to the manufacturing processing thereof, including any improvements thereon
(whether or not patented) made or acquired by, or licensed to, Xybernaut. A
patent shall cease to be a Patent Right in the event of any of the following:
(i) The patent expires;
(ii) The patent is no longer maintained; or
(iii) All pertinent claims in the patent have been held to be
invalid by an unappealed or unappealable decision of a court
of competent jurisdiction.
The patents presently held by Xybernaut which shall be made available to VAR
through this Agreement are listed on EXHIBIT A.
1.16 "Technical Data" shall mean the information contained in the documents
listed in EXHIBIT A attached hereto and any new technical data and materials
which may be furnished to VAR by Xybernaut during the term of this Agreement.
1.17 "Licensed Product", both in the singular and the plural, shall mean
(i) any device or apparatus which embodies or makes use of any inventions
claimed in the Patent Rights, (ii) any device or apparatus which is made by or
with the use of any method or process claimed in the Patent Rights or (iii)
any device or apparatus which is made by or with the use of any information
contained in the Technical Data, including but not limited to, the products
described in EXHIBIT A hereto.
1.18 "Net Sales Price" shall mean invoiced price of Xybernaut Licensed
Products to VAR or to other purchaser or customer upon which Discounts in
EXHIBIT D1 (Discount Schedule on Net Sales Price) are based. The following
items are not included in the Net Sales Price:
(i) Quantity (but not cash) discounts allowed, provided such
discounts are shown separately on the invoice;
(ii) Packaging, transportation and insurance charges on shipments
to customers, provided they are shown separately on the
invoice;
(iii) Sales and use taxes, if any, but only if such taxes are shown
separately on the invoice and are not included in the purchase
price of Licensed Product; and
(iv) Amounts refunded or credited upon purchase price of Licensed
Product provided, however, that the Net Sales Price as
hereinabove defined shall not be reduced on account of bad
debts, collection costs or sales commissions. In the event
that Licensed Product is sold to an Affiliate or Licensee or
to any director or officer of VAR or a corporation in which
such director or officer has a controlling interest, then Net
Sales Price shall be the price which would have been charged
if the Licensed Product in question had been sold on normal
terms and conditions to a purchaser dealing at arm's length
with VAR. In the event Licensed Product is sold as a
component, and an unlicensed combination, which includes a
charge for Licensed Product, the Net Sales Price of Licensed
Product shall be that portion of the entire combination which
is fairly attributable to Licensed Product component thereof,
calculated according to a previously specified agreement in
writing between VAR and Xybernaut.
1.19 "Non-Exclusive" means that within the Licensed Territory and Field of
Use:
(i) VAR maintains, together with other VARs, Xybernaut-authorized
sales and support facilities for Licensed Products within the
Licensed Territory.
(ii) Xybernaut will not provide training for such items,
consultation nor other support services at locations within the
Licensed Territory, unless orders for such services are placed
by VAR.
(iii) VAR will not attempt to sell products or services based upon
Licensed Products and Technologies in any Territory and Field
of Use exclusively licensed by Xybernaut to another VAR or
Distributor. Any exclusive license given
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subsequent to a nonexclusive license in the same territory is
granted conditioned upon the rights of the first licensee, i.e.
the nonexclusive licensee. If a nonexclusive VAR is granted a
license that is ongoing, the subsequent exclusive VAR takes an
exclusive license against the entire world except for a
previous nonexclusive licensee.
(iv) Xybernaut will not knowingly provide technical support to any
person or organization, other than VAR, seeking to obtain,
modify or adopt licensed products for distribution within
Territory.
SECTION 2. GRANT OF RIGHTS
2.1 GRANT OF LICENSE. Xybernaut hereby grants to VAR, and VAR hereby
accepts, a limited, non-exclusive right and license, with rights to
sublicensing as set forth in SECTION 2.2, to market Licensed Products within
the Field of Use in the Licensed Territory. VAR shall have no property rights
with respect to the Licensed Technology or the Licensed Products except as
specifically designated herein. At the expiration of the Term of this
Agreement, Xybernaut may consider, at its option, converting the license to an
exclusive license in the same or different Territory and with the payment of
Territory Fee, grant same.
2.2 SUBLICENSES. Xybernaut hereby grants to VAR the right to grant one or
more sublicenses pursuant to this Agreement, to third parties, to market
Licensed Products in the Field of Use within the Licensed Territory (each such
third party shall be referred to as a "Sublicensee"); provided, however, that
each such Sublicense shall be no greater in scope than the license granted
pursuant to SECTION 2.1 above, and that each such Sublicensee shall agree to be
bound by the terms and conditions of this Agreement. Notwithstanding the
foregoing, all potential Sublicensees must be approved in advance and in
writing by Xybernaut prior to executing a sublicense agreement or otherwise
acquiring any rights with respect to the Licensed Products. The rights and
obligations of any Sublicensee under this Agreement shall not be deemed to
supplant or diminish the rights and obligations of VAR hereunder.
2.3 EXERCISE OF RIGHTS BY AFFILIATES. VAR's rights to market Licensed
Products in the Field of Use in the Licensed Territory pursuant to this
Agreement may be exercised by any Affiliate of VAR; provided, however, that VAR
shall provide to Xybernaut prior written notice that a particular Affiliate of
VAR will exercise such rights. Xybernaut shall approve or disapprove in
writing such exercise of rights by any VAR Affiliate, and each such Affiliate
of VAR shall agree in writing to be bound by the terms and conditions of this
Agreement. The rights and obligations of any Affiliate of VAR under this
Agreement shall not be deemed to supplant or diminish the rights and
obligations of the VAR hereunder.
2.4 GRANT BACK CLAUSE. VAR and Xybernaut agree to jointly and
independently work to produce improvements, inventions, discoveries, and
developments which enhance the features, functions, and capabilities of
Licensed Products. Such efforts will be considered as follows.
(a) If during the term of this Agreement, Xybernaut, any Affiliate
of Xybernaut, or any employee of Xybernaut shall make an improvement,
refinement, invention, discovery and/or development which Xybernaut makes
generally available to its other distributors of the Licensed Product,
Xybernaut shall furnish to VAR technical data and operating information
relating to such an improvement, refinement, invention, discovery or
development, to the extent that the same are required for the up-to-date sale
of Licensed Products. VAR's rights with respect to such invention, discovery or
development shall be co-terminous with the term of this Agreement.
(b) Change of Design. Xybernaut reserves the right to improve or
otherwise change the design of any product or part thereof at any time without
notice to VAR. However, Xybernaut will attempt to notify all VARs in advance of
any material changes in the Product. If any such change is made, Xybernaut may,
but shall not be obligated to, make the change upon any Products or parts
shipped thereafter on the orders of the VAR, nor shall Xybernaut be obligated
to make a similar change on any Products or parts previously shipped to the
VAR, or to install or furnish any other or different parts than were thereon
when shipment was made.
(c) If during the term of this Agreement, VAR, any Sublicensee or
Affiliate of VAR, or any employee of VAR, or Consultant of VAR, shall make an
invention, discovery or development which VAR, any Sublicensee, or any
Affiliate of VAR uses to enhance, refine, improve, or revise Licensed Products,
VAR shall grant a royalty-free worldwide license to Xybernaut for the
unrestricted use and practice and shall furnish to Xybernaut technical data
and operating information relating to such improvement, refinement, invention,
discovery and/or development for use or sublicensing by Xybernaut in
conjunction with its use and licensing of the Licensed Technology and its sale
of Licensed Products. Xybernaut's rights with respect to such invention,
discovery or development shall survive any termination of this Agreement.
(d) Upon written request by VAR or Third Party, Xybernaut shall
evaluate and assess the relative quality, completeness, ease of use and
productivity enhancement of an application or tool based on Licensed
Technologies and Products, which has been developed by VAR or a Third Party.
After certification by Xybernaut that the application or tool is suitable for
worldwide deployment, Xybernaut and VAR or Third Party may, at their option,
enter into a separate agreement defining the terms and conditions under which
Xybernaut will undertake worldwide distribution of the Application, and the
schedule of royalty payments to VAR or Third Party by Xybernaut as a
consequence of such application distribution.
(e) If, during the term of this agreement, Xybernaut, any
affiliate of Xybernaut, or any employee of Xybernaut, shall jointly with VAR,
any Sublicensee or Affiliate of VAR or any employee of VAR make an improvement,
refinement, invention, discovery or
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development which Xybernaut or any VAR, Sublicensee or Affiliate of any VAR
uses in conjunction with its marketing of Licensed Products, Xybernaut shall
retain title and ownership of such invention, discovery and/or development, but
Xybernaut shall furnish to VAR technical data and operating information.
2.5 TRADEMARKS. VAR, at its expense, shall be responsible, following
consultation with Xybernaut, for the selection, registration and maintenance of
the brand names to be used by it with respect to the sale of Licensed Products
and VAR shall own and control such trademarks. Notwithstanding the foregoing,
in the event of termination of this Agreement pursuant to SECTION 10.2 due to a
Default of VAR, any and all rights in and to such trademarks (including, but
not limited to, goodwill related thereto) shall be at Xybernaut's option
automatically assigned to Xybernaut and VAR agrees that it shall promptly
execute an assignment of all trademarks and any other documentation as may be
required to evidence and effectuate such assignment.
2.6 RIGHT TO USE NAME. Subject to the provisions of Subsection (c), the
VAR may use the notation "Authorized VAR of Xybernaut's "Mobile Assistant(R)
Unit" in connection with its distribution of Licensed Products in any sign or
advertising during the continuance of this Agreement. VAR may not make any
untrue statements of their relationship with Xybernaut, such as "Exclusive
Agent of Xybernaut" or "Branch Office of Xybernaut," or the like. In case of
termination of this Agreement, or upon request of Xybernaut, VAR shall
discontinue use of Xybernaut trademarked names and thereafter shall not use the
name directly or indirectly in connection with its business, nor use any other
name, title, or expression so nearly resembling it as would be likely to lead
to confusion or uncertainty or to deceive the public.
2.7 ASSIGNABILITY. This Agreement may not be assigned or transferred by
VAR in whole or in part, either voluntarily or by operation of law, without the
prior written consent of Xybernaut. Any attempted assignment or transfer by
VAR without the written consent of Xybernaut thereto shall, at Xybernaut's
option, become null and void, and shall, at Xybernaut's option, forthwith
terminate and cancel this Agreement and all rights of VAR hereunder. Xybernaut
shall have the right to assign its rights under this License in connection with
a sale or restructuring of its business.
2.8 NO AGENCY RELATIONSHIP It is understood and agreed that VAR is not,
by this Agreement or anything contained herein, constituted or appointed the
agent or representative of Xybernaut for any purpose whatsoever, nor shall
anything contained herein be deemed or construed as granting to VAR any right
or authority to assume or to create any obligation or responsibility, express
or implied, for or in behalf of or in the name of Xybernaut in any way or
manner whatsoever. VAR agrees not to use Xybernaut's name in any advertising
or publicity regarding this Agreement without Xybernaut's prior written
consent.
2.9 PREVENTING VIOLATION OF PRODUCT LICENSE. Xybernaut will require of
VAR (as it has required and will require of all other licensees) full
cooperation with Xybernaut to prevent any violation of any exclusive Product
license granted by Xybernaut to others.
SECTION 3. VAR OBLIGATIONS.
3.1 TRAINING AND ADVERTISING PACKAGE. Upon execution of this Agreement,
VAR will be required to purchase from Xybernaut a VAR Preparation Package for
$7,500 which includes five (5) days of initial training for up to two (2)
people, up to forty (40) man hours of technical assistance as provided for in
SECTION 5.1(B), a collection of collateral advertising literature, Xybernaut
videos, and special demonstrations. At its own expense, VAR agrees to attend
the required initial training, as well as periodic Products training conducted
by Xybernaut at least annually.
3.2 MARKETING PLAN. VAR shall furnish Xybernaut from time to time, general
information concerning the Licensed Territory including economic, commercial,
and industrial data affecting the business or prospects for business of
Xybernaut. At least once per year on the annual anniversary of the Effective
Date, VAR shall provide to Xybernaut a current revision of an acceptable plan
describing VAR's development, promotion, sales, and support of Licensed
Products.
3.3 FINANCIAL INFORMATION. Upon request of Xybernaut, VAR will complete a
standard credit application and other such financial information as Xybernaut
may reasonably require to establish credit.
3.4 BEST EFFORTS. VAR shall use its best efforts to promote, market and
sell the Licensed Products within the Licensed Territory for its own account
and risk, including credit risks, and vigorously pursue the promotion,
marketing, and sale of the Licensed Products.
3.5 SALES AND SUPPORT. VAR agrees to comply with Xybernaut guidelines, if
any, for expedient servicing and support of users of Licensed Products. VAR
will use its best efforts to promote demand for and sale of the Licensed
Products and will maintain adequate facilities and properly trained sales
personnel for these purposes. VAR may use advertising materials supplied by or
purchased from Xybernaut and shall display items which are representative of
Licensed Products; however, VAR may use other advertising materials from their
own sources.
3.6 BUSINESS CONDUCT. VAR shall conduct its business in a manner that will
reflect favorably on Xybernaut, the Licensed Products, and Xybernaut's good
name. VAR shall refrain from engaging in any deceptive, misleading or unethical
practice. VAR shall refrain from making any representation or warranty to a
potential buyer with respect to, or in connection with, the Licensed Products
which contains any untrue or misleading statement of material fact or omits any
material fact necessary to make the statements not misleading.
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SECTION 4. COVENANTS OF VAR.
VAR represents and covenants with Xybernaut as follows:
4.1 TERRITORIAL USES. VAR shall sell Licensed Products solely within the
Territory Licensed and, to the extent such matter may be within the control of
VAR, shall sell Products only to purchasers who use them for purposes within
the Licensed Fields of Use described within the Territory. Xybernaut
acknowledges that the actions of third party purchasers are not entirely within
the control of VAR, and VAR shall not be required to police the sales of its
third party purchasers.
4.2 NO RELIANCE ON XYBERNAUT. VAR has independently investigated the
market demand for Products within the Territory and is not relying upon any
market studies or other information furnished to it by Xybernaut for purpose of
determining the expected volume of business to be generated from the sale of
Licensed Products.
4.3 GOOD FAITH. VAR will deal in good faith with Xybernaut (just as
Xybernaut will deal with VAR) on all matters related to this License and will
not, acting alone or in concert with other parties, seek to circumvent the
intent of this License.
4.4 QUALITY STANDARDS. VAR will comply with all reasonable quality
standards with respect to Products imposed by Xybernaut on both itself and on
VAR, in recognition of the substantial investment made by Xybernaut in
establishing a reputation for Licensed Product and the potential damage to that
reputation if VAR fails to observe the quality standards imposed by Xybernaut
with respect to those Licensed Products sold under any trademark or trade name
licensed pursuant to this License.
4.5 INSPECTIONS. VAR agrees to provide Xybernaut with access to Products
each year for inspection thereof. Notwithstanding the above, VAR-developed
applications based, in part, on Licensed Product shall be made available to
Xybernaut on at least an annual basis for inspection and evaluation (regarding
ease of use, consistency of user interface quality and robustness).
4.6 MARKING. VAR agrees to mark the Products sold with all applicable
patent numbers and Xybernaut Product Branding. All Products shipped to or sold
in other countries, with Xybernaut's prior written approval, shall be marked in
such a matter as to conform with the patent laws and practice of the country of
manufacture or sale.
(a) VAR shall not effect or permit the removal or alteration of any
patent numbers, trade names or trademarks, proprietary notices, nameplates or
serial numbers affixed to the Licensed Products, without Xybernaut's prior
written consent.
(b) VAR shall not effect or permit the affixation of any additional
trade names or trademarks, proprietary notices or nameplates to the Licensed
Products without Xybernaut's prior written consent.
4.7 FACILITIES, ABILITY, AND DESIRE TO BE VAR. VAR represents that it
possesses and will maintain the technical facilities, properly trained staff,
and ability to promote the sale and use of Licensed Products and is desirous of
developing demand for and selling such Licensed Products in the Territory
hereinafter described.
4.8 DUTY OF INSPECTION AND TESTING. The VAR shall inspect, test, make all
modifications or adjustments and, if necessary, conduct trials prior to
delivery of the Licensed Product to the customer. VAR is not relieved of this
responsibility if the Licensed Product is delivered at a location other than
the principal place of business of VAR.
4.9 MINIMUM INITIAL ORDER. Within 30 days of the execution of this
Agreement, VAR shall present a binding purchase order for a minimum of two
Mobile Assistant(R) units accompanied by a nonrefundable down payment of 25% of
the gross purchase order amount. Such units are to be used for customer
testing and demonstrations. Delivery of these units to VAR is to be as soon as
practicable.
4.10 CERTIFICATIONS. VAR agrees to obtain all relevant and necessary
approvals, certifications or licenses for end-user sales of Licensed Products
within its Territory. Costs of any required product modifications as well as
certification and inspection fees, will be borne solely by VAR. Xybernaut
shall, upon request by VAR, provide consultation and technical support to VAR
in matters related to local adaptation and certification of Licensed Products.
Such work shall be accomplished by Xybernaut in accordance with SECTION 5.1.
SECTION 5. XYBERNAUT OBLIGATIONS
5.1 TECHNICAL TRAINING AND ASSISTANCE.
(a) Xybernaut shall provide a maximum of five (5) days of required
technical training at Xybernaut's offices in Virginia for at most two (2) VAR
personnel as to the use of the Licensed Products. Such training sessions shall
be scheduled at a time mutually convenient to the parties. All costs for VAR
personnel attending this initial training session (including, but not limited
to, travel, lodging and other expenses) shall be the responsibility of VAR.
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(b) Xybernaut agrees to furnish to VAR, at no additional cost under
this Agreement as stipulated in SECTION 3.1, up to forty (40) man-hours of
technical assistance during the first twenty-four (24) months of this Agreement
at Xybernaut's Fairfax, Virginia facility or at another mutually acceptable
site. VAR will reimburse Xybernaut for any out of pocket expenses related to
such activities.
(c) Xybernaut shall provide additional technical training and
technical assistance to VAR, upon the reasonable request of VAR, regarding use
of the Licensed Products at such times and locations as mutually agreed to in
writing by the parties. All such additional technical training shall be
provided by Xybernaut to VAR at Xybernaut's then-current rates for such
services. VAR shall reimburse Xybernaut for transportation, meals and lodging
expenses incurred by Xybernaut representative(s) in connection with any such
additional training.
5.2 TECHNICAL DATA. Xybernaut agrees to furnish to VAR, within thirty
(30) days after the effective date of this Agreement, two (2) copies each of
the Technical Data hereof. All Technical Data furnished hereunder shall be in
the form normally used by Xybernaut for its own purposes, except software will
be provided in executable object code form only.
5.3 TRAVEL REGULATIONS. All personnel and representatives of each party
while visiting the other party shall abide by all rules and regulations of the
respective country and, where required, the espionage and security laws,
regulations and others of the visited country. Each party hereby indemnifies
and holds the other party harmless from and responsible for injuries to, or
death of, or travel, living and other expenses of its representatives and
personnel, including loss, theft, damage and destruction of property.
5.4 PATENT RIGHTS IN TERRITORY. Xybernaut, at its discretion, shall
prepare, file and prosecute, in the name of Xybernaut, and at Xybernaut's
expense, patents and applications for letters patent with respect to the
Licensed Products in the Territory (including, without limitation, with respect
to modifications, improvements, enhancements, variations and alterations on the
Licensed Products covered by the Patent Rights). Xybernaut shall also be
responsible for the expense incurred in connection with the filing, prosecution
and maintenance of patents and applications covering the Licensed Products with
respect to which VAR has entered into a license under this Agreement and any
continuation-in-part, divisionals, reissues or substitute applications thereof.
Xybernaut acknowledges that if Xybernaut does not seek patent protection within
the Territory, the Data and Information and the Patent Rights may be deemed to
be in the public domain but any such loss of rights shall not terminate VAR's
obligations hereunder.
(a) COOPERATION. VAR agrees to cooperate with Xybernaut to ensure
that all patent applications filed will reflect, to the best of VAR's
knowledge, all items of commercial interest and importance.
(b) NOTICE AND ADVICE. Xybernaut shall keep VAR advised as to all
developments with respect to all patent applications filed in the Territory,
and shall supply to VAR copies of all papers received and filed in connection
with the prosecution thereof. VAR shall have the right, either directly or
indirectly through its patent attorneys and/or agents, to advise and cooperate
with Xybernaut in the prosecution of such applications.
(c) OWNERSHIP OF TERRITORIAL PATENTS. All patents with respect to
the Licensed Products shall be the sole and exclusive property of Xybernaut,
subject to the non-exclusive license hereby granted to VAR. VAR shall, upon
demand, execute and deliver to Xybernaut such documents as may be deemed
necessary or advisable by counsel for Xybernaut, for filing in the appropriate
patent offices and elsewhere to evidence the granting and to assure the
perfection and maintenance of the license hereby granted.
5.5 ACCEPTANCE AND FILLING OF ORDERS. All orders Xybernaut receives for
Licensed Products from the VAR are subject to acceptance by Xybernaut.
Xybernaut will use its best efforts to fill the accepted orders as promptly as
practicable, subject, however, to delays or failure to fill the accepted order
caused by transportation conditions, labor or material shortages, strikes,
riots, fires, or any other cause beyond Xybernaut's control. In all cases,
Xybernaut will use its best efforts to advise VAR in advance of any foreseeable
inability to make full and timely delivery of any Products which VAR has
ordered.
5.6 UNLICENSED ACTIVITY AND INFRINGEMENT. Xybernaut and VAR shall
promptly inform each other in writing of any potential infringement by a third
party of which they are aware of any patents included with the Patent Rights,
and provide each other with any available evidence of infringement. During the
term of this License, Xybernaut shall at its discretion prosecute, at its own
expense, any such infringement of the Patent Rights.
5.7 NEW PRODUCT INTRODUCTIONS. As Xybernaut introduces new products, VAR
will receive from Xybernaut at least 30 days advance notice regarding
anticipated future product announcements. All such future product availability
information will be considered Xybernaut confidential and proprietary, and will
be protected by VAR as described in SECTION 9. The VAR license will
automatically be modified to include the new product. Within 90 days of receipt
of each future Xybernaut product notice, VAR will notify Xybernaut that either
(i) it wishes to amend its license to include the anticipated future product(s)
or (ii) it does not intend to sell products and services based on the future
Xybernaut product within Territory. Xybernaut may, at its sole discretion,
accept or reject any such proposed amendments.
SECTION 6. PAYMENTS AND DELIVERY
6.1 PURCHASE OF LICENSED PRODUCTS AND DISCOUNTS. The Licensed Products
shall be purchased by VAR from Xybernaut at purchase prices equal to
Xybernaut's list prices for the Licensed Products, less the currently
applicable discounts specified in EXHIBIT D1.
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Xybernaut shall have the right to revise the list prices and discount schedule
semi-annually upon thirty (30) days prior written notice. Xybernaut has a
suggested retail price (EXHIBIT D2); however, the parties acknowledge and agree
that VAR shall be free to establish the price(s) it charges to its customers
for the Licensed Product. Notwithstanding the above, Xybernaut reserves the
right to offer VARs limited duration, promotional, or special situation
discounts from VAR prices, in order to stimulate sales of particular products,
or applications within specific territories.
6.2 PAYMENT TERMS. VAR agrees that it will submit purchase orders for the
purchase of Licensed Products in writing by letter. However, Xybernaut will
accept orders from VAR by telephone, telex, telefax or other commercially
reasonable means of communication provided that such orders are confirmed in
writing by VAR as soon thereafter as practicable but no later than three (3)
business days. All orders shall be governed exclusively by the terms and
conditions of this Agreement.
(a) Absent other arrangements, standard terms of payment are net
thirty (30) days from date of invoice, such invoice date to be reasonably
proximate with receipt of Product by VAR. All payments hereunder by VAR to
Xybernaut shall be made in United States currency at the address specified in
SECTION 11.4 below. When deemed applicable by Xybernaut, Letters of Credit,
advance payments and/or progress payments will be submitted to Xybernaut by VAR
prior to delivery of Licensed Product by Xybernaut to VAR. All Letters of
Credit will be from Banks or Institutions acceptable to Xybernaut. All sales,
use, duty, excise or similar tax applicable to sales pursuant to this Agreement
shall be paid by VAR unless VAR provides Xybernaut with a tax exemption
certificate acceptable to Xybernaut and the applicable taxing authorities prior
to shipment.
(b) VAR shall not offset any amounts against, nor delay payment
of, the purchase price or any other amounts due to Xybernaut without
Xybernaut's prior written consent.
(c) Xybernaut may, at any time when in its own opinion the
financial condition of VAR so warrants, or if VAR fails to make payments when
due, or otherwise defaults hereunder, either alter terms of payment (including
requiring full or partial payment in advance of delivery), suspend credit and
delay shipment, or pursue any remedies available at law or pursuant to the
terms of this Agreement. In such event, Xybernaut shall be entitled to
reimbursement from VAR for its reasonable expenses, including attorneys' fees.
Xybernaut may charge the lesser of one and one half percent (1 1/2%) per month
but not to exceed the maximum interest rate deemed nonusurious under the laws
of the Commonwealth of Virginia.
6.3 FOREIGN PAYMENTS. If VAR is not a U.S. company, VAR agrees to obtain
any required approval of relevant authorities, if necessary, and to take
whatever steps may be required to remit to Xybernaut in U.S. dollars the
payments required hereunder. In the event VAR is unable to remit payments due
to Xybernaut within the periods provided for in this Agreement because of
unavoidable delays incurred in obtaining foreign approval for payment thereof,
such belated remittance shall not constitute a breach of this Agreement
provided that VAR has kept Xybernaut notified of the status of same and has
acted with reasonable diligence in obtaining such approval, and otherwise has
made remittance to Xybernaut promptly upon receiving said approval.
6.4 DELIVERY.
(a) Any delivery dates quoted by Xybernaut to VAR are predictions
only of the time within which Xybernaut anticipates making its deliveries and
are not guarantees of delivery by such dates. Xybernaut shall use reasonable
efforts to comply with such schedules BUT SHALL NOT BE LIABLE IN DAMAGES OR
OTHERWISE, nor shall VAR be relieved of its performance hereunder, because of
Xybernaut's failure to meet such delivery dates.
(b) All prices are F.O.B. Xybernaut's facility in Fairfax,
Virginia or such other location(s) as designated by Xybernaut. VAR is
responsible for payment of all freight charges and for holding insurance at
full value for the shipped Products. Title to the Licensed Products shall
pass, and VAR shall assume all risk of loss or damage to the Licensed Products,
upon delivery of the Licensed Products to the carrier. Notwithstanding the
foregoing, VAR hereby grants to Xybernaut a security interest in all of the
Licensed Products after passage of title thereto, as well as a security
interest in all proceeds and accounts receivable, as security for all payments
to be made by VAR and the performance in full by VAR of its other obligations
under this Agreement, together with the right, without liability and with or
without notice to VAR, to repossess such Licensed Products in the event of
default with respect to any such obligations. This Agreement constitutes a
security agreement with respect to such security interest, and VAR hereby
authorizes Xybernaut to sign and file on VAR's behalf any financing statements
or other documents that may be necessary or appropriate to perfect Xybernaut's
security interest, and VAR agrees to sign all such documents and take all such
actions as Xybernaut may reasonably request with respect to perfection and/or
enforcement of such security interest.
(c) In the absence of specific instructions, Xybernaut will ship
by what it deems to be the most appropriate method. Xybernaut will try to
accommodate VAR's requests as to means of distribution; however, Xybernaut
shall have the right to select means of distribution other than as requested by
VAR if Xybernaut reasonably believes that such requested means of distribution
are unsatisfactory for proper shipment of the Licensed Products.
(d) Whenever Xybernaut shall deliver or cause to be delivered to a
common carrier any Products ordered by VAR, whether the particular carrier
shall have been designated in the shipping or routing instructions of the VAR
or not, Xybernaut shall not be
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responsible for any delays or damages in shipment and the common carrier to
which Xybernaut shall deliver Products for shipment to the VAR is hereby
declared to be the agent of the VAR.
(e) All claims for shortages must be made in writing within seven
(7) days after receipt by VAR of the shipment in which a shortage is claimed.
No claims shall be allowed if the shipment is not received by VAR, or after
expiration of said seven (7) days period.
6.5 RETURNS. Xybernaut shall not be obligated to accept from the VAR any
Products or parts returned, nor to make any exchange thereof, nor credit the
License thereof unless Product is defective under Warranty. Products may be
returned only with prior written authorization and a Return Merchandise
Authorization (RMA) number from Xybernaut. If unsold Products are returned in
original condition, VAR will receive credit on account; however, a fifteen
percent (15%) restocking charge will be assessed.
Except in the case of damage or defect attributable to Xybernaut, the
VAR shall not make any claim against the Company for any damaged or defective
product or part. VAR shall not have the right, without Xybernaut's prior
written consent, at any time after placing an order to purchase Products to
cancel such order (in whole or in part) or to make changes in items,
quantities, delivery schedules or methods of packaging or shipment. If
Xybernaut consents to cancellation or changes requested by VAR and such
cancellation or changes result in an increase or decrease in Xybernaut's prices
or cost or time requirements, Xybernaut shall make an equitable adjustment to
the terms hereof.
6.6 MINIMUM PURCHASE FEE. Involving orders of Licensed Products which are
uniquely configured for VAR, or orders which amount to more than fifty (50)
Mobile Assistant(R) units, if VAR cancels such order prior to shipment, but
after Xybernaut has begun production on a given amount of the Products, VAR
must accept shipment of said given amount. Specific terms will be determined on
a case by case basis.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 XYBERNAUT WARRANTY . XYBERNAUT HEREBY REPRESENTS AND WARRANTS TO VAR
THAT LICENSED PRODUCTS CONFORM TO XYBERNAUT'S PUBLISHED SPECIFICATIONS AND THAT
XYBERNAUT HAS THE FULL POWER AND RIGHT TO ENTER INTO THIS AGREEMENT WITH VAR.
(a) LIMITS. THE ABOVE WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO ANY
WARRANTY OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE
WITH RESPECT TO THE LICENSED TECHNOLOGY AND/OR THE LICENSED PRODUCTS.
(b) DAMAGES. IN NO EVENT SHALL XYBERNAUT BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY OR SPECIAL DAMAGES, WHETHER IN
CONTRACT OR IN TORT, RELATED TO THE LICENSED TECHNOLOGY, THE LICENSED PRODUCTS
OR OTHERWISE WITH RESPECT TO THIS AGREEMENT. VAR, BY ACCEPTANCE OF THE
LICENSE RIGHTS GRANTED HEREIN, ASSUMES ALL LIABILITY FOR, AND SHALL INDEMNIFY
AND HOLD XYBERNAUT HARMLESS FROM AND AGAINST ANY AND ALL CONSEQUENCES ARISING
IN CONNECTION WITH THE SALE, DISTRIBUTION, USE OR MISUSE OF THE LICENSED
TECHNOLOGY OR THE LICENSED PRODUCTS BY VAR, SUBLICENSEES, AFFILIATES OF VAR,
CUSTOMERS OR THIRD PARTIES.
7.2 VAR WARRANTY. VAR WARRANTS THAT DURING THE TERM OF THE AGREEMENT AND
ONE YEAR THEREAFTER, THAT IT WILL NOT MARKET, PROMOTE, OR ADVERTISE ANY PRODUCT
COMPETITIVE WITH LICENSED PRODUCT AS IT IS DEFINED HEREIN
7.3 RIGHT. EACH PARTY HERETO WARRANTS THAT IT HAS THE RIGHT TO GRANT ANY
RIGHTS, LICENSES AND ASSURANCES GRANTED OR TO BE GRANTED.
7.4 DISCLAIMER. DATA INFORMATION AND RELATED INFORMATION HERETOFORE OR
HEREAFTER DISCLOSED BY XYBERNAUT TO VAR SHALL BE ACCURATE TO XYBERNAUT'S
KNOWLEDGE AND BELIEF, BUT XYBERNAUT MAKES NO WARRANTY OF ANY KIND WHATSOEVER,
EITHER EXPRESS OR IMPLIED, AS TO THE ACCURACY OF SUCH INFORMATION RELATING TO
ANY PATENTS OR ANY OR ALL OF THE SAID METHODS, TECHNIQUES, PROCESSES,
INFORMATION, KNOWLEDGE, KNOW-HOW, TRADE PRACTICES AND ANY SECRET DATA
COMMUNICATED TO VAR.
7.5 WARRANTY POLICY. ALL LICENSED PRODUCTS HAVE A 90 DAY PARTS AND LABOR
WARRANTY AND A ONE YEAR PARTS ONLY WARRANTY DUE TO MANUFACTURER'S DEFECT. AN
EXTENDED WARRANTY IS AVAILABLE. IF THE LICENSED PRODUCT SHALL BECOME DEFECTIVE
WITHIN THE SPECIFIED WARRANTY PERIOD, XYBERNAUT SHALL EVALUATE THE NATURE OF
THE DEFECT, AND EITHER ELECT TO REPAIR OR REPLACE THE DEFECTIVE PRODUCT FREE OF
CHARGE. THIS WARRANTY SHALL NOT INCLUDE DAMAGE TO THE LICENSED PRODUCT
RESULTING FROM MISUSE OR ABUSE OF VAR, SUBLICENSEES, AFFILIATES OF VAR,
CUSTOMERS OR THIRD PARTIES. XYBERNAUT SHALL RESERVE THE RIGHT TO MAKE FINAL
JUDGMENT REGARDING THE NATURE OF THE ALLEGED DEFECT. IF VAR IS NOT A CERTIFIED
WARRANTY REPAIR SITE, DEFECTIVE PRODUCTS ARE TO BE RETURNED TO XYBERNAUT OR
XYBERNAUT'S DESIGNATED REPAIR SITE POSTAGE PAID. XYBERNAUT MAY, AT ITS SOLE
DISCRETION, INCUR THE COST OF SHIPPING WARRANTED LICENSED PRODUCTS WITHIN THE
UNITED STATES. VAR WILL RECEIVE NO LESS THAN THE BEST PUBLISHED WARRANTY POLICY
IN EFFECT AT TIME OF PURCHASE.
7.6 VAR AGREEMENT. VAR HAS READ AND UNDERSTANDS SAID WARRANTY AND BY
EXECUTING THIS AGREEMENT CONSENTS TO ALL OF ITS TERMS AND PROVISIONS INCLUDING
ALL WAIVERS AND DISCLAIMERS CONTAINED THEREIN.
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SECTION 8. INDEMNIFICATION PROVISIONS
8.1 AGREEMENT OF VAR TO INDEMNIFY. Subject to the conditions and
provisions of this SECTION 8, VAR hereby agrees to indemnify, defend and hold
harmless Xybernaut, Affiliates of Xybernaut, and their officers, directors,
employees, agents and representatives (the "Xybernaut Indemnified Persons")
from and against and in respect to all demands, claims, actions or causes of
action, assessments, losses, damages (including, without limitation,
diminution in value), liabilities, costs and expenses, including, without
limitation, interest, penalties and attorneys' fees and other charges
(collectively, "Claims") asserted against, resulting to, imposed upon or
incurred by the Xybernaut Indemnified Persons, directly or indirectly, by
reason of or resulting from: (i) any use by VAR, Sublicensees or Affiliates of
VAR of the Licensed Technology or other information furnished by Xybernaut
pursuant to this Agreement; or (ii) any use, sale, or other disposition of
Licensed Products by VAR, Sublicensees, Affiliates of VAR and/or Third Parties.
VAR shall maintain primary and noncontributing liability insurance to
cover damages and losses caused by or related to applications, specific
software, enhancements and modifications (whether to hardware or software) in
the equivalent of not less than ____________________________________________
(US$ _____________________) combined single limit (bodily injury and property
damage) including Xybernaut as an additional insured, with provision for at
least thirty (30) days prior written notice to Xybernaut in the event of
cancellation or material reduction in coverage. Xybernaut shall have the right
to demand and receive satisfactory evidence of such insurance coverage and
shall have the right to maintain such insurance coverage on VAR's behalf and at
VAR's expense in the event of nonpayment of premiums or lapse of coverage.
8.2 AGREEMENT OF XYBERNAUT TO INDEMNIFY. Subject to the conditions and
provisions of this SECTION 8, Xybernaut hereby agrees to indemnify, defend and
hold harmless VAR, Sublicensees and Affiliates of VAR, and their officers,
directors, employees, agents and representatives (the "VAR Indemnified
Persons") from and against and in respect of all Claims asserted against,
resulting to, imposed upon or incurred by the VAR Indemnified Persons, directly
or indirectly, by reason of or resulting from the infringement or alleged
infringement of any Third Party patents or other proprietary rights with
respect to the Licensed Technology; provided, however, that Xybernaut's
aggregate financial obligation under the foregoing indemnity shall be limited
to and not exceed the total amount actually paid by VAR to Xybernaut or One
Million U.S. Dollars ($1,000,000), whichever is less.
8.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of
Xybernaut and VAR hereunder with respect to their respective indemnities
pursuant to this SECTION 8 shall be subject to the following terms and
conditions:
(a) The indemnified party shall give prompt written notice to the
indemnifying party of any Claim which is asserted against, resulting to,
imposed upon or incurred by such indemnified party and which may give rise to
liability of the indemnifying party pursuant to this SECTION 8, stating (to the
extent known or reasonably anticipated) the nature and basis of such Claim and
the amount thereof.
(b) The indemnified party may engage counsel or representatives
of its own choosing with respect to any such Claim, such representation
(including the compromise or settlement of any Claim) to be undertaken on
behalf of and for the account and risk of the indemnifying party. In the event
the indemnified party elects not to undertake such defense by its own
representatives, the indemnified party shall give prompt written notice of such
election to the indemnifying party, and the indemnifying party will undertake
the defense thereof by counsel or other representatives designated by it whom
the indemnified party determines in writing to be satisfactory for such
purposes. The consent of the indemnified party to the indemnifying party's
choice of counsel or other representative shall not be unreasonably withheld.
(c) In the event that any Claim shall arise out of a transaction
or cover any period or periods wherein Xybernaut and VAR shall each be liable
hereunder for part of the liability or obligation arising therefrom, then the
parties shall each choose its own counsel, and shall pay its own expenses,
defend such Claim, and no settlement or compromise of such Claim may be made
without the joint consent or approval of Xybernaut and VAR (which consent shall
not be unreasonably withheld), except when the respective liabilities and
obligations of Xybernaut and VAR are clearly allocable or attributable on the
basis of objective facts.
8.4 SPECIFIC PERFORMANCE. VAR hereby acknowledges that the Licensed
Technology is unique, and that the harm to Xybernaut resulting from breaches by
VAR of its obligations hereunder cannot be adequately compensated by monetary
damages alone. Accordingly, VAR agrees that, in addition to any other remedies
which Xybernaut may have at law or in equity, Xybernaut shall have the right to
have all obligations, undertakings, agreements, covenants and other provisions
of this Agreement specifically performed by VAR and that Xybernaut shall have
the right to obtain an order or decree of such specific performance in any of
the courts of the United States of America or of any state or other political
subdivision thereof.
8.5 REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative
and shall not preclude the assertion by Xybernaut or VAR of any other rights or
the seeking of any other remedies against the other, or their respective
successors or assigns.
8.6 INDEMNIFICATION BY VAR. VAR agrees to indemnify and hold harmless
Xybernaut against and from any loss, cost or damage, with any and all claims or
damage or injury related to alterations and additions made on the Licensed
Products by VAR, its agents, employees and subcontractors; which
indemnification shall specially include, without limitation, the obligation to
hold Xybernaut harmless from any and all attorneys' fees, investigation or
other costs incurred by Xybernaut.
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SECTION 9. CONFIDENTIALITY AND NON-DISCLOSURE.
9.1 DEFINITION OF PROPRIETARY AND CONFIDENTIAL INFORMATION. For purposes
of this Agreement, "Proprietary and Confidential Information" of a party means
any information that is not known by, or generally available to, the public at
large without restrictions on its use and that which relates to or is used in
connection with the business and affairs of such party. Each party hereto
shall have the obligation to identify specifically its Proprietary and
Confidential Information.
9.2 PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION OF XYBERNAUT.
The Proprietary and Confidential Information of Xybernaut and all copies
thereof are the property of Xybernaut. VAR acknowledges that the Proprietary
and Confidential Information of Xybernaut includes valuable assets, know-how,
and trade secrets of Xybernaut. Accordingly, VAR agrees that, except as
otherwise required by law or provided in this Agreement, during the term of
this Agreement and at all times thereafter VAR shall:
(a) hold the Proprietary and Confidential Information of Xybernaut
in strict confidence or, where disclosure of specific Proprietary and
Confidential Information of Xybernaut is expressly authorized in writing by
Xybernaut, shall comply with all restrictions on the use and disclosure thereof
set forth in such written authorization;
(b) instruct its directors, officers and employees not to use,
sell, lease, assign, patent, transfer, disclose or otherwise make available to
any person or entity that is not a party hereto the Proprietary and
Confidential Information of Xybernaut, or the benefit thereof, except pursuant
to the written authorization of Xybernaut, as the case may be, or as necessary
in order to exercise its rights under SECTION 2 above; and
(c) not copy or duplicate by any means, in whole or in part, the
Proprietary and Confidential Information of Xybernaut except pursuant to the
written authorization of Xybernaut.
9.3 PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION OF VAR. The
Proprietary and Confidential Information of VAR and all copies thereof are the
property of VAR. Xybernaut acknowledges that the Proprietary and Confidential
Information of VAR may include valuable assets, know-how and trade secrets of
VAR. Accordingly, Xybernaut agrees that, except as otherwise required by law
or provided in this Agreement, during the term of this Agreement and at all
times thereafter Xybernaut shall:
(a) hold the Proprietary and Confidential Information of VAR in
strict confidence or, where disclosure of specific Proprietary and Confidential
Information is expressly authorized in writing by VAR, shall comply with all
restrictions on the use and disclosure thereof set forth in such written
authorization;
(b) instruct its directors, officers and employees not to use,
sell, lease, assign, transfer, disclose or otherwise make available to any
person or entity that is not a party hereto the Proprietary and Confidential
Information of VAR, or the benefit thereof, without the written authorization
of VAR; and
(c) not copy or duplicate by any means, in whole or in part, the
Proprietary and Confidential Information of VAR except pursuant to the written
authorization of VAR.
9.4 NONDISCLOSURE OF TERMS. Without in any way limiting the foregoing,
each party hereto agrees not to disclose or otherwise make available to any
person or entity that is not a party hereto, during or after the term of this
Agreement, the terms or provisions of this Agreement, or any summary or other
description of any such terms and provisions, except pursuant to the written
authorization of the other party hereto or as otherwise provided in this
Agreement, and except as may be required by law or legal process; provided,
however, that such party shall immediately notify the other party hereto of any
such legal requirement, and upon the reasonable request of the other party
shall cooperate in not contesting any such required disclosure.
9.5 NOTICE OF DISCLOSURE. In the event that either party hereto becomes
aware that any person or entity (including, but not limited to, any employee of
such party) is taking, threatens to take or has taken any action that would
violate any of the foregoing provisions of this SECTION 9 were that person or
entity a party to this Agreement in the place of such party, such party shall
promptly and fully advise the other party hereto (with written confirmation as
soon as possible thereafter) of all facts known to such party concerning such
action or threatened action. Each party agrees that it shall not in any way
aid, abet, or encourage any such action or threatened action.
9.6 EXCEPTIONS. Notwithstanding any other provision of this Agreement,
the obligations of each party hereto pursuant to this SECTION 9 shall not apply
to any Proprietary and Confidential Information that:
(a) is known to such party or generally known to the public prior
to its disclosure to such party by any other party to this Agreement;
(b) becomes known to the public by some means other than a breach
of this Agreement, including publication and/or laying open to
inspection of any patent application or patent; or
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<PAGE> 12
(c) is disclosed to such party by a third party that has a lawful
right to make such disclosure, and that has not breached any
obligation to a party hereto by virtue of such disclosure.
9.7 NONCOMPETITION/NONDISCLOSURE. VAR acknowledges that it would be very
difficult for VAR to avoid using or disclosing Proprietary and Confidential
Information of Xybernaut in the event VAR were to manufacture or market
products similar to the Licensed Products. Therefore, in addition to and not in
lieu of VAR's other obligations hereunder with respect to Proprietary and
Confidential Information of Xybernaut, VAR agrees that during the term of this
Agreement and for a period of two (2) years thereafter, VAR and/or its
affiliates shall not manufacture or market products similar to or competing
with the Licensed Products. The covenants contained in this section shall be
construed as a series of separate and severable covenants which are identical
in terms except for geographic coverage. Xybernaut and VAR agree that if in any
proceeding, the tribunal shall refuse to enforce fully any covenants contained
herein because such covenants cover too extensive a geographic area or too long
a period of time or for any other reason whatsoever, any such covenant shall be
deemed amended to the extent (but only to the extent) required by law.
SECTION 9.8 NON-CIRCUMVENT PROVISION. Xybernaut will not attempt to
market, nor to encourage other VARs of Xybernaut to market Licensed Products
directly to VAR's customers for the same or similar Fields of Use as described
in EXHIBIT B. It is VAR's responsibility to inform Xybernaut in writing of such
customers prior to any existing obligation upon Xybernaut under this section.
It is also the sole responsibility of VAR to obtain appropriate agreements or
covenants with its customers that prevent said customer from approaching
Xybernaut or other Xybernaut-VAR's for any direct sale of Licensed Product.
Absent such a VAR-Customer agreement, Xybernaut will initially
recommend that the customer procure Licensed Product through VAR. Should the
customer insist for any sale to take place that Licensed Product be obtained
directly from Xybernaut, due to no fault of the VAR for performance, then
Xybernaut will supply customer with Licensed Product. VAR will receive a
commission on such sales (for one year from the date of said sale) which is
equal to half of the difference in commission between the then current Volume
Discount Schedule and the VAR Discount Schedule in EXHIBIT D1 for the quantity
levels ordered.
SECTION 10. TERM AND TERMINATION.
10.1 TERM OF AGREEMENT. The term of this Agreement shall begin on the
Effective Date and shall continue until the date that is the third (3rd) annual
anniversary of the Effective Date, unless sooner terminated pursuant to this
SECTION 10. Upon expiration of this license at the end of the term, VAR shall
have first rights of refusal to enter into a subsequent agreement to sell and
support Licensed Products within Territory for applications within the licensed
fields of use, on whatever terms Xybernaut may at that time deem most
appropriate.
10.2 DEFAULT OF VAR. Xybernaut may terminate this Agreement immediately by
written notice to VAR upon the occurrence of a Default of VAR. A "Default of
VAR" for purposes of this Agreement shall occur if: VAR shall have failed to
perform, observe or satisfy in any material respect any covenant, condition, or
agreement required by this Agreement to be performed, observed, or satisfied by
VAR, and such failure to perform or breach shall have continued for a period of
ten (10) days after written notice thereof to VAR from Xybernaut; provided,
however, that if such failure is not reasonably susceptible to correction
within such ten-day (10-day) period, but is correctable within a longer period
not to exceed thirty (30) days, a Default of VAR shall not be deemed to have
occurred if, to Xybernaut's satisfaction, VAR has commenced and diligently
pursued corrective action within such ten-day (10-day) period as soon as
possible after being so notified, and such failure is corrected no later than
thirty (30) days after such notice.
10.3 DEFAULT OF XYBERNAUT. VAR may terminate this Agreement immediately by
written notice to Xybernaut upon the occurrence of a "Default of Xybernaut". A
"Default of Xybernaut" for purposes of this Agreement shall occur if:
Xybernaut shall have failed to perform, observe, or satisfy in any material
respect any covenant, condition, or agreement required by this Agreement to be
performed, observed, or satisfied by Xybernaut or Xybernaut shall have breached
any warranty or representation contained herein, and such failure to perform or
breach shall have continued for a period of ten (10) days after written notice
thereof to Xybernaut from VAR; provided, however, that if such failure is not
reasonably susceptible to correction within such ten (10) day period, but is
correctable within a longer period not to exceed thirty (30) days, a Default of
Xybernaut shall not be deemed to have occurred if Xybernaut has commenced and
diligently pursued corrective action within such ten-day (10-day) period as
soon as possible after being so notified, and such failure is corrected no
later than thirty (30) days after such notice;
10.4 RETURN OF PROPRIETARY AND CONFIDENTIAL INFORMATION. Upon the
expiration or termination of this Agreement for any reason: (I) VAR shall
promptly return to Xybernaut all Proprietary and Confidential Information of
Xybernaut (including, without limitation, only if Xybernaut so requests, all
Licensed Products not sold to Third Parties); and (II) Xybernaut shall promptly
return to VAR all Proprietary and Confidential Information of VAR not otherwise
licensed to Xybernaut hereunder. Xybernaut will refund to VAR full payment for
Licensed Products in unused and original condition and packing, less 15%
restocking fee.
10.5 BANKRUPTCY. If VAR shall become bankrupt or insolvent and/or if the
business of VAR shall be placed in the hands of a receiver, assignee or trustee
for the benefit of creditors, whether by voluntary act of VAR or otherwise, or
if Payments due are unpaid, Xybernaut shall have the right to serve notice upon
VAR, by certified mail at an address specified in SECTION 11 of this Agreement,
of its intention to terminate this Agreement within ninety (90) days after
receipt of said notice by VAR. If VAR has not cured the conditions leading to
such notice within ninety (90) days after receipt of said notice or
termination, the rights, privileges and license granted hereunder shall
terminate
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as of the end of such ninety (90) day period, and neither party shall have any
further rights, duties or obligations hereunder except as may have then accrued
under this Agreement, or as otherwise provided herein.
10.6 NO RELEASE. Upon termination of this Agreement for any reason,
nothing herein shall be construed to release either party from any obligation
which matured prior to the effective date of termination; and VAR may, after
the effective date of such termination, sell all Licensed Products and complete
all Licensed Products in the process of manufacture or modification at the time
of termination and sell the same, provided that VAR pays Xybernaut all amounts
due Xybernaut under SECTION 6 of this Agreement.
10.7 RIGHT OF TERMINATION. Either party may terminate this Agreement at
any time after the third (3rd) anniversary of the Effective Date of this
Agreement by giving written notice of termination to the other party at least
six (6) months in advance; provided, however, that if the party giving notice
shall be in default of any of the terms and conditions of this Agreement at
such time such notice is given, such notice shall be null and void and of no
effect. Xybernaut shall also have the right to terminate this Agreement at any
time after the first (1st) anniversary of the Effective Date of this Agreement
if Xybernaut determines that based on reasonable information and sales data
provided by VAR there is, or will be, insufficient sales by VAR of Licensed
Products. Xybernaut shall give VAR thirty (30) days prior written notice of
such termination for lack of sales for Licensed Products.
MISCELLANEOUS PROVISIONS.
11.1 INDEPENDENT CONTRACTOR. VAR's relationship hereunder shall be that of
an independent contractor and not that of an agent, representative or employee
of Xybernaut, and VAR shall have no power to bind Xybernaut or contract in
Xybernaut's name. All persons employed by VAR in connection with operations
under this Agreement shall be considered employees or agents of VAR, and shall
in no way, either directly or indirectly, be considered employees or agents of
Xybernaut. VAR will defend, indemnify and hold Xybernaut harmless against any
and all claims, losses, damages, liabilities and costs whatsoever (including
reasonable attorneys' fees) arising as a result of any claim that VAR's
relationship hereunder is that of an agent, representative or employee of
Xybernaut.
11.2 FORCE MAJEURE. Xybernaut shall not be liable for any delay in
delivery or modification, suspension or cancellation of performance or other
failure of performance hereunder in whole or in part caused by events beyond
its control, including but not limited to acts of God or government, labor
disputes or inability to secure materials, labor or transportation.
11.3 ADDITIONAL ACTIONS AND DOCUMENTS. Each of the parties hereto shall
take or cause to be taken such further actions, shall execute, deliver, and
file or cause to be executed, delivered, and filed such further documents and
instruments ( including, but not limited to, documents necessary or desirable
to record the existence of this Agreement with any authority and/or registry
which Xybernaut deems reasonably necessary to protect its rights hereunder),
and shall obtain such consents as may be necessary or as the other party may
reasonably request, without the payment of further consideration, in order
fully to effectuate the purposes, terms, and conditions of this Agreement.
11.4 NOTICES. All notices, demands, requests, or other communications
which may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be hand
delivered (including delivery by courier or overnight delivery service), mailed
by first-class registered or certified mail, return receipt requested, postage
prepaid, telegram, telex, or facsimile transmission, addressed as follows:
(a) If to VAR: _______________________________________
_______________________________________
_______________________________________
Any Authorized Officer of VAR:____________________________
Facsimile No.: _______________
(b) If to Xybernaut:
Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
Attention: Edward G. Newman, President
Facsimile No.: (703) 631-7070
Each party may designate by notice in writing a new address to
which any notice, demand, request or communication may thereafter be so given,
served or sent. Each notice, demand, request, or communication which shall be
mailed, delivered or transmitted in the manner described herein shall be deemed
sufficiently given, served, sent or received for all purposes at such time as
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it is delivered to the addressee with the return receipt, the delivery receipt,
the affidavit of messenger or (with respect to a telex) the answer back being
deemed conclusive, but not exclusive, evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.
11.5 SEVERABILITY. If fulfillment of any provision of this Agreement shall
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled or performed shall be reduced to the limit of such
validity; and if any clause or provision contained in this Agreement operates
or would operate prospectively to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein or therein contained, and the remainder of this Agreement shall
remain operative and in full force and effect.
11.6 WAIVERS. No waiver by any party of, or consent by any party to, a
variation from the requirements of any provision of this Agreement shall be
effective unless made in a written instrument duly executed by or on behalf of
such party, and any such waiver shall be limited solely to those rights or
conditions expressly waived.
11.7 EXPENSES. Each party hereto shall pay its own expenses incident to
this Agreement and the transactions contemplated hereby.
11.8 ENTIRE AGREEMENT; MODIFICATION; PRIORITY; BENEFIT.
(a) This Agreement constitutes the entire agreement of the parties
hereto with respect to the matters contemplated herein and supersedes all prior
oral and written memoranda and agreements with respect to the matters
contemplated herein.
(b) The terms and conditions of this Agreement, including the
attached Exhibits (collectively, these "Terms"), constitute an offer to sell
and do not constitute an acceptance by Xybernaut of any purchase order or offer
to buy, notwithstanding any reference thereto, except to the extent of the
express provisions of these Terms. This offer to sell may be accepted by VAR
either in writing or by any conduct that recognizes the existence of any
agreement. Any such acceptance is limited to the express provisions of these
Terms. Xybernaut hereby objects to, and rejects, any proposal for additional or
different provisions or any attempt by VAR to vary any of these Terms (whether
in a purchase order, offer to buy or otherwise), and any such additional or
different provisions or variances shall be deemed material. Any such proposal
or attempt by VAR that would materially change the description, quantity, price
or delivery schedule of the Products shall constitute a rejection of this
offer. Any other such proposal or attempt shall not operate as a rejection,
but this offer shall be deemed accepted by VAR without regard thereto.
(c) No representation, promise, condition or statement not
contained in this Agreement shall be binding on Xybernaut unless accepted in
writing by Xybernaut.. This Agreement can be modified, amended or rescinded
only in a written document duly signed by the parties hereto; provided,
however, that Xybernaut shall have the unilateral right to change the list
prices specified in EXHIBIT D2 upon thirty (30) days prior written notice to
VAR.
11.9 ARBITRATION. Any dispute or controversy arising out of this Agreement
shall be submitted to binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. The seat of
arbitration shall be Fairfax, Virginia. The arbitrators shall not alter, amend
or modify the terms and conditions of this Agreement but shall consider the
pertinent facts and circumstances and shall be guided by the terms and
conditions of this Agreement which shall be binding on them in resolving any
dispute or controversy hereunder.
11.10 CONSTRUCTION. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes and resolutions relating thereto
shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia (but not including the choice of law rules thereof)
except that questions affecting the validity, construction and effect of any
patent shall be determined by the laws of the country in which the patent was
granted. The parties hereto acknowledge that this instrument sets forth the
entire agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto. This
Agreement shall not be governed by the United Nations Convention on Contracts
for the International Sale of Goods.
11.11 HEADINGS. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a
part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
11.12 SUCCESSION. This Agreement shall be binding upon, and shall insure
to the benefit of the parties and their respective heirs, executors,
successors, assigns, and legal representatives.
11.13 EXECUTION. To facilitate execution, this Agreement may be executed in
as many counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or the signatures of all persons
required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement.
- 14 -
<PAGE> 15
11.14 SURVIVAL. Neither expiration nor termination of this Agreement shall
terminate those obligations and rights of the parties pursuant to provisions of
this Agreement which by their express terms are intended to survive and such
provisions shall survive the expiration or termination of this Agreement
including, without limitation, SECTIONS 2, 6, 7, 8, 9, 10 AND 11. The parties
shall be entitled to exercise such rights and remedies as may be available at
law or in equity to enforce rights and obligations which survive expiration or
termination of this Agreement.
- 15 -
<PAGE> 16
IN WITNESS WHEREOF, the undersigned have caused this Value Added
Reseller Agreement to be duly executed on their behalf, as of the date first
written above.
Xybernaut Corporation.
By:
--------------------------------
Name:
-------------------------------
Title:
-----------------------------
Date
--------------------------------
VALUE ADDED RESELLER
------------------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Date
--------------------------------
- 16 -
<PAGE> 17
EXHIBIT A
LICENSED TECHNOLOGIES AND PRODUCTS
LICENSED TECHNOLOGIES:
United States Letters Patent No. 5,305,244 issued on April 19, 1994 for
Hands-Free User-Supported Portable Computer and the inventions and
improvements disclosed therein.
Xybernaut-proprietary Mobile Assistant(R) computer
Xybernaut-proprietary head-mounted displays, under license from Kopin
Display Technologies
Xybernaut-proprietary Display Designs, manufacturing process and tooling
Xybernaut-proprietary Voice Recognition algorithms and software
implementation
Xybernaut-proprietary Video compression algorithms and software
implementation
Xybernaut-proprietary Presentation Graphics and control interface
appearance algorithms and software implementation
Xybernaut-proprietary application development toolkits, consisting of
algorithms, capabilities and software implementations used to specify,
design, implement, capture, organize, test and quality assure applications
based in part on Xybernaut Mobile Assistant(R) products.
Xybernaut-proprietary knowledge engineering and rules based shell
technology
LICENSED PRODUCTS:
Mobile Assistant(R)
Options and Features per Mobile Assistant(R) Brochure and Price List
Toolkit Software
- 17 -
<PAGE> 18
EXHIBIT B
FIELDS OF USE
Aircraft Maintenance and Repair
Firefighting Support
Medical Services Delivery
Vehicle Maintenance and Repair
Manufacturing Plant Monitoring Maintenance and Repair
Commercial, Industrial, and Residential Real Estate Monitoring,
Maintenance, Repair, and Refurbishment
Residential, Commercial and Industrial Appliance Maintenance and Repair
Military, Commercial and Personal naval vessel training, Maintenance and
Repair
Education and training
Such Other Areas As Mutually Agreed In Writing By Xybernaut and VAR
VAR's proposed field/fields of use ____________________________________________
_______________________________________________________________________________
- 18 -
<PAGE> 19
EXHIBIT C
LICENSED TERRITORY
The United States of America
- 19 -
<PAGE> 20
EXHIBIT D1
XYBERNAUT VAR DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
==========================================================================================================
QUANTITY RANGE
- ----------------------------------------------------------------------------------------------------------
Bottom Top Discount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 10 0.0%
- ----------------------------------------------------------------------------------------------------------
11 20 6.0%
- ----------------------------------------------------------------------------------------------------------
21 50 10.0%
- ----------------------------------------------------------------------------------------------------------
51 250 14.0%
- ----------------------------------------------------------------------------------------------------------
251 ----- 16.0%
==========================================================================================================
</TABLE>
XYBERNAUT WHOLESALE DISCOUNT SCHEDULE
<TABLE>
<CAPTION>
==========================================================================================================
QUANTITY RANGE
- ----------------------------------------------------------------------------------------------------------
Bottom Top Discount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 10 0.0%
- ----------------------------------------------------------------------------------------------------------
11 20 3.0%
- ----------------------------------------------------------------------------------------------------------
21 50 5.0%
- ----------------------------------------------------------------------------------------------------------
51 250 7.0%
- ----------------------------------------------------------------------------------------------------------
251 ----- 10.0%
==========================================================================================================
</TABLE>
- 20 -
<PAGE> 21
EXHIBIT E
MINIMUM FIRST YEAR MOBILE ASSISTANT(R) UNIT PURCHASES
First annual purchase quantity: __________________ units
- 21 -
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report, which includes an explanatory paragraph that refers to conditions that
raise substantial doubt about the Company's ability to continue as a going
concern, dated March 15, 1996, except as to the information in Note 13, for
which the date is April 24, 1996, on our audits of the financial statements of
Xybernaut Corporation (formerly Computer Products & Services, Inc.) and
Affiliate as of March 31, 1994 and 1995 and December 31, 1995 and for each of
the two years in the period ended March 31, 1995 and the nine months ended
December 31, 1995. We also consent to the reference to our firm under the
captions "Experts" and "Selected Financial Data."
/s/ COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
April 26, 1996
