As filed with the Securities and Exchange Commission on September __, 1997
Registration No.________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
XYBERNAUT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 54-1799851
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
12701 Fair Lakes Circle
Fairfax, Virginia 22033
(703) 631-6925
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(Address, including zip code, and telephone number, Including area
code, of registrant's principal executive offices)
Edward G. Newman
12701 Fair Lakes Circle
Fairfax, Virginia 22033
(703) 631-6925
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(Name, address, including zip code, and telephone number, Including
area code, of agent for service)
Copy to:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
---------------------------
Approximate date of commencement of proposed sale to public: As soon
as practicable after the effective date of this Registration Statement.
If the only securities on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please 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 effective registration
statement for the same offering. |_| __________
G6
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
Proposed Proposed
Title of each class Maximum maximum Amount of
of securities to be Amount to Aggregate price Aggregate registration
registered be registered (1) Per share (2) offering price (1) fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,285,713 shares $2.8125 $3,616,067.81 $1,095.78
$.01 par value
per share
=================================================================================================
</TABLE>
(1) Includes registration for resale of 150% of the number of shares of the
Company's common stock that would be issuable upon the conversion by three
holders of 3,000 shares of the Company's Series A Preferred Stock at a
price of $3.50 per share of common stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c); based on the average of the bid and asked price on
the Nasdaq SmallCap Market on September 17, 1997.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES 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 SEPTEMBER _, 1997
PROSPECTUS
1,285,713 Shares of Common Stock*
(par value $.01 per share)
XYBERNAUT CORPORATION
This Prospectus pertains to the offer and sale from time to time of
up to 1,285,713 shares (the "Shares") of common stock, par value $.01 per share
(the "Common Stock"), of Xybernaut Corporation (the "Company") by or for the
account of certain of the Company's stockholders (collectively, the "Selling
Stockholders"). See "Selling Stockholders."
The Shares offered hereby may be sold by the Selling Stockholders
directly or through agents, underwriters or dealers as designated from time to
time or through a combination of such methods. The Company will receive none of
the proceeds from any sale of Shares by or for the account of the Selling
Stockholders. The Selling Stockholders and any broker-dealers that participate
with one or more of the Selling Stockholders in the distribution of the Shares
may be deemed to be underwriters and any commissions received or profit realized
by them in connection with the resale of the Shares might be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Securities Act"). See "Selling Stockholders" and "Plan of
Distribution." The Company has agreed to bear all expenses relating to this
registration, other than underwriting discounts and commissions. In addition,
the Company has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act. See "Selling
Stockholders" and "Plan of Distribution."
The Common Stock is quoted on the NASDAQ SmallCap Market under the
symbol "XYBR". On September 17, 1997, the closing bid price of the Common Stock
as reported by NASDAQ was $2.75.
*The shares of Common Stock offered hereby include the resale of such
presently indeterminate number of shares of Common Stock as shall be issued in
respect of all shares of Common Stock issuable upon conversion of 3,000 shares
of the Company's Series A Preferred Stock, par value $.01 (the "Series A
Preferred Stock"), issued in a private placement in June 1997 (the "Private
Placement"). The number of shares of Common Stock indicated to be issuable in
connection with such transaction and offered for resale hereby is an estimate
and is, based on Registration Rights Agreements (the "Registration Rights
Agreements") between the Company and each of the Selling Stockholders, 150% of
the number of shares that would be issuable upon the conversion of 3,000 shares
of the Series A Preferred Stock at a price of $3.50 per share, and is subject to
adjustment and could be materially less than such estimated amount depending
upon factors that cannot be predicted by the Company at this time, including,
among others, the future market price of the Common Stock. If, however, all
3,000 shares of the Series A Preferred Stock currently outstanding were
converted at the closing bid price of the Common Stock as reported by NASDAQ on
September 10, 1997, the Company would be obligated to issue a total of 1,285,713
shares of Common Stock. This presentation is not intended to constitute a
prediction as to the future market price of the Common Stock or as to the number
of shares of Common Stock into which the Series A Preferred Stock will be
converted. See "Risk Factors -- Series A Preferred Stock" and "Description of
Securities -- Preferred Stock -- Series A Preferred Stock."
The Company's executive offices are located at 12701 Fair Lakes
Circle, Fairfax, Virginia 22033 and its telephone number is (703) 631-6925.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE
FACTORS SPECIFIED UNDER THE CAPTION "RISK FACTORS"
LOCATED ON PAGE 5 OF THIS PROSPECTUS.
---------------------------
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 OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The date of this Prospectus is , 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048; and Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains an Internet site on the World Wide Web that contains
reports, proxy and information statements and other information filed
electronically by the Company (http://www.sec.gov). Such reports, proxy
statements and other information can also be inspected at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 (File No. _____) (the "Registration
Statement") of which this Prospectus forms a part, including exhibits relating
thereto, which has been filed with the Commission in Washington, D.C. Copies of
the Registration Statement and the exhibits thereto may be obtained, upon
payment of the fee prescribed by the Commission, or may be examined without
charge, at the offices of the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996; (ii) Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1997 and June 30, 1997; (iii) Current Report on Form 8-K dated
June 30, 1997; and (iv) the description of the Company's Common Stock contained
in the Company's Registration Statement on Form 8-A filed on July 15, 1996 under
the Exchange Act (File No. 0-15086), each as filed with the Commission under the
Exchange Act, are incorporated into this Prospectus by reference.
Each document filed subsequent to the date of this Prospectus
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act before the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such previous statement.
Any statement so modified or superseded shall not be deemed to be a part hereof
except as so modified or superseded.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY DOCUMENT INCORPORATED
BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS SHOULD BE
DIRECTED TO THE COMPANY, 12701 FAIR LAKES CIRCLE, FAIRFAX, VIRGINIA 22033, (703)
631-6925. ATTENTION: JOHN F. MOYNAHAN.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
and notes thereto appearing elsewhere or incorporated by reference in this
Prospectus.
To inform investors of the Company's future plans and objectives,
this Prospectus (and other reports and statements issued by the Company and its
officers from time to time) contain certain statements concerning the Company's
future results, future performance, intentions, objectives, plans and
expectations that are or may be deemed to be "forward-looking statements." The
Company's ability to do this has been fostered by the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), which provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company believes it
is in the best interest of investors to take advantage of the "safe harbor"
provisions of the Reform Act. Such forward-looking statements are subject to a
number of known and unknown risks and uncertainties that, in addition to general
economic and business conditions and those described in "Risk Factors" could
cause the Company's actual results, performance and achievements to differ
materially from those described or implied in the forward-looking statements.
THE OFFERING
Securities Registered.................. 1,285,713 shares of Common Stock to
be issued upon conversion of the
Company's outstanding Series A
Preferred Stock.
Common Stock outstanding
prior to the offering hereby..... 14,259,112 shares of Common Stock
(1)
Common Stock outstanding
after the offering hereby........ 15,544,825 shares of Common Stock
(1) (2)
Common Stock trading symbol
on NASDAQ ....................... XYBR
- ------------------------------
(1) Does not include (i) 1,162,530 shares of Common Stock reserved for issuance
upon the exercise of outstanding options, (ii) 212,860 shares of Common
Stock reserved for issuance upon exercise of outstanding warrants to
purchase Common Stock, (iii) 3,846,429 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants issued in connection with
the Company's initial public offering (the "IPO"), and (iv) 420,000 shares
of Common Stock reserved for issuance upon exercise of an option granted
pursuant to the Company's IPO to purchase 210,000 shares of Common Stock
and 210,000 redeemable warrants, each such warrant to purchase one share of
Common Stock at an exercise price of $9.075. See "Risk Factors -- Effect of
Possible Non-Cash Future Charge" and " -- Securities Issuable Pursuant to
Options, Warrants and the Unit Purchase Option."
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<PAGE>
(2) Assumes all 3,000 shares of the Series A Preferred Stock outstanding on
September 1, 1997 were converted at the average of the closing bid and ask
price of the Common Stock as reported by NASDAQ on September 10, 1997. See
"Risk Factors -- Series A Preferred Stock" and "Description of Securities
-- Preferred Stock -- Series A Preferred Stock."
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<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. Prospective investors should carefully consider the
following risk factors, in addition to the other information set forth in this
Prospectus, in connection with an investment in the shares of Common Stock
offered hereby.
SERIES A PREFERRED STOCK
In June 1997, the Company sold 3,000 shares of the Series A Preferred
Stock, each share with a liquidation preference of $1,000 (the "Liquidation
Preference"), for an aggregate of $3 million. The Series A Preferred Stock is
convertible into Common Stock at discounts from future market prices of the
Common Stock, which could result in substantial dilution to existing holders of
Common Stock. The Company must reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, at least such number of its Common
Stock that is sufficient to effect the conversion of all outstanding shares of
the Series A Preferred Stock. The sale or other disposition (for cash, shares of
stock, securities or other consideration), of all or substantially all of the
assets of the Company would entitle the holders of the Series A Preferred Stock
to receive the Liquidation Preference on all their shares of Series A Preferred
Stock plus accrued and unpaid dividends. The Company has agreed to register the
shares of Common Stock underlying the Series A Preferred Stock in the
Registration Statement filed with the Commission. If the Commission does not
declare the Registration Statement effective by September 28, 1997, the Company
must pay each holder of the Series A Preferred Stock 2% of the outstanding
Liquidation Preference of such holder's Series A Preferred Stock for each month
thereafter that the Registration Statement is not declared effective. See
"Description of Securities -- Series A Preferred Stock."
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
year ended December 31, 1996, the Company incurred a net loss of $5,238,536. In
the six months ended June 30, 1997, the Company incurred a net loss of
$4,680,931. At June 30, 1997, the Company had an accumulated deficit of
$13,453,806, shareholders equity of $5,122,020, and working capital of
$3,917,397. The Company has a limited operating history and intends to conduct
significant additional research, development and testing that, together with
establishment of marketing and distribution capabilities, are expected to
require substantial funding and to result in continuing operating losses until
such time as sufficient gross margins from revenues are generated to cover
operating costs. 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. The Company
is currently negotiating with several placement agents the final terms of a
financing of approximately $3,000,000 to $5,000,000 of gross proceeds and
expects to sign a commitment letter shortly, and to close such financing within
30 days thereafter. The Company's management believes that the proceeds of such
a financing, in combination with cash from operations, will be sufficient to
meet the Company's operating and working capital needs into the second quarter
at current levels of cash usage. There can be no assurance that the Company will
be capable of raising additional capital thereafter 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.
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<PAGE>
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 30, 1997
had sold and delivered approximately $1.5 million of Mobile Assistant(R)
systems. The Company commenced delivery of the preproduction 586 Mobile
Assistant(R) in March 1997 and delivery of the preproduction Pentium(R) Mobile
Assistant P-133(TM), in August 1997. In September 1997, the Company announced
linkAssist(TM), a development toolkit, which provides speech linking of data in
almost any format, without altering the original data. 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 and the limited supply to date of components for completed systems.
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) series and any of the Company's other
products will become a significant factor in any market that develops.
The commercial success of the Mobile Assistant(R) series,
linkAssist(TM), software toolkits enabling the Company's customers to more
rapidly create customized software applications on a stand-alone basis or for
use with the Mobile Assistant(R) series, and any other product that the Company
may develop will depend upon acceptance by the commercial, healthcare, education
and military markets, of which there can be no assurance. The Company believes
that any product acceptance will be substantially dependent upon educating the
commercial, healthcare, education and military markets as to the capabilities,
characteristics, benefits and efficacy of the Mobile Assistant(R) series and any
of the Company's other products, of which there can be no assurance.
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. Several other companies are engaged in the manufacture and
development of body-mounted or hand-held computing systems that compete with the
Mobile Assistant(R) series, including InterVision, Phoenix Group, Computing
Devices International, a division of Ceridian Corporation, ViA Inc., Texas
Microsystems, Telxon, Norand, Interactive Solutions, Inc., a subsidiary of
Teltronics, Inc. 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 is aware of
at least three competitors that have introduced hands-free mobile computing
systems that 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 the competitive pressures faced by the Company will not
adversely affect its financial performance.
DEPENDENCE UPON SUPPLIERS
To prepare the Mobile Assistant(R) for delivery to customers, the
Company purchases system components from several suppliers, who manufacture,
assemble, integrate and test these components. The Company then combines those
components and performs system tests prior to shipping. Certain components are
currently
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<PAGE>
purchased from single suppliers. The Company has entered into written agreements
with its suppliers for batteries, head-mounted displays and computing units.
Although the Company believes there are multiple sources for many parts and
components, the Company currently depends heavily on its current suppliers.
Although management believes that the Company could adapt to any supply
interruptions, such occurrences could necessitate changes in product design or
assembly methods for the Mobile Assistant(R) series 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. Any future shortage or
limited allocation of components for the Mobile Assistant(R) could have a
material adverse effect on the Company.
SUBSTANTIAL DEPENDENCE UPON SINGLE PRODUCT LINE; POSSIBILITY OF UNSUCCESSFUL NEW
PRODUCT DEVELOPMENT
The Mobile Assistant(R) series currently consists of two products:
one based on an AMD 5x86 processor and the other based on an Intel Pentium(R)
processor. The Mobile Assistant(R) series are the Company's principal products,
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 $4,995 to $8,995, depending upon the model and selected features. 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
linkAssist(TM) and the Company's planned software toolkits are intended for use
both with the Mobile Assistant(R) series 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 is also
developing additional products for the Mobile Assistant(R) series for
introduction in the future and intends to modify the Mobile Assistant(R) series
for use in other applications and to develop other products using 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.
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 May 1996, the Patent Officer issued a
Notice of Intent to Issue Reexamination Certificate and Reexamination Reasons
for Patentability/Confirmation with respect to the issues raised by the request
for reexamination wherein it concluded that the Company's claims are patentable
with respect to the issues raised by the request for reexamination. In April
1996 the Company received notification that a second reexamination request had
been filed with the Patent Office by the same party that had initiated the prior
reexamination, and in September 1996 the Company received a notification from
the
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<PAGE>
Patent Office entitled "office action in reexamination," which indicates that
certain claims under the patent were subject to reexamination and were
preliminarily rejected. In November 1996, the Company filed a written response
to the request for reexamination and preliminary rejection. The ultimate
validity of the patent will not be resolved until the second reexamination
request has been decided. Most of the Company's revenue for the 9 months ended
December 31, 1996 and for the six months ended June 30, 1997 were derived from
products included within the scope of 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), although the Company believes that its
rights to manufacture and market its product are not dependent on this patent.
In October 1995, the Company filed a patent application covering additional
embodiments and extensions of the technologies used in the Mobile Assistant(R)
series. 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 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.
LIMITED MARKETING AND DIRECT SALES EXPERIENCE; DEPENDENCE ON OTHERS FOR
MARKETING AND SALES.
The Company intends to continue development of a sales organization
to market and sell its mobile computing products to value-added resellers
("VARs"), original equipment manufacturers ("OEMs") and end users. The Company
is also developing a network of VARs and OEMs and to intends 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 six entities. 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 such additional
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 markets 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.
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 board-elected officers
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<PAGE>
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.
CUSTOMER CONCENTRATION
For the twelve month period ended December 31, 1996, two of the
Company's customers accounted for 64% and 24%, respectively, of the Company's
revenues. For the six month period ended June 30, 1997, three customers
accounted for 55% of the Company's revenues. Accordingly, the Company is
significantly dependent on revenues derived from a limited number of customers.
The loss of one or more significant 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. The
Company may remain dependent in the immediate future upon a limited number of
customers (the identity of which may be subject to change) for a material
percentage of its annual operating revenue.
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 and to use outside resources 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.
INDUSTRY CYCLICALITY
The computer industry historically has been affected by periodic
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
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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.
EFFECT OF POSSIBLE NON-CASH FUTURE CHARGE
As a condition to the Company's initial public offering (the "IPO"),
certain of the Company's stockholders, primarily officers and directors, have
been required to deposit an aggregate of 1,800,000 shares of Common Stock into
an escrow account (the "Escrowed Shares"). The Escrowed Shares are subject to
incremental release 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. If such per share 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 canceled. In addition to the foregoing, all
the 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 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 IPO price of $5.50 (of which there can be no assurance),
the release of the Escrowed Shares would result in an earnings charge that 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 excludes shares issued pursuant to a unit
purchase option granted pursuant to the IPO, extraordinary items or compensation
expense charged to the Company related to the release of the Escrowed Shares.
Management expects that the stock and earnings targets for escrow release as of
September 30, 1997 will not be met and that 300,000 shares will be cancelled
from the escrow pool, which will result in a reduction of 2.1% of the Company's
currently outstanding shares of Common Stock.
CONTROL BY EXISTING STOCKHOLDERS
Following this offering, the Company's executive officers, directors
and principal stockholders will, in the aggregate, beneficially own
approximately 47.4% of the Company's outstanding shares of 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.
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 "Indemnification for
Securities Act Liabilities."
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<PAGE>
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 15,544,825 shares of Common Stock to be
outstanding upon the completion of this offering, the 3,846,429 shares sold in
the IPO and the 1,285,713 additional shares of Common Stock registered in this
offering will be freely tradeable. The remaining 10,412.683 shares of the Common
Stock are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to an effective registration statement under the Securities Act, in
compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. In the absence of any agreement to the
contrary, 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
agreements entered into pursuant to the IPO, the holders of 10,205,437 shares of
Common Stock may not sell or dispose of their shares of Common Stock until July
18, 1998 without prior written consent of the representative of the underwriter
in the IPO (the "Representative").
SECURITIES ISSUABLE PURSUANT TO OPTIONS, WARRANTS AND THE UNIT PURCHASE OPTION
At the date of this Prospectus, the Company has reserved an aggregate
of 5,641,819 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 $1.37 to
$3.00 for 912,530 shares granted from April 1, 1995 to September 1, 1997. In
order to retain incentives for directors and current employees during this stage
of the Company's development, the strike price for certain options was reduced
to $3.00 per share by the Company's board of directors on August 28, 1997.
Current control persons and board-elected officers are not affected by this
change. The exercise price of the 212,860 warrants granted between July 1, 1996
and September 1, 1997 is between $2.38 and $18.00 per share. In connection with
the Company's IPO, warrants to purchase 3,846,429 shares were issued that
entitle the holder to purchase a share of common stock for $9.00 until July 19,
1999. At the completion of the IPO, the Representative received an option (the
"Unit Purchase Option") to purchase 210,000 Units (the "Units"), each unit
consisting of one share of Common Stock and one Redeemable Warrant (a "Warrant")
to purchase one share of Common Stock, at a price of $9.075 per Unit during a
period of four years commencing July 18, 1997. The Warrants included in the Unit
Purchase Option are exercisable at $12.60 per share. 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.
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.
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VOLATILITY OF STOCK PRICE
The trading price of the Common Stock has been volatile, and it may
continue to be so. Such trading price could be subject to wide fluctuations in
response to announcements of business and technical developments by the Company
or its competitors, quarterly variations in operating results, and other events
or factors, including expectations by investors and securities analysts and the
Company's prospects. In addition, stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of development stage companies, at times for reasons unrelated to
their operating performance. Such broad market fluctuations may adversely affect
the price of the Common Stock.
ANTI-TAKEOVER CONSIDERATION; RIGHTS OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
up to 6,000,000 shares of $.01 par value preferred stock (the "Preferred
Stock"). As of the date of this Prospectus, only the Series A Preferred Stock is
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 additional Preferred Stock. See "Description of
Securities -- Preferred Stock."
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<PAGE>
USE OF PROCEEDS
The Shares being offered hereby are being registered for the account
of the Selling Stockholders, and, accordingly, the Company will not receive any
of the proceeds from the sale of the Shares.
SELLING STOCKHOLDERS
The Shares being offered for resale by the Selling Stockholders were
acquired in connection with the June 1997 private placement (the "Private
Placement") and consist of the Common Stock issuable upon conversion of the
Series A Preferred Stock. In connection with the Private Placement, the Company
granted the Selling Stockholders certain registration rights pursuant to which
the Company agreed to use its best efforts to keep the Registration Statement,
of which this Prospectus is a part, effective until the earlier of (i) the date
that all the Shares have been sold pursuant to the Registration Statement, (ii)
the date the Selling Stockholders receive an opinion of counsel that the Shares
may be sold under the provisions of Rule 144 or (iii) the second anniversary of
the effective date of the Registration Statement.
The following table sets forth certain information regarding the
ownership of shares of Common Stock by the Selling Stockholders as of September
17, 1997, and as adjusted to reflect the sale of the Shares. The information in
the table concerning the Selling Stockholders who may offer Common Shares
hereunder from time to time is based on information provided to the Company by
such stockholders, except for the assumed conversion ratio of shares of the
Series A Preferred Stock into Common Stock, which is based solely on the
assumptions referenced in footnotes (1) and (2) to the table. Information
concerning such Selling Stockholders may change from time to time and any
changes of which the Company is advised will be set forth in a Prospectus
Supplement to the extent required. See "Plan of Distribution."
<TABLE>
<CAPTION>
Shares of Common Stock
Owned after Offering (2)
-----------------------
Shares of
Common Stock Shares of
Owned Prior to Common Stock
Offering to be Sold (1)(2) Number Percent
-------------- ----------------- ---------- -------
<S> <C> <C> <C> <C>
Paresco, Inc. (3) -- 942,857 942,857 6.1%
Libertyview Fund, LLC (4) -- 85,714 85,714 0.6%
Libertyview Plus Fund (4) -- 257,142 257,142 1.7%
Total -- 1,285,713 1,285,713 8.4%
- -----------------
</TABLE>
(1) Assumes that all of the Selling Stockholders will convert all of their
Series A Preferred Stock into Common Stock based upon an average of closing
bid and ask price of $2.8125. The Selling Stockholders may convert each
share of the Series A Preferred Stock into such number of shares of Common
Stock as is determined by dividing $1,000 by the lesser of (i) 82% of the
average closing bid price on the Nasdaq SmallCap Market for the five
trading days prior to the date of conversion and (ii) $3.50.
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<PAGE>
(2) Assumes that each of the Selling Stockholders sells a pro-rata portion of
the 1,285,713 shares of Common Stock offered hereby during the effective
period of the Registration Statement. The actual number of shares of Common
Stock offered hereby is subject to change and could be materially less than
the estimated amount indicated, depending upon (i) the average closing bid
price of the Common Stock for the five trading days prior to the date of
conversion, (ii) whether any of the Series A Preferred Stock has been
redeemed and (iii) whether the number of shares of the Series A Preferred
Stock or the Common Stock outstanding have been adjusted to account for any
stock dividend, stock split, recapitalization, merger, consolidation or
other adjustment.
(3) The Selling Stockholder has agreed that neither it nor any subsequent
holder of its Series A Preferred Stock will, following any conversion of
such Series A Preferred Stock, be the beneficial owner of 4.99% or more of
the then issued and outstanding shares of Common Stock.
(4) The Selling Stockholder has agreed that neither it nor any subsequent
holder of its Series A Preferred Stock will, following any conversion of
such Series A Preferred Stock, be the beneficial owner of 4.99% or more of
the then issued and outstanding shares of Common Stock. The 4.99% limit
applies in the aggregate to Libertyview Fund, LLC and Libertyview Plus
Fund.
None of such Selling Shareholders is affiliated with the Company.
None of the Selling Stockholders has had any material relationship with the
Company within the past three years.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, par value $.01 per share, and 6,000,000 shares of
Preferred Stock, par value $.01 per share. As of the date hereof, 14,259,112
shares of Common Stock are issued and outstanding and 3,000 shares of Preferred
Stock is issued and outstanding. The Company currently has reserved 5,641,819
shares of Common Stock for issuance pursuant to outstanding options, warrants
and the Unit Purchase Option.
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.
PREFERRED STOCK
The Board of Directors has the authority, without further stockholder
approval, to issue up to 6,000,000 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 Stock. In certain
circumstances, such issuances could have the effect of decreasing the market
price of the Common Stock.
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<PAGE>
SERIES A PREFERRED STOCK
On June 30, 1997, the Board of Directors authorized the issuance of a
series of Preferred Stock consisting of 3,000 shares (the "Series A Preferred
Stock"), each such share of Series A Preferred Stock has a stated value of
$1,000 (the "Liquidation Preference"), pursuant to a Certificate of Designation
(the "Certificate of Designation"). As of September 1, 1997, three different
entities owned all 3,000 shares of the Series A Preferred Stock.
Dividends. The holders of the shares of Series A Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Company, dividends at the rate of five percent of the stated Liquidation
Preference per share per annum, and no more, payable, at the discretion of the
Board of Directors, in Common Stock or cash. Dividends accrue on each share of
Series A Preferred Stock from the date of initial issuance. Such dividends are
in preference to any distributions on any outstanding shares of Common Stock or
any other equity securities of the Company that are junior to the Preferred
Stock as to the payment of dividends.
Preferences on Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of shares of the Series A Preferred Stock then outstanding shall be entitled to
be paid, out of the assets of the Company available for distribution to its
stockholders, an amount equal to the Liquidation Preference for each share of
Series A Preferred Stock owned by such holder, plus all accrued and unpaid
dividends thereon to the date of payment. If upon liquidation, dissolution, or
winding up of the Company, the assets of the Company available for distribution
to its stockholders shall be insufficient to pay the holders of the Series A
Preferred Stock the full Liquidation Preference plus accrued and unpaid
dividends to which they respectively shall be entitled, the holders of the
Series A Preferred Stock together with the holders of any other series of
Preferred Stock ranking on a parity with the Series A Preferred Stock as to the
payments of amounts upon liquidation, dissolution or winding up shall share
ratably in any distribution of assets according to the respective amounts which
would be payable in respect of all such shares held by the respective
stockholders. The sale or other disposition (for cash, shares of stock,
securities or other consideration), of all or substantially all of the assets of
the Company shall be deemed to be a liquidation, dissolution or winding up of
the Company but the merger or consolidation of the Company into or with another
corporation or into or with the Company, shall not be deemed to be a
liquidation, winding up or dissolution of the Company. The holders of Series A
Preferred Stock shall have no priority or preference with respect to
distributions made by the Company in connection with the repurchase of shares of
Common Stock issued to or held by employees, directors or consultants upon
termination of their employment or services pursuant to agreements providing for
the right of said repurchase between the Company and such persons.
Conversion Rights. The holders of Series A Preferred Stock shall have
conversion rights as follows: (i) no shares of Series A Preferred Stock may be
converted prior to September 28, 1997; (ii) at any time after September 28, 1997
through December 31, 1997, up to twenty-five (25%) percent of the shares of
Series A Preferred Stock then outstanding may be converted, at the option of the
holders thereof; and (iii) thereafter, on January 1, 1998, April 1, 1998 and
July 1, 1998, an additional twenty-five (25%) percent of the shares of Series A
Preferred Stock then outstanding may be converted, on a cumulative and pro rata
basis, at the option of the holders thereof. The number of shares of fully-paid
and nonassessable Common Stock into which each share of Series A Preferred Stock
may be converted shall be determined by dividing the Liquidation Preference by
an amount (the "Conversion Price") equal to the lesser of (A) 82% of the average
closing bid price of the Common Stock as reported on the Nasdaq SmallCap Market
or any successor exchange in which the Common Stock is listed for the five
trading days preceding the date on which the holder of the Series A Preferred
Stock has telecopied a notice of conversion to the Company (the "Conversion
Date") and (B) $3.50.
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<PAGE>
In the event the shares of Series A Preferred Stock are not converted
within ten business days of receipt by the Company of a valid notice of
conversion, the Company shall pay to the holder, by wire transfer, as liquidated
damages for such failure and not as a penalty, an amount in cash equal to 1%
percent per day of the purchase price of the shares of Series A Preferred Stock
to be converted which shall run from the initial Conversion Date and the holder
has the option to withdraw the notice of conversion previously sent; provided,
that the Company shall not be responsible for or required to pay such liquidated
damages if such failure to convert was not caused by any actions or omissions of
the Company.
No fractional shares of Common Stock shall be issued upon conversion
of the Series A Preferred Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Company shall pay cash equal to such
fraction multiplied by the fair market value of the Common Stock on the
Conversion Date, as determined by the Company's Board of Directors. The Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion unless either the certificates evidencing such
shares of Series A Preferred Stock are delivered to the Company or its transfer
agent as provided above, or the holder notifies the Company or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with such certificates.
Upon any conversion of Series A Preferred Stock, the shares of Series
A Preferred Stock that are converted shall not be reissued and shall not be
considered outstanding for any purposes. Upon conversion of all of the then
outstanding Series A Preferred Stock, shares of Series A Preferred Stock shall
not be deemed outstanding for any purpose whatsoever and all such shares shall
be retired and canceled and shall not be reissued.
On June 30, 1999, the holders of the Series A Preferred Stock shall
be required to convert all of their outstanding shares of Series A Preferred
Stock into shares of Common Stock. Until converted, the Company shall be
entitled to redeem shares of Series A Preferred Stock in accordance with the
Certificate of Designation, regardless of whether or not a notice of conversion
has been received by the Company with respect to such shares.
The Company shall at all times when any shares of Series A Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, such number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares of Series A
Preferred Stock.
Redemption. At any time after September 28, 1997, the Company may, at
the option of the Board of Directors, redeem up to 50% of the outstanding shares
of the Series A Preferred Stock at the applicable redemption price, provided,
that (x) the Company shall have received a notice of conversion, and (y) the
Conversion Price is at or below $2.625. At any time after September 28, 1997,
the Company may, at the option of the Board of Directors, redeem all or a
portion of the remaining 50% of the outstanding shares of the Series A Preferred
Stock at the applicable redemption price, provided, that (x) the Company shall
have received a notice of conversion, and (y) the Conversion Price is at or
below $1.00. The Company shall give written notice by telecopy, to the holder of
Series A Preferred Stock to be redeemed at least one business day after receipt
of the notice of conversion prior to the date specified for redemption (the
"Redemption Date"). Such notice shall state the Redemption Date, the Redemption
Price (as hereinafter defined), the number of shares of Series A Preferred Stock
of such holders to be redeemed and shall call upon such holders to surrender to
the Company on the Redemption Date at the place designated in the notice such
holders' redeemed stock. If fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, the redemption shall be pro rata among the
holders of Series A Preferred Stock and subject to such other provisions as may
be determined by the Board of Directors. The Redemption Date shall be no more
than 10 days after receipt of written notice from the Company.
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<PAGE>
If the Company fails to pay the Redemption Price on the Redemption Date, the
Company shall pay to the holder a penalty in an amount in cash equal to 2%
percent of the Redemption Price to be paid on such Redemption Date. If the
Company fails to pay the Redemption Price on the Redemption Date, the holder
shall have the right to convert the Series A Preferred Stock previously
presented to the Company and not redeemed. The Company shall have the right to
redeem the Series A Preferred Stock in any subsequent redemption; provided,
however, that if the Company fails to pay the Redemption Price in a subsequent
redemption within 10 days, the Company shall have the right to redeem the Series
A Preferred Stock thereafter only upon wiring the Redemption Price to the
holders simultaneously with sending the notice of redemption. On or after the
Redemption Date, the holders of shares of Series A Preferred Stock called for
redemption shall surrender the certificates evidencing the shares called for
redemption to the Company at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption Price.
The Company shall have the option to redeem the Series A Preferred
Stock at a price determined as follows (each, a "Redemption Price"): (i) any
portion of the first 25% of the outstanding shares of Series A Preferred Stock
at a cash price equal to 110% percent of the Liquidation Preference per share,
together with all unpaid dividends to and including the Redemption Date, or
issue shares of Common Stock at a conversion rate equal to (x) $1,000 divided by
(y) 82% percent of the average closing bid price of the Common Stock as reported
on the Nasdaq SmallCap Market or any successor exchange in which the Common
Stock is listed for the five trading days preceding the Conversion Date; (ii)
any portion of the second 25% percent of the outstanding shares of the Series A
Preferred Stock at a cash price equal to 120% of the Liquidation Preference per
share, together with all unpaid dividends to and including the Redemption Date,
or issue shares of Common Stock at a conversion rate equal to (x) $1,000 divided
by (y) 82% of the average closing bid price of the Common Stock as reported on
the Nasdaq SmallCap Market or any successor exchange in which the Common Stock
is listed for the five trading days preceding the Conversion Date; and (iii) any
portion of the remaining 50% of the outstanding shares of Series A Preferred
Stock, if the Company receives a Notice of Conversion and the Conversion Price
of the Series A Preferred Stock is below $1.00, at a cash price equal to 110% of
the Liquidation Preference per share, together with all accrued and unpaid
dividends to and including the Redemption Date; provided, however, that payment
of the Redemption Price shall be made from any funds of the Company legally
available therefor.
From and after the Redemption Date (unless default shall be made by
the Company in duly paying the Redemption Price in which case all the rights of
the holders of such shares shall continue), the holders of the shares of the
Series A Preferred Stock called for redemption shall cease to have any rights as
stockholders of the Company, except the right to receive, without interest, the
Redemption Price thereof upon surrender of certificates representing the shares
of Series A Preferred Stock, and such shares shall not thereafter be transferred
(except with the consent of the Company) on the books of the Company and shall
not be deemed outstanding for any purpose whatsoever.
There shall be no redemption of any shares of Series A Preferred
Stock of the Company where such action would be in violation of applicable law.
Call Option. In the event the Company closes on an offering for its
Common Stock at a price per share under $6.00, the Company may, at its option,
call all outstanding shares of Series A Preferred Stock at a call price equal to
200% of the Liquidation Preference.
In the event the Company has an offering for its Common Stock at a
price per share equal to or greater than $6.00, then the holders of the Series A
Preferred Stock shall be required to convert all outstanding shares
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<PAGE>
of Series A Preferred Stock into shares of Common Stock five business days prior
to the scheduled closing of such offering and each holder may, at its option,
sell its shares of Common Stock as part of such offering.
Voting Rights. Except as otherwise required by law, the holders of
the Series A Preferred Stock shall not be entitled to vote upon any matter
relating to the business or affairs of the Company or for any other purpose.
Status. In case any outstanding shares of Series A Preferred Stock
shall be redeemed, the shares so redeemed shall be deemed to be permanently
canceled and shall not resume the status of authorized but unissued shares of
Series A Preferred Stock.
Ranking; Changes Affecting Series A Preferred Stock. The Series A
Preferred Stock shall, with respect to dividend rights and rights on
liquidation, winding up and dissolution, (i) rank senior to any of the Company's
Common Stock and any other class or series of stock of the Company which by its
terms shall rank junior to the Series A Preferred Stock, and (ii) rank junior to
any other class or series of stock of the Company which by its terms shall rank
senior to the Series A Preferred Stock and (iii) shall rank on a pari passu
basis with any other series of Preferred Stock of the Company..
So long as any shares of Series A Preferred Stock are outstanding,
the Company shall not (i) alter or change any of the powers preferences,
privileges, or rights of the Series A Preferred Stock; or (ii) amend the
provisions of the Certificate of Designation affecting the ranking of the Series
A Preferred Stock, without first obtaining the approval by vote or written
consent, in the manner provided by law, of the holders of at least a majority of
the outstanding shares of Series A Preferred Stock, as to changes affecting the
Series A Preferred Stock.
Registration Rights. The Company has agreed to register the shares of
Common Stock underlying the Series A Preferred Stock in the Registration
Statement filed with the Commission. If the Commission does not declare the
Registration Statement effective by September 28, 1997, the Company must pay
each holder of the Series A Preferred Stock 2% of the outstanding Liquidation
Preference of such holder's Series A Preferred Stock for each month thereafter
that the Registration Statement is not declared effective.
Other Designations of Preferred Stock
As of the date of this Prospectus, the Company has not designated any
shares of Preferred Stock other than the Series A Preferred Stock designated
pursuant to the Private Placement. There are no other shares of Preferred Stock
outstanding, and the Company currently has no plans to issue any other shares of
Preferred Stock.
DELAWARE BUSINESS COMBINATION PROVISIONS
As a Delaware corporation, the Company is subject to Section 203
("Section 203") of the Delaware General Corporation Law (the "DGCL"), 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
-18-
<PAGE>
(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 or 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 Company's Board of Directors approves either the
Business Combination or the transaction that 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 that 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 Company's Board of Directors
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.
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<PAGE>
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be
effected from time to time in one or more transactions (which may involve block
transactions), in special offerings, exchange distributions and/or secondary
distributions, in negotiated transactions, in settlement of short sales of
Common Stock, or a combination or such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Such transactions may be effected on a stock
exchange, on the over-the-counter market or privately. The Selling Stockholders
may effect such transactions by selling the Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from one or more of the Selling
Stockholders for whom they may act as agent (which compensation may be in excess
of customary commissions). Without limiting the foregoing, such brokers may act
as dealers by purchasing any and all of the Shares covered by this Prospectus
either as agents for others or as principals for their own accounts and
reselling such securities pursuant to this Prospectus. The Selling Stockholders
and any broker-dealers or other persons acting on the behalf of parties that
participate with such Selling Stockholders in the distribution of the Shares may
be deemed to be underwriters and any commissions received or profit realized by
them on the resale of the Shares may be deemed to be underwriting discounts and
commissions under the Securities Act. As of the date of this Prospectus, the
Company is not aware of any agreement, arrangement or understanding between any
broker or dealer and any of the Selling Stockholders with respect to the offer
or sale of the Shares pursuant to this Prospectus.
At the time that any particular offering of Shares is made, to the
extent required by the Securities Act, a prospectus supplement will be
distributed, setting forth the terms of the offering, including the aggregate
number of Shares being offered, the names of any underwriters, dealers or
agents, any discounts, commissions and other items constituting compensation
from the Selling Stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
The Selling Stockholders may from time to time pledge the Shares
owned by them to secure margin or other loans made to one or more of the Selling
Stockholders. Thus, the person or entity receiving the pledge of any of the
Shares may sell them, in a foreclosure sale or otherwise, in the same manner as
described above for a Selling Stockholder.
The Company will not receive any of the proceeds from any sale of the
Shares by the Selling Stockholders offered hereby.
Pursuant to the Registration Rights Agreements, the Company and the
Selling Stockholders have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act. The Company shall
bear customary expenses incident to the registration of the Shares for the
benefit of the Selling Stockholders in accordance with such agreements, other
than underwriting discounts and commissions directly attributable to the sale of
such securities by or on behalf of the Selling Stockholders.
The Company has agreed to use its best efforts to keep the
Registration Statement of which this Prospectus is a part effective until the
earlier of (i) the date that all the Shares have been sold pursuant to the
registration statement of which this Prospectus is a part, (ii) the date the
Selling Stockholders receive an opinion of counsel that the Shares may be sold
under the provisions of Rule 144 or (iii) the second anniversary of the
effective date of the Registration Statement of which this Prospectus forms a
part.
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<PAGE>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the DGCL provides, in general, that a corporation
incorporated under the laws of the State of Delaware, such as the registrant,
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding (other
than a derivative action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or any other court in which such action was brought determines such
person is fairly and reasonably entitled to indemnity for such expenses.
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 has entered into an
Indemnification Agreement (the "Indemnification Agreement") with each of its
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Company's Certificate of
Incorporation or as otherwise permitted under Delaware law. Each Indemnification
Agreement may require the Company, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as a director or officer, against liabilities arising
from willful misconduct of a culpable nature, and to obtain directors' and
officers' liability insurance if available on reasonable terms.
Pursuant to the Registration Rights Agreements, the Company and the
Selling Stockholders have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
The Company maintains a directors and officers liability policy with
Genesis Insurance Company that contains a limit of liability of $3,000,000 per
policy year.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and
-21-
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York. Martin
Eric Weisberg, Esq., a member of the firm, is a Director and the Secretary of
the Company.
EXPERTS
The consolidated financial statements of the Company incorporated in
this Prospectus by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996 have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report dated March 31, 1997,
accompanying such financial statements, and are incorporated herein by reference
in reliance upon the reports of such firm, which report is given upon their
authority as experts in accounting and auditing.
-22-
<PAGE>
====================================== ======================================
No dealer, salesperson or any other
person has been authorized to give any
information or to make any
representation not contained in this
Prospectus with respect to the
offering made hereby. This Prospectus
does not constitute an offer to sell
or a solicitation of an offer to buy
any of the securities offered hereby
to any person or by anyone in any
jurisdiction in which such offer or 1,285,713 Shares of Common Stock
solicitation may not lawfully be made. (Issuable upon the exercise of
Neither the delivery of this Series A Preferred Stock)
Prospectus nor any sale made hereunder
shall, under any circumstances, create
any implication that there has been no
change in the information set forth
herein or in the business of the
Company since the date hereof.
-----------------
TABLE OF CONTENTS
----------
Page PROSPECTUS
----------
Available Information.............2
Incorporation of Certain
Documents by Reference...........2
Prospectus Summary................3
Risk Factors......................5
Use of Proceeds..................13 , 1997
Selling Stockholders ............13
Description of Securities........14
Delaware Business Combination
Provisions..................18
Plan of Distribution ............20
Indemnification for Securities
Act Liabilities.................21
Legal Matters....................22
Experts .........................22
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be
paid by the Company in connection with the issuance and distribution of the
securities being registered on this Registration Statement. The Selling
Stockholders will not incur any of the expenses set forth below. All amounts
shown are estimates.
Filing fee for registration statement...............$ 1,095.78
Legal fees and expenses.............................$ 10,000.00
Miscellaneous expenses..............................$ 15,000.00
-----------
Total..........................................$ 26,095.78
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides, in general, that a corporation incorporated under the
laws of the State of Delaware, such as the registrant, may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than a derivative action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of a derivative action, a Delaware corporation
may indemnify any such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnity for such expenses.
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 has entered 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
II - 1
<PAGE>
contained in the Company's Certificate of Incorporation or as otherwise
permitted under Delaware law. Each Indemnification Agreement may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as a
director or officer, against liabilities arising from willful misconduct of a
culpable nature, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
The Company maintains a directors and officers liability policy with
Genesis Insurance Company that contains a limit of liability of $3,000,000 per
policy year.
ITEM 16. EXHIBITS.
Number Description of Exhibit
4.1 Form of Purchase Agreement
4.2 Form of Registration Rights
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP
(included in their opinion filed as Exhibit 5.1).
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II - 2
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer 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.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer 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 small business issuer 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 the issue.
The undersigned small business issuer hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II - 3
<PAGE>
SIGNATURES
Pursuant to 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 S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fairfax, State of Virginia on September 19, 1997.
XYBERNAUT CORPORATION
By: /s/ Edward G. Newman
-------------------------
Edward G. Newman
Chairman of the Board,
President and Chief
Executive Officer
II - 4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Edward G. Newman and John F. Moynahan,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-3 has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Edward G. Newman Chairman of the Board, September 19, 1997
- ------------------------- President and Chief
Edward G. Newman Executive Officer
/s/ John F. Moynahan Senior Vice President, Chief September 19, 1997
- ------------------------- Financial Officer, Treasurer
John F. Moynahan and Director
/s/ Martin Eric Weisberg Secretary and Director September 19, 1997
- -------------------------
Martin Eric Weisberg
/s/ Lt. Gen. Harry E. Soyster Director September 19, 1997
- -------------------------
Lt. Gen. Harry E. Soyster
/s/ James J. Ralabate Director September 19, 1997
- -------------------------
James J. Ralabate
/s/ Keith P. Hicks Director September 19, 1997
- -------------------------
Keith P. Hicks
/s/ Steven A. Newman Director September 19, 1997
- -------------------------
Steven A. Newman
/s/ Phillip E. Pearce Director September 19, 1997
- -------------------------
Phillip E. Pearce
/s/ Eugene J. Amobi Director September 19, 1997
- -------------------------
Eugene J. Amobi
II - 5
<PAGE>
SECURITIES AND
EXCHANGE
COMMISSION
Washington, D.C. 20549
--------------
EXHIBITS
TO
Form S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT
OF 1933
--------------
XYBERNAUT
CORPORATION
(Exact name of issuer as specified
in its charter)
<PAGE>
EXHIBIT INDEX
Number Description of Exhibit
4.1 Form of Purchase
Agreement
4.2 Form of Registration
Rights
5.1 Opinion of Parker
Chapin Flattau &
Klimpl, LLP.
23.1 Consent of Coopers &
Lybrand L.L.P.
23.2 Consent of Parker
Chapin Flattau &
Klimpl, LLP (included
in their opinion filed
as Exhibit 5.1).
EXHIBIT 4.1
-----------
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES
ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY
NOT BE RESOLD, TRANSFERRED OR OFFERED FOR RESALE OR TRANSFER OR USED AS
COLLATERAL, EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
5% CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
XYBERNAUT CORPORATION
THIS AGREEMENT is made as of the 30" day of June, 1997, between
XYBERNAUT CORPORATION, Nasdaq Symbol "XYBR" (the "Company"), a Delaware
corporation, with its principal office at 12701 Four Lakes Circle, Fairfax, VA
22033, and LIBERTYVIEW PLUS FUND (the "Purchaser"), with its principal office at
c/o Hemisphere House, 9 Church Street, Hamilton, HM DX Bermuda.
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and the Purchaser agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement:
"Agreement" means this 5% Convertible Preferred Stock Purchase
Agreement.
"Closing Date" means the date agreed to by the parties for the
delivery of the original stock certificate against a wire transfer of the funds
to the Company.
"Closing" means the completion of the purchase and sale of the Shares
on the Closing Date.
"Common Stock" means the Common Stock of the Company, $0.01 par value
per share.
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to the Company.
<PAGE>
"Convertible Preferred Stock" means the shares of Series A Preferred
Stock of the Company convertible into common stock of the Company as hereinafter
provided; including the Certificate of Designation designating the Series A
Preferred Stock.
"Conversion Price" means an amount equal to the lesser of (a)
eighty-two (82%) percent of the average closing bid price of the Common Stock as
reported by NASDAQ or any successor exchange in which the Common Stock is listed
for the five (5) trading days preceding the Conversion Date, or (b) Three and
50/100 ($3.50) Dollars.
"Conversion Shares" means the shares of Common Stock issued upon the
conversion of the Convertible Preferred Stock.
"Purchase Price" means the aggregate purchase price of the Shares
purchased.
"Shares" means the shares of Convertible Preferred Stock purchased
pursuant to this Agreement.
Section 2. Authorization and Sale of Shares.
2.1 Authorization. Subject to the terms and conditions of this
Agreement, the Company has authorized the sale and issuance of the Shares.
2.2 Agreement to Sell and Purchase the Shares. The offer and sale of
the Shares are being made hereunder in reliance upon the provisions of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). The Company will sell and the Purchaser will buy Shares in
reliance upon the representations and warranties of the Company and Purchaser
contained in this Agreement, upon the terms and conditions hereinafter set
forth, 600 Shares for an aggregate purchase price of Six Hundred Thousand
($600,000) Dollars based on the purchase price of $1,000 per share. The Shares
shall pay a 5% cumulative dividend, payable in cash or Common Stock at the
Conversion Price, at the discretion of the Company, at the time of each
conversion. The purchase and sale of the Shares shall occur on the Closing Date.
2.3 Time and Place of Closing. The Closing shall be held at the
offices of Parker Chapin Flattau & Klimpl, LLP ("Escrow Agent"), 1211 Avenue of
the Americas, New York, NY 10036, as promptly as practicable as agreed to by the
parties to this Agreement.
2.4 Payment and Delivery. At or prior to the Closing, the following
shall occur:
(a) Purchaser shall remit by wire transfer the Purchase
Price to Escrow Agent pursuant to the Escrow Agreement, dated June 30, 1997,
among the Company, Purchaser and Escrow Agent (the "Escrow Agreement"), attached
hereto as Attachment 1, as payment in full for the Shares.
2
<PAGE>
(b) Company shall deliver or cause to be delivered to
Escrow Agent a certificate representing the Shares, registered in the name of
Purchaser (or any nominee designated by Purchaser on the Closing Date), free and
clear of all liens, claims, charges and encumbrances.
(c) Wire instructions for Parker Chapin Flattau & Klimpl,
LLP are as follows:
Citibank, N.A.
ABA No. 021000089
For Further Credit to
Parker Chapin Flattau & Klimpl, LLP, Attorney Trust Account
Account No. 37432544
All subscription funds shall be held in escrow by the Escrow Agent pursuant to
the terms and conditions set forth in the Escrow Agreement among the Company,
the Purchaser and the Escrow Agent.
Section 3. General Representations and Warranties of the Company. The
Company hereby represents and warrants to, and covenants with, the Purchaser
that the following are true and correct as of the date hereof and as of the
Closing Date.
3.1 Organization; Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware and is in
good standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock, $0.01 par value per share, and
5,000,000 shares of nonvoting Preferred Stock, $0.01 par value, which have been
designated Series A Convertible Preferred Stock, no par value. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable. The Company will reserve from its
authorized but unissued shares of Common Stock a sufficient number of shares of
Common Stock to permit the conversion in full of the outstanding Shares. As of
the Closing Date, the Company had reserved sufficient shares of Common Stock for
issuance upon exercise of the Shares which are convertible, at Purchaser's
option, at the Conversion Price, as per Section 9 of this Agreement.
3.3 Authorization. The Company has all requisite corporate right,
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the
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authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Shares and the
performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in Section 7.3 of this Agreement. Upon their issuance and delivery pursuant to
this Agreement, the Shares will be validly issued, fully paid and nonassessable
and will be free of any liens or encumbrances; provided, however, that the
Shares are subject to restrictions on transfer under state and/or federal
securities laws. The issuance and sale of the Shares will not give rise to any
preemptive right or right of first refusal or right of participation on behalf
of any person.
3.4 No Conflict. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to a
loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material adverse
effect on the Company's business and financial condition.
3.5 Accuracy of Reports and Information. The Company is in full
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12 (g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company has registered its Common Stock
pursuant to Section 12 of the Exchange Act and the Common Stock is listed and
trades on the Nasdaq National Small Cap Market.
The Company has filed all material required to be filed pursuant to
all reporting obligations, under either Section 13(a) or 15(d) of the Exchange
Act for a period of at least twelve (12) months immediately preceding the offer
to sale of the Shares (or for such shorter period that the Company has been
required to file such material).
3.6 SEC Filings/Full Disclosure. Since completion of the Company's
initial public offering in July 1996, none of the Company's filings with the
Securities and Exchange Commission contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
which they were made, not misleading. The Company has timely filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange Commission.
There is no fact known to the Company (other than general economic
conditions known
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to the public generally) that has not been disclosed in writing to the Purchaser
which (i) could reasonably be expected to have a material adverse effect on the
business or financial condition, properties or assets of the Company, or (ii)
could reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement.
3.7 Absence of Undisclosed Liabilities. The Company has no material
liabilities or obligations, absolute or contingent (individually or in the
aggregate), except as set forth in the financial statements or as incurred in
the ordinary course of business after the date of the financial statements.
3.8 Governmental Consent, etc. No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Shares, or the
consummation of any other transaction contemplated hereby, except the filing
with the SEC of a registration statement on Form S-3 for the purpose of
registering the Common Stock underlying the Shares.
3.9 Intellectual Property Rights. Except as disclosed in the Form
10-KSB, Form 10-QSBs and Form 8-Ks filed by the Company for a period of at
least twelve (12) months immediately preceding this offer (the "Reports"), the
Company has sufficient trademarks, trade names, patent rights, copyrights and
licenses to conduct its business as presently conducted in the Reports. To the
Company's knowledge, neither the Company nor its products is infringing or will
infringe any trademark, trade name, patent right, copyright, license, trade
secret or other similar right of others currently in existence; and there is no
claim being made against the Company regarding any trademark, trade name,
patent, copyright, license, trade secret or other intellectual property right
which could have a material adverse effect on the business or financial
condition of the Company.
3.10 Material Contracts. Except as set forth in the Reports, the
agreements to which the Company is a party described in the Reports are valid
agreements, in full force and effect the Company is not in material breach or
material default under any of such agreements.
3.11 Litigation. Except as disclosed in the Reports, there is no
action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
3.12 Title to Assets. Except as set forth in Reports, the Company has
good and marketable title to all properties and material assets described in the
Reports as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company.
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3.13 Subsidiaries. Except as disclosed in the Reports, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
3.14 Required Governmental Permits. The Company is in possession of
and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect.
3.15 Listing. The Company will maintain the listing of its Common
Stock on the Nasdaq National Small Cap Market or other organized United States
market or Quotation system.
3.16 Other Outstanding Securities/Financing Restrictions. Other than
warrants and options to acquire shares of Common Stock as disclosed in the
Reports, there are no other outstanding securities debt or equity presently
convertible into Common Stock. The Company has no outstanding restricted share,
or shares of Common Stock sold under Regulation S, Regulation D or outstanding
under any other exemption from registration, which are available for sale as
unrestricted ("free trading") stock.
3.17 Legal Opinion. Purchaser shall, upon purchase of the Shares,
receive an opinion letter from counsel to the Company, and the Company
represents that it will immediately obtain such an opinion from counsel to the
satisfaction of the Transfer Agent, to the effect that:
(i) The Company is incorporated and validly existing in
the jurisdiction of its incorporation. The Company and/or its subsidiaries are
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where the Company and/or subsidiaries owns or leases
properties, maintains employees or conducts business, except for jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the Company, and has all requisite corporate power and authority to own its
properties and conducts its business.
(ii) There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the Company which
might result, either individually or in the aggregate, in any material adverse
change in the business or financial condition of the Company.
(iii) To counsel's knowledge, the Company is not a party
to or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.
(iv) To counsel's knowledge, there is no action, suit,
proceeding or investigation by the Company currently pending.
(v) The Convertible Preferred Stock, which shall be issued
at the closing, are duly authorized and validly issued under the Company's State
of Incorporation.
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(vi) This Purchase Agreement, the issuance of the Shares
and the issuance of Common Stock, upon conversion of the Shares, have been duly
approved by all required corporate action and that all such securities, upon
delivery, shall be validly issued and outstanding, fully paid and nonassessable.
(vii) The issuance of the Shares will not violate the
applicable listing agreement between the Company and any securities exchange or
market on which the Company's securities are listed.
(viii) Assuming the accuracy of the representation and
warranties of the Company and the Purchaser set forth in this Purchase
Agreement, the offer, issuance and sale of the Convertible Preferred Stock and
Conversion Shares to be issued upon exercise to the Purchaser pursuant to this
Purchase Agreement are exempt from the registration requirements of the
Securities Act.
3.18 Use of Proceeds. The Company represents that the net proceeds
from this offering will be used for general corporate purposes.
3.19 Dilution. The Company is aware and acknowledges that conversion
of the Shares could cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of Common Stock.
Section 4. Representations, Warranties and Covenants of the
Purchaser. The Purchaser represents and warrants to, and covenants with, the
Company that the following are true and correct as of the date hereof and as of
the Closing Date.
4.1 Authority. The Purchaser's signatory has all right, power,
authority and capacity to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and will constitute the legal, valid and binding
obligations of the Purchaser, enforceable in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 7.3 of this Agreement.
4.2 Investment Experience. Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Purchaser is aware of the
Company's business and financial condition and has had access to and has
acquired sufficient information about the Company, including the Reports, to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser
has such business and financial experience as is required to give it the
capacity to protect its own interests in connection with the purchase of the
Shares. Purchaser has the ability to bear the economic risk of Purchaser's
investment pursuant to this Purchase Agreement. Purchaser has not been organized
for the purpose of investing in securities of the Company,
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although such investment is consistent with Purchaser's purpose.
4.3 Investment Intent. Without limiting its ability to resell the
Shares and underlying Common Stock pursuant to an effective registration
statement, Purchaser represents that it is purchasing the Shares for its own
account as principal for investment purposes. Purchaser understands that its
acquisition of the Shares has not been registered under the Securities Act or
registered or qualified under any state securities law in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things, the
bona fide nature of Purchaser's investment intent as expressed herein. Purchaser
will not, directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy, purchaser or otherwise acquire or take
a pledge of) any of the Shares except in compliance with the Securities Act and
any applicable state securities laws, and the rules and regulations promulgated
thereunder.
4.4 Registration or Exemption Requirements. Purchaser further
acknowledges and understands that the Shares may not be transferred, resold or
otherwise disposed of except in a transaction registered under the Securities
Act and any applicable state securities laws or unless an exemption from such
registration is available. Purchaser understands that the certificate(s)
evidencing the Shares will be imprinted with a legend that prohibits the
transfer of the Shares unless (i) they are registered or such registration is
not required, and (ii) if the transfer is pursuant to an exemption from
registration other than Rule 144 under the Securities Act and, if the Company
shall so request in writing, an opinion of counsel reasonably satisfactory to
the Company is obtained to the effect that the transaction is so exempt.
4.5 No Legal, Tax or Investment Advice. Purchaser understands that
nothing in this Agreement or any other materials presented to Purchaser in
connection with the purchase and sale of the Shares constitutes legal, tax or
investment advice. Purchaser has relied on, and has consulted with, such legal,
tax and investment advisors as it, in its sole discretion, has deemed necessary
or appropriate in connection with its purchaser of the Shares.
4.6 Purchaser Review. Purchaser hereby represents and warrants that
the Purchaser has carefully examined the Reports and the financial statements
contained therein. The Purchaser acknowledges that the Company has made
available to the Purchaser all documents and information that it has requested
relating to the Company and has provided answers to all of its questions
concerning the Company and the Shares. Nothing stated in the previous two
sentences, however, shall be deemed to affect the representations and warranties
of the Company contained in this Agreement.
4.7 Restrictions on Conversion of Shares. The Purchaser or any
subsequent holder of the shares (the "Holder") shall be prohibited from
converting any portion of the Shares which would result in the Purchaser or the
Holder being deemed the beneficial owner, in accordance with the provisions of
Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of 4.99% or more of the then issued and outstanding Common Stock of the
Company.
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Section 5. Conditions to the Purchaser's Obligation to Purchase. The
Company understands that the Subscriber's obligation to purchase the Shares is
conditioned upon:
(a) Acceptance by Purchaser of this Agreement for the sale of the
Stock, as evidenced by the execution of this Agreement by an authorized officer;
(b) Delivery of the Shares into Escrow;
(c) Execution and delivery by the Company of the Escrow Agreement and
the Registration Rights Agreement in the form of Attachment I and Attachment 11;
(d) Delivery of a filed Certificate of Designation; and
(e) Delivery of an Opinion of Counsel as per Section 3.17 herein.
Section 6. Conditions to Company's Obligation to Sell. Purchaser
understands that the Company's obligation to sell the Shares is conditioned
upon:
(a) The receipt and acceptance by the Company of this Agreement for
all of the Shares as evidenced by execution of this Agreement by an authorized
officer.
(b) Delivery into escrow by Purchaser of good funds as payment in
full for the purchase of the Shares; and
(c) Execution and delivery by the Purchaser of the Escrow Agreement
and the Registration Rights Agreement in the forms of Attachment I and
Attachment II.
Section 7. Compliance with the Securities Act.
7.1 Registration Rights Agreement. The parties will enter into a
Registration Rights Agreement, annexed hereto as Attachment II.
7.2 Underwriter. The Company understands that the Purchaser disclaims
being an "underwriter" (as such term is defined under the Securities Act and the
rules and regulations promulgated thereunder (an "Underwriter")), but Purchaser
being deemed an Underwriter shall not relieve the Company of any obligation it
has hereunder, except as may be required by law.
7.3 Indemnification. Each of the Company and the Purchaser agrees to
indemnify the other and to hold the other harmless from and against any and all
losses, damages, liabilities, costs and expenses (including reasonable
attorneys' fees) which the other may sustain or incur in connection with the
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
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7.4 Information Available. So long as any registration statement is
effective covering the resale of the Conversion Shares, the Company will furnish
to Purchaser:
(a) as soon as possible after available (but in the case of the
Company's Annual Report to Stockholders, within 150 days after the end of each
fiscal year of the Company), one copy of (i) its Annual Report to Stockholders
(which Annual report shall contain financial statements audited in accordance
with generally accepted accounting principles in the United States of America by
a national firm of certified public accountants); (ii) each of its Quarterly
Reports to Stockholders, and its Quarterly Reports on Form 10-QSB; and (iii) a
full copy of the registration statement covering the Conversion Shares (the
foregoing, in each case, including exhibits); and
(b) upon the reasonable request of Purchaser, such other information
that is generally available to the public.
7.5 Temporary Cessation of Offers and Sales by Purchaser. The
Purchaser acknowledges that there may occasionally be times when the Company may
be required to suspend the use of the prospectus forming part of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the
Commission, until the prospectus is supplemented or amended to comply with the
Securities Act, or until such time as the Company has files an appropriate
report with the Commission pursuant to the Exchange Act. The Company agrees to
file any necessary amendments, supplements and reports as soon as practicable
under the circumstances. Purchaser hereby covenants that it will not sell any
Common Stock pursuant to said prospectus during a period of not more than 45
days commencing at the time at which the Company gives the Purchaser notice of
the suspension of the use of said prospectus and ending at the time the Company
gives the Purchaser notice that the Purchaser may thereafter effect sales
pursuant to said prospectus, as the same may have been supplemented or amended.
7.6 Transfer of Common Stock After Registration. Purchaser hereby
covenants with the Company not to make any sale of the Common Stock except
either (i) in accordance with the Registration Statement, in which case
Purchaser covenants to comply with the requirement of delivering a current
prospectus, or (ii) such time as all of the Common Stock may be sold in any
three-month period pursuant to Rule 144 under the Securities Act.
7.7 Termination of Obligations. The obligations of the Company
pursuant to the Registration Rights Agreement shall cease and terminate upon the
earlier to occur of (i) such time as, all of the Common Stock have been sold by
Purchaser, or (ii) such time as all of the Common Stock may be sold in any three
month period pursuant to Rule 144 under the Securities Act.
7.8 Legend. The certificate or certificates representing the Shares
and, upon conversion, the Conversion Shares shall be subject to a legend
restricting transfer under the Securities Act of 1933, such legend to be
substantially as follows:
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"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT, AND MAY NOT BE TRANSFERRED OR DISPOSED OF UNLESS (1) A
REGISTRATION STATEMENT UNDER THE ACT IS THEN IN EFFECT WITH RESPECT THERETO AND
SUCH SALE IS MADE PURSUANT TO SUCH REGISTRATION STATEMENT OR (2) A WRITTEN
OPINION FROM COUNSEL REASONABLY SATISFACTORY TO THE COMPANY IS OBTAINED TO THE
EFFECT THAT SUCH TRANSFER OR DISPOSITION WILL NOT VIOLATE THE ACT AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER."
Such securities shall also include any legends required by any applicable state
securities laws.
With respect to the Shares and the Conversion Shares, the legend(s)
shall be removed and the Company shall issue a replacement certificate without
such legend to the holder of such certificate if such holder provides to the
Company an opinion of counsel reasonably acceptable to the Company, to the
effect that a sale, transfer or assignment of such securities may be made
without registration.
7.10 Permissive Redemption. The Company has the right to redeem the
Shares, in whole or in part, in cash or in Common Stock, as follows:
When a conversion request is submitted and when the Conversion Price
is at or below $2.625, the Company has the option to redeem all or a portion of
the first twenty-five (25%) percent of the outstanding Shares for a redemption
price equal to one hundred ten (110%) percent of the Liquidation Value (as
defined in the Certificate of Designation) of the Shares, or issue shares at a
redemption price equal to eighty-two (82%) percent of the average closing bid
price of the Common Stock as reported by NASDAQ or any successor exchange in
which the Common Stock is listed for the five (5) trading days preceding the
Conversion Date. For all or a portion of the second twenty-five (25%) percent of
outstanding Shares for which conversions are submitted, if the Conversion Price
is at or below $2.625, the Company has the option to redeem for one hundred
twenty (120%) percent of the Liquidation Value of the Shares, or issue shares at
a redemption price equal to eighty-two (82%) percent of the average closing bid
price of the Common Stock as reported by NASDAQ or on other securities exchanges
or markets in which the Common Stock is listed for the five (5)trading days
ending on the day before the Closing Date.
For any conversions of the remaining outstanding principal amount
submitted at or below a floor price of One ($1.00) Dollar per Conversion Share,
Shares may be redeemed by the Company at the time(s) of conversion at one
hundred ten (110%) percent of the Liquidation Value of the Shares.
The Company shall give written notice by telecopy to the Purchaser of
its election to redeem the Shares one (1) business day after receipt of the
Notice of Conversion. Upon notice of its right to redeem the Shares the Company
shall wire transfer the appropriate amount of funds
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which shall include Redemption Price, as defined in Certificate of Designation
filed June 30, 1997, and any and all penalties and liquidated damages, if any,
to Purchaser within ten (10) days of such notice. If the Company does not wire
the appropriate amounts of funds to Purchaser, the Company shall pay to the
Purchaser a penalty in an amount in cash equal to two (2%) percent of the
redemption price to be paid for such redemption. If the Company fails to pay the
Redemption Price on the Redemption Date, as defined in the Certificate of
Designation filed June 30, 1997, the Purchaser shall have the right to convert
the Series A Preferred Stock previously presented to the Company and not
redeemed. The Company shall have the right to redeem the Series A Preferred
Stock in accordance with the terms of this paragraph in any subsequent
redemption; provided, however, that if the Company fails to pay the Redemption
Price in a subsequent redemption within ten (10) days, the Company shall have
the right to redeem the Series A Preferred Stock thereafter, only upon wiring
the Redemption Price to the holders simultaneously with sending the notice of
redemption. On or after the Redemption Date, the holders of shares of Series A
Preferred Stock called for redemption shall surrender the certificates
evidencing the shares called for redemption to the Company at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price.
Section 8. Legal Fees and Expenses. Each of the parties shall pay its
own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby.
Section 9. Conversion. Conversion of the Convertible Preferred Stock
may be made at the Conversion Price as follows:
0-90 days None
after 90 days Up to 25% of the outstanding Shares, plus
accrued and unpaid dividends and liquidated
damages accrued, if any, and 25% of the
outstanding Shares plus dividends if any begins
each successive quarter, on a cumulative basis.
9.1 Notice of Conversion. Purchaser may convert, in whole or in part,
the Shares into Common Stock by telecopying an executed and completed Notice of
Conversion (in the form annexed hereto as Exhibit A) to the Company and
delivering the original Notice of Conversion and the certificate representing
the Shares to the Company by express courier within five (5) business days of
exercise. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company will transmit the certificates representing the
Common Stock issuable, upon conversion of all or any part of the Shares
(together with the certificates representing portions of the Shares not so
converted) to the Purchaser via express courier within five (5) business days
after the Company has received the original Notice of Conversion and shares
certificate being so converted. The Notice of Conversion and certificate
representing the portion of the Shares converted shall be delivered as follows
and become effective upon delivery to each of the persons below:
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To the Company:
Xybernaut Corporation
12701 Four Lakes Circle
Fairfax, VA 22033
Attn: Edward G. Newman, President
(Tele) (703) 631-6925
(Fax) (703) 631-6734
with copies to:
Xybernaut Corporation
12701 Four Lakes Circle
Fairfax, VA 22033
Attn: John Moynahan, Treasurer
(tele) (703) 631-6925
(fax) (703) 631-6734
Steven A. Newman
303 Avenida Cerritos
Newport Beach, CA 92660
(tele) (714) 760-5470
(fax) (714) 760-3865
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10019
(tele) (212) 704-6000
(fax) (212) 704-6288
Christopher Auguste, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10019
(tele) (212) 704-6000
(fax) (212) 704-6288
or to such other person at such other place as the Company shall designate to
the Purchaser in writing.
In the event that the Shares are not converted within ten (10)
business days of receipt by the Company of a valid Notice of Conversion and
certificates representing the Shares to be
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converted (such date of receipt referred to as the "Conversion Date"), the
Company shall pay to the Purchaser, by wire transfer, as liquidated damages for
such failure and not as a penalty, an amount in cash equal to one (1%) percent
per day of the purchase price of the Shares to be converted which shall run from
the initial Conversion Date and Purchaser has the option to withdraw the Notice
of Conversion previously sent; provided, that the Company shall not be
responsible for (or required to pay) such liquidated damages if such failure to
convert was not caused by any actions or omissions of the Company.
Section 10. Call Option.
(a) At any time on or before September 1, 1997, the Company shall be
entitled to call up to 2,000 shares of the Series A Preferred Stock at a call
price equal to one hundred ten (110%) percent of the Liquidation Value (as
defined in the Certificate of Designation), plus all accrued and unpaid
dividends.
(b) In the event the Corporation closes on an offering for its Common
Stock at a price per share under $6.00, the Corporation may, at its option, call
all outstanding shares of Series A Preferred Stock at a call price equal to two
hundred (200%) percent of the Liquidation Value.
(c) In the event the Corporation has an offering for its Common Stock
at a price per share equal to or greater than $6.00, then the holder shall be
required to convert all outstanding shares of Series A Preferred Stock five (5)
days prior to the scheduled closing of such offering and the Holder may, at its
option, hold such Common Stock or sell such Common Stock as part of such
offering.
Section 11. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, and shall be deemed given when
so mailed:
(a) if to the Company, to
Xybernaut Corporation
12701 Four Lakes Circle
Fairfax, VA 22033
Attn: Edward G. Newman, President
(Tele) (703) 631-6925
(Fax) (703) 631-6734
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copy to:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
(Tele) (212) 704-6050
(Fax) (212) 704-6288
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(b) if to the Purchaser, to
Libertyview Plus Fund
c/o Hemisphere House 9 Church Street
Hamilton, HM DX Bermuda
(tele)
(fax)
copy to:
Sheldon E. Goldstein, P.C.
65 Broadway, 10th Fl.
New York, NY 10006
Attn: Sheldon E. Goldstein
(tele) (212) 809-4220
(fax) (212) 809-4228
or at such other address or addresses as may have been furnished to the Company
in writing; or
(c) if to any transferee or transferees of a Purchaser, at such
address or addresses as shall have been furnished to the Company at the time of
the transfer or transfers, or at such other address or addresses as may have
been furnished by such transferee or transferees to the Company in writing.
Section 12. Miscellaneous.
12.1 Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement or any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
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provisions of this Agreement.
12.2 Amendments. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and by Purchaser.
12.3 Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
12.4 Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
12.5 Governing Law/Jurisdiction. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of New York,
except for matters arising under the Securities Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the courts of or located in the State of New York, specifically the Southern
District of New York and/or the Supreme Court of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
12.6 Certificate of Designation. In the event of any inconsistency or
conflict between the terms and provisions of this Agreement and the terms and
provisions of the Certificate of Designation, the terms and provisions of the
Certificate of Designation shall control.
12.7 Recovery of Attomey's Fees. Should any party bring an action to
enforce the terms of this Agreement then, if Purchaser prevails in such action
it should be entitled to recovery of its attomey's fees from the Company, and if
the Company prevails in such action it shall be entitled to recovery of its
attomey's fees from the Purchaser.
12.8 Fees. Notwithstanding Section 12.6, the Company acknowledges
that Purchaser shall have no responsibility for the payment of any of its fees
in connection with this offering.
12.9 Counterparts/Facsimile. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together,
16
<PAGE>
shall constitute but one instrument, and shall become effective when one or more
counterparts have been signed by each party hereto and delivered to the other
party. In lieu of the original, a facsimile transmission or copy of the original
shall be as effective and enforceable as the original.
12.10 Publicity. The Purchaser shall not issue any press releases or
otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Company,
except as may be required by applicable law or regulation.
12.11 Survival. The representations and warranties in this Agreement
shall survive Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their duly authorized representatives the day and year first above
written.
XYBERNAUT CORPORATION
By ______________________________
Officer
LIBERTYVIEW PLUS FUND, Purchaser
By ______________________________
Officer
17
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
5% Convertible Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of 5% Convertible
Preferred Stock, Certificate No. (the "Preferred Stock") into shares of common
stock of XYBERNAUT CORPORATION (the "Company") according to the conditions
hereof, as of the date written below.
The undersigned represents and warrants that
(i) All offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the Preferred Stock shall be made
in compliance with Regulation D, pursuant to an exemption from registration
under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant
to registration of the Common Stock under the Act, subject to any restrictions
on sale or transfer set forth in the Preferred Stock Purchase Agreement between
the Company and the original holder of the Certificate submitted herewith for
conversion.
(ii) Upon conversion pursuant to this Notice of Conversion, the undersigned will
not own or deemed to beneficially own (within the meaning of the Securities
Exchange Act of 1934, as amended) 4.9% or more of the then issued and
outstanding shares of the company.
______________________________ _____________________________________
Date of Conversion Applicable Conversion Price
______________________________ _____________________________________
Number of Common Shares upon $ Amount of Conversion
Conversion
______________________________ _____________________________________
Signature Name
______________________________ _____________________________________
Address: Delivery of Shares to:
18
EXHIBIT 4.2
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated June 30, 1997, between the
person and/or entity whose name and address appears on the signature page
attached hereto (individually a "Holder" or collectively with the holders of the
other Securities issued pursuant to a 5% Convertible Preferred Stock Purchase
Agreement of even date herewith, as defined below, the "Holders") and XYBERNAUT
CORPORATION, a corporation having its principle place of business at 12701 Four
Lakes Circle, Fairfax, VA 22033.
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Holders are purchasing from the Company, pursuant to a 5%
Convertible Preferred Stock Securities Purchase Agreement dated the date hereof
(the "Agreement"), an aggregate of up to Three Million ($3,000,000) Dollars
principal amount of Convertible Preferred Shares (the "Preferred Shares"); and
WHEREAS, the Preferred Shares are convertible into shares (the
"Conversion Shares") of the Company's Common Stock, par value $0.01 per share
(the "Common Stock"); and
WHEREAS, the Company desires to grant to the Holders the registration
rights set forth herein with respect to the Conversion Shares.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means each of the Conversion Shares; provided, however,
that with respect to any particular Registrable Security, such security shall
cease to be a Registrable Security when, as of the date of determination, (i) it
has been effectively registered under the Securities Act of 1933, as amended
(the "Securities Act") and disposed of pursuant thereto, (ii) registration under
the Securities Act is no longer required for the immediate public distribution
of such security as a result of the provisions of Rule 144, or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change affecting the Common Stock, such adjustment
shall be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section 1.
Section 2. Restrictions on Transfer. The Holder acknowledges and
understands that prior to the registration of the Conversion Shares as provided
herein, the Preferred Shares and the Conversion Shares are "restricted
securities" as defined in Rule 144 promulgated under the Act. The Holder
understands that no disposition or transfer of the Preferred Shares or
Conversion Shares may be made by Holder in the absence of (i) an opinion of
counsel reasonably satisfactory to the Company that such transfer may be made or
(ii) a registration statement under the Securities Act is then in effect with
respect thereto.
<PAGE>
Section 3. Registration Rights.
(a) The Company shall prepare and file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission ("SEC"),
on one occasion, at the sole expense of the Company (except as provided in
Section 3(c) hereof), in respect of all holders of Registrable Securities, so as
to permit a non-underwritten public offering and sale of the Registrable
Securities under the Act. The number of Registrable Securities to be registered
shall be one hundred fifty (I 50%) percent of the number of shares that would be
required if all the Registrable Securities were converted at a price of $3.50
per share on the effective date of the Registration Statement.
(b) The Company will maintain any Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
the holders thereof receive an opinion of counsel that the Registrable
Securities may be sold under the provisions of Rule 144 or (iii) the second
anniversary of the effective date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of any
Registration Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Holder shall bear the cost of
underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company shall use its best efforts to qualify any of the securities for sale in
such states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers. The Company at its
expense will supply the Holder with copies of such Registration Statement and
the prospectus or offering circular included therein and other related documents
in such quantities as may be reasonably requested by the Holder.
(d) The Company shall not be required by this Section 3 to include a
Holder's Registrable Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for the Company the proposed offering or
other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all purchasers
or transferees obtaining securities which are not "restricted securities", as
defined in Rule 144 under the Securities Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3 (a) above is not declared effective by the SEC
within ninety (90) days of the Closing Date, as defined in the Agreement, then,
unless waived by Holder, the Company will pay Holder, as liquidated damages for
such failure and not as a penalty, two (2%) percent of the outstanding principal
amount of the Preferred Shares for each month thereafter until the Company
procures registration of the Common Stock underlying the Preferred Shares (the
"Conversion Shares").
If the Company does not remit the damages to the Holder as set forth
above, the Company will pay the Holder's reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages. Such payment
shall be made to the Holder immediately if the registration of the Conversion
Shares are not effected; provided, however, that the payment of such liquidated
damages shall not relieve the Company from its obligations to register the
Conversion Shares pursuant to this Section. The registration of the Conversion
Shares pursuant to this provision shall not affect or limit Holder's other
rights or remedies as set forth in this
2
<PAGE>
Agreement. Any payment pursuant to this Section 3(e) shall be made either in
cash or paid in additional shares of Common Stock at the discretion of the
Company.
(f) No provision contained herein shall preclude the Company from
selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
Section 4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Act with respect to the sale or other disposition of
all securities covered by such registration statement whenever the Holder or
Holders of such securities shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in connection with a registration statement pursuant to Rule 415 of
the SEC);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Act, and such other documents, as such Holder may reasonably request in
order to facilitate the public sale or other disposition of the securities owned
by such Holder;
(c) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as the Holder, shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
(d) use its best efforts to list such securities on NASDAQ or any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange or NASDAQ;
(e) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Act, of the
happening of any event of which it has knowledge as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state
3
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
Section 6. Indemnification.
(a) In the event of the filing of any Registration Statement with
respect to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder ("Distributing Holders")
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), to which
the Distributing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable (i) in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written information
furnished to the Company by the Distributing Holders, specifically for use in
the preparation thereof, or (ii) to pay any amounts paid in settlement of any
loss, claim, damage or liability if such settlement is effected without the
consent of the Company. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
or director may become subject under the Securities Act or otherwise, insofar as
such losses claims, damages or liabilities (or actions in respect thereof);
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in a Registration Statement requested by such
Distributing Holder, or any related preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
such Distributing Holder, specifically for use in the preparation thereof and,
provided further, that the indemnity agreement contained in this Section 6(b)
shall not inure to the benefit of the Company with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Securities which are the subject thereof if the Company failed to send or give
(in violation of the Securities Act or the rules and regulations promulgated
thereunder) a copy of the prospectus contained in such Registration Statement to
such person at or prior to the written confirmation to such person of the sale
of such Registrable Securities, where the Company was obligated to do so under
the Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Distributing
Holders may otherwise have.
4
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof-, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section 6. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 6 for any legal or other
reasonable out-of-pocket expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-ofpocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Holder, the
reasonable fees and out-of-pocket expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and outof-pocket expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Section 7. Notices. Any notice pursuant to this Agreement by the
Company or by the Holder shall be in writing and shall be deemed to have been
duty given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery, or (iii) if mailed by certified mail, return receipt requested,
postage prepaid, addressed as follows:
(a) If to the Holder, to its, his or her address set forth on the
signature page of this Agreement, with a copy to the person designated in the
Agreement.
(b) If to the Company, at Xybemaut Corporation, 12701 Four Lakes
Circle, Fairfax, VA 22033, Attn: Edward G. Newman, President, (tele) (703)
631-6925, (fax) (703) 631-6734, and a copy to Parker Chapin Flattau & Klimpl,
LLP, 1211 Avenue of the Americas, New York, NY 10036, Attn: Martin Eric
Weisberg, Esq., or to such other address as any such party may designate by
notice to the other party. Notices shall be deemed given at the time they are
delivered personally or five (5) days after they are mailed in the manner set
forth above. If notice is delivered by facsimile to the Company and followed by
mail, delivery shall be deemed given two (2) days after such facsimile is sent.
5
<PAGE>
Section 8. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. This Agreement carmot be assigned, amended or modified by the
parties hereto, except by written agreement executed by the parties. If
requested by the Company, the Holder shall have ftu-nished to the Company an
opinion of counsel reasonably satisfactory to the Company to such effect.
Section 9. Conflicts. In the event of any inconsistency or conflict
between the terms and provisions of this Agreement, and the terms and provisions
of the Purchase Agreement or the Certificate of Designation, the terms and
provisions of the Certificate of Designation shall prevail.
Section 10. Counterparts. This Agreement may be executed i
counterparts, each of which shall be deemed an orginal, but all of which
together shall constitute one and the same instrument.
Section 11. Headings. The Headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 12. Governing Law. Venue. This Agreement shall be governed by
and construed in accordance with the laws of the Stat eof New York applicable to
contracts made and to be performed entirely within such State, without regard to
its principles of conflicts of laws. Each of the parties hereto agrees that ion
the event of any dispute arising hereunder venue shall be New York, New York and
each party hereby submits to the jurisdiction of the United Statees Federal
Court i the Southern District of New York.
Section 13. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, on the day and year first written.
XYBERNAUT CORPORATION
By _____________________________
Officer
LIBERTYVIEW PLUS FUND, Purchaser
By _____________________________
Officer
6
EXHIBIT 5.1
-----------
PARKER CHAPIN FLATTAU & KLIMPL, LLP
[LETTERHEAD]
September 22, 1997
Xybernaut Corporation
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Gentlemen:
We have acted as counsel to Xybernaut Corporation, a Delaware
corporation (the "Company"), in connection with a Registration Statement on Form
S-3 (the "Registration Statement") being filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the
offering of 1,285,713 shares (the "Shares") of Common Stock, par value $.01 per
share (the "Common Stock"), issuable upon conversion of the Company's Series A
Preferred Stock (the "Series A Preferred Stock"), par value $.01 per share.
In connection with the foregoing, we have examined originals or
copies, satisfactory to us, of the Company's (i) Certificate of Incorporation,
(ii) By-laws and (iii) resolutions of the Company's board of directors. We have
also reviewed such other matters of law and examined and relied upon all such
corporate records, agreements, certificates and other documents as we have
deemed relevant and necessary as a basis for the opinion hereinafter expressed.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies or
facsimiles. As to any facts material to such opinion, we have, to the extent
that relevant facts were not independently established by us, relied on
certificates of public officials and certificates of officers or other
representatives of the Company.
Based upon and subject to the foregoing, we are of the opinion that
the Shares, when issued upon conversion of the Series A Preferred Stock, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
EXHIBIT 23.1
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CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this registration statement on Form S-3 of our
report dated March 31, 1997, on our audits of the financial statements of
Xybernaut Corporation. We also consent to the reference to our firm under the
caption "Experts."
/s/ Coopers & Lybrand
Coopers & Lybrand
McLean, VA
September 17, 1997
