As filed with the Securities and Exchange Commission on May 21, 1998
Registration No. 333-52567
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-3
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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XYBERNAUT CORPORATION
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(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
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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. |_| __________
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
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Proposed Proposed
Title of each Maximum maximum Amount of
class of securities Amount to Aggregate price Aggregate registration
to be registered be registered Per share offering price fee
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<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par
value per share 2,340,938(2)(3) $3.20313(1) $7,498,329 $2,212.01(4)
=================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g); based on the average ($3.20313) of the
bid ($3.18750) and asked ($3.21875) price on the Nasdaq SmallCap Market on
May 6, 1998.
(2) Represents Common Stock issued in connection with the April 1998 Private
Placement, shares issuable upon exercise of Warrant A and Warrant B,
shares issued to the Placement Agent in connection with the April 1998
Private Placement and shares issuable upon exercise of Put Options in the
aggregate principal amount of $3,000,000. See "Description of Securities."
(3) The shares of Common Stock offered hereby include the resale of such
presently indeterminate number of shares of Common Stock as shall be
issued upon exercise by the Company of Put Options in the aggregate
principal amount of $3,000,000. The number of shares of Common Stock
indicated to be issuable in connection with the exercise of such Put
Options and included in the total shares of Common Stock offered for
resale hereby is an estimate and represents 100% of the number of shares
that would be issuable upon the exercise of Put Options in the aggregate
principal amount of $3,000,000 at a price of $2.87 per share, which is 90%
of $3.18750, the closing bid price of the Common Stock as reported by
NASDAQ on May 6, 1998. Such number of shares 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. 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 issuable
upon exercise of Put Options in the aggregate principal amount of
$3,000,000. See "Risk Factors -- Dilution; Impact of Sale of Common Stock
Upon Conversion of Series A and Series B Preferred Stock, and the Exercise
of the Put Options and Warrants"; and "Description of Securities -- The
Put Option."
(4) Fee paid with the original filing of this Registration Statement filed
with the Commission on May 13, 1998.
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.
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<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 MAY___, 1998
PROSPECTUS
2,340,938 Shares of Common Stock
(par value $.01 per share)
XYBERNAUT CORPORATION
This Prospectus pertains to the offer and sale, from time to time,
by or for the account of certain stockholders (the "Selling Stockholders") of
Xybernaut Corporation (the "Company"), of up to 2,340,938 shares (the "Shares")
of common stock, par value $.01 per share (the "Common Stock"), of the Company.
See "Description of Securities."
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 not receive any
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 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 May 6, 1998, the closing bid price of the Common Stock as
reported by NASDAQ was $3.18750.
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 4 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 ______, 1998
<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. 333- _____) and Amendment No. 1
thereto (collectively, 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, 1997; (ii) the Quarterly Report on Form 10-QSB for the period
ended March 31, 1998; (iii) the Report on Form 8-K dated June 30, 1997; (iv) the
Registration Statement on Form S-3 (Commission File No. 333-36077) filed with
the Commission on September 22, 1997 and Amendment No. 1 to such Registration
Statement filed with the Commission on May 8, 1998; (v) the Registration
Statement on Form S-3 (Commission File No. 333-43696) filed with the Commission
on January 2, 1998 and Amendment No. 1 and Amendment No. 2 to such Registration
Statement filed with the Commission on January 22, 1998 and May 8, 1998,
respectively; (vi) the Registration on Form S-3 (Commission File No. 333- )
filed with the Commission on May 13, 1998 and Amendment No. 1 thereto filed with
the Commission on May 21, 1998; and (viii) 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
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<PAGE>
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................... 2,340,938 shares of Common Stock
Common Stock outstanding
prior to the offering hereby......... 18,782,822 shares of Common Stock(1)(2)
Common Stock outstanding
after the offering hereby............ 21,123,760 shares of Common Stock(1)(3)
Common Stock trading symbol
on NASDAQ............................ XYBR
- ---------------------
(1) Does not include (i) 1,390,430 shares of Common Stock reserved for
issuance upon the exercise of outstanding options; (ii) 152,860 shares of
Common Stock reserved for issuance upon exercise of outstanding warrants
to purchase Common Stock; (iii) 4,583,402 shares of Common Stock reserved
for issuance upon exercise of outstanding warrants issued in connection
with the Company's initial public offering (the "IPO"); (iv) 457,496
shares of Common Stock registered in connection with the Series A
Preferred Stock but unissued as of May 8, 1998; (v) 155,424 shares of
Common Stock registered in connection with the Series B Preferred Stock
but unissued as of May 8, 1998; and (vi) 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."
(2) Does not include 840,124 shares of Common Stock issued as of the date
hereof in connection with the April 1998 Private Placement that are being
registered herein.
(3) Assumes the number of shares of the Common Stock that would be issuable
upon exercise by the holders thereof of the Warrant A and Warrant B, and
the exercise by the Company of Put Options in the aggregate principal
amount of $3,000,000. See "Description of Securities."
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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.
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 years ended
December 31, 1996 and 1997, the Company incurred a net loss of $5,238,536 and
$9,479,966, respectively. The Company incurred a net loss of $1,489,321for the
quarter ended March 31, 1998. The consolidated balance sheets as of December 31,
1997 and 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended, incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
report dated March 31, 1998, which includes an explanatory paragraph, concerning
the Company's ability to continue as a going concern, of Coopers & Lybrand
L.L.P., independent accountants, given on their authority as experts in
accounting and auditing. The Company 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 or that it will be able to meet the competitive demands of
the industry in which it operates. The success of the Company will be affected
by expenses, operational difficulties and other factors frequently encountered
in the development of a business enterprise in a competitive environment, many
of which may be beyond the Company's control.
See "Risk Factors - Competition."
LIQUIDITY; WORKING CAPITAL NEEDS
To meet working capital cash requirements, the Company intends obtain
a working capital line of credit and/or complete additional financings including
the exercise of its Put Option under the Private Placement. However, there can
be no assurance that the Company can or will obtain sufficient funds to meet, in
whole or in part, its working capital needs from collections of product sales.
There can be no assurance that the Company will be capable of raising additional
capital thereafter or of establishing and obtaining funds from a working capital
line of credit, or that the terms upon which such capital or line of credit
would be available to the Company would be acceptable, in which case the Company
could be required to curtail materially, suspend or cease operations.
DILUTION; IMPACT OF SALE OF COMMON STOCK UPON CONVERSION OF SERIES A
AND SERIES B PREFERRED STOCK, AND THE EXERCISE OF THE PUT OPTIONS
AND WARRANTS
The purchasers of the Shares offered hereby will experience immediate
and substantial dilution in the net tangible value of their Shares in the event
of conversion of outstanding Series A and Series B Preferred Stock, and the
exercise of the Put Options and Warrants. Specifically, the Series A and Series
B Preferred Stock are convertible into Common Stock and the Company may exercise
the Put Options resulting in the issuance of 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 sale of such Common Stock
acquired at a discount could have
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<PAGE>
a negative impact on the trading price of the Common Stock and could increase
the volatility in the trading price of the Common Stock.
In addition, the Company has agreed to reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put Shares, the
Warrant A Shares and the Warrant B Shares; such amount of shares of Common Stock
to be reserved shall be calculated based upon the minimum purchase price
therefor under the terms of the Private Equity Line of Credit Agreement, Warrant
A and Warrant B. The Put Options are exercisable into Common Stock at discounts
from future market prices of the Common Stock, and shares issued pursuant to
Warrant A and Warrant B may be issued at a discount to the future market price
of the Common Stock, which could result in substantial dilution to existing
holders of Common Stock. The sale of such Common Stock acquired at a discount
could have a negative impact on the trading price of the Common Stock and could
increase the volatility in the trading price of the Common Stock. See
"Description of Securities."
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 "Series A
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 Series A Liquidation Preference
on all their shares of Series A Preferred Stock plus accrued and unpaid
dividends. The Company has registered a total of 1,960,713 shares of Common
Stock underlying the Series A Preferred Stock, of which, 1,285,713 shares were
registered in a registration statement filed with the Commission on September
22, 1997 and an additional 675,000 shares were registered in an amendment to
such registration statement filed with the Commission on May 8, 1998. As of May
8, 1998, 1,503,217 shares of Common Stock had been issued pursuant to
conversions of Series A Preferred Stock. See "Description of Securities --
Series A Preferred Stock."
SERIES B PREFERRED STOCK
In November 1997 and January 1998, the Company placed 4,000 shares of
the Series B Preferred Stock, each share with a liquidation preference of $1,000
(the "Series B Liquidation Preference"), for an aggregate of $4,000,000 and paid
the placement agent for this sale with 180 shares of the Series B Preferred
Stock. In February 1998, the Company placed 1,000 shares of Series B Preferred
Stock and paid the placement for this sale with 60 shares of Series B Preferred
Stock. The Series B 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 B
Preferred Stock, at least such number of its Common Stock that is sufficient to
effect the conversion of all outstanding shares of the Series B 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 B Preferred Stock to receive the Series B
Liquidation Preference on all their shares of Series B Preferred Stock plus
accrued and unpaid dividends. The Company has registered a total of 3,327,663
shares of Common Stock
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<PAGE>
underlying the Series B Preferred Stock, of which, 2,622,663 were registered in
a registration statement filed with the Commission on January 2, 1998 and
amended on January 22, 1998, and 705,000 were registered in a further amendment
to such registration statement filed with the Commission on May 8, 1998. As of
May 8, 1998, 3,172,239 shares of Common Stock had been issued pursuant to
conversions of Series B Preferred Stock. See "Description of Securities --
Series B Preferred Stock."
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 December 31,
1997 had sold and delivered approximately $1.8 million of Mobile Assistant(R)
systems. The Company commenced delivery of the Pentium(R) Mobile Assistant
P-133(TM) in August 1997 and has announced that it expects to commence delivery
of Mobile Assistant(R) IV, a Pentium 266 MHz based system ("MA IV"), in the
quarter ending December 31, 1998. In September 1997, the Company announced
linkAssist(TM), a software development toolkit, which provides speech linking of
data in almost any format, without altering the original data and webAssist(TM)
software that allows voice navigation of HTML links found on the Internet and
intranet. 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. In
addition, there is no assurance that the Company will obtain the working capital
needed to meet the competitive demands of the industry in which it operates. See
"Risk Factors - Liquidity; Working Capital Needs; -- Competition."
The commercial success of the Mobile Assistant(R) series,
linkAssist(TM), webAssist(TM) and 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 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 Computing Devices International, a
division of Ceridian Corporation, ViA Inc., Texas Microsystems, Telxon, Norand
and Teltronics, Inc., a subsidiary of Interactive Solutions, Inc., Raytheon 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
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<PAGE>
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. In addition, new and competing technologies are being developed in
hands-free mobile computing systems. There can be no assurance that the Company
will be able to compete successfully against its competitors, that it will have
the working capital needed to incorporate the constant technological advances in
its products 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) P-133 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 purchased from single suppliers. The Company expects that the MA IV
will be assembled, integrated and tested by third party. 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 the P-133 model
based on a 133 MHz Intel Pentium(R) processor and the MA IV, which is expected
to be available in late 1998. 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)
P-133 currently is priced from $7,196 to $8,995 and up, depending upon the
discount 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) which may require the expenditure of additional capital
currently unavailable to the Company. 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
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<PAGE>
development expenses are greater than anticipated. There can be no assurance
that the Company will be successful in its future product development efforts or
in diversifying its product line. See "Risk Factors - Liquidity; Working Capital
Needs."
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. The Company relies on a combination of patent, trade secret,
copyright and trademark laws and contractual restrictions to establish and
protect its proprietary rights. The Company has entered into confidentiality and
invention assignment agreements with its employees, and enters into
non-disclosure agreements with its suppliers, VARs, OEMs and actual and
potential customers to limit access to and disclosure of its proprietary
information. The Company has registered its Mobile Assistant(R) and Xybernaut(R)
trademarks on the Principal Register of the United States Patent and Trademark
Office ("Patent Office").
In April 1994, U.S. patent number 5,305,244 ("hands-free,
user-supported portable computers") (the "Patent") for the Mobile Assistant(R)
Series was granted to the Company. This patent was previously assigned to the
Company by several employees of the Company. In September 1995, the Company
received a notification from the Patent Office entitled "office action in
reexamination," which indicated that certain claims under the Patent were
subject to reexamination and were preliminarily rejected. The reexamination of
the Patent was initiated as a result of a request from one of the Company's
competitors. In May 1996, the Company was successful in the reexamination and
the Patent Office 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
competitor that had initiated the prior reexamination, and in September 1996 the
Company received a notification from the 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 second re-examination has been concluded and the
Patent Office indicated that the Company was successful in the reexamination and
sent the Company a "Notice of Intent to Issue Reexamination Certificate"
indicating that the Patent Office ruled in the Company's favor. Subsequently on
September 23, 1997, the Patent Office issued the Reexamination Certificate to
the Company indicating successful results for the Company in the second
re-examination. Most of the Company's revenue for the twelve months ended
December 31, 1997 and 1996 were derived from products included within the scope
of the patent. The Company has notified several of its competitors of the
existence of the Patent, which the Company's counsel believes may have been
infringed by some of such competitors. The Company intends to take any and all
appropriate measures, including legal action, necessary to maintain and enforce
its rights under the Patent and to recover any damages suffered as a result of
any alleged infringement.
Since July 1996, the Company has filed fifteen patent applications
covering various aspects of computers in general and wearable computers in
particular. Of these fifteen applications, five additional patents have been
issued, one patent has been allowed pending issuance and nine patents are
pending. Most of these applications have also been filed in European countries,
The People's Republic of China, Japan, Republic of Korea, Republic of China
(Taiwan), Canada and Australia. All patents obtained by Company employees under
pending and future applications have been and will be assigned to the Company
under existing invention assignments.
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Notwithstanding the foregoing, there can be no assurance that the
Company's pending patent applications will issue as patents, 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"), distributors and end users.
The Company is also developing a network of VARs, distributors and OEMs and
intends to enter into joint ventures and licensing or other collaborative
arrangements to market and sell its mobile computing products. 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 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.
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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 fiscal year ended December 30, 1997, two customers accounted
for 34% and 10%, respectively 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 use of additional
external and internal resources in the near term to meet these challenges. There
can be no assurance that the Company will be successful in hiring, training and
retaining 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.
YEAR 2000 ISSUES
The Company is aware of the computing issues associated with the
coming of the millennium (year 2000), most notably whether computer systems will
properly recognize date sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. Based on preliminary investigations and the
representations of several of its suppliers, the Company currently believes that
computers and software used in its operations and sold by the Company are year
2000 compliant. The Company is working with its suppliers and customers to
either verify year 2000 compliance or identify and execute appropriate changes
to make such systems year 2000 compliant. The Company believes that the cost of
completing any modifications for year 2000 compliance to the systems used or
sold by the Company will not be material. However, there can be no assurance
that the Company's suppliers will be correct in their assertions that their
products are year 2000 compliant or that the Company's estimate of the cost of
systems modifications for year 2000 compliance will prove ultimately to be
correct.
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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 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 initial offering price of the shares at the Company's IPO
(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. The stock and earnings
targets for escrow release for September 30, 1997 were not achieved and 300,000
shares were canceled from the escrow pool, which resulted in a reduction of 2.1%
of the Company's outstanding shares of Common Stock. Given the expected start of
full-scale production of the MA IV in the quarter ending December 31, 1998, the
Company's management believes that it is likely that the Company's gross
revenues and allowable losses will not meet the Performance Targets for the
12-month period ending September 30, 1998. Accordingly, the release of the
escrow shares for this period is only likely if the stock price equals or
exceeds $11.00 for 25 consecutive trading days or 30 out of 35 consecutive
trading days prior to September 30, 1998. If conditions are not met for release
from escrow, then 750,000 shares of stock will be returned to the Company on
September 30, 1998 and canceled, resulting in no earnings impact and a
commensurately lower number of outstanding shares.
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CONTROL BY EXISTING STOCKHOLDERS
Following this offering, the Company's executive officers, directors
and principal stockholders will, in the aggregate, beneficially own
approximately 31.2% 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."
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 21,736,680 shares of Common Stock that will be
outstanding or registered for sale upon the completion of this offering, the
3,846,429 shares distributed in the IPO, the 4,675,456 shares of Common Stock
issued in connection with the conversion of Series A Preferred Stock and Series
B Preferred Stock, the 457,496 unissued shares of Common Stock registered in
connection with the Series A Preferred Stock, the 155,424 unissued shares of
Common Stock registered in connection with the Series B Preferred Stock and the
2,340,938 additional shares of Common Stock registered in this offering will be
freely tradeable. The remaining 10,260,937 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 9,905,437 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 6,546,692 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 100,000 shares granted in September 1994, and $1.37 to
$6.00 for 1,290,430 shares granted from April 1, 1995 to May 8, 1998. The
exercise price of the 287,860 warrants outstanding as of May 8, 1998 is between
$1.76 and $18.00 per share. In connection with the Company's IPO, warrants to
purchase 3,846,429 shares were originally issued that entitle the holder to
purchase a share of common stock for $9.00 until July 19, 1999. These warrants
contain anti-dilution provisions that have resulted in the number of shares to
be issued upon a complete warrant exercise increasing to 4,583,402. At the
completion of the IPO, the Representative received an option (the "Unit Purchase
Option") to purchase 210,000 Units (the "Units"), each
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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.
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
and the Series B Preferred Stock are issued and outstanding. The authorized and
unissued Preferred Stock may be issued with voting, conversion or other terms
determined by the Board of Directors which could be used to delay, discourage or
prevent a change of control of the Company. Such terms could include, among
other things, dividend payment requirements, redemption provisions, preferences
as to dividends and distributions and preferential voting rights. The issuance
of Preferred Stock with such rights could have the effect of limiting
stockholder participation in certain transactions such as mergers or tender
offers and could discourage or prevent a change in management of the Company.
The Company has no present intention to issue any additional Preferred Stock.
See "Description of Securities -- Preferred Stock."
In addition, the Board of Directors of the Company recently adopted
resolutions which implemented a classified or staggered Board of Directors which
would limit an outsider's ability to effect a rapid change of control of the
Board.
The ability of the Board of Directors to issue "blank check"
Preferred Stock and the staggered Board of Directors could have the effect of
delaying, deterring or preventing a change in control of the Company without any
further action by the shareholders. In addition, issuance of Preferred Stock,
without shareholder approval,
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on such terms as the Board of Directors may determine, could adversely affect
the voting power of the holders of the Common Stock, including the loss of
voting control to others. See "Description of Securities."
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 April 1998 Private Placement and the January
1998 Private Placement. Pursuant to the terms and conditions of the Private
Equity Line of Credit Agreement, certain of the Selling Stockholders will
purchase up to an additional $10,000,000 of the Company's Common Stock during
the Commitment Period, as defined in the agreement. See "Description of
Securities."
The following table sets forth certain information regarding the
ownership of shares of Common Stock by the Selling Stockholders as of May 8,
1998, and as adjusted to reflect the sale of the Shares. The information in the
table concerning the Selling Stockholders who may offer Shares hereunder from
time to time is based on information provided to the Company by such
stockholder, except for the assumed exercise of the Warrant A and Warrant B by
the holders thereof and the exercise by the Company of the Put Option, which is
based solely on the assumptions referenced in footnotes (1), (2) and (3) to the
table. Information concerning the 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."
Shares of
Common Stock Owned
after Offering (4)
---------------------
Shares of
Common Stock Shares of
Owned Prior to Common Stock
Offering to be Sold(3) Number Percent
-------------- ------------- --------- ---------
Balmore Funds S.A 1,135,469(1) 1,135,469 1,135,469 5.4%
Austost Anstalt Schaan 1,135,469(1) 1,135,469 1,135,469 5.4%
Settondown Capital
International Ltd. 70,000(2) 70,000 70,000 0.3%
--------- --------- --------- -----
Total 2,340,938 2,340,938 2,340,938 11.1%
========= ========= ========= =====
- -----------------
(1) Includes 592,593 shares of Common Stock, 10,000 shares issuable upon
conversion of Warrant A, 10,000 shares issuable upon conversion of Warrant
B and a total of 1,045,752 shares issuable upon exercise by the Company of
Put Options in the aggregate principal amount of $3,000,000 which have
been allocated equally (522,876 shares) between the two Investors. See
"Description of Securities."
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(2) Includes 50,000 shares of Common Stock and 20,000 shares issuable upon
exercise of Warrant A issued to the Placement Agent in connection with the
Private Placement.
(3) Assumes that each Selling Stockholder will exercise all of its Warrant A
and Warrant B into Common Stock; also assumes the exercise by the Company
of Put Options in the aggregate principal amount of $3,000,000 (1,045,752
shares) which have been allocated equally between the two Investors. See
"Description of Securities."
(4) Each Selling Stockholder has agreed that it will not, following any
purchase of the Put Shares, be the beneficial owner of 4.99% or more of
the then issued and outstanding shares of Common Stock. The Selling
Shareholders are not affiliated with the Company. The Selling Stockholders
have not 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, 19,622,946
shares of Common Stock are issued and outstanding, 750 shares of Series A
Preferred Stock are issued and outstanding and no shares of Series B Preferred
Stock are issued and outstanding. The Company currently has reserved 6,546,692
shares of Common Stock for issuance pursuant to outstanding options and
warrants.
THE PRIVATE PLACEMENT
On April 13, 1998 (the "Subscription Date"), the Company consummated
a Private Placement which contemplates the sale of up to $11,000,000 of the
Company's Common Stock over a period of up to two years from the effective date
of the Registration Statement of which this Prospectus is a part (the
"Commitment Period").
Pursuant to the terms of a Private Equity Line of Credit Agreement
(the "Agreement"), Balmore Funds S.A. and Austost Anstalt Schaan (the
"Investors") purchased Common Stock in the principal amount of $1,000,000 (the
"Initial Shares") at an initial purchase price of $1.2656 per share. The Company
also issued to each Investor a Warrant A and a Warrant B to purchase an
aggregate of 20,000 shares of Common Stock (the "Warrant A Shares" and "Warrant
B Shares", respectively). The Company also issued to Settondown Capital
International Ltd. (the "Placement Agent") 50,000 shares of Common Stock and a
Warrant A to purchase an additional 20,000 shares (collectively, the "Placement
Shares").
The Put Option
--------------
During the Commitment Period, the Company may, from time to time,
exercise a "put" right (the "Put Option") by delivery of a put notice to the
Investors pursuant to which the Investors must purchase the allotted number of
shares indicated therein; provided, however, that, unless the Company obtains
Stockholder approval pursuant to the applicable corporate governance rules of
the Nasdaq Stock Market, the Company may not compel the Investors to make a
purchase which results in the issuance to an Investor, individually, of more
than 19.99%
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of the shares of Common Stock of the Company including the Initial Shares. The
maximum number of shares for which the Company may deliver a put notice is
subject to certain limitations based on the trading volume of the Company's
Common Stock and the closing price of the Common Stock. The Put Shares may be
purchased at a 10% discount off the average of the three lowest closing bid
prices of the Common Stock during the Valuation Period (as defined in the
Agreement). The obligation of the Investors to purchase shares upon exercise by
the Company of a Put Option is subject to limitations and termination upon
occurrence of certain conditions set forth in the Agreement.
The Initial Shares, Warrant A and Warrant B were issued, and the Put
Shares, the Warrant A Shares and the Warrant B Shares will be issued, by the
Company in reliance upon the provisions of Section 4(2) and Regulation D of the
Securities Act.
Warrant A
---------
The Warrant A issued to the Investors and the Placement Agent in
connection with the Private Placement may be exercised, subject to the terms and
subject to the conditions set forth therein, at any time on or after October 15,
1998 and on or prior to October 15, 2003, to subscribe for and purchase shares
of Common Stock of the Company at an exercise price of $1.76. The exercise price
and the number of shares for which the Warrant A is exercisable is subject to
adjustment as provided therein, including, but not limited to, anti-dilution
provisions pertaining to the declaration of stock dividends and the merger,
consolidation or liquidation of the Company.
Warrant B
---------
The Warrant B issued to the Investors in connection with the Private
Placement may be exercised, subject to the terms and subject to the conditions
set forth therein, at any time on or after October 15, 1998 and on or prior to
October 15, 2003, to subscribe for and purchase shares of Common Stock of the
Company at an exercise price of $2.81. The exercise price and the number of
shares for which the Warrant A is exercisable is subject to adjustment as
provided therein, including, but not limited to, anti-dilution provisions
pertaining to the declaration of stock dividends and the merger, consolidation
or liquidation of the Company. The Company, at its option, may redeem Warrant A
for $0.01 per Warrant A Share by giving the holder thereof written notice (the
"Call Notice") at any time after the Registration Statement is declared
effective, and the closing bid price of the Common Stock of the Company is
greater than one hundred fifty (150%) percent of the exercise price for twenty
(20) consecutive trading days.
Placement Shares; Compensation to Placement Agent.
--------------------------------------------------
As compensation for services rendered in connection with the Private
Placement, the Company issued to the Placement Agent 50,000 shares of Common
Stock (which are subject to a one year lock-up from the Subscription Date), and
a Warrant A to purchase 20,000 shares of Common Stock. The Company also paid to
the Placement Agent five (5%) percent of the Initial Shares investment amount.
The Company also agreed to pay to the Placement Agent, following the closing for
each Put Option, five (5%) percent of the gross proceeds in cash, and five (5%)
percent of the number of shares of Common Stock issuable in total to the
Investors for each Put.
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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.
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"). From September 29, 1997 to May 8, 1998, the
holders of the Series A Preferred Stock converted a portion of their holdings
and as of May 8, 1998, three different entities owned the remaining 750 shares
of the Series A Preferred Stock. The Company has registered a total of 1,960,713
shares of Common Stock underlying the Series A Preferred Stock, of which,
1,285,713 shares were registered in a registration statement filed with the
Commission on September 22, 1997 and an additional 675,000 shares were
registered in an amendment to such registration statement filed with the
Commission on May 8, 1998. As of May 8, 1998, 1,503,217 shares of Common Stock
were issued in connection with conversions of Series A Preferred Stock and 750
shares of Series A Preferred Stock were outstanding.
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
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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.
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.
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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. 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
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<PAGE>
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 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) rank on a pari passu basis with
the Series B Preferred Stock and any other series of Preferred Stock of the
Company.
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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 registered the shares of Common
Stock underlying the Series A Preferred Stock in a registration statement filed
with the Commission.
SERIES B PREFERRED STOCK
On November 12, 1997, the Board of Directors authorized the issuance
of a series of Preferred Stock consisting of 4,180 shares (the "Series B
Preferred Stock"), each such share of Series B Preferred Stock has a stated
value of $1,000 (the "Liquidation Preference"), pursuant to a Certificate of
Designation (the "Certificate of Designation"). On November 12, 1997, the
Company placed 3,180 shares of Series B Preferred Stock and on January 22, 1998,
placed the remaining 1,000 shares. The Company has registered a total of
3,327,663 shares of Common Stock underlying the Series B Preferred Stock, of
which, 2,622,663 were registered in a registration statement filed with the
Commission on January 2, 1998 and amended on January 22, 1998, and 705,000 were
registered in a further amendment to such registration statement filed with the
Commission on May 8, 1998. As of May 8, 1998, all of the Series B Preferred
Stock had been converted to Common Stock resulting in the issuance of 3,172,239
shares of Common Stock.
Dividends. The holders of the shares of Series B 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 B 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 B 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 B 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 B
Preferred Stock the full Liquidation Preference plus accrued and unpaid
dividends to which they respectively shall be entitled, the holders of the
Series B Preferred Stock together with the holders of any other series of
Preferred Stock ranking on a parity with the Series B 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 B
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
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<PAGE>
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 B Preferred Stock shall have
conversion rights as follows: (i) no shares of Series B Preferred Stock may be
converted prior to the earlier of (x) the effective date of the Registration
Statement covering the Shares and (y) February 10, 1998 (the "First Conversion
Date"); (ii) during the thirty-day period after the First Conversion Date, up to
twenty-five (25%) percent of the shares of Series B Preferred Stock then
outstanding may be converted, at the option of the holders thereof; and (iii)
during each thirty-day period thereafter, an additional twenty-five (25%)
percent of the shares of Series B 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 B Preferred Stock may be converted shall be
determined by dividing the Liquidation Preference and at the option of the
Company, accrued and unpaid dividends, by an amount (the "Conversion Price")
equal to the 85% of the average closing bid price of the Common Stock as
reported on the Nasdaq SmallCap Market or any successor exchange or trading
market in which the Common Stock is listed for the five trading days (the
"Average Trading Price") preceding the date on which the holder of the Series B
Preferred Stock has telecopied a notice of conversion to the Company (the
"Conversion Date"). The Conversion Price shall not be greater than 120% of the
Average Trading Price on the date of issuance or less than an initial floor
price of 50% of the Conversion Price on the date of issuance. Commencing thirty
days after the First Conversion Date and at the end of each thirty-day period
thereafter, the initial floor price will be reduced by 10%.
In the event the shares of Series B 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 B 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 B 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 B 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 B Preferred Stock, the shares of Series
B 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 B Preferred Stock, shares of Series B 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 November 12, 1999, the holders of the Series B Preferred Stock
shall be required to convert all of their outstanding shares of Series B
Preferred Stock into shares of Common Stock. Until converted, the Company
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shall be entitled to redeem shares of Series B 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 B 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 B
Preferred Stock.
Redemption. At any time after the date of issuance of the Series B
Preferred Stock, the Company may, at the option of the Board of Directors,
redeem any or all of the outstanding shares of the Series B Preferred Stock at
the applicable redemption price, provided, that the holder shall have the right
to convert shares of Series B Preferred Stock which are eligible for conversion
in the first five (5) days after receiving a notice of redemption up to 20% of
the Series B Preferred Stock in the aggregate owned by such holder. The Company
shall give written notice by telecopy, to the holder of Series B Preferred Stock
to be redeemed, which notice shall specify the date for redemption, which date
shall be no later than five (5) business days after the date on which the notice
is delivered to the holder (the "Redemption Date"), the Redemption Price (as
hereinafter defined), the number of shares of Series B 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 B
Preferred Stock are to be redeemed, the redemption shall be pro rata among the
holders of Series B 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 five (5) business days after receipt of written notice from the Company. 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
$100,000. If the Company fails to pay the Redemption Price on the Redemption
Date, the Company shall have the right to redeem the Series B 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 B 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 all or a portion of the
outstanding shares of Series B Preferred Stock at a cash price equal to 122%
percent of the Liquidation Preference per share, together with all unpaid
dividends to and including the Redemption Date (the "Redemption Price");
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 B 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 B 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 B Preferred
Stock of the Company where such action would be in violation of applicable law.
Voting Rights. Except as otherwise required by law, the holders of
the Series B 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.
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Status. In case any outstanding shares of Series B 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 B Preferred Stock.
Ranking; Changes Affecting Series B Preferred Stock. The Series B
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 B 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 B Preferred Stock and (iii) shall rank on a pari passu
basis with the Series A Preferred Stock and any other series of Preferred Stock
of the Company.
So long as any shares of Series B Preferred Stock are outstanding,
the Company shall not (i) alter or change any of the powers preferences,
privileges, or rights of the Series B Preferred Stock; or (ii) amend the
provisions of the Certificate of Designation affecting the ranking of the Series
B 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 B Preferred Stock, as to changes affecting the
Series B Preferred Stock.
Registration Rights. The Company has registered the shares of Common
Stock underlying the Series B Preferred Stock in a registration statement filed
with the Commission.
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 and the Series
B Preferred Stock. 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 (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.
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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.
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
Shares, 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 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 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.
Each of the Selling Stockholders may from time to time pledge the
Shares owned by it to secure margin or other loans made to such Selling
Stockholder. Thus, the person or entity receiving the pledge of any of the
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<PAGE>
Shares may sell them, in a foreclosure sale or otherwise, in the same manner as
described above for such 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 maintain the Registration Statement, of
which this Prospectus is a part, effective until the earlier of (i) the date
that all of the Shares registered under such Registration Statement have been
sold; (ii) the date the holders of the Shares receive an opinion of counsel that
all of the Shares may be sold under the provisions of Rule 144 or (iii) five and
one-half years after the completion of the Private Placement.
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
-27-
<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.
Pursuant to the Registration Rights Agreement, 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 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.
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 balance sheets as of December 31, 1997 and 1996 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended, incorporated by reference in this Prospectus,
have been incorporated herein in reliance on the report dated March 31, 1998,
which includes an explanatory paragraph, concerning the Company's ability to
continue as a going concern, of Coopers & Lybrand L.L.P., independent
accountants, given on their authority as experts in accounting and auditing.
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<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
SOLICITATION MAY NOT LAWFULLY BE MADE. NEITHER THE DELIVERY OF THIS 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
----
Available Information.........................................................2
Incorporation of Certain Documents
by Reference.............................................................2
Prospectus Summary............................................................3
Risk Factors..................................................................4
Use of Proceeds..............................................................14
Selling Stockholders ........................................................14
Description of Securities....................................................15
Delaware Business Combination
Provisions..............................................................24
Plan of Distribution ........................................................25
Indemnification for Securities Act Liabilities...............................26
Legal Matters................................................................27
Experts .....................................................................27
================================================================================
2,340,938 SHARES OF COMMON STOCK
----------
PROSPECTUS
----------
, 1998
<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 ........... $ 2,212.01
Legal fees and expenses ......................... $ 25,000.00
Miscellaneous expenses .......................... $ 1,000.00
-----------
Total ...................................... $ 28,212.01
===========
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 contained in the Company's Certificate of
Incorporation or as otherwise permitted under Delaware law. Each
II-1
<PAGE>
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 Private Equity Line Credit Agreement
4.2* Form of Warrant A
4.3* Form of Warrant B
5.1* Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1* Form of Registration Rights Agreement
10.2* Form of Escrow Agreement
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).
24.1* Power of Attorney (included on page II-4).
* Previously filed with the original filing of this Registration Statement on
Form S-3 filed with the Commission on May 13, 1998.
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.
II-2
<PAGE>
(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.
(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, Commonwealth of Virginia on May 21, 1998.
XYBERNAUT CORPORATION
By: /s/ Edward G. Newman
--------------------------------
Edward G. Newman
Chairman of the Board, President
and Chief Executive Officer
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, May 21, 1998
- --------------------------- President and Chief Executive
Edward G. Newman Officer
* Senior Vice President, Chief May 21, 1998
- --------------------------- financial Officer, Treasurer and
John F. Moynahan Director
* Secretary and Director May 21, 1998
- ---------------------------
Martin Eric Weisberg
* Director May 21, 1998
- ---------------------------
Lt. Gen. Harry E. Soyster
* Director May 21, 1998
- ---------------------------
James J. Ralabate
* Director May 21, 1998
- ---------------------------
Keith P. Hicks
II - 4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
* Director May 21, 1998
- ---------------------------
Steven A. Newman
* Director May 21, 1998
- ---------------------------
Phillip E. Pearce
* Director May 21, 1998
- ---------------------------
Eugene J. Amobi
*By: /s/ Edward G. Newman
-------------------------
Edward G. Newman
Attorney-in-fact
<PAGE>
SECURITIES AND
EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
-------------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
XYBERNAUT CORPORATION
(EXACT NAME OF ISSUER AS SPECIFIED
IN ITS CHARTER)
MAY 21, 1998
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO./REF.
- ----------- ----------------------- -------------
4.1* Form of Private Equity Line Credit Agreement
4.2* Form of Warrant A
4.3* Form of Warrant B
5.1* Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1* Form of Registration Rights Agreement
10.2* Form of Escrow Agreement
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).
24.1* Power of Attorney (see page II-4 to the Registration
Statement).
* Included in the original filing of the Registration Statement on Form S-3
filed with the Commission on May 13, 1998.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the
Registration Statement on Form S-3 of our report, which includes an explanatory
paragraph concerning the Company's ability to continue as a going concern, dated
March 31, 1998 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 L.L.P.
------------------------
Coopers & Lybrand L.L.P.
McLean, VA
May 21, 1998
