As filed with the Securities and Exchange Commission on December _____, 1998
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
XYBERNAUT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1799851
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
12701 Fair Lakes Circle
Fairfax, Virginia 22033
(703) 631-6925
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(Address, including zip code, and telephone
number, Including area code, of registrant's principal
executive offices)
Edward G. Newman
12701 Fair Lakes Circle
Fairfax, Virginia 22033
(703) 631-6925
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(Name, address, including zip code, and telephone number,
Including area code, of agent for service)
Copy to:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
-----------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Amount of
Title of Each Class Amount to be Offering Price Aggregate Offering Registration
of Securities to be Registered Registered (1) per Share Price Fee
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 593,201 $5.28 (3) $3,132,101 $870.72
Common Stock, $.01 par value per share 12,500 (2) $9.58 (4) $119,750 $33.29
Common Stock, $.01 par value per share 12,500 (2) $9.09 (4) $113,625 $31.59
Common Stock, $.01 par value per share 12,500 (2) $13.05 (4) $163,125 $45.34
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Total Registration Fee.................................................................................$980.95
===============================================================================================================
</TABLE>
(1) Represents the shares of Common Stock being registered for resale by
the Selling Stockholder.
(2) Pursuant to Rule 416, the shares of Common Stock offered hereby also
include such presently indeterminate number of shares of Common Stock
as shall be issued by the Company upon exercise of Warrants issued in
connection with a Private Placement with the Selling Stockholder. 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 the Warrants. See "Risk Factors -- Dilution"; and
"Description of Securities."
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g) of the Securities Act of 1933, as
amended (the "Securities Act"); based on the average ($5.28) of the bid
($5.25) and asked ($5.31) price on the Nasdaq SmallCap Market on
December 9, 1998.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) of the Securities Act, based on the exercise
price of the Warrants.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
The information in this Prospectus is not complete. We may not sell these
securities until the Registration Statement filed with the Securities and
Exchange Commission is effective. This Prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any State where the offer or sale
is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER __, 1998
PROSPECTUS
630,701 Shares*
XYBERNAUT CORPORATION
HSBC James Capel Canada, Inc., a shareholder of Xybernaut Corporation,
is offering for sale 1,070,701 Shares of Common Stock of the Company under this
Prospectus. We issued the Shares and the Warrants covered by this Prospectus to
the Selling Stockholder under a private placement agreement.
The Selling Stockholder may offer its Shares of the Company through
public or private transactions, on or off the United States exchanges, at
prevailing market prices, or at privately negotiated prices.
The Selling Stockholder will receive all net proceeds from the sale of
the Shares. Accordingly, we will not receive any proceeds from the resale of the
Shares. We will receive proceeds from the exercise of the Warrants. We will use
such net proceeds for general corporate purposes. We will bear all expenses
relating to this registration except for brokerage or underwriting commissions
and expenses, if any, which will be paid by the Selling Stockholder.
NASDAQ SmallCap Market Symbol: "XYBR"
On December 9, 1998, the closing price of one share of our Common Stock
on the NASDAQ SmallCap Market was $5.31.
*Pursuant to Rule 416 under the Securities Act of 1933, the shares of
Common Stock offered hereby include such presently indeterminate number of
shares of Common Stock issuable to the Selling Stockholder under the Warrants.
The number of such shares is subject to adjustment and could be materially less
than estimated depending upon various factors, including, the future market
price of the Common Stock.
Our executive offices are located at 12701 Fair Lakes Circle, Fairfax,
Virginia 22033 and our telephone number is (703) 631-6925. Our telephone number
is (703) 631-6925, and our e-mail address is [email protected].
The securities offered hereby involve a high degree of risk. You should
carefully consider the factors described under the caption "risk factors" on
page 5 of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Date of this Prospectus is ______, 1998
<PAGE>
_____________________________
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's Website at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 to
register shares of our Common Stock. This Prospectus is part of that
registration statement and, as permitted by the SEC's rules, does not contain
all the information included in the registration statement. For further
information with respect to us and our Common Stock, you may refer to the
registration statement and to the exhibits and schedules filed as part of that
registration statement. You can review and copy the registration statement and
its exhibits and schedules at the public reference facilities maintained by the
SEC as described above. The registration statement, including its exhibits and
schedules, is also available on the SEC's web site.
This Prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update or supersede this information. We
incorporate by reference the documents listed below and any future filing we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997; 2. Quarterly Reports on Form 10-QSB for the period ended March
31, 1998, and Forms 10-
QSB and 10-QSB/A for the periods ended June 30, 1998 and
September 30, 1998; and 3. Registration Statement on Form S-3,
Commission File Number 333-___________.
You may request a copy of these filings, at no cost, by writing to us
at 12701 Fair Lakes Circle, Fairfax, Virginia 22033, (703) 631-6925. Attention:
W. Jeff Pagano.
_____________________
This Prospectus contains certain forward-looking statements which
involve substantial risks and uncertainties. These forward-looking statements
can generally be identified because the context of the statement includes words
such as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, statements that describe our
future plans, objectives and goals are also forward-looking statements. Our
factual results, performance or achievements could differ materailly from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those listed in "Risk Factors" and elsewhere in this
Prospectus.
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<PAGE>
We have not authorized any dealer, salesperson or any other person to
give any information or to represent anything not contained in this Prospectus.
You must not rely on any unauthorized information. This Prospectus does not
offer to sell or buy any shares in any jurisdiction where it is unlawful. The
information in this Prospectus is current as of December ____, 1998.
-------------------------
TABLE OF CONTENTS
Where You Can Find More Information About Us............................2
Prospectus Summary......................................................4
Risk Factors............................................................5
Use of Proceeds........................................................12
Dividend Policy........................................................13
Selling Stockholders ..................................................13
Description of Securities..............................................14
Delaware Business Combination
Provisions........................................................16
Plan of Distribution ..................................................18
Indemnification for Securities Act Liabilities.........................19
Legal Matters..........................................................20
Experts ...............................................................20
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<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may
not contain all of the information important to you. To understand this offering
fully, you should read the entire Prospectus carefully, including the risk
factors.
Please note that references in this Prospectus to "we," "our" or "us"
refer to Xybernaut Corporation not to the Selling Stockholder.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by the Selling
Stockholder (1)................................ 630,701 Shares of Common Stock
Common Stock Outstanding:
Before the Offering (2)(3)............ 21,321,627
After the Offering (3)................ 21,359,127
Nasdaq Symbol.................................. XYBR
Use of Proceeds................................ The Selling Stockholder will receive all net proceeds
from the sale of the Shares. Accordingly, we will not
receive any proceeds from the resale of the Shares. We
will receive proceeds from the exercise of the Warrants.
We will use such net proceeds for general corporate
purposes. We will bear all expenses relating to this
registration except for brokerage or underwriting
commissions and expenses, if any, which will be paid by
the Selling Stockholder.
Risk Factors................................... The securities offered hereby involve a high degree of
risk. You should carefully consider the factors described
under the caption "risk factors."
- ---------------------
</TABLE>
(1) The 630,701 shares of Common Stock offered under this Prospectus
consist of 593,201 outstanding shares and 37,500 shares issuable
pursuant to the exercise of Warrants that may be sold from time to time
by the Selling Stockholder.
(2) Includes 593,201 shares of Common Stock covered by this Prospectus
which are issued and outstanding as of the date hereof.
(3) Based on shares of Common Stock outstanding at December 9, 1998,
includes 37,500 shares of Common Stock issuable pursuant to the
exercise of Warrants, and does not include (1) 1,554,550 shares of
Common Stock reserved for issuance upon the exercise of outstanding
options granted pursuant to Rule 701 of the Securities Act, our 1996
Omnibus Stock Incentive Plan and the 1997 Stock Incentive Plan; (2)
5,173,402 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants to purchase Common Stock, (3) 117,660 shares of
Common Stock registered in connection with the Series C Preferred Stock
but unissued, (4) 539,480 shares of Common Stock registered in
connection with the April 1998 Private Equity Line of Credit Private
Placement but unissued, and (5) 420,000 shares of Common Stock reserved
for issuance upon exercise of an option granted pursuant to our initial
public offering to purchase 210,000 shares of Common Stock and 210,000
redeemable warrants, each such warrant to purchase one share of Common
Stock at an exercise price of $9.075. See "Risk Factors -- Effect of
Possible Non-Cash Future Charge" and " -- Securities Issuable Pursuant
to Options, Warrants and the Unit Purchase Option."
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<PAGE>
RISK FACTORS
Before you buy shares of our Common Stock, you should be aware that
there are various risks associated with such purchase, including those described
below. You should consider carefully these risk factors, together with all of
the other information in this Prospectus before you decide to purchase shares of
our Common Stock.
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
words such as "may," "will," "except," "anticipate," "intend," "estimate,"
"continue," "believe," or other similar words. These statements discuss future
expectations, contain projections of our future results of operations or
financial condition or state other "forward-looking" information. When
considering such statements, you should keep in mind the risk factors and other
cautionary statements in this Prospectus. The risk factors noted in this section
and other factors noted in this Prospectus could cause our actual results to
differ materially from those contained in any forward-looking statements.
History and Expectation of Future Losses; Need for Additional Financing
We were incorporated in October 1990 and commenced operations in
November 1992. We have incurred the following losses since 1994:
Fiscal year ended:
o March 31, 1994 $47,352
o March 31, 1995 $1,303,892
o December 31, 1996 $5,238,536
o December 31, 1997 $9,479,966
Nine months ended:
o September 30, 1998 $7,272,779
We intend to conduct significant additional marketing and distribution
of our products that, together with our existing research and development
programs, are expected to require substantial funding and to result in
continuing operating losses. However, we cannot assure you that, regardless of
our efforts and the expenditure of substantial funds, we will achieve
substantial sales of any of our products, that our operations will be profitable
or that we will be able to meet the competitive demands of the industry in which
we operate.
Going Concern Qualification
The report of our independent accountants on our December 31, 1997
consolidated financial statements contains an explanatory paragraph regarding
our ability to continue as a going concern. The independent accountants cited
several factors as raising substantial doubt as to our ability to continue as a
going concern, including, our history of operating losses and our working
capital deficit. We cannot assure you that we will ever achieve significant
revenues or that our operations will be profitable.
Liquidity; Working Capital Needs
We may obtain a working capital line of credit and/or complete
additional financings in order to meet working capital cash requirements. In
addition, we may exercise a put option to sell shares of our Common Stock in the
aggregate principal amount of $7,000,000 available to us under an April 1998
Private Equity Line of Credit Agreement. However, we cannot assure you that we
will be able to raise additional capital, obtain funds from a working capital
line of credit, or that the sale of Common Stock under the Private Equity Line
of Credit Agreement will be deemed advisable at such times as funds may be
required. We could be required to curtail materially, suspend or cease
operations if we are unable to raise or obtain the needed working capital.
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<PAGE>
Dilution; Impact of the Conversion of Outstanding Convertible Securities
The net tangible value of your Shares will be diluted upon the
conversion of outstanding options, warrants and the issuance of Common Stock
under a repricing arrangement we entered into in connection with our exercise of
a $3,000,000 Put Option under the April 1998 Private Equity Line of Credit
Agreement (the "Initial Put Option"). Specifically, certain options and warrants
(other than the Warrants) are convertible into Common Stock at discounts from
future market prices of the Common Stock. Such discounts 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.
At the date of this Prospectus, we have reserved an aggregate of
7,185,457 shares of Common Stock for issuance upon exercise of the following
outstanding options and warrants:
o options to purchase 1,554,550 shares at an exercise price between $1.37
and $6.00 per share;
o warrants to purchase 627,500 shares at an exercise price between $1.76
and $18.00 per share;
o warrants to purchase 4,583,402 shares at an exercise price of $9.00 per
share; and
o 210,000 Units (the "Units"), each unit consisting of one share of
Common Stock and one Redeemable Warrant (a "Redeemable 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, 1996. The Redeemable
Warrants included in the Units are exercisable at $12.60 per share.
During the terms of the outstanding options, Redeemable Warrants and
the Unit Purchase Option, we must give the holders the opportunity to profit
from a rise in the market price of the Common Stock. The existence of the
options, the Redeemable Warrants and the Unit Purchase Option may adversely
affect the terms on which we may obtain additional equity financing. Moreover,
the holders are likely to exercise their rights to acquire Common Stock at a
time when we would otherwise be able to obtain capital with more favorable terms
than we could obtain through the exercise of such securities.
In addition, we agreed to certain repricing arrangements in connection
with our exercise of the Initial Put Option. Under that arrangement, one-sixth
of the 545,454 shares of Common Stock (the "Initial Put Shares") we issued upon
exercise of the Initial Put Option, are subject to monthly repricing commencing
on September 30, 1998. Under the repricing calculation, if the closing price of
the Common Stock on the trading date immediately preceding the repricing date is
less than $7.20 per share, the shares of Common Stock subject to repricing will
be repriced at the lowest closing bid price of the Common Stock for the 30 days
preceding such repricing date (the "Initial Put Reset Price"). We will issue to
the investors such number of shares (the "Initial Put Repricing Shares") equal
to the difference between (a) the quotient of 500,000 and the Initial Put Reset
Price and (b) the number of shares subject to repricing. We will not issue any
shares of Common Stock under the repricing arrangement if the Initial Put Reset
Price is equal to or greater than $5.50. As of the date of this Prospectus, we
have issued 55,880 shares of our Common Stock under the repricing arrangement.
Uncertainty of Market Development and Product Acceptance
The mobile computing market is emerging and relatively undeveloped. We
sold our first Mobile Assistant(R) in 1993. From December 31, 1997 through
September 30, 1998 have sold and delivered Mobile Assistant(R) systems valued at
approximately $615,000. We commenced delivery of the Pentium(R) Mobile Assistant
P-133(TM) in August 1997 and expect to commence delivery of Mobile Assistant(R)
IV, a Pentium 233 MHZ based system ("MA IV"), in the quarter ending December 31,
1998. In September 1997, we announced the introduction of our linkAssist(TM) and
webAssist(TM) software products.
The size of the mobile computing market is currently limited by (1) the
high unit prices of mobile computers as compared to laptops and other portable
computers, (2) the specialized nature of each application and the need for
custom applications and system integration, and (3) the limited supply to date
of components for completed systems. The potential size of the market will be
limited further by the rate at which prospective customers recognize and accept
the functions and capabilities of integrated mobile
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<PAGE>
computing systems. We cannot assure you that a significant market will develop
for mobile computing systems or, that, if a market develops, the Mobile
Assistant(R) Series and any of our other products will become a significant
factor in any market that develops. In addition, we cannot guarantee that we
will obtain the working capital needed to meet the competitive demands of the
industry in which we operate. See "Risk Factors - Liquidity; Working Capital
Needs; -- Competition."
In addition, we believe 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 our other products, of which we can
provide no assurance.
Competition
The computer industry is intensely competitive and is characterized by
rapid technological advances, evolving industry standards and technological
obsolescence. Many of our current competitors have longer operating histories
and greater financial, technical, sales, marketing and other resources than we
do. Several other companies, 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, are engaged in the manufacture and development
of body-mounted or hand-held computing systems that do or could compete with the
Mobile Assistant(R) Series. Personal digital assistants and laptop and notebook
computers also are products that could compete against the Mobile Assistant(R)
in applications where hands-free, voice-activated operation is not required.
Many of these computers are manufactured by major domestic and foreign computer
manufacturers which possess far more resources than we do and which can be
expected to compete vigorously with us. We cannot assure you that we will be
able to compete successfully against our competitors, that we will have the
working capital needed to incorporate the constant technological advances in our
products or that competitive pressures will not adversely affect our financial
performance.
Dependence upon Suppliers
We have supplier relationships with Sony Digital Products and Shimadzu,
among others, for the production of the MA IV system. We also have written
agreements with our suppliers for batteries, head-mounted displays and computing
units. Although we believe that we 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 us to experience temporary delays or
interruptions in supply while we incorporate such changes. Since the order time
for certain components may range up to approximately three months, we also could
experience delays or interruptions in supply in the event we are required to
find a new supplier for any of these components. Any disruptions in supply of
necessary parts and components from our key suppliers could have a material
adverse effect on our results of operations. Any future shortage or limited
allocation of components for the Mobile Assistant(R) could have a material
adverse effect on our organization as a whole.
Currency Fluctuations
The exchange rates for some local currencies in countries where we
operate may fluctuate in relation to the U.S. dollar. Such fluctuations may have
an adverse effect on our expenses, earnings or assets when local currencies are
translated into U.S. dollars. We are party to a supplier arrangement with Sony
Digital Products for the production of the MA IV system. The fees we pay Sony
Digital Products are paid in Japanese yen. Any weakening of the value of the
U.S. dollar against the Japanese yen could result in an increase in our
production expenses which, if substantial, could have a material adverse effect
on our financial condition and results of operations.
Substantial Dependence upon Single Product Line;
Possibility of Unsuccessful New Product Development
Our Mobile Assistant(R) Series currently consists of two products, the
MA IV, which is expected to be available for sale in late 1998, and the 133P
model based on a 133 MHZ Intel Pentium(R) processor. The
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<PAGE>
Mobile Assistant(R) Series are our principal products, and our success will
depend upon its commercial acceptance, which cannot be assured.
For single unit purchases, the Mobile Assistant(R) 133P currently is
priced from $5,000 to $8,995 depending upon the discount and selected features.
We also are developing additional products for the Mobile Assistant(R) Series
for introduction in the future and intend to modify the Mobile Assistant(R)
Series for use in other applications and to develop other products using our
core technologies. As technological developments cause declines in hardware
costs, we expect that mobile computer sales will be driven by system
capabilities and integration. However, we cannot assure you that the Mobile
Assistant(R) will offer the performance capabilities or features that customers
will value or that we will have the capital required to modify the design of the
Mobile Assistant(R) in order to gain customer acceptance. In addition, while
linkAssist(TM) and our planned software toolkits are intended for use both with
the Mobile Assistant(R) Series and independently, we cannot guarantee that a
separate market for our existing and planned software products will develop or
that any products, if sold, will generate significant revenues or any profits.
Additional product development will result in a significant increase in
our research and development expenses that may be unrecoverable should
commercialization of new products prove unsuccessful. We also could require
additional funding if research and development expenses are greater than we
anticipate. We cannot assure you that we will be successful in our future
product development efforts or in diversifying our product line. See "Risk
Factors - Liquidity; Working Capital Needs."
Uncertain Protection of Patent and Proprietary Rights;
No Assurance of Enforceability or Significant Competitive Advantage
We consider our patent, trade secrets, and other intellectual property
and proprietary information to be important to our business prospects. We rely
on a combination of patent, trade secret, copyright and trademark laws and
contractual restrictions to establish and protect our proprietary rights. We
have implemented a trade secret management program to protect our trade secrets
and proprietary information. In addition, we have confidentiality and invention
assignment agreements with our employees, and generally enter into
non-disclosure agreements with our suppliers, VARs, OEMs and actual and
potential customers to limit access to and disclosure of our proprietary
information.
We have registered our Mobile Assistant(R) and Xybernaut(R) trademarks
on the Principal Register of the United States Patent and Trademark Office
("Patent Office") and the patent and trademark offices in several foreign
countries. In April 1994, we obtained U.S. patent number 5,305,244 ("hands-free,
user- supported portable computers") (the "Patent") for the Mobile Assistant(R)
Series. We derived most of our revenue for the twelve months ended December 31,
1997 and 1996 and the nine months ended September 30, 1998 and 1997 from
products included within the scope of the Patent. We have notified several of
our competitors of the existence of the Patent, which our counsel believes may
have been infringed on by some of such competitors. We intend to take any and
all appropriate measures, including legal action, necessary to maintain and
enforce our rights under the Patent and other patents held by us.
We have filed twenty patent applications covering various aspects of
computers in general and wearable computers in particular since July 1996. Six
of these patent applications have been issued, one patent has been allowed
pending issuance and thirteen patents are pending. We have also filed most of
these applications in European countries, The People's Republic of China, Japan,
Republic of Korea, Republic of China (Taiwan), Canada and Australia. All patents
issued to our employees under pending and future applications have been and will
be assigned to us under existing invention assignments.
We cannot assure you that our pending patent applications will issue as
patents, that any issued patent will provide us with significant competitive
advantages or that challenges will not be instituted against the validity or
enforceability of any of our patents. The cost of litigation to uphold the
validity and prevent infringement of patents can be substantial. We also can
provide no assurance that others will not independently develop similar or more
advanced products, design patentable alternatives to our products or duplicate
our trade secrets, or that our employees or suppliers will not breach their
confidentiality agreements.
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<PAGE>
In addition, we may be required, in some cases, to obtain licenses from
third-parties or to redesign our products or processes to avoid infringement.
Dependence upon and Need for Key Personnel
Our success depends to a significant extent upon the efforts of senior
management personnel and a group of employees with longstanding industry
relationships and technical knowledge of our business and operations. The loss
of certain key members of senior management and the inability to replace such
member could have a material adverse effect on our business and operations. Our
success also will depend upon our ability to attract and retain highly qualified
and experienced management and technical personnel. We face competition for such
personnel from numerous other entities, many of which have significantly greater
resources than we do. We cannot assure you that we will be successful in
recruiting such personnel or that, if recruited, such persons would succeed in
establishing profitable operations for our organization.
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 our existing products and products currently
under development obsolete and unmarketable. Our success will depend upon our
ability to enhance our current products and develop and successfully introduce
and sell new products that keep pace with technological developments and respond
to evolving end user requirements. If we do not anticipate or respond adequately
to technological developments, end user requirements, or significant delays in
product development or introduction, our competitive position in the marketplace
could be damaged and we could experience a decrease in revenues. We expect to
increase the use of additional external and internal resources in the near term
to meet these challenges. However, we can provide no assurance that we will be
successful in hiring, training and retaining qualified product development
personnel to meet our needs or that we 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 our results of operations.
Year 2000 Issues
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the our
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, we determined that we will be required to
modify or replace portions of our software so that our computer systems will
properly utilize dates beyond December 31, 1999. We believe that we can mitigate
the Year 2000 Issue with modifications to existing software and conversions to
new software. However, if we fail to make such modifications and conversions, or
if we do not make them on a timely basis, the Year 2000 Issue could have a
material impact on our operations.
We have contacted all of our significant suppliers and large customers
to determine the possible effect on our operations of their inability or failure
to remediate their own Year 2000 Issue. Our estimate of the costs to remediate
our Year 2000 issue is based on presently available information. However, we
cannot guarantee that the systems of other companies on which our systems rely
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with our systems, would not have material
adverse effect on our operations. We have no exposure to contingencies related
to the Year 2000 Issue for the products we have sold.
We will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. We plan to complete
the Year 2000 project within six months and estimate the total remaining cost of
the Year 2000 project at $6,000. Approximately $1,700 of the total project cost
is
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<PAGE>
attributable to the purchase of new software which will be capitalized. The
remaining $4,300, which will be expensed as incurred over the next six months,
is not expected to have a material effect on our results of operations. To date,
we have incurred and expensed approximately $1,000 related to our Year 2000
project.
Our estimates of the date of completion and cost of our Year 2000
project are based on our best estimates, which we derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. The costs and
completion date of our Year 2000 project could differ materially from our
estimates due to the lack of availability and cost of personnel trained in this
area, our ability to locate and correct all relevant computer codes, and similar
uncertainties.
Effect of Possible Non-Cash Future Charge
As a condition to our initial public offering, certain of our
stockholders, primarily officers and directors, deposited an aggregate of
1,800,000 shares of Common Stock into an escrow account (the "Escrowed Shares").
The Escrowed Shares are subject to the following terms and conditions:
o The Escrowed Shares will be released incrementally over a
three-year period only in the event our 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.
o 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 agreed upon price levels, certain amounts of the
Escrowed Shares will be returned to us for each period and
canceled.
o All the 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.
The difference between the initial offering price and the market value
(at the time of release) of any Escrowed Shares released will be deemed to be an
additional compensation expense. Such expense, depending on the price per share,
may have the effect of reducing or eliminating any earnings per share and could
have a negative effect on the market price for our Common Stock.
We did not meet the targets for escrow release for September 30, 1997
and September 30, 1998. As a result, 300,000 and 750,000 shares, respectively,
were canceled from the escrow pool resulting in a reduction of 2.1% and 3.6% of
our outstanding shares of Common Stock.
High Concentration of Common Stock Held by Existing Stockholders
Following this offering, our executive officers, directors and
principal stockholders will, in the aggregate, beneficially own approximately
31.5% of our outstanding shares of Common Stock. These stockholders, if acting
together, will be able to effectively control most matters requiring approval by
our stockholders. 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
Our Certificate of Incorporation provides that, subject to limited
exceptions, our directors will not be personally liable for monetary damages to
us or our stockholders for a breach of fiduciary duty as a director. 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 our directors. See "Indemnification for Securities Act Liabilities."
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<PAGE>
Shares Eligible for Future Sale
Sales of a substantial number of shares of our Common Stock in the
public market following this offering could adversely affect the market price of
the Common Stock. Of the 22,338,767 shares of Common Stock that will be
outstanding or registered for sale upon the completion of this offering,
20,291,426 will be freely tradeable without restriction or further registration
under the Securities Act. This includes:
o 19,274,286 shares of Common Stock which are issued and outstanding;
o 117,660 unissued shares of Common Stock registered in connection
with the Series C Preferred Stock, and
o 899,480 unissued shares of Common Stock registered in connection
with the April 1998 Equity Line of Credit Private Placement.
The remaining 2,047,341 shares include 750,000 shares of Common Stock
which are "Escrowed Shares" (see "Effect of Possible Non-Cash Future Charge")
and are subject to release on September 30, 1999 if certain share targets are
met, and 1,297,341 shares of the Common Stock are "restricted securities" as
that term is defined in Rule 144 promulgated under the Securities Act. The
restricted shares may 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 one or more other exemptions under the Securities Act
(including Rule 144). Rule 144, as amended, permits sales of restricted
securities by any person (whether or not an affiliate) after one year, at which
time sales can be made subject to the Rule's existing volume and other
limitations and by non-affiliates without adhering to Rule 144's existing volume
or other limitations after two years. Future sales of substantial amounts of
shares in the public market, or the perception that such sales could occur,
could adversely affect the price of the shares in any market that may develop
for the trading of such shares.
No Dividends Anticipated
We have never paid any dividends on our securities and do not
anticipate the payment of dividends in the foreseeable future.
Volatility of Stock Price
The trading price of the Common Stock has been, and may continue to be,
volatile. Such trading price could be subject to wide fluctuations in response
to our announcements of business and technical developments or those by our
competitors, quarterly variations in operating results, and other events or
factors, including our prospects and expectations by investors and securities
analysts. 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 our Common Stock.
Anti-takeover Consideration; Rights of Preferred Stock
Our 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 C 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. 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 our
management. We have no present intention to issue any additional Preferred
Stock. See "Description of Securities -- Preferred Stock."
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<PAGE>
We have a classified or staggered Board of Directors which limits an
outsider's ability to effect a rapid change of control of the Board. In
addition, at the 1998 Annual Meeting of Stockholders held on September 24, 1998,
our shareholders approved measures to amend our Certificate of Incorporation and
Bylaws, where applicable, to:
o implement an advance notice procedure for the submission of
director nominations and other business to be considered at annual
meetings of stockholders;
o permit only the President, the Vice Chairmen of the Board, the
Secretary or the Board of Directors to call special meetings of
stockholders and to limit the business permitted to be conducted
at such meetings to be brought before the meetings by or at the
direction of the Board of Directors;
o provide that a member of the Board of Directors may only be
removed for cause by an affirmative vote of holders of at least 66
2/3% of the voting power of the then outstanding shares entitled
to vote generally in the election of directors voting together as
a single class (the "Voting Stock");
o fix the size of the Board of Directors at a maximum of twelve
directors, with the authorized number of directors set at ten, and
the Board of Directors having the sole power and authority to
increase or decrease the number of directors acting by an
affirmative vote of at least a majority of the total number of
authorized directors most recently fixed by the Board of
Directors;
o provide that any vacancy on the Board of Directors may be filled
for the unexpired term (or for a new term in the case of an
increase in the size of the board) only by an affirmative vote of
at least a majority of the remaining directors then in office even
if less than a quorum, or by the sole remaining director;
o eliminate stockholder action by written consent;
o require the approval of holders of 80% of the then outstanding
Voting Stock and/or the approval of 66 2/3% of the directors for
certain corporate transactions; and
o require an affirmative vote of 66 2/3% of the Voting Stock in
order to amend or repeal any adopted amendments to the Certificate
of Incorporation and Bylaws adopted at the meeting.
Such measures, combined with 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 without
any further action by the shareholders. In addition, issuance of Preferred
Stock, without shareholder approval, 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 Selling Stockholder is selling all of the Shares covered by this
Prospectus for its own account. Accordingly, we will not receive any proceeds
from the resale of the Shares. We will receive proceeds from the exercise of the
Warrants. We will use such net proceeds for general corporate purposes. We will
bear all expenses relating to this registration except for brokerage or
underwriting commissions and expenses, if any, which will be paid by the Selling
Stockholder.
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<PAGE>
DIVIDEND POLICY
We have never declared or paid cash dividends on our Common Stock. We
currently anticipate that we will retain all available funds for use in the
operation of our business. As such, we do not anticipate paying any cash
dividends on our Common Stock in the foreseeable future.
SELLING STOCKHOLDERS
We issued the shares of Common Stock covered by this Prospectus to the
Selling Stockholder under the terms of a private placement.
Under the terms of a Purchase Agreement dated October 8, 1998, we
issued 593,201 shares of our Common Stock to the Selling Stockholder. The number
of shares issued for each drawdown was based on the price per share equal to the
lesser of (1) the average of the daily volume weighted average price of the
Common Stock on NASDAQ SmallCap Market for a certain number of consecutive
trading days preceding the funding date of the draw down and (2) $8.00.
This Prospectus also covers the resale by the Selling Stockholder of up
to 37,500 shares of our Common Stock issuable upon exercise of Warrants which we
issued to the Selling Stockholder at each draw down. The exercise price of such
Warrants is as follows:
Exercise Price Number of Shares Date of Warrant
- -------------- ---------------- ---------------
$9.58 12,500 10/27
$9.09 12,500 10/30
$13.05 12,500 11/17
The following table lists certain information regarding the Selling
Stockholder's ownership of Shares of our Common Stock as of December 9, 1998,
and as adjusted to reflect the sale of the Shares. Information concerning the
Selling Stockholder may change from time to time. To the extend the Selling
Stockholder or any of its representatives advises us of such changes, we will
report those changes in a Prospectus Supplement to the extent required. See
"Plan of Distribution."
<TABLE>
<CAPTION>
Shares of Common Stock Owned
after Offering (2)
----------------------------------
Shares of
Common Stock
Owned Prior to Shares of Common
Offering (1) Stock to be Sold Number Percent
---------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
HSBC James Capel Canada, Inc. 630,701 630,701 630,701 %2.95
------- ------- ------- -----
Total 630,701 630,701 630,701 % 2.95
======= ======= ======= ======
- -----------------
</TABLE>
(1) Assumes that the Selling Stockholder will exercise all of its Warrants.
In September 1998, we entered into a financing agreement with the
Selling Stockholder on terms comparable to those of the October 8, 1998 Purchase
Agreement for the sale of up to $31,200,000 of Common Stock during a twelve
month period. That agreement has been terminated. We did not issue any shares of
Common Stock to the Selling Stockholder under that agreement. Other than as
indicated in this paragraph, the Selling Stockholder is not affiliated with us.
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<PAGE>
DESCRIPTION OF SECURITIES
General
Our authorized capital stock 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, there are 21,321,627 shares of
Common Stock and 188 shares of Series C Preferred Stock issued and outstanding.
We have reserved 7,185,452 shares of Common Stock for issuance pursuant to
outstanding options and warrants. Common Stock
The holders of our Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Our
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 our liquidation,
dissolution or winding up, 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. 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 C Preferred Stock
On May 15, 1998, the Board of Directors authorized the issuance of a
series of Preferred Stock consisting of 375 shares (the "Series C Preferred
Stock"), each such share of Series C Preferred Stock has a stated value of
$1,000 (the "Liquidation Preference"), pursuant to a Certificate of Designation
(the "Certificate of Designation").
Dividends. The holders of the shares of Series C Preferred Stock are
entitled to receive, when and as declared by the Board of Directors, 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 C Preferred Stock
from the date of initial issuance. Such dividends are in preference to any
distributions on any outstanding shares of our Common Stock or any other of our
equity securities that are junior to the Preferred Stock as to the payment of
dividends.
Conversion Rights. The holders of Series C Preferred Stock shall have
conversion rights as follows: (i) no shares of Series C Preferred Stock may be
converted prior to August 15, 1998; (ii) at any time after August 15, 1998
through November 14, 1998, up to twenty-five (25%) percent of the shares of
Series C Preferred Stock then outstanding may be converted, at the option of the
holders thereof; and (iii) thereafter, on November 15, 1998, February 15, 1999
and May 15, 1999, an additional twenty-five (25%) percent of the shares of
Series C 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 C
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) 100%
of the average
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<PAGE>
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 C Preferred
Stock has telecopied a notice of conversion to us (the "Conversion Date") and
(B) $4.00.
On May 15, 2000, the holders of the Series C Preferred Stock will be
required to convert all of their outstanding shares of Series C Preferred Stock
into shares of Common Stock. Until converted, we will be entitled to redeem
shares of Series C Preferred Stock in accordance with the Certificate of
Designation, regardless of whether or not we received a notice of conversion
with respect to such shares.
We will at all times when any shares of Series C Preferred Stock are
outstanding, reserve and keep available out of our authorized but unissued
stock, such number of shares of Common Stock as, from time to time, will be
sufficient to effect the conversion of all outstanding shares of Series C
Preferred Stock.
Redemption. At any time after May 15, 1998, we may redeem up to 100% of
the outstanding shares of the Series C Preferred Stock at the applicable
redemption price, provided, that (x) we have received a notice of conversion,
and (y) the Conversion Price is below $3.40. We will give written notice by
telecopy, to the holders of Series C 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 will state the
Redemption Date, the Redemption Price (as hereinafter defined), the number of
shares of Series C Preferred Stock of such holders to be redeemed and shall call
upon such holders to surrender to us on the Redemption Date at the place
designated in the notice such holders' redeemed stock.
We have the option to redeem all or a portion of all the outstanding
shares of Series C Preferred Sock at a cash price equal to $3.40 multiplied by
the number of shares the Series C Preferred Stock would convert into on the date
of redemption.
Voting Rights. Except as otherwise required by law, the holders of the
Series C Preferred Stock are not be entitled to vote upon any matter relating to
our business or affairs or for any other purpose.
Status. In case any outstanding shares of Series C 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 C Preferred Stock.
Other Designations of Preferred Stock
As of the date of this Prospectus, we have not designated any shares of
Preferred Stock other than the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock. There are no other shares of Preferred Stock
outstanding, and we have no plans to issue any other shares of Preferred Stock.
Anti-takeover Considerations.
Our Certificate of Incorporation authorizes the issuance of up to
6,000,000 shares of $.01 par value Preferred Stock. As of the date of this
Prospectus, only the Series C Preferred Stock are issued and outstanding. See
"-- Preferred Stock." 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 our
management. We have no present intention to issue any additional Preferred
Stock.
We have a classified or staggered Board of Directors which limits an
outsider's ability to effect a rapid change of control of the Board. In
addition, at the 1998 Annual Meeting of Stockholders held on September 24, 1998,
our shareholders approved measures to amend our Certificate of Incorporation and
Bylaws, where applicable, to:
o implement an advance notice procedure for the submission of
director nominations and other business to be considered at
annual meetings of stockholders;
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<PAGE>
o permit only the President, the Vice Chairmen of the Board, the
Secretary or the Board of Directors to call special meetings
of stockholders and to limit the business permitted to be
conducted at such meetings to be brought before the meetings
by or at the direction of the Board of Directors;
o provide that a member of the Board of Directors may only be
removed for cause by an affirmative vote of holders of at
least 66 2/3% of the voting power of the then outstanding
shares entitled to vote generally in the election of directors
voting together as a single class;
o fix the size of the Board of Directors at a maximum of twelve
directors, with the authorized number of directors set at ten,
and the Board of Directors having the sole power and authority
to increase or decrease the number of directors acting by an
affirmative vote of at least a majority of the total number of
authorized directors most recently fixed by the Board of
Directors;
o provide that any vacancy on the Board of Directors may be
filled for the unexpired term (or for a new term in the case
of an increase in the size of the board) only by an
affirmative vote of at least a majority of the remaining
directors then in office even if less than a quorum, or by the
sole remaining director;
o eliminate stockholder action by written consent;
o require the approval of holders of 80% of the then outstanding
Voting Stock and/or the approval of 66 2/3% of the directors
for certain corporate transactions; and
o require an affirmative vote of 66 2/3% of the Voting Stock in
order to amend or repeal any adopted amendments to the
Certificate of Incorporation and Bylaws adopted at the
meeting.
Such measures, combined with 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 without
any further action by the shareholders. In addition, the issuance of Preferred
Stock, without shareholder approval, 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.
Transfer Agent and Registrar
Continental Stock Transfer & Trust Company is our Transfer Agent and
Registrar for our Common Stock and the Redeemable Warrants.
DELAWARE BUSINESS COMBINATION PROVISIONS
As a Delaware corporation, we are 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 our organization if such acquisition is not approved by the 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 our
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
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<PAGE>
a conversion or exchange or a pro-rata distribution or certain other
transactions, none of which increase the Interested Stockholder's proportionate
ownership of any class or series of the corporation's or such subsidiary's
stock); or receipt by the Interested Stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or a
subsidiary.
The three-year moratorium imposed on Business Combinations by Section
203 does not apply if:
(a) prior to the date on which a stockholder becomes an Interested
Stockholder, the 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 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. Our Certificate
of Incorporation does not contain such a provision. The restrictions described
above also do not apply to certain Business Combinations proposed by an
Interested Stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an Interested Stockholder during the previous three years or who
became an Interested Stockholder with the approval of a majority of the
corporation's directors.
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<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholder may offer its shares of our Common Stock at
various times in one or more of the following transactions:
o on any U.S. securities exchange on which our Common Stock may be
listed at the time of such sale;
o in the over-the-counter market;
o in transactions other than on such exchanges or in the
over-the-counter market;
o in connection with short sales;
o in a combination of any of the above transactions.
The Selling Stockholder may may offer its shares of Common Stock at
prevailing market prices at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices.
The Selling Stockholder may use broker-dealers to sell its shares of
Common Stock. If this happens, broker-dealers will either receive discounts or
commission from the Selling Stockholder, or they will receive commissions from
purchasers of shares of Common Stock for whom they acted as agents. 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 Stockholder and any broker-dealers or other persons acting
on the behalf of parties that participate in the distribution of the Shares may
be deemed to be underwriters. As such, any commissions or profits they receive
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, we are not aware of any agreement,
arrangement or understanding between any broker or dealer and the Selling
Stockholder with respect to the offer or sale of the Shares pursuant to this
Prospectus.
To the extent required under the Securities Act, we will file a
supplemental prospectus to disclose (a) the name of any such broker-dealers, (b)
the number of Shares involved, (c) the price at which such Shares are to be
sold, (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out in this Prospectus, as
supplemented, and (f) other facts material to the transaction.
The Selling Stockholder is selling all of the Shares covered by this
Prospectus for its own account. Accordingly, we will not receive any proceeds
from the resale of the Shares. We will receive proceeds from the exercise of the
Warrants. We will use such net proceeds for general corporate purposes.
The Purchase Agreements have reciprocal indemnification provisions
against certain liabilities, including liabilities under the Securities Act,
which may be based upon, among other things, any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of a
material fact. We have agreed to bear customary expenses incident to the
registration of the Shares for the benefit of the Selling Stockholder 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 Investor.
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<PAGE>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the DGCL provides, in general, that a corporation
incorporated under the laws of the State of Delaware, such as our company, 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.
Our Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages to us or our stockholders for breach of
fiduciary duty as a director, except for liability resulting from a breach of
the director's duty of loyalty to our 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. Our Certificate of Incorporation also
authorizes us to indemnify our officers, directors and other agents, by bylaws,
agreements or otherwise, to the fullest extent permitted under Delaware law. We
have entered into an Indemnification Agreement (the "Indemnification Agreement")
with each of our directors and officers which may, in some cases, be broader
than the specific indemnification provisions contained in our Certificate of
Incorporation or as otherwise permitted under Delaware law. Each Indemnification
Agreement may require us, 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.
We maintain 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.
- 19 -
<PAGE>
LEGAL MATTERS
Parker Chapin Flattau & Klimpl, LLP, New York, New York will pass upon
the validity of the securities offered hereby. Martin Eric Weisberg, Esq., a
member of the firm, is our Secretary and one of our Directors.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996
and for each of the two years in the period ended December 31, 1997 incorporated
by reference in this Prospectus have been so incorporated in reliance on the
report (which contains an explanatory paragraph relating to the Company's
ability to continue as a going concern as described in Note 1 to the
consolidated financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
- 20 -
<PAGE>
- ---------------------------------------- ------------------------------------
We have not authorized any dealer, ______ SHARES OF COMMON STOCK
salesperson or any other person to give
any information or to represent anything
not contained in this Prospectus. You
must not rely on any unauthorized
information. This Prospectus does not
offer to sell or buy any shares in any
jurisdiction where it is unlawful. The
information in this Prospectus is
current as of _____________, 1998.
--------------
TABLE OF CONTENTS
Page
----
Where You Can Find More
Information About Us.........2
Prospectus Summary....................4
Risk Factors..........................5
Use of Proceeds......................13
Dividend Policy......................13
Selling Stockholders ................14 -------------
Description of Securities............15 PROSPECTUS
Delaware Business Combination -------------
Provisions..................17
Plan of Distribution ................19
Indemnification for Securities
Act Liabilities.............21
Legal Matters........................22
Experts .............................22 , 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......... $ 980.95
Legal fees and expenses....................... $15,000.00
Accounting expenses........................... $ 7,000.00
-----------
Total.................................... $22,980.95
===========
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 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.
II - 1
<PAGE>
NUMBER DESCRIPTION OF EXHIBIT
4.1 Purchase Agreement dated October 8, 1998 between Xybernaut
Corporation and HSBC James Capel Canada, Inc.
4.2 Form of Warrant.
23.1 Consent of PricewaterhouseCoopers LLP
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).
- --------------
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(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
II - 2
<PAGE>
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 December 14,
1998.
XYBERNAUT CORPORATION
By: /s/ Edward G. Newman
---------------------------------
Edward G. Newman
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes Edward G. Newman and Steven A. Newman, each acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and to file the same with exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-3 has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board, December 14, 1998
/s/ Edward G. Newman President and Chief Executive
- ------------------------------------------ Officer
Edward G. Newman
Executive Vice President - December 14, 1998
- ------------------------------------------ Asian Operations and Director
Kaz Toyosato
/s/ Maarten R. Heybroek Chief Operating Officer and December 14, 1998
- ------------------------------------------ Chief Financial Officer
Maarten R. Heybroek
/s/ Martin Eric Weisberg Secretary and Director December 14, 1998
- ------------------------------------------
Martin Eric Weisberg
II - 4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
- ----------------------------------------- Director December 14, 1998
Lt. Gen. Harry E. Soyster
/s/ James J. Ralabate Director December 14, 1998
- -----------------------------------------
James J. Ralabate
/s/ Keith P. Hicks Director December 14, 1998
- -----------------------------------------
Keith P. Hicks
/s/ Steven A. Newman Director December 14, 1998
- ------------------------------------------
Steven A. Newman
/s/ Phillip E. Pearce Director December 14, 1998
- ------------------------------------------
Phillip E. Pearce
- ------------------------------------------ Director December 14, 1998
Eugene J. Amobi
By: /s/ Edward G. Newman
- -------------------------------------------
Edward G. Newman
Attorney-in-fact
</TABLE>
<PAGE>
SECURITIES AND
EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
-------------
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
XYBERNAUT CORPORATION
(EXACT NAME OF ISSUER AS SPECIFIED
IN ITS CHARTER)
December 14, 1998
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO./REF.
- ---------- ----------------------- -------------
4.1 Purchase Agreement dated October 8, 1998 between
Xybernaut Corporation and HSBC James Capel
Canada, Inc.
4.2 Form of Warrant.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
23.1 Consent of PricewaterhouseCoopers LLP
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).
Exhibit 4.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into as of this 8th day of
October, 1998 (the "Agreement"), by and between Xybernaut Corporation, a
Delaware corporation ("Xybernaut"), with offices at 12701 Fair Lakes Circle,
Fairfax, Virginia 22033, and HSBC James Capel Canada, Inc., an Ontario company
("HSBC"), with offices at 105 Adelaide Street West, Suite 1200, Toronto, Ontario
M5H 1P9, Canada, providing for the purchase and sale of shares of the common
stock, par value $.01 per share (the "Common Stock"), of Xybernaut, by HSBC or
its designated affiliates (collectively with HSBC, the "Buyer"), in the manner,
and upon the terms, provisions and conditions set forth in this Agreement.
Therefore, in consideration of the representations, warranties and
agreements contained herein and other good and valuable consideration, the
receipt and legal adequacy of which is hereby acknowledged by the parties,
Xybernaut and Buyer hereby agree as follows:
1. Definitions.
(a) "Average Daily Price" shall be the price based on the VWAP
of Xybernaut on the relevant market or exchange.
(b) "Average Price" shall be the average of the Average Daily
Price for the applicable Draw Down Pricing Period on the relevant market or
exchange.
(c) "Draw Down" shall have the meaning assigned to such term
in Section 4(a) hereof.
(d) "Draw Down Exercise Date" shall have the meaning assigned
to such term in Section 4(b) hereof.
(e) "Draw Down Pricing Period" shall mean a period of five (5)
consecutive trading days preceding a Draw Down Exercise Date.
(f) "Effective Date" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for hereby is
declared effective.
(g) "Material Adverse Effect" shall mean any effect on the
business, operations, properties or financial condition of Xybernaut that is
material and adverse to Xybernaut and its subsidiaries and affiliates, taken as
a whole, and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of Xybernaut to enter into and perform any
of its obligations under this Agreement or the Warrant, in any material respect.
(h) "Material Change in Ownership" shall mean that the
officers and directors of Xybernaut shall own less than 20% of the outstanding
Common Stock of Xybernaut.
(i) "Registration Statement" shall mean the registration
statement under the Securities Act of 1933, as amended, to be filed with the
Securities and Exchange Commission for the registration of the Shares.
(j) "Securities" shall mean, collectively, the shares of
Common Stock of Xybernaut being subscribed for hereunder, the shares of Common
Stock issuable to Buyer upon exercise of the Option and the Warrants, the Option
(as hereinafter defined)and the Warrants.
(k) "Shares" shall mean, collectively, the shares of Common
Stock of Xybernaut being subscribed for hereunder and those shares of Common
Stock issuable to Buyer upon exercise of the Option and the Warrants.
<PAGE>
(l) "Threshold Price" is the lowest price that Xybernaut will
issue new shares of Common
Stock.
(m) "VWAP" shall mean the daily volume weighted average price
of Xybernaut on the relevant exchange as reported by Bloomberg Financial using
the AQR function.
(n) "Warrants" shall have the meaning assigned to such term in
Section 7 hereof.
2. Agreement to Subscribe; Pricing.
(a) Buyer hereby subscribes for a total of up to Two Million
Seven Hundred Thousand Dollars ($2,700,000) of Xybernaut's Common Stock based
upon (i) the Draw Downs permitted hereunder; provided that no Draw Down may
exceed Seven Hundred Fifty Thousand Dollars ($750,000), and (ii) a per share
purchase price equal to the lesser of (x) 100% of the Average Price for the Draw
Down Pricing Period and (y) $8.00 (the "Purchase Price").
(b) If the Average Daily Price on a given trading day is less
than the Threshold Price then Buyer's payment obligation under the applicable
Draw Down will be reduced by 1/5th. At no time shall the Threshold Price be set
below $3.00; provided, however, that if trading in Xybernaut's Common Stock is
suspended for more than three (3) hours in any trading day, the price of the
Common Stock shall be deemed to be below the Threshold Price for that trading
day.
3. Condition Precedent. The parties recognize that before Buyer shall be
obligated to accept a Draw Down request from Xybernaut, Xybernaut shall have
caused a sufficient number of shares of Common Stock to be authorized to cover
the shares of Common Stock to be issued in connection with such Draw Down.
4. Draw Down Terms. Subject to the satisfaction of the conditions set
forth in Section 3 hereof, the parties agree as follows:
(a) During the Exercise Period (as hereinafter defined),
Xybernaut, may, in its sole discretion, issue and exercise Draw Downs, which
Draw Downs the Buyer will be obligated to accept. The initial Draw Down may not
be initiated before Thursday, October 8, 1998. The next Draw Down shall only
occur after the end of the Draw Down Pricing Period for the initial Draw Down
and successive Draw Downs may only occur after the end of the Draw Down Pricing
Period for the immediately preceding Draw Down.
(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. The Settlement (as such is hereinafter defined) of the Draw Down
shall occur on the first trading day following the end of the Draw Down Pricing
Period (the "Draw Down Exercise Date"), based on the Average Daily Price during
the Draw Down Pricing Period.
(c) Subject to all restrictions being satisfied, the exercise
of each Draw Down will be automatic without any additional action being
required. The exercise of each Draw Down will be "European Style" ( i.e. the
Draw Down can be exercised only on the Draw Down Exercise Date).
(d) Each Draw Down will expire on the calendar day immediately
following the Draw Down Exercise Date.
(e) Xybernaut must inform Buyer via facsimile transmission as
to the amount of the Draw Down Xybernaut wishes to exercise before trading in
the Common Stock the first day of the Draw Down Pricing Period (the "Draw Down
Notice"). The closing bid price of the Common Stock on each Draw Down Exercise
Date must be greater than $3.00 per share as reported by the relevant market or
exchange. At no time shall Buyer be required to purchase more shares of Common
Stock than amount set forth in the Draw Down Notice. For purposes hereof, the
term "Draw Down" shall mean Xybernaut's exercise of the right to commence a Draw
Down Pricing Period with respect to Buyer's commitment to purchase Common Stock
pursuant to Section 2(a) hereof.
<PAGE>
(f) On or before three (3) trading days after the Draw Down
Exercise Date, Xybernaut shall deliver the Shares purchased by Buyer to Buyer or
to The Depositary Trust Company ("DTC") on Buyer's behalf. Xybernaut and Buyer
shall cause such Shares to be credited to the DTC account designated by Buyer
upon receipt by Xybernaut of payment for the Draw Down into an account
designated by Xybernaut. The delivery of the shares of Common Stock into Buyer's
DTC account in exchange for payment therefor shall be referred to herein as
"Settlement". Buyer shall coordinate with Xybernaut each Settlement through DTC.
5. Buyer's Call Option. Buyer shall have the right to purchase an
additional shares of Common Stock in an amount equal to the amount of the Draw
Down as set forth in the Draw Down Notice (the "Option"). For each additional
amount that Buyer exercises the Option pursuant to this Section 5, Buyer must
notify Xybernaut in writing of such exercise, which exercise may be made on a
daily basis throughout the applicable Draw Down Pricing Period; provided that no
exercise may be made later than 5:00 p.m. (East coast time) on the last day of
the applicable Draw Down Pricing Period. If Buyer so exercises its Option to
purchase additional shares, the price for the shares of Common Stock shall be
the VWAP for the Common Stock for each day during the applicable Draw Down
Pricing Period that all or a portion of the Option was exercised. If Buyer does
not exercise its right to exercise the Option by such time on the last day of
the applicable Draw Down Pricing Period, Buyer's right to exercise the Option
with respect to the applicable Draw Down Pricing Period shall terminate.
6. Restrictions. The parties further agree as follows:
(a) Xybernaut must remain listed or admitted for trading, as
applicable, on the NASDAQ Small Cap Market Systems, NASDAQ National Market
Systems, the New York Stock Exchange or the American Stock Exchange for the
entire Draw Down Pricing Period.
(b) Should there occur a Material Adverse Effect or Material
Change in Ownership of Xybernaut during any Draw Down Pricing Period, Buyer
shall not be required to accept the Draw Down, unless Buyer otherwise
determines, in sole and absolute discretion.
(c) All cash payable to Xybernaut upon the Settlement of a
Draw Down or the exercise of an Option shall be paid by Buyer to a mutually
agreed upon escrow account against the concurrent delivery to the escrow agent
of the escrow amount of the shares of Common Stock subject to the Draw Down or
the exercise of the Option, as applicable.
(d) At all times during the term of this Agreement there must
be a minimum of eight (8) active Market Makers for Xybernaut's Common Stock on
the NASDAQ Small Cap Market or NASDAQ National Market Systems, as applicable,
unless Xybernaut's Common Stock is listed on the New York Stock Exchange or the
American Stock Exchange.
(e) The Settlement of all Draw Downs shall take place on the
Draw Down Exercise Date.
7. Registration Statement. Promptly after the day of the Settlement of
the second Draw Down hereunder, Xybernaut shall cause to be filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-3 (or any other comparable form) to register for resale the shares of
Common Stock purchased by Buyer pursuant to this Agreement. Xybernaut shall use
its best efforts to take all steps necessary to cause the Registration Statement
to be declared effective by the Commission as reasonably expeditiously as
possible.
8. Warrants; Fees, etc. The parties agree as follows:
(a) For each Draw Down, Buyer will receive warrants
("Warrants") to purchase 12,500 shares of Common Stock. Each Warrant will have a
three (3) year term from its date of issuance. The Common Stock underlying the
Warrants will be registered in the Registration Statement referred to in Section
7 hereof.
(b) The Warrant Strike Price shall be 225% of the Average
Daily Price of the Common Stock on the date Xybernaut furnishes Buyer with the
applicable Draw Down Notice to which the Warrants relate.
<PAGE>
(c) Settondown Capital International, Ltd. ("Settondown") will
receive a fee of six percent (6%) of the total amount paid for the shares of
Common Stock by Buyer in accordance with this Agreement. Xybernaut acknowledges
that Settondown may use a portion of its fee to compensate other parties
relative to a particular Draw Down.
(d) Notwithstanding the foregoing, should the Registration
Statement not be filed with the Commission within thirty (30) days following the
day of the Settlement of the second Draw Down hereunder, the fee due Settondown
shall be increased by one percent (1%) to seven percent (7%); and therefore the
fee shall be increased by an additional one percent (1%) for each additional
thirty (30) days that the Registration Statement is not filed, if applicable.
(e) Xybernaut will be responsible for the payment of all costs
and expenses incurred by Buyer or Xybernaut related to the transactions
contemplated by this Agreement.
9. Representations, Warranties and Covenants of Buyer. Buyer represents
and warrants to Xybernaut, and covenants for the benefit of Xybernaut, as
follows:
(a) This Agreement has been duly authorized, validly executed
and delivered by Buyer and constitutes a valid and binding agreement and
obligation of Buyer enforceable against Buyer in accordance with its terms,
subject to limitations on enforcement by general principles of equity and
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(b) Buyer has received and carefully reviewed copies of the
Public Documents (as hereinafter defined). No representations or warranties have
been made to Buyer by Xybernaut, the officers or directors or Xybernaut, or any
agent, employee or affiliate of any of them, except as specifically set forth
herein or as set forth in the other documents expressly referred to herein.
Buyer understands that no federal, state, local or foreign governmental body or
regulatory authority has made any finding or determination relating to the
fairness of an investment in the Securities and that no federal, state, local or
foreign governmental body or regulatory authority has recommended or endorsed,
or will recommend or endorse, any investment in the Securities. Buyer, in making
the decision to purchase the Securities, has relied upon independent
investigation made by it and has not relied on any information or
representations made by third parties;
(c) Buyer understands that the Securities are being offered
and sold to it in reliance on specific provisions of federal and state
securities laws and that Xybernaut is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Buyer set forth herein for purposes of qualifying for exemptions from
registration under the Securities Act, and applicable state securities laws;
(d) Buyer is an "accredited investor" as defined under Rule
501 of Regulation D promulgated under the Securities Act;
(e) The Buyer (i) is and will be acquiring the Securities for
the Buyer's own account, and not with a view to any resale or distribution of
the Securities, in whole or in part, in violation of the Securities Act or any
applicable securities laws and (ii) has not offered or sold any of the
Securities and has no present intention or agreement to divide the Securities
with others for purposes of selling, offering, distributing or otherwise
disposing of any of the Securities Act;
(f) The offer and sale of the Securities is intended to be
exempt from registration under the Securities Act, by virtue of Section 4(2) and
Regulation D promulgated under the Securities Act. Buyer understands that the
shares of Common Stock purchased hereunder (the "Shares") and the shares of
Common Stock underlying the Warrants have not been, and may never be, registered
under the Securities Act; that the Shares cannot be sold, transferred, assigned,
pledged or subjected to any lien or security interest unless they are first
registered under the Securities Act and such state and other securities laws as
may be applicable or in the opinion of counsel for Xybernaut an exemption from
registration under the Securities Act is available (and then the Shares may be
sold, transferred, assigned, pledged or subjected to a lien or security interest
only in compliance with such exemption and all applicable state and other
securities laws); and that the following legends will be placed upon the
certificate for the Shares:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be
<PAGE>
offered for sale, sold or otherwise transferred, pledged or
subjected to any lien or security interest, in the absence of
an effective registration statement under the Securities Act
or a written opinion of counsel for the Company that the
Shares may be offered for sale, sold, transferred, pledged or
subjected to a lien or security interest pursuant to an
exemption under the Securities Act and such state and other
securities laws as may be applicable."
(g) Buyer (i) has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of an
investment in Xybernaut; and (ii) recognizes that the Buyer's investment in
Xybernaut involves a high degree of risk; and
(h) Buyer is capable of evaluating the risks and merits of an
investment in the Securities by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business matters and
Buyer is capable of bearing the entire loss of its investment in the Securities.
10. Representations, Warranties and Covenants of Xybernaut. Xybernaut
represents and warrants to Buyer, and covenants for the benefit of Buyer, as
follows:
(a) Xybernaut has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure to
register or qualify is not reasonably anticipated to have a Material Adverse
Effect;
(b) Xybernaut has furnished Buyer with copies of Xybernaut's
most recent Annual Report on Form 10-KSB (the "Form 10-KSB") filed with the
Commission, its Form 10- QSB for the quarterly period ended June 30, 1998 (the
"Form 10-QSB"; collectively with the Form 10-KSB and the Form 10-QSB, the
"Public Documents"). The Public Documents at the time of their filing did not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading;
(c) The Shares, when paid for by Buyer, shall be duly
authorized and validly issued and when issued and delivered, will be fully paid
and nonassessable;
(d) This Agreement has been duly authorized, validly executed
and delivered on behalf of Xybernaut and is a valid and binding agreement and
obligation of Xybernaut enforceable against Xybernaut in accordance with its
terms, subject to limitations on enforcement by general principles of equity and
by bankruptcy or other laws affecting the enforcement of creditors' rights
generally, and Xybernaut has full power and authority to execute and deliver
this Agreement and the other agreements and documents contemplated hereby and to
perform its obligations hereunder and thereunder;
(e) The execution and delivery of this Agreement, the issuance
of the Shares and the consummation of the transactions contemplated by this
Agreement by Xybernaut, will not conflict with or result in a breach of or a
default under any of the terms or provisions of, Xybernaut's certificate of
incorporation or Bylaws, or of any material provision of any indenture,
mortgage, deed of trust or other material agreement or instrument to which
Xybernaut is a party or by which it or any of its material properties or assets
is bound, any material provision of any law, statute, rule, regulation, or any
existing applicable decree, judgment or order by any court, federal or state
regulatory body, administrative agency, or other governmental body having
jurisdiction over Xybernaut, or any of its material properties or assets or will
result in the creation or imposition of any material lien, charge or encumbrance
upon any material property or assets of Xybernaut or any of its subsidiaries
pursuant to the terms of any agreement or instrument to which any of them is a
party or by which any of them may be bound or to which any of their property or
any of them is subject;
(f) Except as disclosed herein, and based upon the
representations and warranties of Buyer set forth herein, no authorization,
approval, filing with or consent of any governmental body is required for the
issuance and sale of the Shares to Buyer pursuant to this Agreement;
<PAGE>
(g) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending against
or affecting Xybernaut, or any of its properties, which would reasonably be
anticipated to result in a Material Adverse Effect, except as set forth in the
Public Documents;
(h) Subsequent to the dates as of which information is given
in the Public Documents, except as contemplated herein and in connection with
the Other Financing, Xybernaut has not incurred any material liabilities or
material obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business, and there has not been any
change in its capitalization or any Material Adverse Effect; and
(i) Xybernaut has sufficient title and ownership of all
trademarks, service marks, trade names, copyrights, patents, trade secrets and
other proprietary rights necessary for its business as now conducted and as
proposed to be conducted as described in the Public Documents without any
conflict with or infringement of the rights of others. Except as set forth in
the Public Documents, there are no material outstanding options, licenses or
agreements of any kind relating to the foregoing, nor is Xybernaut bound by or
party to any material options, licenses or agreements of any kind with respect
to the trademarks, service marks, trade names, copyrights, patents, trade
secrets, licenses and other proprietary rights of any other person or entity.
11. Indemnification.
(a) Xybernaut hereby agrees to indemnify and hold harmless
Buyer and its officers, directors, shareholders, employees, agents and attorneys
against any and all losses, claims, damages, liabilities and expenses incurred
by each such person in connection with defending or investigating any such
claims or liabilities, whether or not resulting in any liability to such person,
to which any such indemnified party may become subject under the Securities Act,
or under any other statute, at common law or otherwise, insofar as such losses,
claims, demands, liabilities and expenses arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact made by
Xybernaut (ii) any omission or alleged omission of a material fact with respect
to Xybernaut or (iii) any breach of any representation, warranty or agreement
made by Xybernaut in this Agreement.
(b) Buyer hereby agrees to indemnify and hold harmless
Xybernaut and its officers, directors, shareholders, employees, agents and
attorneys against any and all losses, claims, damages, liabilities and expenses
incurred by each such person in connection with defending or investigating any
such claims or liabilities, whether or not resulting in any liability to such
person, to which any such indemnified party may become subject under the
Securities Act, or under any other statute, at common law or otherwise, insofar
as such losses, claims, demands, liabilities and expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact made by Buyer, (ii) any omission or alleged omission of a material fact
with respect to Buyer or (iii) any breach of any representation, warranty or
agreement made by Buyer in this Agreement.
12. Effective Period. Xybernaut may not issue a Draw Down Notice
hereunder after November 15, 1998 (the "Exercise Period").
13. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without giving effect to the
rules governing the conflicts of laws.
14. Expenses. Each of the parties agrees to pay its own expenses incident
to this Agreement and the performance of its obligations hereunder, except that
Xybernaut will pay the reasonable fees and expenses of Buyer's legal counsel.
15. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, express overnight
courier, registered first class mail, overnight courier, or telecopier,
initially to the address set forth below, and thereafter at such other address,
notice of which is given in accordance with the provisions of this Section.
<PAGE>
if to Xybernaut:
Xybernaut Corporation
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Attn: Mr. Edward G. Newman
President and Chief Executive Officer
Telephone: (703) 631-6925
Telecopier: (703) 631-6734
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn: Martin Eric Weisberg, Esq.
Telephone: (212) 704-6000
Telecopier: (212) 704-6288
if to Buyer:
HSBC James Capel Canada, Inc.
105 Adelaide Street West
Suite 1200
Toronto, Ontario M5H IP9 Canada
Attn: Mr. Isser Elishis
Telephone: (416) 947-2700
Telecopier: (416) 947-9450
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three (3) business days
after being deposited in the mail, postage prepaid, if mailed; the next business
day after being deposited with an overnight courier, if deposited with a
nationally recognized, overnight courier service; when receipt is acknowledged,
if telecopied.
16. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes all prior and/or contemporaneous oral or written proposals
or agreements relating thereto all of which are merged herein. This Agreement
may not be amended or any provision hereof waived in whole or in part, except by
a written amendment signed by both of the parties.
17. Counterparts. This Agreement may be executed by facsimile signature
and in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Xybernaut Corporation
By:/s/ Steven A. Newman
----------------------------
Name: Steven A. Newman
Title: Vice-Chairman
HSBC James Capel Canada, Inc.
By: /s/ Isser Elishis
---------------------------
Name: Isser Elishis
Title: Senior Vice President
Exhibit 4.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS AND
HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE SECURITIES
ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
No. __
WARRANT
To Purchase ______ Shares of Common Stock of
XYBERNAUT CORPORATION
THIS CERTIFIES that, for value received, HSBC James Capel
Canada, Inc. (the "Investor"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after __________, 199_ [six
months after the draw down exercise date] and on or prior to _________, 200_
[three years after issuance date] (the "Termination Date") but not thereafter,
to subscribe for and purchase from XYBERNAUT CORPORATION, a corporation
incorporated in the State of Delaware (the "Company"), ____________________
(______) shares (the "Warrant Shares") of Common Stock, par value US $0.01 per
share of the Company (the "Common Stock"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be equal to 225% of
the Average Daily Price (as defined in the Agreement) of the Common Stock on the
date the Company furnishes the Investor with a Draw Down Notice (as defined in
the Agreement). The Exercise Price and the number of shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein. This
Warrant is being issued in connection with the Subscription Agreement dated
September __, 1998 between the Investor and the Company (the "Agreement"), and
is subject to its terms and conditions. In the event of any conflict between the
terms of this Warrant and the Agreement, this Warrant shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant together
with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Except as provided in Section 4 below,
exercise of the purchase rights represented by this Warrant may be made at any
time or times, before the close of business on the
<PAGE>
Termination Date, or such earlier date on which this Warrant may terminate as
provided in this Warrant, by the surrender of this Warrant and the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased; whereupon the holder of this Warrant shall be entitled
to receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within three (3) business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied by
the number of Warrant Shares.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely exercise of
this Warrant for a period of time in excess of five (5) trading days per year.
7. No Rights as Stockholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company prior to the exercise thereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant certificate or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
<PAGE>
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or
otherwise convey all or substantially all of its assets or (ii) to effect a
transaction (by merger or otherwise) in which more than 50% of the voting power
of the Company is disposed of (collectively, a "Sale or Merger Transaction"), in
which the consideration to be received by the Company or its shareholders
consists solely of cash, then the Warrant shall terminate if the Warrant has not
been exercised by the effective date of such transaction, the Company shall give
the holder of this Warrant thirty (30) days' notice of such termination and of
the proposed effective date of the transaction.
(b) In case the Company shall at any time effect a sale or
merger transaction in which the consideration to be received by the Company or
its shareholders consists in part of consideration other than cash, the holder
of this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be
included in the registration statement to be filed in accordance with the terms
of the Agreement.
12. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto shall
be adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
<PAGE>
13. Voluntary Adjustment by the Company. The Company may at
any time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made. Such notice, in
absence of manifest error, shall be conclusive evidence of the correctness of
such adjustment.
15. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights under this Warrant.
The Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the NASDAQ Small Cap
Stock Market or any domestic securities exchange upon which the Common Stock may
be listed.
16. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws of New York without regard to its conflict
of law, principles or rules, and be subject to arbitration pursuant to the terms
set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
Each certificate representing the Warrant Shares issued to the Holder upon
exercise will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION".
<PAGE>
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated:
XYBERNAUT CORPORATION
By _____________________________________
Edward G. Newman
President and Chief Executive Officer
<PAGE>
NOTICE OF EXERCISE
To: XYBERNAUT CORPORATION
(1) The undersigned hereby elects to purchase ________ shares
of Common Stock, par value $ per shares (the "Common Stock") of XYBERNAUT
CORPORATION pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
(3) The shares of Common Stock being issued in connection with
the exercise of the attached Warrant are [not] being issued in connection with
the sale of the Common Stock.
Dated:
------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated: ______________, 199_/2000
Holder's Signature: _____________________________
Holder's Address: _____________________________
-----------------------------
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
Exhibit 5
December 14, 1998
Xybernaut Corporation
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Gentlemen:
We have acted as counsel to Xybernaut Corporation, a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 (the "Registration Statement") being filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
the offering of 630,701 shares (the "Shares") of Common Stock, par value $.01
per share (the "Common Stock") of the Company.
Capitalized terms used herein and not defined shall have the meanings
given to them in the Registration Statement.
In connection with the foregoing, we have examined originals or copies,
satisfactory to us, of the Company's (i) Certificate of Incorporation, (ii)
By-laws and (iii) resolutions of the Company's board of directors. We have also
reviewed such other matters of law and examined and relied upon all such
corporate records, agreements, certificates and other documents as we have
deemed relevant and necessary as a basis for the opinion hereinafter expressed.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies or
facsimiles. As to any facts material to such opinion, we have, to the extent
that relevant facts were not independently established by us, relied on
certificates of public officials and certificates of officers or other
representatives of the Company.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, when issued pursuant to the terms and conditions of the Purchase
Agreement and Form of Warrant filed as exhibits to the Registration Statement
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 31, 1998 appearing on page F-2 of Xybernaut Corporation's Annual Report on
Form 10-KSB for the year ended December 31, 1997. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- -------------------------------------
PricewaterhouseCoopers LLP
McLean, VA
December 14, 1998
