As filed with the Securities and Exchange Commission on May 4, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
XYBERNAUT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1799851
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
12701 Fair Lakes Circle
Fairfax, Virginia 22033
(703) 631-6925
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(Address, including zip code, and telephone number,
Including area code, of registrant's principal executive offices)
Edward G. Newman
12701 Fair Lakes Circle
Fairfax, Virginia 22033
(703) 631-6925
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(Name, address, including zip code, and telephone number,
Including area code, of agent for service)
Copy to:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
-----------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class Amount to be Offering Price Aggregate Registration
of Securities to be Registered Registered (1) per Share Offering Price Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share................................ 4,089,635 (2) $3.75 (5) $15,336,131.25 $4,263.44
Common Stock, $.01 par value per
share................................ 300,000 (3)(4) $6.09 (6) $1,827,000 $507.91
Common Stock, $.01 par value per
share................................ 100,000 (3) $5.50 (6) $550,000 $152.90
Common Stock, $.01 par value per
share................................ 300,000 (3) $5.25 (6) $1,575,000 $437.85
Common Stock, $.01 par value per
share................................ 100,000 (3) $6.00 (6) $600,000 $166.80
Common Stock, $.01 par value per
share................................ 40,000 (3) $1.76 (6) $70,400 $19.57
- ------------------------------------- --------------------- ---------------------- ----------------------- ------------------
Total Registration Fee.........................................................................................$5,548.47
==============================================================================================================================
</TABLE>
(1) Represents the shares of common stock being registered for resale by the
selling stockholders.
(2) Includes 3,649,635 shares of common stock issuable upon conversion of
10,000 shares of series D preferred stock. The number of shares of common
stock indicated to be issuable in connection with such transaction and
offered for resale hereby is an estimate and is, based on a registration
rights agreement among Xybernaut Corporation and the selling stockholders,
150% of the number of shares that would be issuable upon conversion of
10,000 shares of the series D preferred stock at a price of $4.11 per
share, and is subject to adjustment and could be materially less than such
estimated amount depending upon factors that cannot be predicted by
Xybernaut at this time, including, among others, the future market price of
the common stock. If, however, all 10,000 shares of the series D preferred
stock currently outstanding were converted at the closing bid price of the
common stock as reported by NASDAQ on April 23, 1999, the Company would be
obligated to issue a total of 2,689,076 shares of common stock. This
presentation is not intended to constitute a prediction as to the future
market price of the common stock or as to the number of shares of common
stock into which the series D preferred stock will be converted.
(3) 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 Xybernaut to the selling stockholders upon exercise the
warrants. That number of shares is subject to adjustment under
anti-dilution provisions included in the warrants. 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."
(4) Pursuant to a registration rights agreement among Xybernaut and the selling
stockholders, the number of shares represents 150% of the number of shares
which would be issuable upon exercise of warrants to purchase 200,000
shares of common stock.
(5) 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 ($3.75) of the bid ($3.72) and
asked ($3.78) price on the Nasdaq SmallCap Market on April 23, 1999.
(6) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) of the Securities Act, based on the higher of (a)
the exercise price of the warrants or (b) the offering price of securities
of the same class included in this registration statement.
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 MAY __, 1999
PROSPECTUS
4,929,635 Shares
XYBERNAUT CORPORATION
The stockholders of Xybernaut Corporation listed on page 10 of this
prospectus are offering for sale 4,929,635 shares of common stock of Xybernaut
under this prospectus.
The selling stockholders may offer their shares through public or
private transactions, at prevailing market prices, or at privately negotiated
prices. See "Plan of Distribution."
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|NASDAQ SmallCap Market Symbol: "XYBR"|
---------------------------------------
On April 23, 1999, the closing price of one share of our common stock
on the NASDAQ SmallCap Market was $3.75.
------------------------
This investment involves a high degree of risk. You should carefully
consider the factors described under the caption "risk factors"
beginning on page 2 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 _________________, 1999
<PAGE>
RISK FACTORS
Before you buy shares of our common stock, you should be aware that
there are various risks associated with that purchase, including those described
below. You should consider carefully these risk factors, together with all of
the other information in this prospectus and the documents we have incorporated
by reference in the section "Where You Can Find More Information About Us",
before you decide to purchase shares of our common stock.
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|Risks Associated with Our History of Losses and Future|
| Need for Capital |
--------------------------------------------------------
We have a history and expectation of losses.
Our research, development, and general and administrative expenses have
resulted in significant losses and are expected to continue to result in
significant losses for the foreseeable future.
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
o December 31, 1998 $13,111,488
The "going concern" qualification on the report of our independent accountants
may reduce our ability to raise additional financing.
The report of our independent accountants on our December 31, 1998
consolidated financial statements contains an explanatory paragraph regarding
our ability to continue as a going concern and our ability to meet our ongoing
obligations. Our independent accountants cited our history of operating losses
and our working capital deficit as factors which raised substantial doubt as to
our ability to continue as a going concern. This "going concern" qualification
may reduce our ability to raise additional financing.
If we do not arrange additional financing, we may be unable to commercialize our
products.
The research, development, commercialization, manufacturing and
marketing of our products will likely require financial resources which are
significantly in excess of those presently available to us. If we are not able
to arrange financing or other third party arrangements on acceptable terms, we
may be unable to fully develop and commercialize any of our products.
- 2 -
<PAGE>
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| Risks Associated with the Industry in Which We Operate |
---------------------------------------------------------
Our future revenues and ability to produce new products depend substantially on
the success of the Mobile Assistant Series(R).
Our Mobile Assistant(R) Series currently consists of one product, the
MA IV. The Mobile Assistant(R) Series is our principal products, and our success
will depend upon its commercial acceptance, which cannot be assured. 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 may have to lower prices or spend more money to effectively compete against
companies with greater resources than us which could result in lower revenues
and/or profits.
The success of our products in the marketplace depends on many factors,
including product performance, price, ease of use, support of industry
standards, and customer support and service. Given these factors we cannot
assure you that we will be able to compete successfully. For example, if our
competitors offer lower prices, we could be forced to lower prices which would
result in reduced margins and a decrease in revenues. If we do not lower prices
we could lose sales and market share. In either case, if we are unable to
compete against our main competitors which include established companies like
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, we
would not be able to generate sufficient revenues to grow the company or reverse
our history of losses.
In addition, we may have to spend more money to effectively compete for
market share, including funds to expand our infrastructure, which is a capital
and time extensive process. Further, if other companies want to aggressively
compete against us, we may have to spend more money on advertising, promotion,
trade shows, product development, marketing and overhead expenses, hiring and
retaining personnel, and developing new technologies. These higher expenses
would hurt our net income and profits.
Currency fluctuations, especially in the Japanese Yen, may significantly
increase our expenses and affect our results of operations.
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.
- 3 -
<PAGE>
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| Risks Associated with Our Internal Operations and Policies |
-------------------------------------------------------------
We do not intend to declare dividends in the foreseeable future.
We have never paid any dividends on our securities. Our board of
directors does not intend to declare any dividends in the foreseeable future,
but intends to retain all earnings, if any, for use in our business operations.
The holders of common stock are entitled to receive dividends when, as and if
declared by the board of directors out of funds legally available for dividend
payments. The payment of dividends, if any, in the future is within the
discretion of our board of directors and will depend upon our earnings, capital
requirements and financial condition, and other relevant factors.
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 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 the next three months and estimate the total
remaining cost of the Year 2000 project at $6,000. Approximately $1,700 of the
total project cost is 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
- 4 -
<PAGE>
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.
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| Risks Which May Dilute the Value of Your Xybernaut Shares or |
| Limit the Effect of Their Voting Power |
--------------------------------------------------------------
The price of our common stock is highly volatile.
The price of our common stock is highly volatile. During the period
from January 1, 1998 to April 23, 1999 the closing price of our common stock has
ranged from a high of $8.44 to a low of $1.38. Following periods of volatility
in the market price of a company's securities, securities class action
litigation has often been instituted against such a company. If similar
litigation were instituted against us, it could result in substantial costs and
a diversion of our management's attention and resources, which could have an
adverse effect on our business. The volatile fluctuations of the market price
are based on (1) the number of shares in the market at the time as well as the
number of shares we may be required to issue in the future, compared to the
market demand for our shares; (2) our performance and meeting expectations of
our performance, including the development and commercialization of our products
and proposed products; and (3) general economic and market conditions.
The cancellation of shares held in escrow may result in a non-cash
future charge which could reduce or eliminate earnings per share.
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 are
subject to release or cancellation on the satisfaction of specific performance
guidelines. See "Effects of Possible Non-Cash Future Charge."
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.
Our executive officers, directors and principal stockholders, together,
can exercise control over all matters submitted to a vote of stockholders.
As March 31, 1999, our executive officers, directors and principal
stockholders beneficially owned, in the aggregate, approximately 26.9% 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
Xybernaut.
- 5 -
<PAGE>
We have 9,252,110 shares reserved for future issuances
which can substantially dilute the value of your Xybernaut common stock.
The issuance of reserved shares would dilute the equity interest of
existing stockholders and could have a significant adverse effect on the market
price of our common stock. As of April 23, 1999, we had 9,252,110 shares of
common stock reserved for possible future issuances upon conversion of
outstanding options and warrants. Certain options and 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. See "Dilution."
In addition, we intend to seek additional financing which may result in
the issuance of additional shares of our capital stock and/or rights to acquire
additional shares of our capital stock. Those additional issuances of capital
would result in a reduction of your percentage interest in Xybernaut.
Anti-takeover measures in our certificate of incorporation could adversely
affect the voting power of the holders of the common stock.
Our Certificate of Incorporation authorizes anti-takeover measures like
the authority to issue "blank check" preferred stock and the staggered Board of
Directors. Those measures could have the effect of delaying, deterring or
preventing a change in control without any 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."
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
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 materially 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.
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 over the Internet at the SEC's Website at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 to
register the shares being offered. This prospectus is part of that registration
statement and, as permitted by the SEC's rules, does
- 6 -
<PAGE>
not contain all the information included in the registration statement. For
further information with respect to us and our common stock, you should refer to
the registration statement and to the exhibits and schedules filed as part of
the registration statement, as well as the documents discussed below.
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
an important part of this prospectus, and information that we file later with
the SEC will automatically update or supersede this information.
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 or incorporated in the registration statement by
reference.
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 (File No.
0-19041) until all of the shares are sold:
o Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998; and
o The description of our common stock contained in the registration
statement on Form 8-A filed on July 15, 1996 under the Exchange
Act (File No. 0-15086), including all amendments or reports filed
for the purpose of updating that description.
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.
You can review and copy the registration statement, its exhibits and
schedules, as well as the documents listed below, at the public reference
facilities maintained by the SEC as described above. The registration statement,
including its exhibits and schedules, are also available on the SEC's web site.
USE OF PROCEEDS
The selling stockholders are selling all of the shares covered by this
prospectus for their own account. Accordingly, we will not receive any proceeds
from the resale of the shares.
We will receive proceeds from the exercise, if any, of the warrants. We
will use those proceeds, if any, for working capital and general corporate
purposes.
We will bear the expenses relating to this registration, other than
discounts and commissions, which will be paid by the selling stockholders.
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<PAGE>
DILUTION
As of April 23, 1999, we had issued and outstanding 22,229,747 shares
of common stock. At that date, there were an additional 9,252,110 shares of
common stock reserved for possible future issuances as follows:
o options to purchase 1,942,300 shares at an exercise price between
$1.37 and $7.31 per share. The shares underlying these options
have not been registered under the Securities Act and will be
deemed "restricted securities" when issued;
o warrants to purchase 1,127,750 shares at an price between $1.76
and $18.00 per share. We have registered a total of 797,500
shares issuable upon exercise of these warrants. The balance of
330,000 will be deemed to be "restricted securities" when issued;
o warrants to purchase 5,762,060 shares at an effective exercise
price of $6.01 per share. All of the shares issuable upon
exercise of these warrants have been registered under the
Securities Act; and
o 420,000 shares issuable upon conversion of 210,000 units. Each
unit consists of one share of common stock and one redeemable
warrant to purchase one share of common stock, at a price of
$9.075 per unit. The unit is exercisable during a period of four
years commencing July 18, 1996. The redeemable warrants included
in the units are exercisable at $12.60 per share. We have
registered the shares issuable upon exercise of the units under
the Securities Act.
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.
The shares which will be deemed "restricted securities" may be sold
under Rule 144. Rule 144 permits sales of "restricted securities" by any person,
whether or not an affiliate of the issuer, after one year. At that time, sales
can be made subject to the Rule's volume and other limitations and after two
years by non-affiliates without adhering to Rule 144's volume or other
limitations. In general, an "affiliate" is a person with the power to manage and
direct our policies. The SEC has stated that, generally, executive officers and
directors of an entity are deemed affiliates of the issuing entity.
Following this offering, assuming the selling stockholders exercise or
convert all of their warrants and convertible securities, we will have
26,719,382 shares of common stock outstanding. Of those shares, approximately
25,700,942 will be freely transferable without restriction under the Securities
Act.
- 8 -
<PAGE>
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 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.
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<PAGE>
SELLING STOCKHOLDERS
The following table lists certain information regarding the selling
stockholders' ownership of shares of our common stock as of April 23, 1999, and
as adjusted to reflect the sale of the shares. Information concerning the
selling stockholders, their pledgees, donees and other non-sale transferees who
may become selling stockholders, may change from time to time. To the extent the
selling stockholders or any of their 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
--------------------------------
Shares of Shares of
Common Stock Common
Owned Prior to Stock to be
Offering (1) Sold Number Percent
------------------ -------------- --------------- -----------
<S> <C> <C> <C> <C>
Austost Anstalt Schaan 260,000(1) 260,000(1) 0 *
Balmore Funds S.A. 260,000(1) 260,000(1) 0 *
Bulk Trade Inc. (BVI) 1,579,854(2) 1,579,854(2) 0 *
Crystalite Investments Ltd. 2,369,781(3) 2,369,781(3) 0 *
Hong Kong Bank of Canada 440,000 440,000 0 *
Settondown Capital International Ltd. 20,000(4) 20,000(4) 0 *
Total 4,929,635 4,929,635 0
========= ========= =
</TABLE>
- ----------------
* Less than 1%
(1) Assumes exercise of warrants to purchase (a) 200,000 shares of common
stock at an exercise price of $5.25 per share; and (b) 50,000 shares of
common stock at an exercise price of $6.00 per share.
(2) Under the terms of a registration statement between Xybernaut and the
selling stockholder, the number of shares registered for resale by the
selling stockholder includes 150% of (a) 973,236 shares of common stock
issuable upon conversion of convertible securities; and (b) warrants to
purchase 80,000 shares of common stock.
(3) Under the terms of a registration statement between Xybernaut and the
selling stockholder, the number of shares registered for resale by the
selling stockholder includes 150% of (a) 2,189,781 shares of common
stock issuable upon conversion of convertible securities; and (b)
warrants to purchase 120,000 shares of common stock.
(4) Assumes exercise of warrants to purchase 20,000 shares of common stock
at an exercise price of $1.76.
- 10 -
<PAGE>
On April 13, 1998, we entered into a financing agreement with Austost
Anstalt Schaan and Balmore Funds S.A. for the sale of $1,000,000 worth of common
stock. Under the terms of that agreement, we had the right, but not the
obligation, to obtain up to an additional $10,000,000 in a series of equity
drawdowns based on terms and conditions specified in the agreement. From April
1998 to January 1999, we exercised equity drawdowns in the amount of $6,360,000
and issued a total of 2,270,938 shares of common stock. The agreement has been
terminated. Settondown Capital International Ltd. acted as placement agent for
those transactions. Wayne Coleson, a director of Settondown Capital
International, Ltd., is a member of our advisory board.
Other than as indicated above, the selling stockholders are not
affiliated with us.
- 11 -
<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 of this prospectus, we have 22,229,747
shares of common stock, 94 shares of series C preferred stock and 10,000 shares
of series D preferred stock issued and outstanding. We have reserved 9,252,110
shares of common stock for issuance pursuant to outstanding options and
warrants.
Common Stock
Voting
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.
Dividends
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 for
that purpose.
Rights on Liquidation
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.
Pre-emptive or Redemption Rights
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 to issue up to 6,000,000
shares of preferred stock. The Board may issue the preferred stock from time to
time in one or more series. The Board has the authority to establish the number
of shares to be included in each series, and to fix the designations, powers,
preferences and rights of the shares of each series and the applicable
qualifications, limitations or restrictions. 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.
- 12 -
<PAGE>
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, series C preferred stock and series D preferred stock. There are no other
shares of preferred stock outstanding, and we have no plans to issue any other
shares of preferred stock.
Warrants
Of the total 4,929,635 shares of common stock registered for sale by
the selling stockholders, 840,000 shares are issuable upon exercise of currently
exercisable warrants. The warrants were issued to the selling stockholders in
connection with various private placements. The exercise prices and term of the
warrants are as follows:
Warrants Exercise Price Expiration Date
-------- -------------- ---------------
300,000 $ 6.09 March 10, 2002
100,000 $5.50 January 31, 2001
300,000 $5.25 July 2, 2001
100,000 $6.00 January 31, 2001
40,000 $1.76 October 15, 2003
The exercise price and the number of shares for which each warrant is
exercisable is subject to adjustment under anti-dilution provisions pertaining
to the declaration of stock dividends and the merger, consolidation or
liquidation of the Company.
Anti-takeover Considerations.
Our Certificate of Incorporation authorizes the issuance of up to
6,000,000 shares of $.01 par value 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
By-laws, 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;
- 13 -
<PAGE>
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 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.
Those 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.
PLAN OF DISTRIBUTION
The selling stockholders and their pledgees, donees, transferees and
other subsequent owners, may offer their shares at various times in one or more
of the following transactions:
o in the over-the-counter market; or
o in privately negotiated transactions
- 14 -
<PAGE>
at prevailing market prices at the time of sale, at prices related to those
prevailing market prices, at negotiated prices or at fixed prices.
The selling stockholders may also sell the shares under Rule 144
instead of under this prospectus, if Rule 144 is available for those sales.
The transactions in the shares covered by this prospectus may be
effected by one or more of the following methods:
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o purchases by a broker or dealer as principal, and the resale
by that broker or dealer for its account under this
prospectus, including resale to another broker or dealer;
o block trades in which the broker or dealer will attempt to
sell the shares as agent but may position and resell a portion
of the block as principal in order to facilitate the
transaction; or
o negotiated transactions between selling stockholders and
purchasers without a broker or dealer.
The selling stockholders 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. 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 any of the selling
stockholders with respect to the offer or sale of the shares under this
prospectus.
We have advised the selling stockholders that during the time each is
engaged in distributing shares covered by this prospectus, each must comply with
the requirements of the Securities Act and Rule 10b-5 and Regulation M under the
Exchange Act. Under those rules and regulations, they:
o may not engage in any stabilization activity in connection
with our securities; o must furnish each broker which offers
common stock covered by this prospectus with the number of
copies of this prospectus which are required by each broker;
and
o may not bid for or purchase any of our securities or attempt
to induce any person to purchase any of our securities other
than as permitted under the Exchange Act.
In the purchase agreements and warrants we executed in connection with
the transactions with the selling stockholders we agreed to indemnify and hold
harmless each selling stockholder against 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, unless made or omitted in reliance upon written information
provided to us by that selling stockholder. We have agreed to bear the expenses
incident to the registration of the shares, other than selling discounts and
commissions.
- 15 -
<PAGE>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the Delaware General Corporation Law allows companies to
indemnify their directors and officers against expenses, judgments, fines and
amounts paid in settlement under the conditions and limitations described in the
law. Our certificate of incorporation authorizes us to indemnify our officers,
directors and other agent to the fullest extent permitted under Delaware law.
Our certificate of incorporation provides that a director is not
personally liable for monetary damages to us or our stockholders for breach of
his or her fiduciary duties as a director. A director will be held liable for a
breach of his or her duty of loyalty to us or our stockholders, his or her
intentional misconduct or willful violation of law, actions or in actions not in
good faith, an unlawful stock purchase or payment of a dividend under Delaware
law, or transactions from which the director derives an improper personal
benefit. This limitation of liability does not affect the availability of
equitable remedies against the director including injunctive relief or
rescission.
We have purchased a directors and officers liability and reimbursement
policy that covers liabilities of our directors and officers arising out of
claims based upon acts or omissions in their capacities as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
- 16 -
<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 incorporated in this Prospectus by
reference to the Annual Report on Form 10-KSB for the year ended December 31,
1998, 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.
- 17 -
<PAGE>
===================================== ======================================
We have not authorized any dealer,
salesperson or any other person to give any 4,929,635
information or to represent anything not SHARES OF COMMON STOCK
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
_________________, 1999.
-----------------
TABLE OF CONTENTS
Page
Risk Factors............................2
Where You Can Find More ----------
Information About Us............6 PROSPECTUS
Use of Proceeds.........................7 ----------
Dilution................................8
Effects of Possible Non-Cash
Future Charge...................9
Selling Stockholders ..................10
Description of Securities..............12
Plan of Distribution ..................14 _________________________, 1999
Indemnification for Securities
Act Liabilities................16
Legal Matters..........................17
Experts ...............................17
===================================== ======================================
<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 Xybernaut 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..................... $5,554.31
Legal fees and expenses................................... $35,000.00
Accounting expenses....................................... $3,500.00
---------
Total................................................ $44,054.31
==========
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.
Xybernaut's Certificate of Incorporation provides that directors shall
not be personally liable for monetary damages to Xybernaut 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 Xybernaut 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. Xybernaut's Certificate of
Incorporation also authorizes Xybernaut to indemnify its officers, directors and
other agents, by bylaws, agreements or otherwise, to the fullest extent
permitted under Delaware law. Xybernaut has entered into an
II-1
<PAGE>
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 Xybernaut's Certificate of Incorporation
or as otherwise permitted under Delaware law. Each Indemnification Agreement may
require Xybernaut, 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.
Xybernaut maintains a directors and officers liability policy with
Genesis Insurance Company that contains a limit of liability of $3,000,000 per
policy year.
ITEM 16. EXHIBITS.
NUMBER DESCRIPTION OF EXHIBIT
3.1 Certificate of Designation of the Series D Preferred Stock.
4.1 Form of Securities Purchase Agreement used in the March 8, 1999 private
placement.
4.2 Form of Warrant used in the March 8, 1999 private placement.
4.3 Form of Warrant.
5 Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1 Form of Registration Rights Agreement used in the March 8, 1999 private
placement.
10.2 Form of Escrow Agreement used in the March 8, 1999 private placement.
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
II-2
<PAGE>
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 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 April 29, 1999.
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.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board,
President and Chief Executive April 29, 1999
/s/ Edward G. Newman Officer
- -----------------------
Edward G. Newman
/s/ Kaz Toyosato Executive Vice President - April 29, 1999
- ----------------------- Asian Operations and Director
Kaz Toyosato
II-4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Maarten R. Heybroek Chief Operating Officer and April 29, 1999
- -------------------------- Chief Financial Officer
Maarten R. Heybroek
/s/ Martin Eric Weisberg April 29, 1999
- --------------------------
Martin Eric Weisberg Secretary and Director
/s/ Harry E. Soyster Director April 29, 1999
- --------------------------
Lt. Gen. Harry E. Soyster
/s/ James J. Ralabate Director April 29, 1999
- --------------------------
James J. Ralabate
/s/ Keith P. Hicks Director April 29, 1999
- --------------------------
Keith P. Hicks
/s/ Steven A. Newman Vice Chairman and April 29, 1999
- -------------------------- Director
Steven A. Newman
/s/ Phillip E. Pearce Director April 29, 1999
- --------------------------
Phillip E. Pearce
Director April 29, 1999
/s/ Eugene J. Amobi
- --------------------------
Eugene J. Amobi
/s/ Edwin Vogt Director April 29, 1999
- --------------------------
Edwin Vogt
II-5
<PAGE>
SECURITIES AND
EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
-------------
EXHIBITS TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
XYBERNAUT CORPORATION
(EXACT NAME OF ISSUER AS SPECIFIED
IN ITS CHARTER)
MAY 4, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ---------- -----------------------
3.1 Certificate of Designation of the Series D Preferred Stock.
4.1 Securities Purchase Agreement used in the March 8, 1999 private
placement.
4.2 Form of Warrant used in the March 8, 1999 private placement.
4.3 Form of Warrant.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1 Form of Registration Rights Agreement used in the March 8,
1999 private placement.
10.2 Form of Escrow Agreement used in the March 8, 1999 private
placement.
23.1 Consent of PricewaterhouseCoopers L.L.P.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included
in their opinion filed as Exhibit 5.1).
24.1 Power of Attorney (see page II-4 to the Registration Statement)
E-2
EXHIBIT 4.1
FORM OF SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 8, 1999
(this "Agreement"), is entered into by and among XYBERNAUT CORPORATION, a
Delaware corporation (Nasdaq SmallCap Market Symbol "XYBR"), with headquarters
located at 12701 Fair Lakes Circle, Fairfax, Virginia 22033 (the "Company"), and
the undersigned entities (the "Buyers").
W I T N E S S E T H:
WHEREAS, the Company and the Buyers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation
D ("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), Regulation S of the 1933 Act ("Regulation S") and/or Section 4(2) of the
1933 Act; and
WHEREAS, the Buyers wish to purchase and the Company wishes to
sell, upon the terms and subject to the conditions of this Agreement, shares of
Series D Preferred Stock, $.01 par value per share (the "Preferred Stock"), of
the Company which will be convertible into shares of Common Stock, $.01 par
value per share of the Company (the "Common Stock"), upon the terms and subject
to the conditions of the Certificate of Designation for the Preferred Stock
attached hereto as Exhibit 1 (the "Certificate of Designation") and the Common
Stock Purchase Warrant to purchase Common Stock attached hereto as Exhibit 4(l)
(the "Warrants") (the Preferred Stock, the Warrants and shares of Common Stock
issuable upon conversion on the Preferred Stock and the exercise of the Warrants
sometimes collectively referred to herein as the "Securities");
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE. Each of the undersigned hereby agrees to initially
purchase from the Company its pro rata portion of shares of
Preferred Stock and Warrants for an aggregate purchase price
of $5,000,000 and, subject to the conditions set forth in
Sections 7, 8 and 9 hereof, additional shares of Preferred
Stock and Warrants in a second tranche having an aggregate
purchase price of $5,000,000, in the amount set forth on the
signature page of this Agreement, for a total offering of
$10,000,000 of such Preferred Stock and Warrants. The purchase
price for each share of Preferred Stock shall be $1,000 and
shall be payable in United States Dollars.
b. FORM OF PAYMENT. The Buyers shall pay the purchase price for
the Preferred Stock by delivering immediately available good
funds in United States Dollars to the escrow agent (the
"Escrow Agent") identified in the Escrow Agreement attached
hereto as Exhibit 1(b) (the "Escrow Agreement") as set forth
below.
E-3
<PAGE>
c. METHOD OF PAYMENT. Payment into escrow of the purchase price
for each tranche of the Preferred Stock shall be made by wire
transfer of funds to:
CITIBANK N.A.
153 East 53rd Street
New York, New York 10043
Account Name: Parker Chapin Flattau & Klimpl, LLP
Account No.: 37432544
Citibank ABA No.: 021000089
Not later than 2:00 p.m., New York time, on the date the Company and the Buyers
shall have executed this Agreement and returned a signed counterpart of this
Agreement to the Escrow Agent by facsimile, and thereafter on the Tranche II
Closing Date (as defined in Section 7(b) hereof) the Buyers shall deposit with
the Escrow Agent the aggregate purchase price for the appropriate tranche of the
Preferred Stock, in currently available funds.
2. BUYERS' REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyers represent and warrant to, and covenant and agree with, the
Company as follows:
a. None of the Buyers is a "U.S. Person" (as defined in Rule
902(o) of Regulation S). The Buyers are not acquiring the
Preferred Stock, the Warrants and the shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise
of the Warrants for the account or benefit of any U.S. person.
The document effecting this purchase and sale has been
executed by the Buyers outside the "United States" (as defined
in Rule 902(p) of Regulation S).
b. The Securities were not offered to the Buyers in the United
States and at the time of execution of this Agreement and the
time of any offer to the Buyers to purchase the Securities
hereunder, the Buyers were physically outside of the United
States. The offer leading to the sale evidenced hereby was
made in an "offshore transaction" (as defined in Regulation
S).
c. Without limiting Buyers' right to sell the Common Stock
pursuant to a registration statement or an exemption from
registration, the Buyers are purchasing the Preferred Stock
and the Warrants and will be acquiring the shares of Common
Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants for their own account for investment
only and not with a view towards the public sale or
distribution thereof and not with a view to or for sale in
connection with any distribution thereof;
d. Each of the Buyers is (i) an "accredited investor" as that
term is defined in Rule 501 of the General Rules and
Regulations under the 1933 Act by reason of Rule 501(a)(3),
(ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its
E-4
<PAGE>
officers (if an entity) and professional advisors (who are not
affiliated with or compensated in any way by the Company or
any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in
this Agreement, and the related documents, and (iv) able to
afford the entire loss of its investment in the Securities;
e. The Buyers are not subscribing for the Preferred Stock and the
Warrants as a result of or subsequent to any advertisement,
article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar;
f. The Buyers will not sell, offer for sale, transfer or
otherwise convey the Preferred Stock, the Warrants or the
shares of Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants (the "Shares" or
"Common Stock") to a U.S. Person or for the account or benefit
of a U.S. Person unless in accordance with the provisions of
Regulation S, pursuant to registration of the Preferred Stock,
the Warrants or the Shares under the 1933 Act or pursuant to
an exemption from registration;
g. The Buyers understand that the shares of Preferred Stock and
the Warrants are being offered and sold, and the Shares are
being offered, to the Buyers in reliance on specific
exemptions from the registration requirements of United States
federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and each of the
Buyers' compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyers
set forth herein in order to determine the availability of
such exemptions and the eligibility of the Buyers to acquire
the Preferred Stock and the Warrants and to receive an offer
of the Shares;
h. The Buyers and their advisors, if any, have been furnished
with all materials relating to the business, finances and
operations of the Company and materials relating to the offer
and sale of the Preferred Stock and the Warrants and the offer
of the Shares which have been requested by the Buyers,
including Schedule 2(h) hereto. The Buyers and their advisors,
if any, have been afforded the opportunity to ask questions of
the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality
of the foregoing, the Buyers have also had the opportunity to
obtain and to review the Company's (1) Annual Report on Form
10-K for the fiscal year ended December 31, 1997, (2)
Quarterly Report on Form 10-Q for the fiscal quarters ended
September 30, 1998, June 30, 1998 and March 31, 1998, (3) Form
8-K dated June 4, 1998, and (4) Form S-3/A filed on January
08, 1999, (collectively, the "Company's SEC Documents").
i. The Buyers understand that their investment in the Securities
involves a high degree of risk;
j. The Buyers understand that no United States federal or state
agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the
Securities;
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k. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Buyers and is a valid and
binding agreement of the Buyers enforceable in accordance with
its terms, subject as to enforceability to general principles
of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights
generally;
l. As of the Closing Date, neither the Buyers, their agents nor
any of their affiliates, has a short position in the Common
Stock of the Company.
m. Notwithstanding the provisions hereof or of the Preferred
Stock, in no event (except with respect to an automatic
conversion of the Preferred Stock as provided in the
Certificate of Designation) shall a Buyer be entitled to
convert any shares of Preferred Stock to the extent after such
conversion, the sum of (1) the number of shares of Common
Stock beneficially owned by the Buyers and their affiliates
(other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted
portion of the Preferred Stock and the unexercised portion of
any Warrants), and (2) the number of shares of Common Stock
issuable upon the conversion of the Preferred Stock and
exercise of the Warrants with respect to which the
determination of this proviso is being made, would result in
beneficial ownership by the Buyers and their affiliates of
more than 4.99% of the outstanding shares of Common Stock. For
purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), except as otherwise provided in
clause (1) of such proviso. The preceding shall not interfere
with any Buyer's right to convert the Preferred Stock or
exercise the Warrants which in the aggregate total more than
4.99% of the outstanding shares of Common Stock, over time, as
long as no single Buyer owns more than 4.99% of the
outstanding Common Stock at any given time.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyers that:
a. ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly incorporated and existing in good standing under the laws
of the State of Delaware and has all requisite corporate
authority to own its properties and to carry on its business
as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify
would not be expected to have a material adverse effect on the
business or financial condition of the Company, or materially
and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement. Except as disclosed in
Schedule 3(a), the Company's SEC Documents or any public
filings made by the Company with the SEC after the date hereof
including the Company's SEC Documents (the "Commission
Filings"), the Company does not presently own or control,
directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
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b.
CONCERNING THE SHARES. The authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock, $.01
par value per share, and Schedule 3(b) sets forth the number
of shares which are issued and outstanding, and the number of
shares of Preferred Stock, $.01 par value per share, which are
issued and outstanding. All of the outstanding shares of
Common Stock and Preferred Stock of the Company have been duly
and validly authorized and issued and are fully paid and
nonassessable. No shares of Common Stock are subject to
preemptive or similar rights. Except as specifically disclosed
herein, there are no outstanding options, warrants, rights to
subscribe to, calls or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale
of the Preferred Stock and the Warrants, securities, rights or
obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire, any shares
of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any subsidiary is or may
become bound to issue additional shares of Common Stock or
securities or rights convertible or exchangeable into shares
of Common Stock.
c. NO "DIRECTED SELLING EFFORTS". In connection with the offer
and sale of the Preferred Stock, the Warrants and the Shares,
no distributor or any affiliates or any person acting on
behalf of the Company or any affiliate of the Company or any
distributor has engaged in any "directed selling efforts" (as
such term is defined under Regulation S) nor conducted any
general solicitation relating to the offer to persons residing
within the United States or to "U.S. Persons" (as that term is
defined under Regulation S).
d. REPORTING COMPANY STATUS. The Company has registered its
Common Stock pursuant to Section 12 of the Exchange Act and
the Common Stock is listed and traded on the Nasdaq SmallCap
Market. The Company is in compliance, to the extent
applicable, with all reporting obligations under either
Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company
has complied in all material respects and to the extent
applicable with all reporting obligations, under either
Section 13(a) or 15(d) of the Exchange Act for a period of at
least twelve (12) months immediately preceding the offer and
sale of the Securities. The Company is a "reporting issuer" as
defined in Rule 902 of Regulation S and will remain a
reporting issuer for at least one year from the date hereof.
Except as set forth in Schedule 3(d) hereto, the Company has
received no notice, either oral or written, with respect to
the continued eligibility of the Common Stock for such listing
on the Nasdaq Small Cap Market.
e. AUTHORIZED SHARES. The Company has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the
conversion of the Preferred Stock and the exercise of the
Warrants. The Shares have been duly authorized and, when
issued upon conversion of the Preferred Stock and upon
exercise of the Warrants, will be duly and validly issued,
fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
f. SECURITIES PURCHASE AGREEMENT; ESCROW AGREEMENT; REGISTRATION
RIGHTS AGREEMENT AND COMMON STOCK. The Company has the
requisite corporate power and authority to enter into and
perform its obligations under this Agreement, and all exhibits
attached hereto, and to issue the Preferred Stock, the
Warrants, and the shares
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of Common Stock underlying the Preferred Stock and the
Warrants. This Agreement, the Escrow Agreement and the
Registration Rights Agreement, the form of which is attached
hereto as Exhibit 4(e) (the "Registration Rights Agreement"),
and the transactions contemplated thereby, have been duly and
validly authorized by the Company, this Agreement has been
duly executed and delivered by the Company and this Agreement
is, and the Escrow Agreement and the Registration Rights
Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to
enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally; and
the Preferred Stock and the Warrants will be duly and validly
authorized and, when executed and delivered on behalf of the
Company in accordance with this Agreement, will be a valid and
binding obligation of the Company in accordance with its
terms, subject to general principles of equity and to
bankruptcy, insolvency, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally.
g. NON-CONTRAVENTION. Except as set forth on Schedule 3(g)(ii)
hereto, the execution and delivery of this Agreement, the
Escrow Agreement and the Registration Rights Agreement by the
Company, the issuance of the Securities, and the consummation
by the Company of the other transactions contemplated by this
Agreement, the Escrow Agreement, the Registration Rights
Agreement, and the Preferred Stock do not and will not
conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each
as currently in effect, (ii) any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or
assets are bound, including any listing agreement for the
Common Stock or any "lock-up" or similar provision of any
underwriting or similar agreements except as herein set forth,
(iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or (iv) to its
knowledge, order of any court, United States federal or state
regulatory body, administrative agency, or other governmental
body having jurisdiction over the Company or any of its
properties or assets, except such conflict, breach or default
which would not have a material adverse effect on the
transactions contemplated herein.
h. COMPLIANCE WITH LAW. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of
any governmental entity, except for possible violations that
either singly or in the aggregate would not be expected to
have a material adverse effect on the business or financial
condition of the Company, or materially and adversely affect
the ability of the Company to perform its obligations pursuant
to this Agreement. The Company is not required under federal,
state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock, Preferred Stock,
or the Warrants, in accordance with the terms hereof.
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i. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders
of the Company is required to be obtained by the Company for
the issuance and sale of the Securities to the Buyers as
contemplated by this Agreement, except such authorizations,
approvals and consents that have been obtained.
j. SEC FILINGS. None of the Company's SEC Documents filed with
the SEC since (and including) the filing of the Form 10-K SB
for the fiscal year ended December 31, 1997 contained, at the
time they were filed, any untrue statement of a material fact
or omit to state any material fact required to be stated
therein or necessary to make the statements made therein in
light of the circumstances under which they were made, not
misleading. Except as set forth on Schedule 3(j) hereto, the
Company has since September 30, 1998 timely filed all
requisite forms, reports and exhibits thereto with the SEC and
such filings comply in all material respects with the
requirements of the 1933 Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated
thereunder. The Company has not provided to any of the Buyers
any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the
date hereof by the Company, but which has not been so
disclosed. The financial statements of the Company included in
the documents referred to in Section 2(h) hereof comply as to
form in all material respects with applicable accounting
requirements and the published rules and regulations of the
SEC or other applicable rules and regulations with respect
thereto.
k. ABSENCE OF CERTAIN CHANGES. Since the filing of the Company's
Quarterly Report on Form 10-Q for fiscal quarter ended on
September 30, 1998, there has been no material adverse change
and no material adverse development in the business,
properties, operations, financial condition, or results of
operations of the Company, except as disclosed in the
documents referred to in Section 2(h) hereof or the Commission
Filings.
l. FULL DISCLOSURE. There is no fact known to the Company (other
than general economic conditions known to the public
generally) or as disclosed in the documents referred to in
Section 2(h), that has not been disclosed in writing to the
Buyers that (i) would reasonably be expected to have a
material adverse effect on the business or financial condition
of the Company or (ii) would reasonably be expected to
materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
m. ABSENCE OF LITIGATION. Except as set forth in Schedule 3(m)
hereto or the Commission Filings, and in the documents
referred to in Section 2(h), which the Buyers have reviewed,
there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to
the knowledge of the Company, threatened against or affecting
the Company, wherein an unfavorable decision, ruling or
finding would have a material adverse effect on the business
or financial condition of the Company or the transactions
contemplated by this Agreement or any of the documents
contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of
the Company to perform its obligations
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under, this Agreement or any of such other documents. Except
as set forth in Schedule 3(m) hereto, and in the documents
referenced in Section 2(h) or the Commission Filings, no
judgment, order, decree, writ or award has been issued by, or
to the Company's knowledge, requested of any court,
arbitrator, or governmental agency which would have a material
adverse effect on the business or financial condition of the
Company or the transactions contemplated by this Agreement or
any of the documents annexed hereto, or which would adversely
and materially affect the Company's ability to perform its
obligations under this Agreement or any document annexed
hereto.
n. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Schedule
3(n) hereto and Section 3(g) or the Commission Filings, no
Event of Default, as defined in the agreement to which the
Company is a party, and no event which, with the giving of
notice or the passage of time or both, would become an Event
of Default (as so defined in such agreement), has occurred and
is continuing, which would have a material adverse effect on
the Company's financial condition or results of operations.
o. PRIOR ISSUES. Schedule 3(o) sets forth all of the presently
outstanding unconverted shares of convertible securities of
the Company as at March 2, 1999.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. Each of the Buyers acknowledges that
(1) the shares of Preferred Stock and the Warrants have not
been and are not being registered under the provisions of the
1933 Act and, except as provided in the Registration Rights
Agreement, the Shares have not been and are not being
registered under the 1933 Act, and may not be transferred
unless (A) in accordance with Regulation S, (B) subsequently
registered thereunder or (C) an exemption from registration
exists and the Buyers shall have delivered to the Company any
information reasonably necessary for the Company's independent
counsel to prepare and deliver an opinion of counsel,
reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the
Securities made in reliance on Rule 144 promulgated under the
1933 Act may be made only in accordance with the terms of said
Rule and further, if said Rule is not applicable, any resale
of such Securities under circumstances in which the seller, or
the person through whom the sale is made, may be deemed to be
an underwriter, as that term is used in the 1933 Act, may
require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and
(3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to
the Registration Rights Agreement) under the 1933 Act or to
comply with the terms and conditions of any exemption
thereunder.
b. The Buyers covenant that they will not knowingly make any
sale, transfer or other disposition of the Preferred Stock,
the Warrants and/or Shares in violation of the 1933 Act
(including Regulation S), the Exchange Act, or the rules and
regulations of the SEC promulgated under any of the foregoing.
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c. The Buyers, their agents and any and all of their affiliates
will abide by all SEC rules and regulations regarding
shorting.
d. RESTRICTIVE LEGEND. Each of the Buyers acknowledges and agrees
that the Preferred Stock, and, until such time as the Common
Stock has been registered under the 1933 Act as contemplated
by the Registration Rights Agreement and sold pursuant to an
effective registration statement ("Registration Statement") or
an exemption from registration, the Shares issued to the Buyer
upon conversion of the Preferred Stock and exercise of the
Warrants shall bear a restrictive legend in substantially the
following form:
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT IN ACCORDANCE WITH REGULATION S,
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
e. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement, in substantially
the form attached hereto as Exhibit 4(e), on or before the
Tranche I Closing Date (as defined in Section 7(b) hereof),
and the Company shall cause such Registration Rights Agreement
to remain in full force and effect for so long as the
Securities are outstanding, and the Company shall comply with
the terms thereof.
f. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Preferred
Stock and the Warrants to the Buyers under any United States
laws and regulations, or by any domestic securities exchange
or trading market, and to provide a copy thereof to the Buyers
promptly after such filing.
g. REPORTING STATUS. So long as the Buyers beneficially own any
of the Preferred Stock and/or the Warrants, the Company shall
file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules
and regulations thereunder would permit such termination.
h. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Stock and the Warrants (excluding
amounts paid by the Company for legal fees and finder's fees
in connection with the sale of the Preferred Stock and the
Warrants) for the production and marketing of the Company's
Mobile Assistant(R)IV and related products and for general
working capital purposes and acquisitions; provided, however,
no proceeds from the sale of the Preferred Stock or the
Warrants will be used directly or indirectly to engage in a
transaction or any transaction with an Affiliate (as
hereinafter defined)of the Company. For purposes of this
section, "Affiliate" shall mean a person
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that directly, or indirectly through one or more
intermediaries controls, or is controlled by, or is under
common control with such designated person.
i. CERTAIN AGREEMENTS. (i) The Company covenants and agrees that
it will not, without the prior written consent of the Buyers,
enter into any subsequent or further offer or sale of Common
Stock or securities convertible into Common Stock with any
third party ("Subsequent Financing") until the earlier of (a)
the date which is one hundred eighty (180) days after the
Effective Date (as defined below) or (b) the date on which 85%
of the Preferred Stock shares have been converted into shares
of Common Stock (the "Non-Financing Period"). If the Company
receives a proposal for a Subsequent Financing during the
Non-Financing Period, upon receipt of such proposed terms the
Company covenants and agrees to promptly furnish a notice to
the Buyers which sets forth the terms of the proposed
Subsequent Financing. The Buyers shall have the right,
exercisable for a period of ten (10) days after receipt of the
written notice from the Company, to consummate the Subsequent
Financing with the Company on the same terms and conditions as
the proposed Subsequent Financing within ten (10) days after
making the election. If the Buyers do not exercise their right
to consummate the Subsequent Financing as set forth herein,
the Company shall be free to enter into the proposed
Subsequent Financing on substantially the same terms as
disclosed to the Buyers. If the Buyers exercise their right
within such ten (10) day period but do not close the
Subsequent Financing, other than due to a breach by the
Company, the Buyers shall be liable to the Company if the
counterparty to the Subsequent Financing no longer wishes to
engage in the transaction. Notwithstanding the foregoing, the
Company may enter into a Subsequent Financing without the
prior written consent of the Buyers if such Subsequent
Financing is exempt from securities registration under
Regulation D and the Company is not required to file a
registration statement with respect to the underlying
securities within one hundred twenty (120) days of the
Effective Date (as defined below) or if the proceeds from such
Subsequent Financing are used to redeem all of the then
outstanding Preferred Stock.
(ii) Subject to the conditions of subparagraph (i)(iv), the
provisions of subparagraph (i)(i) will not apply to (x) the issuance of
securities (other than for cash) in connection with a merger, consolidation,
strategic alliance, sale of assets, disposition or entering into a binding
agreement with an investment banking firm of recognized regional or national
status to obtain financing and provide investment banking services or (y) the
exchange of the capital stock for assets, stock or other joint venture
interests.
(iii) The term "Effective Date" means the effective date of
the Registration Statement covering the Registrable Securities (as defined in
the Registration Rights Agreement).
(iv) Notwithstanding the foregoing, the provisions of this
paragraph 4(i) shall be null and void if the Buyers fail to pay the full
purchase price on the Tranche II Closing Date.
j. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive
rights, shares of Common Stock sufficient to yield the number
of shares of Common Stock issuable upon conversion and/or
exercise as may be required to satisfy the conversion rights
of the Buyers pursuant to the terms and
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conditions of the Preferred Stock and the exercise rights of
the Buyers pursuant to the terms of the Warrants.
k. DILUTION. The Company acknowledges that the number of Shares
issuable upon conversion of the Preferred Stock and/or
exercise of the Warrants may increase substantially in certain
circumstances, including, but not limited to, when the trading
price of the Common Stock declines prior to a conversion and
that the issuance of the Shares upon such a conversion of the
Preferred Stock may have a dilutive effect of the ownership
interest of the other shareholders of the Company.
l. WARRANTS. The Company agrees to issue to each of the Buyers on
each Closing Date such Buyers' pro rata share of the Warrants
to purchase an aggregate of two hundred thousand (200,000)
shares of Common Stock per $10,000,000 of Preferred Stock
purchased (or such pro rata amount if more or less than
$10,000,000 is purchased). Such Warrants shall bear an
exercise price equal to one hundred twenty-five percent (125%)
of the Closing Price (as defined in the Warrant) and shall
expire on the third anniversary of the issuance date of the
Warrant, in the form annexed hereto as Exhibit 4(l), together
with registration rights granted pursuant to the Registration
Rights Agreement.
m. LISTING OF COMMON STOCK. The Company shall (a) as soon as
practicable, prepare and file with the Nasdaq Small Cap Market
(as well as any other national securities exchange, market or
trading facility on which the Common Stock is then listed) an
additional shares listing application covering the amount of
shares of Common Stock issued upon the conversion of the
Series D Preferred Stock or the exercise of the Warrants, (b)
take all steps necessary to cause such shares to be approved
for listing on the Nasdaq Small Cap Market (as well as on any
other national securities exchange, market or trading facility
on which the Common Stock is then listed) as soon as possible
thereafter, and (c) provide to the Buyers evidence of such
listing, and the Company shall maintain the listing of its
Common Stock on such exchange or market. The Company will
comply with the listing and trading requirements of its Common
Stock on Nasdaq Small Cap Market (including, without
limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the
Nasdaq Small Cap Market. In the event the Company receives
notification from Nasdaq or any other controlling entity
stating that the Company is not in compliance with the listing
qualifications of the Nasdaq Small Cap Market, the Company
will take all action necessary to bring the Company within
compliance with all applicable listing standards of the Nasdaq
Small Cap Market.
n. EXCHANGE ACT REGISTRATION. The Company will maintain the
registration of its Common Stock under Section 12 of the
Exchange Act, will comply in all respects with its reporting
and filing obligations under the Exchange Act, and will not
take any action or file any document (whether or not permitted
by Exchange Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.
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o. CORPORATE EXISTENCE. The Company will take all steps necessary
to preserve and continue the corporate existence of the
Company.
p. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION. The Company
will immediately notify each of the Buyers upon the occurrence
of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of
Registrable Securities (as defined in the Registration Rights
Agreement): (i) receipt of any request for additional
information by the SEC or any other federal or state
governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to
the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the
qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;
(iv) the happening of any event that makes any statement made
in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the
making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the
related prospectus, it will not contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the
Registration Statement would be appropriate. The Company will
promptly make available to the Buyers any such supplement or
amendment to the related prospectus.
q. LEGAL OPINION. The Company's independent counsel shall deliver
to the Buyers upon execution of this Agreement and upon the
Closing of the second tranche (dated as of the Tranche II
Closing Date), an opinion in the form of Exhibit 4(q). The
Company will obtain for the Buyers, at the Company's expense,
any and all opinions of counsel which may be reasonably
required in order to convert the Preferred Stock and/or
exercise the Warrants, including, but not limited to,
obtaining for the Buyers an opinion of counsel, subject only
to receipt of a notice of conversion, and/or subject only to a
receipt of a notice of exercise in the form annexed to the
Warrant, and in connection with the resale of the Shares by
the Buyers directing the transfer agent to remove the legend
from the certificate.
r. PERMITTED OFFERINGS. Notwithstanding anything to the contrary
set forth herein (including, without limitation, Section 4(i)
hereof), the Company shall be permitted to issue and sell its
Common Stock or securities, convertible into its Common Stock
in a registered offering or private placement, provided, that
the proceeds of such offering shall be applied first to redeem
all the Preferred Stock in accordance with the terms of
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the Certificate of Designation and after all the Preferred
Stock has been so redeemed, any remaining proceeds may be used
in accordance with the Company's direction.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the Tranche I Closing Date, the Company
will irrevocably instruct its transfer agent to issue Common
Stock from time to time upon conversion of the Preferred Stock
and/or exercise of the Warrants in such amounts as specified
from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(d) of
this Agreement prior to registration of the Shares under the
1933 Act and resale of the Shares, registered in the name of
the Buyers or its nominee and in such denominations to be
specified by the Buyers in connection with each conversion of
the Preferred Stock and/or exercise of the Warrants. The
Company warrants that no instruction other than such
instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be
given by the Company to the transfer agent and that the Shares
shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the
Buyers' obligations and agreement to comply with all
applicable securities laws upon resale of the Securities. If
the Buyers provide the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a
resale by the Buyers of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement)
permit the transfer of the Shares and, in the case of the
Shares, promptly instruct the Company's transfer agent to
issue one or more certificates for Common Stock without legend
in such name and in such denominations as specified by the
Buyers.
b. The Company will permit the Buyers to exercise its right to
convert the Preferred Stock by telecopying an executed and
completed Notice of Conversion to the Company and delivering
within three (3) business days thereafter, the original Notice
of Conversion and the certificates representing the Preferred
Stock being converted to the Company by express courier, with
a copy to the transfer agent. Each date on which a Notice of
Conversion is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed a
Conversion Date. The Company will transmit the certificates
representing the Converted Shares issuable upon conversion of
any Preferred Stock (together with certificates representing
the Preferred Stock not being so converted) to the Buyer via
express courier, by electronic transfer or otherwise, within
three (3) business days after receipt by the Company of the
original Notice of Conversion and the certificate representing
the Preferred Stock being converted (the "Delivery Date").
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result
in economic loss to the Buyers. As compensation to the Buyers
for such loss, the Company agrees to pay late payments to the
Buyers for late issuance of Shares upon Conversion in
accordance with the
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<PAGE>
following schedule (where "No. Business Days Late" is defined
as the number of business days beyond five (5) business days
from Delivery Date); provided, however, the Company shall not
be obligated to make any payment under this Section if the
cause of such delay in the issuance of the Shares of Common
Stock is not caused by the Company or is the result of an act,
omission or circumstance beyond the control of the Company
and/or its agents.
Late Payment For Each
$10,000 of Initial Preferred Stock
No. Business Days Late Principal Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each
Business Day Late
beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit each of the Buyer's
right to pursue actual damages for the Company's failure to issue and deliver
the Common Stock to that Buyer. Furthermore, in addition to any other remedies
which may be available to the Buyers, in the event that the Company fails for
any reason to effect delivery of such shares of Common Stock within five (5)
business days after the Delivery Date, the Buyers will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Buyers shall each be restored to their
respective positions immediately prior to delivery of such Notice of Conversion.
d. Subject to the completeness and accuracy of each of the
Buyer's representations and warranties herein, upon the
conversion of any Preferred Stock by a person who is a
non-U.S. Person, and following the expiration of any
applicable Restricted Period (as those terms are defined in
Regulation S), the Company, shall, at its expense, take all
necessary action (including the issuance of an opinion of
counsel) to assure that the Company's transfer agent shall
issue stock certificates without restrictive legend or stop
orders in the name of the Buyer (or its nominee (being a
non-U.S. Person) or such non-U.S. Persons as may be designated
by the Buyer) and in such denominations to be specified at
conversion representing the number of shares of Common Stock
issuable
E-16
<PAGE>
upon such conversion, as applicable. Nothing in this Section
5, however, shall affect in any way the Buyers' or such
nominee's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities.
e. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program,
upon request of the Buyers and their compliance with the
provisions contained in this paragraph, so long as the
certificates therefor do not bear a legend and the Buyers
thereof are not obligated to return such certificate for the
placement of a legend thereon, the Company shall use its best
efforts to cause its transfer agent to electronically transmit
the Common Stock issuable upon conversion to the Buyers by
crediting the account of the Buyers' Prime Broker with DTC
through its Deposit Withdrawal Agent Commission system.
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment
basis on each Closing Date.
7. CLOSING DATE.
a. The date and time of the issuance and sale of each tranche of
the Preferred Stock (each, a "Closing Date") shall occur no
later than 1:00 P.M., New York time on the date of the
fulfillment or waiver of all of the closing conditions
pursuant to Sections 8 and 9, or such other mutually agreed to
time. The closing shall occur on such date at the offices of
the Escrow Agent. Notwithstanding anything to the contrary
contained herein, the Escrow Agent will be authorized to
release the funds representing the Purchase Price for the
Preferred Stock and the Warrants, and the Preferred Stock and
the Warrants only upon satisfaction of each of the conditions
set forth in Sections 8 and 9 hereof.
b. Notwithstanding anything to the contrary contained in Section
7(a), the Closing Date of the first tranche of $5,000,000
shall be upon the execution by the parties of this Agreement,
and the payment of the Purchase Price and the delivery of the
original stock certificates evidencing the Preferred Stock and
the Warrants (the "Tranche I Closing Date") and the Closing
Date of the second tranche of $5,000,000 shall be within three
(3) business days of the Effective Date (the "Tranche II
Closing Date"); provided, that such Closing Date is a business
day, and, if not, then the immediately following business day.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Each of the Buyers understands that the Company's obligation
to sell the Preferred Stock and the Warrants on each Closing Date to the Buyers
pursuant to this Agreement is conditioned upon:
E-17
<PAGE>
a. Acceptance by the Buyers of this Agreement as evidenced by
execution of this Agreement and all agreements annexed hereto
by the Buyers for at least $10,000,000 of Preferred Stock (or
such lesser amount as the Company, in its sole discretion,
shall determine);
b. Delivery by the Buyers to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for
the Preferred Stock and the Warrants in accordance with
Section 1(c) hereof;
c. The accuracy in all material respects on each Closing Date of
the representations and warranties of the Buyers contained in
this Agreement as if made on such Closing Date, except for
representation and warranties that are expressly made as of a
particular date, and the performance by the Buyers on or
before each Closing Date of all covenants and agreements of
the Buyers required to be performed on or before such Closing
Date;
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which shall not
have been obtained.
9. CONDITIONS TO EACH BUYERS' OBLIGATION TO PURCHASE.
The Company understands that each Buyer's obligation to
purchase the Preferred Stock on each Closing Date is conditioned upon:
a. Acceptance by the Company of an Agreement for the sale of
Preferred Stock and the Warrants, as evidenced by execution of
this Agreement and all agreements annexed hereto by the
Company;
b. Delivery by the Company to the Escrow Agent of the original
shares of Preferred Stock and the Warrants in accordance with
this Agreement;
c. The accuracy in all material respects on each Closing Date of
the representations and warranties of the Company contained in
this Agreement as if made on each Closing Date, except for
representation and warranties that are expressly made as of a
particular date, and the performance by the Company on or
before each Closing Date of all covenants, agreements and
conditions of the Company required by this Agreement, the
Registration Rights Agreement, the Escrow Agreement and the
Warrants to be performed on or before each Closing Date; and
d. On each Closing Date, the Buyers having received an opinion of
counsel for the Company, dated as of such Closing Date, in
form, scope and substance reasonably satisfactory to the
Buyers, to the effect set forth in Exhibit 4(q) attached
hereto, and the Registration Rights Agreement annexed hereto
as Exhibit 4(e).
e. The Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Preferred
Stock and the Warrants, or shall have the availability of
exemptions therefrom. The sale and issuance of the Preferred
Stock and
E-18
<PAGE>
the Warrants shall be legally permitted by all laws and
regulations to which the Company is subject.
f. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction that materially prohibits or directly, materially
and adversely affects any of the transactions contemplated by
this Agreement, and no proceeding shall have been commenced
that may have the effect of materially prohibiting or
adversely affecting any of the transactions contemplated by
this Agreement.
g. Since the Tranche I Closing Date, no event that had or is
reasonably likely to have a material adverse effect on the
business or financial condition of the Company, or materially
and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement has occurred.
h. The trading of the Common Stock is not suspended by the SEC,
the Nasdaq Small Cap Market or such other exchange, and the
Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Nasdaq Small Cap
Market. The issuance of shares of Preferred Stock and the
Warrants with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the
Nasdaq Small Cap Market.
i. The parties hereto shall have entered into the Escrow
Agreement to hold the Preferred Stock and the Warrants
issuable upon each Closing Date and the Purchase Prices due
hereunder, which shall remain in full force and effect as of
each Closing Date.
j. On each Closing Date the Company will deliver a certificate of
an officer of the Company confirming the satisfaction of the
conditions set forth in Sections 9(c), (f) and (g) hereof;
provided that the statements regarding compliance with Section
9(f) shall be limited to rules, regulations, orders, executive
degrees, rulings, injunctions or proceedings applicable to the
Company.
10. GOVERNING LAW; SPECIFIC PERFORMANCE.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without giving effect to the
principles thereof regarding the conflict of laws. Each of the parties consents
to the exclusive jurisdiction of the federal courts whose districts encompass
any part of the State of Delaware in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions. Each party waives its
right to a trial by jury. Each party to this Agreement irrevocably consents to
the service of process in any such proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, to such party at its address
set forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed
effectively given, (i) on the date delivered, (a)
E-19
<PAGE>
by personal delivery, or (b) if advance copy is given by fax, (ii)
seven business days after deposit in the United States Postal Service
by regular or certified mail, or (iii) three business days mailing by
international express courier, with postage and fees prepaid, addressed
to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
COMPANY: XYBERNAUT CORPORATION
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
Attention: Dr. Steven A. Newman, Vice Chairman
Telecopier No.: (703) 631-6734
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Martin Eric Weisberg, Esq.
Telecopier No.: (212) 704-6288
BUYER: At the address set forth on Schedule of Buyers
attached hereto.
with a copy to:
Krieger & Prager
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Telecopier No.: (212) 213-2077
ESCROW AGENT: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the America
New York, New York 10036
Telecopier No. (212) 704-6288
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties shall survive the execution and delivery
hereof of this Agreement and the delivery of the Preferred Stock and
the Purchase Price, and shall inure to the benefit of the Buyers and
their respective successors and assigns. The Company's covenants set
forth in Section 5 hereof shall terminate upon the redemption of all of
the
E-20
<PAGE>
Preferred Stock in accordance with the Company's Certificate of
Designation for the Preferred Stock.
13. MISCELLANEOUS
a. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless each of the Buyers and each officer, director of the
Buyers or person, if any, who controls the Buyers within the
meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to,
all costs of defense and investigation and all attorneys'
fees), to which the Buyers may become subject, under the
Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
b. ATTORNEYS' FEES. The Company agrees to pay the following
amounts for attorneys' fees and expenses incurred by the
Buyers in connection with negotiating the terms of this
Agreement and the transactions contemplated hereby:
i. $10,000 upon the closing of the first tranche of
$5,000,000; and
ii. $2,500 upon the closing of the second tranche of
$5,000,000.
c. ASSIGNMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of, the parties and their
respective successors and assigns.
d. COUNTERPARTS; FACSIMILE; AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be
executed by less than all of the parties and shall be deemed
to be an original instrument which shall be enforceable
against the parties actually executing such counterparts and
all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the
original documents, a facsimile transmission or copy of the
original documents shall be as effective and enforceable as
the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and all of the
Buyers, on the other hand.
e. ENTIRE AGREEMENT. This Agreement and the Exhibits, which
include, but are not limited to the Certificate of
Designation, the Warrant, the Escrow Agreement, and the
Registration Rights Agreement, set forth the entire agreement
and understanding of the parties relating to the subject
matter hereof and supersedes all prior and contemporaneous
agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter
hereof. The terms and conditions of all Exhibits and Schedules
to this Agreement are incorporated herein by this reference
and shall constitute part of this Agreement as is fully set
forth herein.
E-21
<PAGE>
f. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of
this Agreement to any party
g. TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
h. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or
trading volume of the Common Stock on any given trading day
for the purposes of this Agreement and all Exhibits shall be
Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Buyers and the Company shall be required to
employ any other reporting entity.
i. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of a certificate representing the
Preferred Stock, the Warrants, or shares of Common Stock
underlying the Preferred Stock or the Warrants, and (ii) in
the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the
Company or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at
its expense will execute and deliver, in lieu thereof, a new
certificate of like tenor.
j. PUBLICITY. The Company and the Buyers shall consult with each
other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated
hereby and no party shall issue any such press release or
otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not
be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by
law, in which such case the disclosing party shall provide the
other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Buyers without the prior written
consent of the Buyers, except to the extent required by law,
in which case the Company shall provide the Buyers with prior
written notice of such public disclosure.
[end of page]
E-22
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyers or one of their officers thereunto duly authorized as of the date
first above written.
XYBERNAUT CORPORATION
By:
Name: Steven A. Newman
Title: Vice Chairman
CRYSTALITE INVESTMENTS LTD. (BVI)
By:
Name:
Title:
BULK TRADE INC. (BVI)
By:
Name:
Title:
E-23
<PAGE>
SCHEDULE OF BUYERS TO THE
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR XYBERNAUT CORPORATION
<TABLE>
<CAPTION>
NUMBER OF INVESTOR'S REPRESENTATIVES'
INVESTOR ADDRESS SHARES OF PREFERRED ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER STOCK AND FACSIMILE NUMBER
------------- -------------------- ------------------- ---------------------------
<S> <C> <C> <C>
Crystalite Investments Ltd 111 Arlosorov St. Tranche I: 3,000 Samuel M. Krieger, Esq.
Tel Aviv Israel Tranche II: 3,000 Krieger and Prager, Esqs.
Facsimile No: 011-972-3-6910476 319 Fifth Avenue
New York, New York 10016
Facsimile No.: (212) 213-2077
Bulk Trade Inc (BVI) Akara Building Tranche I: 2,000 Samuel M. Krieger, Esq.
Wickhams Cay #1 Tranche II: 2,000 Krieger and Prager, Esqs.
Road Town, Tortola 319 Fifth Avenue
BVI New York, New York 10016
Facsimile No: Facsimile No.: (212) 213-2077
</TABLE>
E-24
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 AND/OR REGULATION S 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 IN
ACCORDANCE WITH REGULATION S, 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. __
FORM OF WARRANT
To Purchase ______ Shares of Common Stock of
XYBERNAUT CORPORATION
THIS CERTIFIES that, for value received,
____________________________ (the "Holder"), is entitled, upon the terms and
subject to the conditions hereinafter set forth, at any time on or after March
8, 1999 and on or prior to _______________, 2002 (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 under this Warrant (the "Exercise Price") shall be
equal to one hundred and twenty-five percent (125%) of the closing bid price of
the Common Stock on the first trading day immediately preceding the Tranche I
Closing Date (as such term is defined in the Securities Purchase Agreement dated
as of March 8, 1999 (the "Agreement")) (the "Closing Price"). 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 Agreement, and is subject to its terms and conditions. In the event of
any conflict between the terms of this Warrant and the Agreement, the Agreement
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.
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<PAGE>
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 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 shareholder 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 Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
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
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<PAGE>
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.
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. Registration. The Company agrees that the Warrant Shares shall be
included in the Registration Statement to be filed by the Company pursuant to
the Registration Rights Agreement dated as of March 8, 1999.
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 the event of a Redemption (as defined in the Certificate of
Designation of Series D Preferred Stock) by the Company in accordance with
Section 5 of the Certificate of Designation, the Exercise Price of a pro rata
amount of the Warrants (the "Adjusted Warrants" (as calculated hereinafter)
shall be reduced to one hundred fifteen (115%) percent of the Closing Price. For
purposes of this section, "Adjusted Warrants" shall equal the product of (i) the
Warrant Shares and (ii) the quotient of (A) the number of shares of Series D
Preferred Stock redeemed and (B) the total number of Series D Preferred Stock
issued.
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.
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<PAGE>
An adjustment made pursuant to this section 12 shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
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. Warrant Call. At any time after the Registration Statement is
declared effective, the Company, at its option, may, upon written notice to the
Holder (the "Call Notice"), call (x) up to fifty (50%) percent of this Warrant
at a price per Warrant Share equal to the Exercise Price if the Common Stock of
the Company trades at a price equal to or greater than two hundred (200%)
percent of the Closing Price for twenty (20) consecutive trading days prior to
the date the Company calls the Warrant and (y) up to fifty (50%) percent of this
Warrant at a price per Warrant Share equal to the Exercise Price if the Common
Stock of the Company trades at a price equal to or greater than two hundred
fifty (250%) percent of the Closing Price for twenty (20) consecutive trading
days prior to the date the Company calls the Warrant. To be effective, the Call
Notice must be given within three (3) days after the aforementioned twenty (20)
day periods. The rights and privileges granted pursuant to this Warrant shall
terminate thirty (30) days after the Call Notice is sent to the Holder if the
Warrant is not exercised during that period. In the event the Warrants are not
exercised during this period the Company will remit to the Holder $0.01 per
Warrant Share upon the Holder tendering to the Company the expired Warrant
certificate.
17. 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
E-28
<PAGE>
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:
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT IN ACCORDANCE WITH REGULATION S,
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
(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: March , 1999
XYBERNAUT CORPORATION
By__________________________
Name: Steven A. Newman
Title: Vice Chairman
E-29
<PAGE>
NOTICE OF EXERCISE
To: XYBERNAUT CORPORATION
(1) The undersigned hereby elects to purchase ________ shares
of Common Stock, par value $ per share (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) In exercising this Warrant, the undersigned hereby
confirms and acknowledges that the shares of Common Stock are being acquired
solely for the account of the undersigned and not as a nominee for any other
party, and for investment, and that the undersigned will not offer sell or
otherwise dispose of any such shares of Common Stock, except under circumstances
that will not result in a violation of the United States Securities Act of 1933,
as amended, or any foreign or state securities laws.
(3) 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)
-------------------------------
(4) The shares of Common Stock being issued in connection with
the exercise of the attached Warrant are being issued in connection with the
sale of the Common Stock.
Dated:
------------------------------
Signature
E-30
<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: ______________
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.
E-31
EXHIBIT 4.3
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. ____
FORM OF WARRANT
To Purchase ____________________ Shares of Common Stock of
XYBERNAUT CORPORATION
THIS CERTIFIES that, for value received,
_______________________ (the "Investor"), is entitled, upon the terms and
subject to the conditions hereinafter set forth, at any time on or after
_________________ and on or prior to ________________ (the "Termination Date")
but not thereafter, to subscribe for and purchase from XYBERNAUT CORPORATION, a
corporation incorporated in the State of Delaware (the "Company"),
____________________ (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
$_____. The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein.
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).
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 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
E-32
<PAGE>
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 shareholder 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 Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
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.
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.
E-33
<PAGE>
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.
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.
(a) In the event the Company elects to pay the Initial Put
Repricing Amount to the Investor in lieu of issuing the Initial Put Repricing
Shares, the Exercise Price shall be reduced to the then current market price of
the Common Stock.
(b) 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.
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
E-34
<PAGE>
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. Call/Forced Exercise. The Company, at its option, may redeem this
Warrant for $0.01 per Warrant Share by giving the Holder written notice (the
"Call Notice") at any time if the closing Bid Price of the Common Stock of the
Company is greater than one hundred fifty (150%) percent of the Exercise Price
for twenty (20) consecutive Trading Days. To be effective, the Call Notice must
be given within three (3) Trading Days after the aforementioned twenty day
period. The rights and privileges granted pursuant to this Warrant shall
terminate thirty (30) days after the Call Notice is sent to the Holder if the
warrant is not exercised during that period. In the event the Warrants are not
exercised during this period the Company will remit to the Holder $0.01 per
Warrant Share upon the Holder tendering to the Company the expired Warrant
certificate.
17. 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 acknowledges and agrees that the
Warrant Shares shall be deemed to be "restricted securities" and may not be
sold, offered, pledged, transferred or otherwise disposed of before
_____________________ and may only be sold, offered, pledged, transferred or
otherwise disposed of after such date pursuant to an exemption from the
registration requirements under the Securities Act. 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
E-35
<PAGE>
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".
(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
E-36
<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
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<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: ______________, 1998
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.
E-38
EXHIBIT 5.1
April 30, 1999
Xybernaut Corporation
12701 Fair Lakes Circle
Fairfax, Virginia 22033
Gentlemen:
We have acted as counsel to Xybernaut Corporation, a Delaware
corporation (the "Company"), in connection with a Registration Statement on Form
S-3 (the "Registration Statement") being filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the
offering of 4,929,635 shares (the "Shares") of Common Stock, par value $.01 per
share (the "Common Stock"), which includes 4,089,635 issuable upon conversion of
the Company's Series D Preferred Stock (the "Conversion Shares"), par value $.01
per share and 840,000 shares issuable upon exercise of outstanding warrants (the
"Warrant Shares"). The Warrant Shares and the Conversion Shares are collectively
referred to herein as the "Shares."
In connection with the foregoing, we have examined originals or
copies, satisfactory to us, of the Company's (i) Certificate of Incorporation,
(ii) By-laws and (iii) resolutions of the Company's board of directors. We have
also reviewed such other matters of law and examined and relied upon all such
corporate records, agreements, certificates and other documents as we have
deemed relevant and necessary as a basis for the opinion hereinafter expressed.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as copies or
facsimiles. As to any facts material to such opinion, we have, to the extent
that relevant facts were not independently established by us, relied on
certificates of public officials and certificates of officers or other
representatives of the Company.
Based upon and subject to the foregoing, we are of the opinion that the
Shares, when issued upon conversion of the Series D Preferred Stock and the
Warrants, as applicable, 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
E-39
EXHIBIT 10.1
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 8, 1999
(this "Agreement"), is made by and between XYBERNAUT CORPORATION, a Delaware
corporation (the "Company"), and the entities named on the signature page hereto
(the "Investors").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of March 8, 1999, by and among the
Investors and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Investors shares of Series D Preferred Stock of
the Company, in an aggregate principal amount not exceeding $10,000,000
(collectively, the "Preferred Stock"), which Preferred Stock will be convertible
into shares of the common stock, $.01 par value (the "Common Stock"), of the
Company (the "Conversion Shares") upon the terms and subject to the conditions
of the Certificate of Designation (as defined in the Securities Purchase
Agreement), and warrants to purchase up to 200,000 shares of Common Stock (the
"Warrants"), which Warrants will be exercisable into shares of Common Stock (the
"Warrant Shares"); and
WHEREAS, to induce the Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investors hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investors" means the Investors and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Potential Material Event" means any of the
following: (a) the possession by the Company of material information not ripe
for disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the registration statement would be
detrimental to the business and affairs of the Company; or (b) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the registration statement would be materially misleading absent
the inclusion of such information.
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<PAGE>
(iii) "Register," "Registered," and "Registration"
refer to registration effected by preparing and filing a Registration Statement
or Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering securities
on a continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion
Shares and the Warrant Shares.
(v) "Registration Statement" means a registration
statement of the Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
(A) MANDATORY REGISTRATION. The Company shall prepare and file
with the SEC, as soon as possible after the Closing Date (as defined in the
Securities Purchase Agreement) but in no event no later than sixty (60) days
following the Closing Date, either a Registration Statement on Form SB-1, SB-2
or S-3, as applicable, registering for resale by the Investors a sufficient
number of shares of Common Stock for the Investors (or such lesser number as may
be required by the SEC in writing, but in no event less than 150% of the
aggregate number of shares into (i) which the Preferred Stock would be
convertible at the time of filing of the Form SB-1, SB-2 or S-3, as applicable,
or an amendment to any pending Company Registration Statement on Form SB-1, SB-2
or S-3, as applicable (assuming for such purposes that all shares of Preferred
Stock had been eligible to be converted, and had been converted, in accordance
with their terms, whether or not such eligibility or conversion had in fact
occurred as of such date), and (ii) which would be issued upon exercise of all
of the Warrants at the time of filing of the Form SB-1, SB-2 or S-3, as
applicable (assuming for such purposes that all Warrants had been eligible to be
exercised and had been exercised in accordance with their terms, whether or not
such eligibility or exercise had in fact occurred as of such date), or an
amendment to any pending Company Registration Statement on Form SB-1, SB-2 or
S-3, as applicable, and such Registration Statement or amended Registration
Statement shall state that, in accordance with Rule 457 under the Securities
Act, it also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock and the
exercise of the Warrants resulting from adjustment in the Conversion Price, or
to prevent dilution resulting from stock splits, or stock dividends), and the
Company shall use its best efforts to cause the Registration Statement to be
declared effective no later than 90 days after the Closing Date. If the Company
is notified orally or in writing by the SEC that the SEC has no comments with
respect to the Registration Statement (the "SEC Notice"), the Company shall use
its best efforts to cause the Registration Statement to be declared effective no
later than five (5) business days after receipt of the SEC Notice. If at any
time after the Registration Statement has been filed the closing bid price is
less than $3 per share for at least three (3) consecutive days during any twenty
(20) day trading period, the Company shall within ten (10) business days
thereafter either (i) amend the Registration Statement filed by the Company
pursuant to the preceding sentence, if such Registration Statement has not been
declared effective by the SEC at that time, to register one hundred-fifty
percent (150%)of the shares of Common Stock into which the Preferred Stock based
on the closing bid price at the time of filing of such amendment may currently
or in the future be converted and which would be issued currently or in the
future upon exercise of the Warrants, or (ii)
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if such Registration Statement has been declared effective by the SEC at that
time, file with the SEC an additional Registration Statement on Form SB-1, SB-2
or S-3, as applicable, to register 150% of the shares of Common Stock into which
the Preferred Stock based on the closing bid price at the time of filing an
additional Registration Statement may be converted and which would be issued
upon exercise of the Warrants that exceed the aggregate number of shares of
Common Stock already registered.
(B) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof has not been filed within sixty (60) days from the Closing Date (the
"Required Filing Date") and/or has not been declared effective by the earlier of
(i) five (5) business days after the Company receives the SEC Notice and (ii)
one hundred twenty (120) days following the Closing Date (the "Required
Effective Date") (except as provided by the last sentence of Section 2(a) with
respect to the registration of additional shares of Common Stock), then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(b).
(ii) The amount to be paid by the Company to each
Investor as liquidated damages for such failure and not as a penalty shall be
equal to one percent (1%) of such Investor's pro rata share of the purchase
price paid by all Investors for all shares of Series D Preferred Stock purchased
and then outstanding pursuant to the Securities Purchase Agreement for the
initial thirty (30) day period until the Registration Statement has been filed
and/or declared effective, which shall be pro rated for such periods less than
thirty (30) days and two percent (2%) of such Investor's pro rata share for each
thirty (30) day period thereafter until the Registration Statement has been
filed and/or declared effective (which shall be also pro rated, as aforesaid)
(the "Periodic Amount"). The liquidated damages shall be paid by the Company in
cash upon demand.
(iii) The parties acknowledge that the damages which
may be incurred by the Investor if the Registration Statement is not filed by
the Required Filing Date or if the Registration Statement has not been declared
effective by the Required Effective Date may be difficult to ascertain. The
parties agree that the Periodic Amount represents a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages.
(iv) Notwithstanding the foregoing, the amounts
payable by the Company pursuant to this provision shall not be payable to the
extent any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Investors or
its counsel, or as a result of force majeure, or in the event all of the
Registrable Securities may be sold pursuant to Rule 144 (without volume
limitation) or another available exemption under the Act. The payment of such
liquidated damages shall not relieve the Company from its obligations to
register the Registrable Securities. If the Company does not pay the liquidated
damages in a timely fashion set forth herein, it will pay to the Investors the
reasonable costs of collection, including attorneys fees, in addition to the
liquidated damages.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly and file with the SEC not later than
sixty (60) days after the first Closing Date, a Registration Statement with
respect to not less than the number of Registrable Securities
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provided in Section 2(a), above, and thereafter use its best efforts to cause
each Registration Statement relating to Registrable Securities to become
effective the earlier of (i) five (5) business days after receipt of the SEC
Notice and (ii) ninety (90) days after the Closing Date, and keep the
Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two years after the last Closing
Date, (ii) the date when the Investors may sell all Registrable Securities
pursuant to Rule 144 under the Securities Act (without volume limitation) or
(iii) the date the Investors no longer own any of the Registrable Securities,
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Investor to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not less
than three (3) business days) prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects.
(d) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one (1) copy of the Registration
Statement, each preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(e) As promptly as practicable after becoming aware of such
event, but in no event later than one (1) business day thereafter, notify each
Investor of the happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and promptly (but in no event later than ten (10) business days
after knowledge of such event) prepare and file a supplement or amendment to the
Registration Statement or other appropriate filing with the SEC to correct such
untrue statement or omission, and deliver a number of copies of such supplement
or amendment to each Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such
event, but in no event later than one (1) business day thereafter, notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
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(g) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investor in writing of the existence of a Potential
Material Event, the Investor shall not offer or sell any Registrable Securities,
or engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until the Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period (the "Suspension Period") with at least a ten (10) business day interval
between such periods, during the periods the Registration Statement is required
to be in effect;
(h) Use its reasonable efforts to secure designation of all
the Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System ("NASDAQ") "Small
Capitalization" within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on the NASDAQ SmallCap Market; or if,
despite the Company's reasonable efforts to satisfy the preceding clause, the
Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(i) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(j) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel;
(k) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the Registrable Securities
pursuant to the Registration Statement;
(l) The Company shall register and qualify the securities
covered by the Registration Statement under such other securities or blue sky
laws of such jurisdictions as the Investors shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable each
Investor to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Investor;
(m) As promptly as practicable after becoming aware of such
event, but in no event later than one (1) business day thereafter, the Company
shall notify the Investors in writing of (x) the issuance by the SEC of a stop
order suspending the effectiveness of the Registration Statement, (y) the
happening of any event of which the Company has knowledge as a result of which
the prospectus included
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in the Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (z) the occurrence
or existence of any pending corporate development that, in the reasonable
discretion of the Company, makes it appropriate to suspend the availability of
the Registration Statement, and promptly to prepare and file a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver two (2) copies of such supplement or amendment to each
Investor or such additional copies as such Investor may reasonably request;
provided that, for not more than twenty (20) days (or a total of not more than
forty-five (45) days in any twelve (12) month period, the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or Registration Statement updating) the disclosure of which at the
time is not, in the good faith opinion of the Company, the best interests of the
Company and in the opinion of counsel to the Company (an "Allowed Delay");
provided, further, that the Company shall promptly (i) notify the Investors in
writing of the existence of material non-public information giving rise to an
Allowed Delay and (ii) advise the Investors in writing to cease all sales under
the Registration Statement until the end of the Allowed Delay. Upon expiration
of the Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(m) with respect to the information giving rise thereto, and shall
be obligated to pay to the Investors any amounts provided for in Section 2(b).
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably requested by the Company in
writing to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least seven (7) business days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Investor of the information the Company requires from each such Investors
(the "Requested Information"). If at least two (2) business days prior to the
filing date of the Registration Statement the Company has not received the
Requested Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e),
3(f) or 3(l), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e), 3(f) or 3(l)
and, if so directed by the Company, such Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the
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Company a certificate of destruction) all copies in such Investor's possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investors, the officers and agents, if any, of such
Investor, each person, if any, who controls any Investor within the meaning of
the Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investors to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents against any claims arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall
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remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
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(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any shares of Preferred Stock of the Company which is
convertible into such securities) only if: (a) the Investors agree in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(b) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold at least a sixty-six (66%) percent interest of the Registrable Securities.
Any amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Investor and the Company.
11. MISCELLANEOUS. (a) A person or entity is deemed to be a
holder of Registrable Securities whenever such person or entity owns of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed effectively given, (i) on the date delivered,
(a) by personal delivery, or (b) if advance copy is given by fax, (ii) seven
business days after deposit in the United States Postal Service by regular or
certified mail, (iii) three business days mailing by international express
courier, with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at such other addresses as a
party may designate by ten days advance written notice to each of the other
parties hereto,
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(iv) if to the Company, XYBERNAUT CORPORATION, 12701 Fair Lakes Circle, Suite
550, Fairfax, Virginia 22033, ATTN: Chief Financial Officer, with a copy to
Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New
York 10036, ATTN: Martin Eric Weisberg, Esq.; (v) if to the Investors, at the
address set forth under their name in the Securities Purchase Agreement, with a
copy to Krieger & Prager, 319 Fifth Avenue, New York, New York 10016, ATTN:
Samuel M. Krieger, Esq. and (vi) if to any other Investor, at such address as
such Investor shall have provided in writing to the Company, or at such other
address as each such party furnishes by notice given in accordance with this
Section 11(b), and shall be effective, when personally delivered, upon receipt
and, when so sent by certified mail, four (4) calendar days after deposit with
the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without giving effect to the
principles thereof regarding the conflict of laws. Each of the parties consents
to the exclusive jurisdiction of the federal courts whose districts encompass
any part of the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions. Each party waives its
right to a trial by jury. Each party to this Agreement irrevocably consents to
the service of process in any such proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, to such party at its address
set forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
(e) This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) If any provision of this Agreement for any reason be held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof and this Agreement shall be construed as if such
invalid or unenforceable provision had never been contained herein.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
XYBERNAUT CORPORATION
By:
Name: Steven A. Newman
Title: Vice Chairman
CRYSTALITE INVESTMENTS LTD (BVI)
By:
Name:
Title:
BULK TRADE INC. (BVI)
By:
Name:
Title:
E-50
EXHIBIT 10.2
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT (the "Escrow Agreement") made as of the 8th day of
March, 1999, by and among Xybernaut Corporation, a Delaware corporation with
offices at 12701 Fair Lakes Circle, Suite 550, Fairfax, Virginia 22033 (the
"Company"), the entities listed on the signature page (the "Purchasers") and
Parker Chapin Flattau & Klimpl, LLP, a New York limited liability partnership
with offices at 1211 Avenue of the Americas, New York, New York 10027, as escrow
agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Company desires to raise capital for the production and
marketing of the Company's Mobile Assistant(R) IV and related products and for
general working capital purposes and acquisitions;
WHEREAS, the Company and the Purchasers have agreed that, in order to
raise capital, the Company shall issue and sell to the Purchasers an aggregate
of 10,000 shares of Series D Preferred Stock of the Company (the "Preferred
Stock"), each share convertible into shares of the Company's common stock, $0.01
par value per share (the "Common Stock"), and warrants to purchase an aggregate
of 200,000 shares of Common Stock (the "Warrants"), for an aggregate purchase
price of Ten Million ($10,000,000.00) Dollars (the "Sale");
WHEREAS, pursuant to the Sale, the Company will enter into a Securities
Purchase Agreement dated as of March 8, 1998 (the "Purchase Agreement") with the
Purchasers, in the form attached as Exhibit A hereto; and
WHEREAS, the Purchase Agreement contemplates that all funds shall be
paid into escrow and the original certificates representing the Preferred Stock
(the "Certificates") and original Warrants shall be held in escrow prior to each
Closing Date (as defined in the Purchase Agreement) and the Escrow Agent has
agreed to receive, hold and pay such funds and to receive such Certificates and
Warrants, upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Escrow
Agreement hereby agree as follows:
1. Defined Terms. Capitalized terms used and not otherwise defined
herein shall have the meanings respectively assigned to them in the Purchase
Agreement.
2. Escrow of Funds. At or prior to each Closing Date, the following
shall occur: (a) each of the Purchasers shall remit by wire transfer its portion
of the Purchase Price to the Escrow Agent pursuant to this Escrow Agreement as
payment in full for the Preferred Stock and the Warrants (the "Escrow Amount");
(b) the Company shall deliver or cause to be delivered to Escrow Agent the
Certificates and the Warrants registered in the name of each of the Purchasers
(or any nominee designated by each Purchaser at least three days before each
Closing Date), free and clear of all liens, claims, charges and encumbrances.
The Escrow Agent shall hold the Escrow Amount and the Certificates and the
Warrants and shall deliver
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<PAGE>
them or redeliver them to the Company or to the Purchasers, as applicable, only
in accordance with the terms and conditions of this Escrow Agreement.
3. Investment of Funds. The Escrow Agent shall invest the monies in the
Escrow Amount in an interest bearing bank account with, or certificates of
deposit or time deposits with maturities of no more than thirty (30) days issued
by, a domestic commercial bank or such other bank or other financial institution
as it normally holds such funds.
4. Release of Funds. (a) The Escrow Agent shall release the Escrow
Amount, after deduction of the amounts specified in section (b) below, and the
Certificates and the Warrants upon receipt, at any time, of instructions from
the Company and the Purchasers directing the manner in which the return or other
distribution of the funds in the Escrow Amount and the Certificates and the
Warrants are to be made.
(b) The Escrow Agent shall deduct from the Escrow Amount the
following amounts:
(i) upon the closing of the first tranche of
$5,000,000, an amount equal to (i) $10,000
for attorneys' fees for the Purchasers; and
(ii) upon the closing of the second tranche of
$5,000,000, an amount equal to$2,500 for
attorneys' fees for the Purchasers and an
amount equal to $50,000 in respect of a fee
to the Purchasers.
(c) Immediately following notification to the Escrow Agent by
the Company and the Purchasers that each of the conditions precedent to a
Closing has been satisfied or waived, the Company shall be paid the Escrow
Amount, less the amounts set forth in subsection (b) above, and the Purchasers
shall receive the Certificates and the Warrants. In addition, upon receipt of
such notice, the Escrow Agent shall release such amounts deducted from the
Escrow Amount to Krieger & Prager, Esqs. as payment for the legal fees and
expenses incurred by the Purchasers in connection with negotiating the Purchase
Agreement and the transactions contemplated thereby
(c) If no closing occurs and the Escrow Agent does not receive
joint instructions of the Company and the Purchasers regarding an extension of
the Closing Date, the Escrow Agent shall promptly thereafter return the Escrow
Amount to the Purchasers and the Certificates and the Warrants to the Company.
(d) Any interest earned on the Escrow Amount shall be paid to
the party receiving the Escrow Amount.
5. Further Assurances. The Company and the Purchasers agree to do such
further acts and to execute and deliver such statements, assignments,
agreements, instruments and other documents as the Escrow Agent from time to
time reasonably may request in connection with the administration, maintenance,
enforcement or adjudication of this Escrow Agreement in order (a) to give the
Escrow Agent confirmation and assurance of the Escrow Agent's rights, powers,
privileges, remedies and interests under this Escrow Agreement and applicable
law, (b) to better enable the Escrow Agent to exercise any such right, power,
privilege, remedy or interest, or (c) to otherwise effectuate the purpose and
the terms and
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<PAGE>
provisions of this Escrow Agreement, each in such form and substance as may be
reasonably acceptable to the Escrow Agent.
6. Conflicting Demands. If conflicting or adverse claims or demands are
made or notices served upon the Escrow Agent with respect to the escrow provided
for herein, the Company and the Purchasers agree that the Escrow Agent shall
refuse to comply with any such claim or demand and withhold and stop all further
performance of this escrow so long as such disagreement shall continue. In so
doing, the Escrow Agent shall not be or become liable for damages, losses,
costs, expenses or interest to any or any other person for its failure to comply
with such conflicting or adverse demands. The Escrow Agent shall be entitled to
continue to so refrain and refuse to so act until such conflicting claims or
demands shall have been finally determined by a court or arbitrator of competent
jurisdiction or shall have been settled by agreement of the parties to such
controversy, in which case the Escrow Agent shall be notified thereof in a
notice signed by such parties. The Escrow Agent may also elect to commence an
interpleader or other action for declaratory judgment for the purpose of having
the respective rights of the claimants adjudicated, and may deposit with the
court all funds held hereunder pursuant to this Escrow Agreement; and if it so
commences and deposits, the Escrow Agent shall be relieved and discharged from
any further duties and obligations under this Escrow Agreement.
7. Disputes. Each of the parties hereto hereby covenants and agrees
that the Federal or state courts located in the Borough of Manhattan, State of
New York shall have jurisdiction over any dispute with the Escrow Agent or
relating to this Escrow Agreement.
8. Expenses of the Escrow Agent. The Company agrees to pay any and all
out-of-pocket costs and expenses incurred by the Escrow Agent in connection with
all waivers, releases, discharges, satisfactions, modifications and amendments
of this Escrow Agreement, the administration and holding of the Escrow Amount
and the investment of such funds, and the enforcement, protection and
adjudication of the parties' rights hereunder by the Escrow Agent, including,
without limitation, the out-of-pocket disbursements and expenses of the Escrow
Agent itself and those of other attorneys it may retain, if any. The Company
shall be liable to the Escrow Agent for any expenses payable by the Escrow
Agent.
9. Reliance on Documents and Experts. The Escrow Agent shall be
entitled to rely upon any notice, consent, certificate, affidavit, statement,
paper, document, writing or communication (which to the extent permitted
hereunder may be by telegram, cable, telex, telecopier, or telephone) reasonably
believed by it to be genuine and to have been signed, sent or made by the proper
person or persons, and upon opinions and advice of legal counsel (including
itself or counsel for any party hereto), independent public accountants and
other experts selected by the Escrow Agent and mutually acceptable to each of
the Company and the Purchasers. The Escrow Agent shall not be responsible to
review the Certificates other than to confirm that it has been signed or to
determine the clearance of checks received for the Escrow Amount.
11. Status of the Escrow Agent, Etc. The Escrow Agent is acting under
this Escrow Agreement as a stakeholder only. No term or provision of this Escrow
Agreement is intended to create, nor shall any such term or provision be deemed
to have created, any joint venture, partnership or attorney-client relationship
between or among the Escrow Agent and the Company or the Purchasers. This Escrow
Agreement shall not be deemed to prohibit or in any way restrict the Escrow
Agent's representation of the Company, who may be advised by the Escrow Agent on
any and all matters pertaining to this Escrow Agreement. To the extent the
Company has been represented by the Escrow Agent, the Company hereby
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<PAGE>
waives any conflict of interest and irrevocably authorizes and directs the
Escrow Agent to carry out the terms and provisions of this Escrow Agreement
fairly as to all parties, without regard to any such representation and
irrespective of the impact upon the Company. The Escrow Agent's only duties are
those expressly set forth in this Escrow Agreement, and each of the Company and
the Purchasers authorize the Escrow Agent to perform those duties in accordance
with its usual practices in holding funds of its own or those of other escrows.
The Escrow Agent may exercise or otherwise enforce any of its rights, powers,
privileges, remedies and interests under this Escrow Agreement and applicable
law or perform any of its duties under this Escrow Agreement by or through its
partners, employees, attorneys, agents or designees.
12. Exculpation. The Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, shall not incur any
liability whatsoever for the investment or disposition of funds or the taking of
any other action in accordance with the terms and provisions of this Escrow
Agreement, for any mistake or error in judgment, for compliance with any
applicable law or any attachment, order or other directive of any court or other
authority (irrespective of any conflicting term or provision of this Escrow
Agreement), or for any act or omission of any other person selected with
reasonable care and engaged by the Escrow Agent in connection with this Escrow
Agreement (other than for such Escrow Agent's or such person's own acts or
omissions breaching a duty owed to the claimant under this Escrow Agreement and
amounting to gross negligence or willful misconduct as finally determined
pursuant to applicable law by a governmental authority having jurisdiction); and
each of the Company and the Purchasers hereby waive any and all claims and
actions whatsoever against the Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, arising out of or related
directly or indirectly to any and all of the foregoing acts, omissions and
circumstances. Furthermore, the Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, shall not incur any
liability (other than for a person's own acts or omissions breaching a duty owed
to the claimant under this Escrow Agreement and amounting to willful misconduct
as finally determined pursuant to applicable law by a governmental authority
having jurisdiction) for other acts and omissions arising out of or related
directly or indirectly to this Escrow Agreement or the Escrow Amount; and each
of the Company and the Purchasers hereby expressly waives any and all claims and
actions (other than those attributable to a person's own acts or omissions
breaching a duty owed to the claimant and amounting to gross negligence or
willful misconduct as finally determined pursuant to applicable law by a
governmental authority having jurisdiction) against the Escrow Agent and its
designees, and their respective partners, employees, attorneys and agents,
arising out of or related directly or indirectly to any and all of the foregoing
acts, omissions and circumstances.
13. Indemnification. The Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, shall be indemnified,
reimbursed, held harmless and, at the request of the Escrow Agent, defended, by
the Company from and against any and all claims, liabilities, losses and
expenses (including, without limitation, the reasonable disbursements, expenses
and fees of their respective attorneys) that may be imposed upon, incurred by,
or asserted against any of them, arising out of or related directly or
indirectly to this Escrow Agreement or the Escrow Amount, except such as are
occasioned by the indemnified person's own acts and omissions breaching a duty
owed to the claimant under this Escrow Agreement and amounting to willful
misconduct as finally determined pursuant to applicable law by a governmental
authority having jurisdiction.
14. Notices. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given, (i) on the date delivered, (a) by personal delivery, or (b) if advance
copy is given by fax, (ii) seven business days after deposit in the United
States
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<PAGE>
Postal Service by regular or certified mail, or (iii) three business days
mailing by international express courier, with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
15. Section and Other Headings. The section and other headings
contained in this Escrow Agreement are for convenience only, shall not be deemed
a part of this Escrow Agreement and shall not affect the meaning or
interpretation of this Escrow Agreement.
16. Governing Law. This Escrow Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without giving
effect to the principles thereof regarding the conflict of laws. Each of the
parties consents to the exclusive jurisdiction of the federal courts whose
districts encompass any part of the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on FORUM NON
CONVENIENS, to the bringing of any such proceeding in such jurisdictions. Each
party waives its right to a trial by jury. Each party to this Escrow Agreement
irrevocable consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party to serve process in any other manner permitted by law.
17. Counterparts. This Escrow Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original but all such counterparts shall together constitute one and
the same agreement.
18. Resignation of Escrow Agent. The Escrow Agent may, at any time, at
its option, elect to resign its duties as Escrow Agent under this Escrow
Agreement by providing notice thereof to each of the Company and the Purchasers.
In such event, the Escrow Agent shall deposit the Escrow Amount with a successor
escrow agent to be appointed by (a) the Company and the Purchasers within thirty
(30) days following the receipt by the parties of such notice of resignation
from the Escrow Agent, or (b) the Escrow Agent if the Company and the Purchasers
shall have not agreed on a successor escrow agent within the aforesaid 30-day
period, upon which appointment and delivery of the Escrow Amount the Escrow
Agent shall be released of and from all liability under this Escrow Agreement.
19. Successors and Assigns; Assignment. Whenever in this Escrow
Agreement reference is made to any party, such reference shall be deemed to
include the successors, assigns and legal representatives of such party, and,
without limiting the generality of the foregoing, all representations,
warranties, covenants and other agreements made by or on behalf of each of the
Company and the Purchasers in this Escrow Agreement shall inure to the benefit
of any successor escrow agent hereunder; provided, however, that nothing herein
shall be deemed to authorize or permit the Company or the Purchasers to assign
any of its rights or obligations hereunder to any other person (whether or not
an affiliate of the Company or the Purchasers) without the written consent of
each of the other parties nor to authorize or permit the Escrow Agent to assign
any of its duties or obligations hereunder except as provided in Section 17
hereof.
20. No Third Party Rights. The representations, warranties and other
terms and provisions of this Escrow Agreement are for the exclusive benefit of
the parties hereto, and no other person, including the creditors of the Company
or the Purchasers, shall have any right or claim against any party by reason
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<PAGE>
of any of those terms and provisions or be entitled to enforce any of those
terms and provisions against any party.
21. No Waiver by Action, Etc. Any waiver or consent respecting any
representation, warranty, covenant or other term or provision of this Escrow
Agreement shall be effective only in the specific instance and for the specific
purpose for which given and shall not be deemed, regardless of frequency given,
to be a further or continuing waiver or consent. The failure or delay of a party
at any time or times to require performance of, or to exercise its rights with
respect to, any representation, warranty, covenant or other term or provision of
this Escrow Agreement in no manner (except as otherwise expressly provided
herein) shall affect its right at a later time to enforce any such term or
provision. No notice to or demand on either the Company or the Purchasers in any
case shall entitle such party to any other or further notice or demand in the
same, similar or other circumstances. All rights, powers, privileges, remedies
and interests of the parties under this Escrow Agreement are cumulative and not
alternatives, and they are in addition to and shall not limit (except as
otherwise expressly provided herein) any other right, power, privilege, remedy
or interest of the parties under this Escrow Agreement or applicable law.
22. Modification, Amendment, Etc. Each and every modification and
amendment of this Escrow Agreement shall be in writing and signed by all of the
parties hereto, and each and every waiver of, or consent to any departure from,
any covenant, representation, warranty or other provision of this Escrow
Agreement shall be in writing and signed by the party granting such waiver or
consent.
23. Entire Agreement. This Escrow Agreement and the Purchase Agreement
contain the entire agreement of the parties with respect to the matters
contained herein and therein and supersedes all prior representations,
agreements and understandings, oral or otherwise, among the parties with respect
to the matters contained herein.
[end of page]
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement on the date first written above.
XYBERNAUT CORPORATION
By:_____________________________________
Name: Steven A. Newman
Title: Vice Chairman
CRYSTALITE INVESTMENTS LTD. (BVI)
By:_____________________________________
Name:
Title:
BULK TRADE INC. (BVI)
By:_____________________________________
Name:
Title:
PARKER CHAPIN FLATTAU & KLIMPL, LLP,
as escrow agent
----------------------------------------
Name:
Title:
E-57
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
April 14, 1999 appearing on page F-1 of Xybernaut Corporation's Annual Report on
Form 10-KSB for the year ended December 31, 1998. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- -------------------------------------
PricewaterhouseCoopers LLP
McLean, VA
