As filed with the Securities and Exchange Commission on September 9, 1999
Registration No. 333-80837
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
XYBERNAUT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1799851
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
12701 Fair Lakes Circle
Fairfax, Virginia 22033
(703) 631-6925
-----------------------------------------------------------------
(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
-----------------------------------------------------------------
(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. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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
Common Stock, $.01 par value per
share................................ 1,266,074 (2) $3.33 (5) $4,216,026.42 $1,172.05
Common Stock, $.01 par value per
share................................ 75,000 (3)(4) $4.648 (6) $348,600 96.91
Total Registration Fee..........................................................................................$1,268.96 (7)
=====================================
</TABLE>
(1) Represents the shares of common stock being registered for resale by the
selling stockholders.
(2) Includes 1,266,074 shares of common stock issuable upon conversion of
500 shares of series D preferred stock and 2,100 shares of series E
preferred stock. The number of shares of common stock indicated to be
issuable in connection with such transactions 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 500 shares
of series D preferred stock and 2,000 shares of the series E preferred
stock at a price of $4.11 and $2.907 per share, respectively, 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 500 shares of the series D preferred
stock and the 2,100 shares of series E preferred stock were converted
at the closing bid price of the common stock as reported by NASDAQ on
June 7, 1999 ($3.31), the Company would be obligated to issue a total
of 785,498 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 and series E preferred stock will be converted. We are not
registering additional shares of common stock which may result from
price fluctuations and the operation of the conversion formulas of the
preferred stock.
(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 covering the
additional issuance of shares by Xybernaut resulting from stock splits,
stock dividends or similar transactions. We are not registering
additional shares of common stock which may result from price
fluctuations and the operation of exercise formulas of 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 50,000 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 ($3.33) of the bid
($3.31) and asked ($3.34) price on the Nasdaq SmallCap Market on June
7, 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.
(7) Paid with the original filing of the 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 SEPTEMBER 9, 1999
PROSPECTUS
1,341,074 Shares
XYBERNAUT CORPORATION
The stockholders of Xybernaut Corporation listed on page 10 of this
prospectus are offering for sale 1,341,074 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."
NASDAQ SmallCap Market Symbol: "XYBR"
On September 3, 1999, the closing price of one share of our common
stock on the NASDAQ SmallCap Market was $1.406.
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.
Risks Associated with Our History of Losses and Future
Need for Capital
We have a history of losses and, if we do not achieve profitability,
we may not be able to continue our business in the future.
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:
. March 31, 1994 $47,352
. March 31, 1995 $1,303,892
. December 31, 1996 $5,238,536
. December 31, 1997 $9,479,966
. December 31, 1998 $13,111,488
. Six months ended June 30, 1999 $9,359,916
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.
We could be required to cut back or stop operations if we are unable to raise or
obtain needed financing.
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>
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 product, 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 Interactive Solutions, Inc., a subsidiary
of Teltronics, 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 supplier arrangements with several
companies in Japan, including Shimadeu and Sony Digital Products for the
production of the MA IV system. The fees we pay to these companies are paid in
Japanese Yen. Any strengthening 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>
Risks Associated with Our Internal Operations and Policies
Since we do not intend to declare dividends in the foreseeable future, the
return on your investment will depend upon appreciation of the market price of
your shares.
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.
As a result, the return on your investment in Xybernaut will depend upon any
appreciation in the market price of the common stock. 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.
Our computer systems may not recognize the year 2000 which may
affect our computer systems and disrupt our business
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.
We have utilized both internal and external resources to test,
preprogram or replace, as needed, our computing an communications hardware and
software for Year 2000 modifications. Based on this evaluation, we have made
modifications to our computer system and determined that these systems will be
properly utilize dates beyond December 31, 1999. As such, we are compliant with
the Year 2000 issue.
As a result of the testing, we determined that our phone system is not
Year 2000 compliant. This phone system was already scheduled for replacement
during the second half of 1999 to add capacity, upgrade the telecommunications
capabilities, and allow for better customer service. Replacement of the existing
phone system with one that provides similar capabilities and Year 200 compliant
is estimated to cost between $50,000 and $75,000. We expect to spend
approximately $250,000 for the upgraded phone system. We are currently arranging
for a leasing facility to finance the purchase of the phone system. Our estimate
of the costs to remediate our Year 2000 issue related to our telephone system is
based on presently available information. Outside of the phone system, the cost
of testing and modifying our computer systems to obtain Year 2000 compliance was
less than $10,000 in the aggregate.
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. 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
- 4 -
<PAGE>
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.
Our estimates of the date of completion and cost of our Year 2000
project are based on our best estimates, which we derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. The costs and
completion date of our Year 2000 project could differ materially from our
estimates due to the lack of availability and cost of personnel trained in this
area, our ability to locate and correct all relevant computer codes, and similar
uncertainties.
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 September 3, 1998 the closing price of our common stock
has ranged from a high of $8.50 to a low of $1.19. 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.
Our executive officers, directors and principal stockholders, together, can
exercise control over all matters submitted to a vote of stockholders.
As September 3, 1999, our executive officers, directors and principal
stockholders beneficially owned, in the aggregate, approximately 26% 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.
We have 7,853,132 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 September 3, 1999, we had 7,853,132 shares of
common stock reserved for possible future issuances upon conversion of
outstanding convertible securities, options and warrants. Certain convertible
securities, 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
- 5 -
<PAGE>
trading price of the common stock and could increase the volatility in the
trading price of the common stock. See the section entitled "Dilution" for a
summary of the number of shares which could be issued upon conversion of the
outstanding preferred stock at various market prices.
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 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.
- 6 -
<PAGE>
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:
. Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998;
. Quarterly Reports on Form 10-QSB for the periods ended March
31, 1999 and June 30, 1999; and
. 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:
John F. Moynahan.
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.
DILUTION
As of September 3, 1999, we had issued and outstanding 23,318,576
shares of common stock. At that date, there were an additional 7,853,132 shares
of common stock reserved for possible future issuances as follows:
. options to purchase 2,047,700 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;
- 7 -
<PAGE>
. warrants to purchase 1,177,750 shares at an price between
$1.76 and $18.00 per share. We have registered a total of
847,750 shares issuable upon exercise of these warrants. The
balance of 330,000 will be deemed to be "restricted
securities" when issued; and
. 525,000 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.
. 4,102,682 shares issuable upon conversion of (a) 93.75 shares
of series C convertible preferred stock, (b) 7,500 shares of
series D convertible preferred stock, and (c) 2,100 shares of
series E convertible preferred stock outstanding. All of those
shares of common stock would be freely tradeable when issued,
including 1,266,074 shares covered by this prospectus.
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.
Dilution Effects of the Conversion of Outstanding Preferred Stock
The outstanding series C, D and E preferred stock is convertible into
common stock over time at the discretion of the holders. While the conversion
timing, terms, conditions and formulas vary for each issue, if the holders of
these preferred stock securities were able to fully convert their shares into
common stock on September 3, 1999 and elected to do so, approximately 6,989,463
additional shares of common stock would be issued. In addition, you should note
the following:
. The outstanding convertible series C, D and E preferred
securities are convertible at a floating rate based on a
discount to the market price of the common stock. As a result,
the lower the stock price around the time the holder converts,
the more common shares the holder receives.
. To the extent the selling stockholders convert and then sell
their common stock, the common stock price may decrease due to
the additional shares in the market. This could allow the
selling stockholders to convert their convertible preferred
stock into
- 8 -
<PAGE>
greater amounts of common stock, the sales of which would
further depress the stock price.
. The significant downward pressure on the price of the common
stock as the selling shareholders convert and sell material
amounts of common stock could encourage short sales by the
selling stockholders or others. This could place further
downward pressure on the price of the common stock.
. The conversion of the convertible preferred stock may result
in substantial dilution to the interests of other holders of
common stock since each holder of convertible preferred may
ultimately convert and sell the full amount issuable upon
conversion. In this regard, even though each selling
stockholder may not covert its preferred stock into more than
4.99% of the then outstanding common stock, this restriction
does not prevent a selling stockholder from converting and
selling some of its holding and then converting the rest of
its holdings. In this way, an individual selling stockholder
could sell more than 4.99% of the outstanding common stock
while never holding more than 4.99% of the outstanding common
stock at a time.
The following table describes the amount of shares of our common stock
into which the series D and E convertible preferred stock would have been
convertible if the holders of these securities could have fully converted all of
the series D and E convertible preferred stock on September 3, 1999 pursuant to
the following market prices. This table also describes the percentages of our
total outstanding common stock represented by the shares of common into which
all of the Series D and E convertible preferred stock was convertible on
September 3, 1999. For purposes of this table, we assume that the average of the
three lowest closing market prices for a share of our common stock during the
immediately preceding 20 day trading period before conversion was the same as
the price per share in each of the respective rows of column one of the table
and we also assume that the registration statement had been declared effective
by September 3, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of shares of Percentage of our outstanding
common stock common stock represented
issuable upon by the shares of common
conversion of the stock issuable upon
Percentage of market Conversion Conversion Conversion Series C, D and E conversion of the Series C, D
price per share of our price for price for price for convertible and E preferred stock
common stock Series C Series D Series E preferred stock following conversion
-------------- -------- -------- -------- ----------------- ---------------------
At $2.812 per share
(200% of the market
price at Sept. 3, 1999) $2.812 $2.812 $2.643 3,495,032 15.0%
At $2.461 per share
(175% of the market
price at Sept. 3, 1999) $2.461 $2.461 $2.313 3,994,175 17.1%
At $1.406 per share
(market price at Sept. 3,
1999) $1.406 $1.406 $1.322 6,989,463 30.0%
</TABLE>
- 9 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of shares of Percentage of our outstanding
At $1.055 per share
(75% of market price at
Sept. 3, 1999) $1.055 $1.055 $0.991 9,320,353 40.0%
At $0.703 per share $0.703 $0.703 $0.661 13,978,925 59.9%
(50% of market price at
Sept. 3, 1999)
- --------------------------- --------------- -------------- --------------- ------------------------ -----------------------------
</TABLE>
SELLING STOCKHOLDERS
The following table lists certain information regarding the selling
stockholders' ownership of shares of our common stock as of September 3, 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>
<S> <C> <C> <C> <C>
Shares of Common
Stock Owned
after Offering
-------------------------
Shares of
Common Percentage of Shares of
Stock Owned Common Stock Common
Prior to Owned Prior to Stock to be
Offering (1) the Offering Sold Number Percent
------------------------------------------------- ------------ ------------
Forest Avenue LLC (3) 1,106,992 (1) 4.5% 1,106,992 (1) 0 *
Warwick Corporation (4) 234,082 (2) 0.9% 234,082 (2) 0 *
Total 1,341,074 5.4% 1,341,074 0
========= ==== ========= =
</TABLE>
* Less than 1%
(1) 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) 687,994 common stock issuable upon
conversion of 2,000 shares of series E preferred stock and ; and (b)
warrants to purchase 50,000 shares of common stock at an exercise price of
$4.648 per share.
- 10 -
<PAGE>
(2) Includes 150% of (a) 121,655 shares of common stock issuable upon
conversion of 500 shares of series D preferred stock and (b) 34,400
shares issuable upon conversion of 100 shares of series E preferred
stock.
(3) Navigator Management, a British Virgin Islands company, is the director
of Forest Avenue LLC, a Cayman Islands entity. Mr. David Sims is the
controlling person of Navigator Management and, therefore, the
controlling person of Forest Avenue LLC.
(4) Ms. Dawn Davies is the director and controlling person of Warwick
Corporation.
Other than being an investor in the private placement for the series E
preferred stock, Forest Avenue LLC has not had any material relationship with us
during the past three years. Warwick Corporation has not had any material
relationship with us during the past three years.
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 23,318,576 shares of
common stock, 93.75 shares of series C preferred stock, 7,500 shares of series D
preferred stock and 2,100 shares of series E preferred stock issued and
outstanding. We have reserved 7,853,132 shares of common stock for issuance upon
conversion of the preferred stock and 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, B, C, D and E preferred stock. The
series A and B preferred stock have been fully converted. There are no other
shares of preferred stock outstanding, and we have no plans to issue any other
shares of preferred stock.
Series C Preferred Stock
On May 15, 1998, our board of directors authorized the issuance of a
series of preferred stock consisting of 375 shares of series C preferred stock.
Each share of series C preferred stock has a stated value, or "liquidation
preference", of up to $1,000, which means that, in the event of a liquidation,
dissolution or winding up of our company, for example, if we go bankrupt and all
of our assets are sold, the holders of each share would be entitled to a
preferential payment of up to $1,000 before holders of our common stock would
receive any of the proceeds from the sale. A certificate of designation filed
with the secretary of state of Delaware governs the terms and conditions of the
series C preferred stock. The following is a brief description of key terms of
the series C preferred stock.
Dividends
The holders of the series C preferred stock are entitled to receive,
when and as declared by our board of directors, dividends at the rate of 5% of
the liquidation preference per share per annum, and no more, payable, at the
discretion of our board of directors, in common stock or cash. Dividends accrue
on each share of series C preferred stock from the date of initial issuance.
Such dividends are in preference to any distributions on any outstanding shares
of our common stock or any other equity securities that are junior to the
preferred stock as to the payment of dividends.
Preferences on Liquidation
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of our company, the holders of series C preferred stock then
outstanding shall be entitled to be paid, out of our assets available for
distribution to our stockholders, an amount equal to the liquidation preference
for each share of series C preferred stock owned by such holder, plus all
accrued and unpaid dividends thereon to the date of payment. If upon
liquidation, dissolution, or winding up, the assets available for distribution
to our stockholders shall be insufficient to pay the holders of the series C
preferred stock the full liquidation preference plus accrued and unpaid
dividends to which they respectively shall be entitled, the holders of the
series C preferred stock together with the holders of any other series of
preferred stock ranking on a parity with the series C preferred stock as to the
payments of amounts upon liquidation, dissolution or winding up shall share
ratably in any distribution of assets according to the respective amounts which
would be payable in respect of all such shares held by the respective
stockholders. The sale or other disposition (for cash, shares of stock,
securities or other consideration), of all or substantially all of our assets
shall be deemed to be a liquidation, dissolution or winding up of our company
but the merger or consolidation of our company into or with another corporation
or into or with our company, shall not be deemed to be a liquidation, winding up
or dissolution of our company. The holders of series C preferred stock shall
have no priority or preference with respect to distributions made by us in
connection with the repurchase of shares of common stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for the right of said repurchase
between us and such persons.
- 13 -
<PAGE>
Conversion Rights
The holders of series C preferred stock shall have the right to convert
their shares into common stock as follows:
(i) prior to August 15, 1998, no shares of series C
preferred stock may be converted;
(ii) beginning August 15, 1998, holders may convert up to
25% of the shares of series C preferred stock then
outstanding; and
(iii) on November 15, 1998, February 15, 1999 and May 15,
1999, holders may convert up to an additional 25% the
shares of series C preferred stock then outstanding,
on a cumulative and pro rata basis.
The number of shares of common stock into which each share of series C
preferred stock may be converted shall be determined by dividing the liquidation
preference, or $1,000, by an amount equal to the lesser of
(a) 100% of the average closing bid price of the common
stock as reported on the Nasdaq SmallCap Market or
any successor exchange in which the common stock is
listed for the five trading days preceding the date
on which the holder of the series C preferred stock
has telecopied a notice of conversion to us, and
(b) $4.00.
In the event the shares of series C preferred stock are not converted
within ten business days of receipt by us of a valid notice of conversion, we
shall pay to the holder, by wire transfer, as liquidated damages for such
failure and not as a penalty, an amount in cash equal to 1% per day of the
purchase price of the shares of series C preferred stock to be converted which
shall run from the initial conversion date and the holder has the option to
withdraw the notice of conversion previously sent; provided, that we shall not
be responsible for or required to pay such liquidated damages if such failure to
convert was not caused by any actions or omissions of ours.
No fractional shares of common stock shall be issued upon conversion of
the series C preferred stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, we shall pay cash equal to such fraction
multiplied by the fair market value of the common stock on the conversion date,
as determined by our board of directors. We shall not be obligated to issue
certificates evidencing the shares of common stock issuable upon conversion
unless either the certificates evidencing such shares of series C preferred
stock are delivered to us or our transfer agent as provided above, or the holder
notifies us or our transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to us to indemnify us from
any loss incurred by it in connection with such certificates.
Upon any conversion of series C preferred stock, the shares of series C
preferred stock that are converted shall not be reissued and shall not be
considered outstanding for any purposes. Upon conversion of all of the then
outstanding series C preferred stock, shares of series C preferred stock
- 14 -
<PAGE>
shall not be deemed outstanding for any purpose whatsoever and all such shares
shall be retired and canceled and shall not be reissued.
On May 15, 2000, the holders of the series C preferred stock shall be
required to convert all of their outstanding shares of series C preferred stock
into shares of common stock. Until converted, we shall be entitled to redeem
shares of series C preferred stock in accordance with the certificate of
designation, regardless of whether or not a notice of conversion has been
received by us with respect to such shares.
We shall at all times when any shares of series C preferred stock shall
be outstanding, reserve and keep available out of our authorized but unissued
stock, such number of shares of common stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of series C
preferred stock.
Redemption
At any time after May 15, 1998, we may redeem up to 100% of the
outstanding shares of the series C preferred stock at the applicable redemption
price, provided, that (x) we shall have received a notice of conversion, and (y)
the Conversion Price is below $3.40. We shall give written notice by telecopy,
to the holder of series C preferred stock to be redeemed at least one business
day after receipt of the notice of conversion prior to the date specified for
redemption. Such notice shall state the redemption date, the redemption price,
the number of shares of series C preferred stock of such holders to be redeemed
and shall call upon such holders to surrender to us on the redemption date at
the place designated in the notice such holders' redeemed stock. If fewer than
all the outstanding shares of series C preferred stock are to be redeemed, the
redemption shall be pro rata among the holders of series C preferred stock and
subject to such other provisions as may be determined by our board of directors.
The redemption date shall be no more than 10 days after receipt of written
notice from us. If we fail to pay the redemption price on the redemption date,
we shall pay to the holder a penalty in an amount in cash equal to 2% of the
redemption price to be paid on such redemption date. If we fail to pay the
redemption price on the redemption date, the holder shall have the right to
convert the series C preferred stock previously presented to us and not
redeemed. We shall have the right to redeem the series C preferred stock in any
subsequent redemption; provided, however, that if we fail to pay the redemption
price in a subsequent redemption within 10 days, we shall have the right to
redeem the series C preferred stock thereafter only upon wiring the redemption
price to the holders simultaneously with sending the notice of redemption. On or
after the redemption date, the holders of shares of series C preferred stock
called for redemption shall surrender the certificates evidencing the shares
called for redemption to us at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price.
We shall have the option to redeem all or a portion of all the
outstanding shares of Series C Preferred Sock at a cash price equal to $3.40
multiplied by the number of shares the series C preferred stock would convert
into on the date of redemption.
From and after the redemption date (unless we have defaulted in duly
paying the redemption price in which case all the rights of the holders of such
shares shall continue), the holders of the shares of the series C preferred
stock called for redemption shall cease to have any rights as stockholders of
our company, except the right to receive, without interest, the redemption price
thereof upon surrender
- 15 -
<PAGE>
of certificates representing the shares of series C preferred stock, and such
shares shall not thereafter be transferred (except with our consent) on our
books and shall not be deemed outstanding for any purpose whatsoever.
There shall be no redemption of any shares of our series C preferred
stock where such action would be in violation of applicable law.
Voting Rights
Except as otherwise required by law, the holders of the series C
preferred stock shall not be entitled to vote upon any matter relating to our
business or affairs or for any other purpose.
Series D Preferred Stock
On March 8, 1999, our board of directors authorized the issuance of a
series of preferred stock consisting of 10,500 shares of series D preferred
stock. Each share of series D preferred stock has a stated value, or
"liquidation preference", of up to $1,000, which means that, in the event of a
liquidation, dissolution or winding up of our company, for example, if we go
bankrupt and all of our assets are sold, the holders of each share would be
entitled to a preferential payment of up to $1,000 before holders of our common
stock would receive any of the proceeds from the sale. A certificate of
designation filed with the secretary of state of Delaware governs the terms and
conditions of the series D preferred stock. The following is a brief description
of key terms of the series D preferred stock.
Dividends
The holders of series D preferred stock are entitled to receive, out of
any assets at the time legally available therefor and when and as declared by
our board of directors, dividends at the rate of 5% of the liquidation
preference per share per annum, and no more, payable, at the discretion of our
board of directors, only at conversion of the series D preferred stock into
common stock in common stock or cash. Dividends accrue on each share of series D
preferred stock from the date of initial issuance. Such dividends are in
preference to any distributions on any outstanding shares of common stock or any
other equity securities of ours that are junior to preferred stock as to the
payment of dividends.
Preferences on Liquidation
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of our company the holders of shares of series D preferred stock
then outstanding shall be entitled to be paid, out of our assets available for
distribution to our stockholders, an amount equal to the liquidation preference
for each share of series D preferred stock owned by such holder, plus all
accrued and unpaid dividends thereon to the date of payment. If upon
liquidation, dissolution, or winding up of our company our assets available for
distribution to our stockholders shall be insufficient to pay the holders of the
series D preferred stock the full liquidation preference plus accrued and unpaid
dividends to which they respectively shall be entitled, the holders of the
series D preferred stock together with the holders of any other series of
preferred stock ranking on a parity with the series D preferred stock as to the
payments of amounts upon liquidation, dissolution or winding up shall share
ratably in any distribution of assets according to the respective amounts which
would be payable in respect of all such
- 16 -
<PAGE>
shares held by the respective stockholders thereof upon such distribution if all
amounts payable on or with respect to said shares were paid in full. The sale or
other disposition (for cash, shares of stock, securities or other
consideration), of all or substantially all of our assets shall be deemed to be
a liquidation, dissolution or winding up of our company but the merger or
consolidation of us into or with another corporation or into or with us, shall
not be deemed to be a liquidation, winding up or dissolution of our company. The
holders of series D preferred stock shall have no priority or preference with
respect to distributions made by us in connection with the repurchase of shares
of common stock issued to or held by employees, directors or consultants upon
termination of their employment or services pursuant to agreements providing for
the right of said repurchase between us and such persons.
Conversion Rights
The holders of series D preferred stock shall have the right to convert
their shares into common stock as follows, on a cumulative and pro rata basis:
(i) prior to May 17, 1999, a holder may not convert
series D preferred stock;
(ii) beginning May 17, 1999, holders may convert up to 30%
of the shares of series D preferred stock issuable to
each of the holders;
(iii) beginning on June 16, 1999, holders may convert an
additional 30% of the shares of series D preferred
stock issuable to each of the holders;
(iv) beginning on July 16, 1999, holders may convert an
additional 30% of the shares of series D preferred
stock issuable to each of the holders;
(v) beginning on August 15, 1999, holders may convert the
final 10% of the shares of series D preferred stock
issuable to each of the holders.
The number of shares of common stock into which each share of series D
preferred stock may be converted shall be determined by dividing the liquidation
preference, or $1,000, by an amount equal to the lesser of :
(i) $4.875 and
(ii) 100% of the "market price", which means 100% of the
average of the 3 lowest closing bid prices of the
common stock as reported by Bloomberg L.P. during the
20 day trading period immediately preceding the date
on which the holder gives to us notice of conversion
of series D preferred stock.
No fractional shares of common stock shall be issued upon conversion of
the series D preferred stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, we shall pay cash equal to such fraction
multiplied by the fair market value of the common stock on the date on which the
holder gives to us notice of conversion of series D preferred stock, as
determined by our board of directors. We are obligated to issue certificates
evidencing the shares of common stock issuable upon conversion unless either the
certificates evidencing such shares of series D preferred stock are delivered
- 17 -
<PAGE>
to us or our transfer agent as provided above, or the holder notifies us or our
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to us to indemnify us from any loss incurred
by it in connection with such certificates.
We are not obligated to issue upon conversion of the series D preferred
stock shares of common stock equal to more than 19.99% of the common stock
outstanding on March 10, 1999 unless such issuance is approved by our
stockholders. In the event that such approval is not obtained from our
stockholders, we shall be in default and the holders shall have all their rights
and remedies.
Subject to the 19.99% restriction on conversion of the preferred stock
described above, on March 10, 2001, each share of series D preferred stock which
remains outstanding shall be automatically converted on such date into shares of
common stock.
Redemption
We may, at the option of our board of directors, redeem up to 100% of
the outstanding shares of the series D preferred stock upon five business days
notice of redemption to the holders at a price payable in cash equal to:
(a) $1,080 plus any accrued but unpaid dividends if the
redemption occurs on or before May 9, 1999;
(b) $1,120 plus any accrued but unpaid dividends if the
redemption occurs between May 10, 1999 and July 8,
1999; and
(c) $1,150 plus any accrued but unpaid dividends if the
redemption occurs after July 9, 1999.
Upon receipt of a redemption notice, a holder of series D preferred
stock shall have the right to convert, upon notice to us, up to a maximum of 20%
of the total amount of series D preferred stock issuable to such holder,
provided, such conversion is within 3 business days from the time the notice of
redemption is received by the holder. If we fail to pay the applicable
redemption price by the sixth trading day following the date of redemption, the
redemption will be declared null and void and we shall lose our right to serve a
notice of redemption in the future.
From and after the date of redemption (unless default shall be made by
us in duly paying the applicable redemption price in which case all the rights
of the holders of such shares shall continue), the holders of the shares of the
series D preferred stock called for redemption shall cease to have any rights as
our stockholders, except the right to receive, without interest, the applicable
redemption price thereof upon surrender of certificates representing the shares
of series D preferred stock, and such shares shall not thereafter be transferred
(except with our consent) on our books and shall not be deemed outstanding for
any purpose whatsoever.
There shall be no redemption of any shares of the series D preferred
stock where such action would be in violation of applicable law.
No Voting Rights
- 18 -
<PAGE>
Except as otherwise required by law, the holders of the series D
preferred stock shall not be entitled to vote upon any matter relating to our
business or affairs or for any other purpose.
Series D Warrants
Each of the investors who purchased series D preferred stock will have
received the number of warrants that directly corresponds with the dollar amount
such investor invested in the series D preferred stock. The series D preferred
stock has an exercise price equal to $6.09 and an exercise period of three years
from the date of issuance. The exercise price of the warrants will be adjusted
and the number of shares of common stock to be issued upon exercise of the
warrants will be adjusted upon the occurrence of, among other things, redemption
of the series D preferred stock, declaration or payment of a dividend in shares
of common stock or distribution in shares of common stock to holders of our
outstanding common stock, subdivision, combination or reclassification of the
common stock. In the event we redeem series D preferred stock, the exercise
price of a pro rata amount of the warrants shall be reduced to $5.61. Such an
adjustment of the exercise price downward will result in the issuance of
additional shares of common stock upon exercise of the warrants.
We may call, upon written notice, (x) up to 50% of the Series D
Warrants at a price equal to $6.09 if the common stock trades at a price equal
to or greater than $9.75 for 20 consecutive trading day prior to the date we
call the warrants and (y) up to 50% of the outstanding warrants at a price equal
to $6.09 per share of Common Stock into which the warrants is convertible if the
common stock trades at a price equal to or greater than $12.19 for 20
consecutive trading days prior to the date we call the warrants. The rights and
privileges granted pursuant to the warrants shall terminate 30 days after the
call notice is sent to the holder of such warrants if the warrants are not
exercised during the 30 day period. In the event the warrants are not exercised
during this period we will remit to the holder $.01 per share of common stock
into which the warrants are convertible upon the holder tendering to us the
expired warrant certificate.
Series E Preferred Stock
On May 7, 1999, our board of directors authorized the issuance of a
series of preferred stock consisting of 2,100 shares of series E preferred
stock. Each share of series D preferred stock has a stated value, or
"liquidation preference", of up to $1,000, which means that, in the event of a
liquidation, dissolution or winding up of our company, for example, if we go
bankrupt and all of our assets are sold, the holders of each share would be
entitled to a preferential payment of up to $1,000 before holders of our common
stock would receive any of the proceeds from the sale. A certificate of
designation filed with the secretary of state of Delaware governs the terms and
conditions of the series D preferred stock. The following is a brief description
of key terms of the series D preferred stock.
Dividends
The holders of series E preferred stock are entitled to receive, out of
any assets at the time legally available therefor and when and as declared by
our board of directors, dividends at the rate of 5% of the liquidation
preference per share per annum, and no more, payable, at the discretion of our
board of directors, only at conversion of the series E preferred stock into
common stock in common stock or cash. Dividends accrue on each share of series E
preferred stock from the date of initial issuance. Such dividends are in
preference to any distributions on any outstanding shares of common
- 19 -
<PAGE>
stock or any other equity securities of ours that are junior to the preferred
stock as to the payment of dividends.
Preferences on Liquidation
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of our company, the holders of shares of the series E preferred
stock then outstanding shall be entitled to be paid, out of the assets of our
company available for distribution to our stockholders, an amount equal to the
liquidation preference for each share of series E preferred stock owned by such
holder, plus all accrued and unpaid dividends thereon to the date of payment. If
upon liquidation, dissolution, or winding up of our company, the assets of our
company available for distribution to our stockholders shall be insufficient to
pay the holders of the series E preferred stock the full liquidation preference
plus accrued and unpaid dividends to which they respectively shall be entitled,
the holders of the series E preferred stock together with the holders of any
other series of preferred stock ranking on a parity with the series E preferred
stock as to the payments of amounts upon liquidation, dissolution or winding up
shall share ratably in any distribution of assets according to the respective
amounts which would be payable in respect of all such shares held by the
respective stockholders thereof upon such distribution if all amounts payable on
or with respect to said shares were paid in full. The sale or other disposition
(for cash, shares of stock, securities or other consideration), of all or
substantially all of the assets of our company shall be deemed to be a
liquidation, dissolution or winding up of our company but the merger or
consolidation of our company into or with another corporation or into or with
our company, shall not be deemed to be a liquidation, winding up or dissolution
of our company. The holders of series E preferred stock shall have no priority
or preference with respect to distributions made by our company in connection
with the repurchase of shares of common stock issued to or held by employees,
directors or consultants upon termination of their employment or services
pursuant to agreements providing for the right of said repurchase between our
company and such persons.
Conversion Rights
The holders of series E preferred stock shall have the right to convert
their shares into common stock as follows, on a cumulative and pro rata basis,:
(i) prior to the earlier of (x) the effective date of the
registration statement covering the shares of common
stock issuable upon conversion of the series E
preferred stock and (y) September 9, 1999 (the "First
Conversion Date"), no shares of series E preferred
stock may be converted;
(ii) during the thirty day period following the First
Conversion Date, holders may convert up to 25% of the
shares of the series E preferred stock then
outstanding;
(iii) during each 30 day period thereafter, holders may
convert an additional 25% of the shares of series E
preferred stock issued on May 11, 1999,
provided, however, that if the trading volume of the common stock for the 2
weeks prior to the First Conversion Date equals or exceeds 150,000, during each
30 day period following the First Conversion Date up to 33% of the series E
preferred stock may be converted.
- 20 -
<PAGE>
The number of shares of common stock into which each share of series E
preferred stock may be converted shall be determined by dividing the liquidation
preference, or $1,000, by an amount equal to the lesser of :
(i) $3.719 and
(ii) 94% of the average of the 3 lowest closing bid prices
of the common stock, not necessarily consecutive,
during the 20 day trading period immediately
preceding the date on which the holder gives us a
notice of conversion of series E preferred stock.
No fractional shares of common stock shall be issued upon conversion of
the series E preferred stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, we shall pay cash equal to such fraction
multiplied by the fair market value of the common stock on the date on which the
holder gives us a notice of conversion of series E preferred stock, as
determined by our board of directors. We are not obligated to issue certificates
evidencing the shares of common stock issuable upon conversion unless either the
certificates evidencing such shares of series E preferred stock are delivered to
us or our transfer agent as provided above, or the holder notifies us or our
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to us to indemnify us from any loss incurred
by it in connection with such certificates.
We are not obligated to issue upon conversion of the series E preferred
stock shares of common stock equal to more than 19.99% of the common stock
outstanding on the date of issuance of the series E preferred stock, May 11,
1999, unless such issuance is approved by our stockholders. In the event that we
fail to call a stockholders meeting or approval is not obtained from our
stockholders, each holder of series E preferred stock shall have the right, at
such holder's option, to require us to redeem all or a portion of such holder's
shares of series E preferred stock which we are unable to convert at a price per
share equal to 115% of the liquidation preference, or $1,150, plus any accrued
but unpaid dividends.
Subject to the 19.99% conversion restriction described above, on May
11, 2001, each share of series E preferred stock which remains outstanding shall
be automatically converted on such date into shares of common stock.
We will reserve and keep available a sufficient number of authorized
shares of common stock to enable the conversion of all outstanding shares of the
preferred stock.
Redemption
We may, at the option of our board of directors, redeem up to 100% of
the outstanding shares of the series E preferred stock upon five business days
notice of redemption to the holders at a price payable in cash equal to:
(a) $1,080 plus any accrued but unpaid dividends if the
redemption occurs on or before July 10, 1999;
- 21 -
<PAGE>
(b) $1,120 plus any accrued but unpaid dividends if the
redemptions occurs between July 11, 1999 and
September 8, 1999; and
(c) $1,150 plus any accrued but unpaid dividends if the
redemption occurs after September 9, 1999.
provided, that the closing bid price of the common stock is greater than $5.00
per share. Upon receipt of a redemption notice, a holder of series E preferred
stock shall have the right to convert, upon notice to us, up to a maximum of 20%
of the total amount of series E preferred stock to be redeemed, provided, such
conversion is within 24 hours from the time the notice of redemption is received
by the holder. If we fail to pay the applicable redemption price by the sixth
trading day following the date of redemption, the redemption will be declared
null and void and the company shall lose our right to serve a notice of
redemption in the future.
From and after the date of redemption (unless we have defaulted in duly
paying the applicable redemption price in which case all the rights of the
holders of such shares shall continue), the holders of the shares of the series
E preferred stock called for redemption shall cease to have any rights as our
stockholders, except the right to receive, without interest, the applicable
redemption price thereof upon surrender of certificates representing the shares
of series E preferred stock, and such shares shall not thereafter be transferred
(except with our consent) on our books and shall not be deemed outstanding for
any purpose whatsoever.
There shall be no redemption of any shares of the series E preferred
stock where such action would be in violation of applicable law.
No Voting Rights
Except as otherwise required by law, the holders of the series E
preferred stock shall not be entitled to vote upon any matter relating to our
business or affairs or for any other purpose.
Series E Warrants
We have also issued to certain investors warrants which have an
exercise price equal to $4.65 and an exercise period of three years from the
date of issuance. The exercise price of the warrants will be adjusted and the
number of shares of common stock to be issued upon exercise of the warrants will
be adjusted upon the occurrence of, among other things, redemption of the series
E preferred stock, declaration or payment of a dividend in shares of common
stock or the distribution in shares of common stock to holders of its
outstanding common stock, subdivision, combination or reclassification of the
common stock. In the event we redeem series E preferred stock, the exercise
price of a pro rata amount of the warrant shall be reduced to $4.28. Such an
adjustment of the exercise price downward will result in the issuance of
additional shares of common stock upon exercise of the warrants.
We may call, upon written notice, up to 50% of the outstanding warrants
at a price equal to $4.65 if the common stock trades at a price equal to or
greater than $9.30 for 20 consecutive trading day prior to the date we call the
warrants and up to 50% of the outstanding warrants at a price equal to $4.65 per
share of common stock into which the warrants are convertible if the common
stock trades at a price equal to or greater than $11.63 for 20 consecutive
trading day prior to the date we call the
- 22 -
<PAGE>
warrants. The rights and privileges granted pursuant to the warrants shall
terminate 30 days after the call notice is sent to the holder of such warrants
if the warrants are not exercised during the 30 day period. In the event the
warrants are not exercised during this period we will remit to the holders $.01
per share of common stock into which the warrants are convertible upon the
holder tendering to us the expired warrant certificate.
Warrants
Of the total 1,341,074 shares of common stock registered for sale by
the selling stockholders, 50,000 shares are issuable upon exercise of currently
exercisable warrants. Due to the terms of the registration rights agreement
between Xybernaut and the selling stockholder, this prospectus covers the sale
of 75,000 shares of common stock issuable upon exercise of the warrant. The
75,000 shares represent 150% of the original number of shares issuable under the
warrant. The warrants were issued to one of the selling stockholders in
connection with a private placement. The exercise price and term of the warrant
are as follows:
Warrants Exercise Price Expiration Date
50,000 $ 4.648 May 11, 2002
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:
. implement an advance notice procedure for the submission of
director nominations and other business to be considered at
annual meetings of stockholders;
. 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;
. 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
- 23 -
<PAGE>
outstanding shares entitled to vote generally in the election
of directors voting together as a single class;
. 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;
. 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;
. eliminate stockholder action by written consent;
. 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
. 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:
. in the over-the-counter market; or
. in privately negotiated transactions
at prevailing market prices at the time of sale, at prices related to those
prevailing market prices, at negotiated prices or at fixed prices.
- 24 -
<PAGE>
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:
. ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
. 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;
. 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
. 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:
. may not engage in any stabilization activity in connection
with our securities;
. 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
. 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.
- 25 -
<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.
- 26 -
<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.
- 27 -
<PAGE>
<TABLE>
<S> <C>
We have not authorized any dealer,
salesperson or any other person to give any 1,341,074
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. XYBERNAUT CORPORATION
TABLE OF CONTENTS
Page
Risk Factors...........................................2
Where You Can Find More
Information About Us...........................6
Use of Proceeds........................................7
Dilution...............................................8
Effects of Possible Non-Cash
Future Charge..................................9
Selling Stockholders .................................10
Description of Securities.............................12 PROSPECTUS
Plan of Distribution .................................14
Indemnification for Securities
Act Liabilities...............................16
Legal Matters.........................................17
Experts ..............................................17
_________________________, 1999
======================================================== =======================================================
</TABLE>
<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...................... $1,269.00
Legal fees and expenses.................................... $10,000.00
Accounting expenses........................................ $5,000.00
---------
Total................................................. $16,269.00
==========
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(1) Certificate of Designation of the Series D Preferred Stock.
3.2(1) Certificate of Designation of the Series D Preferred Stock, as amended
May 12, 1999.
3.3(1) Certificate of Designation of the Series E Preferred Stock.
3.4(1) Certificate of Designation of the Series E Preferred Stock, as amended
May 12, 1999.
4.1(1) Form of Securities Purchase Agreement used in the May 11, 1999 private
placement for relating to the issuance of 2,000 shares of Series E
Convertible Preferred Stock.
4.2(1) Form of Warrant used in the May 11, 1999 private placement relating to
the issuance of 2,000 shares of Series E Convertible Preferred Stock.
5(1) Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1(1) Form of Registration Rights Agreement used in the May 11, 1999 private
placement relating to the issuance of 2,000 shares of Series E
Convertible Preferred Stock.
10.2(1) Form of Escrow Agreement used in the May 11, 1999 private placement
relating to the issuance of 2,000 shares of Series E Convertible
Preferred Stock.
10.3 Form of finder's agreement dated March 8, 1999 between the Company and
Settondown Capital International Ltd. for the placement of the Series D
Preferred Stock.
10.4 Form of finder's agreement dated May 11, 1999 between the Company and
Settondown Capital International Ltd. for the placement of the Series E
Preferred Stock.
23.1(2) Consent of PricewaterhouseCoopers LLP
23.2(1) Consent of Parker Chapin Flattau & Klimpl, LLP (included in their
opinion filed as Exhibit 5.1).
24.1(1) Power of Attorney (included on page II-4).
- --------------
(1) Included as exhibits with the original filing of this registration
statement.
(2) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
II-2
<PAGE>
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless 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
II-3
<PAGE>
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-4
<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 September 8,
1999.
XYBERNAUT CORPORATION
By: /s/ Edward G. Newman
Edward G. Newman
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-3 has been signed below by the following
persons in the capacities and on September 8, 1999.
SIGNATURE TITLE
Chairman of the Board,
President and Chief Executive
/s/ Edward G. Newman Officer
Edward G. Newman
* Executive Vice President -
Kaz Toyosato Asian Operations and Director
* Chief Operating Officer and
John F. Moynahan Chief Financial Officer
*
Martin Eric Weisberg Secretary and Director
* Director
Lt. Gen. Harry E. Soyster
II-5
<PAGE>
SIGNATURE TITLE
* Director
James J. Ralabate
* Director
Keith P. Hicks
* Vice Chairman and
Steven A. Newman Director
* Director
Phillip E. Pearce
* Director
Eugene J. Amobi
* Director
Edwin Vogt
By: Edward G. Newman
Attorney-in-fact
II-6
<PAGE>
SECURITIES AND
EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
-------------
EXHIBITS TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
<PAGE>
XYBERNAUT CORPORATION
(EXACT NAME OF ISSUER AS SPECIFIED
IN ITS CHARTER)
SEPTEMBER 10, 1999
E-1
<PAGE>
NUMBER DESCRIPTION OF EXHIBIT
3.1(1) Certificate of Designation of the Series D Preferred Stock.
3.2(1) Certificate of Designation of the Series D Preferred Stock, as amended
May 12, 1999.
3.3(1) Certificate of Designation of the Series E Preferred Stock.
3.4(1) Certificate of Designation of the Series E Preferred Stock, as amended
May 12, 1999.
4.1(1) Form of Securities Purchase Agreement used in the May 11, 1999 private
placement for relating to the issuance of 2,000 shares of Series E
Convertible Preferred Stock.
4.2(1) Form of Warrant used in the May 11, 1999 private placement relating to
the issuance of 2,000 shares of Series E Convertible Preferred Stock.
5(1) Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1(1) Form of Registration Rights Agreement used in the May 11, 1999 private
placement relating to the issuance of 2,000 shares of Series E
Convertible Preferred Stock.
10.2(1) Form of Escrow Agreement used in the May 11, 1999 private placement
relating to the issuance of 2,000 shares of Series E Convertible
Preferred Stock.
10.3 Form of finder's agreement dated March 8, 1999 between the Company and
Settondown Capital International Ltd. for the placement of the Series D
Preferred Stock.
10.4 Form of finder's agreement dated May 11, 1999 between the Company and
Settondown Capital International Ltd. for the placement of the Series E
Preferred Stock.
23.1(2) Consent of PricewaterhouseCoopers LLP
23.2(1) Consent of Parker Chapin Flattau & Klimpl, LLP (included in their
opinion filed as Exhibit 5.1).
24.1(1) Power of Attorney (included on page II-4).
- --------------
(1) Included as exhibits with the original filing of this registration
statement.
(2) To be filed by amendment.
E-2
<PAGE>
Exhibit 10.3
FORM OF FINDER'S AGREEMENT
Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550
Fairfax, VA 22033
March 8, 1999
Settondown Capital International, Ltd.
P.O. Box N. 9204
Charlotte & House
Charlotte Street
Nassau, The Bahamas
Gentlemen:
Reference is made to that certain securities purchase agreement dated
as of March 8, 1999 (the "Securities Purchase Agreement") by and among Xybernaut
Corporation, a Delaware corporation (the "Company"), and various investors party
thereto (the "Investors"). Capitalized terms used and not defined herein shall
have the same meanings as assigned to them in the Securities Purchase Agreement.
This letter agreement is intended to set forth the understanding and
agreement pursuant to which the Company has retained the services of Settondown
Capital International, Ltd. ("Settondown") to act as the Company's financial
advisor in connection with a private placement of the Company's securities which
is intended to raise up to $10,000,000 for the Company (the "Transaction").
As full compensation for arranging and assisting with the Transaction,
it is agreed that the Company shall compensate Settondown as follows:
1. The Company shall pay Settondown a fee equal to five percent (5%) of
the aggregate amount of the Preferred Stock purchased by the Investors. The fee
shall be paid on each Closing Date in the form of Preferred Stock issued by the
Company to Settondown.
2. This letter agreement sets forth the entire understanding and
agreement between Settondown and the Company with respect to the subject matter
hereof and this Agreement supersedes all prior and/or contemporaneous
understandings and agreements with respect to such subject matter (whether
written or oral), all of which are merged herein.
E-3
<PAGE>
3. This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to its
conflicts of laws provisions. This letter agreement may not be amended, modified
or waived, except by an instrument in writing duly executed by the Company and
Settondown.
Please evidence your concurrence to the terms and provisions of this
letter agreement, by executing and returning the enclosed copy of this letter
agreement.
Very truly yours,
XYBERNAUT CORPORATION
By:________________________________
Name: Steven Newman
Title: Vice Chairman
Agreed and Accepted:
SETTONDOWN CAPITAL INTERNATIONAL,
LTD.
By:______________________________
Name:
Title:
E-4
<PAGE>
Exhibit 10.4
Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550
Fairfax, VA 22033
May 11, 1999
Settondown Capital International, Ltd.
P.O. Box N. 9204
Charlotte & House
Charlotte Street
Nassau, The Bahamas
Gentlemen:
Reference is made to that certain securities purchase agreement dated
as of May 11, 1999 (the "Securities Purchase Agreement") by and between
Xybernaut Corporation, a Delaware corporation (the "Company"), and Forest Avenue
LLC, a Cayman Islands limited liability company (the "Investor"). Capitalized
terms used and not defined herein shall have the same meanings as assigned to
them in the Securities Purchase Agreement.
This letter agreement is intended to set forth the understanding and
agreement pursuant to which the Company has retained the services of Settondown
Capital International, Ltd. ("Settondown") to act as the Company's financial
advisor in connection with a private placement of the Company's securities which
is intended to raise up $2,000,000 (the "Transaction").
As full compensation for arranging and assisting with the Transaction,
it is agreed that the Company shall compensate Settondown as follows:
4. The Company shall pay Settondown a fee equal to five percent (5%) of
the aggregate amount of the Preferred Stock purchased by the Investor. The fee
shall be paid on the Closing Date in the form of Preferred Stock issued by the
Company to Settondown.
5. This letter agreement sets forth the entire understanding and
agreement between Settondown and the Company with respect to the subject matter
hereof and this Agreement supersedes all prior and/or contemporaneous
understandings and agreements with respect to such subject matter (whether
written or oral), all of which are merged herein.
6. This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to its
conflicts of laws provisions. This letter
E-5
<PAGE>
agreement may not be amended, modified or waived, except by an instrument in
writing duly executed by the Company and Settondown.
Please evidence your concurrence to the terms and provisions of this
letter agreement, by executing and returning the enclosed copy of this letter
agreement.
Very truly yours,
XYBERNAUT CORPORATION
By:________________________
Name: Steven Newman
Title: Vice Chairman
Agreed and Accepted:
SETTONDOWN CAPITAL INTERNATIONAL,
LTD.
By:______________________________
Name:
Title:
E-6
