Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
(703) 631-6925 (T)
(703) 631-3903 (F)
May 30, 2003
Sundial Investments, Limited
Gretton House
P.O. Box 65, Duke Street
British West Indies
ATTN: Ms. Beverly Simmons
Re: Notice of Warrant Exercise and Satisfaction of Promissory Note
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Gentlemen:
Reference is made to: (i) that certain Promissory Note, dated as of
March 26, 2003 (the "Note"), issued by Xybernaut Corporation, a Delaware
corporation (the "Company"), in favor of Sundial Investments, Limited (the
"Investor") in the initial principal amount of $1,750,000 (which principal
amount has been previously reduced by the amount of $860,000, with the remaining
principal amount of $890,000 currently outstanding on the Note), and (ii) that
certain Common Stock Purchase Warrant, Number W-M03-1, dated March 26, 2003 (the
"Warrant"), exercisable into 1,750,000 shares of common stock, par value $.01
per share, of the Company ("Common Stock"), at an exercise price of $1.25 per
share (the "Exercise Price"), issued by the Company to the Investor.
For good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the Company and the Investor hereby agree as follows:
The Investor agrees to reduce the outstanding principal amount of the
Note by ten (10%) percent, or $89,000, resulting in an outstanding principal
amount on the Note of $801,000. The Investor agrees to exercise all of the
shares underlying the Warrant, and the Company agrees that the Exercise Price
shall be reduced from $1.25 to $0.32 cents per share. The Investor hereby elects
to apply the outstanding principal amount of $560,000 of the Note as payment for
the Exercise Price of the shares of Common Stock underlying the Warrant.
The remaining outstanding principal amount of the Note of $241,000,
plus accrued and unpaid interest of $11,229.17, shall be paid in full by the
Company's issuance to the Investor of: (i) 651,352 shares (the "Principal
Payment Shares") of Common Stock, at an agreed upon valuation equal to $0.37
cents per share, for the payment of outstanding principal on the Note, and (ii)
30,349 shares (the "Interest Payment Shares" and, together with the Principal
Payment Shares, the "Shares") of its Common Stock at a price of $0.37 cents per
share, for the payment of accrued and unpaid interest on the Note. The Shares
shall not be registered with the Securities and Exchange Commission and shall be
"restricted securities", within the meaning of Rule 144 promulgated under the
Securities Act of 1933, as amended. If, at any time following 90 days from the
date hereof, the
Sundial Investments, Limited
May 30, 2003
Page -2-
Company files a registration statement on Form S-3 (or other appropriate form
then available, except on Form S-4, S-8 or their respective successor forms) in
connection with a public or private offering of its securities to investors, the
Company shall include the Shares which are being issued by the Company on such
registration statement.
The Investor represents and warrants to the Company that it is an
"accredited" investor, as that term is defined in Rule 501 of the Securities Act
and it is acquiring the Shares for investment purposes and not with a view to
the distribution of the Shares to the public.
Upon our execution of this letter agreement, any and all obligations of
the Company to the Investor under the Note shall be fully satisfied, the Note
shall be terminated and marked "paid in full" and the Investor will have no
remaining rights, powers, privileges, remedies or interests under the Note.
As promptly as practicable but no later than three (3) business days
following the exercise of the Warrant, the Company shall take such actions as it
shall deem necessary or appropriate to deliver the final prospectus, as amended
or supplemented, relating to the sale of the shares of Common Stock underlying
the Warrant under the Securities Act of 1933, as amended and deliver same to the
Investor prior to sale. The Investor agrees that it shall not sell any shares of
Common Stock underlying the Warrant pursuant to the Registration Statement on
Form S-3, Registration No. 333-104223, without proper delivery of the final
prospectus, as amended or supplemented.
Except as amended hereby, the provisions of the Warrant shall be
unmodified and shall remain in full force and effect.
Please confirm your agreement to the foregoing by executing the
enclosed copy of this letter and returning it to the undersigned, whereupon it
shall become a binding agreement between us as of the date hereof.
Very truly yours,
XYBERNAUT CORPORATION
By:
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Name:
Title:
AGREED:
SUNDIAL INVESTMENTS, LIMITED
By:
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Name:
Title: