Escrow Agreement - Xybernaut Corp., Royce Investment Group Inc. and Continental Stock Transfer & Trust Co.
ESCROW AGREEMENT
ESCROW AGREEMENT, made this _____ day of ___________, 1996, by
and among each of the shareholders (the "Stockholders" or "Stockholder") of
Xybernaut Corporation, a Delaware corporation, Xybernaut Corporation (the
"Company"), Royce Investment Group, Inc. (the "Representative") and Continental
Stock Transfer & Trust Company (the "Escrow Agent").
WHEREAS, the Stockholders are the record and beneficial owners
of Common Stock, par value $.01 per share, of the Company, as more fully
reflected on Exhibit A hereto, all of which are "restricted securities" as
defined under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, the Company and the Representative of the several
underwriters (the "Underwriters") intend to enter into an Underwriting
Agreement (the "Underwriting Agreement"; certain terms used herein which are
not defined herein and which are defined in the Underwriting Agreement are used
herein as therein defined) pursuant to which the Company will sell Units, each
Unit consisting of one share of Common Stock, par value $.01 per share (the
"Common Stock") and one Warrant (a "Warrant") in a public offering pursuant to
the registration provisions of the 1933 Act;
WHEREAS, as a condition to closing the proposed initial public
offering of the Company (the "Offering"), the Representative has required the
Stockholders to deposit an aggregate of 1,800,000 shares of Common Stock of the
Company, on a pro rata basis, owned by such Stockholders in escrow with the
Escrow Agent (the "Escrow Shares"); and
WHEREAS, the Stockholders wish to deposit their pro rata share
of the Escrow Shares in escrow in order to fulfill the requirements of the
Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, terms and conditions hereinafter set forth, the parties
hereto hereby agree as follows:
Section 1. Designation and Deposit of Escrow Shares.
a. The Escrow Shares of the Company to be deposited
in escrow pursuant to this Agreement consist of 1,800,000
shares of Common Stock and are owned of record by the
Stockholders identified on Exhibit A attached hereto.
b. On or before the date on which the Securities and
Exchange Commission declares the Company's Registration
Statement on Form SB-2 (Reg. No. 333-4156) effective under
the 1933 Act (the "Effective Date"), the Stockholders shall
deliver to the Escrow Agent any and all certificates
representing the Escrow Shares and a stock power
endorsed in blank. Promptly after the effective date of the
Offering, the Escrow Agent shall deliver a receipt therefor
and a new certificate representing the Stockholder's
nonescrowed shares of Common Stock to the Stockholder.
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Section 2. Title of Escrow Account. All certificates
representing the Escrow Shares delivered to the Escrow Agent pursuant to this
Agreement shall be deposited on the Effective Date by the Escrow Agent in an
account designated substantially as follows: "Xybernaut Corporation Stock
Certificate Escrow Account" (the "Escrow Account").
Section 3. Transfer of Escrow Shares During Escrow Period.
a. During the Escrow Period (hereinafter defined)
none of the Escrow Shares deposited in the Escrow Account
shall be sold, pledged, hypothecated or otherwise transferred
or delivered out of the Escrow Account except as follows:
i. Transfers by operation of law
occasioned by the death or incapacity of the
Stockholder shall be recorded upon presentation to the
Company by the personal representative or guardian of a
deceased or incapacitated Stockholder of appropriate
documents regarding the necessity for transfer and of
which transfer the Company has notified the Escrow
Agent and the Representative; or
ii. Transfers of ownership of
certificates representing the Escrow Shares deposited
to the Escrow Account for which the Representative has
reviewed the terms of the proposed transfer, imposed
any requirement and restriction which it may deem
necessary and appropriate and consented in writing to
such transfer and so notified the Escrow Agent of such
consent.
b. During the Escrow Period all Stockholders and
owners of the Escrow Shares, certificates for which have been
deposited to the Escrow Account, shall remain subject to the
restrictions imposed hereby, including those persons, if any,
who become holders, by any means provided herein, of the
Escrow Shares during the Escrow Period.
Section 4. Duration of Escrow Period.
a. The Escrow Period shall commence on the Effective
Date and shall terminate 60 days after the filing by the
Company of financial statements in a Form 10-QSB for the
quarter ending September 30, 1999 pursuant to the Securities
Exchange Act of 1934, as amended.
b. This Agreement shall be of no force or effect in
the event the Underwriting Agreement is not executed on the
Effective Date in accordance with its terms.
Section 5. Receipt of Distributions and Dividends. During
the term of the Escrow Period, if the Company issues any distributions,
dividends, rights or other property with respect to the Common Stock, or in the
event of a share split, recapitalization, merger, acquisition, spinoff or other
transaction affecting the capitalization of the Company then, in such event,
the Company shall be authorized to send evidence of such distributions,
dividends, rights, share
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certificates or other property directly to the Escrow Agent, which is hereby
authorized to hold and retain possession of all such evidences of
distributions, dividends, rights or other property until termination of the
Escrow Period in accordance with Section 6 below. In the event the Escrow
Shares are distributed to the Stockholders pursuant to Section 6(a) below, then
the Escrow Agent will distribute evidences of such distributions, dividends,
rights, Common Stock or other property in the form the Escrow Agent received
such distributions, dividends, rights, Common Stock or other property from the
Company. In the event the Escrow Period terminates pursuant to Section 6(b)
below, the Escrow Agent is hereby authorized, empowered and instructed to
deliver all such evidences of distributions, dividends, rights, Common Stock or
other property to the Company, which is hereby authorized to cancel the same on
the books of the Company at the time of receipt thereof from the Escrow Agent.
Section 6. Release and Delivery of Escrow Shares.
Shares of the Escrow Stock shall be released in the following
amounts and at the following times:
A. 300,000 shares on ____________, 1997 which shall be
returned to the shareholders if for the twelve months ending September 30, 1997
the Company achieves gross revenues of at least $20,000,000 and a net loss, if
any, not in excess of $500,000 (the "1997 Performance Target") or, if the
Company fails to achieve the 1997 Performance Target, to the Company for
cancellation in accordance with the terms hereof.
B. 750,000 shares on ____________, 1998 which shall be
returned to the shareholders if for the twelve months ending September 30, 1998
the Company achieves gross revenues of at least $45,000,000 and earnings per
share of at least $1.00 (the "1998 Performance Target") or, if the Company
fails to achieve the 1998 Performance Target, to the Company for cancellation
in accordance with the terms hereof.
C. 750,000 shares on ____________, 1999 which shall be
returned to the shareholders if for the twelve months ending September 30, 1999
the Company achieves gross revenues of at least $90,000,000 and earning per
share of at least $1.25 (the "1999 Performance Target") or, if the Company
fails to achieve the 1999 Performance Target, to the Company for cancellation
in accordance with the terms hereof.
Notwithstanding the foregoing, if at any time the
closing bid price of the Common Stock reported on the Nasdaq
SmallCap Market equals or exceeds $11.00 per share for 25
consecutive trading days or for 30 out of 35 consecutive
trading days, all Escrow Shares then remaining in the Escrow
Account will be released from the Escrow Account and returned
to the Stockholders.
c. The determination of gross revenues, net loss
and/or earnings per share by the Company for the 1997 Period,
the 1998 Period and 1999 Period shall be solely the
responsibility of the Company and the Representative, and the
Escrow Agent shall
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have no liability or responsibility therefor. The
determination of gross revenues, net loss and/or earnings per
share shall be made in accordance with generally accepted
accounting principles, unaudited for the twelve-month period
ending September 30 based upon the financial statements filed
by the Company with the United States Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934,
shall be based on fully diluted earnings per share, and
exclude extraordinary items and shares issued pursuant to
Underwriters' Unit Purchase Option. Further, the Company and
the Representative agree that any expense or charge to be
incurred by the Company as a result of the release of the
Escrow Shares to the Stockholders shall be excluded from the
detriments of the Performance Targets.
Section 7. Voting Rights. During the Escrow Period, the
Stockholder, or any transferee receiving all or a portion of the Escrow Shares
pursuant to Section 3 herein, shall have the right to vote the Escrow Shares in
the Escrow Account at any and all shareholder meetings without restriction.
Section 8. Limitation of Liability of Escrow Agent. In
acting pursuant to this Agreement, the Escrow Agent shall be protected fully in
every reasonable exercise of its discretion and shall have no obligation
hereunder to either the Stockholders or to any other party except as expressly
set forth herein. In performing any of its duties hereunder, the Escrow Agent
shall not incur any liability to any person for any damages, losses or
expenses, except for willful default or negligence and it shall, accordingly,
not incur any such liability with respect to (1) any action taken or omitted in
good faith upon advice of its counsel, counsel for the Company or counsel for
the Representative given with respect to any question relating to the duties
and responsibilities of the Escrow Agent under this Agreement, and (2) any
action taken or omitted in reliance upon any instrument, including written
notices provided for herein, not only to its due execution and validity and
effectiveness of its provisions, but also to the truth and accuracy of any
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed and presented by a proper person or
persons and to be in compliance with the provisions of this Agreement.
Section 9. Indemnification. The Company, the Representative
and the Stockholders shall indemnify and hold harmless the Escrow Agent against
any and all losses, claims, damages, liabilities and expenses, including
reasonable costs of investigation and counsel fees and disbursements, which may
be imposed upon the Escrow Agent or incurred by the Escrow Agent in connection
with its acceptance of appointment as Escrow Agent or the performance of its
duties hereunder, including any litigation arising from this Agreement or
involving the subject matter hereof.
Section 10. Payment of Fees. The Company shall be responsible
for all reasonable fees and expenses of the Escrow Agent incurred by it in the
course of performing hereunder.
Section 11. Change of Escrow Agent. In the event the Escrow
Agent notifies the Company and the Representative that its acceptance of the
duties of Escrow Agent has been
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terminated by the Escrow Agent, or in the event the Escrow Agent files for
protection under the United States Bankruptcy Code or is liquidated or ceases
operations for any reason, the Company and the Representative shall have the
right to jointly designate a replacement Escrow Agent who shall succeed to the
rights and duties of the Escrow Agent hereunder. Any such replacement Escrow
Agent shall be a trust or stock transfer company experienced in stock transfer,
escrow and related matters and shall have a minimum net worth of $1 million.
Upon appointment of such successor Escrow Agent, the Escrow Agent shall be
discharged from all duties and responsibilities hereunder.
Section 12. Notices. All notices, demands or requests
required or authorized hereunder shall be deemed given sufficiently if in
writing and sent by registered mail or certified mail, return receipt requested
and postage prepaid, or by tested telex, telegram or cable to, in the case of
the Stockholder, the address as set forth in the records of the Escrow Agent;
In the case of the Representative to:
Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, New York 11797
Attention: John D. Higgins
With a copy to:
Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P.C.
1700 Lincoln St., #4700
Denver, CO 80203
In the case of the Escrow Agent to:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
In the case of the Company to:
Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550
Fairfax, Virginia 22033
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With a copy to:
Mario V. Mirabelli, Esq.
Baker & Hostetler
1050 Connecticut Avenue, N.W., Suite 1100
Washington, D.C. 20036
Section 13. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement. Facsimile signatures shall be
accepted by the parties hereto as original signatures for all purposes.
Section 14. Governing Law. The validity, interpretation and
construction of this Agreement and of each part hereof shall be governed by the
laws of the State of New York.
IN WITNESS WHEREOF, the Stockholders, the Company, the
Representative and the Escrow Agent have executed this Escrow Agreement on the
day and year first above written to be effective as of the Effective Date.
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By:
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Title:
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XYBERNAUT CORPORATION
By:
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Title:
----------------------
ROYCE INVESTMENT GROUP, INC.
By:
-------------------------
Title:
----------------------
THE STOCKHOLDERS:
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Edward G. Newman
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Manassas Bay Trust
By:
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Title:
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John F. Moynahan
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Lt. Gen. Harry E. Soyster (Ret.)
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James J. Ralabate
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Keith P. Hicks
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Steven A. Newman, M.D.
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Phillip E. Pearce
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Jacques Rebibo
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Eugene J. Amobi
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Frances C. Newman
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