Contract
EXHIBIT 99.1
|
0000 Xxxx Xxxx Xxxxx, Xxxxx 000 | |
| Charlotte, North Carolina 28217 | ||
| Office: 000.000.0000 | ||
| Fax: 000.000.0000 | ||
| xxx.xxxxx.xxx |
July 25, 2005
Xxxxx X. Xxxxx
President and Chief Executive Officer
Xybernaut Corporation
00000 Xxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
President and Chief Executive Officer
Xybernaut Corporation
00000 Xxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Dear Xx. Xxxxx:
This engagement letter (the “Agreement”) confirms our understanding that Xybernaut Corporation (the
“Company”) has engaged IP Innovations Financial Services, Inc. (“IPI”) to act as a strategic and
financial advisor to the Company to assist the Company in its analysis, consideration and, if
appropriate, execution of various financial and strategic alternatives available to it, and such
other matters as the Company and IPI may agree during the course of IPI’s engagement (the
“Engagement”).
| I. | Scope of Services and Compensation |
As a financial and strategic advisor to the Company, IPI will perform the following functions:
| A. | Financial and Strategic Advisory Services |
1. Scope. IPI will provide general financial and strategic advisory services for the
operation of the Company, including, (i) assisting the Company in the assessment of certain market
information and business and intellectual property (“IP”) strategies relevant to the Company, (ii)
assisting the Company in reviewing, evaluating and structuring a potential transaction with
potential acquirers of the businesses of Xybernaut Corporation and Xybernaut Solutions Inc. (such
acquisition not to include the assignment of the Company’s IP but may include non-exclusive
licenses of the IP) (collectively, the “Transaction”), (iii) assisting the Company in developing a
general negotiating strategy in connection with the Transaction and in actual negotiations with
potential investors and/or acquisition candidates and consult with and assist counsel and
independent accountants in structuring and carrying through to settlement any agreement which may
be reached; (iv) assisting the Company in preparing summary information with respect to the
Transaction for distribution to potential investors and/or acquisition candidates selected by IPI
and the Company, describing the Company and its business (the “Transaction Memorandum”); and (v) if
applicable, preparing for and testifying in court as an expert witness with respect to the above.
IPI recognizes and acknowledges that time is of the essence in performing these services for the
Company (collectively, the “Advisory Services”).
2. Compensation. In consideration for IPI’s provision of the Advisory Services to the
Company, IPI shall earn a fee in the amount of $75,000 per month, which amount shall accrue for the
period of time commencing upon the Effective Date (defined below) and ending
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upon the date that this Agreement is terminated in accordance with its terms and shall be pro rated
for any partial month period (collectively, the “Advisory Services Fee”). The Company shall pay to
IPI, in cash, the Advisory Services Fee. The Advisory Services Fee shall be due and payable at the
earliest to occur of: (i) the completion of the IP Monetization (defined below), (ii) or the
completion of the IP Auction (defined below), or (iii) at such time as sufficient excess cash is on
hand to permit payment of all or a portion of such monthly fees during the active period of this
Engagement to the same extent as fees and expenses are paid to other professionals, and in each
case pursuant to the terms of a final and non-appealable order entered by the United States
Bankruptcy Court for the Eastern District of Virginia, Alexandria Division, or such other court
having jurisdiction over any bankruptcy case filed by the Company (the “Bankruptcy Court”),
authorizing and approving the Advisory Services Fee or any portion thereof.
In addition, if the Company completes a Transaction with any third party other than those
parties specifically disclosed to IPI in writing prior to or contemporaneously with the execution
of this Agreement, IPI shall thereby earn a transaction advisory fee equal to three percent (3%) of
the Transaction Consideration (defined below) (the “Transaction Advisory Fee”). The Company shall
pay to IPI, in cash, 50% of the Transaction Advisory Fee upon the closing of the Transaction and
out of the proceeds resulting from the Transaction (the “Partial Transaction Advisory Fee
Payment”), subject only to the prior authorization and approval of the Transaction Advisory Fee, or
any portion thereof, pursuant to the terms of a final and non-appealable order entered by the
Bankruptcy Court. The Company’s obligation to pay to IPI the remaining, unpaid 50% of the
Transaction Advisory Fee shall be deferred and paid out of the proceeds resulting from the final IP
Monetization (defined below) or the final IP Auction (defined below) and pursuant the terms of a
final and non-appealable order entered by the Bankruptcy Court.
| B. | Procurement of Financing |
1. Scope. IPI will advise and assist the Company in obtaining suitable financing
and/or DIP financing required to capitalize the Company in such amount and upon such terms as
deemed appropriate by the Company and IPI (the “Financing”). IPI will provide the Company with a
list of all potential lenders contacted by IPI on a bi-weekly basis. IPI will provide advice and
assistance in structuring and pricing the Financing and in locating appropriate financing sources.
In addition to the foregoing, IPI will also assist the Company by preparing for and testifying in
court as an expert witness with respect to the above.
2. Compensation. In the event that the Company obtains Financing from a financing source
other than those parties specifically disclosed to IPI in writing prior to or contemporaneously
with the execution of this Agreement, IPI shall earn a financing advisory fee in an amount equal to
three percent (3%) of the principal amount of such Financing (the “Financing Advisory Fee”). The
Company shall pay to IPI, in cash, the Financing Advisory Fee out of the proceeds resulting from
the Financing and pursuant to the terms of a final and non-appealable order entered by the
Bankruptcy Court authorizing and approving the Financing Advisory Fee or any portion thereof.
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| C. | Monetization Or Auction of the Company’s IP Portfolio |
1. Scope. IPI will advise and assist the Company in developing and preparing, in
parallel, (i) an IP monetization strategy, and (ii) an IP liquidation auction strategy. The
monetization strategy will consider numerous means to monetize the Company’s IP (“IP
Monetization”), including, without limitation, a recapitalization and reorganization of the
Company’s existing business centered around the Company’s IP portfolio, reorganizing the Company
from its existing business into an IP licensing business centered around the Company’s IP, an
acquisition or merger that includes the Company’s IP as an asset of such transaction, or sale of
the Company’s IP portfolio to identified strategic and financial acquirers. IPI will also (i)
assist the Company in implementing the IP Monetization, (ii) assist in developing a general
negotiating strategy in connection with the IP Monetization and in actual negotiations with
potential investors, lenders and/or acquisition candidates and consult with and assist counsel and
independent accountants in structuring and carrying through to settlement any agreement which may
be reached; and (iii) assist the Company in preparing summary information with respect to the IP
Monetization for distribution to potential investors, lenders and/or acquisition candidates
selected by IPI and the Company, describing the Company’s IP portfolio. IPI recognizes and
acknowledges that time is of the essence in performing these services for the Company.
If, at any time, the Company determines that it is in the best interest of the Company and its
shareholders to simply auction the IP rather than pursue IP Monetization, IPI will assist the
Company in implementing a sale of the IP through a simple auction (“IP Auction”). In connection
with the IP Auction, IPI will (i) assist in developing general auction procedures and in the
implementation of the auction process and (ii) assist the Company in preparing summary information
with respect to the IP Auction for distribution to potential bidders selected by IPI and the
Company, describing the Company’s IP portfolio. In addition to the foregoing, IPI will also assist
the Company by preparing for and testifying in court as an expert witness with respect to the
above.
2. Compensation. In the event that the Company closes any IP Monetization, IPI shall earn
an IP monetization fee (each being an “IP Monetization Fee”) in an amount equal to the sum of: (i)
18.25% of the Transaction Consideration (defined below) from $0-$30 million and (ii) 15% of the
Transaction Consideration greater than $30 million, provided that, the aggregate amount of
any such IP Monetization Fees shall not exceed $7.5 million in total. For the purpose of
calculating each IP Monetization Fee in the preceding sentence, the Transaction Consideration for
each IP Monetization shall be added to the aggregate Transaction Consideration of any and all
preceding IP Monetizations. For example, if the Transaction Consideration for IP Monetization No.
1 is $15 million, the Transaction Consideration for the subsequent IP Monetization No. 2 is $10
million, and the Transaction Consideration for the subsequent IP Monetization No. 3 is $10 million,
then the IP Monetization Fee due for IP Monetization No. 1 is $2,737,500 (18.25% x $15 million),
the IP Monetization Fee due for IP Monetization No. 2 is $1,825,000 (18.25% x $10 million), and the
IP Monetization Fee due for IP Monetization No. 3 is $1,662,500 (18.25% of $5 million plus 15% of
$5 million). The Company shall pay to IPI, in cash, each IP Monetization Fee, or any portion
thereof authorized and approved in accordance with this sentence, out of the Transaction
Consideration resulting
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from the IP Monetization giving rise to such IP Monetization Fee and pursuant to the terms of a
final and non-appealable order entered by the Bankruptcy Court authorizing and approving each such
IP Monetization Fee or any portion thereof.
In the event that the Company foregoes the IP Monetization and closes any IP Auction instead,
the Company shall earn an IP auction fee (each being an “IP Auction Fee”) in an amount equal to
7.5% of the Transaction Consideration resulting from such IP Auction. The Company shall pay to
IPI, in cash, each IP Auction Fee out of the Transaction Consideration resulting from the IP
Auction giving rise to such IP Auction Fee and pursuant to the terms of a final and non-appealable
order entered by the Bankruptcy Court authorizing and approving each such IP Auction Fee or any
portion thereof.
| D. | IPI Placement of IP-Collateralized Loan Support to Acquirer of the Company’s IP |
1. Scope. IPI may offer to place or directly fund debt capital to facilitate an IP
Monetization for the Company (“IP-Collateralized Loan”). The amount of debt capital, the
associated interest rate and the terms of such capital will be determined based on a number of
factors, including, without limitation, the structure of the IP Monetization, the tenure of the
proposed debt facility, and the characteristics of the borrower.
2. Compensation. In the event that IPI places or provides an IP-Collateralized Loan, IPI
shall earn a fee equal to two (2%) percent of the principal amount of the IP-Collateralized Loan
(the “IP-Collateralized Loan Fee”). The Company shall pay to IPI, in cash, each IP-Collateralized
Loan Fee, pursuant to the terms of a final and non-appealable order entered by the Bankruptcy Court
authorizing and approving each such IP-Collateralized Loan Fee or any portion thereof.
| II. | Definition of “Transaction Consideration” |
For the purpose of this Agreement, the term “Transaction Consideration” shall mean the gross value
of all cash, securities and other property paid directly or indirectly by an acquirer to a seller
or sellers in connection with a Transaction, an IP Monetization, or an IP Auction, as the case may
be. A seller may include the Company, an affiliate of the Company or stockholders of the Company.
The value of any securities (whether debt or equity) or other property delivered as consideration
in any Transaction, IP Monetization, or IP Auction shall be determined as follows: (i) the value
of securities that are freely tradeable in an established public market will be determined on the
basis of the average closing market price on the last five trading days immediately prior to the
closing of the Transaction, the IP Monetization, or the IP Auction, as the case may be, and (ii)
the value of securities that are not freely tradeable or have no established public market, and the
value of consideration that consists of other property, shall be the fair market value thereof, as
reasonably determined by the Company and IPI, provided that, if the Company and IPI are
unable to agree on the fair market value, such fair market value shall be determined by an
independent appraiser mutually agreed upon by the Company and IPI and whose fees and expenses shall
be borne equally by the Company and IPI. Transaction
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Consideration shall also be deemed to include the aggregate principal amount of all indebtedness
assumed or acquired, directly or indirectly, by the acquiring party or any of its affiliates in a
Transaction, an IP Monetization, or an IP Auction, or retired, defeased or otherwise cancelled in
connection with the Transaction, the IP Monetization, or the IP Auction and the present value of
any agreements not to compete or consulting agreements.
Amounts paid into escrow and contingent payments in connection with any Transaction, IP
Monetization, or IP Auction will be included as part of the Transaction Consideration. Transaction
Advisory Fees, IP Monetization Fees, and IP Auction Fees on amounts paid into escrow shall be
payable upon the release of such amounts paid into such escrow, except as otherwise provided
herein. If any portion of the consideration in connection with any Transaction, IP Monetization,
or IP Auction is payable in the future on the basis of occurrence of certain future events, the
portion of the Transaction Advisory Fee, IP Monetization Fee, or IP Auction Fee relating to such
contingent payments shall be payable at the time the actual consideration is paid in the same
manner as set forth above, except as otherwise provided herein.
| III. | Reimbursement of Expenses |
The Company shall reimburse IPI for all of its out-of-pocket costs and expenses in performing any
of its obligations under this Agreement. Within two (2) business days after the Effective Date
(defined below), the Company shall pay to IPI a retainer (the “Retainer”) in the amount of $50,000
which shall be drawn down upon periodically by IPI to reimburse IPI for its out-of-pocket costs and
expenses in performing any of its obligations under this Agreement, provided,
however, that (i) such costs and expenses shall first be disclosed to and approved by the
Company (such approval not to be unreasonably withheld) before they are incurred and (ii) the
periodic reimbursement of such costs and expenses from the Retainer shall be subject to the prior
authorization and approval of such costs and expenses pursuant to the terms of a final and
non-appealable order entered by the Bankruptcy Court.
To the extent IPI’s out-of-pocket costs and expenses exceed the Retainer, the Company shall
reimburse IPI for the balance of such costs and expenses at the earlier to occur of: (i) the
completion of the IP Monetization, (ii) the completion of the IP Auction, or (iii) at such time as
sufficient capital is on hand to permit payment of all or a portion of said costs and expenses
during the active period of this Engagement, and in each case pursuant to the terms of a final and
non-appealable order entered by the Bankruptcy Court.
| IV. | Other Matters |
| A. | No Binding Commitment |
Please note that this Agreement does not constitute a commitment by IPI to provide or purchase an
IP-Collateralized Loan or any other financing, including, without limitation, any debt or equity
securities of the Company.
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| B. | Termination of Prior Agreement |
Except as specifically set forth herein, upon the Effective Date (defined below), that certain
engagement letter agreement by and between the Company and IPI dated June 1, 2005 (the “Prior
Engagement Letter”), shall automatically become void and no longer of any force or effect, and the
terms and conditions of the Company’s engagement of IPI shall be governed exclusively by this
Agreement on and after the Effective Date, provided, however, that (i) Section
II.F, Annex I, Xxxxx XX and Annex IV of the Prior Engagement Letter shall survive termination and
remain in full force and effect, and (ii) Section I.A.1 of the Prior Engagement Letter shall be
incorporated into this Agreement by this reference and shall remain in full force and effect as if
fully set forth herein.
| C. | Termination of this Agreement |
The term of IPI’s appointment and authorization hereunder shall extend from the date hereof through
November 30, 2005, or such other date as may be mutually agreed by the Company and IPI, and shall
be automatically renewed for successive monthly periods until terminated in writing by either the
Company or IPI. During the term of this Agreement, IPI shall provide, on a monthly basis, the
Company with a written list of all potential investors, lenders and acquisition candidates (the
“Active Candidate List”) that IPI contacted on behalf of the Company in its capacity as strategic
and financial advisor. The Company may object to inclusion of any potential investors, lenders and
acquisition candidates on such Active Candidate List, provided that, if the Company does
not object in writing within three (3) business days of receipt of such Active Candidate List, the
Company’s right to object shall be deemed waived. If the Company closes an IP Monetization or an
IP Auction with any entity on any Active Candidate List within nine (9) months of the termination
of this Engagement, the Company shall be responsible for the payment of the fees under Section I of
this Agreement.
| D. | Use of Name |
The Company agrees that any references to IPI or any of its affiliates made in connection with
services performed or transactions contemplated in this Agreement is subject to IPI’s prior
approval, such approval not to be unreasonably withheld, except that, the Company shall not be
required to obtain prior approval for any statement or disclosure that is required to be made by
the Company by either (i) any regulatory commissions, agency or body, including, but not limited to
the U.S. Securities and Exchange Commission, in order for the Company to comply with reporting and
disclosure regulations applicable to the Company, or (ii) any court or judicial tribunal.
Notwithstanding anything to the contrary in this paragraph, the Company shall be permitted to make
references to IPI and the services performed by IPI for the Company without the consent of IPI if
such information has been previously disclosed or is otherwise available to the public.
| E. | Public Announcements |
The Company acknowledges that IPI may, at IPI’s option and expense, make references to the Company
and the services performed by IPI for the Company, and place announcements and
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advertisements in such financial and other newspapers and journals as it may choose, describing its
services to the Company hereunder, provided, however, that the Company first reviews and approves
all such references, announcements and advertisements, such approval not to be unreasonably
withheld, and IPI coordinates with the Company regarding the timing of publication of any public
announcement so as to not violate any disclosure or reporting regulations applicable to the
Company. Notwithstanding anything to the contrary in this paragraph, IPI shall be permitted to
make references to the Company and the services performed by IPI for the Company without the
consent of the Company if such information has been previously disclosed or is otherwise available
to the public.
| F. | Third Party Inquiries |
In order to coordinate our efforts with respect to a possible IP Monetization and IP Auction,
during the period of our Engagement hereunder, if the Company or its management receives an inquiry
regarding a potential IP Monetization or IP Auction, the Company or such person will promptly
advise IPI of such inquiries.
| G. | Indemnification |
Since IPI will be acting on behalf of the Company in connection with its Engagement hereunder, the
Company has entered into a separate letter agreement (the “Indemnification Letter”) set forth in
Annex I hereto, dated the date hereof, providing for the indemnification by the Company of IPI, its
affiliates and certain other related persons and entities. The Indemnification Letter will survive
any termination or expiration of this Agreement and the closing of any of the transactions
contemplated hereunder.
| H. | Matters Related to Engagement |
As set forth in Annex II.
| I. | Governing Law; Miscellaneous |
As set forth in Annex III.
| J. | Information |
As set forth in Annex IV.
| K. | Confidentiality |
As set forth in Annex V.
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| III. | Agreement |
Please evidence your acceptance of the provisions of this Agreement by signing the enclosed copy
hereof and returning it to IPI (via regular mail or pdf email), 0000 Xxxx Xxxx Xxxxx, Xxxxx 000,
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000 on or before 5:00 p.m. (Eastern time) on July 25, 2005, at which
time the offer by IPI to provide services hereunder will expire (unless earlier accepted). Once
executed, this letter shall constitute a binding agreement as of the date first above written (the
“Effective Date”).
| IP Innovations Financial Services, Inc. |
||||
| /s/ Xxxxx Xxxxxxx | ||||
| By: | Xxxxx Xxxxxxx | |||
| Title: | President and CEO | |||
| AGREED: | ||||
| Xybernaut Corporation | ||||
| /s/ Xxxxx X. Xxxxx | ||||
By:
|
Xxxxx X. Xxxxx | |||
Title:
|
President and CEO | |||
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[XYBERNAUT LETTERHEAD]
| Annex I | July 25, 2005 |
TO:
|
IP Innovations Financial Services, Inc. 0000 Xxxx Xxxx Xxxxx, Xxxxx 000 Xxxxxxxxx, Xxxxx Xxxxxxxx 00000 |
In further consideration of the agreements contained in our engagement letter dated hereof
(the “Engagement”), in the event that IP Innovations Financial Services, Inc. (“IPI”) and/or any of
its affiliates, the respective directors, officers, partners, agents or employees of IPI or any of
its affiliates, or any other person controlling IPI or any of its affiliates (collectively,
“Indemnified Persons”) becomes involved in any capacity in any action, claim, suit, investigation
or proceeding, actual or threatened, brought by or against any person, including stockholders of
Xybernaut Corporation (the “Company”), in connection with or as a result of the Engagement or any
matter referred to in the Engagement, the Company will reimburse such Indemnified Person for its
reasonable and customary legal fees and expenses and other expenses (including without limitation
the costs and expenses incurred in connection with investigating, preparing for and responding to
third party subpoenas or enforcing the Engagement) incurred in connection therewith as such fees
and expenses are invoiced to the Company, except that this clause shall not apply, as to any
Indemnified Person, to any fees or expenses that are determined by a court of competent
jurisdiction by final and non-appealable judgment to have resulted primarily from the gross
negligence, willful misconduct, bad faith, reckless disregard or fraudulent conduct of such
Indemnified Person. The Company will also indemnify and hold harmless any Indemnified Person from
and against, and the Company agrees that no Indemnified Person shall have any liability to the
Company or its owners, parents, affiliates, security holders or creditors for, any losses, claims,
damages or liabilities (including actions or proceedings in respect thereof) (collectively,
“Losses”) in connection with or the result of the Engagement or any matter referred to in the
Engagement (A) related to or arising out of (i) the Company’s actions or failures to act (including
statements or omissions made or information provided by the Company or its agents) or (ii) actions
or failures to act by an Indemnified Person with the Company’s consent or in reliance on the
Company’s actions or failures to act or (B) otherwise related to or arising out of the Engagement
or IPI’s performance thereof, except that the obligations and agreements set forth in this sentence
as limited by clauses (A) and (B) shall not apply to any Losses that are finally determined by a
court or arbitral tribunal to have resulted primarily from the gross negligence, willful
misconduct, bad faith, reckless disregard or fraudulent conduct of any such Indemnified Person. If
such indemnification is for any reason not available or insufficient to hold an Indemnified Person
harmless, the Company agrees to contribute to the Losses involved in such proportion as is
appropriate to reflect the relative benefits received (or reasonably likely to be received) by the
Company, on the one hand, and by IPI, on the other hand, with respect to the Engagement or, if such
allocation is determined by a court or arbitral tribunal to be unavailable, in such proportion as
is appropriate to reflect other equitable considerations such as the relative fault of the Company
on the one hand and of IPI on the other hand; provided, however, that, to the extent permitted by
applicable law, the
Indemnified Persons shall not be responsible for amounts which in the aggregate are in excess
of the amount of all fees actually received by IPI from the Company in connection with the
Engagement. Relative benefits to the Company, on the one hand, and IPI, on the other hand, with
respect to the Engagement shall be deemed to be in the same proportion as (i) the total value paid
or reasonably likely to be paid or received or reasonably likely to be received by the Company or
its shareholders, as the case may be, pursuant to the transaction(s), whether or not consummated,
contemplated by the Engagement, bears to (ii) all fees received or due to be received by IPI in
connection with the Engagement.
The Company will not, without IPI’s prior written consent, settle, compromise, consent to the
entry of any judgment in or otherwise seek to terminate any action, claim, suit, investigation or
proceeding in respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination
includes a release of each Indemnified Person from any liabilities arising out of such action,
claim, suit, investigation or proceeding. The Company will not permit any such settlement,
compromise, consent or termination to include a statement as to, or an admission of, fault,
culpability or a failure to act by or on behalf of an Indemnified Person, without such Indemnified
Person’s prior written consent. No Indemnified Person seeking indemnification, reimbursement or
contribution under this agreement will, without the Company’s prior written consent, settle,
compromise or consent to the entry of any judgment in or otherwise seek to terminate any action,
claim, suit, investigation or proceeding referred to herein. No Indemnified Person seeking
indemnification, reimbursement or contribution under this Agreement will permit any such
settlement, compromise, consent or termination to include a statement as to, or an admission of,
fault, culpability or a failure to act by or on behalf of the Company, or any of its officers,
directors, agents, employees, subsidiaries or affiliates, without the Company’s prior written
consent.
The Company’s obligations hereunder shall be in addition to any rights that any Indemnified
Person may have at common law or otherwise. The Company acknowledges that in connection with the
Engagement IPI is acting as an independent contractor and not in any other capacity with duties
owing solely to the Company. This agreement and any other agreements relating to the Engagement
shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia,
without regard to conflict of law principles, applicable to contracts made and to be performed
therein and, in connection therewith, the parties hereto consent to the exclusive jurisdiction of
any state court sitting in Fairfax County, Virginia or any federal court sitting in Alexandria,
Virginia, and the respective appellate courts thereof. Notwithstanding the foregoing, solely for
purposes of enforcing the Company’s obligations hereunder, the Company consents to personal
jurisdiction, service and venue in any court proceeding in which any claim subject to this
agreement is brought by or against any Indemnified Person. XXX XXXXXX AGREES, AND THE COMPANY
HEREBY AGREES TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, COUNTER-CLAIM OR
ACTION ARISING OUT OF THE ENGAGEMENT OR IPI’S PERFORMANCE THEREOF.
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The provisions of this agreement shall apply to the Engagement (including related activities
prior to the date hereof) and any modification thereof and shall remain in full force and effect
regardless of the completion or termination of the Engagement. If any term, provision, covenant or
restriction herein is held by a court of competent jurisdiction to be invalid, void or
unenforceable or against public policy, the remainder of the terms, provisions and restrictions
contained herein shall remain in full force and effect and shall in no way be affected, impaired or
invalidated.
| XYBERNAUT CORPORATION |
||||
| /s/ Xxxxx X. Xxxxx | ||||
| By: | Xxxxx X. Xxxxx | |||
| Title: | President and CEO | |||
| AGREED: | ||||
| IP Innovations Financial Services, Inc. | ||||
By:
|
Xxxxx Xxxxxxx | |||
Title:
|
President and CEO | |||
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Xxxxx XX
Matters Related to Engagement
The Company acknowledges that IPI has been retained solely to provide the services set forth in
this Agreement. In rendering such services, IPI shall act as an independent contractor, and any
duties of IPI arising out of its Engagement hereunder shall be owed solely to the Company. All
opinions and advice provided to the Company in connection with this Agreement are intended solely
for the benefit of the Company in connection with the matters described in this Agreement, and
accordingly such advice shall not be relied upon by any person or entity other than the Company.
The Company will not make any other use of such opinions or advice.
The Company acknowledges and agrees that IPI is not, and does not hold itself out to be, an advisor
as to legal, securities, tax, accounting or regulatory matters in any jurisdiction. The Company
shall consult with its own advisors concerning such matters and shall be responsible for making its
own independent investigation and appraisal of the risks, benefits and suitability of the
transactions contemplated by this Agreement, and IPI shall have no responsibility or liability to
the Company with respect thereto.
IPI acknowledges and agrees that it is acting solely in the capacity of an independent contractor
and not as a partner, joint venturer, shareholder, employee, agent or principal of the Company.
IPI shall not make any representations to any third party or any other person or entity concerning
the Company that is beyond the scope of that expressly provided for in this Agreement and IPI shall
have no right, authority or capacity to legally bind or otherwise obligate the Company to any
terms, conditions, agreements, fees or contracts of any nature or kind.
Xxxxx XXX
Governing Law; Miscellaneous
This Agreement (i) shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia, without giving effect to any provisions thereof relating to conflicts of
law; (ii) incorporates the entire understanding of the parties with respect to the subject matter
hereof and supersedes all previous agreements should they exist with respect thereto; (iii) may not
be amended or modified except in a writing executed by the Company and IPI; and (iv) shall be
binding upon and shall inure to the benefit of the Company, IPI and their respective successors and
assigns. The Company and IPI agree to submit to the exclusive jurisdiction of the courts of the
Commonwealth of Virginia located in Fairfax County and the United States Federal Courts located in
the Eastern District of Virginia (Alexandria Division) in any action, proceeding or counterclaim
brought by or on behalf of either party with respect to any matter whatsoever relating to or
arising out of the engagement of or performance by IPI hereunder. THE COMPANY AND IPI FURTHER
AGREE TO WAIVE TRIAL BY JURY IN ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM. The Company
acknowledges that IPI in connection with its Engagement hereunder is acting as an independent
contractor with duties owing solely to the Company and that nothing in this Agreement is intended
to confer upon any other person any rights or remedies hereunder or by reason hereof.
2
Annex IV
Information
The Company will furnish IPI with all financial and other information concerning the Company and
its IP as IPI reasonably deems appropriate in connection with the performance of the services
contemplated by this Engagement and in that connection will provide IPI with reasonable access to
the Company’s officers, directors, employees, accountants, counsel and other representatives. The
Company acknowledges and confirms that IPI (i) will rely on such information in the performance of
the services contemplated by this Engagement without assuming any responsibility for independent
investigation or verification thereof, (ii) assumes no responsibility for the accuracy or
completeness of such information or any other information regarding the Company and (iii) will not
make any formal appraisal of any assets (other than the Company’s IP) or liabilities of the
Company.
The Company represents and warrants and covenants that all information (the “Company Information”)
which has been or is hereafter made available to IPI by the Company or any of the Company’s
representatives (which provide such Company Information with knowledge and consent of the Company)
in connection with the services contemplated hereby, taken as a whole and as supplemented from time
to time, is and will be complete and correct in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in light of the circumstances under which
such statements are made. If at any time prior to the termination of the Engagement an event
occurs as a result of which the Company Information (as then supplemented or amended) would include
any untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they were made, not
misleading, the Company will promptly notify IPI of such event and the Company shall prepare a
supplement or amendment to the Company Information which corrects such statement(s) or omission(s).
Annex V
Confidentiality
IPI shall use all information provided to it by or on behalf of the Company hereunder solely for
the purpose of providing the services which are the subject of this Agreement and shall treat
confidentially all such information; provided, however, that nothing herein shall prevent IPI from
disclosing any such information (i) pursuant to the order of any court or administrative agency or
in any pending legal or administrative proceeding, provided that, to the extent IPI is not
prohibited by applicable law from providing notice, IPI will notify the Company prior to such
disclosure, (ii) upon the request or demand of any regulatory authority having jurisdiction over
IPI or any of its corporate affiliates, provided that, to the extent IPI is not prohibited
by applicable law from providing notice, IPI will notify the Company prior to such disclosure,
(iii) to the extent that such information becomes publicly available other than by reason of
improper disclosure by IPI, (iv) to its employees, legal counsel, independent auditors and other
experts or agents who need to know such information and are informed of the confidential nature of
such information and are bound by a duty of confidentiality to IPI, (v) to any of its corporate
affiliates who need to know such information and are informed of the confidential nature of such
information and are bound by a duty of confidentiality to IPI, (vi) for purposes of establishing a
“due diligence” defense, (vii) which was available to IPI on a non-confidential basis from a source
other than the Company, provided that such source was not to the knowledge of IPI bound by a
confidentiality agreement with the Company, (viii) has been independently acquired or developed by
IPI without violating any of IPI’s obligations under this Agreement or (ix) at any time following
the date that is 18 months after the date of termination of IPI’s services under this Agreement.
The Company agrees that it will not and will cause its corporate affiliates not to disclose this
Agreement, the contents hereof or the opinions, advice or activities of IPI pursuant hereto or any
communications from IPI pursuant to this Agreement to any person (collectively, the “IPI Content”)
nor will such information be referred to in any report, document, release or other communication
prepared, issued or transmitted by the Company, in each case without the prior written approval of
IPI (such approval not to be unreasonably withheld), except that the Company may disclose the IPI
Content (i) to its officers, employees, agents, accountants, regulators, and legal advisors who are
directly involved in the consideration of this matter (and then only on a confidential basis) and
(ii) as required by applicable law, regulatory commission, governmental agency or other regulatory
body, or compulsory legal process or other judicial proceedings (in the case of a compulsory legal
process or other judicial proceedings, the Company agrees to inform IPI promptly thereof prior to
any such disclosure).
Notwithstanding any other provision in this Agreement, in connection with Treasury Regulation
Section 1.6011-4 of the Internal Revenue Code of 1986, as amended, the parties hereby agree that
each party (and each employee, representative, or other agent of such party) may disclose to any
and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of
the transaction contemplated in this Agreement and all materials of any kind (including opinions or
other tax analyses) that are provided to such party relating to such U.S. tax treatment
and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary
in order to comply with applicable laws.
Section IV.B. of the Agreement incorporates by reference Section I.A.1. of the Engagement Letter
dated June 1, 2005, between the Company and IPI (the “Prior Engagement Letter”). The following is
the text of Section I.A.1. of the Prior Engagement Letter.
| I. | Scope of Services and Compensation |
As a financial and strategic advisor to the Company, IPI will perform the following function:
| A. | IP Valuation and Market Identification |
1. Scope. IPI will advise the Company and develop and prepare an IP valuation report (the
“Report”) that assesses the market value of the Company’s intellectual property (“IP”) in a
monetization scenario and identifies a set of first and second tier monetization targets. The
report will (i) provide a detailed analysis of the Company’s current IP portfolio, (ii)
characterize the portfolio be establishing core patent families and identifying orphan patents, if
any, (iii) compare the relative strength of each patent family (and orphan patents, if any) with
competitive patent positions held by other players in the market, (iv) outline a monetization
strategy for each patent family and orphan patents, if any, and (v) if applicable, prepare for and
testify in court as an expert witness with respect to the above. IPI will use proprietary software
tools and methodologies to ensure that the patent analysis is comprehensive and to ensure the
realization of optimal value in the onward monetization of the portfolio. IPI recognizes and
acknowledges that time is of the essence in preparing and completing the Report. Accordingly, IPI
will use its best good faith efforts to complete and deliver to the Company a good faith
preliminary draft of the Report on or before June 27, 2005.
[XYBERNAUT LETTERHEAD]
July 25, 2005
Xx. Xxxxx Xxxxxxx
President & CEO
IP Innovations Financial Services, Inc.
0000 Xxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
President & CEO
IP Innovations Financial Services, Inc.
0000 Xxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Dear Xxxxx
This letter is being provided to you pursuant to Sections I.A.2 and I.B.2 of that certain
engagement letter agreement (the “Agreement”) dated July 25, 2005, by and between Xybernaut
Corporation (the “Company”) and IP Innovations Financial Services, Inc. (“IPI”). Each of the
capitalized terms in this letter shall have the meaning ascribed to it in the Agreement. In the
event that the Company closes on a Transaction and/or a Financing with any of the following
entities, the Company shall not be required to pay to IPI a Transaction Advisory Fee and/or a
Financing Advisory Fee on account of such Transaction and/or Financing.
| • | Microslate | |
| • | Itronix | |
| • | Xxxxxxx Xxxxxx | |
| • | Xx Xxxxxxx |
Please let me know if there is anything that needs further clarification.
/s/ Xxxxx X. Xxxxx
Sincerely
Xxxxx X. Xxxxx
Chief Executive Officer
Xxxxx X. Xxxxx
Chief Executive Officer
cc: Xxxxx Xxxxxx
