Exhibit 4.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into as of this 8th day of
October, 1998 (the "Agreement"), by and between Xybernaut Corporation, a
Delaware corporation ("Xybernaut"), with offices at 00000 Xxxx Xxxxx Xxxxxx,
Xxxxxxx, Xxxxxxxx 00000, and HSBC Xxxxx Xxxxx Canada, Inc., an Ontario company
("HSBC"), with offices at 000 Xxxxxxxx Xxxxxx West, Suite 1200, Xxxxxxx, Xxxxxxx
X0X 0X0, Xxxxxx, providing for the purchase and sale of shares of the common
stock, par value $.01 per share (the "Common Stock"), of Xybernaut, by HSBC or
its designated affiliates (collectively with HSBC, the "Buyer"), in the manner,
and upon the terms, provisions and conditions set forth in this Agreement.
Therefore, in consideration of the representations, warranties and
agreements contained herein and other good and valuable consideration, the
receipt and legal adequacy of which is hereby acknowledged by the parties,
Xybernaut and Buyer hereby agree as follows:
1. Definitions.
(a) "Average Daily Price" shall be the price based on the VWAP
of Xybernaut on the relevant market or exchange.
(b) "Average Price" shall be the average of the Average Daily
Price for the applicable Draw Down Pricing Period on the relevant market or
exchange.
(c) "Draw Down" shall have the meaning assigned to such term
in Section 4(a) hereof.
(d) "Draw Down Exercise Date" shall have the meaning assigned
to such term in Section 4(b) hereof.
(e) "Draw Down Pricing Period" shall mean a period of five (5)
consecutive trading days preceding a Draw Down Exercise Date.
(f) "Effective Date" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for hereby is
declared effective.
(g) "Material Adverse Effect" shall mean any effect on the
business, operations, properties or financial condition of Xybernaut that is
material and adverse to Xybernaut and its subsidiaries and affiliates, taken as
a whole, and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of Xybernaut to enter into and perform any
of its obligations under this Agreement or the Warrant, in any material respect.
(h) "Material Change in Ownership" shall mean that the
officers and directors of Xybernaut shall own less than 20% of the outstanding
Common Stock of Xybernaut.
(i) "Registration Statement" shall mean the registration
statement under the Securities Act of 1933, as amended, to be filed with the
Securities and Exchange Commission for the registration of the Shares.
(j) "Securities" shall mean, collectively, the shares of
Common Stock of Xybernaut being subscribed for hereunder, the shares of Common
Stock issuable to Buyer upon exercise of the Option and the Warrants, the Option
(as hereinafter defined)and the Warrants.
(k) "Shares" shall mean, collectively, the shares of Common
Stock of Xybernaut being subscribed for hereunder and those shares of Common
Stock issuable to Buyer upon exercise of the Option and the Warrants.
(l) "Threshold Price" is the lowest price that Xybernaut will
issue new shares of Common
Stock.
(m) "VWAP" shall mean the daily volume weighted average price
of Xybernaut on the relevant exchange as reported by Bloomberg Financial using
the AQR function.
(n) "Warrants" shall have the meaning assigned to such term in
Section 7 hereof.
2. Agreement to Subscribe; Pricing.
(a) Buyer hereby subscribes for a total of up to Two Million
Seven Hundred Thousand Dollars ($2,700,000) of Xybernaut's Common Stock based
upon (i) the Draw Downs permitted hereunder; provided that no Draw Down may
exceed Seven Hundred Fifty Thousand Dollars ($750,000), and (ii) a per share
purchase price equal to the lesser of (x) 100% of the Average Price for the Draw
Down Pricing Period and (y) $8.00 (the "Purchase Price").
(b) If the Average Daily Price on a given trading day is less
than the Threshold Price then Buyer's payment obligation under the applicable
Draw Down will be reduced by 1/5th. At no time shall the Threshold Price be set
below $3.00; provided, however, that if trading in Xybernaut's Common Stock is
suspended for more than three (3) hours in any trading day, the price of the
Common Stock shall be deemed to be below the Threshold Price for that trading
day.
3. Condition Precedent. The parties recognize that before Buyer shall be
obligated to accept a Draw Down request from Xybernaut, Xybernaut shall have
caused a sufficient number of shares of Common Stock to be authorized to cover
the shares of Common Stock to be issued in connection with such Draw Down.
4. Draw Down Terms. Subject to the satisfaction of the conditions set
forth in Section 3 hereof, the parties agree as follows:
(a) During the Exercise Period (as hereinafter defined),
Xybernaut, may, in its sole discretion, issue and exercise Draw Downs, which
Draw Downs the Buyer will be obligated to accept. The initial Draw Down may not
be initiated before Thursday, October 8, 1998. The next Draw Down shall only
occur after the end of the Draw Down Pricing Period for the initial Draw Down
and successive Draw Downs may only occur after the end of the Draw Down Pricing
Period for the immediately preceding Draw Down.
(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. The Settlement (as such is hereinafter defined) of the Draw Down
shall occur on the first trading day following the end of the Draw Down Pricing
Period (the "Draw Down Exercise Date"), based on the Average Daily Price during
the Draw Down Pricing Period.
(c) Subject to all restrictions being satisfied, the exercise
of each Draw Down will be automatic without any additional action being
required. The exercise of each Draw Down will be "European Style" ( i.e. the
Draw Down can be exercised only on the Draw Down Exercise Date).
(d) Each Draw Down will expire on the calendar day immediately
following the Draw Down Exercise Date.
(e) Xybernaut must inform Buyer via facsimile transmission as
to the amount of the Draw Down Xybernaut wishes to exercise before trading in
the Common Stock the first day of the Draw Down Pricing Period (the "Draw Down
Notice"). The closing bid price of the Common Stock on each Draw Down Exercise
Date must be greater than $3.00 per share as reported by the relevant market or
exchange. At no time shall Buyer be required to purchase more shares of Common
Stock than amount set forth in the Draw Down Notice. For purposes hereof, the
term "Draw Down" shall mean Xybernaut's exercise of the right to commence a Draw
Down Pricing Period with respect to Buyer's commitment to purchase Common Stock
pursuant to Section 2(a) hereof.
(f) On or before three (3) trading days after the Draw Down
Exercise Date, Xybernaut shall deliver the Shares purchased by Buyer to Buyer or
to The Depositary Trust Company ("DTC") on Buyer's behalf. Xybernaut and Buyer
shall cause such Shares to be credited to the DTC account designated by Buyer
upon receipt by Xybernaut of payment for the Draw Down into an account
designated by Xybernaut. The delivery of the shares of Common Stock into Buyer's
DTC account in exchange for payment therefor shall be referred to herein as
"Settlement". Buyer shall coordinate with Xybernaut each Settlement through DTC.
5. Buyer's Call Option. Buyer shall have the right to purchase an
additional shares of Common Stock in an amount equal to the amount of the Draw
Down as set forth in the Draw Down Notice (the "Option"). For each additional
amount that Buyer exercises the Option pursuant to this Section 5, Buyer must
notify Xybernaut in writing of such exercise, which exercise may be made on a
daily basis throughout the applicable Draw Down Pricing Period; provided that no
exercise may be made later than 5:00 p.m. (East coast time) on the last day of
the applicable Draw Down Pricing Period. If Buyer so exercises its Option to
purchase additional shares, the price for the shares of Common Stock shall be
the VWAP for the Common Stock for each day during the applicable Draw Down
Pricing Period that all or a portion of the Option was exercised. If Buyer does
not exercise its right to exercise the Option by such time on the last day of
the applicable Draw Down Pricing Period, Buyer's right to exercise the Option
with respect to the applicable Draw Down Pricing Period shall terminate.
6. Restrictions. The parties further agree as follows:
(a) Xybernaut must remain listed or admitted for trading, as
applicable, on the NASDAQ Small Cap Market Systems, NASDAQ National Market
Systems, the New York Stock Exchange or the American Stock Exchange for the
entire Draw Down Pricing Period.
(b) Should there occur a Material Adverse Effect or Material
Change in Ownership of Xybernaut during any Draw Down Pricing Period, Buyer
shall not be required to accept the Draw Down, unless Buyer otherwise
determines, in sole and absolute discretion.
(c) All cash payable to Xybernaut upon the Settlement of a
Draw Down or the exercise of an Option shall be paid by Buyer to a mutually
agreed upon escrow account against the concurrent delivery to the escrow agent
of the escrow amount of the shares of Common Stock subject to the Draw Down or
the exercise of the Option, as applicable.
(d) At all times during the term of this Agreement there must
be a minimum of eight (8) active Market Makers for Xybernaut's Common Stock on
the NASDAQ Small Cap Market or NASDAQ National Market Systems, as applicable,
unless Xybernaut's Common Stock is listed on the New York Stock Exchange or the
American Stock Exchange.
(e) The Settlement of all Draw Downs shall take place on the
Draw Down Exercise Date.
7. Registration Statement. Promptly after the day of the Settlement of
the second Draw Down hereunder, Xybernaut shall cause to be filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-3 (or any other comparable form) to register for resale the shares of
Common Stock purchased by Buyer pursuant to this Agreement. Xybernaut shall use
its best efforts to take all steps necessary to cause the Registration Statement
to be declared effective by the Commission as reasonably expeditiously as
possible.
8. Warrants; Fees, etc. The parties agree as follows:
(a) For each Draw Down, Buyer will receive warrants
("Warrants") to purchase 12,500 shares of Common Stock. Each Warrant will have a
three (3) year term from its date of issuance. The Common Stock underlying the
Warrants will be registered in the Registration Statement referred to in Section
7 hereof.
(b) The Warrant Strike Price shall be 225% of the Average
Daily Price of the Common Stock on the date Xybernaut furnishes Buyer with the
applicable Draw Down Notice to which the Warrants relate.
(c) Settondown Capital International, Ltd. ("Settondown") will
receive a fee of six percent (6%) of the total amount paid for the shares of
Common Stock by Buyer in accordance with this Agreement. Xybernaut acknowledges
that Settondown may use a portion of its fee to compensate other parties
relative to a particular Draw Down.
(d) Notwithstanding the foregoing, should the Registration
Statement not be filed with the Commission within thirty (30) days following the
day of the Settlement of the second Draw Down hereunder, the fee due Settondown
shall be increased by one percent (1%) to seven percent (7%); and therefore the
fee shall be increased by an additional one percent (1%) for each additional
thirty (30) days that the Registration Statement is not filed, if applicable.
(e) Xybernaut will be responsible for the payment of all costs
and expenses incurred by Buyer or Xybernaut related to the transactions
contemplated by this Agreement.
9. Representations, Warranties and Covenants of Buyer. Buyer represents
and warrants to Xybernaut, and covenants for the benefit of Xybernaut, as
follows:
(a) This Agreement has been duly authorized, validly executed
and delivered by Buyer and constitutes a valid and binding agreement and
obligation of Buyer enforceable against Buyer in accordance with its terms,
subject to limitations on enforcement by general principles of equity and
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(b) Buyer has received and carefully reviewed copies of the
Public Documents (as hereinafter defined). No representations or warranties have
been made to Buyer by Xybernaut, the officers or directors or Xybernaut, or any
agent, employee or affiliate of any of them, except as specifically set forth
herein or as set forth in the other documents expressly referred to herein.
Buyer understands that no federal, state, local or foreign governmental body or
regulatory authority has made any finding or determination relating to the
fairness of an investment in the Securities and that no federal, state, local or
foreign governmental body or regulatory authority has recommended or endorsed,
or will recommend or endorse, any investment in the Securities. Buyer, in making
the decision to purchase the Securities, has relied upon independent
investigation made by it and has not relied on any information or
representations made by third parties;
(c) Buyer understands that the Securities are being offered
and sold to it in reliance on specific provisions of federal and state
securities laws and that Xybernaut is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Buyer set forth herein for purposes of qualifying for exemptions from
registration under the Securities Act, and applicable state securities laws;
(d) Buyer is an "accredited investor" as defined under Rule
501 of Regulation D promulgated under the Securities Act;
(e) The Buyer (i) is and will be acquiring the Securities for
the Buyer's own account, and not with a view to any resale or distribution of
the Securities, in whole or in part, in violation of the Securities Act or any
applicable securities laws and (ii) has not offered or sold any of the
Securities and has no present intention or agreement to divide the Securities
with others for purposes of selling, offering, distributing or otherwise
disposing of any of the Securities Act;
(f) The offer and sale of the Securities is intended to be
exempt from registration under the Securities Act, by virtue of Section 4(2) and
Regulation D promulgated under the Securities Act. Buyer understands that the
shares of Common Stock purchased hereunder (the "Shares") and the shares of
Common Stock underlying the Warrants have not been, and may never be, registered
under the Securities Act; that the Shares cannot be sold, transferred, assigned,
pledged or subjected to any lien or security interest unless they are first
registered under the Securities Act and such state and other securities laws as
may be applicable or in the opinion of counsel for Xybernaut an exemption from
registration under the Securities Act is available (and then the Shares may be
sold, transferred, assigned, pledged or subjected to a lien or security interest
only in compliance with such exemption and all applicable state and other
securities laws); and that the following legends will be placed upon the
certificate for the Shares:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be
offered for sale, sold or otherwise transferred, pledged or
subjected to any lien or security interest, in the absence of
an effective registration statement under the Securities Act
or a written opinion of counsel for the Company that the
Shares may be offered for sale, sold, transferred, pledged or
subjected to a lien or security interest pursuant to an
exemption under the Securities Act and such state and other
securities laws as may be applicable."
(g) Buyer (i) has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of an
investment in Xybernaut; and (ii) recognizes that the Buyer's investment in
Xybernaut involves a high degree of risk; and
(h) Buyer is capable of evaluating the risks and merits of an
investment in the Securities by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business matters and
Buyer is capable of bearing the entire loss of its investment in the Securities.
10. Representations, Warranties and Covenants of Xybernaut. Xybernaut
represents and warrants to Buyer, and covenants for the benefit of Buyer, as
follows:
(a) Xybernaut has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure to
register or qualify is not reasonably anticipated to have a Material Adverse
Effect;
(b) Xybernaut has furnished Buyer with copies of Xybernaut's
most recent Annual Report on Form 10-KSB (the "Form 10-KSB") filed with the
Commission, its Form 10- QSB for the quarterly period ended June 30, 1998 (the
"Form 10-QSB"; collectively with the Form 10-KSB and the Form 10-QSB, the
"Public Documents"). The Public Documents at the time of their filing did not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading;
(c) The Shares, when paid for by Buyer, shall be duly
authorized and validly issued and when issued and delivered, will be fully paid
and nonassessable;
(d) This Agreement has been duly authorized, validly executed
and delivered on behalf of Xybernaut and is a valid and binding agreement and
obligation of Xybernaut enforceable against Xybernaut in accordance with its
terms, subject to limitations on enforcement by general principles of equity and
by bankruptcy or other laws affecting the enforcement of creditors' rights
generally, and Xybernaut has full power and authority to execute and deliver
this Agreement and the other agreements and documents contemplated hereby and to
perform its obligations hereunder and thereunder;
(e) The execution and delivery of this Agreement, the issuance
of the Shares and the consummation of the transactions contemplated by this
Agreement by Xybernaut, will not conflict with or result in a breach of or a
default under any of the terms or provisions of, Xybernaut's certificate of
incorporation or Bylaws, or of any material provision of any indenture,
mortgage, deed of trust or other material agreement or instrument to which
Xybernaut is a party or by which it or any of its material properties or assets
is bound, any material provision of any law, statute, rule, regulation, or any
existing applicable decree, judgment or order by any court, federal or state
regulatory body, administrative agency, or other governmental body having
jurisdiction over Xybernaut, or any of its material properties or assets or will
result in the creation or imposition of any material lien, charge or encumbrance
upon any material property or assets of Xybernaut or any of its subsidiaries
pursuant to the terms of any agreement or instrument to which any of them is a
party or by which any of them may be bound or to which any of their property or
any of them is subject;
(f) Except as disclosed herein, and based upon the
representations and warranties of Buyer set forth herein, no authorization,
approval, filing with or consent of any governmental body is required for the
issuance and sale of the Shares to Buyer pursuant to this Agreement;
(g) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending against
or affecting Xybernaut, or any of its properties, which would reasonably be
anticipated to result in a Material Adverse Effect, except as set forth in the
Public Documents;
(h) Subsequent to the dates as of which information is given
in the Public Documents, except as contemplated herein and in connection with
the Other Financing, Xybernaut has not incurred any material liabilities or
material obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business, and there has not been any
change in its capitalization or any Material Adverse Effect; and
(i) Xybernaut has sufficient title and ownership of all
trademarks, service marks, trade names, copyrights, patents, trade secrets and
other proprietary rights necessary for its business as now conducted and as
proposed to be conducted as described in the Public Documents without any
conflict with or infringement of the rights of others. Except as set forth in
the Public Documents, there are no material outstanding options, licenses or
agreements of any kind relating to the foregoing, nor is Xybernaut bound by or
party to any material options, licenses or agreements of any kind with respect
to the trademarks, service marks, trade names, copyrights, patents, trade
secrets, licenses and other proprietary rights of any other person or entity.
11. Indemnification.
(a) Xybernaut hereby agrees to indemnify and hold harmless
Buyer and its officers, directors, shareholders, employees, agents and attorneys
against any and all losses, claims, damages, liabilities and expenses incurred
by each such person in connection with defending or investigating any such
claims or liabilities, whether or not resulting in any liability to such person,
to which any such indemnified party may become subject under the Securities Act,
or under any other statute, at common law or otherwise, insofar as such losses,
claims, demands, liabilities and expenses arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact made by
Xybernaut (ii) any omission or alleged omission of a material fact with respect
to Xybernaut or (iii) any breach of any representation, warranty or agreement
made by Xybernaut in this Agreement.
(b) Buyer hereby agrees to indemnify and hold harmless
Xybernaut and its officers, directors, shareholders, employees, agents and
attorneys against any and all losses, claims, damages, liabilities and expenses
incurred by each such person in connection with defending or investigating any
such claims or liabilities, whether or not resulting in any liability to such
person, to which any such indemnified party may become subject under the
Securities Act, or under any other statute, at common law or otherwise, insofar
as such losses, claims, demands, liabilities and expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact made by Buyer, (ii) any omission or alleged omission of a material fact
with respect to Buyer or (iii) any breach of any representation, warranty or
agreement made by Buyer in this Agreement.
12. Effective Period. Xybernaut may not issue a Draw Down Notice
hereunder after November 15, 1998 (the "Exercise Period").
13. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without giving effect to the
rules governing the conflicts of laws.
14. Expenses. Each of the parties agrees to pay its own expenses incident
to this Agreement and the performance of its obligations hereunder, except that
Xybernaut will pay the reasonable fees and expenses of Buyer's legal counsel.
15. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, express overnight
courier, registered first class mail, overnight courier, or telecopier,
initially to the address set forth below, and thereafter at such other address,
notice of which is given in accordance with the provisions of this Section.
if to Xybernaut:
Xybernaut Corporation
00000 Xxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xx. Xxxxxx X. Xxxxxx
President and Chief Executive Officer
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxx Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
if to Buyer:
HSBC Xxxxx Xxxxx Canada, Inc.
000 Xxxxxxxx Xxxxxx Xxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxx X0X XX0 Xxxxxx
Attn: Xx. Xxxxx Elishis
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three (3) business days
after being deposited in the mail, postage prepaid, if mailed; the next business
day after being deposited with an overnight courier, if deposited with a
nationally recognized, overnight courier service; when receipt is acknowledged,
if telecopied.
16. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes all prior and/or contemporaneous oral or written proposals
or agreements relating thereto all of which are merged herein. This Agreement
may not be amended or any provision hereof waived in whole or in part, except by
a written amendment signed by both of the parties.
17. Counterparts. This Agreement may be executed by facsimile signature
and in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Xybernaut Corporation
By:/s/ Xxxxxx X. Xxxxxx
----------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice-Chairman
HSBC Xxxxx Xxxxx Canada, Inc.
By: /s/ Xxxxx Xxxxxxx
---------------------------
Name: Xxxxx Xxxxxxx
Title: Senior Vice President
