EX-10.2






EXHIBIT 10.2




SECURITY AGREEMENT




This SECURITY AGREEMENT (this “Agreement”) is dated as of March 23, 2006 by and
between Xybernaut Corporation, a Delaware corporation and Xybernaut Solutions, Inc., a Virginia
corporation, debtors and debtors-in-possession (together, “Xybernaut” or
“Borrowers”), and East River Capital LLC, a Delaware limited liability company
(“Lender”).



RECITALS:



WHEREAS Borrowers currently are debtors and debtors-in-possession in bankruptcy cases (the
“Case”) commenced under chapter 11 of title 11 of the United States Code (the
“Bankruptcy Code”) before the United States Bankruptcy Court for the Eastern District of
Virginia, Alexandria Division (the “Court”), Case Nos. 05-12801;



WHEREAS, Xybernaut has requested and Lender has agreed to make one or more loans to Xybernaut
in an amount not exceeding two million six hundred thousand dollars ($2,600,000) or such greater
amount not to exceed three million two hundred thousand dollars ($3,200,000) as mutually agreed
upon by the Lender and Borrowers with the consent of the Official Committee of Unsecured Creditors
(the “Loans”) pursuant to the terms of the Note (as hereinafter defined) subject to and
upon the terms and conditions set forth herein and therein;



NOW, THEREFORE, in consideration of the premises and in order to induce Lender to make the
Loans to Xybernaut, the parties agree as follows:



1. Definitions.



1.1 Definitions. Capitalized words and terms used herein and not otherwise defined
shall have the following meanings:



“Account Debtor” means any “account debtor,” as such term is defined in the applicable
section of the UCC.



“Accounts” means any “account,” as such term is defined in the applicable section of
the UCC, now owned or hereafter acquired by Xybernaut and, in any event, shall include, without
limitation, all accounts receivable, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received
or acquired by or belonging or owing to Xybernaut (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services rendered by
Xybernaut or from any other transaction, whether or not the same involves the sale of goods or
services by Xybernaut (including, without limitation, any such obligation which may be
characterized as an account or contract right under the UCC) and all of Xybernaut’s rights in, to
and under all purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Xybernaut’s rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller’s rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods), and all moneys due or
to become due to Xybernaut under all purchase orders and contracts for the sale of goods or the
performance of services or both by Xybernaut (whether or not yet earned by performance on the part
of Xybernaut or in connection with any other transaction), now in existence or hereafter occurring,
including, without limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any person with respect
to any of the foregoing.



“Approved Sale” has the meaning set forth in the Note.



“Chattel Paper, Instruments and Documents” shall mean any and all chattel paper,
instruments, securities, bills of lading, warehouse receipts and other documents of title (all as
defined in the applicable UCC sections, if any) and documents of any kind now existing or hereafter
acquired or arising, whether arising from or related to the disposition of Inventory, Equipment, or
otherwise, and all rights now or hereafter existing in and to all security agreements, leases,
securities, letters of credit and other contracts, documents and instruments securing or otherwise
relating to any such accounts, rights or instruments (all as defined in the applicable UCC
sections, if any).



“Collateral” shall have the meaning assigned to such term in Section 2.1 of this
Agreement.



“Contract Rights” means any and all of Xybernaut’s right, title, estate and interest
in and to all contracts, contract rights, undertakings, franchise agreements or other agreements,
whether written or oral (other than rights evidenced by Chattel Paper, Documents or Instruments) in
or under which Xybernaut may now or hereafter have any right, title or interest, including, without
limitation, with respect to an Account, any agreement relating to the terms of payment or the terms
of performance thereof.



“Default” shall mean an event which, with the giving of notice, lapse of time or both
would become an Event of Default.



“Deposit Accounts” shall mean any and all “deposit accounts,” as such term is defined
in the applicable section of the UCC, now owned or hereafter acquired by Xybernaut, including
without limitation those set forth in Exhibit 4.



“Equipment” means any “equipment,” as such term is defined in the applicable section
of the UCC, now owned or hereafter acquired by Xybernaut and used by Xybernaut at any location,
other than Equipment which (i) is acquired by Xybernaut pursuant to purchase money financing, (ii)
is encumbered by liens securing such purchase money financing and (iii) may not be pledged as
collateral pursuant to the terms of such purchase money financing.



“Event of Default” shall have the meaning assigned to such term in the Note.



“Final DIP Order” shall mean the final order entered by the Court pursuant to Section
364 of the Bankruptcy Code and Bankruptcy Rule 4001(c) no later than thirty-five (35) days after
entry of the Interim DIP Order, or such later date acceptable to Lender, authorizing the incurrence
by Xybernaut of all indebtedness and obligations under the Note.



“Financing Orders” shall mean the Interim DIP Order and the Final DIP Order
authorizing Xybernaut to obtain the Loans from Lender under the Note and to grant security
therefor, in each case, in form and substance acceptable to Lender.



“General Intangibles” shall have the meaning given to it in the UCC.



“Instruments” means any “instrument,” as such term is defined in the applicable
section of the UCC now owned or hereafter acquired by Xybernaut, including, without limitation, all
notes, certificated securities, and other evidences of indebtedness.



“Intellectual Property” means any and all of Xybernaut’s right, title, estate and
interest, whether now existing or hereafter acquired, in and to all corporate and other business
records in any form, including in form for use by computers or data processing machines; royalties,
patents, inventions, copyrights, trade secrets and other confidential information relating to the
business of Xybernaut, including, by way of illustration and not limitation, each and every kind of
know-how practiced by Xybernaut and its employees; licenses, customer lists, advertising, marks,
designs, logos, slogans, indicia, corporate names, company names, business names, fictitious
business names, trade names, trade styles and registrations issued with respect to any of the
foregoing used in Xybernaut’s business or in which Xybernaut otherwise has an interest; and all
other information of any kind or character, whether or not reduced in writing, with respect to the
conduct by Xybernaut of its businesses not generally known by the public; and the goodwill
associated with the foregoing, including, without limitation, the Intellectual Property identified
on Exhibit 2 hereto.



“Interim DIP Order” shall mean the interim order entered by the Court pursuant to
Section 364 of the Bankruptcy Code and Bankruptcy Rule 4001(c) on March 23, 2006, which authorized
the incurrence by Xybernaut of certain indebtedness and obligations under the Note.



“Inventory” means any “inventory,” as such term is defined in the applicable section
of the UCC, wherever located, now or hereafter owned or acquired by, Xybernaut and, in any event,
shall include, without limitation, all inventory, merchandise, goods and other personal property
which are held by or on behalf of Xybernaut for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Xybernaut’s business, or the processing,
packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not such
inventory is listed on any schedules, assignments or reports furnished to the Agent from time to
time and whether or not the same is in transit or in the constructive, actual or exclusive
occupancy or possession of Xybernaut or is held by Xybernaut or by others for Xybernaut’s accounts,
including, without limitation, all goods covered by purchase orders and contracts with suppliers
and all goods billed and held by suppliers and all inventory which may be located on premises of
Xybernaut or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or
other persons.



“Lien” shall mean any lien, mortgage, encumbrance, pledge, charge, lease, easement,
servitude, right of others or security interest of any kind, including any thereof arising under
any conditional sale or other title retention agreement.



"Loan Documents” means, collectively, this Agreement, the Note, the Escrow Agreement,
the Participation Agreement, and all other agreements, documents, certificates and other
instruments executed and delivered by Xybernaut pursuant thereto or in connection therewith, as
each may be amended, modified or otherwise supplemented from time to time.



“Note” shall mean the Secured Promissory Note dated of even date herewith executed by
Xybernaut in favor of Lender in the original principal amount of two million six hundred thousand
dollars ($2,600,000), as such note may be modified, amended, supplemented, extended or replaced
from time to time.



“Petition Date” shall mean July 25, 2005.



“Premium” has the meaning set forth in the Note.



“Proceeds” means “proceeds,” as such term is defined in the applicable section of the
UCC and, in any event, shall include, without limitation, (i) any and all accounts, chattel paper,
deposit accounts, instruments, cash and other proceeds, payable to Xybernaut from time to time in
respect of the Collateral, (ii) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Xybernaut from time to time with respect to any of the Collateral, (iii) any
and all payments (in any form whatsoever) made or due and payable to Xybernaut from time to time in
connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority, bureau or agency (or any person acting
under color of governmental authority), (iv) any claim of Xybernaut against third parties (a) for
past, present or future infringement of any patent or patent license or (b) for past, present or
future infringement or dilution of any trademark or trademark license or for injury to the goodwill
associated with any trademark, trademark registration or trademark licensed under any trademark
license, (v) any recoveries by Xybernaut against third parties with respect to any litigation or
dispute concerning any of the Collateral including claims arising out of the loss or nonconformity
of, interference with the use of, defects in, or infringement of rights in, or damage to,
Collateral, and (vi) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral. In addition, the term “Proceeds” shall include, without
limitation, all accounts, chattel paper, deposit accounts, instruments, equipment, inventory,
consumer goods, farm products, documents, general intangibles and other Proceeds which arise from
the sale, lease, transfer or other use or disposition of any kind of Collateral or Proceeds and all
Proceeds of any type described above acquired with cash Proceeds.



“Secured Obligations” means all indebtedness, obligations and other liabilities of
Xybernaut to Lender now or hereafter arising pursuant to the Note or this Agreement, including,
without limitation, the indebtedness evidenced thereby and hereby. The term includes all
principal, interest, fees, premiums, charges, expenses, reasonable attorneys’ fees and any other
sums owing by Xybernaut under the Note or this Agreement.



“UCC” means the Uniform Commercial Code as the same may, from time to time, be in
effect in the State of New York; provided, however, in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or priority of Lender’s
security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to such provisions.



2. Security Agreement.



2.1 Security.



(a) Grant of Security Interest. As security for the prompt and complete payment and
performance when due of all the Secured Obligations, Xybernaut hereby assigns, conveys, mortgages,
pledges, hypothecates and transfers to Lender, and hereby grants to Lender a Lien on and security
interest in all of Xybernaut’s right, title and interest in, to and under all of its assets,
property, interests of property or assets, of any kind or nature whatsoever, real or personal,
tangible or intangible, including, without limitation, property of the “estate” as defined in the
Bankruptcy Code (but excluding proceeds of avoidance actions under chapter 5 of the Bankruptcy Code
and proceeds of any prepetition litigation claims against third parties), and including, without
limitation, all of Xybernaut’s right, title and interest in and to the following, whether now owned
or existing or hereafter acquired and wherever located (all of which being hereinafter collectively
called the “Collateral”):



(i) all Accounts;



	 	 	 
	(ii)

(iii)

(iv)

	 	all Inventory;

all Equipment;

all Contract Rights;






(v) Chattel Paper, Instruments and Documents;



	 	 	 
	(vi)

(vii)

(viii)

(ix)

	 	Intellectual Property;

all General Intangibles;

all Deposit Accounts;

all Post-petition Collection Accounts;







(x) to the extent not otherwise included, all rights, proceeds and payments
under insurance with respect to any of the Collateral or otherwise of which either
Borrower is the beneficiary;




(xi) all other goods and real or personal property whether tangible or
intangible, including without limitation, all other rights to payment not specified
above, and whether now or hereafter owned or existing, leased, consigned by or to,
or acquired by, Xybernaut and wherever located;




(xii) all books and records relating to any of the foregoing; and




(xiii) to the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for, and rents,
profits and products of each of the foregoing.



2.2 Grantor Liable.



(a) It is expressly agreed by Xybernaut that, anything herein to the contrary notwithstanding,
Xybernaut shall remain liable under each of its agreements included in the Collateral to observe
and perform all the conditions and obligations to be observed and performed by it thereunder and
Xybernaut shall comply and perform with or pursuant to the terms and provisions of each such
agreement. Lender shall not have any obligation or liability under any agreement included in the
Collateral by reason of or arising out of this Agreement or the granting to Lender of a security
interest therein or the receipt by Lender of any payment relating to any agreement included in the
Collateral pursuant hereto, nor shall Lender be required or obligated in any manner to perform or
fulfill any of the obligations of Xybernaut under or pursuant to any agreement included in the
Collateral, or to make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party under any agreement
included in the Collateral, or to present or file any claim, or to take any action to collect or
enforce any performance or the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times. Xybernaut waives any rights under Section 506(c) of
the Bankruptcy Code respecting the Collateral.



(b) Xybernaut agrees that, from time to time at its own expense, Xybernaut will promptly
execute and deliver all further instruments and documents, and take all further action, that may be
necessary or that Lender may reasonably request, in order to perfect, preserve and protect any
security interest granted or purported to be granted hereby in Collateral. With respect to the
foregoing and the grant of the security interest hereunder, Xybernaut hereby authorizes Lender to
file one or more financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of (or by signing on behalf of) Xybernaut. A
carbon, photographic or other reproduction of this Agreement or any financing statement covering
the Collateral or any part thereof shall be sufficient as a financing statement where permitted by
law.



2.3 Perfected Lien and Security Interest.



(a) Xybernaut hereby represents and warrants that, upon entry of the Interim DIP Order, this
Agreement and the pledge of the Collateral pursuant hereto creates a valid and perfected Lien on
and security interest in all now or hereafter acquired of the Collateral, securing payment of the
Secured Obligations, subject to no other Liens other than (i) Liens and encumbrances not exceeding
$100,000 in the aggregate and scheduled on Exhibit 3 hereto (the “Permitted Liens”), and
(ii) a shared Lien pari passu with LC Fund in the ratio of fifteen percent (15%) to secure the
“Secured Obligations” to LC Fund under the LC Fund DIP Facility, and eighty-five percent (85%) to
secure the Secured Obligations to the Holder. All action by Xybernaut reasonably necessary or
desirable to protect and perfect such Liens on each item of the Collateral has been duly taken upon
entry of the Interim DIP Order. Until the Secured Obligations have been paid in full, the security
interests and Liens granted to Lender hereunder shall remain in full force and effect and shall not
be subordinated to or made pari passu with any other Lien or security interest.
Xybernaut hereby agrees to cooperate with Lender to make all filings and take all other actions
necessary or desirable to perfect and protect such security interest.



(b) Except as expressly provided in the Financing Orders, Xybernaut shall not incur, create,
assume, suffer to exist or permit any claim to have administrative priority which is pari
passu with or senior to the administrative priority granted to Lender under the Financing
Orders.



(c) Other than Permitted Liens and, upon entry of the Interim DIP Order, the Lien shared pari
passu with LC Fund described in subparagraph 2.3(a)(ii) above, Xybernaut represents and warrants
that it owns its Collateral free and clear of any Lien, and that it has all rights in and the power
to transfer each item of Collateral upon which it purports to grant a Lien hereunder.



2.4 Place of Payment. All payments to be made by Xybernaut to Lender hereunder shall
be made in lawful currency of the United States of America and in immediately available funds by
wire to an account specified from time to time by Lender to Xybernaut. Such payments shall be made
without setoff or deduction of any kind.



2.5 Certain Covenants. As a condition to Lender’s making each Loan to Xybernaut,
Xybernaut shall (a) use the proceeds of each Loan only for the purposes set forth in the Note, (b)
duly and punctually pay or reimburse when due or, if there is no specified due date, when demanded,
all principal and interest on the Loans and all other amounts owed to Lender under the terms of
the Note, (c) fully comply with all of its covenants and obligations in the Note, (d) provide
Lender with a monthly cash budget, which includes all projected expenditures and which shall be
prepared in good faith based on all relevant information then available to Xybernaut, ten (10) days
before the first day of each calendar month, in a form satisfactory to Lender, (e) timely file when
due all tax returns, and, except to the extent excused by the Bankruptcy Code or order of the
Court, pay all federal, state and local taxes, assessments and governmental charges imposed upon it
or its property, (f) promptly provide Lender with copies of monthly operating reports filed with
the Court and monthly financials, important notices of matters materially affecting the
administration of the Case or the Collateral (including all notices relating to intellectual
property and pending patents), copies of all written reports given by Xybernaut to either the
Official Committee of Unsecured Creditors or the Equity Committee, copies of all federal and state
tax returns when filed, and the failure to provide copies of such information shall constitute a
default hereunder, (g) maintain and preserve the Collateral, including but not limited to
maintaining adequate insurance, paying maintenance fees, defending against any infringements of
intellectual property (as may be commercially reasonable) and pursuing patent approvals, (h) keep
adequate books and records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP, (i) permit any authorized
representative of Lender to inspect any of its properties and books and records, including its
financial and accounting records, and to make copies and take extracts therefrom, and to discuss
its affairs, finances and accounts with its officers, at Xybernaut’s expense, all upon reasonable
notice at such reasonable times and as often as may be reasonably requested, (j) promptly after
acquiring knowledge of the occurrence of a default or an Event of Default, deliver to Lender a
certificate of Xybernaut’s authorized representative specifying the nature thereof and Xybernaut’s
proposed response thereto, (k) not create, incur, assume or permit to exist any Lien on or with
respect to the Collateral other than Permitted Liens, the Liens securing the Secured Obligations,
and Liens that are junior in priority to the Liens securing the Secured Obligations, and (l) not
sell, transfer, convey, assign or otherwise dispose of all or substantially all of its properties
or assets except for the sale of Inventory in the ordinary course of business or the sale of
Collateral pursuant to an Approved Sale as provided in the Milestones that yields proceeds
sufficient to retire the Secured Obligations (including, for the sake of clarity, the Premium and
all fees and expenses of Lender) in full in cash.



Xybernaut agrees that failure to comply with this Section 2.5 shall constitute an Event of
Default under the Note and this Agreement and, subject to the terms of the Financing Orders, Lender
shall be entitled to exercise any of the remedies provided herein or in the Note or any and all
other rights or remedies available to Lender under applicable law.



2.6 Further Assurances. Xybernaut agrees that from time to time, at its expense, it
will promptly execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that Lender may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to enable Lender to
exercise and enforce its rights and remedies hereunder with respect to any Collateral.



3. Remedies, Rights Upon Default.



3.1 Remedies. Subject to the terms of the Financing Orders, if an Event of Default
shall occur and be continuing, Lender may, notwithstanding the provisions of Section 362 of the
Bankruptcy Code, and without any application, motion, notice to, or order from, the Court, exercise
all rights and remedies granted to it under this Agreement, the Note and all other rights provided
at law or in equity, including all rights and remedies of a secured party under the UCC and
including the right to immediately terminate its commitment to make any Loans available under the
Note. Without limiting the generality of the foregoing, notwithstanding the provisions of Section
362 of the Bankruptcy Code, and without any application, motion, notice to, or order from, the
Court, but subject to the Financing Orders, Xybernaut expressly agrees that in any such event
Lender, without demand of performance or other demand, advertisement or notice of any kind (except
the notice specified below of time and place of public or private sale) to or upon Xybernaut or any
other person (all and each of which demands, advertisements and/or notices are hereby expressly
waived to the maximum extent permitted by the UCC and other applicable law), may forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith
sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and
deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at
public or private sale or sales, at any exchange or broker’s board or at any of Lender’s offices in
the United States or elsewhere at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Lender shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Xybernaut hereby releases. Xybernaut further agrees, at
Lender’s request, to assemble the Collateral and make it available to Lender at places which Lender
shall reasonably select, whether at Xybernaut’s premises or elsewhere. Lender shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization or sale, towards
payment of the Secured Obligations hereof, Xybernaut remaining liable for any deficiency remaining
unpaid after such application, and only after so paying over such net proceeds and after the
payment by Lender of any other amount required by any provision of law need Lender account for the
surplus, if any, to the person entitled by law to receive such surplus or to Xybernaut. To the
maximum extent permitted by applicable law, Xybernaut waives all claims, damages, and demands
against Lender arising out of the repossession, retention or sale of the Collateral except such as
arise out of the gross negligence or willful misconduct of Lender. Xybernaut agrees that Lender
need not give more than seven (7) days’ notice (which notification shall be deemed given when
mailed or delivered on an overnight basis, postage prepaid, addressed to the Xybernaut at its
address referred to in Section 4.2 hereof) of the time and place of any public sale or of the time
after which a private sale may take place and that such notice is reasonable notification of such
matters. Xybernaut shall remain liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all amounts to which Lender is entitled,
Xybernaut also being liable for the reasonable fees of any attorneys employed by Lender to collect
such deficiency.



3.2 Fees and Expenses of Lender. Xybernaut agrees to pay for all costs and expenses
incurred by Lender in connection with the Loans and the enforcement of rights and remedies
hereunder, including, without limitation, reasonable attorneys’ and financial advisor’s fees and
expenses. All reasonable attorneys’ fees and expenses incurred by Lender for purposes of
preparing, negotiating, drafting, executing, delivering, closing, administrating or obtaining final
approval of the Loan Documents shall be payable by Xybernaut upon demand without the need for an
order of the Court ordering such payment.



3.3 Waiver. Xybernaut hereby waives presentment, demand, protest or any notice not
specifically required herein (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement or any Collateral.



3.4 No Waiver of Rights by Lender. No course of dealing or failure or delay on the
part of Lender in exercising any right, power or privilege hereunder or with respect to the Note
shall operate as a waiver hereof or thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise or the exercise of any other right, power or privilege. The
rights of Lender with respect to the Note and the rights of Lender under this Agreement are
cumulative and not exclusive of any rights or remedies which Lender would otherwise have.



4. Miscellaneous.



4.1 Modification of Agreement. No modification or waiver of any provision of this
Agreement, and no consent to any departure by Xybernaut therefrom, shall be effective unless the
same shall be in writing and signed by Lender. Any such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. No notice to or demand on Xybernaut
in any case shall entitle Xybernaut to any other or further notice or demand in the same, similar
or other circumstances.



4.2 Notices. All notices, requests and other communications hereunder shall be in
electronic, telephonic or written (including bank wire, telegram, telecopier, telex or similar
writing) form and shall be given to the party to whom addressed, at its address or telephone,
telecopier or telex number set forth below, or such other address or telephone, telecopier or telex
number as such party may hereafter specify for the purpose by notice to the other parties listed
below. Each such notice, request or communication shall be effective (i) if given by telephone,
telex, telecopy or electronic means, when such communication is transmitted to the address
specified below and the appropriate answer is received, (ii) if given by mail, three (3) days after
such communication is deposited in the mails with first class postage prepaid, addressed as
aforesaid or (iii) if given by any other means, when delivered at the address specified below.



1




If to Xybernaut:




Perry L. Nolen, President


Xybernaut Corporation


5175 Parkstone Drive


Chantilly, VA 20151


Email: pnolen@xybernaut.com


Fax: (703) 480-0488


Phone: (703) 480-0480



	 	 	 
	With a copy to:

	 	

	Thomas Cabaniss, Esq.

McGuire Woods LLP

	 	



	 
	 	 
	Bank of America Corporate Center

	 
	 	 
	100 North Tryon Street, Suite 2900

	 
	 	 
	Charlotte, NC 28202-4011

	 	

	 
	 	 
	Email: tcabaniss@McGuireWoods.com

	 
	 	 
	 

	 
	 	 
	Fax:

Phone:

	 	(704) 373-4011

(704) 373-8953






	 	 	 
	If to Lender:

	 	

	James A. Coyne

East River Capital LLC

200 Nyala Farm Rd.

Westport, CT 06880

	 	







	 
	 	 
	Email: jacoyne@equisgroup.com

	 
	 	 
	 

	 
	 	 
	Fax:

	 	(203) 341-9988






Phone: (203) 341-0515



	 	 	 
	With a copy to:

	 	

	D.J. Baker, Esq.

	 	

	 
	 	 
	Skadden, Arps, Slate, Meagher & Flom LLP

	 
	 	 
	Four Times Square

New York, 10036-6522

Email: djbaker@skadden.com

Fax:

Phone:

	 	





(917) 777-2150

(212) 735-2150






4.3 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHT OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO THE EXTENT GOVERNED BY THE BANKRUPTCY CODE.



4.4 WAIVER OF JURY TRIAL. XYBERNAUT AND LENDER HEREBY WAIVE TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR
THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF, OR ANY OTHER CLAIM OR
DISPUTE HOWSOEVER ARISING, BETWEEN XYBERNAUT AND LENDER.



4.5 Survival of Agreement. All covenants, agreements, representations and warranties
made in this Agreement shall survive the delivery by Xybernaut of the Note and shall continue in
full force and effect so long as the Note shall be unexpired or any sums offsetted or due hereunder
or under the Note or any amount required to be reimbursed or paid by Xybernaut hereunder or
thereunder shall remain unpaid. Whenever in this Agreement Lender is referred to, such reference
shall be deemed to include the successors and assigns of Lender, and all covenants, promises and
agreements by or on behalf of Xybernaut which are contained in this Agreement or the Note shall
inure to the benefit of the successors and assigns of Lender. The rights and duties of Xybernaut,
however, may not be assigned or transferred.



4.6 Severability. The provisions of this Agreement shall be deemed severable. If any
part of this Agreement shall be held unenforceable, by any court of competent jurisdiction, the
remainder shall remain in full force and effect, and such unenforceable provision shall be reformed
by such court so as to give maximum legal effect to the intention of the parties as expressed
therein.



4.7 Headings. Section headings in this Agreement are included herein for convenience
of reference only and shall not constitute a part of this Agreement for any other purpose.



4.8 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such counterpart.



4.9 Effectiveness. This Agreement shall not become effective, shall not bind the
Borrowers, and shall be null and void unless and until, (a) on or before 5:00 p.m., eastern
standard time, on March 17, 2006, the Borrowers execute this Agreement and the Note, and, in
addition, (b) on or before 5:00 p.m., eastern standard time, on March 23, 2006, the Interim DIP
Order, in form and substance satisfactory to Holder, has been entered by the Court and is in full
force and effect.



IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered in counterparts by their respective officers thereunto duly authorized as of the date
first above written.




XYBERNAUT CORPORATION




By: /s/ Perry L. Nolen

Name: Perry L Nolen

Title: President & CEO





XYBERNAUT SOLUTIONS, INC.




By: /s/ Edward P. Maddox

Name: Edward P. Maddox

Title: President





EAST RIVER CAPITAL LLC




By: /s/ James A. Coyne

Name: James A. Coyne

Title: Manager, East River LLC





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