Exhibit 10.1

                 Form of Agreement of Amendment and Modification

         Agreement of Amendment and Modification made as of July 1, 1998, by and
among Xybernaut  Corporation,  a Delaware  corporation (the "Company"),  Balmore
Funds, S.A. and Austost Anstalt Schaan (collectively, the "Investors").

         Capitalized  terms used herein and not defined  shall have the meanings
given to them in the Private Equity Line of Credit  Agreement  dated as of April
13,  1998 by and  among  the  Company,  the  Investors  and  Settondown  Capital
International Ltd. (the "Line of Credit Agreement").

                                   Witnesseth:

         Whereas,  the Company  and the  Investors  executed  the Line of Credit
Agreement  pursuant  to which the  Investors  agreed,  among  other  things,  to
purchase,  from time to time, up to $11,000,000 (the "Aggregate Purchase Price")
of the Common Stock of the Company;

         Whereas,  pursuant  to the  Line of  Credit  Agreement,  the  Investors
purchased  securities  of  the  Company  for  an  aggregate  purchase  price  of
$1,000,000;

         Whereas, notwithstanding the limitations on the exercise of Put Options
by the  Company set forth in Section  2.1 of the Line of Credit  Agreement,  the
Company, by execution hereof, hereby exercises, and the Investors hereby accept,
a Put Option in the aggregate  principal  amount of $3,000,000 (the "Initial Put
Option"); and

         Whereas, the Company and the Investors desire to amend certain terms of
the Line of Credit  Agreement to provide for the terms pertaining to the Initial
Put Option.

         Now,  therefore,  in consideration of the mutual covenants,  conditions
and promises contained herein, the parties hereto agree as follows:

         1. Section 1.20 of the Line of Credit  Agreement is hereby  modified by
adding the following text at the end thereof:

                  "The Maximum Put Amount set forth in the table above shall not
be applicable to the exercise by the Company of the Initial Put Option."

         2. Section 2.1 of the Line of Credit  Agreement  is hereby  modified by
adding the following subsection (c):

                  "(c)     Initial Put Option.  The Company hereby exercises a 
Put Option in the principal  aggregate  amount of  $3,000,000  (the "Initial Put
Option") and the Investors hereby accept the




                                       -2-

<PAGE>

exercise  of such  Initial  Put  Option.  The  number of shares of Common  Stock
issuable  upon  exercise  of such  Initial  Put Option  shall be  calculated  by
dividing  $3,000,000 by $5.50,  the purchase price per share of Common Stock for
the Initial Put Option.

                  (i) As  additional  consideration  for the  acceptance  of the
         Initial Put Option,  the Investors shall receive  non-transferable  and
         non-tradeable warrants (the "Initial Put Warrants") to purchase a total
         of 300,000 shares of Common Stock of the Company. Such warrants,  which
         shall be exercisable  upon  issuance,  shall have a term of 3 years and
         shall be exercisable at a price per share equal to the closing price on
         the trading day  immediately  preceding  the closing of the Initial Put
         Option hereunder.

                  (ii) The shares of Common Stock  issuable upon exercise of the
         Initial  Put  Option  and the  Initial  Put  Warrants  may not be sold,
         transferred or otherwise disposed of before September 30, 1998.

                  (iii) Notwithstanding Section 2.9 to the contrary,  commencing
         on September  30, 1998,  and monthly  thereafter  (each an "Initial Put
         Repricing  Date"),  one-sixth of the shares of Common Stock issued upon
         exercise  of the Initial Put Option  shall be subject to  repricing  on
         each Initial Put  Repricing  Date.  If the closing  price of the Common
         Stock  on the  trading  date  immediately  preceding  the  Initial  Put
         Repricing Date is less than $7.20 per share, the shares of Common Stock
         subject to repricing  shall be repriced at the lowest closing bid price
         of the Common Stock for the 30 days preceding the Initial Put Repricing
         Date (the  "Initial Put Reset  Price").  The Company shall issue to the
         Investors  such number of shares (the "Initial Put  Repricing  Shares")
         equal to the  difference  between  (a) the  quotient of 500,000 and the
         Initial  Put Reset  Price  and (b) the  number  of  shares  subject  to
         repricing.  No additional shares of Common Stock shall be issued if the
         Initial Put Reset Price is equal to or greater than $5.50.

                  (iv) If the  closing  price  on the  trading  day  immediately
         preceding  the  applicable  Initial Put  Repricing  Date (the  "Closing
         Price") or the Initial Put Reset Price of the Common Stock is less than
         $5.00 per share on the Initial Put Repricing  Date,  the Company at its
         option may pay to the  Investors an amount,  in cash,  equal to 105% of
         the  Closing  Price to be issued to the  Investors  (the  "Initial  Put
         Repricing  Amount") in lieu of issuing the Initial Put Repricing Shares
         (which  Initial Put Repricing  Amount shall be multiplied by the number
         of Initial Put  Repricing  Shares).  If the  Company  elects to pay the
         Initial Put  Repricing  Amount to the  Investors in lieu of issuing the
         Initial Put Repricing  Shares the Company shall notify the Investors of
         that election on the  applicable  Initial Put Repricing  Date,  and the
         exercise price of the Initial Put Warrants shall be reduced to the then
         Closing  Price of the Common  Stock.  If the Company  elects to pay the
         current  Initial Put Repricing  Amount but fails to pay the Initial Put
         Repricing  Amount  within  five  (5)  business  days of  notifying  the
         Investors of such  election,  the Company will forfeit the right to pay
         the Initial Put




                                       -3-

<PAGE>



         Repricing Amount in cash at any time in the future. If the Company does
         not make the  election  to pay the Initial Put  Repricing  Amount,  the
         Company shall deliver the Initial Put Repricing Shares to the Investors
         within seven (7) business days of the applicable  Initial Put Repricing
         Date.  However, in the event the Company is unable to issue Initial Put
         Repricing Shares which have been included in a registration  statement,
         which at that time is  effective,  the Company must pay the Initial Put
         Repricing amount in cash as set forth herein.

                  (v) The shares of Common  Stock  issued at the  closing of the
         Initial Put Options and the Initial Put  Repricing  Shares are included
         under the current effective  registration statement filed in connection
         with the equity line (the "Current Registration Statement"). The shares
         issuable  upon  exercise  of the  Initial  Put  Warrants  shall  not be
         registered  under  the  Current  Registration  Statement,  but  will be
         afforded piggyback registration rights.

                  (vi) The  Investors  agree not to enter  into any put  option,
         short position or other similar  position with respect to the shares of
         Common  Stock  issued at the  closing of the  Initial Put Option or the
         Initial Put Repricing Shares.

                  (vii)  Notwithstanding  the  provisions  of Section  2.3,  the
         Investors  shall wire  $3,000,000  for the Common Stock  issuable  upon
         exercise of the Initial Put Option to Parker  Chapin  Flattau & Klimpl,
         LLP,  who will  serve as  escrow  agent  for the  receipt  of  executed
         documents,  original  securities and the purchase price for the Initial
         Put Option only.  The wire  instructions  for Parker  Chapin  Flattau &
         Klimpl,  LLP are as follows:  CITIBANK N.A., 153 East 53rd Street,  New
         York,  New York 10043,  Account Name:  Parker Chapin  Flattau & Klimpl,
         LLP, Attorney Trust Account,  Account No.: 37432544,  Citibank ABA No.:
         021000089, for International: Swift No. CITI-US 33."

                  3. The Company  represents  and warrants to the Investors that
the  Form  S-3   Registration   Statement  (also  referred  to  as  the  Current
Registration  Statement  in Section 2(v) above) of the Company that was declared
effective  on June 11,  1998,  registered  1,045,296  shares of Common  Stock in
respect of the Initial Put Option and pursuant to Rule 416 promulgated under the
Securities Act of 1933, as amended, an indeterminate  number of shares of Common
Stock to cover Initial Put Repricing Shares.

                  4.  This  Agreement  of  Amendment  and  Modification  may  be
executed in counterparts, all of which shall be deemed to be duplicate originals
of the same document.

                  5. Except for this  Agreement of Amendment  and  Modification,
all the terms,  conditions and covenants of the Line of Credit  Agreement  shall
remain in full force and effect.



                                       -4-

<PAGE>

                  In Witness  Whereof,  the parties  hereto have  executed  this
Agreement of Amendment and Modification as of the date first set forth above.

                                                     Xybernaut Corporation

                                                     By:
                                                         Name:
                                                         Title:


                                                     Balmore Funds, S.A.

                                                     By:
                                                        Name:
                                                        Title:


                                                     Austost Anstalt Schaan

                                                     By:
                                                        Name:
                                                        Title:


                                       -5-