Document:

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THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

                             XYBERNAUT CORPORATION

                         COMMON STOCK PURCHASE WARRANT

         1.       Issuance. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by Xybernaut
Corporation, a Delaware corporation (the "Company"), Crystalite Investments
Ltd., or registered assigns (the "Holder") is hereby granted the right to
purchase at any time until 5:00 P.M., New York City time, on October 1, 2004
(the "Expiration Date"), Five Hundred Thousand (500,000) fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock") at an initial exercise price of $1.01 per share (the
"Exercise Price"), subject to further adjustment as set forth in Section 6
hereof.

         2.       Exercise of Warrants. This Warrant is exercisable in whole or
in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check, or by "cashless
exercise", by means of tendering this Warrant Certificate to the Company to
receive a number of shares of Common Stock equal in Market Value to the
difference between the Market Value of the shares of Common Stock issuable upon
exercise of this Warrant and the total cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed, together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. For the purposes
of this Section 2, "Market Value" shall be an amount equal to the average
closing bid price of a share of Common Stock for the ten (10) days preceding
the Company's receipt of the Notice of Exercise Form duly executed multiplied
by the number of shares of Common Stock to be issued upon surrender of this
Warrant Certificate.

         3.       Reservation of Shares. The Company hereby agrees that at all
times during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").

         4.       Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of

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loss, theft or destruction) receipt of reasonably satisfactory indemnification,
and (in the case of mutilation) upon surrender and cancellation of this
Warrant, the Company will execute and deliver a new Warrant of like tenor and
date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon
become void.

         5.       Rights of the Holder. The Holder shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.

         6.       Protection Against Dilution.

                  6.1      Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as will
cause (i) the total number of shares of Common Stock Holder is entitled to
purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase
price per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied by
the total purchase price before adjustment.

                  6.2      Capital Adjustments. In case of any stock split or
reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the
purposes hereof. A rights offering to stockholders shall be deemed a stock
dividend to the extent of the bargain purchase element of the rights.

         7.       Transfer to Comply with the Securities Act; Registration
Rights.

         (a) This Warrant has not been registered under the Securities Act of
1933, as amended, (the "Act") and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective
registration statement under the Act relating to such security or an opinion of
counsel satisfactory to the Company that registration is not required under the
Act. Each certificate for the Warrant, the Warrant Shares and any other
security issued or issuable upon exercise of this Warrant shall contain a
legend on

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the face thereof, in form and substance satisfactory to counsel for the
Company, setting forth the restrictions on transfer contained in this Section.

         (b) The Company hereby grants to the Holder piggyback registration
rights with respect to the Warrant Shares. In the event the Company is filing a
Registration Statement for itself or on behalf of any of its shareholders, the
Company shall notify the Holder in writing reasonably in advance of such filing
(but at least five business days) and give the Holder the opportunity to
include all or any party of the Warrant Shares (whether or not previously
issued, to the extent permissible under the Act or any regulation promulgated
thereunder. Upon the Holder's notification that the Holder desires to have all
or any portion of the Warrant Shares included in such registration, the Company
shall, at no cost or expense to the Holder, include or cause to be included in
such registration statement the Warrant Shares so identified by the Holder.

         (c) In addition to the registration rights referred to in the
preceding provisions of Section (b), effective after the expiration of the
effectiveness of the Registration Statement as contemplated by the Registration
Rights Agreement, the Holder shall have demand piggy-back registration rights
with respect to the Warrant Shares then held by the Holder or then subject to
issuance upon exercise of this Warrant (collectively, the "Remaining Warrant
Shares"), subject to the conditions set forth below. If, at any time after the
Registration Statement has ceased to be effective, the Company participates
(whether voluntarily or by reason of an obligation to a third party) in the
registration of any shares of the Company's stock, the Company shall give
written notice thereof to the Holder and the Holder shall have the right,
exercisable within ten (10) business days after receipt of such notice, to
demand inclusion of all or a portion of the Holder's Remaining Warrant Shares
in such registration statement.

         8.       Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:

                  (i)      if the to Company, to:

                           Xybernaut Corporation
                           12701 Fair Lakes Circle
                           Suite 550
                           Fairfax, Virginia 22033
                           Fax no.:703-631-6734
                           Attn: Chief Financial Officer

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                  (ii)     if to the Holder, to:
                           Crystalit Investments, Ltd.
                           111 Arlosorov Street
                           Tel Aviv, Israel
                           Fax no.: 011-972-3-691-0476

Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.

         9.       Supplements and Amendments; Whole Agreement. This Warrant may
be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.

         10.      Governing Law. This Warrant shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State.

         11.      Counterparts.  This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

         12.      Descriptive Headings.  Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

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     IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the __th day of December 1999.

                                             XYBERNAUT CORPORATION

                                             By:
                                                 --------------------------
                                                      Name: Steve A. Newman
                                                      Title: Vice Chairman

Attest:

-----------------------------

-----------------------------
Chief Administrative Officer

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                                    FORM OF
                         NOTICE OF EXERCISE OF WARRANT

     The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of __________, 1999, to
purchase __________ shares of the Common Stock, par value $.01 per share, of
Xybernaut Corporation and tenders herewith payment in accordance with Section 1
of said Common Stock Purchase Warrant.

     Please deliver the stock certificate to:

Dated:

                                             CRYSTALITE INVESTMENTS LTD.

                                             By:
                                                 --------------------------

                                       6<PAGE>   1
                              EMPLOYMENT AGREEMENT

               EMPLOYMENT AGREEMENT dated as of January 1, 2000 (this
"Agreement"), by and between EDWARD G. NEWMAN (the "Executive"), and XYBERNAUT
CORPORATION, a Delaware Corporation (the "Company").

               WHEREAS, the Executive has been employed as the President and
Chief Executive Officer of the Company; and

               WHEREAS, the Company desires to continue to employ the Executive
as President and Chief Executive Officer of the Company and the Executive
desires to continue his employment with the Company in the aforementioned
capacity, all upon the terms and provisions, and subject to the conditions set
forth in this Agreement.

               NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

               Section 1. Definitions. As used in this Agreement the following
terms shall have the meanings set forth in this Section 1:

               (a) "Affiliate" of any Person means any stockholder or person or
entity controlling, controlled by under common control with such Person, or any
director, officer or key executive of such Person or any of their respective
relatives. For purposes of this definition, "control," when used with respect to
any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings that correspond to the foregoing.

               (b) "Cause" shall mean (i) the Company being subjected to any
criminal liability under any applicable law as a result of any action or
inaction on the part of the Executive, which the Executive did not, at the time,
reasonably believe to be in the best interests of the Company; (ii) the
conviction or admission of the Executive of, or plea by the Executive of nolo
contendre to, a felony or crime involving moral turpitude which the Board of
Directors concludes is likely to have a material and adverse effect on the
reputation of the Company; (iii) if the Executive is chronically addicted to any
narcotic or other illegal or controlled substance or repeatedly abuses any
alcoholic product or any prescription stimulants or depressant, as determined by
a physician designated by the Company, which in the reasonable opinion of the
Board of Directors of the Company materially interferes with Executive's
performance of his duties and obligations hereunder; (iv) the Executive
committing fraud, or stealing or misappropriating any asset or property of the
Company, including, without limitation, any theft or embezzlement; or (v) a
breach of a material provision of this Agreement by the Executive which is not
cured by the Executive within ten (10) business days after written notice of
such breach is received by the Executive from the Company.

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               (c) "Change of Control" shall mean the occurrence of any of the
following: (i) a Person or group of Persons, other than any current member of
the Board of Directors, obtains beneficial ownership of at least thirty percent
(30%) of the outstanding capital stock of the Company; or (ii) a change in the
membership of more than fifty percent (50%) of the current Board of Directors in
any twelve (12) month period.

               (d) "Common Stock" shall mean the common stock, par value $.01
per share, of the Company, and any other class of common stock of the Company
created after the date of this Agreement in accordance with the Company's
Certificate of Incorporation and applicable law.

               (e) "Competing Business" shall mean any business, enterprise or
other Person that as one of its businesses or activities, is engaged in the
business of manufacturing, selling, marketing, licensing or distributing
wearable computers or the solutions associated therewith that are provided by
the Company.

               (f) "Confidential and Proprietary Information" shall mean any and
all (i) confidential or proprietary information or material not in the public
domain about or relating to the business, operations, assets or financial
condition of the Company or any Affiliate of the Company or any of the Company's
or any such Affiliate's trade secrets, including, without limitation, research
and development plans or projects; data and reports; computer materials such as
programs, instructions and printouts; formulas; product testing information;
business improvements, processes, marketing and selling strategies; strategic
business plans (whether pursued or not); budgets; unpublished financial
statements; licenses; pricing, pricing strategy and cost data; information
regarding the skills and compensation of executives; the identities of clients
and potential clients; intellectual property strategies and any work on any
patents, trademarks and tradenames, prior to any filing or the use thereof in
commerce; pricing, timing, sales terms, service plans, methods, practices,
strategies, forecasts, know-how and other marketing techniques; and (ii)
information, documentation or material not in the public domain by virtue of any
action by or on the part of the Executive, the knowledge of which gives or may
give the Company or any Affiliate of the Company an advantage over any Person
not possessing such information. For purposes hereof, the term Confidential and
Proprietary Information shall not include any information or material (i) that
is known to the general public other than due to a breach of this Agreement by
the Executive or (ii) was disclosed to the Executive by a Person who the
Executive did not reasonably believe was bound to a confidentiality or similar
agreement with the Company.

               (g) "CPI" shall have the meaning given to that term in Section
4(a) hereof.

               (h) "Discretionary Bonus" shall have the meaning given to that
term in Section 4(c) hereof.

               (i) "Employment Term" shall have the meaning given to that term
in Section 2 hereof.

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               (j) "GAAP" shall mean generally accepted United States accounting
principles, as from time to time in effect.

               (k) "Good Reason" shall mean (i) a substantial change to or
reduction in the duties or responsibilities of the Executive such that the
responsibilities of the Executive are no longer commensurate with the
Executive's office with the Company as set forth herein; (ii) the occurrence of
Change of Control; (iii) a change in the Executive's office from that of
President and Chief Executive Officer of the Company which is not concurred in
by the Executive within three (3) months of its occurrence; or (iv) the breach
of a material term or provisions of this Agreement by the Company which is not
cured by the Company within ten (10) business days after written notice of such
breach is received by the Company from the Executive.

               (l) "Gross Revenues" for each twelve (12) month period during the
Term shall have the meaning of gross revenues of the Company set forth in the
audited annual financial statements of the Company for the applicable twelve
(12) months and which shall be determined in accordance with GAAP applied on a
consistent basis.

               (m) "Incapacity" shall mean any illness or mental or physical
incapacity or disability which prevents the Executive from performing his duties
or obligations hereunder for a continuous period of one hundred twenty (120)
consecutive days or for shorter periods aggregating one hundred eighty (180)
days within any consecutive twelve (12) month period.

               (n) "Inventions" shall mean inventions, discoveries, concepts and
ideas, whether patentable or not, including, without limitation, processes,
methods, formulae and techniques, and improvements thereof or know-how related
thereto, concerning any business activity of the Company or any Affiliate of the
Company, with which the Executive becomes, directly or indirectly, involved as a
result in whole or in part, directly or indirectly, of the Executive's
employment by the Company, or any Affiliate of the Company.

               (o) "Market Cap" shall mean the aggregate market value of all of
the Company's issued and outstanding shares of Common Stock as of the date of
determination.

               (p) "Performance Bonus" shall have the meaning given to that term
in Section 4(d) hereof.

               (q) "Person" shall mean, without limitation, any natural person,
corporation, partnership, limited liability company, joint stock company, joint
venture association, trust or other similar entity or firm.

               (r) "Salary" shall have the meaning given to that term in Section
4(a) hereof.

               (s) "Signing Bonus" shall have the meaning given to that term in
Section 4(b) hereof.

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               (t) "Without Cause" shall mean the termination of the Executive's
employment hereunder by the Company, other than termination by the Company due
to the Executive's death or Incapacity or based upon Cause.

               Section 2. Employment and Term. The Company hereby employs the
Executive as the President and Chief Executive Officer of the Company and the
Executive hereby accepts such employment in that capacity, upon the terms and
provisions, and subject to the conditions, set forth in this Agreement, for a
term of three (3) years, commencing on January 1, 2000, and terminating on
December 31, 2002, unless earlier terminated as provided in this Agreement (the
"Employment Term").

               Section 3. Executive's Duties. (a) The Executive shall be the
senior and chief executive officer of the Company responsible for the Company's
strategic operations including, without limitation, overseeing the management of
the Company's day-to-day operations and the strategic planning of the Company.
The Executive shall report directly and only to the Board of Directors. The
Executive shall also serve as Chairman of the Board of Directors of the Company.

               (a) The Executive shall devote all of his business time, effort,
skill and attention exclusively to the business, operations and affairs of the
Company and to the furtherance of the interests, business and prospects of the
Company. The Executive shall perform the Executive's duties and obligations
hereunder diligently, competently, faithfully and to the best of his ability.
Subject to disclosure to the Company's general corporate counsel, the Executive
may serve on the board of directors or other governing boards of other
corporations or businesses or industry organizations; provided that such service
does not materially interfere with the Executive's performance of his duties and
obligations hereunder.

               (b) The Executive agrees to execute policy statements and
agreements that the Company may, from time to time, reasonably require all of
its senior executive officers to execute.

               Section 4. Compensation. (a) In consideration of the performance
of all of the duties and obligations to be performed by the Executive hereunder,
the Company agrees to pay, and the Executive agrees to accept, for the first
year of the Employment Term a salary (the "Salary") at an annual rate of
$250,000, payable in accordance with the Company's regular payroll practices as
from time to time in effect, less all withholdings and other deductions required
to be deducted in accordance with any applicable federal, state, local or
foreign law, rule or regulation. In addition, the amount of the Executive's
salary for the period from October 1, 1999 through December 31, 1999 shall be
retroactively adjusted to be at an annual rate of $250,000, any differential
owing to the Executive as a result of such adjustment shall be paid to the
Executive promptly after the execution and delivery of this Agreement. After the
first year during the Employment Term, the annual Salary for each successive
year will be increased by the lesser of (i) 10% and (ii) the percentage
increase, if any, in the CPI for each year just completed measured for the
entire twelve (12) month period, plus three percent (3%). For

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purposes hereof, the term "CPI" means the Consumer Price Index for all Urban
Consumers for the United States for the Washington, D.C. metropolitan area
prepared by the Bureau of Labor Statistics of the U.S. Department of Labor, or
if such index is not then being published, by the U.S. Department of Labor, the
most nearly comparable successor index that the parties may agree upon. By this
Agreement, the Company confirms its prior grant to the Executive of options to
purchase shares of the Company's Common Stock, in respect of a salary deferral
applicable to the Executive for the period from September 1, 1999 through
December 31, 1999 on the same basis as other employees of the Company. Such
options shall vest immediately upon the grant and shall have an exercise price
of $1.78 per share and shall have a term of three (3) years.

               (b) In consideration of the Executive's execution and delivery of
this Agreement, upon the execution and delivery of this Agreement the Company
shall make a cash payment of $50,000 (the "Signing Bonus"). By this Agreement,
the Company confirms that its prior grant to the Executive of options to
purchase 300,000 shares of the Company's Common Stock at an exercise price equal
to the average of the closing price for the Company's Common Stock on October 1,
1999 and having a term of seven (7) years, which was ratified by the Company's
Board of Directors on December 27, 1999.

               (c) At the sole discretion of the Board of Directors of the
Company the Executive may be paid, in cash, Common Stock, options to purchase
Common Stock, Stock Appreciation Rights ("SAR's") or any combination thereof, an
annual bonus in such an amount, if any, and based upon such criteria as the
Board of Directors of the Company may from time to time consider appropriate
(the "Discretionary Bonus"). In addition, this Agreement shall confirm the prior
grant to the Executive, in recognition of the Executive's past services to the
Company, of a grant to the Executive of options to purchase 100,000 shares of
the Company's Common Stock at an exercise price equal to the closing price of
the Company's Common Stock on December 3, 1999. The options granted pursuant to
this Section 4(b) shall be vested as of the date hereof, and shall be subject to
the terms and provisions of the Company's 1997 Stock Option Plan, the Company's
1999 Stock Option Plan or any subsequently enacted stock option plan, as
applicable, except that they may be exercised in any amount at any time after
being vested until three (3) years from date of termination of employment and
shall be irrevocable during that period. Should there not be sufficient options
available or usable under said stock option Plans then, the Company will use its
best efforts to cause a new stock option plan to be adopted which will cover
such options. If no new stock option plan is adopted, the Company will grant
SAR's or make a cash payment to the Executive of substantially similar value,
within one hundred eighty (180) days from the date that it is determined that a
sufficient number of options are not available.

               (d) As additional consideration for Executive's services to the
Company hereunder, the Company shall pay Executive an annual bonus (the
"Performance Bonus"), based upon the Company's performance during the Employment
Term, commencing with the fiscal year from January 1, 2000 through December 31,
2000, and for each fiscal year during the Employment Term thereafter, if earned,
in the form of options to purchase shares of the

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Company's Common Stock, in an amount equal to the greater of (i) one and
one-half percent (1.5%) of the Revenue Goal (as hereinafter defined), if the
Revenue Goal is attained; or (ii) two percent (2%) of the increase, if any, in
the Market Cap from January 1 through December 31 of the applicable fiscal year
during the Employment Term. For purposes hereof, the term "Revenue Goal" shall
mean eighty-five percent (85%) of the Company's revenue goal for each fiscal
year during the Employment Term occurring after the first year of the Employment
Term, as set forth in its business plan for such year; provided that for the
fiscal year from January 1, 2000 through December 31, 2000 the Revenue Goal
shall be $20,000,000. For purposes hereof, the Market Cap Test shall be based on
the average of the number of shares outstanding and closing prices for the
Company's Common Stock for the thirty (30) days ended December 31 of the
applicable year, compared to the comparable thirty (30) day period in the prior
year. The calculation of whether any Performance Bonus is due for any fiscal
year during the Employment Term occurring thereafter, as applicable, shall be
made by the Board of Directors promptly after the end of the fiscal year in
respect of the Market Cap test and upon the Company's issuance of its audited
annual financial statements in respect of the Revenue Goal test. The Performance
Bonus, if earned, shall be paid in the form of options to purchase shares of the
Company's Common Stock valued at an exercise price equal to the average of the
closing market price of the shares of the Company's Common Stock for the thirty
(30) days prior to the end of the applicable fiscal year. Any options issued in
respect of the Performance Bonus shall be subject to the terms and provisions of
the Company's 1999 Stock Option Plan or, if no shares are available under such
Plan, or any subsequently enacted stock option plan, as applicable, except that
they may be exercised in any amount, at any time after being vested until three
(3) years from date of termination of employment and are irrevocable during that
period. Should there not be sufficient options available or usable under said
Stock Option Plans, the Company will use its best efforts to cause a new stock
option plan to be adopted which will cover the options subject to the
Performance Bonus. If no new stock option plan is adopted, the Company will
grant SAR's or make a cash payment to the Executive of substantially similar
value, within one hundred eighty (180) days from the date that it is determined
that a sufficient number of options are not available.

               (e) Notwithstanding anything set forth in Section 4(c), in no
event shall the options granted to the Executive, if any, as the Performance
Bonus with respect to any fiscal year during the Employment Term exceed the
greater of (i) options exercisable into 500,000 shares of Common Stock or (ii)
1.5% of the Company's outstanding shares of capital stock.

               (f) Should there be a Change of Control of the Company or any
other transaction in which the Company is not the surviving entity during the
Employment Term, then as part of that transaction, the Company will require the
surviving entity to modify the Agreement in an equitable manner to provide the
Executive the same type of benefits that he is entitled to earn pursuant to
Section 4(c) of this Agreement.

               (g) All options granted to the Executive pursuant to the
Agreement or referred to herein, to the extent permitted by applicable law,
shall be transferable and assignable. Any

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unvested options granted to the Executive hereunder shall fully vest upon a
Change in Control or upon a termination of this Agreement by the Executive for
Good Reason.

               Section 5. Benefits, Vacation. (a) During the Employment Term,
the Executive shall be entitled to such insurance and health and medical
benefits as are generally made available to the senior executives of the
Company, as a group, pursuant to such plans as are from time to time maintained
by the Company; provided, however, that the Executive shall be required to
comply with the conditions of coverage attendant to such plans.

               (b) During each contract year of the Employment Term, the
Executive shall be entitled to six (6) weeks of vacation. The Executive shall
take vacation at such time or times as the Executive desires, subject to the
concurrence of the Company based upon the then current business needs and
activities of the Company. Vacation shall accrue if unused during the term of
employment.

               (c) During the Employment Term, the Executive shall be eligible
to participate in the profit sharing and other benefit plans that the Company
from time to time makes available to the senior executives of the Company as a
group, subject to the terms, provisions and conditions of such plans, including,
without limitation, any vesting periods and eligibility criteria.

               (d) During the Employment Term, the Company shall pay to the
Executive a non-accountable expense allowance of $1,500 per month. In addition,
the Company shall also pay reasonable legal and estate planning expenses of
Executive in an amount not to exceed $5,000 for each calendar year during the
Employment Term. The amounts paid and/or provided for in this Section 5(d) shall
be reported by the Company on Internal Revenue Service Form 1099.

               (e) The Company agrees to maintain in full force and effect the
life insurance policy in the face amount aggregating Two Million Dollars
($2,000,000.00), which are made payable to such beneficiary or beneficiaries who
are designated by the Executive. The Company shall pay all premiums due on such
policies during the Employment Term. After the termination or expiration of the
Employment Term, at the request of the Executive, the Company shall assign such
insurance policies to the Executive.

               Section 6. Business Expenses. The Executive shall be entitled to
reimbursement for ordinary, necessary and reasonable business expenses actually
incurred by the Executive during the Employment Term in the performance of the
Executive's duties hereunder, if supported by such reasonable documentation as
may be required by the Company in accordance with the Company's policies.

               Section 7. Termination of Employment Term. (a) In the event of
the death of the Executive during the Employment Term, the Executive's
employment hereunder shall automatically terminate as of the date of death;
provided, however, that the Executive's estate or

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legal representative, as the case may be, shall be entitled to receive, and the
Company shall pay, any accrued and unpaid Salary for a two (2) year period
following the date of death, any Performance Bonus that would be payable for the
two (2) year period in which the Executive died which are properly owing to the
Executive pursuant to Section 6 hereof.

               (b) In the event of the Executive's Incapacity, the Company may,
in its sole discretion, terminate the Executive's employment hereunder upon
written notice to the Executive; provided, however, that the Executive or the
Executive's legal representative, as the case may be, shall be entitled to
receive, and the Company shall pay, (i) any accrued and unpaid Salary for a two
(2) year period from the date of termination, less any amounts received by the
Executive under any disability insurance policy maintained by the Company; and
(ii) any Performance Bonus that would be payable for the two (2) year period
after the Executive's employment is terminated due to Incapacity and
reimbursement of business expenses which are properly owing to the Executive
pursuant to Section 6 hereof, through the date of termination; provided that in
no event shall the amount of the Performance Bonus be less than fifty percent
(50%) of what it would have been for the entire year.

               (c) The Company shall have the right to terminate the Executive's
employment under this Agreement at any time for Cause upon written notice to the
Executive. In the event the Executive's employment hereunder is terminated by
the Company for Cause, the Company shall only be obligated to pay accrued and
unpaid Salary through the date of termination and the Company shall pay any
accrued and unreimbursed business expenses which are properly owing to the
Executive pursuant to Section 6 hereof through the date of termination.

               (d) The Company shall have the right to terminate the Executive's
employment hereunder Without Cause at any time upon ten (10) days' prior written
notice to the Executive. If the Company terminates the Executive's employment
hereunder Without Cause, the Company shall (i) continue to pay Salary to the
Executive provided for hereunder for a period equal to the greater of (x) 2
years from the date of termination and (y) the remaining period of the
Employment Term and (ii) pay any unreimbursed business expenses which are
properly owing to the Executive pursuant to Section 6 hereof through the date of
termination. In addition, should the Executive's employment hereunder be
terminated Without Cause, the Company shall pay to the Executive the Performance
Bonus, if any, for the entire contract year in which the termination of the
Executive's employment with the Company hereunder occurs and for the contract
year following the year in which the termination occurred. The Executive shall
not be under any obligation to mitigate the Company's obligation pursuant to
this Section 7(d) by securing other employment or otherwise.

               (e) The Executive shall have the right to terminate his
employment with the Company hereunder for Good Reason, upon not less than thirty
(30) days prior written notice to the Company. Should the Executive terminate
his employment hereunder for Good Reason, the Company shall be obligated to make
the payments to the Executive provided for in Section 7(d) hereof upon the
termination of the Executive's employment by the Company Without Cause.

                                       8

<PAGE>   9
               (f) The failure of the Company to continue the employment of the
Executive upon expiration of the entire three (3) year Employment Term shall not
be considered a termination of employment for purposes of this Agreement. The
Company's obligations with respect to the Performance Bonus for the last year of
the Employment Term, if any, shall survive the expiration of this Agreement.

               Section 8. Inventions. Any Inventions originated or conceived by
the Executive related to the Company's business, during his employment by the
Company or any Affiliate of the Company or with the use or assistance of the
facilities, materials or personnel of the Company or any Affiliate of the
Company, either solely or jointly with others, during the period of employment
with the Company or any Affiliate of the Company shall be the sole and exclusive
property of the Company. The Executive hereby irrevocably assigns and transfers
to the Company and agrees to transfer and assign to the Company all of his
right, title and interest in and to all Inventions, and to applications for
patents and patents granted upon such Inventions and to all copyrightable
material related thereto developed by the Executive or under his supervision.
The Executive agrees for himself and his heirs and personal representatives,
upon the request of the Company and at the Company's expense, to do such acts,
to execute such documents and instruments and to participate in such legal
proceedings as from time to time may be necessary or required to apply for,
secure, maintain, reissue, extend or defend the worldwide rights of the Company
in the Inventions.

               Section 9. Restrictions Respecting Competing Businesses,
Confidential Information, etc. The Executive acknowledges and agrees that by
virtue of the Executive's position and involvement with the business and affairs
of the Company, the Executive will develop substantial expertise and knowledge
with respect to all aspects of the Company's business, affairs and operations
and will have access to all significant aspects of the business and operations
of the Company and to Confidential and Proprietary Information.

               (a) The Executive hereby covenants and agrees that, during the
Employment Term and thereafter, unless otherwise authorized by the Company in
writing, the Executive shall not, directly or indirectly, under any
circumstance: (i) disclose to any other Person (other than in the regular course
of business of the Company) any Confidential and Proprietary Information, other
than pursuant to applicable law, regulation or subpoena or with the prior
written consent of the Company; (ii) act or fail to act so as to impair the
confidential or proprietary nature of any Confidential and Proprietary
Information; (iii) use any Confidential and Proprietary Information other than
for the sole and exclusive benefit of the Company; or (iv) offer or agree to, or
cause or assist in the inception or continuation of, any such disclosure,
impairment or use of any Confidential and Proprietary Information. Following the
Employment Term, the Executive shall return all documents, records and other
items containing any Confidential and Proprietary Information to the Company
(regardless of the medium in which maintained or stored), without retaining any
copies, notes or excerpts thereof, or at the request of the Company, shall
destroy such documents, records and items (any such destruction to be certified
by the Executive to the Company in writing).

                                       9

<PAGE>   10
               (b) The Executive covenants and agrees that, while the Executive
is employed by the Company and for one (1) year after the Executive ceases to be
employed by the Company, if the Executive (i) voluntarily terminates his
employment with the Company for Good Reason or (ii) is terminated by the Company
for Cause, the Executive shall not, directly or indirectly, manage, operate or
control, any Competing Business or, directly or indirectly, induce or influence
any customer or other Person that has a business relationship with the Company,
or any Affiliate of the Company, to discontinue or reduce the extent of such
relationship; provided that in the case of a termination by the Executive
pursuant to clause (i) the Company at all times continues to pay the amounts
owing to the Executive pursuant to Section 7(b) hereof. For purposes of this
Agreement, the Executive shall be deemed to be directly or indirectly
interested in a business if he is engaged or interested in that business as a
stockholder, director, officer, Executive, agent, partner, individual
proprietor, consultant, advisor or otherwise, but not if the Executive's
interest is limited solely to the ownership of not more than 5% of the
securities of any class of equity securities of a corporation or other Person
whose shares are listed or admitted to trade on a national securities exchange
or are quoted on NASDAQ or a similar means if NASDAQ is no longer providing
such information.

               (c) While the Executive is employed by the Company and for one
(1) year after the Executive ceases to be an employed by the Company, the
Executive shall not, directly or indirectly, solicit to employ for himself or
others any employee of the Company or any Affiliate of the Company who was an
employee of the Company or any Affiliate of the Company as of the date of the
termination of the Executive's employment with the Company, or to solicit any
such employee to leave such employee's employment or join the employ of another,
then or at a later time; provided that the foregoing shall not apply to any
family member of the Executive who is employed by the Company or any such
Affiliate or the Executive's administrative assistant.

               (d) The parties agree that nothing in this Agreement shall be
construed to limit or negate the common law of torts, confidentiality, trade
secrets, fiduciary duty and obligations where such laws provide the Company with
any broader, further or other remedy or protection than those provided herein.

               (e) Because the breach of any of the provisions of this Section 9
will result in immediate and irreparable injury to the Company for which the
Company will not have an adequate remedy at law, the Company shall be entitled,
in addition to all other rights and remedies, to seek a degree of specific
performance of the restrictive covenants contained in this Section 9 and to a
temporary and permanent injunction enjoining such breach, without posting bond
or furnishing similar security.

               Section 10. Severability. Each term and provision of this
Agreement is severable; the invalidity, illegality or unenforceability or
modification of any term or provision of this Agreement shall not affect the
validity, legality and enforceability of the other terms and

                                       10

<PAGE>   11
provisions of this Agreement, which shall remain in full force and effect. Since
it is the desire and intent of the parties that the provisions of this Agreement
be enforced to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought, should any
particular provision of this Agreement be deemed invalid, illegal or
unenforceable, the same shall be deemed reformed and amended to delete that
portion that is adjudicated to be invalid, illegal or unenforceable and the
deletion shall apply only with respect to the operation of such provision and to
the extent of such provision and, to the extent that a provision of this
Agreement would be deemed unenforceable by virtue of its scope, but may be made
enforceable by limitation thereon, each party agrees that this Agreement shall
be reformed and amended so that the same shall be enforceable to the fullest
extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought.

               Section 11. Assignment. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of each of
the parties hereto, the heirs, executors, administrators and legal
representatives of the Executive and the successors and permitted assigns of the
Company. Neither this Agreement nor any rights or benefits hereunder may be
assigned by the Executive or the Company without the prior written consent of
the other party hereto, except that the Company may assign any of its rights or
obligations hereunder to any other Person which purchases all or substantially
all of the common stock or assets of the Company or is the successor to the
Company by merger, consolidation or other similar transaction.

               Section 12. Amendment; Entire Agreement. This Agreement may not
be modified, amended, altered or supplemented except by a written agreement
executed by the parties hereto. This Agreement contains the entire agreement and
understanding of the parties hereto with respect to the subject matter of this
Agreement and supersedes all prior and/or contemporaneous agreements and
understandings of any kind and nature (whether written or oral) between the
parties with respect to such subject matter, all of which are merged herein.

               Section 13. Waivers. Waiver by either party of either breach of
or failure to comply with any provision of this Agreement by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or a waiver of any other breach of, or failure to comply with, any other
provision of this Agreement, any such waiver must be in writing to be limited to
the specific matter and instance for which it is given. No waiver of any such
breach or failure or of any term or condition of this Agreement shall be
effective unless in a written instrument and signed by the waiving party and
delivered, in the manner required for notices generally, to the affected party.

               Section 14. Notices. All notices, consents, directions,
approvals, instructions, requests and other communications required or permitted
by the terms of this Agreement to be given to any person shall be in writing,
and shall be delivered personally or sent by certified mail, return receipt
requested (postage prepaid) or by telecopy, to the parties at the following
addresses or telecopy numbers, as applicable:

                                       11

<PAGE>   12
               If to the Executive:

                      Mr. Edward G. Newman
                      Xybernaut Corporation
                      12701 Fair Lakes Circle
                      Suite 550
                      Fairfax, VA  22033
                      Telecopier: (703) 631-7070

               If to the Company:

                      Xybernaut Corporation
                      12701 Fair Lakes Circle
                      Suite 550
                      Fairfax, VA  22033
                      Attention:  Secretary
                      Telecopier:  (703) 631-6734

                      With a copy to:

                      Parker Chapin LLP
                      The Chrysler Building
                      405 Lexington Avenue
                      New York, NY  10174
                      Attention:  Martin Eric Weisberg, Esq.
                      Telecopier:  (212) 704-6288

or to such other address as a party may have furnished to the other parties in
writing in accordance herewith. Any notice, consent, direction, approval,
instruction, request or other communication given in accordance with this
Section 14 shall be effective after it is received by the intended recipient.

               Section 15. Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF VIRGINIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD
OR REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAWS. THIS AGREEMENT SHALL BE
CONSTRUED AND INTERPRETED WITHOUT REGARD TO ANY PRESUMPTION AGAINST THE PARTY
CAUSING THIS AGREEMENT TO BE DRAFTED. EACH OF THE PARTIES UNCONDITIONALLY AND
IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
VIRGINIA AND THE FEDERAL DISTRICT COURT FOR THE NORTHERN DISTRICT OF VIRGINIA
WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND EACH OF THE PARTIES WAIVE ANY RIGHT TO CONTEST THE

                                       12

<PAGE>   13
VENUE OF SAID COURTS OR TO CLAIM THAT SAID COURTS CONSTITUTE AN INCONVENIENT
FORUM. EACH OF THE PARTIES UNCONDITIONALLY AND IRREVOCABLY WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.

               Section 16. Headings; Counterparts. The headings contained in
this Agreement are inserted for reference purposes only and shall not in any way
affect the meaning, construction or interpretation of this Agreement. This
Agreement may be executed in two (2) counterparts, each of which when executed
shall be deemed to be an original, but both of which, when taken together, shall
constitute one and the same document.

                           [INTENTIONALLY LEFT BLANK]

                                       13

<PAGE>   14
               IN WITNESS WHEREOF, the Executive and the Company have executed
this Agreement as of the date first above written.

                                  ----------------------------------------
                                  Edward G. Newman

                                  XYBERNAUT CORPORATION

                                  By:
                                     --------------------------------------
                                     Name:
                                     Title:

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