Document:

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

2EX-10.3

EXHIBIT 10.3

ESCROW AGREEMENT

ESCROW AGREEMENT, dated as of the 23rd day of March, 2006 (hereinafter referred to
as this “Escrow Agreement” or this “Agreement”), by and among Xybernaut Corporation, a Delaware
corporation and Xybernaut Solutions, Inc., a Virginia corporation, debtors and
debtors-in-possession (together, “Xybernaut” or the “Company”), East River Capital LLC, a Delaware
limited liability company (the “Lender”) and Skadden, Arps, Slate, Meagher & Flom LLP, as escrow
agent (the “Escrow Agent”).

W I T N E S S E T H:

WHEREAS, on July 25, 2005, Xybernaut filed petitions for relief under chapter 11 of title 11,
United States Code, in the United States Bankruptcy Court for the Eastern District of Virginia (the
“Bankruptcy Court”); and

WHEREAS, Xybernaut and the Lender are parties to that certain Secured Promissory Note (the
“Note”) and Security Agreement (collectively with the Note, the “Loan Documents”), each dated as of
March 23, 2006, providing terms and conditions for the Lender to provide a debtor-in-possession
financing facility (the “DIP Financing Facility”) to Xybernaut. Capitalized terms used and not
defined shall have the meanings ascribed thereto in the Loan Documents; and

WHEREAS, the Loan Documents provide for establishment of escrow accounts into which a portion
of the Loans will be deposited, to be released from escrow in accordance with the terms hereof; and

WHEREAS, the Escrow Agent has been irrevocably appointed as the representative of the
interests of the parties to this Escrow Agreement to exercise such powers and perform such duties
as are set forth in this Escrow Agreement; and

WHEREAS, the Escrow Agent has agreed to act as escrow agent, pursuant to the terms hereof;

NOW, THEREFORE, in consideration of the mutual obligations and covenants set forth herein,
Xybernaut, the Lender and the Escrow Agent do hereby covenant and agree as follows:

1. Designation of the Escrow Agent.

(a) Xybernaut and Lender hereby designate and appoint the Escrow Agent as escrow agent to
serve in accordance with the terms of this Escrow Agreement. The Escrow Agent hereby accepts such
appointment and agrees to perform the duties set forth herein.

(b) It is understood and acknowledged that the Escrow Agent is acting as counsel to the Lender
in connection with the DIP Financing Facility and that the Escrow Agent will continue to so act
notwithstanding its duties as Escrow Agent hereunder. The Escrow Agent’s acceptance of its
appointment and performance of its duties hereunder shall not be deemed in any way to conflict with
its professional obligations to the Lender, and neither Xybernaut nor the Lender, nor any of their
respective heirs, transferees, successors and assigns, shall have, assert or maintain any claim or
cause of action against the Escrow Agent or any of its partners or employees relating to or arising
out of this Agreement except as may otherwise be provided for in Section 6(c) hereof.

2. Establishment of Escrow; Deposit of Escrowed Deposit. There is hereby deposited with the
Escrow Agent, and the Escrow Agent hereby acknowledges receipt of the following sums (the “Escrow
Deposit”): (a) Four Hundred Thousand Dollars ($400,000), to be increased to a total of Six Hundred
Thousand Dollars ($600,000) after entry of the Final DIP Order, to be held and reserved for
distribution to the Lender or its designee in accordance with section 8 of the Note (the “Lender
Reserve”), and (b) Five Hundred Thousand Dollars ($500,000) to be held and reserved for
distribution in accordance with section 8 of the Note (the “Professionals Reserve”).

3. Records. The Escrow Agent shall keep records of the Escrow Deposit, interest earned and
funds disbursed. Such records and amounts shall be available during customary business hours for
inspection, examination and reproduction by the Company and the Lender.

4. Investment of the Escrow Deposit. The Escrow Agent shall have no discretion whatsoever
with respect to the management, disposition or investment of the Escrow Deposit, and is not a
trustee or fiduciary to the Company or the Lender. The Escrow Agent shall deposit the Escrow
Deposit, together with any interest or dividends thereon or other distributions with respect
thereto (collectively, the “Escrow Funds”), in an interest-bearing account of the Escrow Agent
maintained at a bank for the purpose of receiving and maintaining escrowed funds and may commingle
the Escrow Funds with other funds held in its “trustees account.” All interest paid by such bank on
the Escrow Funds shall be held by the Escrow Agent for the account of the Lender. The Escrow Agent
shall not be liable for interest on the Escrow Funds for any reason, including by reason of any
delay or mistake in delivery of the Escrow Funds or in the computation of interest or any failure
by such bank to pay interest. The Lender and the Company each shall provide tax identification
numbers to the Escrow Agent.

5. Procedures for Disbursement of Escrow Funds. The Escrow Agent shall be authorized to
make disbursements from the Escrow Funds in accordance with the following provisions, but not
otherwise:

(a) Instruction From Lender. If at any time the Escrow Agent receives notice from the
Lender, in the form annexed hereto as Exhibit A (a “Lender Notice”), certifying that the Lender or
its designee is entitled to payment of Escrow Funds from the Lender Reserve and/or the
Professionals Reserve pursuant to section 8 of the Note, providing instruction as to the
disbursement of such Escrow Funds, and certifying that a copy of such Lender Notice has been
provided to the Company, then five (5) business days after receipt of such Lender Notice, if the
Escrow Agent has not received written notice from the Company that a dispute has arisen as to the
disposition of the Escrow Funds held in the Lender Reserve and/or the Professionals Reserve, as
applicable, or otherwise in connection with the Note and/or this Agreement, the Escrow Agent shall
make such disbursement in accordance with the direction set forth in such Lender Notice. The
Escrow Agent shall have no obligation to send notice of the distribution of such Escrow Funds to
the Company.

(b) Instruction From Company. If at any time the Escrow Agent receives notice from
the Company, in the form annexed hereto as Exhibit B (a “Company Notice”), certifying that a
professional is entitled to payment of Escrow Funds from the Professionals Reserve pursuant to
section 8 of the Note, providing instruction as to the disbursement of such Escrow Funds, and
certifying that a copy of such Company Notice has been provided to the Lender, then five (5)
business days after receipt of such Company Notice, if the Escrow Agent has not received written
notice from the Lender that a dispute has arisen as to the disposition of the Escrow Funds held in
the Professionals Reserve or otherwise in connection with this Agreement, the Escrow Agent shall
make such disbursement in accordance with the direction set forth in such Company Notice. The
Escrow Agent shall have no obligation to send notice of the distribution of such Escrow Funds to
the Lender.

(c) If at any time there shall be delivered to the Escrow Agent written instructions executed
by both the Company and the Lender directing the Escrow Agent as to the distribution of the Escrow
Funds, or any portion thereof, then the Escrow Agent shall distribute the Escrow Funds, or such
portion thereof, in accordance with such written instructions.

(d) The Escrow Agent is acting as a stakeholder only with respect to the Escrow Funds. If any
dispute arises as to whether the Escrow Agent is obligated to deliver any of the Escrow Funds or as
to whom the Escrow Funds are to be delivered or the amount thereof, or the Escrow Agent receives
conflicting or ambiguous instructions from the Lender and/or the Company as to the distribution of
Escrow Funds, the Escrow Agent shall not be required to make any delivery, but in such event the
Escrow Agent may hold such Escrow Funds until receipt by the Escrow Agent of instructions in
writing, signed by all parties which have, or claim to have, an interest in such Escrow Funds,
directing the disposition of such Escrow Funds, or in the absence of such authorization, the Escrow
Agent may hold such Escrow Funds until receipt of a certified copy of a final judgment of the
Bankruptcy Court or other court of competent jurisdiction directing the Escrow Agent as to the
disposition of such Escrow Funds. The Escrow Agent may require, as a condition to the disposition
of any Escrow Funds pursuant to written instructions, indemnification and/or opinions of counsel,
in form and substance satisfactory to the Escrow Agent, from each party providing such
instructions. If such written instructions, indemnification and opinions are not received, or
proceedings for such determination are not commenced, within thirty (30) days after receipt by the
Escrow Agent of notice of any such dispute, or if the Escrow Agent is uncertain as to which party
or parties are entitled to the Escrow Funds, the Escrow Agent may either (i) hold such Escrow Funds
until receipt of (A) such written instructions and indemnification or (B) a certified copy of a
final judgment of the Bankruptcy Court or other court of competent jurisdiction directing the
Escrow Agent as to the disposition of such Escrow Funds, or (ii) deposit such Escrow Funds in the
registry of the Bankruptcy Court; provided, however, that notwithstanding the
foregoing, the Escrow Agent may, but shall not be required to, institute legal proceedings of any
kind.

6. Escrow Agent’s Duties and Fees.

(a) Duties Limited. The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein. Except as provided herein, the Escrow Agent shall not be subject to, or
have any liability or responsibility under, nor be obliged to recognize, any other agreements or
directions or instructions of any of the parties hereto or any other person in carrying out its
duties hereunder.

(b) Reliance. The Escrow Agent may rely upon, and shall be protected in acting or
refraining from acting upon, (i) any written notice, instructions or requests furnished to it
pursuant to the terms and provisions of this Escrow Agreement and believed by it to be genuine and
to have been signed or presented by the parties in a timely fashion, and (ii) the advice of
counsel. The Escrow Agent shall also be protected in refraining from acting upon any such notice,
instructions or requests furnished to it and believed by it not to be genuine or timely furnished.
The Escrow Agent shall be entitled to employ any such legal counsel and other experts as the Escrow
Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent’s
obligations hereunder, may rely on the advice of such counsel, and may pay such counsel reasonable
compensation therefor, subject to reimbursement thereof as and to the extent provided in Section
6(e) herein.

(c) Indemnification. The Company and the Lender hereby agree, jointly and severally,
to indemnify the Escrow Agent and its partners and employees for, and hold the Escrow Agent and
such persons harmless against, any claims, losses, liabilities, judgments, costs and expenses
(including, without limitation, causes of action, damages, attorneys’ fees, expenses and court
costs) of any kind incurred by the Escrow Agent without willful misconduct or gross negligence on
its part, arising out of or in connection with this Escrow Agreement and the performance of its
duties hereunder, including any litigation arising from this Escrow Agreement or involving the
subject matter hereof. The Escrow Agent shall not be responsible or liable for any act or failure
to act hereunder except in the case of its willful misconduct or gross negligence. This Section
6(c) will survive termination of this Agreement.

(d) Successor Escrow Agents. The Escrow Agent may resign and be discharged from its
duties and obligations hereunder at any time by giving notice in writing of such resignation to the
Company and the Lender, specifying the date upon which such resignation shall take effect. In
addition, the appointment of the Escrow Agent may be terminated at any time by a writing signed by
the Company, the Lender and the Escrow Agent. In the event of the resignation or termination of the
Escrow Agent, the Lender shall appoint a successor before the effective date thereof and shall give
written notice of such appointment to the Escrow Agent then serving and to the Company. Upon
written demand by the successor Escrow Agent, written notice to the Company, and payment of the
Escrow Agent’s fees and expenses by the Company or as provided in Section 6(e), including the fees
and expenses of its counsel, the Escrow Funds shall be turned over promptly to such successor
Escrow Agent, who shall thereupon be bound by all of the provisions hereof.

(e) Fees. The Escrow Agent is being compensated by the Lender in connection with its
representation of the Lender as its counsel in connection with the DIP Financing Facility. The
Escrow Agent shall be reimbursed by the Company for any expenses reasonably incurred by it in
carrying out its duties hereunder, including the fees and expenses of its counsel. If the Company
fails to pay any amounts due and owing to the Escrow Agent hereunder, the Lender shall direct the
Escrow Agent to pay such amounts to the Escrow Agent from the Escrow Funds in the Lender Reserve
and/or, upon the occurrence and during the continuance of an Event of Default under the Loan
Documents, from the Escrow Funds in the Professionals Reserve.

(f) Additional Documents. The Company and the Lender agree to execute and deliver to
the Escrow Agent such additional documents as it may reasonably request to evidence the provision
of services hereunder.

(g) Liability Arising from Officer Action. Neither the Escrow Agent nor any of its
partners or employees shall be liable to any person or party for any action taken or omitted to be
taken by it or any of its partners or employees under this Agreement, except in the case of gross
negligence, bad faith or willful misconduct by the Escrow Agent or any of its partners or
employees.

(h) Failure to Name Successor in Timely Fashion. If the parties hereto shall fail to
name a successor escrow agent within twenty (20) days after receipt by the parties of the Escrow
Agent’s properly executed notice of resignation, the Escrow Agent may apply to the Bankruptcy Court
or other court of competent jurisdiction for the appointment of a successor escrow agent.

7. Dispute Resolution. In the event that any dispute arises with respect to this Escrow
Agreement or in the event that any claim is made with respect to the Escrow Funds, or the Escrow
Agent is faced with inconsistent claims or demands by the parties, then the Escrow Agent shall have
the right, at its option, to either hold the same pending written instruction from each of the
Company and Lender or deposit the same with a court of competent jurisdiction pending the decision
of such court, and the Escrow Agent shall be entitled to rely upon the decision of such court.

8. Consent to Jurisdiction and Service. The parties consent and submit to the jurisdiction
of the Bankruptcy Court in connection with any action or proceeding brought against the parties
hereto by the Escrow Agent arising out of or in relation to this Escrow Agreement. In any such
action or proceeding the parties hereto each hereby absolutely and irrevocably waives personal
service of any summons, complaint, declaration or other process and agrees that service thereof may
be made by certified or registered first class mail directed to the parties hereto at the addresses
set forth in Section 10.

9. Termination. This Agreement may be terminated at any time by and upon the receipt by the
Escrow Agent of a written notice of termination executed by each of the Company and the Lender
directing the distribution of all property then held by the Escrow Agent under and pursuant to this
Agreement. This Agreement shall automatically terminate if and when all of the Escrow Funds shall
have been distributed by the Escrow Agent in accordance with the terms of this Agreement.

10. 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.

	 	 	 
	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

	 	 	 
	If to the Escrow Agent:

	 	

	Renee Johnson

	 	

	 
	 	 
	Skadden, Arps, Slate, Meagher & Flom LLP

	 
	 	 
	Four Times Square

New York, 10036-6522

Email: rjohnson@skadden.com

	 	

	 
	 	 
	 

	 
	 	 
	Fax:

Phone:

	 	(917) 777-3049

(212) 735-3049

11. Miscellaneous.

(a) Benefit of Parties. This Escrow Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, legal representatives, successors and
assigns. Except as otherwise provided herein, no assignment or attempted assignment of this Escrow
Agreement or any interest hereunder shall be effective without the written consent of the Company,
the Investor and the Escrow Agent. Except as otherwise expressly set forth herein, no person shall
be, or be deemed to be, a third party beneficiary of this Agreement.

(b) Governing Law. THIS ESCROW AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO CHOICE OF LAW
PRINCIPLES.

(c) Counterparts. This Escrow Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original and all of which together shall be considered to be
one agreement.

(d) Amendments; Waivers. This Escrow Agreement may be amended, waived, supplemented
or otherwise modified only by a written instrument executed by all of the parties hereto. The
waiver by any party hereto of a breach of any provision of this Escrow Agreement shall not operate
or be construed as a waiver of any subsequent breach.

(e) Severability. If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or invalidated so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such a determination, the parties shall negotiate in good
faith to modify this Agreement so as to effectuate the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated hereby be consummated
as originally contemplated to the fullest extent possible.

(f) Entire Agreement. This Escrow Agreement contains all of the terms agreed upon
between the parties with respect to the subject matter hereof.

[Signatures on following page]

1

IN WITNESS WHEREOF, each of the Lender, the Company and the Escrow Agent has signed or caused
this Agreement to be signed by its duly authorized representative as of the date first above
written.

	 	 	 
	SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP,

as Escrow Agent

	 	

XYBERNAUT CORPORATION XYBERNAUT SOLUTIONS, INC.
	 
	 	 
	
 
	 	By:/s/ Perry L. Nolen
	
 
	 	 
	By: /s/ D.J. Baker

	 	Name: Perry L. Nolen

Title: President & CEO

	 	 	 
	EAST RIVER CAPITAL LLC
	By: /s/ James A. Coyne
	Name: James A. Coyne
	Title: Manager, East River LLC

2

Exhibit A

DISBURSEMENT NOTICE

	 	 	 
	Skadden, Arps, Slate, Meagher & Flom LLP

	 
	 	 
	Four Times Square

New York, New York 10036

Attn:

	 	

Renee Johnson

In accordance with the provisions of Section 6 of the Escrow Agreement (the “Escrow
Agreement”; capitalized terms used but not defined in this disbursement notice have the
meanings ascribed to them in the Escrow Agreement), dated as of March      , 2006 among Xybernaut
Corporation, Xybernaut Solutions, Inc., East River Capital LLC, and Skadden, Arps, Slate, Meagher &
Flom LLP, as Escrow Agent (the “Escrow Agent”), the undersigned hereby directs the Escrow
Agent to disburse Escrow Funds in the Lender Reserve [and/or the Professionals Reserve] as follows:

[Identify Payment Instructions]

The undersigned certifies that the payment instructions herein are in accordance with section
8 of the Note and that a copy of this notice has been provided to the Company.

EAST RIVER CAPITAL LLC

By:     

Name:

Title:

cc: Xybernaut Corporation

Xybernaut Solutions, Inc.

3

Exhibit B 

DISBURSEMENT NOTICE

	 	 	 
	Skadden, Arps, Slate, Meagher & Flom LLP

	 
	 	 
	Four Times Square

New York, New York 10036

Attn:

	 	

Renee Johnson

In accordance with the provisions of Section 6 of the Escrow Agreement (the “Escrow
Agreement”; capitalized terms used but not defined in this disbursement notice have the
meanings ascribed to them in the Escrow Agreement), dated as of March      , 2006 among Xybernaut
Corporation, Xybernaut Solutions, Inc., East River Capital LLC, and Skadden, Arps, Slate, Meagher &
Flom LLP, as Escrow Agent (the “Escrow Agent”), the undersigned hereby directs the Escrow
Agent to disburse Escrow Funds from the Professionals Reserve as follows:

[Identify Payment Instructions]

The undersigned certifies that the payment instructions herein are in accordance with section
8 of the Note and that a copy of this notice has been provided to the Lender.

XYBERNAUT CORPORATION XYBERNAUT SOLUTIONS,
INC.

By:     

Name:

Title:

cc: East River Capital LLC

4

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00100-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00100-of-00352.parquet"}]]