SUNRISE SECURITIES CORP.
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MANAGING DIRECTOR
INVESTMENT BANKING
TELEPHONE (▇▇▇) ▇▇▇-▇▇▇▇ FACSIMILE (▇▇▇) ▇▇▇-▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman
Essential Reality, Inc.
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▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
INVESTMENT BANKING AGREEMENT
Dear ▇▇▇▇▇▇▇:
This agreement ("Agreement") is made and entered into this December ___, 2003,
between SUNRISE SECURITIES CORP. ("Sunrise") and ESSENTIAL REALITY, INC.
(together with all subsidiaries, affiliates, successors and other controlled
units, either existing or formed subsequent to the execution of this engagement,
the "Company").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Company hereby engages Sunrise upon the terms and conditions as set
forth herein as its exclusive placement agent and investment banker with
respect to Financings (as defined below) upon the terms and conditions set
forth herein. Sunrise understands that the Company seeks Financing in the
amount of approximately $1,500,000 to $3,500,000 from the sale of
securities of the Company in the form of units ("Units") comprised of
securities of the Company that will be convertible and/or exercisable into
shares of common stock ("Common Stock") of the Company. It is acknowledged
and agreed that any Financing is on a best efforts basis only. This
Agreement should not be construed as a firm commitment or guarantee of any
Financing. Sunrise and the Company agree and acknowledge that the decision
to consummate a Financing shall be in the Company's sole and absolute
discretion.
2. Except as otherwise specified in Paragraph 6 hereof, this Agreement shall
be effective for a period of nine (9) months, commencing upon the
execution hereof and shall continue thereafter unless and until terminated
on thirty days written notice by either party to the other party.
3. During the term of this Agreement, Sunrise shall provide the Company with
such regular and customary consulting advice as is reasonably requested by
the Company, provided that Sunrise shall not be required to undertake
duties not reasonably within the scope of the financial advisory or
investment banking services contemplated by this Agreement. It is
understood and acknowledged by the parties that the value of Sunrise's
advice is not readily quantifiable, and that Sunrise shall be obligated to
render advice upon the request of the Company, in good faith, but shall
not be obligated to spend any specific amount of time in so doing.
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4. Sunrise shall render such other financial advisory and investment and/or
investment banking services as may from time to time be agreed upon in
writing by Sunrise and the Company.
5. In consideration for the services rendered by Sunrise to the Company
pursuant to this Agreement, the Company shall compensate Sunrise as
follows:
A. Upon the execution hereof, the Company shall pay to Sunrise a
nonrefundable cash retainer fee of twenty five thousand dollars ($25,000)
(the "Retainer Fee").
B. Upon the closing of each Financing, the Company shall pay to Sunrise a
financing fee (the "Financing Fee") that shall be payable in a form
determined at the sole election of Sunrise of either (i) the Company shall
pay to Sunrise a cash fee equal to ten percent (10%) of the gross proceeds
in such Financing or (ii) the Company shall issue to Sunrise and/or its
designees such number of shares of Common Stock equal to eleven percent
(11%) of the aggregate number of fully diluted and/or converted shares of
Common Stock and/or Common Stock equivalents (including, but not limited
to Units) as are purchased by Investors (as defined below). Convertible
securities shall be treated as equity for purposes of calculating the
Financing Fee. Securities acquired or otherwise received by financing
sources ("Investors") are referred to as "Securities". In addition, the
Company shall issue to Sunrise and/or its designees warrants (the
"Warrants") to purchase such number of shares of the Common Stock equal to
10% of the aggregate number of the fully diluted and/or converted shares
of Common Stock and/or Common Stock equivalents (including, but not
limited to Units) purchased by the Investors (after giving effect to any
increase in shares under a ratchet or similar provision pursuant to which
the number of shares initially acquired is subsequently increased) on the
same terms and conditions. The Warrants shall be purchased for a nominal
sum and shall be exercisable for a period of five years from the date of
Closing with an exercise price per share equal to the effective per share
price paid by the Investors for the Securities. The terms of the Warrants
shall be set forth in one or more agreements (the "Warrant Agreements") in
form and substance reasonably satisfactory to Sunrise and the Company. The
Warrant Agreements shall contain customary terms, including without
limitation, provisions for cashless exercise, change of control, price
based antidilution, and customary demand and piggyback registration
rights. With respect to funds in escrow, Sunrise's Financing Fee shall be
calculated and paid in full at the Company's first closing upon such
funds. For the purposes of this Agreement, the term "Financing" shall mean
any debt financing or equity investment in the Company, or any combination
thereof (i.e., where the funds are received by the Company, as distinct
from funds received by selling shareholders). Without limiting the
foregoing, Financing shall include lease financing, vendor financing,
government sponsored financing or any similar transaction or combination
thereof. Sunrise's fee shall be based upon the percentages set forth in
this Paragraph 5B above of the gross total credit facility before any
deductions, including but not limited to fees, deposits, transaction
expenses, reserves, insurance or other amounts withheld or paid by the
lender/Investor/facility provider. Financing shall be deemed to include
total value of Securities sold directly or indirectly, in connection with
the Financing, including proceeds received by the Company upon exercise of
options, warrants and/or similar securities, and any amounts paid into
escrow and any amounts payable in the future whether or not subject to any
contingency.
6. In the event that this Agreement shall not be renewed or if terminated for
any reason, notwithstanding any such non-renewal or termination, Sunrise
shall be entitled to a full fee as provided under Paragraph 5 hereof, for
any Financing for which the discussions were conducted during the term of
this Agreement by the Company or by Sunrise on behalf of the Company which
is consummated within a period of twelve (12) months after non-renewal or
termination of this Agreement. Upon termination of this Agreement, Sunrise
shall provide the Company with a written list of parties with whom it had
discussions in connection with any Financing, which list shall govern the
operation of this Paragraph.
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7. In addition to the fees payable hereunder, and regardless whether any
Financing set forth in Paragraph 5 hereof is proposed or consummated, the
Company shall reimburse Sunrise for all reasonable fees and disbursements
of Sunrise's outside counsel and Sunrise's reasonable travel and
out-of-pocket expenses incurred in connection with the services performed
by Sunrise pursuant to this Agreement, including without limitation,
filing fees, printing and duplicating costs, postage, hotel, food and
associated expenses including long-distance telephone calls; provided that
to the extent such reimbursements referenced in this Paragraph 7 exceed
$25,000 in the aggregate, they, thereafter, shall be subject to the
Company's prior approval. In addition to the fees payable hereunder, and
regardless whether any Financing set forth in Paragraph 5 hereof is
proposed or consummated, the Company shall also reimburse the reasonable
fees and disbursements of a small business investment company's ("SBIC")
counsel, if any, incurred in connection with Financing, provided that such
aggregate amount shall not exceed 1% of the SBIC's allocation in such
Financing.
8. The Company acknowledges that all opinions and advice (written or oral)
given by Sunrise to the Company in connection with Sunrise's engagement
are intended solely for the benefit and use of the Company in considering
the transaction or financing to which they relate, and the Company agrees
that no person or entity other than the Company shall be entitled to make
use of or rely upon the advice of Sunrise to be given hereunder, and no
such opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to Sunrise, or use
Sunrise's name in any annual reports or any other reports or releases of
the Company without Sunrise's prior written consent, which shall not be
unreasonably withheld.
9. The Company acknowledges that Sunrise and its affiliates are in the
business of providing financial services and consulting advice to others.
Nothing herein contained shall be construed to limit or restrict Sunrise
in conducting such business with respect to others, or in rendering such
advice to others, except as such advice may relate to matters relating to
the Company's business and properties.
10. The Company recognizes and confirms that, in advising the Company and in
fulfilling its engagement hereunder, Sunrise will use and rely on data,
material and other information furnished to Sunrise by the Company. The
Company acknowledges and agrees that in performing its services under this
engagement, Sunrise may rely upon the data, material and other information
supplied by the Company without independently verifying its accuracy,
completeness or veracity, except to the extent Sunrise has actual
knowledge to the contrary. The Company represents and warrants to Sunrise
that all such information concerning the Company provided by the Company
in response to requests made by Sunrise or otherwise, will be true and
accurate in all material respects and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in light of the
circumstances under which such statements are made. Sunrise shall be under
no obligations to make an independent appraisal of assets or an
investigation or inquiry as to any information regarding, or any
representations of, any other participant in a Financing, and shall have
no liability with regard thereto. The Company acknowledges and agrees that
Sunrise will be using and relying upon such information supplied by the
Company and its officers, agents and others and any other publicly
available information concerning the Company without any independent
investigation or verification thereof or independent appraisal by Sunrise
of the Company or its business or assets. If, in Sunrise's opinion after
completion of its due diligence process, the condition of the Company,
financial or otherwise, and its prospects are not substantially as
represented or do not fulfill Sunrise's expectations, Sunrise shall have
the sole discretion to review and determine its continued interest in
proposed Financings. The Company further represents and agrees that (i)
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the Company is not obligated to pay any finder in connection with any
proposed Financing pursuant to this Agreement and in any and all events
that any parties other than Sunrise ("Other Parties") seek compensation
relating to the closing of any proposed Financing, Sunrise shall be
entitled to receive its full compensation from the Company as set forth in
this Agreement and that Sunrise shall have no obligation whatsoever to pay
any Other Parties, (ii) the Company shall deliver at the closing of each
Financing conducted hereunder (a) a certificate of each of the Company's
President and Treasurer to the effect that the Company's information
provided to the Investors does not contain any untrue statement of
material fact or fail to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
all necessary corporate approvals have been obtained to enable the Company
to deliver the Securities in accordance with the terms of the Financing,
and (b) a 10b-5 opinion of counsel for the Company satisfactory to Sunrise
to the effect that the Company's information provided to the Investors
does not (except with respect to the financial statements or forecasts as
to which no opinion need be expressed) contain any untrue statement of
material fact or fail to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and such other
opinions as Sunrise and/or Sunrise's counsel shall reasonably require,
(iii) as of the date hereof, there is no litigation pending or involving
the business or property of the Company, (iv) the Company owns or
possesses free of all encumbrances its assets, trademarks, patents, and
copyrights necessary to conduct its business, (v) all taxes which are due
and payable by the Company have been paid in full and the Company has no
tax deficiency or claims outstanding or proposed against it, (vi) the
financial statements of the Company present the financial position as of
the date hereof and such financial statements have been prepared in
accordance with generally accepted accounting principals, (vii) any
Financing shall only be conducted and closed, at the sole expense of the
Company, through an escrow account and escrow agent that are both
pre-approved by Sunrise, and (viii) all "blue sky" legal work shall be
performed by the Company's counsel at the Company's sole expense.
11. Since Sunrise will be acting on behalf of the Company in connection with
its engagement hereunder, the Company and Sunrise have entered into a
separate indemnification agreement substantially in the form attached
hereto as Schedule A and dated the date hereof, providing for the
indemnification of Sunrise by the Company. Sunrise has entered into this
Agreement in reliance on the indemnities set forth in such indemnification
agreement.
12. Sunrise shall perform its services hereunder as an independent contractor
and not as an employee of the Company or an affiliate thereof. It is
expressly understood and agreed to by the parties hereto that Sunrise
shall have no authority to act for, represent or bind the Company or any
affiliate thereof in any manner, except as may be agreed to expressly by
the Company in writing from time to time.
13. A. This Agreement and the Schedule A attached hereto constitute the entire
agreement and understanding of the parties hereto, and supersede any and
all previous agreements and understandings, whether oral or written,
between the parties with respect to the matters set forth herein.
B. Any notice or communication permitted or required hereunder shall be in
writing and shall be deemed sufficiently given if hand-delivered or sent
(i) postage prepaid by registered mail, return receipt requested, or (ii)
by facsimile to the respective parties as set forth below, or to such
other address as either party may notify the other of in writing:
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if to the Company, to: ESSENTIAL REALITY, INC.
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▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman
if to Sunrise, to: SUNRISE SECURITIES CORP.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Managing Director
C. This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors, legal
representatives and assigns.
D. This Agreement may be executed in any number of counterparts, each of
which together shall constitute one and the same original document. This
Agreement may be executed and delivered by exchange of facsimile copies
showing the parties' signatures, and those signatures need not be affixed
to the same copy. The facsimile copies showing the signatures of the
parties will constitute originally signed copies of the same Agreement
requiring no further execution.
E. No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
F. This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, without giving effect to its conflict
of law principles. The parties hereby agree that any dispute which may
arise between them arising out of or in connection with this Agreement
shall be adjudicated before a court located in New York City, and they
hereby submit to the exclusive jurisdiction of the courts of the State of
New York located in New York, New York and of the federal courts in the
Southern District of New York with respect to any action or legal
proceeding commenced by any party, and irrevocably waive any objection
they now or hereafter may have respecting the venue of any such action or
proceeding brought in such a court or respecting the fact that such court
is an inconvenient forum, relating to or arising out of this Agreement,
and consent to the service of process in any such action or legal
proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth in Paragraph 13B hereof.
The parties hereby waive trial by jury in any action or proceeding
involving, directly or indirectly, any matter in any way arising out of or
in connection with this Agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK.]
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If the foregoing correctly sets forth the understanding between Sunrise
and the Company with respect to the foregoing, please so indicate your
agreement by signing in the place provided below, at which time this
letter shall become a binding contract.
SUNRISE SECURITIES CORP.
By Its Authorized Signatory:
By:________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Managing Director
Accepted and Agreed:
ESSENTIAL REALITY, INC.
By Its Authorized Signatory:
By:_______________________________________
Name:
Title:
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SCHEDULE A
INDEMNIFICATION PROVISIONS
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In connection with the engagement of SUNRISE SECURITIES CORP. (`Sunrise") by
ESSENTIAL REALITY, INC. (the "Company") pursuant to a letter agreement dated
December __, 2003 between the Company and Sunrise as it may be amended from time
to time (the "Letter Agreement"), the Company, hereby agrees as follows:
1. In connection with or arising out of or relating to the engagement of
Sunrise under the Letter Agreement, or any actions taken or omitted,
services performed or matters contemplated by or in connection with the
Letter Agreement, the Company agrees to reimburse Sunrise, its affiliates
and their respective directors, officers, employees, agents and
controlling persons (each an "Indemnified Party") promptly upon demand for
actual, out-of-pocket expenses (including reasonable fees and expenses for
legal counsel) as they are incurred in connection with the investigation
of, preparation for or defense of any pending or threatened claim, or any
litigation, proceeding or other action in respect thereof (collectively, a
"Claim"). The Company also agrees (in connection with the foregoing) to
indemnify and hold harmless each Indemnified Party from and against any
and all out-of-pocket losses, claims, damages and liabilities, joint or
several, to which any Indemnified Party may become subject, including any
amount paid in settlement of any litigation or other action (commenced or
threatened) to which the Company shall have consented in writing (such
consent not to be unreasonably withheld), whether or not any Indemnified
Party is a party and whether or not liability resulted; provided, however,
that the Company shall not be liable pursuant to this sentence in respect
of any loss, claim, damage or liability to the extent that a court or
other agency having competent jurisdiction shall have determined by final
judgement (not subject to further appeal) that such loss, claim, damage or
liability was incurred solely as a direct result of the willful misconduct
or gross negligence of such Indemnified Party.
2. An Indemnified Party shall have the right to retain separate legal counsel
of its own choice to conduct the defense and all related matters in
connection with any Claim. The Company shall pay the reasonable fees and
expenses of such legal counsel, and such counsel shall to the fullest
extent, consistent with its professional responsibilities, cooperate with
the Company and any legal counsel designated by the Company.
3. The Company will not, without the prior written consent of each
Indemnified Party settle, compromise or consent to the entry of any
judgement in any pending or threatened Claim in respect of which
indemnification may be reasonably sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such Claim), unless
such settlement, compromise or consent includes an unconditional,
irrevocable release of each Indemnified Person against whom such Claim may
be brought hereunder from any and all liability arising out of such Claim.
4. In the event the indemnity provided for in paragraphs 1 and 2 hereof is
unavailable or insufficient to hold any Indemnified Party harmless, then
the Company shall contribute to amounts paid or payable by an Indemnified
Party in respect of such Indemnified Party's losses, claims, damages and
liabilities as to which the indemnity provided for in paragraphs 1 and 2
hereof is unavailable or insufficient (i) in such portion as appropriately
reflects the relative benefits received by the Company, on the one hand,
and the Indemnified Party, on the other hand, in connection with the
matters as to which losses, claims, damages or liabilities relate, or (ii)
if the allocation provided by (i) above is not permitted by applicable
law, in such proportion as appropriately reflects not only the relative
benefits referred to in clause (i) but also the relative fault of the
Company, on the one hand, and the Indemnified Parties, on the other hand,
as well as any other equitable considerations. The amounts paid or payable
by a party in respect of losses, claims, damages and liabilities referred
to above shall be deemed to include any reasonable legal or other
out-of-pocket fees and expenses incurred in defending any litigation,
proceeding or other action or claim. Notwithstanding the provisions
hereof, Sunrise's share of the liability hereunder shall not be in excess
of the amount of fees actually received by Sunrise under the Letter
Agreement (excluding any amounts received as reimbursement of expenses by
Sunrise).
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5. It is understood and agreed that, in connection with Sunrise's engagement
by the Company under the Letter Agreement, Sunrise may also be engaged to
act for the Company in one or more additional capacities, and that the
terms of any such additional engagement may be embodied in one or more
separate written agreements. These Indemnification Provisions shall apply
to the engagement under the Letter Agreement and to any such additional
engagement and any modification of such additional engagement; provided,
however, that in the event that the Company engages Sunrise to act as a
dealer manager in an exchange or tender offer or as an underwriter in
connection with the issuance of securities by the Company or to furnish an
opinion letter, such further engagement may be subject to separate
indemnification and contribution provisions as may be mutually agreed
upon.
6. These Indemnification Provisions shall remain in full force and effect in
connection with the transaction contemplated by the Letter Agreement
whether or not consummated, and shall survive the expiration of the period
of the Letter Agreement, and shall be in addition to any liability that
the Company might otherwise have to any Indemnified Party under the Letter
Agreement or otherwise.
7. Each party hereto consents to personal jurisdiction and service of process
and venue in any court in the State of New York in which any claim for
indemnity is brought by any Indemnified Person.
8. These Indemnification Provisions may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
when taken together shall constitute one and the same instrument. These
Indemnification Provisions may be delivered by facsimile, and facsimile
signatures shall be treated as original signatures for all applicable
purposes.
SUNRISE SECURITIES CORP.
By Its Authorized Signatory:
By: _________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Managing Director
ESSENTIAL REALITY, INC.
By Its Authorized Signatory:
By: _________________________
Name:
Title:
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