Exhibit 10.6
[GRAPHIC OMITTED]
March 10, 2003
Essential Reality, Inc.
00 Xxxx 00xx Xxxxxx, Xxxxx 0 Xxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxx, III
Chairman
Re: Investment Banking/Advisory Agreement ("AGREEMENT")
Gentlemen:
We are pleased to set forth the terms of the retention of First
Securities USA, Inc., member NASD/SiPC through its SBI USA division ("INVESTMENT
BANKER") by ESSENTIAL REALITY, INC. (collectively with its
affiliates,subsidiaries, successors, and assigns, the "COMPANY").
1. The Company hereby engages the Investment Banker, and the Investment
Banker hereby accepts such engagement, as the Company's exclusive financial
advisor, for six (6) months from the date of this Agreement, in connection with
the management of a "PIPE" (private investment in public equity) private
placement (the "PRIVATE PLACEMENT") of equity securities, which may or may not
include common stock and warrants to purchase common stock (the "SECURITIES"),
of the Company, on a best efforts basis. Subject to the terms hereof, the
Company and the Investment Banker anticipate that the gross dollar amount of
Securities to be offered in the Private Placement shall be up to $5,000,000. The
minimum dollar amount for the Private Placement shall be $3,000,000. In
connection with its role as financial advisor, the Investment Banker would
expect its services to include assistance with the preparation of the Memorandum
(as hereinafter defined), as well as such other investment banking services as
may be mutually agreed upon by Investment Banker and the Company.
2. In connection with the Investment Banker's activities on the Company's
behalf, (a) the Investment Banker will familiarize itself with the business,
operations, properties, financial condition, and prospects of the Company, and
(b) the Company will cooperate with the Investment Banker and will furnish the
Investment Banker with all information and data concerning the Company (the
"INFORMATION") which the Investment Banker deems appropriate and will provide
the Investment Banker with access to the Company's officers, directors,
employees, independent accountants, and legal counsel. The Company represents
and warrants that, to the Company's knowledge, all Information made available to
the Investment Banker by, or on behalf of, the Company will, at all times during
the period of engagement of the Investment Banker hereunder, be complete and
correct 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 the light of the circumstances under which
such statements are made. The Company further represents and warrants that any
projections provided by, or on behalf of, it to the Investment Banker will have
been prepared in good faith and will be based upon assumptions which, in light
of the circumstances under which they are made, are reasonable. The Company
acknowledges and agrees that, in rendering its services hereunder, the
Investment Banker will be using and relying on the Information without
independent verification thereof by the Investment Banker or independent
appraisal by the Investment Banker of any of the Company's assets. The
Investment Banker does not assume responsibility regarding the Company or any
other party. Any advice rendered by the Investment Banker pursuant to this
Agreement may not be disclosed publicly without our prior written consent.
FIRST SECURITIES USA, INC., MEMBER NASD/SIPC
69
March 10, 2003
Page 2
3. (a) The Private Placement shall be structured as a transaction exempt
from Section 5 of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and shall comply with Section 4(2) of the Securities
Act and Regulation D thereunder and state securities law.
(b) The Private Placement shall be structured to permit the initial closing
(the "INITIAL CLOSING") thereof upon the receipt and acceptance by the
Company of $3,000,000 of irrevocable subscriptions for the Securities,
together with payment therefor, and additional closings (each an
"ADDITIONAL CLOSING") from time to time thereafter until the receipt
and acceptance by the Company of irrevocable subscriptions for a
maximum of $5,000,000, unless the Company and the Investment Banker
shall otherwise agree. The feasibility of the Private Placement will
depend upon the results of the Investment Banker's investigation of the
Company, information, including the Information about the Company that
the Investment Banker may receive including, but not limited to, due
diligence reports concerning the Company's operations, management, and
business plan, and the continuation of the operation of the Company
without material adverse change.
(c) The Investment Banker shall be entitled to invite to participate in the
Private Placement such other member firms of the National Association
of Securities Dealers, Inc. and certain qualifying foreign entities, as
it shall determine. The aggregate compensation payable to the
Investment Banker pursuant to Paragraph 4 hereof shall be allocated by
agreement between the Investment Banker and such other firms (the
Investment Banker and such other firms participating in the Private
Placement, collectively, the "PLACEMENT AGENTS"), and may be contained,
in the discretion of the Investment Banker, in the Sales Agreement (as
hereinafter defined). The Investment Banker may, in its sole
discretion, agree with the other Placement Agents to act as the
representative thereof.
(d) The Company will use best efforts to promptly prepare a Confidential
Offering Memorandum (the "MEMORANDUM") relating to the Private
Placement. The Company will also endeavor in good faith, in cooperation
with the Placement Agents and counsel to the Placement Agents, whenever
requested by the Investment Banker, to qualify the Securities and the
securities issuable upon the conversion, exchange, or exercise thereof,
as applicable, the Agent's Warrants (as hereinafter defined), and the
securities issuable upon the exercise of the Agent's Warrants, and all
underlying securities, if any, for offer and sale under the applicable
securities laws of such jurisdictions as the Investment Banker may
reasonably designate, provided, however, that the Company shall not be
required thereby to qualify to do business in any jurisdiction in which
it is not otherwise engaged in business and shall not be required to
subject itself to general service of process in connection therewith.
(e) The Company and the Investment Banker shall enter into a Sales Agency
Agreement (the "SALES AGREEMENT") which shall contain the definitive
terms of the Private Placement.
(f) The Private Placement will be qualified for sale by the Investment
Banker's counsel with the Securities and Exchange Commission ("SEC")
and in every state of residence of every investor as required by law.
The legal fees, not to exceed $500 per state, and the state filing fees
as set by each state's statutes, for qualifying the offering in all
states required shall be borne by the Company.
4. The Investment Banker shall be compensated for its services as follows:
(a) The Company shall pay to the Investment Banker upon execution of this
Agreement, a retainer of $25,000 (the "Retainer"). The Retainer shall
be paid 100% in common stock of the Company. The calculation of the
stock payment shall be performed based on the average of the closing
prices for the five business days prior to the execution of the
Agreement. The Investment Banker shall remit to the Company a designee
list for issuance of the shares. Payment shall be due upon execution of
this Agreement.
(b) The Company shall pay to the Investment Banker at the Initial Closing
and at each Additional Closing (each a "Closing"), commissions in cash
equal to 10% of the aggregate gross proceeds of the Securities sold in
the Private Placement.
(c) (i) The Company will authorize, and the Investment Banker or its
designees shall be entitled to receive at the Closing, purchase
warrants (the "AGENT'S WARRANTS") for the purchase of a number of
Securities equal to 10% of the number of Securities sold in the Private
Placement. The Agent's Warrants will be exercisable for five years at a
price per Security equal to 110% of the offering price per Security.
Such warrants will contain standard net issuance (i.e., cashless
exercise) and anti-dilution provisions.
70
March 10, 2003
Page 3
(ii) The Company agrees, at its expense, to grant the Agent's Warrants,
piggyback registration rights to register the Securities (the
"UNDERLYING SECURITIES") issuable, directly or indirectly, upon the
exercise of the Agent's Warrants for resale at any time during the term
of the Agent's Warrants. The Company will bear all the costs of such
piggyback registration, except for customary underwriting discounts and
commissions. The Company shall not enter into any agreement or take any
other step that would impair the registration rights of any of such
holders granted hereby.
5. The Company agrees to promptly reimburse the Investment Banker, upon
request from time to time, for all out-of-pocket expenses incurred by Investment
Banker (including fees and disbursements of counsel, and of other consultants
and advisors retained by Investment Banker) in connection with the matters
contemplated by this Agreement. Any expense incurred in connection with the
Private Placement in an amount in excess of $750.00 (other than those items
specifically listed below) shall require the prior approval of the Company. The
Investment Banker shall invoice the Company from time to time for out-of-pocket
expenses incurred with payment due upon receipt of the invoice. In addition, the
Company shall pay all of its costs and expenses incident to the purchase, sale,
and delivery of the Securities and the securities issuable upon the conversion,
exchange, or exercise thereof; all blue sky fees and expenses as set forth in
section 3(f); all fees of the counsel to the Investment Banker not to exceed
$5,000; fees of counsel and accountants for the Company; printing costs,
including costs of printing the Memorandum and any amendments, supplements, or
exhibits thereto, including a reasonable quantity of Memoranda as determined by
the Investment Banker; and costs of background checks at $450 each if additional
research is not required.
6. Indemnification.
(a) Company Indemnity Obligations. The Company hereby agrees to indemnify
and hold harmless each Placement Agent and their respective affiliates, their
respective directors, officers, agents, and employees and affiliates, and each
other person, if any, controlling any such Placement Agent or any of their
respective affiliates from and against all claims, liabilities, losses, damages,
actions and expenses incurred, including fees and disbursements of counsel
related to or arising out of any untrue statement or alleged untrue statement of
a material fact contained in any private placement memorandum or in any
information (whether oral or written) or other documents furnished or made
available to Investment Banker by the Company or the omission or alleged
omission by the Company to state in any such documents or information a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(b) Investment Banker Indemnity Obligations. Investment Banker agrees to
indemnify and hold the Company (including its agents, directors, officers,
employees and controlling persons within the meaning of Section 15 of the
Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934)
harmless from and against all claims, liabilities, losses, damages and expenses
incurred, including fees and disbursements of counsel related to any warranty,
representation or guarantee made by Investment Banker regarding the Company
beyond the information and materials furnished to Investment Banker by the
Company.
(c) Indemnity Limitations. Notwithstanding the foregoing, neither party
shall be obligated to indemnify the other party or any of its agents, directors,
officers, employees or controlling persons under this agreement, with respect to
any claim, liability, loss, damage or expense that is finally judicially
determined to have resulted primarily from such party's gross negligence or
misfeasance.
(d) Rights and Procedures. The indemnity rights and obligations shall be in
addition to any rights that any Indemnified Persons person or entity entitled to
indemnification hereunder (each an "Indemnified Person") may have at common law
or otherwise, including not limited to any right of contribution. If any
litigation or proceeding is brought against any Indemnified Person in respect of
which indemnity may be sought against a party pursuant hereto (the "Indemnifying
Party"), such Indemnified Person shall promptly notify the Indemnifying Party in
writing of the commencement of such litigation or proceeding, but the omission
to so notify the Indemnifying Party shall not relieve the Indemnifying Party its
obligation or liability which the Indemnifying Party may have to any Indemnified
Person under this agreement. If any action, proceeding, or investigation is
commenced as to which an Indemnified Person demands indemnification, the
Indemnified Person shall have the right to retain counsel of its own choice to
represent it, the Indemnifying Party shall pay the reasonable fees and expenses
of such counsel, and such counsel shall to the extent consistent with its
professional responsibilities cooperate with the Indemnifying Party and any
counsel designated by the Indemnifying Party; provided that the Indemnifying
Party shall not be responsible for the fees and expenses of more than one
counsel. In case any such litigation or proceeding shall be brought against any
Indemnified Person, the Indemnifying Party shall be entitled to participate in
such litigation or proceeding with counsel of the Indemnifying Party's choice at
the Indemnifying Party's expense.
71
March 10, 2003
Page 4
7. The Company represents, warrants, and covenants that:
(a) There will be included in the Memorandum audited financial
statements of the Company for the two fiscal years preceding the
date of the Memorandum (reported on by a national accounting firm
or an accounting firm reasonably acceptable to the Investment
Banker) and, if requested by the Investment Banker, current
unaudited comparative interim financial statements. The financial
statements will present fairly the financial condition of the
Company and the results of its operations and cash flows at the
time and for the periods covered by such financial statements, and
such statements will be substantially as heretofore represented to
the Investment Banker.
(b) The Company has prepared and delivered to the Investment Banker its
most recent financial statements and projections constituting its
best estimate of revenues, earnings and cash flow and shall update
such estimates on a monthly basis during the registration period.
(c) The Company shall secure director and officer liability insurance
(provided that such insurance can be obtained at a reasonable cost
as determined by the Company and the Investment Banker) in an
amount and from an insurer reasonably satisfactory to the
Investment Banker, provided that the amount of coverage shall not
exceed that which is customary for companies of comparable size and
in the same industry as the Company.
(d) The Investment Banker has advised the Company, and the Company has
advised the Investment Banker, that neither has dealt with or
engaged any finder in connection with the proposed Private
Placement.
(e) For a three-year period from date of the Initial Closing, the
Investment Banker shall have the right to appoint a designee
observer to the Board of Directors of the Company, in the sole
discretion of the Investment Banker. Such observer will have the
right to attend all meetings of the Board of Directors, however,
such observer shall have no voting rights. Such observer shall be
entitled to receive reimbursement for all reasonable out-of-pocket
expenses incurred in attending such meetings, including, but not
limited to food, lodging, and transportation. The Investment Banker
shall be given notice of such meetings at the same time and in the
same manner as directors of the Company are informed. The
Investment Banker and observer shall be indemnified to the same
extent as the other directors.
(f) Until the date of the last Additional Closing, the Company will
notify the Investment Banker promptly of the occurrence of any
event which might materially affect the Private Placement or the
status of the Company.
(g) If the Company and the Investment Banker determine to utilize the
services of a financial printer in connection with the Private
Placement, the Company agrees to use a printer which is reasonably
acceptable to the Investment Banker and a stock transfer company as
their transfer agent which is reasonably acceptable to the
Investment Banker.
8. The Company shall not use the name of the Investment Banker or of any of
the Investment Banker's divisions or affiliates in any promotional material,
press release or other written or oral communication without the express written
consent of the Investment Banker. Not withstanding the forgoing, the Investment
Banker's approval shall not be unreasonably withheld.
9. The Investment Banker's intention as expressed in this Letter of Intent
is subject to the following general conditions:
(a) The Investment Banker shall be satisfied with the Company's
progress as well as its outlook for the future.
(b) The Company will provide for appropriate "comfort letters" from its
independent certified public accountants with respect to the
audited financial statements and other financial information and
other data contained in the Memorandum as specified in the Sales
Agreement and with regard to the period from the date of the
audited financial statements to a date a few days prior to both the
offering date and the closing date.
(c) All relevant terms, conditions, and circumstances relating to the
proposed Private Placement will be satisfactory to the Investment
Banker and counsel to the Placement Agents.
(d) The Sales Agreement will contain appropriate representations and
covenants of the Company, including reciprocal covenants of
indemnity, and will provide for satisfactory opinions of counsel to
the Company.
72
March 10, 2003
Page 5
(e) There will have been no materially adverse change in the business
or financial condition of the Company, no materially adverse change
in the overall capital markets in the United States, no declaration
of a banking moratorium by the Federal government or New York
State, no outbreak of major hostilities or other national or
international calamity, and no action by any government in respect
of its monetary affairs which has a material adverse effect on the
United States securities markets, or other event which, in the sole
discretion of the Investment Banker, would materially adversely
affect its ability to complete the Private Placement.
10. It is understood that the Investment Banker's undertaking to conduct
the proposed Private Placement is subject to the Memorandum, all amendments,
supplements, and exhibits thereto or other documentation related thereto, being
reasonably satisfactory to the Investment Banker and counsel to the Placement
Agents.
The Investment Banker intends to proceed with the Private Placement
immediately after availability of the required final documentation and the terms
of this Letter of Intent and the Sales Agreement have been satisfied; provided,
however, that the Investment Banker reserves the right not to proceed with the
Private Placement if, in its sole judgment, market conditions are unsuitable for
such offering, or information comes to its attention relating to the Company,
its management, or its industry, which could, in the Investment Banker's sole
judgment, preclude a successful offering of the Securities.
Except for the provisions set forth in Paragraphs 4, 5, 6, and 10 of
this Agreement, it is not intended to be, and shall not be construed as a
binding contract for the Private Placement. A legal obligation between the
Company and the Investment Banker for the Private Placement shall be only as set
forth in a duly negotiated and mutually executed written Sales Agreement which
shall be in form and content satisfactory to each of the Investment Banker and
the Company.
11. As described in Paragraph 9, the Company and the Investment Banker
agree that the following provisions shall be legally binding on the Company:
(a) If the Company or the Investment Banker decides not to proceed
with the Private Placement for any reason whatsoever, all expenses
incurred by the Investment Banker in connection with the Private
Placement pursuant to Paragraph 5 will be repaid promptly by the
Company in accordance with all provisions described herein.
(b) If, after executing this Agreement and prior to the execution of
the Sales Agreement, the Company elects not to expeditiously
proceed with the Private Placement even though the Investment
Banker is ready, willing, and able to conduct the Private
Placement, then the Company agrees that (1) it will not sell any
of its capital stock through another placement agent for a period
of at least six months, or (2) if it does so, then the Company
shall pay to the Investment Banker $50,000 in addition to the
amounts paid to it pursuant to subparagraph (a) hereof, which the
Company and the Investment Banker agree will be fair compensation
to the Investment Banker for services performed with respect to
the proposed Private Placement.
(c) If prior to the final Additional Closing of the Private Placement
and within a period of 12 months from the date hereof, the Company
is acquired, merges, sells all or substantially all of its assets,
or otherwise effects a corporate reorganization with any other
entity and, as a result, the Private Placement contemplated hereby
is abandoned by the Company (a "TRANSACTION"), then, in addition
to any amounts paid to it pursuant to subparagraph (a) hereof, the
Company shall pay the Investment Banker a cash fee of $50,000 in
addition to the amounts paid to it pursuant to subparagraph (a)
hereof, which the Company and the Investment Banker agree will be
fair compensation to the Investment Banker for services performed
with respect to the proposed Private Placement.
(d) Commencing on the date hereof and terminating on the earlier of:
(i) date of the Final Additional Closing; or (ii) the termination
of either party of this Agreement, the Company shall refrain from
negotiating with any other placement agent or investment banker or
other person regarding a possible public or private offering of
any of the Company's securities.
(e) The Investment Banker and the Company agree that any controversy
arising out of or relating to this letter of intent or proposed
offering contemplated hereby, shall be settled by arbitration in
Orange County, California in accordance with the rules then in
effect on the National Association of Securities Dealers, Inc.
73
March 10, 2003
Page 7
12. The validity and interpretation of this Agreement shall be governed by
the law of the State of California applicable to agreements made and to be fully
performed therein.
13. The benefits of this Agreement shall inure to the respective successors
and assigns of the parties hereto and of the indemnified parties hereunder and
their successors and assigns and representatives, and the obligations and
liabilities assumed in this Agreement by the parties hereto shall be binding
upon their respective successors and assigns.
14. For the convenience of the parties hereto, any number of counterparts
of this Agreement may be executed by the parties hereto. Each such counterpart
shall be, and shall be deemed to be, an original instrument, but all such
counterparts taken together shall constitute one and the same Agreement. This
Agreement may not be modified or amended except in writing signed by the parties
hereto.
If the foregoing correctly sets forth the understanding we have
heretofore reached regarding the proposed Private Placement, please sign and
return the enclosed copy of this letter by March 10, 2003. If this Letter of
Intent is not signed by such date, and an extension has not been mutually agreed
upon in writing by the Company and the Investment Banker, this Letter of Intent
will be considered void. By accepting this letter, the Company agrees to keep
this letter and all terms confidential and not to "shop" it with any other
placement agents or underwriters.
Very truly yours,
SBI USA, A DIVISION OF: FIRST SECURITIES USA, INC.
BY: BY:
------------------------------- -------------------------------
XXXXXX XXXXXXX XXXXXXX X. XXXXXX
MANAGING DIRECTOR PRESIDENT
ACCEPTED AND AGREED TO
THIS _____ DAY OF _____________________, ________
ESSENTIAL REALITY, INC.
BY:
--------------------------------
XXXXXXX X. XXXXXX, III
CHAIRMAN
74
