Exhibit 10.7
[SUNRISE SECURITIES CORP. LOGO]
MEMBER NASD/SIPC
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MANAGING DIRECTOR
INVESTMENT BANKING
TELEPHONE (▇▇▇) ▇▇▇-▇▇▇▇ FACSIMILE (▇▇▇) ▇▇▇-▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman Essential Reality, Inc. ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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.
Sunrise Securities Corp.
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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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Sunrise Securities Corp.
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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) 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
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Sunrise Securities Corp.
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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:
if to the Company, to: ESSENTIAL REALITY, INC.
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▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman
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Sunrise Securities Corp.
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if to Sunrise, to: SUNRISE SECURITIES CORP.
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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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Sunrise Securities Corp.
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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:
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Managing Director
Accepted and Agreed:
ESSENTIAL REALITY, INC.
By Its Authorized Signatory:
By:
------------------------------------------
Name:
Title:
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Sunrise Securities Corp.
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[SUNRISE SECURITIES CORP. LOGO]
MEMBER NASD/SIPC
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
Sunrise Securities Corp.
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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).
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:
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Managing Director
ESSENTIAL REALITY, INC.
By Its Authorized Signatory:
By:
--------------------------------
Name:
Title:
2
Sunrise Securities Corp.
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