Exhibit 4.1
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF November 11, 2004.
WARRANT
To Purchase Common Stock of
Essential Reality, Inc.
A Nevada Corporation
Issuance Date: November 11, 2004
Issued To: ROSENTHAL & ROSENTHAL, INC.
No. of Shares of Common Stock: 500,000
TABLE OF CONTENTS
Page
1. DEFINITIONS..............................................................1
2. EXERCISE OF WARRANT......................................................4
2.1. Manner of Exercise..............................................4
2.2. Payment of Taxes................................................5
2.3. Fractional Shares...............................................6
2.4. Continued Validity..............................................6
3. TRANSFER, DIVISION AND COMBINATION.......................................6
3.1. Transfer........................................................6
3.2. Division and Combination........................................7
3.3. Expenses........................................................7
3.4. Maintenance of Books............................................7
4. ADJUSTMENTS..............................................................7
4.1. Stock Dividends, Subdivisions and Combinations..................7
4.2. Certain Other Distributions.....................................8
4.3. Issuance of Additional Shares of Common Stock...................8
4.4. Issuance of Warrants or Other Rights............................9
4.5. Issuance of Convertible Securities..............................9
4.6. Superseding Adjustment..........................................9
4.7. Other Provisions Applicable to Adjustments Under
This Section....................................................9
4.8. Reorganization, Reclassification, Liquidation, Dissolution,
Merger, Consolidation or Disposition of Assets..................9
4.9. Other Action Affecting Common Stock............................10
4.10. Certain Limitations............................................10
5. NOTICES TO WARRANTHOLDERS...............................................10
5.1. Notice of Adjustments..........................................10
5.2. Notice of Certain Corporate Action.............................10
6. NO IMPAIRMENT...........................................................11
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY..................................11
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS....................12
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9. RESTRICTIONS ON TRANSFERABILITY.........................................12
9.1. Restrictive Legends............................................12
9.2. Notice of Proposed Transfers; Requests for Registration........13
9.3. Termination of Restrictions....................................13
10. SUPPLYING INFORMATION...................................................14
11. LOSS OR MUTILATION......................................................14
12. OFFICE OF THE COMPANY...................................................14
13. REGISTRATION RIGHTS.....................................................14
14. LIMITATION OF LIABILITY.................................................15
15. MISCELLANEOUS...........................................................15
15.1. Nonwaiver and Expenses.........................................15
15.2. Notice Generally...............................................15
15.3. Indemnification................................................16
15.4. Successors and Assigns.........................................16
15.5. Amendment......................................................16
15.6. Severability...................................................16
15.7. Headings.......................................................16
15.8. Governing Law; Consent to Jurisdiction and Venue. .............17
15.9. Mutual Waiver of Jury Trial....................................17
ii
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF November 11, 2004.
Warrant Number: ___________ Date of Issuance: 11/11/04
No. of Shares of Common Stock: 500,000
WARRANT
To Purchase Common Stock of
Essential Reality, Inc.
THIS IS TO CERTIFY THAT Rosenthal & Rosenthal, Inc. or its
registered assigns, is entitled, at any time during the Exercise Period (as
hereinafter defined), to purchase from Essential Reality, Inc., a Nevada
corporation (the "Company"), five hundred thousand (500,000) shares of Common
Stock (as hereinafter defined and subject to adjustment as provided herein), in
whole or in part, including fractional parts, at a purchase price of ten cents
per share (subject to adjustment as set forth herein), all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock,
whether now authorized or not.
"Business Day" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Closing Date" shall mean November 11, 2004
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the common stock, par value $.001 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.8) received by or
distributed to the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the average of the daily market prices for
the 20 consecutive Trading Days immediately preceding such date. The daily
market price for each such Trading Day shall be (i) the last sale price on such
day on the principal stock exchange on which such Common Stock is then listed or
admitted to trading, (ii) if no sale takes place on such day on any such
exchange, the last reported sale price as officially quoted on any such
exchange, (iii) if the Common Stock is not then listed or admitted to trading on
any stock exchange but is traded on the Nasdaq Stock Market, the last reported
sale price as officially quoted on the Nasdaq Stock Market, (iv) if the Common
Stock is not then traded on the Nasdaq Stock Market, the last reported sale
price on the over-the-counter market, as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices), or if such sale price is not available on such
date, the average of the closing bid and asked prices on such date as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding to its functions of reporting prices) or (v) if there is no
such organization or agency, as furnished by any member of the NASD selected
mutually by the Holder and the Company or, if they cannot agree upon such
selection, by a member selected by two such members of the NASD, one of which
shall be selected by the Holder and one of which shall be selected by the
Company.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date. On the Closing Date, the
Current Warrant Price is ten cents per share of Common Stock, and is subject to
adjustment pursuant to Section 4.
"Exercise Period" shall mean the period beginning on the Closing
Date and ending at 5:00 P.M., New York time, on the earlier to occur of (i)
November 30, 2010; and (ii) the date which is 10 business days after Holder's
receipt of notice from the Company that the Current Market Price of the Common
Stock of the Company is no less than an amount equal to four times the Current
Warrant Price, as adjusted pursuant to Section 4 hereof.
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"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant outstanding on such date and
other options or warrants to purchase, or securities convertible into, shares of
Common Stock outstanding on such date, whether or not such options, warrants or
other securities are presently convertible or exercisable.
"Holder" shall mean, as the context requires, the Person in whose
name this Warrant is registered on the books of the Company maintained for such
purpose and/or the Person holding any Warrant Stock.
"Independent Counsel" shall mean counsel to the Holder reasonably
acceptable to the Company.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" shall have the meaning set forth in Section 4.8.
"Outstanding" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any Subsidiary, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Permitted Issuances" shall mean (i) the issuance of shares of
Common Stock pursuant to an underwritten public offering, and (ii) the issuance
of shares of Common Stock upon exercise of this Warrant.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the Closing Date between the Company and Rosenthal &
Rosenthal, Inc.
"Reorganization" shall have the meaning set forth in Section 4.8.
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"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subsidiary" shall mean any corporation of which an aggregate of
more than 50% of the outstanding stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by the Company
and/or one or more Subsidiaries of the Company.
"Trading Day" shall mean (i) any day on which stock is traded on the
principal stock exchange on which the Common Stock is listed or admitted to
trading, (ii) if the Common Stock is not then listed or admitted to trading on
any stock exchange but is traded on the Nasdaq Stock Market, any day on which
stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not
then traded on the Nasdaq Stock Market, any day on which stock is traded in the
over-the counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
the Holder of this Warrant upon the exercise hereof.
"Warrants" shall mean this warrant, and all warrants issued upon
transfer, division or combination of, or in substitution or exchange for, this
warrant.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. At any time during the Exercise Period, the
Holder may exercise this Warrant, on any Business Day, for all or any part of
the number of shares of Common Stock purchasable hereunder.
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In order to exercise this Warrant, in whole or in part, the Holder
shall deliver to the Company at its office at 15-15 132nd Street, College Point,
New York , or at the office or agency designated by the Company pursuant to
Section 12, (i) a written notice of the Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Warrant Price in the manner provided below, and
(iii) this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by the Holder or its duly appointed agent or attorney. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the Holder
shall request in the notice and shall be registered in the name of the Holder
or, subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the notice, together
with the cash or check or checks, if any, and this Warrant, are received by the
Company as described above and all taxes required to be paid by the Holder, if
any, pursuant to Section 2.2 prior to the issuance of such shares have been
paid. If this Warrant shall have been exercised in part, the Company shall, at
the time of delivery of the certificate or certificates representing Warrant
Stock, deliver to the Holder a new Warrant evidencing the rights of the Holder
to purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder. Notwithstanding any provision
herein to the contrary, the Company shall not be required to register shares in
the name of any Person who acquired this Warrant (or part hereof) or any Warrant
Stock otherwise than in accordance with this Warrant.
Payment of the Warrant Price shall be made at the option of the
Holder by (i) cash, (ii) wire transfer to an account in a bank located in the
United States designated for such purpose by the Company, (iii) certified or
official bank check, or (iv) any combination of the foregoing; provided,
however, that the Holder shall have the right, at its election, in lieu of
delivering the Warrant Price in cash, to instruct the Company in the form of the
subscription form appearing at the end of this Warrant as Exhibit A to retain,
in payment of the Warrant Price, a number of shares of Common Stock equal to the
quotient of the aggregate Warrant Price of the shares as to which this Warrant
is then being exercised divided by the Current Market Price.
2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon the Holder, in which case such
5
taxes or charges shall be paid by the Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of the Holder, and in
such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of this Warrant. As to any
fraction of a share which the Holder of a Warrant would otherwise be entitled to
purchase upon exercise, the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to the same fraction of the Current
Market Price per share of Common Stock on the date of exercise.
2.4. Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
registration statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as the Holder under Sections 6, 10,
13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The
Company will, at the time of each exercise of this Warrant, in whole or in part,
upon the request of the holder of the shares of Common Stock issued upon such
exercise hereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford to such holder all such rights;
provided, however, that if such holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
such holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall, subject
to Section 9, execute and deliver a new Warrant or Warrants in the name(s) of
the assignee or assignees and in the denomination(s) specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned in compliance with
Section 9, may be exercised by a new Holder for the purchase of shares of Common
Stock without having a new Warrant issued. If requested by the Company, a new
Holder shall acknowledge in writing, in form reasonably satisfactory to the
Company, such Holder's continuing obligation under Section 9.
6
3.2. Division and Combination. Subject to Section 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give the Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, by a reverse stock split
or otherwise
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment except that
the number of shares of Common Stock for which this warrant is exercisable shall
not be reduced or otherwise adjusted by reason of the 1 to 44 reverse stock
split contemplated in the Company's SEC Form 14C filed on October 26, 2004.
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4.2. Certain Other Distributions. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock); or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock);
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment by a fraction (A) the numerator of which
shall be the Current Market Price per share of Common Stock at the date of
taking such record and (B) the denominator of which shall be such Current Market
Price per share of Common Stock, minus the amount allocable to one share of
Common Stock of (x) any such cash so distributable and (y) the fair value (as
determined in good faith by the Board of Directors of the Company and, if
requested by the Holder, supported by an opinion from an investment banking firm
of recognized national standing reasonably acceptable to the Holder) of any and
all such evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights so distributable,
and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current
Warrant Price multiplied by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the adjustment divided by (B) the
number of shares for which this Warrant is exercisable immediately after such
adjustment. A reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to par value) into
shares of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Intentionally Omitted
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4.4. Intentionally Omitted
4.5. Intentionally Omitted
4.6. Intentionally Omitted
4.7. Intentionally Omitted
4.8. Reorganization, Reclassification, Liquidation, Dissolution,
Merger, Consolidation or Disposition of Assets. In case the Company shall
reorganize its capital, reclassify its capital stock, liquidate its assets,
dissolve, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation or other entity (hereinafter, a
"Reorganization") and, pursuant to the terms of such Reorganization, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right following the effectiveness of such
Reorganization to receive, upon exercise of such Warrant, or, in the case of a
liquidation of assets or a dissolution to receive, upon such liquidation or
dissolution, without taking any further action, the number of shares of common
stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such
Reorganization by a holder of the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such event (without regard to
the number of shares of Common Stock available or set aside for issuance upon
such exercise). In case of any such Reorganization, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such appropriate modifications as are
satisfactory to the Holder in order to provide for adjustments of shares of the
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.8 "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
Reorganizations.
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4.9. Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 4 for which a specific
adjustment is provided, then, unless such action will not have a materially
adverse effect upon the rights of the Holder, the number of shares of Common
Stock or other stock for which this Warrant is exercisable and/or the purchase
price thereof shall be adjusted in such manner as may be equitable in the
circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO WARRANTHOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock or the class or type of stock or other property for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of this Warrant, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Company determined the fair value of any evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights referred to in Section 4.2 or 4.7(a)), specifying the number of
shares of Common Stock for which this Warrant is exercisable and describing the
number and kind of any other shares of stock or Other Property for which this
Warrant is exercisable, and any change in the purchase price or prices thereof,
after giving effect to such adjustment or change. The Company shall promptly
cause a signed copy of such certificate to be delivered to the Holder in
accordance with Section 15.2. The Company shall keep at its office or agency
designated pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by the Holder or any prospective purchaser of a Warrant designated by the
Holder.
5.2. Notice of Certain Corporate Action. The Holder shall be
entitled to the same rights to receive notice of corporate action as any holder
of Common Stock.
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6. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Holder against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Current Warrant Price
immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock, free and clear of any
liens, claims, encumbrances and restrictions (other than as provided herein)
upon the exercise of this Warrant and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of the Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to permit the exercise in full of all outstanding Warrants, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
taking appropriate board action, recommending such an increase to the holders of
Common Stock, holding shareholders meetings, soliciting votes and proxies in
favor of such increase to obtain the requisite shareholder approval and upon
such approval, the Company shall reserve and keep available such additional
shares solely for the purpose of permitting the exercise of Warrants.
All shares of Common Stock which shall be so issuable, when issued
upon exercise of any Warrant and payment therefor in accordance with the terms
of such Warrant, shall be duly and validly issued, fully paid and nonassessable
and free and clear of any liens, claims and restrictions (other than as provided
herein). Except as provided in this Warrant, no stockholder of the Company has
or shall have any preemptive rights to subscribe for such shares of Common
Stock.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock or the type of consideration for which this
Warrant is exercisable or in the Current Warrant Price, the Company shall obtain
all such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.
11
If any shares of Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such shares may be so issued, the Company will in
good faith and as expeditiously as possible and at its expense endeavor to cause
such shares to be duly registered.
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the Company will in
each such case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9. The Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 9.
9.1. Restrictive Legends. (a) Except as otherwise provided in this
Section 9, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
legends in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
the securities or blue sky laws of any state and are subject to the
conditions specified in a certain Warrant dated November 11, 2004,
originally issued by Essential Reality, Inc. (the "Company"). The
shares represented by this certificate may not be sold, or otherwise
transferred, in the absence of such registration or an exemption
therefrom under such Act and under any such applicable state laws,
or in violation of the provisions of the Warrant. A copy of the form
of said Warrant is on file with the Secretary of the Company. The
holder of this certificate, by acceptance of this certificate,
agrees to be bound by the provisions of such Warrant."
12
The shares represented by this certificate are subject to the
terms and conditions of a Registration Rights Agreement, dated as of
November 11, 2004.
(b) Except as otherwise provided in this Section 9, each Warrant
shall be stamped or otherwise imprinted with legends in substantially the
following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended, or
under the securities or blue sky laws of any state and may not be
sold, or otherwise transferred, in the absence of such registration
or an exemption therefrom under such Act and under any such
applicable state laws, or in violation of the provisions of this
Warrant."
This Warrant and the securities represented hereby are subject
to the terms and conditions of a Registration Rights Agreement,
dated as of November 11, 2004.
9.2. Notice of Proposed Transfers; Requests for Registration. Prior
to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the Holder of such Warrants or Restricted Common Stock
shall deliver to the Company either a written opinion reasonably acceptable to
the Company of Independent Counsel addressed to the Company or a no-action
letter from the Commission to the effect that the proposed Transfer of such
Warrants or such Restricted Common Stock may be effected without registration
under the Securities Act and applicable state securities or blue sky laws. After
delivery of the written opinion or the no-action letter to the Company, such
Holder shall thereupon be entitled to Transfer such Warrants or such Restricted
Common Stock. Each certificate, if any, evidencing such shares of Restricted
Common Stock issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1(a), and each Warrant issued upon such Transfer shall bear
the restrictive legend set forth in Section 9.1(b), unless in the written
opinion of Independent Counsel addressed to the Company such legend is not
required in order to ensure compliance with the Securities Act.
9.3. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto, or (ii) when the Company shall have delivered to the Holder or
Holders of Warrants, Warrant Stock or Restricted Common Stock the written
opinion of Independent Counsel stating that such legend is not required in order
to ensure compliance with the Securities Act. Whenever the restrictions imposed
by Section 9 shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from the Company, at the expense of
the Company, a new Warrant bearing the following legend in place of the first
restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON
____________, 20__, AND ARE OF NO FURTHER FORCE AND
EFFECT."
13
All Warrants issued upon registration of transfer, division or
combination of, or in substitution for, any Warrant or Warrants entitled to bear
such legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of
Restricted Common Stock, as hereinabove provided, the Holder thereof shall be
entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive legend
set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and each
Holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such Holder or reasonably necessary for such Holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it and in
case of mutilation upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to the Holder;
provided, in the case of mutilation, no indemnity shall be required if this
Warrant in identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. REGISTRATION RIGHTS
This Warrant is entitled to the benefits of the registration rights
provisions contained in the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 12 and shall
furnish copies thereof to the Holder upon request.
14
14. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
the Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
15. MISCELLANEOUS
15.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
15.2. Notice Generally. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Warrant shall be in writing and shall
be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery (including delivery
by courier), or facsimile transmission, addressed as follows:
(a) If to the Company:
Essential Reality, Inc.
15-15 132nd Street, College Point NY
Attention: Jay Gelman
Facsimile: ______________
with a copy to:
Oscar Folger, Esq.
521 Fifth Avenue, New York NY
Facsimile: ______________
15
(b) If to the Holder, at its last known address appearing on
the books of the Company maintained for such purpose.
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication shall be deemed to have been duly
given five business days after being deposited in the mail, postage prepaid, if
mailed; when delivered by hand, if personally delivered; or upon receipt, if
sent by facsimile (followed by a confirmation copy sent by either overnight or
two (2) day courier).
15.3. Indemnification. The Company agrees to indemnify and hold
harmless the Holder, its officers, directors, employees, agents, and attorneys
from and against any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses and
disbursements of any kind which may be imposed upon, incurred by or asserted
against the Holder relating to or arising out of any litigation to which the
Holder is made a party in its capacity as a stockholder or warrantholder of the
Company; provided, however, that the Company will not be liable hereunder to the
extent that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final, non-appealable judgment by a court of competent jurisdiction
to have resulted from (i) the Holder's gross negligence or willful misconduct,
(ii) actions or omissions taken or not taken by the Holder in any capacity other
than as a stockholder or warrantholder of the Company or (iii) actions or
omissions taken or not taken by the Holder solely as a stockholder or
warrantholder of the Company and for which stockholders or warrantholders may be
held liable under Utah law.
15.4. Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, (i) this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of the Holder, and (ii) the provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant, and
shall be enforceable by any such Holder.
15.5. Amendment. The Warrants may be modified or amended or the
provisions thereof waived with the written consent of the Company and the
Holder.
15.6. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
15.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16
15.8. Governing Law; Consent to Jurisdiction and Venue. In all
respects, including all matters of construction, validity and performance, this
Agreement and the obligations arising hereunder shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws, and any applicable laws of the
United States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL
JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT
TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW
YORK, STATE OF NEW YORK. Service of process on the Company or the Holder in any
action arising out of or relating to this Agreement shall be effective if mailed
to such party in accordance with the procedures and requirements set forth in
Section 15.2. Nothing herein shall preclude the Holder or the Company from
bringing suit or taking other legal action in any other jurisdiction.
15.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS WARRANT.
17
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its duly authorized officer and its corporate seal to be impressed
hereon and attested by its Secretary or Assistant Secretary.
Dated: November 15, 2004
Essential Reality, Inc.
By:
---------------------------------
Name:
Title:
Attest:
By:
------------------------------
Name:
Title:
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _______ shares of Common Stock of
Essential Reality, Inc. and herewith makes payment therefor, all at the price
and on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to __________________ whose address is ___________________________
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.
(Name of Registered Owner)
- -----------------------------
(Signature of Registered Owner)
- -----------------------------
(Street Address)
- -----------------------------
(City) (State) (Zip Code)
- -----------------------------
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ______________
attorney-in-fact to register such transfer on the books of Essential Reality,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated:
--------------------------
Name:
--------------------------
Signature:
--------------------------
Witness:
--------------------------
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.