Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered
into as of November 11, 2004, by and between Essential Reality, Inc., a Nevada
corporation (the "Company"), and Rosenthal & Rosenthal, Inc., a New York
corporation ("Rosenthal").
RECITALS
WHEREAS, on the date hereof, the Company is issuing a Warrant (as
hereinafter defined) to purchase shares of its common stock, par value $.001 per
share (the "Common Stock"), to Rosenthal; and
WHEREAS, in connection with the issuance of the Warrant, the Company
has agreed, on the terms and conditions set forth herein, to register shares of
Common Stock as set forth below.
NOW THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any specified person, means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Business Day" means 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.
"Common Stock" has the meaning set forth in the Recitals to this
Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Hold Back Period" has the meaning set forth in Section 4 hereof.
"Interruption Period" has the meaning set forth in Section 5(k)
hereof.
"person" means 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).
"Piggyback Registration" has the meaning set forth in Section 3(a)
hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Shares covered by such Registration Statement and all other
amendments and supplements to any such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Registrable Shares" means (i) shares of Common Stock issuable or
issued upon exercise of the Warrant and (ii) any shares of Common Stock issued
or issuable with respect to the shares of Common Stock referred to in clause (i)
above upon any stock split, stock dividend, recapitalization or similar event;
provided, however, that shares of Common Stock shall only be registrable
pursuant to this Agreement if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect to such shares of Common Stock are removed upon the consummation of
such sale and the Company and the seller and purchaser of such shares of Common
Stock shall have received an opinion of counsel for the seller, which shall be
in form and content reasonably satisfactory to the Company and the seller and
purchaser and their respective counsel, to the effect that such shares of Common
Stock in the hands of the purchaser are freely transferable without restriction
or registration under the Securities Act in any public or private transaction.
"Registration" means registration under the Securities Act of an
offering of Registrable Shares pursuant to a Piggyback Registration.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Shares pursuant
to the provisions of this Agreement, including the related Prospectus, all
amendments and supplements to such registration statement, including pre- and
post-effective amendments, all exhibits thereto and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"Rosenthal" has the meaning set forth in the first paragraph of this
Agreement.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"underwritten registration or underwritten offering" means a
registration under the Securities Act in which securities of the Company are
sold to an underwriter for reoffering to the public.
"Warrant" means the warrant to purchase Common Stock, dated as of
the date hereof, issued by the Company to Rosenthal.
[SECTION 2. INTENTIONALLY OMITTED]
SECTION 3. Piggyback Registration. (a) Right to Piggyback. If at any
time the Company proposes to file a registration statement under the Securities
Act with respect to a public offering of securities of the same type as the
Registrable Shares for its own account (other than a registration statement (i)
on Form S-8 or any successor form thereto, (ii) filed solely in connection with
a dividend reinvestment plan or employee benefit plan covering officers or
directors of the Company or its Affiliates or (iii) on Form S-4 or any successor
form thereto, in connection with a merger, acquisition or similar corporate
transaction) or for the account of any holder of securities of the same type as
the Registrable Shares, then the Company shall give written notice of such
proposed filing to Rosenthal at least 30 days before the anticipated filing
date. Such notice shall offer Rosenthal the opportunity to register such amount
of Registrable Shares as it may request (a "Piggyback Registration"). Subject to
Section 3(b) hereof, the Company shall include in each such Piggyback
Registration all Registrable Shares with respect to which the Company has
received written requests for inclusion therein within 20 days after notice has
been given to Rosenthal. Rosenthal shall be permitted to withdraw all or any
portion of its Registrable Shares from a Piggyback Registration at any time
prior to the effective date of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall permit
Rosenthal to include all such Registrable Shares on the same terms and
conditions as any similar securities, if any, of the Company included therein.
Notwithstanding the foregoing, if the Company or the managing underwriter or
underwriters participating in such offering advise Rosenthal in writing that the
total amount of securities requested to be included in such Piggyback
Registration exceeds the amount which can be sold in (or during the time of)
such offering without delaying or jeopardizing the success of the offering
(including the price per share of the securities to be sold), then the amount of
securities to be offered for the account of Rosenthal and other holders of
securities who have piggyback registration rights with respect thereto shall be
reduced (to zero if necessary) pro rata on the basis of the number or amount of
Common Stock (or the equivalent) requested to be registered by Rosenthal or each
such holder participating in such offering.
SECTION 4. Holdback Agreement. (a) If (i) the Company shall file a
registration statement (other than in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan or pursuant to a merger, exchange offer or a transaction of the
type specified in Rule 145(a) under the Securities Act) with respect to the
Common Stock or similar securities or securities convertible into, or
exchangeable or exercisable for, such securities and (ii) with reasonable prior
notice, the Company (in the case of a nonunderwritten public offering by the
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Company pursuant to such registration statement) advises Rosenthal in writing
that a public sale or distribution of Registrable Shares would materially
adversely affect such offering, or the managing underwriter or underwriters (in
the case of an underwritten public offering by the Company pursuant to such
registration statement) advises the Company in writing (in which case the
Company shall notify Rosenthal with a copy of such underwriter's notice) that a
public sale or distribution of Registrable Shares would materially adversely
impact such offering, then Rosenthal shall, to the extent not inconsistent with
applicable law, refrain from effecting any public sale or distribution of
Registrable Shares during the ten (10) days prior to the effective date of such
registration statement and until the earliest of (A) the abandonment of such
offering, (B) 180 days after the effective date of such registration statement
(in the case of an underwritten offering) and (C) if such offering is an
underwritten offering, the termination in whole or in part of any "hold back"
period obtained by the underwriter or underwriters in such offering from the
Company in connection therewith (each such period, a "Hold Back Period");
provided, that Rosenthal shall be under no such obligation unless each other
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of at least
5% of the Company's Common Stock and each director and executive officer of the
Company also agrees to refrain from effecting any such public sale or
distribution.
(b) The Company shall not (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or similar
securities or securities convertible into, or exchangeable or exercisable for,
such securities or (ii) enter into any swap or other arrangement that transfers
all or a portion of the economic consequences associates with the ownership of
any Common Stock or similar securities or securities convertible into, or
exchangeable or exercisable for, such securities (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock or other securities, in cash or otherwise) for a period
of 180 days after the effective date of any Demand Registration without the
prior written consent of Rosenthal. Notwithstanding the foregoing, during such
period (x) the Company may grant stock options pursuant to the Company's stock
option plans and (y) the Company may issue shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding
prior to such effective date or issued pursuant to such plans.
SECTION 5. Registration Procedures. In connection with the
registration obligations of the Company pursuant to and in accordance with
Section 3 hereof (and subject to Section 3 hereof), the Company shall use its
reasonable best efforts to effect such registration to permit the sale of such
Registrable Shares in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible (but subject to Section 3 hereof):
(a) prepare and file with the SEC a Registration Statement for the
sale of the Registrable Shares on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate in accordance with
Rosenthal's intended method or methods of distribution thereof, and use its
reasonable best efforts to cause such Registration Statement to become effective
and remain effective as provided herein;
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(b) prepare and file with the SEC such amendments (including
post-effective amendments) to such Registration Statement, and such supplements
to the related Prospectus, as may be required by the applicable rules,
regulations or instructions under the Securities Act during the applicable
period in accordance with the intended methods of disposition specified by
Rosenthal of the Registrable Shares covered by such Registration Statement, make
generally available earnings statements satisfying the provisions of Section
11(a) of the Securities Act (provided that the Company shall be deemed to have
complied with this clause if it has complied with Rule 158 under the Securities
Act), and cause the related Prospectus as so supplemented to be filed pursuant
to Rule 424 under the Securities Act; provided, however, that before filing a
Registration Statement or Prospectus, or any amendments or supplements thereto
(other than reports required to be filed by it under the Exchange Act), the
Company shall furnish to Rosenthal and its counsel for review and comment,
copies of all documents required to be filed;
(c) notify Rosenthal promptly and (if requested) confirm such notice
in writing, (i) when a Registration Statement or Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to such
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC for amendments or supplements to such
Registration Statement or the related Prospectus or for additional information
regarding Rosenthal, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of such Registration Statement or the sale of
Registrable Shares thereunder or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (v) of the happening of any
event that requires the making of any changes in such Registration Statement,
Prospectus or documents incorporated or deemed to be incorporated therein by
reference so that they will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(d) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of such Registration Statement, or the
lifting of any suspension of the qualification or exemption from qualification
of any Registrable Shares for sale in any jurisdiction in the United States;
(e) furnish to Rosenthal, counsel for Rosenthal and each managing
underwriter, if any, without charge, one conformed copy of such Registration
Statement, as declared effective by the SEC, and of each post-effective
amendment thereto, in each case including financial statements and schedules and
all exhibits and reports incorporated or deemed to be incorporated therein by
reference; and deliver, without charge, such number of copies of the preliminary
prospectus, any amended preliminary prospectus, each final Prospectus and any
post-effective amendment or supplement thereto, as Rosenthal may reasonably
request in order to facilitate the disposition of the Registrable Shares of
Rosenthal covered by such Registration Statement in conformity with the
requirements of the Securities Act;
(f) prior to any public offering of Registrable Shares covered by
such Registration Statement, use its reasonable best efforts to register or
qualify such Registrable Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions as Rosenthal shall reasonably request in writing;
provided, however, that the Company shall in no event be required to qualify
generally to do business as a foreign corporation or as a dealer in any
jurisdiction where it is not at the time so qualified or to execute or file a
general consent to service of process in any such jurisdiction where it has not
theretofore done so or to take any action that would subject it to general
service of process or taxation in any such jurisdiction where it is not then
subject;
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(g) upon the occurrence of any event contemplated by paragraph
5(c)(v) above, prepare a supplement or post-effective amendment to such
Registration Statement or the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference and file any other required
document so that, as thereafter delivered to the purchaser of the Registrable
Shares being sold thereunder, such Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(h) use its best efforts to cause all Registrable Shares covered by
such Registration Statement to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed or quoted and, if
listed on the Nasdaq Stock Market, use its best efforts to secure designation of
all such Registrable Shares covered by such registration statement as "NASDAQ
Securities" within the meaning of Rule 11Aa2-1 promulgated under the Exchange
Act or, failing that, to secure Nasdaq Stock Market authorization for such
Registrable Shares and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register as such with respect to such
Registrable Shares with the National Association of Securities Dealers, Inc.
(the "NASD");
(i) on or before the effective date of such Registration Statement,
provide the transfer agent of the Company for the Registrable Shares with
printed certificates for the Registrable Shares covered by such Registration
Statement, which are in a form eligible for deposit with The Depository Trust
Company;
(j) make available for inspection by Rosenthal, any underwriter
participating in any offering pursuant to such Registration Statement, and any
attorney, accountant or other agent retained by Rosenthal or any underwriter
(collectively, the "Inspectors"), all financial and other records and other
information, pertinent corporate documents and properties of any of the Company
and its subsidiaries and affiliates (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibilities; provided, however, that the Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors in writing are confidential shall not be disclosed to any Inspector
unless such Inspector signs a confidentiality agreement reasonably satisfactory
to the Company (which shall permit the disclosure of such Records in such
Registration Statement or the related Prospectus if necessary to avoid or
correct a material misstatement in or material omission from such Registration
Statement or Prospectus) or either (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction; provided further,
however, that (A) any decision regarding the disclosure of information pursuant
to subclause (i) shall be made only after consultation with counsel for the
applicable Inspectors and the Company and (B) with respect to any release of
Records pursuant to subclause (ii), Rosenthal agrees that it shall, promptly
after learning that disclosure of such Records is sought in a court having
jurisdiction, give notice to the Company so that the Company, at the Company's
expense, may undertake appropriate action to prevent disclosure of such Records;
and
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(k) if such offering is an underwritten offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other appropriate and
reasonable actions requested by Rosenthal and the managing underwriters in order
to expedite or facilitate the disposition of such Registrable Shares, and in
such connection, (i) use its reasonable best efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters and counsel to Rosenthal), addressed to the Rosenthal and each of
the underwriters as to the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such counsel and underwriters, (ii) use commercially reasonable efforts to
obtain "cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data are,
or are required to be, included in the Registration Statement), addressed to
Rosenthal (unless such accountants shall be prohibited from so addressing such
letters by applicable standards of the accounting profession) and each of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and (iii) if requested and if an underwriting agreement
is entered into, provide indemnification provisions and procedures reasonably
requested by such underwriters. The above shall be done at each closing under
such underwriting or similar agreement, or as and to the extent required
thereunder. The Company may require Rosenthal to furnish such information
regarding Rosenthal and Rosenthal's intended method of disposition of such
Registrable Shares as it may from time to time reasonably request in writing. If
any such information is not furnished within a reasonable period of time after
receipt of such request, the Company may exclude the Rosenthal's Registrable
Shares from such Registration Statement. Rosenthal agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, Rosenthal shall
forthwith discontinue disposition of any Registrable Shares covered by such
Registration Statement or the related Prospectus until receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 5(g) hereof, or
until Rosenthal is advised in writing by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus
(such period during which disposition is discontinued being an "Interruption
Period") and, if requested by the Company, Rosenthal shall deliver to the
Company (at the expense of the Company) all copies then in its possession, other
than permanent file copies then in Rosenthal's possession, of the Prospectus
covering such Registrable Shares at the time of receipt of such request.
Rosenthal further agrees not to utilize any material other than the applicable
current preliminary prospectus or Prospectus in connection with the offering of
such Registrable Shares.
SECTION 6. Registration Expenses. Whether or not any Registration
Statement is filed or becomes effective, the Company shall pay all costs, fees
and expenses incident to the Company's performance of or compliance with this
Agreement, including (i) all registration and filing fees, including NASD filing
fees, (ii) all fees and expenses of compliance with securities or Blue Sky laws,
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including reasonable fees and disbursements of counsel in connection therewith,
(iii) printing expenses (including expenses of printing certificates for
Registrable Shares and of printing prospectuses if the printing of prospectuses
is requested by Rosenthal or the managing underwriter, if any), (iv) messenger,
telephone and delivery expenses, (v) fees and disbursements of counsel for the
Company, (vi) fees and disbursements of all independent certified public
accountants of the Company (including expenses of any "cold comfort" letters
required in connection with this Agreement) and all other persons retained by
the Company in connection with such Registration Statement, (vii) fees and
disbursements of one counsel, other than the Company's counsel, representing
Rosenthal, selected by Rosenthal, (viii) fees and disbursements of underwriters
customarily paid by the issuers or sellers of securities and (ix) all other
costs, fees and expenses incident to the Company's performance or compliance
with this Agreement. Notwithstanding the foregoing, any discounts, commissions
or brokers' fees or fees of similar securities industry professionals and any
transfer taxes relating to the disposition of the Registrable Shares by
Rosenthal will be payable by Rosenthal and the Company will have no obligation
to pay any such amounts.
SECTION 7. Underwriting Requirements. (a) In the case of any
underwritten offering pursuant to a Piggyback Registration, the Company shall
select the institution or institutions that shall manage or lead such offering.
Rosenthal shall not be entitled to participate in an underwritten offering
unless and until Rosenthal has entered into an underwriting or other agreement
with such institution or institutions for such offering in such form as the
Company and such institution or institutions shall determine.
(b) Rosenthal, when participating in a Registration, shall promptly
supply in writing such information as the Company or the underwriters reasonably
request.
SECTION 8. Indemnification. (a) Indemnification by the Company. The
Company shall, without limitation as to time, indemnify and hold harmless, to
the fullest extent permitted by law, Rosenthal, the officers, directors and
agents and employees of Rosenthal, each person who controls Rosenthal (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
person, to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, judgment, costs (including, without limitation,
costs of investigation, preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or based upon any untrue
or alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are based upon
information furnished in writing to the Company by or on behalf of Rosenthal
expressly for use therein.
(b) Indemnification by Rosenthal. In connection with any
Registration Statement in which Rosenthal is participating, Rosenthal shall
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, agents or employees, each person who controls
the Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act) and the directors, officers, agents or employees of such
controlling persons, from and against all Losses arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in such
Registration Statement or the related Prospectus or any amendment or supplement
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thereto, or any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue or alleged untrue statement or omission or
alleged omission is based upon any information furnished in writing by or on
behalf of Rosenthal to the Company expressly for use in such Registration
Statement or Prospectus. Rosenthal's indemnity obligations under this Section 8
shall be limited to the total sales proceeds (net of all underwriting discounts
and commissions) actually received by Rosenthal in connection with the
applicable offering.
(c) Conduct of Indemnification Proceedings. If any person shall be
entitled to indemnity hereunder (an "indemnified party"), such indemnified party
shall give prompt notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding with
respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; provided, however, that the delay or failure to so notify the
indemnifying party shall not relieve the indemnifying party from any obligation
or liability except to the extent that the indemnifying party has been
prejudiced by such delay or failure. The indemnifying party shall have the
right, exercisable by giving written notice to an indemnified party promptly
after the receipt of written notice from such indemnified party of such claim or
proceeding, to assume, at the indemnifying party's expense, the defense of any
such claim or proceeding, with counsel reasonably satisfactory to such
indemnified party; provided, however, that (i) an indemnified party shall have
the right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (A) the indemnifying
party agrees to pay such fees and expenses; (B) the indemnifying party fails
promptly to assume the defense of such claim or proceeding or fails to employ
counsel reasonably satisfactory to such indemnified party; or (C) the named
parties to any proceeding (including impleaded parties) include both such
indemnified party and the indemnifying party, and such indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it that are inconsistent with those available to the indemnifying
party or that a conflict of interest is likely to exist among such indemnified
party and any other indemnified parties (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party); and (ii) subject to clause (C) above, the indemnifying party
shall not, in connection with any one such claim or proceeding or separate but
substantially similar or related claims or proceedings in the same jurisdiction,
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one firm of attorneys (together with appropriate
local counsel) at any time for all of the indemnified parties, or for fees and
expenses that are not reasonable. Whether or not such defense is assumed by the
indemnifying party, such indemnified party shall not be subject to any liability
for any settlement made without its consent. The indemnifying party shall not
consent to entry of any judgment or enter into any settlement unless (i) there
is no finding or admission of any violation of any rights of any person and no
effect on any other claims that may be made by or against the indemnified party,
(ii) the sole relief provided is monetary damages that are paid in full by the
indemnifying party and (iii) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance reasonably satisfactory to
the indemnified party, from all liability in respect of such claim or litigation
for which such indemnified party would be entitled to indemnification hereunder.
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(d) Contribution. If the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any Losses (other
than in accordance with its terms), then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and such indemnified party, on the other hand, in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of such indemnifying party, on the one hand, and indemnified party, on the
other hand, shall be determined by reference to, among other things, whether any
action in question, including any untrue statement of a material fact or
omission or alleged omission to state a material fact, has been taken by, or
relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed to
include any legal or other fees or expenses incurred by such party in connection
with any investigation or proceeding. The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 8(d), if the
indemnifying party is Rosenthal, Rosenthal shall not be required to contribute
any amount which is in excess of the amount by which the total proceeds (net of
all underwriting discounts and commissions) received by Rosenthal from the sale
of the Registrable Shares sold by Rosenthal in the applicable offering exceeds
the amount of any damages that such indemnifying party has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
SECTION 9. Granting of Registration Rights. The Company shall not
grant any registration rights inconsistent with those granted hereunder or that
give any security holder "demand" registration rights or a position with respect
to registration rights, "cut-backs," "black-out" periods or otherwise that are
on a parity with or superior to Rosenthal's position as granted herein, without
the consent of Rosenthal.
SECTION 10. Miscellaneous. (a) Rules 144 and 144A. The Company
covenants that it will file any reports required to be filed by it under the
Securities Act and the Exchange Act so as to enable Rosenthal to sell its
Registrable Shares without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rules 144 and 144A under the
Securities Act, as each such Rule may be amended from time to time, or (b) any
similar rule or rules hereafter adopted by the SEC. Upon the request of
Rosenthal, the Company will forthwith deliver to Rosenthal a written statement
as to whether it has complied with such requirements. The Company shall
cooperate with Rosenthal in supplying such information as may be necessary for
Rosenthal to complete and file any information reporting forms presently or
hereafter required by the SEC as a condition to the availability of Rule 144.
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(b) The Company shall not, directly or indirectly, enter into any
merger, consolidation or reorganization in which the Company shall not be the
surviving corporation unless the surviving corporation shall, prior to such
merger, consolidation or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Shares" shall be deemed to include the shares of
common stock, if any, or other securities that Rosenthal would be entitled to
receive in exchange for Common Stock under any such merger, consolidation or
reorganization; provided, however, that, to the extent Rosenthal receives
securities that are by their terms convertible into shares of common stock of
the issuer thereof, then any such shares of common stock as are issued or
issuable upon conversion of said convertible securities shall be included within
the definition of "Registrable Shares."
(c) Termination. This Agreement and the obligations of the Company
and Rosenthal hereunder (other than Section 8 hereof) shall terminate on the
first date on which no Registrable Shares remain outstanding.
(d) Notices. 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 Agreement 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:
(i) 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
(ii) If to Rosenthal, 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).
(e) Separability. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
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(f) Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, devisees,
legatees, legal representatives, successors and assigns. Rosenthal may assign
its rights hereunder, in whole or in part, to any purchaser or transferee of
Registrable Shares; provided, however, that such purchaser or transferee shall,
as a condition to the effectiveness of such assignment, be required to execute a
counterpart to this Agreement agreeing to be treated as Rosenthal is treated
hereunder, whereupon such purchaser or transferee shall have the benefits of and
shall be subject to the restrictions contained in this Agreement as if such
purchaser or transferee was originally included in the definition of "Rosenthal"
and had originally been a party hereto.
(g) Entire Agreement. This Agreement represents the entire agreement
of the parties and shall supersede any and all previous contracts, arrangements
or understandings between the parties hereto with respect to the subject matter
hereof.
(h) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of Rosenthal.
(i) Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be one and the same agreement, and shall become
effective when counterparts have been signed by each of the parties and
delivered to each other party.
(k) 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 ROSENTHAL 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 Rosenthal 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 10(d). Nothing herein shall preclude Rosenthal or the Company from
bringing suit or taking other legal action in any other jurisdiction.
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(l) 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 AGREEMENT.
(m) Calculation of Time Periods. Except as otherwise indicated, all
periods of time referred to herein shall include all Saturdays, Sundays and
holidays; provided, however, that if the date to perform the act or give any
notice with respect to this Agreement shall fall on a day other than a Business
Day, such act or notice may be timely performed or given if performed or given
on the next succeeding Business Day.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first written above.
Essential Reality, Inc.
By:
-----------------------------------------
Name:
Title:
ROSENTHAL & ROSENTHAL, INC.
By:
-----------------------------------------
Name:
Title:
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