sec document
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED
PURSUANT TO RULE 13d-1(a) AND AMENDMENTS
THERETO FILED PURSUANT TO RULE 13d-2(a)
ESSENTIAL REALITY, INC.
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(Name of issuer)
COMMON STOCK, $.001 PAR VALUE PER SHARE
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(Title of class of securities)
29669B 10 6
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(CUSIP number)
Steven Wolosky, Esq.
OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
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(Name, address and telephone number of person
authorized to receive notices and communications)
June 20, 2002
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(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box / /.
Note. The Schedules filed in paper format shall include a signed
original and five copies of the schedule, including all exhibits. See Rule
13d-7(b) for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 33 Pages)
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CUSIP No. 29669B 10 6 13D Page 2 of 33 Pages
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
BIG SKY PARTNERS
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
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NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 1,920,000 shares
OWNED BY EACH
REPORTING
PERSON WITH
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8 SHARED VOTING POWER
107,078 shares
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9 SOLE DISPOSITIVE POWER
1,920,000 shares
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10 SHARED DISPOSITIVE POWER
107,078 shares
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
2,027,078 shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.3%
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14 TYPE OF REPORTING PERSON*
PN
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CUSIP No. 29669B 10 6 13D Page 3 of 33 Pages
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Michael B. Schwab
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
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NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,006,400 shares
OWNED BY EACH
REPORTING
PERSON WITH
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8 SHARED VOTING POWER
107,078 shares
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9 SOLE DISPOSITIVE POWER
2,006,400 shares
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10 SHARED DISPOSITIVE POWER
107,078 shares
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,113,478 shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.8%
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14 TYPE OF REPORTING PERSON*
IN
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CUSIP No. 29669B 10 6 13D Page 4 of 33 Pages
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The following constitutes the initial Schedule 13D filed by the
undersigned (the "Schedule 13D").
Item 1. Security and Issuer.
This Schedule 13D relates to the shares of common stock, $.001 par
value (the "Common Stock") of Essential Reality, Inc. (f/k/a JPAL, Inc., the
"Issuer"). The address of the principal executive offices of the Issuer is 49
East 27th Street, Suite 7E, New York, New York, 10001.
Item 2. Identity and Background.
This Schedule 13D is filed by Big Sky Partners ("Big Sky") and
Michael B. Schwab ("Schwab" and, together with Big Sky, the "Reporting
Persons").
Big Sky is a partnership, organized and existing under the laws of
the State of California. The principal business of Big Sky is investing. Big
Sky's business address is 1219 Lombard Street, San Francisco, California 94109.
Mr. Schwab is an individual whose business address is 1219 Lombard
Street, San Francisco, California 94109. His principal occupation is investing.
Mr. Schwab is a United States citizen.
During the last five years, none of the Reporting Persons has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors). In addition, during the last five years, none of the Reporting
Persons has been a party to a civil proceeding of any judicial or administrative
body of competent jurisdiction as a result of which it or he was or is subject
to a judgment, decree, or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
In the June 20, 2002 Private Placement (the "Private Placement") of
Essential Reality, LLC, a Delaware limited liability company ("Essential LLC"),
(1) Big Sky purchased 1,920,000 membership interests in Essential LLC for an
aggregate purchase price of $2,000,000; and (2) Mr. Schwab purchased 86,400
membership interests in Essential LLC for an aggregate purchase price of
$90,000.
Subsequently, on June 20, 2002, all the members of Essential LLC
tendered all their respective membership interests in Essential LLC to the
Issuer in exchange for an aggregate of 16,874,784 shares of Common Stock of the
Issuer (the "Share Exchange") in a tax-free exchange transaction pursuant to the
terms of the Amended Contribution Agreement dated as of April 24, 2002 by and
among the Issuer, Essential LLC and the other signatories thereto (the
"Contribution Agreement"). As a result of the Share Exchange, Big Sky was issued
1,920,000 shares of Common Stock and Mr. Schwab was issued 86,400 shares of
Common Stock. In addition, an entity called LCG Capital Group, LLC ("LCG")
received 4,800,000 shares of Common Stock in the Share Exchange. As a beneficial
owner of 2.2308% of LCG, Big Sky may be deemed to be the beneficial owner of an
additional 107,078 shares of Common Stock issued to LCG.
Item 4. Purpose of the Transactions.
Essential LLC and the Issuer determined that a business combination
between the two of them was advisable and in the best interests of their
respective companies, members and shareholders, and presented an opportunity for
their respective companies to achieve long-term strategic and financial
benefits. As a result of the Private Placement and subsequent closing of the
Contribution Agreement on June 20, 2002 (the "Closing"), the members of
Essential LLC became the beneficial owners of an aggregate of 16,874,784 shares
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CUSIP No. 29669B 10 6 13D Page 5 of 33 Pages
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of Common Stock, or approximately 94.0% of then outstanding shares of Common
Stock of the Issuer. Following the Closing, the Issuer changed its name to
"Essential Reality, Inc."
Other than as described in this Item 4 or as set forth in the
Contribution Agreement, each of the Reporting Persons currently has no plans or
proposals which relate to or would result in (a) the acquisition by any person
of additional securities of the Issuer or any of its subsidiaries; (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Issuer or any of its subsidiaries; (c) a sale or
transfer of a material amount of assets of Issuer or any of its subsidiaries;
(d) any change in the present board of directors or management of Issuer,
including any plans or proposals to change the number or term of directors or to
fill any existing vacancies on the board; (e) any material change in the present
capitalization or dividend policy of Issuer; (f) any other material change in
Issuer's business or corporate structure, including but not limited to, if
Issuer is a registered closed-end investment company, any plans or proposals to
make any changes in its investment policy for which a vote is required by
Section 13 of the Investment Company Act of 1940; (g) changes in Issuer's
charter, bylaws or instruments corresponding thereto or other actions which may
impede the acquisition of control of Issuer by any person; (h) causing a class
of securities of the Issuer to be delisted from a national securities exchange
or to cease to be authorized to be quoted in an inter-dealer quotation system of
a registered national securities association; (i) a class of equity securities
of Issuer becoming eligible for termination of registration pursuant to Section
12(g)(4) of the Exchange Act; or (j) any action similar to any of those
enumerated above.
Each of the Reporting Persons intends to review its or his
investment in the Issuer on a continuing basis and evaluate operations and
future plans of the Company. Depending on various factors including, without
limitation, the Issuer's financial position and investment strategy, the price
levels of the shares of Common Stock, conditions in the securities market and
general economic and industry conditions, each of the Reporting Persons may in
the future take such actions with respect to their investment in the Issuer as
they deem appropriate including, without limitation, purchasing additional
shares of Common Stock or selling some or all of their shares of Common Stock or
to change their intention with respect to any and all matters referred to in
Item 4.
References to, and descriptions of, the Share Exchange and the
Contribution Agreement are qualified in their entirety by reference to the
copies of the Contribution Agreement included as Exhibit 1 to this Schedule 13D,
and are incorporated in this Item 4 in their entirety where such references and
descriptions appear.
Item 5.Interests in Securities in the Issuer.
(a) As of the date of this Schedule 13D, (1) Big Sky may be deemed
to be the beneficial owner of 2,027,078 shares of Common Stock, constituting
approximately 11.3% of outstanding shares of Common Stock of the Issuer and (2)
Mr. Schwab may be deemed to be the beneficial owner of 2,113,478 shares of
Common Stock, constituting approximately 11.8% of outstanding shares of Common
Stock of the Issuer. As of June 20, 2002, the Issuer had 17,955,718 shares of
Common Stock outstanding, which was composed of (i) 8,645,260 reported in the
Issuer's report for the quarter ended March 31, 2002 on Form 10-QSB less
7,564,326 shares of Common Stock which were subsequently cancelled by the Issuer
after such date; (ii) 9,600,000 shares of Common Stock issued in connection with
the Contribution Agreement; and (iii) 7,274,784 shares of Common Stock issued to
investors in the Private Placement.
(b) Big Sky has the sole power to vote or to direct the vote and the
sole power to dispose of 1,920,000 shares of Common Stock, or approximately
10.7% of the outstanding shares of Common Stock of the Issuer. Big Sky has
shared voting power and shared dispositive power with respect to 107,078 shares
of Common Stock issued to LCG, or approximately 0.6% of the outstanding shares
of Common Stock of the Issuer.
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CUSIP No. 29669B 10 6 13D Page 6 of 33 Pages
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Mr. Schwab has the sole power to vote or to direct the vote and the
sole power to dispose of 86,400 shares of Common Stock, or approximately 0.5% of
the outstanding shares of Common Stock of the Issuer. As managing partner of Big
Sky, Mr. Schwab has (i) the sole power to vote or to direct the vote and the
sole power to dispose of 1,920,000 shares of Common Stock, or approximately
10.7% of the outstanding shares of Common Stock of the Issuer and (ii) shares
voting power and shared dispositive power with respect to 107,078 shares of
Common Stock issued to LCG, or approximately 0.6% of the outstanding shares of
Common Stock of the Issuer.
(c) On June 20, 2002, the Issuer issued :(1) 1,920,000 shares of
Common Stock to Big Sky in exchange for all of its membership interests in
Essential LLC; (2) 86,400 shares of Common Stock to Mr. Schwab in exchange for
all of his membership interests in Essential LLC; and (3) 4,800,000 shares of
Common Stock to LCG in exchange for all of its membership interests in Essential
LLC, of which 107,078 shares of Common Stock may be deemed to be beneficially
owned by Big Sky. Each of the transactions was effected through an arms-length
negotiation between Essential LLC and the Issuer. The market value of the each
share of Common Stock was approximately $3.00.
(d) None of the Reporting Persons has knowledge of any other person
or entity that has the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of the shares of Common Stock.
(e) Not Applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
The information set forth in Item 4 of this Schedule 13D is
incorporated herein by this reference. Other than as disclosed in this
Schedule 13D or as set forth in or contemplated by the Contribution Agreement,
to the knowledge of each of the Reporting Persons, there are no contracts,
arrangements, understandings or relationships among the persons named in Item
2 and between such persons and any person with respect to any securities,
finder's fees, joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits or loss, or the giving or
withholding of proxies.
Item 7. Material to Be Filed as Exhibits.
Exhibit No. 1 - Contribution Agreement
Exhibit No. 2 - Agreement to File Joint Schedule 13D.
[The remainder of this page was purposely left blank.]
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CUSIP No. 29669B 10 6 13D Page 7 of 33 Pages
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SIGNATURES
After reasonable inquiry and to the best of his knowledge and
belief, each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: As of June 30, 2002 BIG SKY PARTNERS
By: /s/ Michael B. Schwab
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Name: Michael B. Schwab
Title: Managing Partner
/s/ Michael B. Schwab
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Michael B. Schwab
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CUSIP No. 29669B 10 6 13D Page 8 of 33 Pages
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EXHIBIT 1
AMENDED CONTRIBUTION AGREEMENT
dated as of
April 24, 2002
by and among
JPAL, INC.,
ESSENTIAL REALITY, LLC,
MARTIN ABRAMS,
JOHN GENTILE,
ANTHONY GENTILE
and
LCG CAPITAL GROUP, LLC
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CUSIP No. 29669B 10 6 13D Page 9 of 33 Pages
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AMENDED CONTRIBUTION AGREEMENT
AMENDED CONTRIBUTION AGREEMENT dated as of April 24, 2002 (this
"Amended Agreement"), by and among ESSENTIAL REALITY, LLC, a Delaware limited
liability company (the "Company"), JPAL, Inc., a Nevada corporation ("JPAL"),
and MARTIN ABRAMS, JOHN GENTILE, ANTHONY GENTILE and LCG CAPITAL GROUP, LLC
(collectively referred to as the "Company Members") amends, restates and
supplements, where applicable, the Contribution Agreement dated as of August 23,
2001, as amended as of October 30, 2001, November 30, 2001 and January 31, 2002
and approved by shareholders of JPAL at a duly called and held meeting on
February 1, 2002 (the "February Meeting").
WHEREAS, the Company and JPAL have determined that a business
combination between JPAL and the Company is advisable and in the best interests
of their respective companies, members and shareholders, and presents an
opportunity for their respective companies to achieve long-term strategic and
financial benefits;
WHEREAS, the Company and JPAL have determined to modify the
structure of the transaction previously approved by JPAL's shareholders (the
"Exchange") and submit such modified transaction (the "Modified Exchange") for
approval by such shareholders (the "Shareholders") at a meeting called therefor
(the "Meeting") while reaffirming the parties' collective determination that a
business combination, structured as hereinafter set forth, is and remains
advisable and in the best interests of the such respective companies, members
and Shareholders;
WHEREAS, the Company and JPAL have determined that the Modified
Exchange is to be effected by a transfer described in Section 1.1 hereof by the
Company Members of all of their respective membership interests in the Company
(the "Membership Interests") to JPAL in exchange for an aggregate of 9,600,000
shares (the "Contribution Shares") of common stock, par value $.001 per share,
of JPAL (the "Common Stock"), upon the terms and subject to the conditions set
forth herein;
WHEREAS, JPAL has (a) determined that the Modified Exchange is fair
to, and in the best interests of, JPAL and the Shareholders, (b) approved and
declared the advisability of entering into this Amended Agreement, and (c)
recommended that its Shareholders approve and adopt this Amended Agreement;
WHEREAS, Frank Drechsler ("Drechsler") owns more than 50% of the
outstanding Common Stock and has consented in writing to the approval and
adoption of this Amended Agreement and the Modified Exchange;
WHEREAS, JPAL and the Company agree that the Company may consummate
a private placement (the "Private Placement") for membership interests (the
"Private Placement Interests") in an amount up to $8,000,000, which Private
Placement Interests shall in such event be transferable as provided in Section
1.1 hereof upon the closing of the Modified Exchange (the "Closing") in exchange
for shares of Common Stock (the "Private Placement Shares") and that JPAL shall
take all action requisite to the issuance contemporaneously with the Closing of
such Private Placement Shares;
WHEREAS, the obligations of each of JPAL and the Company to effect
the Modified Exchange is conditioned as further described in Article 9 hereof;
WHEREAS, at the Closing the aggregate of the Private Placement
Shares and the Contribution Shares will represent ownership of JPAL stock
possessing at least 80% of the total combined voting power of all classes of
JPAL stock entitled to vote and at least 80% of the total number of shares of
all other classes of JPAL stock;
WHEREAS, the parties hereto intend that the Modified Exchange
qualify for income tax purposes as a tax-free exchange pursuant to Section 351
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations and warranties contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
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CUSIP No. 29669B 10 6 13D Page 10 of 33 Pages
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ARTICLE 1
The Modified Exchange
Section 1.1 Modified Exchange.
(a) JPAL's transfer agent, Pacific Stock Transfer Company, shall act
as the exchange agent (the "Exchange Agent") for the purpose of exchanging
Membership Interests for the Contribution Shares and Private Placement Interests
for Private Placement Shares. At or prior to the Closing, JPAL shall deliver to
the Exchange Agent 9,600,000 shares of Common Stock and up to an additional
7,680,000 shares of Common Stock to be used as the Contribution Shares and
Private Placement Shares, respectively.
(b) At the Closing, and subject to the terms and conditions of this
Amended Agreement, the Company Members shall contribute their respective
Membership Interests, as such Membership Interests are set forth on Schedule 1.1
hereto, to JPAL in exchange for the Contribution Shares.
(c) At the Closing, and subject to the terms and conditions of this
Amended Agreement, the investors in the Private Placement (the "Investors")
shall contribute their respective Private Placement Interests to JPAL in
exchange for the Private Placement Shares. The identity of each Investor and the
number of Private Placement Interests held thereby shall be provided by the
Company to JPAL as soon as practicable after the closing of the Private
Placement. The Company shall contemporaneously therewith furnish to JPAL a
representation as to "accredited investor" status within the meaning of Section
501 under Regulation D of the Securities Act of 1933, as amended (the
"Securities Act") with respect to each Investor.
(d) If any portion of the Contribution Shares or the Private
Placement Shares is to be delivered to any Person other than the Company Members
or Investor, it shall be a condition that such Person shall pay to the Exchange
Agent any transfer or other taxes (as defined in Section 11.13) required as a
result of such delivery to other than the Company Member or Investor or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
Section 1.2 JPAL Shareholders' Approval. Drechsler is the holder of
more than 50% of the outstanding shares of Common Stock. The written consent of
Drechsler to the approval and adoption of this Amended Agreement and the
Modified Exchange is attached as Exhibit A hereto. No other approval, with the
exception of the approval by the Shareholders at a meeting thereof duly called
and held, is required in order to consummate the Modified Exchange.
Section 1.3 Closing. The Closing of the Modified Exchange and the
other transactions contemplated by this Amended Agreement shall take place at
11:00 a.m. on a date to be specified by the parties, which shall be the date of
satisfaction (or waiver in accordance with this Amended Agreement) of all of the
conditions set forth in Article 9 (the "Closing Date"), unless another time or
date is agreed to by the parties hereto. The Closing shall be held at the
offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New
York, New York 10022.
ARTICLE 2
JPAL Post-Closing
Section 2.1 Charter Amendments. JPAL has taken all necessary
corporate action to effect the following changes to its Articles of
Incorporation as of the Closing: (a) change its name to "Essential Reality,
Inc." and (b) authorize the Board of Directors to set forth the rights and
preferences of the preferred stock. JPAL will file all necessary documents with
the State of Nevada subsequent to the approval of the Modified Exchange.
Section 2.2 Resignation of Directors and Officers. Effective as of
the Closing, each of the Officers and Directors of JPAL then in office shall
resign.
Section 2.3 Appointment of New Directors and Officers. Effective as
of the Closing, the Officers and Directors of the Company immediately prior to
the Closing shall assume their respective positions as Officers and Directors of
JPAL.
2
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CUSIP No. 29669B 10 6 13D Page 11 of 33 Pages
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ARTICLE 3
Representations and Warranties of JPAL
JPAL represents and warrants to the Company that:
Section 3.1 Corporate Existence and Power. JPAL is a corporation
duly incorporated, validly existing and in good standing under the Nevada
Revised Statutes (the "NRS") and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect (as defined in Section 11.13)
on JPAL. JPAL is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where such qualification is necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on JPAL. JPAL
has heretofore delivered to the Company true and complete copies of its Articles
of Incorporation and By-laws as currently in effect.
Section 3.2 Authorization.
The execution, delivery and performance by JPAL of this Amended
Agreement, the performance of its obligations hereunder, and the consummation of
the transactions contemplated hereby are within JPAL's corporate powers and have
been duly authorized by all necessary corporate action with the exception of the
approval of its Shareholders, the affirmative vote of which holding more than
50% of the outstanding shares of Common Stock is the only action of JPAL
necessary in connection with its execution and delivery of this Amended
Agreement, the performance of its obligations hereunder and the consummation of
the Modified Exchange. This Amended Agreement has been duly and validly executed
and delivered by JPAL and, assuming the due authorization, execution and
delivery thereof by the Company, is a legal, valid and binding obligation of
JPAL, enforceable against it in accordance with its terms, except as
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other similar laws now or hereafter
in effect relating to creditors' rights generally or by general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
JPAL's Board of Directors, at a meeting duly called and held, has
(a) determined that this Amended Agreement and the transactions contemplated
hereby, including the Modified Exchange, are fair to and in the best interests
of the Shareholders, (b) approved and adopted this Amended Agreement and the
transactions contemplated hereby, including the Modified Exchange, which
approval satisfies in full any applicable requirements of the NRS, and (c)
resolved to recommend, and recommended, approval and adoption of this Amended
Agreement by such Shareholders.
Section 3.3 Governmental Authorization. The execution and delivery
of this Amended Agreement and the performance by JPAL of its obligations under
this Amended Agreement relating to the Closing and the transactions contemplated
hereby require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) compliance with any
applicable requirements of the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), foreign or state securities laws or
regulations of various states ("Blue Sky Laws") or takeover laws, and (b) any
other filings, approvals or authorizations which, if not obtained, would not,
individually or in the aggregate, have a Material Adverse Effect on JPAL, or
materially impair the ability of JPAL to consummate the Modified Exchange and
the transactions contemplated by this Amended Agreement.
Section 3.4 Non-contravention. The execution and delivery by JPAL of
this Amended Agreement and the consummation by JPAL of the transactions
contemplated hereby and performance of its obligations under this Amended
Agreement do not and will not (a) violate JPAL's Articles of Incorporation or
By-Laws, (b) violate any applicable law, rule, regulation, judgment, injunction,
order or decree, (c) require any consent or other action by any Person under,
constitute a default under, result in a violation of, conflict with, or give
rise to any right of termination, cancellation or acceleration of any right or
obligation of JPAL, or to a loss of any benefit to which JPAL is entitled under
any provision of any agreement or other instrument binding upon JPAL, or any
license, franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of JPAL, or (d)
3
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CUSIP No. 29669B 10 6 13D Page 12 of 33 Pages
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result in the creation or imposition of any Lien (as defined herein) on any
asset of JPAL.
Section 3.5 Capitalization.
(a) The authorized capital stock of JPAL consists of 50,000,000
shares of Common Stock and 5,000,000 shares of preferred stock, par value $.001
per share (the "Preferred Stock"). The Shareholders have approved, though JPAL
has not as of yet caused to be filed the articles of amendment setting forth, an
amendment to its Articles of Incorporation providing for "blank check" preferred
stock. As of the date of this Amended Agreement, the outstanding capitalization
of JPAL consists of (i) 8,645,260 shares of Common Stock, (ii) no shares of
Preferred Stock, and (iii) no options and warrants to purchase shares of Common
Stock. The list of Shareholders attached hereto as Schedule 3.5 is the true and
correct list of such Shareholders of record of outstanding shares of Common
Stock on the record date established with respect to the Meeting. All
outstanding shares of capital stock of JPAL have been duly authorized and
validly issued and are fully paid and non-assessable and were not issued in
violation of any preemptive rights or other preferential rights of subscription
or purchase other than those that have been waived or otherwise cured or
satisfied. Except as set forth herein, as of the date hereof there are no
outstanding options, warrants, subscriptions, conversion or other rights,
agreements or other commitments obligating JPAL to issue any shares of its
capital stock or any securities convertible into, exchangeable for or evidencing
the right to subscribe for any shares of its capital stock.
(b) There are no outstanding obligations, contingent or otherwise,
of JPAL to redeem, purchase or otherwise acquire any capital stock or other
securities of JPAL.
(c) JPAL is not in violation of and has not violated any federal or
state securities laws in connection with any transaction relating to JPAL and/or
an Affiliate, including without limitation, the acquisition of any stock,
business or assets of any third party or the issuance of any capital stock of
JPAL.
(d) There are not as of the date hereof, and there will not be at
the Closing, any shareholder agreements, voting trusts or other agreements or
understandings to which JPAL is a party or by which it is bound relating to the
voting of any shares of the capital stock of JPAL.
(e) The shares of Common Stock to be issued as part of the
Contribution Shares and Private Placement Shares will be duly authorized for
issuance and when issued and delivered in accordance with the terms of this
Amended Agreement, will be validly issued, fully paid and non-assessable and the
issuance thereof will not be subject to any preemptive or other similar right.
Section 3.6 Subsidiaries. JPAL has no subsidiaries.
Section 3.7 Financial Statements.
(a) Attached hereto as Schedule 3.7 is a copy of JPAL's audited
financial statements as of and for the fiscal year ended December 31, 2001 (the
"JPAL Financial Statement Date"), certified by Lesley, Thomas, Schwarz & Postma,
Inc. (the "JPAL Financial Statements"). The JPAL Financial Statements were
prepared in accordance with the books and records of JPAL in all material
respects and were prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved, except as otherwise noted therein. The JPAL Financial Statements
fairly present the financial position of JPAL as of the dates set forth therein
or the results of operations and changes in financial position of JPAL for the
fiscal periods or as of the dates set forth therein.
(b) Other than in connection with this Amended Agreement and the
Private Placement, JPAL has no current business activity whatsoever.
Section 3.8 Absence of Certain Changes. Since the JPAL Financial
Statements Date there has not, with the exception of any matter related to the
February Meeting or any document executed and/or filed in connection therewith,
been:
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CUSIP No. 29669B 10 6 13D Page 13 of 33 Pages
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(a) any event, occurrence, development or state of circumstances or
facts which would, individually or in the aggregate, have a Material Adverse
Effect on JPAL;
(b) any amendment of any material term of any outstanding security
of JPAL;
(c) any incurrence, assumption or guarantee by JPAL of any
indebtedness for borrowed money;
(d) any creation or other incurrence by JPAL of any Lien on any
material asset;
(e) the making of any loan, advance or capital contributions to or
investment in any Person;
(f) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or any asset(s) of JPAL which
would, individually or in the aggregate, have a Material Adverse Effect on JPAL;
(g) any transaction or commitment made, or any contract or agreement
entered into, by JPAL or any relinquishment by JPAL of any contract or other
right;
(h) any change in any method of accounting, method of tax
accounting, or accounting practice by JPAL;
(i) any (i) grant of any severance or termination pay to any current
or former director, officer or employee of JPAL, (ii) increase in benefits
payable under any existing severance or termination pay policies or employment
agreements, (iii) entering into any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
current or former director, officer or employee of JPAL, (iv) establishment,
adoption or amendment (except as required by applicable law) of any collective
bargaining, bonus, profit sharing, thrift, pension, retirement, deferred
compensation, compensation, stock option, restricted stock or other benefit plan
or arrangement covering any current or former director, officer or employee of
JPAL, or (v) increase in compensation, bonus or other benefits payable or
otherwise made available to any current or former director, officer or employee
of JPAL;
(j) any labor dispute, other than routine individual grievances; or
(k) any tax election or any settlement or compromise of any tax
liability, in either case that is material to JPAL.
Section 3.9 No Liabilities or Debts. Except for the Bridge Notes
described herein and as set forth on Schedule 3.9 hereto, there are no
liabilities or debts of JPAL of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability or debt.
Section 3.10 Compliance with Laws and Court Orders. JPAL holds all
permits, licenses, variances, exemptions, orders, franchises and approvals of
all governmental entities necessary for the lawful conduct of its business (the
"JPAL Permits"), except where the failure so to hold would not have a Material
Adverse Effect on JPAL. JPAL is in compliance with the terms of JPAL Permits,
except where the failure so to comply would not have a Material Adverse Effect
on JPAL. JPAL is and has been in compliance with, and to the best knowledge of
JPAL, is not under investigation with respect to and has not been threatened to
be charged with or given notice of any violation of, any applicable law, rule,
regulation, judgment, injunction, order or decree, except for such matters as
would not, individually or in the aggregate, have a Material Adverse Effect on
JPAL.
Section 3.11 Litigation. There is no action, suit, investigation,
audit or proceeding pending against, or to the best knowledge of JPAL threatened
against or affecting, JPAL or any of its assets or properties before any court
or arbitrator or any governmental body, agency or official.
Section 3.12 Finder's Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of JPAL who might be entitled to any fee or commission in connection
with the transactions contemplated by this Amended Agreement.
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Section 3.13 Taxes. (a) JPAL has (i) duly filed with the appropriate
taxing authorities all Tax Returns required to be filed by or with respect to
its business, or are properly on extension and all such duly filed Tax Returns
are true, correct and complete in all material respects, and (ii) paid in full
or made adequate provisions for on its respective balance sheet (in accordance
with GAAP) all Taxes shown to be due on such Tax Returns. There are no liens for
Taxes upon the assets of JPAL except for statutory liens for current Taxes not
yet due and payable or which may thereafter be paid without penalty or are being
contested in good faith. JPAL has not received any notice of audit, is not
undergoing any audit of its Tax Returns, or has received any notice of
deficiency or assessment from any taxing authority with respect to liability for
Taxes of its business which has not been fully paid or finally settled. There
have been no waivers of statutes of limitations by JPAL with respect to any Tax
Returns. JPAL has not filed a request with the Internal Revenue Service for
changes in accounting methods within the last two years which change would
effect the accounting for tax purposes, directly or indirectly, of its business.
JPAL has not executed an extension or waiver of any statute of limitations on
the assessment or collection of any Taxes due (excluding such statutes that
relate to years currently under examination by the Internal Revenue Service or
other applicable taxing authorities) that is currently in effect. The provision
for Taxes, if any, due or to become due for JPAL for the period or periods
through and including the date of the JPAL Financial Statements that has been
made and is reflected on such financial statements is sufficient to cover all
such Taxes. Deferred Taxes, if any, of JPAL included in the JPAL Financial
Statements have been computed in accordance with GAAP. JPAL is not a party to
any Tax allocation or Tax sharing agreement and JPAL has not been a member of an
affiliated group filing a consolidated federal income Tax Return or has any
Liability for Taxes of any Person under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local or foreign Law) as a transferee or
successor or by Contract or otherwise. JPAL has not made any payments, is not
obligated to make any payments, and is not a party to any Contract that could
obligate it to make any payments that would be disallowed as a deduction under
Section 280G or 162(m) of the Internal Revenue Code.
(b) The term "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, property, sales, license, payroll and franchise taxes, imposed by the
United States, or any state, local or foreign government or subdivision or
agency thereof whether computed on a unitary, combined or any other basis; and
such term shall include any interest and penalties or additions to tax. The term
"Tax Return" shall mean any report, return or other information required to be
filed with, supplied to or otherwise made available to a taxing authority in
connection with Taxes.
Section 3.14 Employee Benefit Plans. Schedule 3.14 comprises a
listing of each bonus, stock option, stock purchase, benefit, profit sharing,
savings, retirement, liability, insurance, incentive, deferred compensation, and
other similar fringe or employee benefit plans, programs or arrangements for the
benefit of or relating to, any employee of, or independent contractor or
consultant to, and all other compensation practices, policies, terms or
conditions, whether written or unwritten (the "Employee Benefit Plans") which
JPAL presently maintains, to which JPAL presently contributes or under which
JPAL has any liability and which relate to employees (current or former) or
independent contractors of JPAL. Each of the Employee Benefit Plans administered
by JPAL have been administered in accordance with all requirements of applicable
law and terms of each such plan. Each Employee Benefit Plan that is required to
be qualified under the Employment Retirement Income Security Act of 1974, or
registered or approved by a regulatory authority, has been so qualified,
registered or approved by the appropriate governmental agency or authority and
such qualification, registration or approval has not been revoked. All
contributions (including premiums) required by law or contract to have been made
or accrued by JPAL under or with respect to the Employee Benefit Plans have been
paid or accrued by JPAL or will be paid in the ordinary course within 90 days.
Without limiting the foregoing, there are no unfunded liabilities under any
Employee Benefit Plan. JPAL has not received notice of any investigations,
litigation or other enforcement actions against it with respect to any of the
Employee Benefit Plans. To JPAL's knowledge, there are no pending actions, suits
or claims by former or present employees of JPAL (or their beneficiaries) with
respect to Employee Benefit Plans or the assets or fiduciaries thereof (other
than routine claims for benefits).
Section 3.15 Environmental Matters.
(a) Except as would not, individually or in the aggregate, have a
Material Adverse Effect on JPAL:
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CUSIP No. 29669B 10 6 13D Page 15 of 33 Pages
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(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed, no
penalty has been assessed, and no investigation, action, claim, suit, proceeding
or review is pending or, to the best knowledge of JPAL, is threatened by any
governmental entity or other Person relating to or arising out of any
Environmental Law;
(ii) JPAL is and has been in compliance with all Environmental
Laws and all Environmental Permits; and
(iii) there are no liabilities of or relating to JPAL of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise arising under or relating to any Environmental Law and there are no
facts, conditions, situations or set of circumstances which could reasonably be
expected to result in or be the basis for any such liability.
(b) The following terms shall have the meaning set forth below:
"JPAL" shall, for purposes of this Section, include any entity
which is, in whole or in part, a corporate predecessor of JPAL.
"Environmental Laws" means any federal, state, local or foreign
law (including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement or any agreement with any governmental authority or
other third party, relating to human health and safety or the environment and
arising from the use, presence, disposal, discharge or release of pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.
"Environmental Permits" means, with respect to any Person, all
permits, licenses, franchises, certificates, approvals and other similar
authorizations of governmental authorities relating to or required by
Environmental Laws and affecting, or relating in any way to, the business of
such Person as currently conducted.
Section 3.16 Patents and Other Proprietary Rights. JPAL does not
have rights to use, whether through ownership, licensing or otherwise any
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights and processes. JPAL has not and does not violate or
infringe any intellectual property right of any Person, and JPAL has not
received any communication alleging that it violates or infringes the
intellectual property right of any other Person. JPAL has not been sued for
infringing any intellectual property right of another Person.
Section 3.17 Anti-takeover Statutes. The Board of Directors of JPAL
has approved this Amended Agreement and the transactions contemplated hereby,
and neither the anti-takeover provisions of the NRS nor those of any other
similar statute or regulation applies to the Modified Exchange or any of the
other transactions contemplated hereby.
Section 3.18 Disclosure. Neither this Amended Agreement nor any
exhibit or schedule hereto nor any statement, list or certificate delivered to
the Company pursuant hereto or pursuant to any written request therefor,
contains an untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein, in
light of the circumstances in which they were made, not misleading.
Section 3.19. Labor Matters. Drechsler is the only current employee
of JPAL. JPAL has never been a party to any collective bargaining agreement or
other labor agreement with any labor union or organization. There is no unfair
labor practice charge or other grievance procedure against JPAL pending, or, to
the best knowledge of JPAL, threatened. There is no complaint, lawsuit or
proceeding in any forum by or on behalf of any present or former employee, any
applicant for employment or any classes of the foregoing alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship against JPAL,
pending, or, to the best knowledge of JPAL, threatened. JPAL is in compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational safety and
health. There is no proceeding, claim, suit, action or governmental
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CUSIP No. 29669B 10 6 13D Page 16 of 33 Pages
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investigation pending or, to the best knowledge of JPAL, threatened, in respect
to which any current or former director, officer, employee or agent of JPAL, may
be entitled to claim indemnification from JPAL.
Section 3.20. Contracts. Schedule 3.20 hereto sets forth a complete
and accurate list and description of all of the following contracts and
agreements, with the exception of any contract or agreement related to the
February Meeting or any document executed and/or filed in connection therewith,
whether written or oral, of JPAL:
(a) agreements, contracts or instruments to which JPAL is a party
that relate to the borrowing of money, the capital lease or purchase on an
installment basis of any property or asset or the guarantee of any of the
foregoing (including without limitation pledged receivables);
(b) licenses, leases, contracts and other arrangements with respect
to any property of JPAL, and all contracts, agreements, commitments, purchase
orders or other understandings or arrangements with respect to which JPAL has
any liability or obligation (contingent or otherwise) or which may otherwise
have any continuing effect after the date of this Amended Agreement;
(c) contracts, agreements or other understandings or arrangements
(including without limitation those with respect to compensation) between JPAL
and any current or former shareholder, officer, director, consultant, agent
and/or Affiliate (or any spouse or relative of any of the foregoing);
(d) management, operating, service, joint venture, partnership or
limited liability company agreements;
(e) any contract or agreement pursuant to which JPAL has agreed to
indemnify or hold harmless any other Person or to pay liquidated damages of any
kind;
(f) any contract or agreement creating any Lien on any property or
assets of JPAL;
(g) any contract or agreement relating to the capital stock of JPAL;
or
(h) any other material agreement, lease, commitment, instrument,
plan, arrangement or contract entered into by JPAL, or to which any of its
assets may be subject.
All the foregoing are herein called "Contracts." Such list includes
with respect to each Contract the names of the parties, the date thereof, and
its title or other general description. The Contracts listed on Schedule 3.20
set forth the entire arrangement and understanding between JPAL and the
respective third parties with respect to the subject matter thereof, and, except
as indicated in such Schedule, there have been no amendments or waivers or side
or supplemental arrangements to or in respect of any Contract. JPAL will furnish
any further information that the Company may reasonably request in connection
therewith. Each Contract is valid, binding and enforceable against JPAL, and to
the best knowledge of JPAL, each other party thereto, in accordance with its
terms and in full force and effect. There is no event that has occurred or
existing condition that constitutes or that, with notice, the happening of an
event and/or the passage of time, would constitute a default or breach under any
Contract by JPAL, or would cause the acceleration of any obligation of any party
thereto, give rise to any right of termination or cancellation or cause the
creation of any Lien by reason of the failure of JPAL to fulfill the obligations
thereunder.
Section 3.21. SEC Filings. JPAL has filed all forms, reports and
documents (the "SEC Documents") required to be filed with the Securities and
Exchange Commission (the "SEC") since its inception and has heretofore delivered
all the SEC Documents to the Company. The SEC Documents (a) were prepared in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (b) did not at the time they were
filed contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Section 3.22. Maturity Of Bridge Loans. None of the Bridge Loans (as
defined in Section 6.1 hereof) shall mature prior to January 1, 2003.
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CUSIP No. 29669B 10 6 13D Page 17 of 33 Pages
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ARTICLE 4
Representations and Warranties of the Company
The Company represents and warrants to JPAL that:
Section 4.1 Corporate Existence and Power. The Company is a limited
liability company duly organized and in good standing under the laws of the
State of Delaware. The Company has all powers and governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. At the Closing, the
Company will be duly qualified to do business as a foreign corporation and will
be in good standing in each jurisdiction where such qualification is necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
The Company has heretofore delivered to JPAL true and complete copies of the
Articles of Formation and Operating Agreement as currently in effect.
Section 4.2 Authorization. The execution, delivery and performance
by the Company of this Amended Agreement and the consummation by the Company of
the transactions contemplated hereby are within the powers of the Company, and
have been duly authorized by all necessary action. This Amended Agreement,
assuming the due authorization, execution and delivery thereof by JPAL, is a
legal, valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
other similar laws now or hereafter in effect relating to creditors' rights
generally or by general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
Section 4.3 Governmental Authorization. The execution and delivery
of this Amended Agreement and the performance by the Company of its obligations
under this Amended Agreement relating to the Modified Exchange, the Closing and
the transactions contemplated hereby require no action by or in respect of, or
filing with, any governmental body, agency, official or authority other than (a)
compliance with any applicable requirements of the Securities Act, the Exchange
Act, Blue Sky Laws or takeover laws, and (b) any other filings, approvals or
authorizations which, if not obtained, would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or materially impair
the ability of the Company to consummate the Modified Exchange and the
transactions contemplated by this Amended Agreement.
Section 4.4 Non-contravention. The execution and delivery by the
Company of this Amended Agreement and the consummation by the Company of the
transactions contemplated hereby and performance of its obligations under this
Amended Agreement do not and will not (a) violate the Company's Certificate of
Formation or Operating Agreement, (b) assuming compliance with the matters
referred to in Section 4.3, violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (c) require any consent or other action
by any Person under, constitute a default under, result in a violation of,
conflict with, or give rise to any right of termination, cancellation or
acceleration of any right or obligation of the Company, or to a loss of any
benefit to which the Company is entitled under any provision of any agreement or
other instrument binding upon the Company, or any license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating in
any way to, the assets or business of the Company or (d) result in the creation
or imposition of any Lien on any asset of the Company, except, in the case of
clauses (b), (c) and (d), for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company or materially impair
the ability of the Company to consummate the transactions contemplated by this
Amended Agreement.
Section 4.5 Subsidiaries. The Company has no subsidiaries.
Section 4.6 Financial Statements. The Company Financial Statements
(as defined in Section 7.3 below) were prepared in accordance with the books and
records of the Company in all material respects and were prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved, except
as otherwise noted therein. Each of the Company Financial Statements fairly
presents the financial position of the Company as of the respective dates set
forth therein or the results of operations and changes in financial position of
the Company for the respective fiscal periods or as of the respective dates set
forth therein.
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Section 4.7 Absence of Certain Changes. From December 31, 2001 until
the date hereof, the business of the Company has been conducted in the ordinary
course and there has not, with the exception of any Bridge Loans discussed in
Section 6.1 hereof as well as certain other bridge loans for up to $1,000,000,
been:
(a) any event, occurrence, development or state of circumstances or
facts which would, individually or in the aggregate, have a Material Adverse
Effect on the Company;
(b) any incurrence, assumption or guarantee by the Company of any
material indebtedness for borrowed money;
(c) any creation or other incurrence by the Company of any Lien on
any material asset;
(d) the making of any material loan, advance or capital
contributions to or investment in any Person;
(e) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or any asset(s) of the Company
which would, individually or in the aggregate, have a Material Adverse Effect on
the Company;
(f) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its business or any of its assets
(including the acquisition or disposition of any assets) or any relinquishment
by the Company of any contract or other right, in any case material to the
Company except in the ordinary course of business of the Company;
(g) any material labor dispute, other than routine individual
grievances; or
(h) any tax election or any settlement or compromise of any tax
liability, in either case that is material to the Company.
Section 4.8 Compliance with Laws and Court Orders. The Company is
and has been in compliance with, and to the best of its knowledge is not under
investigation with respect to and has not been threatened to be charged with or
given notice of any violation of, any applicable law, rule, regulation,
judgment, injunction, order or decree, except for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Section 4.9 Litigation. Except as set forth on Schedule 4.9 hereto,
there is no action, suit, investigation, audit or proceeding pending against, or
to the best knowledge of the Company threatened against or affecting, the
Company or any of its assets or properties before any court or arbitrator or any
governmental body, agency or official.
Section 4.10 Patents and Other Proprietary Rights. Except as set
forth on Schedule 4.10 hereto (which Schedule 4.10 shall be delivered by the
Company to JPAL no later than ten (10) days following the date of this Amended
Agreement), (a) the Company does not have rights to use, whether through
ownership, licensing or otherwise, any patents, trademarks, service marks, trade
names, copyrights, trade secrets or other proprietary rights and processes, (b)
to the Company's knowledge, the Company has not and does not violate or infringe
any intellectual property right of any Person, (c) the Company has not received
any written communication alleging that it violates or infringes the
intellectual property right of any other Person and (d) the Company has not been
sued for infringing any intellectual property right of another Person.
Section 4.11 Disclosure. Neither this Amended Agreement nor any
exhibit or schedule hereto nor any statement, list or certificate delivered to
JPAL pursuant hereto or pursuant to any written request therefor, contains an
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein, in light of the
circumstances in which they were made, not misleading.
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ARTICLE 5
Covenants of JPAL, the Company, Drechsler and Appel
Section 5.1 Pre-Closing Transactions. Prior to Closing, the Company
shall have consummated the Private Placement of up to 7,680,000 Private
Placement Interests for an aggregate of up to $8,000,000 in gross proceeds. All
Private Placement Interests will be sold at the equivalent of approximately
$1.04167 (the "Offering Price") each and be contributed to JPAL in exchange for
Private Placement Shares on a one-for-one basis upon Closing, subject to the
provisions of Article 9 hereof.
In addition, the following actions shall have been taken:
(a) Escrow Shares. Prior to or upon consummation of the Closing,
certain Shareholders shall place thirty percent (30%) of the Public Shares (as
further described in Section 5.2 below) into escrow (the "Escrow Shares"),
pursuant to the terms of an escrow agreement in a form reasonably satisfactory
to the Company. The Escrow Shares shall be released from escrow on the following
terms: (i) one third of the Escrow Shares four (4) months from the Closing Date;
(ii) another third of the Escrow Shares eight (8) months from the Closing Date ,
and (iii) the remaining third of the Escrow Shares twelve (12) months from the
Closing Date.
The Company shall inform JPAL of the number of Private Placement
Interests sold in the Private Placement as soon as practicable after the closing
thereof, subsequent to which JPAL and the Company shall determine the number of
Public Shares to be issued and outstanding subsequent to the Closing pursuant to
Section 5.2 below. The Company shall in connection therewith determine the
identity of the Shareholders whose Public Shares will be placed in escrow. The
Company's determination thereof shall be made in consultation with and subject
to the consent of JPAL, which consent shall not be unreasonably withheld.
(b) Assignment of Convertible Company Notes. Prior to the closing of
the Private Placement, JPAL shall assign, convey, transfer and deliver to
certain Lenders (see Section 6.1 below), and such Lenders shall acquire from
JPAL, pursuant to an assignment and transfer agreement in a form reasonably
satisfactory to the Company (each such agreement, an "Assignment and Transfer
Agreement") to be executed by and between JPAL and each such respective Lender,
all right, title and interest in and to certain convertible promissory notes
(the "Convertible Company Notes" as further described hereinafter) to be issued
by the Company to JPAL (the "Assignment"), which Convertible Company Notes shall
have the same terms and provisions as the form of note attached hereto as
Exhibit B (the "Current Company Note"), with the exception of the conversion
feature described in Section 5.1(c) below, the prepayment provisions set forth
in Section 6.1(c) below and a maturity date of December 31, 2003.
The Assignment and Transfer Agreement(s) shall provide for each such
Lender's acquisition and assumption, prior to the closing of the Private
Placement, of all right, title and interest in and to the Convertible Company
Notes in consideration for the cancellation of all right, title and interest
held by each such Lender in and to certain notes (the "JPAL Notes") issued by
JPAL to such Lenders in consideration for the Bridge Loans (as further described
in Section 6.1 hereof). The aggregate amount and proportion between principal
and interest of such JPAL Notes shall be identical in amount and proportion to
the Conversion Amount (as defined in Section 5.1(c)(i) hereof).
JPAL undertakes, in connection herewith, to cause such Lender(s) to
agree to execute the Assignment and Transfer Agreement(s) within fifteen (15)
calendar days of the execution of this Amended Agreement. JPAL and the Company
agree and accept that the contemplated Assignment constitutes a material
condition of JPAL to effect the Modified Exchange and the Company consents to
such Assignment, provided, that the terms of such Assignment and Transfer
Agreement require each Lender to agree to the terms of this Amended Agreement,
including with specific reference the repayment terms of the Convertible Company
Notes (see Section 6.1(c) below).
Anything to the contrary herein notwithstanding, in the event the
Modified Exchange is not consummated by August 31, 2002, then the Assignment and
Transfer Agreements shall be null and void and all conversions that may have
been effectuated prior to such date shall be rescinded.
(c) Conversion of Notes Prior to Closing. In connection with the
foregoing, the parties hereto agree that the Convertible Company Notes to be
assigned by JPAL to the Lenders and described in the foregoing paragraph shall:
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CUSIP No. 29669B 10 6 13D Page 20 of 33 Pages
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(i) constitute notes for an aggregate dollar amount of $250,000
(the "Conversion Amount"), which Conversion Amount shall consist of principal
and accrued interest thereon in proportionate amounts;
(ii) prior to the closing of the Private Placement be issued by
the Company to JPAL in return for the cancellation of presently issued and
outstanding notes issued by the Company for the like amount; and
(iii) carry a conversion feature enabling the holder thereof to
convert such Conversion Amount into Private Placement Interests as if such
Conversion Amount were provided by means of a cashier's check or wire transfer
to the Company.
Assuming delivery to the Company of the Company Convertible
Notes for conversion into Private Placement Interests in accordance with the
terms set forth in the subscription agreement attached to the Confidential
Private Placement Memorandum governing the Private Placement, including
execution of such subscription agreement and related confidential prospective
purchaser questionnaire, the Company hereby undertakes to accept such Company
Convertible Notes as constituting good and valid consideration for subscription
of an aggregate of 240,000 Private Placement Interests in the Private Placement;
provided, however, that such Company Convertible Notes may only be delivered to
the Company for conversion if the Company has not already closed on
subscriptions for aggregate gross proceeds of at least $4,000,000 in the Private
Placement.
(d) Conversion of Notes Subsequent to Closing. Within fifteen (15)
calendar days of the execution of this Amended Agreement, JPAL shall issue
convertible notes in the aggregate amount of $500,000, consisting of principal
and accrued interest thereon in proportionate amounts (the "JPAL Convertible
Notes"), to certain Lender(s) in consideration for the cancellation of all
right, title and interest held by each such Lender in and to certain JPAL Notes
for the like amount. For a period of six (6) months following the Closing, the
JPAL Convertible Notes may be converted, in the sole and absolute discretion of
the holders thereof, into an aggregate of 263,158 shares of Common Stock at a
conversion price of $1.90 per share. The JPAL Convertible Notes (with the
Company Convertible Notes, the "Convertible Notes") shall have the same terms
and provisions as the Current Company Note attached hereto as Exhibit B, with
the exception of the conversion feature described in this Section 5.1(d), the
prepayment provisions set forth in Section 6.1(c) below and a maturity date of
December 31, 2003. No conversion of any Convertible Notes shall in any way
reduce the number of Bridge Warrants hereinafter provided for (see Section 6.1).
Anything to the contrary herein notwithstanding, in the event
the Modified Exchange is not consummated by August 31, 2002, then the issuance
of the JPAL Convertible Notes in consideration for the cancellation of the JPAL
Notes shall be null and void.
(e) Non-Convertible Notes. Within fifteen (15) calendar days of the
execution of this Amended Agreement, JPAL shall issue non-convertible notes in
an aggregate amount equal to the amount of the Bridge Loans less the amount of
the Convertible Notes (the "Non-Convertible Notes") to certain Lender(s) in
consideration for the cancellation of all right, title and interest held by each
such Lender in and to certain JPAL Notes for the like amount. The
Non-Convertible Notes (with the Convertible Notes, the "Bridge Notes") shall
have the same terms and provisions as the Current Company Note attached hereto
as Exhibit B, with the exception of the prepayment provisions set forth in
Section 6.1(c) below and a maturity date of December 31, 2003.
Anything to the contrary herein notwithstanding, in the event
the Modified Exchange is not consummated by August 31, 2002, then the issuance
of the Non-Convertible Notes in consideration for the cancellation of the JPAL
Notes shall be null and void.
(f) Agent Warrants. Contemporaneously with the closing of the
Private Placement, the Company may issue warrants (the "Agent Warrants") to
certain of its financial advisors (the "Agents"). The Agent Warrants shall
enable their holders to purchase membership interests of the Company up to an
aggregate of six percent (6%) of the number of Private Placement Interests sold
in the Private Placement at an exercise price of one hundred and twenty-five
percent (125%) of the Offering Price. The Agent Warrants issued shall be in
addition to the cash compensation of up to six percent (6%) of the dollar amount
raised in the Private Placement.
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Upon Closing, the Agent Warrants shall unless earlier exercised
automatically be cancelled in exchange for warrants to purchase that number of
shares of Common Stock of JPAL (the "JPAL Agent Warrants") as would have been
received from the Company had the Agent Warrants been exercised for membership
interests of the Company prior to Closing. The Company shall inform JPAL of the
number of Agent Warrants issued but not exercised as soon as practicable after
the closing of the Private Placement, subsequent to which time the Company shall
accept no Agent Warrants for exercise. The JPAL Agent Warrants shall have the
same terms and features as the Agent Warrants except that they shall vest
immediately, not be callable, expire up to 5 years from date of issuance and not
provide for cashless exercise.
Section 5.2 Capitalization; No Liabilities or Debts.
(a) JPAL shall take all necessary actions so that there shall; (i)
immediately prior to the Closing be issued and outstanding that number of shares
of Common Stock as would represent 6.02% of the aggregate capitalization
presuming effectuation of the Modified Exchange (the "Public Shares"), and (ii)
be reserved for issuance pending the effectuation of the Modified Exchange the
aggregate number of shares of Common Stock as shall immediately subsequent to
Closing constitute the remaining 93.98% shares of Common Stock to be issued and
outstanding, provided, however, that the number represented by the Public Shares
shall exclude any shares of Common Stock: (i) issued or to be issued to the
Lender(s) in connection with the exercise of their Bridge Warrants (see Section
6.1 below); (ii) exchanged for membership interests of the Company having been
issued pursuant to the exercise of Agent Warrants, and (iii) reserved for
issuance pursuant to the exercise of JPAL Agent Warrants to be issued in
consideration for the cancellation of the Agent Warrants.
Except as set forth immediately above, there shall as of Closing
be no other outstanding shares of capital stock, options, warrants,
subscriptions, conversions or other rights, agreements or commitments obligating
JPAL to issue any shares of its capital stock or any securities convertible
into, exchangeable for or evidencing the right to subscribe for any shares of
its capital stock, with the exception of the Bridge Warrants, JPAL Convertible
Notes, JPAL Agent Warrants, shares of Common Stock reserved for issuance
pursuant to exercise of the JPAL Agent Warrants, the Private Placement Shares
and the Contribution Shares (collectively, the "Securities"), nor any options,
warrants, subscriptions, conversions or other rights, agreements or commitments
relating to such Securities or the Public Shares.
(b) JPAL shall take all necessary actions so that immediately prior
to the Closing, except for the Bridge Loans, there shall be no liabilities or
debts of JPAL of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there shall be no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability or debt.
Section 5.3 Public Company Status. JPAL shall make any and all
necessary filings so that at the Closing the Common Stock shall still be a
publicly-traded security.
Section 5.4 Shareholder Approval. In connection with obtaining
shareholder approval for this Amended Agreement and the transactions
contemplated hereby, JPAL shall comply with all applicable requirements of the
NRS and federal securities law, including but not limited to the mailing to its
Shareholders of a written proxy statement containing the information specified
in Schedule 14A of the Exchange Act (the "JPAL Proxy Statement"). The JPAL Proxy
Statement shall be prepared in accordance with the requirements of the Exchange
Act and will not at the time it is filed contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading.
Section 5.5 Indemnification.
(a) Each of JPAL and Howard Appel shall, jointly and severally,
indemnify, defend and hold harmless each of the Company Members and each person
who is now, or has been at any time prior to the date hereof or who becomes
prior to the Closing, an officer or member of the Company or an employee of the
Company, and their respective heirs, legal representatives, successors and
assigns (the "Indemnified Parties") against all losses, claims, damages, costs,
expenses (including attorneys' fees), liabilities or judgments or amounts that
are paid in settlement of or in connection with any threatened or actual claim,
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action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of (i) any breach of this Amended Agreement by
JPAL or HMA (see below), including but not limited to failure of any
representation or warranty to be true and correct at or before the Closing, or
(ii) any act, omission or conduct of Drechsler or JPAL prior to the Closing,
whether asserted or claimed prior to, or at or after, the Closing, or (iii)
relating to the consummation of the transactions contemplated herein, and any
action taken in connection therewith ("Indemnified Liabilities"). Any
Indemnified Party wishing to claim indemnification under this Section 5.5, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify Howard Appel and JPAL, but the failure so to notify shall not relieve a
party from any liability that it may have under this Section 5.5, except to the
extent such failure materially prejudices such party.
(b) All rights to indemnification under this Section 5.5 shall
survive the consummation of the Modified Exchange and the termination of this
Amended Agreement. The provisions of this Section 5.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, and his or her
heirs and representatives. No party shall enter into any settlement regarding
the foregoing without prior approval of the Indemnified Party.
Section 5.6 Drechsler Release. At the Closing, Drechsler shall
deliver to the Company an executed copy of the Release attached hereto as
Exhibit C.
Section 5.7 Conduct of Business of JPAL. Except as contemplated by
this Amended Agreement, during the period commencing on the date hereof and
ending as of the Closing Date or the termination of this Amended Agreement, JPAL
shall not conduct any business activities whatsoever without the prior written
consent of the Company.
ARTICLE 6
Covenants of HMA and JPAL
Section 6.1 Bridge Financings. (a) HMA Advisors, Inc. ("HMA") shall
have loaned or arranged for an aggregate of $2,525,000 of bridge financings (the
"Bridge Loans") for the Company, and in connection therewith HMA and/or the
bridge investors (collectively, the "Lenders") shall receive warrants (the
"Bridge Warrants") to purchase 750,000 shares of Common Stock at an exercise
price of $1.90 per share, subject to decrease as determined in the discretion of
board of directors of JPAL as constituted subsequent to the Closing. The Bridge
Warrants shall be immediately exercisable and expire two (2) years from the date
of the Closing. JPAL shall be able to call the Bridge Warrants, provided: (i)
that the shares of Common Stock shall have traded for an average closing market
price of $1.50 above the prevailing exercise price for a period of no less than
fifteen (15) business days (the "Period"); (ii) that the SEC shall have declared
effective the registration statement under the Securities Act (the "Statement,"
as further described in Section 7.1 below) pursuant to which the shares of
Common Stock underlying such Bridge Warrants shall have been registered prior to
the commencement of such period, and (iii) that the average daily volume of the
Common Stock traded during the Period shall have been no less than 100,000.
(b) No fees or commissions shall be payable in connection with any
of the above-mentioned bridge financings.
(c) Subject to Closing, JPAL undertakes to prepay the Bridge Loans
(including all loans evidenced by Bridge Notes), excluding any Bridge Loans
converted into Private Placement Interests or shares of Common Stock as provided
for in Sections 5.1(c) and 5.1(d) hereof, respectively, in the following manner:
(i) at Closing, principal plus a proportionate amount of accrued
interest equal to 15% of all cash amounts raised in the Private Placement
between $4,000,000 and $6,250,000, provided, however, that if $6,250,000 or
greater is raised, then such prepayment amount shall equal an aggregate of
$500,000.
(ii) 15 days following each of the four calendar quarters in
2003, principal plus a proportionate amount of accrued interest equal to
$100,000.
(iii) 50% of the proceeds received by JPAL from the exercise of
any Bridge Warrants, within 15 days of receipt by JPAL.
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(iv) For any proceeds raised by issuance of securities that were
deemed equity at time of issuance:
A. In the year 2002. 15% of the net proceeds received from
the sale of such equity above $10,000,000 (including proceeds raised in the
Private Placement) shall become immediately due and payable within 15 days of
receipt thereof by JPAL, subject to a maximum of up to $700,000; and
B. In the year 2003. 20% of the net proceeds received from
the sale of any such equity shall become immediately due and payable within 15
days of receipt thereof by JPAL, subject to a maximum of $700,000, provided,
that in the event the aggregate principal amount of Bridge Loans remaining
outstanding at the time such equity is raised shall exceed $1,000,000, then the
maximum amount due and payable within fifteen days of receipt by JPAL shall be
$900,000.
Anything to the contrary in Section 6.1(c)(iv) notwithstanding, if
at any time during either 2002 or 2003 the equity raised from unrelated sales is
$1,000,000 or less and the investor(s) in each such unrelated sale objects to
the repayment of the Bridge Loans, then no such repayment shall be made. For
purposes of calculating the proceeds received and amounts raised set forth in
this Section 6.1(c)(iv): (A) any non-cash investment, or (B) any amounts raised
from strategic investors that are either (1) earmarked for specific use, or (2)
received in connection with actual or anticipated other relationship(s) with
such investor(s) that exist(s) or may exist, shall not be counted in such
calculation.
(v) within 45 days following the end of each calendar quarter
(except 90 days with respect to the last quarter in a year) beginning on October
1, 2002, 35% of any Excess Cash greater than $2,000,000, up to a maximum of
$200,000 (in addition to amounts received under clause (ii) above) in any
quarter, where "Excess Cash" means any cash on the books of JPAL at the end of a
quarter that is not restricted by an agreement or covenant providing for such
restriction minus any equity and/or debt raised during such quarter.
For purposes of this Section 6.1(c), in no event may the amounts
paid be greater than the amounts owed to the Bridge Note holders. In addition;
(i) all payments to be made under this Section 6.1(c) are subordinate to
obligations to financing sources, and may be subject to restrictive covenants
imposed by either trade or secured creditors, and (ii) the holders of the notes
representing the Bridge Loans have agreed not to take any action on the
prepayment obligations until any such restrictive covenants are eliminated or
terminated. To the extent that a cash payment is not made when due, all unpaid
amounts not paid at maturity shall earn interest at a rate of 12% per annum.
ARTICLE 7
Covenants of the Company and the Company Members
Section 7.1 Registration Statement. Promptly following the Closing,
the Company Members shall cause JPAL to file the Statement, which Statement
shall cover the resale of; (a) up to one hundred percent (100%) of the Private
Placement Shares; (b) all shares of Common Stock underlying the Bridge Warrants;
(c) all shares of Common Stock underlying the JPAL Agent Warrants, if any; (d)
all shares reserved for issuance pursuant to conversion of the JPAL Convertible
Notes, and (e) twenty-five percent (25%) of the Contribution Shares. Holders of
all Private Placement Shares not included in the Statement shall be given
piggy-back registration rights applicable to all such shares with respect to any
registration statement on an appropriate form that JPAL may file subsequent to
the filing of the Statement.
Section 7.2 Restrictions on Trading. Notwithstanding the provisions
of Section 7.1 above, the twenty-five percent (25%) of the Contribution Shares
being registered above may be sold only to the extent of such number of shares
(in the aggregate) that is equal to 10% of the average weekly volume of the
Common Stock during the preceding four weeks, on a rolling basis. Any
Contribution Shares that become available for sale pursuant hereto shall be
released from these restrictions on a pro rata basis. In addition, the
Shareholders referenced in Section 5.1(a) hereinabove shall execute letters
whereby they agree that the Escrow Shares shall not be sold during the terms
provided in such Section, and shall include a statement representing to JPAL
that no shares of Common Stock will be sold short for twelve (12) months
following the Closing Date.
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Section 7.3 Financial Statements. The Company shall deliver to JPAL,
as soon as they become available but in no event later than 30 business days
after the date hereof, copies of the Company's audited financial statements as
of and for the fiscal year ended December 31, 2001, certified by Deloitte &
Touche LLP (the "Company Financial Statements").
ARTICLE 8
Covenants of the Parties
The parties hereto agree that:
Section 8.1 Reasonable Best Efforts. Subject to the terms and
conditions of this Amended Agreement, each party will use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by this Amended
Agreement.
Section 8.2 Filings; Other Action. Subject to the terms and
conditions herein provided, the Company and JPAL shall promptly use reasonable
best efforts to cooperate with one another in (a) determining whether any
filings are required to be made with, or consents, permits, authorizations or
approvals are required to be obtained from, any third party, the United States
government or any agencies, departments or instrumentalities thereof or other
governmental or regulatory bodies or authorities of federal, state, local and
foreign jurisdictions in connection with the execution and delivery of this
Amended Agreement and the consummation of the transactions contemplated hereby
and (b) timely making all such filings and timely seeking all such consents,
permits, authorizations or approvals, and (c) taking or causing to be taken, all
other actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby.
Section 8.3 Public Announcements. The Company and JPAL shall consult
with each other before issuing any press release or making any public statement
with respect to this Amended Agreement or the transactions contemplated hereby
and will not issue any such press release or make any such public statement
prior to such consultation and without the written consent of the other party.
Section 8.4 Notices of Certain Events. In addition to any other
notice required to be given by the terms of this Amended Agreement, each of the
parties shall promptly notify the other party hereto of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with any of the
transactions contemplated by this Amended Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Amended Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving or
otherwise affecting such party that, if pending on the date of this Amended
Agreement, would have been required to have been disclosed pursuant to Section 3
and Section 4 (as the case may be) or that relate to the consummation of the
transactions contemplated by this Amended Agreement.
Section 8.5 Access to Information; Confidentiality.
(a) Following the date hereof, until consummation of all
transactions contemplated hereby, the Company, on the one hand, and JPAL, on the
other, will give to the other party, its counsel, financial advisers, auditors
and other authorized representatives reasonable access to the offices,
properties, books and records of such party, furnish to the other party and its
representatives such financial and other data and information as such party and
its representatives may reasonably request and instruct its own employees and
representatives (including, without limitation, insurance agents and
underwriters) to cooperate with the other party in its investigations. Any
investigation pursuant to this Section shall be conducted in such manner as not
to interfere unreasonably with the conduct of the business of the other parties.
No investigation pursuant to this Section shall affect any representation or
warranty made by any party hereunder.
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(b) All information obtained by the Company or JPAL in connection
with the transactions contemplated hereby shall be kept confidential and will
not be used for any purpose unrelated to the consummation of the transactions
contemplated by this Amended Agreement. Should the Closing not occur for any
reason, all such information and copies thereof shall promptly be returned to
each respective party.
ARTICLE 9
Conditions Precedent
Section 9.1 Conditions of Obligations of the Company Members. The
obligations of the Company Members to effect the Modified Exchange are subject
to the satisfaction of the following conditions, any or all of which may be
waived in whole or in part by the Company Members:
(a) Representations and Warranties. Each of the representations and
warranties of JPAL set forth in this Amended Agreement shall be true and correct
in all material respects as of the date of this Amended Agreement and (except to
the extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except where
the failure to be so true and correct would not have a Material Adverse Effect
on JPAL.
(b) Performance of Obligations of JPAL. JPAL shall have performed in
all material respects all obligations required to be performed by it under this
Amended Agreement at or prior to the Closing.
(c) Secretary's Certificate. The Secretary of JPAL shall deliver to
the Company at the Closing a certificate certifying: (i) that attached thereto
is a true and complete copy of its Articles of Incorporation (including all
amendments thereto) as in effect at the Closing; (ii) that attached thereto is a
true and complete copy of its By-laws as in effect at the Closing; (iii) that
attached thereto is a true and complete copy of all resolutions duly adopted by
its Board of Directors (x) authorizing the execution, delivery and performance
of this Amended Agreement, (y) authorizing the consummation of the transactions
contemplated hereby and (z) directing the submission of the Modified Exchange to
a vote of the Shareholders, and that such resolutions have not been amended or
modified and are in full force and effect; and (iv) that attached thereto is a
true and complete copy of (x) the Certificate of the Inspector of Elections
appointed to serve as such at the Meeting of Shareholders called to vote on this
Amended Agreement attesting to validity of inspected proxies and presence of
sufficient number thereof to constitute quorum thereat, and (y) the Minutes of
the Meeting of Shareholders attesting to the vote at such Meeting executed by
Drechsler and a Secretary whom JPAL shall duly have appointed.
(d) Legal Opinion. The Company shall have received an opinion, dated
the Closing Date, of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP, counsel to
JPAL, in the form attached hereto as Exhibit D.
(e) Good Standing Certificate. JPAL shall have furnished the Company
with good standing and existence certificates for JPAL in its jurisdiction of
incorporation and other jurisdictions as the Company shall reasonably request.
(f) Certified List of Record Holders. The Company shall have
received a certified list from JPAL's transfer agent of the holders of record of
JPAL's Common Stock as of the Closing Date.
(g) Shareholders' Vote. JPAL shall have delivered to the Company
evidence satisfactory to the Company that a majority of the Shareholders
approved the transactions contemplated hereby in accordance with applicable
state and federal securities laws at the Meeting.
(h) Due Diligence. JPAL shall have delivered to the Company's
counsel all due diligence materials requested by the Company and the Company is
satisfied with the results of its review thereof.
(i) Bridge Notes. All Bridge Notes shall have been exchanged
pursuant to Sections 5.1(b), (d) and (e) above.
(j) Private Placement. The Company shall have consummated the
Private Placement with no less than $6,500,000 in gross proceeds.
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Section 9.2 Conditions of Obligations of JPAL. The obligations of
JPAL to effect the Modified Exchange are subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
JPAL:
(a) Representations and Warranties. Each of the representations and
warranties of the Company set forth in this Amended Agreement shall be true and
correct in all material respects as of the date of this Amended Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except where the failure to be so true and correct would not have a Material
Adverse Effect on the Company.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Amended Agreement at or prior to the Closing Date.
(c) Officer's Certificate. An officer of the Company shall deliver
to JPAL at the Closing a certificate certifying: (i) that attached thereto is a
true and complete copy of the Company's Certificate of Formation (including all
amendments thereto) as in effect at the Closing; (ii) that attached thereto is a
true and complete copy of the Operating Agreement of the Company, and (iii) that
attached thereto is a true and complete copy of all resolutions duly adopted by
the Board of Managers of the Company (x) authorizing the execution, delivery and
performance of this Amended Agreement, (y) authorizing the consummation of the
transactions contemplated hereby and (z) directing the submission of the
Modified Exchange to a vote, and that such resolutions have not been amended or
modified and are in full force and effect.
(d) Legal Opinions. JPAL shall have received an opinion, dated the
Closing Date, of (i) Olshan Grundman Frome Rosenzweig & Wolosky LLP in the form
attached hereto as Exhibit E and (ii) the Company's patent counsel in a form
reasonably satisfactory to JPAL.
(e) The Assignment. The Company shall have consented to the
Assignment as described in Section 5.1(b) hereof.
ARTICLE 10
Termination
Section 10.1 Termination. This Amended Agreement may be terminated
and the Modified Exchange may be abandoned at any time prior to the Closing:
(a) by mutual written consent of the parties hereto;
(b) by either the Company or JPAL if the Closing shall not have
occurred on or before August 31, 2002, which date may be extended for up to 30
days in the discretion of the Company (unless the failure to consummate the
transactions by such date shall be due to the action or failure to act of the
party seeking to terminate this Amended Agreement);
(c) by the Company if (i) JPAL shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Amended Agreement to be complied with or performed by JPAL; or (ii) any
representations and warranties of JPAL contained in this Amended Agreement shall
not have been true when made or on and as of the Closing Date as if made on and
as of Closing Date (except to the extent it relates to a particular date),
except where the failure to be so true and correct would not have a Material
Adverse Effect on JPAL; or
(d) by JPAL if (i) the Company shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Amended Agreement to be complied with or performed by them; or (ii) any
representations and warranties of the Company contained in this Amended
Agreement shall not have been true when made or on and as of the Closing Date as
if made on and as of the Closing Date (except to the extent it relates to a
particular date), except where the failure to be so true and correct would not
have a Material Adverse Effect on the Company.
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Section 10.2 Effect of Termination. In the event of the termination
of this Amended Agreement pursuant to Section 10.1, all further obligations of
the parties under this Amended Agreement, other than the provisions of this
Section 10.2, Section 11.4 (fees and expenses), Section 8.5(b)
(confidentiality), Section 8.3 (public announcements) and Section 5.5
(indemnification), shall forthwith be terminated without any further liability
of any party to the other parties. Nothing contained in this Section 10.2 shall
relieve any party from liability for any breach of this Amended Agreement.
ARTICLE 11
Miscellaneous
Section 11.1 Notices. All notices, requests and other communications
to any party hereunder shall be in writing and either delivered personally,
telecopied or sent by certified or registered mail, postage prepaid,
if to the Company, to:
Essential Reality, LLC
49 West 27th Street
New York, New York 10001
Fax: (212) 244-9550
Attention: General Counsel
with a copy to (which shall not constitute notice):
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, New York 10022
Fax: (212) 755-1467
Attention: Steven Wolosky, Esq.
if to JPAL, to:
JPAL, Inc.
17620 Oak Street
FountainValley, California 92708
Fax: (949) 660-9010
Attention: Frank Drechsler
with a copy to (which shall not constitute notice):
Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP
101 East 52nd Street
New York, New York 10022
Fax: (212) 980-5192
Attention: Arthur S. Marcus, Esq.
if to Howard Appel, to:
HMA Advisors, Inc.
One Belmont Avenue, Suite 417
Bala Cynwyd, PA 19004
Fax: (610) 660-5905
Attention: Howard Appel
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with a copy to (which shall not constitute notice):
Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP
101 East 52nd Street
New York, New York 10022
Fax: (212) 980-5192
Attention: Arthur S. Marcus, Esq.
or such other address or fax number as such party may hereafter specify for the
purpose by notice to the other parties hereto. All such notices, requests and
other communications shall be deemed received on the date delivered personally,
telecopied or, if mailed, five business days after the date of mailing if
received prior to 5 p.m. in the place of receipt and such day is a business day
in the place of receipt. Otherwise, any such notice, request or communication
shall be deemed not to have been received until the next succeeding business day
in the place of receipt.
Section 11.2 Survival of Representations and Warranties. Except as
set forth in Section 5.5(b) above, the representations and warranties and
agreements contained herein and in any certificate or other writing delivered
pursuant hereto shall not survive the Closing.
Section 11.3 Amendments; No Waivers.
(a) Any provision of this Amended Agreement with respect to
transactions other than the Modified Exchange contemplated hereby may be amended
or waived if, but only if, such amendment or waiver is in writing and is signed,
in the case of an amendment, by the Company and JPAL; or in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 11.4 Fees and Expenses. Except for all transfer taxes which
shall be paid by JPAL, all costs and expenses incurred in connection with this
Amended Agreement shall be paid by the party incurring such cost or expense.
Section 11.5 Successors and Assigns. The provisions of this Amended
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Amended Agreement without the consent of each other party hereto, but any such
transfer or assignment will not relieve the appropriate party of its obligations
hereunder.
Section 11.6 Governing Law. This Amended Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to the principles of conflicts of law thereof.
Section 11.7 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Amended Agreement or the transactions contemplated hereby may be
brought in any federal or state court located in the City of New York, Borough
of Manhattan, and each of the parties hereby consents to the jurisdiction of
such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding which is brought in any such court has been
brought in an inconvenient forum. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 11.1 shall
be deemed effective service of process on such party.
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Section 11.8 Counterparts; Effectiveness. This Amended Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amended Agreement shall become effective when each party hereto
shall have received counterparts hereof signed by all of the other parties
hereto. No provision of this Amended Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
Section 11.9 Entire Agreement. This Amended Agreement and the
Exhibits and Schedules hereto constitutes the entire agreement between the
parties with respect to the subject matter of this Amended Agreement and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof. Neither JPAL nor
the Company makes any representations or warranties, except as set forth in this
Amended Agreement.
Section 11.10 Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
Section 11.11 Severability. If any term, provision, covenant or
restriction of this Amended Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Amended
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any parties. Upon such a determination, the parties shall negotiate
in good faith to modify this Amended Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
Section 11.12 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Amended
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof in
addition to any other remedy to which they are entitled at law or in equity.
Section 11.13 Definition and Usage.
For purposes of this Amended Agreement:
"Affiliate" means, with respect to any Person, any other
Person, or indirectly controlling, controlled by, or under common control with
such Person.
"knowledge" of any Person which is not an individual
means the knowledge of such person's officers after reasonable inquiry.
"Lien" means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest, encumbrance or other adverse
claim of any kind in respect of such property or asset.
"Material Adverse Effect" means any effect or change
that is or would be materially adverse to the business, operations, assets,
prospects, condition (financial or otherwise) or results of operations of an
entity and any of its subsidiaries, taken as a whole.
"Person" means an individual, corporation, partnership,
limited liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"subsidiary" means, with respect to any Person, any
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at any time directly or indirectly owned by such Person.
"taxes" means any and all federal, state, local, foreign
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CUSIP No. 29669B 10 6 13D Page 30 of 33 Pages
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or other taxes of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any taxing authority, including, without limitation, taxes or other charges on
or with respect to income, franchises, windfall or other profits, gross
receipts, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth, and taxes or
other charges in the nature of excise, withholding, ad valorem or value added.
A reference in this Amended Agreement to any statute shall be to
such statute as amended from time to time, and to the rules and regulations
promulgated thereunder.
[SIGNATURE PAGE FOLLOWS]
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CUSIP No. 29669B 10 6 13D Page 31 of 33 Pages
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IN WITNESS WHEREOF, each of the following individuals has caused
this Amended Agreement to be signed, and each party that is not an individual
has caused this Amended Agreement to be duly executed under seal by its
respective authorized officer, all as of the day and year first above written.
JPAL, INC.
____________________________________ By:_________________________________
Martin Abrams Name: Frank Drechsler
An individual Title: President
LCG CAPITAL GROUP, LLC
____________________________________ By: ________________________________
John Gentile Name: Michael Alpert
An individual Title: President of Winchester Capital
Group, LLC, its Managing Member
ESSENTIAL REALITY, LLC
____________________________________ By: ________________________________
Anthony Gentile Name:____________________________
An individual Title:____________________________
FOR PURPOSES OF SECTION 5.5 ONLY: FOR PURPOSES OF SECTION 5.6 ONLY:
-------------------------------------- --------------------------------------
Howard Appel Frank Drechsler
An individual An individual
FOR PURPOSES OF ARTICLE 6 ONLY:
HMA ADVISORS, INC.
By: ___________________________________
Name: Howard Appel
Title: President
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CUSIP No. 29669B 10 6 13D Page 32 of 33 Pages
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Schedule 1.1
MEMBERSHIP INTERESTS
Name of Member Percentage Interest Membership Interests
-------------- ------------------- --------------------
LCG Capital Group, LLC 50.0% 4,800,000
Martin Abrams 25.005% 2,400,480
John Gentile 12.4975% 1,199,760
Anthony Gentile 12.4975% 1,199,760
Notwithstanding anything to the contrary contained in this Amended
Agreement, the following transfers of securities shall be permitted:
(a) prior to the Closing, the Company Members may transfer all or a
portion of their Membership Interests to affiliated entities and/or family
members, and such Persons shall then be deemed to be Company Members for
purposes of this Amended Agreement; and
(b) prior to or following the Closing, LCG Capital Group, LLC may
transfer all or a portion of its Contribution Shares pro rata to its members,
based on such members' ownership percentage in LCG Capital Group, LLC.
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CUSIP No. 29669B 10 6 13D Page 33 of 33 Pages
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EXHIBIT 2
AGREEMENT TO FILE JOINT SCHEDULE 13D
Pursuant to Regulation Section 240.13d-1(k)(1) promulgated under the
Securities Exchange Act of 1934, the undersigned hereby agree that only one
statement containing the information required on Schedule 13D, and any
amendments thereto, need be filed with respect to beneficial ownership by each
of the undersigned of common stock of Essential Reality, Inc., and that such
statement, and any amendments thereto, shall be filed on behalf of each of them.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
Dated: As of June 30, 2002 BIG SKY PARTNERS
By: /s/ Michael B. Schwab
--------------------------
Name: Michael B. Schwab
Title: Managing Partner
/s/ Michael B. Schwab
-------------------------------
Michael B. Schwab