Exhibit 4.3 JPAL, INC. 8 1/2% CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. $[___________] [_______], 2002 FOR VALUE RECEIVED, JPAL, INC., a Nevada corporation ("Company"), promises to pay to the order of [____________] (the "Holder"), on December 31, 2003, the principal amount of $[__________], in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public or private debts, together with interest on the unpaid balance of said principal amount from time to time outstanding at the rate of eight and one-half (8 1/2%) percent per annum without compounding. Payments of principal and interest are to be made at the address of the Holder designated above or at such other place as the Holder shall have notified the Company in writing at least five (5) days before such payment is due. 1. Events of Default. (a) Upon the occurrence of any of the following events (herein called "Events of Default"): (i) The Company shall fail to pay the principal of or interest on this Note on the Maturity Date; (ii) (A) The Company shall commence any proceeding or other action relating to it in bankruptcy or seek reorganization, arrangement, readjustment of its debts, receivership, dissolution, liquidation, winding-up, composition or any other relief under any bankruptcy law, or under any other insolvency, reorganization, liquidation, dissolution, arrangement, composition, readjustment of debt or any other similar act or law, of any jurisdiction, domestic or foreign, now or hereafter existing; or (B) the Company shall admit the material allegations of any petition or pleading in connection with any such proceeding; or (C) the Company shall apply for, or consent or acquiesce to, the appointment of a receiver, conservator, trustee or similar officer for it or for all or a substantial part of its property; or (D) the Company shall make a general assignment for the benefit of creditors;(iii) (A) The commencement of any proceedings or the taking of any other action against the Company in bankruptcy or seeking reorganization, arrangement, readjustment of its debts, liquidation, dissolution, arrangement, composition, or any other relief under any bankruptcy law or any other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing and the continuance of any of such events for forty-five (45) days undismissed, unbonded or undischarged; or (B) the appointment of a receiver, conservator, trustee or similar officer for the Company for any of its property and the continuance of any of such events for forty-five (45) days undismissed, unbonded or undischarged; or (C) the issuance of a warrant of attachment, execution or similar process against any of the property of the Company and the continuance of such event for forty-five (45) days undismissed, unbonded and undischarged; (iv) The Company shall fail to comply with any of its obligations under this Note; (v) The Company shall default with respect to any indebtedness for borrowed money (other than under this Note) if either (a) the effect of such default is to accelerate the maturity of such indebtedness (giving effect to any applicable grace periods) or (b) the holder of such indebtedness declares the Company to be in default (giving effect to any applicable grace periods); or (vi) Any judgment or judgments against the Company or any attachment, levy or execution against any of its properties for any amount in excess of $150,000 in the aggregate shall remain unpaid, or shall not be released, discharged, dismissed, stayed or fully bonded for a period of thirty (30) days or more after its entry, issue or levy, as the case may be; then, and in any such event, the Holder, at the Holder's option and without written notice to the Company, declare the entire principal amount of this Note then outstanding together with accrued unpaid interest thereon immediately due and payable, and the same shall forthwith become immediately due and payable without presentment, demand, protest, or other notice of any kind, all of which are expressly waived. The Events of Default listed herein are solely for the purpose of protecting the interests of the Holder of this Note. If the Note is not paid in full upon acceleration, as required above, interest shall accrue on the outstanding principal of and interest on this Note from the date of the Event of Default up to and including the date of payment at a rate equal to the lesser of twelve (12%) percent per annum or the maximum interest rate permitted by applicable law. (b) Non-Waiver and Other Remedies. No course of dealing or delay on the part of the Holder of this Note in exercising any right hereunder shall operate as a waiver or otherwise prejudice the right of the Holder of this Note. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 2 (c) Collection Costs; Attorney's Fees. In the case of an Event of Default, if this Note is turned over to an attorney for collection, the Company agrees to pay all reasonable costs of collection, including reasonable attorney's fees and expenses and all out-of-pocket expenses incurred by the Holder in connection with such collection efforts, which amounts may, at the Holder's option, be added to the principal hereof. 2. Obligation to Pay Principal and Interest; Covenants. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, at the rates, and in the currency herein prescribed. 3. Covenants. ---------- 3.1 Affirmative Covenants. The Company covenants and agrees that, while this Note is outstanding, it shall: (a) Pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income and profits, or upon any properties belonging to it before the same shall be in default; provided, however, that the Company shall not be required to pay any such tax, assessment, charge or levy which is being contested in good faith by proper proceedings and adequate reserves for the accrual of same are maintained if required by generally accepted accounting principles; (b) Preserve its corporate existence and continue to engage in business of the same general type as conducted as of the date hereof; (c) Comply in all respects with all statutes, laws, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations and requirements ("Requirement(s)") of all governmental bodies, departments, commissions, boards, companies or associates insuring the premises, courts, authorities, officials, or officers, which are applicable to the Company or its property; except wherein the failure to comply would not have a material adverse affect on the Company or its property; provided that nothing contained herein shall prevent the Company from contesting the validity or the application of any Requirements. 3.2 Negative Covenants. The Company covenants and agrees that while this Note is outstanding it will not directly or indirectly: (a) Declare or pay cash dividends; (b) Sell, transfer or dispose of, any of its assets other than in the ordinary course of its business and for fair value; 3 (c) Purchase, redeem, retire or otherwise acquire for value any of its membership interests now or hereafter outstanding; or (d) Make any payment to an "affiliate" as that term is defined in the Securities Exchange Act of 1934 unless such payment is made in the ordinary course of business or consistent with past practices or pursuant to an employment agreement. 4. Conversion. ---------- (a) For a period of six (6) months following the consummation of the transactions contemplated by the Contribution Agreement (as defined below), the outstanding principal balance of this Note and accrued and unpaid interest thereon may, at the option of the Holder, be converted into shares of the Company's common stock (the "Securities") at a conversion price of $1.90 per share (subject to adjustment hereafter for all stock splits, combinations, stock dividends, recapitalization and the like on the Company's common stock). (b) Upon conversion of this Note under Section 4(a), the Holder shall surrender this Note to the Company or its transfer agent. The Company shall not be obligated to issue certificates evidencing the Securities issuable upon such conversion unless the Note is either delivered to the Company or its transfer agent, or Holder notifies the Company or its transfer agent that such Note has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such Note. The Company shall, as soon as practicable after such delivery, or such agreement and indemnification, issue and deliver to such Holder, a certificate or certificates for the Securities to which Holder shall be entitled and a check payable to Holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of the Securities. 5. Prepayments. Capitalized terms used in this Section 5 but not otherwise defined in this Note shall be given the meaning ascribed thereto in the Amended Contribution Agreement executed by and among the Company, Essential Reality, LLC and the members thereof, dated as of April 24, 2002 (the "Contribution Agreement"). This Note is one of the Bridge Notes and the Holder acknowledges and agrees that the prepayment of any principal and interest on this Note shall be pari passu in right of payment to the other Bridge Notes. In the event the Holder receives payments in excess of its pro rata share of the Company's prepayments of the Bridge Notes, then the Holder shall hold in trust all such excess payments for the benefit of the holders of the other Bridge Notes and shall pay such amounts held in trust to such other holders upon demand by such holders. 4 5.1 Mandatory Prepayment. To the extent this Note has not been converted pursuant to Section 4 above, subject to Closing, the Company undertakes to prepay this Note, 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 the Company from the exercise of any Bridge Warrants, within 15 days of receipt by the Company. (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 the Company, 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 the Company, 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 the Company shall be $900,000. Anything to the contrary in this Section 5.1(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 5.1(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. 5 (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 the Company 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 5.1, 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 5.1 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. 5.2 Optional Prepayment. This Note may be prepaid by the Company at any time in whole or in part without penalty or premium, but with at least five (5) days notice to the Holder. Interest shall accrue to and include the date on which the prepayment is made. 6. Required Consent. The Company may not modify any of the terms of this Note without the prior written consent of the Holder. 7. Lost Documents. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and (in the case of loss, theft or destruction) of indemnity satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of such Note, if mutilated, the Company will make and deliver in lieu of such Note a new Note of like tenor and unpaid principal amount and dated as of the original date of the Note. 8. Miscellaneous. ------------- 8.1 Benefit. This Note shall be binding upon and inure to the benefit of the parties hereto and their legal representatives, successors and assigns. 8.2 Notices and Addresses. All notices, offers, acceptances and any other acts under this Note (except payment) shall be in writing, and shall be sufficiently given if delivered to the addressee in person, by Federal Express or similar receipted delivery, by facsimile delivery or, if mailed, postage prepaid, by certified mail, return receipt requested, as follows: To Holder: _____________________ _____________________ _____________________ 6 To the Company (following the Closing): Essential Reality, Inc. 49 West 27th Street New York, New York 10001 Attn: General Counsel Fax: (212) 244-9550 In either case with copies to: Olshan Grundman Frome Rosenzweig & Wolosky LLP 505 Park Avenue New York, New York 10002 Attn: Steven Wolosky, Esq. Fax: (212) 755-1467 or to such other address as any of them, by notice to the others may designate from time to time. Time shall be counted to, or from, as the case may be, the delivery in person or five (5) business days after mailing. 8.3 Governing Law. This Note and any dispute, disagreement, or issue of construction or interpretation arising hereunder hether relating to its execution, its validity, the obligations provided therein or performance shall be governed and interpreted according to the law of the State of New York and agrees that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding. 8.4 Binding Effect; Assignment. This Note and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Neither this Note nor any of the rights, interests or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other party. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 8.5 Jurisdiction and Venue. Each of the Holder and the Company (i) agree that any legal suit, action or proceeding arising out of or relating to this Note shall be instituted exclusively in the courts of the State of New York, (ii) waive any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum, and (iii) irrevocably consent to the jurisdiction of the courts of the State of New York in any such suit, action or proceeding, and further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the courts of the State of New York and agree that service of process upon them mailed by certified mail to their respective addresses shall be deemed in every respect effective service of process upon them in any such suit, action or proceeding. 7 8.6 Section Headings. Section headings herein have been inserted for reference only and shall not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part any of the terms or provisions of this Note. [SIGNATURE PAGE FOLLOWS] 8 IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company. JPAL, INC. By: __________________________ Name: Frank Drechsler Title: President 9
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SB-2 Filing
Alliance Distributors Holding (ADTR) Inactive SB-2Registration of securities for small business issuer
Filed: 19 Jul 02, 12:00am