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EXHIBIT 10.20
PROMISSORY NOTE RESTRUCTURING AGREEMENT
This Promissory Note Restructuring Agreement (this "Agreement") is made
and entered into as of the 31st day of August 1999, by and between VSI
Enterprises, Inc., a Delaware corporation (the "Company"), and Thomson Kernaghan
& Co., Ltd. ("TKC"). The Company and TKC are sometimes each referred to herein
as a "Party" and collectively, as the "Parties".
W I T N E S S E T H :
WHEREAS, the Company is the "maker" of that certain promissory note,
dated November 16, 1998, in the original principal amount of $900,000, and with
TKC as "payee" (the "Note"); and
WHEREAS, the Company is currently undertaking a capital restructuring,
and TKC is willing to participate in such restructuring on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
TERMS AND COVENANTS OF THE DEBT RESTRUCTURING
1.1 Amendment and Restatement. The parties hereto agree that the
Note is hereby amended and restated to read in its entirety as set forth in this
Agreement as Exhibit A attached hereto (the "Secured Convertible Debenture").
The principal balance of the Secured Convertible Debenture represents the
outstanding principal balance of the Note plus all accrued but unpaid interest
of, and damages under, the Note as of August 31, 1999. At the Closing (as
defined below), TKC shall deliver the original Note to the Company and VSI shall
deliver to TKC the Secured Convertible Debenture.
1.2 Payment of Cash. At the Closing, the Company shall pay to TKC
$150,000 by wire transfer or other immediately available funds (the "Cash
Payment"). The Cash Payment shall be a payment against the Secured Convertible
Debenture.
1.3 Registration of Securities. As soon as practicable after the
Closing Date (but in no event later than September 30, 1999 the ("Filing
Deadline")), the Company shall file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") with respect
to the resale by TKC of the shares of Company common stock, par value $.001 per
share (the "Common Stock"), underlying the Secured Convertible Debenture (the
"Registrable Securities"), with such Registrable Securities being equal to the
maximum number of shares of Common Stock underlying the Secured Convertible
Debenture (assuming the Conversion Price is equal to the Floor Price, as such
terms are defined in the Secured Convertible
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Debenture, which amount is 1,879,500 shares). The Company shall cause the
Registration Statement to become effective as soon as possible after the Closing
Date, but in no event later than January 1, 2000 (the "Effectiveness Deadline").
If the Company fails to cause the Registration Statement to (i) be filed by the
Filing Deadline, (ii) become effective by the Effectiveness Deadline or (iii)
remain effective until the maturity date of the Secured Convertible Debenture,
then the Company will pay TKC a cash penalty each month until the Registration
Statement is filed, becomes effective or becomes re-effective(as the case may
be) equal to two percent (2%) of the principal balance of the Secured
Convertible Debenture at the beginning of such month, such payment being due and
payable within ten (10) days after the end of such month. The Company shall
deliver to TKC evidence of filing and effectiveness of the Registration
Statement.
1.4 Security Interests. The Company's obligations under the
Secured Convertible Debenture shall be secured by that certain Pledge Agreement,
in the form of Exhibit B attached hereto (the "Pledge Agreement"), whereby the
Company shall grant to TKC a third priority lien on the shares of VSI Network
Solutions, Inc., a Delaware corporation doing business as "Eastern Telecom"
("ETI") owned by the Company (the "ETI Security Interest") which shall be junior
only to the first priority lien of the New Equity (as defined below) and the
second priority lien of the holders of the Term Note Holders (as defined below).
TKC hereby agrees that, as of the Closing, the Assignment of Security Interest
executed by Video Conferencing Systems, Inc., a subsidiary of the Company, in
favor of TKC on November 16, 1998, a copy of which is attached hereto as Exhibit
C (the "Patent Security Interest") is hereby terminated and canceled and of no
further force or effect.
ARTICLE 2
CLOSING; CONDITIONS TO CLOSING
2.1 Closing. The closing of the transactions contemplated herein
(the "Closing") will take place at the executive offices of the Company, at a
time and date mutually agreeable to the Parties (the "Closing Date"); provided,
however, that the Parties agree that this Agreement shall terminate and be of no
further force or effect if the Closing does not occur on or prior to September
10, 1999 (it being agreed and understood that if the Closing Date occurs after
August 31, 1999, then the principal of the Secured Convertible Debenture shall
be increased by an amount equal to the accrued but unpaid interest on the Note
from August 31, 1999 to the Closing Date).
2.2 Conditions to Closing of TKC. Except as may be waived in
writing by TKC, the obligations of TKC to consummate the transactions
contemplated herein shall be subject to the fulfillment at or prior to the
Closing Date of each of the following conditions:
a. The Company shall have delivered to TKC the
following:
i. the Secured Convertible Debenture;
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ii. the Cash Payment (which shall be delivered
to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in trust, pursuant to
wire instructions delivered to the Company
by TKC);
iii. the Pledge Agreement; and
iv. the Stockholders Agreement with the Former
Note Holders and the New Equity Holders.
b. The President of the Company shall have delivered to
TKC an Officer's Certificate certifying to TKC that:
i. the representations and warranties of the
Company contained in this Agreement and the
other documents, agreements and instruments
executed in connection with this Agreement
(the "Transaction Documents") were true and
correct in all material respects when
initially made and are true and correct in
all material respects as of the Closing
Date;
ii. the Company has performed and complied in
all material respects with all covenants and
conditions required by the Transaction
Documents to be performed and complied with
by the Company prior to the Closing Date;
iii. the holders of at least $1 million in
principal amount of the Company's Term
Notes, dated October 1, 1998 (the "Term Note
Holders"), have converted at least such
dollar amount of the Term Notes into shares
of common stock of ETI (the "ETI Common
Stock");
iv. the Company shall have raised at least
$1,000,000 in new cash (the "New Equity")
pursuant to a sale of shares of ETI Common
Stock; and
v. following the transactions contemplated in
(iii) and (iv) above, the Company shall
continue to own at least sixty percent (60%)
of the issued and outstanding shares of ETI
Common Stock.
c. All authorizations, approvals, consents and waivers
of any governmental authority or third party, each as
required to permit the consummation of the
transactions contemplated by the Transaction
Documents, shall have been obtained and shall not
have been
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obtained and shall not have been terminated,
suspended or withdrawn as of the Closing Date.
d. No investigation, action, suit or proceeding shall be
pending or threatened before any court or
governmental body which seeks to restrain, prohibit
or otherwise challenge or interfere with the
consummation of the transactions contemplated herein.
2.3 Conditions to Closing of the Company. Except as may be waived
in writing by the Company, the obligations of the Company to consummate the
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Closing Date of each of the following conditions:
a. TKC shall deliver to the Company the Note.
b. TKC shall deliver to the Company all documents and
instruments deemed by the Company to be necessary or
desirable in order to terminate and cancel the Patent
Security Interest.
c. An authorized officer or director of TKC shall have
delivered to the Company an Officer's Certificate
certifying to the Company that:
i. The representations and warranties of TKC
contained in the Transaction Documents were
true and correct in all material respects
when initially made and are true and correct
in all material respects as of the Closing
Date; and
ii. TKC has performed and complied in all
material respects with all covenants and
conditions required by the Transaction
Documents to be performed and complied with
by TKC prior to the Closing Date.
d. All authorizations, approvals, consents and waivers
of any governmental authority or third party, each as
required to permit the consummation of the
transactions contemplated by this Agreement, shall
have been obtained and shall not be terminated,
suspended or withdrawn as of the Closing Date.
e. No investigation, action, suit or proceeding shall be
pending or threatened before any court or
governmental body which seeks to restrain, prohibit
or otherwise challenge or interfere with the
consummation of the transactions contemplated herein.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to TKC that the following are true
and correct as of the date hereof and will be true and correct as of the Closing
Date as if made on that date:
3.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company is not barred or otherwise prevented from doing business in any
jurisdiction where the failure to conduct such business would have a material
adverse effect on the Company.
3.2 Power. The Company and each of its subsidiaries have all
required corporate power and authority to own their respective properties and to
carry on their respective businesses as presently conducted. The Company has all
required power and authority to execute and deliver the Transaction Documents
and to carry out the transactions contemplated by the Transaction Documents.
3.3 Authorization. All action on the part of the Company necessary
for the authorization, execution, delivery and performance of the Transaction
Documents by the Company and the performance of all of the Company's obligations
thereunder have been taken. The Transaction Documents executed by the Company
are valid and binding obligations of the Company enforceable according to their
terms, except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditor rights or the relief of debtors, (b) laws
and judicial decisions regarding indemnification for violations of federal
securities laws, and (c) the availability of specific performance or other
equitable remedies.
3.4 Consents. Except as set forth on Schedule 3.4, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, any lender or lessor or any other person or entity
is required to authorize, or is required in connection with, the execution,
delivery and performance of the Transaction Documents on the part of the
Company.
3.5 Litigation. There is no litigation, arbitration or
governmental proceeding or investigation pending or, to the knowledge of the
Company threatened in writing against the Company which conflicts with the
rights of the Company hereunder or the performance of the Company's obligations
hereunder or have a material adverse effect on the Company's financial position.
The Company is not subject to any judgment, order or decree which may prevent
the Company from conducting its business. The Company is not a party to any
litigation, arbitration, proceeding or investigation pending, or to the
knowledge of the Company threatened, involving any federal, state or local
government or agency which would conflict with, or in any way impact, the
Company's ability to perform its duties hereunder, or have a material adverse
effect on the Company's financial position.
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3.6 Financial Statements. The consolidated balance sheets and the
related statements of income, stockholders' equity and cash flow (including the
notes related thereto) of the Company and its consolidated subsidiaries included
in the forms, documents and reports filed by the Company with the SEC complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods (except as otherwise noted therein) and
present fairly the consolidated financial position of the Company and its
consolidated subsidiaries as of their respective dates, and the results of their
operations and their cash flow for the periods presented therein.
3.7 Exchange Act. The Company has furnished or made available to
TKC a true and complete copy of its Form 10-K for the fiscal year ended December
31, 1998, and any other document dated on or after the date of such Form 10-K
which the Company filed under the Securities Exchange Act of 1934, as amended,
with the SEC.
3.8 Estimated Value of ETI. Management of ETI in good faith
believes that the fair market value of ETI is at least $6 million; although
there can be no assurances that such valuation will ultimately be realized.
ARTICLE 4
REPRESENTATIONS OF TKC
TKC represents and warrants to the Company that the following are true
as of the date hereof and will be true and correct through the Closing Date as
if made on that date:
4.1 Organization. TKC is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. TKC is not barred or otherwise prevented from doing business in
any jurisdiction where the failure to conduct such business would have a
material adverse effect on TKC.
4.2 Power. TKC has all required corporate power and authority to
own its properties and to carry on its business as presently conducted. TKC has
all required power and authority to execute and deliver the Transaction
Documents and to carry out the transactions contemplated by the Transaction
Documents.
4.3 Authorization. All action on the part of TKC necessary for the
authorization, execution, delivery and performance of the Transaction Documents
by TKC and the performance of all of TKC's obligations thereunder have been
taken. The Transaction Documents executed by TKC are valid and binding
obligations of TKC enforceable according to their terms, except as may be
limited by (a) applicable bankruptcy, insolvency, reorganization or other
similar laws of general application relating to or affecting the enforcement of
creditor rights or the relief of
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debtors, (b) laws and judicial decisions regarding indemnification for
violations of federal securities laws, and (c) the availability of specific
performance or other equitable remedies.
4.4 Status of TKC. TKC is knowledgeable and experienced in making
venture capital investments and is able to bear the economic risk of loss of its
investment in the Company. TKC is an "accredited investor," as that term is
defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act"). TKC is acting on its own behalf in connection
with the investigation and examination of the Company and its decision to
execute these documents.
4.5 Shares Purchased for Investment. TKC agrees that the Secured
Convertible Debenture and the Common Stock underlying the Secured Convertible
Debenture, (collectively, the "Securities") shall be acquired solely for TKC's
own account and not as a nominee or agent for any other person, for investment,
and not with a view to, or for offer or resale in connection with, any
distribution thereof within the meaning of the Securities Act or other
applicable securities laws. TKC understands that if any Securities have not been
registered under the Securities Act or under any applicable blue sky or other
state securities law or regulation (hereinafter collectively referred to as
"blue sky laws"), TKC cannot offer for sale, sell, pledge, transfer or otherwise
dispose of such Securities unless such Securities have been registered under the
Securities Act and under any applicable blue sky laws, or unless an exemption
from such registration is available with respect to any such proposed offer,
sale, pledge, transfer or other disposition. TKC agrees that a restrictive
legend addressing the foregoing restrictions on transfer may be placed on
certificates representing any Securities so acquired and that transfer of such
Securities may be refused by the Company or its transfer agent, if any, if in
the opinion of counsel to the Company any proposed sale or other disposition
thereof by TKC would not be in compliance with the Securities Act or any other
applicable federal securities laws or blue sky laws.
4.6 Litigation. There is no litigation, arbitration or
governmental proceeding or investigation pending or, to the knowledge of TKC,
threatened in writing against TKC, which conflicts with the rights of the
Company hereunder or the performance of TKC's obligations hereunder or have a
material adverse effect on TKC's financial position. TKC is not subject to any
judgment, order or decree which may prevent TKC from conducting its business.
TKC is not a party to any litigation, arbitration, proceeding or investigation
pending, or to the knowledge of TKC threatened, involving any federal, state or
local government or agency which would conflict with, or in any way impact,
TKC's ability to perform its duties hereunder, or have a material adverse effect
on TKC's financial position.
4.7 Consents. No consent, authorization, approval, permit or
license of, or filing with, any governmental or public body or authority, any
lender or lessor or any other person or entity is required to authorize, or is
required in connection with, the execution, delivery and performance of the
Transaction Documents on the part of TKC.
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ARTICLE 5
OTHER COVENANTS
5.1 Sale of ETI. The Company agrees that it will undertake to sell
ETI (i.e., its capital stock or assets) for the purpose of paying in full the
Secured Convertible Debenture and any other obligations arising from the
restructuring of the Company on the closing of such sale. All cash proceeds from
the sale of any subsidiary of the Company shall be used to pay the Secured
Convertible Debenture consistent with the priority of liens established by the
Company, including those set forth in Section 1.4 above. The Company shall make
the sole determination whether the terms of a sale of any of its subsidiaries is
acceptable; provided that ETI shall not be sold by the Company for less than
fair market value.
5.2 Assistance in Transfers. The Company agrees that once TKC is
eligible to sell the shares underlying the Secured Convertible Debenture
pursuant to Rule 144, Regulation S or an effective Registration Statement, if
TKC sells any such shares in the public market, then the Company will use all
reasonable commercial efforts to cause such shares to be transferred on the
books of its transfer agent. In addition, the Company agrees to use all
reasonable commercial efforts to cause its Transfer Agent to issue to TKC, upon
conversion of all or any portion of the Secured Convertible Debenture, stock
certificates as and when provided in the Secured Convertible Debenture.
ARTICLE 6
GENERAL
6.1 Amendments. This Agreement may not be amended, except in a
written document signed by both the Parties.
6.2 Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
6.3 Governing Law. THIS AGREEMENT IS TO BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF.
6.4 Notices and Demands. Any notice or demand which is permitted
or required hereunder will be deemed to have been sufficiently received (except
as otherwise provided herein) (a) upon receipt when personally delivered, (b) or
one (1) day after sent by one-day overnight delivery providing confirmation or
receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
addresses listed on Schedule 6.4 attached hereto, or at any other address
designated by either Party hereto to the other Party in writing.
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6.5 Severability. If any provision of this Agreement is held
invalid or unenforceable under applicable law, such provision will be
ineffective to the extent of such invalidity or unenforceability, and such
provision will be modified to the extent necessary to make it valid and
enforceable. Any such invalidity or unenforceability will not invalidate or make
unenforceable the remainder of this Agreement.
6.6 Expenses. Each Party will bear its own fees for counsel and
accountants and other expenses relating to the transactions contemplated herein
(including any broker's or finder's fees); provided, however, that the Company
shall reimburse TKC in an amount up to $10,000 for its reasonable attorney's
fees and expenses.
6.7 Publicity and Disclosures. Within five (5) business days after
the consummation of the transactions contemplated herein, the Parties agree that
the Company shall publicly announce such consummation and the terms and
conditions of this Agreement; and TKC agrees not to purchase or sell any Common
Stock until two (2) business days after such public announcement.
6.8 Entire Agreement. This Agreement and the Schedules and
Exhibits to this Agreement constitute the entire agreement of the Parties with
respect to the subject matter hereof and supersede all prior agreements and
understanding, both written and oral, among the Parties, or any of them, with
respect to the subject matter hereof.
6.9 Assignment. Neither this Agreement nor any right or obligation
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto.
6.10 Parties in Interest; No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the Parties and their respective
heirs, legal representatives, successors and assigns. Neither this Agreement nor
any other agreement contemplated hereby shall be deemed to confer upon any
person not a Party any rights or remedies hereunder or thereunder.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be taken to be an original; but such
counterparts will together constitute one document.
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The undersigned have executed this Agreement as of the date first
written above.
VSI ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title: CEO
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THOMSON KERNAGHAN & CO., LTD.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Title: Chairman
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