form8k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): April 9, 2008 (April 3,
2008)
(Exact
name of Registrant as specified in its charter)
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Delaware
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0-22636
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75-2461665
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(I.R.S.
Employer Identification No.)
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5408 N.
99 th
Street
Omaha,
Nebraska 68134
(Address
of principle executive offices, including Zip Code)
Registrant's
telephone number, including area code (402) 392-7561
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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This Form
8-K and other reports filed by Registrant from time to time with the Securities
and Exchange Commission (collectively the “Filings”) contain or may contain
forward looking statements and information that are based upon beliefs of, and
information currently available to, Registrant’s management as well as estimates
and assumptions made by Registrant’s management. When used in the filings the
words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”
or the negative of these terms and similar expressions as they relate to
Registrant or Registrant’s management identify forward looking statements. Such
statements reflect the current view of Registrant with respect to future events
and are subject to risks, uncertainties, assumptions and other factors relating
to Registrant’s industry, Registrant’s operations and results of operations and
any businesses that may be acquired by Registrant. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended or planned.
Although
Registrant believes that the expectations reflected in the forward looking
statements are reasonable, Registrant cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, Registrant does not intend
to update any of the forward-looking statements to conform these statements to
actual results. The following discussion should be read in conjunction with
Registrant’s pro forma financial statements and the related notes that will be
filed herein.
On April
3, 2008, Rapid Link, Incorporated (the “Registrant”), a Delaware corporation,
and its subsidiaries, Telenational Communications, Inc., a Delaware corporation
(“Telenational”), and One Ring Networks, Inc., a Georgia corporation (“One Ring”
and together with Telenational and the Registrant, the “RL Companies”), entered
into a Security Agreement (“Security Agreement”) dated as of March 31, 2008 by
and among LV Administrative Services, Inc. (“Agent”) and certain
lenders including, Lender, Valens U.S. SPV I (“Valens”) and Valens Offshore SPV
II Corp. (“Valens II” and together with Valens, the “Lenders”), a copy of which
is attached hereto as Exhibit 10.1. LV Administrative Services, Inc.
acts as Administrative and Collateral Agent for the lenders.
Under the
Security Agreement, the Lenders committed to purchase up to $7.0 million in debt
securities from the RL Companies. $4.5 million of the debt were to be purchased
in cash and the other $2.5 million with assets of iBroadband Companies (as
defined below). Upon the signing of the Security Agreement, Valens II
provided the RL Companies with $1,800,000 of gross financing, and the RL
Companies issued Valens II a 10% Secured Term A Note in the principal amount of
$1,800,000 (“Term A Note”) and the Registrant issued Valens II a Common Stock
Purchase Warrant to purchase 5,625,000 shares of our common stock at $0.01 per
share (“Warrant”). The Warrant may be exercised in a cashless
manner. The Note and Warrant are attached hereto as Exhibits
4.1 and 4.2 to this Form 8-K. Interest accrues under the Term A Note
at 10% per annum and is payable monthly commencing April 1,
2008. Amortizing payments of principal shall commence on October 1,
2009 of $85,000 per month, plus accrued interest and any other fees then
due. The Term A Note matures on March 31, 2011. The RL
Companies may prepay the Term A Notes by paying 110% of the outstanding
principal and repaying all amounts owed under the Security Agreement and all
ancillary documents.
The
Lenders have agreed to provide additional debt financings upon the occurrence of
subsequent events, including the RL Companies’ purchase of iBroadband Network,
Inc., a Texas corporation, and iBroadband of Texas, Inc., a Delaware corporation
(“iBroadband Companies”). Valens II has agreed to purchase from the
RL Companies a 10% Secured Term B Note in the principal amount of $1.5 million
and a Warrant to purchase shares of our common stock at $0.01 per share for a
purchase price of $1.5 million. The number of shares subject to the
Warrant will equal 25% of the Term B Note, divided by the then current stock
trading price. For example, if the stock trading price were $0.08 per
share, then the Warrant would be exerciseable for 4,687,500 shares of our common
stock.
Valens II
will lend $1.5 million for the Term B Note and Warrant upon the satisfaction of
the following conditions in a manner satisfactory to the Agent: (a) the sale of
substantially all of the assets of iBroadband Network, Inc. and iBroadband of
Texas, Inc. to any of the RL Companies by Valens (“iBroadband Acquisition”); (b)
no event of default under the Security Agreement shall have occurred and then be
continuing, (c) the execution and delivery of the Secured Term B Notes by the RL
Companies and (d) the issuance of Warrants to the Lenders for shares of Common
Stock in an amount equal to twenty five percent (25%) of Term B Note divided by
the then current stock price. Interest accrues at 10% per annum and
is payable monthly commencing April 1, 2008. Amortizing payments of
principal shall commence on October 1, 2009 of $85,000 per month, plus accrued
interest and any other fees then due. The Term B Note matures on
March 31, 2011. The RL Companies may prepay the Term B Note by paying
110% of the outstanding principal and repaying all amounts owed under the
Security Agreement and all ancillary documents.
Valens
has agreed to lend the RL Companies secured revolving loans (“Secured Revolving
Notes”) from time to time. The aggregate amount of the revolving
loans may not exceed the lesser of (a) $1.2 million minus the Reserves or (b)
90% of the net face amount of the certain accounts of the RL Companies minus the
Reserves (“Formula Amount”). The “Reserves” shall mean $300,000
plus any additional reserves determined by the Agent, subject to decrease
depending on satisfaction of the applicable financial milestone. The
Agent may permit the revolver loan to exceed the Formula Amount by up to 50% at
its discretion (“Overadvance”). Interest accrues at the “prime rate”
as published in the Wall Street Journal + 3% (but no less than 9%) and is
payable monthly commencing the first month after the loan has been
made. The revolving loan matures on March 31, 2011. The RL
Companies may prepay the revolving loan. Each Overadvance shall bear
additional interest at a rate equal to one percent (1.00%) per month of the
amount of such Overadvance for all times such amounts shall be in excess of the
Formula Amount.
The
revolving loans may be made upon satisfaction of the following conditions in a
manner, and evidenced as applicable by agreements, instruments and documents,
satisfactory in form and substance to Agent: (a) the consummation of
the iBroadband Acquisition, (b) no Event of Default shall have occurred and then
be continuing, (c) the execution and delivery by the RL Companies of the Secured
Revolving Notes and (d) the issuance of Warrants to the Lenders for shares of
Common Stock in an amount equal to twenty five percent (25%) of the Revolving
Commitment Amount divided by the then current fair market value.
The RL
Companies shall, jointly and severally, pay (A) to Valens Capital Management,
LLC, the investment manager of Valens and Valens II (“VCM”), a non-refundable
payment in an amount equal to one and one-half percent (1.50%) of the aggregate
principal amount of the Secured Revolving Notes, Term A Notes and Term B Notes,
plus reasonable expenses (including reasonable legal fees and expenses) incurred
in connection with the entering into of this Agreement and the Ancillary
Agreements, plus expenses incurred in connection with each of VCM and/or
Lenders’ due diligence review of the Company and its Subsidiaries and all other
related matters; (B) to Valens and Valens II (“Specified Lenders”), a
non-refundable payment in an amount equal to one percent (1.00%) of the
aggregate principal amount of the Secured Revolving Notes, Term A Notes and Term
B Notes; and (C) to the Specified Lenders, an advance prepayment discount
deposit equal to one percent (1.00%) of the aggregate principal amount of the
Secured Revolving Notes, Term A Notes and Term B Notes. These payment
obligations relating to Term A Notes plus reasonable expenses (including
reasonable legal fees and expenses) incurred in connection with the entering
into of this Agreement and the Ancillary Agreements, plus expenses incurred in
connection with each of VCM and/or Lenders’ due diligence review of the Company
and its Subsidiaries and all other related matters, shall be paid on the Closing
Date. Such payments relating to the Secured Revolving Notes and Term
B Notes, shall be paid at the time the Revolving Commitment Conditions and Term
Loan B Conditions are respectively satisfied, out of funds held pursuant to a
funds escrow agreement and a disbursement letter executed in connection
therewith.
Each RL
Company has granted the Agent on behalf of the Lenders, a continuing security
interest in and lien upon all assets of such RL Companies. The
Registrant has also executed a Stock Pledge Agreement pledging all of the stock
of Telenational and One Ring to the Agent on behalf of the Lenders.
Upon the
closing of the iBroadband Acquisition, the RL Companies shall purchase the
assets of iBroadband and issue secured promissory notes in the aggregate amount
of approximately $2.43 million to the applicable Lenders (“Deferred Purchase
Price Notes”), including a $293,000 loan to Valens and a $2.25 loan from
Lender. Interest accrues at 10% per annum and is payable monthly
commencing the month after the Note has been granted. The outstanding
principal shall be on the maturity date, which shall be March 31,
2011. The Deferred Purchase Price Notes shall bear interest at the
prime rate plus 3% and amend and restate certain notes made by iBroadband, Inc.
in favor of Lender on November 7, 2006. The RL Companies may prepay
the Deferred Purchase Price Notes by paying 110% of the outstanding principal
and repaying all amounts owed under the Security Agreement and all ancillary
documents.
Any of
the following will constitute an Event of Default under any Note: (a) failure to
make payment of any of the obligations owed to any Lender or Agent when required
hereunder, and, in any such case, such failure shall continue for a period of
three (3) days following the date upon which any such payment was due; (b)
failure by any RL Company or any of its Subsidiaries to pay any taxes when due
unless such taxes are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been provided on such Company’s
and/or such Subsidiary’s books; (c) failure to perform under, and/or
committing any breach of, in any material respect, this Agreement or any
covenant contained herein, which failure or breach shall continue without remedy
for a period of 15 days after the occurrence thereof; (d) any representation,
warranty or statement made by any RL Company or any of its Subsidiaries
hereunder, in any Ancillary Agreement, any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should prove to be false or misleading in any
material respect on the date as of which made or deemed made; (e) the occurrence
of any default (or similar term) in the observance or performance of any other
agreement or condition relating to any indebtedness or contingent obligation of
any RL Company or any of its Subsidiaries beyond the grace period (if any), the
effect of which default is to cause, or permit the holder or holders of such
indebtedness or beneficiary or beneficiaries of such contingent obligation to
cause, such indebtedness to become due prior to its stated maturity or such
contingent obligation to become payable; (f) attachments or levies in excess of
$75,000 in the aggregate are made upon any RL Companies’ assets or a judgment is
rendered against any RL Company’s property involving a liability of more than
$50,000 which shall not have been vacated, discharged, stayed or bonded within
thirty (30) days from the entry thereof; (g) any change in any RL Company’s or
any of its Subsidiary’s condition or affairs (financial or otherwise) which in
the Agent’s reasonable, good faith opinion, could reasonably be expected to have
a material adverse effect; (h) any lien created hereunder or under any other
agreement among the parties for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest; (i) any RL Company or any of
its subsidiaries shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to without challenge within ten (10) days of the filing thereof,
or failure to have dismissed within thirty (30) days, any petition filed against
it in any involuntary case under such bankruptcy laws, or (vii) take any action
for the purpose of effecting any of the foregoing; (j) any RL Company
or any of its Subsidiaries shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or except to the extent permitted
under this Agreement, cease operations of its present business; (k) any RL
Company or any of its Subsidiaries directly or indirectly sells, assigns,
transfers, conveys, or suffers or permits to occur any sale, assignment,
transfer or conveyance of any assets of such Company or any interest therein,
except as permitted herein; (l) any “Person” or “group” (as such terms are
defined in Sections 13(d) and 14(d) of the Exchange Act, as in effect on the
date hereof), other than a Lender, APEX Acquisitions or John Jenkins, is or
becomes the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under
the Exchange Act), directly or indirectly, of 35% or more on a fully diluted
basis of the then outstanding voting equity interest of the
Parent, (ii) the Board of Directors of the Registrant shall cease to
consist of a majority of the Board of Directors of the Parent on the date hereof
(or directors appointed by a majority of the board of directors in effect
immediately prior to such appointment) or (iii) the Registrant or any of its
Subsidiaries merges or consolidates with, or sells all or substantially all of
its assets to, any other person or entity; (m) the indictment or threatened
indictment of any RL Company or any of its Subsidiaries or any executive officer
of any Company or any of its Subsidiaries under any criminal statute, or
commencement or threatened commencement of criminal or civil proceeding against
any Company or any of its Subsidiaries or any executive officer of any Company
or any of its Subsidiaries pursuant to which statute or proceeding penalties or
remedies sought or available include forfeiture of any of the property of any
Company or any of its Subsidiaries; (n) an Event of Default shall occur under
and as defined in any Note or in any other agreement among the parties
(“Ancillary Agreement”); (o)any RL Company or any of its Subsidiaries
shall breach any term or provision of any Ancillary Agreement to which it is a
party (including, without limitation, Section 7(e) of the Registration Rights
Agreement), in any material respect which breach is not cured within any
applicable cure or grace period provided in respect thereof (if any); (p) any
Company or any of its Subsidiaries attempts to terminate, challenges the
validity of, or its liability under this Agreement or any Ancillary Agreement,
or any proceeding shall be brought to challenge the validity, binding effect of
any Ancillary Agreement or any Ancillary Agreement ceases to be a valid, binding
and enforceable obligation of such RL Company or any of its Subsidiaries (to the
extent such Persons are a party thereto); (q) an SEC stop trade order or
Principal Market trading suspension of the Common Stock shall be in effect for
five (5) consecutive days or five (5) days during a period of ten (10)
consecutive days, excluding in all cases a suspension of all trading on a
Principal Market, provided that the Registrant shall not have been able to cure
such trading suspension within thirty (30) days of the notice thereof or list
the Common Stock on another Principal Market within sixty (60) days of such
notice; (r) the Registrant’s failure to deliver Common Stock to any Lender
pursuant to and in the form required by the Warrants and this Agreement, if such
failure to deliver Common Stock shall not be cured within two (2) Business Days
or any Company is required to issue a replacement Note to any Lender and such
Company shall fail to deliver such replacement Note within seven (7) business
days; (s) any RL Company, or any of its Subsidiaries shall take or
participate in any action which would be prohibited under the provisions of any
Subordination Agreement or make any payment on the indebtedness evidenced by the
Subordinated Debt Documentation to a Subordinated Lender that was not entitled
to receive such payments under the applicable Subordination
Agreement; (t) the Texas Public Utility Commission shall deny
Telenational authorization to operate and provide competitive local exchange
services within the State of Texas; or (u) failure of the conditions for the
iBroadband acquisition to be satisfied on or prior to September 30, 2008,
provided, however, such failure shall not constitute an Event of Default if (i)
the Lenders, prior to September 30, 2008, accept a higher and better offer for
the assets subject of the Secured Party Sale Transaction, (ii) the assets of
iBroadband Networks, Inc. and iBroadband of Texas, Inc. are the subject of a
bankruptcy proceeding or (iii) any party claiming a interest in the assets of
iBroadband Networks, Inc. or iBroadband of Texas, Inc. shall have taken legal
action which prohibits or stays the consummation of the iBrodband
acquisition.
In the
event that the Lenders accept another offer for the assets of the iBroadband
Companies, then the principal amount of the Term A Note will be reduced by an
amount equal to $300,000 plus the lesser of $100,000 and the actual amount of
capital expenditures that the RL Companies have spent on the iBroadband
Companies.
The RL
Companies provided standard and customary representations and warranties to the
Lenders under the Security Agreement regarding among other things: good
standing, capitalization, authorization, liabilities, title to assets,
intellectual property, taxes, employees, SEC reports and legal
compliance.
Each RL
Company granted the Lenders a right of first refusal to arrange any Additional
Financing (as defined below) to be issued by any RL Company and/or any of its
subsidiaries (the “Additional Financing Parties”), subject to the following
terms and conditions. From and after the date of the Security
Agreement, prior to the incurrence of any additional indebtedness and/or the
sale or issuance of any equity interests of the Additional Financing Parties (an
“Additional Financing”).
Each RL
Company will permit a representative of the Lenders and Agent to attend all
meetings of the Board of Directors, subject to a non-disclosure agreement, so
long as any obligation is outstanding under the Security Agreement.
The
Company also granted Valens II registration rights pursuant to a Registration
Rights Agreement dated March 31, 2008 between the Company and Valens II
(“Investor”), a copy of which is attached hereto, with respect to the shares
underlying the Warrant (“Warrant Shares”). Under
the Registration Rights Agreement, Investor may demand that the
Registrant register the Warrant Shares at any time after 6 months from the date
of the Registration Rights Agreement if the Investor is unable to sell the
Warrant Shares under Rule 144. The Registrant has agreed to file such
registration statement within 90 days of the demand and then cause such
registration statement to become effective within 180 days of such
demand. If the Registrant fails to meet such and other registration
statement related obligations, then the Registrant will be required to pay
liquidated damages equal to 1.0% of the original principal amount of the Term A
Note and if applicable, the Term B Note and Secured Revolving Note for each 30
day period of non-compliance.
The sale
of the Term A Note and Warrant closed on April 4, 2008. The
Registrant received gross proceeds of $1,800,000. Of the gross
proceeds, $140,000 was directed to pay legal fees for investors’ counsel,
$45,000 was directed to affiliates to Valens for fees incurred with the Term A
Note, and $600,000 was used as partial payment of existing debt. The
remaining $945,000 was retained by the Registrant.
As of
March 31, 2008, the Registrant and the iBroadBand Companies entered into a
Management Services Agreement pursuant to which the iBroadband Companies agreed
to retain the Registrant to provide management services in the operation of its
business. These management services include, among other things,
assistance with collection of accounts receivables, payment of accounts
payables, utilizing bank accounts and deposits, and providing reasonable level
of care to customers. The iBroadband Companies agreed not to take any
action outside the ordinary course of business. The agreement would
terminate on the earlier of September 30, 2008 and the date in which the sale of
iBroadband Companies’ assets to the Registrant had been satisfied and certain
applicable regulatory and contractual obligations had been
satisfied.
As of
March 31, 2008, the Registrant, the Agent and the Lenders entered into four
Subordination Agreements with four existing Registrant creditors, including our
Chief Executive Officer, John Jenkins. Under each agreement, the
existing creditor agreed to subordinate its claim and security interests to the
Lenders’ claims pursuant to the Security Agreement and Ancillary
Agreements.
Effective
as of March 8, 2008, the Registrant entered into an Extension Agreement with
Trident Growth Fund, L.P. to extend the maturity date of a 10% Secured
Convertible Debenture in the original principal amount of $600,000 for an
additional year such that the loan would be due on June 30, 2011. In
addition, the Registrant amended an existing Trident warrant to provide for an
additional 60,000 shares exerciseable at $0.09 per share.
All
agreements described above were executed on or after April 3, 2008.
Item
2.03 Creation of a Direct Financial Obligation
On April
3, 2008, the Company incurred an obligation of $1.8 million in debt financing as
more fully described under Item 1.01 above.
Item
3.02. Unregistered Sales of Equity Securities
On April
3, 2008, we issued warrants to purchase 5,625,000 Company shares of our common
stock upon exercise at $0.01 per share to an investor in connection with a loan
of $1.8 million. We also amended an existing warrant for another
investor to provide for an additional 60,000 Company shares of our common stock
exerciseable at $0.09 per share in exchange for an agreement to extend the
maturity date under such loan.
We relied
upon the exemption from registration as set forth in Section 4(2) of the
Securities Act for the issuance of these securities. Each recipient took its
securities for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or advertising
for the acquisition of these securities.
Item
9.01. Financial Statements and Exhibits
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Exhibit
Number
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Description
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Form
of 10% Secured Term A Note dated as of March 31, 2008 by Rapid Link,
Incorporated and its subsidiaries and issued to Valens Offshore SPV II,
Corp (“Valens II”)
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Common
Stock Purchase Warrant dated as of March 31, 2008 of Rapid Link,
Incorporated issued to Valens II
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Security
Agreement dated March 31, 2008 by and among LV Administrative Services,
Inc. and Rapid Link, Incorporated., One Ring Networks, Inc., Telenational
Communications, Inc. and the lenders set forth therein
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Registration
Rights Agreement dated as of March 31, 2008 between Rapid Link,
Incorporated and Valens II.
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Stock
Pledge Agreement dated as of March 31, 2008 by and among LV Administrative
Services, Inc. and Rapid Link, Incorporated.
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Management
Services dated as of March 31, 2008 by and among Rapid Link, Incorporated
and iBroadband, Inc., and iBroadband Networks, Inc.
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Extension
Agreement dated as of March 8, 2008 by and between Rapid Link,
Incorporated and Trident Growth Fund, L.P.
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Subordination
Agreement dated March 31, 2008 by and among LV Administrative Services,
Inc. and Rapid Link, Incorporated., and the lenders set forth therein and
Trident Growth Fund, L.P.
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Subordination
Agreement dated March 31, 2008 by and among LV Administrative Services,
Inc. and Rapid Link, Incorporated., and the lenders set forth therein and
Global Capital Funding Group, L.P.
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Subordination
Agreement dated March 31, 2008 by and among LV Administrative Services,
Inc. and Rapid Link, Incorporated., and the lenders set forth therein and
GCA Strategic Investment Fund Limited
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Subordination
Agreement dated March 31, 2008 by and among LV Administrative Services,
Inc. and Rapid Link, Incorporated., and the lenders set forth therein and
John Jenkins
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Subordination
Agreement dated March 31, 2008 by and among LV Administrative Services,
Inc. and Rapid Link, Incorporated., and the lenders set forth therein and
Apex Acquisitions, Inc.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
RAPID
LINK, INCORPORATED
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Date:
April 9, 2008
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/s/ John A. Jenkins
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John A. Jenkins
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Chief
Executive Officer and Chairman of the
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Board
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