EXHIBIT 4.7
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITY AS
PERMITTED BY LAW AND THE SECURITIES PURCHASE AGREEMENT PURSUANT TO WHICH THE
SECURITIES WERE ISSUED.
Original Issue Date: March 8, 2006
No. 1 $400,000
10% SECURED CONVERTIBLE DEBENTURE
This 10% Secured Convertible Debenture (this "Debenture") is a duly
authorized and issued 10% Secured Convertible Debenture of RAPID LINK
INCORPORATED, a Delaware corporation, having its principal place of business
located at the address set forth on the signature page hereto (the
"Company"), for the principal amount of FOUR HUNDRED THOUSAND DOLLARS
($400,000), issued in connection with that certain Purchase Agreement (as
defined below) of even date herewith entered into by and among the Company
and the Holder.
FOR VALUE RECEIVED, the Company promises to pay to CHARGER
INVESTEMENTS, LLC, a California limited liability corporation, having its
principal place of business located at_____________________________________,
or its registered assigns (the "Holder"), the principal sum of FOUR HUNDRED
THOUSAND DOLLARS ($400,000) on the earlier of (a) March 8, 2007; or (b) the
consummation of a Change of Control Transaction (the "Maturity Date"), and
to pay interest to the Holder on the then outstanding principal amount of
this Debenture in accordance with the provisions hereof. This Debenture is
subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to
the terms defined below and elsewhere in this Debenture, capitalized terms
contained herein shall have the meanings given to such terms in the Purchase
Agreement, and (b) the following terms shall have the following meanings:
"Bankruptcy Event" means any of the following events: (a) the
Company or any Subsidiary (as such term is defined in Rule 1.02(s) of
Regulation S-X of the Exchange Act) thereof commences a case or other
proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company
or any Subsidiary thereof; (b) there is commenced against the Company
or any Subsidiary thereof any such case or Proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of
relief or other order approving any such case or Proceeding is entered;
(d) the Company or any Subsidiary thereof suffers any appointment of
any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days; (e) the
Company or any Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary thereof calls a
meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; (g) the Company or any
Subsidiary thereof, by any act or failure to act, expressly indicates
its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of
the foregoing; or (h) an application for the appointment of a receiver
or liquidator for the Company or any of its material assets.
"Capital Lease" means any lease of property (real, personal or
mixed) which, in accordance with GAAP, should be capitalized on the
lessee's balance sheet or for which the amount of the asset and
liability thereunder as if so capitalized should be disclosed in a note
to such balance sheet.
"Cash Flow" means an amount equal to (i) the Company's
Consolidated EBITDA, minus (ii) the Company's Consolidated non-financed
Capital Expenditures.
"Consolidated EBITDA" means, for any Person for any period:
(i) the consolidated net income of such Person and its
Consolidated Subsidiaries for such period (after Income Taxes),
calculated in accordance with GAAP, but excluding:
(A) any gain arising from the sale of capital
assets,
(B) any gain arising from any write-up of assets,
(C) earnings of any other Person, substantially all
of the assets of which have been acquired by such Person or its
Consolidated Subsidiaries in any manner, to the extent that such
earnings were realized by such other Person prior to the date of such
acquisition.
(D) earnings of any Person in which the Person or
its Consolidated Subsidiaries has an ownership interest (other than
wholly owned Subsidiaries of such Person ), unless such earnings have
actually been received by the Person or its Consolidated Subsidiaries
in the form of cash distributions,
(E) earnings of any Person to which assets of the
Person or its Consolidated Subsidiaries shall have been sold,
transferred or disposed of, or into which the Person shall have merged,
to the extent that such earnings arise prior to the date of such
transaction,
(F) any gain arising from the acquisition of any
securities of such Person or any of its Consolidated Subsidiaries, and
(G) any extraordinary gain realized by such Person
or any of its Consolidated Subsidiaries during such period.
(ii) plus the following, but only in each case to the
extent incurred by the Company and its Consolidated Subsidiaries during
such period and deducted in the calculation above for such period,
(A) all income and franchise taxes,
(B) all Interest Expense,
(C) all depreciation expense, and
(D) all amortization expense.
"Current Assets" means, at any particular time, all amounts which,
in conformity with GAAP, would be included as current assets on a
consolidated balance sheet of the Company and its Subsidiaries;
provided, however, there shall be excluded therefrom (a) all prepaid
expenses of every type and nature, (b) all amounts due from directors,
officers, stockholders or other Affiliates, and all loans due from
employees, and (c) all deferred charges.
"Current Liabilities" means, at any particular time, all amounts
(including deferred taxes) which, in conformity with GAAP, would be
included as current liabilities on a consolidated balance sheet of the
Company and its Subsidiaries.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Dallas Courts" shall have the meaning set forth in Section 7(e).
"Debenture Register" shall have the meaning set forth in Section
2(b).
"Event of Default" shall have the meaning set forth in Section 6.
"Interest Expense" means, with respect to any Person and for any
period (without duplication), all interest on that Person's debt,
whether paid in cash or accrued as a liability and payable in cash
during any subsequent period (including, without limitation, the
interest component of Capital Leases), as determined by GAAP.
"Late Fees" shall have the meaning set forth in Section 2(c).
"Liabilities" mean all liabilities, obligations and indebtedness
of any and every kind and nature (including, without limitation, lease
obligations, accrued interest, charges, expenses, attorneys' fees and
other sums) chargeable to the Company and made to or for the benefit of
the Company, whether arising under this Debenture or arising under the
any of the Transaction Documents, whether heretofore, now or hereafter
owing, arising, due or payable from Company to the Holder and however
evidenced, credited, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed, or otherwise, including
obligation of performance.
"Net Income" or "Net Loss" means, with respect to any Person for
any period, the net income or net loss of such Person determined in
accordance with GAAP, after payment of income taxes but excluding any
extraordinary or non-recurring items.
"Original Issue Date" shall mean the date of the first issuance of
this Debenture regardless of the number of transfers of this or any
portion of this Debenture and regardless of the number of instruments
which may be issued to evidence such Debenture or Debentures.
"Purchase Agreement" means the Securities Purchase Agreement, of
even date herewith, to which the Company and the Holder are parties, as
amended, modified or supplemented from time to time in accordance with
its terms.
Section 2. Interest.
a) Payment of Interest in Cash. The Company shall pay interest, in
cash, to the Holder on the then outstanding principal amount of this
Debenture at the rate of 10% per annum, payable in equal monthly
installments of cash via wire transfer of immediately available funds,
in arrears, on the last day of each month for the period beginning on
the Initial Issuance Date and ending on the Maturity Date or such
earlier or later time when this Debenture is paid or prepaid in full
(except that, if any such date is not a Business Day, then such payment
shall be due on the next succeeding Business Day) (each such date, an
"Interest Payment Date"), subject to the conversion rights of Holder as
stated herein.
b) Interest Calculations. Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which
may become due hereunder, has been made. Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of
Debentures (the "Debenture Register").
c) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fee") which will accrue daily, from the date
such interest is due hereunder through and including the date of
payment.
d) Prepayment. The Company may prepay all or any portion of the
then outstanding principal amount of this Debenture without any
prepayment premium or discount by providing Holder not less than five
days prior written notice, such outstanding principal balance remaining
subject to Xxxxxx's conversion rights hereunder until the actual
prepayment is made following such notice period.
Section 3. Conversion Right; Adjustments.
The Holder of this Debenture shall have the right, at Holder's
option, at any time on or after the Original Issue Date of this
Debenture, to convert all, or, in multiples of $50,000, any part of
this Debenture into such number of fully paid and nonassessable shares
of Common Stock as shall be provided herein. The Holder of this
Debenture may exercise the conversion right by giving written notice (a
"Conversion Notice") to the Company of the exercise of such right and
stating the name or names in which the stock certificate or stock
certificates for the shares of Common Stock are to be issued and the
address to which such certificates shall be delivered. The Conversion
Notice shall be accompanied by this Debenture. The number of shares of
Common Stock that shall be issuable upon conversion of the Debenture
shall equal the then outstanding principal amount of this Debenture
plus all accrued and unpaid interest due and payable on the Debenture
on the Conversion Date (defined below) or a portion thereof (in the
discretion of the Holder) divided by the Conversion Price (as defined
below) in effect on the date the Conversion Notice is given.
Conversion shall be deemed to have been effected on the date the
Conversion Notice is delivered to the Company (each, a "Conversion
Date"). Within ten Business Days after a Conversion Date, the Company
shall issue and deliver by hand against a signed receipt therefor or by
reputable overnight delivery carrier to the address designated in the
Conversion Notice, a stock certificate or stock certificates of the
Company representing the number of shares of Common Stock to which
Holder is entitled and a check or cash in payment of all interest
accrued and unpaid under the Debenture being converted up to and
including the Conversion Date. If a stock certificate or stock
certificates are not delivered within 10 business days after a
Conversion Date, the Company shall pay and/or grant to Holder 0.1% (on
a Fully Diluted Basis) of the Company's Common Stock per day until such
certificates are delivered. The conversion rights will be governed by
the following provisions:
a) Conversion Price. The Conversion Price, subject to
adjustment as set forth herein, shall be equal to $.30; provided,
however, that in the event that this Debenture is not repaid and
satisfied in full on or by September 7, 2006, such Conversion Price
shall automatically, without the necessity for any further action by
any party hereto, be reduced to $.14.
b) Adjustment for Issuance of Shares at less than the Conversion
Price.
(i) If and whenever any Additional Common Stock (as herein
defined) shares shall be issued by the Company (the "Stock Issue Date")
for a consideration per share less than the Conversion Price, then in
each such case the initial Conversion Price shall be reduced to a new
Conversion Price in an amount equal to the consideration per share
received by the Company for the additional shares of Common Stock then
issued,; and, in the case of shares issued without consideration, the
initial Conversion Price shall be reduced in amount and the number of
shares issued upon conversion shall be increased in an amount so as to
maintain for the Holder the right to convert this Debenture into shares
equal in amount to the same percentage interest in the Common Stock of
the Company as existed for the Holder immediately preceding the Stock
Issue Date.
(ii) Consideration for Shares. In case of the issuance
of Additional Common Stock for a consideration part or all of which
shall be cash, the amount of the cash consideration therefor shall be
deemed to be the amount of the cash received by Company for such
shares. In case of the issuance of any shares of Additional Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor, other than cash, shall
be deemed to be the then fair market value of the property received as
determined by an investment banking firm selected by Xxxxxx.
(iii) Reclassification of Shares. In case of the
reclassification of securities into shares of Common Stock, the shares
of Common Stock issued in such reclassification shall be deemed to have
been issued for a consideration other than cash. Shares of Additional
Common Stock issued by way of dividend or other distribution on any
class of stock of the Company shall be deemed to have been issued
without consideration.
(iv) Split up or Combination of Shares. In case issued and
outstanding shares of Common Stock shall be subdivided or split up into
a greater number of shares of the Common Stock, the Conversion Price
shall be proportionately decreased, and in case issued and outstanding
shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price shall be proportionately
increased, such increase or decrease, as the case may be, becoming
effective at the time of record of the split-up or combination, as the
case may be.
(v) The term "Additional Common Stock" herein shall mean,
other than with respect to an Exempt Issuance, in the most broadest
sense all shares of Common Stock or Common Stock Equivalents hereafter
issued by the Company (including, but not limited to Common Stock held
in the treasury of the Company, except Common Stock issued upon the
conversion or exercise of any security purchased in connection with the
Purchase Agreement.
c) Adjustment for Mergers, Consolidations, Etc..
(i) In the event of distribution to all Common Stock holders
of any stock, indebtedness of the Company or assets (excluding cash
dividends or distributions from retained earnings) or other rights to
purchase securities or assets, then, after such event, this Debenture
will be convertible into the kind and amount of securities, cash and
other property which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such
event.
(ii) In case of any capital reorganization, reclassification
of the stock of the Company (other than a change in par value or as a
result of a stock dividend, subdivision, split up or combination of
shares), this Debenture shall be convertible into the kind and number
of shares of stock or other securities or property of the Company
to which the holder of the Debenture would have been entitled to
receive if the holder owned the Common Stock issuable upon conversion
of the Debenture immediately prior to the occurrence of such event.
The provisions of the foregoing sentence shall similarly apply
to successive reorganizations, reclassifications, consolidations,
exchanges, leases, transfers or other dispositions or other share
exchanges.
d) Notice of Adjustment. In the event the Company shall
propose to take any action which shall result in an adjustment in the
Conversion Price, the Company shall give notice to the Holder, which
notice shall specify the record date, if any, with respect to such
action and the date on which such action is to take place. Such notice
shall be given on or before the earlier of ten days before the record
date or the date which such action shall be taken. Such notice shall
also set forth all facts (to the extent known) material to the effect
of such action on the Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon
conversion of this Debenture. Additionally, following completion of an
event wherein the Conversion Price shall be adjusted, the Company shall
furnish to the holder of this Debenture a statement, signed by an
authorized officer of the Company of the facts creating such adjustment
and specifying the resultant adjusted Conversion Price then in effect.
e) Reservation of Shares. The Company warrants and agrees that
it shall at all times reserve and keep available, free from preemptive
rights, sufficient authorized and unissued shares of Common Stock to
effect conversion of this Debenture.
f) Registration Rights. The Holder has certain rights with
respect to the registration of shares of Common Stock issued upon the
conversion of this Debenture, such rights being specifically set forth
in the Purchase Agreement entered into by and between Holder and the
Company on the date hereof.
g) Exercise Limitations. The Holder shall not have the right to
convert any portion of this Debenture, pursuant to Section 3 or
otherwise, to the extent that after giving effect to such issuance
after exercise, the Holder (together with the Holder's affiliates), as
set forth on the applicable Conversion Notice, would beneficially own
in excess of 4.99% (or as applicable, 9.99%) of the number of shares of
the Common Stock outstanding immediately after giving effect to such
issuance. For purposes of the foregoing determination, the number of
shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable
upon such conversion of this Debenture less the number of shares of
Common Stock which would be issuable upon (A) conversion of the
remaining, unexercised portion of this Debenture and (B) exercise or
conversion of the unexercised or unconverted portion of any other
Securities (including, without limitation, any other Debentures or
Warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the Holder.
Except as set forth in the preceding sentence, for purposes of this
Section 3(g), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this Section 3(g) applies, the determination of
whether this Debenture is convertible (in relation to other securities
owned by the Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of Holder. For purposes of
this Section 3(g), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) Schedule 3.1(g) to the Purchase
Agreement, (y) a more recent public announcement by the Company
including the annual report or quarterly report on Form 10-KSB or Form
10-QSB, as the case may be, most recently filed with the Commission; or
(z) any other notice by the Company or the Company's Transfer Agent
setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of the Holder, the Company shall within two
Business Days confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. The provisions of this
Section 3(g) may be waived by the Holder upon, at the election of the
Holder, not less than 61 days' prior notice to the Company, and the
provisions of this Section 3(g) shall continue to apply until such 61st
day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver).
Section 4. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration of transfer or
exchange.
b) Investment Representations. This Debenture has been issued
subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged
only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of
the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
Section 5. Negative Covenants. So long as any portion of this
Debenture is outstanding, without the prior written consent of the
Holder, which consent may be withheld in the sole discretion of the
Holder, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:
a) Indebtedness. Other than equipment leases of up to $50,000 in
the aggregate for any 12 month period, enter into, create, incur,
assume or suffer to exist any indebtedness or Liens, on or with respect
to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom that is senior to,
or pari passu with, in any respect, the Company's obligations under the
Debentures;
b) Repayment of Indebtedness. Repay any principal due and owing
on any promissory notes, debentures, or other forms of indebtedness,
other than (i) periodic interest payments due and owing thereunder;
(ii) repayment due of any principal amount or interest due or becoming
due under or under this Debenture; and (iii) repayment of the
indebtedness set forth in Schedule 4.9 to the Purchase Agreement;
provided, however, nothing contained in this section shall prohibit the
Company from making any payments with respect to trade payables made in
the ordinary course of the Company's business;
c) Repayment of Shares. Repay, repurchase or offer to repay,
repurchase or otherwise acquire more than a de minimus number of shares
of its Common Stock or other equity securities or as otherwise
permitted by the Transaction Documents;
d) Governing Documents. Amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights
of the Holder in its capacity as a holder of the Debentures;
e) Loans and Investments. Lend or advance money, credit or
property to any Person, or invest in (by capital contribution or
otherwise), or purchase or repurchase the stock or indebtedness or
assets or properties of any Person, or agree to do any of the
foregoing, other than in the ordinary course of business;
f) Guarantees. Assume, endorse or otherwise become or remain
liable in connection with the obligations (including accounts payable)
of any other Person, other than in the ordinary course of business.
g) Sale of Assets, Dissolution, Etc. Transfer, sell, assign,
lease or otherwise dispose of any of its properties or assets, or any
assets or properties necessary or desirable for the proper conduct of
its business, or transfer, sell, assign or otherwise dispose of any of
its accounts, or contract rights to any Person, or change the nature of
its business, wind-up, liquidate or dissolve, or agree to any of the
foregoing, other than in the ordinary course of business;
h) Acquisition of Assets. Agree to purchase, acquire, or lease
of any assets of any Person, other than in the ordinary course of
business;
i) Compensation. Increase the compensation of any of its officers
or consultants making more than $100,000 per year, hire any relative of
any officer, director or shareholder of the Company, or pay a bonus to
any such person.
j) Subsidiaries. Establish or form a partially or wholly owned
Subsidiary. Sell, transfer or assign any interest in the Company's
existing Subsidiaries.
k) No Further Issuance of Securities. Other than in accordance
herewith or with respect to an Exempt Issuance, create, issue or permit
the issuance of any additional securities of the Company or of any of
its Subsidiaries (including with respect to any Qualifying
Transaction), if any, or any rights, options or warrants to acquire any
such securities; provided, however, that in the event that Company
desires to issue securities with preferences or rights greater than
that which the Common Stock has and the Holder consents to same, the
Holder will then have the option of converting all or any part of this
Debenture into such stock in lieu of the Common Stock;
l) No Dividends; No Redemption. Declare any dividend, pay or set
aside for payment any dividend or other distribution, in cash, stock,
or other property, or make any payment to any related parties,
including to any preferred stockholders, as a dividend, redemption, or
otherwise, other than the payment of salaries in the ordinary course of
business.
m) Stock Splits. Undertake a reverse or forward stock split or
reclassification of the Common Stock; or
n) Agreement. Enter into any agreement obligating the
Company to undertake any of the matters set forth in this Section 5.
Section 6. Affirmative Covenants. So long as any portion of
this Debenture is outstanding and unless the Holder otherwise consents
in writing, which consent may be withheld in the sole discretion of the
Holder, the Company will:
a) Taxes and Liens. Promptly pay, or cause to be paid, all taxes,
assessments and other governmental charges which may lawfully be levied
or assessed upon the income or profits of the Company, or upon any
property, real, personal or mixed, belonging to the Company, or upon
any part thereof, and also any lawful claims for labor, material and
supplies which if unpaid, might become a lien or charge against any
such property; provided, however, the Company shall not be required to
pay any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be actively contested in good faith by proper
proceedings; but, provided further that any such tax, assessment,
charge, levy or claim shall be paid or bonded in a manner satisfactory
to the Holder upon the commencement of proceedings to foreclose any
lien securing the same.
b) Business and Existence. Do or cause to be done all things
necessary to preserve and to keep in full force and effect any licenses
necessary to the business of the Company, its corporate existence and
rights of its franchises, trade names, trademarks, and permits which
are reasonably necessary for the continuance of its business; and
continue to engage principally in the business currently operated by
the Company.
c) Insurance and Properties. Keep its business and properties
insured at all times with responsible insurance companies and carry
such types and amounts of insurance as are required by all federal,
state and local governments in the areas which the Company does
business and as are usually carried by entities engaged in the same or
similar business similarly situated. In addition, the Company shall
maintain in full force and effect policies of liability insurance in
amounts at least equal to that currently in effect.
d) Maintain Property and Assets. Maintain its property and assets
in good order and repair and, from time to time, make all needed and
proper repairs, renewals, replacements, additions and improvements
thereto, so that the business carried on may be properly and
advantageously conducted at all times in accordance with prudent
business management, and maintain annually adequate reserves for
maintenance thereof.
e) True Books. Keep true books of record and account in which
full, true and correct entries will be made of all of its dealings and
transactions, and set aside on its books such reserves as may be
required by GAAP, consistently applied, with respect to all taxes,
assessments, charges, levies and claims referred to in (a) above, and
with respect to its business in general, and include such reserves in
interim as well as year-end financial statements.
f) Right of Inspection. Permit any person designated by the
Holder, at the Holder's expense, to visit and inspect any of the
properties, books and financial reports of the Company, all at such
reasonable times upon three (3) Business Days prior notice to Company,
and as often as the Holder may reasonably request, provided the Holder
does not unreasonably interfere with the daily operations of the
Company and Holder executes a confidentiality agreement.
g) Observance of Laws. Conform to and duly observe all laws,
regulations and other valid requirements of any regulatory authority
with respect to the conduct of its business except those that would not
cause a Material Adverse Effect, as determined in the reasonable
discretion of the Holder.
h) Company's Knowledge of Default. Upon an officer or director of
the Company obtaining knowledge of, or threat of, an Event of Default
hereunder, cause such officer to promptly, within no more than five
Business Days, deliver to the Holder notice thereof specifying the
nature thereof, the period of existence thereof, and what action the
Company has taken and/or proposes to take with respect thereto.
i) Notice of Proceedings. Upon an officer or director of the
Company obtaining knowledge of any material litigation, dispute or
proceedings being instituted or threatened against the Company, or any
attachment, levy, execution or other process being instituted against
any assets of the Company, cause such officer to promptly, within no
more than five Business Days, give the Holder written notice of such
litigation, dispute, proceeding, levy, execution or other process.
j) Certificate of Covenant Compliance Within 30 days of the last
day of each March, June, September and December, the Company will issue
a Certificate of Covenant Compliance, executed by either the Chief
Executive Officer or Chief Financial Officer in the form of Exhibit A
attached hereto. If the Company is not in compliance with the
covenants specified in this Section 5, the Company will modify the
Certificate of Covenant Compliance by stating the exception and
providing a detailed explanation of the non-compliance.
k) Payment of Xxxxxx's Expenses. If at any time or times
hereafter, Xxxxxx employs counsel to commence, defend or intervene,
file a petition, complaint, answer, motion or other pleading, or to
take any action in or with respect to any suit or proceeding
(bankruptcy or otherwise) relating to this Debenture or any other
Transaction Document, or any other agreement, guaranty, note,
instrument or document heretofore, now or at any time or times
hereafter executed by the Company and delivered to Holder, or to
enforce any rights of Holder hereunder whether before or after the
occurrence of any Event of Default, or to collect any of the
Liabilities, then in any of such events, all of the reasonable
attorneys' fees arising from such services, and any expenses, costs and
charges relating thereto, shall be part of the Liabilities, payable on
demand.
l) Financial Covenants. As of the 75th date following the date
of this Agreement and thereafter continuing until the Termination Date,
the Company must maintain the following ratios:
(i) Cash Interest Coverage. Until this Debenture is repaid
in full, the Company shall maintain a Consolidated EBITDA and cash
balance, including cash received from future financings, excluding cash
required to pay down its debt instruments due within 1 year, based on
any of the Company's quarterly financial statements (as determined on
the last day of each fiscal quarter for the immediately preceding
quarter), in an amount that will ensure payment of all interest due
monthly after the closing date and after the closing of the
Telenational transaction, until this debenture is paid in full.
(ii) Current Ratio. The Company's current ratio, after the
completion of the Telenational transaction, and future anticipated
financings, will improve the Company's current ratio as compared to the
Company's current ratio as of the Closing Date. . The Current Ratio
shall be calculated and tested quarterly as of the last day of each
fiscal quarter of the Company.
(iii) Actual versus Budget. The Company shall on a
quarterly basis achieve 75 percent of its budgeted revenue and income.
Budget numbers shall be those delivered to Holder contemporaneously
herewith and then on an annual calendar basis. It is understood by
both parties that Trident Growth Fund has not received a budget from
the Company, as such information is not provided by the Company in
connection with any financing transactions.
Notwithstanding the foregoing, the achievement of the above
covenants as set forth in this Section 6(l) is contingent upon the
closing of the Telenational Communications, Inc. transaction and the
anticipated future financing of at least $5.0 million, required to
close the transaction and provide the necessary cash flow to pay down
the Company's debt financings as they come due within the next 12
months. It is understood that the Company may not achieve these
covenants if the financing it obtains is less than $5.0 million.
Section 7. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary
or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of
any Debenture, or (B) interest (including Late Fees) on, or
liquidated damages in respect of, any Debenture, in each case free
of any claim of subordination, as and when the same shall become
due and payable (whether on the Maturity Date or by acceleration
or otherwise);
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any of the
other Transaction Documents which failure is not cured, if
possible to cure, within the earlier to occur of (A) 10 Business
Days after notice of such default sent by the Holder or by any
other holder and (B) 10 Business Days after the Company shall
become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents
or (B) any other material agreement, lease, document or instrument
to which the Company or any Subsidiary is bound and not cured;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or
certificate made or delivered to the Holder or any other holder of
Debentures shall be untrue or incorrect in any material respect as
of the date when made or deemed made;
v. there shall have occurred a Bankruptcy Event;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may
be secured or evidenced any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of
the Company in an amount exceeding $100,000, whether such
indebtedness now exists or shall hereafter be created and such
default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would
otherwise become due and payable.
vii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or
dispose of all or in excess of 33% of its assets in one or more
transactions (whether or not such sale would constitute a Change
of Control Transaction) or shall redeem or repurchase any its
outstanding shares of Common Stock or Common Stock Equivalents;
viii. the Company shall fail to have available a sufficient
number of authorized and unreserved shares of Common Stock to
issue to such Holder upon exercise of the Warrants in full and not
remedied as permitted in the Transaction Documents;
ix. the Company shall redeem any of the Common Stock
Equivalents;
x. upon the reasonable determination by the Holder that there
has been a Material Adverse Effect; or
xi. the occurrence of an Activity Event of Default (as
defined in Section 5.1(f)(ii) of the Purchase Agreement);
b) Remedies Upon Event of Default. If any Event of Default occurs,
the full principal amount of this Debenture, together with interest and
other amounts owing in respect thereof, to the date of acceleration
shall become, at the Holder's election, immediately due and payable in
cash. Commencing 30 days after the occurrence of any Event of
Default, the interest rate on this Debenture shall, while such Event of
Default is continuing, accrue at the rate of 18% per annum, or such
lower maximum amount of interest permitted to be charged under
applicable law. All Debentures for which the full principal amount
hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. The Holder need not
provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by
Xxxxxx at any time prior to payment hereunder and the Holder shall have
all rights as a Debenture holder until such time, if any, as the full
payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder shall be in writing
and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address or
facsimile number set forth on the signature page hereto, or such other
address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to the Holder at the facsimile number or
address of the Holder appearing herein, or such other address or
facsimile number as the Holder may specify in accordance with this
Section. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified on the signature
page hereto prior to 5:30 p.m. (Dallas, Texas time), (ii) the date
after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified on
the signature page hereto later than 5:30 p.m. (Dallas, Texas time) on
any date and earlier than 11:59 p.m. (Dallas, Texas time) on such date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed.
This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter
issued under the terms set forth herein.
c) Security Interest. This Debenture is a direct debt obligation
of the Company and, pursuant to the Security Documents, is secured by a
first priority security interest in all of the assets of the Company
other than those assets not already pledged to the Global Capital
Companies as security for prior loans made.
d) Lost or Mutilated Debenture. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal amount
of this Debenture so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested,
all reasonably satisfactory to the Company.
e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal
laws of the State of Texas, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the
state and federal courts sitting in the City of Dallas, Texas (the
"Dallas Courts"). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the Dallas Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or such Dallas Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it
under this Debenture and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out
of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an Action or Proceeding to
enforce any provisions of this Debenture, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Action or
Proceeding.
f) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of
any other provision of this Debenture. The failure of the Company or
the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
g) Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other
persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of
interest.
h) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
j) Usury. To the extent it may lawfully do so, the Company hereby
waives and agrees not to insist upon or plead or in any manner
whatsoever claim, and will resist any and all efforts to be compelled
to take the benefit or advantage of, usury laws wherever enacted, now
or at any time hereafter in force, in connection with any claim, action
or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Documents. Notwithstanding
any provision to the contrary contained in any Transaction Documents,
it is expressly agreed and provided that the total liability of the
Company under the Transaction Documents for payments in the nature of
interest shall not exceed the Maximum Rate, and, without limiting the
foregoing, in no event shall any rate of interest or default interest,
or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction
Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any
official governmental action subsequent to the date hereof, the new
maximum contract rate of interest allowed by law will be the Maximum
Rate applicable to the Transaction Documents from the effective date of
such increase or decrease forward, unless such application is precluded
by applicable law. If under any circumstances whatsoever, interest in
excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness, if any, evidenced by the Transaction
Documents, such excess shall be applied by such Purchaser to the unpaid
principal balance of any such indebtedness or be refunded to the
Company, the manner of handling such excess to be at such Purchaser's
election in the event any principal amount remains outstanding.
(k) Amendment. This Agreement may not be amended, supplemented
or modified, except by an agreement in writing signed by each of the
parties hereto.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
COMPANY
RAPID LINK INCORPORATED Address for Notice and Delivery:
00000 Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: Xxxx Xxxxxxx, CEO
By:____________________________________
Name: Xxxx Xxxxxxx
Title: Chief Executive Officer
EXHIBIT A
I, the undersigned, hereby represent that Rapid Link Incorporated is in
compliance with all of its covenants specified in Sections 5 and 6 of that
certain 10% Secured Convertible Debenture originally dated as of March 8,
2006, executed by Rapid Link Incorporated, in favor of CHARGER INVESTEMENTS,
LLC
RAPID LINK INCORPORATED
By:____________________________________
Name:
Title:
