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Exhibit 10.1
 
AMENDMENT NO. 1 TO SECURITY AGREEMENT,
SECURED TERM A NOTE, SECURED TERM B NOTE
AND DEFERRED PURCHASE PRICE NOTES

THIS AMENDMENT (this “Amendment”) is dated as of July 11, 2008 with respect to
that certain (a) Security Agreement dated as of March 31, 2008 (as amended,
modified, supplemented and/or restated from time to time, the “Security
Agreement”) by and among RAPID LINK, INCORPORATED (“Rapid Link”), TELENATIONAL
COMMUNICATIONS, INC. (“Telenational”), ONE RING NETWORKS, INC. (“One Ring” and
together with Rapid Link and Telenational, collectively, the “Companies” and
each a “Company”), the lenders from time to time party thereto (collectively,
the “Lenders”) and LV ADMINISTRATIVE SERIVCES, INC., as administrative and
collateral agent to the Lenders (in such capacity, the “Agent” and together with
the Lenders, collectively, the “Creditor Parties” and each a “Creditor Party”),
(b) Secured Term Note A dated March 31, 2008 (as amended, modified, supplemented
and/or restated from time to time, the “Secured Term A Note”) in the original
principal amount of $1,800,000 from the Companies in favor of Valens Offshore
SPV II, Corp., (c) Secured Term B Note dated July 11, 2008 (as amended,
modified, supplemented and/or restated from time to time, the “Secured Term B
Note”) in the original principal amount of $1,500,000 from the Companies in
favor of Valens U.S. SPV I, LLC (“Valens US”), (d) Amended and Restated Deferred
Purchase Price Note dated July 11, 2008 (as amended, modified, supplemented
and/or restated from time to time, the “Laurus Deferred Purchase Price Note”) in
the original principal amount of $2,290,450.56 from the Companies in favor of
Laurus Master Fund, Ltd. and (e) Amended and Restated Deferred Purchase Price
Note dated July 11, 2008 (as amended, modified, supplemented and/or restated
from time to time, the “Valens US Deferred Purchase Price Note”) in the original
principal amount of $292,709.40 from the Companies in favor of Valens US.

BACKGROUND

WHEREAS, pursuant to the Security Agreement, the Lenders have made financial
accommodations to the Companies that remain outstanding; and

WHEREAS, it is a condition to Companies receiving additional financial
accommodations from Lenders that the Parent or an Eligible Subsidiary have
received the FCC Approval.

WHEREAS, the Companies have requested that the Creditor Parties agree to provide
Companies with additional financial accommodations based upon a Special
Temporary Authorization from the FCC and the Creditor Parties are willing to do
so, but only on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of the Companies by the
Creditor Parties, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

1.             Definitions.  All capitalized terms not otherwise defined herein
shall have the meanings given to them in the Security Agreement.

 
 

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2.             Amendments to Security Agreement.

(a)           Creditor Parties agree that the Secured Party Sale Condition
requiring the receipt of FCC Approval has been temporarily satisfied by the
Special Temporary Authorization issued by the FCC to Telenational on June 20,
2008 (the “STA”).  Companies agree to diligently provide the FCC with such
information as the FCC requests in order for the FCC to issue the permanent FCC
Approval and to diligently pursue the permanent FCC Approval.  In the event the
FCC has not placed the transfer of control on public notice by July 18, 2008,
Companies shall request and diligently pursue an extension of the STA.  In the
event such extension of the STA is not granted by August 19, 2008 and Companies
have not yet obtained the permanent FCC approval, it shall constitute an Event
of Default under the Security Agreement.

(b)           Annex A- Commitment Annex to the Security Agreement is hereby
amended by deleting such Annex in its entity and inserting in lieu thereof Annex
A-Commitment Annex attached hereto

(c)           The defined term “Revolving Commitment Conditions” contained in
the Security Agreement is amended to provide as follows:

“Revolving Commitment Conditions” means 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 Secured Party Sale, (b) no Event of Default shall have occurred and then be
continuing, (c) the execution and delivery by the Companies of the Secured
Revolving Notes, (d) the issuance of Revolving Warrants, (e) Agent shall have
completed a roll forward of its previous Collateral audit which indicates that
no event or condition has occurred or is existing which could reasonably be
expected to have a Material Adverse Effect and (f) Agent shall have received a
borrowing base certificate as of the date of funding of the initial Revolving
Loans in form and substance acceptable to Agent.”

(d)           The definition of  “Secured Term A Notes” is hereby amended by
deleting the phrase “One Million Seven Hundred Thousand Dollars ($1,700,000)”
and inserting in lieu thereof the phrase “One Million Eight Hundred Thousand
Dollars ($1,800,000).”

(e)           The definition of “Secured Term B Notes” is hereby amended by
deleting the phrase “One Million Six Hundred Thousand Dollars ($1,600,000)” and
inserting in lieu thereof the phrase “One Million Five Hundred Thousand Dollars
($1,500,000).”

(f)           The following defined terms are inserted in the appropriate
alphabetical order in Annex-A-Definitions:

“Available Revolving Commitment Amount” means (a) until the First EBITDA Target
is achieved, $0, (b) following the achievement of the First EBITDA Target until
the achievement of the Second EBITDA Target, the lesser of (i) fifty percent of
the Capital Availability Amount minus Reserves and (ii) fifty percent of the
Formula Amount and (c) following the achievement of the Second EBITDA Target,
the lesser of (i) the Capital Availability Amount minus Reserves and (ii) the
Formula Amount.

 
 

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“First EBITDA Target” means Consolidated EBITDA of the Companies and their
Domestic Subsidiaries for the period commencing on July 1, 2008 and ending on
December 31, 2008, as evidenced by the financial statements delivered to Agent
pursuant to Section 11 for the fiscal year ending December 31, 2008, of
$401,272.

“Revolving Warrants” means the issuance of Warrants to the Lenders for shares of
Common Stock in an amount equal to (a) on the achievement of the First EBITDA
Target, twenty five percent (25%) of $600,000 divided by the Share Price and (b)
on the achievement of the Second EBITDA Target, twenty five percent (25%) of
$1,200,000 minus $600,000 if the First EBITA Target has been achieved, divided
by the Share Price.

“Second EBITDA Target” means Consolidated EBITDA of the Companies and their
Domestic Subsidiaries for the period commencing on July 1, 2008 and ending on
June 30, 2009, as evidenced by the financial statements delivered to Agent
pursuant to Section 11 for the fiscal period ending June 30, 2009, of $1,329,509

(g)           The following is added at the end of Section 2(a)(i) of the
Security Agreement:

“Notwithstanding the foregoing, (W) the amount of Revolving Loans at any time
shall not exceed the applicable Available Revolving Commitment, (X) following
the achievement of the First EBITDA Target and the Second EBITDA Target , no
Lender may make Revolving Loans until Rapid Link shall deliver to each Lender
the applicable Revolving Warrants and Rapid Link shall deliver such Revolving
Warrants within three (3) Business Days of the achievement of the First EBITDA
Target or the Second EBITDA Target, as applicable.

3.             Amendment to Secured Term A Note.  Section 1.3 of the Secured
Term A Note is hereby amended by deleting such section in its entirety and
inserting in lieu thereof the following:

“The Companies may prepay this Note, in whole or in part, at any time without
premium or penalty.”

4.             Amendment to Secured Term B Note.  Section 1.3 of the Secured
Term B Note is hereby amended by deleting such section in its entirety and
inserting in lieu thereof the following:

“The Companies may prepay this Note, in whole or in part, at any time without
premium or penalty.”

5.             Amendment to Laurus Deferred Price Note.  Section 1.3 of the
Laurus Deferred Purchase Price Note is hereby amended by deleting such section
in its entirety and inserting in lieu thereof the following:

“The Companies may prepay this Note, in whole or in part, at any time without
premium or penalty.”

 
 

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6.             Amendment to Valens US Deferred Purchase Price Note.  Section 1.3
of the Valens US Deferred Purchase Note is hereby amended by deleting such
section in its entirety and inserting in lieu thereof the following:

“The Companies may prepay this Note, in whole or in part, at any time without
premium or penalty.”

7.             Agreement Regarding Fees.  Notwithstanding anything to the
contrary contained in Section 5(b)(i) of the Security Agreement, the payments
set forth in clauses 5(b)(i)(A), 5(b)(i)(B) and 5(b)(i)(C) relating to the
Secured Revolving Notes and Secured Term B Notes, shall be deemed fully earned
on the Effective Date (as defined below) and shall be paid on the Effective Date
pursuant to a disbursement letter executed in connection herewith.

8.             Conditions of Effectiveness.  This Amendment shall become
effective (the “Effective Date”) upon receipt by the Agent of counterparts of
this Amendment duly executed and delivered by the Companies and the Creditor
Parties.

9.             Representations and Warranties.  Each Company hereby represents
and warrants as follows:

(a)           This Amendment and the Security Agreement, as amended hereby,
constitute legal, valid and binding obligations of the Company and are
enforceable against the Company in accordance with their respective terms.

(b)           Upon the effectiveness of this Amendment, the Company hereby
reaffirms all covenants, representations and warranties made in the Security
Agreement, any Ancillary Agreement and any other documents, instruments and
agreements entered into in connection with the transactions contemplated thereby
(collectively, the “Documents”) and agrees that all such covenants,
representations and warranties shall be deemed to have been remade as of the
effective date of this Amendment (or if any such representation, covenant or
warranty is expressly stated to have been made as of a specific date, as of such
specific date).

(c)           No Event of Default has occurred and is continuing or would exist
after giving effect to this Amendment.

(d)           No Company has any defense, counterclaim or offset with respect to
any Document.

10.           Effect on the Loan Agreement.

(a)           Upon the effectiveness of Section 2 hereof, each reference in the
Security Agreement to “this Security Agreement” “hereunder,” “hereof,” “herein”
or words of like import shall mean and be a reference to the Security Agreement
as amended hereby.

(b)           Except as specifically amended herein, the Security Agreement and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.

 
 

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(c)           The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of any Creditor Party, nor
constitute a waiver of any provision of the Security Agreement, any Document or
any other documents, instruments or agreements executed and/or delivered under
or in connection therewith.

11.           Governing Law.  This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
and shall be governed by and construed in accordance with the laws of the State
of New York.

12.           Headings.  Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.

13.           Counterparts; Electronic Transmission.  This Amendment may be
executed by the parties hereto in one or more counterparts, each of which shall
be deemed an original and all of which when taken together shall constitute one
and the same agreement.  Any signature delivered by a party by facsimile or PDF
transmission shall be deemed to be an original signature hereto.

 
 

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IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year
first written above.

 
RAPID LINK, INCORPORATED
                   
By:
       
Name:
     
Title:
                   
TELENATIONAL COMMUNICATIONS, INC.
                   
By:
       
Name:
     
Title:
                   
ONE RING NETWORKS, INC.
                   
By:
       
Name:
     
Title:
                   
LV ADMINISTRATIVE SERVICES, INC.,
   
as Agent
                   
By:
       
Name:
     
Title:
                   
LAURUS MASTER FUND, LTD.
           
By:
Laurus Capital Management, LLC, its investment manager
                   
By:
       
Name:
     
Title:
 

 
SIGNATURE PAGE TO
AMENDMENT NO. 1

 
 

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VALENS U.S. SPV I, LLC, as a Lender
           
By:
Valens Capital Management, LLC, its investment manager
                   
By:
       
Name:
     
Title:
                   
VALENS OFFSHORE SPV II, CORP., as a Lender
           
By:
Valens Capital Management, LLC, its investment manager
                   
By:
       
Name:
     
Title:
 

 
SIGNATURE PAGE TO
AMENDMENT NO. 1
 
 
 

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Annex A

Commitment Annex
(as of the Closing Date)

Lender
 
Revolving Commitment Amount
   
Revolving Commitment Percentage
   
Term Loan A Commitment Amount
   
Term Loan A Percentage
   
Term Loan B Commitment Amount
   
Term Loan B Percentage
   
Deferred Purchase Price Commitment Amount
   
Deferred Purchase Price Percentage
 
Valens U.S. SPV I, LLC
  $
1,200,000
     
100
%   $
0
     
0
%   $
1,500,000
     
0
%   $
292,709.40
     
11.33
%
Valens Offshore SPV II, Corp.
  $
0
 
   
0
%   $
1,800,000
     
100
%   $
0
     
100
%    
0
%    
0
%
Laurus Master Fund, Ltd.
  $
0
     
0
%   $
0
     
0
%   $
0
     
0
%   $
2,290,450.56
     
88.67
%      
 
                                             
 
         
Total
  $
1,200,000
     
100
%   $
1,800,000
     
100
%   $
1,500,000
     
100
%   $
2,583,159.96
     
100
%

 
 

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