Document:

Exhibit 10.42

 

EXECUTION COPY

 

VISTULA COMMUNICATIONS SERVICES, INC.

 

SUBSCRIPTION AGREEMENT

 

As of March 30, 2006

 

Vistula Communications Services Inc.

405 Park Avenue

Suite 801

New York, NY 10022

Attention: Rupert Galliers-Pratt

 

Investors:

 

1.                                       Subscription.
The undersigned subscriber (the “Subscriber”) hereby irrevocably
subscribes for and agrees to purchase a
Note in the principal amount of up to five million United States dollars ($5,000,000) from Vistula Communications Services, Inc., a Delaware corporation
(the “Company”; and such note the “Note”) and a five (5) year
warrant for the purchase of up to 500,000 shares of the Company’s common stock
at an exercise price of $1.50 per share (the “Warrant”; together with
the Note, the “Securities”) in connection with a credit facility
provided by Subscriber to the Company pursuant to the terms of a Revolving
Credit Agreement dated as of March 30, 2006 by and between Subscriber and
the Company (the “Revolving Credit Agreement”) attached to this
Subscription Agreement (the “Subscription Agreement”) as Exhibit A.
This subscription is based upon the information provided below and upon the
Subscriber’s own investigation as to the merits and risks of this investment. The
Subscriber shall deliver herewith:

 

(i)                                     Two
(2) duly executed copies of the Signature Page to this Subscription
Agreement; and

 

(ii)                                  An
initial advance of up to $1,300,000 per the terms of the Revolving Credit
Agreement (the “Initial Advance”).

 

The closing of the
purchase of the Securities shall occur on or before March 30, 2006 (the “Closing”),
unless otherwise extended by the Company. This offering is not conditioned on
any minimum number of Securities being sold.

 

As soon as
possible after the Closing, the Company will deliver instruments representing
the Subscriber’s Securities to the Subscriber.

 

2.                                       Subscriber
Representations, Warranties and Agreements. The Subscriber hereby
acknowledges, represents and warrants as follows (with the understanding that
the Company will rely on such representations and warranties in determining,
among other matters, 

 

 

the suitability of this
investment for the Subscriber in order to comply with federal and state
securities laws):

 

a.                                       In
connection with this subscription, the Subscriber has read this Subscription Agreement.
The Subscriber acknowledges that this Subscription Agreement is not intended to
set forth all of the information which might be deemed pertinent by an investor
who is considering an investment in the Securities. It being the responsibility
of Subscriber (i) to determine what additional information he desires to
obtain in evaluating this investment and (ii) to obtain such information
from the Company.

 

b.                                      This
offering is limited to persons who are “accredited investors,” as that term is
defined in Regulation D under the Securities Act of 1933, as amended (the “Act”),
and who have the financial means and the business, financial and investment
experience and acumen to conduct an investigation as to, and to evaluate, the
merits and risks of this investment. The Subscriber hereby represents that he
has read, is familiar with and understands Rule 501 of Regulation D under
the Act. The Subscriber is an “accredited investor” as defined in Rule 501(a) of
Regulation D.

 

c.                                       The
Subscriber has had full access to all the information which the Subscriber (or
the Subscriber’s advisor) considers necessary or appropriate to make an
informed decision with respect to the Subscriber’s investment in the Securities.
The Subscriber acknowledges that the Company has made available to the
Subscriber and the Subscriber’s advisors the opportunity to examine and copy
any contract, matter or information which the Subscriber considers relevant or
appropriate in connection with this investment and to ask questions and receive
answers relating to any such matters including, without limitation, the
financial condition, management, employees, business, obligation, corporate
books and records, budgets, business plans of and other matters relevant to the
Company. To the extent the Subscriber has not sought information regarding any
particular matter, the Subscriber represents that he or she had and has no
interest in doing so and that such matters are not material to the Subscriber
in connection with this investment. The Subscriber has accepted the
responsibility for conducting the Subscriber’s own investigation and obtaining
for itself such information as to the foregoing and all other subjects as the
Subscriber deems relevant or appropriate in connection with this investment. The
Subscriber is not relying on any representation other than that contained
herein. Other than as set forth in the Company’s filings with the Securities
and Exchange Commission (“SEC”), no financial information is currently
available and no such financial information has been provided to the Subscriber
in connection with the investment made hereunder. The Subscriber acknowledges
that no representation regarding projected revenues or a projected rate of
return has been made to it by any party.

 

d.                                      The
Subscriber understands that the offering of the Securities has not been
registered under the Act, in reliance on an exemption for private offerings
provided pursuant to Section 4(2) of the Act and that, as a result,
the Securities will be “restricted securities” as that term is defined in Rule 144
under the Act and, accordingly, under Rule 144 as currently in effect,
that the Securities must be held for at least one year after the investment has
been made (or indefinitely if the Subscriber is deemed an “affiliate” within
the meaning of such 

 

2

 

rule) unless the Securities
are subsequently registered under the Act and qualified under any other
applicable securities law or exemptions from such registration and qualification
are available. The Subscriber understands that the Company is under no
obligation to register the Securities under the Act or to register or qualify
the Securities under any other applicable securities law, or to comply with any
other exemption under the Act or any other securities law, and that the
Subscriber has no right to require such registration. The Subscriber further
understands that the offering of the Securities has not been qualified or
registered under any foreign or state securities laws in reliance upon the
representations made and information furnished by the Subscriber herein and any
other documents delivered by the Subscriber in connection with this
subscription; that the offering has not been reviewed by the SEC or by any
foreign or state securities authorities; that the Subscriber’s rights to
transfer the Securities will be restricted, which includes restrictions against
transfers unless the transfer is not in violation of the Act and applicable
state securities laws (including investor suitability standards); and that the
Company may in its sole discretion require the Subscriber to provide at
Subscriber’s own expense an opinion of its counsel to the effect that any
proposed transfer is not in violation of the Act or any state securities laws.

 

e.                                       The
Subscriber is empowered and duly authorized to enter into this Subscription
Agreement which constitutes a valid and binding agreement of the Subscriber
enforceable against the Subscriber in accordance with its terms; and the person
signing this Subscription Agreement on behalf of the Subscriber is empowered
and duly authorized to do so.

 

f.                                         The
Subscriber acknowledges that there will be no market for the Securities and
that the Subscriber may not be able to sell or dispose of them; the
Subscriber has liquid assets sufficient to assure that the purchase price of
the Securities will cause no undue financial difficulties and that, after
purchasing the Securities the Subscriber will be able to provide for any
foreseeable current needs and possible personal contingencies; the Subscriber
is able to bear the risk of illiquidity and the risk of a complete loss of this
investment.

 

g.                                      The
information in any documents delivered by the Subscriber in connection with
this subscription is true, correct and complete in all respects as of the date
hereof. The Subscriber agrees promptly to notify the Company in writing of any
change in such information after the date hereof.

 

h.                                      The
offering and sale of the Securities to the Subscriber were not made through any
advertisement in printed media of general and regular paid circulation, radio
or television or any other form of advertisement, or as part of a
general solicitation.

 

i.                                          The
Subscriber recognizes that an investment in the Securities involves significant
risks, which risks could give rise to the loss of the Subscriber’s entire
investment in such securities.

 

j.                                          The
Subscriber is acquiring the Securities, as principal, for the Subscriber’s own
account for investment purposes only, and not with a present intention toward
or for the resale, distribution or fractionalization thereof, and with the
exception of Subscriber’s 

 

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members, no other person
has a beneficial interest in the Securities. The Subscriber has no present
intention of selling or otherwise distributing or disposing of the Securities,
and understands that an investment in the Securities must be considered a
long-term illiquid investment.

 

3.                                       Representations
and Warrants of the Company. As a material inducement of the Subscribers to
enter into this Subscription Agreement and subscribe for the Securities, the
Company represents and warrants to the Subscriber, as of the date hereof, as
follows:

 

a.                                       Organization
and Standing. The Company is a duly organized corporation, validly existing
and in good standing under the laws of the State of Delaware, has full power to
carry on its respective business as and where such business is now being
conducted and to own, lease and operate the properties and assets now owned or
operated by it and is duly qualified to do business and is in good standing in
each jurisdiction where the conduct of its business or the ownership of its
properties requires such qualification except
where the failure to be so qualified would not have a Material Adverse Effect
on the Company. “Material Adverse Effect” means any circumstance, change
in, or effect on the Company that, individually or in the aggregate with any
other similar circumstances, changes in, or effects on, the Company taken as a
whole: (a) is, or is reasonably expected to be, materially adverse to the
business, operations, assets, liabilities, employee relationships, customer or
supplier relationships, prospects, results of operations or the condition
(financial or otherwise) of the Company taken as a whole or (b) is
reasonably expected to adversely affect the ability of the Company to operate
or conduct the Company’s business in the manner in which it is currently
operated or conducted or proposed to be operated or conducted by the Company.

 

b.                                      Authority.
The execution, delivery and performance of this Subscription Agreement by the
Company and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company.

 

c.                                       No
Conflict. The execution, delivery and performance of this Subscription
Agreement and the consummation of the transactions contemplated hereby do not (i) violate
or conflict with the Company’s Certificate of Incorporation, By-laws or other
organizational documents, (ii) conflict with or result (with the lapse of
time or giving of notice or both) in a material breach or default under any
material agreement or instrument to which the Company is a party or by which
the Company is otherwise bound, (iii) violate any order, judgment, law,
statute, rule or regulation applicable to the Company, except where such
violation, conflict or breach would not have a material adverse effect on the
Company. This Subscription Agreement when executed by the Company will be a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms (except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws and equitable principles relating
to or limiting creditors’ rights generally).

 

d.                                      Authorization.
Issuance of the Securities to Subscriber has been duly authorized by all
appropriate corporate actions of the Company.

 

4

 

e.                                       Litigation
and Other Proceedings. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened against
the Company at law or in equity before or by any court or Federal, state,
municipal or their governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign which could materially adversely affect
the Company. The Company is not subject to any continuing order, writ,
injunction or decree of any court or agency against it which would have a
material adverse effect on the Company.

 

f.                                         Use
of Proceeds. The proceeds of this offering and sale of the Securities, net
of payment of placement expenses, will be used by the Company for working
capital and other general corporate purposes pursuant to the restrictions set
forth in the Revolving Credit Facility.

 

g.                                      Consents/Approvals.
No consents, filings (other than Federal and state securities filings relating
to the issuance of the Securities pursuant to applicable exemptions from
registration, which the Company hereby undertakes to make in a timely fashion),
authorizations or other actions of any governmental authority are required to
be obtained or made by the Company for the Company’s execution, delivery and
performance of this Subscription Agreement which have not already been obtained
or made or will be made in a timely manner following the Closing.

 

h.                                      No
Commissions. The Company has not incurred any obligation for any finder’s,
broker’s or agent’s fees or commissions in connection with the transaction
contemplated hereby.

 

4.                                       Legends.
The Subscriber understands and agrees that the Company will cause any necessary
legends to be placed upon any instruments(s) evidencing ownership of the Securities,
together with any other legend that may be required by federal or state
securities laws or deemed necessary or desirable by the Company.

 

5.                                       General
Provisions.

 

a.                                       Confidentiality.
The Subscriber covenants and agrees that it will keep confidential and will not
disclose or divulge any confidential or proprietary information that such
Subscriber may obtain from the Company pursuant to financial statements,
reports, and other materials submitted by the Company to such Subscriber in
connection with this offering or as a result of discussions with or inquiry
made to the Company, unless such information is known, or until such
information becomes known, to the public through no action by the Subscriber; provided,
however, that a Subscriber may disclose such information to its
attorneys, accountants, consultants, and other professionals to the extent
necessary in connection with his or her investment in the Company so long as
any such professional to whom such information is disclosed is made aware of
the Subscriber’s obligations hereunder and such professional agrees to be
likewise bound as though such professional were a party hereto.

 

5

 

b.                                      Successors.
The covenants, representations and warranties contained in this Subscription
Agreement shall be binding on the Subscriber’s and the Company’s heirs and legal
representatives and shall inure to the benefit of the respective successors and
assigns of the Company. The rights and obligations of this Subscription
Agreement may not be assigned by any party without the prior written
consent of the other party.

 

c.                                       Counterparts.
This Agreement may be executed in
counterparts, each of which shall be deemed an original agreement, but all of which together shall constitute one and the same instrument.

 

d.                                      Execution
by Facsimile. Execution and delivery of this Agreement by facsimile
transmission (including the delivery of documents in Adobe PDF format) shall
constitute execution and delivery of this Agreement for all purposes, with the
same force and effect as execution and delivery of an original manually signed
copy hereof.

 

e.                                       Governing
Law and Jurisdiction. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be wholly performed within such state and without regard to
conflicts of laws provisions. Any legal action or proceeding arising out of or
relating to this Subscription Agreement may be instituted in the courts of
the State of New York sitting in New York County or in the United States of
America for the Southern District of New York, and the parties hereto
irrevocably submit to the jurisdiction of each such court in any action or
proceeding. Subscriber hereby irrevocably waives and agrees not to assert, by
way of motion, as a defense, or otherwise, in every suit, action or other
proceeding arising out of or based on this Subscription Agreement and brought
in any such court, any claim that Subscriber is not subject personally to the
jurisdiction of the above named courts, that Subscriber’s property is exempt or
immune from attachment or execution, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper.

 

f.                                         (i)                                     Indemnification
Generally. The Company, on the one hand, and the Subscriber, on the other
hand (each an “Indemnifying Party”), shall indemnify the other from and
against any and all losses, damages, liabilities, claims, charges, actions,
proceedings, demands, judgments, settlement costs and expenses of any nature
whatsoever (including, without limitation, reasonable attorneys’ fees and
expenses) resulting from any breach of a representation and warranty, covenant
or agreement by the Indemnifying Party and all claims, charges, actions or
proceedings incident to or arising out of the foregoing.

 

(ii)                                  Indemnification
Procedures. Each person entitled to indemnification under this Section 5
(an “Indemnified Party”) shall give notice as promptly as reasonably
practicable to each party required to provide indemnification under this Section 5
of any action commenced against or by it in respect of which indemnity may be
sought hereunder, but failure to so notify an Indemnifying Party shall not
release such Indemnifying Party from any liability that it may have,
otherwise than on account of this indemnity agreement so long as such failure
shall not have materially prejudiced the position of the Indemnifying Party. Upon
such notification, the Indemnifying Party shall assume the defense of such
action if it is a claim 

 

6

 

brought by a third party,
and, if and after such assumption, the Indemnifying Party shall not be entitled
to reimbursement of any expenses incurred by it in connection with such action
except as described below. In any such action, any Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
contrary or (ii) the named parties in any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing or conflicting interests
between them. The Indemnifying Party shall not be liable for any settlement of
any proceeding effected without its written consent (which shall not be
unreasonably withheld or delayed by such Indemnifying Party), but if settled
with such consent or if there be final judgment for the plaintiff, the
Indemnifying Party shall indemnify the Indemnified Party from and against any
loss, damage or liability by reason of such settlement or judgment.

 

g.                                      Notices.
All notices, requests, demands, claims and other communications hereunder shall
be in writing and shall be delivered by certified or registered mail (first class postage
pre-paid), guaranteed overnight delivery, or facsimile transmission if such
transmission is confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
facsimile numbers (or to such other addresses or facsimile numbers which such
party shall subsequently designate in writing to the other party):

 

(i)                                     if
to the Issuer:

 

Vistula Communications Services
Inc.

405 Park Avenue

Suite 801

New York, NY 10022

Attention:
Rupert Galliers-Pratt

 

(ii)                                  if
to the Subscriber to the address set forth next to its name on the signature page hereto.

 

h.                                      Entire
Agreement. This Subscription Agreement (including the Exhibit attached
hereto) and other documents delivered at the Closing pursuant hereto, contain
the entire understanding of the parties in respect of its subject matter and
supersedes all prior agreements and understandings between or among the parties
with respect to such subject matter. The Exhibit constitutes a part hereof
as though set forth in full above.

 

i.                                          Amendment;
Waiver. This Subscription Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
both parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Subscription Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude the exercise of any other 

 

7

 

right, power or privilege.
No waiver of any breach of any provision shall be deemed to be a waiver of any
proceeding or succeeding breach of the same or any other provision, nor shall
any waiver be implied from any course of dealing between the parties. No
extension of time for performance of any obligations or other acts hereunder or
under any other agreement shall be deemed to be an extension of the time for
performance of any other obligations or any other acts. The rights and remedies
of the parties under this Subscription Agreement are in addition to all other
rights and remedies, at law or equity, that they may have against each
other.

 

8

 

[Signature
Page to Subscription Agreement]

 

PRINCIPAL AMOUNT OF NOTE:
Up to $5,000,000.

 

Total $ Amount of Initial
Advance to be provided by Subscriber at Closing: up to $1,300,000.00

 

The Initial Advance may be
delivered to the Company in several wires which may come directly from
Subscriber or Subscribers individual members. The Initial Advance shall be
noted on Schedule A to the Revolving Loan Note.

 

Executed March 30,
2006

 

	
  SUBSCRIBER:

  
	
   

  
	
  INDIGO
  INVESTMENTS I LLC

  
	
   

  
	
  By:

  	
  Indigo Ventures, LLC,
  its Managing Member

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Eric Brachfeld

  	
   

  
	
  Name:

  	
  Eric Brachfeld

  	
   

  
	
  Title:

  	
  Managing Member

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACCEPTED:

  	
   

  
	
   

  	
   

  	
   

  
	
  VISTULA COMMUNICATIONS SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Rupert Galliers-Pratt

  	
   

  
	
  Name:

  	
  Rupert
  Galliers-Pratt

  	
   

  
	
  Title:

  	
  President and
  CEO

  	
   

  

 

9

 

EXECUTION COPY

 

EXHIBIT A

 

Revolving
Credit FacilityExhibit 10.43

 

EXECUTION COPY

 

REVOLVING CREDIT AGREEMENT

 

This Revolving Credit
Facility (“Agreement” or “Credit Facility”) is entered into as of
March 30, 2006 (“Effective Date”) by and between Vistula
Communications Services, Inc., a Delaware corporation (“Borrower”
or the “Company”) and Indigo Investments I LLC (“Lender”, or “Purchaser”).
Each of Borrower and Lender may be referred to herein individually as a “Party”
and collectively as the “Parties”.

 

W  I  T
N  E  S  S  E  T  H:

 

WHEREAS, the Company desires to sell and issue to the
Lender, and the Purchaser wishes to purchase from the Company, a Note in the
principal amount of up to five million United States dollars ($5,000,000).

 

NOW, THEREFORE, in consideration of the foregoing premises
and the covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties
hereto agree as follows:

 

SECTION 1.  Initial Advance; Periodic
Loans. (a) From and after the date hereof through and until September 30,
2006, Lender hereby agrees to make periodic loans to the Borrower in an
aggregate principal amount at any one time outstanding, not to exceed $5,000,000
(“Maximum Amount”). Borrower shall execute a promissory note substantially
in the form of Exhibit A hereto evidencing its obligations
hereunder (the “Note”). On the Effective Date, up to $1,300,000 shall be
advanced to the Borrower for working capital and general corporate purposes
(the “Initial Advance”). For the avoidance of doubt, the first
$1,300,000 advanced to the Company pursuant to this Section 1(a),
regardless of when such advances are made, shall not be subject to the
requirements set forth in Section 1(b) below.

 

(b)                                 During
the Term (as defined below), from time to time, Borrower may notify the
Lender of its need to borrow additional funds pursuant to this Agreement.
Within ten (10) business days of receipt of such notice from the Borrower
seeking to borrow funds, the Lender shall forward to the Borrower the amount of
funds requested by Borrower in such notice, up to, but (together with the
Initial Advance) not in excess of, the Maximum Amount; provided, that Borrower
provides Lender with an officer’s certificate, the form and substance of
which must be satisfactory to Lender, certifying that at the time of such
notice: (i) Borrower is in
compliance with the covenants set forth in Section 7 of this Agreement; (ii) Borrower
has not violated any of the negative covenants set forth in Section 8 of
this Agreement; and (iii) such requested advance does not exceed 80% of
the Company’s Computer Directed Router Reports (“CDR”) detailing charges
to be billed to acceptable customers. Lender shall have the absolute right to
request additional evidence, as deemed necessary by the Lender in its sole
discretion, in support of such officer’s certificate.

 

SECTION 2.  Periodic Finance Charges;
Commitment Fee; Warrants. (a) All outstanding principal shall bear
interest at a rate of 1.5% per month simple interest. In an Event of 

 

 

Default (as defined in Section 12)
the interest rate shall increase by an amount equal to the lesser of 2.5% per
month or the maximum amount permitted under applicable law (the “Default
Rate”).

 

(b)                                 In
addition, the Company shall pay the
Lender a 2.25% commitment fee on the entire amount of the Credit Facility (the “Commitment
Fee”) and shall grant Lender a five (5) year warrant to purchase up to
500,000 shares of the Company’s common stock at an exercise price equal to
$1.50 per share (the “Warrant”; and such shares the “Warrant Shares”).
The Warrant is attached hereto as Exhibit B. Lender may distribute
the Warrant Shares to its Members on a pro rata basis based on each Member’s
percentage interest in Lender.

 

SECTION 3.  Payments. All outstanding principal and interest on the
Credit Facility plus the Commitment Fee shall be due and payable on the earlier
of (i) the six (6) month anniversary of the Effective Date (“Maturity
Date”), or (ii) the closing of a Qualified Equity Financing (as
defined below); provided, that, in the event that a Qualified Equity Financing
closes prior to the Maturity Date, the Company shall pay the Lender an early
repayment fee equal to 2.25% of the total amount of the Credit Facility. For
purposes of this Agreement, “Qualified Equity Financing” shall mean the
sale of a minimum of $6,000,000 of equity securities of the Company.

 

SECTION 4.  Term. This Agreement
shall be effective from the date hereof and shall terminate on September 30,
2006, unless terminated earlier pursuant to the default provisions of this
Agreement (the “Term”).

 

SECTION 5.  Priority. The rights
of the Lender under the terms of this Agreement shall be junior to the Company’s
existing indebtedness.

 

SECTION 6.  Personal Guaranty. In
order to induce Lender to extend the Credit Facility to Borrower, the Company’s
President, Mr. Rupert Galliers-Pratt absolutely and unconditionally
guarantees to Lender, to the fullest extent permitted by applicable law and
pursuant to the terms of the Guaranty attached hereto as Exhibit C,
the payment by the Company when due of all amounts owing under the Credit
Facility and any and all other documents related thereto, including, without
limitation, all principal, interest, commitment fees, prepayment fees,
expenses, professional fees and other amounts now or hereafter owing in
connection with the Credit Facility.

 

SECTION 7.  Covenants of Borrower.
The Borrower agrees and covenants as follows:

 

(a)                                  Payment
of Principal and Interest and Fees. The Borrower shall promptly pay when
due the principal of and interest on the indebtedness evidenced by the Note
issued under this Agreement, and all other sums secured by this Agreement,
including but not limited to, the Commitment Fee.

 

(b)                                 Corporate
Existence. The Borrower is a corporation duly organized and existing under
the laws of the State of Delaware and is duly qualified in every other state in
which it is doing business except where the failure to be so qualified
would not have a Material Adverse 

 

2

 

Effect on the Company. “Material
Adverse Effect” means any circumstance, change in, or effect on the Company
that, individually or in the aggregate with any other similar circumstances,
changes in, or effects on, the Company taken as a whole: (a) is, or is
reasonably expected to be, materially adverse to the business, operations,
assets, liabilities, employee relationships, customer or supplier
relationships, prospects, results of operations or the condition (financial or
otherwise) of the Company taken as a whole or (b) is reasonably expected
to adversely affect the ability of the Company to operate or conduct the
Company’s business in the manner in which it is currently operated or conducted
or proposed to be operated or conducted by the Company.

 

(c)                                  Corporate
Authority. The execution, delivery, and performance of this Agreement, and
the execution and payment of the Note issued pursuant to the terms hereof are
within Borrower’s corporate powers, have been duly authorized, and are not in
contravention of law or the terms of the Borrower’s
articles of incorporation and bylaws, or of any indenture, agreement, or
undertaking to which the Borrower is a party or by which it is bound.

 

SECTION 8.  Negative
Covenants. While loans are outstanding under this Agreement and the Note, the
Company shall not directly or indirectly:

 

(a)                                  Enter into any transaction not in the
ordinary and customary course of its business, including but not limited to the
sale, lease, license, disposal, movement, relocation or transfer, whether by
sale or otherwise, of any of its material assets other than sales of inventory
in the ordinary and customary course of its business, without the prior written
consent of Lender.

 

(b)                                 Make any distribution or pay any dividends
(in cash or in stock) on, or purchase, acquire, redeem or retire any of its
capital stock, of any class, or other securities not held by Lender whether now
or hereafter outstanding.

 

SECTION 9.  Taxes and Assessments.
The Borrower will pay or cause to be paid promptly when due all taxes and
assessments on this Agreement and the Note. The Borrower may, however, withhold
payment of any tax assessment or claim if a good faith dispute exists as to the
obligation to pay.

 

SECTION 10.  Application of Payments.
Unless applicable law provides otherwise, all payments received by the Lender
from the Borrower under the Note and this Agreement shall be applied by the
Lender in the following order of priority: 
(i) interest payable on the Note in the manner provided therein; (ii) principal
of the Note in the manner provided therein; and (iii) any other sums
secured by this Agreement in such order as the Lender, at the Lender’s option, may determine.

 

SECTION 11.
 Forbearance by
Lender Not a Waiver. Any forbearance by the Lender in exercising any right
or remedy hereunder, or otherwise afforded by applicable law, shall not be a
waiver of or preclude the exercise of any right or remedy. The acceptance by
the Lender of payment of any sum secured by this Agreement after the due date
of such payment shall not be a waiver of the Lender’s right to either require
prompt payment when due of all other sums so secured or to declare a default
for failure to make prompt payment. The procurement of insurance or the payment
of taxes, rents or other liens or charges by the Lender shall not be a waiver
of the 

 

3

 

Lender’s right to
accelerate the maturity of the indebtedness secured by this Agreement, nor
shall the Lender’s receipt of any awards, proceeds or damages as provided in
this Agreement operate to cure or waive the Borrower’s default in payment of
sums secured by this Agreement.

 

SECTION 12.  Events of Default. The
Borrower shall be in default under this Agreement when any of the following
events or conditions occurs (each an “Event of Default”):

 

(a)                                  The
Borrower shall be in default under the Note beyond any applicable notice and
cure period(s).

 

(b)                                 The
Borrower fails to comply with any term, obligation, covenant, or condition
contained in this Agreement within ten (10) days after receipt of written
notice from the Lender demanding such compliance.

 

(c)                                  Any
warranty, or representation made to the Lender by the Borrower under this
Agreement, proves to have been false in any material respect when made or
furnished.

 

(d)                                 Any
event that results in acceleration of the maturity of any indebtedness of
Borrower in the outstanding principal amount of $10,000 or more, under any
note, indenture, contract, or agreement.

 

SECTION 13.  Acceleration. At the
option of the Lender, upon an Event of Default, after any applicable notice
period, all principal and any unpaid interest due hereunder shall become
immediately due and payable.

 

SECTION 14.  Borrower’s Insolvency.
If the Borrower voluntarily files a petition under the federal Bankruptcy Act,
as such Act may from time to time be amended, or under any similar or
successor federal statute relating to bankruptcy, insolvency, arrangements or
reorganizations, or under any state bankruptcy or insolvency act, or files an
answer in an involuntary proceeding admitting insolvency or inability to pay
debts, or if the Borrower is adjudged a bankrupt, or if a trustee or receiver
is appointed for the Borrower’s property, or if the Borrower makes an
assignment for the benefit of its creditors, or if there is an attachment,
receivership, execution or other judicial seizure, then the Lender may, at the
Lender’s option, declare all of the sums secured by this Agreement to be
immediately due and payable without prior notice to the Borrower, and the Lender
may invoke any remedies permitted by this Agreement. Any attorneys’ fees
and other expenses incurred by the Lender in connection with the Borrower’s
bankruptcy or any of the other events described in this Section shall be
additional indebtedness of the Borrower secured by this Agreement.

 

SECTION 15.  Waiver of Statute of
Limitations. Borrower hereby waives the right to assert any statute of
limitations as a bar to the enforcement of the lien of this Agreement or to any
action brought to enforce the Note or any other obligation secured by this
Agreement.

 

SECTION 16.
 Expense
Reimbursement. The Company shall
pay the reasonable fees and expenses of Indigo Ventures, LLC, the manager of
Lender (the “Manager”), incurred in connection with this Credit Facility
including, but not limited to, all reasonable legal fees, all 

 

4

 

expenses related to the
formation of Indigo Investments I LLC and the filing of all necessary documents
and payment of all necessary fees (including local counsel fees) in connection
with the Lender’s perfection of a first priority security interest pursuant to
the terms of the Guaranty.

 

SECTION 17.  Remedies Cumulative.
Each remedy provided in this Agreement is distinct and cumulative to all other
rights or remedies under this Agreement or afforded by law or equity, and may be
exercised concurrently, independently, or successively, in any order
whatsoever.

 

SECTION 18.
 Notices. All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally, sent by overnight courier or telecopied
(with a confirmatory copy sent by overnight courier) to the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice):

 

(a)                                  If to Borrower, to:

 

Vistula Communications
Services Inc.

405 Park Avenue

Suite 801

New York, NY 10022

Attention:
Rupert Galliers-Pratt

 

with
a copy to:

 

Foley
Hoag LLP

155
Seaport Boulevard

Boston,
MA  02210

Attention:  Paul Bork, Esq.

 

(b)                                 If to Lender, to:

 

Indigo
Investments I LLC

c/o Indigo Ventures LLC

780
Third Avenue

Suite 23B

New York, New York 10017

 

with a copy to:

 

Wollmuth Maher &
Deutsch LLP

500 Fifth Avenue

New York, NY 10110

Attention: Rory M. Deutsch, Esq.

 

5

 

SECTION 19.
 Interpretation.
When a reference is made in this Agreement of a Section, such reference shall
be to a Section of this Agreement unless otherwise indicated, and the
words “hereof,” “herein” and “hereunder” and similar terms refer to this
Agreement as a whole and not to any particular provision of this Agreement,
unless the context otherwise requires. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever the
words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.”

 

SECTION 20.  Counterparts. This
Agreement may be executed in counterparts, each of which shall be deemed an
original agreement, but all of which together shall constitute one and the same
instrument. Execution and delivery of this Agreement by facsimile transmission
(including the delivery of documents in Adobe PDF format) shall constitute
execution and delivery of this Agreement for all purposes, with the same force
and effect as execution and delivery of an original manually signed copy
hereof.

 

SECTION 21.
 Entire Agreement;
No Third-Party Beneficiaries. This Agreement, the Subscription Agreement, the
Guaranty and the Note, (i) constitutes the entire agreement between the Parties
hereto and supersedes all prior agreements and understandings,
both written and oral, among the Parties with respect to the subject matter
hereof and (ii) are not intended to confer upon any person other than the Parties
any rights or remedies hereunder.

 

SECTION 22.
 Governing Law. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.

 

SECTION 23.
 Assignment. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by operation of law or otherwise by any of the Parties without the
prior written consent of the other Party in its sole and absolute discretion,
and any such purported assignment without the express prior written consent of
the other Party shall be void ab initio. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the Parties and their respective successors and assigns.

 

SECTION 24.
 Severability. If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby are not affected in any manner materially adverse to any Party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties shall negotiate in good faith to
modify this Agreement so as to effect he original intent of the Parties as
closely as possible in a mutually acceptable manner in order that the
transactions be consummated as originally contemplated to the fullest extent
possible.

 

SECTION 25.
 Consent to
Jurisdiction. In the event that any legal proceedings are commenced in any
court with respect to any matter arising under this Agreement, the Parties
hereto specifically consent and agree that the courts of the State of New York
and/or the Federal 

 

6

 

Courts located in the
State of New York shall have jurisdiction over each of the Parties hereto and
over the subject matter of any such proceedings, and the venue of any such
action shall be in New York County, New York and/or the U.S. District Court for
the Southern District of New York.

 

7

 

IN WITNESS WHEREOF,
Borrower and Lender have executed this Agreement as of the date first written
above.

 

 

	
   

  	
  INDIGO
  INVESTMENTS I LLC

  
	
   

  	
   

  
	
   

  	
  By: Indigo Ventures,
  LLC, as Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Eric Brachfeld

  	
   

  
	
   

  	
  Name:

  	
  Eric Brachfeld

  	
   

  
	
   

  	
  Title:

  	
  Managing Member

  	
   

  
	
   

  	
   

  
	
   

  	
  VISTULA
  COMMUNICATIONS SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Rupert
  Galliers-Pratt

  	
   

  
	
   

  	
  Name:

  	
  Rupert
  Galliers-Pratt

  	
   

  
	
   

  	
  Title:

  	
  President &
  Chief Executive Officer

  	
   

  

 

8

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