UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 3, 2006
Rapid Link, Incorporated
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(Exact name of Registrant as specified in its charter)
Delaware 0-22636 75-2461665
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation File Number) Identification No.)
17383 Sunset Boulevard, Suite 350
Los Angeles, California 90272
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(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code (310) 566-1700
Not Applicable
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 230.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
Telenational Communication, Inc. Stock Purchase Agreement
On May 3, 2006, Rapid Link, Incorporated entered into a definitive
stock purchase agreement (the "Purchase Agreement") to acquire from Apex
Acquisitions, Inc. (the "Stockholder"), all of the issued and outstanding
shares of capital stock of Telenational Communications, Inc., a privately
owned Delaware corporation ("Telenational") that is a provider of domestic
and international long distance services, including internationally
originated direct access calling services and pre-paid and post-paid calling
card services. The total purchase price for this acquisition is $4 million.
Pursuant to the terms of the Purchase Agreement, in consideration for the
acquisition of all of the issued and outstanding shares of Telenational (the
"Telenational Shares"), we will:
(a) Deliver $1 million in cash, payable within five days of the
closing of the Purchase Agreement (the "Initial Cash Payment");
(b) Issue 9,587,500 shares of our common stock (the "Initial Stock
Payment") within five business days of the later to occur of
(i) the delivery of the final calculation of the average
monthly gross profit for the calendar year ended December 31,
2005 (the "Fiscal 2005 Average Monthly Gross Profit") and (ii)
the closing of the acquisition contemplated by the Purchase
Agreement (the "Closing"). If Telenational's monthly retail
and wholesale gross margin combined (the "Average Monthly Gross
Profit") averages at least $300,000 per month ("Target Average
Gross Margin") for the calendar year ended December 31, 2005,
then the Stockholder shall be entitled to all of the Initial
Stock Payment. If the Fiscal 2005 Average Monthly Gross Profit
is less than the Target Average Gross Margin, the Initial Stock
Payment will be reduced proportionately;
(c) $500,000 in cash, payable within five business days after the
delivery of the calculation of Average Monthly Gross Profit for
the 90-day period immediately following the Closing (the "First
Performance Period") is greater than the Target Average Gross
Margin. If the actual gross margin is less than the Target
Average Gross Margin, this cash payment will be reduced
proportionately; and
(d) 9,875,500 shares following the 12-month anniversary of the
Closing (the "Contingent Stock Payment"), provided aggregate
gross margin for the 12-month period is not less than $3.6
million ("Target Gross Margin"), subject to adjustment based on
any shortfall as determined in accordance with (b) above. The
purchase price (adjusted downward for this calculation by 25%)
will be proportionately reduced by the percentage shortfall
of the actual gross margin achieved against the Target Gross
Margin. Any reduction in the adjusted purchase price will be
applied against the stock portion of the purchase price.
At the closing date of this acquisition, Apex will provide a working
capital loan to our Company in the amount of at least $200,000. This loan
will be payable in 12 equal monthly installments of principal and interest.
The loan will accrue interest at the rate of eight percent per annum and
will mature on the 12-month anniversary of the Closing.
We have also agreed to grant piggy-back registration rights to
Telenational, whereby we will register the common stock issued in connection
with the acquisition if our Company files a registration statement after the
closing date, subject to certain approvals and customary conditions and
limitations.
Amendment to Purchase Agreement
On May 5, 2006, we entered into an amendment to the Purchase
Agreement (the "Amendment"). The Amendment provides for the following:
(a) In lieu of the Initial Cash Payment, Apex has agreed to accept
a note in the aggregate principal amount of $1 million (the
"Note"). The Note is due and payable on the 18-month
anniversary of the Closing and will bear interest at the rate
of eight percent per annum. The Note is be secured by all of
the Telenational Shares; and
(b) Contingent Stock Payment. Within 45 days after the expiration
of the First Performance Period, our independent accountant
shall calculate Telenational's aggregate Monthly Gross Profit
for the First Performance Period (the "First Aggregate Monthly
Gross Profit"). In the event that Telenational's First
Aggregate Monthly Gross Profit is less than $900,000 (the
"Target Aggregate Monthly Gross Profit"), then the Contingent
Stock Payment shall be reduced by a number of shares to be
determined as follows:
(i) the product obtained by multiplying $750,000 by a
fraction whose numerator is the Target Aggregate Monthly
Gross Profit less the First Aggregate Monthly Gross
Profit and whose denominator is the Target Aggregate
Monthly Gross Profit; and
(ii) divided by the volume weighted average closing price per
share of our common stock as reported on the Over-the-
Counter Bulletin Board (or any other securities exchange
or inter-dealer quotation system on which our common
stock is then listed) for the 15 consecutive trading
days ending on the day prior to the first anniversary of
the Closing (the "Per Share Price"); provided, however,
that such Per Share Price shall be not less than $0.13
per share and not greater than $0.25 per share."
The closing of the transactions contemplated by the Purchase Agreement and
the Amendment took place on May 5, 2006, concurrently with the execution of
the Amendment.
Item 2.01 Completion of Acquisition or Disposition of Assets.
The disclosures set forth in Item 1.01 are hereby incorporated by
reference.
Item 3.02 Unregistered Sale of Equity Securities.
As described under Item 1.01 above, we have agreed to issue an aggregate of
19,750,000 to Apex as part of the total consideration for the acquisition
of the Telenational Shares. The shares will be issued in reliance on an
exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder.
Item 5.02 Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.
(b) On May 9, 2006, we issued a press release announcing the resignation
of Allen Sciarillo, effective as of May 8, 2006, from his positions as our
Company's Chief Financial Officer, Secretary, and Director. The press
release is filed as Exhibit 99.2 to this report and is hereby incorporated
by reference.
(c) On May 9, 2006, we issued a press release announcing the appointment,
effective as of May 8, 2006, of Christopher Canfield as our Company's new
Chief Financial Officer and Director. Mr. Canfield has been the President
and CEO of Telenational since early 1998, and heads the management team
responsible for positioning Telenational as a leader in the Enhanced Voice
Services industry. We plan to enter into an employment agreement with Mr.
Canfield within 30 days of the Closing.
There is no arrangement or understanding between Mr. Canfield and any other
person pursuant to which Mr. Canfield was appointed Chief Financial Officer.
There are no family relationships between Mr. Canfield and any of our
Company's directors or executive officers. We have not entered into any
transactions with Mr. Canfield of the sort described under Item 404(a) of
Regulation S-B.
Item 9.01 Financial Statements and Exhibits
a) Financial Statement of the business acquired
To be filed by amendment.
b) Pro Forma Financial Information
To be filed by amendment
d) Exhibits
Exhibit Number Description
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10.1 Stock Purchase Agreement, by and between Rapid Link,
Incorporated and Apex Acquisitions, Inc. dated as of
May 3, 2006.
10.2 Amendment No. 1 to Stock Purchase Agreement, by and
between Rapid Link, Incorporated and Apex Acquisitions,
Inc. dated as of May 5, 2006
10.3 Stock Pledge Agreement, by and between Rapid Link,
Incorporated and Apex Acquisitions, Inc. dated as of
May 5, 2006.
10.4 Secured Recourse Promissory Note, dated as of May 5,
2006, made by Rapid Link, Incorporated in favor of Apex
Acquisitions, Inc.
99.1 Press Release dated May 8, 2006
99.2 Press release dated May 9, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Rapid Link, Incorporated
Date: May 9, 2006 By: /s/ John Jenkins
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John Jenkins,
Chief Executive Officer