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Amp'd Mobile Affidavit

In the United States Bankruptcy Court for the District of Delaware

In re: Chapter 11


Case No. 07-10739 (BLS)

Affidavit of Bill Stone in Support of First Day Motions and Applications

State of California

County of Los Angeles

Bill Stone, being duly sworn, deposes and says:

1. On June 1, 2007 (the "Petition Date"), Amp'd Mobile, Inc. ("Amp'd Mobile" or "Amp'd"), debtor in possession (the "Debtor"), commenced a case under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code") in this Court. I am the President of Amp'd Mobile, Inc. As such, I am familiar with the day-to-day operations, business and financial affairs of the Debtor.

2. The Debtor continues to operate its business and manage its properties as debtor in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

3. I submit this affidavit to assist the Court and other parties in interest in understanding the circumstances that compelled the commencement of these chapter 11 cases and in support of the first day motions and applications (the "First Day Motions"). Except as otherwise indicated, all facts set forth in this affidavit are based upon my personal knowledge, information provided to me by certain of the Debtor's employees, my review of relevant documents or my opinion based upon my experience, knowledge and information concerning the operations and financial affairs of the Debtor. If I were called upon to testify, I would testify competently to the facts set forth in this affidavit. I am authorized to submit this affidavit.

Background and Events Leading to the Commencement of the Chapter 11 Cases

A. The Debtor's Business

4. The Debtor was incorporated on December 18, 2003 in Delaware and is in the business of mobile entertainment, providing voice, text and entertainment content to subscribers who contract with the Debtor for cellular telephone service. The Debtor is a Mobile Virtual Network Operator, or MVNO. An MVNO does not build or own its own cellular telephone network. It enters into an agreement with a cellular telephone company that does own such a network, agrees to purchase minutes and megabytes from such network operator on a wholesale basis, and then resells such capacity to individual subscribers on a retail basis. The Debtor entered into a certain Wholesale Agreement with Cellco Partnership d/b/a Verizon Wireless ("Verizon"), the network carrier of the Debtor's MVNO business, on June 1, 2005.

5. The Debtor is the first integrated mobile entertainment company for youth, young professionals and early adopters, and the only third-generation (3G) carrier in the US specifically targeting that demographic. The Debtor distinguishes itself from other cellular providers on the basis of an edgy, irreverent brand image and by providing a large body of entertainment content delivered to the subscriber's handset. The Company's target demographic is 18-25 year olds. By leveraging the power of broadband wireless (EVDO), the Debtor offers traditional services such as voice and text within a completely fresh user interface and 3G technology designed specifically for the "mobile graduate." With a myriad of customizable options to meet each person's individual needs, as well as strategic alliances with top entertainment properties, such as MTV Networks and Universal Music Group, the Debtor brings a more relevant, personal experience to the wireless lifestyle with unique music, video, community, entertainment, sports and gaming offerings divided into various channels for quick and easy access. EVDO combines clarity and coverage with the fastest download speeds in North America.

6. The Debtor's users consumed more than four million videos, songs and mobile games in the first quarter of 2007, doubling the fourth quarter of 2006 figure of two million, with a total of more than six million downloads to date. In addition, the Debtor's subscribers are downloading more over-the-air music downloads than ringtones.

7. The Debtor operates nationwide and has successfully expanded to Japanese and Canadian markets (through non-debtor affiliates) with the deployment of Amp'd Live, which reaches nearly 30 million mobile users in North America and Asia and creates a cross-cultural creative exchange for youth worldwide.

B. The Events Leading to the Bankruptcy Filing

8. Initially, in 2004, the Debtor's founder financed the Debtor personally. Later, in 2005, a group of investors including Highland Capital Partners, Columbia Capital Equity Partners and Redpoint Ventures invested in the Company. The Company continued development activities throughout 2005, including the design of the proposed customer experience through a unique user interface allowing access to entertainment content, licensing of content from licensors such as MTV Networks, the Ultimate Fighting Championship, a professional motocross racing association, Playboy Enterprises, major record labels, video game companies and others, and explored distribution strategies that would ultimately see the Debtor's service sold through retail outlets such as Best Buy, Circuit City, and a host of independent cellular dealers.

9. The Debtor was also successful in attracting investment from major strategic partners such as MTV Networks, Vivendi/Universal Music Group (the largest single investor), Intel, Qualcomm and Best Buy. Through the date of filing of its Chapter 11 petition, the Debtor raised approximately $350 million in equity investment and approximately $31 million of secured and unsecured debt investments.

10. The Debtor launched its services to consumers in December 2005. Throughout the first half the 2006, customer acquisition remained extremely low. In the second half of 2006, the Debtor aggressively advertised its service through television advertisements on MTV Networks and other promotional avenues.

11. By the end of 2006, the Debtor had approximately 100,000 subscribers to its service. From November 2006 through February 2007, the Debtor experienced an unprecedented growth of subscribers.

12. Unfortunately, in early 2007, the Debtor also began to experience customer collection problems at rates that were higher than industry norms. Approximately 90% of the Debtor's customers were on 18 month service contracts, meaning the Company essentially extended customers credit and billed customers for monthly service charges. The Debtor began to find a host of credit and collections problems and contributed ultimately to a liquidity crisis.

13. The Debtor moved quickly to remedy each of the issues it identified but its business model could not sustain such revenue collections problems, but by May 2007, the Debtor came to the realization that the number of its customers who were likely to be non-paying customers approached 80,000.

14. The Debtor attempted to raise additional investment funds from its existing equity and debt holders throughout May 2007. Those efforts appeared to be successful even as late as the day of the Debtor's filing on June 1, 2007. Unfortunately, the Debtor's existing investors ultimately declined to further fund the business.

15. Further compounding the liquidity crisis at the Debtor was the fact that Verizon, which provides the network carrier services that are integral to the delivery of the Debtor's services to its customers, had declared a default of the Wholesale Agreement and provided the Debtor with ten (10) days to make a $4.5 million cure payment. Faced with no other viable alternative, the Debtor's board of directors resolved to seek bankruptcy protection on an emergency basis on the evening of June 1, 2007.

16. On the evening of June 1, 2007, and in direct contravention of the Wholesale Agreement and the Default Notice sent on May 22, 2007, Verizon prematurely sent a letter to the Debtor purporting to terminate the Wholesale Agreement "effective immediately" and asserting its right to disconnect the network carrier services to the Debtor's customers. The Debtor will be seeking an appropriate legal adjudication from this Court that the Wholesale Agreement remains in full force and effect.

Facts in Support of First Day Motions

17. Concurrently with the filing of its chapter 11 petition, the Debtor filed the First Day Motions. The Debtor requests that the relief requested in each of the First Day Motions described below be granted, as each request for relief constitutes a critical element in achieving the successful rehabilitation and reorganization of the Debtor for the benefit of all parties in interest.

Emergency Motion of Debtor for Interim and Final Orders (I) Authorizing the Use of Cash Collateral Pursuant to Sections 105, 361, 362, 363 and 364 of the Bankruptcy Code and Federal Rule Of Bankruptcy Procedure 4001(B), (II) Granting Adequate Protection to the Prepetition Secured Lender and (III) Scheduling and Approving Form and Manner of Notice of Final Hearing

18. As of the Petition Date (as defined below) the Debtor was indebted and liable to Kings Road Investment Ltd. (the "Lender") pursuant to a Convertible Secured Promissory Note (the "Note") dated April 2, 2007, in the principal amount of $30,000,000. The Debtor believes that the Lender's liens and security interests are valid, perfected, enforceable and constitute first priority liens and security interests in all of the Debtor's assets except the Debtor's intellectual property.

19. Prior to obtaining the financing from the Lender, the Debtor, since its inception in 2003, had raised approximately $350,000,000 from a group of equity investors, including Highland Capital Partners, Columbia Capital Equity Partners and Redpoint Ventures. In addition, as part of the effort to raise equity funding, the Debtor was successful in attracting investments from strategic partners such as MTV Networks, Vivendi/Universal Music Group (the largest single investor), Intel, Qualcomm and Best Buy.

20. Unfortunately, at a time when the Debtor began to experience unprecedented growth in the number of its subscribers, it also encountered a myriad of problems, including a large number of non-paying customers, which led to a serious liquidity crisis in the spring of 2007. Unable to sustain the business model in the face of mounting debts, and faced with a default notice received from Cellco Partnership d/b/a Verizon Wireless ("Verizon") on May 22, 2007 (the "Default Notice") in connection with a Wholesale Agreement entered into in April, 2005 that permitted the Debtor to purchase the minutes and megabytes necessary to serve its customer base, the Debtor began in earnest to attempt to raise additional funds from its existing equity and debt holders.

21. As late as the morning of June 1, 2007, the Debtor believed that a resolution would be reached but those hopes were dashed and the Debtor was forced to seek protection under the Bankruptcy Code later that same evening. While preparing the emergency filing, the Debtor was in communications and negotiations with the Lender concerning an interim debtor in possession financing facility and, in fact, had received a term sheet that would have provided the Debtor with sufficient additional liquidity to make a smooth transition into chapter 11.

22. Unfortunately, and as the direct result of the Debtor having received a purported termination letter (1) (the "Termination Letter") from Verizon late in the evening of June 1, 2007, the Lender has made a determination to not provide immediate funding to the Debtor but has instead indicated its willingness to consent to the use of cash collateral on certain terms and for the primary purpose of allowing the Debtor to negotiate and/or litigate the purported termination of the Wholesale Agreement between Verizon and the Debtor.

23. Currently, the Debtor has no available cash or assets readily convertible to cash that are not subject to the Lender's liens and security interests. As a result, the Debtor requires, pursuant to sections 105(a), 361, 362, and 363 of the Bankruptcy Code, the use of the Lender's cash collateral (the "Cash Collateral") to pay its necessary operating expenses, and to preserve and increase the value of its assets for the benefit of all creditors and parties-in-interest, including the Lender.

24. If this Court approves the Debtor's use of Cash Collateral, the Debtor will be in a position to fund its operating expenses as a going concern for the immediate future until a determination can be made with respect to the Verizon contract dispute. The Debtor needs to use the Cash Collateral in order to, inter alia, fund payroll in order to satisfy employee obligations, pay vendors and suppliers and meet other on-going business obligations. Without the authority to use Cash Collateral, the Debtor will not be able to satisfy its payroll obligations or fund its business operations in a manner that will allow the Debtor to continue to operate as a going concern, all to the detriment of all creditors of the Debtor.

25. A denial of the use of the Cash Collateral to fund the Debtor's continuing day-to-day operations would severely damage not only the Debtor and its current employees and customers, but also the Lender and other creditors of the Debtor. Further, the denial of the use of Cash Collateral will cause immediate and irreparable harm to the reputation, goodwill, and public confidence in the Debtor, a consequence that can only translate into a drastic loss of value as a going concern.

26. Moreover, the Lender will benefit from approval of the request to use Cash Collateral because the Debtor intends to resolve its existing dispute with Verizon and then move forward to preserve the Lender's collateral through a reorganization or sale of the Debtor's business.

27. Perhaps most importantly, and in an effort to provide the Lender with a level of protection commensurate with the risk being taken by permitting the continued use of cash collateral in the midst of an uncertain legal outcome with Verizon, the Debtor believes that the adequate protection being provided to the Lender, in the form of replacement liens, avoidance actions, a lien on the Debtor's intellectual property, and a superpriority claim pursuant to section 364 (c)(1) is necessary and represents the sound business judgment of the Debtor.

Debtor's Motion for Order Pursuant to 11 U.S.C. §§ 345 and 363 and Local Rule 2015-2 (i) Authorizing Continued Use of Existing (a) Cash Management System and Bank Accounts and (b) Business Forms; and (ii) Waiving Investment and Deposit Requirements

28. As is typical with most corporate enterprises, the Debtor has established a system for the collection of receipts and the disbursement of funds. A list of all of the Debtor's bank accounts (the "Bank Accounts"), which together comprise the cash management system (the "Cash Management System"), is set forth on Exhibit "A" attached to the motion. Receipts the Debtor receives from its credit card servicer are deposited into the Debtor's "Merchant" account. Receipts the Debtor receives from its general retailers, including but not limited to Best Buy and Circuit City, are deposited into the Debtor's "Amp'd Mobile Retail" account. Funds deposited into "Merchant" account and the "Amp'd Mobile Retail" account are swept into the Debtor's "General" account. Cash and check receipts received directly from customers are also deposited into the General account. Payments by the Debtor are made from the General account. The Debtor's regulatory payments are made from its "Amp'd Regulatory Filing" account which is funded through the General account when regulatory payments need to be made. The Debtor maintains an additional "Investment" account in which deposits from its investors are deposited.

29. In addition, the Debtor requests permission to use its existing business forms and stationery without alteration. Local Rule 2015-2(a) provides that "[w]here the debtor uses pre-printed checks, upon motion of the debtor, the Court may, without notice and hearing, permit the debtor to use its existing checks without the designation 'Debtor-in-Possession' [until] the debtor's existing checks have been used." Parties doing business with the Debtor undoubtedly will be aware of the Debtor's status as a chapter 11 debtor in possession. Additionally, the Debtor does not print its own business forms and stationery. Thus, substantial time and expense would be required if the Debtor were required to print new business forms and stationery merely to indicate "debtor in possession." Changing the business forms at this critical, early stage of its chapter 11 cases would be expensive and burdensome to the Debtor's estate and present an unnecessary distraction, extremely disruptive to the Debtor's business operations.

30. Additionally, the Debtor requests a waiver of the strict application of the requirements of section 345 of the Bankruptcy Code. All of the Debtor's Bank Accounts are federally insured, but may on occasion exceed the federally insured limit of $100,000. Given that these are business accounts, however, and considering the stability of the Debtor's bank, such funds are not at risk. The Debtor respectfully requests authority to maintain its cash in the Bank Accounts in a safe and prudent manner, in accordance with its existing practices. Local Rule 2015-2(b) provides that if a motion for a waiver under section 345 of the Bankruptcy Code is filed on the first day of the case, and there are more than 200 creditors, the court may grant an interim waiver. The Debtor seeks an interim order, and upon notice and a hearing (if any objections thereto), the entry of a final order.

31. By preserving business continuity and avoiding the operational and administrative paralysis that changing the cash management system, bank accounts, and business forms would necessarily entail, all parties in interest will be best served and the Debtor will benefit considerably from the relief requested in the motion.

Debtor's Motion for Authority to Pay Prepetition Wages, Compensation and Employee Benefits

32. The Debtors seek authority to pay certain prepetition obligations owing to the Debtors' employees, including, but not limited to, (i) amounts owed to employees for wages and salaries; (ii) reimbursement of employee business expenses incurred in the ordinary course, such as travel, meals and lodging; (iii) maintenance of employee health and welfare plans, workers' compensation, 401(k), and other similar benefits; and (iv) other miscellaneous employee expenses and benefits (collectively, the "Prepetition Employee Obligations"). The Debtors seek authority to honor Prepetition Employee Obligations as payment of such obligations is critical and essential to employee morale and future business needs.

33. The Debtor employs approximately 229 employees in the United States. The Debtor seeks to be authorized, but not directed, to honor all outstanding payroll obligations. The Debtor's employees are paid bi-monthly on a current basis. The Debtor's bi-monthly payroll averages approximately $987,000 in the aggregate. The Debtor's last regular payroll date was May 31 (the "Last Payroll"). The Debtor estimates that approximately 80% of its employees have direct deposit. The remaining employees are paid on checks issued through ADP, a third-party provider. The Debtors pay ADP prior to the issuance of payroll checks to the Debtor's employees. ADP then pays the Debtor's employees from ADP's accounts. The Debtors anticipate that, due to the large number of employees receiving direct deposit and the issuance of payroll checks from ADP's accounts, that its employees will experience no interruption in payroll. Moreover, no payroll amounts are past due. However, the Debtor seeks relief to pay any pre-petition payroll amounts in the abundance of caution.

A. Vacation, Paid Time Off, and Sick Leave

34. In addition to wages and salary, certain of the Debtor's employees accrue paid vacation time, paid time off, and/or paid sick time based on length of service. The Debtor intends to permit remaining employees to continue to use any such accrued but unused time off in the ordinary course. Employees who are terminated, however, would normally be entitled to receive cash in lieu of accrued but unused vacation or paid time off upon separation. The Debtor seeks to p

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