Exhibit 10.5
SECOND AMENDMENT TO
AMENDED AND RESTATED EQUIPMENT LOAN AND SECURITY AGREEMENT
This Second Amendment to Amended and Restated Equipment Loan and Security
Agreement, dated as of June 26, 1997 (the "Second Amendment"), is among
Econophone, Inc., a New York corporation ("Borrower"), its wholly owned
Subsidiary American Telemedia, Ltd. and NTFC Capital Corporation, a Delaware
corporation ("Lender").
WHEREAS, Borrower and Lender have previously entered into an Equipment Loan
and Security Agreement dated as of May 28, 1996 and amended and restated and
joined in by American Telemedia, Ltd. as of March 27, 1997, and as further
amended by that First Amendment to Amended and Restated Equipment Loan and
Security Agreement dated as of April 24, 1997 (as amended and restated, the
"Loan Agreement"), pursuant to which Lender has agreed to loan Borrower and
American Telemedia, Ltd. up to Five Million and 00/100 Dollars ($5,000,000),
subject to the terms and conditions stated in the Loan Agreement; and
WHEREAS, Borrower has requested that Lender make certain amendments in
connection with the issuance by Borrower of certain notes and warrants.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Article I: DEFINITIONS is amended as follows:
a. The definition of "High Yield Notes" is deleted in its entirety and
the following substituted in its stead:
"HIGH YIELD NOTES": $155,000,000 principal amount (or such higher
amount as may be issued) of Borrower's Senior Notes, which are issued
pursuant to documents containing substantially the same terms and
conditions as those described in the Memorandum Draft (and such other
terms and conditions as may be contained in the documents referred to
therein), and in any case (i) which are unsubordinated and unsecured
(except for approximately $55,000,000 (or such proportionately higher
amount in the event greater than $155,000,000 principal amount of High
Yield Notes are issued) of net proceeds from the issuance of the High
Yield Notes and accompanying warrants that will be pledged as security
for the payment of the first six scheduled interest payments due on
the High Yield Notes) obligations of Borrower, with a maturity date
not earlier than 2007, (ii) on which interest will be payable
semi-annually in arrears, and which will be subject to no put rights
or redemption rights, except for (w) upon the occurrence of asset
sales under certain circumstances,
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(x) an optional right of redemption by the Borrower no earlier than
January 1, 2002, (y) a right of the Borrower to redeem up to 35% of
the aggregate principal amount of High Yield Notes, exercisable no
later than July 15, 2000, with the proceeds of Public Equity
Offerings, as such term is defined in the Memorandum Draft, and (z) an
obligation of Borrower to offer to purchase the High Yield Notes at a
price equal to 101% of the aggregate principal amount thereof, plus
any accrued interest, upon the occurrence of a Change in Control, as
such term is defined in the Memorandum Draft.
b. EXHIBIT H to the Loan Agreement is replaced with EXHIBIT H attached to
this Second Amendment and the definition of "Memorandum Draft" is deleted
in its entirety and the following substituted in its stead:
"MEMORANDUM DRAFT": the Offering Memorandum (Subject to
Completion) dated June 11, 1997, pertaining to the High Yield Notes,
as well as certain warrants to purchase common stock of the Company, a
copy of which is attached hereto as EXHIBIT H.
c. The definition of "1996 Flexible Incentive Plan" is deleted in its
entirety and the following substituted in its stead:
"1996 Flexible Incentive Plan": the 1996 Flexible Incentive Plan
of Borrower, as amended from time to time, pursuant to which
options for shares of common stock of Borrower may from time to
time be granted or sold to key employees of Borrower and its
subsidiaries in order to retain or to create an incentive for
such key employees.
d. The definition of "PERMITTED INVESTMENTS" is deleted in its entirety
and the following substituted in its stead:
"PERMITTED INVESTMENTS": (a) direct obligations of, or
obligations for the timely payment of the principal of and interest of
which is fully and unconditionally guaranteed by, the United States of
America, (b) certificates of deposits of national or state banks,
certificates of deposit of federal savings and loan associations and
state building and loan associations which deposits are fully insured
by the Federal Deposit Insurance Corporation; (c) bankers acceptances
drawn on and accepted by commercial banks having a combined capital
and surplus of not less than $100,000,000 and rated "Aa" or higher by
Xxxxx'x Investor Service, and "AA" or higher by Standard & Poors
Corporation; (d) obligations of any agency or
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instrumentality of the United States of America that are backed by the
full faith and credit of the United States of America; (e) notes or
commercial paper (of entities other than Borrower or related entities)
rated in either of the two highest rating categories by Xxxxx'x
Investors Services and Standard & Poors Corporation; (f) repurchase
agreements with banking or financial institutions having a combined
capital and surplus of not less than $100,000,000, with respect to and
fully secured by obligations described in (a) or (d) above, and rated
"Aa" or higher by Xxxxx'x Investors Service and "AA" or higher by
Standard & Poors Corporation; (g) money market mutual funds which
invest solely in investments meeting the criteria of Permitted
Investments; and (h) during the High Yield Period, Temporary Cash
Investments, as such term is defined in the Memorandum Draft.
e. The definition of "Unrestricted Subsidiary" is deleted in its entirety
and the following substituted in its stead:
"UNRESTRICTED SUBSIDIARY": (i) any Subsidiary of the Borrower
that at the time of determination shall be designated an Unrestricted
Subsidiary by the board of directors of the Borrower in the manner
provided below and (ii) any Subsidiary of an Unrestricted Subsidiary.
The board of directors of the Borrower may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of
the Borrower) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property
of, the Borrower or any Restricted Subsidiary; provided that (A) any
Guarantee by the Borrower or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by the Borrower
or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated
has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under
the "Limitation on Restricted Payments" covenant described on pages
92-94 of the Memorandum Draft and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this
proviso would be permitted under the "Limitation on Indebtedness" and
"Limitation on Restricted Payments" covenants described on pages 90-92
and 92-94, respectively, of the Memorandum Draft. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that immediately after giving effect to such
designation (x) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately
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after such designation would, if Incurred at such time, have been
permitted to be incurred for all purposes of the Indenture and (y) no
Default or Event of Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing provisions. Capitalized terms used in this definition which
are defined in the Memorandum Draft shall have the meanings assigned
to them in the Memorandum Draft.
2. Section 2.01 COMMITMENT is amended by deleting the text thereof and
substituting in its place the following:
2.01. COMMITMENT. Subject to the terms and conditions herein
provided, and so long as no Event of Default has occurred and is
continuing hereunder, Lender agrees to lend to Borrower from time to
time before the Financing Termination Date, an aggregate principal
amount not to exceed the amount set forth on SCHEDULE 2.01 hereto as
the maximum principal amount (the "COMMITMENT"). If Borrower or NTI
should terminate the NTI Purchase Agreement at any time prior to the
Initial Payment Date, then the Commitment shall automatically
terminate, subject to Lender's right to make further Advances
hereunder, including, but not limited to, Advances under SECTION 2.03
hereof. All amounts advanced hereunder shall be used solely for the
purchase of NTI Equipment and related services (exclusive of sales
tax) from NTI, and amounts not exceeding the amount (if any) specified
on SCHEDULE 2.01 hereto may be used (i) to capitalize $102,856.33 of
Indebtedness owed hereunder, representing three days of interest in
March 1997 and principal and interest owed for the month of April 1997
and the Commitment Fee and (ii) for the purchase of network related
third party equipment and the preparation of a switch room for such
NTI Equipment, legal fees, charges, expenses and closing costs and
other expenses incurred by Borrower or incurred by Lender and payable
by Borrower under SECTION 2.10 hereof. From and after the Amendment
Closing Date through and to the Financing Termination Date, up to, but
not exceeding, Three Million Dollars ($3,000,000) of the Commitment
may be used (i) to capitalize $102,856.33 of Indebtedness owed
hereunder, representing three days of interest in March 1997 and
principal and interest owed for the month of April 1997 and the
Commitment Fee and (ii) to acquire NTI Equipment and related Software
to be located in London, England, Brussels, Belgium, or Paris, France,
in each case subject
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to the requirements of this Agreement, including but not limited to
the requirements of SECTION 3.09.
3. Schedule 2.01 PAYMENT TERMS AND GOVERNING LAW is amended by deleting
the text thereof and substituting in its place the following:
MAXIMUM LOAN AMOUNT
Maximum principal amount of all Loans: (i) Before the Amendment
Closing Date, Two Million Dollars ($2,000,000), One Million Four
Hundred Thousand Dollars ($1,400,000) of which may be used to acquire
NTI Equipment and related services and Six Hundred Thousand Dollars
($600,000) of which may be used for the purchase of network related
third party equipment, the preparation of a switch room for such NTI
Equipment, and the payment of closing costs and Lender's fees and
expenses, including Lender's attorneys' fees pursuant to Section 2.10
and the Origination Fee listed on Schedule 2.09, and (ii) from and
after the Amendment Closing Date to and through the Financing
Termination Date, an additional Three Million Dollars ($3,000,000)
which may be used (x) to acquire NTI Equipment and related Software to
be located in London, England, Brussels, Belgium and/or Paris, France,
and (y) to capitalize $102,856.33 of Indebtedness owed hereunder,
representing three days of interest in March 1997 and principal and
interest owed for the month of April 1997 and the Commitment Fee.
4. Clause (ii) TRANCHE 2 NOTE of Section 2.04(a) VOLUNTARY PREPAYMENT is
amended by deleting the text thereof in its entirety and replacing it with the
following:
(ii) TRANCHE 2 NOTE. The Borrower may, at its option, at any time
and from time to time, prepay the Advances under the Tranche 2 Note,
in whole (but not in part), upon at least thirty (30) Business Days
prior written notice to the Lender specifying the date of prepayment,
plus the premium described below, and all accrued but unpaid interest
thereon. Such notice shall be irrevocable and the principal amount
shall be due and payable on the date specified together with accrued
interest on the amount prepaid. Any such prepayment shall be subject
to a prepayment premium equal to a percentage of the amount prepaid as
follows: three percent (3%) if the prepayment is made during the first
full year following the Amendment Closing Date, two percent (2%) if
the prepayment is made during the second full year following the
Amendment Closing Date, one percent (1%) if the prepayment is made
during the third
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full year following the Amendment Closing Date, and zero percent (0%)
if prepayment is made thereafter. Amounts prepaid may not be
reborrowed and shall be applied as provided in SECTION 2.04(c).
5. Section 2.04(b) MANDATORY PREPAYMENT is amended by deleting the text
thereof in its entirety and replacing it with the following:
(b) MANDATORY PREPAYMENT. Upon Lender's demand but at its
sole option, upon the occurrence of any event pursuant to
which the Preferred Stock may be redeemed (other than any
special optional redemption of the Preferred Stock under
Section 7(a) of Article Fourth of the Amended Certificate of
Incorporation), then in any such case Borrower shall
immediately prepay the loans in full, including all
principal, accrued interest and expenses.
6. Article 3: COLLATERAL AND SECURITY AGREEMENT is amended by deleting
SECTION 3.10 COVENANT TO GIVE FURTHER SECURITY in its entirety.
7. Schedule 7.15 FINANCIAL COVENANTS is amended by deleting the text
thereof in its entirety and replacing it with the following:
(a) DEBT SERVICE COVERAGE RATIO. Borrower shall maintain a Debt
Service Coverage Ratio for the fiscal quarter ending September 30,
1997, and each fiscal quarter thereafter through the fiscal quarter
ended December 31, 1999, of not less than 1.10 to 1.00, and for each
fiscal quarter thereafter of not less than 1.25 to 1.00. For purposes
of calculating Cash Flow for computation of Debt Service Coverage
Ratio, Borrower shall be entitled to include (i) proceeds received
from the sale of any equity interest not required to be redeemed
during the term of this Agreement and (ii) unexpended proceeds of the
High Yield Notes with respect to which no event has occurred requiring
principal payments thereof.
(b) MINIMUM CASH BALANCE. Commencing July 1, 1997, Borrower
shall maintain at all times a Cash balance of not less than
$1,500,000. In calculating available Cash balance, Borrower may
include amounts available under the Bridge Loan, Permitted Investments
and immediately available lines of credit from recognized financial
institutions and other lines of credit reasonably acceptable to
Lender, but may not include net proceeds
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from the issuance of the High Yield Notes pledged as security for the
payment of the first six scheduled interest payments due on the High
Yield Notes.
(c) EBITDA. Borrower's EBITDA shall not be less than: for the
fiscal year ending December 31, 1997, ($10,000,000); for the fiscal
year ending December 31, 1998, ($5,000,000); for the fiscal year
ending December 31, 1999, $3,000,000; for the fiscal year ending
December 31, 2000, $10,000,000; and for the fiscal year ending
December 31, 2001, $10,000,000.
(d) DEBT TO NET WORTH RATIO. Borrower shall maintain, EXCEPT
DURING THE HIGH YIELD PERIOD, a ratio of Indebtedness to net worth
(calculated in accordance with GAAP but excluding from the calculation
of Indebtedness Subordinated Indebtedness) of not greater than 3.00 to
1.00 for the fiscal quarter ending September 30, 1997, and for each
fiscal quarter thereafter. For purposes of this calculation, the
Preferred Stock shall be included as equity, and shall not be included
as debt, of Borrower.
8. Item 17 of Schedule 8.01 PERMITTED SPECIFIC INDEBTEDNESS is amended by
deleting the text thereof in its entirety and replacing it with the following:
(17) During the High Yield Period, Indebtedness described on pages
90-92 of the Memorandum Draft under the heading "Limitation on
Indebtedness" as permitted under the Indenture (as defined in the
Memorandum Draft);
9. Schedule 8.02 PERMITTED SPECIFIC ENCUMBRANCES is amended by deleting
the text thereof in its entirety and replacing it with the following:
(1) With respect to property located in the United States:
(a) Any purchase money security interests related to Additional
Equipment;
(b) The lien of Israel Discount Bank of New York on all of
Borrower's property, equipment, inventory, fixtures, goods,
products of collateral and accounts evidenced by financing
statements filed at the Secretary of State's Office and the
City Register's Offices of New York and Kings Counties on
September 9, 1993, September 28, 1993 and September 10,
1993, respectively.
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(c) The lien of Primex Leasing Corporation on the Borrower's
Quikcard Thermal Transfer Printer evidenced by financing
statements filed at the Secretary of State's office and the
City Registers' Office of Kings County on January 26, 1995
and January 18, 1995, respectively;
(d) The lien of Sprint Communication L.P. on all accounts
receivable and proceeds of Borrower evidenced by a financing
statement filed at the Secretary of State's Office on
January 12, 1993;
(e) The lien of Master Lease Division of Tokai on Borrower's
lease of computer equipment evidenced by financing
statements filed at the Secretary of State's Office and the
City Registers' Office of New York County on April 1, 1996
and April 9, 1996, respectively;
(f) The lien of FINOVA Capital Corporation on certain office
equipment leased by Borrower evidenced by financing
statements filed at the Secretary of State's Office and the
City Registers' Office of Kings County on January 24, 1996
and January 26, 1996, respectively;
(g) The lien of Canon Financial Services, Inc. on Borrower's
lease of office equipment evidenced by a financing statement
filed at the Secretary of State's Office and the City
Registers' Office of Kings County on March 20, 1996 and
March 21, 1996, respectively; and
(h) The lien of Pitney Xxxxx Credit Corporation on Borrower's
lease of office-related equipment evidenced by a financing
statement filed at the Secretary of State's office on
January 16, 1996.
(2) With respect to Collateral located in London, England, Brussels,
Belgium, and Paris, France:
NONE
(3) During the High Yield Period, encumbrances described on page 97
of the Memorandum Draft under the heading "Limitation on Liens"
as permitted by the Indenture (as defined in the Memorandum
Draft), provided that no such encumbrances are on Collateral.
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10. Schedule 8.06 LIMITATION ON EQUITY PAYMENTS is amended by deleting the
text thereof in its entirety and replacing it with the following:
1. Nominal payments in lieu of the issuance of fractional shares
upon an exercise of options, warrants or similar agreements or
conversion rights.
2. Any special optional redemption of the Preferred Stock under
Section 7(a) of Article Fourth of the Amended Certificate of
Incorporation, as in effect on the date hereof.
3. Any repurchase of warrants issued with the High Yield Notes
in accordance with a Repurchase Offer upon the occurrence of a
Repurchase Event, as such terms are defined in the Memorandum
Draft.
11. Section 8.10 TRANSACTIONS WITH AFFILIATES is amended by deleting the
text thereof in its entirety and replacing it with the following:
8.10. TRANSACTIONS WITH AFFILIATES. Directly or indirectly,
enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or
assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of capital stock
of the Borrower or with any Affiliate of the Borrower or any
Restricted Subsidiary, except upon fair and reasonable terms no less
favorable to the Borrower or such Restricted Subsidiary than could be
obtained, at the time of such transaction or, if such transaction is
pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction
with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to
(i) transactions (A) approved by a majority of the disinterested
members of the board of directors of Borrower or (B) for which the
Borrower or a Restricted Subsidiary delivers to the Lender a written
opinion of a nationally recognized investment banking firm stating
that the transaction is fair to the Borrower or such Restricted
Subsidiary from a financial point of view, (ii) any transaction solely
between the Borrower and any of its Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries,
(iii) the payment of reasonable and customary regular fees to
directors of the Borrower who
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are not employees of the Borrower, (iv) any payments or other
transactions pursuant to any tax-sharing agreement between the
Borrower and any other Person with which the Borrower files a
consolidated tax return or with which the Borrower is part of a
consolidated group for tax purpose, (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant in the
Memorandum Draft, (vi) employment agreements with, and loans and
advances to, officers and employees of the Borrower and its Restricted
Subsidiaries, in each case in the ordinary course of business, (vii)
customary indemnification arrangements in favor of directors and
officers of the Company and its Restricted Subsidiaries, (viii)
transactions in accordance with the provisions of the Preferred Stock
of the Borrower as set forth in the Certificate of Incorporation of
the Borrower on the date of the issuance of the High Yield Notes or
(ix) those matters listed on SCHEDULE 8.10 hereto. Notwithstanding
the foregoing, during the High Yield Period, any transaction covered
by the first paragraph of this SECTION 8.10 and not covered by clauses
(ii) through (vi) of this paragraph, the aggregate amount of which
exceeds $3,000,000 in value, must be approved or determined to be fair
in the manner provided for in clause (i)(A) or (B) above.
12. Article 8: NEGATIVE COVENANTS is amended by deleting SECTION 8.16
REPAYMENT OF THE BRIDGE LOAN in its entirety and compliance with the
requirements thereof prior to its deletion is waived.
13. Lender hereby consents to an amendment to the certificate of
incorporation of Borrower in the form attached hereto as EXHIBIT A.
14. Lender hereby extends the time within which Borrower may satisfy the
requirements of SECTION 3.09 for Advances used to finance the acquisition of
Equipment placed in Belgium and France to thirty (30) days from the date hereof.
Lender confirms to Borrower that it has not declared a Default or Event of
Default, and waives any condition or event that would, as of the time of this
amendment and/or the issuance of the High Yield Notes, constitute a Default or
an Event of Default, provided that Borrower acknowledges nothing in this Section
14 shall be deemed to be a waiver by Lender of any condition or event (including
any condition or event existing on or prior to the time of the issuance of the
High Yield Notes) that would constitute a Default or an Event of Default to the
extent such event or condition continues to exist after the issuance of the High
Yield Notes.
15. MISCELLANEOUS. This Second Amendment shall become effective upon the
pricing of the High Yield Notes, but shall automatically terminate and be of no
further force and effect if
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the issuance of the High Yield Notes is not consummated within two weeks after
the pricing. Terms not otherwise defined in this Second Amendment have the
meanings ascribed to them in the Loan Agreement. Except to the extent expressly
varied hereby, the remaining terms and conditions of the Loan Agreement remain
in full force and effect. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed and delivered by its duly authorized officers, all as of the day and
year first above written.
ECONOPHONE, INC.
BORROWER
By:
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Title:
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AMERICAN TELEMEDIA, LTD.
By:
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Title:
NTFC CAPITAL CORPORATION
LENDER
By:
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Title:
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