Exhibit 10.4
FIRST AMENDMENT TO
AMENDED AND RESTATED EQUIPMENT LOAN AND SECURITY AGREEMENT
This First Amendment to Amended and Restated Equipment Loan and Security
Agreement, dated as of April 24, 1997 (the "First 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 (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 consent to the bridge loan to
Borrower by Xxxxxx Xxxxxxx Group, Inc. or its assigns of up to Fifteen Million
Dollars ($15,000,000).
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Lender hereby consents to a waiver or an amendment to the certificate
of incorporation of Borrower in the form attached hereto as EXHIBIT A
permitting Borrower to incur the indebtedness evidenced by the Bridge
Notes and pursuant to the Note Purchase Agreement and related
documents to which it is or is to be a party, and to reduce the amount
of "keyman" life insurance Borrower is required to maintain with
respect to the death and long term incapacity of Xx. Xxxxxx Xxxx to
Ten Million Dollars ($10,000,000). Lender hereby waives the Default
that has occurred and is continuing hereunder as a result of the
failure of Borrower to deliver to Lender on or prior to March 31, 1997
the audited financial statements of Borrower and its Subsidiaries for
the fiscal year ended December 31, 1996, provided however, that
Borrower must deliver to Lender the audited financial statements of
Borrower and its subsidiaries for the fiscal year ended December 31,
1996 on or before June 1, 1997.
2. Article I: DEFINITIONS is amended by inserting the following
definitions:
"Asset Sale": the conveyance, sale, lease, sublease, transfer or
other disposition (other than solely for security purposes) by
any of Borrower and its Subsidiaries to any Person other than
Borrower or any of its wholly owned Subsidiaries of (a) any of
the shares of capital stock of Borrower or any of its
Subsidiaries, (b) all or substantially all of the property and
assets of any division or line of business of Borrower or any of
its Subsidiaries or (c) any other property or assets (whether
tangible or intangible) of Borrower or any of its Subsidiaries.
"Bridge Lender": individually and collectively, the holders of
Borrower's Bridge Notes evidencing amounts advanced under the
Note Purchase Agreement.
"Bridge Loan": that certain loan in an amount not to exceed
Fifteen Million Dollars ($15,000,000) pursuant to the issuance by
Borrower, and the purchase by initial holders thereof, of
Borrower's Bridge Notes.
"Bridge Note" or "Bridge Notes": individually and collectively,
those certain Senior Secured Increasing Rate Notes due April 24,
1998 issued by Borrower in the form of EXHIBIT B, identical with
each other except as to the identity of the initial purchasers
and the aggregate principal amount evidenced thereby, issued by
Borrower pursuant to the Note Purchase Agreement.
"Collateral Agent": the Collateral Agent for the holders of
Bridge Notes.
"1996 Flexible Incentive Plan": the stock incentive plan of
Borrower, pursuant to which options for 3,000,000 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.
"Note Purchase Agreement": individually and collectively, those
certain Note Purchase Agreements in the form attached hereto as
EXHIBIT C, identical with each other except as to the identity of
the initial purchasers and the aggregate principal amount of
Borrower's Bridge Notes to be purchased thereby, providing for
the sale on their respective purchase dates of Bridge Notes to
the initial purchasers named therein in an aggregate principal
amount not to exceed Fifteen Million Dollars ($15,000,000).
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"Pledgors": Xxxxxx Xxxx, Xxxxxx Xxxx, and Xxxx Xxxxx.
"Voting Interests": shares of capital stock issued by a
corporation, or equivalent interest in any other person, the
holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even if the right
so to vote has been suspended by the happening of such a
contingency.
3. Schedule 2.02 PAYMENT TERMS AND GOVERNING LAW is amended by deleting
the definition of "Tranche 2 Initial Payment Date" and substituting in
its place the following:
"TRANCHE 2 INITIAL PAYMENT DATE": the first (1st) Business Day
of the second (2nd) month to commence after the Tranche 2 First
Borrowing Date.
4 Section 2.04(b) MANDATORY PREPAYMENT is amended by deleting the text
thereof in its entirety and replacing it with the following:
MANDATORY PREPAYMENT. (i) Upon Lender's demand but at its
sole option, (a) if the NTI Purchase Agreement is terminated
prior to the Financing Termination Date, (b) if Borrower
fails to complete all the required purchases thereunder by
the Financing Termination Date, or (c) 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, or
(ii) upon Lender's demand but at its sole option, upon
receipt by Borrower or any of its Subsidiaries of Net Cash
Proceeds (as such term is defined in the Note Purchase
Agreement on the date of this First Amendment) from any
Asset Sale (other than (1) Asset Sales effected in the
ordinary course of Borrower's or the applicable Subsidiary's
business, and (2) Asset Sales effected since April 24, 1997,
the aggregate fair value of the property and assets of
Borrower and its subsidiaries subject to such Asset Sale
does not exceed Two
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Hundred Fifty Thousand Dollars ($250,000)), Borrower shall
immediately prepay the loans (or such portion thereof) by an
amount equal to (1) the lesser of the aggregate principal amount
of all Advances then outstanding and (2) so long as any Bridge
Notes are outstanding, the product of (x) Net Cash Proceeds
multiplied by (y) a ratio, the numerator of which is the
principal amount of all Advances then outstanding and the
denominator of which is the sum of the principal amount of all
Advances then outstanding plus the principal balance then
outstanding under the Bridge Loan (prior to giving effect to any
redemption of Borrower's Bridge Notes as a result of the Asset
Sale), or (iii) upon Lender's demand but at its sole option,
Lender may require Borrower to prepay all or any portion of the
Obligations hereunder upon any repayment of principal of the
Bridge Loan, if at such time there exists and is continuing (or
immediately thereafter upon giving effect to such repayment there
would be) a Default or Event of Default (the "MANDATORY
PREPAYMENTS"). Borrower agrees that in computing Borrower's
compliance with SCHEDULE 7.15 for the purpose of determining
whether Borrower has complied with clause (iii) of the
immediately preceding sentence in connection with a repayment of
the Bridge Loan, for such period being measured, (I) in the
calculation of EBITDA, proceeds received by Borrower from the
receipt of money prepaid by customers for services subsequently
to be rendered and from any other transaction outside the
ordinary course of business that would otherwise constitute
operating earnings shall be excluded from operating earnings,
(II) in the calculation of Debt Service Coverage Ratio, Cash Flow
shall be reduced by proceeds received by Borrower from the
receipt of money prepaid by customers for services subsequently
to be rendered (other than prepaid card services in the normal
course of business) and from any other transaction outside the
ordinary course of business, (III) in the calculation of Debt to
net worth, Debt shall be increased by the amount of proceeds
prepaid by customers for services subsequently to be rendered and
from any other transaction outside the ordinary course of
business creating Indebtedness of Borrower or any
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Subsidiary, and (IV) for purposes of computing Debt Service
Coverage Ratio, the date of such repayment of the Bridge Loan
shall be treated as the last day of a fiscal quarter and for
purposes of computing EBITDA, Borrower's operations from the
start of the current fiscal year to the date of such repayment
shall be annualized.
5. Article 3: COLLATERAL AND SECURITY AGREEMENT is amended by creating
SECTION 3.10 COVENANT TO GIVE FURTHER SECURITY, the text of which is
as follows:
3.10 COVENANT TO GIVE FURTHER SECURITY Borrower hereby agrees
that, as soon as practicable, and in any event not later than May
24, 1997:
(a) Borrower will execute and deliver to Lender a security
agreement in form and substance reasonably satisfactory to
Lender, pursuant to which Borrower will grant to Lender valid and
perfected liens on and security interests in all of the property
and assets of Borrower (whether now owned or hereafter acquired
and whether or not existing on such date) with respect to which
it executes a security agreement in favor of the Collateral Agent
pursuant to Section 8.10 of the Note Purchase Agreement and not
constituting part of the Collateral, which security interest
shall a second priority lien and security interest therein,
subject only to Permitted Liens and in furtherance of the
foregoing, shall duly execute and deliver to Lender financing
statements under the Uniform Commercial Code of all jurisdictions
or such other documents that may be necessary or that Lender
deems desirable in order to perfect and protect the security
interest created under such security agreements, and provide
Lender evidence that all actions deemed necessary or desirable by
it, in order to protect and perfect the lien and security
interest created under such security agreements (or the intended
priority of such liens and security interest) have been taken or
will be taken in accordance therewith. Lender agrees that such
liens and security interests shall be automatically released upon
the repayment and satisfaction of the Bridge Loan and further
agrees that it shall have no right to exercise any rights or
remedies with respect to such liens and security interests in
connection with a mandatory prepayment upon the repayment and
satisfaction of the Bridge Loan
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required pursuant to Section 2.04(b)(iii) of the Loan Agreement
as amended hereby.
(b) Each Pledgor shall execute and deliver to Lender a Stock
Pledge Agreement or an amendment to the Stock Pledge Agreement to
which it is a party, in either case in form and substance
reasonably satisfactory to Lender, pursuant to which such
individual will grant to Lender, a valid and perfected lien on
and security interest in all of the shares of capital stock of
Borrower, or warrants, options or other rights for or to the
purchase or acquisition from Borrower of any of such shares, that
are owned or thereafter are acquired by such individual (whether
or not existing on such date), and all proceeds of such shares,
warrants, options or other rights, which comprise Initial Pledged
Interests and Pledged Interests (as defined in the Note Purchase
Agreement and Shareholder Pledge Agreements, respectively) on the
date of this First Amendment pledged to the Collateral Agent as
security for the Note Purchase Agreement and which is not pledged
or required to be pledged to Lender under the Loan Documents,
which lien and security interest shall be at least a second
priority lien and security interest, subject only to the lien and
security interest in such property granted to the Collateral
Agent, and in furtherance of the foregoing, each such individual
shall duly execute and deliver to Lender financing statements
under the Uniform Commercial Code of all jurisdictions that may
be necessary or that Lender deems desirable in order to perfect
and protect the security interest created under such Stock Pledge
Agreements or amendments thereto, and provide Lender evidence
that all actions deemed necessary or desirable by it, in order to
protect and perfect the lien and security interest created under
such pledge agreements or amendments, have been taken or will be
taken in accordance therewith.
(c) Each of Borrower and the Collateral Agent shall have entered
into an inter-creditor agreement with Lender in form and
substance reasonably satisfactory to Lender (as amended,
supplemented or otherwise modified in accordance with the terms
thereof, the "Inter-Creditor Agreement") (a) setting forth the
respective rights and responsibilities of each of Lender and the
Collateral Agent so that (1) the Collateral Agent on behalf of
the Bridge Lender will have a valid
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and perfected first priority lien on and security interest in all
of the Initial Note Documents Collateral, as such term is defined
on the date hereof in the Note Purchase Agreement, and a valid
and perfected second security lien on and interest in all of the
Collateral hereunder (subject only to Permitted Liens and
subordinate to the liens and security interest in such property
and assets granted to Lender, pursuant to and on the terms and
conditions set forth in the Loan Documents); and (2) Lender, on
behalf of itself and assignees, if any, of all or any portion of
the loans made pursuant to the terms of the Loan Agreement, will
have a valid and perfected first priority lien on and security
interest in all of the Collateral (subject, but not subordinate
to, to Permitted Liens), and a valid and perfected second
priority lien on and security interest in all of the Initial Note
Documents Collateral (subject only to the liens and security
interests of the Collateral Agent pursuant to, and on the terms
and conditions set forth in, the Note Purchase Agreement and the
documents executed in connection therewith), which arrangements
shall be acknowledged by Borrower and (b) addressing such other
matters as Lender shall reasonably request (including, without
limitations, the agreement of Borrower to take all such actions
to assist in effectuating such inter-creditor arrangement as are
requested by the Collateral Agent and Lender therein;
(d) Borrower will cause to be delivered to Lender signed copies
of one or more favorable opinions of special or appropriate local
counsel for Borrower and Xxxxxx Xxxx, Xxxxxxx Xxxx and Xxxx
Xxxxx, as Lender shall reasonably request, addressed to Lender
and reasonably acceptable to it, as to the security agreements,
the Stock Pledge Agreements or amendments thereto, and the
Inter-Creditor Agreement referred to in paragraphs (a), (b) and
(c) of this SECTION 3.10, respectively, being the legal, valid
and binding obligations of Borrower or the applicable Pledgor,
enforceable against such party in accordance with their
respective terms, as to the creation and perfection (and, in the
case of capital stock of Borrower or any of its Subsidiaries and
intercompany Indebtedness, the priority) of the liens and
security interests created or purported to be created therein and
such other matters as Lender may reasonably request.
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6. Schedule 8.01 PERMITTED SPECIFIC INDEBTEDNESS is amended by deleting
the text thereof in its entirety and replacing it with the following:
(1) Indebtedness under that certain $350,000 "Instalment Note" made
by Borrower in favor of Israel Discount Bank of New York dated
July 15, 1994, and any amendments, modifications, extensions,
refinancings or replacements thereto not increasing the principal
indebtedness or payment terms thereof;
(2) Indebtedness under that certain $300,000 line of credit in favor
of Borrower made available by Israel Discount Bank of New York,
and any amendments, modifications, extensions, refinancings or
replacements thereto not increasing the principal indebtedness or
payment terms thereof;
(3) Indebtedness under that certain note in the amount of $31,316 for
the purchase of computer equipment that matures in March 1999,
and any amendments, modifications, extensions, refinancings or
replacements thereto not increasing the principal indebtedness or
payment terms thereof;
(4) Indebtedness under that certain promissory note in the amount of
$662,747 payable to the order of Sprint Communications Company,
L.P., and any amendments, modifications, extensions, refinancings
or replacements thereto not increasing the principal indebtedness
or payment terms thereof;
(5) Indebtedness under that certain agreement between Econophone Inc.
and Private Trans-Atlantic Telecommunications System, Inc. dated
December 15, 1994 ("PTAT-1 Agreement") in which Econophone Inc.
will acquire and operate facilities in the PTAT-1 cable in the
amount of $130,000; indebtedness under that certain amendment to
the PTAT-1 Agreement dated January 18, 1995 in which Econophone
Inc. will acquire and operate additional facilities in the PTAT-1
cable in the amount of $125,000; and indebtedness under that
certain amendment to the PTAT-1 Agreement dated December 27, 1995
in which Econophone Inc. will acquire and operate additional
facilities in the PTAT-1 cable in the amount of $224,000, and in
each case any amendments, modifications, extensions, refinancings
or replacements thereto in the ordinary course of business or
otherwise related to the purchase of
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additional capacity in connection with the Description of
Business set forth in Schedule I;
(6) Indebtedness under that certain agreement between Econophone Inc.
and Private Trans-Atlantic Telecommunications System (N.J.) Inc.
dated December 15, 1994 ("Backhaul Agreement") for a back-up
system to the PTAT-1 Agreement in the amount of $40,000;
indebtedness under that certain amendment to the Backhaul
Agreement dated January 18, 1995 for additional back-up systems
to the Backhaul Agreement in the amount of $40,000; and
indebtedness under that certain amendment to the Backhaul
Agreement dated December 27, 1995 for additional back-up systems
to the Backhaul Agreement in the amount of $80,000, and in each
case any amendments, modifications, extensions, refinancings or
replacements thereto in the ordinary course of business or
otherwise related to the purchase of additional capacity in
connection with the Description of Business set forth in Schedule
I;
(7) Indebtedness under that certain lease of software equipment in
the amount of $46,920, and any amendments, modifications,
extensions, refinancings or replacements thereto not increasing
the principal indebtedness or payment terms thereof;
(8) Indebtedness under that certain lease of computer equipment in
the amount of $65,916, and any amendments, modifications,
extensions, refinancings or replacements thereto not increasing
the principal indebtedness or payment terms thereof;
(9) Indebtedness under that certain lease of office-related equipment
in the amount of $41,386, and any amendments, modifications,
extensions, refinancings or replacements thereto not increasing
the principal indebtedness or payment terms thereof;
(10) Indebtedness under that certain lease of computer equipment in
the amount of $82,484, and any amendments, modifications,
extensions, refinancings or replacements thereto not increasing
the principal indebtedness or payment terms thereof;
(11) Indebtedness under that certain lease of office equipment in the
amount of $92,839, and any amendments, modifications, extensions,
refinancings or replacements thereto not increasing the principal
indebtedness or payment terms thereof;
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(12) Indebtedness under that certain lease of office equipment in the
amount of $17,570, and any amendments, modifications, extensions,
refinancings or replacements thereto not increasing the principal
indebtedness or payment terms thereof;
(13) Any Indebtedness referenced under Schedule 4.31 of this Loan
Agreement;
(14) Any Indebtedness related to the purchase or installation of
Additional Equipment or to the purchase of additional capacity in
furtherance of the Business Plan of Borrower;
(15) Any Indebtedness related to this Loan Agreement in the aggregate
principal amount of $2,000,000, and any amendments,
modifications, extensions, refinancings or replacements or
payment terms thereto;
(16) High Yield Notes;
(17) During the High Yield Period, Indebtedness described on pages
20-22 of the Memorandum Draft under the heading "Limitation on
Indebtedness" as permitted under the Indenture (as defined in the
Memorandum Draft);
(18) Indebtedness under the Note Purchase Agreement and the Bridge
Notes;
(19) Note payable to IDT in the amount of $836,620.26;
(20) Note payable to IDT in the amount of $175,000; and
(21) Indebtedness described in items 1, 2 and 3 of Schedule 8.10.
7. 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
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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.
(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.
(i) Liens securing the Bridge Notes, provided that Lender and
the Collateral Agent have entered into the Intercreditor
Agreement in form and substance satisfactory to Lender on or
before May 24, 1997.
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(2) With respect to Collateral located in London, England, Brussels,
Belgium, and Paris, France:
(a) A Lien in favor of the Collateral Agent securing the Bridge
Notes, provided that such Lien is subordinate to the Liens
in favor of Lender therein and Lender and the Collateral
Agent has executed the Intercreditor Agreement in form and
substance satisfactory to Lender on or before May 24, 1997.
(3) During the High Yield Period, encumbrances described on page 72
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.
8. Section 7.01(c) COMPLIANCE CERTIFICATE is amended by deleting the text
thereof in its entirety and replacing it with the following:
(c) COMPLIANCE CERTIFICATES. Within sixty (60) days after the end of
each Calendar Quarter, Borrower shall deliver to Lender a
certificate dated as of the end of such period, signed on behalf
of Borrower by a Responsible Officer of Borrower: (i) stating
that as of the date thereof no Event of Default has occurred and
is continuing or exists, or if an Event of Default has occurred
and is continuing or exists, specifying in detail the nature and
period of existence thereof and any action with respect thereto
taken or contemplated to be taken by Borrower; (ii) stating that
the signer has personally reviewed this Agreement and that such
certificate is based on an examination made by or under the
supervision of the signer sufficient to assure that such
certificate is accurate; (iii) calculating and certifying
Borrower's compliance with the financial covenants set forth in
SECTION 7.15 hereof; (iv) certifying an attached aging schedule
of Borrower's accounts receivables and trade payables for the
period then ended; and (v) (1) listing the name of each Owner of
Borrower and the number of shares or other indicia of ownership
held by such Owner (including in such list the name and amount of
options, warrants, rights of conversion or other ownership
right), provided that Borrower need not identify by name Owners
whose ownership positions is less than five percent (5%) of the
voting shares of any class of securities or the beneficial owners
of Investor
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and (2) calculating and certifying that Borrower is in compliance
with the requirements of SECTION 8.15.
9. Section 7.01 REPORTING AND INFORMATION REQUIREMENTS is amended by
creating a Section 7.01(d) COMPLIANCE WITH BRIDGE LOAN REPORTING
REQUIREMENTS, the text of which is as follows:
Borrower shall immediately deliver to Lender a copy of all
reports, documents, notices, and communications delivered to, or
received from, Bridge Lender under the terms of, or in connection
with the Note Purchase Agreement, including, without limitation,
Section 8.1 thereof.
10. Section 7.07 INSURANCE is amended by deleting the text of Section
7.07(a) in its entirety and replacing it with the following:
(a) Borrower shall provide and maintain and cause to be maintained at
all times insurance in such forms and covering such risks and
hazards and in such amounts and with an insurance corporation
with a Best Rating of "A-" or above, licensed to do business in
the states where the Equipment and the Borrower are located, as
may be reasonably satisfactory to Lender, as shown on SCHEDULE
7.07 hereto, and otherwise as may be required by the Security
Documents.
11. 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 June 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, (ii) amounts drawn under the Note Purchase Agreement
during such period and not repaid and unless the conditions of
Section 4 of the Note Purchase Agreement cannot be satisfied as
of the date of any requested borrowing thereunder, amounts
undrawn
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that remain available to Borrower under the Note Purchase
Agreement as of the end of such period and (iii) proceeds of any
Indebtedness which does not require principal payments on or
prior to, or within one year after, the Tranche 2 Maturity Date.
(b) MINIMUM CASH BALANCE. Commencing May 1, 1997, Borrower shall
maintain at all times a Cash balance of not less than $1,500,000, provided
that unless the conditions of Section 4 of the Note Purchase Agreement
cannot be satisfied as of the date of any requested borrowing thereunder,
Borrower may satisfy up to $500,000 of this required balance with amounts
undrawn that remain available to Borrower under the Note Purchase
Agreement.
(c) EBITDA. Borrower's EBITDA shall not be less than: for the fiscal
year ending December 31, 1997, ($7,500,000); 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 (i)
Subordinated Indebtedness and (ii) any Indebtedness which does not require
principal payments on or prior to, or within one year after, the Tranche 2
Maturity Date) of not greater than 3.00 to 1.00 for the fiscal quarter
ending March 31, 1997, and for each fiscal quarter thereafter. For
purposes of this calculation, the Preferred Stock shall not be included as
debt of Borrower.
11. Section 8.15 ISSUANCE OF ADDITIONAL CAPITAL STOCK is amended by
deleting the text thereof in its entirety and replacing it with the following:
Issue or sell or enter into any agreement or arrangement for the issuance
and sale of any shares of its capital stock (or other ownership or profit
interest therein), any securities convertible into or exchangeable for
shares of its capital stock (or other ownership or profit interest therein)
for any warrants, options or other rights for or to the purchase or
acquisition of any shares of its capital stock (or any ownership or profit
interests therein), except for (1) transfers and replacements of
outstanding shares of capital stock of Borrower; (2) the issuance and sale
of shares of common stock of Borrower to the holders of the Preferred Stock
upon any conversion thereof in accordance with the terms of Section 10.01
of Article Fourth of the Amended Certificate of Incorporation of Borrower;
and (3) the issuance and sale of shares of common stock of Borrower or
options to acquire such
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shares pursuant to, and in accordance with the terms of, the 1996 Flexible
Incentive Plan; provided, however, this restriction shall not be applicable
for so long as Lender has a first priority, perfected Lien pursuant to one
or more agreements substantially in the form of the Stock Pledge Agreement
on (i) 51% or more of the combined voting power of all outstanding Voting
Interests of Borrower as of the date of this First Amendment, and (ii) 40%
or more of the economic value of all shares of capital stock of Borrower
(excluding the Preferred Stock), all of the warrants, options or other
rights for or to the purchase or acquisition from Borrower of shares of
capital stock of Borrower, and all of the other ownership or profit
interests of Borrower, whether voting or non-voting, and whether or not
such shares, warrants, options, right or other interests are authorized or
otherwise existing on the date of this First Amendment. Borrower shall not
without Lender's prior written consent, issue any capital stock or other
ownership interests in Borrower that would cause a default under any Second
Amended and Restated Stock Pledge Agreement, as the same may be further
amended, restated or supplemented from time to time.
12. Article 8 NEGATIVE COVENANT is hereby amended by creating Section 8.16
Repayment of Bridge Loan, the text of which is as follows:
8.16 REPAYMENT OF BRIDGE LOAN. (a) Make any repayment of
principal under the Bridge Loan, whether at maturity, by redemption or
otherwise, without delivering to Lender at least five (5) days in
advance of such payment a certificate, signed on behalf of Borrower by
a Responsible Officer of Borrower stating that the Responsible Officer
has personally reviewed this Agreement and that such certificate is
based on an examination made by or under the supervision of the
Responsible Officer sufficient to assure that such certificate is
accurate and (i) setting forth the date for and the amount of the
scheduled payment of principal, (ii) calculating and certifying
Borrower's compliance or noncompliance with the financial covenants
set forth in SECTION 7.15 hereof immediately before, and after giving
effect to, the proposed payment of principal of the Bridge Loan, and
(iii) certifying whether as of the date thereof any Default or Event
of Default has occurred and is continuing, and whether upon giving
effect to such repayment any Default or Event of Default will have
occurred and be continuing.
(b) Borrower agrees that in computing Borrower's compliance with SCHEDULE
7.15 for the purpose of determining whether an Event of Default or Default
exists (or thereafter would exist), for such period being measured, (i) in
the calculation
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of EBITDA, proceeds received by Borrower from the receipt of money prepaid by
customers for services subsequently to be rendered and from any other
transaction outside the ordinary course of business that would otherwise
constitute operating earnings shall be excluded from operating earnings, (ii) in
the calculation of Debt Service Coverage Ratio, Cash Flow shall be reduced by
proceeds received by Borrower from the receipt of money prepaid by customers for
services subsequently to be rendered (other than prepaid card services in the
normal course of business) and from any other transaction outside the ordinary
course of business, (iii) in the calculation of Debt to net worth, Debt shall be
increased by the amount of proceeds prepaid by customers for services
subsequently to be rendered and from any other transaction outside the ordinary
course of business creating Indebtedness of Borrower or any Subsidiary, and (iv)
for purposes of computation of Borrower's Debt Service Coverage Ratio, the date
of such repayment shall be treated as the last day of a fiscal quarter and for
purposes of computing EBITDA, Borrower's statements to the date of such
repayment shall be annualized on a pro forma basis).
13. MISCELLANEOUS. Terms not otherwise defined in this First 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 First Amendment shall be
governed by and construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, the parties have caused this First 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:
---------------------------
Title:
------------------------
AMERICAN TELEMEDIA, LTD.
By:
---------------------------
Title:
------------------------
NTFC CAPITAL CORPORATION
LENDER
By:
---------------------------
Title:
------------------------
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