WAIVER AND AMENDMENT AGREEMENT
Exhibit
10.4
THIS
WAIVER AND AMENDMENT AGREEMENT (hereinafter
referred to as this “Agreement”) is made and entered into as of November 14,
2006, by and between INNOTRAC CORPORATION, a Georgia corporation (hereinafter
referred to as “Borrower”), and WACHOVIA BANK, NATIONAL ASSOCIATION (hereinafter
referred to as “Bank”).
BACKGROUND
STATEMENT
A. Borrower
and Bank are parties to that certain Third Amended and Restated Loan and
Security Agreement dated March 28, 2006 (as previously amended, the “Loan
Agreement”). Capitalized terms used herein, unless otherwise defined, shall have
the meanings ascribed to them in the Loan Agreement.
B. Borrower
has informed the Bank that certain Events of Default have occurred and continue
to exist under the Loan Agreement by reason of the following (collectively,
the
"Stipulated Defaults"): (i) Borrower's failure to comply with Section 7(a)
(Fixed Charge Coverage Ratio) (the "FCC Covenant") of the Loan Agreement
for the
Borrower's fiscal quarter ending September 30, 2006, and (ii) Borrower's
failure
to comply with Section 6.1 (Debt) of the Loan Agreement as a result of
Borrower's incurring in connection with Borrower's acquisition of ClientLogic’s
fulfillment and reverse logistics business deferred purchase obligations
for
such purchased assets consisting of (A) a $800,000 deferred purchase payment
due
in February 2007 and (B) an earn-out payment commencing on or before April
2007
and ending on or before April 2008 (the "Deferred Purchase Price Payments").
C. The
Borrower has requested that the Bank waive the Stipulated Defaults and amend
the
Loan Agreement as hereinafter set forth and the Bank has agreed, subject
to all
of the terms and conditions set forth below.
AGREEMENT
FOR
AND
IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00), the foregoing
recitals, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrower and Bank do hereby agree as
follows:
1. Waiver
of the Stipulated Defaults.
Bank
hereby waives the Stipulated Defaults and Borrower agrees to strictly comply
with the Loan Agreement hereafter. Borrower hereby agrees that nothing herein
shall constitute a waiver by Bank of any Default or Event of Default (except
as
expressly provided in this paragraph 1 with respect to the Stipulated Defaults),
whether known or unknown, which may exist under the Loan Agreement or any
other
Loan Document. Borrower hereby further agrees that no action, inaction or
agreement by Bank, including, without limitation, any extension, indulgence,
waiver, consent or agreement of modification which may have occurred or have
been granted or entered into (or which may be occurring or be granted or
entered
into hereunder or otherwise) with respect to nonpayment of the Loans or other
Obligations or any portion thereof, or with respect to matters involving
collateral security for the Loans or other Obligations, or with respect to
any
other matter relating to the Loans or other Obligations, shall require or
imply
any further extension, indulgence, waiver, consent or agreement by Bank.
Except
as expressly provided in this paragraph 1, Borrower hereby acknowledges and
agrees that Bank has not made any agreement, and is in no way obligated,
to
grant any further extension, indulgence, waiver or consent with respect to
the
Loans, the other Obligations, the Loan Agreement or any other Loan Document.
2. Amendments.
The
Loan Agreement is amended as set forth below.
(a) The
definition of "Applicable Margin" contained in Section 1.1 of the Loan Agreement
is hereby amended and restated in its entirety as follows:
"Applicable
Margin"
means,
at any time of determination by Bank, as to any Base Rate Loan or LMIR Loan,
the
relevant percentage below corresponding to the Borrower's Average Excess
Availability (90) set forth below:
|
Average
Excess
Availability
(90)
|
Base
Rate Loans
|
LMIR
Loans
|
|
<
$5,000,000
|
0.00%
|
2.00%
|
|
>
$5,000,000
but
<
$7,500,000
|
0.00%
|
1.50%
|
|
>
$7,500,000
but
<
$10,000,000
|
0.00%
|
1.25%
|
|
>
$10,000,000
|
0.00%
|
1.00%
|
In
addition, at all times during which the Fixed Charge Coverage Ratio is less
than
1.00 to 1.00, the Applicable Margin for Base Rate Loans then in effect shall
be
increased by an additional 1.00% and the Applicable Margin for LMIR Loans
then
in effect shall be increased by an additional 0.85%. Nothing in this paragraph
shall limit Bank's rights to impose the Default Rate under Section 2.8 of
this
Agreement, if applicable.
Solely
for the purposes of the definition of "Applicable Margin," the Borrowing
Base
shall be calculated without subtracting (i) the Target Reserve when in effect
or
(ii) the Availability Reserve when in effect.
(b) The
definition of "Availability Reserve" contained in Section 1.1 of the Loan
Agreement is hereby amended and restated in its entirety as
follows:
"Availability
Reserve"
means,
at all times during which the Fixed Charge Coverage Ratio is less than 1.15
to
1.00, an amount equal to $2,000,000.
(c) The
definition of "Average Excess Availability" contained in Section 1.1 of the
Loan
Agreement is hereby deleted and the following new definitions are hereby
added
to Section 1.1 of the Loan Agreement as follows:
"Average
Excess Availability (90)"
means,
on any date, an amount equal to the total amount of Availability for each
day
during the immediately preceding 90 day period, as determined by Bank pursuant
to the terms hereof, divided by 90.
"Average
Excess Availability (30)"
means,
on any date, an amount equal to the total amount of Availability for each
day
during the immediately preceding 30 day period, as determined by Bank pursuant
to the terms hereof, divided by 30.
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(d) The
definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement
is
hereby amended and restated in its entirety as follows:
"Borrowing
Base"
means,
on any date of determination thereof, an amount equal to:
(i)
up
to 85%
of the total amount of Eligible Accounts, plus
(ii)
the
lesser of (a) $2,000,000 or (b) up to 50% of the total amount of Eligible
Inventory; minus
(iii)
any
Reserves.
(e) Section
2.13 of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
2.13 Termination.
Upon at
least thirty (30) days prior written notice to Bank, Borrower may, at its
option, upon payment of the Early Termination Fee (defined below), terminate
this Agreement and the Revolver Commitment in its entirety but not partially;
provided however, no such termination by Borrower shall be effective until
the
full, final and indefeasible payment of the Obligations and Early Termination
Fee in cash or immediately available funds and in the case of any Obligations
consisting of contingent obligations, Bank's receipt of either cash or a
direct
pay letter of credit naming Bank as beneficiary and in form and substance
and
from an issuing bank acceptable to Bank, in each case in an amount not less
than
105% of the aggregate amount of all such contingent obligations. Any notice
of
termination given by Borrower shall be irrevocable unless Bank otherwise
agrees
in writing. "Early Termination Fee" means an amount equal to (i) 1.00% of
the
Revolver Commitment in the event of termination of the Revolver Commitment
on or
before November 14, 2007, and (ii) 0.50% of the Revolver Commitment in the
event
of termination of the Revolver Commitment after November 14, 2007, but before
November 14, 2008. Bank may terminate this Agreement and the Revolver Commitment
at any time, without notice, upon or after the occurrence of a Default or
Event
of Default.
(f) Section
5.5 of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
5.5 Inspections
of Books and Records and Field Examinations.
Shall
permit inspections of the Collateral and the records of such Person pertaining
thereto and verification of the Accounts, at such times and in such manner
as
may be required by Bank and shall further permit such inspections, reviews
and
field examinations of its other books and records and properties (with such
frequency and at such times as Bank may desire) by Bank as Bank may deem
necessary or desirable from time to time. The cost of all such field
examinations, reviews, verifications and inspections shall be borne by Borrower,
provided that the cost of field examinations shall not exceed $850 per examiner
per day, plus Bank's reasonable out-of-pocket expenses.
(g) Section
5.6(a) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
3
(a) Periodic
Borrowing Base Information.
During
all periods in which Average Excess Availability (30) (1) equals or exceeds
$5,000,000, within thirty (30) days after the end of each month, or (2) is
less
than $5,000,000, on the third Business Day of each week, a completed Borrowing
Base Certificate in the form attached hereto as Exhibit 5.6(a) for the prior
week or month, as applicable (a "Borrowing Base Certificate"). Borrower shall
attach the following to each Borrowing Base Certificate delivered on a weekly
basis, which shall be certified electronically or manually by the controller
or
president of Borrower to be accurate and complete and in compliance with
the
terms of the Loan Documents: copies of the prior week's sales and collections
registers. On or before the date which is thirty (30) days after the end
of each
month, Borrower shall deliver the following to Bank, which shall be certified
by
the controller or president of Borrower to be accurate and complete and in
compliance with the terms of the Loan Documents: (i) only if Borrower is
delivering weekly Borrowing Base Certificates hereunder, a reconciliation
statement for the Borrowing Base Certificate delivered for the last full
week of
the prior month, reconciling such Borrowing Base Certificate through the
last
day of such prior month, (ii) a report listing all Accounts of Borrower as
of
the last Business Day of the prior month (an "Accounts Receivable Report")
which
shall include the amount and age of each Account on an original invoice date
aging basis, the name and mailing address of each Account Debtor, a detailing
of
all Accounts which do not constitute Eligible Accounts, and such other
information as Bank may require in order to verify the Eligible Accounts,
all in
reasonable detail and in form acceptable to Bank, (iii) a report listing
all
Inventory and all Eligible Inventory of Borrower as of the last Business
Day of
the prior month, the cost thereof, specifying raw materials, work-in-process,
finished goods and all Inventory which has not been timely sold by Borrower
in
the ordinary course of business, and such other information as Bank may require
relating thereto, all in form acceptable to Bank (an "Inventory Report"),
and
(iv) any other report as Bank may from time to time require in its sole
discretion, each prepared with respect to such periods and with respect to
such
information and reporting as Bank may require.
(h) Section
5.6(d) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
(d) Compliance
and No Default Certificates.
Together with each report required to be delivered by Subsection (b) in
connection with the end of each month (or quarter if tested on a quarterly
basis
as permitted by Section 7(a)) and required to be delivered by Subsection
(c), a
compliance certificate in the form annexed hereto as Exhibit 5.6(d) and a
certificate of its president or controller certifying that no Default then
exists or if a Default exists, the nature and duration thereof and Borrower's
intention with respect thereto, and in addition, shall cause Borrower's
independent auditors (if applicable) to submit to Bank, together with its
audit
report, a statement that, in the course of such audit, it discovered no
circumstances which it believes would result in a Default or if it discovered
any such circumstances, the nature and duration thereof.
(i) Section
5.6(i) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
(i) Projections.
On or
before January 15, 2007, deliver Projections (as hereinafter defined) to
Bank
for Borrower for fiscal year 2007. "Projections" means Borrower's forecasted
consolidated and consolidating balance sheet, income statement, cash flow
statement (including a detail of capital expenditures), Borrowing Base
projection and financial covenant compliance prepared on a month by month
basis,
all of the foregoing to be on a consistent basis with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
4
(j) Section
6.13 of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
6.13 Liquidation,
Mergers, Consolidations and Dispositions of Substantial Assets, Name and
Good
Standing.
Shall
not (i) merge, reorganize, consolidate or amalgamate with any Person, liquidate,
wind up its affairs or dissolve itself, (ii) acquire by purchase, lease or
otherwise all or substantially all of the assets of any Person, or the assets
of
any division or line of business of any Person, or any other substantial
amount
of the assets of any Person outside of the ordinary course of business, (iii)
sell, transfer, lease or otherwise dispose of any of its property or assets,
except for the sale of Inventory in the ordinary course of business and the
voluntary termination of Swap Agreements to which Borrower or such Subsidiary
is
a party or sell or dispose of any equity ownership interests in any Subsidiary,
in each case whether in a single transaction or in a series of related
transactions or (iv) change its name or jurisdiction of organization or conduct
business under any new fictitious name; change its Federal Employer
Identification Number; or fail to remain in good standing and qualified to
transact business as a foreign entity in any state or other jurisdiction
in
which it is required to be qualified to transact business as a foreign entity
and in which the failure to be so qualified could reasonably be expected
to have
a Material Adverse Effect.
(k) Section
7(a) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
(a) Fixed
Charge Coverage Ratio.
At the
end of each month (or in the event that the Fixed Charge Coverage Ratio for
the
last period tested is greater than 1.15 to 1.00, then at the end of each
quarter, but only so long as the Fixed Charge Coverage Ratio thereafter is
greater than 1.15 to 1.00), commencing with the month of December 2006, Borrower
shall maintain a Fixed Charge Coverage Ratio of not less than the following
amounts for the following months:
|
Required
Fixed Charge Coverage Ratio
|
Month
|
|
0.65
to 1.0
|
December
2006
|
|
0.75
to 1.0
|
January
2007
|
|
0.80
to 1.0
|
February
2007
|
|
0.90
to 1.0
|
March
2007
|
|
1.00
to 1.0
|
April
2007
|
|
1.10
to 1.0
|
May
2007
|
|
1.15
to 1.0
|
June
2007 and thereafter
|
5
As
used
herein, "Fixed Charge Coverage Ratio" means during any period of determination
(i) EBITDA, plus rent expense incurred during any Applicable Period less
the sum
of (A) all unfinanced Capital Expenditures (excluding from such unfinanced
Capital Expenditures all (1) Target Capital Expenditures in an amount not
exceeding $5,400,000 on a cumulative basis for all periods through December
31,
2006, but including in such unfinanced Capital Expenditures all Target Capital
Expenditures in an amount exceeding $5,400,000 during such periods and (2)
all
Capital Expenditures incurred in connection with Borrower's acquisition of
ClientLogic’s fulfillment and reverse logistics business in 2006 (the
"ClientLogic Acquisition") made in the Applicable Fiscal Period, and (B)
any
dividends and distributions paid in the Applicable Fiscal Period and (C)
cash
taxes paid in the Applicable Fiscal Period (without benefit of any refunds),
divided by (ii) the sum of (A) the current portion of scheduled principal
amortization on Funded Debt coming due in the next 12 months as of the end
of
the most recent fiscal quarter plus (B) cash interest payments paid in the
Applicable Fiscal Period, plus (C) rent expense paid during any Applicable
Period plus (D) all cash payments made by Borrower during the Applicable
Period
consisting of the following consideration paid for the ClientLogic Acquisition
(1) the $1,000,000 initial purchase payment made in October 2006 (2) the
$800,000 deferred purchase payment due in February 2007, (3) the earn-out
payment due on or before April 2008, and (4) any other consideration paid
in
connection with the ClientLogic Acquisition. As used herein, (i) "EBITDA"
means
the sum of (A) consolidated net income of Borrower and its Subsidiaries in
the
Applicable Fiscal Period (computed without regard to any extraordinary items
of
gain or loss) plus (B) to the extent deducted from revenue in computing
consolidated net income for such period, the sum of (1) interest expense,
(2)
income tax expense, (3) depreciation and amortization and (4) with respect
to
the bad debt reserve for Accounts owed to Borrower from Tactica International,
any increases thereto occurring after September 30, 2005, but not exceeding
$2,000,000 in such increases in the aggregate less (C) non-cash gains; (ii)
"Capital Expenditures" means for any period the aggregate cost of all capital
assets acquired by Borrower and its Subsidiaries during such period, as
determined in accordance with GAAP; (iii)"Applicable Fiscal Period" means
a
period of four (4) consecutive, trailing fiscal quarters ending at the end
of
each prescribed fiscal quarter of Borrower; and (iv) "Funded Debt" means
(A)
Debts for borrowed funds, and (B) Debt for the deferred payment by one (1)
year
or more of any purchase money obligation.
3. Acknowledgments
and Stipulations.
Borrower hereby acknowledges, stipulates, and agrees: (a) that (i) the total
outstanding principal balance of the Revolver Loans on the date of this
Agreement is due and owing, in accordance with the terms of the Loan Agreement
and the Revolver Note, without any defense, counterclaim, deduction, recoupment
or offset and (ii) to the extent that Borrower has any defense, counterclaim,
deduction, recoupment or offset with respect to the payment by the Borrower
of
the Obligations or the payment or performance of Borrower of its obligations
under the terms of any Loan Agreement to which it is a party, the same is
hereby
waived; and (b) the Loan Documents executed by the Borrower are legal, valid,
and binding obligations enforceable against the Borrower in accordance with
their terms (subject to bankruptcy, insolvency, reorganization, arrangement,
moratorium, or other similar laws relating to or affecting the rights of
creditors generally and general principles of equity).
4. Representations
and Warranties.
Borrower represents and warrants that (a) no Default or Event of Default
exists
under the Loan Documents, except for the Stipulated Defaults that are waived
under the terms of this Agreement; (b) subject to the existence of the
Stipulated Defaults, the representations and warranties of Borrower contained
in
the Loan Documents were true and correct in all material respects when made
and
continue to be true and correct in all material respects on the date hereof;
(c)
the execution, delivery, and performance by Borrower of this Agreement and
the
consummation of the transactions contemplated hereby are within the power
and
authority of Borrower and have been duly authorized by all necessary corporate
action on the part of Borrower, do not require any governmental approvals,
do
not violate any provisions of any applicable law or any provision of the
organizational documents of Borrower, and do not result in a breach of or
constitute a default under any agreement or instrument to which Borrower
are
parties or by which they or any of their properties are
6
bound;
(d) this Agreement constitutes the legal, valid, and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms (subject
to
bankruptcy, insolvency, reorganization, arrangement moratorium or other similar
laws relating to or affecting the rights of creditors generally and general
principles of equity); and (e) Borrower has freely and voluntarily agreed
to the
releases and undertakings set forth in this Agreement.
5. Relationship
of Parties.
This
Agreement is not intended, nor shall it be construed, to create a partnership
or
joint venture relationship between or among any of the parties hereto. No
Person
other than a party hereto is intended to be a beneficiary hereof, and no
Person
other than a party hereto shall be authorized to rely upon or enforce the
contents of this Agreement.
6. No
Novation.
This
Agreement is not intended to be, nor shall it be construed to create, a novation
or accord and satisfaction, and the Loan Documents shall remain in full force
and effect. Notwithstanding any prior mutual temporary disregard of any of
the
terms of any of the Loan Documents, the parties agree that the terms of each
of
the Loan Documents shall be strictly adhered to on and after the date hereof,
except as expressly modified by this Agreement.
7. Bank's
Waiver Fee; Reimbursement of Expenses.
Borrower agrees to pay Bank a fully earned and non-refundable waiver fee
on the
date of this Agreement in immediately available funds in the amount of
$20,000.00 (the "Waiver Fee"). Borrower agrees to reimburse the Bank, on
demand,
for any costs and expenses, including, without limitation, legal fees, incurred
by Bank in connection with the drafting, negotiation, execution, closing
and
execution of the transactions contemplated by this Agreement.
8. Release.
To
induce the Bank to enter into this Agreement, Borrower hereby releases, acquits,
and forever discharges Bank and its respective officers, directors, attorneys,
agents, employees, successors, and assigns, from all liabilities, claims,
demands, actions, or causes of action of any kind (if there be any), whether
absolute or contingent, due or to become due, disputed or undisputed, liquidated
or unliquidated, at law or in equity, or known or unknown, that any one or
more
of them now have or, prior to the date hereof, ever have had against Bank,
whether arising under or in connection with any of the Loan Documents or
otherwise, and Borrower covenants not to xxx at law or at equity Bank with
respect to any of the foregoing liabilities, claims, demands, actions, or
causes
of action (if there be any). Borrower hereby acknowledges and agrees that
the
execution of this Agreement by Bank shall not constitute an acknowledgment
of or
admission by Bank of the existence of any claims or of liability for any
matter
or precedent upon which any claim or liability may be asserted. Borrower
further
acknowledges and agrees that, to the extent any such claims may exist, they
are
of a speculative nature so as to be incapable of objective valuation and
that,
in any event, the value to Borrower of the agreements of Bank contained in
this
Agreement and any other documents executed and delivered in connection with
this
Agreement substantially and materially exceeds any and all value of any kind
or
nature whatsoever of any such claims. Borrower further acknowledges and agrees
Bank is in no way responsible or liable for the previous, current or future
condition or deterioration of the business operations and/or financial condition
of Borrower and that Bank has not breached any agreement or commitment to
loan
money or otherwise make financial accommodations available to Borrower or
to
fund any operations of Borrower at any time. Borrower represents and warrants
to
Bank that Borrower has not transferred or assigned to any Person any claim,
demand, action or cause of action that Borrower has or ever had against Bank.
9. Miscellaneous.
This
Agreement and the Loan Documents constitute the entire understanding of the
parties with respect to the subject matter hereof and thereof; may not be
modified, altered, or amended except by agreement in writing signed by all
the
parties hereto; shall be governed by and construed in accordance with the
internal laws of the State of Georgia; shall be binding upon and inure to
the
benefit of the parties hereto and their respective successors and assigns;
and
may be executed
7
and
then
delivered via facsimile transmission, via the sending of PDF or other copies
thereof via email and in one or more counterparts, each of which shall be
an
original but all of which taken together shall constitute one and the same
instrument. Time is of the essence of this Agreement. A default by Borrower
under this Agreement shall constitute a Default and Event of Default under
the
Loan Agreement and the other Loan Documents. This Agreement is a Loan
Document.
10. Conditions
Precedent; Post-Execution Agreements.
This
Agreement shall become effective only upon (i) payment by Borrower to Bank
of
the Waiver Fee in immediately available funds and (ii) execution and delivery
of
this Agreement by all parties hereto. Borrower agrees to deliver to the Bank
on
or before the date which is 15 days after the date of this Agreement copies
of
all purchase agreements (including all exhibits and schedules thereto) and
all
other documents relating to the ClientLogic Acquisition.
[signatures
set forth on the next page]
8
IN
WITNESS WHEREOF, this Agreement has been duly executed and under seal by
Borrower and Bank, as of the day and year first above written.
|
BORROWER:
INNOTRAC
CORPORATION, a Georgia corporation (SEAL)
By:
/s/Xxxxxxx
Xxxxxx
Xxxxxxx
Xxxxxx, Principal Financial and Accounting Officer,
Corporate
Controller, Treasurer and Assistant Secretary
BANK:
WACHOVIA
BANK, NATIONAL ASSOCIATION
By:
/s/
Xxxxxxxx
Childress
Xxxxxxxx
Childress, Director
|
9
