SECOND WAIVER AND AMENDMENT AGREEMENT
EXHIBIT
10.4(y)
THIS
SECOND WAIVER AND AMENDMENT AGREEMENT (hereinafter
referred to as this “Agreement”) is made and entered into as of April 16, 2007,
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 by that certain
Waiver and Amendment Agreement dated as of November 14, 2006, 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 Bank that the Borrower has failed to comply with, or a default
has
occurred under, the following sections of the Loan Agreement: (i) Section
7(a)
as a result of Borrower's failure to maintain the required Fixed Charge Coverage
Ratio for the month of December 2006, (ii) Section 5.6(i) as a result of
Borrower's failure to provide Bank on or before February 9, 2007, with
Borrower's forecasted balance sheet, cash flow statement, Borrowing Base
projection and financial covenant compliance on a month by month basis for
Borrower's 2007 fiscal year and (iii) Section 8.1(f) as a result of Borrower's
failure to make the $800,000 payment described in the definition of "Fixed
Charge Coverage Ratio" in Section 7(a). Such defaults are referred to herein
as
the "Existing Defaults" and constitute Events of Default under Section 8.1(b)
of
the Loan Agreement. In addition, the Borrower's income statement projections
for
fiscal year 2007 delivered to Bank under Section 5.6(i) of the Loan Agreement
(the "2007 Projections") indicate that Borrower will be unable to maintain
the
required Fixed Charge Coverage Ratio for any period during Borrower's 2007
fiscal year.
C. The
Borrower has requested that the Bank waive the Existing 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 Existing Defaults.
Bank
hereby waives the Existing Defaults and Borrower agrees to strictly comply
with
the Loan Agreement hereafter, the Borrower hereby ratifying and affirming
the
Loan Agreement and the other Loan Documents. 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 Existing
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
following new definitions are hereby added to Section 1.1 of the Loan Agreement
in alphabetical order as follows:
"ClientLogic
Acquisition"
means
the Borrower's acquisition of ClientLogic’s fulfillment and reverse logistics
business in 2006.
"ClientLogic
Deferred Payments"
means
all cash payments made by Borrower at any time consisting of the following
consideration paid for the ClientLogic Acquisition: (1) the $800,000 deferred
purchase payment due in February 2007, (2) the earn-out payment due on or
before
April 2008, and (3) any other consideration paid in connection with the
ClientLogic Acquisition.
"Control
Agreement"
means
an agreement providing Bank with control (as defined in the applicable Uniform
Commercial Code) over Pledged Securities Collateral, in form and substance
satisfactory to the Bank in all respects, as amended or otherwise modified
from
time to time.
"Xxxxxxx
Security Agreement"
means
the Security Agreement executed and delivered by Xxxxx X. Xxxxxxx in favor
of
the Bank, in form and substance satisfactory to the Bank in all respects,
as
amended or otherwise modified from time to time.
"Eligible
Pledged Securities Collateral"
means
Pledged Securities Collateral acceptable to Bank in its sole discretion from
time to time.
"Fair
Market Value"
means,
at the time of determination, the fair market value of the Pledged Securities
Collateral set forth on the most recent statement issued by the relevant
securities intermediary with respect to the Pledged Securities Collateral
delivered in accordance with the terms of the Xxxxxxx Security Agreement,
provided, however, in the event that such statement is not received by the
Bank
in a timely fashion, "Fair Market Value" means the fair market value of the
Pledged Securities Collateral as reasonably determined by the Bank.
"Pledged
Securities Collateral"
has the
meaning set forth in the Xxxxxxx Security Agreement and includes, without
limitation, the securities accounts, marketable securities, investment property
and all other property described therein.
(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:
"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:
2
|
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%
|
Provided,
however, notwithstanding the text in this paragraph above, at all times during
which the Fixed Charge Coverage Ratio is less than 1.00 to 1.00, the Applicable
Margin for (x) Base Rate Loans then in effect shall be 1.00% and the Applicable
Margin for LMIR Loans then in effect shall be 2.85%. In order for Bank to
determine the Fixed Charge Coverage Ratio under this definition, Borrower
agrees
to deliver the compliance certificate described in Section 5.6(d) certifying
the
Fixed Charge Coverage Ratio for each month notwithstanding any period during
which the Fixed Charge Coverage Ratio may not be tested under Section 7(a).
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.
"Availability
Reserve"
means,
during any period following a month in which the Borrower's Fixed Charge
Coverage Ratio for such previous month was less than 1.15 to 1.00, then,
during
such period, an amount equal to $2,000,000.
(c) 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) up
to 75%
of the Fair Market Value of the Eligible Pledged Securities Collateral,
plus
(iii) the
lesser of (a) $1,000,000 or (b) up to 50% of the total amount of Eligible
Inventory; minus
(iv) any
Reserves.
(d) Section
2.13 of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
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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) 0.25% 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.
(e) Section
5.1 of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
5.1 Use
of
Loan Proceeds.
Shall
use the proceeds of Loans solely for the following purposes and shall furnish
Bank all evidence that Bank may require with respect to such uses: (i) for
the
payment of ClientLogic Deferred Payments and (ii) otherwise solely for the
Borrower's working capital and general corporate purposes to be used in the
ordinary course of the Borrower's business.
(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; Bank's Consultant.
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. In addition to the
foregoing, during any period in which (i) the Fixed Charge Coverage Ratio
is
less than 1.15 to 1.00 or (ii) a Default or Event of Default is in existence,
then, during such period, at Borrower's sole cost and expense, Bank may retain
a
consultant acceptable to Bank in its sole discretion, and Borrower shall
permit
such consultant to perform any of the above-mentioned matters in this Section
5.5 as well as such other examinations, reviews, verifications and inspections
as may be requested by the Bank from time.
(g) Section
5.6(a) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
4
(a) Periodic
Borrowing Base Information.
On the
third Business Day of each week, Borrower shall deliver to Bank a completed
Borrowing Base Certificate in the form attached hereto as Exhibit 5.6(a)
for the
prior week (a "Borrowing Base Certificate"). Borrower shall attach to each
Borrowing Base Certificate, 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 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: (i) 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. Notwithstanding any provision herein to the contrary, Bank
reserves the right, in the exercise of its sole discretion, to calculate
the
Borrowing Base on a basis more frequently than weekly from time to
time.
(h) Section
5.6(i) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
(i) Projections.
(a)
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.
(b) On
the
first Business Day of each week, deliver Cash Flow/Availability Projections
(as
hereinafter defined) to Bank for Borrower for such week and the next 12 weeks
thereafter. "Cash Flow/Availability Projections" means a report, in form
and
substance satisfactory to Bank in all respects, setting forth Borrower's
forecasted consolidated and consolidating cash flows and borrowing availability
prepared on a week by week basis.
(i) Section
6.1(d) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
(d) Purchase
money Debt not exceeding $4,000,000 in aggregate principal amount at any
time
outstanding for Borrower and all Subsidiaries incurred to purchase Equipment,
provided that the amount of such Debt shall not at any time exceed the purchase
price of the Equipment purchased; and
(j) Section
7(a) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
5
(a) Fixed
Charge Coverage Ratio.
At the
end of each month, commencing with the month of December 2007, 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
|
|
1.00
to 1.0
|
December
2007 through and
including
February 2008
|
|
1.05
to 1.0
|
March
2008 through and
including
May 2008
|
|
1.15
to 1.0
|
June
2008 and each month thereafter
|
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 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 month 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 ClientLogic Deferred Payments: (1) the earn-out
payment due on or before April 2008, and (2) any other consideration paid
in
connection with the ClientLogic Acquisition (other than the $800,000 deferred
purchase payment due in February 2007). 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)
for the period from January 2007 through and including January 2008, each
such
prescribed fiscal month plus the results for the prior fiscal months during
such
period and (B) thereafter, a period of twelve (12) consecutive, trailing
fiscal
months ending at the end of each prescribed fiscal month 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.
(k) Section
8.1(n) of the Loan Agreement is hereby amended and restated in its entirety
as
follows:
6
(n) Xxxxx
X.
Xxxxxxx shall (i) fail to deliver to Bank an executed and delivered Control
Agreement granting the Bank sole control over, and a sole, first priority
and
perfected security interest in, securities account no. 614-443409 maintained
with Fidelity Brokerage Service LLC (the "Controlled Account") on or before
May
14, 2007, (ii) permit any party to acquire control over, or otherwise obtain
a
security interest in, any other Pledged Securities Collateral, (iii) fail
to
maintain at all times a Fair Market Value of all Pledged Securities Collateral
equal to at least $1,800,000, (iv) fail to maintain at all times a Fair Market
Value of the Pledged Securities Collateral in the Controlled Account equal
to at
least $1,100,000 or (v) on a fully diluted basis, cease to control, with
sole
power to vote, at least 40% of each class of voting stock or other equity
or
income interests of Borrower.
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 Existing Defaults that are waived
in
accordance with the terms of this Agreement; (b) subject to the existence
of the
Existing 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 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 Agreement and the other Loan Documents
are hereby ratified and affirmed and 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 $5,000.00
(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.
7
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 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, (ii) execution and delivery
of
this Agreement by all parties hereto and (iii) execution and delivery of
the
Xxxxxxx Security Agreement granting the Bank a sole, first priority and
perfected security interest in marketable securities satisfactory to Bank
in all
respects having a Fair Market Value equal to at least $2,000,000 as of the
date
of this Agreement.
[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/
Xxxxx X.
Xxxxxxx
Xxxxx X. Xxxxxxx, President
BANK:
WACHOVIA
BANK,
NATIONAL ASSOCIATION
By:
/s/
Xxxxxxxx
Childress
Xxxxxxxx
Childress, Director
9
