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Exhibit 10.4
 

 
WAIVER AND AMENDMENT AGREEMENT
 
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.
 

 
 

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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:
 

 
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(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.
 

 
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(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

 

 
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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
 

 
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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 sue 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
 

 
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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]
 

 

 
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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/Chrissy Herren                                                      
Chrissy Herren, Principal Financial and Accounting Officer,
Corporate Controller, Treasurer and Assistant Secretary
 
BANK:
 

 
WACHOVIA BANK, NATIONAL ASSOCIATION
 

 
By:  /s/ Jeanette Childress                                     
Jeanette Childress, Director
 

 

 
 
 
 
 
 
 
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