Exhibit 10.1
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made this
3rd day of April, 2003, by and between INNOTRAC CORPORATION, a Georgia
corporation ("Innotrac"), iFULFILLMENT, iNC., a Georgia corporation
("iFulfillment") (hereinafter individually referred to as a "Borrower," and
collectively referred to as the "Borrowers") and SOUTHTRUST BANK, an Alabama
banking corporation, successor by conversion to SouthTrust Bank, N.A., a
national banking association (the "Bank").
R E C I T A L S:
WHEREAS, the Borrowers have requested Bank to make available to Borrowers
a line of credit in the amount of up to $40,000,000.00, and the Bank is willing
to make such credit facility available to the Borrowers on the terms and
conditions hereinafter set forth and secured as provided in this agreement.
NOW, THEREFORE, the Borrowers and the Bank agree as follows:
ARTICLE I
DEFINED TERMS; GENERAL MATTERS
1.1 Defined Terms. As used in this Loan and Security Agreement, the
following terms shall have the following meanings:
Account Debtor -- any Person who is or may become obligated under or
on account of an Account.
Accounts -- all "accounts" (including health-care-insurance
receivables) of Borrowers, as such terms are defined by the UCC.
Adjusted Tangible Net Worth -- the aggregate of the (a) par or stated
value of all outstanding stock; (b) capital surplus; (c) retained earnings and
(d) the amount of any Subordinated Debt to related or affiliated parties, less
(v) any surplus resulting from any write-up of assets subsequent to the date of
this Agreement; (w) the book value of all intangible assets of Borrowers,
including, without limitation, any goodwill (including any amount, however
designated, representing the excess of the purchase price paid for assets or
stock acquired over the value assigned thereto on the books of Borrowers),
noncompetition agreements, consulting agreements, patents, trademarks,
tradenames and copyrights; (x) the amount paid for any treasury stock reflected
as a reduction of the capital surplus or retained earnings accounts; and (y)
the amount of any related or affiliated party accounts (including, but not
limited to, accounts of subsidiaries, Affiliates or related companies),
advances or notes receivable. Deferred tax assets listed on Borrowers'
financial statements shall be deemed to constitute tangible assets for purposes
of this definition.
Affiliate -- any director or officer of either of the Borrowers or
any Person who, directly, indirectly or beneficially, owns 5% or more of the
capital stock of either of the Borrowers or any member of the immediate family
of any such officer, director or stockholder, or any corporation or other
entity which is controlled by, controls, or is under common control with either
of the Borrowers.
Aggregate Loan Values -- the lesser of (i) $40,000,000.00 less the
aggregate face amount of all issued and outstanding Letters of Credit, or (ii)
the sum of the Loan Value of Accounts plus the Loan Value of Inventory.
Agreement -- this Second Amended and Restated Loan and Security
Agreement.
Applicable Laws -- all laws, rules and regulations applicable to the
Person, conduct, transaction, covenant or Loan Document in question, including,
but not limited to, all applicable common law and equitable principles; all
provisions of all applicable state and federal constitutions, statutes, rules,
regulations and order of governmental bodies; and all orders, judgements and
decrees of all courts and arbitrators.
As-Extracted Collateral -- shall mean "as-extracted collateral," as
such term is defined or referred to in the UCC.
Assignment of BellSouth Agreement -- that certain Collateral
Assignment Master Services Agreement executed by Innotrac in favor of Bank
dated on or about even date hereof, whereby Innotrac collaterally assigns to
Bank, and grants to Bank a first priority security interest in, all of
Innotrac's right, title and interest in and to the BellSouth Agreement.
Bank -- SouthTrust Bank, an Alabama banking corporation.
Base Rate -- the rate of interest designated by the Bank periodically
as its Base Rate. The Base Rate is not necessarily the lowest interest rate
charged by the Bank. It shall be initially calculated on the date it becomes
effective and shall be recalculated by Bank on each date that the Base Rate
changes.
BellSouth Agreement -- shall mean that certain Innotrac Corporation
Master Services Agreement No. R13017M dated as of March 8, 2002, executed by
and between Innotrac and BellSouth Affiliate Services Corporation, a Georgia
corporation, including any and all purchase orders issued thereunder and any
and all substitutions, amendments and replacements thereof.
Borrowers -- shall, collectively, mean Innotrac Corporation, a
Georgia corporation and iFulfillment, Inc., a Georgia corporation, jointly and
severally.
Borrower State -- shall mean the State of Georgia.
Borrowers' Report -- the borrowing base report of Borrowers referred
to in Section 2.1(A) of this Agreement.
Business Day -- a day, other than Saturday, Sunday, or days on which
state banks located in Atlanta, Georgia are authorized by law to close.
Capital Expenditures -- expenditures made or liabilities incurred for
the acquisition of any fixed assets, plant, equipment or improvements,
replacements, substitutions or additions thereto which have a useful life of
more than one year, including the direct or indirect acquisition of such assets
by way of increased product or service charges, offset items or otherwise and
the principal portion of payments with respect to Capitalized Lease
Obligations; provided, however, that the purchase or other acquisition of
caller identification equipment or other telecommunications equipment used for
sale, rental or lease
2
purposes shall not be considered a Capital Expenditure for any purpose
whatsoever under this Agreement or any of the other Loan Documents.
Capitalized Lease Obligations -- any Debt represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP, and the amount of such Debt shall be the
capitalized amount of such obligations determined in accordance with GAAP.
Chattel Paper -- all "chattel paper" (including tangible and
electronic chattel paper) of Borrowers, as such terms are defined by the UCC.
Chief Executive Office State -- shall mean the State of Georgia.
Closing Date -- the date of this Agreement. The Closing Date is not
necessarily the date of initial funding of the Loan and the execution and
delivery of this Agreement and acceptance hereof shall not be deemed waiver by
Bank of any of the conditions to lending set forth in Article III hereof.
Collateral -- collectively, all of the following of Borrowers,
wherever located, and now owned or hereafter acquired: Accounts, Chattel Paper,
Money, Letters of Credit, As-Extracted Collateral, Goods, Timber to be Cut,
Inventory, Equipment, Instruments, Investment Property, Documents, Deposit
Accounts, Letter-of-Credit Rights, General Intangibles, Supporting Obligations,
the BellSouth Agreement, intellectual property, and, to the extent not listed
above as original collateral, the proceeds and products of the foregoing and
such other interests as may be more specifically or otherwise described in
Section 8.1 hereof and elsewhere in the Loan Documents, and the proceeds and
products of each, as the case may be.
Collateral States -- shall mean, collectively, each State where any
Collateral constituting Goods is located.
Collected Balance -- the book balance in a bank account, minus the
aggregate amount of all checks and other items of payment in the process of
collection, said amount to be computed in accordance with the Bank's standard
practices.
Commitment Period -- shall mean that period during which Bank is
obligated to make advances under the Line of Credit Loan hereunder, as provided
in Section 2.1 hereof. The Commitment Period shall commence upon satisfaction of
the conditions to lending set forth in Article III and shall continue until June
30, 2005, unless sooner terminated according to the provisions hereof.
Debt -- the sum of (i) indebtedness for borrowed money or for the
deferred purchase price of property or services, (ii) Capitalized Lease
Obligations, (iii) all other items which in accordance with GAAP would be
included in determining total liabilities as shown on a balance sheet of a
Person as at the date as of which Debt is to be determined less any
Subordinated Debt to related or affiliated parties.
Default Rate -- the rate of interest provided in the Notes at which
the indebtedness represented thereby is to bear interest after default by
Borrowers or the occurrence of an Event of Default, or if no such rate is
mentioned, a rate of interest equal to two percent (2.00%) in excess of the
rate that would otherwise be applicable, calculated daily and computed on the
actual days elapsed over a year of 360 days (unless reference to a 365 or a
366-day year is necessary in order not to exceed the highest rate permitted by
Applicable Law), said rate to change as and when the Base Rate changes. Where
the term "Default Rate" is applied to any indebtedness or obligation other than
that represented by a Note, it shall
3
mean a rate of interest equal to two and one-half percent (2.50%) in excess of
the Base Rate calculated in accordance with the preceding sentence.
Deposit Accounts -- shall mean all "deposit accounts" of Borrowers,
as such term is defined by the UCC.
Documents -- shall mean all "documents" of Borrowers, as such term is
defined by the UCC.
Eligible Account -- an Account arising in the ordinary course of each
of Borrower's businesses from the sale of goods or rendition of services which
Bank, in its sole discretion, deems to be an Eligible Account. Without limiting
the generality of the foregoing, no Account shall be an Eligible Account if: (i)
it arises out of a sale made by either Borrower to a Subsidiary or to an
Affiliate of either Borrower or to a Person controlled by an Affiliate or
Subsidiary of either Borrower; or (ii) it is unpaid for more than ninety (90)
days after the original due date shown on the invoice; or (iii) it is due or
unpaid more than one hundred twenty (120) days after the shipping date; or (iv)
it is due or unpaid more than thirty (30) days after the shipping date where no
invoice has been rendered within thirty (30) days after the shipping date; or
(v) fifty percent (50%) or more of the Accounts from the Account Debtor are not
deemed Eligible Accounts hereunder; or (vi) with the sole exception of Accounts
where the Account Debtor is BellSouth Corporation or an affiliate thereof, the
total unpaid Accounts of the Account Debtor exceed twenty-five percent (25%) of
the net amount of all Accounts, to the extent of such excess; or (vii) any
covenant, representation or warranty contained in this Agreement with respect to
such Account has been breached; or (viii) the Account Debtor is also Borrowers'
or an Affiliate's creditor or supplier, and has either disputed liability with
respect to such Account, or has made any claim with respect to any other Account
due from such Account Debtor to either Borrower or to an Affiliate, or the
Account otherwise is or may become subject to any right of setoff by the Account
Debtor or an Affiliate of the Account Debtor; or (ix) the Account Debtor has
commenced a voluntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or made an assignment for the benefit of creditors, or a
decree or order for relief under the federal bankruptcy laws has been filed
against the Account Debtor, or if the Account Debtor has failed, suspended
business, ceased to be Solvent, or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed of it or for all or a significant
portion of its assets or affairs; or (x) it arises from a sale to an Account
Debtor outside the United States or to an Account Debtor who is not a resident
of the United States; or (xi) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or
any other repurchase or return basis; or (xii) Bank believes, in its sole
discretion, that collection of such Account is insecure or that payment thereof
is doubtful or will be delayed by reason of the Account Debtor's financial
condition; or (xiii) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless such Borrower assigns its
right to payment of such Account to Bank, in form and substance satisfactory to
Bank, so as to comply with the Assignment of Claims Act of 1940, as amended; or
(xiv) the Account is subject to a Lien other than from Bank; or (xv) the goods
giving rise to such Account have not been delivered to and accepted by the
Account Debtor or the services giving rise to such Account have not been
performed by such Borrower and accepted by the Account Debtor or the Account
otherwise does not represent a final sale; or (xvi) the total unpaid Accounts of
the Account Debtor exceed a credit limit determined by Bank, in its sole
discretion, to the extent such Account exceeds such limit; or (xvii) the Account
is evidenced by chattel paper, a note, or an instrument of any kind, or has been
reduced to judgment; or (xviii) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or allowances which are
made in the ordinary course of business for prompt payment and which discounts
or allowances are reflected in the calculation
4
of the face value of each invoice related to such Account; or (xviiii) Borrower
has made an agreement with the Account Debtor to extend the time of payment
thereof so long as such extension is for no longer than ninety (90) days from
the invoice date of such Account; or (XX) the Account arises from a retail sale
of goods to a Person who is purchasing same primarily for personal, family or
household purposes; or (xxi) the Account is deemed ineligible by the Bank in
its sole discretion. In addition, Eligible Account shall not include any
portion of an Account which consists of service charges, late charges or
penalties, interest of Account Debtors, or other charges relating to the
extension of credit by Borrower or the timing of payment by Account Debtor. In
determining the aggregate amount of Eligible Accounts, there shall be excluded
from consideration any credit balance of an Account Debtor which is more than
ninety (90) days old as measured from the date of original posting of said
credit balance to said Borrower's books and records.
Eligible Inventory -- Inventory valued at the lesser of cost or
current market value, all of which Inventory is, at any given time, (a) not
damaged or defective; (b) not sold or segregated for sale and reflected as an
Account of a Borrower; (c) not consigned Inventory; (d) not
inventory-in-transit or located in a place other than at the locations listed
in Section 5.10 of this Agreement; (e) not work-in-process Inventory; (f) not
constituting packaging materials and supplies; (g) not Inventory evidenced by
non-negotiable warehouse receipts or non-negotiable documents of title which
have not been issued in the name of Bank or in which Bank is otherwise properly
perfected; (h) not Inventory subject to a negotiable document of title such as
a negotiable warehouse receipt or a negotiable bill of lading which has not
been issued in the name of Bank or in which Bank is otherwise properly
perfected; and (i) not Inventory deemed ineligible by Bank in its sole
discretion.
ERISA -- the Employee Retirement Income Security Act of 1974 and all
rules and regulations promulgated thereunder.
Equipment -- all "equipment" of Borrowers, as such term is defined by
the UCC, together with all accessories, parts and additions now or hereafter
affixed thereto or used in connection therewith.
Event of Default -- any one of the events enumerated in Section 10.1
hereof.
Fixed Charge Coverage -- shall mean, with respect to any particular
fiscal period of Borrowers, on a combined and consolidated basis, the ratio of
the sum (without duplication) of Borrower's aggregate (i) Net Income, plus
(ii) depreciation, plus (iii) amortization, plus (iv) Lease Expense, plus (vi)
Interest Expense for such fiscal period, to the sum (without duplication) of
Borrowers' aggregate (i) Lease Expense, plus (ii) Interest Expense, plus (iii)
the sum of Borrowers' aggregate Current Maturities of Long-Term Debt, for such
fiscal period, all as determined on a consolidated basis.
GAAP -- generally accepted accounting principles in the United States
of America in effect from time to time consistently applied.
General Intangibles -- all "general intangibles" of Borrowers
(including payment intangibles and software), as such terms are defined by the
UCC.
Goods -- shall mean "goods," as such term is defined in the UCC.
Instruments -- all "instruments" of Borrowers, as such term is defined
by the UCC.
5
Interest Period -- shall mean, in the case of the determination of any
LIBOR-based interest rate, a one-, two- or three-month period as determined by
Borrowers.
Inventory -- all "inventory" of Borrowers, as such term is defined by
the UCC.
Inventory Cap -- the sum of $20,000,000.00, said sum being the
maximum value that can be given to the Loan Value of Inventory pursuant to this
Agreement.
Investment Property -- all "investment property" of Borrowers, as
such term is defined by the UCC.
Ledger Balance -- the balance reflected on the books of the Bank of
the amounts deposited in the Special Collection Accounts as further described
in Section 4.2 of this Agreement.
Letters-of-Credit -- shall mean "letters of credit" as such term is
defined in the UCC, specifically including, but not limited to, any and all
letters of credit issued by Bank on behalf of Borrowers pursuant to Section
2.1(B) of this Agreement.
Letter of Credit Loan -- shall mean draws or payments made to
beneficiaries under the Letters of Credit issued by Bank on behalf of Borrowers
pursuant to Section 2.1(B) of this Agreement.
Letter-of-Credit Rights -- shall mean all "letter-of-credit rights"
of Borrowers, as such term is defined by the UCC.
Leverage Ratio -- shall mean, for any fiscal period, as to the
Borrowers on a combined and consolidated basis, the ratio of the sum of the
total Debt minus Subordinated Debt to the sum of combined Adjusted Tangible Net
Worth plus Subordinated Debt, all as determined under GAAP.
"LIBOR" as used herein, means, for any Interest Period, a per annum
rate of interest (rounded upwards, if necessary, to the nearest 1/16th of one
percent) equal to the "London Interbank Offered Rate (LIBOR)" for contracts
with a maturity date equal to the length of the applicable Interest Period, as
quoted in the MONEY RATES section of The Wall Street Journal as effective for
contracts entered into on the first day of the applicable Interest Period
(expressed as a decimal).
Lien -- any interest in property (real, personal or mixed, and
tangible or intangible) securing an obligation owed to, or a claim by, a Person
other than the owner of the property, whether such interest is based on the
common law, statute or contract, and including, but not limited to, the
security interest, security title or Lien arising from a security agreement,
mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. The term "Lien" shall include covenants, conditions, restrictions,
leases and other encumbrances affecting any property. For the purpose of this
Agreement, Borrowers shall be deemed to be the owner of any property which they
have acquired or hold subject to a conditional sale agreement or other
arrangement pursuant to which title to the property has been retained by or
vested in some other Person for security purposes.
Line of Credit Loan -- that certain line of credit loan in the
aggregate amount of up to $40,000,000.00 by Bank to Borrowers as more
specifically described in Section 2.1(A) hereof.
6
Loan or Loans -- shall mean, collectively, advances under the Line of
Credit Loan made by the Bank to Borrowers, from time to time evidenced by the
Note described in Section 2.1(A) of this Agreement (and any substitutions
therefor, extensions thereof, or renewal thereof), specifically including any
and all Letter of Credit Loans advanced under the Line of Credit, from time to
time evidenced by a Letter of Credit described in Section 2.1(B) of this
Agreement (and any substitutions therefor, extensions thereof, or renewal
thereof).
Loan Account -- the loan account established on the books of Bank
pursuant to Section 2.1 hereof.
Loan Documents -- this Agreement, the Note, the Assignment of
BellSouth Agreement, the Letters of Credit, and each and every mortgage, deed of
trust, guarantee, reimbursement agreement, credit agreement, loan agreement,
note, security agreement, financing statement or other instrument executed and
delivered to evidence the Loans or any other Obligation, to constitute
collateral for the Loans or any other Obligation, or to evidence security for
the Loans or any other Obligation, and any and all other agreements,
instruments, and documents heretofore, now or hereafter, executed by Borrowers
and delivered to Bank in respect to the transactions contemplated by this
Agreement.
Loan Value of Accounts -- at any time, an amount expressed as a
percentage which will be applied to the aggregate Eligible Accounts of Borrowers
to determine an aggregate dollar amount to be included in the Aggregate Loan
Values. The Loan Value of Accounts may be reviewed by Bank from time-to-time and
adjusted upward or downward in its sole discretion based upon Bank's evaluation
of the Eligible Accounts. Initially, the Loan Value of Accounts shall be no
greater than eighty-five percent (85%) of the aggregate Eligible Accounts of
Borrowers.
Loan Value of Inventory -- at any time, an amount expressed as a
percentage which will be applied to the aggregate Eligible Inventory of
Borrowers to determine an aggregate dollar amount to be included in the
Aggregate Loan Values. The Loan Value of Inventory may be reviewed by Bank from
time-to-time and adjusted upward or downward in its sole discretion based upon
Bank's evaluation of the Eligible Inventory. Initially, the Loan Value of
Inventory shall be (a) sixty-five percent (65%) of the aggregate net book value
of Eligible Inventory of Innotrac purchased for resale to customers of BellSouth
Corporation or its affiliates pursuant to the terms and conditions of the
BellSouth Agreement, plus (b) fifty percent (50%) of the aggregate net book
value of other Eligible Inventory of Borrowers; provided however, that the Loan
Value of Inventory referenced above with respect to Eligible Inventory of
Innotrac purchased for resale to customers of BellSouth Corporation shall only
be computed at sixty-five percent (65%) (as opposed to fifty percent (50%)), if
BellSouth Corporation executes a consent to the Assignment of BellSouth
Agreement in form and substance satisfactory to Bank, and said consent remains
in full force and effect throughout the term of this Agreement. Subject to the
foregoing limitations, if BellSouth Corporation does not execute a consent to
the Assignment of BellSouth Agreement in form and substance satisfactory to
Bank, or upon termination of any such consent prior to the termination of this
Agreement, then the Loan Value of Inventory shall be fifty percent (50%) of the
aggregate net book value of all Eligible Inventory of Borrowers. Notwithstanding
anything herein to the contrary, the Loan Value of Inventory shall not, at any
time, exceed the Inventory Cap unless otherwise agreed to by Bank in its sole
discretion.
Material Adverse Effect - shall mean a material adverse effect on (a)
the business, assets, liabilities (actual or contingent), operations, or
condition (financial or otherwise) of the Borrower and its Subsidiaries taken as
a whole, (b) the ability of the Borrower to perform its obligations, when such
obligations are required to be performed, under this Agreement, any of the Notes
or any other Loan
7
Document, or (c) the validity or enforceability of this Agreement, any of the
Notes or any of the other Loan Documents or the rights or remedies of the Bank
hereunder or thereunder.
Material Contract - any written contract or other written arrangement
to which Borrower or any of its Subsidiaries is a party as to which the breach,
nonperformance, cancellation or failure to renew by any party thereto could
reasonably be expected to have a Material Adverse Effect.
Maximum Rate - the maximum non-usurious rate of interest permitted by
Applicable Law that any time, or from time to time, may be contracted for,
taken, reserved, charged or received on the Debt in question or, to the extent
permitted by Applicable Law, under such Applicable Laws that may hereafter be
in effect and which allow a higher maximum non-usurious interest rate than
Applicable Laws now allow. Notwithstanding any other provision hereof, the
Maximum Rate shall be calculated on a daily basis (computed on the actual
number of days elapsed over a year of 360 days, as the case may be).
Money - shall mean "money" as such term is defined or referred to in
the UCC.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
of ERISA.
Net Income - shall mean, for any fiscal period of any Person, the net
income (or loss), after provisions or benefits for taxes (either actual,
accrued or deemed, in the case of a pass-through entity, determined as if the
highest marginal individual income tax rate were applicable), of such Person on
a consolidated basis for such period (taken as a single accounting period)
determined in conformity with GAAP.
Note - shall mean the promissory note executed and delivered by
Borrowers to Bank evidencing the Loans, as further described hereinafter.
Obligations - all (i) Loans and all other advances, debts,
liabilities, obligations, covenants and duties owing, arising, due or payable
from Borrowers to Bank of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether arising under this
Agreement or any of the other Loan Documents or otherwise, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising
and however evidenced or acquired, (ii) the repayment of any amounts that Bank
may advance or spend for the maintenance or preservation of the Collateral,
(iii) any other expenditures that Bank may make under the provisions of this
Agreement, the other Loan Documents or for the benefit of Borrowers, (iv) all
amounts owed under any modifications, renewals or extensions of the foregoing
obligations, (v) all other amounts now or in the future owed by either Borrower
to Bank, (vi) any of the foregoing that arises after the filing of a petition
by or against any Borrower under the United States Bankruptcy Code, even if the
obligations do not accrue because of the automatic stay under United States
Bankruptcy Code Section 362 or otherwise, and (vii) any obligations now or
hereafter owing to Bank by any Borrower as may be set forth in any interest
rate swap, ISDA Master Agreement or similar capital markets derivative
agreement. The term includes, without limitation, all interest, charges,
expenses, fees, reasonable attorneys' fees and any other sums chargeable to
Borrowers under any of the Loan Documents.
Overadvance - any discretionary advance of funds made by Bank to
Borrowers in a principal amount no greater than $250,000.00 under the Line of
Credit Loan, as more specifically set forth in Section 2.1(A)(9) hereof.
8
Permitted Liens - any Lien of a kind specified in Section 7.2 of this
Agreement.
Person - an individual, partnership, corporation, joint stock
company, firm, land trust, business trust, limited liability company, limited
liability partnership, unincorporated organization, or other business entity,
or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of any Borrower that is covered by Title IV of ERISA.
Prohibited Transaction - any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Solvent - as to any Person, means such Person (i) owns property,
real, personal, and mixed, whose aggregate fair saleable value is greater than
the amount required to pay all of such Person's Debt (including contingent
debts), and (ii) is able to pay all of its Debt as such Debt matures and
(iii) has capital sufficient to carry on its business and transactions and all
business and transactions in which it is about to engage.
Special Collection Accounts - shall mean, collectively, the bank
accounts referred to in Section 4.2 of this Agreement.
Subordinated Debt - the Debt of the any Borrower owed to any Affiliate
or Subsidiary, which is fully subordinated to the Loan (including principal,
interest, and agreed charges) in a manner satisfactory to the Bank (which may be
either according to its terms or by separate agreement) and which Debt arises
from said Borrower's actual receipt of cash and not from "in kind" or non cash
consideration.
Subsidiary - any corporate entity or partnership, or other business
entity, controlling interest of which is owned by any Borrower.
Supporting Obligations - shall mean all "supporting obligations" of
Borrowers, as such term is defined by the UCC.
Termination Fee - the fee, if any, to be paid by Borrowers in
connection with early termination of this Agreement in accordance with Section
2.6 hereof.
Timber to be Cut - shall mean "timber to be cut" as such term is
defined or referred to in the UCC.
UCC - shall mean the Uniform Commercial Code of the State of Georgia
from time-to-time.
1.2. Accounting Terms. All accounting terms used herein shall be
construed in accordance with GAAP (specifically including "Current Maturities
of Long-Term Debt").
1.3. Interpretation. The terms "herein", "hereof", and "hereunder", and
other words of similar import refer to this Agreement as a whole and not to any
particular section, paragraph or subdivision.
9
Any pronouns used shall be deemed to cover all genders. Whenever the singular
or plural number is used herein, it shall equally include the other. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to any
instruments or agreements, including, without limitation, references to any of
the Loan Documents shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
1.4. Uniform Commercial Code. All other terms contained in this Agreement
shall, unless otherwise defined herein or unless the context otherwise
indicates, have the meanings provided for by the UCC.
ARTICLE II
THE LOANS
2.1. THE LOANS
(A) Line of Credit Loan.
Subject to all terms set forth herein but only during the Commitment
Period and for so long as no Event of Default exists, Bank agrees, from time to
time and on the terms hereinafter set forth, to loan to Borrowers, on a joint
and several basis, when requested by Borrowers, principal amounts up to the
Aggregate Loan Values as determined by the Bank from the periodic reports
submitted by Borrowers to the Bank. Within the aforesaid limits, Borrowers may
borrow, make payments, and reborrow under this Agreement, subject to the
provisions hereof.
(1) The obligation to repay the Line of Credit Loan shall be
evidenced by the Note payable to the order of the Bank and maturing upon the
earlier to occur of (a) an Event of Default, or (b) the expiration of the
Commitment Period. Amounts due under the Note and otherwise under this
Agreement and under the Loan Documents shall be reflected in the Loan Account.
(2) Borrowers shall submit, on a combined basis, a Borrowers'
Report in the form attached hereto as Exhibit "A" (or in such other form as may
be furnished by Bank from time to time) on the date of this Agreement and at
least monthly (the information contained in said Borrowers' Report to, at the
time of submission, be no older than thirty one (31) days from the last day of
the preceding month-end) thereafter during the term of this Agreement; provided,
however, that, in the event that the Aggregate Loan Values, at any time, equals
an amount less than one hundred fifteen percent (115%) of the then outstanding
principal balance of the Line of Credit Loan, Borrowers shall submit, on a
combined basis, a Borrowers' Report in the form attached hereto as Exhibit "A"
(or in such other form as may be furnished by Bank from time to time) at least
weekly until such time as Borrowers' Aggregate Loan Values equals an amount that
is not less than one hundred fifteen percent (115%) of the then outstanding
principal balance of the Line of Credit Loan. Bank may, in its sole discretion,
require that each advance made under the Line of Credit Loan be effected by
Borrowers' submitting (and the Bank's receiving) a Borrowers' Report at least
one Business Day prior to the date Borrowers desire the advance to be made. Bank
shall, if all the terms and provisions of this Agreement have been met,
including, without limitation, the absence of an Event of Default hereunder,
make such advances. Each such Borrowers' Report shall be signed by an officer or
employee of each Borrower authorized by each Borrower to execute such reports,
whose name(s) shall be included in a certificate furnished to the Bank. In
addition, Borrowers shall report Collateral and financial information to Bank as
frequently as Bank may request through Bank's STABLNET.LINK(TM) electronic
reporting system or through such other electronic systems as may be established
by Bank from time-to-time.
10
(3) At its discretion, Bank may make advances to Borrowers under the Line
of Credit Loan without specific request by automatic advance based on
availability in accordance with procedures established by Bank. In addition, as
an accommodation to Borrowers, Bank may permit telephonic requests for loans and
electronic transmittal of instructions, authorizations, agreements or reports to
Bank by Borrowers. Unless Borrowers specifically direct Bank in writing not to
accept or act upon telephonic or electronic communications from Borrowers, Bank
shall have no liability to Borrowers for any loss or damage suffered by
Borrowers as a result of Bank's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any reports
communicated to Bank telephonically or electronically and purporting to have
been sent to Bank by Borrowers and Bank shall have no duty to verify the origin
of any such communication or the authority of the person sending it absent the
gross negligence or willful misconduct of Bank.
(4) If the outstanding principal amount of the Line of Credit Loan at any
time exceeds the lesser of $40,000,000.00 or the Aggregate Loan Values as
reflected on the Borrowers' Report, Borrowers shall immediately pay the Bank an
amount equal to such excess as a payment on the principal amount of the Line of
Credit Loan.
(5) Subject to Section 2.1(A)(9) hereof, each borrowing under the Line of
Credit Loan shall be effected by crediting the amount thereof to the regular
checking account of Borrowers maintained with the Bank or with another bank
approved by the Bank. Said checking account shall be held in the name of both
Borrowers, with each Borrower having full and equal rights of withdrawal with
respect thereto.
(6) The principal amount of the Line of Credit Loan outstanding from time
to time hereunder shall bear interest in the rate more specifically set forth
in the Note. Interest shall be paid to Bank on the amount of the Line of Credit
Loan outstanding and shall be payable as more specifically set forth in the
Note. From and after the occurrence of an Event of Default, the principal
amount of the Line of Credit Loan outstanding from time to time shall, subject
to the provisions of the following subsection, bear interest at the Default
Rate.
(7) Borrowers acknowledge and agree that the provisions herein and in the
Note relating to the Default Rate represent a fair and reasonable estimate by
Borrowers and Bank of a fair average compensation for the loss that may be
sustained by Bank due to the failure of Borrowers to make timely payments with
respect to the Obligations and for the cost and expenses that may be incurred by
Bank by reason of the occurrence of an Event of Default, the parties recognizing
that the damages caused by such extra administrative expenses and loss of the
use of funds is impracticable or extremely difficult to ascertain or estimate.
Interest at the Default Rate may, at the Bank's option, be paid without
prejudice to the rights of Bank to collect any other amounts provided to be paid
hereunder.
(8) Overadvances. Notwithstanding Section 2.1(A)(1) above, as part of
the Line of Credit Loan, Bank, in its sole discretion, may fund up to
$250,000.00 in excess of the Aggregate Loan Values (as determined solely by
Bank), pursuant to the following terms and conditions: (i) each Overadvance
will incur an advance charge of $300.00 per event, (ii) that portion of the
Line of Credit Loan in excess of the Aggregate Loan Values (thus, constituting
an Overadvance), will incur interest at a rate per annum equal to the interest
rate regularly charged by Bank with respect to Line of Credit Loan advances
plus two percent (2.0%), (iii) no Overadvance will be permitted to remain
outstanding more than ten (10) business days from the date of the Overadvance
within any thirty (30) day period, and (iv) in no event shall Bank authorize an
Overadvance if an Event of Default exists with respect to any of the
11
Loans. It is hereby emphasized that Bank's ability to fund Overadvances
pursuant to this Section is not intended to, and shall not, in any way, limit
Bank's right to prohibit any Overadvance or other Line of Credit Loan funding
which exceeds the Aggregate Loan Values (as determined by the Bank in its sole
discretion).
(B) Letter of Credit Loans.
(1) Provided no Event of Default has occurred under this Agreement, Bank
shall arrange for the issuance of the Letters of Credit on behalf of either
and/or both of Borrowers for such purposes as approved by Bank. The aggregate
amount of all outstanding Letters of Credit shall not exceed $1,000,000.00, and
no Letters of Credit shall have an expiry date of more than one (1) year from
the date of issuance or beyond the expiration of the Commitment Period. Any
draws or payments made to beneficiaries pursuant to such Letter of Credit shall
be treated as advances under the Line of Credit Loan bearing interest at the
same interest rate as other advances under the same from the date of any such
draws or payments. Any such Letter of Credit Loans shall be repayable by
Borrowers on demand by Bank, but in no event later than the expiration of the
Commitment Period.
(2) Borrower shall give written notice of each proposed Letter of Credit
Loan by 11:00 a.m., Eastern Standard Time, three (3) days prior to the date of
proposed issuance. Each such notice shall specify the date of issuance, the
term, the amount, the purpose and the beneficiary of the proposed Letter of
Credit.
(3) Notwithstanding any provision herein to the contrary, immediately upon
any presentation of any demand for payment under a Letter of Credit, the
Borrowers which are the account parties with respect to such Letter of Credit
shall be obligated to reimburse the Bank for each such demand on the date on
which such demand is made in immediately available US Dollars equal to the
amount of such demand (such obligations being referred to herein as
"Reimbursement Obligations"). After the Bank has honored a demand under any
Letter of Credit, such Letter of Credit will no longer be deemed to be available
and outstanding for purposes of this Agreement, except to the extent of the
remaining amount (if any) of such Letter of Credit.
(4) The Reimbursement Obligations shall be unconditional and irrevocable
and shall be enforced strictly in accordance with the terms of the Agreement
under all circumstances, including, without limitation, the following:
(a) the lack of validity or enforceability of the appropriate Letter of
Credit;
(b) the existence of any claim, set-off, defense or other right which
Borrowers may have at any time against the Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between Borrowers
and the beneficiary under a Letter of Credit);
(c) any draft, demand, certificate or any other document presented under
a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(d) payment by the Bank under the Letter of Credit against a demand which
does not comply with the terms of the Letter of Credit, provided that such
payment does not constitute gross negligence or willful misconduct of the Bank;
12
(e) any adverse change in the condition (financial or otherwise) of a
Borrower;
(f) any breach of this Agreement by a Borrower;
(g) any other circumstances or happening whatsoever, which is similar to
any of the foregoing; or,
(h) the fact that an Event of Default shall have occurred and be
continuing.
(i) (1) In addition to amounts payable as elsewhere provided herein and
to the provisions of this Agreement, the Borrowers hereby agree to indemnify,
exonerate and hold the Bank and its officers, directors, employees and agents
free and harmless from and against any and all claims, demands, actions, causes
of actions, suits, losses, costs (including reasonable attorneys' fees and
disbursements), charges, liabilities and damages, and expenses in connection
therewith (irrespective of whether such person is a party to the action for
which indemnification hereunder is sought) which the Bank and each of its
officers, directors, employees and agents may incur or be subject to as a
consequence, directly or indirectly, of (i) the issuance of any Letter of
Credit, other than solely as a result of the gross negligence or willful
misconduct of the Bank as determined by a final, non-appealable order of a court
of competent jurisdiction, or (ii) the failure of the Bank to honor a demand
under any Letter of Credit as a result of any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto government or
governmental authority (herein all such acts or omissions being called
"Governmental Acts"). All Obligations provided for in this Agreement shall
survive any termination of the Agreement.
(2) As between Borrowers and the Bank, the Borrowers assume all risks of
the acts and omissions of, or misuse of any Letter of Credit for which they are
the account parties by the beneficiary of such Letter of Credit. Without
limiting the foregoing, the Bank shall not be responsible for: (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any person in connection with the application for and issuance of a
Letter of Credit, even if such document is proven to be in any respect invalid,
insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(iii) the failure of the beneficiary of a Letter of Credit to comply fully with
conditions required in order to draw thereupon; (iv) errors, omissions,
interruptions or delays in transmission or delivery of any messages by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (v)
errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under a Letter of Credit or of the proceeds thereof; (vii) the misapplication by
the beneficiary of the proceeds of any demand under any Letter of Credit; and
(viii) any consequences arising from causes beyond the control of the Bank,
including, without limitation, any governmental acts. None of the above shall
affect, impair or prevent the vesting of any of the Bank's rights or powers
hereunder.
(3) Without limiting the foregoing, any action taken or omitted by the
Bank under or in connection with a Letter of Credit shall not put the Bank under
any resulting liability to Borrowers.
(4) The Borrowers agree that, upon the occurrence of an Event of Default,
they will immediately, without notice or demand, pay to the Bank an amount equal
to the amount of the then aggregate outstanding Letter of Credit Loans issued
and outstanding hereunder for which it is the account party. Any amounts so
received by the Bank pursuant to the provisions of the foregoing sentence shall
be retained by the Bank as collateral or applied to the principal balance of the
Loans in such order as Bank
13
may direct.
(j) If any Event of Default shall have occurred and be continuing, the
Bank may, irrespective of whether it is taking any of the other actions
described in this Section or otherwise, make demand upon Borrowers to, and
forthwith upon such demand Borrowers will, pay to the Bank for the benefit of
the Bank in accordance with this Section, for deposit in a non-interest bearing
cash collateral account, an amount equal to the aggregate face amount of all
Letters of Credit then outstanding. If at any time the Bank determine that any
funds held in any such cash collateral account are subject to any right or claim
of any person other than the Bank or that the total amount of such funds is less
than the aggregate face amount of all Letters of Credit, Borrowers will,
forthwith upon demand by the Bank, pay to the Bank, as additional funds to be
deposited and held in such cash collateral account, an amount equal to the
excess of (a) such aggregate face amount of all outstanding Letters of Credit
over (b) the total amount of funds, if any, then held in such cash collateral
account that the Bank determines to be free and clear of any such right and
claim.
2.2. On-Line Monitoring Set-Up Fee. Bank shall charge Borrowers a one-time
only set-up fee in the amount of $1,125.00, payable on the Closing Date, for
on-line reporting services.
2.3. Unused Line of Credit Loan Fee. Borrowers agree to pay to Bank, in
addition to any interest and other fees and sums due under this Agreement and
under the Loan Documents, an unused fee on the Line of Credit Loan in the amount
of twenty-five basis points (0.25%) per annum on the average monthly undisbursed
available principal balance on the Line of Credit Loan (hereinafter referred to
as the "Unused Line of Credit Fees"). The charge due pursuant to the terms of
this paragraph shall be payable quarterly, in arrears, with each payment of
interest or upon the expiration of the Commitment Period, whichever first
occurs. The Unused Line of Credit Fees shall be in addition to all the charges,
interest and fees under this Agreement.
2.4. Administrative Fee. Borrowers agree to pay to Bank, in addition to
any interest and other fees and sums due under this Agreement and under the Loan
Documents, an administrative fee in the amount of $1,555.00 in connection with
Bank's monitoring and administrative services with respect to the Line of Credit
Loan (hereinafter referred to as the "Administrative Fees"). The charge due
pursuant to the terms of this paragraph shall be payable monthly, in arrears,
with each payment of interest or upon the expiration of the Commitment Period.
The Administrative Fees shall be in addition to all the charges, interest and
fees under this Agreement.
2.5. Loan Account. Bank shall enter disbursements hereunder or under the
Note as debits to the Loan Account and shall also record in the Loan Account all
payments made by Borrowers and all proceeds of Collateral which are finally paid
to Bank, and may record therein, in accordance with customary accounting
practice, all charges and expenses properly chargeable to Borrowers hereunder.
2.6. Prepayment. Except as may otherwise be set forth in any interest rate
swap, ISDA Master Agreement or similar capital markets derivative agreement,
Borrowers shall have the right to prepay the indebtedness represented hereby in
whole or in part without penalty or premium unless otherwise stipulated in any
agreement entered into by and between Borrowers and Bank. Notwithstanding
anything herein to the contrary, if any Loan is prepaid at a time when it bears
interest at a LIBOR-based rate before the expiration of the applicable Interest
Period, Borrowers shall pay to Bank any and all reasonable costs which Bank must
pay as a result of such prepayment which the Bank would not otherwise have paid
if the Loan was paid at the end of the applicable Interest Period.
14
2.7. Term. This Agreement shall remain in force and effect until the
Loans and the Obligations, and any renewals or extensions, and all interest
thereon and costs provided for herein with regard to either of them have been
paid or satisfied in full and until the Bank has no further obligation to
advance funds to the Borrowers hereunder. Subject to the foregoing sentence,
Borrowers shall have the right to terminate this Agreement prior to expiration
of the Commitment Period upon payment of all outstanding principal, accrued
interest and other charges owing under the terms of this Agreement, including
the aggregate face amount of all Letters of Credit issued by Bank in Borrowers'
behalf hereunder. The indemnities provided for in Article XI shall survive the
payment in full of the Loans and the Obligations and the termination of this
Agreement.
2.8. Use of Proceeds. Borrowers shall use the proceeds of the Loan for
the following purposes and no other: Line of Credit Loan: working capital and
capital expenditure needs of Borrowers.
2.9. Payments. All sums paid to the Bank by Borrowers hereunder shall
be paid directly to the Bank in immediately available funds no later than 2:00
P.M., Atlanta, Georgia time on the date on which payment is due, except if such
date is not a Business Day such payment shall then be due on the first Business
Day after such date, but interest shall continue to accrue until the date
payment is received. Any payment received after 2:00 p.m. Atlanta, Georgia, time
shall be deemed to have been received on the immediately following Business Day
for all purposes, including, without limitation, the accrual of interest on
principal. The Bank shall send Borrowers statements of all amounts due
hereunder, which statements shall, absent manifest error by Bank, be considered
correct and conclusively binding on the Borrowers unless Borrowers notify the
Bank to the contrary within ten (10) days of their receipt of any statement
which it deems to be incorrect. The Bank may, in its sole discretion, (a) charge
against any deposit account of a Borrower all or any part of any amount due
hereunder, including, without limitation, the fees and expenses of the Bank to
be paid by Borrowers as provided for in Sections 12.1 through 12.4 of this
Agreement, any advances made by Bank to protect the Collateral, and any
commitment or servicing fee due the Bank, and (b) advance to Borrowers, and
charge to the Loans, a sum sufficient each month to pay all interest accrued on
the Loans and fees and expenses due under this Agreement, including, without
limitation, the fees and expenses of the Bank to be paid by Borrowers as
provided for in Sections 12.1 through 12.3 of this Agreement, any advances made
by Bank to protect the Collateral, and any commitment or servicing fee due the
Bank, during or for the immediately preceding month or any month prior.
Borrowers shall be deemed to have requested an advance under the Line of Credit
Loan upon the occurrence of an overdraft in any of a Borrower's checking
accounts maintained with the Bank or another bank owned by SouthTrust Bank.
2.10. Application of Payments. Borrowers irrevocably waive the right to
direct the application of any and all payments and collections at any time or
times hereafter received by Bank from or on behalf of Borrowers or from any of
the Collateral, and Borrowers do hereby irrevocably agree that, Bank shall have
the continuing right to apply such payments and collections received at any time
or times hereafter by Bank or its agent against the Obligations, in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records. If as the result of collections of Accounts or for any other
reason, a credit balance exists in the Loan Account, such credit balance shall
not accrue interest in favor of Borrowers but shall be available to Borrowers at
any time or times for so long as no Event of Default exists.
2.11. Limitations. Notwithstanding any provision in this Agreement, the
Bank may, in its sole discretion, at any time limit the amount of the Line of
Credit Loan advanced to Borrowers to an amount less than the Aggregate Loan
Values. THE LINE OF CREDIT LOAN SHALL, NOTWITHSTANDING ANY COURSE OF DEALING OR
CONDUCT ON THE PART OF THE PARTIES HERETO, OR ANY OTHER COVENANTS OR
UNDERTAKINGS OF THE
15
PARTIES HEREUNDER, BE FULLY DUE AND PAYABLE WITHOUT FURTHER NOTICE OR DEMAND
FROM BANK UPON THE EXPIRATION OF THE COMMITMENT PERIOD.
ARTICLE III
CONDITIONS OF LENDING
Bank shall not be obligated to make the Loans, or any advance under the
Loans, unless at the time thereof the following conditions shall have been met:
3.1. Company Proceedings. All proper corporate proceedings shall have been
taken by Borrowers to authorize this Agreement and the transactions
contemplated hereby.
3.2. Documentation. All instruments and proceedings in connection with the
transactions contemplated by this Agreement shall be satisfactory in form and
substance to Bank, and Bank shall have received on the date of this Agreement
copies of all documents, including records of corporate proceedings, which it
may have requested in connection therewith, including, without limitation,
certified copies of resolutions and board approvals adopted by the directors
of the Borrowers and by the sole shareholder of iFulfillment, certificates of
good standing, certified copies of the Articles of Incorporation and the Bylaws
of Borrowers, and all amendments thereto.
3.3. Loan Documents. Bank shall have received executed copies of all
Instruments evidencing security for the Loans and copies of the insurance
policies and related certificates of insurance referred to in Sections 6.1 and
9.5 of this Agreement.
3.4. No Default. No event shall have occurred or be continuing which
constitutes an Event of Default or which would constitute an Event of Default
with the giving of notice or the lapse of time or both; and neither the
business nor assets nor the condition, financial or otherwise, of Borrowers
shall have been adversely affected in any material manner as the result of any
fire, explosion, accident, strike, riot, condemnation, act of God, or any other
event or development.
3.5. Reports. Bank shall have received all reports and information from
Borrowers called for under the Agreement as and when due.
3.6. Payment of Fees. Payment by Borrowers of all fees and expenses
required by this Agreement.
3.7. Opinion of Counsel. Borrowers have provided an opinion letter from
Borrowers' counsel on the Closing Date covering such matters as Bank and its
counsel shall require.
3.8. Incumbency Certificate. Bank shall have received incumbency
certificates, dated as of the date of this Loan Agreement, executed by an
authorized officer of each Borrower, which shall identify by name and title and
bear the signature of the officer of each such Borrower authorized to sign this
Loan Agreement and the Notes on behalf of the Borrowers. The Bank shall be
entitled to rely upon such incumbency certificate in completing the
transactions contemplated herein or in any Loan Document and in all its other
dealings with Borrowers.
3.9. Consents. Bank shall have received, within 30 days from the date of
this Agreement, consents and agreements of the landlords of each of the
premises leased by any Borrower on which the Eligible Inventory is located as
provided in Section 4.1 hereof, as well as from each and every landlord of each
of the premises leased by each contractor to which any Borrower outsources its
manufacturing on
16
which Eligible Inventory is located as provided in Section 4.1 hereof, all in
form satisfactory to Bank. In addition, Bank shall have received consents and
agreements of the landlords of each of the premises leased by any Borrower on
which any Collateral is located with respect to any new lease or amendment or
renewal of an existing lease executed after the Closing Date.
3.10. Lien Search. Bank shall have received an official report from
Secretary of State of each of the Collateral States, the Chief Executive
Office State and the Borrower State, indicating that there are no Liens
against that portion of the Collateral except Permitted Liens.
3.11. Life Insurance. [Intentionally Omitted].
3.12. Disbursement Authorization. Borrowers shall have delivered to Bank
such disbursement authorizations, draw requests, and other documents and
writings as Bank shall have requested evidencing Borrowers' request for
disbursement of funds. Each of Borrower's President or Vice President, shall,
at all times, be authorized to request disbursements and/or draw requests with
respect to the Loans.
3.13. Additional Documents. Bank shall have received such additional legal
opinions, certificates, proceedings, instruments and other documents as the
Bank or its counsel may reasonably request to evidence (i) compliance by the
Borrowers with legal requirements, (ii) the truth and accuracy, as of the date
of this agreement, of the representations of the Borrowers contained herein,
and (iii) the due performance or satisfaction by the Borrowers, at or prior to
the date hereof, of all agreements required to be performed and all conditions
required to be satisfied by the Borrower pursuant hereto, including, without
limitation, all such matters as are listed on any preliminary closing checklist
issued by Bank and furnished to Borrowers.
ARTICLE IV
SECURITY FOR LOANS AND SPECIAL COLLECTION ACCOUNTS.
4.1. Security. The Loans and the Note shall be secured by each of the
following:
(1) A perfected security interest in Borrowers' Accounts, Money,
Letters of Credit, As-Extracted Collateral, Timber to be Cut, Goods, Chattel
Paper, Inventory, Equipment, Instruments, Investment Property, Documents,
Deposit Accounts, Letter-of-Credit Rights, General Intangibles, Supporting
Obligations, the BellSouth Agreement, patents and other intellectual property,
the Pledged Securities, and, to the extent not listed above as original
collateral, the proceeds and products of the foregoing; and
(2) This Agreement and the other Loan Documents.
Part of the Equipment may be affixed to real property and constitute
fixtures under the UCC. The Borrowers agree that any such fixtures shall be
included within the meaning of Equipment as used and defined herein and that
the Bank is hereby granted a security interest in and a lien upon such fixtures.
The Borrowers agree to execute and deliver, or cause the execution
and delivery of, such security agreements, assignments, guaranties, consents
and subordination agreements as may be required by Bank to evidence such
security, all in form satisfactory to Bank, as well as such consents and
agreements of the landlords of each of the premises leased by each Borrower on
which the Collateral is located, all in form satisfactory to Bank. Furthermore,
Borrowers authorize Bank to file any and all
17
financing statements describing the Collateral (or any other statutory liens
held by Bank) as may be required by Bank to evidence and perfect its security
interest in such Collateral, in form and substance satisfactory to Bank, without
Borrower's signatures thereon.
4.2. Special Collection Accounts. Each Borrower shall open a special
collection account (collectively, the "Special Collection Accounts") with Bank,
in which all funds received by each such Borrower from sales of Inventory, all
refunds of taxes, all remittances by Borrowers' Account Debtors, all bank wire
transfers from Borrowers' Account Debtors, and all other proceeds of Collateral,
shall be deposited no later than the next regular banking day following receipt
thereof. The Bank shall have the exclusive right to withdraw or debit funds
from each of the Special Collection Accounts which may be accomplished by any
directive signed by any authorized representative of the Bank. On a daily basis,
the Collected Balances in the Special Collection Accounts shall be withdrawn by
Bank and applied to the Line of Credit Loans, or at Bank's discretion, to the
other Loans. If any Borrowers' Report shall show insufficient Aggregate Loan
Values to entitle Borrowers to maintain the then current balance owing under the
Line of Credit Loan after applying thereto the Collected Balances of the Special
Collection Accounts, then Borrowers shall immediately deposit into the Special
Collection Accounts sufficient immediately available funds from which Bank may
draw in order to reduce the principal balance of the Line of Credit Loan to the
amount allowable under the provisions of this Agreement. At the request of the
Bank, Borrowers shall execute documents provided by the Bank to allow officers
or authorized representatives of the Bank to sign checks drawn on accounts of
Borrowers maintained in other banks for the purpose of transferring funds
representing proceeds of Collateral to an account or accounts of Borrowers
maintained with the Bank or another bank owned by SouthTrust Corporation,
including, without limitation, the Special Collection Accounts. At its option,
Bank may give Borrowers immediate credit for amounts deposited into the Special
Collection Accounts and charge Borrowers on a monthly basis for interest (at a
rate of interest equal to the then prevailing interest rate on the Line of
Credit Loan) on the difference between the Ledger Balances and the Collected
Balances for the period of time from the date of deposit until the funds are
collected.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND GENERAL COVENANTS
Borrowers represent, warrant and covenant to and with Bank, which
representations are made as of the Closing Date and on the date of each advance
of the Loans, and which warranties and covenants shall survive until the
Obligations are indefeasibly satisfied in full, that:
5.1. Organization and Qualification. (i) their chief executive office is
located in the Chief Executive Office State, (ii) the State of their
incorporation is the Borrower State, and (iii) their exact legal names are as is
set forth in the first (1st) paragraph of this Agreement.
5.2. Company Power and Authorization. Borrowers have full power and
authority to enter into this Agreement, to borrow hereunder, to execute and
deliver the Note and the other Loan Documents and to incur the obligations
provided for herein, all of which have been authorized by all proper and
necessary corporate action.
5.3. Enforceability. This Agreement and each of the other Loan Documents
constitute, and the Note when executed and delivered for value received will
constitute, a valid and legally binding obligation of Borrowers enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and general equity principals, and will not violate, conflict with, or
constitute any default under any law,
18
government regulation, Borrowers' Articles of Incorporation or Bylaws or any
other agreement or instrument binding upon Borrowers.
5.4. Pending Actions. Except as is more specifically set forth in Exhibit
"N" attached hereto, Borrowers are not a defendant, or a plaintiff against whom
a counterclaim or crossclaim has been asserted, in any civil or criminal action,
suit or litigation, and no action or investigation is pending or, so far as
Borrowers' officers and directors know, threatened before or by any court or
administrative agency which, if adversely determined, would result in any
material adverse change in the financial condition, operations or prospects of
either Borrower.
5.5. Financial Statements. The consolidated and combined financial
statements of Borrowers heretofore delivered to Bank and all other financial
statements and reports furnished by Borrowers to Bank are complete and correct
and fairly present the financial condition of Borrowers and the results of their
operations and transactions as of the dates and for the periods referred to and
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except in the case of unaudited interim
financial statements for the absence of footnotes and normally recurring
year-end adjustments). There are no liabilities, direct or indirect, fixed or
contingent, of Borrowers as of the date of such financial statements which are
not reflected therein or in the notes thereto. Neither said financial statements
nor any other financial statements, reports, and information furnished by
Borrowers to Bank contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein or herein not
misleading. There is no fact which Borrowers have failed to disclose to Bank in
writing which materially affects adversely or, so far as borrowers can now
foresee, will materially affect adversely the Collateral, business, prospects,
profits or condition (financial or otherwise) of Borrowers or the ability of
Borrowers to perform this agreement.
5.6. Title to Properties. Borrowers have good and marketable title to all
of their respective assets subject to no Lien, mortgage, pledge, encumbrance, or
charge of any kind except inchoate Liens arising by operation of law for
obligations which are not yet due and except for Permitted Liens. Borrowers
enjoy peaceable and undisturbed possession under all leases under which they are
operating, and none of such leases contain any provisions which may materially
and adversely affect or impair the operations of either Borrower, and all of
such leases are valid and subsisting and in full force and effect.
5.7. Pension Plans. Except as set forth on Exhibit "E", Borrowers have not
established and are not a party to any Plan or to any stock option or deferred
compensation plan or contract for the benefit of their respective employees or
officers, any pension, profit sharing or retirement plan, stock redemption
agreement, or any other agreement or arrangement with any officer, director or
stockholder, members of their respective families, or trusts for its benefit.
Borrowers are in material compliance with all applicable provisions of ERISA.
Neither Borrowers nor any of their respective Subsidiaries have received any
notice to the effect that it is not in full compliance with any of the
requirements of ERISA and the regulations promulgated thereunder. No fact or
situation that could result in a material adverse change in the financial
condition of any Borrower, including, but not limited to, any Reportable Event
or Prohibited Transaction, exists in connection with any Plan. Neither
Borrowers, nor any of their respective Subsidiaries, have any withdrawal
liability in connection with a Multiemployer Plan.
5.8. Taxes. Borrowers have filed all federal, state and local tax returns
which are required to be filed and has paid, or made adequate provision for the
payment of, all taxes which have or may become due pursuant to said returns or
to assessments received by Borrowers, including, without limitation, all
applicable federal, state, and local employee withholding taxes.
19
5.9. Title to Collateral. Borrowers have rights in or the power to
transfer the Collateral, and their respective title to the Collateral is subject
to no Lien, mortgage, pledge, encumbrance, or charge of any kind except inchoate
Liens arising by operation of law for obligations which are not yet due and
except for Permitted Liens. Borrowers shall defend the Collateral against all
claims and demands of all other parties who at any time claim any interest in
the Collateral.
5.10. Place of Business. Borrowers' chief executive office is located at
6655 Sugarloaf Parkway, Duluth, Georgia 30097. Any and all Collateral
constituting Goods is and shall be located only in the Collateral States more
specifically listed on Exhibit "D" to this Agreement. Except as indicated on
said exhibit, the real estate constituting each said location is owned by
Borrowers. With respect to locations not owned by Borrowers, said exhibit sets
forth the name and address of each landlord, the location of the property, and
the remaining term of the lease. Borrowers have separately furnished to Bank
true and correct copies of the lease agreements for each said parcel.
5.11. Full Disclosure. All information furnished by Borrowers to the Bank
concerning the Borrower, its financial condition, the Collateral, or otherwise
for the purpose of obtaining credit or an extension of credit, is, or will be at
the time the same is furnished, accurate and correct in all material respects
and complete insofar as completeness may be necessary to give the Bank a true
and accurate knowledge of the subject matter.
5.12. Borrowers' Name. Except as is more specifically set forth on
Exhibit "L" attached hereto, Borrowers have not changed their respective names
or been known by any other name within the last five (5) years, nor have
Borrowers been the surviving corporation in a merger effected within the last
five (5) years. Except as is more specifically set forth on Exhibit "L" attached
hereto, Borrowers do not now use nor have they used in the past five (5) years
any trade or fictitious name in the conduct of their respective businesses.
5.13. Existing Debt. Borrowers are not in default with respect to any of
their respective existing Debt or with respect to any material agreement to
which any Borrower is a party.
5.14. Insolvency. Borrowers are now and, after giving effect to the
transactions contemplated hereby, at all times will be, Solvent.
5.15. Subsidiaries. Innotrac has no Subsidiaries other than iFulfillment.
Ifulfillment has no Subsidiaries other than those listed on Exhibit "H" to this
Agreement.
5.16. Environmental Matters. Borrowers are in compliance with all
Environmental Regulations and with all other federal, state and local laws and
regulations relating to the environment and pollution, including such laws and
regulations regulating hazardous, radioactive and toxic materials and
underground petroleum products storage tanks. No assessment, notice of (primary
or secondary) liability or notice of financial responsibility, and no notice of
any action, claim, investigation, proceeding, or inquiry to determine such
liability or responsibility, or the amount thereof, or to impose civil penalties
has been received by Borrowers, and there are no facts, conditions or
circumstances known to Borrowers which could result in any investigation or
inquiry if all such facts, conditions, and circumstances, if any, were fully
disclosed to the applicable governmental authority. Borrowers have paid any
environmental excise taxes due and payable, including without limitation, those
imposed pursuant to Sections 4611, 4661, or 4681 of the Internal Revenue Code of
1986, as amended from time to time. Borrowers have not obtained and are not
required to obtain any permits, licenses, or similar authorizations to
construct, occupy, operate or use any buildings, improvements, fixtures or
equipment in connection with its business
20
by reason of any Environmental Regulations. No oil, toxic or hazardous
substances or solid wastes have been disposed of or released by Borrowers in
connection with the operation of their respective businesses and Borrowers will
not dispose of or release oil, toxic or hazardous substances or solid wastes at
any time in their operation of their respective businesses except in compliance
with all Environmental Regulations (the terms "hazardous substance" and
"release" shall have the meanings specified in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and
the terms "solid waste" and "disposal," "dispose" or "disposed" shall have the
meanings specified in the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), except that if such acts are amended to broaden the meanings
thereof, the broader meaning shall apply herein).
5.17. Ownership. All issued and outstanding capital stock of iFulfillment
is owned by Innotrac. There are no outstanding warrants, options, or rights to
purchase stock of iFulfillment, nor does any Person have a Lien upon any of the
stock of iFulfillment other than Bank.
5.18. Inventory. To the best of Borrowers' knowledge, all Inventory has
been produced, and during the term hereof will be produced, in compliance with
the requirements of the Federal Fair Labor Standards Act. No Inventory is now,
nor shall any Inventory at any time or times hereafter be, stored with a bailee,
a warehouseman or similar party without Bank's prior written consent and, if
Bank gives such consent, Borrowers will concurrently therewith cause any such
bailee, warehouseman, or similar party to issue and deliver to Bank, in form and
substance acceptable to Bank, warehouse receipts therefor in Bank's name. No
Inventory is or will be consigned to any Person without Bank's prior written
consent, and, if such consent is given, Borrowers shall, prior to the delivery
of any Inventory on consignment, (i) provide Bank with all consignment
agreements to be used in connection with any consigned inventory, all of which
shall be acceptable to Bank, (ii) prepare, execute and file appropriate
financing statements with respect to any such consigned inventory, showing Bank
as assignee, (iii) conduct a search of all filings made against the consignee in
all jurisdictions in which any consigned Inventory is to be located and deliver
to Bank copies of the results of all such searches, (iv) notify, in writing, all
the creditors of the consignee which Borrowers know are or may be holders of
Liens in the Inventory to be consigned that Borrowers expect to deliver certain
inventory to the consignee, all of which inventory shall be described in such
notice by item or type, and (v) do all such other things and acts as may be
necessary or desirable to fully perfect on a first priority basis Bank's
security interest in said Inventory.
5.19. Labor Relations. Borrowers, nor any of their respective
Subsidiaries, are a party to any collective bargaining agreement, and there are
no material grievances, disputes or controversies with any union or any other
organization of Borrowers' employees, or, to its knowledge, threats of strikes,
work stoppages or any asserted pending demands for collective bargaining by any
union or organization.
5.20. Trade Relations. There exists no actual or, to Borrowers' knowledge,
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrowers and any customer or any
group of customers whose purchases individually or in the aggregate are
material to the business of Borrowers, or with any material supplier, and
there exists no present condition or state of facts or circumstances which
would materially affect adversely Borrowers or prevent Borrowers from
conducting such business after the consummation of the transaction contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
5.21. Partnerships. Borrowers are not a partner or joint venturer with any
other Person or a participant in any business enterprise other than its own for
which it is generally liable, nor do Borrowers
21
have any contingent liabilities of any description other than as indicated in
the financial statements heretofore delivered to Bank.
5.22. Surety Obligations. Borrowers are not obligated as guarantor, surety
or indemnitor under any indemnity, guaranty, surety or similar bond or other
contract issued or entered into any agreement to assure payment, performance or
completion of performance of any undertaking or obligation of any Person other
than in favor of Bank.
5.23. No Approval. Except as is otherwise set forth in this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any federal, state, or local government body, agency, or authority is required
for the due execution, delivery, and performance by Borrowers of this Agreement,
the Note, or the Loan Documents.
5.24. Racketeering. Borrowers are not engaged in any activity that might
constitute a pattern of racketeering activity or in any other conduct that
might subject all or a material portion of Borrowers' assets to forfeiture.
5.25. Patents, Trademarks, Copyrights and Licenses. Borrowers own or possess
all the patents, trademarks, service marks, trade names, copyrights and licenses
of intellectual property ("Intellectual Property") necessary for the present and
planned future conduct of their businesses without any known conflict with the
rights of others. All such Intellectual Property owned or used by Borrowers
within the last five (5) years are listed on Exhibit "F" attached hereto and
made a part hereof. Where said Intellectual Property is not owned outright by
Borrowers, said exhibit lists the owner thereof and identifies the license or
other agreement pursuant to which they are used by Borrowers.
5.26. Representations True. No representation or warranty by the Borrowers
contained herein or in any certificate or other document furnished by the
Borrowers pursuant hereto contains any untrue statement of material fact or
omits to state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it was made.
5.27. Deposit Accounts. Exhibit "I" sets forth the name of each financial
institution at which Borrowers maintain Deposit Accounts, the state of
incorporation of such financial institution and the account numbers for each
Deposit Account. Borrowers acknowledge and agree that Bank has a duly perfected
first priority security interest in all Deposit Accounts of Borrowers.
5.28. Letters of Credit. Exhibit "J" sets forth all Letters of Credit under
which any Borrower is named as beneficiary, including the name of the issuing
financial institution and the Letter of Credit number. Borrowers acknowledge
and agree that Bank has a duly perfected first priority security interest in
all Letter of Credit Rights of Borrowers.
5.29 Bailees. Exhibit "K" set forth all third parties ("Bailees") with
possession of any Inventory or Equipment of the Borrowers, including the name
and address of such Bailee, a description of the Inventory and Equipment in
such Bailee's possession, and the location of such Inventory and Equipment. If
requested by Bank, each Bailee has acknowledged that it holds possession of the
Inventory and Equipment of the Borrowers for the Bank's benefit, and the Bank
has a first priority perfected security interest in such Inventory and
Equipment.
22
ARTICLE VI
GENERAL COVENANTS
Borrowers agree and covenant that until the Obligations have been
indefeasibly paid in full and until the Bank has no further obligation to make
advances under the Loan, Borrowers shall:
6.1 Insurance. Maintain insurance with insurance companies reasonably
satisfactory to Bank on such on its properties, in such amounts and against such
risks as is customarily maintained in similar businesses operating in the same
vicinity, and shall file with Bank upon request, from time to time, a detailed
list of the insurance then in effect, stating the names of the insurance
companies, the amounts and rates of the insurance, dates of expiration thereof,
and the properties and risks covered thereby, and, within 10 business days after
notice in writing from Bank, shall obtain such additional insurance as Bank may
reasonably request. All such policies shall name the Bank as a named insured and
provide that any losses payable thereunder shall (pursuant to loss payable
clauses, in form and content acceptable to the Bank, to be attached to each
policy) be payable to the Bank. Borrowers hereby assign to the Bank all right to
receive proceeds, directs any insurer to pay all proceeds directly to the Bank,
and authorizes the Bank to endorse any check or draft for such proceeds and
apply the same toward satisfaction of the Obligations. The Borrowers shall
furnish to the Bank insurance certificates, in form and substance satisfactory
to the Bank, evidencing compliance by them with the terms of this Section and,
upon the request of the Bank at any time, the Borrowers shall furnish the Bank
with photostatic copies of the policies required by the terms of this Section.
The Borrowers will cause each insurer under each of the policies to agree
(either by endorsement upon such policy or by letter addressed to the Bank) to
give the Bank at least 30 days' prior written notice of the cancellation of such
policies in whole or in part or the lapse of any coverage thereunder. Borrowers
agree that they will not take any action or fail to take any action which action
or inaction would result in the invalidation of any insurance policy required
hereunder. At least 5 days prior to the date the premiums on each such policy or
policies shall become due and payable, the Borrowers shall furnish to the Bank
evidence of the payment of such premiums. Borrowers shall furnish to the Bank
such evidence of insurance as Bank may require. Borrowers hereby acknowledge
that they have the risk of loss of the Collateral.
6.2 Company Existence; Qualification. Maintain its company existence and,
in each jurisdiction in which the character of the property owned by it or in
which the transaction of its business makes its qualification necessary,
maintain good standing.
6.3 Taxes. During each fiscal year, accrue all current tax liabilities of
all kinds, all required withholding of income taxes of employees, all required
old age and unemployment contributions, all required payments to employee
benefit plans, and pay the same when they become due.
6.4 Compliance with Laws. Comply with all Applicable Laws and pay all
taxes, assessments, charges, claims for labor, supplies, rent, and other
obligations. Specifically, Borrowers shall pay when due all taxes and
assessments of Borrowers upon the Collateral, this Agreement, the Notes, or any
Loan Document, including, without limitation, any stamp taxes or intangibles
taxes imposed by virtue of the transactions outlined herein.
6.5 Annual Financial Statements. Within 120 days after the close of each
fiscal year, furnish Bank with (a) annual audited financial statements of
Borrowers, consisting of a Form 10-K, prepared by an independent certified
public accountant reasonably acceptable to Bank, consisting of balance sheets,
profit and loss statements, statements of cash flow and such other statements
as Bank may reasonably request, for the period(s) involved, prepared in
accordance with GAAP consistently applied for the period
23
involved and for the preceding fiscal year, and (b) annual projected financial
statements for the upcoming fiscal year. All such financial statements shall be
prepared on a consolidated basis. At the time of furnishing said financial
statements and projected financial statements, Borrowers shall furnish Bank
with a certificate from the President of each Borrower stating that he has
reviewed this Agreement and the affairs of each such Borrower and that to the
best of his knowledge and belief he is unaware of the occurrence of an event
which constitutes an Event of Default hereunder or which would constitute such
an Event of Default with the giving of notice or the lapse of time or both,
and, if so, stating the facts with respect thereto, said certificate to be in
the form of Exhibit "G" hereto. Within 15 days after the filing thereof,
Borrowers shall furnish Bank with a copy of each Borrower's annual federal and
state tax returns.
6.6 Interim Financial Statements. Within 30 days after the close of each
calendar month (and within 45 days after the close of each calendar quarter with
respect to quarterly statements), furnish Bank with internally prepared
unaudited monthly and year-to-date financial statement of each Borrower,
consisting of a Form 10-Q (when available on a quarterly basis), balance sheets,
profit and loss statements, and a listing of all contingent liabilities of the
Borrowers for the periods involved, as well as a comparative set of said
financial statements and reports for the applicable period as to the prior
fiscal year, and such other statements as Bank may request, prepared in
accordance with GAAP (except for the absence of footnotes and normally recurring
year-end adjustments) applied on a basis consistent with the financial
statement(s) previously furnished to Bank, taken from the books and records of
Borrower, and certified as correct by the President of each Borrower. At the
time of furnishing quarterly financial statements, Borrowers shall furnish Bank
with a certificate from the President of each such Borrower, stating that he has
reviewed this Agreement and the affairs of the Borrowers and that to the best of
his knowledge and belief he is unaware of the occurrence of an event which
constitutes an Event of Default hereunder or which would constitute such an
Event of Default with the giving of notice or the lapse of time or both, and if
so, stating the facts with respect thereto. Said certificate shall further
confirm that Borrowers was at the time of issuance of said financial statement
and have at all times since been Solvent. All such financial statements shall be
prepared on a consolidated basis. Unless otherwise specified by Bank, said
certificate shall be in the form of Exhibit "G" hereto.
6.7 Visits and Inspections. Permit persons designated by Bank, upon
reasonable prior notice to Borrowers and during regular business hours (unless
during the existence and continuance of an Event of Default, in which case Bank
may make inspections without any prior notice and at any time), to inspect any
and all of the property and corporate and financial books and records of
Borrowers and to discuss its affairs with its officers and employees at such
reasonable times as Bank shall request and furnish Bank with such miscellaneous
information as it may request and at Bank's expense.
6.8 Payments on Notes. Duly and punctually pay the principal and interest
on the Note, in accordance with the terms of this Agreement and of the Note, and
pay all other Debt of Borrowers reflected on the financial statements delivered
to Bank and referred to in Section 5.5 hereof and all other Debt incurred after
the date hereof in accordance with the terms of such Debt, it being understood,
however, that this Section shall not be deemed to permit any Debt in violation
of the provisions of Sections 7.1 and 7.2 hereof.
6.9 Conduct of Business. Conduct its business as now conducted and do all
things commercially reasonable to preserve, renew and keep in full force and
effect its rights, privileges and franchises necessary to continue its business.
6.10 Maintenance of Properties. Keep its properties in reasonably good
repair, working order and condition, subject to normal wear and tear, and from
time to time make all commercially reasonable
24
repairs, renewals, replacements, additions, and improvements thereto and comply
with the provisions of all leases to which they are a party or under which they
occupy property so as to prevent any loss or forfeiture thereof or thereunder.
6.11. Additional Documents. Join the Bank in executing any security
agreements, assignments, consents, financing statements or other instruments,
in form satisfactory to the Bank, as the Bank may from time to time request in
connection with the Collateral and the other security for the Loan referred to
in Section 4.1 hereof.
6.12. Notice to Bank. Promptly notify the Bank of (i) any event causing a
material loss or depreciation in value of the Collateral and the amount of such
loss or depreciation, (ii) if any Borrower becomes aware of the occurrence of
any Event of Default or of any fact, condition or event that, with the giving of
notice or passage of time, or both, could become an Event of Default or of the
failure of any Borrower to observe any of its undertakings hereunder, or (iii)
any lawsuit involving any Borrower.
6.13. Collateral Reports. Furnish to Bank at least monthly (and more
frequently if requested by Bank), within 30 days from each month-end, a detailed
accounts receivable aging report, a detailed accounts payable aging report, and
an inventory report, all in form and substance, and containing such detail and
information, as Bank shall request, and furnish to Bank copies of all physical
inventory listings when prepared by Borrowers.
6.14. Subordination of Debt. Provide Bank with a debt subordination
agreement, in form and substance satisfactory to Bank, executed by Borrowers and
any Person who is an officer, director, shareholder, member or Affiliate of any
Borrower to whom such Borrower is or hereafter becomes indebted, subordinating
in right of payment and claim all of Debt owned by such Borrower to any said
Person and any future advances thereon to the full and final payment of the
Obligations.
6.15. Collection of Accounts. Diligently pursue collection of all Accounts
and other amounts due Borrowers by others, including Affiliates of Borrowers, in
accordance with commercially reasonable practice.
6.16. Landlord and Storage Agreements. Provide Bank with copies of all
agreements between any Borrower and any landlord or warehouseman which owns any
premises at which any inventory or other Collateral may, from time to time, be
kept.
6.17. Auditors; Insurance Representatives and Agents. Furnish the Bank with
a copy of each letter written to any Borrower by its independent certified
public accountant concerning internal controls and management review immediately
upon receipt of same and any comments made by the Borrower with respect thereto
and permit Bank to communicate directly with said accountants and with said
Borrower's insurance representatives and agents regarding the financial affairs
and condition of said Borrower, the books and records of said Borrower, and
insurance matters pertaining to said Borrower's business.
6.18. ERISA Compliance. (i) At all times make prompt payment of
contributions required to meet the minimum funding standards set forth in ERISA
with respect to each Plan; (ii) upon Bank's request, promptly after the filing
thereof, furnish to Bank copies of an annual report required to be filed
pursuant to ERISA in connection with each Plan and any other employee benefit
plan of its and its Affiliates; (iii) notify Bank as soon as practicable of any
Reportable Event and of any additional act or condition arising in connection
with any Plan which any Borrower believes might constitute grounds for
25
the termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States district court of a trustee to
administer the Plan; and (iv) furnish to Bank, promptly upon Bank's request
therefor, such additional information concerning any Plan or any other such
employee benefit plan as may be reasonably requested.
6.19. Life Insurance Policy. [Intentionally Omitted].
6.20. Bank Accounts. Maintain its operating bank accounts with the Bank.
6.21. Business Records. Keep, and cause each Subsidiary to keep, adequate
records and books of account with respect to its business activities in which
proper entries are made in accordance with GAAP reflecting all its financial
transactions.
6.22. Financial Covenants. Borrowers shall maintain at all times that this
Agreement is in effect the following:
(1) A minimum aggregate Adjusted Tangible Net Worth of no less than
the following amounts to be measured and reviewed as of the end of each fiscal
quarter of Borrowers set forth next to such amount below, all as determined
under GAAP, as follows:
Minimum Adjusted Tangible Net Worth Measure Date
----------------------------------- ------------
$32,500,000.00 3/31/03
$33,000,000.00 6/30/03
$33,000,000.00 9/30/03
$34,000,000.00 12/31/03
Amount of previous fiscal quarter's Each fiscal quarter of
required Minimum Adjusted Tangible Borrowers thereafter
Net Worth Plus $250,000.00
(2) A maximum aggregate Leverage Ratio of not more than 1.50 : 1.00,
to be measured and reviewed as of the end of each fiscal quarter of Borrowers in
each fiscal year of Borrowers, as determined under GAAP.
(3) A minimum aggregate Fixed Charge Coverage ratio, to be measured
and reviewed as of the end of each fiscal quarter of Borrowers, in each fiscal
year of Borrowers, as determined under GAAP, on a trailing four (4) quarter
basis, as follows:
Minimum Fixed Charge Coverage Ratio Measure Date
----------------------------------- ------------
1.25 : 1.00 3/31/03
1.40 : 1.00 6/30/03
1.60 : 1.00 9/30/03
1.75 : 1.00 12/31/03 and each fiscal
quarter thereafter
All financial covenants are to calculated on a consolidated basis.
26
6.23. Filings. Deliver to Bank a copy of any filings with any
governmental body, agency or authority which regulates Borrowers' businesses,
other than publicly-available filings with the Securities & Exchange Commission.
6.24. Management. Have Scott D. Dorfman continue to manage and run the
daily operations of each Borrower in his capacity as Chief Executive Officer of
each Borrower or, if another officer of any Borrower is given such title, to
hold a position with such Borrower in which he would nevertheless be entitled
to exercise the authority of the highest executive officer of said Borrower.
6.25. Purchase Money Security Interests. To the extent that any Borrower
uses any portion of any of the Loans to purchase Collateral, said Borrower's
repayment of the Loans shall apply on a "first-in-first-out" basis, so that the
portion of the Loan used to purchase a particular item of Collateral shall be
paid in the chronological order that the Borrower purchased said Collateral.
6.26. Further Assurances. At any time and from time-to-time, whether or
not the Official Text of Revised Article 9, 2000 Revision, of the Uniform
Commercial Code promulgated by the American Law Institute and the National
Conference of Commissioners on Uniform State Laws or a version thereof ("Uniform
Revised Article 9") has been adopted in any particular jurisdiction, take such
steps as the Bank may reasonably request for the Bank to (i) obtain an
acknowledgment, in form and substance reasonably satisfactory to Bank, of any
Bailee having possession of any of the Collateral, stating that the Bailee holds
possession of such Collateral on behalf of the Bank, (ii) obtain "control" of
any Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper ("control" being defined for such items of Collateral by Uniform
Revised Article 9), with any agreements establishing control to be in form and
substance reasonably satisfactory to the Bank, and (iii) otherwise to insure
continued perfection and priority of the Bank's security interest in any of the
Collateral and of the preservation of its rights therein, whether in
anticipation of or following the effectiveness of Uniform Revised Article 9 in
any jurisdiction. If the any Borrower shall, at any time, whether or not Uniform
Revised Article 9 has been adopted in any particular jurisdiction, acquire a
"commercial tort claim" (as such term is defined in the UCC) with a claim for
damages in excess of $250,000.00, the Borrower shall promptly notify the Bank,
in writing, providing a reasonable description and summary thereof, and shall
execute a supplement to this Agreement granting to Bank a security interest in
such commercial tort claim.
6.27. Electronic Submittal of Financial Reports. All financial reports
and information required to be submitted by Borrower hereunder shall be
submitted in a format satisfactory to Bank in Bank's sole discretion, whether
said format be written, electronic or both, as determined by Bank in Bank's sole
discretion. With respect to electronic submittals, all such reports shall be
transmitted to Bank through Bank's STABLNET.LINK(tm) electronic reporting
system. Borrower agrees that it will maintain such accounting and computer
systems and information as shall be compatible with the STABLNET.LINK(tm) system
and as shall promote the prompt reporting of information by Borrower to Bank and
that it will promptly report through the STABLNET.LINK(tm) system all
information as shall be requested by Bank.
6.28. Collateral and Other Financial Reports. Furnish to Bank at least
monthly (and more frequently if requested by Bank) a detailed accounts
receivable aging report, a detailed accounts payable aging report, and an
inventory report, all in form and substance, and containing such detail and
information, as Bank shall request, and furnish to Bank copies of all physical
inventory listings when prepared by Borrower. Such reports shall be submitted in
a format satisfactory to Bank in Bank's sole discretion, whether said format be
written, electronic or both, as determined by Bank in Bank's sole discretion. To
the extent that Bank requires Borrower to submit reports electronically, such
reports shall
27
be submitted by Borrower in a manner consistent with, and supported by, the
Bank's STABLNET.LINK(tm) electronic reporting system.
ARTICLE VII
NEGATIVE COVENANTS
Until the Obligations have been indefeasibly repaid and satisfied in full
and until the Bank has no further obligation to make advances under the Loans,
without the prior written consent of Bank, the Borrowers shall not:
7.1. Indebtedness. Create, incur, assume or suffer to exist any Debt or
obligation for money borrowed, or guarantee, or endorse, or otherwise be or
become contingently liable in connection with the obligations of any Person
(including, without limitation, any Affiliate), except (all of following
hereinafter referred to as "Permitted Indebtedness"):
7.1.1. Indebtedness for taxes not at the time due and payable or
which are being actively contested in good faith by appropriate proceedings and
against which reserves have been established by Borrowers in accordance with
GAAP, but only if the non-payment of such taxes being contested does not result
in a Lien upon any property of any Borrower that has priority over the Lien held
by Bank;
7.1.2. Contingent liabilities arising out of the endorsement of
negotiable instruments in the ordinary course of collection or similar
transactions in the ordinary course of business;
7.1.3. Accounts payable to trade creditors which are not aged more
than ninety (90) days from billing date and current operating expenses (other
than for borrowed money) which are not more than thirty (30) days past due, in
each case incurred in the ordinary course of business and paid within such time
period, unless the same are actively being contested in good faith and by
appropriate and lawful proceedings and said Borrower shall have set aside such
reserves, if any, with respect thereto as have been recommended by independent
public accountants;
7.1.4. Debt for money borrowed from the Bank and the other
Obligations, and Debt for money borrowed existing on the date of this Agreement
as is more specifically set forth on Exhibit "M" attached hereto and
incorporated herein;
7.1.5. Debt subordinated in favor of Bank pursuant to an executed
Subordination Agreement;
7.1.6. Purchase money Debt not exceeding at any one time, in the
aggregate, Five Hundred Thousand and No/100 Dollars ($500,000.00);
7.1.7. Deferred taxes;
7.1.8. Accrued pension fund and other employee benefit plan
obligations and liabilities (provided, however, that such Debt does not result
in the existence of any Event of Default hereunder);
7.1.9. Debt resulting from endorsements of negotiable instruments
received in the ordinary course of its business; and
28
7.1.10. Debt arising in respect of the Permitted Liens more
specifically set forth in Section 7.2 hereof.
7.2 Liens and Security Interests. Create, incur, assume, or suffer to
exist any mortgage, security deed, deed of trust, security interest, pledge,
encumbrance, Lien or charge of any kind (including charges on property
purchased under conditional sales or other title-retention agreements) on any
of its property or assets, now owned or hereafter acquired, except for the
following (all of which are referred to herein as "Permitted Liens"):
7.2.1. Liens for taxes not yet due or which are being contested in
good faith by appropriate proceeding and against which reserves deemed adequate
by Bank have been set up (excluding any Lien imposed pursuant to any of the
provisions of ERISA);
7.2.2. Other Liens, charges and encumbrances incidental to the
conduct of its business or the ownership of its property and assets and created
by operation of law;
7.2.3. Purchase money Liens and encumbrances created to secure
the indebtedness permitted by Section 7.1.6 hereof;
7.2.4. Liens, charges and encumbrances in favor of the Bank;
7.2.5. Restrictions imposed by licenses and leases;
7.2.6. Deposits to secure the performance of utilities, leases,
statutory obligations and surety and appeal bonds and other obligations of a
like nature incurred in the ordinary course of business;
7.2.7. Liens, charges and encumbrances reflected on EXHIBIT "C" to
this Agreement, if any; and
7.2.8. Liens otherwise permitted by this Agreement.
7.3. Dividends and Distributions. Declare any dividends on any shares of
any class of any Borrower's stock, or apply any of any Borrower's property or
assets to the purchase, redemption or other retirement of, or set apart any sum
for the payment of any dividends on, or for the purchase, retirement of, or
make any other distribution by reduction of capital or otherwise in respect of,
any shares of any class of stock of any Borrower. Borrowers are specifically
prohibited from making distributions of proceeds of the Loan or of any other
monies to any Affiliates. Notwithstanding the foregoing, so long as no Event of
Default then exists or would be caused by or result from the making of such
payment, each Borrower may pay dividends and make distributions from time to
time in an amount not in excess of forty percent (40%) of each of Borrower's
respective Net Income.
7.4. Affiliate Transactions. Purchase, acquire or lease property from, or
sell, transfer or lease any inventory, materials, goods, equipment, assets,
rights or property to, any Affiliate of any Borrower, except in the ordinary
course of any Borrower's business and under terms and conditions which would
apply if disinterested parties were involved.
7.5. Financing Statements. Permit any financing statement to be on file
with respect to the Collateral except in connection with the Permitted Liens.
29
7.6. Location of Borrower and Collateral. Change the State where any
Borrower is located or move or otherwise relocate the Collateral to any other
State other than the Collateral States.
7.7. Disposition or Destruction of Collateral. (i) waste or destroy the
Collateral or use it in violation of any statute or ordinance, (ii) make any
sales or leases of any of the Collateral other than sales of Inventory in the
ordinary course of a Borrower's business, or (iii) license any of the
Collateral.
7.8. Merger or Consolidation. Enter into any merger, reorganization or
consolidation or acquire all or substantially all of the assets of any Person,
sell, lease or otherwise dispose of any of its assets (except as is otherwise
permitted in Section 7.7 of this Agreement), or make any substantial change in
the basic type of business conducted by it as of the date hereof.
7.9. Loans or Advances. Make loans or make advances or pay any management
or similar fees to any Person, except that Innotrac shall be permitted to make
loans and advances to any of its Subsidiaries at any time and from time-to-time.
7.10. Capital Expenditures. Make any Capital Expenditures in any fiscal
year exceeding a total of $4,000,000.00, in the aggregate.
7.11. Acquisitions. Purchase or acquire the obligations or stock of or any
other interest in any Person, except direct obligations of the United States of
America or certificates of deposit or other investments issued by the Bank or by
any bank designated in writing by the Bank.
7.12. Prepayment of Debt. Prepay any Debt except Debt to the Bank and Debt
subordinated to the Bank.
7.13. Lease Transactions. Enter into any sale and lease-back arrangement,
either directly or indirectly.
7.14. Amendments. Amend any instrument evidencing a Permitted Lien or
Permitted Indebtedness in any manner which would adversely effect the Bank's
security interest in the Collateral, without first obtaining Bank's prior
written consent and as determined by Bank in Bank's sole discretion.
7.15. Salaries. [Intentionally Omitted].
7.16. Deposit of Funds. Deposit proceeds of the Collateral into any
account other than the Special Collection Accounts.
7.17. Adverse Transactions. Enter into any transaction, or permit any
Subsidiary to enter into any transaction, which materially and adversely affects
or may materially and adversely affect the Collateral or any Borrower's ability
to repay the Obligations or permit or agree to any material extensions,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
other than discounts and allowances in the ordinary course of business.
7.18. Subsidiary Acquisitions. Hereafter create any Subsidiary or divest
itself of any material assets by transferring them to any Subsidiary.
30
7.19. Subsidiary Divestitures. Transfer, sell, pledge, encumber or
otherwise assign any shares of stock or other interest in any Subsidiary or
permit any Subsidiary to sell or otherwise dispose of all of substantially all
of its assets.
7.20. Partnerships or Joint Ventures. Become or agree to become a general
or limited partner in any general or limited partnership or a joint venturer in
any joint venture.
7.21. Subordinated Debt. Make any payment (principal or interest) with
respect to Subordinated Debt, or with respect to any Debt that would be
Subordinated Debt but for the absence of a subordination agreement in effect
with respect thereto, except that Borrowers shall be entitled to make payments
with respect to such Debt to the extent provided in any subordination agreement
in effect with respect thereto, but only during such time as no default or Event
of Default exists hereunder.
7.22. Change in Ownership. Shall Scott Dorfman cease to own, beneficially
and of record, with unlimited power to vote, at least forty percent (40%) of the
issued and outstanding capital stock of Innotrac, and shall Innotrac cease to
own, beneficially and of record, with unlimited power to vote, at least
fifty-one percent (51%) of the issued and outstanding capital stock of
iFulfillment.
7.23. Change of Borrower Name. Change or permit the change of its
corporate name without providing Bank with thirty (30) days' prior written
notice. In the event that Bank is properly notified of any such change of any
Borrower name, said Borrower hereby authorizes Bank to execute and file such
additional UCC financing statements as Bank may deem necessary or desirable in
Bank's sole discretion.
7.24. Fiscal Year. Change its fiscal year end from that in effect on the
Closing Date.
7.25. Material Contracts. Enter into any Material Contracts requiring the
purchase of Inventory on or after the Closing Date which Material Contracts are
not expressly assignable without restriction or are expressly assignment to Bank
for the purpose of securing repayment by Borrower of the Obligations.
ARTICLE VIII
GRANT OF SECURITY INTEREST.
8.1. Security Interest. As security for the payment and performance of
the Loans and all other Obligations, now existing or in the future incurred, and
including any extensions or renewals or changes in form of the Loans, any
Overadvances, and any other Debt of Borrowers to the Bank, and all costs and
expenses of collection thereof, including, without limitation, attorneys' fees,
Borrowers hereby assigns to Bank and grants to Bank a security interest in and
Lien upon the following:
(1) the Collateral
(2) all monies and other property of any kind, real, personal, or mixed,
and tangible or intangible, now or at any time or times hereafter, in the
possession or under the control of Bank or a bailee of Bank;
(3) All accessions to, substitutions for and all replacements, products
and cash and non-cash proceeds of (1) through (2) above, including, without
limitation, proceeds of and unearned premiums with respect to insurance policies
insuring any of the Collateral;
31
(4) All books and records (including, without limitation, customer lists,
credit files, magnetic, digital and laser tapes and disks, electronic and
computer storage media, computer programs, print-outs, and other computer
materials and records) of Borrowers pertaining to any of (1) through (3) above.
8.2. Sale of Inventory. Until the occurrence and continuance of an Event
of Default, whichever occurs first, Borrowers may use and dispose of the
Inventory in the ordinary course of business where such is not inconsistent with
this Agreement, provided that the ordinary course of business does not include a
transfer in partial or total satisfaction of Debt nor a transfer (other than a
sale on terms and conditions which would apply if disinterested parties were
involved) to an Affiliate of any Borrower.
8.3. Notice to Account Debtors. Upon the occurrence and continuance of an
Event of Default, Bank shall have the right to notify the Account Debtors
obligated on any or all of the Accounts to make payment thereof directly to Bank
and to take control of all proceeds of any such Accounts. Any such notice by the
Bank to such Account Debtors shall be given by an authorized representative of
the Bank. Upon the occurrence and continuance of an Event of Default, Borrowers,
if requested by Bank, shall stamp or cause to be stamped on each Account item in
legible letters "Pledged to SouthTrust Bank" and shall turn over physical
possession of the Accounts to Bank. Borrowers authorize Bank to sign and endorse
Borrowers' names upon any check, draft, money order, or other form of payment of
any Account item and to sign and endorse satisfactions and releases of Account
items in Borrowers' names. Until such time as an Event of Default occurs and is
continuing and Bank elects to exercise the right to collect and endorse said
Accounts, Borrowers are authorized, as agent of the Bank, to collect and enforce
said Accounts in Borrowers' name. The costs of such collection and enforcement,
including reasonable attorney's fees and out-of-pocket expenses actually
incurred and all other expenses and liabilities resulting therefrom, shall be
borne solely by Borrowers whether the same are incurred by the Bank or
Borrowers. At the request of the Bank, Borrowers shall upon receipt of all
checks, drafts, cash and other remittances in payment or on account of the
Accounts deposit the same in the Special Collection Accounts. The funds in the
Special Collection Accounts shall be held by the Bank as security for all
obligations secured hereby. Said proceeds shall be deposited in precisely the
form received, except for the endorsement of Borrowers where necessary to permit
collection of items, which endorsement Borrowers agree to make, and which the
Bank is also hereby authorized to make on Borrowers' behalf. Pending such
deposit, Borrowers agree that they will not commingle any such checks, drafts,
cash and other remittances with any of Borrowers' funds or property, but will
hold them separate and apart therefrom and upon an express trust for the Bank
until deposit thereof is made in the Special Collection Accounts. The Bank may,
in accordance with the provisions of this Agreement, apply the whole or any part
of the Collected Balances on deposit in the Special Collection Accounts against
the principal and/or interest of the Loans or other Obligation secured hereby,
the order and method of such application to be at the discretion of the Bank.
Any portion of said funds on deposit in the Special Collection Accounts which
Bank elects not to so apply may, at the Bank's election, be paid over by the
Bank to Borrowers; provided, however, that if at any time the Bank grants to
Borrowers the right to retain the proceeds of the Accounts for Borrowers' use,
or if at any time Bank elects to pay funds on deposit in the Special Collection
Accounts to Borrowers, such right to retain and use proceeds or payment from the
Special Collection Accounts shall be deemed to be continuing new value for the
security interest attaching hereunder on all after-acquired property. In
addition to the rights set forth in this Section 8.3, Bank shall, upon the
occurrence and during the continuance of an Event of Default, be entitled
enforce Borrowers' rights against Account Debtors and related obligors.
32
8.4. Verification of Accounts. Whether or not an Event of Default has
occurred, any of Bank's officers, authorized representatives, employees or
agents shall have the right, at any time or times hereafter, in the name of Bank
or in any trade or fictitious name selected by Bank, or in the name of any
designee of Bank or Borrowers, to verify the validity, amount or any other
matter relating to any Accounts by mail, telephone, telegraph, or otherwise.
Borrowers shall cooperate fully with Bank in an effort to facilitate and
promptly conclude any such verification process.
8.5. Post Office Box. At the request of Bank, Borrowers agree to acquire
at its expense a post office box in Atlanta, Georgia, to which the Bank and its
designees alone shall have access. Borrowers agrees to give notice to all of its
Account Debtors to mail payments due to Borrowers to such post office box.
Borrowers agree that the Bank, or its designees, may open such post office box,
may receive, open and dispose of all mail addressed to Borrowers at such post
office box, and may deposit any payments contained in such mail in the Special
Collection Accounts. Borrowers agree to give all required instructions to the
U.S. Postal Service authorities to enable the Bank or its designees to attain
access to such post office box of Borrowers, agree that they will not attempt to
remove any mail from such post office box, and agrees to execute such additional
agreements as the Bank may reasonably require in connection with such post
office box. Borrowers agree to instruct all of its Account Debtors which make
any payments on the Accounts by bank wire to wire such payments to the Special
Collection Accounts.
8.6. Governmental Accounts. If any of a Borrower's Accounts in excess of
$10,000 arise out of contracts with the United States or any department, agency,
or instrumentality thereof, said Borrower will immediately notify the Bank
thereof in writing and execute any instruments and take any steps required by
the Bank in order that all monies due and to become due under such Account shall
be assigned to the Bank and notice thereof given to the government under the
Federal Assignment of Claims Act.
8.7. Accounts Evidenced by Instruments. If any of a Borrower's Accounts
are or should become evidenced by promissory notes, trade acceptances, chattel
paper, chattel mortgages, conditional sales contracts, or other instruments,
said Borrower will immediately deliver same to Bank, endorsed or assigned with
recourse to the Bank's order and, regardless of the form of such endorsement or
assignment, Borrower hereby waives presentment, demand, notice of dishonor,
protest and notice of protest and all other notices with respect thereto.
8.8. Lease of Records. Effective upon the occurrence and continuance of an
Event of Default, Borrowers hereby lease to the Bank, and the Bank hires from
Borrower, for a term which shall be effective so long as the Loans or other
Obligations secured hereby are owing to the Bank by Borrowers and until the Bank
has no further obligation under the Agreement, all of Borrowers' present and
future books of Accounts, computer printouts, magnetic, digital and laser tapes
and disks, computer and electronic storage media, computer software programs,
trial balance records, ledgers and cabinets in which they are located, reflected
or maintained, in any way relating to the Collateral, and all present and future
supporting evidence and documents relating thereto in the form of written
applications, credit information, account cards, payment records, trial
balances, correspondence, delivery receipts, certificates and the like, as well
as the past and current information stored in computer software programs for and
on Borrowers' behalf by third parties. Borrowers, if requested by Bank, agree to
legend all of the foregoing to indicate the lease thereof to the Bank. If an
Event of Default occurs and the Loans are accelerated, then, in addition to all
of the other rights and remedies of the Bank herein, the Bank will have the
right forthwith or at any time thereafter to remove from Borrowers' premises all
of the foregoing and keep and retain the same in Bank's possession until the
Loans and other Obligations secured hereby shall have been fully paid and
discharged and the Bank has no further obligation under the Agreement. The
provisions of this Section shall not be deemed to diminish or contravene the
security interest of the Bank in the
33
Borrowers' General Intangibles or in the property, materials, and interests
described in this Section but shall be deemed to be in addition to any rights
the Bank may have with respect to the Borrowers' grant of a security interest in
its General Intangibles to the Bank.
8.9. License of Rights. Effective upon the occurrence and
continuance of an Event of Default, Bank is hereby granted a license or other
right to use, without charge, Borrowers' labels, patents, copyrights, rights of
use of any name, trade secrets, tradenames, trademarks and advertising matter or
any property of a similar nature as it pertains to the Collateral, in
advertising for sale and in selling any Collateral, and Borrowers' rights under
all licenses and all franchise agreements shall inure to Bank's benefit.
8.10. Attorney-in-Fact. Effective upon the occurrence and continuance
of an Event of Default, Borrower hereby irrevocably designates, makes,
constitutes and appoints Bank (and all Persons designated by Bank) as Borrowers'
true and lawful attorney (and agent-in-fact) and Bank, or Bank's agent, may,
without notice to Borrowers and in Borrowers' or Bank's name, but at the cost
and expense of Borrowers.
8.10.1. At such time or times hereafter as Bank or said agent, in
its sole discretion, may determine, upon the occurrence and continuance of an
Event of Default, endorse Borrowers' name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Bank or under Bank's control; and
8.10.2. At such time or times as Bank or its agent in its sole
discretion may determine upon the occurrence and continuance of an Event of
Default: (i) demand payment of the Accounts from the Account Debtors, enforce
payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of any Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral; (iii) sell or collect any of
the Accounts or other Collateral upon such terms, and for such amounts and at
such time or times as Bank deems advisable; (iv) take possession, in any manner,
of any item of payment or proceeds relating to any Collateral and apply the same
to the Obligations; (v) prepare, file and sign any Borrower's name to a proof of
claim in bankruptcy or similar document against any Account Debtor or to any
notice of lien, assignment or satisfaction of lien or similar document in
connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrowers and to notify postal authorities to change the
address for delivery thereof to such address as Bank may designate; (vii)
endorse the name of any Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Bank or any
other bank on account of the Obligations; (viii) endorse the name of any
Borrower upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (ix) use any Borrower's stationery and sign
the name of any Borrower to verifications of the Accounts and notices thereof to
Account Debtors; (x) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory, and any other Collateral and to which Borrowers have
access; (xi) make and adjust claims under policies of insurance; and (xii) for
and in the name of Borrower to give instructions and direct any bank or
financial institution in which proceeds of the Collateral are deposited to turn
over said proceeds to Bank; and (xiii) do all other acts and things necessary,
in Bank's determination, to fulfill Borrowers' obligations under this Agreement.
8.11. Perfection of Security Interests. With respect to the
Collateral, Borrowers agree as follows:
34
8.11.1 Filing of Financing Statement.
(a) Borrowers authorize Bank to file a financing statement
describing the Collateral; and
(b) Borrowers authorize Bank to file a financing statement
describing any agricultural liens or other statutory liens held by Bank.
8.11.2 Possession.
(a) Borrowers shall have possession of the Collateral,
except where expressly otherwise provided in this Agreement or where Bank
chooses to perfect its security interest by possession in addition to the filing
of a financing statement; and
(b) Where Collateral is in the possession of a third party,
Borrowers, upon request of Bank, shall join with Bank in notifying the third
party of Bank's security interest and obtaining an acknowledgement from the
third party that it is holding the collateral for the benefit of Bank.
8.11.3. Control. Borrowers shall cooperate with Bank in using
commercially reasonable efforts to obtain control with respect to Collateral
consisting of:
(a) Deposit Accounts;
(b) Investment Property;
(c) Letter-of-Credit Rights; and
(d) Chattel Paper (electronic).
8.11.4. Marking of Chattel Paper. Borrowers shall not create any
Chattel Paper without placing a legend of the Chattel Paper acceptable to Bank
indicating that Bank has a security interest in the Chattel Paper.
ARTICLE IX
ADDITIONAL REPRESENTATIONS, COVENANTS, AND
AGREEMENTS RELATING TO COLLATERAL
9.1. Reliance on Statements. With respect to all Accounts, Borrowers
represent and warrant to Bank that Bank may rely, in determining which Accounts
are Eligible Accounts, on all statements and representations made by Borrowers
with respect to any Account or Accounts, and unless otherwise indicated in
writing to Bank, that with respect to each Account:
9.1.1. It is genuine and in all respects what it purports to be,
and it is not evidenced by a judgment;
9.1.2. It arises out of a completed, bona fide sale and delivery
of goods or rendition of services by a Borrower in the ordinary course of its
business and in accordance with the terms and
35
conditions of all purchase orders, contracts or other documents relating thereto
and forming a part of the contract between a Borrower and the Account Debtor;
9.1.3. It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy of which
has been furnished or is available to Bank;
9.1.4. Such Account, and Bank's security interest therein, is not
subject to any offset, Lien, deduction (except for deductions permitted under
Section 9.1.5, below), defense, dispute, counterclaim or any other adverse
condition, and each such Account is absolutely owing to a Borrower and is not
contingent in any respect or for any reason;
9.1.5. No Borrower has made an agreement with any Account Debtor
thereunder for any deduction therefrom, except discounts or allowances which are
granted by a Borrower in the ordinary course of its business for prompt payment
and which are reflected in the calculation of the net amount of each respective
invoice related thereto;
9.1.6. To the Best of each Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforceability
thereof or tend to reduce the amount payable thereunder from the face amount of
the invoice and statements delivered to Bank with respect thereto;
9.1.7. To the best of each Borrower's knowledge, the Account Debtor
thereunder (i) had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor
was and is Solvent;
9.1.8. No Borrower has knowledge of any fact or circumstance which
would impair the validity or collectibility of the Account, and to the best of
each Borrower's knowledge, there are no proceedings or actions which are
threatened or pending against any Account Debtor thereunder which might result
in any material adverse change in such Account Debtor's financial condition or
the collectibility of such Account; and
9.1.9. Borrowers will have paid or provided for the payment of all
taxes arising from the transaction creating the Account.
9.2. Notification. Borrowers shall immediately notify Bank of any event,
occurrence or circumstance which causes any representation pertaining to any
Account set forth in Section 9.1 above to cease to be true in all respects, and
Borrowers will promptly notify Bank (i) if any Account Debtor or any Affiliate
of any Account Debtor has or may have any right of setoff, deduction, or defense
against any Account or (ii) if any such Account Debtor or Affiliate of such
Account Debtor has or may have a contractual or business relationship with a
Borrower such that at any time such right may exist or be asserted or (iii) if a
Borrower ships any inventory or goods or furnishes any services to any Person
which has or may have any right of setoff, deduction or defense against any
asset, including any Account, of a Borrower.
9.3. Affirmation of Representations. Each request for a loan or advance
made by Borrowers pursuant to this Agreement or any of the other Loan Documents
shall constitute (i) an automatic representation and warranty by Borrowers to
Bank that there does not then exist any default or Event of Default and (ii) a
reaffirmation as of the date of said request that all of the representations and
warranties of Borrowers contained in this Agreement and the other Loan Documents
are true in all material respects
36
except of any changes in the nature of Borrowers' businesses or operations that
would render the information contained in any exhibit attached hereto either
inaccurate or incomplete, so long as Bank has consented to such changes or such
changes are expressly permitted by this Agreement, and except to the extent
that representations were made as of a specific date. Borrowers are expressly
required to update all Exhibits to this Agreement (as applicable) at any time
and from time-to-time in connection with any such reaffirmation.
9.4. Waivers. Borrowers hereby release and waive any and all actions,
claims, causes of action, demands and suits which they may currently have
against the Bank as a result of any possession, collection, settlement,
compromise or sale by Bank of any of the Accounts upon the occurrence of an
Event of Default hereunder, notwithstanding the effect of such possession,
collection, settlement, compromise or sale upon the business of Borrowers. Said
waiver shall include all causes of action and claims which may result from the
exercise of the power of attorney conferred upon Bank in Section 8.10. The
failure at any time or times hereafter to require strict performance by
Borrowers of any of the provisions, warranties, terms and conditions contained
in this Agreement or any other agreement, document or instrument now or
hereafter executed by Borrowers, and delivered to the Bank, shall not waive,
affect, or diminish any right of the Bank thereafter to demand strict compliance
and performance therewith and with respect to any other provisions, warranties,
terms and conditions contained in such agreements, documents or instruments, and
any waiver of default shall not waive or affect any other default, whether prior
or subsequent thereto, and whether the same are of a different type. None of the
warranties, conditions, provisions and terms contained in the Agreement or any
other agreement, document or instrument now or hereafter executed by Borrowers
and delivered to the Bank shall be deemed to have been waived by any act or
knowledge of the Bank, its agents, representatives, officers or employees, but
only by an instrument in writing signed by an officer of the Bank and directed
to the Borrowers specifying such waiver.
9.5 Discharge of Taxes and Liens. At its option, the Bank may discharge
taxes, Liens, security interests or other encumbrances at any time levied or
placed on the Collateral and may pay for the maintenance and preservation of
the Collateral. Borrowers agree to reimburse the Bank, on demand, for any
payment made or expense incurred by Bank pursuant to the foregoing
authorization, including, without limitation, attorney's fees.
9.6 Insurance. Without limiting any other provision hereof, Borrowers will
keep the Collateral insured in amounts equal to its full insurable value, with
companies, and against such risks as may be reasonably satisfactory to the
Bank. Borrowers will pay the costs of all such insurance and, upon Bank's
request, deliver policies evidencing such insurance to the Bank with mortgagee
loss payable clauses in favor of the Bank. Borrowers hereby assign to the Bank
all right to receive proceeds, directs any insurer to pay all proceeds directly
to the Bank, and authorizes the Bank to endorse any check or draft for such
proceeds and apply the same toward satisfaction of the Loans and other
Obligations secured hereby.
9.7 Complete Records; Inspection Rights. Borrowers will at all times keep
accurate and complete records of the Collateral, and the Bank or its agents
shall have the right to call at any Borrower's place or places of business at
intervals to be determined by Bank, upon reasonable notice and during any
Borrower's regular business hours, and without hindrance or delay, to inspect
and examine the Inventory and Equipment, and to inspect, audit, check, and
make, at Bank's expense, abstracts from the books, records, journals, orders,
receipts, computer printouts, correspondence and other data relating to the
Collateral or to any other transactions between the parties hereto.
37
9.8. U.C.C. Financing Statement. The Borrowers agree that a carbon,
photographic or other reproduction of this Agreement or of a financing
statement with respect to the Collateral shall be sufficient as a financing
statement and may be filed as such by the Bank.
ARTICLE X
EVENTS OF DEFAULT; CERTAIN REMEDIES
10.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
10.1.1. Payment Default. If Borrowers shall fail to make any
payment of any installment of principal or interest on the Note or with respect
to any Loan when and as the same shall become due and payable, whether at
stated maturity, upon the expiration of the Commitment Period, by declaration,
upon acceleration, or otherwise; or
10.1.2. Fees and Expenses. If Borrowers shall fail to pay when
due any expense, fee or charge provided for in this Agreement; or
10.1.3. Other Defaults. If Borrowers shall fail for a period
of thirty (30) days from the date that Bank delivers to Borrower written notice
as required in this Agreement setting forth any Borrower's failure to perform,
keep, or observe any covenant, agreement or provision of any of the following
Sections of this Agreement: 6.2, 6.3, 6.4, 6.9, 6.10, 6.11, 6.14, 6.17, 6.18,
6.20, and 6.21; or if any borrower shall fail or neglect to perform, keep or
observe, or shall default with respect to, any other covenant, agreement or
provision a default in the performance of which is dealt with specifically
elsewhere in this Section 10.1); or
10.1.4. Representations False. If any warranty,
representation, or other statement made or furnished to Bank by or on behalf of
any borrower in any of the Loan Documents proves to be false or misleading in
any material respect when made or furnished, or
10.1.5. Financial Difficulties. If any Borrower shall be
involved in financial difficulties as evidenced-
(a) by its admission in writing of its inability to
pay its debts generally as they become due or of its ceasing to be Solvent;
(b) by its filing a petition in bankruptcy or for
reorganization or for the adoption of an arrangement under the U.S. Bankruptcy
Code (as now or in the future amended) or any similar law regarding debtors
rights and remedies or an admission seeking the relief therein provided;
(c) by its making a general assignment for the
benefit of its creditors;
(d) by its consenting to the appointment of a
receiver for all or a substantial part of its property;
(e) by its being adjudicated a bankrupt;
38
(f) by the entry of a court order appointing a receiver or trustee
for all or a substantial part of its property without its consent, which order
shall not be vacated, set aside or stayed within ninety (90) days from the date
of entry; or
(g) by the assumption of custody or sequestration by a court of
competent jurisdiction of all or substantially all of its property, which
custody or sequestration shall not be suspended or terminated within 60 days
from its inception; or
10.1.6. ERISA. If a Reportable Event shall occur which Bank shall
determine in good faith constitutes grounds for the termination by the Pension
Benefit Guaranty Corporation of any Plan or for the appointment by the
appropriate United States district court of a trustee for any Plan, or if any
Plan shall be terminated or any such trustee shall be requested or appointed
[or if any Borrower is in "default" (as defined in Section 4219(c) (5) of
ERISA) with respect to payments of an amount not less than $100,000.00 to a
Multiemployer Plan resulting from such Borrower's complete or partial
withdrawal from such Plan]; or
10.1.7. Cancellation of Guaranty. [Intentionally Omitted].
10.1.8. Default on Other Obligations. If any Borrower shall, after
giving effect to all applicable grace periods, default in payment of more than
$100,000.00 due on any Debt of any Borrower, in the aggregate, to others or if
any Borrower shall default under any loan or security agreement with others or
under any material lease involving a payment of more than $100,000.00 and any
such default shall not be cured within 30 days after written notice to any
Borrower from Bank or any holder; or
10.1.9. Judgments. If a final judgment for the payment of money in
excess of $250,000.00 shall be rendered against any Borrower and the same shall
remain undischarged or unsatisfied for a period of 30 days during which
execution shall not be effectively stayed, unless such judgment is fully
covered by collectible insurance; or
10.1.10. Actions. If any Borrower shall be criminally indicted or
convicted under any law that could lead to a forfeiture of any property of any
Borrower; or
10.1.11. Uninsured Losses; Unauthorized Dispositions. Any material loss,
theft, damage or destruction not fully covered by insurance, or sale, lease or
encumbrance of any of the Collateral or the making of any levy, seizure, or
attachment thereof or thereon except in all cases as may be specially permitted
by other provisions of this Agreement; or
10.1.12. Adverse Changes. There shall occur any material adverse change
in the financial condition or business prospects of any Borrower; or
10.1.13. Collateral. If a creditor of any Borrower (other than Bank)
shall obtain possession of any of the Collateral by any legal means; or
10.1.14. Business Disruption; Condemnation. There shall occur a
cessation of a substantial part of the business of any Borrower for a period
which has a Material Adverse Effect on Borrowers; or any Borrower shall suffer
the loss or revocation of any license or permit now held or hereafter
acquired by any Borrower which has a Material Adverse Effect on Borrowers; or
any Borrower shall be enjoined, restrained or in any way prevented by court,
governmental or administrative order from
39
conducting all or any material part of its business affairs; or any part of the
Collateral shall be taken through condemnation or the value of such properties
shall be impaired through condemnation; or
10.1.15. Bank Insecurity. Bank shall reasonably and in good faith
deem itself insecure; or
10.1.16. Change in Control. If Scott Dorfman shall cease to own,
beneficially and of record, with unlimited power to vote, at least forty
percent (40%) of the issued and outstanding capital stock of Borrower;
10.1.17. Life Insurance Policy. [Intentionally Omitted].
10.1.18. Subordination Agreements. If a breach or default beyond all
applicable grace periods shall occur with respect to any subordination
agreement executed by any creditor of any Borrower (including any Affiliate),
or if any said agreement shall otherwise terminate or cease to have any legal
effect; or
10.1.19. Priority. If Bank shall receive at any time following the
Closing Date, an official report from the Secretary of State of any Collateral
State, Borrower State or Chief Executive Office State, indicating that Bank's
security interest in the Collateral does not have a first priority ranking
(other than with respect to the Liens permitted pursuant to Section 7.2 above);
or
10.1.20. Financing Statements. If any amendment to or termination of
a financing statement naming any Borrower as "debtor" and the Bank as "secured
party," or any correction statement with respect thereto, is filed in any
jurisdiction by any party other than the Bank or its counsel without the prior
written consent of the Bank; or
10.1.21. Cross-Default. If there shall occur a default or Default
under any loan document evidencing a loan by Bank to any Borrower; or
10.1.22. Other Documents. If a default or event of default or breach
occurs under any Loan Document (other than the breaches enumerated in Sections
10.1.1 through 10.1.21 above), or under or with respect to any of the
Obligations, or under any other note, evidence of indebtedness, loan agreement,
security agreement, guaranty, pledge, mortgage, assignment, or security
document executed by Borrowers and delivered to the Bank.
The Borrowers agree that default under any Loan Document shall constitute
default with respect to all Loan Documents and vice versa.
10.2. Remedies. Upon or at any time after the occurrence of any one or
more of the foregoing Events of Default, Bank or the holder of the Note may at
its option (i) proceed to protect and enforce its rights by suit in equity,
action at law and/or the appropriate proceeding either for specific performance
of any covenant or condition contained in the Note or in any Loan Document,
(ii) terminate the Commitment Period and cease disbursing advances under the
Line of Credit Loan, and/or (iii) declare the unpaid balance of the Loans and
Note together with all accrued interest to be forthwith due and payable, and
thereupon such balance shall become so due and payable without presentation,
protest or further demand or notice of any kind, all of which are hereby
expressly waived.
Without limiting the foregoing, upon the occurrence of any Event of
Default, and at any time thereafter, Bank shall have the rights and remedies
of a secured party under the UCC in addition to the
40
rights and remedies provided herein or in any other instrument or paper
executed by any Borrower. The Bank may require the Borrowers to assemble the
Collateral and to make the same available to the Bank at a place to be
designated by the Bank which is reasonably convenient to both parties. Unless
the Collateral is perishable or threatens to decline speedily in value, or is
of a style customarily sold on a recognized market, the Bank will give
Borrowers reasonable notice of the time after which any private sale or other
intended disposition thereof is to be made. The requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to the Borrowers
at least five (5) days before the time of such sale or disposition. The
Borrowers shall pay the Bank on demand any and all expenses, including legal
expenses and reasonable attorney's fees, incurred or paid by the Bank in
protecting or enforcing the Loans and all other Obligations secured hereby and
other rights of the Bank hereunder, including its right to take possession of
the Collateral. Bank has no obligation to clean-up the Collateral or otherwise
prepare the Collateral for sale. Bank may sell the Collateral without giving
any warranties as to the Collateral. Bank may specifically disclaim any
warranties of title or the like. If Bank sells any of the Collateral upon
credit, Borrowers will be credited only with payments actually made by the
purchaser, received by Bank and applied to the Obligations. In the event that
the purchaser fails to pay for the Collateral, Bank may resell the Collateral
and Borrowers shall be credited with the proceeds of the sale.
The Bank shall not be liable for failure to collect the Accounts or to
enforce any contract rights or for any action or omission on the part of the
Bank, its officers, agents and employees, except gross negligence or willful
misconduct. No remedy herein conferred upon, or reserved to, the Bank is
intended to be exclusive of any other remedy or remedies, including those of
any note or other evidence of Debt held by the Bank and each and every remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing in law or in equity. Exercise or
omission to exercise any right of the Bank shall not affect any subsequent
right of the Bank to exercise the same.
Borrowers waive notice prior to Bank's taking possession or control of any
of the Collateral or any bond or security that might be required by any court
prior to allowing Bank to exercise any of Bank's remedies, including, without
limitation, the issuance of an immediate writ of possession. Borrowers also
waives any right they may have to require Bank to pursue any third person for
any of the Obligations.
Bank may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.
The Borrowers agree that the Bank may apply the net proceeds received from
the Collateral following an Event of Default among the Loans and the
Obligations toward satisfaction of the same in its sole discretion, and Bank
may specifically do so in those situations where Bank purchases any of the
Collateral being sold. Any such proceeds remaining after satisfaction in full
of the Loans, the Obligations, and the other obligations and liabilities of the
Borrowers to the Bank shall be distributed as required by Applicable Laws.
10.3. Right of Set-off. Upon and after the occurrence of any Event of
Default, Bank may, and is hereby authorized by Borrower, at any time and from
time to time, to the fullest extent permitted by Applicable Laws, and without
advance notice to Borrowers (any such notice being expressly waived by
Borrowers), set-off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and any other indebtedness at
any time owing by Bank to, or for the credit or the account of, Borrowers
against any or all of the Loans and Obligations and other liabilities and
obligations of Borrowers now or hereafter existing whether or not such
obligations have matured and irrespective of whether Bank has exercised any
other rights that it has or may have with respect to such Loans and
41
Obligations and other liabilities and obligations, including, without
limitation, any acceleration rights. The aforesaid right of set-off may be
exercised by Bank against Borrowers or against any trustee in bankruptcy,
debtor in possession, assignee for the benefit of the creditors, receiver, or
execution, judgment or attachment creditor of Borrowers, notwithstanding the
fact that such right of set-off shall not have been exercised by Bank prior to
the making, filing or issuance, or service upon Bank of, or of notice of, any
such petition; assignment for the benefit of creditors; appointment or
application for the appointment of a receiver; or issuance of execution,
subpoena, order or warrant. Bank agrees to notify Borrowers after any such
set-off and application, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of Bank
under this Section are in addition to the other rights and remedies (including,
without limitation, other rights of setoff) which Bank may have.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification. Borrowers agree to jointly and severally defend,
indemnify and hold harmless the Bank, its directors, officers, employees,
accountants, attorneys, and agents, (the "Indemnitees") from and against any
and all claims, demands, judgments, damages, actions, causes of action,
injuries, orders, penalties, costs and expenses (including reasonable
attorneys' fees and costs of court actually incurred) of any kind whatsoever
arising out of or relating to any breach or default by Borrowers or any other
Person under this Agreement or any Loan Document or the failure of Borrowers to
observe, perform or discharge Borrowers' duties hereunder or thereunder.
Without limiting the generality of the foregoing, Borrower's obligation to
indemnify Bank shall include indemnity from any and all claims, demands,
judgments, damages, actions, causes of action, injuries, orders, penalties,
costs and expenses arising out of or in connection with the activities of the
Borrowers, their respective predecessors in interest, third parties who have
trespassed on any Borrower's property, or parties in a contractual relationship
with any Borrower, whether or not occasioned wholly or in part by any
condition, accident or event caused by an act or omission of the Indemnitees,
which: (a) arise out of the actual, alleged or threatened discharge, dispersal,
release, storage, treatment, generation, disposal, or escape of radioactive
materials, radioactivity, pollutants or other toxic or hazardous substances,
including any solid, liquid, gaseous, or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste
(including materials to be recycled, reconditioned or reclaimed); or (b)
actually or allegedly arise out of the use, specification, or inclusion of any
product, material, or process containing chemicals or radioactive material, the
failure to detect the existence or proportion of chemicals or radioactive
material in the soil, air, surface water or groundwater, or the performance or
failure to perform the abatement of any pollution source or the replacement or
removal of any soil, water, surface water, or groundwater containing chemicals
or radioactive material. In addition, Borrowers will jointly and severally
indemnify and hold Bank harmless from and against any liability, claim, cost or
expense incurred by Bank or imposed against Bank for any stamp tax, intangible
tax, or other tax, fee or charge imposed by any governmental entity arising out
of or relating to the Notes or this Agreement or the transactions anticipated
herein, excluding any income tax owing by Bank in connection with any income
earned by Bank on the Loans.
42
ARTICLE XII
COSTS AND EXPENSES; MISCELLANEOUS
12.1. Costs of Preparation; Brokers Fees. Borrowers shall bear all
expenses of the Bank in connection with the Loans and with the investigation,
review and approval of this transaction, the preparation of the Agreement and
the Loan Documents, and the issuance and delivery of the Notes to Bank and also
in connection with any amendment or modification thereto, and the administration
thereof, including, without limitation, (i) all reasonable legal fees, expenses
and disbursements and other actual third-party expense reimbursements incurred
or sustained by Bank in connection with this transaction, (ii) all travel,
appraisal, audit, search and filing fees incurred or sustained by Bank in
connection with this transaction or the administration of the Loans; (iii) all
recording and filing fees, intangibles taxes (excluding any income tax owing by
Bank in connection with any income earned by Bank on the Loans), documentary and
revenue stamps, other taxes or other expenses and charges payable in connection
with this Agreement, the Note or any Loan Document and (iv) all costs, expenses,
(including fees and expenses of outside consultants), related to the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby and/or periodic audits and
appraisals performed by Bank. The Borrowers agree to jointly and severally
indemnify and save Bank harmless against all broker's and finder's fees, if any.
12.2. Other Costs and Expenses. If, at any time or times hereafter,
whether before or after the occurrence of an Event of Default, the Bank employs
counsel to advise or provide other representation with respect to this Agreement
or any Loan Document, or to collect the balance of the Loans, or to take any
action in or with respect to any suit or proceeding relating to this Agreement
or any of the Loan Documents, or to protect, collect, or liquidate the
Collateral or to attempt to enforce any security interest or Lien granted to the
Bank by Borrowers; then in any such events, all of the reasonable attorneys'
fees arising from such services, and any expenses, costs and charges relating
thereto, shall constitute additional obligations of Borrowers payable on demand
of the Bank.
12.3. Legal Counsel. Borrowers acknowledge and agree that Arnall Golden
Gregory, LLP is legal counsel to Bank and does not represent Borrowers as
Borrowers' attorney, that Borrowers have retained (or has had an opportunity to
retain) counsel of their own choice and have not and will not rely upon any
advice from Bank's counsel. In no event shall Borrowers' reimbursement of
expenses pursuant to this Agreement (even if effected by payment directly by
Borrowers to Bank's counsel) be deemed to establish any attorney-client
relationship between Borrowers and Bank's counsel.
12.4. Audit Fees. Borrowers shall pay to Bank a field examination fee of
$500.00 per day, plus out-of-pocket expenses, for each field examination
performed by Bank or Bank's agent. Bank acknowledges and agrees that the maximum
number of field examinations for which Borrowers shall be responsible for such
payment and reimbursement of expenses to Bank per year shall be three (3),
unless an Event of Default exists and continues hereunder, in which case
additional field examinations may be performed, in Bank's discretion, at
Borrowers' expense.
12.5. No Waiver. No waiver of any Event of Default hereunder, and no
waiver of any default or Event of Default under any other Loan Document shall
extend to or shall affect any subsequent or other then existing default or shall
impair any rights, remedies or powers of Bank. No delay or omissions of Bank or
any subsequent holder of the Note to exercise any right, remedy, power or
privilege hereunder after the occurrence of such default or Event of Default
shall be construed as a waiver of any such default, or acquiescence therein.
43
12.6. Headings. Except for the definitions set forth in Section 1, the
headings of the articles, sections, paragraphs and subdivisions of this
Agreement are for convenience of reference only, are not to be considered a part
hereof, and shall not limit or otherwise affect any of the terms hereof.
12.7. Marshalling of Assets; Payments Set Aside. Bank shall be under no
obligation to marshall any assets or securities in favor of Borrowers or any
other Person or against or in payment of any or all of the Obligations. To the
extent that sum credited against the Obligations is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such recovery,
the Obligations or part thereof originally intended to be satisfied, and all
Liens, rights and remedies therefor, shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.
12.8. Survival of Covenants. All covenants, agreements, and warranties
made herein and in certificates or reports delivered pursuant hereto shall be
deemed to have been material and relied on by Bank, notwithstanding any
investigation made by or on behalf of Bank, and shall survive the execution and
delivery to Bank of any Note or Loan Document.
12.9. Addresses. Any notice or demand (or a record thereof) which by
any provision of this Agreement is required or provided to be given shall be
deemed to have been sufficiently given or served for all purposes by (i) being
delivered in person to the party to whom the notice or demand (or a record of
the same) is directed or (ii) by being sent as first class mail, postage
prepaid, in either event to the following address: If to Borrowers, 6655
Sugarloaf Parkway, Duluth, Georgia 30097, Attn: David Gamsey; or if any other
address shall at any time be designated by Borrowers in writing to the holders
of record of the Note at the time of such designation to such other address; and
if to Bank: Post Office Box 2554, Birmingham, Alabama, 35290, Attn: Asset-Based
Lending Department, or if any other address shall at any time be designated in
writing to Borrowers, to such other address. Any written notice that is not sent
in conformity with the provisions hereof shall nevertheless be effective on the
date that such notice is actually received by the noticed party.
12.10. Venue and Jurisdiction. BORROWERS AGREE THAT ANY LEGAL ACTION
BROUGHT BY THE BANK TO COLLECT THE LOANS OR ANY OBLIGATION OR TO ASSERT ANY
CLAIM AGAINST BORROWERS UNDER ANY LOAN DOCUMENT, OR ANY PART THEREOF, MAY BE
BROUGHT IN ANY COURT IN THE STATE OF GEORGIA HAVING SUBJECT MATTER JURISDICTION,
WAIVE ITS RIGHT TO OBJECT TO ANY SUCH ACTION ON GROUNDS IT IS BROUGHT IN THE
IMPROPER VENUE, AND IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST IT UNDER, ARISING OUT OF, OR IN ANY MANNER RELATING TO THE LOANS, THE
OBLIGATIONS, OR ANY LOAN DOCUMENT MAY BE BROUGHT IN THE SUPERIOR COURT OF FULTON
COUNTY, GEORGIA OR IN ANY OTHER SUPERIOR COURT OF THE STATE OF GEORGIA OR IN THE
U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA. BORROWERS, BY THE
EXECUTION OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO
THE PERSONAL JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION OR PROCEEDING.
BORROWERS CONSENT TO THE SERVICE OF PROCESS RELATING TO ANY SUCH ACTION OR
PROCEEDING BY MAIL TO THE ADDRESS SET FORTH IN THIS AGREEMENT.
12.11. Continuing Obligation; Benefits. This Agreement, and each and
every provision hereof, is a continuing obligation and shall (i) be binding upon
the Borrowers and the Bank, and the Bank's and any other persons' who become
bound as a borrower or a debtor to or under this Agreement, successors and
assigns, and (ii) inure to the benefit of and be enforceable by the Borrowers
and Bank and its successors and assigns; provided, that the Borrowers may not
assign all or any part of this Agreement without the prior written consent of
Bank, which consent may be granted or withheld in the sole discretion of Bank.
44
12.12. Controlling Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia, except to the
extent that the UCC provides for application of the law of another State.
12.13. Standard of Review. Any document, writing or instrument
required or permitted to be delivered to Bank under this Agreement shall be
deemed satisfactory only if approved by Bank in the exercise of its sole
discretion, and any act or approval permitted to be done by Bank under this
Agreement shall be in Bank's sole discretion. Where in this Agreement reference
is made to Bank's "discretion", or "sole discretion", said reference shall mean
that with respect to the matter so designated, Bank shall have the absolute
right to make decision with respect thereto and shall not be subject to any
standard of good faith, fair dealing, reasonableness, or any other standard
implied by any court or imposed by law, it being the intention of the parties
that the decision of the Bank with respect to said matter shall be absolutely
final and binding. In addition, (i) "includes" and "including," as used
herein, are not limiting, (ii) "or," as used herein, is not exclusive, and
(iii) "all," as used herein, includes "any" and "any," as used herein, includes
"all."
12.14. Participation. Borrowers acknowledge that Bank may, at its
option, sell participation interests in the Loans to participating banks. The
amounts of any such participations shall be determined solely by the Bank.
Borrowers agree with each present and future participant in the Loans, the
names and addresses of which will be furnished to Borrowers, that if an Event
of Default should occur, each present and future participant shall have all of
the rights and remedies of Bank with respect to any deposit due from any
participant to Borrowers, including the right to setoff any Obligations against
said deposits. The execution by a participant of a participation agreement with
Bank, and the execution by Borrowers of this Agreement, regardless of the
order of execution, shall evidence an agreement between Borrowers and said
participant in accordance with the terms of this Section.
12.15. Miscellaneous. This Agreement and the instruments and agreements
referred to herein or called for hereby supersede and incorporate all
representations, promises, and statements, oral or written, made by the Bank
in connection with the Loans. This Agreement may not be varied, altered, or
amended except by a written instrument executed by an authorized officer of the
Bank and Borrowers. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be an original,
but such counterparts shall together constitute one and the same instrument.
Any provision in this Agreement which may be unenforceable or invalid under any
law shall be ineffective to the extent of such unenforceability or invalidity
without affecting the enforceability or validity of any other provisions hereof.
12.16. Joint and Several Liability. All obligations of each Person
named as Borrowers shall be joint and several obligations of all such Persons.
Each representation, warranty and covenant shall be deemed true and/or complied
with, as the case may be, only (i) if true or complied with respect to each
separate entity constituting a Borrower taken on its own without reference to
the other Borrower entities, and (ii) if true or complied with respect to all
entities constituting Borrowers taken as a whole.
12.17. General Waivers. To the fullest extent permitted by
Applicable Law and except as otherwise is provided herein, Borrowers waive: (i)
presentment, demand and protest and notice of presentment, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, contract rights, documents, instruments,
chattel paper and guaranties at any time held by bank on which borrowers may in
any way be liable; (ii) notice prior to Bank's taking possession or control of
any of the Collateral or any bond or security which might be
45
required by any court prior to allowing Bank to exercise any of Bank's
remedies, including the issuance of an immediate writ of possession; (iii) the
benefit of all valuation, appraisement and exemption laws; (iv) any right
Borrowers may have upon payment in full of the Obligations to require Bank to
terminate its security interest in the Collateral until the execution by
Borrowers of an agreement indemnifying Bank from any loss or damage Bank may
incur as the result of dishonored checks or other items of payment received by
Bank from Borrowers or any Account Debtor and applied to the Obligations;
(v) notice of Bank's acceptance hereof or of any Loan Document, and (vi) any
right to assert against any assignee of Bank of Bank's rights under this
Agreement or any Loan Document, any claims, defenses or set-offs which
Borrowers could assert against Bank except defenses which cannot, by law, be
waived.
12.18. Maximum Interest. Regardless of any provision contained in this
Agreement or any of the Loan Documents, in no event shall the aggregate of all
amounts that are contracted for, charged or collected pursuant to the terms of
this Agreement, the Notes or any of the Loan Documents, and that are deemed
interest under Applicable Law, exceed the Maximum Rate. No provision of this
Agreement or in any of the Loan Documents or the exercise by Bank of any right
hereunder or under any Loan Document or the prepayment by Borrowers of any of
the Obligations or the occurrence of any contingency whatsoever, shall entitle
Bank to charge or receive, or to require Borrowers to pay, interest or any
amounts deemed interest by Applicable Law (such amounts being referred to
herein collectively as "Interest") in excess of the Maximum Rate, and all
provisions hereof or in any Loan Document which may purport to require
Borrowers to pay Interest exceeding the Maximum Rate shall be without binding
force or effect to the extent only of the excess of Interest over such Maximum
Rate. Any Interest charged or received in excess of the Maximum Rate ("Excess"),
shall be conclusively presumed to be the result of an accident and bona fide
error, and shall, to the extent received by Bank, at the option of Bank, either
be applied to reduce the principal amount of the Obligations or returned to
Borrowers. The right to accelerate the maturity of any of the Obligations does
not include the right to accelerate unaccrued interest, and no such interest
will be collected by Bank. All monies paid to Bank hereunder or under any of
the Loan Documents shall be subject to any rebate of unearned interest as and
to the extent required by Applicable Law. By the execution of this Agreement,
Borrowers covenant that (i) the credit or return of any Excess shall constitute
the acceptance by Borrowers of such Excess, and (ii) Borrowers shall not seek
or pursue any other remedy, legal or equitable, against Bank, based in whole or
in part upon contracting for, charging or receiving any Interest in excess of
the Maximum Rate. For the purpose of determining whether or not any Excess has
been contracted for, charged or received by Bank, all interest at any time
contracted for, charged or received from Borrowers in connection with this
Agreement shall, to the extent permitted by Applicable Law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of the
Obligations. Borrowers and Bank shall, to the maximum extent permitted under
Applicable Law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as Interest and (ii) exclude voluntary prepayments and the
effects thereof. The provisions of this Section shall be deemed to be
incorporated into the Notes and each Loan Document (whether or not any
provision of this Section is referred to therein).
12.19. Waiver of Right to Trial by Jury. BORROWERS AND BANK HEREBY WAIVE
ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION
OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATING TO
THIS AGREEMENT, THE NOTE, THE LOAN DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR (B) IN
ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY
DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTE, THE
LOAN DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR IN CONNECTION WITH THE TRANSACTIONS
RELATED THERETO OR CONTEMPLATED THEREBY OR THE EXERCISE OF EITHER PARTY'S
RIGHTS AND REMEDIES THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND
46
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWERS AND BANK AGREE THAT
EITHER OR BOTH OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS
WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT BETWEEN THE
PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY
WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
12.20. AMENDMENT AND RESTATEMENT. THIS AGREEMENT IS AN AMENDMENT AND
RESTATEMENT OF, AND REPLACES IN ITS ENTIRETY, (i) THAT CERTAIN $35,000,000.00
REVOLVING CREDIT FACILITY FROM BANK TO INNOTRAC DATED AS OF JANUARY 25, 1999,
AND (ii) THAT CERTAIN SECURITY AGREEMENT EXECUTED BY iFULFILLMENT IN FAVOR OF
BANK DATED AS OF MAY 31, 2002 (AND ANY DOCUMENTS RELATING THERETO), AND IS NOT
INTENDED TO SERVE AS A NOVATION OR AN ACCORD AND SATISFACTION OF THE
OBLIGATIONS EVIDENCED THEREBY.
(Signatures on Following Page)
47
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this instrument
to be executed by their duly authorized officers and the Borrowers have caused
their respective seals to be affixed as of the date first above written, in
Atlanta, Georgia.
BORROWERS:
INNOTRAC CORPORATION, a Georgia corporation (SEAL)
By: /s/ Scott D. Dorfman
---------------------------------------
Scott D. Dorfman, Chairman, President
and Chief Executive Officer
Attest: /s/ David L. Gamsey
---------------------------------------
David L. Gamsey, Senior Vice President,
Secretary and Chief Financial Officer
iFULFILLMENT, INC., a Georgia corporation (SEAL)
By: /s/ Scott D. Dorfman
---------------------------------------
Scott D. Dorfman, Chairman, President
and Chief Executive Officer
Attest: /s/ David L. Gamsey
---------------------------------------
David L. Gamsey, Senior Vice President,
Secretary and Chief Financial Officer
BANK:
SOUTHTRUST BANK, an Alabama banking corporation
By: /s/ Noble Jones
---------------------------------------
Noble Jones, Vice President
49
EXHIBIT "A"
BORROWERS' REPORT
Exhibit A-1
SOUTHTRUST BANK
COLLATERAL LOAN BANK REPORT
COMPANY: Innotrac Corporation and iFulfillment, Inc. Report Date: ____________
This certifies that the information herein is true and correct and in
compliance with the Second Amended and Restated Loan and Security Agreement
("Loan and Security Agreement") between Innotrac Corporation and iFulfillment,
Inc. (collectively referred to as "Borrowers and SouthTrust Bank dated ________.
This form is subject to change.
<Table>
<Caption>
(All amounts in U.S. $ unless otherwise noted)
iFulfillment Innotrac
------------ --------
Section 1: Accounts Receivable Availability
1. Accounts Receivables forward (Line 4 of prior report) + = 0.00
------------- ------------- ------------
2. Additions to A/R:
a. Invoices/Billings, Opening balance + = 0.00
------------- ------------- ------------
b. Return items debited to A/R + = 0.00
------------- ------------- ------------
c. Other increases to A/R (non-A/R deposits, etc.) + = 0.00
------------- ------------- ------------
d. Total Additions to A/R (Sum of Lines 2a through 2c) 0.00 + 0.00 = 0.00
------------- ------------- ------------
3. Deductions from A/R:
a. Applied collections (from _______ to _______) + = 0.00
------------- ------------- ------------
b. Discounts, returns, allowances, adjustments + = 0.00
------------- ------------- ------------
c. Credit memos + = 0.00
------------- ------------- ------------
d. Other + = 0.00
------------- ------------- ------------
e. Total Deductions from A/R (Sum of Lines 3a through 3d) 0.00 + 0.00 = 0.00
------------- ------------- ------------
4. Total Ending A/R (Line 1 plus Line 2d less Line 3e) 0.00 + 0.00 = 0.00
============= ============= ============
5. Ineligible A/R
a. Over 90 days from invoice date + = 0.00
------------- ------------- ------------
b. 50% Cross-Age rule (substantial delinquency) + = 0.00
------------- ------------- ------------
c. 25% Concentration rule (except BellSouth no limit) + = 0.00
------------- ------------- ------------
d. Contra / Offset accounts + = 0.00
------------- ------------- ------------
e. Related party /affiliate/ employee accounts + = 0.00
------------- ------------- ------------
f. Credit balances over 90 days + = 0.00
------------- ------------- ------------
g. Finance / Service charges + = 0.00
------------- ------------- ------------
h. Foreign accounts + = 0.00
------------- ------------- ------------
i. U.S. Government accounts + = 0.00
------------- ------------- ------------
j. Retainage / Customer deposits + = 0.00
------------- ------------- ------------
k. Commissions + = 0.00
------------- ------------- ------------
l. Cash/COD + = 0.00
------------- ------------- ------------
m. Other + = 0.00
------------- ------------- ------------
n. Total Ineligible A/R (Sum of Lines 5a through 5m) 0.00 + 0.00 = 0.00
============= ============= ============
6. Eligible A/R (line 4 less Line 5n) 0.00 + 0.00 = 0.00
============= ============= ============
7. A/R Availability (Line 6 x 85% Advance Rate) 0.00 + 0.00 = 0.00
============= ============= ============
<Caption>
Section 2: Inventory Availability Innotrac
--------
8. Gross inventory 0.00 = 0.00
------------- ------------
9. Ineligible Inventory
a. In Transit / Consigned / Offsite
-------------
b. Work-in-process
-------------
c. Packaging materials / Supplies
-------------
d. Slow-Moving / Obsolete / Used / Scrap
-------------
e. Other
-------------
f. Total Ineligible Inventory (Sum of Lines 9a through 9e) 0.00
============
10. Eligible Inventory (Line 8 less Line 9f) 0.00
============
a. Eligible BellSouth Inventory (Sum of Lines 10a and 10b must equal Line 10)
-------------
b. Eligible Non-BellSouth Inventory (Sum of Lines 10a and 10b must equal Line 10)
-------------
11. Inventory Availability
a. Eligible BellSouth Inventory x 65% Advance Rate (Line 10a x 65%) 0.00
-------------
b. Eligible Non-BellSouth Inventory x 50% Advance Rate (Line 10b x 50%) 0.00
-------------
c. Total Inventory Availability before Cap (Sum of Lines 11a and 11b) 0.00
-------------
d. Inventory Cap = $20,000,000 20,000,000.00
-------------
12. Total Inventory Availability after Cap (the lesser of Lines 11c and 11d) 0.00
============
Section 3: Total Availability and Excess Availability
13. Total Availability (Line 7 plus Line 12) 0.00
============
14. Loan Balance
a. Loan balance forward
-------------
b. Deduct payments (enter negative amount)
-------------
c. Add advances requested
-------------
d. Add reserve for L/C's
-------------
e. Add other reserves
-------------
f. Adjusted loan balance (Sum of Lines 14a through 14e) 0.00
============
15. Line Limit 40,000,000.00
-------------
16. Excess Availability (Line 13 less Line 14f) Negative amount indicates OVERADVANCE 0.00
============
</Table>
Company: Innotrac Corporation Company: iFulfillment, Inc.
BY: ______________________________ BY: _____________________________
ITS: ______________________________ ITS: _____________________________
DATE: ______________________________ DATE: _____________________________
SOUTHTRUST BANK
COLLATERAL LOAN BANK REPORT
COMPANY: Innotrac Corporation and iFulfillment, Inc. Report Date:
------------------------------------------ -------------
This certifies that the information herein is true and correct and in compliance
with the Second Amended and Restated-Loan and Security Agreement ("Loan and
Security Agreement") between Innotrac Corporation and iFulfillment, Inc.
(collectively referred to as "Borrowers") and SouthTrust Bank dated ___________.
This form is subject to change.
(All amounts in U.S. $ unless otherwise noted)
SECTION 4: CERTIFICATION
In compliance with the Loan and Security Agreement between Borrowers and
SouthTrust Bank, the Borrowers hereby certify that all of said inventories are
now at the below listed location(s), have the dollar values listed, are valued
in accordance with generally accepted accounting principles at the lower of cost
or market (unless otherwise specified), and are owned by the Borrowers free and
clear of all claims or encumbrances, except for the security interest of
SouthTrust Bank. The Borrowers agree that said inventories will not be removed
without the written permission of SouthTrust Bank except for delivery to buyers
in the ordinary course of business or other normal business reason. The
Borrowers certify that all of said inventories have been produced in compliance
with the requirements of the Federal Fair Labor Standards Act. The Borrowers
understand that SouthTrust Bank will rely upon these representations in making
or continuing loans under the Loan and Security Agreement with the Borrowers,
and attaches to all such inventories through all stages of manufacture or
production, and to the finished products and goods, and to all other inventories
acquired by the Borrowers from time to time in the future.
SECTION 5: INVENTORY
(ATTACH MONTHLY INVENTORY SUMMARY)
Value of Inventory as of (date):
------------------------
Total Inventory by Location and Type
<Table>
<Caption>
iFulfillment, Inc. Raw Material WIP Fin. Goods Total
- ------------------ ------------ --- ---------- -----
Total: 0.00 0.00 0.00 0.00
Innotrac Corporation Raw Material WIP Fin. Goods Total
- -------------------- ------------ --- ---------- -----
BellSouth Inventory,
6655 Sugarloaf Pkwy. 0.00
Non-BellSouth Inventory,
6655 Sugarloaf Pkwy. 0.00
Other Location 0.00
In-Transit 0.00
-----
Total: 0.00 0.00 0.00 0.00
</Table>
Total Value of Inventory (amount should match Financial Statements
and Section 2, Line 8) 0.00
-----
Company: Innotrac Corporation Company: iFulfillment, Inc.
BY: BY:
--------------------------- -------------------------
ITS: ITS:
--------------------------- -------------------------
DATE: DATE:
--------------------------- -------------------------
EXHIBIT "C"
LIENS AND ENCUMBRANCES
None.
Exhibit C-1
EXHIBIT "D"
COLLATERAL STATES AND OWNERSHIP INFORMATION
The following facilities are all leased by one or more of the Borrowers.
<Table>
<Caption>
Collateral State Location Name and Address of Landlord Remaining Term
- ------------------------- ---------------------------- --------------
Atlanta, Ga. "Sugarloaf" Duke-Weeks Realty Corp 67.5 months
3950 Shackleford Road, Suite 300
Duluth, Ga. 30096
Atlanta, Ga. "Satellite" C.B. Richard Ellis 20 months
715 Park North Boulevard
Clarkston, GA 30021
Pueblo, Colorado Lockheed Martin Tactical 19 months
1 William White Blvd
Pueblo, Co. 81001
Romeoville, Illinois Windham Industrial Center 57 months
1408 Lakeview Drive
Romeoville, IL 60446
Bolingbrook, Illinois Delaware Investments 58 months
1300 S. Clinton St.
Ft. Wayne IN 46802
Hebron, Kentucky Prologis Development 53 months
4710T Interstate Drive
Cincinnati, OH 45246
Reno, Nevada Reno Industrial Investments 55 months
P.O. Box 51913, Unit P
Los Angeles, CA 90051
</Table>
Exhibit D-1
EXHIBIT "E"
PENSION PLANS
Innotrac Employee 401(k) Defined Contribution plan
1997 Stock Option and Incentive Award Plan
2000 Stock Option and Incentive Award Plan.
Innotrac Corporation Deferred Compensation Plan, effective as of October 16,
1997 ("Rabbi Trust")
Amended and Restated Employment Agreement dated August 21, 2000, by and between
David L. Gamsey and Innotrac Corporation
Employment Agreement dated August 31, 2000, by and between Scott D. Dorfman and
Innotrac Corporation
Employment Agreement dated August 30, 2000, by and between David L. Ellin and
Innotrac Corporation
Employment Agreement dated August 31, 2000, by and between Larry C. Hanger and
Innotrac Corporation
Employment Agreement dated December 31, 2001, by and between Robert J. Toner,
Jr. and Innotrac Corporation
Exhibit E-1
EXHIBIT "F"
INTELLECTUAL PROPERTY RIGHTS
See attached for trademark registrations and trademark and patent applications.
The Borrowers also have common law rights to their respective corporate names,
trade secrets and trade dress.
Borrowers license software for use in their respective businesses pursuant to
licenses from third-party manufacturers/programmers.
Exhibit F-1
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 2
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
DESIGN I1240 MJA LJL 175287 Registered
Country: United States of America VAN
Owner: Innotrac Corporation
Classes: 35, 38, 42
Goods: Marketing support services, namely, identifying, acquiring,
qualifying and distributing information with respect to
potential customers; inventory management; preparing
business reports for others; database management services;
mailing list rentals; data entry services for others; identifying
and locating dealers for access by potential customers;
processing telephone, facsimile and on-line orders for others;
on-line order verification; order fulfillment services for others,
market research services, document copy services for others;
providing on-line product information and information on
potential customers for others; mailing services, namely,
preparation of mailing lists and labels; preparation, handling
and sorting of printed materials for mailing(C1.35);
Telecommunications services; namely, providing a toll free
customer line to facilitate telephone, facsimile and on-line
address(C1.38);
Desktop publishing and printing services for others(C1.42).
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
DESIGN 75/448648 2405041 21-Nov-2010 28-Feb-1998
11-Mar-1998 21-Nov-2000
Country: United States of America
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 5
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
HELPING FULFILL THE PROMISE OF E- I1240 MJA LJL 267896 Registered
COMMERCE
Country: United States of America VAN
Owner: iFulfillment, Inc.
Classes: 35
Goods: Providing order fulfillment and inventory management
services to retailers, distributors and manufacturers.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
HELPING FULFILL THE PROMISE OF E- 75/793275 2491885 25-Sep-2011 30-Sep-1998
COMMERCE
07-Sep-1999 25-Sep-2001
Country: United States of America
Remarks: From: I-Fulfillment, Inc.
To: IFulfillment, Inc.
Reel 2388/Frame 0812/Recorded October 3, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
iF (stylized) I1240 MJA LJL 267897 Registered
Country: United States of America VAN
Owner: iFulfillment, Inc.
Classes: 35
Goods: Providing order fulfillment, order management, and inventory
management services to retailers, distributors and
manufacturers.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
iF (stylized) 76/099978 2475776 07-Aug-2011 08-Mar-2000
Country: United States of America 01-Aug-2000 07-Aug-2001
Remarks: From: I-Fulfillment, Inc.
To: IFulfillment, Inc.
Reel 2388/Frame 0812/Recorded October 3, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
iF (stylized) I1240 MJA LJL 267898 Registered
Country: United States of America VAN
Owner: iFulfillment, Inc.
Classes: 35
Goods: Providing order fulfillment, order management, and inventory
management services to retailers, distributors and
manufacturers.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
iF (stylized) 75/793276 2426480 06-Feb-2011 30-Sep-1998
07-Sep-1999 06-Feb-2001
Country: United States of America
Remarks: From: I-Fulfillment, Inc.
To: IFulfillment, Inc.
Reel 2388/Frame 0812/Recorded October 3, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 6
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
IFULFILLMENT I1240 MJA LJL 267899 Pending
Country: United States of America VAN
Owner: iFulfillment, Inc.
Classes: 35
Goods: Providing order fulfillment and inventory management
services to retailers, distributors and manufacturers.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
IFULFILLMENT 75/793277 30-Sep-1998
07-Sep-1999
Country: United States of America
Remarks: From: I-Fulfillment, Inc.
To: IFulfillment, Inc.
Reel 2388/Frame 0812/Recorded October 3, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
IFULFILLMENT I1240 MJA LJL 267900 Pending
Country: United States of America VAN
Owner: iFulfillment, Inc.
Classes: 35
Goods: Providing order fulfillment, order management, and inventory
management services to retailers, distributors and
manufacturers.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
IFULFILLMENT 76/156025 31-Jan-2000
Country: United States of America 31-Oct-2000
Remarks: From: I-Fulfillment, Inc.
To: IFulfillment, Inc.
Reel 2388/Frame 0812/Recorded October 3, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE: 7
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC I1240 MJA LJL 190693 Registered
Country: European Community VAN
Owner: Innotrac Corporation
Classes: 35, 38, 42
Goods: Publishing and mailing of promotional and
advertising packages(C1.35);
Telecommunications services; namely, providing
a toll free customer line and providing
multiple user access to a global computer
information network for the transfer and
dissemination of a wide range of marketing,
potential customer and product information;
linking caller center representatives to
databases in order to access data to answer
customer services questions (C1.38);
Answering technical questions relating to
products or services supported and provision
of information technology solutions for
clients that enable them to transfer orders
and consumer data electronically; printing
services(C1.42)
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC 1174960 1174960 17-May-2009
17-May-1999 09-Jan-2001
Country: European Community
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC I1240 MJA LJL 171414 Registered
Country: Georgia VAN
Owner: Innotrac Corporation
Classes: 1
Goods: Publishing, Printing and Mailing Services -
namely, desktop publishing and mechanical production,
full service printing and bindery, high-speed
duplication, personalized mailings, match mail, hand
assembly, collation, kit and binder assembly,
lettershop, mailing services, shrink wrapping
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC S-16747 13-Nov-2007 28-Feb-1985
Country: Georgia 13-Nov-1997
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 8
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC I1240 MJA LJL 171414-1 Registered
Country: Georgia VAN
Owner: Innotrac Corporation
Classes: 2
Goods: Management Services: Lead Management - namely, lead acquisition,
data processing, lead qualification, information fulfillment,
lead distribution, follow-up; Inventory Management - namely,
automated inventory management; usage data, reorder levels and
reorder capabilities, backorder notification; Reporting - namely,
customized reports, tracking reports, marketing reports, inventory
reports, trend analysis; and Database Management - namely, data
entry and management, database enhancement, merge/purge capabilities,
list rental, co-op fund management, warranty/registration, data entry,
bingo/bounce back card management, dealer locator; Distribution Services:
Order Processing - namely, order receipt via phone, fax, mail or electronic
media, on-line access and e-mail, electronic order verification, invoicing
and collection processing, caging and depositing of funds, charge back
reporting by department, EDI and Internet access capabilities; Fulfillment -
namely, fulfillment of products, literature and point-of-purchase materials,
electronic distribution of literature, computerized inventory management
system, reorder points and built-in backorder notification, weight
verification of materials, manifest delivery services systems, shrink
wrapping
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC S-16745 13-Nov-2007 28-Feb-1985
13-Nov-1997
Country: Georgia
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 9
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC I1240 MJA LJL 171414-2 Registered
Country: Georgia VAN
Owner: Innotrac Corporation
Classes: 5
Goods: Communications - Teleservicing services - namely, inbound 800 number programs,
broadcast fax, fax on-demand, order taking, dealer locator, cross-selling,
customer service, lead solicitation, prospect qualification, information
verification, market research, voice response services
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC S-16746 13-Nov-2007 28-Feb-1985
13-Nov-1997
Country: Georgia
- ------------------------------------------------------------------------------------------------------------------------------------
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 10
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC I1240 MJA LJL 171414 Registered
Country: United States of America VAN
Owner: Innotrac Corporation
Classes: 35, 38, 42
Goods: Marketing support services; namely, identifying,
acquiring, qualifying and distributing information with
respect to potential customers; inventory management;
preparing business reports for others; database management
services; mailing list rentals; data entry services for
others; identifying and locating dealers for access by
potential customers; processing telephone, facsimile and
on-line orders for others; on-line order verification; order
fulfillment services for others; market research services,
document copy services for others; providing on-line product
information and information on potential customers for
others; mailing services, namely, preparation of mailing
lists and labels; preparation, handling and sorting of
printed materials for mailing(Cl.35);
Telecommunications services; namely, providing a toll free
customer line to facilitate telephone, facsimile and on-line
address(Cl.38);
Desktop publishing and printing services for others(Cl.42).
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC 75/389180 2401195 07-Nov-2010 01-Feb-1985
Country: United States of America 12-Nov-1997 07-Nov-2000
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 11
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC I1240 MJA LJL 191561 Registered
Country: United States of America VAN
Owner: Innotrac Corporation
Classes: 35, 42
Goods: Marketing support services; namely, identifying,
acquiring, qualifying and distributing information with
respect to potential customers; inventory management;
preparing business reports for others; database management
services; mailing list rentals; data entry services for
others; identifying and locating dealers for access by
potential customers; processing telephone, facsimile and
on-line orders for others; on-line order verification; order
fulfillment services for others; market research services,
document copy services for others; providing on-line product
information and information on potential customers for
others; mailing services, namely, preparation of mailing
lists and labels; preparation, handling and sorting of
printed materials for mailing(Cl.35);
Desktop publishing and printing services for others(Cl.42).
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC 75/395829 2403107 14-Nov-2010 01-Aug-1984
Country: United States of America 25-Nov-1997 14-Nov-2000
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 12
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC (and design) I1240 MJA LJL 190692 Registered
Country: European Community VAN
Owner: Innotrac Corporation
Classes: 35, 38, 42
Goods: Marketing support services; namely, identifying, acquiring, qualifying and
distributing information with respect to potential customers; inventory management;
preparing business reports for others; database management services; mailing list
rentals; data entry services for others; identifying and locating dealers for
access by potential customers; processing telephone facsimile and on-line orders
for others; order verification and processing of collections; order fulfillment
services for others; market research services; document copy services for others;
direct mail advertising for others; mailing services (disseminating advertising and
promotional matter) (C1.35);
Telecommunications services; namely, providing a toll free customer line and
providing multiple user access to a global computer information network for the
transfer and dissemination of a wide range of marketing, potential customer and
product information (C1.38);
Providing information technology solutions and answering technical support
questions by telephone; printing (C1.42)
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC (and design) 1174994 1174994 17-May-2009
17-May-1999 28-Nov-2000
Country: European Community
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 13
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
INNOTRAC (and design) I1240 MJA LJL 175288 Registered
Country: United States of America VAN
Owner: Innotrac Corporation
Classes: 35, 38, 41
Goods: Marketing support services; namely, identifying, acquiring,
qualifying and distributing information with respect to
potential customers; inventory management; preparing
business reports for others; database management services;
mailing list rentals; data entry services for others;
identifying and locating dealers for access by potential customers;
processing telephone, facsimile and on-line orders for others;
on-line order verification; order fulfillment services for others,
market research services, document copy services for others;
providing on-line product information and information on potential
customers for others; mailing services, namely, preparation of mailing
lists and labels; preparation, handling and sorting of printed
materials for mailing (C1.35);
Telecommunications services; namely, providing a toll free
customer line to facilitate telephone, facsimile and on-line
address (C1.38);
Desktop publishing and printing services for others (C1.42)
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
INNOTRAC (and design) 75/448352 2457683 05-Jun-2011 28-Feb-1998
Country: United States of America 11-Mar-1998 05-Jun-2001
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
NORCROSS GRAPHICS I1240 MJA LJL 049119 Expired
Country: Georgia VAN
Owner: Innotrac Printing & Graphics, Inc.
Classes: 2
Goods: Services related to printing and graphics
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
NORCROSS GRAPHICS S-7266 02-Jan-1997 01-Jan-1976
Country: Georgia 02-Jan-1987
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
====================================================================================================================================
TUESDAY, APRIL 01, 2003 TRADEMARK LIST PAGE 14
CASE
TRADEMARK NAME CLIENT ATTORNEYS NUMBER STATUS
====================================================================================================================================
TRACK PICK PACK I1240 MJA LJL 267901 Registered
Country: United States of America VAN
Owner: iFulfillment, Inc.
Classes: 35
Goods: Providing order fulfillment, order management,
and inventory management services to retailers,
distributors and manufacturers.
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
APPLICATION REGISTRATION RENEWAL FIRST USE
NUMBER/FILING DATE NUMBER/DATE DATE DATE
====================================================================================================================================
TRACK PICK PACK 76/146579 2501993 30-Oct-2001 18-Sep-2000
Country: United States of America 16-Oct-2000 30-Oct-2001
Remarks: From: iFulfillment, Inc.
To: iFulfillment, Inc.
Reel 2388/Frame 0812/October 3, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
PLEASE RETURN THIS CARD, INDICATING RECEIPT DATE AND SERIAL NO., IF APPLICABLE,
OF THE FOLLOWING
Utility Transmittal Form, Fee Transmittal, Specification (25pp.), Drawings 4
Sheets, (Figs. 1-5), Executed Declaration (5pp.), Recordation Form Cover Sheet,
Assignments (5pp.), Information Disclosure Statement, Form 1449, Copies of
References, Nonpublication Request Form, Checks for $780 and $40
- -------------------------------------------------------------------------------
Applicant(s): Barrett KREINER, et al.
Title: SYSTEM FOR MONITORING AND TRACKING OBJECTS
Serial No.: Not Yet Assigned
Filing Date: Herewith
Docket No.: 36968.275944 (BS01426)
Due Date: -
TW/MW
EXHIBIT "G"
COMPLIANCE CERTIFICATE
SouthTrust Bank
360 Interstate North Parkway, Suite 500
Atlanta, Georgia 30339
Attn: Asset-Based Lending
In accordance with the requirements of that certain Second Amended and
Restated Loan and Security Agreement ("Loan Agreement") dated April , 2003,
between INNOTRAC CORPORATION, a Georgia corporation and IFULFILLMENT, INC., a
Georgia corporation (collectively, the "Borrowers"), and SOUTHTRUST BANK
("Bank"), the undersigned officer(s) of Borrowers, based upon our review of the
consolidated balance sheets and statements of income of the Borrowers for the
(month, quarter, fiscal year) ending , , DO HEREBY CERTIFY
THAT IN OUR OFFICIAL CAPACITIES ON BEHALF OF BORROWERS:
(1) The Borrowers are in compliance with the following financial
covenants. (Capitalized terms used herein but not otherwise defined herein
shall have the meanings set forth in the Loan Agreement.)
FINANCIAL COVENANT REQUIRED ACTUAL DEFAULT
Minimum Adjusted Tangible Net Worth -------- ------- --------
Maximum Leverage Ratio -------- ------- --------
Minimum Fixed Charge Coverage Ratio -------- ------- --------
(2) To the best of my (our) knowledge, Borrowers have kept, observed,
performed, and fulfilled each and every undertaking contained in the Loan
Agreement and are not at this time in default in the observance or performance
of any terms or conditions of the Loan Agreement, on the date hereof, except as
follows: (if none, so state).
------------------------------------
(3) And, no Event of Default has occurred and is continuing that, with the
giving of notice or the passage of time or both, would be an Event of Default,
on the date hereof, except as follows: (if none, so state).
----------------------
Without limiting the generality of the foregoing, Borrowers are Solvent as of
the date hereof.
I (we) further certify to you in our official capacities of the Borrowers that:
No material adverse change has occurred in either the financial condition
or the business of the Borrowers since the date of the Loan Agreement and that
all representations and warranties set forth within the Loan Agreement are true
as of the date hereof.
Exhibit G-1
During the period noted above, Borrowers have not changed their respective
name, their respective places of business, principal executive officers, nor
have they become a surviving corporation in a merger, nor have they changed the
places where the Collateral is located.
Executed this day of , 200 .
---- -------------- --
Signed:
-----------------------------
Print Name:
-------------------------
Print Title:
------------------------
Signed:
-----------------------------
Print Name:
-------------------------
Print Title:
------------------------
Exhibit G - 1
EXHIBIT "H"
MATERIAL SUBSIDIARIES
None.
Exhibit H - 1
EXHIBIT "I"
LIST OF DEPOSIT ACCOUNTS
<Table>
<Caption>
Banking Institution State Account Name Account Number
- ------------------- ----- ------------ --------------
Southtrust Bank Alabama Innotrac Master Account 66-912-510
Southtrust Bank Alabama I-F Acquisition Operating Account 73-703-261
Nevada State Bank Nevada UDS, a division of Innotrac Corp. 762009325
</Table>
Exhibit I - 1
EXHIBIT "J"
LIST OF LETTER-OF-CREDIT RIGHTS
None.
Exhibit J - 1
EXHIBIT "K"
LIST OF BAILEES
<Table>
<Caption>
Description of Location of
Bailee Name Bailee Address Inventory and Equipment Inventory and Equipment
- ----------- -------------- ----------------------- -----------------------
None.
</Table>
Exhibit K-1
EXHIBIT "L"
TRADE NAMES
I-F Acquisition, Inc., a Georgia corporation and wholly-owned subsidiary of
Innotrac, was formed in July 2001 to acquire all of the assets of iFulfillment,
Inc., a Delaware corporation. Shortly after closing of the acquisition, I-F
Acquisition, Inc. to iFulfillment, Inc.
UDS, a Nevada corporation, merged with an into Innotrac Corporation in
December 2000. Innotrac was the surviving corporation.
After the UDS merger, Innotrac occasionally used the trade or fictitious names
'UDS,' 'UDS, a Division of Innotrac,' 'UDS, an Innotrac Company,' 'UDS
Division, Innotrac Corporation' and similar derivations in connection with
Innotrac's Reno, Nevada operations. Innotrac no longer uses such names in
connection with its Reno, Nevada operations.
Innotrac occasionally uses the names of its subsidiary, 'iFulfillment,
'iFulfillment, an Innotrac Company,' 'iFulfillment, a Division of Innotrac,'
'iFulfillment, Inc.' or similar derivations.
iFulfillment occasionally uses the name of its parent, 'Innotrac' or 'Innotrac
Corporation,' and occasionally uses derivations such as 'iFulfillment, an
Innotrac Company,' and 'iFulfillment, a Division of Innotrac.'
Innotrac previously occasionally used the name of its former subsidiary or
derivations of the name, 'Return.com Online, LLC,' 'Return.com, 'Return.com, an
Innotrac Company,' 'Return.com, a Division of Innotrac' or similar derivations.
It no longer does.
Exhibit L-1
EXHIBIT "M"
Debts and Other Obligations
Credit Facility with Southtrust Bank
<Table>
<Caption>
Capital Leases Location Equipment Leased
- -----------------------------------------------------------------------------------
Deerbart Financial Services #1 Bolingbrook, IL Warehouse Equipment
Deerbart Financial Services #2 Bolingbrook, IL Telephone System
Deerbart Financial Services #3 Bolingbrook, IL Warehouse Equipment
Deerbart Financial Services #4 Bolingbrook, IL Warehouse Equipment
IBM Credit Corporation Bolingbrook, IL Computer Equipment
Crown Credit Company Bolingbrook, IL Lift Equipment
</Table>
<Table>
<Caption>
Operating Leases Location Equipment Leased
- -----------------------------------------------------------------------------------
Computer Sales International, Inc. Atlanta, GA Computer Hardware
Manifest Group Atlanta, GA Copier
Matrix Funding Atlanta, GA Warehouse Equipment
Ascom Hasler Atlanta, GA Postage Meter Equipment
CFC Investment Company Hebron, KY Lift Equipment
Crown Credit Company Atlanta, GA Lift Equipment
Crown Credit Company Reno, NV Lift Equipment
Crown Credit Company Romeoville, IL Lift Equipment
Crown Credit Company Bolingbrook, IL Lift Equipment
OKI Systems Hebron, KY Lift Equipment
</Table>
Exhibit M-1
EXHIBIT "N"
PENDING LITIGATION
1. Claim of Kevin McLoughlin - Mr. McLoughlin was employed by Innotrac until his
termination in a force reduction on or about November 1, 2002. Mr.
McLoughlin, through his attorney, has asserted a claim for commissions that
he allegedly earned before his termination but that have not been paid to
him. Innotrac has denied that it owes any commissions to Mr. McLoughlin. As
of the date hereof, Mr. McLoughlin has not filed any complaint or charge
against the Borrowers.
2. Greg Majewski v. Innotrac Corporation, Civil Action No. 02-D-0670 (CBS)(D.
Colo.) - This lawsuit was filed in a Colorado state court by an employee who
was terminated in a November 2001 force reduction. Innotrac removed the case
to the United States District Court for the District of Colorado on the
grounds of diversity of citizenship jurisdiction. Mr. Majewski alleges that
Innotrac breached an employment contract between the himself and Innotrac by
terminating his employment and by failing to compensate him for a suggestion
he made to Innotrac. Alternatively, Mr. Majewski asserts a claim for
promissory estoppel based on the same actions by Innotrac. Mr. Majewski seeks
consequential, general, and special damages in an unspecified amount for lost
wages, benefits, perquisites of employment, and emotional pain and suffering.
Innotrac has filed an answer to the complaint denying liability, and the case
is in discovery.
3. Securities and Exchange Commission Investigation. On February 28, 2001, the
Securities and Exchange Commission ("SEC") served subpoenas Innotrac, Scott
D. Dorfman, and two of the Company's then-incumbent directors, William H.
Scott, III (former director) and Martin J. Blank, requesting documents and
sworn testimony These subpoenas were served in connection with a formal
investigation that the Staff of the SEC was conducting concerning the
possibility of insider trading in Innotrac's stock during December 1999 and
January 2000. The responses to the subpoenas were filed during the week of
March 19, 2001, and the SEC Staff has now taken sworn testimony from Scott D.
Dorfman, William H. Scott, III, and Martin J. Blank. Innotrac has had no
contact from the SEC concerning this matter since mid-2001.
4. Kevin Saulny v. Innotrac Corporation. U.S. Dist. Ct., N.D. Ga., Civil Action
File No. 1:02-CV-3127-TWT. On November 18, 2002, Mr. Saulny, former Human
Resources Director for Innotrac, filed a lawsuit against Innotrac alleging
that he was offered a racially disparate severance package in violation of
Title VII of the Civil Rights Act of 1964. It is unclear whether Mr. Saulny
is also claiming race discrimination related to his termination. Mr. Saulny
was hired by Innotrac in July 2000 and was terminated in June 2002 when his
position with Innotrac was eliminated. Mr. Saulny was offered four weeks of
severance pay in accordance with Innotrac's severance pay guidelines. Mr.
Saulny declined the severance package, and instead filed a charge of
discrimination with the Equal Employment Opportunity Commission ("EEOC"). The
EEOC dismissed Mr. Saulny's complaint without finding that a violation of
Title VII had occurred, and issued him a Dismissal and Notice of Rights. Mr.
Saulny subsequently initiated this lawsuit. Innotrac filed an Answer to Mr.
Saulny's Complaint on January 27, 2003, denying the allegations that it
discriminated against him because of his race. The case is currently in
discovery.
5. Melissa Sanders v. Innotrac Corporation and Daryl Walter. U.S. Dist Ct., N.D.
Ga., Atlanta Division, Civil Action File No. 1:02-CV-1065-BBM. The Complaint
alleges that Daryl Walter, a supervisor, subjected Plaintiff Melissa Sanders,
a former employee of Innotrac, to unlawful sexual harassment. Plaintiff has
also asserted a claim for intentional infliction of emotional distress
against Innotrac and a claim for battery against Defendant Daryl Walter. The
Complaint is currently pending in the Northern District of Georgia. The case
is currently in discovery.