-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GcU03TIcN8vZI82CsXI8cIX6pnAOpBUVw42roiLaRzFRjTW/qdNshu181yHoKG0i ElZ5tgtffKd47oKip2rH3A== 0000950144-01-502162.txt : 20010515 0000950144-01-502162.hdr.sgml : 20010515 ACCESSION NUMBER: 0000950144-01-502162 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOTRAC CORP CENTRAL INDEX KEY: 0001051114 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 581592285 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23741 FILM NUMBER: 1633051 BUSINESS ADDRESS: STREET 1: 6655 SUGARLOAF PARKWAY CITY: DULUTH STATE: GA ZIP: 30097 BUSINESS PHONE: 678-584-4000 MAIL ADDRESS: STREET 1: 1828 MECA WAY CITY: NORCROSS STATE: GA ZIP: 30093 10-Q 1 g69214e10-q.txt INNOTRAC CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from to ------- ------- Commission file number 000-23740 ---------- INNOTRAC CORPORATION ----------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-1592285 -------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 6655 Sugarloaf Parkway Duluth, Georgia 30097 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (678) 584-4000 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding April 30, 2001 -------------------------- Common Stock at $.10 par value 11,364,595 Shares 2 INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 2001 (Unaudited) and December 31, 2000 3 Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2001 and 2000 (Unaudited) 4 Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2001 and 2000 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosure About Market Risk 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
1 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS The following condensed consolidated financial statements of Innotrac Corporation, a Georgia corporation (the "Company"), have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. Certain amounts in the prior year have been reclassified to conform to the current presentation. In the opinion of management, all adjustments are of a normal and recurring nature, except those specified otherwise, and include those necessary for a fair presentation of the financial information for the interim periods reported. Results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results for the entire year ending December 31, 2001. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 10-K filing and annual report. 2 4 INNOTRAC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS MARCH 31, 2001 DECEMBER 31, 2000 ------ -------------- ----------------- (UNAUDITED) Current assets: Cash and cash equivalents .......................... $ 20,345 $ 18,334 Accounts receivable, net ........................... 26,299 31,217 Inventories, net ................................... 13,825 15,056 Deferred income taxes .............................. 3,242 3,984 Prepaid expenses and other ......................... 8,492 7,559 -------- -------- Total current assets ......................... 72,203 76,150 Property and equipment: Rental equipment ................................... 3,120 3,464 Computer, machinery and equipment .................. 18,534 16,362 Furniture, fixtures and leasehold improvements ..... 3,840 3,695 -------- -------- 25,494 23,521 Less accumulated depreciation and amortization ..... (10,553) (9,804) -------- -------- 14,941 13,717 Goodwill, net ........................................... 3,423 3,466 Deferred income taxes ................................... 2,577 2,579 Other assets, net ....................................... 1,363 1,233 -------- -------- $ 94,507 $ 97,145 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ................................... $ 18,354 $ 22,104 Accrued expenses and other ......................... 13,549 12,071 -------- -------- Total current liabilities .................... 31,903 34,175 Total noncurrent liabilities ............................ 137 166 -------- -------- Total liabilities ............................ 32,040 34,341 Minority interest in subsidiary ......................... 3,299 4,169 Shareholders' equity: Common stock ....................................... 1,136 1,136 Additional paid-in capital ......................... 60,923 60,889 Retained earnings .................................. (2,685) (3,184) Less: Treasury stock ............................... (206) (206) -------- -------- Total shareholders' equity ................... 59,168 58,635 -------- -------- Total liabilities and shareholders' equity ... $ 94,507 $ 97,145 ======== ========
The accompanying notes are an integral part of these condensed balance sheets. 3 5 Financial Statements-Continued INNOTRAC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 2001 2000 -------- -------- Revenues, net ...................................... $ 24,921 $ 47,850 Cost of revenues ................................... 11,159 39,329 -------- -------- Gross profit ............................. 13,762 8,521 -------- -------- Operating expenses: Selling, general and administrative expenses ... 13,390 9,340 Depreciation and amortization .................. 1,196 795 -------- -------- Total operating expenses ....................... 14,586 10,135 -------- -------- Operating loss ........................... (824) (1,614) -------- -------- Other (income) expenses, net ...................... (213) 245 Income before income taxes and minority interest ... (611) (1,859) Income tax benefit ................................. 240 735 -------- -------- Net loss before minority interest .................. (371) (1,124) Minority interest, net of income taxes ............. (871) 0 -------- -------- Net income (loss) ........................ $ 500 $ (1,124) ======== ======== Basic and diluted earnings (loss) per share: Basic .......................................... $ 0.04 $ (0.10) ======== ======== Diluted ........................................ $ 0.04 $ (0.10) ======== ======== Weighted average shares outstanding: Basic .......................................... 11,319 11,215 ======== ======== Diluted ........................................ 11,540 11,215 ======== ========
The accompanying notes are an integral part of these condensed consolidated statements. 4 6 Financial Statements-Continued INNOTRAC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS)
Three Months Ended March 31, 2001 2000 -------- ------- Cash flows from operating activities: Net income (loss) .............................................................. $ 500 $(1,124) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ................................................ 1,196 795 Loss on disposal of fixed assets ............................................. 4 45 Deferred income taxes ........................................................ 742 (148) Minority interest in subsidiary .............................................. (871) 0 Amortization of deferred compensation ........................................ 33 0 Decrease in accounts receivable .............................................. 4,918 (9,188) Decrease in inventories ...................................................... 1,231 8,091 (Increase) decrease in prepaid expenses and other ............................ (1,125) (1,275) Increase in accounts payable and accrued expenses ............................ (2,278) (1,714) -------- ------- Net cash provided by (used in) operating activities ..................... 4,350 (4,518) -------- ------- Cash flows from investing activities: Capital expenditures ........................................................... (2,317) (2,764) -------- ------- Net cash used in investing activities ................................... (2,317) (2,764) -------- ------- Cash flows from financing activities: Borrowings under line of credit ................................................ 0 6,627 Repayment of other debt ........................................................ (22) (2) -------- ------- Net cash (used in) provided by financing activities ..................... (22) 6,625 -------- ------- Net increase (decrease) in cash and cash equivalents ............................... 2,011 (657) Cash and cash equivalents, beginning of period ..................................... 18,334 894 -------- ------- Cash and cash equivalents, end of period ........................................... $ 20,345 $ 237 ======== ======= Supplemental cash flow disclosures: Cash paid for interest ......................................................... $ 0 $ 207 ======== ======= Cash paid for income taxes, net of refunds received ............................ $ 0 $ 77 ======== =======
The accompanying notes are an integral part of these condensed consolidated statements. 5 7 Financial Statements-Continued INNOTRAC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND 2000 (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company's Form 10-K filed with the Securities and Exchange Commission on March 30, 2001 for the year ended December 31, 2000. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. 2. SPECIAL CHARGES At March 31, 2001 and December 31, 2000, the Company had approximately $5.5 million and $6.9 million, respectively, in accruals related to the special charges incurred during the year ended December 31, 2000. The remaining accruals at March 31, 2001 included $3.9 million for the Company's shift to a fee-for-service business model and $1.6 million for e-commerce costs. Cash payments for the three months ended March 31, 2001 were approximately $0.9 million. The Company expects that substantially all of the remaining accruals will be utilized during the year ended December 31, 2001. 3. IMPAIRMENT OF LONG -LIVED ASSETS During the three months ended March 31, 2001, the Company recorded an impairment reserve of approximately $2.4 million primarily for software development costs incurred by Return.com due to the uncertainty of the ultimate realizability of these costs as a result of the Company's exit from e-commerce initiatives. The Company also recorded approximately $0.4 million in severance costs for the reduction in Return.com employees due to the utilization of other internal resources of the Company. The Company expects Return.com to continue to generate operating losses in 2001. 4. MINORITY INTEREST As a result of the Company's 60% ownership interest in Return.com as of March 31, 2001, the Company consolidated the results of operations and financial position of Return.com in the accompanying condensed consolidated financial statements. The minority interest represents the investment in Return.com Online, LLC ("Return.com"), a subsidiary of the Company held by Mail Boxes Etc. ("MBE"), including their proportionate share of losses in Return.com. On April 17, 2001 the Company agreed to reacquire MBE's 40% ownership interest in Return.com. The note receivable of $3.4 million due from MBE was forgiven by the Company in exchange for the remaining shares of common stock of Return.com, resulting in 100% ownership by the Company. All remaining contractual commitments for additional funding by the Company were also cancelled. 6 8 Financial Statements-Continued INNOTRAC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND 2000 (UNAUDITED) 5. EARNINGS PER SHARE The following table shows the amounts used in computing earnings per share ("EPS") in accordance with Statement of Financial Accounting Standards No. 128 and the effects on income and the weighted average number of shares of potential diluted common stock. Options outstanding to purchase shares of the Company's common stock were not included in the computation of diluted EPS for the three months ended March 31, 2000 because their effect was anti-dilutive. Shares used to compute diluted EPS for the three months ended March 31, 2001 and 2000 are as follows (in 000's):
Three Months Ended March 31, --------------------- 2001 2000 --------------------- Diluted earnings per share: Weighted average shares outstanding 11,319 11,215 Employee and director stock options 221 0 --------------------- Weighted average shares assuming dilution 11,540 11,215 =====================
7 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion may contain certain forward-looking statements that are subject to conditions that are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, the reliance on a small number of major clients; risks associated with the terms of our contracts; reliance on the telecommunications industry; the impact of the trend toward outsourcing; risks associated with changing technology; risks associated with competition; risks associated with fluctuations in operating and quarterly results; compliance with government regulation; risks associated with the start-up subsidiary Return.com Online, LLC; and other factors discussed in more detail under "Business" on Form 10-K for the year ended December 31, 2000. OVERVIEW Innotrac, founded in 1984 and headquartered in Atlanta, Georgia, provides customized, technology-based marketing support, order fulfillment, call center and total customer relationship management services to large corporations that outsource these functions. The Company offers inventory management, inbound call center, pick/pack/ship services, order tracking, transaction processing and returns of telecommunications products, including Digital Subscriber Line Modems ("DSL Modems"), to BellSouth, Pacific Bell, Southwestern Bell, Ameritech Services, Inc., and Qwest and their customers. The Company also provides these services for a significant number of non-telecommunications related companies such as Home Depot, Coca-Cola, NAPA, Siemens and Thane International. Historically, over ninety percent of the Company's volume has been generated from its telecommunications clients. With the Company's conversion of its clients to a fee-for-service model by the end of 2000, the Company no longer purchases and sells Caller ID equipped phones, DSL modems and other telecommunications equipment from third party manufacturers for a majority of its clients. Instead, the Company warehouses products on a consignment basis and fulfills equipment on behalf of its customers for a fee. In certain cases, the Company purchases and owns inventory, but on a significantly reduced risk basis as a result of client guarantees and contractual indemnifications. Management believes that this new model will substantially reduce revenues as pass through cost of purchased equipment is no longer included in revenues; however, since the Company no longer has inventory risk or cost of equipment, gross margins, and more importantly, operating cash flows should improve. On May 17, 2000, the Company invested in a new venture, Return.com Online, Inc. ("Return.com") with its equity partner, Mail Boxes Etc. ("MBE") to process product returns for online and catalog retailers. Return.com was converted to a limited liability corporation on December 28, 2000. As of March 31, 2001, Innotrac owned 60% of this subsidiary with the remaining 40% owned by MBE. However, due to the announcement in March 2001 that United Parcel Services, Inc. ("UPS") had entered into a definitive agreement to purchase MBE, the Company elected to acquire from MBE the remaining 40% ownership interest in Return.com and terminate its arrangement with MBE as its exclusive front-end solution in April 2001. Subsequently, Return.com entered into a non-exclusive arrangement with the United States Postal Service ("USPS") for at-home pick up services or drop off of authorized Return.com returns at any of USPS's participating locations. Return.com is the first full-service returns portal supported by the convenience of approximately 38,000 USPS locations throughout the United States. As a result of this ownership structure of Return.com as of March 31, 2001, the Company consolidated the results of operations and financial position of Return.com in the accompanying condensed consolidated financial statements. The Company expects Return.com to continue to generate operating losses in 2001. 8 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth unaudited summary operating data, expressed as a percentage of revenues, for the three months ended March 31, 2001 and 2000. The data has been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, it reflects normal and recurring adjustments, necessary for a fair presentation of the information for the periods presented. Operating results for any period are not necessarily indicative of results for any future period. The financial information provided below has been rounded in order to simplify its presentation. However, the percentages below are calculated using the detailed information contained in the condensed consolidated financial statements.
Three Months Ended March 31, --------------- 2001 2000 ------ ------ Revenues ......................................... 100.0% 100.0% Cost of revenues ................................. 44.8 82.2 ------ ------ Gross margin ................................... 55.2 17.8 Selling, general and administrative expenses ..... 53.7 19.5 Depreciation and amortization .................... 4.8 1.7 ------ ------ Operating loss ................................. (3.3) (3.4) Other (income) expense, net ...................... (0.8) 0.5 ------ ------ Loss before income taxes and minority interest ........................ (2.5) (3.9) Income tax benefit ............................... 1.0 1.5 ------ ------ Loss before minority interest .................... (1.5) (2.4) Minority interest ................................ (3.5) -- ------ ------ Net income (loss) .............................. 2.0% (2.4)% ====== ======
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Revenues. Net revenues decreased 47.9% to $24.9 million for the three months ended March 31, 2001 from $47.8 million for the three months ended March 31, 2000. The decrease in revenue is consistent with the Company's switch to a fee-for-service model and the decline in the sales of Caller ID equipment, offset by an increase in DSL modems fulfilled. Under the fee-for-service model, revenues are recorded net of equipment costs sold or fulfilled. Cost of Revenues. Cost of revenues decreased 71.6% to $11.1 million for the three months ended March 31, 2001 compared to $39.3 million for the three months ended March 31, 2000. Cost of revenues decreased primarily due to the decrease in equipment units sold, as opposed to fulfilled, by the Company due to the shift to fee-for-service and the decline in sales of Caller ID equipment. Gross Profit. For the three months ended March 31, 2001, the Company's gross profit increased by $5.3 million to $13.8 million, or 55.2% of revenues, compared to $8.5 million, or 17.8% of revenues, for the three months ended March 31, 2000. This increase was due primarily to the factors discussed above. Selling, General and Administrative Expenses. S,G&A expenses for the three months ended March 31, 2001 increased to $13.4 million, or 53.7% of revenues, compared to $9.3 million, or 19.5% of revenues, for the same period in 2000. This increase in expenses was mainly attributable to the $2.8 million in reserves primarily for the impairment of software development costs and severance costs related to Return.com. There were also increased costs incurred from the recent acquisition of Universal Distribution Services in December 2000. The increase in S,G&A expenses was offset by reduced expenditures related to the Company's discontinuation of its front-end web-site development, maintenance and hosting services. Income Taxes. The Company's effective tax rate for the three months ended March 31, 2001 and 2000 was 39.3% and 39.5%, respectively. 9 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company funds its operations and capital expenditures primarily through cash flow from operations and borrowings under a credit facility with a bank and, from time to time, equity offerings. The Company had cash and cash equivalents of approximately $20.3 million at March 31, 2001. In April 2001 the Company no longer has a contractual commitment for funding the start up and development of Return.com with the reacquisition of 100% ownership in Return.com (see note 4). The Company maintains a $40.0 million revolving line of credit with a bank, maturing in June 2002. Borrowings under the line of credit bear interest at the Company's option at the bank's prime rate, as adjusted from time to time, or LIBOR plus up to 225 basis points. At March 31, 2001, there was no outstanding balance under the line of credit. During the three months ended March 31, 2001, the Company generated $4.4 million in cash flow from operating activities compared to the use of $4.5 million in cash flow from operating activities in the same period in 2000. The generation of cash flow from operating activities for the three months ended March 31, 2001 compared to the use of cash flow from operating activities in the same period in 2000 was due primarily to the decrease in accounts receivable, offset by a lower decrease in inventory levels. During the three months ended March 31, 2001, net cash used in investing activities was $2.3 million in 2001 as compared to $2.8 million in 2000. This slight decrease was primarily due to reduced expenditures for technology related to e-commerce applications and internal systems development during 2001. During the three months ended March 31, 2001, the net cash used in financing activities was $22,000 compared to $6.6 million provided by financing activities in the same period in 2000 primarily due to no borrowings made under the Company's line of credit during 2001. The Company estimates that its cash and financing needs through 2001 will be met by cash flows from operations and its line of credit facility. The Company may need to raise additional funds in order to take advantage of unanticipated opportunities, such as acquisitions of complementary businesses. There can be no assurance that the Company will be able to raise any such capital on terms acceptable to the Company or at all. ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS Reference is made to item 7A, Part II of the Company's annual report on Form 10-K for the year ended December 31, 2000, for discussion pertaining to the Company's exposure to certain market risk. There have been no material changes in the disclosure for the three months ended March 31, 2001. 10 12 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON 8-K (a) Exhibits
Exhibit Number Description ------ ----------- 10.1 Agreement to Discharge Debt , dated April 17, 2001, between Return.com Online, LLC and Mail Boxes Etc. USA, Inc. 10.2 Agreement to Terminate Services and Marketing Agreement, dated April 17, 2001, between Return.com Online, LLC, Mail Boxes, Etc. USA, Inc. and Innotrac Corporation
(b) Reports on Form 8-K - There were no Form 8-K filings during the quarter ended March 31, 2001. 11 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INNOTRAC CORPORATION (Registrant) Date: May 14, 2001 By: /s/ Scott D. Dorfman ------------------------ Scott D. Dorfman President, Chief Executive Officer and Chairman of the Board Date: May 14, 2001 By: /s/ David L. Gamsey ----------------------- David L. Gamsey Senior Vice President, Chief Financial Officer and Secretary (Principal Financial Officer) 12 EX-10.1 2 g69214ex10-1.txt AGREEMENT TO DISCHARGE DEBT 1 EXHIBIT 10.1 AGREEMENT TO DISCHARGE DEBT THIS AGREEMENT (the "AGREEMENT") is made and entered into as of this 17th day of April, 2001, between RETURN.COM ONLINE, LLC, a Georgia limited liability company ("RETURN.COM"), and MAIL BOXES ETC. USA, INC., a California corporation ("MBE"). RECITALS: WHEREAS, MBE and Innotrac Corporation formed Return.com Online, Inc., the predecessor to Return.com, in May 2000 to serve as an internet and catalog-based returns solution; WHEREAS, MBE is entering into an agreement with United Parcel Service General Services Co. ("UPS") whereby MBE is to sell substantially all of its assets to UPS; WHEREAS, in connection with the agreement with UPS, MBE desires to cancel that certain promissory note dated December 29, 2000 by MBE in favor of Return.com (the "PROMISSORY NOTE") in the aggregate principal amount of $3,368,000, together with all accrued interest thereon, and terminate that certain pledge agreement entered into December 29, 2000 with Return.com (the "PLEDGE AGREEMENT") whereby MBE pledged 10,000,000 units of Return.com limited liability company interests (the "PLEDGED INTERESTS"); NOW THEREFORE, the parties in consideration of the mutual promises, covenants and agreements set forth and contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Cancelation of the Promissory Note. The parties agree that the Promissory Note is hereby cancelled, effective as of the date referenced above (the "PROMISSORY NOTE CANCELLATION"). Pursuant to the Promissory Note Cancellation, all rights and obligations under the Promissory Note are hereby discharged. 2. Termination of the Pledge Agreement. The parties agree that the Pledge Agreement is hereby terminated, effective as of the date referenced above (the "PLEDGE AGREEMENT TERMINATION"). Pursuant to the Pledge Agreement Termination, all rights and obligations under the Pledge Agreement are hereby discharged. 3. Transfer of Pledged Interests to Return.com. In consideration for the Promissory Note Cancellation and the Pledge Agreement Termination, MBE agrees to transfer to Return.com the Pledged Interests, which constitute all of MBE's interests in Return.com, other than the shares being returned to Return.com pursuant to the Agreement to Terminate Services and Marketing Agreement, of even date herewith. 2 4. Representations. (a) The parties represent that each has the full power and authority to enter into this Agreement. (b) The parties additionally represent that the officers whose signatures appear below are duly elected and are authorized to enter into this Agreement and that no other approvals (corporate or otherwise) are necessary to effectuate the matters contemplated in this Agreement. (c) MBE represents that other than as a result of the Pledge Agreement, MBE owns the Pledged Interests free and clear of any and all liens and that there are no outstanding contracts, demands, commitments or other agreements or arrangements under which MBE is or may become obligated to sell, transfer, pledge, hypothecate or assign any of the Shares. 5. Miscellaneous. (a) The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia, without regard to its conflicts of laws principles. (b) This Agreement constitutes the sole and entire agreement between the parties with respect to the matters covered hereby. This Agreement shall not be modified or amended except by another agreement in writing executed by the parties hereto. (c) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. [SIGNATURES ON FOLLOWING PAGE] 3 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written. RETURN.COM ONLINE, LLC By: David L. Gamsey -------------------------------- Name: David L. Gamsey ------------------------- Title: CFO ------------------------- MAIL BOXES ETC. USA, INC. By: Thomas K. Herskowitz -------------------------------- Name: Thomas K. Herskowitz ------------------------- Title: EVP ------------------------- 4 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written. RETURN.COM ONLINE, LLC By: -------------------------- Name: --------------------- Title: -------------------- MAIL BOXES ETC USA, INC. By: Thomas K. Herskowitz -------------------------- Name: Thomas K. Herskowitz --------------------- Title: EVP -------------------- EX-10.2 3 g69214ex10-2.txt AGREEMENT TO TERMINATE SERVICES 1 EXHIBIT 10.2 AGREEMENT TO TERMINATE SERVICES AND MARKETING AGREEMENT THIS AGREEMENT (the "AGREEMENT") is made and entered into as of this 17th day of April 2001, between RETURN.COM ONLINE, LLC, a Georgia limited liability company ("RETURN.COM"), MAIL BOXES ETC. USA, INC., a California corporation ("MBE"), and INNOTRAC CORPORATION, a Georgia corporation ("INNOTRAC"). RECITALS: WHEREAS, MBE and Innotrac formed Return.com Online, Inc., the predecessor to Return.com (the "PREDECESSOR"), in May 2000 to serve as an internet and catalog-based returns solution, and the parties hereto entered into that certain services and marketing agreement on July 7, 2000 (the "SERVICES AND MARKETING AGREEMENT"); WHEREAS, MBE is entering into an agreement with United Parcel Service General Services Co. ("UPS") whereby MBE is to sell substantially all of its assets to UPS; WHEREAS, in connection with the agreement with UPS, MBE desires to terminate the Services and Marketing Agreement; NOW THEREFORE, the parties, in consideration of the mutual promises, covenants and agreements set forth and contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, agree as follows: 1. Termination of Services and Marketing Agreement. Subject to the other provisions of this Agreement, the parties agree that the Services and Marketing Agreement is hereby terminated, effective as of the date referenced above (the "TERMINATION"). (a) In connection with the Termination: (i) Innotrac specifically waives Section 17, "Innotrac Put Option," of the Services and Marketing Agreement, whereby Innotrac has the right and option to sell to MBE, and to require MBE to purchase, all, but not less than all, of Innotrac's shares of capital stock of Return.com (the "PUT OPTION"); and (ii) Return.com specifically waives Section 15, "Exclusivity," of the Services and Marketing Agreement, whereby MBE is prevented from directly or indirectly entering into any agreement to provide services or facilitate product returns through MBE centers, with, or actually provide services to, any person offering on-line product returns for third party merchants (other than Return.com), entering into any agreement to provide services or facilitate product returns through MBE centers with, or actually provide services to, any on-line retailer or e-tailer or any mail order catalog retailer where the relationship involves services substantially similar to the services offered by Return.com, and marketing, 2 promoting or recommending the services of any person offering on-line product returns for third party merchants (other than Return.com) prior to December 31, 2002. (b) Notwithstanding anything to the contrary in the Services and Marketing Agreement, only the last sentence of Section 5(b), the fifth sentence of Section 10(a), the last sentence of Section 10(b) and (a), (b), and (c) of Section 13 of the Services and Marketing Agreement shall survive the Termination, and no other section of such Agreement shall survive the Termination. 2. Transfer of Return.com Shares. In consideration for the Termination, MBE agrees to transfer to Return.com 3,333,333 units of limited liability company interests it owns pursuant to the conversion of Predecessor to a limited liability company on December 28, 2000 (the "SHARES"), which Shares are evidenced by a certificate for 3,333,333 shares of common stock of Predecessor. The Shares shall be delivered to Return.com by overnight courier immediately after the date of this Agreement, together with a manually executed stock power of MBE authorizing the transfer to Return.com. 3. Termination of Options. In connection with the Termination, MBE represents that no Return.com or Predecessor options were granted at any time to any MBE employee, consultant or director and agrees to deliver a certificate of its chief financial officer to that effect. 4. Release by MBE. MBE, on behalf of itself and all its affiliates, hereby fully releases, remises, acquits, and forever discharges Return.com and Innotrac and their respective successors, members, managers, officers, directors and representatives, assigns, agents, attorneys, shareholders, employees, predecessors, affiliates and allies (collectively, the "MBE RELEASED PARTIES"), from any and all claims, suits, debts, covenants, agreements, promises, charges, complaints, damages, losses, attorney's fees, and costs or expenses of any kind whatsoever (the "CLAIMS"), whether at law or in equity, whether known or unknown, that MBE, any predecessor or successor in interest of MBE or any person or entity affiliated with MBE, now has, ever had, or might conceive in the future against any of the MBE Released Parties arising out of, occurring in connection with, or otherwise relating to (a) the Services and Marketing Agreement; or (b) that certain operating agreement entered into December 28, 2000 (the "OPERATING AGREEMENT") with Return.com and Innotrac. Notwithstanding the preceding, the MBE Released Parties shall not be released from any Claim arising in connection with this Agreement. 5. Release by Return.com and Innotrac. Return.com and Innotrac, on behalf of themselves and all of their affiliates, hereby fully release, remise, acquit, and forever discharge MBE and its respective successors, members, managers, officers, directors and representatives, assigns, agents, attorneys, shareholders, employees, predecessors, affiliates and allies (collectively, the "RETURN.COM AND INNOTRAC RELEASED PARTIES"), from any and all Claims, whether at law or in equity, whether known or unknown, that Return.com and Innotrac, any predecessor or successor in interest of them, or any person or entity affiliated 2 3 with them, now has, ever had, or might conceive in the future against any of the Return.com and Innotrac Released Parties arising out of, occurring in connection with, or otherwise relating to (a) the Services and Marketing Agreement; or (b) the Operating Agreement. Notwithstanding the preceding, the Return.com and Innotrac Released Parties shall not be released from any Claim arising in connection with this Agreement. 6. Representations. (a) The parties represent that each has the full power and authority to enter into this Agreement. (b) The parties represent that the officers whose signatures appear below are duly elected and are authorized to enter into this Agreement on behalf of the respective party and that no other approvals (corporate or otherwise) are necessary to effectuate the matters contemplated in this Agreement. (c) MBE represents that MBE owns the Shares free and clear from any and all liens and that there are no outstanding contracts, demands, commitments or other agreements or arrangements under which MBE is or may become obligated to sell, transfer, pledge hypothecate or assign any of the Shares. (d) The parties represent and warrant that there has been no assignment, sale, or other transfer or disposition of any interest in any of the Claims. 7. Miscellaneous. (a) The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia, without regard to its conflicts of laws principles. (b) This Agreement constitutes the sole and entire agreement between the parties with respect to the matters covered hereby. This Agreement shall not be modified or amended except by another agreement in writing executed by the parties hereto. (c) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. [SIGNATURES ON FOLLOWING PAGE] 3 4 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written. RETURN.COM ONLINE, LLC By: -------------------------- Name: --------------------- Title: -------------------- MAIL BOXES ETC USA, INC. By: Thomas K. Herskowitz -------------------------- Name: Thomas K. Herskowitz --------------------- Title: EVP -------------------- INNOTRAC CORPORATION By: -------------------------- Name: --------------------- Title: -------------------- 4 5 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written. RETURN.COM ONLINE, LLC By: David L. Gamsey ------------------------------------ Name: David L. Gamsey ------------------------------ Title: CFO ------------------------------ MAIL BOXES ETC. USA, INC. By: Thomas K. Herskowitz ------------------------------------ Name: Thomas K. Herskowitz ------------------------------ Title: EVP ------------------------------ INNOTRAC CORPORATION By: David L. Gamsey ------------------------------------ Name: David L. Gamsey ------------------------------ Title: SVP & CFO ------------------------------ 4 -----END PRIVACY-ENHANCED MESSAGE-----