10-Q

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 September 30, 2002

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 at November 12, 2002
Common Stock at $.10 par value	11,674,595 Shares

TABLE OF CONTENTS

Part I – Financial Information
	Item 1 – Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3 — Quantitative and Qualitative Disclosure About Market Risks
	Item 4 – Controls and Procedures
Part II – Other Information
	Item 6 – Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EX-10.1 LEASE AGREEMENT
EX-10.2 LOAN DOCUMENT MODIFICATION AGREEMENT
EX-99.1 SECTION 906 CERTIFICATION OF THE CEO
EX-99.2 SECTION 906 CERTIFICATION OF THE CFO

INNOTRAC CORPORATION

INDEX

				Page
Part I.    Financial Information
	Item 1.		Financial Statements:
			Condensed Consolidated Balance Sheets – September 30, 2002 and December 31, 2001 (Unaudited)		3
			Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2002 and 2001 (Unaudited)		4
			Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2002 and 2001 (Unaudited)		5
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (Unaudited)		6
			Notes to Condensed Consolidated Financial Statements (Unaudited)		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
	Item 3.	Quantitative and Qualitative Disclosure About Market Risks			20
	Item 4.	Controls and Procedures			20
Part II.  Other Information
	Item 6.	Exhibits and Reports on Form 8-K			21
Signatures					22
Certifications					23

1

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 in the United States of America. 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 and nine months ended September 30, 2002 are not necessarily indicative of the results for the entire year ending December 31, 2002. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2001 Annual Report on Form 10-K.

2

INNOTRAC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

				September 30, 2002			December 31, 2001
ASSETS
Current assets:
	Cash and cash equivalents			$	198		$	9,413
	Accounts receivable, net				16,677			13,662
	Inventories, net				19,990			27,264
	Deferred income taxes				—			2,736
	Prepaid expenses and other				1,854			5,018
		Total current assets			38,719			58,093
Property and equipment:
	Rental equipment				1,513			2,003
	Computer software and equipment				25,398			19,715
	Furniture, fixtures and leasehold improvements				4,394			4,005
					31,305			25,723
	Less accumulated depreciation and amortization				(12,116	)		(11,223	)
					19,189			14,500
Goodwill, net					25,118			25,213
Deferred income taxes					9,040			438
Intangibles, net					640			958
Other assets					497			191
		Total assets		$	93,499		$	99,393
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	9,220		$	8,581
	Line of credit				13,407			—
	Accrued earn-out payment				—			15,275
	Accrued expenses and other				8,365			11,861
		Total current liabilities			30,992			35,717
Total noncurrent liabilities					2,276			393
			Total liabilities		33,268			36,110
Commitments and contingencies
Shareholders’ equity:
	Common stock, $.10 par value, 50,000,000 shares authorized, 11,674,595 shares issued and outstanding				1,167			1,136
	Additional paid-in capital				62,596			61,023
	Retained earnings (accumulated deficit)				(2,829	)		1,201
	Accumulated other comprehensive income				—			178
	Less: Treasury stock				(703	)		(255	)
		Total shareholders’ equity			60,231			63,283
		Total liabilities and shareholders’ equity		$	93,499		$	99,393

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Financial Statements-Continued

INNOTRAC CORPORATION

CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended September 30, 2002 and 2001
(in thousands, except per share amounts)

					Three Months Ended September 30,
					2002			2001
Revenues, net					$	17,292		$	22,406
Reimbursable costs						2,772			6,176
	Total revenues					20,064			28,582
Cost of revenues						8,857			9,592
Reimbursable costs						2,772			6,176
	Total cost of revenues					11,629			15,768
			Gross margin			8,435			12,814
Operating expenses:
	Selling, general and administrative expenses					12,422			9,712
	Impairment and special charges, net					3,123			—
	Depreciation and amortization					1,352			1,162
		Total operating expenses				16,897			10,874
Operating income (loss)						(8,462	)		1,940
Other expense (income), net						66			(126	)
Income (loss) before income taxes						(8,528	)		2,066
Income tax provision (benefit)						(3,220	)		802
				Net income (loss)	$	(5,308	)	$	1,264
Earnings per share:
	Basic				$	(0.46	)	$	0.11
	Diluted				$	(0.46	)	$	0.11
Weighted average shares outstanding:
	Basic					11,506			11,319
	Diluted					11,506			11,828

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Financial Statements-Continued

INNOTRAC CORPORATION

CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Nine Months Ended September 30, 2002 and 2001
(in thousands, except per share amounts)

				Nine Months Ended September 30,
				2002			2001
Revenues, net				$	49,848		$	73,352
Reimbursable costs					10,616			21,804
	Total revenues				60,464			95,156
Cost of revenues					23,028			33,182
Reimbursable costs					10,616			21,804
Special charges					(293	)		—
	Total cost of revenues				33,351			54,986
		Gross margin			27,113			40,170
Operating expenses:
	Selling, general and administrative expenses				27,760			33,722
	Impairment and special charges, net				1,802			—
	Depreciation and amortization				3,841			3,550
			Total operating expenses		33,403			37,272
Operating income (loss)					(6,290	)		2,898
Other expense (income), net					110			(537	)
Income (loss) before income taxes and minority interest					(6,400	)		3,435
Income tax provision (benefit)					(2,371	)		1,507
Net income (loss) before minority interest					(4,029	)		1,928
Minority interest, net of income tax benefit					—			871
			Net income (loss)	$	(4,029	)	$	2,799
Earnings per share:
	Basic			$	(0.35	)	$	0.25
	Diluted			$	(0.35	)	$	0.24
Weighted average shares outstanding:
	Basic				11,548			11,319
	Diluted				11,548			11,694

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Financial Statements-Continued

INNOTRAC CORPORATION

CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2002 and 2001
(in thousands)

				Nine Months Ended September 30,
				2002			2001
Cash flows from operating activities:
	Net income (loss)			$	(4,029	)	$	2,799
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization			3,841			3,550
		Loss on disposal of fixed assets			1,378			206
		Impairment of long-lived assets			2,185			—
		Deferred income taxes			(5,109	)		458
		Minority interest in subsidiary			—			(871	)
		Amortization of deferred compensation			54			100
Changes in operating assets and liabilities:
		(Increase) decrease in accounts receivable			(3,016	)		9,024
		(Increase) decrease in inventories			7,273			(17,230	)
		Decrease in prepaid expenses and other			1,812			1,042
		Increase (decrease) in accounts payable and accrued expenses			(1,061	)		2,946
			Net cash provided by operating activities		3,328			2,024
Cash flows from investing activities:
	Capital expenditures				(11,592	)		(4,979	)
	Earn-out payments				(14,087	)		(6,057	)
	Sale of marketable securities				435			—
			Net cash (used in) investing activities		(25,244	)		(11,036	)
Cash flows from financing activities:
	Borrowings under line of credit				13,407			—
	Repayment of capital lease obligations				(208	)		(75	)
	Purchase of treasury stock				(448	)		(46	)
	Loan fees paid				(50	)		—
			Net cash provided by (used in) financing activities		12,701			(121	)
Net decrease in cash and cash equivalents					(9,215	)		(9,133	)
Cash and cash equivalents, beginning of period					9,413			18,334
Cash and cash equivalents, end of period				$	198		$	9,201
Supplemental cash flow disclosures:
	Cash paid for interest			$	215		$	64
	Cash paid (refunds received) for income taxes, net			$	(18	)	$	—
Noncash transactions:
	Stock issued for earn-out payment			$	1,550		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

INNOTRAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2002 and 2001
(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 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2001, except as discussed below. Certain of the Company’s more significant accounting policies are as follows:
	Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
	Goodwill and Other Acquired Intangibles. Goodwill represents the cost of an acquired enterprise in excess of the fair market value of the net tangible and identifiable intangible assets acquired. Goodwill and other acquired intangibles related to business combinations prior to July 1, 2001 were being amortized over 5-20 years on a straight-line basis, which represented management’s estimation of the related benefit to be derived from the acquired business. However, goodwill and other acquired intangibles from business combinations occurring after June 30, 2001 are accounted for under the transition provisions for business combinations of SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets” which includes the iFulfillment acquisition. The Company adopted SFAS No. 142 effective January 1, 2002, which changed the accounting for goodwill and other indefinite life intangibles from an amortization method to an impairment only approach. Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. Upon completion of its analysis for impairment in the second quarter of 2002 in accordance with the adoption of SFAS No. 142, no impairment was determined to exist.
	Long-Lived Assets. In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” and amends APB Opinion No. 51, “Consolidated Financial Statements.” SFAS No. 144 retains many of the requirements of SFAS No. 121 and the basic provisions of APB Opinion No. 30; however, it establishes a single accounting model for long-lived assets to be disposed of by sale. The Company adopted SFAS No. 144 on January 1, 2002. The impairment loss recorded for the three and nine months ended September 30, 2002 was accounted for in accordance with the provisions of SFAS No. 144 (see Note 2).
	Deferred Income Taxes. Innotrac utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets if the Company considers it is more likely than not that deferred tax assets will not be realized.

7

INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
(Unaudited)

	Revenue Recognition. Revenues are recognized on the accrual basis as services are provided to customers or as units are shipped. As required by the consensus reached in Emerging Issue Task Force (“EITF”) Issue No. 99-19, revenues have been recorded net of the cost of the equipment for all fee-for-service clients.
	During 2002, the Company began applying the consensus reached in Emerging Issues Task Force (“EITF”) No. 01-14, “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred” which requires the presentation of reimbursed out-of-pocket expenses on a gross basis as revenues and expenses. As required, the Company reclassified the prior periods presented herein to comply with the guidance in EITF 01-14. Accordingly, freight and postage charges in the Company’s fulfillment business during the three months ended September 30, 2001 totaling $6.2 million and during the nine months ended September 30, 2001 totaling $21.8 million have been reclassified and presented as revenues and cost of revenues in the corresponding Consolidated Statements of Operations. The reclassification had no impact on net income.
2.	IMPAIRMENT AND SPECIAL CHARGES, NET
	At September 30, 2002 and December 31, 2001, the Company had approximately $1.5 million and $4.6 million, respectively, in accruals related to the special charges recorded during the year ended December 31, 2000. The remaining accruals at September 30, 2002 included $291,000 related to the Company’s shift to a fee-for-service business model and $1.2 million related to exiting the front-end e-commerce and web hosting business. Cash payments relating to these accruals for the three and nine months ended September 30, 2002 were approximately $161,000 and $627,000, respectively. The Company recognized approximately $50,000 and $1.7 million during the three and nine months ended September 30, 2002 related to the gains realized on sales of inventory items and cash collected for accounts receivable that were written off as special charges in previous periods. These amounts were recorded as a reduction in the special charge line item in the Condensed Consolidated Statement of Operations for the periods presented. Except for the accrual associated with one specific client, which represents about 60% of the remaining accrual and is classified as long-term, the remaining accrual is expected to be utilized during the remainder of the year.
	During the third quarter of 2002, the Company recognized an additional $3.1 million in special charges. Approximately $2.4 million of these charges were related to capitalized hardware and software costs for systems purchased specifically for a potential new client which were subsequently not utilized as originally planned. The loss of the potential customer indicated that the carrying value of the asset group was potentially not recoverable, and therefore, an impairment test under the provisions of SFAS No. 144 was performed. As fair market value of the asset group was not readily determinable, a discounted, probability weighted cash flow model was utilized as a basis to determine fair value. As a result of the cash flow analysis, a $2.4 million impairment charge was recorded. Of the remaining charges, approximately $500,000 related to the write-down to net realizable value of specified fixed assets obtained as part of the December 2000 acquisition of UDS which was being utilized for one specific customer who ceased conducting business with UDS. The balance of approximately $200,000 was related to severance costs for positions which have been eliminated.

8

INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
(Unaudited)

3.	FINANCING OBLIGATIONS
	The Company has a revolving credit agreement with a bank for borrowings up to $40 million. In May 2002, the Company extended its credit facility until June 2005 under similar terms and conditions as the previous revolving credit agreement. The Company and its subsidiaries have pledged all of its assets and provided guarantees to the lender as collateral under this revolving credit agreement. At September 30, 2002, the Company had approximately $13.4 million outstanding in borrowings under the line of credit. At December 31, 2001, the Company did not have any outstanding borrowings under the line of credit. The revolving line of credit agreement contains various restrictive financial and change of ownership control covenants. The May 2002 amendment added provisions limiting borrowings under the agreement to a margin or borrowing base, as defined, which totaled $31.1 million at September 30, 2002 and tightened several of the financial covenants. At September 30, 2002, due to the special charge discussed in Note 2 to the Notes to Condensed Consolidated Financial Statements, the Company was not in compliance with all covenants under the credit agreement. However, effective September 30, 2002, the Company has received a waiver from the Bank for these covenant violations.
	Interest on borrowings is payable monthly at rates equal to the prime rate, or at the Company’s option, LIBOR plus up to 225 basis points. On September 6, 2002, the Company fixed $5.0 million of its $13.4 million of borrowings at a 90-day LIBOR rate of 2.81%. The fixed borrowing reduced the Company’s availability under the revolving credit agreement. At September 30, 2002, the Company had $17.7 million available under the revolving credit agreement. During the three and nine months ended September 30, 2002, the Company incurred interest expense related to the line of credit of approximately $52,800 and $102,100, respectively, resulting in a weighted average interest rate of 3.06% and 3.57%, respectively.
4.	MINORITY INTERESTS
	The Company had a majority ownership in Return.com Online, LLC (“Return.com”). The remaining interest was owned by Mail Boxes Etc (“MBE”). In March 2001, United Parcel Services, Inc. (“UPS”) announced a definitive agreement to purchase MBE. As a result of this agreement, the Company agreed to reacquire MBE’s 40% ownership interest in Return.com in April 2001. The note receivable of $3.4 million due from MBE was forgiven by the Company in exchange for MBE’s ownership interest in Return.com, resulting in 100% ownership by the Company. All remaining contractual commitments for additional funding by the Company were also cancelled. During the first quarter of 2001, the Company recorded a $2.8 million impairment loss for its investment in Return.com. At December 31, 2001, Return.com was no longer in operation.
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 (“SFAS”) No. 128, “Earnings Per Share” and the effects on income and the weighted average number of shares of potential diluted common stock. For the three and nine months ended September 30, 2001, certain options outstanding to

9

INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
(Unaudited)

purchase shares of the Company’s common stock aggregating 576,000 and 1.1 million, respectively, were not included in the computation of diluted EPS because their effect was anti-dilutive. Shares used to compute diluted EPS for the three and nine months ended September 30, 2002 and 2001 are as follows (in 000’s):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2002		2001		2002		2001
Diluted earnings per share:
	Weighted average shares outstanding		11,506		11,319		11,548		11,319
	Employee and director stock options		0		509		0		375
	Weighted average shares assuming dilution		11,506		11,828		11,548		11,694

6.

OTHER COMPREHENSIVE INCOME

SFAS No. 130, “Reporting Comprehensive Income,” established standards for reporting and display of comprehensive income and its components in financial statements. For the three month period ended September 30, 2002 and 2001, comprehensive income was the same as net income. For the nine month period ended September 30, 2002 and 2001, the components of the Company’s comprehensive income are as follows (in thousands):

		Nine Months Ended
		September 30,
		2002			2001
Other comprehensive income:
	Net Income	$	(4,029	)	$	2,799
	Reclassification adjustment for gains included in net income		(178	)		0
Comprehensive income		$	(4,207	)	$	2,799

7.	RECENT ACCOUNTING PRONOUNCEMENTS
	In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prohibits the use of pooling-of-interest for business combinations initiated after June 30, 2001 and also applies to all business combinations accounted for by the purchase method that are completed after June 30, 2001. There are also transition provisions that apply to business combinations completed after July 1, 2001, that were accounted for by the purchase method. SFAS No. 142 changes the accounting for goodwill and other indefinite life intangible assets from an amortization method to an impairment only approach.
	The Company adopted these statements effective January 1, 2002. In accordance with SFAS No. 142, the Company no longer amortizes goodwill. The Company completed its impairment analysis required upon the adoption of SFAS No. 142 during the second quarter of 2002 and determined that no impairment existed. During the three and nine months ended September 30, 2001, amortization expense associated with goodwill was approximately $42,000 and $127,000, respectively. The Company’s proforma consolidated net income and earnings per share for the three and nine months ended September 30, 2001, excluding goodwill amortization, would have been $1.3 million ($0.11 per share, basic and diluted) and $2.9 million ($0.25 per share, basic and diluted), respectively.
	The Company has intangible assets that continue to be subject to amortization under the provisions of SFAS No. 142. The intangible assets consist of acquired customer contracts which are amortized over a period of 1 to 5 years on a straight-line basis. At September 30, 2002 and December 31, 2001, the Company had intangible assets, consisting primarily of customer contracts, of approximately $640,000 and

10

INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
(Unaudited)

	$958,000, net of accumulated amortization of approximately $620,000 and $302,000, respectively. Amortization expense of these intangible assets amounted to approximately $51,000 during both of the three months ended September 30, 2002 and 2001, respectively, and approximately $318,000 and $152,000 during the nine months ended September 30, 2002 and 2001, respectively. Expected amortization expense for these intangible assets is $202,000 in 2003, $202,000 in 2004 and $185,000 in 2005.
	In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” and amends ARB Opinion No. 51, “Consolidated Financial Statements.” SFAS No. 144 retains many of the requirements of SFAS No. 121 and the basic provisions of APB Opinion No. 30; however, it establishes a single accounting model for long-lived assets to be disposed of by sale. The Company adopted SFAS No. 144 on January 1, 2002; the adoption did not have any effect on the Company’s financial position or results of operations. The impairment loss recorded for the three and nine months ended September 30, 2002 was accounted for in accordance with the provisions of SFAS No. 144 (see Note 2).
	In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of this Statement is required at the beginning of fiscal year 2003. The Company does not anticipate that the adoption of SFAS No. 146 will have a material impact on its consolidated financial position, results of operations or cash flows.
8.	EARN-OUT PAYMENTS
	On December 8, 2000, the Company acquired UDS, which was accounted for under the purchase method of accounting. At December 31, 2001, the Company recorded an accrual for approximately $15.3 million for payment to the sellers of UDS under the terms of an earn-out provision contained in the December 8, 2000 Merger Agreement. The earn-out accrual was recorded as additional purchase price consideration. In February 2002, the payment was made consisting of $13.7 million of cash and 310,000 shares of the Company’s common stock valued at $1.6 million. As a result, goodwill related to UDS amounts to $18.5 million, net of accumulated amortization of $0.3 million as of September 30, 2002.
	During the third quarter of 2002, the Company recorded additional goodwill of $360,000 associated with contingent consideration paid to the owners of certain leased equipment which was acquired as part of the July 2001 acquisition of iFulfillment, Inc. An additional payment of $180,000 may be due in July 2003.

11

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 Company’s reliance on a small number of major clients; reliance on information technology systems; 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; and other factors discussed in more detail under “Business” in our Annual Report on Form 10-K for the year ended December 31, 2001.

Overview

Innotrac provides customized, technology-based order fulfillment and call center services to corporations that outsource these functions. The Company offers inventory management, pick/pack/ship services, order tracking, transaction processing, returns processing and inbound call center services through its fulfillment and call centers located in various cities spanning all time zones across the continental United States. The Company handles telecommunications products that include Digital Subscriber Line and Cable Modems (“Modems”), consumer phones and wireless pager equipment, for clients such as BellSouth Corporation (“BellSouth”), Qwest International, Inc. (“Qwest”), and Comcast Corporation (“Comcast”) and their customers. The Company also provides these services for a significant number of retail, catalog and direct marketing companies such as Nordstrom, Inc., Ann Taylor Stores Corporation, Smith and Hawken, Coca-Cola Company, Tactica, Porsche, Wilsons Leather, Martha Stewart Living Omnimedia and Thane International. During the three months ended September 30, 2002, approximately 28.1% of the Company’s revenues were generated from its telecommunications clients, 18.1% from its Modems clients and 53.8% from its retail, catalog and direct marketing clients. During the nine months ended September 30, 2002, approximately 27.4% of the Company’s revenues were generated from its telecommunications clients, 20.6% from its Modems clients and 52.0% from its retail, catalog and direct marketing clients. The Company anticipates that the percentage of its revenues attributable to telecommunications clients will continue to decrease in 2002 due to the addition of several new retail and catalog fulfillment and call center clients during the second half of 2002.

With the Company’s conversion of substantially all of its clients to a fee-for-service model during 2000 and 2001, the Company no longer purchases and sells Caller ID equipped phones, modems and other telecommunications equipment from third party manufacturers for these clients. Instead, the Company warehouses products on a consignment basis and fulfills these products on behalf of its customers for a fee. The Company still purchases and owns inventory for certain clients, but on a significantly reduced risk basis as a result of client guarantees and contractual indemnifications. The new model substantially reduces revenues as the pass through cost of purchased equipment is no longer included in revenues. Gross margins have improved since the Company no longer has inventory risk or cost of equipment.

As of April 16, 2001, Innotrac owned 60% of Return.com LLC, (“Return.com”) a subsidiary that processed product returns for online and catalog retailers. The Company’s equity partner in this venture, Mail Boxes, Etc. (“MBE”), owned the remaining 40% of Return.com. However, due to the acquisition of MBE by United Parcel Services, Inc., 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. This became effective April 17, 2001. During the fourth quarter of 2001, the Company utilized its $2.8 million impairment reserve, which was recorded in the first quarter of 2001, to write off its investment in Return.com. At December 31, 2001, Return.com was no longer in operation.

12

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On February 1, 2002, the Company made an additional payment of $15.3 million consisting of cash and common stock to the sellers of UDS in accordance with the earn-out provisions in the December 2000 Merger Agreement with UDS (as discussed in Note 8 to the Notes to Condensed Consolidated Financial Statements). The payment was funded from existing working capital and borrowings under the Company’s line of credit. The President of the Company’s UDS Division, Patrick J. West, was a former shareholder of UDS and consequently participated in these earn-out payments.

In the quarter ended September 30, 2002, the Company incurred special charges of $3.1 million. The majority of the charges were associated with the impairment of capitalized hardware and software costs for systems not being utilized as originally planned. The remainder of the charges was due to a write-down of specified fixed assets to their net realizable value and for severance costs related to positions that have been eliminated.

13

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 and nine months ended September 30, 2002 and 2001. 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.

During 2002, the Company began applying the consensus reached in Emerging Issues Task Force (“EITF”) No. 01-14, “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred” which requires the presentation of reimbursed out-of-pocket expenses on a gross basis as revenues and expenses. As required, the Company reclassified the prior periods presented herein to comply with the guidance in EITF 01-14. Accordingly, freight and postage charges in the Company’s fulfillment business during the three months ended September 30, 2001 totaling $6.2 million and during the nine months ended September 30, 2001 totaling $21.8 million have been reclassified and presented as revenues and cost of revenues in the corresponding Consolidated Statements of Operations. The reclassification had no impact on net income.

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						Nine Months
		Ended September 30,						Ended September 30,
		2002			2001			2002			2001
Revenues			100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues			58.0			55.2			55.7			57.8
Special charges			—			—			(0.5	)		—
	Gross margin		42.0			44.8			44.8			42.2
Selling, general and administrative expenses			61.9			34.0			45.9			35.4
Impairments and special charges, net			15.6			—			3.0			—
Depreciation and amortization			6.7			4.0			6.3			3.8
	Operating (loss) income		(42.2	)		6.8			(10.4	)		3.0
Other (income) expense, net			0.3			(0.4	)		0.2			(0.6	)
Income (loss) before income taxes and minority interest			(42.5	)		7.2			(10.6	)		3.6
Income tax provision (benefit)			(16.0	)		2.8			(3.9	)		1.6
Net income (loss) before minority interest			(26.5	)		4.4			(6.7	)		2.0
Minority interest			—			—			—			0.9
	Net income (loss)		(26.5	)%		4.4	%		(6.7	)%		2.9	%

Special Charges

At September 30, 2002 and December 31, 2001, the Company had approximately $1.5 million and $4.6 million, respectively, in accruals related to the special charges recorded during the year ended December 31, 2000. The remaining accruals at September 30, 2002 included $291,000 related to the Company’s shift to a fee-for-service business model and $1.2 million related to exiting the front-end e-commerce and web hosting business. Cash payments relating to these accruals for the three and nine months ended September 30, 2002 were approximately $161,000 and $627,000, respectively. The Company recognized approximately $50,000 and $1.7 million into

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

income during the three and nine months ended September 30, 2002, respectively, related to the gains realized on sales of inventory items and cash collected for accounts receivable that were written off as special charges in previous periods. Except for the accrual associated with one specific client which represents about 60% of the remaining accrual and is classified as long-term, the remaining accrual is expected to be utilized during the remainder of the year.

During the third quarter of 2002, the Company recognized an additional $3.1 million in special charges. Approximately $2.4 million of these charges were related to capitalized hardware and software costs for systems not being utilized as originally planned. The Company determined the impairment value of these systems by using the present value in accounting measurements as defined by SFAS No. 144. Of the remaining charges, approximately $500,000 related to the write-down to net realizable value of specified fixed assets and approximately $200,000 was related to severance for positions which have been eliminated. This charge equated to a $0.17 loss per share for the quarter. On a pro forma basis, for the three and nine months ended September 30, 2002, excluding all special charges and credits, the Company’s earnings per share were a loss of $0.29 and $0.26, respectively.

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Revenues. Total revenues decreased 29.7% to $20.1 million for the three months ended September 30, 2002 from $28.6 million for the three months ended September 30, 2001. The decrease in revenues is primarily due to the loss of the SBC contract at December 1, 2001 which represented approximately $3.3 million of revenues during the third quarter of 2001; completion of the fee-for-service transition; and a decrease in product sales for Warranty Corporation of America (“WACA”). This decline in revenues was offset by the expansion of services to include wireless pager equipment with BellSouth during the fourth quarter of 2001, as well as the commencement of the Martha Stewart Living Omnimedia, Inc. contract in the first quarter of 2002 and the Smith and Hawken, Ann Taylor and Books Are Fun contracts in the third quarter of 2002.

Cost of Revenues. Cost of revenues decreased 26.6% to $11.6 million for the three months ended September 30, 2002 compared to $15.8 million for the three months ended September 30, 2001. Cost of revenues decreased primarily due to a reduction in call center direct costs from the loss of the SBC contract in December 2001 and the subsequent closure of the Atlanta call center in January 2002. The decrease in equipment units sold to WACA also contributed to the decrease in cost of revenues during the third quarter of 2002 as compared to the same period in 2001. This decline in cost of revenues was offset by expenses incurred in the third quarter of 2002 relating to additional fulfillment labor required to handle the start-up of several new clients at our Chicago and Cincinnati fulfillment centers.

Gross Margin. For the three months ended September 30, 2002, the Company’s gross margin decreased by $4.4 million to $8.4 million, or 42.0% of revenues, compared to $12.8 million, or 44.8% of revenues, for the three months ended September 30, 2001. This decrease was due primarily to the factors discussed above.

Selling, General and Administrative Expenses. S,G&A expenses for the three months ended September 30, 2002 increased to $12.4 million, or 61.9% of revenues, compared to $9.7 million, or 34.0% of revenues, for the same period in 2001. The increase in expenses primarily relates to start-up and associated technology costs for new client implementations. The Company anticipates that its S,G&A expenses as a percentage of revenues will decrease in 2003 as these new client implementations are completed.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Charges. The Company recorded special charges of $3.1 million primarily related to the impairment of capitalized hardware and software costs for systems not being utilized as originally planned, the write-down to net realizable value of specified fixed assets and severance costs.

Income Taxes. The Company’s effective tax rate for the three months ended September 30, 2002 and 2001 was 37.8% and 38.8%, respectively.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

Revenues. Total revenues decreased 36.4% to $60.5 million for the nine months ended September 30, 2002 from $95.2 million for the nine months ended September 30, 2001. The decrease in revenues is primarily due to the loss of the SBC contract at December 1, 2001 which represented approximately $12.8 million of revenues during the first nine months of 2001; completion of the Consumer Premise Equipment (“CPE”) outbound sales program for BellSouth during 2001; completion of the fee-for-service transition; and a decrease in product sales for WACA. This decline in revenues was offset by the re-initiation of fulfillment services of CPE during the third quarter of 2001 and the expansion of services to include wireless pager equipment with BellSouth during the fourth quarter of 2001, as well as the commencement of the Martha Stewart Living Omnimedia, Inc. contract in the first quarter of 2002 and the Smith and Hawken, Ann Taylor and Books Are Fun contracts in the third quarter of 2002.

Cost of Revenues. The Company’s cost of revenues decreased 39.3% to $33.4 million for the nine months ended September 30, 2002 compared to $55.0 million for the nine months ended September 30, 2001. Cost of revenues decreased primarily due to the decrease in equipment units sold to WACA and from the completion of the CPE outbound sales program for BellSouth during 2001. A reduction in call center direct costs from the loss of the SBC contract in December 2001 and the subsequent closure of the Atlanta call center in January 2002 also contributed to the decrease in cost of revenues during the first half of 2002 as compared to the same period in 2001. This decline in cost of revenues was offset by expenses incurred in the third quarter of 2002 relating to additional fulfillment labor required to handle the start-up of several new clients at our Chicago and Cincinnati fulfillment centers.

Gross Margin. For the nine months ended September 30, 2002, the Company’s gross margin decreased by $13.1 million to $27.1 million, or 44.8% of revenues, compared to $40.2 million, or 42.2% of revenues, for the nine months ended September 30, 2001. This decrease was due primarily to the factors discussed above.

Selling, General and Administrative Expenses. S,G&A expenses for the nine months ended September 30, 2002 decreased to $27.8 million, or 45.9% of revenues, compared to $33.7 million, or 35.4% of revenues, for the nine months ended September 30, 2001. The decrease in expenses was mainly attributable to charges recorded during the first quarter of 2001, primarily for the impairment of software development costs, and severance costs related to Return.com and a significant decrease in bad debt expense. The decline in S,G&A costs was partially offset by increased costs from the acquisition of iFulfillment, Inc. in July 2001 and increased information technology and start-up expenses associated with new client implementations during the first nine months of 2002.

Special Charges. The Company recorded special charges of $3.1 million in the third quarter of 2002 primarily related to the impairment of capitalized hardware and software costs for systems not being utilized as originally planned. This was offset by the reversal of a portion of the 2000 special charges totaling approximately $1.7 million related to the gains realized on sales of inventory items and cash collected for accounts receivable that were written off as special charges in previous periods.

Income Taxes. The Company’s effective tax rate for the nine months ended September 30, 2002 and 2001 was 37.1% and 43.9%, respectively.

16

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. The Company had cash and cash equivalents of approximately $198,000 at September 30, 2002 as compared to $9.4 million at December 31, 2001. This decrease in cash was primarily due to an earn-out payment of $13.7 million made by the Company during the first quarter of 2002 to the sellers of UDS (see Note 8 to the Condensed Consolidated Financial Statements). The Company’s management does not anticipate any future earn-out payments to be made.

On February 11, 2002, the Board of Directors authorized the repurchase of up to $10 million of the Company’s outstanding common stock through February 2003. During the nine months ended September 30, 2002, the Company repurchased 205,400 shares of common stock with a purchase price of $448,000. All purchases took place during the third quarter of 2002.

The Company has a revolving credit agreement with a bank for borrowings up to $40 million. In May 2002, the Company extended its credit facility until June 2005 under similar terms and conditions as the previous revolving credit agreement. The Company and its subsidiaries have pledged all of its assets and provided guarantees to the lender as collateral under this revolving credit agreement. At September 30, 2002, the Company had approximately $13.4 million outstanding in borrowings under the line of credit. At December 31, 2001, the Company did not have any outstanding borrowings under the line of credit. The revolving line of credit agreement contains various restrictive financial and change of ownership control covenants. The May 2002 amendment added provisions limiting borrowings under the agreement to a margin or borrowing base, as defined, which totaled $31.1 million at September 30, 2002 and tightened certain of the financial covenants. At September 30, 2002, due to the special charge discussed in Note 2 to the Notes to Condensed Consolidated Financial Statements, the Company was not in compliance with all covenants under the credit agreement. However, effective September 30, 2002, the Company has received a waiver from the Bank for these covenant violations.

Interest on borrowings is payable monthly at rates equal to the prime rate, or at the Company’s option, LIBOR plus up to 225 basis points. On September 6, 2002, the Company locked $5 million of its borrowings into a 90-day LIBOR rate at 2.81%. During the three and nine months ended September 30, 2002, the Company incurred interest expense related to the line of credit of approximately $52,800 and $102,100, respectively, resulting in a weighted average interest rate of 3.06% and 3.57%, respectively

During the nine months ended September 30, 2002, the Company generated approximately $3.3 million in cash flows from operating activities compared to $2.0 million in cash flows from operating activities in the same period in 2001.

During the nine months ended September 30, 2002, net cash used in investing activities was $25.2 million as compared to $11.0 million in 2001. This difference was due to an $8.0 million increase in cash payments made resulting from prior acquisitions (including the earn-out payment of $13.7 million made in February 2002), $11.6 million in capital expenditures, primarily in conjunction with the Company’s new facility in Cincinnati and capitalized technology costs.

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During the nine months ended September 30, 2002, net cash provided by financing activities was $12.7 million compared to $121,000 used in financing activities in the same period in 2001. The $12.8 million increase was primarily due to borrowings of $13.4 million under the credit facility less the buyback of treasury shares in the amount of $448,000.

The Company estimates that its cash needs through the next twelve months will be met by cash flows from operations and borrowings under 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.

Critical Accounting Policies

Critical accounting policies are those policies that can have a significant impact on the presentation of our financial position and results of operations and demand the most significant use of subjective estimates and management judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Specific risks inherent in our application of these critical policies are described below. For all of these policies, we caution that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment. These policies often require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. Additional information concerning our accounting policies can be found in Note 1 of the financial statements of this Form 10-Q and in Note 2 of the financial statements included in the Company’s Annual Report on 10-K for the year ended December 31, 2001. Those that we believe that are most critical to an investor’s understanding of our financial results and condition and require complex management judgment are discussed below:

Deferred Tax Asset – At September 30, 2002 the Company has recorded a deferred tax asset of $9.0 million primarily related to net operating loss carry forwards. The realization of this asset is dependent on generating sufficient taxable income in the future periods. Management considers projected future taxable income and tax planning strategies in making this assessment. Based on the historical profitability and projections of future taxable income, management believes that it is more likely than not that the deferred tax asset will be realized.

Goodwill and Other Long-Lived Assets – In 2002, the Company adopted SFAS Nos. 141, 142, and 144 and these new standards, among other things, change the accounting model for evaluating the carrying value of the assets held for use and held for sale, as well as the carrying value of goodwill and other intangible assets. These new pronouncements require projections of future cash flows that require significant management judgment and subjective estimates in applying these new pronouncements. Any significant adverse changes to these estimates may have a material impact on the carrying value of goodwill and other long-lived assets.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prohibits the use of pooling-of-interest for business combinations initiated after June 30, 2001 and also applies to all business combinations accounted for by the purchase method that are completed after June 30, 2001. There are also transition provisions that apply to business combinations completed after July 1, 2001, that were accounted for by the purchase method. SFAS No. 142 changes the accounting for goodwill and other indefinite life intangible assets from an amortization method to an impairment only approach.

The Company adopted these statements effective January 1, 2002. In accordance with SFAS No. 142, the Company no longer amortizes goodwill. The Company completed its impairment analysis required upon the adoption of SFAS No. 142 during the second quarter of 2002 and determined that no impairment existed. During the three and nine months ended September 30, 2001, amortization expense associated with goodwill was approximately $42,000 and $127,000, respectively. The Company’s proforma consolidated net income and earnings per share for the three and nine months ended September 30, 2001, excluding goodwill amortization, would have been $1.3 million ($0.11 per share, basic and diluted) and $2.9 million ($0.25 per share, basic and diluted), respectively.

18

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company has intangible assets that continue to be subject to amortization under the provisions of SFAS No. 142. The intangible assets consist of acquired customer contracts, which are included in other assets in the Company’s condensed consolidated balance sheets and which are amortized over a period of 1 to 5 years on a straight-line basis. At September 30, 2002 and 2001, the Company had intangible assets, consisting primarily of customer contracts, of approximately $640,000 and $842,000, net of accumulated amortization of approximately $620,000 and $168,000, respectively. Amortization expense of these intangible assets amounted to approximately $51,000 during both of the three months ended September 30, 2002 and 2001, respectively, and approximately $318,000 and $152,000 during the nine months ended September 30, 2002 and 2001, respectively.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” and amends APB Opinion No. 51, “Consolidated Financial Statements.” SFAS No. 144 retains many of the requirements of SFAS No. 121 and the basic provisions of APB Opinion No. 30; however, it establishes a single accounting model for long-lived assets to be disposed of by sale. The Company adopted SFAS No. 144 on January 1, 2002; the adoption did not have any effect on the Company’s financial position or results of operations. The impairment loss recorded for the three and nine months ended September 30, 2002 was accounted for in accordance with the provisions of SFAS No. 144 (see Note 2).

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of this Statement is required at the beginning of fiscal year 2003. The Company is currently evaluating the impact of adopting this Statement.

19

Item 3 – Quantitative and Qualitative Disclosure About Market Risks

Management believes the Company’s exposure to market risks is immaterial. Innotrac holds no market risk sensitive instruments for trading purposes. At present, the Company does not employ any derivative financial instruments, other financial instruments or derivative commodity instruments to hedge any market risks and does not currently plan to employ them in the future. To the extent that the Company has borrowings outstanding under its credit facility, the Company will have market risk relating to the amount of borrowings due to variable interest rates under the credit facility. The Company’s exposure is immaterial due to the short-term nature of these borrowings. Additionally, all of the Company’s lease obligations are fixed in nature as discussed in Innotrac’s 2001 Annual Report on Form 10-K and other filings on file with the Securities and Exchange Commission, and the Company has no long-term purchase commitments.

Item 4 – Controls and Procedures

Our management, including the chief executive and chief financial officers, supervised and participated in an evaluation of our disclosure controls and procedures (as defined in federal securities rules) within the 90 days before we filed this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of the date of that evaluation as defined in Exchange Act Rules 13a-14(c) and 15d-14(c).

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

20

Part II – Other Information

Item 6 – Exhibits and Reports on Form 8-K

(a) Exhibits:

10.1	Hebron, KY (Cincinnati) facility Lease Agreement.
10.2	Loan Documents Modification Agreement between Innotrac Corporation and SouthTrust Bank.
99.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350.
99.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350.

(b) Reports on Form 8-K: There were no Form 8-K filings during the quarter ended September 30, 2002.

21

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: November 19, 2002	By: /s/ Scott D. Dorfman
	Scott D. Dorfman President, Chief Executive Officer and Chairman of the Board
Date: November 19, 2002	By: /s/ David L. Gamsey
	David L. Gamsey Senior Vice President , Chief Financial Officer and Secretary (Principal Financial Officer)

22

CERTIFICATIONS

I, Scott D. Dorfman, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Innotrac Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 19, 2002	/s/ Scott D. Dorfman
	Scott D. Dorfman President, Chief Executive Officer and Chairman of the Board

23

CERTIFICATIONS

I, David L. Gamsey, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Innotrac Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 19, 2002	/s/ David L. Gamsey
	David L. Gamsey Senior Vice President , Chief Financial Officer and Secretary (Principal Financial Officer)

24 EX-10.1 3 g79246exv10w1.txt EX-10.1 LEASE AGREEMENT EXHIBIT 10.1 [Ohio Net Lease] LEASE AGREEMENT THIS LEASE AGREEMENT is made this 23rd day of April, 2002, between ProLogis Development Services Incorporated ("Landlord"), and the Tenant named below. TENANT: Innotrac Corporation TENANT'S REPRESENTATIVE, ADDRESS, AND PHONE NO.: David L. Gamsey 6655 Sugarloaf Parkway Duluth, GA 30097 678 584-4020 PREMISES: That portion of the Building, containing approximately 286,000 rentable square feet, as determined by Landlord, as shown on Exhibit A. PROJECT: Airpark International Distribution Center #5 (396,000 sq. ft. building) BUILDING: Airpark International Distribution Center #5 (396,000 sq. ft. building) TENANT'S PROPORTIONATE SHARE OF PROJECT: 72.000% TENANT'S PROPORTIONATE SHARE OF BUILDING: 72.000% LEASE TERM: Beginning on the Commencement Date and ending on the last day of the 60th full calendar month thereafter. COMMENCEMENT DATE: August 1, 2002 (Tenant shall be provided access to the Premises on April 15, 2002 to install equipment and fixtures) INITIAL MONTHLY BASE RENT: $66,733.33 INITIAL ESTIMATED MONTHLY 1. Utilities OPERATING EXPENSE PAYMENTS: (estimates only and subject to 2. Common Area Charges: $4,052.00 adjustment to actual costs and expenses according to the 3. Taxes: $7,150.00 provisions of this Lease) 4. Insurance $1,430.00 5. Others INITIAL ESTIMATED MONTHLY OPERATING EXPENSE PAYMENTS: $12,632.00 INITIAL MONTHLY BASE RENT AND OPERATING EXPENSE PAYMENTS: $79,365.33 SECURITY DEPOSIT: $25,000.00 BROKER: Huff Commercial Group ADDENDA: 1. Right of First Refusal 2. Two Renewal Options (Baseball Arbitration) 3. Construction (Turnkey) 4. Miscellaneous Provisions; 5. Cancellation Option; 6. Assignment & Subletting Consent EXHIBITS: A. Site Plan B. Leasehold Improvements 1. GRANTING CLAUSE. In consideration of the obligation of Tenant to pay rent as herein provided and in consideration of the other terms, covenants, and conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord, the Premises, to have and to hold for the Lease Term, subject to the terms, covenants and conditions of this Lease. 2. ACCEPTANCE OF PREMISES. Tenant shall accept the Premises in its condition as of the Commencement Date, subject to all applicable laws, ordinances, regulations, covenants and restrictions, and subject to Substantial Completion of the Initial Improvements as set forth in Addendum 3 attached hereto. Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, and Tenant waives any implied warranty that the Premises are suitable for Tenant's intended purposes. Except as provided in Paragraph 10, in no event shall Landlord have any obligation for any defects (except for latent defects) in the Premises or any limitation on its use. The taking of possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken except for items that are Landlord's responsibility under Paragraph 10, latent defects, and any punchlist items agreed to in writing by Landlord and Tenant. Landlord represents and warrants that as of the Commencement Date, the Building's HVAC, electrical, plumbing and other mechanical systems are in good working order and Landlord represents and warrants, to its knowledge, that as of the Commencement Date, the Premises shall be in compliance with all Legal Requirements, as hereinafter defined, (including, without limitation, the Americans With Disabilities Act) in effect as of the Commencement Date of this Lease and that no written notice has been received by Landlord as of the date hereof of non-compliance with any Legal Requirements. -1- 3. USE. The Premises shall be used only for the purpose of receiving, storing, shipping and selling products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto; provided, however, with Landlord's prior written consent, Tenant may also use the Premises for light manufacturing. Tenant shall not conduct or give notice of any auction, liquidation, or going out of business sale on the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit waste, overload the floor or structure of the Premises or subject the Premises to use that would damage the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any tenants of the Project. Outside storage, including without limitation, storage of trucks and other vehicles, is prohibited without Landlord's prior written consent; provided, however, that subject to applicable Legal Requirements, Tenant shall be permitted to park trucks and trailers used in Tenant's business operations on and from the Premises overnight at the truck docks of the Premises, provided such trucks and trailers are at all times in operable condition and there is no interference with the access of other tenants to the Building parking lots and truck courts. Tenant, at its sole expense, shall use and occupy the Premises in compliance with all laws, including, without limitation, the Americans With Disabilities Act, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises (collectively, "Legal Requirements"). Tenant shall, at its expense, make any alterations or modifications, within or without the Premises, that are required by Legal Requirements related to Tenant's use or occupation of the Premises. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant's or Landlord's insurance, increase the insurance risk, or cause the disallowance of any sprinkler credits. If any increase in the cost of any insurance on the Premises or the Project is caused by Tenant's use or occupation of the Premises, or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord. Any occupation of the Premises by Tenant prior to the Commencement Date shall be subject to all obligations of Tenant under this Lease. Notwithstanding anything contained herein to the contrary, Tenant's obligations hereunder shall relate only to the interior of the Premises and any changes to the Project that relate solely to the specific manner of use of the Premises by Tenant; and Landlord shall make all other additions to or modifications of the Project required from time to time by Legal Requirements. The cost of such additions or modifications made by Landlord shall be included in Operating Expenses pursuant to Paragraph 6 of this Lease, except for those additions or modifications which are Landlord's sole responsibility pursuant to Paragraph 10 of this Lease. 4. BASE RENT. Tenant shall pay Base Rent in the amount set forth above. The first month's Base Rent, the Security Deposit, and the first monthly installment of estimated Operating Expenses (as hereafter defined) shall be due and payable on the date hereof, and Tenant promises to pay to Landlord in advance, without demand, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month succeeding the Commencement Date. Payments of Base Rent for any fractional calendar month shall be prorated. All payments required to be made by Tenant to Landlord hereunder shall be payable at such address as Landlord may specify from time to time by written notice delivered in accordance herewith. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any rent due hereunder except as may be expressly provided in this Lease. If Tenant is delinquent in any monthly installment of Base Rent or of estimated Operating Expenses for more than 5 days, Tenant shall pay to Landlord on demand a late charge equal to 5 percent of such delinquent sum. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as a penalty. 5. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord as security for the performance of Tenant's obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon each occurrence of an Event of Default (hereinafter defined), Landlord may use all or part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided by law. Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to its original amount. Landlord's obligation respecting the Security Deposit is that of a debtor, not a trustee; no interest shall accrue thereon. The Security Deposit shall be the property of Landlord, but shall be paid to Tenant when Tenant's obligations under this Lease have been completely fulfilled. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease and the Premises to a person or entity assuming Landlord's obligations under this Paragraph 5. 6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost, as reasonably estimated in good faith by Landlord from time to time, of Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the Project. Payments thereof for any fractional calendar month shall be prorated. The term "Operating Expenses" means all costs and expenses incurred by Landlord with respect to the ownership, maintenance, and operation of the Project including, but not limited to costs of: Taxes (hereinafter defined) and reasonable fees payable to tax consultants and attorneys for consultation and contesting taxes to the extent of any savings realized, not to exceed the amount of such savings; insurance; utilities; maintenance, repair and replacement of all portions of the Project, including without limitation, paving and parking areas, roads roofs, alleys, and driveways, mowing, landscaping, exterior painting, utility lines, heating, ventilation and air conditioning systems, lighting, electrical systems and other mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the -2- foregoing; charges or assessments of any association to which the Project is subject; market-rate property management fees payable to a property manager, including any affiliate of Landlord; security services, if any; trash collection, sweeping and removal; and additions or alterations made by Landlord to the Project or the Building in order to comply with Legal Requirements (other than those expressly required herein to be made by Tenant) or that are appropriate to the continued operation of the Project or the Building as a bulk warehouse facility in the market area, provided that the cost of additions or alterations that are required to be capitalized for federal income tax purposes shall be amortized on a straight line basis over a period equal to the useful life thereof for federal income tax purposes. Operating Expenses do not include costs, expenses, depreciation or amortization for capital repairs and capital replacements required to be made by Landlord under Paragraph 10 of this Lease, debt service under mortgages or ground rent under ground leases, costs of restoration to the extent of net insurance proceeds received by Landlord with respect thereto, leasing commissions, or the costs of renovating space for tenants. Further, Operating Expenses shall not mean or include: (i) costs incurred in connection with the construction or remodeling of the Project or any other improvements now or hereafter located thereon, or correction of defects in design or construction; (ii) interest, principal, or other payments on account of any indebtedness, or rental or other payments under any ground lease, or any payments in the nature of returns on or of equity of any kind; (iii) costs of selling, syndicating, financing, mortgaging or hypothecating any part of or interest in the Project; (iv) taxes on the income of Landlord or Landlord's franchise taxes (unless any of said taxes are hereafter instituted by applicable taxing authorities in substitution for ad valorem real property taxes); (v) depreciation; (vi) Landlord's overhead costs, including equipment, supplies, accounting and legal fees, rent and other occupancy costs or any other costs associated with the operation or internal organization and function of Landlord as a business entity (but this provision does not prevent the payment of a management fee to Landlord as provided in this Paragraph 6); (vii) fees or other costs for professional services provided by space planners, architects, engineers, and other similar professional consultants, real estate commissions, and marketing and advertising expenses; (viii) costs of defending or prosecuting litigation with any party, unless a favorable judgment would be for the general benefit of the tenants in the Project; (ix) costs incurred as a result of Landlord's violation of any lease, contract, law or ordinance, including fines and penalties; (x) late charges, interest or penalties of any kind for late or other improper payment of any public or private obligation, including ad valorem taxes; (xi) costs of removing Hazardous Materials or of correcting any other conditions in order to comply with any environmental law or ordinance (but this exclusion shall not constitute a release by Landlord of Tenant for any such costs for which Tenant is liable pursuant to Paragraph 30 of this Lease); (xii) costs for which Landlord is reimbursed from any other source; (xiii) costs related to any building or land not included in the Project, including any allocation of costs incurred on a shared basis, such as centralized accounting costs, unless the allocation is made on a reasonable and consistent basis that fairly reflects the share of costs actually attributable to the Project; and (xiv) the part of any costs or other sum paid to any affiliate of Landlord that may exceed the fair market price or cost generally payable for substantially similar goods or services in the area of the Project. If Tenant's total payments of Operating Expenses for any year are less than Tenant's Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall retain such excess and credit it against Tenant's next payments, except that during the last calendar year of the Lease Term or any extension terms thereof, Landlord shall refund any such excess within 30 days following the termination of the Lease Term or any extension terms thereof. For purposes of calculating Tenant's Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. With respect to Operating Expenses which Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Project as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Project; and, with respect to Operating Expenses which Landlord allocates only to the Building, Tenant's "Proportionate Share" shall be the percentage set forth on the first page of this Lease as Tenant's Proportionate Share of the Building as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises or the Building. Landlord may equitably increase Tenant's Proportionate Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project or Building that includes the Premises or that varies with occupancy or use. The estimated Operating Expenses for the Premises set forth on the first page of this Lease are only estimates, and Landlord makes no guaranty or warranty that such estimates will be accurate. 7. UTILITIES. Tenant shall pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used on the Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like pertaining to Tenant's use of the Premises. All utilities shall be separately metered or charged directly to Tenant by the provider, except for water and sewer, which shall be jointly metered. Tenant shall pay its share of all charges for jointly metered utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of utilities shall result in the termination of this Lease or the abatement of rent. Tenant agrees to limit use of water and sewer for normal restroom use. Notwithstanding anything to the contrary contained in Paragraph 7 of this Lease, if an interruption or cessation of utilities results from a cause within the Landlord's reasonable control and the Premises are not usable by Tenant for the conduct of Tenant's business as a result thereof, Base Rent and applicable Operating Expenses not actually incurred by Tenant shall be abated for the period which commences five (5) business days after the date Tenant gives to Landlord notice of such interruption until such utilities are restored. 8. TAXES. Landlord shall pay all real estate taxes, assessments and governmental charges (collectively referred to as "Taxes") that accrue against the Project during the Lease Term, which shall be included as part of the Operating Expenses charged to Tenant. Landlord may contest by appropriate legal proceedings the amount, validity, or -3- application of any Taxes or liens thereof. All capital levies or other taxes assessed or imposed on Landlord upon the rents payable to Landlord under this Lease and any franchise tax, any excise, transaction, sales or privilege tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the Project or any portion thereof shall be paid by Tenant to Landlord monthly in estimated installments as part of Operating Expenses; provided, however, in no event shall Tenant be liable for any capital gains taxes associated with the sale of the Building or any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable hereunder. If any such tax or excise is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises, whether levied or assessed against Landlord or Tenant. 9. INSURANCE. Landlord shall maintain all risk property insurance covering the full replacement cost of the Building. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, commercial liability insurance and rent loss insurance. All such insurance shall be included as part of the Operating Expenses charged to Tenant. The Project or Building may be included in a blanket policy (in which case the cost of such insurance allocable to the Project or Building will be determined by Landlord based upon the insurer's cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant's use of the Premises. Landlord covenants to obtain and maintain property and liability insurance on the Project in forms and amounts customary for properties substantially similar to the Project, subject to customary deductibles. Tenant, at its expense, shall maintain during the Lease Term: all risk property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant's expense; worker's compensation insurance with no less than the minimum limits required by law; employer's liability insurance with such limits as required by law; and commercial liability insurance, with a minimum limit of $1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a total minimum combined general liability and umbrella limit of $2,000,000 (together with such additional umbrella coverage as Landlord may reasonably require) for property damage, personal injuries, or deaths of persons occurring in or about the Premises. Landlord may from time to time require reasonable increases in any such limits. The commercial liability policies shall name Landlord as an additional insured, insure on an occurrence and not a claims-made basis, be issued by insurance companies which are reasonably acceptable to Landlord, not be cancelable unless 30 days' prior written notice shall have been given to Landlord, contain a hostile fire endorsement and a contractual liability endorsement and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant's policies). Such policies or certificates thereof shall be delivered to Landlord by Tenant upon commencement of the Lease Term and upon each renewal of said insurance. The all risk property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, their officers, directors, employees, managers, agents, invitees and contractors, in connection with any loss or damage thereby insured against. Neither party nor its officers, directors, employees, managers, agents, invitees or contractors shall be liable to the other for loss or damage caused by any risk coverable by all risk property insurance, and each party waives any claims against the other party, and its officers, directors, employees, managers, agents, invitees and contractors for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever, including without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Landlord or its agents, employees or contractors. Tenant and its subtenants, assignees, invitees, employees, contractors and agents shall not be liable for, and Landlord hereby waives all claims against Tenant and its subtenants, assignees, invitees, employees, contractors and agents for damage to property sustained by Landlord or any person claiming through Landlord resulting from any insurable accident or occurrence in or upon the Premises or in or about the Project from any cause whatsoever, including, without limitation, damage caused in whole or in part, directly or indirectly, by the negligence of Tenant or its subtenants, assignees, invitees, employees, contractors or agents; provided, however, such waiver shall only apply to claims in excess of the commercially reasonable deductible under Landlord's insurance policy. 10. LANDLORD'S REPAIRS. Landlord shall maintain, repair and replace, at its expense, latent defects, the structural soundness of the roof, foundation, and exterior walls of the Building in good repair, reasonable wear and tear and damages caused by Tenant, its agents and contractors excluded. The term "walls" as used in this Paragraph 10 shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock bumpers, dock plats or levelers, or office entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Paragraph 10, after which Landlord shall have a reasonable opportunity to repair. 11. TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in Paragraph 6, shall maintain in good repair and condition the parking areas (including exterior lighting in the parking areas) and other common areas of the Building, including, but not limited to driveways, alleys, landscape and grounds surrounding the Premises. Subject to Landlord's obligations in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises and all areas, improvements and systems exclusively serving the Premises including, without limitation, dock and loading areas, truck doors, plumbing, water and sewer lines up to points of common connection, fire sprinklers and fire protection systems, entries, doors, ceilings and room membrane, windows, interior walls, and the interior side of demising walls, and heating, ventilation and air conditioning systems. Such repair -4- and replacements include capital expenditures and repairs whose benefit may extend beyond the Term. Heating, ventilation and air conditioning systems and other mechanical and building systems serving the Premises shall be maintained at Tenant's expense pursuant to maintenance service contracts entered into by Tenant or, at Landlord's election, by Landlord. The scope of services and contractors under such maintenance contracts shall be reasonably approved by Landlord. If Tenant fails to perform any repair or replacement for which it is responsible, Landlord may perform such work and be reimbursed by Tenant within 10 days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any repair or replacement to any part of the Building or Project that results from damage caused by Tenant, its agents, contractors, or invitees and any repair that benefits only the Premises. 12. TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made Alterations") shall be subject to Landlord's prior written consent. Tenant shall cause, at its expense, all Tenant-Made Alterations to comply with insurance requirements and with Legal Requirements and shall construct at its expense any alteration or modification required by Legal Requirements as a result of any Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Tenant-Made Alterations shall be submitted to Landlord for its approval. Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for its costs in reviewing plans and specifications and in monitoring construction. Landlord's right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all work free and clear of liens and shall provide certificates of insurance for worker's compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Tenant-Made Alterations and final lien waivers from all such contractors and subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and any leasehold improvements constructed by Landlord or Tenant shall remain on the Premises as Landlord's property, except to the extent Landlord requires removal at Tenant's expense of any such items or Landlord and Tenant have otherwise agreed in writing in connection with Landlord's consent to any Tenant-Made Alterations. Upon Tenant's written request, Landlord shall provide Tenant, at the time of Tenant's request for approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations Landlord will require Tenant to remove upon surrender of the Premises. Tenant shall repair any damage caused by such removal. Tenant, at its own cost and expense and without Landlord's prior approval, may erect such shelves, bins, machinery and trade fixtures (collectively "Trade Fixtures") in the ordinary course of its business provided that such items do not alter the basic character of the Premises, do not overload or damage the Premises, and may be removed without injury to the Premises, and the construction, erection, and installation thereof complies with all Legal Requirements and with Landlord's requirements set forth above. Tenant shall remove its Trade Fixtures and shall repair any damage caused by such removal. 13. SIGNS. Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners, or painting, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent, which consent shall not be unreasonably withheld. Upon surrender or vacation of the Premises, Tenant shall have removed all signs and shall repair any damage to the building facia surface to which its signs are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior treatments. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall be subject to Landlord's approval, which approval shall not be unreasonably withheld, and conform in all respects to Landlord's requirements. 14. PARKING. Tenant shall be entitled to park in common with other tenants of the Project in those areas designated for nonreserved parking. Landlord may allocate parking spaces among Tenant and other tenants in the Project if Landlord determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties. 15. RESTORATION. If at any time during the Lease Term the Premises are damaged by a fire or other casualty, Landlord shall notify Tenant within 15 days after such damage as to the amount of time Landlord reasonably estimates will take to restore the Premises. If the restoration time is estimated to exceed 4 months, either Landlord or Tenant may elect to terminate this Lease upon notice to the other party given no later than 30 days after Landlord's notice. If neither party elects to terminate this Lease or if Landlord estimates that restoration will take 4 months or less, then, Landlord shall promptly restore the Premises (including the Initial Improvements as defined in Addendum 3 attached hereto) excluding Tenant's Tenant-Made Alterations, Trade Fixtures and personal property, subject to delays arising from Force Majeure events. Tenant at Tenant's expense shall promptly perform, subject to delays arising from Force Majeure events, all repairs or restoration to Tenant's Tenant-Made Alterations, Trade Fixtures and personal property and shall promptly re-inter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates that it will take more than one month to repair such damage. Base Rent and Operating Expenses shall be abated for the period of repair and restoration in the proportion which the area of the Premises, if any, -5- which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided herein, Tenant waives any right to terminate the Lease by reason of damage or casualty loss. 16. CONDEMNATION. If any part of the Premises or the Project should be taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a "Taking" or "Taken"), and in Tenant's reasonable judgment the Taking would prevent or materially interfere with Tenant's use of the Premises or in Landlord's reasonable judgment would materially interfere with or impair its ownership or operation of the Project, then upon written notice by Landlord or Tenant this Lease shall terminate and Base Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, the Base Rent payable hereunder during the unexpired Lease Term shall be reduced to such extent as may be fair and reasonable under the circumstances. In the event of any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord's award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as maybe separately awarded or recoverable by Tenant for moving expenses and damage to Tenant's Trade Fixtures, if a separate award for such items is made to Tenant. 17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written consent, which shall not be unreasonably withheld pursuant to the provisions of Addendum 6 attached hereto, Tenant shall not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises and any attempt to do any of the foregoing shall be void and of no effect. For purposes of this paragraph, a transfer of the ownership interests controlling Tenant shall be deemed an assignment of this Lease unless such ownership interests are publicly traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or any part thereof, to any entity controlling Tenant, controlled by Tenant or under common control with Tenant (a "Tenant Affiliate"), without the prior written consent of Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable out-of-pocket expenses in connection with any assignment or sublease. Upon Landlord's receipt of Tenant's written notice of a desire to assign or sublet the Premises, or any part thereof (other than to a Tenant Affiliate), Landlord may, by giving written notice to Tenant within 30 days after receipt of Tenant's notice, terminate this Lease with respect to the space described in Tenant's notice, as of the date specified in Tenant's notice for the commencement of the proposed assignment or sublease. Notwithstanding anything contained herein to the contrary, provided no default has occurred and is continuing under this Lease, upon 10 days prior written notice to Landlord, Tenant may, without Landlord's prior written consent, sublease a portion of the Premises consisting of approximately 3,000 square feet to Tenant's customer, Smith & Hawkins for purposes of retail outlet space ("Smith & Hawkins Sublease"), upon the express understandings and conditions that (a) Landlord neither approves nor disapproves the terms, conditions and agreements contained in the Smith & Hawkins Sublease (all of which shall be subordinate and subject at all times to the terms, covenants and conditions of the Lease) and assumes no liability or obligation of any kind whatsoever on account of anything contained in the Smith & Hawkins Sublease; (b) Landlord shall not be deemed to have waived any rights under the Lease nor shall Landlord be deemed to have waived Tenant's obligations to obtain any required consents under the Lease (other than consent to the Smith & Hawkins Sublease itself); (c) notwithstanding anything in the Smith & Hawkins Sublease to the contrary, Tenant shall be and continue to remain liable for the payment of rent and the full and prompt performance of all of the obligations of Tenant under and as set forth in the Lease; (d) nothing contained in the Smith & Hawkins Sublease shall be taken or construed to in any way modify, alter, waive or affect any of the terms, covenants or conditions contained in the Lease, or be deemed to grant Smith & Hawkins any privity of contract with Landlord, or require Landlord to accept any payments from Smith & Hawkins on behalf of Tenant; (e) the Smith & Hawkins Sublease shall be deemed and agreed to be a sublease only and not an assignment and there shall be no further subletting or assignment of all or any portion of the Premises (including the premises demised by the Smith & Hawkins Sublease) except in accordance with the terms and conditions of the Lease; and (f) if Landlord terminates the Lease as a result of a default by Tenant as set forth in the Lease, the Smith & Hawkins Sublease shall automatically terminate concurrently therewith unless Landlord elects in writing to keep the Smith & Hawkins Sublease in full force and effect in which case the Smith & Hawkins Sublease shall become and be deemed to be a direct indenture of lease between Landlord and Smith & Hawkins. Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant's obligations under this Lease shall at all times remain fully responsible and liable for the payment of the rent and for compliance with all of Tenant's other obligations under this Lease (regardless of whether Landlord's approval has been obtained for any such assignments or sublettings). In the event that the rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto) exceeds the rental payable under this Lease (excepting the Smith & Hawkins Sublease), then Tenant shall he bound and obligated to pay Landlord as additional rent hereunder 50% of all such excess rental and other excess consideration within 10 days following receipt thereof by Tenant (after deducting standard tenant improvements, reasonable brokerage fees, and reasonable attorney's fees). If this Lease be assigned or if the Premises be subleased (whether in whole or in part) or in the event of the mortgage, pledge, or hypothecation of Tenant's leasehold interest or grant of any concession or license within the Premises or if the Premises be occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder Landlord may collect rent from the assignee, subleasee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next rent payable hereunder; and all such rentals collected by Tenant shall be held in trust for Landlord and immediately forwarded to Landlord. No such transaction or collection of rent or application thereof by Landlord, however, shall be deemed a waiver of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder. -6- 18. INDEMNIFICATION. Except for the negligence of Landlord, its agents, employees or contractors, and to the extent permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents, employees and contractors, from and against any and all losses, liabilities, damages, costs and expenses (including attorneys' fees) resulting from claims by third parties for injuries to any person and damage to or theft or misappropriation or loss of property occurring in or about the Project and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents. The furnishing of insurance required hereunder shall not be deemed to limit Tenant's obligations under this Paragraph 18. 19. INSPECTION AND ACCESS. Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord's representatives may enter the Premises during business hours for the purpose of showing the Premises to prospective purchasers and, during the last year of the Lease Term, to prospective tenants. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate common areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially interferes with Tenant's use or occupancy of the Premises. At Landlord's request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. 20. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times during the Lease Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord. 21. SURRENDER. Upon termination of the Lease Term or earlier termination of Tenant's right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Paragraphs 15 and 16 excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and obligations concerning the condition and repair of the Premises. 22. HOLDING OVER. If Tenant retains possession of the Premises after the termination of the Lease Term, unless otherwise agreed in writing, such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and provisions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the holdover period, an amount equal to 100% of the Base Rent in effect on the termination date during the first 30 days of such holdover period and an amount equal to 150% of the Base Rent in effect on the termination date for any holdover period thereafter, computed on a monthly basis for each month or part thereof during such holding over. All other payments shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph 22 shall not be construed as consent for Tenant to retain possession of the Premises. 23. EVENTS OF DEFAULT. Each of the following events shall be an event of default ("Event of Default") by Tenant under this Lease: (i) Tenant shall fail to pay any installment of Base Rent or any other payment required herein when due, and such failure shall continue for a period of 5 days after written notice from Landlord to Tenant that such payment was due; provided, however, that Landlord shall not be obligated to provide written notice of such failure more than 2 times in any consecutive 12-month period, and the failure of Tenant to pay any third or subsequent installment of Base Rent or any other payment required herein when due in any consecutive 12-month period shall constitute an Event of Default by Tenant under this Lease without the requirement of notice or opportunity to cure. (ii) Tenant or any guarantor or surety of Tenant's obligations hereunder shall (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a "proceeding for relief"); (C) become the subject of any proceeding for relieve which is not dismissed within 60 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity). (iii) Any insurance required to be maintained by Tenant pursuant to this Lease shall be cancelled or terminated or shall expire or shall be reduced or materially changed, except, in each case, as permitted in this Lease. (iv) Tenant shall not occupy or shall vacate the Premises or shall fail to continuously operate its business at the Premises for the permitted use set forth herein, whether or not Tenant is in monetary or other -7- default under this Lease. Tenant's vacating of the Premises shall not constitute an Event of Default if, prior to vacating the Premises, Tenant has made arrangements reasonably acceptable to Landlord to (a) insure that Tenant's insurance for the Premises will not be voided or cancelled with respect to the Premises as a result of such vacancy, (b) insure that the Premises are secured and not subject to vandalism, and (c) insure that the Premises will be properly maintained after such vacation. Tenant shall inspect the Premises at least once each month and report monthly in writing to Landlord on the condition of the Premises. (v) Tenant shall attempt or there shall occur any assignment, subleasing or other transfer of Tenant's interest in or with respect to this Lease except as otherwise permitted in this Lease. (vi) Tenant shall fail to discharge any lien placed upon the Premises in violation of this Lease within 30 days after any such lien or encumbrance is filed against the Premises. (vii) Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Paragraph 23, and except as otherwise expressly provided herein, such default shall continue for more than 30 days after Landlord shall have given Tenant written notice of such default, unless curing such default will, due to the nature of such default, require a period of time in excess of 30 days, then, after such period of time as is reasonably necessary, but in no event shall curing such default exceed 90 days. 24. LANDLORD'S REMEDIES. Upon each occurrence of an Event of Default and so long as such Event of Default shall be continuing, Landlord may at any time thereafter at its election: terminate this Lease or Tenant's right of possession, (but Tenant shall remain liable as hereinafter provided) and/or pursue any other remedies at law or in equity. Upon the termination of this Lease or termination of Tenant's right of possession, it shall be lawful for Landlord, without formal demand or notice of any kind, to re-enter the Premises by summary dispossession proceedings or any other action or proceeding authorized by law and to remove Tenant and all persons and property therefrom. If Landlord re-enters the Premises, Landlord shall have the right to keep in place and use, or remove and store, all of the furniture, fixtures and equipment at the Premises. If Landlord terminates this Lease, Landlord may recover from Tenant the sum of: all Base Rent and all other amounts accrued hereunder to the date of such termination; the cost of reletting the whole or any part of the Premises, including without limitation brokerage fees and/or leasing commissions incurred by Landlord, and costs of removing and storing Tenant's or any other occupant's property, repairing, altering, remodeling, or otherwise putting the Premises into condition acceptable to a new tenant or tenants, and all reasonable expenses incurred by Landlord in pursuing its remedies, including reasonable attorneys' fees and court costs; and the excess of the then present value of the Base Rent and other amounts payable by Tenant under this Lease as would otherwise have been required to be paid by Tenant to Landlord during the period following the termination of this Lease measured from the date of such termination to the expiration date stated in this Lease, over the present value of any net amounts which Tenant establishes Landlord can reasonably expect to recover by reletting the Premises for such period, taking into consideration the availability of acceptable tenants and other market conditions affecting leasing. Such present values shall be calculated at a discount rate equal to the 90-day U.S. Treasury bill rate at the date of such termination. If Landlord terminates Tenant's right to possession without terminating the Lease after an Event of Default, Landlord shall use commercially reasonable efforts to relet the Premises; provided, however, (a) Landlord shall not be obligated to accept any tenant proposed by Tenant, (b) Landlord shall have the right to lease any other space controlled by Landlord first, and (c) any proposed tenant shall meet all of Landlord's leasing criteria. For the purpose of such reletting Landlord is authorized to make any repairs, changes, alterations, or additions in or to the Premises as Landlord deems reasonably necessary or desirable. If the Premises are not relet, then Tenant shall pay to Landlord as damages a sum equal to the amount of the rental reserved in this Lease for such period or periods, plus the cost of recovering possession of the Premises (including attorneys' fees and costs of suit), the unpaid Base Rent and other amounts accrued hereunder at the time of repossession, and the costs incurred in any attempt by Landlord to relet the Premises. If the Premises are relet and a sufficient sum shall not be realized from such reletting [after first deducting therefrom, for retention by Landlord, the unpaid Base Rent and other amounts accrued hereunder at the time of reletting, the cost of recovering possession (including attorneys' fees and costs of suit), all of the costs and expense of repairs, changes, alterations, and additions, the expense of such reletting (including without limitation brokerage fees and leasing commissions) and the cost of collection of the rent accruing therefrom to satisfy the rent provided for in this Lease to be paid, then Tenant shall immediately satisfy and pay any such deficiency. Any such payments due Landlord shall be made upon demand therefor from time to time and Tenant agrees that Landlord may file suit to recover any sums falling due from time to time. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect in writing to terminate this Lease for such previous breach. Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, whether by agreement or by operation of Law, it being understood that such surrender and/or termination can be effected only by the written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same. Tenant and Landlord further agree that forbearance or waiver by Landlord to enforce its rights pursuant to this Lease or at law or in equity, shall not be a waiver of Landlord's right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord's intention to re-enter as provided for in any -8- statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. The terms "enter," "re-enter," "entry" or "re-entry," as used in this Lease, are not restricted to their technical legal meanings. Any reletting of the Premises shall be on such terms and conditions as Landlord in its sole discretion may determine (including without limitation a term different than the remaining Lease Term, rental concessions, alterations and repair of the Premises, lease of less than the entire Premises to any tenant and leasing any or all other portions of the Project before reletting the Premises). Landlord shall not be liable, nor shall Tenant's obligations hereunder be diminished because of, Landlord's failure to relet the Premises or collect rent due in respect of such reletting, provided that Landlord has used commercially reasonable efforts to mitigate its damages as provided for above. 25. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). All obligations of Landlord hereunder shall be construed as covenants, not conditions. If such default by Landlord shall occur, Tenant may pursue any legal or equitable remedy for which it is entitled. All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term "Landlord" in this Lease shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Lease Term upon each new owner for the duration of such owner's ownership. Any liability of Landlord under this Lease shall be limited solely to its interest in the Project, and in no event shall any personal liability be asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord. 26. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. 27. SUBORDINATION. This Lease and Tenant's interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any first mortgage, now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination and such instruments of attornment as shall be requested by any such holder. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording and in that event such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term "mortgage" whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "holder" of a mortgage shall be deemed to include the beneficiary under a deed of trust. Tenant shall not be obligated to subordinate the Lease or its interest therein to any future mortgage, deed of trust or ground lease on the Project unless concurrently with such subordination the holder of such mortgage or deed of trust or the ground lessor under such ground lease agrees not to disturb Tenant's possession of the Premises under the terms of the Lease in the event such holder or ground lessor acquires title to the Premises through foreclosure, deed in lieu of foreclosure or otherwise. 28. MECHANIC'S LIENS. Tenant has no express or implied authority to create or place any lien or encumbrance of any kind upon, or in any manner to bind the interest of Landlord or Tenant in, the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Landlord harmless from all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the interest of Landlord in the Premises or under this Lease. Tenant shall give Landlord immediate written notice of the placing of any lien or encumbrance against the Premises and cause such lien or encumbrance to be discharged within 30 days of the filing or recording thereof; provided, however, Tenant may contest such liens or encumbrances as long as such contest prevents foreclosure of the lien or encumbrance and Tenant causes lien or encumbrance to be bonded or insured over in a manner satisfactory to Landlord within such 30 day period. 29. ESTOPPEL CERTIFICATES. Tenant agrees, from time to time, within 10 days after request of Landlord, to execute and deliver to Landlord, or Landlord's designee, any estoppel certificate requested by Landlord, stating that this Lease is in full force and effect, the date to which rent has been paid, that Landlord is not in default hereunder (or specifying in detail the nature of Landlord's default), the termination date of this Lease and such other matters pertaining to this Lease as may be requested by Landlord. Tenant's obligation to furnish each estoppel certificate in a timely fashion is a material inducement for Landlord's executive of this Lease. No cure or grace period provided in this Lease shall apply to Tenant's obligations to timely deliver an estoppel certificate. -9- 30. ENVIRONMENTAL REQUIREMENTS. Except for Hazardous Material contained in products used by Tenant in de minimis quantities for ordinary cleaning and office purposes, Tenant shall not affirmatively consent or cause any party to bring any Hazardous Material upon the Premises or transport, store, use, generate, manufacture or release any Hazardous Material in or about the Premises without Landlord's prior written consent. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements and shall remediate in a manner reasonably satisfactory to Landlord any Hazardous Materials released on or from the Project by Tenant, its agents, employees, contractors, subtenants or invitees. Tenant shall complete and certify to disclosure statements as requested by Landlord from time to time relating to Tenant's transportation, storage, use, generation, manufacture or release of Hazardous Materials on the Premises. The term "Environmental Requirements" means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any governmental authority or agency regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. The term "Hazardous Materials" means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the "operator" of Tenant's "facility" and the "owner" of all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom. Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises or the Project and loss of rental income from the Project), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys' fees, consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought into the property or disturbed in breach of the requirements of this Paragraph 30, regardless of whether such removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result of any release of Hazardous Materials for which Tenant is obligated to remediate as provided above or any other breach of the requirements under this Paragraph 30 by Tenant, its agents, employees, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Paragraph 30 shall survive any termination of this Lease. Notwithstanding anything to the contrary in this Paragraph 30, Tenant shall have no liability of any kind to Landlord as to Hazardous Materials on the Premises caused or permitted by (i) Landlord, its agents, employees, contractors or invitees; or (ii) any other tenants in the Project or their agents, employees, contractors, subtenants, assignees or invitees; or (iii) any other person or entity located outside of the Premises or the Project. Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant's compliance with Environmental Requirements, its obligations under this Paragraph 30, or the environmental condition of the Premises. Access shall be granted to Landlord upon Landlord's prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant's operations. Such inspections and tests shall be conducted at Landlord's expense, unless such inspections or tests reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord's receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant. If Hazardous Materials are hereafter discovered on the Premises, and the presence of such Hazardous Materials is not the result of Tenant's use of the Premises or any act or omission of Tenant or its agents, employees, contractors, subtenants or invitees, and the presence of such Hazardous Materials results in any contamination, damages, or injury to the Premises that materially and adversely affects Tenant's occupancy or use of the Premises, Landlord shall promptly take all actions at its sole expense as are necessary to remediate such Hazardous Materials and as may be required by the Environmental Requirements. Actual or threatened action or litigation by any governmental authority is not a condition prerequisite to Landlord's obligations under this paragraph. Within 30 days after notification from Tenant supported by reasonable documentation setting forth such presence or release of Hazardous Materials, and after Landlord has been given a reasonable period of time after such 30-day period to conduct its own investigation to confirm such presence or release of Hazardous Materials, Landlord shall either terminate this Lease or commence to remediate such Hazardous Materials within 180 days after the completion of Landlord's investigation and thereafter diligently prosecute such remediation to completion. If Landlord fails to commence such remediation or if Landlord commences such remediation and fails to diligently prosecute same until completion, then Tenant as its sole remedy may terminate this Lease by written notice to Landlord after expiration of 30 days following a notice to Landlord that Tenant intends to terminate this Lease if Landlord does not promptly commence or diligently prosecute the remediation within such 30-day period. If Landlord commences remediation pursuant to this paragraph, Base Rent and Operating Expenses shall be equitably adjusted if and to the extent and during the period the Premises are unsuitable for Tenant's business. Notwithstanding anything herein to the contrary, if Landlord obtains a letter from the appropriate governmental authority that no further remediation is required prior to the effective date of any such termination, such termination shall be null and void and this Lease shall remain in full force and effect. 31. RULES AND REGULATIONS. Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto. In the event of any conflict between -10- said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project. 32. SECURITY SERVICE. Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. 33. FORCE MAJEURE. Except for monetary obligations, neither Landlord nor Tenant shall be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord or Tenant, as the case may be ("Force Majeure"). 34. ENTIRE AGREEMENT. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto. 35. SEVERABILITY. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. 36. BROKERS. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the broker, if any, set forth on the first page of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. 37. MISCELLANEOUS, (a) Any payments or charges due from Tenant to Landlord hereunder shall be considered rent for all purposes of this Lease. (b) If and when included within the term "Tenant," as used in this instrument, there is more than one person, firm or corporation, each shall be jointly and severally liable for the obligations of Tenant. (c) All notices required or permitted to be given under this Lease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by a reputable national overnight courier service, postage prepaid, or by hand delivery addressed to the parties at their addresses below, and with a copy sent to Landlord at 14100 East 35th Place, Aurora, Colorado 80011. Either party may by notice given aforesaid change its address for all subsequent notices. Except where otherwise expressly provided to the contrary, notice shall be deemed given upon delivery. (d) Except as otherwise expressly provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval. (e) At Landlord's request from time to time Tenant shall furnish Landlord with true and complete copies of its most recent annual and quarterly financial statements prepared by Tenant or Tenant's accountants and any other financial information or summaries that Tenant typically provides to its lenders or shareholders. (f) Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease. (g) The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. (h) The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties. (i) Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. (j) Any amount not paid by Tenant within 5 days after its due date in accordance with the terms of this Lease shall bear interest from such due date until paid in full at the lesser of the highest rate permitted by applicable law or 12 percent per year. It is expressly the intent of Landlord and Tenant at all time to comply with applicable law -11- governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord's and Tenant's express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. (k) Construction and interpretation of this Lease shall be governed by the laws of the state in which the Project is located, excluding any principles of conflicts of laws. (1) Time is of the essence as to the performance of each party's obligations under this Lease. (m) All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. In the event of any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control. 38. LANDLORD'S LIEN/SECURITY INTEREST. Intentionally deleted. 39. LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND OFFICERS OF PROLOGIS TRUST. Any obligation or liability whatsoever of ProLogis Trust, a Maryland real estate investment trust, which may arise at any time under this Lease or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction, or undertaking contemplated hereby shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort, or otherwise. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. Signed and acknowledged in the presence of: LANDLORD /s/ Thomas J. Wheehan ProLogis Development Services Incorporated - ---------------------------- By: /s/ Douglas A. Kiersey, Jr. -------------------------------------- Name: Douglas A. Kiersey, Jr. Title: Senior Vice President Address: 4710 T Interstate Drive Cincinnati, OH 45246 (513) 874-9728 Signed and acknowledged in the presence of: TENANT Innotrac Corporation /s/ Thomas J. Wheehan - ---------------------------- By: /s/ Larry Hanger ------------------------------------- Name: Larry Hanger ----------------------------------- Title: VP ---------------------------------- Address: 6655 Sugarloaf Parkway Duluth, GA 30097-4916 -12- STATE OF ILLINOIS COUNTY OF DU PAGE Before me, the subscribers, a notary public in and for said county, personally appeared Douglas A. Kiersey, Jr. the Senior V.P. of Prologis Trust, the Landlord in the foregoing instrument, who acknowledged the signing of the foregoing instrument to be his/her free act and deed on behalf of the Landlord for the uses and purposes set forth therein. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my official seal on the 23 day of April, 2002. /s/ Vera Marie Harder -------------------------------------------- NOTARY PUBLIC, STATE OF ILLINOIS STATE OF GEORGIA COUNTY OF GWINNETT Before me, the subscribers, a notary public in and for said county, personally appeared Larry Hanger, the VP of Innotrac, the Tenant in the foregoing instrument, who acknowledged the signing of the foregoing instrument to be his/her free act and deed on behalf of the Tenant for the uses and purposes set forth therein. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my official seal on the 10 day of April, 2002. /s/ --------------------------------------------- NOTARY PUBLIC, STATE OF NOTARY PUBLIC, GWINNETT COUNTY, GEORGIA MY COMMISSION EXPIRES JUNE 23, 2002 -13- Rules and Regulations 1. The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or its agents, or used by them for any purpose other than ingress and egress to and from the Premises. 2. Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project. 3. Except for seeing-eye dogs, no animals shall be allowed in the offices, halls, or corridors in the Project. 4. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises. 5. If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant's expense. 6. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. 7. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord. 8. Tenant shall maintain the Premises free from rodents, insects and other pests. 9. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project. 10. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person. 11. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises. 12. Except as otherwise set forth in the Lease, Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises. 13. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose. 14. No auction, public or private, will be permitted on the Premises or the Project. 15. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord. 16. The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises. 17. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity. 18. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage. 19. Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises. -14- ADDENDUM 1 RIGHT OF FIRST REFUSAL ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED APRIL 23, 2002, BETWEEN PROLOGIS DEVELOPMENT SERVICES INCORPORATED and INNOTRAC CORPORATION (a) "Offered Space" shall mean the adjoining 110,000 square feet of space indicated on Exhibit A attached hereto. (b) Provided that as of the date of the giving of Landlord's Notice, (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies all of the Premises originally demised under this Lease and any premises added to the Premises, and (z) no Event of Default or event which but for the passage of time or the giving of notice, or both, would constitute an Event of Default has occurred and is continuing, if at any time during the first 24 months of the Lease Term if Landlord intends to enter into a lease (the "Proposed Lease") for such Offered Space with anyone (a "Proposed Tenant") Landlord shall first offer to Tenant the right to lease the Offered Space upon all the terms and conditions of the Proposed Lease; provided, however, (i) the Lease Term with respect to the Offered Space shall run co-terminus with the Lease Term for the Premises consisting of approximately 286,000 s.f., but in no event shall the Lease Term for the Offered Space be less than a period equal to 48 months ("Offered Space Term"), (ii) the Base Rent for the Offered Space shall be calculated at $2.85 p.s.f. per annum for the first 6 months of the Offered Space Term, and thereafter shall be based upon the Fair Market Rent (as hereinafter defined in Addendum 2), and (iii) Landlord shall contribute a maximum amount of $100,000 for Tenant-Made Alterations in connection with the Offered Space. (c) Such offer shall be made by Landlord to Tenant in a written notice (hereinafter called the "Offer Notice") which offer shall designate the space being offered and shall specify the terms for such Offered Space which shall be the same as those set forth in the Proposed Lease, except as otherwise set forth above. Further, in addition to Landlord's Offer Notice, Landlord shall provide Tenant with a copy of Landlord's Letter of Intent to the Proposed Tenant. Tenant may accept the offer set forth in the Offer Notice by delivering to Landlord an unconditional acceptance (hereinafter called "Tenant's Notice") of such offer within 5 business days after delivery by Landlord of the Offer Notice to Tenant. Time shall be of the essence with respect to the giving of Tenant's Notice. If Tenant does not accept (or fails to timely accept) an offer made by Landlord pursuant to the provisions of this Addendum with respect to the Offered Space designated in the Offer Notice, Landlord shall be under no further obligation with respect to such space by reason of this Addendum. In order to send the Offer Notice, Landlord does not need to have negotiated a complete lease with the Proposed Tenant but may merely have agreed upon the material economic terms for the Proposed Lease, and Tenant must make its decision with respect to the Offered Space as long as it has received a description of such material economic terms. (d) Intentionally deleted. (e) If Tenant at any time declines any Offered Space offered by Landlord, Tenant shall be deemed to have irrevocably waived all further rights under this Addendum, and Landlord shall be free to lease the Offered Space to the Proposed Tenant including on terms which may be less favorable to Landlord than those set forth in the Proposed Lease. -15- ADDENDUM 2 TWO RENEWAL OPTIONS -------------------- (BASEBALL ARBITRATION) ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED APRIL 23, 2002 BETWEEN PROLOGIS DEVELOPMENT SERVICES INCORPORATED and INNOTRAC CORPORATION (a) Provided that as of the time of the giving of the First Extension Notice and the Commencement Date of the First Extension Term, (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists or would exist but for the passage of time or the giving of notice, or both; then Tenant shall have the right to extend the Lease Term for an additional term of 1 year (such additional term is hereinafter called the "First Extension Term") commencing on the day following the expiration of the Lease Term (hereinafter referred to as the "Commencement Date of the First Extension Term"). Tenant shall give Landlord notice (hereinafter called the "First Extension Notice") of its election to extend the term of the Lease Term at least 6 months, but not more than 9 months, prior to the scheduled expiration date of the Lease Term. (b) Provided that as of the time of the giving of the Second Extension Notice and the Commencement Date of the Second Extension Term, (x) Tenant is the Tenant originally named herein, (y) Tenant actually occupies all of the Premises initially demised under this Lease and any space added to the Premises, and (z) no Event of Default exists or would exist but for the passage of time or the giving of notice, or both and provided Tenant has exercised its option for the First Extension Term; then Tenant shall have the right to extend the Lease Term for an additional term of 3 years (such additional term is hereinafter called the "Second Extension Term") commencing on the day following the expiration of the First Extension Term (hereinafter referred to as the "Commencement Date of the Second Extension Term"). Tenant shall give Landlord notice (hereinafter called the "Second Extension Notice") of its election to extend the term of the Lease Term at least 6 months, but not more than 9 months, prior to the scheduled expiration date of the First Extension Term. (c) The Base Rent payable by Tenant to Landlord during the First Extension Term shall be the greater of: (i) the Base Rent in effect on the expiration of the Lease Term (if the Base Rent is stated as an annual or other periodic rate, adjusted for the length of the Lease Term), and (ii) the Fair Market Rent, as defined and determined pursuant to Paragraphs (e), (f), and (g) below. (d) The Base Rent payable by Tenant to Landlord during the Second Extension Term shall be the greater of: (i) the Base Rent in effect on the expiration of the First Extension Term (if the Base Rent is stated as an annual or other periodic rate, adjusted for the length of the Lease Term), and (ii) the Fair Market Rent, as defined and determined pursuant to Paragraphs (e), (f), and (g) below. (e) The term "Fair Market Rent" shall mean the Base Rent, expressed as an annual rent per square foot of floor area, which Landlord would have received from leasing the Premises for the First Extension Term or the Second Extension Term, as applicable, to an unaffiliated person which is not then a tenant in the Project, assuming that such space were to be delivered in "as-is" condition, and taking into account the rental which such other tenant would most likely have paid for such premises, including market escalations, provided that Fair Market Rent shall not in any event be less than the Base Rent for the Premises as of the expiration of the Lease Term or the First Extension Term, as applicable. Fair Market Rent shall not be reduced by reason of any costs or expenses saved by Landlord by reason of Landlord's not having to find a new tenant for the Premises (including without limitation brokerage commissions, cost of improvements necessary to prepare the space for such tenant's occupancy, rent concession, or lost rental income during any vacancy period). Fair Market Rent means only the rent component defined as Base Rent in the Lease and does not include reimbursements and payments by Tenant to Landlord with respect to operating expenses and other items payable or reimbursable by Tenant under the Lease. In addition to its obligation to pay Base Rent (as determined herein), Tenant shall continue to pay and reimburse Landlord as set forth in the Lease with respect to such operating expenses and other items with respect to the Premises during the First Extension Term or the Second Extension Term, as applicable. The arbitration process described below shall be limited to the determination of the Base Rent and shall not affect or otherwise reduce or modify the Tenant's obligation to pay or reimburse Landlord for such operating expenses and other reimbursable items. (f) Landlord shall notify Tenant of its determination of the Fair Market Rent (which shall be made in Landlord's sole discretion and shall in any event be not less than the Base Rent in effect as of the expiration of the Lease Term or the First Extension Term, as applicable) for the First Extension Term or the Second Extension Term, as applicable, and Tenant shall advise Landlord of any objection within 15 business days of receipt of Landlord's notice. Failure to respond within such 15-day period shall constitute Tenant's acceptance of such Fair Market Rent. If Tenant objects, Landlord and Tenant shall commence negotiations to attempt to agree upon the Fair Market Rent within 30 days of Landlord's receipt of Tenant's notice. If the parties cannot agree, each acting in good faith but without any obligation to agree, then the Lease Term shall not be extended and shall terminate on its scheduled termination date and Tenant shall have no further right hereunder or any remedy by reason of the parties' failure to agree unless Tenant or Landlord invokes the arbitration procedure provided below to determine the Fair Market Rent. -16- (g) Arbitration to determine the Fair Market Rent shall be in accordance with the Real Estate Valuation Arbitration Rules of the American Arbitration Association. Unless otherwise required by state law, arbitration shall be conducted in the metropolitan area where the Project is located by a single arbitrator unaffiliated with either party. Either party may elect to arbitrate by sending written notice to the other party and the Regional Office of the American Arbitration Association within 5 days after the 30-day negotiating period provided in Paragraph (f), invoking the binding arbitration provisions of this paragraph. Landlord and Tenant shall each submit to the arbitrator their respective proposal of Fair Market Rent. The arbitrator must choose between the Landlord's proposal and the Tenant's proposal and may not compromise between the two or select some other amount. Notwithstanding any other provision herein, the Fair Market Rent determined by the arbitrator shall not be less than, and the arbitrator shall have no authority to determine a Fair Market Rent less than, the Base Rent in effect as of the scheduled expiration of the Lease Term or the First Extension Term, as applicable. The cost of the arbitration shall be paid by Tenant if the Fair Market Rent is that proposed by Landlord and by Landlord if the Fair Market Rent is that proposed by Tenant, and shall be borne equally otherwise. If the arbitrator has not determined the Fair Market Rent as of the end of the Lease Term or the First Extension Term, as applicable, Tenant shall pay 105 percent of the Base Rent in effect under the Lease as of the end of the Lease Term or the First Extension Term, as applicable, until the Fair Market Rent is determined as provided herein. Upon such determination, Landlord and Tenant shall make the appropriate adjustments to the payments between them. (h) The parties consent to the jurisdiction of any appropriate court to enforce the arbitration provisions of this Addendum and to enter judgment upon the decision of the arbitrator. (i) Except for the Base Rent as determined above, Tenant's occupancy of the Premises during the First Extension Term or the Second Extension Term, as applicable, shall be on the same terms and conditions as are in effect immediately prior to the expiration of the initial Lease Term or the First Extension Term, as applicable; provided, however, Tenant shall have no further right to extend the Lease Term pursuant to this addendum or to any allowances, credits or abatements or options to expand, contract, renew or extend the Lease. (j) If Tenant does not send the First Extension Notice or the Second Extension Notice, as applicable, within the period set forth in Paragraphs (a) and (b), Tenant's right to extend the Lease Term shall automatically terminate. Time is of the essence as to the giving of the First Extension Notice and the Second Extension Notice, as applicable, and the notice of Tenant's objection under Paragraph (f). (k) Landlord shall have no obligation to refurbish or otherwise improve the Premises for the First Extension Term or the Second Extension Term, as applicable. The Premises shall be tendered on the Commencement Date of the First Extension Term and the Second Extension Term, as applicable, in "as-is" condition. (l) If the Lease is extended for the First Extension Term or the Second Extension Term, as applicable, then Landlord shall prepare and Tenant shall execute an amendment to the Lease confirming the extension of the Lease Term and the other provisions applicable thereto. (m) If Tenant exercises its right to extend the term of the Lease for the First Extension Term or the Second Extension Term, as applicable, pursuant to this Addendum, the term "Lease Term" as used in the Lease, shall be construed to include, when practicable, the First Extension Term and the Second Extension Term except as provided in (g) above. -17- ADDENDUM 3 CONSTRUCTION (TURNKEY) ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED APRIL 23, 2002, BETWEEN PROLOGIS DEVELOPMENT SERVICES INCORPORATED and INNOTRAC CORPORATION (a) Landlord agrees to furnish or perform at Landlord's sole cost and expense (except as otherwise set forth below) those items of construction and those improvements (the "Initial Improvements") specified below: 1. Construct Main Office (approximately 4,800 s.f.) per Exhibit B. 2. Construct one (1) Receiving Office (approximately 1,000 s.f.) and one (1) Shipping Office (approximately 1,000 s.f.) per the attached Exhibit B. 3. Install 277/480 volt, 600-amp electrical service panel. 4. Provide portable eyewash station. 5. Install twenty-four (24) pit levelers (24,000 lb. capacity) and twenty-four (24) dock seals; locations to be determined. 6. Install three hundred fifty-five (355) 400-watt metal halide light fixtures to provide 30 footcandles at 36" AFF. Rack plan to be determined. 7. Construct foil height drywall / metal stud demising wall. The drywall shall be smooth finished and painted. 8. Mechanically clean warehouse floor. 9. Install emergency egress/exit lighting up to a maximum amount of $8,000. 10. Provide architectural / engineering permits, drawings, and permit fees. (b) If Tenant shall desire any changes, Tenant shall so advise Landlord in writing and Landlord shall determine whether such changes can be made in a reasonable and feasible manner. Any and all costs of reviewing any requested changes, and any and all costs of making any changes to the Initial Improvements which Tenant may request and which Landlord may agree to shall be at Tenant's sole cost and expense and shall be paid to Landlord upon demand and before execution of the change order. (c) Landlord shall proceed with and complete the construction of the Initial Improvements. As soon as such improvements have been Substantially Completed, Landlord shall notify Tenant in writing of the date that the Initial Improvements were Substantially Completed. Such date, unless an earlier date is specified as the Commencement Date in this Lease or otherwise agreed to in writing between Landlord and Tenant, shall be the "Commencement Date," unless the completion of such improvements was delayed due to any act or omission of, or delay caused by, Tenant including, without limitation, Tenant's failure to approve plans, complete submittals or obtain permits in connection with Tenant's installation of its tenant improvements, machinery, equipment, or fixtures within the time periods agreed to by the parties or as reasonably required by Landlord, in which case the Commencement Date shall be the date such improvements would have been completed but for the delays caused by Tenant. The Initial Improvements shall be deemed substantially completed ("Substantially Completed") when, in the opinion of the construction manager (whether an employee or agent of Landlord or a third party construction manager)("Construction Manager"), the Premises are substantially completed in accordance with the final plans attached hereto as Exhibit B, except for punch list items which do not prevent in any material way the use of the Premises for the purposes for which they were intended, provided such opinion is given in conjunction with a Certificate of Occupancy or a Temporary Certificate of Occupancy or a Permit Inspection Card or other documentation from the governing municipality indicating that Landlord's Initial Improvements work is legal to occupy. In the event Tenant, its employees, agents, or contractors cause construction of such improvements to be delayed, the date of Substantial Completion shall be deemed to be the date that, in the opinion of the Construction Manager, Substantial Completion would have occurred if such delays had not taken place. Without limiting the foregoing, Tenant shall be solely responsible for delays caused by Tenant's request for any changes in the plans, Tenant's request for long lead items or Tenant's interference with the construction of the Initial Improvements, and such delays shall not cause a deferral of the Commencement Date beyond what it otherwise would have been. After the Commencement Date Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises. In the event of any dispute as to the Initial Improvements, including the Commencement Date, the certificate of the Construction Manager shall be conclusive absent manifest error. (d) The failure of Tenant to take possession of or to occupy the Premises shall not serve to relieve Tenant of obligations arising on the Commencement Date or delay the payment of rent by Tenant. Subject to applicable ordinances and building codes governing Tenant's right to occupy or perform in the Premises, Tenant shall be allowed to install its tenant improvements, machinery, equipment, fixtures, or other property on the Premises on or about April 15, 2002, provided that Tenant does not thereby interfere with the completion of construction or cause any labor dispute as a result of such installations, and provided further that Tenant does hereby agree to indemnify, defend, and hold Landlord harmless from any loss or damage to such property, and all liability, loss, or damage arising from any injury to the Project or the property of Landlord, its contractors, subcontractors, or materialmen, and any death or personal injury to any person or persons arising out of such installations, unless any such loss, damage, liability, death, or personal injury was caused by Landlord's negligence. Any such occupancy or performance in the Premises shall be in accordance with the provisions governing Tenant-Made Alterations and Trade Fixtures in the Lease, and shall be subject to Tenant providing to Landlord satisfactory evidence of insurance for personal injury and property damage related to such installations and -18- satisfactory payment arrangements with respect to installations permitted hereunder. Delay in putting Tenant in possession of the Premises shall not serve to extend the term of this Lease or to make Landlord liable for any damages arising therefrom. (e) Except for incomplete punch list items and latent defects, Tenant upon the Commencement Date shall have and hold the Premises as the same shall then be without any liability or obligation on the part of Landlord for making any further alterations or improvements of any kind in or about the Premises. -19- ADDENDUM 4 MISCELLANEOUS PROVISIONS ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED April 23, 2002 BETWEEN PROLOGIS DEVELOPMENT SERVICES INCORPORATED and INNOTRAC CORPORATION 1. ECONOMIC DEVELOPMENT INDUCEMENTS. Tenant has submitted a Kentucky Jobs Development Act ("KJDA") application to the Kentucky Economic Development Authority ("Authority") for certain economic inducements available under the KJDA incentive program. This Lease is hereby conditioned upon Tenant receiving a resolution from the Authority to "preliminarily designate Tenant as an approved company" and to "preliminarily authorize the undertaking of the economic development project" by Tenant. Tenant covenants to diligently proceed with the appropriate process in obtaining such resolution. Without receiving such preliminary designation, the execution of this Lease would preclude Tenant from obtaining the inducements available under this local program. -20- ADDENDUM 5 CANCELLATION OPTION ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED APRIL 23, 2002, BETWEEN PROLOGIS DEVELOPMENT SERVICES INCORPORATED and INNOTRAC CORPORATION Provided no Event of Default shall then exist and no condition shall then exist which with the passage of time or giving of notice, or both, would constitute an Event of Default, Tenant shall have the right at any time on or before the first day of the 30th month of the Lease Term to send Landlord written notice (the "Termination Notice") that Tenant has elected to terminate this Lease effective on the last day of the 36th month of the Lease Term with respect to the Premises consisting of approximately 286,000 square feet only. It is the express intent of the parties that this Cancellation Option shall not apply to the Offered Space as defined in Addendum 1. If Tenant elects to terminate this Lease pursuant to the immediately preceding sentence, the effectiveness of such termination shall be conditioned upon Tenant paying to Landlord $1,734,240.00 contemporaneously with Tenant's delivery of the Termination Notice to Landlord. Such amount is consideration for Tenant's option to terminate and shall not be applied to rent or any other obligation of Tenant. Landlord and Tenant shall be relieved of all obligations accruing under this Lease after the effective date of such termination but not any obligations accruing under the Lease prior to the effective date of such termination. -21- ADDENDUM 6 ASSIGNMENT AND SUBLETTING (CONSENT) ATTACHED TO AND A PART OF THE LEASE AGREEMENT DATED APRIL 23, 2002, BETWEEN PROLOGIS DEVELOPMENT SERVICES INCORPORATED and INNOTRAC CORPORATION (a) Landlord shall not unreasonably withhold its consent to Tenant's request for permission to assign the Lease or sublease all or part of the Premises. It shall be reasonable for the Landlord to withhold its consent to any assignment or sublease in any of the following instances: (i) The assignee or sublessee does not have a net worth calculated according to generally accepted accounting principles at least equal to the greater of the net worth of Tenant immediately prior to such assignment or sublease or the net worth of the Tenant at the time it executed the Lease; (ii) The intended use of the Premises by the assignee or sublessee is not reasonably satisfactory to Landlord; (iii) The intended use of the Premises by the assignee or sublessee would materially increase the pedestrian or vehicular traffic to the Premises or the Project; (iv) Occupancy of the Premises by the assignee or sublessee would, in Landlord's opinion, violate any agreement binding upon Landlord or the Project with regard to the identity of tenants, usage in the Project, or similar matters; (v) The identity or business reputation of the assignee or sublessee will, in the good faith judgment of Landlord, tend to damage the goodwill or reputation of the Project; (vi) The assignment or sublease is to another tenant in the Project and is at rates which are below those charged by Landlord for comparable space in the Project; (vii) In the case of a sublease, the subtenant has not acknowledged that the Lease controls over any inconsistent provision in the sublease; or (viii) The proposed assignee or sublessee is a government entity. The foregoing criteria shall not exclude any other reasonable basis for Landlord to refuse its consent to such assignment or sublease. (b) Any approved assignment or sublease shall be expressly subject to the terms and conditions of this Lease. (c) Tenant shall provide to Landlord all information concerning the assignee or sublessee as Landlord may request. (d) Landlord may revoke its consent immediately and without notice if, as of the effective date of the assignment or sublease, there has occurred and is continuing any default under the Lease. (e) Landlord's agreement to not unreasonably withhold its consent shall only apply to the first assignment or sublease under the Lease. -22- EXHIBIT A SITE PLAN Tenant: Innotrac Corporation ---------------------------------------------------------------------- Approximate Square Feet: 286,000 ----------------------------------------------------- Address of Premises: 1226 Aviation Blvd. --------------------------------------------------------- Hebron, KY 41048 - ----------------------------------------------------------------------------- [FLOORPLAN] EXHIBIT B PAGE 1 OF 5 [FLOORPLAN] EXHIBIT B PAGE 2 OF 5 [FLOORPLAN] EXHIBIT B PAGE 3 OF 5 [FLOORPLAN] EXHIBIT B PAGE 4 OF 5 [FLOORPLAN] EXHIBIT B PAGE 5 OF 5 [FLOORPLAN] EX-10.2 4 g79246exv10w2.txt EX-10.2 LOAN DOCUMENT MODIFICATION AGREEMENT EXHIBIT 10.2 LOAN DOCUMENTS MODIFICATION AGREEMENT (November 13, 2002) THIS LOAN DOCUMENTS MODIFICATION AGREEMENT (hereinafter referred to as this "Amendment") is made and entered into as of the 13th day of November, 2002, by and among INNOTRAC CORPORATION, a Georgia corporation (hereinafter referred to as "Borrower"), SOUTHTRUST BANK, an Alabama banking corporation, successor by conversion to SouthTrust Bank, N.A., a national banking association (hereinafter referred to as "Lender"), and: iFULFILLMENT, INC. a Georgia corporation (hereinafter referred to as "Guarantor"). BACKGROUND STATEMENT Borrower and Lender are parties to that certain Amended and Restated Loan and Security Agreement dated January 25, 1999, as previously amended pursuant to that certain First Amendment to Amended and Restated Loan and Security Agreement dated April 29, 1999, that certain letter (the "2000 Letter") from Lender to Borrower dated August 9, 2000, that certain letter (the "2001 Letter") from Lender to Borrower dated September 10, 2001, and that certain Loan Documents Modification Agreement dated May 31, 2002 (hereinafter collectively referred to as the "Agreement"). All capitalized terms used herein shall have the same meanings as are ascribed to them in the Agreement unless otherwise herein defined. Borrower and Lender are also parties to that certain Amended and Restated Revolving Credit Note dated April 29, 1999, made by Borrower to the order of Lender in the original principal amount of Forty Million and No/100 Dollars ($40,000,000.00), which evidences the indebtedness of the Revolving Line of Credit (hereinafter referred to as the "Revolving Note"). Payment of certain obligations of Borrower provided for in the Loan Documents is guaranteed by Guarantor pursuant to that certain Guaranty dated May 31, 2002 (hereinafter referred to as the "Guaranty"). Borrower and Lender have agreed to amend the Agreement, Guarantor has agreed to reaffirm its Guaranty, and the parties are entering into this Amendment to evidence their agreement. AGREEMENT FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00), the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Lender and Guarantors do hereby agree as follows: 1. LOAN BALANCES. The foregoing recitals are true and correct and are incorporated herein by reference. Borrower and Lender acknowledge and agree that as of November 12, 2002, the outstanding principal balance of the Revolving Note is Seventeen Million One Hundred Fifty Thousand and No/100 Dollars ($17,150,000.00). 2. MODIFICATION OF AGREEMENT. The Agreement is hereby modified and amended, effective as of the date hereof, as follows: (a) By deleting the definition of "Net Income" contained in Section 1.1 of the Agreement and substituting in lieu thereof the following new definition of "Net Income": "Net Income" shall mean, for any fiscal period of any Person, the net income (or loss), after provisions 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." (b) By deleting the pricing matrix contained in Section 2.2 (a) of the Agreement and used to calculate the LIBOR Margin and substituting in lieu thereof the following new pricing matrix to calculate the LIBOR Margin:

If Leverage Ratio Is: Then the LIBOR Margin Is: --------------------- ------------------------- Greater than 1.50 to 1.0 200 basis points Greater than 1.25 to 1.0 but not greater than 1.50 to 1.0 150 basis points Greater than 0.75 to 1.0 but not greater than 1.25 to 1.0 125 basis points Less than 0.75 to 1.0 100 basis points

(c) By deleting the text of Section 12.1 of the Agreement, which presently states "Borrower shall have at all times a Leverage Ratio of not more than 2.0:1," and replacing it with the following: "Borrower shall have at all times a Leverage Ratio of not more than 1.5 : 1." (d) By deleting the text of Section 12.2 of the Agreement, which presently states "The Tangible Net Worth of Borrower shall be at least Thirty-Five Million Dollars ($35,000,000), all as determined under GAAP and as adjusted with respect to any repurchase by Borrower of its equity securities approved by Lender, and shall annually increase over the amount as of the end of the prior Fiscal year," and replacing it with the following: "The Tangible Net Worth of Borrower shall at all times be at least Thirty-Four Million Dollars ($34,000,000), all as determined under GAAP, and, commencing with the December 31, 2003 measurement of Tangible Net Worth, shall annually increase over the amount as of the end of the prior Fiscal Year." 3. WAIVER OF FINANCIAL COVENANTS DEFAULT. Absent the occurrence under the Agreement or any of the other Loan Documents of any other intervening Event of Default, Lender hereby grants to Borrower a one-time only waiver of the following financial covenant Events of Defaults, at which time Lender shall again review and measure the following financial covenants (hereinafter referred to as the "Measurement Date"): (a) Tangible Net Worth Covenant (as set forth in Section 12.2 of the Agreement): through the period ending September 30, 2002, and (b) Fixed Charge Coverage Ratio Covenant (as set forth in Section 12.3 of the Agreement): through the period ending September 30, 2003. Borrower and Guarantor acknowledge and agree that a future Event of Default arising or occurring in connection with any financial covenant set forth in the Agreement, including but not limited to those set forth in this Paragraph 3, on or after the applicable Measurement Date shall, henceforth, not be waived by Lender, shall not be subject to any notice, grace or cure right otherwise set forth in the Agreement of other Loan Documents, and Lender may avail itself of any and all legal remedies available to Lender under the Loan Documents or applicable law without any additional notice whatsoever. 4. MODIFICATION OF LOAN DOCUMENT. As of the date hereof, Borrower hereby reaffirms and restates each and every warranty and representation set forth in the Loan Documents. The terms of the Loan Documents are hereby modified and amended, effective as of the date hereof, so that any reference in any of the Loan Documents (including, without limitation, the Agreement) to the Agreement shall refer to the Agreement as herein amended. -2- 5. GUARANTORS' REAFFIRMATION. Guarantor hereby acknowledges and consents to the foregoing amendments to the Agreement and all of the other Loan Documents. Guarantor hereby ratifies, confirms, reaffirms and covenants that the Guaranty which it has executed is validly existing and binding against it under the terms of such Guaranty and guarantees the repayment of all the "Guaranteed Obligations," as therein defined. Guarantor hereby reaffirms and restates, as of the date hereof, all covenants, representations and warranties set forth in the Guaranty. 6. RATIFICATION; FEES AND EXPENSES. Except as herein expressly modified or amended, all the terms and conditions of the Agreement and the other Loan Documents are hereby ratified, affirmed, and approved. In consideration of Lender agreeing to this Amendment as herein provided (including the waiver of certain financial covenant breaches), Borrower agrees to pay Lender a loan covenant waiver fee in the amount of Fifty Thousand and No/100 Dollars ($50,000.00) and further agrees to pay all fees and expenses incurred in connection with this Amendment. Borrower acknowledges and agrees that once paid, the loan covenant waiver fee shall be fully earned and shall not be refundable or rebatable in whole or in part. 7. NO DEFENSES; RELEASE. For purposes of this Paragraph 7, the terms "Borrower Parties" and "Lender Parties" shall mean and include Borrower and Lender, respectively, and each of their respective predecessors, successors and assigns, and each past and present, direct and indirect, parent, subsidiary and affiliated entity of each of the foregoing, and each past and present employee, agent, attorney-in-fact, attorney-at-law, representative, officer, director, shareholder, partner and joint venturer of each of the foregoing, and each heir, executor, administrator, successor and assign of each of the foregoing; references in this paragraph to "any" of such parties shall be deemed to mean "any one or more" of such parties; and references in this sentence to "each of the foregoing" shall mean and refer cumulatively to each party referred to in this sentence up to the point of such reference. Borrower hereby acknowledges, represents and agrees: that Borrower has no defenses, setoffs, claims, counterclaims or causes of action of any kind or nature whatsoever with respect to the Agreement, the other Loan documents or the Obligations, or with respect to any other documents or instruments now or heretofore evidencing, securing or in any way relating to the Obligations or with respect to any other transaction, matter or occurrence between any of the Borrower Parties and any Lender Parties or with respect to any acts or omissions of any Lender Parties (all of said defenses, setoffs, claims, counterclaims or causes of action being hereinafter referred to as "Loan Related Claims"); that, to the extent that Borrower may be deemed to have any Loan Related Claims, Borrower does hereby expressly waive, release and relinquish any and all such Loan Related Claims, whether or not known to or suspected by Borrower; that Borrower shall not institute or cause to be instituted any legal action or proceeding of any kind based upon any Loan Related Claims; and that Borrower shall indemnify, hold harmless and defend all Lender Parties from and against any and all Loan Related Claims and any and all losses, damages, liabilities, costs and expenses suffered or incurred by any Lender Parties as a result of any assertion or allegation by any Borrower Parties of any Loan Related Claims or as a result of any legal action related thereto. Borrower hereby reaffirms and restates, as of the date hereof, all covenants, representations and warranties set forth in the Agreement. 8. NO NOVATION. Borrower hereby acknowledges and agrees that this Amendment shall not constitute a novation of the indebtedness evidenced by the Revolving Note. 9. NO WAIVER OR IMPLICATION. Borrower hereby agrees that nothing herein shall constitute a waiver by Lender of any default, whether known or unknown, which may exist under the Agreement or any other Loan Document. Borrower hereby further agrees that no action, -3- inaction or agreement by Lender, including, without limitation, any extension, indulgence, waiver, consent or agreement of modification which may have occurred or have been granted or entered into (or which may be occurring or be granted or entered into hereunder or otherwise) with respect to nonpayment of the Obligations or any portion thereof, or with respect to matters involving security for the Obligations, or with respect to any other matter relating to the Obligations, shall require or imply any future extension, indulgence, waiver, consent or agreement by Lender. Borrower hereby acknowledges and agrees that Lender has made no agreement, and is in no way obligated, to grant any future extension, indulgence, waiver or consent with respect to the Obligations or any matter relating to the Obligations. 10. NO RELEASE OF COLLATERAL. Borrower further agrees that this Amendment shall in no way occasion a release of any collateral held by Lender as security to or for the Obligations, and that all collateral held by Lender as security to or for the Obligations shall continue to secure the Obligations. 11. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, whether voluntary by act of the parties or involuntary by operation of law. 12. AUTHORITY. By executing this Amendment as hereinafter provided, Scott Dorfman hereby certifies that he is the President of Borrower and is duly authorized to execute this Amendment on behalf of Borrower. IN WITNESS WHEREOF, this Amendment has been duly executed under seal by Borrower, Lender, and Guarantor as of the day and year first above written. BORROWER: INNOTRAC CORPORATION, a Georgia corporation By: /s/ Scott Dorfman -------------------------------------- Scott Dorfman President [CORPORATE SEAL] LENDER: SOUTHTRUST BANK, an Alabama banking corporation By: /s/ Noble S. Jones -------------------------------------- Noble S. Jones Vice President -4- GUARANTOR: iFULFILLMENT, INC., a Georgia corporation By: /s/ Scott Dorfman -------------------------------------- Scott Dorman President [CORPORATE SEAL] -5- EX-99.1 5 g79246exv99w1.txt EX-99.1 SECTION 906 CERTIFICATION OF THE CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 I, Scott D. Dorfman, Chief Executive Officer of Innotrac Corporation (the "Company"), certify, pursuant to 18 U.S.C. ss. 1350 as adopted by ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 19, 2002 /s/ Scott D. Dorfman ----------------------------------------- Scott D. Dorfman President, Chief Executive Officer and Chairman of the Board EX-99.2 6 g79246exv99w2.txt EX-99.2 SECTION 906 CERTIFICATION OF THE CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 I, David L. Gamsey, Chief Financial Officer of Innotrac Corporation (the "Company"), certify, pursuant to 18 U.S.C. ss. 1350 as adopted by ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 19, 2002 /s/ David L. Gamsey ----------------------------------------- David L. Gamsey Senior Vice President, Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1

                                                                [Ohio Net Lease]

                                 LEASE AGREEMENT


         THIS LEASE AGREEMENT is made this 23rd day of April, 2002, between
ProLogis Development Services Incorporated ("Landlord"), and the Tenant named
below.



TENANT:                             Innotrac Corporation

TENANT'S REPRESENTATIVE,
ADDRESS, AND PHONE NO.:             David L. Gamsey
                                    6655 Sugarloaf Parkway
                                    Duluth, GA 30097
                                    678 584-4020

PREMISES:                           That portion of the Building, containing
                                    approximately 286,000 rentable square feet,
                                    as determined by Landlord, as shown on
                                    Exhibit A.

PROJECT:                            Airpark International Distribution
                                    Center #5 (396,000 sq. ft. building)

BUILDING:                           Airpark International Distribution Center
                                    #5 (396,000 sq. ft. building)

TENANT'S PROPORTIONATE
SHARE OF PROJECT:                   72.000%

TENANT'S PROPORTIONATE SHARE
OF BUILDING:                        72.000%

LEASE TERM:                         Beginning on the Commencement Date and
                                    ending on the last day of the 60th full
                                    calendar month thereafter.

COMMENCEMENT DATE:                  August 1, 2002 (Tenant shall be provided
                                    access to the Premises on April 15, 2002 to
                                    install equipment and fixtures)

INITIAL MONTHLY BASE RENT:                                            $66,733.33

INITIAL ESTIMATED MONTHLY           1. Utilities
OPERATING EXPENSE PAYMENTS:
(estimates only and subject to      2. Common Area Charges: $4,052.00
adjustment to actual costs and
expenses according to the           3. Taxes:               $7,150.00
provisions of this Lease)
                                    4. Insurance            $1,430.00

                                    5. Others


INITIAL ESTIMATED MONTHLY
OPERATING EXPENSE PAYMENTS:                                           $12,632.00

INITIAL MONTHLY BASE RENT AND
OPERATING EXPENSE PAYMENTS:                                           $79,365.33

SECURITY DEPOSIT:                   $25,000.00

BROKER:                             Huff Commercial Group

ADDENDA:                            1. Right of First Refusal 2. Two Renewal
                                    Options (Baseball Arbitration)
                                    3. Construction (Turnkey) 4. Miscellaneous
                                    Provisions; 5. Cancellation Option;
                                    6. Assignment & Subletting Consent

EXHIBITS:                           A. Site Plan B. Leasehold Improvements


         1.       GRANTING CLAUSE. In consideration of the obligation of Tenant
to pay rent as herein provided and in consideration of the other terms,
covenants, and conditions hereof, Landlord leases to Tenant, and Tenant takes
from Landlord, the Premises, to have and to hold for the Lease Term, subject to
the terms, covenants and conditions of this Lease.

         2.       ACCEPTANCE OF PREMISES. Tenant shall accept the Premises in
its condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions, and subject to Substantial
Completion of the Initial Improvements as set forth in Addendum 3 attached
hereto. Landlord has made no representation or warranty as to the suitability of
the Premises for the conduct of Tenant's business, and Tenant waives any implied
warranty that the Premises are suitable for Tenant's intended purposes. Except
as provided in Paragraph 10, in no event shall Landlord have any obligation for
any defects (except for latent defects) in the Premises or any limitation on its
use. The taking of possession of the Premises shall be conclusive evidence that
Tenant accepts the Premises and that the Premises were in good condition at the
time possession was taken except for items that are Landlord's responsibility
under Paragraph 10, latent defects, and any punchlist items agreed to in writing
by Landlord and Tenant. Landlord represents and warrants that as of the
Commencement Date, the Building's HVAC, electrical, plumbing and other
mechanical systems are in good working order and Landlord represents and
warrants, to its knowledge, that as of the Commencement Date, the Premises shall
be in compliance with all Legal Requirements, as hereinafter defined,
(including, without limitation, the Americans With Disabilities Act) in effect
as of the Commencement Date of this Lease and that no written notice has been
received by Landlord as of the date hereof of non-compliance with any Legal
Requirements.

                                      -1-





         3.       USE. The Premises shall be used only for the purpose of
receiving, storing, shipping and selling products, materials and merchandise
made and/or distributed by Tenant and for such other lawful purposes as may be
incidental thereto; provided, however, with Landlord's prior written consent,
Tenant may also use the Premises for light manufacturing. Tenant shall not
conduct or give notice of any auction, liquidation, or going out of business
sale on the Premises. Tenant will use the Premises in a careful, safe and proper
manner and will not commit waste, overload the floor or structure of the
Premises or subject the Premises to use that would damage the Premises. Tenant
shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise,
or vibrations to emanate from the Premises, or take any other action that would
constitute a nuisance or would disturb, unreasonably interfere with, or endanger
Landlord or any tenants of the Project. Outside storage, including without
limitation, storage of trucks and other vehicles, is prohibited without
Landlord's prior written consent; provided, however, that subject to applicable
Legal Requirements, Tenant shall be permitted to park trucks and trailers used
in Tenant's business operations on and from the Premises overnight at the truck
docks of the Premises, provided such trucks and trailers are at all times in
operable condition and there is no interference with the access of other tenants
to the Building parking lots and truck courts. Tenant, at its sole expense,
shall use and occupy the Premises in compliance with all laws, including,
without limitation, the Americans With Disabilities Act, orders, judgments,
ordinances, regulations, codes, directives, permits, licenses, covenants and
restrictions now or hereafter applicable to the Premises (collectively, "Legal
Requirements"). Tenant shall, at its expense, make any alterations or
modifications, within or without the Premises, that are required by Legal
Requirements related to Tenant's use or occupation of the Premises. Tenant will
not use or permit the Premises to be used for any purpose or in any manner that
would void Tenant's or Landlord's insurance, increase the insurance risk, or
cause the disallowance of any sprinkler credits. If any increase in the cost of
any insurance on the Premises or the Project is caused by Tenant's use or
occupation of the Premises, or because Tenant vacates the Premises, then Tenant
shall pay the amount of such increase to Landlord. Any occupation of the
Premises by Tenant prior to the Commencement Date shall be subject to all
obligations of Tenant under this Lease.

                  Notwithstanding anything contained herein to the contrary,
Tenant's obligations hereunder shall relate only to the interior of the Premises
and any changes to the Project that relate solely to the specific manner of use
of the Premises by Tenant; and Landlord shall make all other additions to or
modifications of the Project required from time to time by Legal Requirements.
The cost of such additions or modifications made by Landlord shall be included
in Operating Expenses pursuant to Paragraph 6 of this Lease, except for those
additions or modifications which are Landlord's sole responsibility pursuant to
Paragraph 10 of this Lease.

         4.       BASE RENT. Tenant shall pay Base Rent in the amount set forth
above. The first month's Base Rent, the Security Deposit, and the first monthly
installment of estimated Operating Expenses (as hereafter defined) shall be due
and payable on the date hereof, and Tenant promises to pay to Landlord in
advance, without demand, deduction or set-off, monthly installments of Base
Rent on or before the first day of each calendar month succeeding the
Commencement Date. Payments of Base Rent for any fractional calendar month shall
be prorated. All payments required to be made by Tenant to Landlord hereunder
shall be payable at such address as Landlord may specify from time to time by
written notice delivered in accordance herewith. The obligation of Tenant to pay
Base Rent and other sums to Landlord and the obligations of Landlord under this
Lease are independent obligations. Tenant shall have no right at any time to
abate, reduce, or set-off any rent due hereunder except as may be expressly
provided in this Lease. If Tenant is delinquent in any monthly installment of
Base Rent or of estimated Operating Expenses for more than 5 days, Tenant shall
pay to Landlord on demand a late charge equal to 5 percent of such delinquent
sum. The provision for such late charge shall be in addition to all of
Landlord's other rights and remedies hereunder or at law and shall not be
construed as a penalty.


         5.       SECURITY DEPOSIT. The Security Deposit shall be held
by Landlord as security for the performance of Tenant's obligations under this
Lease. The Security Deposit is not an advance rental deposit or a measure of
Landlord's damages in case of Tenant's default. Upon each occurrence of an Event
of Default (hereinafter defined), Landlord may use all or part of the Security
Deposit to pay delinquent payments due under this Lease, and the cost of any
damage, injury, expense or liability caused by such Event of Default, without
prejudice to any other remedy provided herein or provided by law. Tenant shall
pay Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease and the Premises to a person or entity assuming
Landlord's obligations under this Paragraph 5.

         6.       OPERATING EXPENSE PAYMENTS. During each month of the Lease
Term, on the same date that Base Rent is due, Tenant shall pay Landlord an
amount equal to 1/12 of the annual cost, as reasonably estimated in good faith
by Landlord from time to time, of Tenant's Proportionate Share (hereinafter
defined) of Operating Expenses for the Project. Payments thereof for any
fractional calendar month shall be prorated. The term "Operating Expenses" means
all costs and expenses incurred by Landlord with respect to the ownership,
maintenance, and operation of the Project including, but not limited to costs
of: Taxes (hereinafter defined) and reasonable fees payable to tax consultants
and attorneys for consultation and contesting taxes to the extent of any savings
realized, not to exceed the amount of such savings; insurance; utilities;
maintenance, repair and replacement of all portions of the Project, including
without limitation, paving and parking areas, roads roofs, alleys, and
driveways, mowing, landscaping, exterior painting, utility lines, heating,
ventilation and air conditioning systems, lighting, electrical systems and other
mechanical and building systems; amounts paid to contractors and subcontractors
for work or services performed in connection with any of the


                                      -2-





foregoing; charges or assessments of any association to which the Project is
subject; market-rate property management fees payable to a property manager,
including any affiliate of Landlord; security services, if any; trash
collection, sweeping and removal; and additions or alterations made by Landlord
to the Project or the Building in order to comply with Legal Requirements (other
than those expressly required herein to be made by Tenant) or that are
appropriate to the continued operation of the Project or the Building as a bulk
warehouse facility in the market area, provided that the cost of additions or
alterations that are required to be capitalized for federal income tax purposes
shall be amortized on a straight line basis over a period equal to the useful
life thereof for federal income tax purposes. Operating Expenses do not include
costs, expenses, depreciation or amortization for capital repairs and capital
replacements required to be made by Landlord under Paragraph 10 of this Lease,
debt service under mortgages or ground rent under ground leases, costs of
restoration to the extent of net insurance proceeds received by Landlord with
respect thereto, leasing commissions, or the costs of renovating space for
tenants. Further, Operating Expenses shall not mean or include: (i) costs
incurred in connection with the construction or remodeling of the Project or any
other improvements now or hereafter located thereon, or correction of defects in
design or construction; (ii) interest, principal, or other payments on account
of any indebtedness, or rental or other payments under any ground lease, or any
payments in the nature of returns on or of equity of any kind; (iii) costs of
selling, syndicating, financing, mortgaging or hypothecating any part of or
interest in the Project; (iv) taxes on the income of Landlord or Landlord's
franchise taxes (unless any of said taxes are hereafter instituted by applicable
taxing authorities in substitution for ad valorem real property taxes); (v)
depreciation; (vi) Landlord's overhead costs, including equipment, supplies,
accounting and legal fees, rent and other occupancy costs or any other costs
associated with the operation or internal organization and function of Landlord
as a business entity (but this provision does not prevent the payment of a
management fee to Landlord as provided in this Paragraph 6); (vii) fees or other
costs for professional services provided by space planners, architects,
engineers, and other similar professional consultants, real estate commissions,
and marketing and advertising expenses; (viii) costs of defending or prosecuting
litigation with any party, unless a favorable judgment would be for the general
benefit of the tenants in the Project; (ix) costs incurred as a result of
Landlord's violation of any lease, contract, law or ordinance, including fines
and penalties; (x) late charges, interest or penalties of any kind for late or
other improper payment of any public or private obligation, including ad valorem
taxes; (xi) costs of removing Hazardous Materials or of correcting any other
conditions in order to comply with any environmental law or ordinance (but this
exclusion shall not constitute a release by Landlord of Tenant for any such
costs for which Tenant is liable pursuant to Paragraph 30 of this Lease); (xii)
costs for which Landlord is reimbursed from any other source; (xiii) costs
related to any building or land not included in the Project, including any
allocation of costs incurred on a shared basis, such as centralized accounting
costs, unless the allocation is made on a reasonable and consistent basis that
fairly reflects the share of costs actually attributable to the Project; and
(xiv) the part of any costs or other sum paid to any affiliate of Landlord that
may exceed the fair market price or cost generally payable for substantially
similar goods or services in the area of the Project.

                  If Tenant's total payments of Operating Expenses for any year
are less than Tenant's Proportionate Share of actual Operating Expenses for such
year, then Tenant shall pay the difference to Landlord within 30 days after
demand, and if more, then Landlord shall retain such excess and credit it
against Tenant's next payments, except that during the last calendar year of the
Lease Term or any extension terms thereof, Landlord shall refund any such excess
within 30 days following the termination of the Lease Term or any extension
terms thereof. For purposes of calculating Tenant's Proportionate Share of
Operating Expenses, a year shall mean a calendar year except the first year,
which shall begin on the Commencement Date, and the last year, which shall end
on the expiration of this Lease. With respect to Operating Expenses which
Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall
be the percentage set forth on the first page of this Lease as Tenant's
Proportionate Share of the Project as reasonably adjusted by Landlord in the
future for changes in the physical size of the Premises or the Project; and,
with respect to Operating Expenses which Landlord allocates only to the
Building, Tenant's "Proportionate Share" shall be the percentage set forth on
the first page of this Lease as Tenant's Proportionate Share of the Building as
reasonably adjusted by Landlord in the future for changes in the physical size
of the Premises or the Building. Landlord may equitably increase Tenant's
Proportionate Share for any item of expense or cost reimbursable by Tenant that
relates to a repair, replacement, or service that benefits only the Premises or
only a portion of the Project or Building that includes the Premises or that
varies with occupancy or use. The estimated Operating Expenses for the Premises
set forth on the first page of this Lease are only estimates, and Landlord makes
no guaranty or warranty that such estimates will be accurate.

         7.       UTILITIES. Tenant shall pay for all water, gas, electricity,
heat, light, power, telephone, sewer, sprinkler services, refuse and trash
collection, and other utilities and services used on the Premises, all
maintenance charges for utilities, and any storm sewer charges or other similar
charges for utilities imposed by any governmental entity or utility provider,
together with any taxes, penalties, surcharges or the like pertaining to
Tenant's use of the Premises. All utilities shall be separately metered or
charged directly to Tenant by the provider, except for water and sewer, which
shall be jointly metered. Tenant shall pay its share of all charges for jointly
metered utilities based upon consumption, as reasonably determined by Landlord.
No interruption or failure of utilities shall result in the termination of this
Lease or the abatement of rent. Tenant agrees to limit use of water and sewer
for normal restroom use.

                  Notwithstanding anything to the contrary contained in
Paragraph 7 of this Lease, if an interruption or cessation of utilities results
from a cause within the Landlord's reasonable control and the Premises are not
usable by Tenant for the conduct of Tenant's business as a result thereof, Base
Rent and applicable Operating Expenses not actually incurred by Tenant shall be
abated for the period which commences five (5) business days after the date
Tenant gives to Landlord notice of such interruption until such utilities are
restored.

         8.       TAXES. Landlord shall pay all real estate taxes, assessments
and governmental charges (collectively referred to as "Taxes") that accrue
against the Project during the Lease Term, which shall be included as part of
the Operating Expenses charged to Tenant. Landlord may contest by appropriate
legal proceedings the amount, validity, or


                                      -3-






application of any Taxes or liens thereof. All capital levies or other taxes
assessed or imposed on Landlord upon the rents payable to Landlord under this
Lease and any franchise tax, any excise, transaction, sales or privilege tax,
assessment, levy or charge measured by or based, in whole or in part, upon such
rents from the Premises and/or the Project or any portion thereof shall be paid
by Tenant to Landlord monthly in estimated installments as part of Operating
Expenses; provided, however, in no event shall Tenant be liable for any capital
gains taxes associated with the sale of the Building or any net income taxes
imposed on Landlord unless such net income taxes are in substitution for any
Taxes payable hereunder. If any such tax or excise is levied or assessed
directly against Tenant, then Tenant shall be responsible for and shall pay the
same at such times and in such manner as the taxing authority shall require.
Tenant shall be liable for all taxes levied or assessed against any personal
property or fixtures placed in the Premises, whether levied or assessed against
Landlord or Tenant.

         9.       INSURANCE. Landlord shall maintain all risk property insurance
covering the full replacement cost of the Building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem necessary, including, but not limited to, commercial liability insurance
and rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to Tenant. The Project or Building may be included in
a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises. Landlord covenants to obtain and maintain property
and liability insurance on the Project in forms and amounts customary for
properties substantially similar to the Project, subject to customary
deductibles.

                  Tenant, at its expense, shall maintain during the Lease Term:
all risk property insurance covering the full replacement cost of all property
and improvements installed or placed in the Premises by Tenant at Tenant's
expense; worker's compensation insurance with no less than the minimum limits
required by law; employer's liability insurance with such limits as required by
law; and commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together with such
additional umbrella coverage as Landlord may reasonably require) for property
damage, personal injuries, or deaths of persons occurring in or about the
Premises. Landlord may from time to time require reasonable increases in any
such limits. The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claims-made basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days' prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant's policies). Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance.

                  The all risk property insurance obtained by Landlord and
Tenant shall include a waiver of subrogation by the insurers and all rights
based upon an assignment from its insured, against Landlord or Tenant, their
officers, directors, employees, managers, agents, invitees and contractors, in
connection with any loss or damage thereby insured against. Neither party nor
its officers, directors, employees, managers, agents, invitees or contractors
shall be liable to the other for loss or damage caused by any risk coverable by
all risk property insurance, and each party waives any claims against the other
party, and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.

                  Tenant and its subtenants, assignees, invitees, employees,
contractors and agents shall not be liable for, and Landlord hereby waives all
claims against Tenant and its subtenants, assignees, invitees, employees,
contractors and agents for damage to property sustained by Landlord or any
person claiming through Landlord resulting from any insurable accident or
occurrence in or upon the Premises or in or about the Project from any cause
whatsoever, including, without limitation, damage caused in whole or in part,
directly or indirectly, by the negligence of Tenant or its subtenants,
assignees, invitees, employees, contractors or agents; provided, however, such
waiver shall only apply to claims in excess of the commercially reasonable
deductible under Landlord's insurance policy.

          10.     LANDLORD'S REPAIRS. Landlord shall maintain, repair and
replace, at its expense, latent defects, the structural soundness of the roof,
foundation, and exterior walls of the Building in good repair, reasonable wear
and tear and damages caused by Tenant, its agents and contractors excluded. The
term "walls" as used in this Paragraph 10 shall not include windows, glass or
plate glass, doors or overhead doors, special store fronts, dock bumpers, dock
plats or levelers, or office entries. Tenant shall promptly give Landlord
written notice of any repair required by Landlord pursuant to this Paragraph 10,
after which Landlord shall have a reasonable opportunity to repair.

          11.     TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas
(including exterior lighting in the parking areas) and other common areas of the
Building, including, but not limited to driveways, alleys, landscape and grounds
surrounding the Premises. Subject to Landlord's obligations in Paragraph 10 and
subject to Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace
and maintain in good condition all portions of the Premises and all areas,
improvements and systems exclusively serving the Premises including, without
limitation, dock and loading areas, truck doors, plumbing, water and sewer lines
up to points of common connection, fire sprinklers and fire protection systems,
entries, doors, ceilings and room membrane, windows, interior walls, and the
interior side of demising walls, and heating, ventilation and air conditioning
systems. Such repair


                                      -4-





and replacements include capital expenditures and repairs whose benefit may
extend beyond the Term. Heating, ventilation and air conditioning systems and
other mechanical and building systems serving the Premises shall be maintained
at Tenant's expense pursuant to maintenance service contracts entered into by
Tenant or, at Landlord's election, by Landlord. The scope of services and
contractors under such maintenance contracts shall be reasonably approved by
Landlord. If Tenant fails to perform any repair or replacement for which it is
responsible, Landlord may perform such work and be reimbursed by Tenant within
10 days after demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear
the full cost of any repair or replacement to any part of the Building or
Project that results from damage caused by Tenant, its agents, contractors, or
invitees and any repair that benefits only the Premises.

          12.     TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations,
additions, or improvements made by or on behalf of Tenant to the Premises
("Tenant-Made Alterations") shall be subject to Landlord's prior written
consent. Tenant shall cause, at its expense, all Tenant-Made Alterations to
comply with insurance requirements and with Legal Requirements and shall
construct at its expense any alteration or modification required by Legal
Requirements as a result of any Tenant-Made Alterations. All Tenant-Made
Alterations shall be constructed in a good and workmanlike manner by contractors
reasonably acceptable to Landlord and only good grades of materials shall be
used. All plans and specifications for any Tenant-Made Alterations shall be
submitted to Landlord for its approval. Landlord may monitor construction of the
Tenant-Made Alterations. Tenant shall reimburse Landlord for its costs in
reviewing plans and specifications and in monitoring construction. Landlord's
right to review plans and specifications and to monitor construction shall be
solely for its own benefit, and Landlord shall have no duty to see that such
plans and specifications or construction comply with applicable laws, codes,
rules and regulations. Tenant shall provide Landlord with the identities and
mailing addresses of all persons performing work or supplying materials, prior
to beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Tenant shall furnish
security or make other arrangements satisfactory to Landlord to assure payment
for the completion of all work free and clear of liens and shall provide
certificates of insurance for worker's compensation and other coverage in
amounts and from an insurance company satisfactory to Landlord protecting
Landlord against liability for personal injury or property damage during
construction. Upon completion of any Tenant-Made Alterations, Tenant shall
deliver to Landlord sworn statements setting forth the names of all contractors
and subcontractors who did work on the Tenant-Made Alterations and final lien
waivers from all such contractors and subcontractors. Upon surrender of the
Premises, all Tenant-Made Alterations and any leasehold improvements constructed
by Landlord or Tenant shall remain on the Premises as Landlord's property,
except to the extent Landlord requires removal at Tenant's expense of any such
items or Landlord and Tenant have otherwise agreed in writing in connection
with Landlord's consent to any Tenant-Made Alterations. Upon Tenant's written
request, Landlord shall provide Tenant, at the time of Tenant's request for
approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations
Landlord will require Tenant to remove upon surrender of the Premises. Tenant
shall repair any damage caused by such removal.

                  Tenant, at its own cost and expense and without Landlord's
prior approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.

         13.      SIGNS. Tenant shall not make any changes to the exterior of
the Premises, install any exterior lights, decorations, balloons, flags,
pennants, banners, or painting, or erect or install any signs, windows or door
lettering, placards, decorations, or advertising media of any type which can be
viewed from the exterior of the Premises, without Landlord's prior written
consent, which consent shall not be unreasonably withheld. Upon surrender or
vacation of the Premises, Tenant shall have removed all signs and shall repair
any damage to the building facia surface to which its signs are attached. Tenant
shall obtain all applicable governmental permits and approvals for sign and
exterior treatments. All signs, decorations, advertising media, blinds,
draperies and other window treatment or bars or other security installations
visible from outside the Premises shall be subject to Landlord's approval, which
approval shall not be unreasonably withheld, and conform in all respects to
Landlord's requirements.

         14.      PARKING. Tenant shall be entitled to park in common with other
tenants of the Project in those areas designated for nonreserved parking.
Landlord may allocate parking spaces among Tenant and other tenants in the
Project if Landlord determines that such parking facilities are becoming
crowded. Landlord shall not be responsible for enforcing Tenant's parking rights
against any third parties.

         15.      RESTORATION. If at any time during the Lease Term the Premises
are damaged by a fire or other casualty, Landlord shall notify Tenant within 15
days after such damage as to the amount of time Landlord reasonably estimates
will take to restore the Premises. If the restoration time is estimated to
exceed 4 months, either Landlord or Tenant may elect to terminate this Lease
upon notice to the other party given no later than 30 days after Landlord's
notice. If neither party elects to terminate this Lease or if Landlord estimates
that restoration will take 4 months or less, then, Landlord shall promptly
restore the Premises (including the Initial Improvements as defined in Addendum
3 attached hereto) excluding Tenant's Tenant-Made Alterations, Trade Fixtures
and personal property, subject to delays arising from Force Majeure events.
Tenant at Tenant's expense shall promptly perform, subject to delays arising
from Force Majeure events, all repairs or restoration to Tenant's Tenant-Made
Alterations, Trade Fixtures and personal property and shall promptly re-inter
the Premises and commence doing business in accordance with this Lease.
Notwithstanding the foregoing, either party may terminate this Lease if the
Premises are damaged during the last year of the Lease Term and Landlord
reasonably estimates that it will take more than one month to repair such
damage. Base Rent and Operating Expenses shall be abated for the period of
repair and restoration in the proportion which the area of the Premises, if any,


                                      -5-




which is not usable by Tenant bears to the total area of the Premises. Such
abatement shall be the sole remedy of Tenant, and except as provided herein,
Tenant waives any right to terminate the Lease by reason of damage or casualty
loss.

         16.      CONDEMNATION. If any part of the Premises or the Project
should be taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof (a "Taking" or "Taken"), and in Tenant's reasonable judgment the
Taking would prevent or materially interfere with Tenant's use of the Premises
or in Landlord's reasonable judgment would materially interfere with or impair
its ownership or operation of the Project, then upon written notice by Landlord
or Tenant this Lease shall terminate and Base Rent shall be apportioned as of
said date. If part of the Premises shall be Taken, and this Lease is not
terminated as provided above, the Base Rent payable hereunder during the
unexpired Lease Term shall be reduced to such extent as may be fair and
reasonable under the circumstances. In the event of any such Taking, Landlord
shall be entitled to receive the entire price or award from any such Taking
without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's
interest, if any, in such award. Tenant shall have the right, to the extent that
same shall not diminish Landlord's award, to make a separate claim against the
condemning authority (but not Landlord) for such compensation as maybe
separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant's Trade Fixtures, if a separate award for such items is made to Tenant.

         17.      ASSIGNMENT AND SUBLETTING. Without Landlord's prior written
consent, which shall not be unreasonably withheld pursuant to the provisions of
Addendum 6 attached hereto, Tenant shall not assign this Lease or sublease the
Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold
interest or grant any concession or license within the Premises and any attempt
to do any of the foregoing shall be void and of no effect. For purposes of this
paragraph, a transfer of the ownership interests controlling Tenant shall be
deemed an assignment of this Lease unless such ownership interests are publicly
traded. Notwithstanding the above, Tenant may assign or sublet the Premises, or
any part thereof, to any entity controlling Tenant, controlled by Tenant or
under common control with Tenant (a "Tenant Affiliate"), without the prior
written consent of Landlord. Tenant shall reimburse Landlord for all of
Landlord's reasonable out-of-pocket expenses in connection with any assignment
or sublease. Upon Landlord's receipt of Tenant's written notice of a desire to
assign or sublet the Premises, or any part thereof (other than to a Tenant
Affiliate), Landlord may, by giving written notice to Tenant within 30 days
after receipt of Tenant's notice, terminate this Lease with respect to the space
described in Tenant's notice, as of the date specified in Tenant's notice for
the commencement of the proposed assignment or sublease.

                  Notwithstanding anything contained herein to the contrary,
provided no default has occurred and is continuing under this Lease, upon 10
days prior written notice to Landlord, Tenant may, without Landlord's prior
written consent, sublease a portion of the Premises consisting of approximately
3,000 square feet to Tenant's customer, Smith & Hawkins for purposes of retail
outlet space ("Smith & Hawkins Sublease"), upon the express understandings and
conditions that (a) Landlord neither approves nor disapproves the terms,
conditions and agreements contained in the Smith & Hawkins Sublease (all of
which shall be subordinate and subject at all times to the terms, covenants and
conditions of the Lease) and assumes no liability or obligation of any kind
whatsoever on account of anything contained in the Smith & Hawkins Sublease; (b)
Landlord shall not be deemed to have waived any rights under the Lease nor shall
Landlord be deemed to have waived Tenant's obligations to obtain any required
consents under the Lease (other than consent to the Smith & Hawkins Sublease
itself); (c) notwithstanding anything in the Smith & Hawkins Sublease to the
contrary, Tenant shall be and continue to remain liable for the payment of rent
and the full and prompt performance of all of the obligations of Tenant under
and as set forth in the Lease; (d) nothing contained in the Smith & Hawkins
Sublease shall be taken or construed to in any way modify, alter, waive or
affect any of the terms, covenants or conditions contained in the Lease, or be
deemed to grant Smith & Hawkins any privity of contract with Landlord, or
require Landlord to accept any payments from Smith & Hawkins on behalf of
Tenant; (e) the Smith & Hawkins Sublease shall be deemed and agreed to be a
sublease only and not an assignment and there shall be no further subletting or
assignment of all or any portion of the Premises (including the premises demised
by the Smith & Hawkins Sublease) except in accordance with the terms and
conditions of the Lease; and (f) if Landlord terminates the Lease as a result of
a default by Tenant as set forth in the Lease, the Smith & Hawkins Sublease
shall automatically terminate concurrently therewith unless Landlord elects in
writing to keep the Smith & Hawkins Sublease in full force and effect in which
case the Smith & Hawkins Sublease shall become and be deemed to be a direct
indenture of lease between Landlord and Smith & Hawkins.

                  Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings). In the event that the rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease (excepting the Smith & Hawkins
Sublease), then Tenant shall he bound and obligated to pay Landlord as
additional rent hereunder 50% of all such excess rental and other excess
consideration within 10 days following receipt thereof by Tenant (after
deducting standard tenant improvements, reasonable brokerage fees, and
reasonable attorney's fees).

                  If this Lease be assigned or if the Premises be subleased
(whether in whole or in part) or in the event of the mortgage, pledge, or
hypothecation of Tenant's leasehold interest or grant of any concession or
license within the Premises or if the Premises be occupied in whole or in part
by anyone other than Tenant, then upon a default by Tenant hereunder Landlord
may collect rent from the assignee, subleasee, mortgagee, pledgee, party to whom
the leasehold interest was hypothecated, concessionee or licensee or other
occupant and, except to the extent set forth in the preceding paragraph, apply
the amount collected to the next rent payable hereunder; and all such rentals
collected by Tenant shall be held in trust for Landlord and immediately
forwarded to Landlord. No such transaction or collection of rent or application
thereof by Landlord, however, shall be deemed a waiver of these provisions or a
release of Tenant from the further performance by Tenant of its covenants,
duties, or obligations hereunder.


                                      -6-





         18.      INDEMNIFICATION. Except for the negligence of Landlord, its
agents, employees or contractors, and to the extent permitted by law, Tenant
agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents,
employees and contractors, from and against any and all losses, liabilities,
damages, costs and expenses (including attorneys' fees) resulting from claims by
third parties for injuries to any person and damage to or theft or
misappropriation or loss of property occurring in or about the Project and
arising from the use and occupancy of the Premises or from any activity, work,
or thing done, permitted or suffered by Tenant in or about the Premises or due
to any other act or omission of Tenant, its subtenants, assignees, invitees,
employees, contractors and agents. The furnishing of insurance required
hereunder shall not be deemed to limit Tenant's obligations under this Paragraph
18.

         19.      INSPECTION AND ACCESS. Landlord and its agents,
representatives, and contractors may enter the Premises at any reasonable time
to inspect the Premises and to make such repairs as may be required or permitted
pursuant to this Lease and for any other business purpose. Landlord and
Landlord's representatives may enter the Premises during business hours for the
purpose of showing the Premises to prospective purchasers and, during the last
year of the Lease Term, to prospective tenants. Landlord may erect a suitable
sign on the Premises stating the Premises are available to let or that the
Project is available for sale. Landlord may grant easements, make public
dedications, designate common areas and create restrictions on or about the
Premises, provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.

         20.      QUIET ENJOYMENT. If Tenant shall perform all of the covenants
and agreements herein required to be performed by Tenant, Tenant shall, subject
to the terms of this Lease, at all times during the Lease Term, have peaceful
and quiet enjoyment of the Premises against any person claiming by, through or
under Landlord.

         21.      SURRENDER. Upon termination of the Lease Term or earlier
termination of Tenant's right of possession, Tenant shall surrender the Premises
to Landlord in the same condition as received, broom clean, ordinary wear and
tear and casualty loss and condemnation covered by Paragraphs 15 and 16
excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so
removed by Tenant as permitted or required herein shall be deemed abandoned and
may be stored, removed, and disposed of by Landlord at Tenant's expense, and
Tenant waives all claims against Landlord for any damages resulting from
Landlord's retention and disposition of such property. All obligations of Tenant
hereunder not fully performed as of the termination of the Lease Term shall
survive the termination of the Lease Term, including without limitation,
indemnity obligations, payment obligations with respect to Operating Expenses
and obligations concerning the condition and repair of the Premises.

         22.      HOLDING OVER. If Tenant retains possession of the Premises
after the termination of the Lease Term, unless otherwise agreed in writing,
such possession shall be subject to immediate termination by Landlord at any
time, and all of the other terms and provisions of this Lease (excluding any
expansion or renewal option or other similar right or option) shall be
applicable during such holdover period, except that Tenant shall pay Landlord
from time to time, upon demand, as Base Rent for the holdover period, an amount
equal to 100% of the Base Rent in effect on the termination date during the
first 30 days of such holdover period and an amount equal to 150% of the Base
Rent in effect on the termination date for any holdover period thereafter,
computed on a monthly basis for each month or part thereof during such holding
over. All other payments shall continue under the terms of this Lease. In
addition, Tenant shall be liable for all damages incurred by Landlord as a
result of such holding over. No holding over by Tenant, whether with or without
consent of Landlord, shall operate to extend this Lease except as otherwise
expressly provided, and this Paragraph 22 shall not be construed as consent for
Tenant to retain possession of the Premises.

         23.      EVENTS OF DEFAULT. Each of the following events shall be an
event of default ("Event of Default") by Tenant under this Lease:

                   (i)     Tenant shall fail to pay any installment of Base Rent
         or any other payment required herein when due, and such failure shall
         continue for a period of 5 days after written notice from Landlord to
         Tenant that such payment was due; provided, however, that Landlord
         shall not be obligated to provide written notice of such failure more
         than 2 times in any consecutive 12-month period, and the failure of
         Tenant to pay any third or subsequent installment of Base Rent or any
         other payment required herein when due in any consecutive 12-month
         period shall constitute an Event of Default by Tenant under this Lease
         without the requirement of notice or opportunity to cure.

                   (ii)    Tenant or any guarantor or surety of Tenant's
         obligations hereunder shall (A) make a general assignment for the
         benefit of creditors; (B) commence any case, proceeding or other action
         seeking to have an order for relief entered on its behalf as a debtor
         or to adjudicate it a bankrupt or insolvent, or seeking reorganization,
         arrangement, adjustment, liquidation, dissolution or composition of it
         or its debts or seeking appointment of a receiver, trustee, custodian
         or other similar official for it or for all or of any substantial part
         of its property (collectively a "proceeding for relief"); (C) become
         the subject of any proceeding for relieve which is not dismissed
         within 60 days of its filing or entry; or (D) die or suffer a legal
         disability (if Tenant, guarantor, or surety is an individual) or be
         dissolved or otherwise fail to maintain its legal existence (if Tenant,
         guarantor or surety is a corporation, partnership or other entity).


                  (iii)    Any insurance required to be maintained by Tenant
         pursuant to this Lease shall be cancelled or terminated or shall expire
         or shall be reduced or materially changed, except, in each case, as
         permitted in this Lease.

                  (iv)     Tenant shall not occupy or shall vacate the Premises
         or shall fail to continuously operate its business at the Premises for
         the permitted use set forth herein, whether or not Tenant is in
         monetary or other


                                      -7-





          default under this Lease. Tenant's vacating of the Premises shall not
          constitute an Event of Default if, prior to vacating the Premises,
          Tenant has made arrangements reasonably acceptable to Landlord to (a)
          insure that Tenant's insurance for the Premises will not be voided or
          cancelled with respect to the Premises as a result of such vacancy,
          (b) insure that the Premises are secured and not subject to vandalism,
          and (c) insure that the Premises will be properly maintained after
          such vacation. Tenant shall inspect the Premises at least once each
          month and report monthly in writing to Landlord on the condition of
          the Premises.

                   (v)     Tenant shall attempt or there shall occur any
         assignment, subleasing or other transfer of Tenant's interest in or
         with respect to this Lease except as otherwise permitted in this Lease.

                   (vi)    Tenant shall fail to discharge any lien placed upon
         the Premises in violation of this Lease within 30 days after any such
         lien or encumbrance is filed against the Premises.

                   (vii)   Tenant shall fail to comply with any provision of
         this Lease other than those specifically referred to in this Paragraph
         23, and except as otherwise expressly provided herein, such default
         shall continue for more than 30 days after Landlord shall have given
         Tenant written notice of such default, unless curing such default will,
         due to the nature of such default, require a period of time in excess
         of 30 days, then, after such period of time as is reasonably necessary,
         but in no event shall curing such default exceed 90 days.

          24.     LANDLORD'S REMEDIES. Upon each occurrence of an Event of
Default and so long as such Event of Default shall be continuing, Landlord may
at any time thereafter at its election: terminate this Lease or Tenant's right
of possession, (but Tenant shall remain liable as hereinafter provided) and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord, without formal demand or notice of any kind, to re-enter the Premises
by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in
place and use, or remove and store, all of the furniture, fixtures and equipment
at the Premises.

                   If Landlord terminates this Lease, Landlord may recover from
Tenant the sum of: all Base Rent and all other amounts accrued hereunder to the
date of such termination; the cost of reletting the whole or any part of the
Premises, including without limitation brokerage fees and/or leasing commissions
incurred by Landlord, and costs of removing and storing Tenant's or any other
occupant's property, repairing, altering, remodeling, or otherwise putting the
Premises into condition acceptable to a new tenant or tenants, and all
reasonable expenses incurred by Landlord in pursuing its remedies, including
reasonable attorneys' fees and court costs; and the excess of the then present
value of the Base Rent and other amounts payable by Tenant under this Lease as
would otherwise have been required to be paid by Tenant to Landlord during the
period following the termination of this Lease measured from the date of such
termination to the expiration date stated in this Lease, over the present value
of any net amounts which Tenant establishes Landlord can reasonably expect to
recover by reletting the Premises for such period, taking into consideration the
availability of acceptable tenants and other market conditions affecting
leasing. Such present values shall be calculated at a discount rate equal to the
90-day U.S. Treasury bill rate at the date of such termination.

                  If Landlord terminates Tenant's right to possession without
terminating the Lease after an Event of Default, Landlord shall use commercially
reasonable efforts to relet the Premises; provided, however, (a) Landlord shall
not be obligated to accept any tenant proposed by Tenant, (b) Landlord shall
have the right to lease any other space controlled by Landlord first, and (c)
any proposed tenant shall meet all of Landlord's leasing criteria. For the
purpose of such reletting Landlord is authorized to make any repairs, changes,
alterations, or additions in or to the Premises as Landlord deems reasonably
necessary or desirable. If the Premises are not relet, then Tenant shall pay to
Landlord as damages a sum equal to the amount of the rental reserved in this
Lease for such period or periods, plus the cost of recovering possession of the
Premises (including attorneys' fees and costs of suit), the unpaid Base Rent and
other amounts accrued hereunder at the time of repossession, and the costs
incurred in any attempt by Landlord to relet the Premises. If the Premises are
relet and a sufficient sum shall not be realized from such reletting [after
first deducting therefrom, for retention by Landlord, the unpaid Base Rent and
other amounts accrued hereunder at the time of reletting, the cost of recovering
possession (including attorneys' fees and costs of suit), all of the costs and
expense of repairs, changes, alterations, and additions, the expense of such
reletting (including without limitation brokerage fees and leasing commissions)
and the cost of collection of the rent accruing therefrom to satisfy the rent
provided for in this Lease to be paid, then Tenant shall immediately satisfy and
pay any such deficiency. Any such payments due Landlord shall be made upon
demand therefor from time to time and Tenant agrees that Landlord may file suit
to recover any sums falling due from time to time. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect in
writing to terminate this Lease for such previous breach.

         Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, whether by agreement or
by operation of Law, it being understood that such surrender and/or
termination can be effected only by the written agreement of Landlord and
Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord
shall have the right at all times to enforce the provisions of this Lease in
strict accordance with the terms hereof; and the failure of Landlord at any time
to enforce its rights under this Lease strictly in accordance with same shall
not be construed as having created a custom in any way or manner contrary to the
specific terms, provisions, and covenants of this Lease or as having modified
the same. Tenant and Landlord further agree that forbearance or waiver by
Landlord to enforce its rights pursuant to this Lease or at law or in equity,
shall not be a waiver of Landlord's right to enforce one or more of its rights
in connection with any subsequent default. A receipt by Landlord of rent or
other payment with knowledge of the breach of any covenant hereof shall not be
deemed a waiver of such breach, and no waiver by Landlord of any provision of
this Lease shall be deemed to have been made unless expressed in writing and
signed by Landlord. To the greatest extent permitted by law, Tenant waives the
service of notice of Landlord's intention to re-enter as provided for in any


                                      -8-





statute, or to institute legal proceedings to that end, and also waives all
right of redemption in case Tenant shall be dispossessed by a judgment or by
warrant of any court or judge. The terms "enter," "re-enter," "entry" or
"re-entry," as used in this Lease, are not restricted to their technical legal
meanings. Any reletting of the Premises shall be on such terms and conditions as
Landlord in its sole discretion may determine (including without limitation a
term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any tenant
and leasing any or all other portions of the Project before reletting the
Premises). Landlord shall not be liable, nor shall Tenant's obligations
hereunder be diminished because of, Landlord's failure to relet the Premises or
collect rent due in respect of such reletting, provided that Landlord has used
commercially reasonable efforts to mitigate its damages as provided for above.

         25.      TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not
be in default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions. If such default by Landlord shall occur,
Tenant may pursue any legal or equitable remedy for which it is entitled. All
obligations of Landlord under this Lease will be binding upon Landlord only
during the period of its ownership of the Premises and not thereafter. The term
"Landlord" in this Lease shall mean only the owner, for the time being of the
Premises, and in the event of the transfer by such owner of its interest in the
Premises, such owner shall thereupon be released and discharged from all
obligations of Landlord thereafter accruing, but such obligations shall be
binding during the Lease Term upon each new owner for the duration of such
owner's ownership. Any liability of Landlord under this Lease shall be limited
solely to its interest in the Project, and in no event shall any personal
liability be asserted against Landlord in connection with this Lease nor shall
any recourse be had to any other property or assets of Landlord.

         26.      WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO
TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING
OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

         27.      SUBORDINATION. This Lease and Tenant's interest and rights
hereunder are and shall be subject and subordinate at all times to the lien of
any first mortgage, now existing or hereafter created on or against the Project
or the Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant agrees,
at the election of the holder of any such mortgage, to attorn to any such
holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder. Notwithstanding the foregoing, any such
holder may at any time subordinate its mortgage to this Lease, without Tenant's
consent, by notice in writing to Tenant, and thereupon this Lease shall be
deemed prior to such mortgage without regard to their respective dates of
execution, delivery or recording and in that event such holder shall have the
same rights with respect to this Lease as though this Lease had been executed
prior to the execution, delivery and recording of such mortgage and had been
assigned to such holder. The term "mortgage" whenever used in this Lease shall
be deemed to include deeds of trust, security assignments and any other
encumbrances, and any reference to the "holder" of a mortgage shall be deemed to
include the beneficiary under a deed of trust.

                  Tenant shall not be obligated to subordinate the Lease or its
interest therein to any future mortgage, deed of trust or ground lease on the
Project unless concurrently with such subordination the holder of such mortgage
or deed of trust or the ground lessor under such ground lease agrees not to
disturb Tenant's possession of the Premises under the terms of the Lease in the
event such holder or ground lessor acquires title to the Premises through
foreclosure, deed in lieu of foreclosure or otherwise.

         28.      MECHANIC'S LIENS. Tenant has no express or implied authority
to create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost or
expense based on or arising out of asserted claims or liens against the
leasehold estate or against the interest of Landlord in the Premises or under
this Lease. Tenant shall give Landlord immediate written notice of the placing
of any lien or encumbrance against the Premises and cause such lien or
encumbrance to be discharged within 30 days of the filing or recording thereof;
provided, however, Tenant may contest such liens or encumbrances as long as such
contest prevents foreclosure of the lien or encumbrance and Tenant causes lien
or encumbrance to be bonded or insured over in a manner satisfactory to Landlord
within such 30 day period.

         29.      ESTOPPEL CERTIFICATES. Tenant agrees, from time to time,
within 10 days after request of Landlord, to execute and deliver to Landlord, or
Landlord's designee, any estoppel certificate requested by Landlord, stating
that this Lease is in full force and effect, the date to which rent has been
paid, that Landlord is not in default hereunder (or specifying in detail the
nature of Landlord's default), the termination date of this Lease and such other
matters pertaining to this Lease as may be requested by Landlord. Tenant's
obligation to furnish each estoppel certificate in a timely fashion is a
material inducement for Landlord's executive of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate.


                                      -9-





          30.     ENVIRONMENTAL REQUIREMENTS. Except for Hazardous Material
contained in products used by Tenant in de minimis quantities for ordinary
cleaning and office purposes, Tenant shall not affirmatively consent or cause
any party to bring any Hazardous Material upon the Premises or transport, store,
use, generate, manufacture or release any Hazardous Material in or about the
Premises without Landlord's prior written consent. Tenant, at its sole cost and
expense, shall operate its business in the Premises in strict compliance with
all Environmental Requirements and shall remediate in a manner reasonably
satisfactory to Landlord any Hazardous Materials released on or from the Project
by Tenant, its agents, employees, contractors, subtenants or invitees. Tenant
shall complete and certify to disclosure statements as requested by Landlord
from time to time relating to Tenant's transportation, storage, use, generation,
manufacture or release of Hazardous Materials on the Premises. The term
"Environmental Requirements" means all applicable present and future statutes,
regulations, ordinances, rules, codes, judgments, orders or other similar
enactments of any governmental authority or agency regulating or relating to
health, safety, or environmental conditions on, under, or about the Premises or
the environment, including without limitation, the following: the Comprehensive
Environmental Response, Compensation and Liability Act; the Resource
Conservation and Recovery Act; and all state and local counterparts thereto, and
any regulations or policies promulgated or issued thereunder. The term
"Hazardous Materials" means and includes any substance, material, waste,
pollutant, or contaminant listed or defined as hazardous or toxic, under any
Environmental Requirements, asbestos and petroleum, including crude oil or any
fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas
usable for fuel (or mixtures of natural gas and such synthetic gas). As defined
in Environmental Requirements, Tenant is and shall be deemed to be the
"operator" of Tenant's "facility" and the "owner" of all Hazardous Materials
brought on the Premises by Tenant, its agents, employees, contractors or
invitees, and the wastes, by-products, or residues generated, resulting, or
produced therefrom.

                   Tenant shall indemnify, defend, and hold Landlord harmless
from and against any and all losses (including, without limitation, diminution
in value of the Premises or the Project and loss of rental income from the
Project), claims, demands, actions, suits, damages (including, without
limitation, punitive damages), expenses (including, without limitation,
remediation, removal, repair, corrective action, or cleanup expenses), and costs
(including, without limitation, actual attorneys' fees, consultant fees or
expert fees and including, without limitation, removal or management of any
asbestos brought into the property or disturbed in breach of the requirements of
this Paragraph 30, regardless of whether such removal or management is required
by law) which are brought or recoverable against, or suffered or incurred by
Landlord as a result of any release of Hazardous Materials for which Tenant is
obligated to remediate as provided above or any other breach of the requirements
under this Paragraph 30 by Tenant, its agents, employees, contractors,
subtenants, assignees or invitees, regardless of whether Tenant had knowledge of
such noncompliance. The obligations of Tenant under this Paragraph 30 shall
survive any termination of this Lease.

                  Notwithstanding anything to the contrary in this Paragraph 30,
Tenant shall have no liability of any kind to Landlord as to Hazardous Materials
on the Premises caused or permitted by (i) Landlord, its agents, employees,
contractors or invitees; or (ii) any other tenants in the Project or their
agents, employees, contractors, subtenants, assignees or invitees; or (iii) any
other person or entity located outside of the Premises or the Project.

                  Landlord shall have access to, and a right to perform
inspections and tests of, the Premises to determine Tenant's compliance with
Environmental Requirements, its obligations under this Paragraph 30, or the
environmental condition of the Premises. Access shall be granted to Landlord
upon Landlord's prior notice to Tenant and at such times so as to minimize, so
far as may be reasonable under the circumstances, any disturbance to Tenant's
operations. Such inspections and tests shall be conducted at Landlord's expense,
unless such inspections or tests reveal that Tenant has not complied with any
Environmental Requirement, in which case Tenant shall reimburse Landlord for the
reasonable cost of such inspection and tests. Landlord's receipt of or
satisfaction with any environmental assessment in no way waives any rights that
Landlord holds against Tenant.

         If Hazardous Materials are hereafter discovered on the Premises, and
the presence of such Hazardous Materials is not the result of Tenant's use of
the Premises or any act or omission of Tenant or its agents, employees,
contractors, subtenants or invitees, and the presence of such Hazardous
Materials results in any contamination, damages, or injury to the Premises that
materially and adversely affects Tenant's occupancy or use of the Premises,
Landlord shall promptly take all actions at its sole expense as are necessary to
remediate such Hazardous Materials and as may be required by the Environmental
Requirements. Actual or threatened action or litigation by any governmental
authority is not a condition prerequisite to Landlord's obligations under this
paragraph. Within 30 days after notification from Tenant supported by reasonable
documentation setting forth such presence or release of Hazardous Materials, and
after Landlord has been given a reasonable period of time after such 30-day
period to conduct its own investigation to confirm such presence or release of
Hazardous Materials, Landlord shall either terminate this Lease or commence to
remediate such Hazardous Materials within 180 days after the completion of
Landlord's investigation and thereafter diligently prosecute such remediation to
completion. If Landlord fails to commence such remediation or if Landlord
commences such remediation and fails to diligently prosecute same until
completion, then Tenant as its sole remedy may terminate this Lease by written
notice to Landlord after expiration of 30 days following a notice to Landlord
that Tenant intends to terminate this Lease if Landlord does not promptly
commence or diligently prosecute the remediation within such 30-day period. If
Landlord commences remediation pursuant to this paragraph, Base Rent and
Operating Expenses shall be equitably adjusted if and to the extent and during
the period the Premises are unsuitable for Tenant's business. Notwithstanding
anything herein to the contrary, if Landlord obtains a letter from the
appropriate governmental authority that no further remediation is required prior
to the effective date of any such termination, such termination shall be null
and void and this Lease shall remain in full force and effect.

         31.      RULES AND REGULATIONS. Tenant shall, at all times during the
Lease Term and any extension thereof, comply with all reasonable rules and
regulations at any time or from time to time established by Landlord covering
use of the Premises and the Project. The current rules and regulations are
attached hereto. In the event of any conflict between


                                      -10-





said rules and regulations and other provisions of this Lease, the other terms
and provisions of this Lease shall control. Landlord shall not have any
liability or obligation for the breach of any rules or regulations by other
tenants in the Project.

          32.     SECURITY SERVICE. Tenant acknowledges and agrees that, while
Landlord may patrol the Project, Landlord is not providing any security services
with respect to the Premises and that Landlord shall not be liable to Tenant
for, and Tenant waives any claim against Landlord with respect to, any loss by
theft or any other damage suffered or incurred by Tenant in connection with any
unauthorized entry into the Premises or any other breach of security with
respect to the Premises.

         33.      FORCE MAJEURE. Except for monetary obligations, neither
Landlord nor Tenant shall be held responsible for delays in the performance of
its obligations hereunder when caused by strikes, lockouts, labor disputes, acts
of God, inability to obtain labor or materials or reasonable substitutes
therefor, governmental restrictions, governmental regulations, governmental
controls, delay in issuance of permits, enemy or hostile governmental action,
civil commotion, fire or other casualty, and other causes beyond the reasonable
control of Landlord or Tenant, as the case may be ("Force Majeure").

         34.      ENTIRE AGREEMENT. This Lease constitutes the complete
agreement of Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.

         35.      SEVERABILITY. If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws, then and in that
event, it is the intention of the parties hereto that the remainder of this
Lease shall not be affected thereby. It is also the intention of the parties to
this Lease that in lieu of each clause or provision of this Lease that is
illegal, invalid or unenforceable, there be added, as a part of this Lease, a
clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.

         36.      BROKERS. Tenant represents and warrants that it has dealt with
no broker, agent or other person in connection with this transaction and that no
broker, agent or other person brought about this transaction, other than the
broker, if any, set forth on the first page of this Lease, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction.

         37.      MISCELLANEOUS, (a) Any payments or charges due from Tenant to
Landlord hereunder shall be considered rent for all purposes of this Lease.

         (b)      If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.

         (c)      All notices required or permitted to be given under this Lease
shall be in writing and shall be sent by registered or certified mail, return
receipt requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below,
and with a copy sent to Landlord at 14100 East 35th Place, Aurora, Colorado
80011. Either party may by notice given aforesaid change its address for all
subsequent notices. Except where otherwise expressly provided to the contrary,
notice shall be deemed given upon delivery.

         (d)      Except as otherwise expressly provided in this Lease or as
otherwise required by law, Landlord retains the absolute right to withhold any
consent or approval.

         (e)      At Landlord's request from time to time Tenant shall furnish
Landlord with true and complete copies of its most recent annual and quarterly
financial statements prepared by Tenant or Tenant's accountants and any other
financial information or summaries that Tenant typically provides to its lenders
or shareholders.

         (f)      Neither this Lease nor a memorandum of lease shall be filed
by or on behalf of Tenant in any public record. Landlord may prepare and file,
and upon request by Landlord Tenant will execute, a memorandum of lease.

         (g)      The normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Lease or any exhibits or amendments hereto.

         (h)      The submission by Landlord to Tenant of this Lease shall have
no binding force or effect, shall not constitute an option for the leasing of
the Premises, nor confer any right or impose any obligations upon either party
until execution of this Lease by both parties.

         (i)      Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way define, limit or
otherwise describe the scope or intent of this Lease, or any provision hereof,
or in any way affect the interpretation of this Lease.

         (j)      Any amount not paid by Tenant within 5 days after its due date
in accordance with the terms of this Lease shall bear interest from such due
date until paid in full at the lesser of the highest rate permitted by
applicable law or 12 percent per year. It is expressly the intent of Landlord
and Tenant at all time to comply with applicable law


                                      -11-





governing the maximum rate or amount of any interest payable on or in connection
with this Lease. If applicable law is ever judicially interpreted so as to
render usurious any interest called for under this Lease, or contracted for,
charged, taken, reserved, or received with respect to this Lease, then it is
Landlord's and Tenant's express intent that all excess amounts theretofore
collected by Landlord be credited on the applicable obligation (or, if the
obligation has been or would thereby be paid in full, refunded to Tenant), and
the provisions of this Lease immediately shall be deemed reformed and the
amounts thereafter collectible hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder.

          (k)     Construction and interpretation of this Lease shall be
governed by the laws of the state in which the Project is located, excluding any
principles of conflicts of laws.

         (1)      Time is of the essence as to the performance of each party's
obligations under this Lease.

         (m)      All exhibits and addenda attached hereto are hereby
incorporated into this Lease and made a part hereof. In the event of any
conflict between such exhibits or addenda and the terms of this Lease, such
exhibits or addenda shall control.

         38.      LANDLORD'S LIEN/SECURITY INTEREST. Intentionally deleted.

         39.      LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND
OFFICERS OF PROLOGIS TRUST. Any obligation or liability whatsoever of ProLogis
Trust, a Maryland real estate investment trust, which may arise at any time
under this Lease or any obligation or liability which may be incurred by it
pursuant to any other instrument, transaction, or undertaking contemplated
hereby shall not be personally binding upon, nor shall resort for the
enforcement thereof be had to the property of, its trustees, directors,
shareholders, officers, employees or agents, regardless of whether such
obligation or liability is in the nature of contract, tort, or otherwise.

         IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.


Signed and acknowledged
in the presence of:                   LANDLORD

/s/ Thomas J. Wheehan                 ProLogis Development Services Incorporated
- ----------------------------

                                      By: /s/ Douglas A. Kiersey, Jr.
                                          --------------------------------------
                                      Name: Douglas A. Kiersey, Jr.
                                      Title: Senior Vice President

                                      Address:
                                      4710 T Interstate Drive

                                      Cincinnati, OH 45246

                                      (513) 874-9728


Signed and acknowledged
in the presence of:
                                      TENANT

                                      Innotrac Corporation


/s/ Thomas J. Wheehan
- ----------------------------

                                      By:  /s/ Larry Hanger
                                         -------------------------------------
                                      Name:  Larry Hanger
                                           -----------------------------------
                                      Title:  VP
                                            ----------------------------------

                                      Address:
                                      6655 Sugarloaf Parkway

                                      Duluth, GA  30097-4916


                                      -12-



STATE OF ILLINOIS

COUNTY OF DU PAGE

         Before me, the subscribers, a notary public in and for said county,
personally appeared Douglas A. Kiersey, Jr. the Senior V.P. of Prologis Trust,
the Landlord in the foregoing instrument, who acknowledged the signing of the
foregoing instrument to be his/her free act and deed on behalf of the Landlord
for the uses and purposes set forth therein.

         IN WITNESS WHEREOF, I have hereunto signed my name and affixed my
official seal on the 23 day of April, 2002.


                                    /s/ Vera Marie Harder
                                    --------------------------------------------
                                    NOTARY PUBLIC, STATE OF ILLINOIS


STATE OF GEORGIA

COUNTY OF GWINNETT

         Before me, the subscribers, a notary public in and for said county,
personally appeared Larry Hanger, the VP of Innotrac, the Tenant in the
foregoing instrument, who acknowledged the signing of the foregoing instrument
to be his/her free act and deed on behalf of the Tenant for the uses and
purposes set forth therein.

         IN WITNESS WHEREOF, I have hereunto signed my name and affixed my
official seal on the 10 day of April, 2002.


                                   /s/
                                   ---------------------------------------------
                                   NOTARY PUBLIC, STATE OF

                                   NOTARY PUBLIC, GWINNETT COUNTY, GEORGIA
                                     MY COMMISSION EXPIRES JUNE 23, 2002


                                      -13-




                              Rules and Regulations

1.       The sidewalk, entries, and driveways of the Project shall not be
         obstructed by Tenant, or its agents, or used by them for any purpose
         other than ingress and egress to and from the Premises.

2.       Tenant shall not place any objects, including antennas, outdoor
         furniture, etc., in the parking areas, landscaped areas or other areas
         outside of its Premises, or on the roof of the Project.

3.       Except for seeing-eye dogs, no animals shall be allowed in the offices,
         halls, or corridors in the Project.

4.       Tenant shall not disturb the occupants of the Project or adjoining
         buildings by the use of any radio or musical instrument or by the
         making of loud or improper noises.

5.       If Tenant desires telegraphic, telephonic or other electric connections
         in the Premises, Landlord or its agent will direct the electrician as
         to where and how the wires may be introduced; and, without such
         direction, no boring or cutting of wires will be permitted. Any such
         installation or connection shall be made at Tenant's expense.

6.       Tenant shall not install or operate any steam or gas engine or boiler,
         or other mechanical apparatus in the Premises, except as specifically
         approved in the Lease. The use of oil, gas or inflammable liquids for
         heating, lighting or any other purpose is expressly prohibited.
         Explosives or other articles deemed extra hazardous shall not be
         brought into the Project.

7.       Parking any type of recreational vehicles is specifically prohibited on
         or about the Project. Except for the overnight parking of operative
         vehicles, no vehicle of any type shall be stored in the parking areas
         at any time. In the event that a vehicle is disabled, it shall be
         removed within 48 hours. There shall be no "For Sale" or other
         advertising signs on or about any parked vehicle. All vehicles shall be
         parked in the designated parking areas in conformity with all signs and
         other markings. All parking will be open parking, and no reserved
         parking, numbering or lettering of individual spaces will be permitted
         except as specified by Landlord.

8.       Tenant shall maintain the Premises free from rodents, insects and other
         pests.

9.       Landlord reserves the right to exclude or expel from the Project any
         person who, in the judgment of Landlord, is intoxicated or under the
         influence of liquor or drugs or who shall in any manner do any act in
         violation of the Rules and Regulations of the Project.

10.      Tenant shall not cause any unnecessary labor by reason of Tenant's
         carelessness or indifference in the preservation of good order and
         cleanliness. Landlord shall not be responsible to Tenant for any loss
         of property on the Premises, however occurring, or for any damage done
         to the effects of Tenant by the janitors or any other employee or
         person.

11.      Tenant shall give Landlord prompt notice of any defects in the water,
         lawn sprinkler, sewage, gas pipes, electrical lights and fixtures,
         heating apparatus, or any other service equipment affecting the
         Premises.

12.      Except as otherwise set forth in the Lease, Tenant shall not permit
         storage outside the Premises, including without limitation, outside
         storage of trucks and other vehicles, or dumping of waste or refuse or
         permit any harmful materials to be placed in any drainage system or
         sanitary system in or about the Premises.

13.      All moveable trash receptacles provided by the trash disposal firm for
         the Premises must be kept in the trash enclosure areas, if any,
         provided for that purpose.

14.      No auction, public or private, will be permitted on the Premises or the
         Project.

15.      No awnings shall be placed over the windows in the Premises except with
         the prior written consent of Landlord.

16.      The Premises shall not be used for lodging, sleeping or cooking or for
         any immoral or illegal purposes or for any purpose other than that
         specified in the Lease. No gaming devices shall be operated in the
         Premises.

17.      Tenant shall ascertain from Landlord the maximum amount of electrical
         current which can safely be used in the Premises, taking into account
         the capacity of the electrical wiring in the Project and the Premises
         and the needs of other tenants, and shall not use more than such safe
         capacity. Landlord's consent to the installation of electric equipment
         shall not relieve Tenant from the obligation not to use more
         electricity than such safe capacity.

18.      Tenant assumes full responsibility for protecting the Premises from
         theft, robbery and pilferage.

19.      Tenant shall not install or operate on the Premises any machinery or
         mechanical devices of a nature not directly related to Tenant's
         ordinary use of the Premises and shall keep all such machinery free of
         vibration, noise and air waves which may be transmitted beyond the
         Premises.


                                      -14-





                                   ADDENDUM 1

                             RIGHT OF FIRST REFUSAL

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                          DATED APRIL 23, 2002, BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       and
                              INNOTRAC CORPORATION

         (a)      "Offered Space" shall mean the adjoining 110,000 square feet
of space indicated on Exhibit A attached hereto.

         (b)      Provided that as of the date of the giving of Landlord's
Notice, (x) Tenant is the Tenant originally named herein, (y) Tenant actually
occupies all of the Premises originally demised under this Lease and any
premises added to the Premises, and (z) no Event of Default or event which but
for the passage of time or the giving of notice, or both, would constitute an
Event of Default has occurred and is continuing, if at any time during the first
24 months of the Lease Term if Landlord intends to enter into a lease (the
"Proposed Lease") for such Offered Space with anyone (a "Proposed Tenant")
Landlord shall first offer to Tenant the right to lease the Offered Space upon
all the terms and conditions of the Proposed Lease; provided, however, (i) the
Lease Term with respect to the Offered Space shall run co-terminus with the
Lease Term for the Premises consisting of approximately 286,000 s.f., but in no
event shall the Lease Term for the Offered Space be less than a period equal to
48 months ("Offered Space Term"), (ii) the Base Rent for the Offered Space shall
be calculated at $2.85 p.s.f. per annum for the first 6 months of the Offered
Space Term, and thereafter shall be based upon the Fair Market Rent (as
hereinafter defined in Addendum 2), and (iii) Landlord shall contribute a
maximum amount of $100,000 for Tenant-Made Alterations in connection with the
Offered Space.

         (c)      Such offer shall be made by Landlord to Tenant in a written
notice (hereinafter called the "Offer Notice") which offer shall designate the
space being offered and shall specify the terms for such Offered Space which
shall be the same as those set forth in the Proposed Lease, except as otherwise
set forth above. Further, in addition to Landlord's Offer Notice, Landlord shall
provide Tenant with a copy of Landlord's Letter of Intent to the Proposed
Tenant. Tenant may accept the offer set forth in the Offer Notice by delivering
to Landlord an unconditional acceptance (hereinafter called "Tenant's Notice")
of such offer within 5 business days after delivery by Landlord of the Offer
Notice to Tenant. Time shall be of the essence with respect to the giving of
Tenant's Notice. If Tenant does not accept (or fails to timely accept) an offer
made by Landlord pursuant to the provisions of this Addendum with respect to the
Offered Space designated in the Offer Notice, Landlord shall be under no further
obligation with respect to such space by reason of this Addendum. In order to
send the Offer Notice, Landlord does not need to have negotiated a complete
lease with the Proposed Tenant but may merely have agreed upon the material
economic terms for the Proposed Lease, and Tenant must make its decision with
respect to the Offered Space as long as it has received a description of such
material economic terms.

         (d)      Intentionally deleted.

         (e)      If Tenant at any time declines any Offered Space offered by
Landlord, Tenant shall be deemed to have irrevocably waived all further rights
under this Addendum, and Landlord shall be free to lease the Offered Space to
the Proposed Tenant including on terms which may be less favorable to Landlord
than those set forth in the Proposed Lease.


                                      -15-







                                   ADDENDUM 2

                              TWO RENEWAL OPTIONS
                              --------------------
                             (BASEBALL ARBITRATION)

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                          DATED APRIL 23, 2002 BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       and
                              INNOTRAC CORPORATION


         (a)      Provided that as of the time of the giving of the First
Extension Notice and the Commencement Date of the First Extension Term, (x)
Tenant is the Tenant originally named herein, (y) Tenant actually occupies all
of the Premises initially demised under this Lease and any space added to the
Premises, and (z) no Event of Default exists or would exist but for the passage
of time or the giving of notice, or both; then Tenant shall have the right to
extend the Lease Term for an additional term of 1 year (such additional term is
hereinafter called the "First Extension Term") commencing on the day following
the expiration of the Lease Term (hereinafter referred to as the "Commencement
Date of the First Extension Term"). Tenant shall give Landlord notice
(hereinafter called the "First Extension Notice") of its election to extend the
term of the Lease Term at least 6 months, but not more than 9 months, prior to
the scheduled expiration date of the Lease Term.

         (b)      Provided that as of the time of the giving of the Second
Extension Notice and the Commencement Date of the Second Extension Term, (x)
Tenant is the Tenant originally named herein, (y) Tenant actually occupies all
of the Premises initially demised under this Lease and any space added to the
Premises, and (z) no Event of Default exists or would exist but for the passage
of time or the giving of notice, or both and provided Tenant has exercised its
option for the First Extension Term; then Tenant shall have the right to extend
the Lease Term for an additional term of 3 years (such additional term is
hereinafter called the "Second Extension Term") commencing on the day following
the expiration of the First Extension Term (hereinafter referred to as the
"Commencement Date of the Second Extension Term"). Tenant shall give Landlord
notice (hereinafter called the "Second Extension Notice") of its election to
extend the term of the Lease Term at least 6 months, but not more than 9 months,
prior to the scheduled expiration date of the First Extension Term.

         (c)      The Base Rent payable by Tenant to Landlord during the First
Extension Term shall be the greater of:

                  (i)      the Base Rent in effect on the expiration of the
         Lease Term (if the Base Rent is stated as an annual or other periodic
         rate, adjusted for the length of the Lease Term), and

                  (ii)     the Fair Market Rent, as defined and determined
         pursuant to Paragraphs (e), (f), and (g) below.

         (d)      The Base Rent payable by Tenant to Landlord during the Second
Extension Term shall be the greater of:

                  (i)      the Base Rent in effect on the expiration of the
         First Extension Term (if the Base Rent is stated as an annual or other
         periodic rate, adjusted for the length of the Lease Term), and

                  (ii)     the Fair Market Rent, as defined and determined
         pursuant to Paragraphs (e), (f), and (g) below.

         (e)      The term "Fair Market Rent" shall mean the Base Rent,
expressed as an annual rent per square foot of floor area, which Landlord would
have received from leasing the Premises for the First Extension Term or the
Second Extension Term, as applicable, to an unaffiliated person which is not
then a tenant in the Project, assuming that such space were to be delivered in
"as-is" condition, and taking into account the rental which such other tenant
would most likely have paid for such premises, including market escalations,
provided that Fair Market Rent shall not in any event be less than the Base Rent
for the Premises as of the expiration of the Lease Term or the First Extension
Term, as applicable. Fair Market Rent shall not be reduced by reason of any
costs or expenses saved by Landlord by reason of Landlord's not having to find a
new tenant for the Premises (including without limitation brokerage commissions,
cost of improvements necessary to prepare the space for such tenant's occupancy,
rent concession, or lost rental income during any vacancy period). Fair Market
Rent means only the rent component defined as Base Rent in the Lease and does
not include reimbursements and payments by Tenant to Landlord with respect to
operating expenses and other items payable or reimbursable by Tenant under the
Lease. In addition to its obligation to pay Base Rent (as determined herein),
Tenant shall continue to pay and reimburse Landlord as set forth in the Lease
with respect to such operating expenses and other items with respect to the
Premises during the First Extension Term or the Second Extension Term, as
applicable. The arbitration process described below shall be limited to the
determination of the Base Rent and shall not affect or otherwise reduce or
modify the Tenant's obligation to pay or reimburse Landlord for such operating
expenses and other reimbursable items.

         (f)      Landlord shall notify Tenant of its determination of the Fair
Market Rent (which shall be made in Landlord's sole discretion and shall in any
event be not less than the Base Rent in effect as of the expiration of the Lease
Term or the First Extension Term, as applicable) for the First Extension Term or
the Second Extension Term, as applicable, and Tenant shall advise Landlord of
any objection within 15 business days of receipt of Landlord's notice. Failure
to respond within such 15-day period shall constitute Tenant's acceptance of
such Fair Market Rent. If Tenant objects, Landlord and Tenant shall commence
negotiations to attempt to agree upon the Fair Market Rent within 30 days of
Landlord's receipt of Tenant's notice. If the parties cannot agree, each acting
in good faith but without any obligation to agree, then the Lease Term shall not
be extended and shall terminate on its scheduled termination date and Tenant
shall have no further right hereunder or any remedy by reason of the parties'
failure to agree unless Tenant or Landlord invokes the arbitration procedure
provided below to determine the Fair Market Rent.

                                      -16-


         (g)      Arbitration to determine the Fair Market Rent shall be in
accordance with the Real Estate Valuation Arbitration Rules of the American
Arbitration Association. Unless otherwise required by state law, arbitration
shall be conducted in the metropolitan area where the Project is located by a
single arbitrator unaffiliated with either party. Either party may elect to
arbitrate by sending written notice to the other party and the Regional Office
of the American Arbitration Association within 5 days after the 30-day
negotiating period provided in Paragraph (f), invoking the binding arbitration
provisions of this paragraph. Landlord and Tenant shall each submit to the
arbitrator their respective proposal of Fair Market Rent. The arbitrator must
choose between the Landlord's proposal and the Tenant's proposal and may not
compromise between the two or select some other amount. Notwithstanding any
other provision herein, the Fair Market Rent determined by the arbitrator shall
not be less than, and the arbitrator shall have no authority to determine a Fair
Market Rent less than, the Base Rent in effect as of the scheduled expiration of
the Lease Term or the First Extension Term, as applicable. The cost of the
arbitration shall be paid by Tenant if the Fair Market Rent is that proposed by
Landlord and by Landlord if the Fair Market Rent is that proposed by Tenant, and
shall be borne equally otherwise. If the arbitrator has not determined the Fair
Market Rent as of the end of the Lease Term or the First Extension Term, as
applicable, Tenant shall pay 105 percent of the Base Rent in effect under the
Lease as of the end of the Lease Term or the First Extension Term, as
applicable, until the Fair Market Rent is determined as provided herein. Upon
such determination, Landlord and Tenant shall make the appropriate adjustments
to the payments between them.

         (h)      The parties consent to the jurisdiction of any appropriate
court to enforce the arbitration provisions of this Addendum and to enter
judgment upon the decision of the arbitrator.

         (i)      Except for the Base Rent as determined above, Tenant's
occupancy of the Premises during the First Extension Term or the Second
Extension Term, as applicable, shall be on the same terms and conditions as are
in effect immediately prior to the expiration of the initial Lease Term or the
First Extension Term, as applicable; provided, however, Tenant shall have no
further right to extend the Lease Term pursuant to this addendum or to any
allowances, credits or abatements or options to expand, contract, renew or
extend the Lease.

         (j)      If Tenant does not send the First Extension Notice or the
Second Extension Notice, as applicable, within the period set forth in
Paragraphs (a) and (b), Tenant's right to extend the Lease Term shall
automatically terminate. Time is of the essence as to the giving of the First
Extension Notice and the Second Extension Notice, as applicable, and the notice
of Tenant's objection under Paragraph (f).

         (k)      Landlord shall have no obligation to refurbish or otherwise
improve the Premises for the First Extension Term or the Second Extension Term,
as applicable. The Premises shall be tendered on the Commencement Date of the
First Extension Term and the Second Extension Term, as applicable, in "as-is"
condition.

         (l)      If the Lease is extended for the First Extension Term or the
Second Extension Term, as applicable, then Landlord shall prepare and Tenant
shall execute an amendment to the Lease confirming the extension of the Lease
Term and the other provisions applicable thereto.

         (m)      If Tenant exercises its right to extend the term of the Lease
for the First Extension Term or the Second Extension Term, as applicable,
pursuant to this Addendum, the term "Lease Term" as used in the Lease, shall be
construed to include, when practicable, the First Extension Term and the Second
Extension Term except as provided in (g) above.


                                      -17-

                                   ADDENDUM 3

                                  CONSTRUCTION
                                    (TURNKEY)

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                          DATED APRIL 23, 2002, BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       and
                              INNOTRAC CORPORATION


         (a)      Landlord agrees to furnish or perform at Landlord's sole cost
and expense (except as otherwise set forth below) those items of construction
and those improvements (the "Initial Improvements") specified below:

                  1.       Construct Main Office (approximately 4,800 s.f.) per
                           Exhibit B.

                  2.       Construct one (1) Receiving Office (approximately
                           1,000 s.f.) and one (1) Shipping Office
                           (approximately 1,000 s.f.) per the attached Exhibit
                           B.

                  3.       Install 277/480 volt, 600-amp electrical service
                           panel.

                  4.       Provide portable eyewash station.

                  5.       Install twenty-four (24) pit levelers (24,000 lb.
                           capacity) and twenty-four (24) dock seals; locations
                           to be determined.

                  6.       Install three hundred fifty-five (355) 400-watt metal
                           halide light fixtures to provide 30 footcandles at
                           36" AFF. Rack plan to be determined.

                  7.       Construct foil height drywall / metal stud demising
                           wall. The drywall shall be smooth finished and
                           painted.

                  8.       Mechanically clean warehouse floor.

                  9.       Install emergency egress/exit lighting up to a
                           maximum amount of $8,000.

                  10.      Provide architectural / engineering permits,
                           drawings, and permit fees.

         (b)      If Tenant shall desire any changes, Tenant shall so advise
Landlord in writing and Landlord shall determine whether such changes can be
made in a reasonable and feasible manner. Any and all costs of reviewing any
requested changes, and any and all costs of making any changes to the Initial
Improvements which Tenant may request and which Landlord may agree to shall be
at Tenant's sole cost and expense and shall be paid to Landlord upon demand and
before execution of the change order.

         (c)      Landlord shall proceed with and complete the construction of
the Initial Improvements. As soon as such improvements have been Substantially
Completed, Landlord shall notify Tenant in writing of the date that the Initial
Improvements were Substantially Completed. Such date, unless an earlier date is
specified as the Commencement Date in this Lease or otherwise agreed to in
writing between Landlord and Tenant, shall be the "Commencement Date," unless
the completion of such improvements was delayed due to any act or omission of,
or delay caused by, Tenant including, without limitation, Tenant's failure to
approve plans, complete submittals or obtain permits in connection with Tenant's
installation of its tenant improvements, machinery, equipment, or fixtures
within the time periods agreed to by the parties or as reasonably required by
Landlord, in which case the Commencement Date shall be the date such
improvements would have been completed but for the delays caused by Tenant. The
Initial Improvements shall be deemed substantially completed ("Substantially
Completed") when, in the opinion of the construction manager (whether an
employee or agent of Landlord or a third party construction
manager)("Construction Manager"), the Premises are substantially completed in
accordance with the final plans attached hereto as Exhibit B, except for punch
list items which do not prevent in any material way the use of the Premises for
the purposes for which they were intended, provided such opinion is given in
conjunction with a Certificate of Occupancy or a Temporary Certificate of
Occupancy or a Permit Inspection Card or other documentation from the governing
municipality indicating that Landlord's Initial Improvements work is legal to
occupy. In the event Tenant, its employees, agents, or contractors cause
construction of such improvements to be delayed, the date of Substantial
Completion shall be deemed to be the date that, in the opinion of the
Construction Manager, Substantial Completion would have occurred if such delays
had not taken place. Without limiting the foregoing, Tenant shall be solely
responsible for delays caused by Tenant's request for any changes in the plans,
Tenant's request for long lead items or Tenant's interference with the
construction of the Initial Improvements, and such delays shall not cause a
deferral of the Commencement Date beyond what it otherwise would have been.
After the Commencement Date Tenant shall, upon demand, execute and deliver to
Landlord a letter of acceptance of delivery of the Premises. In the event of any
dispute as to the Initial Improvements, including the Commencement Date, the
certificate of the Construction Manager shall be conclusive absent manifest
error.

         (d)     The failure of Tenant to take possession of or to occupy the
Premises shall not serve to relieve Tenant of obligations arising on the
Commencement Date or delay the payment of rent by Tenant. Subject to applicable
ordinances and building codes governing Tenant's right to occupy or perform in
the Premises, Tenant shall be allowed to install its tenant improvements,
machinery, equipment, fixtures, or other property on the Premises on or about
April 15, 2002, provided that Tenant does not thereby interfere with the
completion of construction or cause any labor dispute as a result of such
installations, and provided further that Tenant does hereby agree to indemnify,
defend, and hold Landlord harmless from any loss or damage to such property, and
all liability, loss, or damage arising from any injury to the Project or the
property of Landlord, its contractors, subcontractors, or materialmen, and any
death or personal injury to any person or persons arising out of such
installations, unless any such loss, damage, liability, death, or personal
injury was caused by Landlord's negligence. Any such occupancy or performance in
the Premises shall be in accordance with the provisions governing Tenant-Made
Alterations and Trade Fixtures in the Lease, and shall be subject to Tenant
providing to Landlord satisfactory evidence of insurance for personal injury and
property damage related to such installations and

                                      -18-


satisfactory payment arrangements with respect to installations permitted
hereunder. Delay in putting Tenant in possession of the Premises shall not serve
to extend the term of this Lease or to make Landlord liable for any damages
arising therefrom.

       (e) Except for incomplete punch list items and latent defects, Tenant
upon the Commencement Date shall have and hold the Premises as the same shall
then be without any liability or obligation on the part of Landlord for making
any further alterations or improvements of any kind in or about the Premises.


                                      -19-

                                  ADDENDUM 4

                           MISCELLANEOUS PROVISIONS


                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                          DATED April 23, 2002 BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       and
                              INNOTRAC CORPORATION



         1.       ECONOMIC DEVELOPMENT INDUCEMENTS. Tenant has submitted a
Kentucky Jobs Development Act ("KJDA") application to the Kentucky Economic
Development Authority ("Authority") for certain economic inducements available
under the KJDA incentive program. This Lease is hereby conditioned upon Tenant
receiving a resolution from the Authority to "preliminarily designate Tenant as
an approved company" and to "preliminarily authorize the undertaking of the
economic development project" by Tenant. Tenant covenants to diligently proceed
with the appropriate process in obtaining such resolution. Without receiving
such preliminary designation, the execution of this Lease would preclude Tenant
from obtaining the inducements available under this local program.


                                      -20-

                                   ADDENDUM 5

                              CANCELLATION OPTION

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                          DATED APRIL 23, 2002, BETWEEN
                   PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                       and
                              INNOTRAC CORPORATION


         Provided no Event of Default shall then exist and no condition shall
then exist which with the passage of time or giving of notice, or both, would
constitute an Event of Default, Tenant shall have the right at any time on or
before the first day of the 30th month of the Lease Term to send Landlord
written notice (the "Termination Notice") that Tenant has elected to terminate
this Lease effective on the last day of the 36th month of the Lease Term with
respect to the Premises consisting of approximately 286,000 square feet only.
It is the express intent of the parties that this Cancellation Option shall not
apply to the Offered Space as defined in Addendum 1.

         If Tenant elects to terminate this Lease pursuant to the immediately
 preceding sentence, the effectiveness of such termination shall be conditioned
 upon Tenant paying to Landlord $1,734,240.00 contemporaneously with Tenant's
 delivery of the Termination Notice to Landlord. Such amount is consideration
 for Tenant's option to terminate and shall not be applied to rent or any other
 obligation of Tenant. Landlord and Tenant shall be relieved of all obligations
 accruing under this Lease after the effective date of such termination but not
 any obligations accruing under the Lease prior to the effective date of such
 termination.


                                      -21-



                                  ADDENDUM 6

                      ASSIGNMENT AND SUBLETTING (CONSENT)

                 ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                         DATED APRIL 23, 2002, BETWEEN
                  PROLOGIS DEVELOPMENT SERVICES INCORPORATED
                                      and
                             INNOTRAC CORPORATION



         (a)      Landlord shall not unreasonably withhold its consent to
Tenant's request for permission to assign the Lease or sublease all or part of
the Premises. It shall be reasonable for the Landlord to withhold its consent to
any assignment or sublease in any of the following instances:

                  (i)      The assignee or sublessee does not have a net worth
         calculated according to generally accepted accounting principles at
         least equal to the greater of the net worth of Tenant immediately prior
         to such assignment or sublease or the net worth of the Tenant at the
         time it executed the Lease;

                  (ii)     The intended use of the Premises by the assignee or
         sublessee is not reasonably satisfactory to Landlord;

                  (iii)    The intended use of the Premises by the assignee or
         sublessee would materially increase the pedestrian or vehicular traffic
         to the Premises or the Project;

                  (iv)     Occupancy of the Premises by the assignee or
         sublessee would, in Landlord's opinion, violate any agreement binding
         upon Landlord or the Project with regard to the identity of tenants,
         usage in the Project, or similar matters;

                  (v)      The identity or business reputation of the assignee
         or sublessee will, in the good faith judgment of Landlord, tend to
         damage the goodwill or reputation of the Project;

                  (vi)     The assignment or sublease is to another tenant in
         the Project and is at rates which are below those charged by Landlord
         for comparable space in the Project;

                  (vii)    In the case of a sublease, the subtenant has not
         acknowledged that the Lease controls over any inconsistent provision in
         the sublease; or

                  (viii)      The proposed assignee or sublessee is a government
         entity.

The foregoing criteria shall not exclude any other reasonable basis for Landlord
to refuse its consent to such assignment or sublease.

         (b)      Any approved assignment or sublease shall be expressly subject
to the terms and conditions of this Lease.

         (c)      Tenant shall provide to Landlord all information concerning
the assignee or sublessee as Landlord may request.

         (d)      Landlord may revoke its consent immediately and without notice
if, as of the effective date of the assignment or sublease, there has occurred
and is continuing any default under the Lease.

         (e)      Landlord's agreement to not unreasonably withhold its consent
shall only apply to the first assignment or sublease under the Lease.


                                      -22-

                                   EXHIBIT A

                                   SITE PLAN

Tenant:                                 Innotrac Corporation
       ----------------------------------------------------------------------

Approximate Square Feet:                        286,000
                        -----------------------------------------------------

Address of Premises:                    1226 Aviation Blvd.
                    ---------------------------------------------------------

                                        Hebron, KY 41048
- -----------------------------------------------------------------------------





                                  [FLOORPLAN]




                                   EXHIBIT B
                                  PAGE 1 OF 5








                                  [FLOORPLAN]




                                   EXHIBIT B
                                  PAGE 2 OF 5








                                  [FLOORPLAN]




                                   EXHIBIT B
                                  PAGE 3 OF 5






                                  [FLOORPLAN]




                                   EXHIBIT B
                                  PAGE 4 OF 5






                                  [FLOORPLAN]


                                   EXHIBIT B
                                  PAGE 5 OF 5





                                  [FLOORPLAN]

EX-10.2

                                                                    EXHIBIT 10.2

                     LOAN DOCUMENTS MODIFICATION AGREEMENT
                              (November 13, 2002)

         THIS LOAN DOCUMENTS MODIFICATION AGREEMENT (hereinafter referred to as
this "Amendment") is made and entered into as of the 13th day of November,
2002, by and among INNOTRAC CORPORATION, a Georgia corporation (hereinafter
referred to as "Borrower"), SOUTHTRUST BANK, an Alabama banking corporation,
successor by conversion to SouthTrust Bank, N.A., a national banking
association (hereinafter referred to as "Lender"), and: iFULFILLMENT, INC. a
Georgia corporation (hereinafter referred to as "Guarantor").

                              BACKGROUND STATEMENT

         Borrower and Lender are parties to that certain Amended and Restated
Loan and Security Agreement dated January 25, 1999, as previously amended
pursuant to that certain First Amendment to Amended and Restated Loan and
Security Agreement dated April 29, 1999, that certain letter (the "2000
Letter") from Lender to Borrower dated August 9, 2000, that certain letter (the
"2001 Letter") from Lender to Borrower dated September 10, 2001, and that
certain Loan Documents Modification Agreement dated May 31, 2002 (hereinafter
collectively referred to as the "Agreement"). All capitalized terms used herein
shall have the same meanings as are ascribed to them in the Agreement unless
otherwise herein defined. Borrower and Lender are also parties to that certain
Amended and Restated Revolving Credit Note dated April 29, 1999, made by
Borrower to the order of Lender in the original principal amount of Forty
Million and No/100 Dollars ($40,000,000.00), which evidences the indebtedness
of the Revolving Line of Credit (hereinafter referred to as the "Revolving
Note"). Payment of certain obligations of Borrower provided for in the Loan
Documents is guaranteed by Guarantor pursuant to that certain Guaranty dated
May 31, 2002 (hereinafter referred to as the "Guaranty"). Borrower and Lender
have agreed to amend the Agreement, Guarantor has agreed to reaffirm its
Guaranty, and the parties are entering into this Amendment to evidence their
agreement.

                                   AGREEMENT

         FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00),
the foregoing recitals, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower, Lender and
Guarantors do hereby agree as follows:

         1.       LOAN BALANCES.  The foregoing recitals are true and correct
and are incorporated herein by reference. Borrower and Lender acknowledge and
agree that as of November 12, 2002, the outstanding principal balance of the
Revolving Note is Seventeen Million One Hundred Fifty Thousand and No/100
Dollars ($17,150,000.00).

         2.       MODIFICATION OF AGREEMENT. The Agreement is hereby modified
and amended, effective as of the date hereof, as follows:

         (a)      By deleting the definition of "Net Income" contained in
Section 1.1 of the Agreement and substituting in lieu thereof the following new
definition of "Net Income":

                  "Net Income" shall mean, for any fiscal period of any Person,
the net income (or loss), after provisions 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."


         (b) By deleting the pricing matrix contained in Section 2.2 (a) of
the Agreement and used to calculate the LIBOR Margin and substituting in lieu
thereof the following new pricing matrix to calculate the LIBOR Margin:



                   If Leverage Ratio Is:                            Then the LIBOR Margin Is:
                   ---------------------                            -------------------------
                                                                 
Greater than 1.50 to 1.0                                                 200 basis points
Greater than 1.25 to 1.0 but not greater than 1.50 to 1.0                150 basis points
Greater than 0.75 to 1.0 but not greater than 1.25 to 1.0                125 basis points
Less than 0.75 to 1.0                                                    100 basis points


         (c) By deleting the text of Section 12.1 of the Agreement, which
presently states "Borrower shall have at all times a Leverage Ratio of not more
than 2.0:1," and replacing it with the following:

                 "Borrower shall have at all times a Leverage Ratio of not more
                 than 1.5 : 1."

         (d) By deleting the text of Section 12.2 of the Agreement, which
presently states "The Tangible Net Worth of Borrower shall be at least
Thirty-Five Million Dollars ($35,000,000), all as determined under GAAP and as
adjusted with respect to any repurchase by Borrower of its equity securities
approved by Lender, and shall annually increase over the amount as of the end of
the prior Fiscal year," and replacing it with the following:

                  "The Tangible Net Worth of Borrower shall at all times be at
                  least Thirty-Four Million Dollars ($34,000,000), all as
                  determined under GAAP, and, commencing with the December 31,
                  2003 measurement of Tangible Net Worth, shall annually
                  increase over the amount as of the end of the prior Fiscal
                  Year."

         3. WAIVER OF FINANCIAL COVENANTS DEFAULT.  Absent the occurrence under
the Agreement or any of the other Loan Documents of any other intervening Event
of Default, Lender hereby grants to Borrower a one-time only waiver of the
following financial covenant Events of Defaults, at which time Lender shall
again review and measure the following financial covenants (hereinafter
referred to as the "Measurement Date"): (a) Tangible Net Worth Covenant (as set
forth in Section 12.2 of the Agreement): through the period ending September
30, 2002, and (b) Fixed Charge Coverage Ratio Covenant (as set forth in Section
12.3 of the Agreement): through the period ending September 30, 2003. Borrower
and Guarantor acknowledge and agree that a future Event of Default arising or
occurring in connection with any financial covenant set forth in the Agreement,
including but not limited to those set forth in this Paragraph 3, on or after
the applicable Measurement Date shall, henceforth, not be waived by Lender,
shall not be subject to any notice, grace or cure right otherwise set forth in
the Agreement of other Loan Documents, and Lender may avail itself of any and
all legal remedies available to Lender under the Loan Documents or applicable
law without any additional notice whatsoever.

         4. MODIFICATION OF LOAN DOCUMENT.  As of the date hereof, Borrower
hereby reaffirms and restates each and every warranty and representation set
forth in the Loan Documents. The terms of the Loan Documents are hereby
modified and amended, effective as of the date hereof, so that any reference in
any of the Loan Documents (including, without limitation, the Agreement) to the
Agreement shall refer to the Agreement as herein amended.


                                      -2-

         5.       GUARANTORS' REAFFIRMATION. Guarantor hereby acknowledges and
consents to the foregoing amendments to the Agreement and all of the other Loan
Documents. Guarantor hereby ratifies, confirms, reaffirms and covenants that
the Guaranty which it has executed is validly existing and binding against it
under the terms of such Guaranty and guarantees the repayment of all the
"Guaranteed Obligations," as therein defined. Guarantor hereby reaffirms and
restates, as of the date hereof, all covenants, representations and warranties
set forth in the Guaranty.

         6.       RATIFICATION; FEES AND EXPENSES. Except as herein expressly
modified or amended, all the terms and conditions of the Agreement and the
other Loan Documents are hereby ratified, affirmed, and approved. In
consideration of Lender agreeing to this Amendment as herein provided
(including the waiver of certain financial covenant breaches), Borrower agrees
to pay Lender a loan covenant waiver fee in the amount of Fifty Thousand and
No/100 Dollars ($50,000.00) and further agrees to pay all fees and expenses
incurred in connection with this Amendment. Borrower acknowledges and agrees
that once paid, the loan covenant waiver fee shall be fully earned and shall
not be refundable or rebatable in whole or in part.

         7.       NO DEFENSES; RELEASE.  For purposes of this Paragraph 7, the
terms "Borrower Parties" and "Lender Parties" shall mean and include Borrower
and Lender, respectively, and each of their respective predecessors, successors
and assigns, and each past and present, direct and indirect, parent, subsidiary
and affiliated entity of each of the foregoing, and each past and present
employee, agent, attorney-in-fact, attorney-at-law, representative, officer,
director, shareholder, partner and joint venturer of each of the foregoing, and
each heir, executor, administrator, successor and assign of each of the
foregoing; references in this paragraph to "any" of such parties shall be
deemed to mean "any one or more" of such parties; and references in this
sentence to "each of the foregoing" shall mean and refer cumulatively to each
party referred to in this sentence up to the point of such reference. Borrower
hereby acknowledges, represents and agrees: that Borrower has no defenses,
setoffs, claims, counterclaims or causes of action of any kind or nature
whatsoever with respect to the Agreement, the other Loan documents or the
Obligations, or with respect to any other documents or instruments now or
heretofore evidencing, securing or in any way relating to the Obligations or
with respect to any other transaction, matter or occurrence between any of the
Borrower Parties and any Lender Parties or with respect to any acts or
omissions of any Lender Parties (all of said defenses, setoffs, claims,
counterclaims or causes of action being hereinafter referred to as "Loan
Related Claims"); that, to the extent that Borrower may be deemed to have any
Loan Related Claims, Borrower does hereby expressly waive, release and
relinquish any and all such Loan Related Claims, whether or not known to or
suspected by Borrower; that Borrower shall not institute or cause to be
instituted any legal action or proceeding of any kind based upon any Loan
Related Claims; and that Borrower shall indemnify, hold harmless and defend all
Lender Parties from and against any and all Loan Related Claims and any and all
losses, damages, liabilities, costs and expenses suffered or incurred by any
Lender Parties as a result of any assertion or allegation by any Borrower
Parties of any Loan Related Claims or as a result of any legal action related
thereto. Borrower hereby reaffirms and restates, as of the date hereof, all
covenants, representations and warranties set forth in the Agreement.

         8.       NO NOVATION. Borrower hereby acknowledges and agrees that this
Amendment shall not constitute a novation of the indebtedness evidenced by the
Revolving Note.

         9.       NO WAIVER OR IMPLICATION. Borrower hereby agrees that nothing
herein shall constitute a waiver by Lender of any default, whether known or
unknown, which may exist under the Agreement or any other Loan Document.
Borrower hereby further agrees that no action,

                                      -3-



inaction or agreement by Lender, including, without limitation, any extension,
indulgence, waiver, consent or agreement of modification which may have occurred
or have been granted or entered into (or which may be occurring or be granted or
entered into hereunder or otherwise) with respect to nonpayment of the
Obligations or any portion thereof, or with respect to matters involving
security for the Obligations, or with respect to any other matter relating to
the Obligations, shall require or imply any future extension, indulgence,
waiver, consent or agreement by Lender. Borrower hereby acknowledges and agrees
that Lender has made no agreement, and is in no way obligated, to grant any
future extension, indulgence, waiver or consent with respect to the Obligations
or any matter relating to the Obligations.

         10.      NO RELEASE OF COLLATERAL. Borrower further agrees that this
Amendment shall in no way occasion a release of any collateral held by Lender
as security to or for the Obligations, and that all collateral held by Lender
as security to or for the Obligations shall continue to secure the Obligations.

         11.      SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of Borrower and Lender and their respective successors
and assigns, whether voluntary by act of the parties or involuntary by
operation of law.

         12.      AUTHORITY. By executing this Amendment as hereinafter
provided, Scott Dorfman hereby certifies that he is the President of Borrower
and is duly authorized to execute this Amendment on behalf of Borrower.

         IN WITNESS WHEREOF, this Amendment has been duly executed under seal
by Borrower, Lender, and Guarantor as of the day and year first above written.



                                       BORROWER:

                                       INNOTRAC CORPORATION, a Georgia
                                       corporation



                                       By: /s/ Scott Dorfman
                                          --------------------------------------
                                          Scott Dorfman
                                          President

                                                     [CORPORATE SEAL]



                                       LENDER:

                                       SOUTHTRUST BANK, an Alabama banking
                                       corporation



                                       By: /s/ Noble S. Jones
                                          --------------------------------------
                                          Noble S. Jones
                                          Vice President


                                      -4-


                                       GUARANTOR:

                                       iFULFILLMENT, INC., a Georgia corporation



                                       By: /s/ Scott Dorfman
                                          --------------------------------------
                                          Scott Dorman
                                          President

                                                     [CORPORATE SEAL]


                                      -5-

EX-99.1

                                                                    EXHIBIT 99.1

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

         I, Scott D. Dorfman, Chief Executive Officer of Innotrac Corporation
(the "Company"), certify, pursuant to 18 U.S.C. ss. 1350 as adopted by ss. 906
of the Sarbanes-Oxley Act of 2002, that:

(1)      the Quarterly Report on Form 10-Q of the Company for the quarterly
         period ended September 30, 2002 (the "Report") fully complies with the
         requirements of Section 13(a) or 15(d) of the Securities Exchange Act
         of 1934; and

(2)      the information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Company.

Dated: November 19, 2002



                                       /s/ Scott D. Dorfman
                                       -----------------------------------------
                                       Scott D. Dorfman
                                       President, Chief Executive Officer and
                                       Chairman of the Board

EX-99.2

                                                                    EXHIBIT 99.2

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

         I, David L. Gamsey, Chief Financial Officer of Innotrac Corporation
(the "Company"), certify, pursuant to 18 U.S.C. ss. 1350 as adopted by ss. 906
of the Sarbanes-Oxley Act of 2002, that:

(1)      the Quarterly Report on Form 10-Q of the Company for the quarterly
         period ended September 30, 2002 (the "Report") fully complies with the
         requirements of Section 13(a) or 15(d) of the Securities Exchange Act
         of 1934; and

(2)      the information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Company.

Dated: November 19, 2002



                                       /s/ David L. Gamsey
                                       -----------------------------------------
                                       David L. Gamsey
                                       Senior Vice President, Chief Financial
                                       Officer and Secretary