Exhibit 10.7







	





     Exhibit
10.7  









Direct-to-Customer
Fulfillment, 
Storage, and Freight Management 
Agreement
between
e.Digital
and
APL Direct
Logistics, Ltd. 









* Portions of this Exhibit
have been omitted (based upon a request for confidential treatment) and have
been filed separately with the Securities & Exchange Commission pursuant to
Rule 24b-2.  

















	






TABLE OF
CONTENTS 










	 	 	 
	1. 	  	TERM OF AGREEMENT 	  	1 	  
	  	  
	2. 	  	APL DIRECT’S RESPONSIBILITIES 	  	1 	  
	  	  
	3. 	  	E.DIGITAL’S RESPONSIBILITIES 	  	2 	  
	  	  
	4. 	  	RATES AND CHARGES 	  	3 	  
	  	  
	5. 	  	LIABILITIES AND INDEMNIFICATION 	  	5 	  
	  	  
	6. 	  	WAREHOUSE PHYSICAL INVENTORIES AND ADJUSTMENTS 	  	7 	  
	  	  
	7. 	  	FORCE MAJEURE 	  	8 	  
	  	  
	8. 	  	DEFAULT 	  	9 	  
	  	  
	9. 	  	EARLY TERMINATION 	  	9 	  
	  	  
	10. 	  	RECORDS 	  	9 	  
	  	  
	11. 	  	INDEPENDENT CONTRACTOR 	  	10 	  
	  	  
	12. 	  	NON-RECRUITMENT 	  	10 	  
	  	  
	13. 	  	COMPLIANCE 	  	10 	  
	  	  
	14. 	  	SUCCESSORSHIP 	  	10 	  
	  	  
	15. 	  	APPLICABLE LAW; SEVERABILITY 	  	10 	  
	  	  
	16. 	  	COOPERATION 	  	10 	  
	  	  
	17. 	  	ARBITRATION 	  	11 	  
	  	  
	18. 	  	ENTIRE AGREEMENT; AMENDMENT; CAPTIONS 	  	11 	  
	  	  
	19. 	  	NOTICES 	  	11 	  
	  	  
	20. 	  	WAIVER 	  	12 	  
	  	  
	21. 	  	CONFIDENTIALITY 	  	12 	  
	  	  
	22. 	  	PUBLICITY 	  	12 	  







SCHEDULES AND ATTACHMENTS 


	 	 	 
	  	  	Schedule A 	  	Description of Services and Prices 	  
	  	  	Schedule B 	  	Assumptions 	  
	  	  	Schedule C 	  	Key Performance Indicators 	  
	  	  	Schedule D 	  	Performance Incentive Plan 	  
	  	  	Schedule E 	  	e.Digital Obligations 	  
	  	  	Schedule F 	  	Insurance Schedule 	  
	  	  	Schedule G 	  	Optional Equipment Schedule 	  
	  	  	Attachment #1 	  	Mutual Confidentiality, Non-Disclosure and Non-Recruitment/Solicitation Agreement 	  
	  	  	Attachment #2 	  	Letter of Credit Form 	  
	  	  	Attachment F-1 	  	Insurance Certificate 	  









	






 This AGREEMENT made as
of August 31, 2001, by and between e.Digital Corporation
(“EDIGITAL”) having an office at 13114 Evening Creek Drive South,
San Diego, CA 92128 and APL Direct Logistics, Ltd., having its principal
office at 1301 Riverplace Boulevard, Suite 530, Jacksonville, Florida 32207
(“APL DIRECT”).  



WITNESSETH: 



     WHEREAS,
EDIGITAL is a corporation organized and existent in accordance with the laws of the State
of Delaware, and is engaged in the sale and distribution of consumer products;  



     WHEREAS,
APL DIRECT is a corporation organized and existent in accordance with the laws of the
State of Delaware, and is engaged in the business of providing direct-to-customer
logistics services, including, among others, warehousing, fulfillment, freight
management, customer service and order management; and  



     WHEREAS,
EDIGITAL and APL DIRECT each represent and warrant that its representative herein is duly
empowered and authorized to execute this Agreement on its behalf;  



     NOW,
THEREFORE, for and in consideration of the mutual agreements herein contained, it is
hereby mutually agreed as follows:  




1. TERM OF
AGREEMENT 



     Subject
to the termination rights of either party as expressly stated herein, the term of this
Agreement shall commence on October 1, 2001, and continue in effect until the close of
business on September 30, 2004, and thereafter shall renew automatically from year to
year until either party shall serve upon the other party written notice of termination at
least ninety (90) days prior to the expiration date of the then-current term.  




2. APL
DIRECT’S RESPONSIBILITIES 











	2.1   	 	Services. 
During the term of this Agreement, APL DIRECT agrees to provide for EDIGITAL certain
services described and selected by EDIGITAL in Schedule “A” hereto at the facilities
identified on Schedule “A” (each such facility being hereinafter referred to as
“Warehouse”), unless otherwise stated. The services to be provided hereunder are those
described and selected by EDIGITAL in this Agreement, subject to the terms and conditions
of this Agreement, and the attached Schedules and attachments, which are made a part
hereof, or any substitutions, modifications or supplements made thereto (collectively,
called the “Services”). In addition to subcontracting as necessary, APL DIRECT further
agrees to furnish and/or obtain sufficient personnel, equipment, and other accessories
necessary to perform the Services herein described. APL DIRECT will accept and keep in a
safe, neat and orderly condition such goods (the “Products”) as from time to time may be
tendered by EDIGITAL for warehousing or for transportation.   







	2.2   	 	Warehouse
and Fulfillment Services.  The Parties agree that, except as specifically modified herein,
APL DIRECT will be a warehouseman as described in Article 7 of the Uniform Commercial
Code (“UCC”) as enacted in the state(s) where the Warehouse(s) are located and is
entitled to all rights and subject to all obligations described therein.   







	 	
APL
DIRECT will utilize the Warehouse space as efficiently as practical without creating
inefficiencies in handling operations. APL DIRECT will provide ongoing bin management to
achieve and maintain desired storage density and charge for this service at the
value-added rate per Schedule “A.” Upon receipt, Product is to be put away within one
business day provided there is no value added work required. All Products shall be
segregated by stock keeping unit, or other characteristics or combination of
characteristics, as agreed upon (a “stock keeping unit” being the lowest level for which
inventory material handling records are maintained for purposes of this Agreement.) 







	


1  















	











	2.3   	 	Customer
Care Services.  If and as selected by EDIGITAL in Schedule “A,” APL DIRECT shall provide
services as described and selected in Schedule “A” to support consumer inquiries
regarding EDIGITAL’s sales venues (e.g., website, catalog) and the Products. Such support
shall be in the form of a “Call Center” that is staffed with appropriately trained
personnel (“Customer Care Services”). APL DIRECT will subcontract for the Customer Care
Services with a qualified subcontractor to perform the services described and selected in
Schedule “A”.   







	2.4   	 	Inbound
Freight Management Services.  If and as selected by EDIGITAL in Schedule “A,” APL DIRECT
will handle the inbound freight management of the Products. APL DIRECT will manage the
inbound transportation of Products from EDIGITAL’s suppliers to the Warehouse. These
freight management services will generally include the provision of support personnel
that provides mode and carrier selection, carrier rate negotiation and administration of
negotiated rates, route optimization, load building and consolidation, expediting and
tracking of shipments, freight bill processing, freight bill audit, claims filing (as
directed by EDIGITAL) with the carriers and related customer service. In such an event,
depending on EDIGITAL’s requirements, APL DIRECT may subcontract the inbound freight
management to approved and properly authorized carrier(s) (each such carrier hereinafter
referred to as “Contracted Carrier”).   







	2.5   	 	Outbound
Freight Management Services.  If and as selected by EDIGITAL in Schedule “A,” APL DIRECT
will handle outbound transportation through approved and properly authorized carriers
(each such carrier hereinafter also referred to as “Contracted Carrier”).   







	2.6   	 	Order
Management Services.  If and as selected by EDIGITAL in Schedule “A,” APL DIRECT will
provide order management services.   







	2.7   	 	Optional
Equipment.  If requested by EDIGITAL in writing, APL DIRECT may either purchase or lease
certain equipment dedicated to EDIGITAL for the performance of the Services. Prior to the
purchase or lease of such equipment, the parties will agree upon the terms of such
purchase or lease and the monthly charge to EDIGITAL for such purchase or lease. This
Agreement, as well as Schedule “G”, shall reflect such agreement between the parties, and
if made subsequent to the commencement of this Agreement, this Agreement and Schedule “G”
shall be amended accordingly.   






	


3.
EDIGITAL’s RESPONSIBILITIES 











	3.1   	 	EDIGITAL’s
Obligations.  During the term of this Agreement, EDIGITAL agrees to perform the activities
specified in this Section “3” and Schedule “E” of the Agreement.   








	3.2   	 	Shipments;
Bills of Lading.  EDIGITAL will advise APL DIRECT, in writing, of its needs for
transportation, or warehousing, or both, as appropriate, with reasonable notice to allow
APL DIRECT to make necessary analysis of and preparations for such transportation, or
warehousing, or both (including, but not limited to, stocking limitations, Products to be
accounted for separately, and any other Product peculiarities). EDIGITAL will also
provide APL DIRECT with instructions for shipments from the Warehouse, which information
will constitute EDIGITAL’s instructions for shipment of Products. All Products tendered
for shipment or warehousing will be properly marked and packaged for handling. Products
not properly marked upon receipt will be properly marked by APL DIRECT at the value-added
charge listed in Schedule “A” and the receiving standard adjusted appropriately. For
purposes of this Agreement, (a) “properly marked” in the preceding sentence means that
the shipment shall have a bill of lading referencing the purchase order or P.O. number to
be present elsewhere on shipment and naming EDIGITAL as consignee with packing list
showing items and quantity, (b) all inner and outer cases will be marked with an item
description and identification numbers, and (c) “packaged for handling” in the preceding
sentence means that the Products will be in case or carton reasonably packed to protect
merchandise in transit and during the initial receiving process. Any terms, conditions or
provisions of such bill of lading or other form are subordinate to the terms of this
Agreement and, in the event of a conflict, this Agreement governs.   







	


2  














	











	3.3   	 	Product
Characteristics/Refusal to Accept Products.  EDIGITAL shall promptly notify APL DIRECT of
the characteristics of any of EDIGITAL’s Products that (a) require special handling
instructions, material, equipment or precautions; (b) may be hazardous or dangerous to
APL DIRECT’S or Contracted Carrier’s employees, subcontractors or agents, whether by
handling or exposure; (c) are defined as hazardous materials under any federal, state or
local law or regulation governing the environment including but not limited to The
Resource Conservation and Recovery Act (RCRA), The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (CERCLA), or Department of
Transportation Research and Special Programs Administration (RSPA including IATA, ICAO
and IMDG); or, (d) are or should be reasonably believed or known to be likely to cause
damage to APL DIRECT’S premises or equipment, Contracted Carrier’s equipment, EDIGITAL’s
Products, or to other goods that may be stored or transported by APL DIRECT or Contracted
Carrier. EDIGITAL will prepare all shipments of such Products in compliance with all
applicable regulations. APL DIRECT may refuse to accept any Products that are identified
per the above categories or that reasonably might cause infestation, contamination, or
damage to other goods in its or Contracted Carrier’s custody. APL DIRECT shall promptly
notify EDIGITAL of such refusal and shall have no liability for any demurrage, detention,
transportation or other charges by virtue of such refusal.   







	3.4   	 	Prohibition
of Consignment.  EDIGITAL agrees not to ship Products to APL DIRECT as the named
consignee. If, in violation of this Agreement, Products are to be shipped to APL DIRECT
as named consignee, EDIGITAL agrees to notify carrier, in writing and prior to such
shipment, that APL DIRECT named as consignee is a warehouseman under law and has no
beneficial title or interest in such Products. EDIGITAL will also deliver a copy of such
notice to APL DIRECT prior to such shipment.   







	3.5   	 	APL
DIRECT Compensation.  EDIGITAL shall pay APL DIRECT compensation for the Services provided
by APL DIRECT and the charges made by APL DIRECT under the terms of Schedule “A,” or any
substitutions, modifications or supplements thereto.   







	3.6   	 	Customs
Duties.  At all times, EDIGITAL will be responsible for any duties, tariffs and import
taxes.   







	3.7   	 	Taxes. 
EDIGITAL will be responsible for all taxes (including, but not limited to, sales or value
added tax) arising from APL DIRECT’S provision of the Services, excluding taxes on the
income paid to APL DIRECT.   






	


4. RATES AND
CHARGES 











	4.1   	 	General. 
Rates and charges for the Services are set forth in Schedule “A.” Applicable sales taxes
will be charged on all taxable services and other amounts owed.   







	4.2   	 	Rate
and Charge Modification.   







	 	 	4.2.1   	 	Warehouse,
Fulfillment Services and Returns Processing.  The rates and charges set forth in Schedule
“A” are based on the Services described in Schedule “A” and the assumptions detailed in
Schedule “B.” Such rates and charges will not change unless either (i) EDIGITAL requests
changes in the scope of services that affect the costs of providing the Services or (ii)
the assumptions stated in Schedule “B” turn out in practice not to be true.  






	


3  
















	











	 	 	4.2.2   	 	Renewal
Term.  Notwithstanding paragraph 4.2.1, above, APL DIRECT shall revise any rate and charge
upon thirty (30) days notice to EDIGITAL, if and only if APL DIRECT’s base costs, such
costs defined as the cost of labor, insurance, utilities, rent, real estate taxes on
leased facilities, or other costs directly attributable to the warehousing and
fulfillment of the Products and providing customer service (such costs hereinafter
referred to as “Base Costs”), increase by at least 2.5%. These cost increases shall be
conveyed in writing to EDIGITAL. If EDIGITAL objects to such revision, then EDIGITAL has
the right to terminate this Agreement in accordance with Section 8.3. In such an event,
any rate revision shall not be effective prior to the termination date, so long as such
date is within sixty (60) days after receipt of the notice of rate change. In the event
EDIGITAL does not exercise its right under this provision to terminate this Agreement
within thirty (30) days, any rate and charge revisions shall be effective on the 31st day
after receipt of APL DIRECT’S notice. Unless for the reasons stated in Section 4.2.1 (i)
or (ii), above, any revisions will not be effective prior to the second anniversary of
this Agreement.  






	 	 	4.2.3   	 	Carrier
Charges.  Changes in charges from Contracted Carriers used to provide freight management
services described in Sections 2.4 and 2.5 and described and selected by EDIGITAL in
Schedule “A,” will be immediately reflected in APL DIRECT’S charges to EDIGITAL.  






	 	 	4.2.4   	 	Fuel
Rate Variance.  When adjustments are sought by Contracted Carriers or APL DIRECT due to
fuel rate increases or decreases (“Fuel Rate Variance”) in order to perform the Inbound
and/or Outbound Freight Management Services, EDIGITAL shall pay the Fuel Rate Variance
when and only when the Contracted Carrier applies such a Fuel Rate Variance. In the case
of a Fuel Rate Variance surcharge, it shall not to exceed the Department of Energy
(“DOE”) national and regional fuel surcharge averages as posted in Transport Topics
weekly magazine published by the American Trucking Association. Fuel Rate Variances shall
be adjusted each Monday after the 4:00 p.m. DOE posting.  






	4.3   	 	Terms
of Payment.   







	 	 	4.3.1   	 	Integration
and Implementation Expense.  The parties agree that charges for initiating the program
contemplated in this Agreement are, in total, estimated to be $96,000 at the time of
signing the Letter of Intent, dated August 1, 2001. Further, $14,000 of this is to be
invoiced upon signing the Letter of Intent and is non-refundable. Upon receipt of this
amount, APL DIRECT will begin integration and implementation work. This $14,000 will be
subtracted from the final total charges, not to exceed $96,000, and the remaining amount
will be amortized over the life of the contract, starting December 1, 2001.  






	 	 	4.3.2   	 	First
Month Payment.  By October 15th, EDIGITAL agrees to deposit with APL DIRECT funds to cover
the expected billing for the first month of fulfillment and customer care services
(“First Month Payment”). The parties agree that the First Month Payment is estimated to
be $26,625. In the event APL DIRECT’S invoices for the first month of all Services does
not exceed the aforementioned amount, then any balance will be credited to EDIGITAL’s
account.  






	 	 	4.3.3   	 	Ongoing
Payment for Services.  Except as may otherwise be specifically stated in this Section 4.3
or any of the applicable Schedules, APL DIRECT shall invoice EDIGITAL costs incurred and
authorized by this Agreement, including minimum charges, during the preceding month.
EDIGITAL shall pay the amount invoiced within thirty (30) days from the date of such
invoice. Payment shall be considered made when payments have been received by APL DIRECT.  






	 	 	4.3.4   	 	Inbound
Freight Management Services.  In the event EDIGITAL selects inbound freight management
services, as provided for in Section 2.4 and Schedule “A,” charges for the services
provided, including minimum charges, will be paid according to Section 4.3.6.  






	


4  














	











	 	 	4.3.5   	 	Outbound
Freight Management Services.  In the event EDIGITAL requests outbound freight management
services, as provided for in Section 2.5 and Schedule “A,” charges for the services
provided, including minimum charges, will be paid according to Section 4.3.6.  






	 	 	4.3.6   	 	Inbound
and Outbound Freight Management Services Escrow Deposit.  EDIGITAL will place an escrow
deposit with APL DIRECT in the amount of $90,000.00 (1,250 orders per week for six (6)
weeks @ $10 per shipment with a 20% adjustment for buffer [((1,250 x 6) x $10) x 1.20] no
later than 15 days after the signing of this agreement, or two days prior to the first
day of outbound shipping for EDIGITAL, whichever comes first. Shipping charges will be
debited from this account by APL DIRECT weekly to cover the cost of shipping and the APL
DIRECT mark-up, as described in Schedule “A”. EDIGITAL will be provided a weekly invoice
detailing the charges to be debited for the week and the remaining escrow. If during the
course of normal activity the escrow amount is determined to be insufficient to cover the
monthly charges, APL DIRECT will provide written notice of such to EDIGITAL and a
mutually agreed-upon revised amount will be escrowed within fifteen (15) days.
Conversely, if during the course of normal activity the escrow amount is determined to be
in excess of the monthly charges, APL DIRECT will provide written notice of such to
EDIGITAL and a mutually agreed-upon revised amount will be escrowed within (15) days. All
escrow deposits will be due to APL DIRECT no later than the tenth (10th) business day of
each month. In the event that such payment is not received and the escrow balance reaches
zero (0), APL DIRECT reserves the right to cease shipping activities, with two (2) days
written notice to EDIGITAL, until such time the funds have been replenished.  






	 	 	4.3.7   	 	Disputes. 
In the event EDIGITAL disputes any invoices (or any part thereof), EDIGITAL shall provide
APL DIRECT with written notice of such dispute within thirty (30) days of receipt of such
invoice. EDIGITAL shall, however, pay that portion of the invoice not in dispute. Any
such amount not in dispute and not paid within the above-stated terms shall bear interest
at the rate of one percent (1%) per month.  






	 	Additionally,
if any disputed portion of such invoice is later paid by EDIGITAL, or is determined
subsequently to be due and owing to APL DIRECT, EDIGITAL shall also pay APL DIRECT
interest on such amount from the original due date at the rate of one percent (1%) per
month. EDIGITAL agrees to pay, in the event its account becomes delinquent and is turned
over to any attorney for collection, reasonable attorneys’ fees, plus all consultant
fees, court costs, and attendant collection costs. 







	4.4   	 	Letter
of Credit.  EDIGITAL acknowledges and agrees that APL DIRECT would not have entered into
this Agreement unless EDIGITAL provides certain security for (i) the average of two
months of anticipated fulfillment and CRM services; (ii) the costs of optional equipment
provided in accordance with Section 2.7, if any; ; and (iii) the amortized portion of the
integration and implementation charges. Accordingly by October 5th, EDIGITAL shall obtain
an irrevocable standby Letter of Credit in a form acceptable to APL DIRECT (see
Attachment #2) that will be drawn by APL DIRECT in the event of breach of contract by
EDIGITAL, in an amount equal to $129,925 (the “Letter of Credit”). If at any time, during
the term of this Agreement, either APL DIRECT acquires the optional equipment for
EDIGITAL in accordance with Section 2.7 or the “Throughput” (calculated by dividing by
two the total of the number of units received and the number of units shipped) increases
by more than thirty percent (30%), then APL DIRECT may require EDIGITAL to deliver either
a replacement or supplemental Letter of Credit to make up the difference. The remaining
balance of the amortized portion of the integration and implementation charge, estimated
to be $82,000 ($96,000 less $14,000) is to be considered in this calculation. If EDIGITAL
fails to deliver such replacement or supplemental Letter of Credit within fifteen (15)
days of such notice, then EDIGITAL shall be in breach of this Agreement. In the event the
term of the Letter of Credit, including any replacements or supplemental letters of
credit, are less than the full term of this Agreement, then the Letter of Credit,
including any replacements or supplemental letters of credit, shall be replaced prior to
their expiration date, and such replacements shall be delivered to APL DIRECT no less
than forty-five (45) days prior to the expiration date of the Letter of Credit, or any
replacement thereof.   






	


5  
















	





5.
LIABILITIES AND INDEMNIFICATION 











	5.1   	 	General
- Warehouse.  APL DIRECT shall be responsible for loss or damage to all Products under its
care, custody and control in the Warehouse as provided in Sections 2.1 and 2.2.   







	 	
APL
DIRECT agrees to indemnify, save harmless, and defend EDIGITAL from and against any and
all claims for loss, damage or injury and from and against any suits, actions, or legal
proceedings brought against EDIGITAL for or on account of any loss or damage to the
tangible property of third parties, or for or on account of any injuries received or
sustained by any person, including but not limited to, employees of APL DIRECT and
employees and agents of EDIGITAL, caused by, or arising out of, any intentional, reckless
or negligent act or omission of APL DIRECT or its employees, agents or invitees in
performing the Services. This indemnity shall not apply to any such loss, damage or
injury to the extent such loss, damage or injury is caused as a result of the sole or
partial negligence of any other party. 






	 	
EDIGITAL
shall indemnify and hold harmless APL DIRECT from any and all claims for duties, import
taxes, export taxes tariffs, sales taxes (if applicable), unpaid transportation charges,
including undercharges, demurrage, detention, or charges of any nature, in connection
with EDIGITAL’s Products shipped to or from the Warehouse, except for such claims caused
by APL DIRECT’S failure to exercise the standard of care as identified in Section 2.2
above. 






	 	
In
addition, EDIGITAL agrees to indemnify, save harmless, and defend APL DIRECT from and
against any and all claims for loss, damage or injury and from and against any suits,
actions, or legal proceedings brought against APL DIRECT for or on account of any loss or
damage to the tangible property of third parties, or for or on account of any injuries
received or sustained by any person, including, but not limited, to employees of EDIGITAL
and employees and agents of APL DIRECT, caused by, or arising out of, any intentional,
reckless or negligent act or omission of EDIGITAL or its employees, agents or invitees,
as well as from any claims, expenses or demands of any kind made by EDIGITAL’s employees,
agents, servants or contractors while at the Warehouse in connection with the performance
of this Agreement, except to the extent such claim arises from the negligence or
intentional act of APL DIRECT, its employees, agents or servants, and any claims brought
by EDIGITAL’s customers as a result of the nature of the Products or messages attached to
orders. Further, EDIGITAL agrees to secure a waiver of subrogation from EDIGITAL’s
workers’ compensation insurance carrier in support of the above. 






	5.2   	 	Demurrage;
Detention.  APL DIRECT shall not be liable for demurrage, detention, or delays in
obtaining and loading cars or vehicles for shipments unless APL DIRECT has failed to
exercise reasonable care and judgment as determined by industry practice or failed to act
in a timely manner. If detention occurs for which APL DIRECT is liable, payment of such
detention shall be made by APL DIRECT to the carrier.   







	5.3   	 	Claims
by EDIGITAL.  Claims by EDIGITAL for loss or damage to Products must be presented in
writing to APL DIRECT by no later than the earlier of (a) ninety (90) days after delivery
of the Products by APL DIRECT or Contracted Carrier or (b) ninety (90) days after
EDIGITAL is notified that loss or damage has occurred. Freight claims presented to APL
DIRECT by EDIGITAL will be handled between APL DIRECT and the Contracted Carrier in
accordance with 49 CFRss.1005. APL DIRECT shall not be liable to EDIGITAL where such loss
or damage is caused by events of Force Majeure as provided in Article 7 below, the act of
EDIGITAL, its employees or agents, or the inherent vice or nature of the Products. APL
DIRECT will be afforded a reasonable opportunity to inspect damaged Products, research
shortages, investigate claims, and respond to EDIGITAL. No legal action may be maintained
by EDIGITAL against APL DIRECT for loss or damage to Products or regarding the charges
hereunder unless timely written claim has been made as provided above and, in any event,
unless such action is commenced within the earlier of (a) one (1) year after the date of
delivery by APL DIRECT or Contracted Carrier (as the case may be) or (b) one (1) year
after EDIGITAL is notified that loss or damage has occurred.   






	


6  
















	











	5.4   	 	Limitation
of Liability.  Subject to the provisions of Section 5.5 below (which shall apply to any
loss or damage to Products), and in consideration of the charges set forth herein (it
being recognized that higher charges would be made but for the limitation of liability
set forth in this Section), it is understood and agreed that in the event of loss or
damage to Products for which APL DIRECT is liable, the measure of damage will be
EDIGITAL’s cost of the Products involved plus a prorated portion of transportation
charges; HOWEVER, APL DIRECT’S legal liability shall be limited per any one loss to the
maximum amount of legal liability insurance in full force and effect with APL DIRECT’S or
Contracted Carrier’s (as the case may be) insurance carrier at the time such loss is
incurred. If APL DIRECT pays any claim of EDIGITAL, APL DIRECT or its insurer or
Contracted Carrier’s insurer shall take title to the Products and/or obtain credit for
the salvage value as mutually agreed. Except as otherwise may be specifically provided
for in this Agreement or any Schedule, neither party shall be liable to the other for any
consequential, indirect or punitive damages arising from the breach or termination of
this Agreement.   







	5.5   	 	Warehouse
Shrinkage/Damage Allowance.  Notwithstanding any other provision to the contrary, EDIGITAL
agrees to a damage and inventory shrinkage allowance (calculated annually based on
physical inventory results) of one half of one percent (0.5%) of the greater of (a) the
value of the Products stored or (b) annual number of units, for which, in the case of
loss or damage to Products for any reason or mysterious disappearance, however caused,
APL DIRECT shall not be liable.   







	5.6   	 	Insurance
- Warehouse.  APL DIRECT shall maintain at all times during the life of this Agreement a
policy or policies of insurance in full force and effect with companies and in amounts
identified on Schedule “F” hereto, covering warehouse legal liability for loss or damage
to EDIGITAL’s Products due to negligence of APL DIRECT. APL DIRECT does not otherwise
insure EDIGITAL’s Products in the Warehouse. APL DIRECT agrees to furnish, at EDIGITAL’s
request, certificates of all policies of applicable insurance, such certificates to name
EDIGITAL as certificate holder and to stipulate that the insurance will not be canceled
or substantially changed prior to termination of this Agreement.   







	5.7   	 	Insurance
- Transportation.  APL DIRECT will maintain policies of insurance to maintain insurance as
follows: (a) automobile bodily injury and property damage on vehicles utilized hereunder
in the amount of $1,000,000 combined single limit for each occurrence or any such higher
amount as required by applicable law, regulation, or public authority; (b) motor truck
cargo with minimal limits of $100,000 per vehicle; (c) $500,000 employer’s liability; (d)
statutory amounts of workers’ compensation; (e) commercial general liability (including
contractual liability) for bodily injury and tangible property damage with a combined
single limit of at least $1,000,000 per occurrence. APL DIRECT will furnish, at
EDIGITAL’s request, a certificate of insurance evidencing such coverage, naming EDIGITAL
as certificate holder and stipulating that the insurance will not be canceled or
substantially changed prior to termination of this Agreement. APL DIRECT will notify the
applicable insurer of any claim or accident as soon as practicable.   






	


6. WAREHOUSE
PHYSICAL INVENTORIES AND ADJUSTMENTS 











	6.1   	 	Physical
Inventories.  Joint EDIGITAL - APL DIRECT Warehouse physical inventories shall be
performed on the following occasions: (a) upon request by EDIGITAL with four (4) weeks
advance notice for up to 100 SKUs, and (6) weeks advance notice for over 100 SKUs, (b)
upon transition to another facility or, (c) upon transition to another provider. All
shipping, receiving and inventory transaction processing will be terminated during the
period of the physical inventory to insure simultaneous cut-off of all activity and such
physical inventory will take place so as to not unreasonably interfere with APL DIRECT’S
other business at the facility. Charges for hourly warehouse personnel will be per
Schedule “A”.   






	


7  
















	











	 	6.1.1
Cycle counts will be performed (i) based on events or exceptions, and (ii) based on a
schedule, but at least on a quarterly basis. Cycle counts will be system generated and
monitored. 







	6.2   	 	Inventory
Adjustments.  If stock differences are found in any count, APL DIRECT and EDIGITAL will
list gains as receipts, and losses as deductions, thus correcting the book record to
agree with the actual stock on hand. Those changes will be based upon counts agreed to
and signed by EDIGITAL’ representative and APL DIRECT’S representative.   







	 	 	6.2.1  	 	For
purposes of determining the net balance of physical units on APL DIRECT’S account, all
shortages and overages for the period, after taking account of the shrinkage allowance,
shall be reconciled by stock keeping unit. 






	 	 	6.2.2  	 	If
there is a shortage for the period covered, after netting across stock keeping units and
resolving any outstanding unit of measure issues not previously resolved by EDIGITAL, the
dollar amount (number of units multiplied by EDIGITAL’s cost, less allowances provided
for in Section 5.5 above, all of which shall be subject to the provisions of subsection
6.2 .4 below) shall be payable to EDIGITAL by APL DIRECT. If there is an overage on the
account, adjustments will be made to inventory book records and no claim will be filed by
EDIGITAL. The period covered by the physical inventory will be closed to future netting
routines except under the following conditions: 






	 	 	 	 	 	 	i.   	 	proven
miscount in physical inventory;  







	 	 	 	 	 	 	ii.   	 	proven
clerical error by EDIGITAL;  






	 	 	 	 	 	 	iii.   	 	located
or recovered mis-shipment;  






	 	 	 	 	 	 	iv.   	 	proven
packing or case marking error by an EDIGITAL supplier; or,  






	 	 	 	 	 	 	v.   	 	a
shortage in a subsequent inventory matches an overage in a previous inventory.  








	 	 	6.2.3  	 	If
the net inventory variance calculated during the physical inventory is an overage and APL
DIRECT paid for a shortage in connection with the preceding physical inventory, EDIGITAL
will pay a refund to APL DIRECT based on the overage, but only to the extent that it does
not exceed the shortage for which APL DIRECT has paid. 






	 	 	6.2.4  	 	The
dollar values used to establish the net-money balance shall be EDIGITAL’s cost of said
Products, or the amount stipulated in Section 5.4 above, whichever is less. 






	6.3   	 	Reconciliation
of Inventory Records.  If at any time, discrepancies exist between EDIGITAL’ records and
the physical inventory, APL DIRECT and EDIGITAL shall provide to each other their records
of all inventory adjustments from the time of the previous reconciliation to the time of
the inventory count in which the discrepancy was found; APL DIRECT’S records shall be
presumed to be correct, absent evidence to the contrary.   






	


7. FORCE
MAJEURE 



     A
party shall not be responsible for delay or non-performance hereunder if performance is
prevented or delayed by any cause or event beyond its reasonable control. Without
limiting the generality of the foregoing, such causes or events shall include, directly
or indirectly, without limitation, Acts of God or elements of nature, fire, floods, other
catastrophes, war, public enemies, seizure under legal process (not resulting from action
or inaction of the non-performing party), strikes, lockouts, labor disorders, riots,
sabotage, explosion, acts of terrorism, civil commotions, closing of public highways,
governmental interference or regulations, embargo, accident, derailment, epidemics or
quarantine restrictions, the act or default of the other party, or any other reason of a
similar or dissimilar nature beyond such party’s reasonable control.  










	


8  
















	






     In the
event there is a default or delay due to Force Majeure per the above, the non-performing
party shall be excused from further performance (other than payment of previously accrued
charges) or observance of the obligation(s) so affected for as long as such circumstances
prevail, provided such party continues to use its best efforts to recommence its
performance or observance whenever and to whatever extent possible without delay. The
party claiming a Force Majeure event will notify the other party as soon as practicable
regarding the existence, nature and approximate duration of the Force Majeure event, and
will promptly give further notice when the Force Majeure event ceases, whereupon its duty
to perform shall resume. Should EDIGITAL temporarily suspend its operations pursuant to
Force Majeure, or otherwise, the term of this Agreement shall be extended for a period of
time equivalent to the duration of the suspension.  



8. DEFAULT 










	8.1   	 	Automatic
Default.  In the event bankruptcy, receivership, insolvency, reorganization, dissolution,
liquidation or other similar proceeding is instituted by or against either party under
the United States Bankruptcy Code or other law of the United States or any state, then
the other party may, without notice or demand, terminate this Agreement and exercise all
rights granted under applicable law and this Agreement.   







	8.2   	 	General
Default; Right to Cure.  Except for reasons provided in Section 7 and Section 8.1, above,
in the event either party fails to perform its obligations under this Agreement, then the
other party may terminate this Agreement upon sixty (60) days prior written notice to the
other; provided, however, that such notice shall specify all such failures to perform and
allow the party in default no less than ninety (90) days to correct such failures.
However, APL DIRECT and EDIGITAL agree that breach of payment terms in Section 4.3 shall
constitute default, which EDIGITAL agrees to correct within fifteen (15) days of receipt
of notice from APL DIRECT.   







	8.3   	 	Effect
of Termination.  Termination under this provision, or under any other provision of this
Agreement, shall not relieve or release either party from any liability, including
purchased transportation freight charges, which accrued prior to the date of such
termination.   






	


9. EARLY TERMINATION 











	9.1   	 	Termination
With Cause.  In the event EDIGITAL exercises its rights to terminate this Agreement in
accordance with Section 8.2 as a result of APL DIRECT’S breach, or Section 4.2.2 as a
result of the parties’ inability to reach agreement on compensation, or Section 7, or
Section 8.1, EDIGITAL will either (a) assume the leases for any optional equipment leased
pursuant to Section 2.7, if any, or (b) pays APL DIRECT the remaining unamortized balance
of any such equipment, if any, and (c) pay APL DIRECT the remaining unamortized balance
of implementation charges, if any. If any equipment is to be transferred, APL DIRECT
shall deliver to EDIGITAL a Bill of Sale for such equipment with no warranties, expressed
or implied.   







	9.2   	 	Termination
For Convenience.  This provision is not a right to terminate for convenience; however,
both parties acknowledge that, if this Agreement is terminated prior to its stated term,
then the other party will have incurred significant expenses for which it would not have
been compensated as contemplated under this Agreement or the applicable Schedules.
Furthermore, such expenses are virtually impossible to calculate at the commencement of
this Agreement. Therefore, if this Agreement is terminated prior to its stated term by
either party for convenience, then such party terminating the Agreement shall pay to the
other liquidated damages in the amount of One Hundred and Fifty Thousand Dollars
($150,000) (hereinafter referred to as “Early Termination Damages”). Such termination
notice shall conform to the requirements set forth in this Agreement for the giving of
notices and shall be delivered not less than ninety (90) days prior to the stated
termination date. Not less than thirty (30) days prior to the termination date, payment
for the Early Termination Damages shall be delivered.   






	


9  
















	






10. RECORDS 



     APL
DIRECT shall at all times keep accurate and complete books and records with regard to
receipt, transfer, and other handling of EDIGITAL’s Products (the “EDIGITAL Files”) and
shall maintain the EDIGITAL Files for periods that meet all legal requirements. Order
data will be stored on line for a period of 180 days. On line data retention requirements
beyond 180 days will be an additional charge as outlined in Schedule “A.” Subject to
maintaining the confidentiality of records of any customers other than EDIGITAL, EDIGITAL
and its authorized representatives shall have the right, at its own cost and expense, to
inspect and audit the EDIGITAL Files at any time during regular business hours and after
first giving not less than fifteen (15) business days notice to APL DIRECT. EDIGITAL’s
right to audit the EDIGITAL Files shall survive expiration or termination of this
Agreement. EDIGITAL shall also have the right to enter upon the Warehouse(s) at all
reasonable times for the purpose of inspecting EDIGITAL’s Products.  




11.
INDEPENDENT CONTRACTOR 



     It is
agreed and understood that APL DIRECT is entering into this Agreement as an independent
contractor and that all of APL DIRECT’S personnel and Contracted Carrier’s personnel
engaged in work under this Agreement are to be considered for all purposes as employees
of APL DIRECT or Contracted Carrier, respectively. Under no circumstances shall employees
of APL DIRECT or Contracted Carrier be construed or considered to be employees of
EDIGITAL. EDIGITAL will not be responsible for acts or omissions of either APL DIRECT’S
or Contracted Carrier’s employees or agents. The relationship between the Parties will
be, at all times, that of independent contractors, which status governs all relationships
between APL DIRECT, EDIGITAL, Contracted Carrier, and other third parties.  




12. NON-RECRUITMENT 



     During
the period of this Agreement and for a period of one (1) year thereafter, neither party
shall solicit, entice, or attempt to solicit either directly or indirectly, for
employment, or employ, an employee of the other party without the prior written consent
of such other party, provided that this provision shall not apply to employees that
answer generally published advertisements for employment.  




13. COMPLIANCE 



     APL
DIRECT shall at all times comply with all applicable federal, state and municipal laws
and the regulations of the respective regulatory bodies having jurisdiction over APL
DIRECT. APL DIRECT will procure and maintain and verify that any Contracted Carrier has
and maintains all necessary and applicable operating authorities, licenses and insurance.  




14. SUCCESSORSHIP 



     This
Agreement shall inure to the benefit of and be binding upon the successors and assigns of
the Parties hereto, provided neither party to this Agreement shall assign or sublet its
interest or obligations herein without the prior written consent of the other party.
Further, all rights and benefits provided hereunder shall extend to the parent, affiliate
and subsidiary companies of both parties.  




15. APPLICABLE
LAW; SEVERABILITY 



     APL
DIRECT and EDIGITAL understand and agree that the law of the State of Delaware shall
govern this Agreement. If any provision of this Agreement shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be valid and
enforceable. If a court finds that any provision of this Agreement is invalid or
unenforceable, but that by limiting such provision it would become valid and enforceable,
then such provision shall be deemed to be written, construed, and enforced as so limited.
Any action brought to enforce any provision of this Agreement shall be brought only in
the City of Wilmington, Delaware, notwithstanding any conflict of laws to the contrary.  



10  















	






16.
COOPERATION 



     The
Parties acknowledge that they are both experienced in business and have entered into this
Agreement to establish business relationships intended to be mutually beneficial and
profitable for both Parties. Accordingly, each of the Parties will work together and
cooperate with each other in implementing the purposes and intents of this Agreement and
in attempting to resolve any questions and settle any disputes hereunder. Both Parties
will respond to such matters in a cooperative and practical, problem-solving manner. Each
will make every effort (without waiving any rights) to avoid litigation or other legal
process.  





17. ARBITRATION 



     Notwithstanding
Section 16, if a controversy or claim should arise out of or related to this Agreement or
any breach thereof (a “Dispute”), and the Parties are unable to resolve the Dispute
through informal negotiation, then the Dispute will be resolved in accordance with the
procedures of this provision. Each Dispute will be settled by binding arbitration before
a panel of three arbitrators in Wilmington, Delaware in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Either party may deliver to
the other party a written notice (a “Dispute Notice”) of a Dispute. Within fifteen (15)
calendar days after the other party receives a Dispute Notice, each party will select one
arbitrator, and the two arbitrators together will choose the third arbitrator. The third
arbitrator will be an independent person with a recognized reputation for fair-mindedness
and extensive experience in the resolution of complex commercial disputes. The costs of
arbitration will be borne equally by the Parties or, in the discretion of the
arbitrators, awarded to the prevailing party. The arbitrators will be entitled to award
damages or other relief to either party, including reasonable attorneys’ fees and
expenses.  





18. ENTIRE
AGREEMENT; AMENDMENT; CAPTIONS 



     The
parties to this Agreement, pursuant to 49 USC 14101 (b) (1), expressly waive all rights
and remedies provided under the Interstate Commerce Commission Termination Act of 1995;
provided that this waiver shall not apply to the provisions of Section 13710, related to
additional billing and collecting practices. This Agreement, together with all schedules
and attachments, and the Mutual Non-Disclosure Agreement dated June 11, 2001and executed
by both Parties (the “Mutual Agreement”), a copy of which is attached hereto as
Attachment #1, constitutes the entire agreement between the Parties and may not be
supplemented, amended or changed except by written agreement signed by APL DIRECT and
EDIGITAL. To the extent that the terms of any warehouse receipts, acknowledgment forms,
order forms, bills of lading, invoices, or similar documents sent and/or signed by one or
both Parties conflict with or are inconsistent with the terms of this Agreement, the
terms of this Agreement shall control. The captions herein are for convenience only and
shall not be construed as interpretive or as a substantive part of this Agreement.  




19. NOTICES 



     Any
notice or demand required or permitted hereunder shall be given in writing addressed to
EDIGITAL or APL DIRECT as listed below or to such other address as may be specified in
writing to the other party. Notices shall be given (a) by certified or registered mail,
(b) commercial overnight delivery service, or (c) facsimile transmission confirmed by
certified mailing or overnight delivery thereof. The notice shall be deemed given upon
receipt of the notice by the intended party of the facsimile (if properly confirmed) or,
in the case of notice by mail, when properly addressed with sufficient postage affixed,
three days after deposit in the U.S. Mail or, for notices sent by overnight delivery
service, when properly addressed and submitted with a sufficient fee, one day after being
left with the carrier.  




11  














	











	For notices to APL DIRECT:
          

APL Direct Logistics, Ltd.
1301 Riverplace Boulevard, Suite 530
          
Jacksonville, Florida 32207
Attn.:   Frank C. DiMaria
          
             President and CEO
          
Telephone No. (904)858-4728
Facsimile No. (904)-858-4640

For notices to EDIGITAL: 	With a copy to:

          
APL Direct Logistics, Ltd.
1301 Riverplace Blvd., Suite 1200
Jacksonville, FL 32207
          
Attn:   Kenneth G. Charron
          
            Associate Counsel
          
Telephone No. (904) 396-2517
Facsimile No. (904) 396-3984 






	


EDIGITAL 


————————————————

————————————————

Attn.:

            
—————————————

           
 —————————————

Telephone No. 

                          
——————————
Facsimile No. 

                          
——————————  










	


20. WAIVER 



     Compliance
with the provisions of this Agreement may be waived only by a written document signed by
the party granting the waiver. The failure of either party at any time to require
performance by the other party of any provision hereof shall in no way affect the full
right to require such performance at any time thereafter. Neither shall the waiver by any
party of a breach of any provision hereof be taken or held to be a waiver of any
succeeding breach of such provision or as a waiver of the provision itself.  




21.
CONFIDENTIALITY 



     The
terms and provisions of this Agreement are confidential and proprietary and, either party
shall reveal only so much of its contents as shall be required by law. The Mutual
Agreement shall be effective in accordance with its terms.  




22. PUBLICITY 



     The
parties agree that no press or public announcements shall be made without the other’s
consent.  



     IN
WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their
respective duly authorized representatives:  




APL Direct
Logistics, Ltd. 









	 	Title: President & CEO

Date: 





	


By:  



Name Printed: Frank C. DiMaria  









	e.Digital Corporation

By:  	Name Printed:

Title:

Date: 







	


12  
















	






SCHEDULE
“A” 



Description of
Services and Prices 



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between e.Digital
Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL DIRECT”).   



Services and Prices (If
there is no check box – in the first column – by the service, the
service is a required one. For those services that provide for a check box, a
check in the box means that EDIGITAL has selected the service and APL DIRECT is
to provide the service.)  










	

	 	 	SERVICE DESCRIPTIONS 	PRICE 
	

	  	  	Implementation  	  
	

	  	  	Project Set Up  	  
	  	  	1. 	  	System Set up 	  	$**** one-time, upfront fee 	  
	  	  	  	  	•  Development of scope of work and business rules document, 	  
	  	  	  	  	    defining critical processes and service features required 	  	$**** one time fee for 	  
	  	  	  	  	•  Method of file communication determined 	  	router purchase if frame  	  
	  	  	  	  	•  Determination of integration files to be exchanged 	  	connection is desired  	  
	  	  	2. 	  	EDIGITAL ERP systems and web store system flow identified 	  
	  	  	3. 	  	Fulfillment system configuration: 	  	T&E expenses billed 	  
	  	  	  	  	•  EDIGITAL parameters determined and set up 	  	separately 	  
	  	  	  	  	•  SKU set-up 	  
	  	  	  	  	•  SKUs defined in cartonization algorithm 	  	$**** monthly commencing 	  
	  	  	  	  	•  unit of measure structure identified 	  	on December 01, 2001 for 	  
	  	  	  	  	•  slotting requirements identified and system configured accordingly 	  	the remaining 34 months, 	  
	  	  	4. 	  	Fulfillment center new account preparation 	  	based on an estimated 	  
	  	  	  	  	•  labeling of locations 	  	total set up charge of $**** 	  
	  	  	  	  	•  ordering of supplies (void fill, packaging, etc.) 	  
	  	  	  	  	•  RF equipment set-up 	  
	  	  	  	  	•  printer set-up 	  
	  	  	  	  	•  pack station set-up 	  
	  	  	  	  	•  set up of router, if frame connection is desired 	  
	

	  	  	  	  	Project Implementation  	  
	  	  	1. 	  	Integration to/from the fulfillment system for: 	  	One-time set up fee 	  
	  	  	  	  	•  sales orders generated via multiple channels such as the clients’ 	  	included in the Project 	  
	  	  	  	  	    and/or supplier’s website, television, catalog, ERP application, 
    etc. 	  	Set Up fee 	  
	  	  	  	  	•  inventory adjustments (status and quantity) 	  
	  	  	  	  	•  order receipt confirmation 	  
	  	  	  	  	•  shipment confirmation 	  
	  	  	  	  	•  purchase orders (POs) 	  
	  	  	  	  	•  inbound receipt of POs 	  
	  	  	  	  	•  return Material Authorizations (RMAs) 	  
	  	  	  	  	•  RMA receipt 	  
	  	  	  	  	•  inventory snapshot 	  
	  	  	2. 	  	Project management and QA testing 	  
	  	  	3. 	  	Order management configuration based upon client’s business rules. 	  
	  	  	4. 	  	Consumer email formats developed. 	  
	

	  	  	  	  	Operational Start Up  	  	One-time set up fee 	  
	  	  	1. 	  	Physical site set up 	  	included in the Project 	  
	  	  	  	  	  	  	Set Up fee 	  








	


**** Portions of this Exhibit
have been omitted (based upon a request for confidential treatment) and have
been filed separately with the Securities & Exchange Commission pursuant to
Rule 24b-2.  



13  
















	












	

	  	  	Inbound Freight/Parcel Management  	  
	

	  	  	  	  	Location(s)  	  	  	  
	  	  	  	  	  	  
	  	  	  	  	1500 World Wide Boulevard 	  	  	  
	  	  	  	  	Hebron, KY 41408 	  
	

	  	  	  	  	Hours of Operations and Holidays  	  
	  	  	  	  	Workday, Workweek: Normal Operating Hours are 	  
	  	  	  	  	7:00 a.m. - 6:00 p.m. (local time), Monday through 	  
	  	  	  	  	Friday, with additional shifts as mutually agreed. 	  
	  	  
	  	  	  	  	Holidays: New Years Day, Memorial Day, Independence Day, 	  
	  	  	  	  	Labor Day, Thanksgiving Day, the day after Thanksgiving, 	  
	  	  	  	  	and two days either immediately before or after 	  
	  	  	  	  	Christmas, as mutually agreed. 	  
	

	|X| 	  	  	Domestic Services  	  	One-time set up fee 	  
	  	  	1. 	  	Carrier rate negotiations and administration of 	  	included in the Project 	  
	  	  	  	  	negotiated rates 	  
	  	  	2. 	  	Management of inbound transportation including, 	  	Set Up fee 	  
	  	  	  	  	least-cost carrier selection (i.e. rate shop), order 	  
	  	  	  	  	entry, routing, load tendering, carrier 	  	$****/week minimum usage 	  
	  	  	  	  	dispatching, shipment tracking, freight payment and 	  	fee 	  
	  	  	  	  	audit, claims filing (as directed by EDIGITAL), monthly 	  
	  	  	  	  	activity reporting, shipping document creation, and 	  	Freight cost + ****% 	  
	  	  	  	  	related customer service 	  	usage fee for domestic 	  
	  	  	3. 	  	Modes include LTL, TL, Intermodal and parcel 	  	shipments 	  
	  	  	4. 	  	Custom vendor guide development and vendor shipping file 	  
	  	  	  	  	verification available upon request; charged at VAS rate 	  
	  	  	5. 	  	Vendor compliance audit available upon request; charged 	  
	  	  	  	  	at VAS rate 	  
	

	|X| 	  	  	International Services  	  	Freight cost + ****% 	  
	  	  	Same services as listed in the base offering, plus the following features: 	usage fee for international shipments 	  
	  	  	1. 	  	Consolidation at source location 	  	   	  
	  	  	2. 	  	Transport to the US via ocean or air 	  
	  	  	3. 	  	Customs clearance 	  
	  	  	4. 	  	Domestic transport to APL Direct facility(ies) 	  
	

	  	  	Fulfillment Services  	  
	

	  	  	  	  	Location(s)  	  
	  	  	  	  	1500 World Wide Boulevard 	  
	  	  	  	  	Hebron, KY 41408 	  
	

	  	  	  	  	Hours of Operations and Holidays  	  
	  	  	  	  	Workday, Workweek: Normal Operating Hours are 	  
	  	  	  	  	7:00 a.m. - 6:00 p.m. (local time), Monday through 	  
	  	  	  	  	Friday, with additional shifts as mutually agreed. 	  
	  	  
	  	  	  	  	Holidays: New Years Day, Memorial Day, Independence Day, 	  
	  	  	  	  	Labor Day, Thanksgiving Day, the day after Thanksgiving, 	  
	  	  	  	  	and two days either immediately before or after 	  
	  	  	  	  	Christmas, as mutually agreed. 	  
	

	  	  	  	  	Receiving  	  	$****/unit 	  
	  	  	1. 	  	Comparing receipt to Purchase Orders/Advanced Shipping 	  
	  	  	  	  	Notices or “blind” receipts 	  
	  	  	2. 	  	Putaway to active pick faces or reserve storage within 	  
	  	  	  	  	the facility 	  
	  	  	3. 	  	Visually inspecting goods for conformance to quality 	  
	  	  	  	  	and specifications (this does not include opening cases 	  
	  	  	  	  	except upon initial receipt of a new product, or SKU, 	  
	  	  	  	  	and for sampling purposes) 	  
	  	  	4. 	  	10% quality inspection 	  
	  	  	5. 	  	Verifying count by SKU 	  
	  	  	6. 	  	Creating, cubing, and weighing new SKUs 	  
	  	  	7. 	  	Updating fulfillment system 	  
	  	  	8. 	  	Tracking by lot code and expiration date 	  
	

	  	  	  	  	Storage  	  	Pick face - $**** per 	  
	  	  	1. 	  	SKU verification during putaway for inventory accuracy 	  	cubic foot, per month 	  
	  	  	2. 	  	System directed putaway location based on SKU product 	  
	  	  	  	  	type and velocity 	  	Reserve - $**** per 	  
	  	  	3. 	  	Dedicated Inventory Control Manager 	  	month for first pallet; 	  
	  	  	4. 	  	Cycle counts (event-driven and/or schedule driven, 	  	$**** per month for each 	  
	  	  	  	  	system monitored and generated) 	  	additional pallet 	  
	  	  
	

	  	  	  	  	Pick and Pack  	  	$**** for first unit 	  
	  	  	1. 	  	Picking, packing, and labeling 	  
	  	  	2. 	  	Order allocation for picking efficiency, cost control, 	  	$**** for each 	  
	  	  	  	  	and priority delivery demands 	  	additional unit 	  
	  	  	3. 	  	Selecting and forming of shipping carton 	  
	  	  	4. 	  	SKU and unit verification for inventory accuracy 	  	(Excludes materials and 	  
	  	  	5. 	  	Pack Product in accordance with agreed upon standards 	  	outbound shipping) 	  
	  	  	  	  	and applicable law 	  
	  	  	6. 	  	Inspecting for conformance to eDigital’s quality 	  
	  	  	  	  	standards 	  
	  	  	7. 	  	Loading trailers 	  
	  	  	8. 	  	Various value added services (see VAS section) 	  








	


**** Portions of this Exhibit
have been omitted (based upon a request for confidential treatment) and have
been filed separately with the Securities & Exchange Commission pursuant to
Rule 24b-2.  



14  
















	












	 	 	 	 
	

	  	  	  	  	Oversize Handling Surcharges (cubic feet per carton)  	  	  	  
	  	  	  	  	Receipts and Shipments  	  	Corresponding Charges:  	  
	  	  	  	  	- 8 cubic feet - 23.99 cubic feet 	  	    -     $**** per carton  	  
	  	  	  	  	- 24 cubic feet - 39.99 cubic feet 	  	    -     $**** per carton  	  
	  	  	  	  	- 40 cubic feet - 55.99 cubic feet 	  	    -     $**** per carton  	  
	  	  	  	  	- 56 cubic feet or greater 	  	    -     $**** per carton  	  
	

	Charges for Receiving, Storage, and Pick/Pack contribute to a monthly minimum of $17,000, commencing 12/01/01 
	

	|X| 	  	  	  	Packaging Supplies  	  	Cost + ****% 	  
	  	  	1. 	  	Vendor management of supplies according to client’s business rules 	  	 
Packaging supplies 	  
	  	  	2. 	  	Invoice audit and payment 	  	stored at rate of $**** 	  
	  	  	  	  	  	  	per pallet per month 	  
	  	  	  	  	  	  	beginning with the 16th 	  
	  	  	  	  	  	  	pallet 	  
	

	|X| 	  	  	  	Returns  	  	$****/unit (with RMA) 	  
	  	  	1. 	  	Reconciliation of goods to Return Materials Authorization (RMA) 	  
	  	  	2. 	  	Visual inspection of goods 	  	$****/unit (without RMA) 	  
	  	  	3. 	  	Follow instructions for disposition (return to stock, return to vendor, or destroy) 	  
	  	  	4. 	  	Assistance with integration to carrier return programs 	  
	

	|X| 	  	Value Added Services (VAS)  	$****/hr (see note at 	  
	  	  	1. 	  	Gift boxing 	  	end of section) 	  
	  	  	2. 	  	Gift card insertion 	  
	  	  	3. 	  	Kitting 	  
	  	  	4. 	  	Bagging 	  
	  	  	5. 	  	Sorting bundled merchandise 	  
	  	  	6. 	  	Bundling multiple SKUs to create a new SKU 	  
	  	  	7. 	  	De-labeling and/or labeling of merchandise 	  
	  	  	8. 	  	Customization (engraving, embroidering, etc.) 	  
	  	  	9. 	  	Testing returned merchandise for quality 	  
	  	  	10. 	  	Ongoing bin/location maintenance 	  
	

	|_| 	  	  	  	Photo shop  	  	$**** one-time set up 	  
	  	  	1. 	  	28'x28', clear height of 15 feet 	  
	  	  	2. 	  	includes caged storage area, 1500 square feet with 12' high fencing 	  	$**** per week for shop 	  
	  	  	3. 	  	18% gray painted walls 	  	usage 	  
	  	  	4. 	  	equipped with office furniture, phone lines, a/c power receptacles 	  
	  	  	5. 	  	climate controlled 	  	photographer and 	  
	  	  	  	  	  	  	equipment provided by 	  
	  	  	  	  	  	  	client 	  
	

	|X| 	  	  	  	Physical Inventory  	  	$****/hr plus materials 	  
	  	  	1. 	  	Performed at EDIGITAL’s request, no less than once per year 	  	(rate during normal 	  
	  	  	2. 	  	Performed at a time that is least disruptive to EGITIAL’s selling cycle 	  	business hours) 	  
	  	  	3. 	  	System driven 	  
	










	


**** Portions of this Exhibit
have been omitted (based upon a request for confidential treatment) and have
been filed separately with the Securities & Exchange Commission pursuant to
Rule 24b-2.  




Note on
Value-Added Services.  



The parties will mutually
agree upon the requirements for any value-added services prior to the provision
of such services. The hourly charges for value-added services are specified in
this Schedule “A.” Further, the KPIs in paragraph 3 of Schedule
“C” will be appropriately adjusted if value-added services are
provided.  




15 
















	












	

	  	  	Outbound Parcel Management  	  
	

	  	  	  	  	Location(s)  	  	  	  
	  	  	  	  	1500 World Wide Boulevard 	  
	  	  	  	  	Hebron, KY 41408 	  
	

	  	  	  	  	Hours of Operations and Holidays  	  
	  	  	  	  	Workday, Workweek: Normal Operating Hours are 	  
	  	  	  	  	7:00 a.m. - 6:00 p.m. (local time), Monday through 	  
	  	  	  	  	Friday, with additional shifts as mutually agreed. 	  
	  	  
	  	  	  	  	Holidays: New Years Day, Memorial Day, Independence Day, 	  
	  	  	  	  	Labor Day, Thanksgiving Day, the day after Thanksgiving, 	  
	  	  	  	  	and two days either immediately before or after 	  
	  	  	  	  	Christmas, as mutually agreed. 	  
	

	|X| 	  	  	  	“Gold” Parcel Management Service  	  	One-time set up fee 	  
	  	  	1. 	  	Volume-based, discounted carrier rates 	  	included in the Project 	  
	  	  	2. 	  	Electronic manifest, rating, and carrier compliant 	  	Set Up fee 	  
	  	  	  	  	labeling 	  
	  	  	3. 	  	Detail and summary reports on all shipments provided 	  	$****/wk minimum usage 	  
	  	  	  	  	with each invoice 	  
	  	  	4. 	  	APL Direct Logistics performs freight audit (invoice 	  	APL Direct Logistics’ 	  
	  	  	  	  	level) and filing claims as client directs 	  	discounted rates + ****% 	  
	  	  	5. 	  	Multiple carrier alternatives - UPS (Ground, Three Day 	  	(contributes to weekly 	  
	  	  	  	  	Select, Second Day Air, Next Day Air, and Next Day Air 	  	minimum) 	  
	  	  	  	  	Saver), FedEx (Overnight, Two Day, and Express Saver), 	  
	  	  	  	  	USPS, Parcel Direct, LTL, and truckload carriers 	  
	  	  	6. 	  	Bi-annual selection of carriers based on service level 	  
	  	  	  	  	and weight breaks 	  
	  	  	7. 	  	Annual EDIGITAL data analysis to determine the optimum 	  
	  	  	  	  	mix of carriers and service levels 	  
	

	|_| 	  	  	  	“Platinum” Parcel Management Service  	  	$**** one time set-up fee 	  
	  	  	  	  	Same services and carriers as listed for the “Gold” 	  
	  	  	  	  	offering, with the following differences: 	  	$****/wk minimum usage 	  
	  	  	  	  	•   EDIGITAL may choose either the static selection of 	  	fee 	  
	  	  	  	  	    carriers based on service level and weight breaks, or 	  
	  	  	  	  	    take advantage of an automated least cost carrier 	  	APL Direct Logistics’ 	  
	  	  	  	  	    selection feature based on weight, destination, and 	  	discounted rates + ****% 	  
	  	  	  	  	    desired transit time (i.e. “rate shop”) 	  	(contributes to weekly 	  
	  	  	  	  	•   EDIGITAL data analysis of outbound parcel distribution 	  	minimum) 	  
	  	  	  	  	    metrics will be performed on an as-needed basis, as 	  
	  	  	  	  	    opposed to annually, for business modeling purposes 	  
	

	|X| 	  	  	  	International Shipping  	  	$**** one-time set up 	  
	  	  	1. 	  	Multiple carrier alternatives 	  	fee (additional set up 	  
	  	  	2. 	  	Consolidated shipping to Europe 	  	charges will apply to 	  
	  	  	3. 	  	Commercial invoice preparation, certificate of origin 	  	custom solutions) 	  
	  	  	  	  	preparation, and carrier compliant labeling 	  
	  	  	4. 	  	Custom international solutions are available 	  	APL Direct Logistics’ 	  
	  	  	  	  	  	  	discounted rates + ****% 	  
	

	|_| 	  	Proactive Parcel Management (PPM)  	$****/package 	  
	  	  	1. 	  	Parcel ETA provided to EDIGITAL with shipment 	  
	  	  	  	  	confirmations and tracking numbers of parcels shipped 	  
	  	  	  	  	via UPS and FedEx Express 	  
	  	  	2. 	  	Carrier performance management, alerting the EDIGITAL 	  
	  	  	  	  	of packages shipped via UPS and FedEx Express that are 	  
	  	  	  	  	delayed in transit 	  
	  	  	 
**** Portions of this Exhibit
          have been omitted (based upon a request for confidential treatment) and have
          been filed separately with the Securities & Exchange Commission pursuant to
          Rule 24b-2.  	  	  
	










	



16  
















	










	

	  	  	IT Services  	  	  
	

	  	  	IT Processing  	$****/order 	  
	  	  	1. 	  	Cost recovery for IT Platform in a shared environment 	  	  	  
	  	  	  	  	which includes: 	  
	  	  	  	  	•   Sun Server for Middleware and FS 	  	$****/mth fixed 	  
	  	  	  	  	•   NT server for TMS 	  	maintenance fee 	  
	  	  	  	  	•   Oracle Licenses 	  
	  	  	  	  	•   Irista Licenses (Middleware, FS and TMS) 	  	$****/mth frame relay 	  
	  	  	  	  	•   Irista and APL Direct Logistics’ implementation services 	  	fee, if desired  	  
	  	  	  	  	•   PCs, printers, and radio frequency devices 	  
	  	  	2. 	  	Frame relay for data transfer, if desired 	  
	

	  	  	  	  	Order Management Services  	  	Included in IT 	  
	  	  	1. 	  	Web visibility of real-time inventory levels and order status  	  	processing fees 	  
	  	  	  	  	by the EDIGITAL, facility operators, and call center personnel 	  
	  	  	2. 	  	Access to a web-based tool that allows for order creation, edits,  	  	EDigital training 	  
	  	  	  	  	and cancellations through various orders status points, by the 	  	additional at $****/hr 	  
	  	  	  	  	EDIGITAL, Account Manager, supplier, and call center personnel 	  	  	  
	  	  	3. 	  	End-to-end return and exchange capabilities by call center 	  	T&E expenses billed 	  
	  	  	  	  	personnel 	  	separately 	  
	  	  	4. 	  	Ability for EDIGITAL to define rules for exception items and 	  
	  	  	  	  	the action to be taken, up until the point that the carrier takes 	  
	  	  	  	  	possession of the product 	  
	  	  	5. 	  	Backorder capability where orders are held if inventory is 	  
	  	  	  	  	unavailable and then automatically released when available 	  
	  	  	6. 	  	Call center integration that allows for cross-sell and up-sell 	  
	  	  	  	  	programs 	  
	  	  	7. 	  	Archive storage of data for legal requirements and on-line 	  
	  	  	  	  	storage for 180 days 	  
	

	|X| 	  	  	  	Payment Processing  	  	$****/transaction 	  
	  	  	1. 	  	Payment processing for authorization and settlement of credit 	  
	  	  	  	  	card purchases, and consumer refunds on returns 	  
	  	  	  	  	(EDIGITAL establishes account directly with Paymentech) 	  
	  	  	2. 	  	Integration with EDIGITAL’s financial systems 	  
	

	|X| 	  	  	  	Fraud Detection  	  	$****/order 	  
	  	  	  	  	Ability for EDIGITAL to define order and shipment rules for 	  
	  	  	  	  	potentially fraudulent transactions; flagged orders are put in 	  
	  	  	  	  	hold pending EDIGITAL review and instruction 	  
	

	|_| 	  	  	  	Consumer Notification  	  	$****/email template 	  
	  	  	1. 	  	Emails may be sent to consumers at various stages of the order 	  
	  	  	  	  	management process for purposes such as: 	  	$****/email 	  
	  	  	  	  	•   Shipment confirmation notices with tracking number 	  
	  	  	  	  	•   Parcel ETA information (see Proactive Parcel Management 	  	$****/postcard or 	  
	  	  	  	  	    under Outbound Parcel Management, above) 	  	letter, plus postage 	  
	  	  	  	  	•   Parcel delivery failure information (see Proactive Parcel 	  
	  	  	  	  	    Management under Outbound Parcel Management, above) 	  
	  	  	  	  	•   Backorder status information 	  
	  	  	2. 	  	Postcards/letters may be sent to consumers for backorder 	  
	  	  	  	  	confirmation 	  
	

	All transaction charges for IT Processing, Order Management, Payment Processing, Fraud Detection, and Consumer
Notification contribute to a monthly minimum of $4,000 commencing 12/01/01  	  
	

	|_| 	  	  	  	Drop Ship Management  	  	$**** one time set-up 	  
	  	  	1. 	  	Web tools that allow connection to external suppliers with 	  	fee, per supplier 	  
	  	  	  	  	centralized freight management and tracking capabilities 	  
	  	  	2. 	  	Visibility of supplier performance against defined standards 	  	$****/order, for 	  
	  	  	3. 	  	Ability for supplier to effectively manage ship advises through 	  	orders 1 - 50,000 	  
	  	  	  	  	web-based visibility with flexible searching functions, detailed 	  	   	  
	  	  	  	  	order views, and integration with internal fulfillment functions 	  	$****/order, for orders 	  
	  	  	4. 	  	Ability for supplier to print pick-lists, display special 	  	50,001 - 100,000 	  
	  	  	  	  	packing/shipping instructions, print price information on 	  	  	  
	  	  	  	  	packing slips, and record backorders 	  	$****/order, for orders 	  
	  	  	5. 	  	Electronic integration to suppliers is also available at 	  	100,001 - 150,000 	  
	  	  	  	  	an additional charge, TBD 	  	  	  
	  	  	  	  	  	  	$****/order, for order 	  
	  	  	  	  	  	  	150,001 and above 	  
	  	  	  	  	  	  	(above per order ranges 	  
	  	  	  	  	  	  	apply to a 12 month time 	  
	  	  	  	  	  	  	period) 	  
	

	|_| 	  	  	  	Additional Data Storage  	  	$****/hr for conversion 	  
	  	  	1. 	  	Programming for conversion of EDIGITAL’s history data to 	  	of EDIGITAL’s history 	  
	  	  	  	  	APL DIRECT’s system 	  	data and recovery of 	  
	  	  	2. 	  	Purchasing and management of additional space required to 	  	archived data 	  
	  	  	  	  	have more than 180- days of on-line storage 	  
	  	  	  	  	  	  	$****/mth for on-line 	  
	  	  	  	  	  	  	storage of data beyond 	  
	  	  	  	  	  	  	180 days 	  
	










	


**** Portions of this Exhibit
have been omitted (based upon a request for confidential treatment) and have
been filed separately with the Securities & Exchange Commission pursuant to
Rule 24b-2.  




17  
















	











	

	  	  	Customer Relationship Management (CRM)  
	

	  	  	  	  	Location(s)  	  	  	  
	  	  	  	  	1650 A Gum Branch Road 	  
	  	  	  	  	Jacksonville, NC 28540 	  
	

	  	  	  	  	Hours of Operations  	  
	  	  	1. 	  	7 X 16 	  
	  	  	2. 	  	365 days per year 	  
	

	|X| 	  	1. 	  	Program set-up: 	  	Program Set-Up  	  
	  	  	  	  	•  Set up new CRM platform 	  
	  	  	  	  	•  Set up 800 number and provide access to all desired channels 	  	One-time set up fee 	  
	  	  	  	  	    and capabilities (see below) 	  	included in the Project 	  
	  	  	  	  	•  Perform custom programming where required 	  	Set Up fee 	  
	  	  	  	  	•  Develop agent training program and conduct training (the first 	  
	  	  	  	  	    150 hours included in one-time set up fee) 	  	Dedicated Agents  	  
	  	  	2. 	  	Agents: 	  	$****/hr, $****/hr  	  
	  	  	  	  	•  Dedicated and/or shared agents, available on a 7 X 16 or 7 X 24 
    basis 	  	for agents providing 
technical support 	  
	  	  	  	  	•  Location - Jacksonville, NC 	  	  	  
	  	  	3. 	  	Available channels include phone and email 	  
	  	  	4. 	  	Capabilities include: 	  	Shared Agents  	  
	  	  	  	  	•  “Level One” (i.e., decision tree scripting) support 	  	$****/min phone 7 X 16 	  
	  	  	  	  	•  Call back 	  
	  	  	  	  	•  Co-browsing / pushing pages 	  	$****/min phone 7 X 24 	  
	  	  	  	  	•  Universal history of consumer interactions and transactions 	  	(fee for call back is 	  
	  	  	  	  	•  Message content analysis and automated suggested response 	  	same as phone charge) 	  
	  	  	  	  	•  Interactive phone routing 	  
	  	  	  	  	•  Quality assurance, including call recording and monitoring 	  	$****/min chat 	  
	  	  	  	  	•  Remote user access for call monitoring 	  
	  	  	  	  	•  Web-enabled reporting 	  	$****/auto email 	  
	  	  	  	  	  	  
	  	  	  	  	  	  	$****/non-researched 	  
	  	  	  	  	  	  	email 	  
	  	  	  	  	  	  
	  	  	  	  	  	  	$****/researched email 	  
	  	  	  	  	  	  
	  	  	  	  	  	  	Other Charges  	  
	  	  	  	  	  	  	$****/hr for post set-up 	  
	  	  	  	  	  	  	training development 	  
	  	  	  	  
	  	  	  	  	  	  	$****/hr for agent 	  
	  	  	  	  	  	  	training (first 150 	  
	  	  	  	  	  	  	hours included in one 	  
	  	  	  	  	  	  	time set-up fee) 	  
	  	  	  	  	  	  
	  	  	  	  	  	  	$****/hr for initial and 	  
	  	  	  	  	  	  	ongoing custom 	  
	  	  	  	  	  	  	programming 	  
	  	  	  	  	  	  
	  	  	  	  	  	  	$****/mth for remote 	  
	  	  	  	  	  	  	seat with ability to 	  
	  	  	  	  	  	  	generate reports 	  
	

	  	  	  	  	All agent charges contribute to a monthly minimum of $13,500  	  
	

	  	  	Post-Implementation Management  
	

	  	  	  	  	Account Management  	  	$****/hr 	  
	  	  	1. 	  	Primary point of contact for EDIGITAL 	  	40 hours per week minimum 	  
	  	  	2. 	  	Communication channel to operations, ensuring that EDIGITAL-specific requirements and deliverables are met 	  
	  	  	3. 	  	Tracks performance against committed indices, and assists the 	  
	  	  	  	  	operation with proactively identifying potential shortcomings 	  
	  	  	4. 	  	Ensures that all EDIGITAL-required reports are provided promptly 	  
	  	  	  	  	and that all invoicing is accurately and timely completed 	  
	  	  	5. 	  	Performs SKU maintenance 	  
	  	  	6. 	  	Acts as the on-site EDIGITAL, ensuring that the best interest of the EDIGITAL is always considered 	  
	  	  	7. 	  	Continuously works to find new areas of improvement for the EDIGITAL, typically including packaging, parcel shipping, quality, and cost management 	  
	

	|X| 	  	  	  	Special Project Manager  	  	$****/hr 	  
	  	  	1. 	  	Responsible for system set-up of any new or changed services 	  
	  	  	  	  	requested by eDigital beyond initial implementation 	  
	  	  	2. 	  	Inventory moves/pulls 	  
	  	  	3. 	  	Liquidations 	  
	  	  	4. 	  	Special projects 	  
	










	


**** Portions of this Exhibit
have been omitted (based upon a request for confidential treatment) and have
been filed separately with the Securities & Exchange Commission pursuant to
Rule 24b-2.  




18  

















	





     Accepted
and agreed to by and between the Parties set forth below:   











	APL Direct Logistics, Ltd.
          


By:


Name Printed: Frank C. DiMaria

Title: President & CEO

Date:  	e.Digital Corporation
          


By:


Name Printed:

Title:

Date:  






	


19  
















	






SCHEDULE
“B” 



Assumptions
and Key Performance Indicators 



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL
DIRECT”).  











	 	 	1.   	 	Fulfillment
and Returns Assumptions:  






	 	 	 	 	1.1   	 	Product
arrives at a reasonably steady flow and EDIGITAL will provide APL DIRECT with adequate
notice if average daily volume in a week is to exceed twenty percent (20%) of the prior
week’s average daily volume)  






	 	 	 	 	1.2   	 	The
number inbound pieces per carton shall not be less than 10  






	 	 	 	 	1.3   	 	The
maximum weight per inbound case will not exceed 50 lbs. or a surcharge may apply  






	 	 	 	 	1.4   	 	Inbound
cases are accurately labeled with SKU and quantity  






	 	 	 	 	1.5   	 	Number
of SKUs will not exceed 100 and number of orders will be 5,000 per month  






	 	 	 	 	1.6   	 	Reasonably
steady order flow  






	 	 	 	 	1.7   	 	Orders
(for expedited or ground shipment) received by 5 PM Eastern Time and will be shipped the
same day provided that no more than 20%, but in no case more than 200, of the total
number of orders received for that day are received after 2 PM Eastern Time (hereinafter
referred to as “Normal Orders”)  






	 	 	 	 	1.8   	 	The
maximum parcel size is 130”length/width/girth (using 1 x length + 2 x width + 2 x
depth)  






	 	 	 	 	1.9   	 	The
maximum weight per outbound parcel will not exceed 150 lbs.  






	 	 	 	 	1.10   	 	No
more than fifteen percent (15%) of orders are returned  






	 	 	 	 	1.11   	 	For
returns processing, no food or other products subject to either contamination or sabotage
will be returned to stock  






	 	 	 	 	1.12   	 	All
supplies to be purchased by APL DIRECT and the cost passed through to EDIGITAL according
to Schedule “A.”  






	 	 	 	 	1.13   	 	Fulfillment
price does not include outbound transportation.  







	 	 	2.   	 	Transportation
Assumptions:  






	 	 	 	 	2.1   	 	A
maximum of 2 truckload deliveries per day  






	 	 	 	 	2.2   	 	A
maximum of 10 LTL deliveries per day  






	 	 	 	 	2.3   	 	A
maximum of 2,000 pounds per pallet  






	 	 	 	 	2.4   	 	Freight
Management Services do not include Proof of Delivery documentation (“POD’s”)
for each shipment. While a reasonable amount of POD’s will be supplied at EDIGITAL’s
request, accessorial rates will be charged for excessive research and photocopying. In
such event, APL DIRECT will notify EDIGITAL of the need and the amount of an accessorial
charge.  






	 	 	3.   	 	Call
Center Assumptions:  






	 	 	 	 	3.1   	 	Shared
agents  






	 	 	 	 	3.2   	 	English
only  






	 	 	 	 	3.3   	 	Level
1 technical support  






	 	 	 	 	3.4   	 	7
X 16 operation  






	 	 	 	 	3.5   	 	EDIGITAL
to provide product information and assist in product training  






	 	 	 	 	3.6   	 	Standard
call logging application  






	 	 	4.   	 	Systems
Assumptions:  






	 	 	 	 	4.1   	 	APLDL
uses PGP encryption software on files containing credit card information that will be
exchanged with the client  







	 	 	 	 	4.2   	 	APLDL
limits access to employees in areas of the system where credit card information is stored  






	 	 	 	 	4.3   	 	EDIGITAL
will provide transaction file formats via a mutually agreed upon platform and file layout  






	 	 	 	 	4.4   	 	EDIGITAL
will transmit all electronic payment communications using Pretty Good Privacy encrypted
software or HTTS.  






	 	 	4.   	 	Order
Fulfillment and Shipping Upgrade Option  






	


In the event APL DIRECT fails to
process all of the Normal Orders in any given day, APL DIRECT may, at its option, choose
to upgrade such order to an “Expedited Order”and pay the difference in shipping
costs, if any. In such an event, such Expedited Order shall not be counted against APL
DIRECT’s Order Cycle Time KPI, as described in Schedule “C.”  



     Accepted
and agreed to by and between the Parties set forth below:  












	APL Direct Logistics, Ltd.
          


By:


Name Printed: Frank C. DiMaria

Title: President & CEO

Date:  	e.Digital Corporation
          


By:


Name Printed:

Title:

Date:  










	


20  
















	





SCHEDULE
“C” 



Performance
Requirements or Key Performance Indicators (“KPI’s”)  



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL
DIRECT”).   











	1.   	 	Warehouse,
Fulfillment Services and Returns Processing.  The following KPI’s will be effective
ninety (90) days after the first shipment of the Products:   






	

	KPI 	Formula 	  	Standard 
	

	1.1 	  	Inbound Returns Processing 	  	On time Inbound returns processing will be greater 	  	 	  
	  	  	  	  	than or equal to ninety-nine percent (99%) of the 	  
	  	  	  	  	total inbound item quantity received for a given period. 	  	99 	% 
	  	  
	  	  	  	  	Formula: Total return units received (which have a  	  
	  	  	  	  	customer RMA number) and disposition completed, 	  
	  	  	  	  	based on customer rules, within two (2) business 	  
	  	  	  	  	days/total return units for the period. 	  
	

	1.2 	  	Order Fulfillment Accuracy 	  	Order fulfillment accuracy greater than or equal 	  	99 	% 
	  	  	  	  	to ninety-nine percent (99%) of the total orders 	  
	  	  	  	  	shipped. 	  
	  	  
	  	  	  	  	Formula: 1 - (consumer complaints directly related  	  
	  	  	  	  	to fulfillment/total orders shipped for the period) 	  
	

	1.3 	  	Order Cycle Time 	  	Greater than or equal to ninety-nine percent (99%) 	  	99 	% 
	  	  	  	  	of orders received in a given period will be shipped 	  
	  	  	  	  	within the “Normal Order” parameters, as 	  
	  	  	  	  	described in Schedule “B,” paragraph 1.7. 	  
	  	  
	  	  	  	  	Formula: Normal orders as defined in Schedule B for  	  
	  	  	  	  	which there is available inventory, filled and shipped 	  
	  	  	  	  	the day of order receipt into the APL DIRECT fulfillment 	  
	  	  	  	  	system/total orders received in the APL DIRECT 	  
	  	  	  	  	fulfillment system for the period. 	  
	









	2.   	 	Customer
Relationship Management Services:   







	

	KPI 	Formula 	  	Standard 
	

	2.1 	  	Call Answer Rate 	  	Percentage of calls answered within 20 seconds 	  	80.0% 	  
	

	2.2 	  	Abandonment Rate 	  	Percentage of calls abandoned after the first 30 seconds 	  	‹5 	  
	  	  	  	  	of connected time 	  
	

	2.3 	  	Email Answer Speed 	  	Average speed of answer for email 	  	2 - 4 hours 	  
	








	


21  
















	











	3.   	 	Best
Efforts. APL DIRECT will put forth its best efforts to maintain service at the
above-stated levels at all times. Likewise, EDIGITAL will make its best efforts to
provide accurate forecasts as described in Schedule “E.”   








	 	
Accepted
and agreed to by and between the Parties set forth below: 







	APL Direct Logistics, Ltd.
          


By:


Name Printed: Frank C. DiMaria

Title: President & CEO

Date:  	e.Digital Corporation
          


By:


Name Printed:

Title:

Date:  










	


22  
















	






SCHEDULE
“D” 




Performance Incentive
Program (“PIP”)  



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL
DIRECT”).   



|_|  Date: _______ If and when this
box is checked, EDIGITAL elects to put into effect the Performance Incentive Program, as
described in this Schedule “D.”   



Five percent (5%) of the
order charge for Fulfillment, as described in Schedule “A,” will be
escrowed by APL DIRECT to fund a Performance Incentive Program. Within thirty
(30) days after the conclusion of each quarter, the parties will determine APL
DIRECT’S compliance with KPI’s, as defined in Schedule C, and whether
APL DIRECT is to refund any monies to EDIGITAL in accordance with the PIP, or
that EDIGITAL is to pay APL DIRECT an incentive in accordance with the PIP.  










	

	KPI 	Weighting/
Total 	Deficit 	Target 	Excess 
	

	 1
  	  	Receiving Cycle Time 	  	25.0 	% 	98.2 	% 	98.4 	% 	98.6 	% 	98.8 	% 	99.0 	% 	99.1 	% 	99.2 	% 	99.3 	% 	99.4 	% 
	

	 2 	  	Order Cycle Time 	  	50.0 	% 	98.2 	% 	98.4 	% 	98.6 	% 	98.8 	% 	99.0 	% 	99.1 	% 	99.2 	% 	99.3 	% 	99.4 	% 
	

	 3 	  	Order Fulfillment 	  
	  	  	Accuracy 	  	25.0 	% 	98.2 	% 	98.4 	% 	98.6 	% 	98.8 	% 	99.0 	% 	99.1 	% 	99.2 	% 	99.3 	% 	99.4 	% 
	

	  	  	  	  	100.0 	% 
	

	  	  	Pre-set Payout Formula 	  	  	  	0 	% 	25 	% 	50 	% 	75 	% 	100 	% 	125 	% 	150 	% 	175 	% 	200 	% 
	

	  	  	Example Payout % 	  	106.25 	% 
	








	


__________________ =
performance for the quarter (highlighted the cell that represents the result(s)  



Example Per
Order Payout: (Monthly Minimum x 3 Months)  










	 	Quartely
Fultillment
Revenue 	X 	Fund % 	= 	Fund $ 	X 	Payout
% 	Payout 
	

	Amount Due 	  	$90,000 	  	X 	  	5.0 	% 	= 	  	$4,500 	  	X 	  	106.25 	% 	$4,781 	  
	

	Less Amount in Fund 	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	$4,500 	  
	

	Over/Under 	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  	$   281 	  
	








	


Over (or positive number)
is paid by eDigital.com to APL Direct Logistics  




Under (or negative number) is
refunded by APL Direct Logistics to eDigital.com  




Note: The metrics will be
measured monthly and EDIGITAL may adjust the weighting among the KPIs no more
often than quarterly. If the targets are met, APL DIRECT will retain the monies
in the Fund. If over (positive numbers), the appropriate amount is paid by
EDIGITAL to APL DIRECT quarterly. If the amount is under (negative number), then
the amount is refunded by APL DIRECT to EDIGITAL on the immediately following
invoice.  



23  
















	






     Accepted
and agreed to by and between the Parties set forth below:  












	APL Direct Logistics, Ltd.
          


By:


Name Printed: Frank C. DiMaria

Title: President & CEO

Date:  	e.Digital Corporation
          


By:


Name Printed:

Title:

Date:  










	


24  
















	






SCHEDULE
“E” 



EDIGITAL Obligations 



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL
DIRECT”).  











	1.   	 	Advanced
Shipping Notification   







	 	
All
inbound shipments must be scheduled through APL DIRECT using an ASN (excluding parcel
inbound). This must be faxed to APL DIRECT at a telephone number agreed upon by both
parties at least one (1) day before shipping, unless the parties agree upon an EDI method
of ASN. LTL shipments (i.e., less than truckload) may be scheduled by a telephone call to
arrange a delivery time. APL DIRECT will return the form within twenty-four (24) hours
with a Request Number. Questions about ASNs should be directed to APL DIRECT. 






	2.   	 	Systems   







	 	
EDigital
will provide transaction file formats via e-mail or other mutually agreed upon platform
and file layout. EDIGITAL will drop-off and pick-up data files from APLDL’s ftp
server. 






	3.   	 	Forecasting   







	 	 	3.1
    	 	Forecast
Contents. Prior to the business design of APL DIRECT’S services, EDIGITAL shall
deliver to APL DIRECT a report that contains the following information projected or
forecasted for the upcoming year, quarter and first two (2) months of operations (“Initial
Forecast”). After the Initial Forecast is delivered to APL DIRECT, EDIGITAL shall
thereafter deliver in accordance with 3.2, below, forecasts for the upcoming year (“Annual
Forecast”), quarter (“Quarterly Forecast”) and month (“Monthly
Forecast”), collectively referred to as “Forecasts.”The Annual Forecast
shall include the information in (1), (3), (4), (7), (8) and (11), below. The Quarterly
Forecast and the Monthly Forecast, the latter of which shall include a weekly breakdown
when EDIGITAL’s volume exceeds 500 orders per day, , shall include the following
information:  






	 	
Number
of inbound units; Number of inbound units requiring value added services; 
Number of
orders; 
Number of units to be shipped (including of class of service); 
Number of SKUs in
inventory; 
Inventory per SKU; 
Number of transactions requiring preparation or gift
treatment; 
Returns transactions; 
The extent to which any promotional or seasonal activity
could affect the information; 
Copies of marketing materials, changes and advertising
dates; and 
Customer care phone calls and minutes, and email projections. 






	 	 	3.2
    	 	Scheduled
Forecasts. EDIGITAL will prepare the Annual Forecast on a calendar-year basis and deliver
it to APL DIRECT by no later than October 1st of each year. EDIGITAL will deliver the
Quarterly Forecast on the first day of the month immediately preceding each quarter. The
Monthly Forecast will be delivered on the first day of the immediately preceding month.
Upon the delivery of each Forecast, the existing forecasts will be restated or “refreshed”.
An annual schedule is illustrated below.  







	


25  
















	










	 	Forecasts 
	 
	 	Month 
	  	 
Annual 
	 
Quarterly 
	 
Monthly 
	  
	 	
	 
	  	  	January 1 	  	  	  	  	  	February 	  
	 	
	 
	  	  	February 1 	  	  	  	  	  	March 	  
	 	
	 
	  	  	March 1 	  	  	  	2Q 	  	April 	  
	 	
	 
	  	  	April 1 	  	  	  	  	  	May 	  
	 	
	 
	  	  	May 1 	  	  	  	  	  	June 	  
	 	
	 
	  	  	June 1 	  	  	  	3Q 	  	July 	  
	 	
	 
	  	  	July 1 	  	  	  	  	  	August 	  
	 	
	 
	  	  	August 1 	  	  	  	  	  	September 	  
	 	
	 
	  	  	September 1 	  	  	  	4Q 	  	October 	  
	 	
	 
	  	  	October 1 	  	Annual 	  	  	  	November 	  
	 	
	 
	  	  	November 1 	  	  	  	  	  	December 	  
	 	
	 
	  	  	December 1 	  	  	  	1Q 	  	January 	  
	 	
	 







	 	 	3.3   	 	Best
Efforts. EDIGITAL will put forth its best efforts to maintain accurate forecasts at all
times.  






	


Accepted and agreed to by
and between the Parties set forth below:  












	APL Direct Logistics, Ltd.
          


By:


Name Printed: Frank C. DiMaria

Title: President & CEO

Date:  	e.Digital Corporation
          


By:


Name Printed:

Title:

Date:  










	


26  
















	






SCHEDULE
“F” 



Insurance
Schedule 



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL
DIRECT”).   




Certificates of Insurance
naming EDIGITAL as Certificate Holder are attached hereto as Attachment F-1. An
electronic version of the documents follows. They can be opened with eFax
Messenger Plus. Please visit http://www.eFax.com/ to download a free copy
of the software, if necessary.  











	 	[OBJECT
OMITTED]           [OBJECT OMITTED] 







	


     Accepted
and agreed to by and between the Parties set forth below:  











	APL Direct Logistics, Ltd.
          


By:


Name Printed: Frank C. DiMaria

Title: President & CEO

Date:  	e.Digital Corporation
          


By:


Name Printed:

Title:

Date:  










	


27  
















	






SCHEDULE
“G” 



Optional Equipment 



Attached to and made a part
of the Direct-to-Consumer Fulfillment, Storage and Freight Management Agreement
(the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics,
Ltd. (“APL DIRECT”).  



NO OPTIONAL EQUIPMENT
IDENTIFIED  





     Accepted
and agreed to by and between the Parties set forth below:  













	APL Direct Logistics, Ltd.
          


By:


Name Printed: Frank C. DiMaria

Title: President & CEO

Date:  	e.Digital Corporation
          


By:


Name Printed:

Title:

Date:  










	


28  

















	






ATTACHMENT #1 



Mutual Confidentiality,
Non-Disclosure and Non-Recruitment/Solicitation Agreement   



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL
DIRECT”).   





29  
















	






ATTACHMENT #2 



Letter of Credit Form   



     Attached
to and made a part of the Direct-to-Consumer Fulfillment, Storage and Freight Management
Agreement (the “Agreement”) dated as of August 31, 2001, by and between
e.Digital Corporation (“EDIGITAL”) and APL Direct Logistics, Ltd. (“APL
DIRECT”).   




[Bank
Letterhead] 



IRREVOCABLE LETTER OF
CREDIT#    



     Amount_____________   











	To: 	APL Direct Logistics, Ltd.
1301 Riverplace Blvd., Suite 530
Jacksonville, FL 32207 







	


     We
hereby authorize you to value on us for the account of e.Digital Corporation up to the
aggregate amount of ____________. Available by drafts at our sight for 100% of invoice
value, to be accompanied by the documents indicated below:  










	 	 	1.  	 	commercial
Invoices; 






	 	 	2.  	 	affidavit
by an officer of APL Direct Logistics, Ltd. that such invoices are past due; and 






	 	 	3.  	 	this
original document. 






	


     Drafts
must be marked “Drawn under Letter of Credit #__________ of [name of Issuer]”and
partial draws are permitted.  



     We
hereby agree with you and with any bona fide holder thereof that drafts drawn under and
in compliance with the terms of this credit will be honored on due presentation to us.
This Letter of Credit is irrevocable.  



     Except
as expressly stated, negotiations under this credit are subject to the Uniform Customs
and Practice for Commercial Documentary Credits (1983 Revision) of the International
Chamber of Commerce.  











	 	Yours very truly,


          ———————————————

          
Address:

———————————————
          

——————————————— 







	


30