Document:

exv10w16

 

Exhibit 10.16

WAIVER AND CONSENT

     This WAIVER (this “Waiver”), dated as of April 30, 2007, is entered into by and between by and
between Digital Recorders, Inc., a North Carolina corporation (the “Company”), Twinvision of North
America, Inc., a North Carolina corporation (“Twinvision”), Digital Audio Corporation, a North
Carolina corporation (“DAC”), and Robinson-Turney International, Inc., a Texas corporation (“RTI”
and together with the Company, Twinvision and DAC, the “Credit Parties” and each a “Credit Party”)
and Laurus Master Fund, Ltd., a Cayman Islands company (the “Purchaser”), for the purpose of
amending and amending and restating and waiving certain terms of that certain Security Agreement,
dated as of March 15, 2006 (the “Initial Closing Date”), by and between the Credit Parties and
Purchaser (as amended, modified or supplemented from time to time, the “Security Agreement”); that
certain Secured Non-Convertible Revolving Note, dated March 15, 2006 made by the Company in favor
of Purchaser for the total principal amount of $6,000,000 (as amended and restated, amended,
modified or supplemented from time to time, the “Revolving Note”); that certain Warrant issued by
the Company to Purchaser to purchase up to 550,000 shares of Common Stock of the Purchaser dated
March 15, 2006 (as amended, modified or supplemented from time to time, “Warrant 1”); that certain
Securities Purchase Agreement dated April 28, 2006 by and between the Credit Parties and the
Purchaser (as amended, modified or supplemented from time to time, the “SPA”); that certain Secured
Term Note dated April 28, 2006, made by the Credit Parties in favor of Purchaser for the total
principal amount of $1,600,000 (as amended, modified or supplemented from time to time, the “Term
Note”); that certain Warrant issued by the Company to Purchaser to purchase up to 80,000 shares of
Common Stock of the Company dated April 28, 2006 (as amended, modified or supplemented from time to
time, “Warrant 2”), and that certain Amended and Restated Registration Rights Agreement, dated
April 28, 2006, by and between the Company and the Purchaser (as amended, modified or supplemented,
the “Registration Rights Agreement” and, together with the Security Agreement, the Revolving Note,
Warrant 1, the SPA, the Term Note, Warrant 2 and the other Ancillary Agreements (as defined in the
Securities Agreement), and Restated Agreements (as defined in the SPA) the “Funding Documents”).
Capitalized terms used but not defined herein shall have the meanings given them in the Security
Agreement.

     WHEREAS, The Company intends to sell all of the capital stock of its wholly-owned subsidiary,
Digital Audio Corporation, (“DAC”), to Dolphin Direct Equity Partners, LP (“Purchaser”) pursuant to
that certain Share Purchase Agreement by and between the Company and Purchaser (the “Purchase
Agreement”) and the documents ancillary thereto (the “Share Purchase Agreements”).

     WHEREAS, the Company and Laurus have agreed to make certain changes to the Funding Documents
as set forth herein, and that Laurus will waive certain provisions of the Funding Documents.

     NOW, THEREFORE, in consideration of the above, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

 

WAIVERS

     1. Laurus hereby consents to consummation of the transactions contemplated by the Share
Purchase Agreements (the “Stock Transaction”); provided that, upon consummation of the Share
Transaction, $1,100,000 of the net proceeds otherwise payable to DAC by Purchaser as a result of
the Share Purchase Transaction shall instead be applied (the “Repayment”) via direct wire transfer
from Purchaser to Laurus (pursuant to wire instructions set forth by Laurus in writing) to repay
indebtedness owing to Laurus by the Company and its subsidiaries (receipt of such Repayment, the
“Repayment Funding”)

     2. On and after the Repayment Funding, (i) all of Laurus’s security interests, liens,
mortgages and/or other charges or encumbrances created on or with respect solely to the capital
stock of DAC, with respect to the underlying assets solely of DAC, and with respect to patents and
trademarks solely owned by DAC under the Funding Documents are, without further action, forever
released and discharged; and (ii) Laurus shall return any stock certificates of DAC in its
possession and amend any UCC filings in need of amendment to reflect that it no longer has a
security interest in the underlying assets of DAC or in the patents and trademarks owned by DAC.
In addition to the requirements set forth above, the Company agrees to deliver to Laurus, and
Laurus’ obligations hereunder are conditioned upon its receipt, prior to consummation of the Share
Transaction, of a true and complete copy of the Purchase Agreement and all related documents,
schedules and exhibits, relating to the assignment and sale, which documents shall each be in form
and substance reasonably satisfactory to Laurus.

     3. Effective on the Repayment Funding, Laurus on behalf of itself and any affiliates hereby
releases and forever discharges DAC and its successors and assigns of and from any and all manner
of action or actions, cause or causes of action, in law or in equity, suits, debts, liens,
agreements, promises, liabilities, claims, demands, damages, loss, cost, or expense of any nature
whatsoever, whether known or unknown by Laurus.

     3. Nothing in this letter shall be deemed to release or discharge Laurus’s security interests,
liens, pledges, mortgages and/or other charges or encumbrances created on or with respect to any
assets of the Company or the Company’s Subsidiaries other than the capital stock of DAC and the
underlying assets of DAC, including patents and trademarks owned by DAC.

MISCELLANEOUS

     1. The Company understands that the Company has an affirmative obligation to make prompt
public disclosure of material agreements and material amendments to such agreements. It is our
determination that neither this letter nor the terms and provisions of this letter, (collectively,
the “Information”) are material. Company has had an opportunity to consult with counsel concerning
this determination. Company hereby agrees that Laurus shall not be in violation of any duty to
Company or its shareholders, nor shall Laurus be deemed to be misappropriating any information of
Company, if Laurus sells shares of common stock of Company, or otherwise engages in transactions
with respect to securities of Company, while in possession of the Information.

2

 

     2. Except as specifically set forth in this Waiver, there are no other amendments,
modifications or waivers to the Funding Documents, and all of the other forms, terms and provisions
of the Funding Documents remain in full force and effect.

     3. This Waiver shall be binding upon the parties hereto and their respective successors and
permitted assigns and shall inure to the benefit of and be enforceable by each of the parties
hereto and their respective successors and permitted assigns. THIS WAIVER SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This Waiver may be
executed in any number of counterparts, each of which shall be an original, but all of which shall
constitute one instrument.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

3

 

     IN WITNESS WHEREOF, each of the Company and Laurus has caused this Amendment to be signed in
its name effective as of this 30th day of April, 2007.

	 	 	 	 	 	 	 
	 	 	DIGITAL RECORDERS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David L. Turney
 

	 	 
	 	 	Name: David L. Turney	 	 
	 	 	Title: Chairman, President and CEO	 	 
	 	 	DIGITAL AUDIO CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David L. Turney
 

	 	 
	 	 	Name: David L. Turney	 	 
	 	 	Title: Chairman, President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	TWIN VISION OF NORTH AMERICA INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David L. Turney
 

	 	 
	 	 	Name: David L. Turney	 	 
	 	 	Title: Chairman, President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	ROBINSON TURNEY INTERNATIONAL INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David L. Turney
 

	 	 
	 	 	Name: David L. Turney	 	 
	 	 	Title: Chairman, President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	LAURUS MASTER FUND, LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David Grin
 

	 	 
	 	 	Name: David Grin	 	 
	 	 	Title: Fund Manager	 	 

4exv10w80

 

Exhibit 10.80

FIFTH AMENDMENT TO FIRST AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

     THIS FIFTH AMENDMENT TO FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (herein called
this “Amendment”) made as of the 2nd day of April, 2007 by and between Priority Fulfillment
Services, Inc. (“Borrower”) and Comerica Bank (“Bank”),

W I T N E S S E T H:

     WHEREAS, Borrower and Bank have entered into that certain First Amended and Restated Loan and
Security Agreement dated as of December 29, 2004 (as from time to time amended or modified, the
“Original Agreement”) for the purposes and consideration therein expressed, pursuant to which Bank
became obligated to make loans to Borrower as therein provided; and

     WHEREAS, Borrower and Bank desire to amend the Original Agreement to provide for term loans
and for the other purposes set forth herein;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements
contained herein and in the Original Agreement, in consideration of the loans which may hereafter
be made by Bank to Borrower, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I.

Definitions and References

     ’ 1.1 Terms Defined in the Original Agreement. Unless the context otherwise requires
or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall
have the same meanings whenever used in this Amendment.

     ’ 1.2. Other Defined Terms. Unless the context otherwise requires, the following
terms when used in this Amendment shall have the meanings assigned to
them in this ’ 1.2.

     “Amendment” means this Fifth Amendment to First Amended and Restated Loan and
Security Agreement.

     “Loan Agreement” means the Original Agreement as amended hereby.

 

 

ARTICLE II.

Amendments to Original Agreement

     ’ 2.1 Defined Terms.

     (a) The definition of “Committed Revolving Line” in Exhibit A to the Original Agreement is
hereby amended in its entirety to read as follows:

“Committed Revolving Line” means (a) before the occurrence of the SD Transfer, a Credit
Extension of up to $7,500,000 (inclusive of any amounts outstanding under the Letter of
Credit Sublimit), and (b) at all times after the occurrence of the SD Transfer, a Credit
Extension of up to $10,000,000 (inclusive of any amounts outstanding under the Letter of
Credit Sublimit).

     (b) The definition of “SD Transfer” is added to Exhibit A to the Original Agreement as
follows:

“SD Transfer” means the receipt by Borrower from Supplies Distributor, Inc. of cash funds
after March 29, 2007, to the satisfaction of the Bank.

     (c) Clauses (i), (j), (n) and (o) of the definition of “Permitted Indebtedness” in Exhibit A
to the Original Agreement are hereby amended in their entirety to read as follows:

(i) Intentionally deleted.

(j) Intentionally deleted.

(n) Indebtedness of eCost.com owing to Borrower for working capital needs of
eCost.com, provided that:

	 	(i)	 	the aggregate outstanding principal amount of loans
made by Borrower to eCost.com shall not exceed $6,500,000 before the
occurrence of the SD Transfer and, at all times thereafter, increased by:

	 	(A)	 	one half of the amount of the SD Transfers up
to $1,600,000 (which shall result in up to an $800,000 increase); and
	 
	 	(B)	 	an amount equal to the SD Transfers in excess
of $1,600,000; provided, however, such aggregate increases in subsections (A) and (B) shall
never exceed $2,000,000;

	 	(ii)	 	at the time of incurrence of such Indebtedness and
after giving effect thereto, no Event of Default has occurred and is
continuing;
	 
	 	(iii)	 	the aggregate outstanding amount of Indebtedness
incurred by eCost.com pursuant to this clause (n) when added to the
aggregate amount of Investments made by Borrower pursuant to clause (p) of
the definition of Permitted Investments and the aggregate amount of
Permitted
Distributions does not exceed $6,500,000 before the occurrence of the SD
Transfer and, at all times thereafter, increased by:

2

 

	 	(A)	 	one half of the amount of the SD Transfers up to $1,600,000 (which shall
result in up to an $800,000 increase); and
	 
	 	(B)	 	an amount equal to the SD Transfers in excess
of $1,600,000; provided, however, such aggregate increases in subsections (A) and (B)
shall never exceed $2,000,000; and

	 	(iv)	 	indebtedness incurred in the ordinary course of
business between Borrower and eCost.com shall not constitute
“Indebtedness”.

(o) Intentionally deleted.

     (d) Clauses (f), (g), (h) and (p) of the definition of “Permitted Investment” in Exhibit A to
the Original Agreement are hereby amended in their entirety to read as follows:

(f) Investments by Borrower

	 	(i)	 	in or advances to SPRL PFSweb B.V., Priority
Fulfillment Services of Canada, Inc. and eCost Philippine Services LLC, and
	 
	 	(ii)	 	in PFSM, LLC for the acquisition of equipment by PFSM,
LLC, provided each such Investment does not exceed the lesser of the cost
or fair market value of the equipment acquired with such Investment,

provided, the aggregate amount of all Investments made pursuant to this clause
(f) does not exceed $2,200,000 in any fiscal year, and at the time of each such
Investment and after giving effect thereto, no Event of Default has occurred and
is continuing.

(g) Intentionally deleted.

(h) Intentionally deleted.

(p) Investments by Borrower in eCost.com for working capital needs of eCost.com,
provided that:

	 	(i)	 	the aggregate amount of Investments made by Borrower
in eCost.com shall not exceed $6,500,000 before the occurrence of the SD
Transfer and, at all times thereafter, increased by:

	 	(A)	 	one half of the amount of the SD Transfers up to
$1,600,000 (which shall result in up to an $800,000 increase); and
	 
	 	(B)	 	an amount equal to the SD Transfers in excess of
$1,600,000;
provided, however, such aggregate increases in subsections (A) and (B)
shall never exceed $2,000,000;

	 	(ii)	 	at the time of such Investment and after giving effect
thereto, no Event of Default has occurred and is continuing, and
	 
	 	(iii)	 	the aggregate amount of Investments made pursuant to
this clause (p) when added to the aggregate outstanding amount of
Indebtedness incurred

3

 

	 	 	 	by eCost.com pursuant to clause (n) of the definition of
Permitted Indebtedness and the aggregate amount of Permitted Distributions
does not exceed $6,500,000 before the occurrence of the SD Transfer and, at
all times thereafter, increased by:

	 	(A)	 	one half of the amount of the SD Transfers up to
$1,600,000 (which shall result in up to an $800,000 increase); and
	 
	 	(B)	 	an amount equal to the SD Transfers in excess of
$1,600,000;
provided, however, such aggregate increases in subsections (A) and (B)
shall never exceed $2,000,000.

     (e) Capital Expenditures. Section 7.12 of the Original Agreement is hereby amended in
its entirety to read as follows:

7.12 Capital Expenditures. Make capital expenditures in an aggregate amount
greater than (i) $4,000,000 in any fiscal year (other than 2007), (ii) $5,250,000 in
fiscal year 2007; provided that not less than $3,250,000 of capital expenditures
made by Borrower in fiscal year 2007 shall be financed with Indebtedness from third
parties. As used herein, the term “capital expenditures” does not include (i) any
software that is internally developed by Borrower, whether or not Borrower
capitalized the development costs, and (ii) any equipment ordered, but not yet
accepted or paid for, by Borrower.

     ’ 2.2 Consolidated Covenant Compliance. The due dates for the consolidating reports
due for the calendar months of December 31, 2006 and January 31, 2007 under Sub-Sections 6.2(a),
(b) and (c) of the Original Agreement are hereby extended to April 2, 2007.

     ’ 2.3 Financial Covenants.

            (a) Liquidity Ratio. Section 6.7(a) of the Original Agreement is hereby amended in
its entirety to read as follows:

            (a) Liquidity Ratio. A ratio of Cash (including all Cash held in a sinking
fund with Bank for repayment of the Bonds) plus Eligible Accounts to the remainder of (i)
all Indebtedness to Bank minus (ii) $2,000,000 of at least 1.25 to 1.00.

            (b) Minimum Cash. Section 6.7(b) of the Original Agreement is hereby amended in its
entirety to read as follows:

            (b) Intentionally deleted.

            (c) EBITDA. Section 6.7(d) of the Original Agreement is hereby amended in its
entirety to read as follows:

            (d) EBITDA. For each month ending after January 2007, the variance, if
negative, then expressed as a positive number, between Borrower’s EBITDA and the EBITDA set
forth in the Approved Projections for such period, (a) for any period ending

4

 

\

on or before June 30, 2007, for the six consecutive month period ending on the date of
calculation shall not exceed $1,000,000, and (b) for the period beginning January 2007 and
ending on the following dates of calculation shall not exceed $1,100,000 for the period
ending July 31, 2007, $1,200,000 for the period ending August 31, 2007, $1,300,000 for the
period ending September 30, 2007, and $1,400,000 for the period ending October 31, 2007, and
(c) thereafter for the twelve consecutive month period ending on the date of calculation
shall not exceed $1,500,000. As used herein, “EBITDA” shall mean, for any period of
calculation, Borrower’s earnings for such period before interest and taxes plus
depreciation, amortization and non-cash stock compensation accruals to the extent deducted
in the calculation of such earnings. “Approved Projections” means for any period of time,
the projections for such period that have been approved by Borrower’s Board of directors and
delivered to Bank. Borrower shall deliver to Bank (i) a preliminary draft of the
projections for the next fiscal year of Borrower by January 31 of each year and (ii) the
updated projections approved by Borrower’s Board of Directors for the next fiscal year not
later than February 28 of each year.

     ’ 2.4 Exhibits. Exhibits D and E to the Original Agreement are hereby amended in
their entirety to read as set forth on Exhibits D and E attached hereto.

ARTICLE III.

Conditions of Effectiveness

     ’ 3.1. Effective Date. This Amendment shall become effective as of the date first
above written when and only when Bank shall have received, at Bank’s office, (a) a counterpart of
this Amendment executed and delivered by Borrower and (b) an amendment fee paid in good and
immediately available funds in the amount of $13,500.00, which fee shall be fully earned on the
date hereof.

ARTICLE IV.

Representations and Warranties

     ’ 4.1. Representations and Warranties of Borrower. In order to induce Bank to enter
into this Amendment, Borrower represents and warrants to Bank that:

     (a) The representations and warranties contained in Article 5 of the Original Agreement
are true and correct at and as of the time of the effectiveness hereof; provided Bank
acknowledges that Borrower has heretofore given written notice to Bank of the matters set
forth in Schedule 1 attached hereto.

     (b) Borrower is duly authorized to execute and deliver this Amendment and is and will
continue to be duly authorized to borrow and to perform its obligations under the Loan
Agreement. Borrower has duly taken all corporate action necessary to authorize the

5

 

execution and delivery of this Amendment and to authorize the performance of the
obligations of Borrower hereunder.

     (c) The execution and delivery by Borrower of this Amendment, the performance by
Borrower of its obligations hereunder and the consummation of the transactions contemplated
hereby do not and will not conflict with any provision of law, statute, rule or regulation
or of the organizational documents of Borrower, or of any material agreement, judgment,
license, order or permit applicable to or binding upon Borrower, or result in the creation
of any lien, charge or encumbrance upon any assets or properties of Borrower. Except for
those which have been duly obtained, no consent, approval, authorization or order of any
court or governmental authority or third party is required in connection with the execution
and delivery by Borrower of this Amendment or to consummate the transactions contemplated
hereby.

     (d) When duly executed and delivered, each of this Amendment and the Loan Agreement
will be a legal and binding instrument and agreement of Borrower, enforceable in accordance
with its terms, except as limited by bankruptcy, insolvency and similar laws applying to
creditors’ rights generally and by principles of equity applying to creditors’ rights
generally.

ARTICLE V

Miscellaneous

     ’ 5.1. Ratification of Agreements. The Original Agreement as hereby amended is
hereby ratified and confirmed in all respects. Any reference to the Loan Agreement in any Loan
Document shall be deemed to be a reference to the Original Agreement as hereby amended. The
execution, delivery and effectiveness of this Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of Bank under the Loan Agreement or any
other Loan Document nor constitute a waiver of any provision of the Loan Agreement or any other
Loan Document.

     ’ 5.2. Survival of Agreements. All representations, warranties, covenants and
agreements of Borrower herein shall survive the execution and delivery of this Amendment and the
performance hereof, including without limitation the making or granting of the Advances, and shall
further survive until all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower hereunder or under the Loan
Agreement to Bank shall be deemed to constitute representations and warranties by, or agreements
and covenants of, Borrower under this Amendment and under the Loan Agreement.

     ’ 5.3. Loan Documents. This Amendment is a Loan Document, and all provisions in the
Loan Agreement pertaining to Loan Documents apply hereto.

     ’ 5.4. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of California and any applicable laws of the United States of
America in all respects, including construction, validity and performance.

6

 

     ’ 5.5. Counterparts. This Amendment may be separately executed in counterparts and
by the different parties hereto in separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment.

     THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.

     IN WITNESS WHEREOF, this Amendment is executed as of the date first above written.

	 	 	 	 	 
	 	 	PRIORITY FULFILLMENT SERVICES, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	      Name:
	 

	 	 	 	      Title:
	 
	 	 	 	 
	 	 	COMERICA BANK
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	      Name:
	 

	 	 	 	      Title:

7

 

CONSENT AND AGREEMENT

     PFSWEB, INC., a Delaware corporation, hereby consents to the provisions of this Amendment and
the transactions contemplated herein, and hereby ratifies and confirms the Guaranty dated as of
December 29, 2004, made by it for the benefit of Bank, and agrees that its obligations and
covenants thereunder are unimpaired hereby and shall remain in full force and effect.

	 	 	 	 	 
	 	 	PFSWEB, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	     Name:
	 

	 	 	 	     Title:

     Consent and Agreement

 

 

EXHIBIT D

BORROWING BASE CERTIFICATE

 

	 	 	 
	Borrower: Priority Fulfillment Services, Inc.

	 	Lender: Comerica Bank
	 
	 	 
	Commitment Amount: $7,500,000 prior to SD Transfer; $10,000,000 at all times thereafter.
	 
	 
	 	 
	 
	 	 
	 

	 	 	 	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE
	 	 	 	 	 	 	 	 
	1. Accounts
Receivable Book Value as of _________
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	2. Additions (please explain on reverse)
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	3. TOTAL ACCOUNTS RECEIVABLE
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
	 	 	 	 	 	 	 	 
	4. Amounts over 90 days due
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	5. Balance of 25% over 90 day accounts
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	6. Concentration Limits
	 	 	 	 	 	 	 	 
	7. Foreign Accounts
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	8. Governmental Accounts
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	9. Contra Accounts
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	10. Demo Accounts
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	11. Intercompany/Employee Accounts
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	12. Credit Card Accounts
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	13. Other (please explain on reverse)
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	15. Eligible Accounts (#3 minus #14)
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	16. LOAN VALUE OF ACCOUNTS (80% of #15)
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	17. Minus Reserve Amount
	 	$	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	18. Borrowing Base (#16 minus #17)
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	BALANCES
	 	 	 	 	 	 	 	 
	19. Maximum Loan Amount
	 	 	 	 	 	$[7,500,000]	 	 
	 
	 	 	 	 	 	[10,000,000]	 	 
	20. Total Funds Available [Lesser of #19 or #18]
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	21. Present balance owing on Line of Credit
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	22. Outstanding under Sublimit (Letters of Credit)
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 
	23. RESERVE POSITION (#20 minus #21 and #22)
	 	 	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 

The undersigned represents and warrants that the foregoing is true, complete and correct in
all material respects, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the First Amended and Restated
Loan and Security Agreement between the undersigned and Comerica Bank.

PRIORITY FULFILLMENT SERVICES, INC.

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

     Authorized Signer
	 	 

Exhibit D

 

 

EXHIBIT E

COMPLIANCE CERTIFICATE

TO:       COMERICA BANK

FROM: PRIORITY FULFILLMENT SERVICES, INC.

The undersigned authorized officer of PRIORITY FULFILLMENT SERVICES, INC. hereby certifies that in
accordance with the terms and conditions of the First Amended and Restated Loan and Security
Agreement between Borrower and Bank (the “Agreement”) as amended, (i) Borrower is in complete
compliance for the period ending                      with all required covenants, including without
limitation the ongoing registration of intellectual property rights in accordance with Section 6.8,
except as noted below and (ii) all representations and warranties of Borrower stated in the
Agreement are true and correct in all material respects as of the date hereof. Attached herewith
are the required documents supporting the above certification. The Officer further certifies that
these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an accompanying letter or
footnotes.

Please indicate compliance status by circling Yes/No under “Complies” column.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	Reporting Covenant	 	Required	 	 	 	Complies	 	 
	 
	 	Monthly financial statements	 	Monthly within 45 days	 	 	 	Yes	 	No
	 
	 	Annual (CPA Audited) of Guarantor	 	FYE within 90 days	 	 	 	Yes	 	No
	 
	 	Annual (CPA Audited) of BSD	 	FYE within 90 days	 	 	 	Yes	 	No
	 
	 	10K of Guarantor	 	FYE within 90 days	 	 	 	Yes	 	No
	 
	 	10Q of Guarantor	 	Quarterly within 45 days	 	 	 	Yes	 	No
	 
	 	A/R & A/P Agings, Borrowing Base Cert.	 	Monthly within 30 days*	 	 	 	Yes	 	No
	 
	 	A/R Audit	 	Annual	 	 	 	Yes	 	No
	 
	 	IP Report	 	Quarterly within 30 days	 	 	 	Yes	 	No
	 
	 	 	 	 	 	Actual	 	 	 	 
	 
	 	Tangible Net Worth	 	$21,000,000	 	$	 	Yes	 	No
	 
	 	 	 	 	 	 	 	 	 
	 
	 	*Weekly during any period that	 	 	 	 	 	 	 	 
	 
	 	Tangible Net Worth is less than	 	 	 	 	 	 	 	 
	 
	 	$21,000,000	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Financial Covenant	 	Required	 	Actual	 	Complies	 	 
	 

	 	Maintain on a Monthly Basis:	 	 	 	 	 	 	 	 	 	 
	 

	 	     Liquidity Ratio
	 	1.25:1.00
	 	 	___:1.00	 	 	Yes
	 	No
	 

	 	     EBITDA
	 	See Section 6.7(d)
	 	$	 		 	Yes
	 	No
	 

	 	 	 	 
	 	 	 	 	 	 	 	 
	 

	 	     Minimum Tangible Net Worth
	 	> of $20,000,000 or $2,000,000 plus
	 	$	 	 	 	Yes
	 	No
	 

	 	 	 	IBM
et al requirement	 	 	 	 	 	 	 	 

Comments Regarding Exceptions: See Attached.

 

Sincerely,

 

	 	 	 
	 
	 	 
	 
	SIGNATURE
	 	 
	 
	 	 
	 
	TITLE
	 	 
	 
	 	 
	 
	DATE
	 	 

	 	 	 	 	 	 	 
	BANK USE ONLY	 	 	 	 
	 
	 	 	 	 	 	 
	Received by:	 	 	 	 
	 	 	 

	AUTHORIZED SIGNER	 	 	 	 
	 
	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	Verified:
	 	 	 	 	 	 
	 	 	 
	AUTHORIZED SIGNER	 	 	 	 
	 
	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	Compliance Status	 	Yes	 	No

Schedule 1

     Exhibit E

 

 

     Litigation

During 2004 the Company received notice from a municipal authority that it did not satisfy
certain criteria necessary to maintain certain tax abatements. In December 2006 the Company
received notice that the municipal authority planned to make an adjustment to certain tax
abatements. The Company plans to dispute the adjustment, but if the dispute is not resolved
favorably, the Company could be assessed additional taxes from January 1, 2004. The Company has
not accrued for the additional taxes, which through December 31, 2006 could be approximately
$1.5 million, as the Company does not believe that it is probable that an additional assessment
will be incurred.

     On May 9, 2005, a lawsuit was filed in the District Court of Collin County, Texas, by J. Gregg
Pritchard, as Trustee of the D.I.C. Creditors Trust, naming the former directors of Daisytek
International Corporation and the Company as defendants. Daisytek filed for bankruptcy in May 2003
and the Trust was created pursuant to Daisytek’s Plan of Liquidation. The complaint alleges, among
other things, that the spin-off of the Company from Daisytek in December 1999 was a fraudulent
conveyance and that Daisytek was damaged thereby in the amount of at least $38 million. The Company
believes the claim has no merit and intends to vigorously defend the action. Through December 31,
2006, the Company has incurred outstanding legal costs of $0.3 million that have not been paid as
the Company expects such costs to be covered by insurance.

     On August 24, 2006, a lawsuit was filed in the Chancery Court of Davidson County, Tennessee,
by ClientLogic Corp. alleging, among other things, that the Company breached its obligations under
a Confidentiality and Nondisclosure Agreement. The complaint sought injunctive relief and damages
in an unspecified amount. In January 2007 the lawsuit was voluntarily dismissed without prejudice.

On July 12, 2004, eCOST received correspondence from MercExchange LLC alleging infringement of
MercExchange’s U.S. patents relating to e-commerce and offering to license its patent portfolio
to eCOST. On July 15, 2004, eCOST received a follow-up letter from MercExchange specifying which
of its technologies MercExchange believed infringed certain of its patents, alone or in
combination with technologies provided by third parties. Some of those patents are currently
being litigated by third parties, and eCOST is not involved in those proceedings. In addition,
three of the four patents identified by MercExchange are under reexamination at the U.S. Patent
and Trademark Office, which may or may not result in the modification of those claims. In the
July 15 letter, MercExchange also advised eCOST that it has a number of applications pending for
additional patents. MercExchange has filed lawsuits alleging infringement of some or all of its
patents against third parties, resulting in settlements or verdicts in favor of MercExchange. At
least one such verdict was appealed to the United States Court of Appeals for the Federal
Circuit and was affirmed in part. Based on eCOST’s investigation of this matter to date, eCOST
believes that its current operations do not infringe any valid claims of the patents identified
by MercExchange in these letters. There can be no assurance, however, that such claims will
not be material or adversely affect eCOST’s business, financial position, results of operations
or cash flows.

eCOST received a letter dated March 15, 2007 alleging patent infringement, copyright
infringement,
trademark infringement, among other claims, against the Bose Corporation by offering Bose
product for sale on www.ecost.com. The Company has responded that it strongly disagrees with the
claims made and

     Exhibit E

 

 

thus denies any liability in connection with any of the claims and allegations. Further, eCOST
notified Bose that eCOST purchased a total of forty units of Bose Sounddock product from an
entity whom eCOST believed to be an authorized source for such products. eCOST then resold these
units and has no remaining inventory. eCOST has removed any references to the Bose Sounddock
product from its website.

The Company has received correspondence from the Inspector of Police, Central Crime Branch, of
the State of Tamilnadu India Police Department alleging that the Company contracted with an
individual as a consultant. The correspondence further alleges that this consultant then entered
into outsourcing agreements with local businesses on behalf of the Company, yet the Company has
failed to honor the agreements. The Company has responded that it has no knowledge of the
outsourcing agreements nor has it contracted with anyone in India to represent the Company in
any capacity. Accordingly, the Company does not believe the claim has any merit.

On March 29, 2007, the Company received correspondence from a party investigating possible wrong
doings by a former employee and alleged current consulting partner. The possible wrong doings
involve possible tax fraud in Belgium and abuse of confidential business data. The Company has
responded and does not believe the claim has any merit as it does not have a current
relationship with the named consulting partner, and hasn’t for approximately 3 years.

No Material Adverse Change in Financial Statements

     During the Company’s annual analysis of the carrying value of intangible assets, pursuant to
Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, the
Company determined that the carrying value of goodwill exceeded the fair value, which resulted in a
$3.5 million non-cash write-off of goodwill during the fourth quarter of 2006

     Exhibit E

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