PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
was damaged thereby in the amount of at least $38 million. On May 3,
2007, the Court granted certain motions for summary judgment filed by the Company and certain of
the former Daisytek directors. As a result of this ruling, all of the claims against the Company
have been dismissed, although certain of the claims against certain of the individual defendants
remain. Through June 30, 2007, the Company has incurred outstanding legal costs of $1.2 million,
which have not been paid as the Company expects such costs to be
covered by insurance. As of August 13, 2007, the insurance companies
have paid approximately $1.0 million of the outstanding legal costs.
On July 12, 2004, eCOST received correspondence from MercExchange LLC alleging infringement of
MercExchanges 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. Recently, the Supreme Court reversed the ruling by the United States Court of
Appeals for the Federal Circuit Court requiring that an injunction must be issued in that case.
Based on eCOSTs 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
eCOSTs business, financial position, results of operations or cash flows.
On July 25, 2007 a purported class action lawsuit entitled Darral Frank and Joseph F. Keeley,
Jr.. v. PC Mall, Inc. dba eCOST.com and eCOST.com, Inc. was filed in the Superior Court of
California, Los Angeles County. The purported class consists of all of current and former sales
representatives who worked for the defendants in California from July 24, 2003 through July 24,
2007. The lawsuit alleges that the defendants failed to pay overtime compensation and interest
thereon, failed to timely pay compensation to terminated employees and failed to provide meal and
rest periods, all in violation of the California Labor Code and Business and Professions Code. The
complaint seeks unpaid overtime, statutory penalties, interest, attorneys fees, punitive damages,
restitution and injunctive relief. The Company intends to vigorously
contest this action and does not believe
the claims have any merit.