PFSweb, Inc. and Subsidiaries
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Taxable Revenue Bonds
PFSweb has a Loan Agreement with the Mississippi Business Finance Corporation (the MBFC) in
connection with the issuance by the MBFC of $5 million MBFC Taxable Variable Rate Demand Limited
Obligation Revenue Bonds, Series 2004 (Priority Fulfillment Services, Inc. Project) (the Bonds).
The MBFC loaned the proceeds of the Bonds to PFSweb for the purpose of financing the acquisition
and installation of equipment, machinery and related assets located in the Companys Southaven,
Mississippi distribution facility. The Bonds bear interest at a variable rate (5.4% as of June 30,
2007), as determined by Comerica Securities, as Remarketing Agent. PFSweb, at its option, may
convert the Bonds to a fixed rate, to be determined by the Remarketing Agent at the time of
The primary source of repayment of the Bonds is a letter of credit (the Letter of Credit) in
the initial face amount of $5.1 million issued by Comerica pursuant to a Reimbursement Agreement
between PFSweb and Comerica under which PFSweb is obligated to pay to Comerica all amounts drawn
under the Letter of Credit. The Letter of Credit has a maturity date of April 2008 at which time,
if not renewed or replaced, will result in a draw on the undrawn face amount thereof. If the
Letter of Credit is renewed or replaced, the Bonds require future principal repayments of $800,000
in each of January 2008 through 2012.
To the extent the Company or any of its subsidiaries fail to comply with its covenants
applicable to its debt or vendor financing obligations, including the monthly financial covenant
requirements and required level of shareholders equity or net worth, and one or all of the lenders
accelerate the repayment of the credit facility obligations, the Company would be required to repay
all amounts outstanding thereunder. In particular, in the event eCOST is unable to increase its
revenue and/or gross profit from its present levels, it may fail to comply with one or more of the
financial covenants required under its working capital line of credit. In such event, absent a
waiver, the working capital lender would be entitled to accelerate all amounts outstanding
thereunder and exercise all other rights and remedies, including sale of collateral and demand for
payment under the Company parent guaranty. Any acceleration of the repayment of the credit
facilities would have a material adverse impact on the Companys financial condition and results of
operations and no assurance can be given that the Company would have the financial ability to repay
all of such obligations.
Master Lease Agreements
The Company has a Term Lease Master Agreement with IBM Credit Corporation (Master Lease
Agreement) that provides for leasing or financing transactions of equipment and other assets,
which generally have terms of 3 years. The outstanding leasing transactions ($1.0 million and $1.0
million as of
June 30, 2007 and December 31, 2006, respectively) are secured by the related equipment.
The Company has two other master agreements with financing companies that provide for leasing
or financing transactions of certain equipment. The amounts outstanding under these agreements were
$1.7 million and $2.1 million as of June 30, 2007 and December 31, 2006, respectively, and are
secured by the related equipment.
The Company has other leasing and financing agreements and will continue to enter into those
arrangements as needed to finance the purchasing or leasing of certain equipment or other assets.
Borrowings under these agreements are generally secured by the related equipment.
8. SEGMENT INFORMATION
The Company is organized into three operating segments: PFSweb is an international provider of
integrated business process outsourcing solutions and operates as a service fee business; Supplies