PFSWEB, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

3. Debt and Capital Lease Obligations:

     Debt and capital lease obligations consist of the following (in thousands):

Inventory and Working Capital Financing Agreement, United States

     On September 27, 2001, Supplies Distributors entered into a short-term credit facility with IBM Credit Corporation (“IBM Credit”) to finance its distribution of IBM products in the United States, which has subsequently been amended. The amended asset based credit facility provides financing for eligible IBM inventory and for certain other receivables up to $27.5 million and $30.5 million as of December 31, 2003 and 2002, respectively, through its expiration. As of December 31, 2003, the Company had $1.5 million of available credit under this facility. The credit facility contains cross default provisions, various restrictions upon the ability of Holdings and Supplies Distributors to, among others, merge, consolidate, sell assets, incur indebtedness, make loans and payments to related parties, provide guarantees, make investments and loans, pledge assets, make changes to capital stock ownership structure and pay dividends, as well as financial covenants, such as annualized revenue to working capital, net profit after tax to revenue, and total liabilities to tangible net worth, as defined, and is secured by all of the assets of Supplies Distributors, as well as collateralized guaranties of Holdings and PFSweb. Additionally, PFSweb is required to maintain a minimum Subordinated Note receivable balance from Supplies Distributors of $8.0 million and a minimum shareholders’ equity, as defined, of $18.0 million. Borrowings under the credit facility accrue interest, after a defined free financing period, at prime rate plus 1%, which was 5% and 5.25% as of December 31, 2003 and 2002, respectively. The facility accrues a quarterly commitment fee of 0.375% on the unused portion of the commitment, and a monthly service fee.

     On March 29, 2004, Supplies Distributors entered into an amended credit facility with IBM Credit LLC (formerly IBM Credit Corporation). The amendment extends the termination date through March 29, 2005 and reduces the minimum Subordinated Note balance to $7 million. The amendment also provides for the reduction of the maximum credit limit on the earlier of July 1, 2004 or the date IBM Credit LLC sells a participation interest in the facility (“Principal Reduction Date”). On the Principal Reduction Date, the maximum credit limit will be reduced to either $22.5 million or $22.5 million plus the amount of any participation interest, but in no event more than $27.5 million. The Company has classified the outstanding amount under this facility as current at December 31, 2003 and 2002.

Inventory and Working Capital Financing Agreement, Europe

     On September 27, 2001, SDSA and BSD Europe entered into a short-term credit facility with IBM Belgium Financial Services S.A. (“IBM Belgium”) to finance their distribution of IBM products in Europe, which has subsequently been amended. The amended asset based credit facility with IBM Belgium currently provides up to 12.5 million Euros (approximately $15.7 million) as of December 31, 2003 and 19 million euros (approximately $23.9 million) at December 31, 2002, in financing for eligible IBM inventory and for certain other receivables. As of December 31, 2003, SDSA and BSD Europe had 1.7 million euros ($2.1 million) of available credit under this facility. The IBM Belgium facility remains in force until not less than 60 days written notice by any party, but no sooner than March 29, 2004. The credit facility contains cross default provisions, various restrictions upon the ability of Holdings, Supplies

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