PFSWEB, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Distributors, SDSA and BSD Europe 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 SDSA and BSD Europe, as well as collateralized guaranties of Supplies Distributors, 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 of $18.0 million. Borrowings under the credit facility accrue interest, after a defined free financing period, at Euribor plus 3.5%, which was 5.7% and 6.9% as of December 31, 2003 and 2002, respectively. SDSA and BSDE Europe pay a monthly service fee on the commitment.

     On March 29, 2004, SDSA and BSDE Europe entered into an amended credit facility with IBM Belgium. The amendment extends the termination date through March 29, 2005, reduces the interest rate to Euribor plus 2.5% and reduces the minimum Subordinated Note balance to $7 million. The Company has classified the outstanding amount under this facility as current at December 31, 2003 and 2002.

Loan and Security Agreement – Supplies Distributors

     On March 29, 2002, Supplies Distributors entered into a loan and security agreement with Congress Financial Corporation (Southwest) (“Congress”) to provide financing for up to $25 million of eligible accounts receivable in the U.S. and Canada. As of December 31, 2003, Supplies Distributors had $0.7 million of available credit under this agreement. The Congress facility expires on the earlier of three years or the date on which the parties to the IBM master distributor agreement no longer operate under the terms of such agreement and/or IBM no longer supplies products pursuant to such agreement (see Note 5). Borrowings under the Congress facility accrue interest at prime rate plus 0.25% (4.25% at December 31, 2003) or Eurodollar rate plus 3% or on an adjusted basis, as defined. This agreement contains cross default provisions, various restrictions upon the ability of Holdings and Supplies Distributors to, among other things, 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 minimum 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 Subordinated Note balance with Supplies Distributors of no less than $6.5 million and restricted cash of less than $5.0 million, and is restricted with regard to transactions with related parties, indebtedness and changes to capital stock ownership structure. Supplies Distributors and SDC entered into Blocked Account Agreements with their banks and Congress whereby a security interest was granted to Congress for all customer remittances received in specified bank accounts. At December 31, 2003 and 2002, these bank accounts held $0.8 million and $0.2 million, respectively, which was restricted for payment to Congress. The Company has classified the outstanding amount under this facility as current at December 31, 2003 and 2002.

Loan and Security Agreement – PFSweb

     On March 28, 2003, Priority Fulfillment Services, Inc. and Priority Fulfillment Services of Canada, Inc., (both wholly-owned subsidiaries of PFSweb and collectively the “Borrowers”) entered into a two year Loan and Security Agreement with Comerica Bank (“Comerica Agreement”), which was subsequently amended. The amended Comerica Agreement provides for up to $5.0 million of eligible accounts receivable financing in the U.S. and Canada (“Working Capital Advances”) and up to $2.5 million of eligible equipment purchases (“Equipment Advances”). Outstanding Working Capital Advances, $2.2 million as of December 31, 2003, accrue interest at prime rate plus 1% (5% as of December 31, 2003). Outstanding Equipment Advances, $1.3 million as of December 31, 2003, accrue interest at prime rate plus 1.5% (5.5% as of December 31, 2003) and have a final maturity date of September 10, 2006. As of December 31, 2003, the Borrowers had $2.0 million of available credit under the Working Capital Advance portion of this facility. In January 2004, the Company repaid the $2.2 million of Working Capital Advances outstanding as of December 31, 2003. The agreement contains cross default provisions, various restrictions upon the Borrowers’ ability to, among other things, merge, consolidate, sell assets, incur indebtedness, make loans and payments to related parties, make investments and loans, pledge assets, make changes to capital stock ownership structure, as well as financial covenants of a minimum tangible net worth, as defined, of $19.0 million and a minimum liquidity ratio, as defined. The agreement restricts the amount of the Subordinated Note to a maximum of $8.0 million. The agreement is secured by all of the assets of the Borrowers, as well as a guarantee of

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