<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q



            [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Quarterly Period Ended March 31, 2002

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the Transition Period from _______ to _______

                        Commission File Number 000-28275

                                  PFSWEB, INC.
             (Exact name of registrant as specified in its charter)


                  DELAWARE                                     75-2837058
    ------------------------------------              --------------------------
           (State of Incorporation)                   (I.R.S. Employer I.D. No.)

 500 NORTH CENTRAL EXPRESSWAY, PLANO, TEXAS                       75074
-------------------------------------------------------------------------------
 (Address of principal executive offices)                      (Zip Code)


Registrant's telephone number, including area code:           (972) 881-2900
                                                     -----------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                            Yes  X   No
                                ---     ---

At May 3, 2002 there were 18,183,272 shares of registrant's common stock
outstanding, excluding 86,300 shares of common stock in treasury.


<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                                 MARCH 31, 2002

                                      INDEX


<Table>
<Caption>

                                                                                                 PAGE NUMBER
                                                                                                 -----------
<S>                                                                                              <C> 

PART I. FINANCIAL INFORMATION                                                                    


      Item 1.     Financial Statements:
                      Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited) and
                           December 31, 2001.......................................................      3

                      Unaudited Interim Condensed Consolidated Statements of Operations for the Three
                           Months Ended March 31, 2002 and 2001....................................      4

                      Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Three
                           Months Ended March 31, 2002 and 2001...................................       5

                      Notes to Unaudited Interim Condensed Consolidated Financial Statements......       6


      Item 2.     Management's Discussion and Analysis of Financial
                      Condition and Results of Operations .........................................     14


      Item 3.     Quantitative and Qualitative Disclosure about Market Risk .......................     23


PART II. OTHER INFORMATION


      Item 4.     Submission of Matters to a Vote of Security Holders..............................     24


      Item 6.     Exhibits and Reports on Form 8-K ................................................     24


SIGNATURES            .............................................................................     25
</Table>






                                       2

<PAGE>



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                          PFSWEB, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<Table>
<Caption>

                                      ASSETS                                                    March 31,        December 31,
                                                                                                   2002              2001
                                                                                               ------------      ------------
                                                                                               (unaudited)
<S>                                                                                            <C>               <C>         
CURRENT ASSETS:
    Cash and cash equivalents ............................................................     $      9,322      $     10,786
    Accounts receivable, net of allowance for doubtful accounts of $248 and $254
        at March 31, 2002 and December 31, 2001, respectively ............................            7,882             6,915
    Other receivables ....................................................................               --                92
    Prepaid expenses and other current assets ............................................            2,068             2,646
                                                                                               ------------      ------------
                  Total current assets ...................................................           19,272            20,439
                                                                                               ------------      ------------

PROPERTY AND EQUIPMENT, net ..............................................................           14,079            15,329

NOTE RECEIVABLE FROM AFFILIATE ...........................................................           11,800            11,655

OTHER ASSETS (including $2,876 and $2,722 of restricted cash at March 31, 2002 and
        December 31, 2001, respectively) .................................................            4,547             4,305
                                                                                               ------------      ------------

                  Total assets ...........................................................     $     49,698      $     51,728
                                                                                               ============      ============

                                                LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current portion of long-term debt and capital lease obligations ......................     $      1,128      $        995
    Trade accounts payable ...............................................................            4,345             2,995
    Accrued expenses .....................................................................            5,526             5,300
                                                                                               ------------      ------------
                  Total current liabilities ..............................................           10,999             9,250
                                                                                               ------------      ------------

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
                  portion ................................................................            3,629             3,663
                                                                                               ------------      ------------
DEFERRED INCOME ..........................................................................            2,061             2,210
                                                                                               ------------      ------------

COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)

SHAREHOLDERS' EQUITY:
    Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued and
        outstanding ......................................................................               --                --
    Common stock, $0.001 par value; 40,000,000 shares authorized;
        18,235,796 and 18,143,409 shares issued at March 31, 2002 and December 31,
        2001, respectively; and 18,149,496 and 18,057,109 outstanding at March 31,
        2002 and December 31, 2001, respectively .........................................               18                18
    Additional paid-in capital ...........................................................           52,020            51,942
    Accumulated deficit ..................................................................          (17,384)          (14,157)
    Accumulated other comprehensive loss .................................................           (1,560)           (1,113)
    Treasury stock at cost, 86,300 shares at March 31, 2002 and December 31, 2001 ........              (85)              (85)
                                                                                               ------------      ------------
                  Total shareholders' equity .............................................           33,009            36,605
                                                                                               ------------      ------------

                  Total liabilities and shareholders' equity .............................     $     49,698      $     51,728
                                                                                               ============      ============
</Table>


         The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.




                                       3

<PAGE>





                          PFSWEB, INC. AND SUBSIDIARIES

        UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<Table>
<Caption>

                                                               Three Months Ended
                                                                    March 31,
                                                         ------------------------------
                                                            2002               2001
                                                         ------------      ------------
<S>                                                      <C>               <C>         
REVENUES:
    Gross service fee revenue ......................     $      7,826      $     12,638
    Gross service fee revenue, affiliate (Note 8) ..            1,565                --
                                                         ------------      ------------
      Total gross service fee revenue ..............            9,391            12,638
    Less pass through charges ......................            1,073             1,397
                                                         ------------      ------------
      Net service fee revenue ......................            8,318            11,241
    Other net revenue ..............................               --               397
                                                         ------------      ------------
        Total  net revenues ........................            8,318            11,638
                                                         ------------      ------------

COSTS OF REVENUES:
    Cost of net service fee revenue ................            5,229             7,591
    Cost of other revenue ..........................               --                59
                                                         ------------      ------------
        Total costs of  net revenues ...............            5,229             7,650
                                                         ------------      ------------

        Gross profit ...............................            3,089             3,988

SELLING, GENERAL AND ADMINISTRATIVE
       EXPENSES ....................................            7,093             6,402
                                                         ------------      ------------
        Loss from operations .......................           (4,004)           (2,414)

EQUITY IN EARNINGS OF AFFILIATE ....................              512                --

INTEREST INCOME ....................................              265               211
                                                         ------------      ------------
        Loss before income taxes ...................           (3,227)           (2,203)

INCOME TAX BENEFIT .................................               --                11
                                                         ------------      ------------

NET LOSS ...........................................     $     (3,227)     $     (2,192)
                                                         ============      ============

NET LOSS PER SHARE:
     Basic and diluted .............................     $      (0.18)     $      (0.12)
                                                         ============      ============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
     Basic and diluted .............................           18,149            17,907
                                                         ============      ============
</Table>



         The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.





                                       4

<PAGE>





                          PFSWEB, INC. AND SUBSIDIARIES

        UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



<Table>
<Caption>

                                                                                               Three Months Ended
                                                                                                    March 31,
                                                                                          ------------------------------
                                                                                              2002             2001
                                                                                          ------------      ------------
<S>                                                                                       <C>               <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss ........................................................................     $     (3,227)     $     (2,192)
    Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation and amortization ................................................            1,648             1,635
       Deferred income taxes ........................................................               --               109
       Provision for doubtful accounts ..............................................               21               211
       Equity in earnings of affiliate ..............................................             (512)               --
       Non-cash compensation expense ................................................               24                --
       Changes in operating assets and liabilities:
           Accounts receivables .....................................................           (1,008)            1,575
           Prepaid expenses and other current assets ................................              713             1,546
           Accounts payable, accrued expenses and deferred income ...................            1,555             2,493
                                                                                          ------------      ------------
                Net cash provided by (used in) operating activities .................             (786)            5,377
                                                                                          ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment .............................................             (338)           (1,249)
    Increase in restricted cash .....................................................             (154)               --
    Loan to affiliate ...............................................................             (145)               --
                                                                                          ------------      ------------
                Net cash used in investing activities ...............................             (637)           (1,249)
                                                                                          ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payment on long-term debt and capital lease obligations .........................             (259)              (35)
    Proceeds from issuance of common stock ..........................................               54                25
    Proceeds from debt ..............................................................              172                --
                                                                                          ------------      ------------
                Net cash used in financing activities ...............................              (33)              (10)
                                                                                          ------------      ------------

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS ...............................               (8)                5
                                                                                          ------------      ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS ...........................................           (1,464)            4,123

CASH AND CASH EQUIVALENTS, beginning of period ......................................           10,786            18,143
                                                                                          ------------      ------------

CASH AND CASH EQUIVALENTS, end of period ............................................     $      9,322      $     22,266
                                                                                          ============      ============

SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities:
    Fixed assets acquired under capital leases ......................................     $        186      $         --
                                                                                          ============      ============

    Increase in equity investment in affiliate ......................................     $        149      $         --
                                                                                          ============      ============
</Table>



         The accompanying notes are an integral part of these unaudited interim
condensed consolidated financial statements.




                                       5

<PAGE>



                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1.       OVERVIEW AND BASIS OF PRESENTATION

         PFSweb, Inc. (the "Company" or "PFSweb") is an international provider
of integrated business process outsourcing services to major brand name
companies seeking to maximize their supply chain efficiencies and to extend
their traditional and e-commerce initiatives in the United States, Canada, and
Europe. The Company offers such services as professional consulting, technology
collaboration, managed hosting and creative web development, order management,
web-enabled customer contact centers, customer relationship management,
financial services including billing and collection services, information
management, option kitting and assembly services, and international fulfillment
and distribution services.

         The unaudited interim condensed consolidated financial statements as of
March 31, 2002, and for the three months ended March 31, 2002 and 2001, have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and are unaudited. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to the rules and regulations promulgated
by the SEC. In the opinion of management and subject to the foregoing, the
unaudited interim condensed consolidated financial statements of the Company
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the Company's financial position as of
March 31, 2002, its results of operations for the three months ended March 31,
2002 and 2001 and its results of cash flows for the three months ended March 31,
2002 and 2001. Results of the Company's operations for interim periods may not
be indicative of results for the full fiscal year.

         Certain prior period data has been reclassified to conform to the
current period presentation. Included in selling, general and administrative
expenses in the three months ended March 31, 2002, are approximately $0.8
million of technology infrastructure costs that were incurred in both periods
but that were recorded a component of cost of net service fee revenue in the
three months ended March 31, 2001. These technology costs were principally
dedicated to the activities that generated service fee revenue under the
transaction management services contract with Daisytek International Corporation
("Daisytek"), the Company's former parent corporation, which was terminated in
November 2001 (see Note 6). These reclassifications had no effect on previously
reported net income or shareholders' equity.

2.       SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         Subsequent to the Offering and for all periods presented herein, the
financial position, results of operations and cash flows of the Company are
referred to as the consolidated financial statements of PFSweb, Inc. and
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation.

INVESTMENT IN AFFILIATE

         In 2001 the Company paid $750,000 in cash for a 49% ownership interest
in Business Supplies Distributors Holdings, LLC, ("Holdings") (see Note 8). The
Company records its interest in Holdings' net income, which is allocated and
distributed to the owners pursuant to the terms of Holdings' operating
agreement, under the modified equity method, which results in the Company
recording its allocated earnings of Holdings or 100% of Holdings' losses.

         In addition to the equity investment, the Company has loaned a
subsidiary of this affiliate $11.8 million in the form of a Subordinated Demand
Note (the "Note"). The Note can be decreased to $6.5 million subject to
Holdings' compliance with the covenants of its senior loan facilities, as
amended. Management believes that the Note, which is due on demand, will not be
repaid in its entirety within the upcoming year and has therefore classified the
entire balance as long-term.




                                       6

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




REVENUE AND COST RECOGNITION

         The Company's service fee revenues primarily relate to its (1)
distribution services, (2) order management/customer care services and (3) the
reimbursement of out-of-pocket and third-party vendor expenses.

         Distribution services relate primarily to inventory management, product
receiving, warehousing and fulfillment (i.e., picking, packing and shipping).
Revenue for these activities are either (i) earned on a per transaction basis or
(ii) earned at the time of product fulfillment which occurs at the completion of
the distribution services.

         Order management/customer care services relate primarily to taking
customer orders for our client's products via various channels such as telephone
call-center, electronic or facsimile. These services also entail addressing
customer questions related to orders, as well as cross-selling/up-selling
activities. Revenue is recognized as the services are rendered. Fees charged to
the client are on a per transaction basis based on either (i) a pre-determined
fee per order or fee per telephone minutes incurred, or (ii) are included in the
product fulfillment service fees which are recognized on product shipment. The
Company's cost of service fee revenue, representing the cost to provide the
services described above, is recognized as incurred. Cost of service fee revenue
also includes certain costs associated with technology collaboration and ongoing
technology support which consist of creative website development and
maintenance, web hosting, technology interfacing, and other ongoing programming
activities. These activities are primarily performed to support the distribution
and order management/customer cares services and are recognized as incurred.

         The Company also performs billing services and information management
services for its clients. Billing services and information management services
are typically not billed separately to clients because the activities are
continually performed, and the costs are insignificant and are generally covered
by other fees described above. Therefore, any revenue attributable to these
services is often included in the distribution or order management fees which
are recognized as services are performed. The service fee revenue associated
with these activities is currently not significant and is incidental to the
above-mentioned services.

         The Company's billings for reimbursement of out-of-pocket expenses,
such as travel, and certain third-party vendor expenses such as shipping and
handling costs and telecommunication charges are included in gross service fee
revenue. The related reimbursable costs are reflected as pass-through charges
and reduce total gross service fee revenue in computing net service fee revenue.

         The Company recognizes revenue, and records trade accounts receivables,
pursuant to the methods described above when collectibility is reasonably
assured. Collectibility is evaluated on an individual customer basis taking into
consideration historical payment trends, current financial position, results of
independent credit evaluations and payment terms.

         Other revenue of $0.4 million for the three months ended March 31, 2001
represents the fees charged to a client in conjunction with the early
termination of its contract. Cost of other revenue for the three months ended
March 31, 2001 includes approximately $0.1 million of certain uncollectible
amounts receivable from, and liabilities applicable to, clients who terminated
contracts.

         The Company primarily performs its services under two to three year
contracts that can be terminated by either party. In conjunction with these
long-term contracts the Company generally receives start-up fees to cover its
implementation costs, including certain technology infrastructure and
development costs. The Company defers the fees received, and the related costs,
and amortizes them over the life of the contract. The amortization of deferred
revenue is included as a component of service fee revenue. The amortization of
deferred implementation costs is included as a cost of service fee revenue. To
the extent implementation costs exceed the fees received, excess costs are
expensed as incurred. The following summarizes the deferred implementation costs
and revenues (in thousands):




                                       7

<PAGE>
                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



<Table>
<Caption>

                                           MARCH 31, 2002   DECEMBER 31, 2001
                                           --------------   -----------------
<S>                                        <C>              <C>         
Deferred implementation costs
  Current ..............................     $        761     $        845
  Non-current ..........................              607              655
                                             ------------     ------------
                                             $      1,368     $      1,500
                                             ============     ============
Deferred implementation revenues
  Current ..............................            1,254            1,434
  Non-current ..........................              913              988
                                             ------------     ------------
                                             $      2,167     $      2,422
                                             ============     ============
</Table>


         Current and non-current deferred implementation costs are a component
of prepaid expenses and other assets, respectively. Current and non-current
deferred implementation revenues are a component of accrued expenses and
deferred income, respectively.

CONCENTRATION OF BUSINESS AND CREDIT RISK

         The Company had four clients which accounted for approximately 67% of
the Company's revenue for the three months ended March 31, 2002, of which 19%
was from Holdings or its wholly-owned subsidiaries. Service fee revenue from
Daisytek accounted for approximately 63% of the Company's total revenues for the
three months ended March 31, 2001, of which 20% was from the Daisytek
subsidiaries that were the predecessors to Supplies Distributors. As of March
31, 2002, three customers accounted for approximately 40% of accounts
receivable, of which 14% is due from Holdings or its wholly-owned subsidiaries.
as of December 31, 2001, two customers accounted for approximately 36% of
accounts receivable, of which 12% was due from Holdings or its wholly-owned
subsidiaries.

RESTRICTED CASH

         In conjunction with certain long-term debt and leases, as of March 31,
2002 and December 31, 2001, the Company had approximately $2.9 million and $2.7
million of cash restricted, respectively, as collateral for letters of credit
that secure these debt and lease obligations. The letters of credit expire at
various dates through July, 2004.

3.       RECENTLY ISSUED ACCOUNTING PRINCIPLES

         On January 1, 2002, the Company adopted the provisions of EITF D-103
"Income Characterization of Reimbursements Received for `Out-of-Pocket' Expenses
Incurred." The Company's billings for out-of-pocket expenses, such as travel,
and certain third-party vendor expenses such as shipping and handling costs and
telecommunication charges are included in gross service fee revenue. The related
reimbursable costs are reflected as pass-through charges and reduce total gross
service fee revenue in computing net service fee revenues.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Company is currently assessing the impact
on the consolidated financial statements and will adopt the provisions of this
standard in the first quarter of 2003.

                                       8

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


4.       COMPREHENSIVE LOSS (IN THOUSANDS)


<Table>
<Caption>

                                                  Three Months Ended
                                                      March 31,
                                             ----------------------------
                                                 2002            2001
                                             -----------      -----------

<S>                                          <C>              <C>         
Net loss ...............................     $    (3,227)     $    (2,192)
Other comprehensive income:
     Foreign currency translation
        adjustment .....................            (447)              10
                                             -----------      -----------
Comprehensive loss .....................     $    (3,674)     $    (2,182)
                                             ===========      ===========
</Table>


         Effective April 1, 2001, in response to a change to the Euro for
transaction activity previously conducted in the U.S. dollar by the Company's
largest European client, the Company adopted the Euro as its functional currency
for its European operations. As a result, beginning April 1, 2001, all assets
and liabilities are translated at exchange rates in effect at the end of the
period, and income and expense items are translated at the average exchange
rates for the period. Translation adjustments are reported as a separate
component of shareholders' equity. Gains and losses from foreign currency
transactions are included in net loss.

5.       NET LOSS PER COMMON SHARE AND COMMON SHARE EQUIVALENT

         Basic and diluted net loss per common share attributable to PFSweb
common stock were determined based on dividing the loss available to common
stockholders by the weighted-average number of common shares outstanding. During
the three months ended March 31, 2002 and 2001, all outstanding options to
purchase common shares were anti-dilutive and have been excluded from the
weighted diluted average share computation. As of March 31, 2002 and 2001 there
were 5,982,391 and 5,756,195 options outstanding. There are no other potentially
dilutive securities outstanding.

6.       TRANSACTIONS WITH DAISYTEK

         As of March 31, 2002, the Company had no receivables from Daisytek. As
of December 31, 2001 the Company had receivables from Daisytek of approximately
$0.1 million.

         In conjunction with the successful completion of the Offering, PFSweb
entered into agreements with Daisytek, including a tax sharing agreement, a
transaction management services agreement, a transition services agreement and a
master separation agreement. In addition, on a going forward basis, Daisytek
will continue to be an obligor and guarantor for certain of the Company's
facility and equipment leases.

         On May 25, 2001, the Company completed the sale of certain assets to
Daisytek pursuant to an Asset Purchase Agreement (the "Purchase Agreement") (See
Note 7). The Purchase Agreement included a termination by the Company and
Daisytek of certain transaction management services agreements previously
entered into between the Company and Daisytek and a Daisytek subsidiary.
Concurrently with the closing of the asset sale, the Company and Daisytek also
entered into a six-month transition services agreement under which the Company
provided Daisytek with certain transitional and information technology services
that expired in November 2001.

         For the three months ended March 31, 2001, the unaudited interim
condensed consolidated financial statements include service fee revenues and
cost of service fee revenues for certain services subcontracted to PFSweb by
Daisytek under Daisytek's contractual agreements.

         Service fee revenues charged to Daisytek under (i) the IBM Master
Distributor Agreements (See Note 8), entered into during the quarter ended
September 30, 1999, (ii) terms of the transaction management services agreement
with Daisytek, and (iii) for certain subcontracted services, were $7.4 million,
for the three months ended March 31, 2001.



                                       9

<PAGE>

                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



         Effective November 2001, the Company is not a party to any agreement to
provide services for Daisytek.

7.       DISPOSITION OF ASSETS

         On May 25, 2001, the Company completed the sale of certain assets to
Daisytek pursuant to the Purchase Agreement. Under the Purchase Agreement, the
Company transferred and sold to Daisytek certain distribution and fulfillment
assets, including equipment and fixtures, that were previously used by the
Company to provide outsourcing services to Daisytek. Daisytek also assumed
certain related equipment leases and a warehouse lease and hired certain
employees who were associated with the warehouse facility. The consideration
payable under the Purchase Agreement of $11.0 million included a termination by
the Company and Daisytek of certain transaction management services agreements
previously entered into between the Company and Daisytek and a Daisytek
subsidiary. Proceeds of $10.9 million were received for assets with an
approximately $4.5 million net book value with a resulting $5.8 million gain,
after closing costs of $0.6 million. Concurrently with the closing of the asset
sale, the Company and Daisytek also entered into a six-month transition services
agreement under which the Company provided Daisytek with certain transitional
and information technology services.

         Pro forma net revenues and pro forma loss from operations for the three
months ended March 31, 2001, assuming the transaction had occurred in January
2001, would have been $6.6 million and ($4.3) million, respectively. The pro
forma data do not give effect to any fees earned by PFSweb for services provided
to Daisytek under a six-month transition services agreement entered into on May
25, 2001 or the effect of the $5.8 million gain on the sale of the assets.
Additionally, these pro forma adjustments do not consider certain infrastructure
costs, such as operating costs associated with the information technology
function, salaries of certain management and personnel, telephone and lease
costs, and depreciation expense which supported this business but that will
continue in the future. Because these ongoing costs were not considered, the pro
forma adjustments to the loss from operations are not indicative of the overall
margin earned under these transaction management services agreements.

8.       SUPPLIES DISTRIBUTORS

         The Company, Business Supplies Distributors (a Daisytek subsidiary --
"BSD"), Daisytek and IBM were parties to various Master Distributor Agreements
which had various scheduled expiration dates through September 2001. Under these
agreements, BSD and its affiliates Business Supplies Distributors Europe B.V.
("BSD Europe"), a Daisytek subsidiary, and BSD (Canada) Inc., a Daisytek
subsidiary ("BSD Canada" and together with BSD and BSD Europe, the "BSD
Companies"), acted as master distributors of various IBM products, Daisytek
provided financing and credit support to the BSD Companies and the Company
provided transaction management and fulfillment services to the BSD Companies.

         On June 8, 2001, Daisytek notified the Company and IBM that it did not
intend to renew these agreements upon their scheduled expiration dates. In July
2001, the Company and Inventory Financing Partners, LLC ("IFP") formed Holdings,
and Holdings formed a wholly-owned subsidiary, Supplies Distributors ("Supplies
Distributors"). Concurrently, Supplies Distributors formed its
wholly-owned subsidiaries Supplies Distributors of Canada, Inc. ("SDC") and
Supplies Distributors S.A. ("SDSA"), a Belgium corporation. Supplies
Distributors, SDSA, the Company and IBM entered into new Master Distributor
Agreements to replace the prior agreements. Under these agreements, Supplies
Distributors and SDSA act as master distributors of various IBM products and,
pursuant to a transaction management services agreement between the Company and
Supplies Distributors, the Company provides transaction management and
fulfillment services to Supplies Distributors.

         The Company made an equity investment of $0.75 million in Holdings,
which is included in other assets in the accompanying consolidated financial
statements, for a 49% voting interest, and IFP made an equity investment of
$0.25 million in Holdings for a 51% voting interest. Certain officers and a
director of the 



                                       10

<PAGE>
                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Company collectively own a 49% non-voting interest in IFP. In addition to its
equity investment in Holdings, the Company has also provided Supplies
Distributors with a subordinated loan, evidenced by the Note, which, as of March
31, 2002, had an outstanding balance of $11.8 million. The Note, which is
classified as a note receivable from affiliate, accrues interest at a
fluctuating rate per annum equal to the Company's cost of funds, as determined
by the Company. For the three months ended March 31, 2002, the Company charged
interest at 10% and earned $0.3 million associated with the Note.

         On September 26, 2001, Supplies Distributors purchased all of the stock
of the BSD Companies for a purchase price of $923,000. In conjunction with the
purchase, BSD and Supplies Distributors were merged with Supplies Distributors
being the surviving corporation. Effective December 31, 2001, BSD Canada and SDC
were amalgamated, with SDC being the surviving corporation. On September 27,
2001, Supplies Distributors entered into short-term credit facilities with IBM
Credit Corporation ("IBM Credit") and IBM Belgium Financial Services S.A. ("IBM
Belgium") for the purpose of financing its distribution of IBM products. The
facilities, which at inception included $40 million for the U.S. operations and
20 million Euros (approximately $18 million) for the European operations, were
subsequently increased to $45 million and 27 million Euros (approximately $24
million), respectively, and extended through March 25, 2002.

         On March 29, 2002, Supplies Distributors entered into amended credit
facilities with IBM Credit and SDSA and BSD Europe entered into amended credit
facilities with IBM Belgium. The asset based credit facility with IBM Credit
provides financing for purchasing IBM inventory up to $32.5 million through June
30, 2002 and $27.5 million from July 1, 2002 through its expiration on March 29,
2003. The asset based credit facility with IBM Belgium provides up to 27 million
Euros (approximately $23.5 million) in financing for purchasing IBM inventory
through June 30, 2002 and 22 million Euros (approximately $19.1 million)
thereafter. The IBM Belgium facility remains in force until not less than 60
days written notice by any party, but no sooner than March 29, 2003. These
credit facilities contain cross default provisions, various restrictions upon
the ability of Holdings, Supplies Distributors, SDSA and BSD Europe 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 annualized revenue to working
capital, net profit after tax to revenue, and total liabilities to tangible net
worth, as defined, and are secured by all of the assets of Supplies
Distributors, as well as collateralized guaranties of Holdings and PFSweb (See
Note 9). Additionally, the Company is required to maintain a subordinated loan
to Supplies Distributors of no less than $6.5 million and shareholders' equity
of at least $25.0 million.

         Concurrent with these amended agreements, 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 receivables in the U.S. and Canada. The Congress facility expires on
the earlier of three years or the date on which the parties to the IBM Master
Distributor Agreement shall no longer operate under the terms of such agreement
and/or IBM no longer supplies products pursuant to such agreement. Borrowings
under the Congress facility accrue interest at prime rate plus 0.25% or
Eurodollar rate plus 3.0% or on an adjusted basis, as defined. In Europe, SDSA
entered into a two year factoring agreement with Fortis Commercial Finance N.V.
("Fortis") to provide factoring for up to 10 million Euros (approximately $8.7
million) of eligible accounts receivables. Borrowings under this agreement
accrue interest at 8.5%, or on an adjusted basis as defined. These credit
facilities contain cross default provisions, various restrictions upon the
ability of Holdings, Supplies Distributors and SDSA 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 are secured by
all of the assets of Supplies Distributors, as well as collateralized guaranties
of Holdings and PFSweb (See Note 9). Additionally, the Company is required to
maintain a subordinated loan to Supplies Distributors of no less than $6.5
million and may not maintain restricted cash of more than $5.0 million as
security for capital leases, and is restricted with regard to transactions with
related parties, indebtedness and changes to capital stock ownership structure.




                                       11

<PAGE>
                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



         Pursuant to the terms of the Company's transaction management services
agreement with Supplies Distributors, the Company earned service fees, which are
reported as service fee revenue, affiliate in the accompanying unaudited interim
condensed consolidated financial statements, of approximately $1.6 million for
the three months ended March 31, 2002. For the three months ended March 31,
2001, prior to becoming a related party, service fees earned by PFSweb from BSD
(the Daisytek subsidiary and predecessor to Supplies Distributors), associated
with the same business activities, were $2.3 million, net of $0.2 million of
pass-through charges. As of March 31, 2002 and December 31, 2001, the Company
has trade accounts receivables of $1.1 million and $0.9 million due from
Supplies Distributors, respectively.

         Pursuant to Holdings' operating agreement, Holdings allocates its
earning and distributes its cash flow, as defined, in the following order of
priority: first, to IFP until it has received a one-time amount equal to its
capital contribution of $0.25 million; second, to IFP until it has received an
amount equal to a 35% cumulative annual return on its capital contribution;
third, to PFSweb until it has received a one-time amount equal to its capital
contribution of $0.75 million; fourth, to PFSweb until it has received an amount
equal to a 35% cumulative annual return on its capital contribution; and fifth,
to PFSweb and IFP, pro rata, in accordance with their respective capital
accounts. Notwithstanding the foregoing, no distribution may be made if, after
giving effect thereto, the net worth of Holdings may be less than $1.0 million.
Under the terms of its credit agreements, Holdings is currently limited to
annual cash dividends of $0.6 million. The Company recorded $0.5 million of
equity in the earnings of Holdings for the three months ended March 31, 2002.

         Summarized financial information for Holdings as of March 31, 2002 is
as follows (in thousands):



<Table>

<S>                                                         <C>         
Cash and cash equivalents .............................     $      2,583
Accounts receivable, net of allowance for
     doubtful accounts of $673 ........................           31,264
Inventories, net ......................................           41,971
Prepaid expenses and other current assets .............            4,388
Other assets, net (including restricted cash of
     $608) ............................................              851
                                                            ------------
       Total assets ...................................     $     81,057
                                                            ============

Trade accounts payable ................................     $     11,639
Accrued expenses ......................................            2,213
Debt (guaranteed by PFSweb) ...........................           53,779
Other debt ............................................              169
Note payable to affiliate .............................           11,800
Members' capital:
    Capital contributions .............................            1,000
    Retained earnings .................................              820
    Unrealized loss on investment .....................             (207)
    Accumulated other comprehensive loss ..............             (156)
                                                            ------------
       Total members' capital .........................            1,457
                                                            ------------
       Total liabilities and members' capital .........     $     81,057
                                                            ============
</Table>


         Summarized operating information for Holdings for the three months
ending March 31, 2002 is as follows (in thousands):


<Table>

<S>                                                    <C>         
Net revenues .....................................     $     53,103
Cost of goods sold ...............................           50,080
                                                       ------------
Gross profit .....................................            3,023
Selling, general and administrative expenses .....            1,875
                                                       ------------
Income from operations ...........................            1,148
Interest expense .................................              433
                                                       ------------
Income before income taxes .......................              715
Income tax expense ...............................              296
                                                       ------------
Net income .......................................     $        419
                                                       ============
</Table>




                                       12

<PAGE>


                          PFSWEB, INC. AND SUBSIDIARIES

     NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



9.       COMMITMENTS AND CONTINGENCIES

         The Company has provided collateralized guarantees to secure the
repayment of Supplies Distributors' credit facilities. As of March 31, 2002 the
outstanding balance of the credit facilities guaranteed by the Company was
approximately $54.0 million. These guarantees expire concurrently with the
expiration of the underlying credit agreements. To the extent Supplies
Distributors or its subsidiaries fails to comply with its covenants, including
its monthly financial covenant requirements, and the lenders accelerate the
repayment of the credit facility obligations, Supplies Distributors or its
subsidiaries would be required to repay all amounts outstanding thereunder. In
such event, the Company would be obligated to perform under those guarantees and
repay, to the extent Supplies Distributors or its subsidiaries was unable to,
Supplies Distributors' or its subsidiaries credit facility obligations.
Additionally, if the Company was unable to maintain the Company's required level
of stockholders' equity of $25.0 million or if the Company was to violate any of
the restricted transactions pursuant to the IBM Credit, IBM Belgium, or Congress
agreements (see Note 8), the Company could also be obligated to perform under
these guarantees. Any requirement to perform under the Company's guarantees
would have a material adverse impact on the Company's financial condition and
results of operations and no assurance can be given that the Company will have
the financial ability to repay all of such guaranteed obligations. In addition,
in the event Supplies Distributors or its subsidiaries is, or would be, in
default of its obligations under its credit facilities, the Company is
restricted from receiving any payment of its Note and such event would also have
a material adverse impact upon the Company's financial condition and results of
operations. Furthermore, the Company is obligated to repay any over-advance made
to Supplies Distributors or its subsidiaries by its lenders. An over-advance
would arise in the event borrowings exceeded the maximum amount available under
the eligible borrowing base, as defined. The Company has also provided a
guarantee of the obligations of Supplies Distributors and its subsidiaries to
IBM, excluding the trade payables that are financed by IBM Credit. No
liabilities have been recorded in the accompanying financial statements for
these guarantee obligations.




                                       13

<PAGE>









ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion and analysis of our results of operations and
financial condition should be read in conjunction with the unaudited interim
condensed consolidated financial statements and related notes appearing
elsewhere in this Form 10-Q.

FORWARD-LOOKING INFORMATION

         We have made forward-looking statements in this Report on Form 10-Q.
These statements are subject to risks and uncertainties, and there can be no
guarantee that these statements will prove to be correct. Forward-looking
statements include assumptions as to how we may perform in the future. When we
use words like "seek," "strive," "believe," "expect," "anticipate," "predict,"
"potential," "continue," "will," "may," "could," "intend," "plan," "target" and
"estimate" or similar expressions, we are making forward-looking statements. You
should understand that the following important factors, in addition to those set
forth above or elsewhere in this Report on Form 10-Q and our Form 10-K for the
nine-month transition period ended December 31, 2001, could cause our results to
differ materially from those expressed in our forward-looking statements. These
factors include:

         o        our ability to retain and expand relationships with existing
                  clients and attract new clients;

         o        our reliance on the fees generated by the transaction volume
                  or product sales of our clients;

         o        our reliance on our clients' projections or transaction volume
                  or product sales;

         o        our client mix and the seasonality of their business;

         o        our ability to finalize pending contracts;

         o        the impact of strategic alliances and acquisitions;

         o        trends in the market for our services;

         o        trends in e-commerce;

         o        whether we can continue and manage growth;

         o        changes in the trend toward outsourcing;

         o        increased competition;

         o        our ability to generate more revenue and achieve sustainable
                  profitability;

         o        effects of changes in profit margins;

         o        the customer concentration of our business;

         o        the unknown effects of possible system failures and rapid
                  changes in technology;

         o        trends in government regulation both foreign and domestic;

         o        foreign currency risks and other risks of operating in foreign
                  countries;

         o        potential litigation involving our e-commerce intellectual
                  property rights;

         o        our dependency on key personnel;




                                       14

<PAGE>



         o        our ability to raise additional capital;

         o        our relationship with and our guarantees of the working
                  capital indebtedness of our affiliate, Supplies Distributors;

         o        the continued listing of our common stock on the NASDAQ; and

         o        our relationship with and separation from Daisytek, our former
                  parent corporation.


         We have based these statements on our current expectations about future
events. Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee you that these
expectations actually will be achieved. In addition, some forward-looking
statements are based upon assumptions as to future events that may not prove to
be accurate. Therefore, actual outcomes and results may differ materially from
what is expected or forecasted in such forward-looking statements. We undertake
no obligation to update publicly any forward-looking statement for any reason,
even if new information becomes available or other events occur in the future.
There may be additional risks that we do not currently view as material or that
are not presently known.

OVERVIEW

         We are an international outsourcing provider of integrated business
process outsourcing solutions to major brand name companies seeking to maximize
their supply chain efficiencies and to extend their e-commerce initiatives. We
derive our revenues from a broad range of services, including professional
consulting, technology collaboration, order management, managed web hosting and
web development, customer relationship management, financial services including
billing and collection services, options kitting and assembly services,
information management and international fulfillment and distribution services.
We offer our services as an integrated solution, which enables our clients to
outsource their complete infrastructure needs to a single source and to focus on
their core competencies. Our distribution services are conducted at our
warehouses and include real-time inventory management and customized picking,
packing and shipping of our clients' customer orders. We currently provide
infrastructure and distribution solutions to clients that operate in a range of
vertical markets, including technology manufacturing, computer products,
printers, cosmetics, fragile goods, high security collectibles, pharmaceuticals,
housewares, apparel, telecommunications and consumer electronics, among others.

         Our service fee revenue is typically charged on a percent of shipped
revenue basis or on a per-transaction basis, such as a per-minute basis for
Web-enabled customer contact center services and a per-item basis for
fulfillment services. Additional fees are billed for other services. We price
our services based on a variety of factors, including the depth and complexity
of the services provided, the amount of capital expenditures or systems
customization required, the length of contract and other factors. Our billings
for reimbursements of out-of-pocket expenses, such as travel and certain
third-party vendor expenses such as shipping and handling costs and
telecommunication charges are included in gross service fee revenue. The related
reimbursable costs are reflected as pass-through charges and reduce total gross
service fee revenue in computing net service fee revenue.

         Our expenses are comprised of (i) cost of service fee revenue, which
consists primarily of compensation and related expenses for our Web-enabled
customer contact center services, international fulfillment and distribution
services and professional consulting services, and other fixed and variable
expenses directly related to providing services under the terms of fee based
contracts, including certain occupancy and information technology costs and
depreciation and amortization expenses; and (ii) selling, general and
administrative expenses, which consist primarily of compensation and related
expenses for sales and marketing staff, executive, management and administrative
personnel and other overhead costs, including certain occupancy and information
technology costs and depreciation and amortization expenses.





                                       15

<PAGE>

RESULTS OF OPERATIONS

         The following table sets forth certain historical financial information
from our unaudited interim condensed consolidated statements of operations
expressed as a percent of revenue.


<Table>
<Caption>

                                                             Three Months Ended
                                                                   March 31,
                                                       -------------------------------
                                                          2002                2001
                                                       ------------       ------------
<S>                                                    <C>                <C>   
Gross service fee revenue ........................             94.1%             108.6%
Gross service fee revenue, affiliate .............             18.8                 --
                                                       ------------       ------------
Total gross service fee revenue ..................            112.9              108.6
Pass-through charges .............................            (12,9)             (12.0)
                                                       ------------       ------------
Net service fee revenue ..........................            100.0               96.6
Other net revenue ................................               --                3.4
                                                       ------------       ------------
       Total net revenues ........................            100.0              100.0
Cost of net service fee revenue (as % of  net
    service fee revenue) .........................             62.9               67.5
Cost of other net revenue (as % of total net
    revenue) .....................................               --                0.5
                                                       ------------       ------------
       Total costs of net revenues ...............             62.9               65.7
                                                       ------------       ------------
Gross profit .....................................             37.1               34.3
Selling, general and administrative expenses .....             85.3               55.0
                                                       ------------       ------------
Loss from operations .............................            (48.2)             (20.7)
Equity in earnings of affiliate ..................              6.2                 --
Interest income ..................................              3.2                1.8
                                                       ------------       ------------
Loss before income taxes .........................            (38.8)             (18.9)
Income tax benefit ...............................               --                0.1
                                                       ------------       ------------
Net loss .........................................            (38.8)%            (18.8)%
                                                       ============       ============
</Table>



RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED MARCH 31, 2002 AND 2001

         Net Service Fee Revenue (including service fee revenue, affiliate).
Service fee revenue was $8.3 million for the three months ended March 31, 2002
as compared to $11.2 million for the three months ended March 31, 2001, a
decrease of $2.9 million or 26.0%. The decrease in service fee revenue over the
prior period was due to the impact of certain contract terminations, primarily
the Daisytek contract, as well as certain other lower margin producing
contracts. This reduction was partially offset by the impact of new service
contract relationships and growth in existing client relationships. In
conjunction with the $10.9 million sale of a distribution facility to Daisytek
in May 2001 (discussed below in "Liquidity and Capital Resources"), we
terminated certain of our transaction management services agreements entered
into between us and Daisytek and a Daisytek subsidiary. Concurrently with the
closing of the facility sale, we entered into a six-month transition services
agreement to provide Daisytek with certain transitional and information
technology services. The net impact of the changes in our services provided to
Daisytek was a reduction in revenue of $7.4 million for the three months ended
March 31, 2002. The reduction in net service fee revenue attributed to the
termination of lower margin producing contracts was $0.7 million for the three
months ended March 31, 2002. For the three months ended March 31, 2002, the
increase in net service fee revenue attributed to new client contract
relationships was $3.3 million. For the three months ended March 31, 2002, the
increase in net service fee revenue from existing contracts was $1.9 million. We
believe our revenue was negatively impacted by the recent slowdown in the U.S.
economy and the seasonality of our largest client, which has a low first quarter
of business activity followed by a higher second quarter.

         Pursuant to the terms of the Company's transaction management services
agreement with Supplies Distributors, the Company earned service fees, which are
reported as service fee revenue, affiliate in the accompanying unaudited interim
condensed consolidated financial statements, of approximately $1.6 million for
the three months ended March 31, 2002. For the three months ended March 31,
2001, prior to becoming a related party, service fees earned by PFSweb from BSD
(the Daisytek subsidiary and predecessor to Supplies Distributors), associated
with the same business activities, were $2.3 million, net of $0.2 million of
pass-through charges.



                                       16

<PAGE>

         Other Revenue. Other revenue of $0.4 million for the three months ended
March 31, 2001 represents the fees charged to a client in conjunction with the
early termination of its contract.

         Cost of Net Service Fee Revenue. Cost of net service fee revenue was
$5.2 million for the three months ended March 31, 2002, as compared to $7.6
million during the three months ended March 31, 2001, a decrease of $2.4 million
or 31.1%. The resulting service fee gross profit was $3.1, million or 37.1% of
net service fee revenue, during the three months ended March 31, 2002 as
compared to $3.6 million, or 32.5% of net service fee revenue for the three
months ended March 31, 2001. The reduction in gross profit is primarily a result
of the decrease in service fee revenue. However, our gross profit as a percent
of net service fee revenue increased in the current period because the gross
profit percentage earned on certain contracts terminated during or since the
three months ended March 31, 2001 was lower than the contracts we continue to
operate.

         Cost of Other Net Revenue. Cost of other revenue for the three months
ended March 31, 2001 reflect approximately $0.1 million of certain uncollectible
amounts receivable from, and accrued expenses applicable to, clients who
terminated contracts.

         Selling, General and Administrative Expenses. SG&A expenses were $7.1
million for the three months ended March 31, 2002, or 85.3% of revenues, as
compared to $6.4 million, or 55.0% of revenues, for the three months ended March
31, 2001. SG&A expenses increased over the prior year due to approximately $0.8
million of technology infrastructure costs that were incurred in both periods
but that were recorded as a component of cost of service fee revenue in the
prior year. These technology costs were principally dedicated to the activities
that generated service fee revenue under the transaction management services
contract with Daisytek, which was terminated in November 2001. Increases in
sales and marketing costs in the current period were offset by a net decrease in
personnel compensation costs due to head count reductions.

         Equity in Earnings of Affiliate. For the three months ended March 31,
2002, we recorded $0.5 million of equity in earnings of affiliate which
represents our allocation of Holdings earnings.

         Interest Income. Interest income was $0.3 million for the three months
ended March 31, 2002 as compared to interest income of $0.2 million for the
three months ended March 31, 2001. The increase in interest income is
attributable to the impact of higher interest rates charged on our subordinated
loan to Supplies Distributors partially offset by lower interest rates earned by
our cash and cash equivalents and higher interest expense due to an increase in
our long-term debt and capital lease obligations.

         Income Taxes. For the three months ended March 31, 2002, we did not
record any tax benefits associated with our net loss since we have not
established a sufficient history of earnings for our operations. A valuation
allowance has been provided for our net deferred tax assets as of March 31,
2002, which are primarily related to our net operating loss carryforwards. For
the three months ended March 31, 2001, we recorded an income tax benefit
associated with the true-up of previously estimated tax attributes for fiscal
2000, which were due to us since our prior results were included in Daisytek's
consolidated tax return, offset by an income tax provision associated with a
pre-tax income from our Canadian operations. We did not record an income tax
benefit for our European pre-tax losses in the current or prior period.

SUPPLIES DISTRIBUTORS

         Business Supplies Distributors (a Daisytek subsidiary -- "BSD"),
Daisytek and IBM and us were parties to various Master Distributor Agreements
which had various scheduled expiration dates through September 2001. Under these
agreements, BSD and its affiliates Business Supplies Distributors Europe B.V.
("BSD Europe"), a Daisytek subsidiary, and BSD (Canada) Inc., a Daisytek
subsidiary ("BSD Canada" and together with BSD and BSD Europe, the "BSD
Companies"), acted as master distributors of various IBM products, Daisytek
provided financing and credit support to the BSD Companies and we provided
transaction management and fulfillment services to the BSD Companies. On June 8,
2001, Daisytek notified us and IBM that it did not intend to renew these
agreements upon their scheduled expiration dates. In July 2001, we and Inventory
Financing Partners, LLC ("IFP") formed Business Supplies Distributors Holdings,



                                       17

<PAGE>

LLC ("Holdings"), and Holdings formed a wholly-owned subsidiary, Supplies
Distributors ("Supplies Distributors"). Concurrently, Supplies Distributors
formed its wholly-owned subsidiaries Supplies Distributors of Canada, Inc.
("SDC") and Supplies Distributors S.A. ("SDSA"), a Belgium corporation. Supplies
Distributors, SDSA, IBM and PFSweb entered into new Master Distributor
Agreements to replace the prior agreements. Under the new agreements, Supplies
Distributors and SDSA act as master distributors of various IBM products and,
pursuant to a transaction management services agreement between us and Supplies
Distributors, we provide transaction management and fulfillment services to
Supplies Distributors. We made an equity investment of $0.75 million in Holdings
for a 49% voting interest, and IFP made an equity investment of $0.25 million in
Holdings for a 51% voting interest. Certain officers and a director of PFSweb
own a 49% non-voting interest in IFP. In addition to its equity investment in
Holdings, we have also provided Supplies Distributors with a subordinated loan,
which, as of March 31, 2002, had an outstanding balance of $11.8 million and
accrued interest at approximately 10%. The balance can be decreased to $6.5
million subject to Supplies Distributors' compliance with the covenants of its
senior loan facilities, as amended.

         On September 26, 2001, Supplies Distributors purchased all of the stock
of the BSD Companies for a purchase price of $923,000. In conjunction with the
purchase, BSD and Supplies Distributors were merged with Supplies Distributors
being the surviving corporation. Effective December 31, 2001, BSD Canada and SDC
were amalgamated, with SDC being the surviving corporation. On September 27,
2001, Supplies Distributors entered into short-term credit facilities with IBM
Credit Corporation ("IBM Credit") and IBM Belgium Financial Services S.A. ("IBM
Belgium") for the purpose of financing its distribution of IBM products. The
facilities, which at inception included $40 million for the U.S. operations and
20 million Euros (approximately $18 million) for the European operations, were
subsequently increased to $45 million and 27 million Euros (approximately $24
million), respectively, and extended through March 25, 2002. The Company has
provided a collateralized guaranty to secure the repayment of these credit
facilities.

         On March 29, 2002, Supplies Distributors entered into amended credit
facilities with IBM Credit and SDSA and BSD Europe entered into amended credit
facilities with IBM Belgium. The asset based credit facility with IBM Credit
provides financing for purchasing IBM inventory up to $32.5 million through June
30, 2002 and $27.5 million from July 1, 2002 through its expiration on March 29,
2003. The asset based credit facility with IBM Belgium provides up to 27 million
Euros (approximately $23.5 million) in financing for purchasing IBM inventory
through June 30, 2002 and 22 million Euros (approximately $19.1 million)
thereafter. The IBM Belgium facility remains in force until not less than 60
days written notice by any party, but no sooner than March 29, 2003. These
credit facilities contain cross default provisions, various restrictions upon
the ability of Holdings, Supplies Distributors, SDSA and BSD Europe 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 annualized revenue to working
capital, net profit after tax to revenue, and total liabilities to tangible net
worth, as defined, and are secured by all of the assets of Supplies
Distributors, as well as collateralized guaranties of Holdings and PFSweb.
Additionally, we are required to maintain a subordinated loan to Supplies
Distributors of no less than $6.5 million, and shareholders' equity of at least
$25.0 million. Furthermore, we are obligated to repay any over-advance made to
Supplies Distributors or SDSA under these facilities. An over-advance would
arise in the event borrowings exceeded the maximum amount available under the
eligible borrowing base, as defined.

         Concurrent with these amended agreements, 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 receivables in the U.S. and Canada. The Congress facility expires on
the earlier of three years or the date on which the parties to the IBM Master
Distributor Agreement shall no longer operate under the terms of such agreement
and/or IBM no longer supplies products pursuant to such agreement. Borrowings
under the Congress facility accrue interest at prime rate plus 0.25% or
Eurodollar rate plus 3.0% or on an adjusted basis, as defined. In Europe, SDSA
entered into a two year factoring agreement with Fortis Commercial Finance N.V.
("Fortis") to provide factoring for up to 10 million Euros (approximately $8.7
million) of eligible accounts receivables. Borrowings under this agreement
accrue interest at 8.5%, or on an adjusted basis as defined. These credit
facilities contain cross default provisions, various restrictions upon the
ability of Holdings, Supplies Distributors and SDSA 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 



                                       18

<PAGE>

and pay dividends, as well as financial covenants, such as minimum net worth, as
defined, and are secured by all of the assets of Supplies Distributors, as well
as collateralized guaranties of Holdings and PFSweb. Additionally, we are
required to maintain a subordinated loan of no less than $6.5 million to
Supplies Distributors and may not maintain restricted cash of more than $5.0
million as security for capital leases, and are restricted with regard to
transactions with related parties, indebtedness and changes to capital stock
ownership structure. Furthermore, we are obligated to repay any over-advance
made to Supplies Distributors under the Congress facility. An over-advance would
arise in the event borrowings exceeded the maximum amount available under the
eligible borrowing base, as defined. PFS has also provided a guarantee of the
obligations of Supplies Distributors and SDSA to IBM, excluding the trade
payables that are financed by IBM credit.

         Pursuant to the terms of our transaction management services agreement
with Supplies Distributors, we earned service fees, which are reported as gross
service fee revenue, affiliate in the accompanying unaudited interim condensed
consolidated financial statements, of approximately $1.6 million for the three
months ended March 31, 2002. For the three months ended March 31, 2001, prior to
becoming a related party, service fees earned by PFSweb from BSD, associated
with the Master Distributor Agreements, were $2.3 million, net of $0.2 million
of pass-through charges. As of March 31, 2002 and December 31, 2001 we had trade
accounts receivables of $1.1 million and $0.9 million due from Supplies
Distributors, respectively.

         We record our interest in Holdings' net income, which is allocated and
distributed to the owners pursuant to the terms of Holdings' operating
agreement, under the modified equity method, which results in us recording our
allocated earnings of Holdings or 100% of Holdings' losses. Pursuant to
Holdings' operating agreement, Holdings allocates its earning and distributes
its cash flow, as defined, in the following order of priority: first, to IFP
until it has received a one-time amount equal to its capital contribution of
$0.25 million; second, to IFP until it has received an amount equal to a 35%
cumulative annual return on its capital contribution; third, to PFSweb until it
has received a one-time amount equal to its capital contribution of $0.75
million; fourth, to PFSweb until it has received an amount equal to a 35%
cumulative annual return on its capital contribution; and fifth, to PFSweb and
IFP, pro rata, in accordance with their respective capital accounts.
Notwithstanding the foregoing, no distribution may be made if, after giving
effect thereto, the net worth of Holdings shall be less than $1.0 million. Under
terms of the credit agreements described above, Holdings is currently limited to
annual cash dividends of $0.6 million. We recorded $0.5 million of equity in the
earnings of Holdings for the three months ended March 31, 2002.

         Summarized financial information for Holdings as of March 31, 2002 is
as follows (in thousands):


<Table>

<S>                                                       <C>         
Cash and cash equivalents ...........................     $      2,583
Accounts receivable, net of allowance for
   doubtful accounts of $673 ........................           31,264
Inventories, net ....................................           41,971
Prepaid expenses and other current assets ...........            4,388
Other assets, net (including restricted cash of
  $608) .............................................              851
                                                          ------------
        Total assets ................................     $     81,057
                                                          ============

Trade accounts payable ..............................     $     11,639
Accrued expenses ....................................            2,213
Debt (guaranteed by PFSweb) .........................           53,779
Other debt ..........................................              169
Note payable to affiliate ...........................           11,800
Members' capital:
    Capital contributions ...........................            1,000
    Retained earnings ...............................              820
    Unrealized loss on investment ...................             (207)
    Accumulated other comprehensive loss ............             (156)
                                                          ------------
       Total members' capital .......................            1,457
                                                          ------------
       Total liabilities and members' capital .......     $     81,057
                                                          ============
</Table>




                                       19

<PAGE>

         Summarized operating information for Holdings for the three months
ended March 31, 2002 is as follows (in thousands):


<Table>

<S>                                                    <C>         
Net revenues .....................................     $     53,103
Cost of goods sold ...............................           50,080
                                                       ------------
Gross profit .....................................            3,023
Selling, general and administrative expenses .....            1,875
                                                       ------------
Income from operations ...........................            1,148
Interest expense .................................              433
                                                       ------------
Income before income taxes .......................              715
Income tax expense ...............................              296
                                                       ------------
Net income .......................................     $        419
                                                       ============
</Table>


LIQUIDITY AND CAPITAL RESOURCES

         On May 25, 2001, we completed the sale of certain assets to Daisytek
pursuant to an Asset Purchase Agreement (the "Purchase Agreement"). Under the
Purchase Agreement, we transferred and sold to Daisytek certain distribution and
fulfillment assets, including equipment and fixtures, that were previously used
by us to provide outsourcing services to Daisytek. Daisytek also assumed certain
related equipment leases and a warehouse lease and hired certain employees who
were associated with the warehouse facility. The consideration payable under the
Purchase Agreement of $11.0 million included a termination by us and Daisytek of
certain transaction management services agreements previously entered into
between us and Daisytek and a Daisytek subsidiary. Proceeds of $10.9 million
were received for assets with an approximately $4.5 million net book value with
a resulting $5.8 million gain, after closing costs of $0.6 million. Concurrently
with the closing of the asset sale, we and Daisytek also entered into a
six-month transition services agreement, which terminated in November 2001,
under which we provided Daisytek with certain transitional and information
technology services.

         Net cash used in operating activities was $0.8 million for the three
months ended March 31, 2002, and primarily resulted from cash used to fund
operating losses and the net impact of an increase in accounts receivables of
$1.0 million, partially offset by an increase in accounts payable and accrued
expenses of $1.6 million and a decrease in prepaid expenses and other current
assets of $0.7 million. The increase in accounts receivable is primarily due to
a $1.2 million increase in credit card charges owed to us as part of the billing
and collection services we perform on behalf of our clients. Once collected,
these funds are remitted to our clients. The increase in accounts payable and
accrued expenses is primarily due to a $2.0 million increase in credit card
charges collected or to be collected that are owed to our clients and were
remitted in April. The decrease in other current assets primarily relates to the
collection of VAT receivables associated with our European operations. Net cash
provided by operating activities was $5.4 million for the three months ended
March 31, 2001, and primarily resulted from an increase in accounts payable and
accrued expenses of $2.5 million, decreases in accounts receivable of $1.6
million and prepaid expenses and other current assets of $1.5 million, partially
offset by cash used to fund operating losses.

         Net cash used by investing activities for the three months ended March
31, 2002 totaled $0.6 million, representing capital expenditures of $0.3
million, a $0.2 million increase in our restricted cash balance to $2.9 million,
which is to secure our long-term debt and lease financing, and an increase of
$0.1 million in our subordinated loan to Supplies Distributors, which totaled
$11.8 million at March 31, 2002. Cash used in investing activities for capital
expenditures totaled $1.2 million for the three months ended March 31, 2001.
Capital expenditures have historically consisted primarily of additions to
upgrade our management information systems, including our Internet-based
customer tools, other methods of e-commerce and general expansion of our
facilities, both domestic and foreign. We expect to incur capital expenditures
in order to support new contracts and anticipated future growth opportunities.
We anticipate that our total investment in upgrades and additions to facilities
and information technology services for the upcoming twelve months will be
approximately $2 to $4 million, although additional capital expenditures may be
necessary to support the infrastructure requirements of new clients. A portion
of these expenditures may be financed through operating or capital leases.



                                       20

<PAGE>

         Net cash used in financing activities was approximately $33,000 for the
three months ended March 31, 2002, representing the proceeds from debt and from
the issuance of common stock pursuant to our employee stock purchase plan offset
by payments on our long-term debt and capital lease obligations. Net cash used
in financing activities was approximately $10,000 for the three months ended
March 31, 2001, representing payments on our capital lease obligations offset by
the proceeds from issuance of common stock.

         During the three months ended March 31, 2002, our working capital
decreased to $8.3 million from $11.2 million at December 31, 2001, primarily due
to the funding of operations and capital expenditures. In order to obtain
additional financing in the future, in addition to our current cash position, we
plan to evaluate various financing alternatives including utilizing capital or
operating leases, establishing our own credit facility, entering into asset
based lending or factoring programs, or transferring a portion of our
subordinated loan balances, due from Supplies Distributors, to third-parties. In
conjunction with these alternatives we may be required to provide certain
letters of credit to secure these arrangements. No assurances can be given that
we will be successful in obtaining any additional financing or the terms
thereof. Additionally, in conjunction with Supplies Distributors finalizing its
long-term financing objectives, we anticipate that up to several million of
PFSweb's subordinated debt will be repaid in the June quarter. We currently
believe that our cash position and funds generated from operations will satisfy
our presently known operating cash needs, our working capital and capital
expenditure requirements and our lease obligations, and additional subordinated
loans to Supplies Distributors, if necessary, for at least the next twelve
months.

         The following is a schedule of our total contractual cash and other
obligations, which is comprised of operating leases, other obligations, which
represents $0.2 million of contingent obligations that we believe will be paid
in the next twelve months, long-term debt and capital leases, including interest
(in millions):



<Table>
<Caption>
                                                                                                    TOTAL
                                                              OPERATING        LONG-TERM         CONTRACTUAL
                                                               LEASES           DEBT AND          CASH AND
                                                              AND OTHER         CAPITAL             OTHER
                                                             OBLIGATIONS         LEASES          OBLIGATIONS
                                                            -------------     -------------     -------------
<S>                                                         <C>               <C>               <C>          
Twelve Months Ended March 31,
  2003 ................................................     $       6,254     $       1,367     $       7,621
  2004 ................................................             5,948             1,359             7,307
  2005 ................................................             3,371               950             4,321
  2006 ................................................             2,787               786             3,573
  2007 ................................................             2,606               531             3,137
  Thereafter ..........................................             1,904               496             2,400
                                                            -------------     -------------     -------------
          Total contractual cash obligations ..........     $      22,870     $       5,489     $      28,359
                                                            =============     =============     =============
</Table>


         In support of certain debt instruments and leases, as of March 31,
2002, we had $2.9 million of cash restricted in the form of letters of credit.
The letters of credit expire at various dates through July 2004. As described
above, we have provided collateralized guarantees to secure the repayment of
Supplies Distributors' credit facilities. As of March 31, 2002, the outstanding
balance of the credit facilities guaranteed by PFSweb was approximately $54.0
million. These guarantees expire concurrently with the expiration of the
underlying credit agreements. To the extent Supplies Distributors or its
subsidiaries fails to comply with its covenants, including its monthly financial
covenant requirements, and the lenders accelerate the repayment of the credit
facility obligations, Supplies Distributors or its subsidiaries would be
required to repay all amounts outstanding thereunder. In such event, we would be
obligated to perform under those guarantees and repay, to the extent Supplies
Distributors or its subsidiaries was unable to, Supplies Distributors' or its
subsidiaries credit facility obligations. Additionally, if we were unable to
maintain our required level of stockholders' equity of $25.0 million or if we
were to violate any of the restricted transactions pursuant to the IBM Credit,
IBM Belgium, or Congress agreements, we could also be obligated to perform under
these guarantees. Any requirement to perform under our guarantees would have a
material adverse impact on our financial condition and results of operations and
no assurance can be given that we will have the financial ability to repay all
of such guaranteed obligations. In addition, in the event Supplies Distributors
or its subsidiaries is, or would be, in default of its obligations under its
credit facilities, we are 



                                       21

<PAGE>

restricted from receiving any payment of our subordinated loans and such event
would also have a material adverse impact upon our financial condition and
results of operations. Furthermore, we are obligated to repay any over-advance
made to Supplies Distributors or its subsidiaries by its lenders. An
over-advance would arise in the event borrowings exceeded the maximum amount
available under the eligible borrowing base, as defined. No liabilities have
been recorded in the accompanying financial statements for these guarantee
obligations. The Company does not have any other material commercial
commitments.

         Currently, we believe that we are operating with and incurring costs
applicable to excess capacity in both our North American and European
operations. We believe that as we add revenue, we will be able to cover our
existing infrastructure and public company costs and reach profitability. We
currently estimate that the net service fee revenue needed to leverage our
infrastructure and reach profitability is approximately $14 million per quarter.
No assurance can be given that we can achieve such operating levels, or that, if
achieved, we will be profitable in any particular fiscal period.

         In the future, we may attempt to acquire other businesses to expand our
services or capabilities in connection with our efforts to grow our business. We
currently have no binding agreements to acquire any such businesses. Should we
be successful in acquiring other businesses, we may require additional
financing. Acquisitions involve certain risks and uncertainties. Therefore, we
can give no assurance with respect to whether we will be successful in
identifying businesses to acquire, whether we will be able to obtain financing
to complete an acquisition, or whether we will be successful in operating the
acquired business.

SEASONALITY

         The seasonality of our business is dependent upon the seasonality of
our clients' business and their sale of their products. Accordingly, our
management must rely upon the projections of our clients in assessing quarterly
variability. We believe that with our current client mix, our business activity
will be at it lowest in the quarter ended March 31 and at its highest in the
quarter ended June 30.

         We believe that results of operations for a quarterly period may not be
indicative of the results for any other quarter or for the full year.

INFLATION

         Management believes that inflation has not had a material effect on our
operations.


IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         On January 1, 2002, the Company adopted the provisions of EITF D-103
"Income Characterization of Reimbursements Received for `Out-of -Pocket'
Expenses Incurred." For the periods presented above, our billings for
reimbursements of `out-of-pocket' expenses, such as travel, and certain
third-party vendor expenses such as shipping and handling costs and
telecommunication charges are included in gross service fee revenue. The related
reimbursable costs are reflected as pass-through charges and reduce total gross
service fee revenue in computing net service fee revenue.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses the accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Company is currently assessing the impact
on the consolidated financial statements and will adopt the provisions of this
standard by the first quarter of 2003.

CRITICAL ACCOUNTING POLICIES

         A description of critical accounting policies is included in footnote 2
to the accompanying unaudited interim condensed consolidated financial
statements. For other significant accounting policies, see Note 2 to the
consolidated financial statements in the Company's December 31, 2001 Annual
Report on Form 10-K.




                                       22

<PAGE>




I
TEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         We are exposed to various market risks including interest rates on its
financial instruments and foreign exchange rates.

Interest Rate Risk

         The carrying value of our financial instruments, which include cash and
cash equivalents, accounts receivable, note receivable, accounts payable and
capital lease obligations, approximate their fair values based on short terms to
maturity or current market prices and rates. The impact of a 100 basis point
change in interest rates would not have a material impact on the Company's
results of operations or financial position.

Foreign Exchange Risk

         Currently, our foreign currency exchange rate risk is primarily limited
to Canadian dollars and the Euro. In the future, we believe our foreign currency
exchange risk will also include other currencies applicable to certain of our
international operations. We may, from time to time, employ a small number of
derivative financial instruments to manage our exposure to fluctuations in
foreign currency rate risk. To hedge our net investment and long-term
intercompany payable balance we might enter into forward currency exchange
contracts. We do not hold or issue derivative financial instruments for trading
purposes or enter into foreign currency transactions for speculative purposes.

         Effective April 1, 2001, in response to a change to the Euro for
transaction activity previously conducted in the U.S. dollar by the Company's
largest European client, the Company adopted the Euro as its functional currency
for its European operations.





                                       23

<PAGE>



PART II.      OTHER INFORMATION


ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

              None.


ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

    a)   Exhibits:

          EXHIBIT
            NO.             DESCRIPTION OF EXHIBITS
          -------           -----------------------

           3.1*             

                            Amended and Restated Certificate of Incorporation

           3.2*             Amended and Restated Bylaws

          10.1**            Agreement for Inventory Financing by and among
                            Business Supplies Distributors Holdings, LLC,
                            Supplies Distributors, Inc., Priority Fulfillment
                            Services, Inc., PFSweb, Inc., Inventory Financing
                            Partners, LLC and IBM Credit Corporation

          10.2**            Amended and Restated Collateralized Guaranty by and
                            between Priority Fulfillment Services, Inc. and IBM
                            Credit Corporation

          10.3**            Amended and Restated Guaranty to IBM Credit
                            Corporation by PFSweb, Inc.

          10.4**            Amended and Restated Notes Payable Subordination
                            Agreement by and between Priority Fulfillment
                            Services, Inc., Supplies Distributors, Inc. and IBM
                            Credit Corporation

          10.5**            Amended and Restated Platinum Plan Agreement (with
                            Invoice Discounting) by and among Supplies
                            Distributors, S.A., Business Supplies Distributors
                            Europe B.V., PFSweb B.V., and IBM Belgium Financial
                            Services S.A.

          10.6**            Amended and Restated Collateralized Guaranty between
                            Priority Fulfillment Services, Inc. and IBM Belgium
                            Financial Services S.A.

          10.7**            Amended and Restated Guaranty to IBM Belgium
                            Financial Services S.A. by PFSweb, Inc.

          10.8**            Subordinated Demand Note by and between Supplies
                            Distributors, Inc. and Priority Fulfillment
                            Services, Inc.

          10.9**            Notes Payable Subordination Agreement between
                            Congress Financial Corporation (Southwest) and
                            Priority Fulfillment Services, Inc.

          10.10**           Guarantee in favor of Congress Financial Corporation
                            (Southwest) by Business Supplies Distributors
                            Holdings, LLC, Priority Fulfillment Services, Inc.
                            and PFSweb, Inc.

          10.11**           General Security Agreement by Priority Fulfillment
                            Services, Inc. in favor of Congress Financial
                            Corporation (Southwest).

          10.12**           Inducement Letter by Priority Fulfillment Services,
                            Inc. and PFSweb, Inc. in favor of Congress Financial
                            Corporation (Southwest).

----------

*        Incorporated by reference from PFSweb, Inc. Registration Statement on
         Form S-1 (Commission File No. 333-87657).

**       Filed herewith.

b)       Reports on Form 8-K:

         None.






                                       24

<PAGE>





                                   SIGNATURES



         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: May 15, 2002




                                                PFSweb, Inc.

                                                By:  /s/ Thomas J. Madden
                                                     ---------------------------
                                                     Thomas J. Madden
                                                     Chief Financial Officer,
                                                     Chief Accounting Officer,
                                                     Executive Vice President





                                       25

<PAGE>







                                INDEX TO EXHIBITS




<Table>
<Caption>

       EXHIBIT
        NUMBER                    DESCRIPTION 
       -------                    ----------- 

<S>                         <C> 
           3.1*             Amended and Restated Certificate of Incorporation

           3.2*             Amended and Restated Bylaws

          10.1**            Agreement for Inventory Financing by and among
                            Business Supplies Distributors Holdings, LLC,
                            Supplies Distributors, Inc., Priority Fulfillment
                            Services, Inc., PFSweb, Inc., Inventory Financing
                            Partners, LLC and IBM Credit Corporation

          10.2**            Amended and Restated Collateralized Guaranty by and
                            between Priority Fulfillment Services, Inc. and IBM
                            Credit Corporation

          10.3**            Amended and Restated Guaranty to IBM Credit
                            Corporation by PFSweb, Inc.

          10.4**            Amended and Restated Notes Payable Subordination
                            Agreement by and between Priority Fulfillment
                            Services, Inc., Supplies Distributors, Inc. and IBM
                            Credit Corporation

          10.5**            Amended and Restated Platinum Plan Agreement (with
                            Invoice Discounting) by and among Supplies
                            Distributors, S.A., Business Supplies Distributors
                            Europe B.V., PFSweb B.V., and IBM Belgium Financial
                            Services S.A.

          10.6**            Amended and Restated Collateralized Guaranty between
                            Priority Fulfillment Services, Inc. and IBM Belgium
                            Financial Services S.A.

          10.7**            Amended and Restated Guaranty to IBM Belgium
                            Financial Services S.A. by PFSweb, Inc.

          10.8**            Subordinated Demand Note by and between Supplies
                            Distributors, Inc. and Priority Fulfillment
                            Services, Inc.

          10.9**            Notes Payable Subordination Agreement between
                            Congress Financial Corporation (Southwest) and
                            Priority Fulfillment Services, Inc.

          10.10**           Guarantee in favor of Congress Financial Corporation
                            (Southwest) by Business Supplies Distributors
                            Holdings, LLC, Priority Fulfillment Services, Inc.
                            and PFSweb, Inc.

          10.11**           General Security Agreement by Priority Fulfillment
                            Services, Inc. in favor of Congress Financial
                            Corporation (Southwest).

          10.12**           Inducement Letter by Priority Fulfillment Services,
                            Inc. and PFSweb, Inc. in favor of Congress Financial
                            Corporation (Southwest).
</Table>


----------

*        Incorporated by reference from PFSweb, Inc. Registration Statement on
         Form S-1 (Commission File No. 333-87657).

**       Filed herewith.




<PAGE>
                                                                   EXHIBIT 10.1


                  BUSINESS SUPPLIES DISTRIBUTORS HOLDINGS, LLC
                           SUPPLIES DISTRIBUTORS, INC.
                       PRIORITY FULFILLMENT SERVICES, INC.
                                  PFSWEB, INC.
                        INVENTORY FINANCING PARTNERS, LLC

                        AGREEMENT FOR INVENTORY FINANCING

                                TABLE OF CONTENTS


<Table>
<S>    <C>                                                                  <C>
SECTION 1. DEFINITIONS; ATTACHMENTS                                          4
1.1.   Special Definitions                                                   4
1.2.   Other Defined Terms                                                  12
1.3.   Attachments                                                          12
SECTION 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES                        12
2.1.   Credit Line                                                          12
2.2.   Product Advances                                                     12
2.3.   PRO Advances                                                         13
2.4.   Finance and Other Charges                                            14
2.5.   Borrower Account Statements                                          14
2.6.   Shortfall                                                            15
2.7.   Application of Payments                                              15
2.8.   Prepayment and Reborrowing By Borrower                               15
SECTION 3. CREDIT LINE ADDITIONAL PROVISIONS                                15
3.1.   Authorization to File; Power of Attorney                             15
SECTION 4. SECURITY -- COLLATERAL                                           16
4.1.   Grant                                                                16
4.2.   Further Assurances                                                   17
SECTION 5. CONDITIONS PRECEDENT                                             17
5.1.   Conditions Precedent to the Effectiveness of this Agreement          17
5.2.   Conditions Precedent to Each Advance                                 19
SECTION 6. REPRESENTATIONS AND WARRANTIES                                   19
6.1.   Organization and Qualifications                                      19
6.2.   Rights in Collateral; Priority of Liens                              19
6.3.   No Conflicts                                                         20
6.4.   Enforceability                                                       20
6.5.   Locations of Offices, Records and Inventory                          20
6.6.   Fictitious Business Names                                            20
6.7.   Organization                                                         20
6.8.   No Judgments
 or Litigation                                           20
6.9.   No Defaults                                                          20
6.10.  Labor Matters                                                        21
6.11.  Compliance with Law                                                  21
6.12.  ERISA                                                                21
6.13.  Compliance with Environmental Laws                                   21
6.14.  Intellectual Property                                                21
6.15.  Licenses and Permits                                                 22
6.16.  Investment Company                                                   22
6.17.  Taxes and Tax Returns                                                22
6.18.  Status of Collateral                                                 22
6.19.  Affiliate/Subsidiary Transactions                                    22
6.20.  Accuracy and Completeness of Information                             22
6.21.  Recording Taxes                                                      22
6.22.  Indebtedness                                                         23
6.23   Not Consumer Transaction                                             23
</Table>



<PAGE>


<Table>
<S>    <C>                                                                  <C>
SECTION 7. AFFIRMATIVE COVENANTS                                            23
7.1.   Financial and Other Information                                      23
7.2.   Location of Borrower and Collateral                                  25
7.3.   Changes in Loan Parties                                              25
7.4.   Legal Entity Existence                                               26
7.5.   ERISA                                                                26
7.6.   Environmental Matters                                                26
7.7.   Collateral Books and Records/Collateral Audit                        26
7.8.   Insurance; Casualty Loss                                             27
7.9.   Taxes                                                                27
7.10.  Compliance With Laws                                                 28
7.11.  Fiscal Year                                                          28
7.12.  Intellectual Property                                                28
7.13.  Maintenance of Property                                              28
7.14.  Collateral                                                           28
7.15.  Additional Collateral, etc.                                          29
7.16.  Subsidiaries.                                                        29
7.17.  Financial Covenants; Additional Covenants.                           29
7.18.  Transaction Documents.                                               29
SECTION 8. NEGATIVE COVENANTS                                               29
8.1.   Liens                                                                29
8.2.   Disposition of Assets                                                29
8.3    Transaction Documents                                                29
8.4.   Changes in Borrower and Guarantor                                    30
8.5.   Guaranties                                                           30
8.6.   Restricted Payments                                                  30
8.7.   Investments                                                          30
8.8.   Affiliate/Subsidiary Transactions                                    31
8.9.   ERISA                                                                31
8.10.  Additional Negative Pledges                                          31
8.11.  Storage of Collateral                                                31
8.12.  Use of Proceeds                                                      31
8.13.  Indebtedness                                                         31
8.14.  Loans                                                                32
8.15   Title to Collateral.                                                 32
SECTION 9. DEFAULT                                                          32
9.1.   Event of Default                                                     32
9.2.   Acceleration.                                                        34
9.3.   Remedies                                                             34
9.4.   Waiver                                                               35
SECTION 10. MISCELLANEOUS                                                   35
10.1.  Term; Termination                                                    35
10.2.  Indemnification                                                      35
10.3.  Additional Obligations                                               35
10.4.  LIMITATION OF LIABILITY                                              35
10.5.  Alteration/Waiver                                                    36
10.6.  Severability                                                         36
10.7.  One Loan                                                             36
10.8.  Additional Collateral                                                36
10.9.  No Merger or Novations                                               36
10.10. Paragraph Titles                                                     37
10.11. Binding Effect; Assignment                                           37
10.12. Obligations                                                          37
10.13. Notices; E-Business Acknowledgment                                   37
10.14. Counterparts                                                         39
10.15. Attachment A Modifications.                                          39
10.16. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW             39
10.17. JURY TRIAL WAIVER.                                                   39
</Table>



                                       ii

<PAGE>
                                  AGREEMENT FOR
                               INVENTORY FINANCING

     This AGREEMENT FOR INVENTORY FINANCING (as amended, supplemented or
otherwise modified from time to time, this "Agreement") is hereby made this 29th
day of March, 2002 and amends and restates the Inventory and Working Capital
Financing Agreement dated September 27, 2001 by and among IBM CREDIT
CORPORATION, a Delaware corporation with a place of business at 4000 Executive
Parkway, Third Floor, San Ramon, CA 94583 ("IBM Credit"), BUSINESS SUPPLIES
DISTRIBUTORS HOLDINGS, LLC, a limited liability company duly organized under the
laws of the state of Delaware, with its principal place of business at 500 North
Central Expressway, Plano, TX 75074 ("Holdings"), INVENTORY FINANCING PARTNERS,
LLC, a limited liability company duly organized under the laws of the state of
Delaware, with its principal place of business at 500 North Central Expressway,
Plano, TX 75074 ("IFP"), SUPPLIES DISTRIBUTORS, INC. (formerly known as BSD
Acquisition Corp.), a corporation duly organized under the laws of the state of
Delaware, with its principal place of business at 500 North Central Expressway,
Plano, TX 75074 ("Borrower"), PRIORITY FULFILLMENT SERVICES, INC., a corporation
duly organized under the laws of the state of Delaware, with its principal place
of business at 500 North Central Expressway, Plano, TX 75074 ("PFS") and PFSWEB,
INC., a corporation duly organized under the laws of the state of Delaware, with
its principal place of business at 500 North Central Expressway, Plano, TX 75074
("PFSweb") (Borrower, Holdings, IFP, PFS, PFSweb, and any other entity that
executes this Agreement or any Other Document, including without limitation all
Guarantors, are each individually referred to as a "Loan Party" and collectively
referred to as "Loan Parties").

                                   WITNESSETH

     WHEREAS, IBM Credit and Loan Parties are parties to that certain Inventory
and Working Capital Existing Financing Agreement dated September 27, 2001 (as
heretofore amended, the "Existing Financing Agreement");

     WHEREAS, Loan Parties desire to enter into a financing facility with
Congress Financial Corporation (Southwest), with a place of business located at
1201 Main Street, Dallas, Texas 75202 ("Congress") for the purpose of Congress
financing the Borrower's working capital requirements and IBM Credit is willing
to amend and restate the Existing Financing Agreement to discontinue financing
the working capital needs of Borrower on the terms and conditions set forth
herein;

     WHEREAS, in the course of Borrower's operations, Borrower intends to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer hardware and software products,
including printer supplies, media supplies, print head bands and other
printing-related products, manufactured or distributed by or bearing any
trademark or trade name of such Authorized Suppliers (the "Products") (as of the
date hereof the Authorized Suppliers are as set forth on Attachment E hereto);

     WHEREAS, pursuant to an IBM Transaction Management Services Agreement dated
as of August 14, 2001 as amended between Borrower and PFS ("PFS Agreement") and
the Master Distributor Agreement dated August 14, 2001 as amended by and among
International Business Machines Corporation ("IBM"), PFS, and Borrower, ("IBM
Agreement"), PFS provides various transaction management services to Borrower
including, but not limited to, distribution of Products to Borrower's customers,
preparation and delivery of invoices for the sale of Products to Borrower's
customers, and performance of certain accounting functions related thereto
including the collection of accounts receivable;

     WHEREAS, Borrower has requested that IBM Credit finance its purchase of
Products from such Authorized Suppliers and IBM Credit is willing to provide
such financing to Borrower subject to the terms and conditions set forth in this
Agreement.


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<PAGE>

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

                       SECTION 1. DEFINITIONS; ATTACHMENTS

1.1. SPECIAL DEFINITIONS. The following terms shall have the following
respective meanings in this Agreement (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

"Advance": any loan or other extension of credit by (or committed to be made by)
IBM Credit to or on behalf of Borrower pursuant to this Agreement including,
without limitation, (i) Product Advances and (ii) PRO Advances.

"Affiliate": with respect to any Person, any other Person (the "Affiliate")
meeting one of the following: (i) at least 10% of the Affiliate's equity is
owned, directly or indirectly, by such Person; (ii) at least 10% of such
Person's equity is owned, directly or indirectly, by the Affiliate; or (iii) at
least 10% of such Person's equity and at least 10% of the Affiliate's equity is
owned, directly or indirectly, by the same Person or Persons. All of Loan
Parties' officers, directors, joint venturers, and partners shall also be deemed
to be Affiliates of such Loan Party for purposes of this Agreement.

"Agreement": as defined in the caption.

"Amended and Restated Holdings Stock Pledge Agreement": the amended and restated
stock pledge agreement dated March 29, 2002 between Holdings and IBM Credit.

"Amended and Restated Notes Payable Subordination Agreement": as defined in
Section 5.1 hereof;

"Auditors": a nationally recognized firm of independent certified public
accountants selected by Borrower, Holdings or PFSweb (as applicable) and
satisfactory to IBM Credit.

"Authorized Officer": shall mean the chief executive officer, president, or vice
president or such other officer or authorized member of any Loan Party who is
authorized to execute on such Loan Party's behalf any certification and
documents or give notices and other communications in connection with this
Agreement and the transactions contemplated hereunder.

"Authorized Suppliers": as defined in the recitals of this Agreement.

"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.

"Average Daily Balance": for each Advance for a given period of time, the sum of
the unpaid principal of such Advance as of each day during such period of time,
divided by the number of days in such period of time.

"Borrower": as defined in the caption.

"Borrowing Base": as defined in Attachment A.

"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.

"BSD Europe": means Supplies Distributors, S.A and Business Supplies
Distributors Europe BV.

"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.


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<PAGE>

"Code": the Internal Revenue Code of 1986, as amended or any successor statute.

"Collateral": as defined in Section 4.1.

"Collateral Management Report": a report to be delivered by Borrower to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer of Borrower or other Authorized Officer,
substantially in the form and detail of Attachment F hereto, detailing and
certifying, among other items: a summary of Borrower's inventory on hand
financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice
price to Borrower and the total of the line item values for all inventory listed
on the report, the amounts and aging of Borrower's accounts payable as of a
specified date, all of Borrower's IBM Credit borrowing activity during a
specified period and the total amount of Borrower's Borrowing Base as well as
Borrower's Outstanding PRO Advances, Outstanding Product Advances, Available
Credit and any Shortfall Amount as of a specified date.

"Commercial Tort Claim": a claim arising in tort with respect to which (a) the
claimant is an organization or (b) the claimant is an individual and the claim
(i) arose in the course of the claimant's business or profession and (ii) does
not include damages arising out of personal injury to or the death of the
individual.

"Common Due Date": (1) the fifth day of a calendar month if the Product
Financing Period or PRO Advance Term, whichever is applicable, expires on the
first through tenth of such calendar month; (2) the fifteenth day of a calendar
month if the Product Financing Period PRO Advance Term expires on the eleventh
through twentieth of such calendar month; and (3) the twenty-fifth day of a
calendar month if the Product Financing Period PRO Advance Term expires on the
twenty-first through the last day of such calendar month.

"Compliance Certificate": a certificate substantially in the form of Attachment
C.

"Congress": as defined in the second "WHEREAS" clause hereof.

"Congress Credit Agreement": shall mean the Loan and Security Agreement dated
March 29, 2002 between Borrower and Congress (as amended, modified, supplemented
and any replacement thereof).

"Congress Intercreditor Agreement": shall mean that certain Intercreditor
Agreement dated March 29, 2002 by and among Congress, IBM Credit and IBM Belgium
Financial Services N.V. and acknowledged by Borrower, Holdings, PFS and PFSweb
(as amended, modified, supplemented and any replacement thereof).

"Copyrights": (i) all copyrights arising under the laws of the United States,
any other country or any political subdivision thereof, whether registered or
unregistered and whether published or unpublished (including, without
limitation, those listed in Attachment B), all registrations and recordings
thereof, and all applications in connection therewith, including, without
limitation, all registrations, recordings and applications in the United States
Copyright Office, and (ii) the right to obtain all renewals thereof.

"Credit Line": as defined in Section 2.1.

"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.

"Delinquency Fee Rate": as defined on Attachment A.

"Deposit Account": a demand, time, savings, passbook, or similar account
maintained with a bank.

"Domestic Subsidiary": a Subsidiary of any Loan Party that is incorporated in
the United States or in the District of Columbia.


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<PAGE>

"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.

"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.

"Equity Interests": with respect to any Person, means (a) all shares, interests,
participations, rights or other equivalents (however designated, whether voting
or non-voting) of or interests in corporate or capital stock, including, without
limitation, shares of preferred or preference stock of such Person, (b) all
partnership interests (whether general or limited) of such Person, (c) all
membership interests or limited liability company interests in such Person, (d)
all other equity or ownership interests in such Person of any other type and (e)
all warrants, rights or options to purchase any of the foregoing.

"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any
successor statutes.

"Event of Default": as defined in Section 9.1.

"Financial Statements": the consolidated and consolidating balance sheets
(including, without limitation, securities such as stocks and investment bonds),
statements of operations, statements of cash flows and statements of changes in
shareholder's equity for the period specified, prepared in accordance with GAAP
and consistent with prior practices.

"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to Borrower, provided that such Person executes an intercreditor
agreement or a subordination agreement with IBM Credit each in form and
substance satisfactory to IBM Credit.

"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Borrower a financing charge. IBM Credit shall
calculate the Borrower's Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. The Borrower understands that IBM Credit may not offer, may change or
may cease to offer a Free Financing Period for the Borrower's purchases of
Products.

"Free Financing Period Exclusion Fee": as defined in Attachment A.

"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.

"General Intangibles": all "general intangibles" as such term is defined in the
U.C.C and, in any event, including, without limitation, with respect to the
Borrower, (a) all tax refunds, claims for tax refunds, and tax credits, (b) all
permits, licenses, approvals, authorizations, consents, variances and
certifications of any Governmental Authority, (c) all claims, tort claims and
causes of action, (d) all property, casualty, liability, and other insurance of
any kind or character, and all insurance claims and insurance refund claims, (e)
all payment intangibles, (f) all lists, books, records, recorded knowledge,
ledgers, files (whether in printed form or stored electronically), designs,
blueprints, data, specifications, engineering reports, manuals, computer
records, computer programs and computer software (including source codes), (g)
all Internet domain names and web sites and related licenses and agreements, and
(h) all contracts, agreements, instruments and indentures in any form, and
portions thereof, to which Borrower is a party or under which Borrower has any
right, title or interest or to which Borrower or any property of Borrower is
subject, as the same may from time to time be amended, supplemented or otherwise
modified, including, without limitation, (i) all rights of Borrower to receive
moneys due and to become due to it thereunder or in connection therewith, (ii)
all rights of Borrower to damages arising thereunder and (iii) all rights of
Borrower to perform and to exercise all remedies thereunder.


                                    6 of 40

<PAGE>

"Governmental Authority": any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.

"Guarantor": means Holdings, PFSweb, PFS and any other party that delivers a
guaranty in favor of IBM Credit.

"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.

"Holdings": as defined in the caption and a direct subsidiary of PFS and IFP.

"IBM Credit": as defined in the caption.

"IBM Belgium": means IBM Belgium Financial Services N.V.

"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases (including obligations under any leases such Person may enter
into, now or in the future, with IBM Credit), (3) all obligations of such Person
in respect of letters of credit, banker's acceptances or similar obligations
issued or created for the account of such Person, (4) liabilities arising under
any interest rate protection, future, option swap, cap or hedge agreement or
arrangement under which such Person is a party or beneficiary, (5) all
obligations under guaranties by such Person and (6) all liabilities secured by
any Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.

"Intellectual Property": as defined in Section 6.14.

"IFP": as defined in the caption and the owner of Fifty-one Percent (51%) of
Holdings.

"Investment": with respect to any Person (the "Investor"), (1) any investment by
the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.

"Investment Property": the collective reference to (i) all "investment property"
as such term is defined in the U.C.C. and (ii) whether or not constituting
"investment property" as so defined, all Pledged Interests.

"Letter of Credit Right": any right to payment or performance under a letter of
credit, whether or not the beneficiary has demanded or is at the time entitled
to demand payment or performance.

"LIBOR": as of the date of determination, the thirty-day average of the
one-month London Interbank Offered Rate as published by Bloomberg, L.P.
("Bloomberg") or any successor financial services for the previous calendar
month or, in the event such average is no longer published by Bloomberg or any
successor financial services, such other thirty (30) day average as IBM Credit
may use for determining "LIBOR" in its reasonable discretion. LIBOR is based on
a 360-day calendar year.

"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.

"Loan Parties": as defined in the caption.


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<PAGE>

"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of any Loan
Party, (2) on the aggregate value of the Collateral or the collateral granted to
IBM Credit by any other Loan Party under the Other Documents ("Other
Collateral") or the aggregate amount which IBM Credit would be likely to receive
(after giving consideration to reasonably likely delays in payment and
reasonable costs of enforcement) in the liquidation of such Collateral or Other
Collateral to recover the Obligations in full, or (3) on the rights and remedies
of IBM Credit under this Agreement or any Other Documents.

"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.

"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Loan Party, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind
and nature whatsoever now or hereafter arising, owing, due or payable from any
Loan Party to IBM Credit.

"Open Approvals": Product Advances committed to be made by IBM Credit under this
Agreement for which (1) Products have not been delivered by Authorized Supplier
to Borrower or (2) Products have been delivered to Borrower but for which IBM
Credit has not received the invoice associated with such Products from
Authorized Supplier.

"Other Charges": as set forth in Attachment A.

"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by any Loan Party and delivered to IBM Credit, pursuant to this
Agreement, including, without limitation, the amended and restated
collateralized guaranty executed by Holdings in favor of IBM Credit, the amended
and restated collateralized guaranty executed by PFS in favor of IBM Credit, the
amended and restated corporate guaranty executed by PFSweb in favor of IBM
Credit, the amended and restated notes payable subordination agreement between
IBM Credit and PFS, the Amended and Restated Holdings Stock Pledge Agreement,
the and all amendments, supplements and other modifications to the foregoing
from time to time.

"Outstanding Advances": at any time of determination, the sum of (1) the unpaid
principal amount of all Outstanding PRO Advances and Outstanding Product
Advances made by IBM Credit under this Agreement and (2) any finance charge,
fee, expense or other amount related to Advances charged to Borrower's account
with IBM Credit.

"Outstanding PRO Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all PRO Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
PRO Advances charged to Borrower's account with IBM Credit.

"Outstanding Product Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all Product Advances made (including Open Approvals
issued) by IBM Credit under this Agreement; and (2) any finance charge, fee,
expense or other amount related to Product Advances charged to Borrower's
account with IBM Credit.

"Patents": (i) all letters patent including, without limitation, all utility
patents, design patents, industrial designs and utility model registrations of
the United States or any other country, or any political subdivision thereof and
all reissues and extensions thereof, including, without limitation, those listed
on Attachment B, (ii) all applications for letters patent of the United States
or any other country and all divisions, continuations and continuations-in-part
thereof, including, without limitation, those listed on Attachment B, and (iii)
all rights to obtain any reissues, reexaminations, or extensions of the
foregoing.



                                    8 of 40

<PAGE>

"PBGC": as defined in Section 6.12.

"Permitted Indebtedness": shall mean any of the following:

(1) Indebtedness to IBM Credit;

(2) Indebtedness of BSD Europe (in the aggregate) to IBM Belgium and the
guaranty thereof by Holdings in a principal amount not to exceed the lesser of
(a) (i) $27,000,000 Euro for the period from the date hereof through and
including June 30, 2002 and (ii) $22,000,000 Euro for the period after June 30,
2002 and (b) the amount of the (in the aggregate) credit line between BSD Europe
and IBM Belgium;

(3) Indebtedness described in Section VIII of Attachment B;

(4) Indebtedness to any Floor Plan Lender;

(5) Purchase Money Indebtedness;

(6) guaranties in favor of IBM Credit;

(7) other Indebtedness consented to by IBM Credit in writing prior to incurring
such Indebtedness; 

(8) unsecured Indebtedness in respect of any interest rate protection, future,
option, swap, cap or hedge agreement or arrangement under which any Loan Party
is a party or beneficiary;

(9) any Indebtedness in favor of Congress under the Congress Credit Agreement,
as the same may be amended in accordance with the Congress Intercreditor
Agreement which Indebtedness is subject to the Congress Intercreditor Agreement;

(10) the guaranties executed by Holdings, PFS, and PFSweb in favor of Congress;

(11) Guaranty executed by Borrower in favor of Fortis Commercial Finance N.V.
guaranteeing the obligations of Supplies Distributors S.A. in an amount not to
exceed 200,000 Euro; and

(12) Guaranty executed by PFSweb in favor of IBM.

"Permitted Liens": shall mean any of the following:

(1) Liens which are the subject of an intercreditor agreement, in effect from
time to time between IBM Credit and any other secured creditor, including the
Liens in favor of Congress under the Congress Credit Agreement or created
pursuant thereto;

(2) Purchase Money Security Interests;

(3) Liens described in Section II of Attachment B;

(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;

(5) attachment or judgment Liens individually or in the aggregate not in excess
of $250,000 (exclusive of (A) any amounts that are duly bonded to the
satisfaction of IBM Credit or (B) any amount fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such judgment
in full);


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<PAGE>

(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Borrower;

(7) extensions and renewals of the foregoing Permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness which it secures, (B) such Liens
do not extend to any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and conditions no
more restrictive than the terms and conditions of the Liens being extended or
renewed;

(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of the Borrower's business;

(9) Liens for taxes, assessments or governmental charges not delinquent or being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;

(10) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;

(11) Liens arising pursuant to this Agreement; and

(12) other Liens in favor of any Affiliate of IBM Credit or otherwise consented
to by IBM Credit in writing prior to incurring such Lien.

"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.

"PFS": as defined in the caption and a wholly owned subsidiary of PFSweb.

"PFS Agreement": as defined in the Recitals of this Agreement.

"PFSweb": as defined in the caption.

"Plans": as defined in Section 6.12.

"Pledged Interests": all Equity Interests of or in any Person that may be issued
or granted to, or held or owned by , Borrower, including, without limitation,
the Equity Interests described on Attachment B hereto, and all certificates
representing such Equity Interests.

"Policies": all policies of insurance required to be maintained by Borrower
under this Agreement or any of the Other Documents.

"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., Chase Manhattan Bank and Bank of America
National Trust & Savings Association (or any other bank which IBM Credit uses in
its normal course of business of determining Prime Rate) as their prime or base
rate, as of the last Business Day of the calendar month immediately preceding
the date of determination, whether or not such announced rates are the actual
rates charged by such banking institutions to their most creditworthy borrowers.

"PRO Advance": a PRO Advance, with a PRO Advance Term, made by IBM Credit to
itself on behalf of Borrower to repay all or a portion of a Product Advance that
is due and payable.



                                    10 of 40

<PAGE>

"PRO Advance Date": the Business Day on which IBM Credit makes a PRO Advance
under this Agreement.

"PRO Advance Term": for each PRO Advance, a period, in increments of ten days as
specified by Borrower in the Request for PRO Advance with respect to such PRO
Advance, but in no event in excess of thirty days, commencing on the PRO Advance
Date for such PRO Advance.

"PRO Finance Charges": as defined on Attachment A.

"Proceeds": all "proceeds" as such term is defined in the UCC and, in any event,
shall include, without limitation, all dividends, distributions and payments on,
from or with respect to Investment Property.

"Products": as defined in the recitals of this Agreement.

"Product Advance": any advance of funds made or committed to be made by IBM
Credit for the account of Borrower to an Authorized Supplier in respect of an
invoice delivered or to be delivered by such Authorized Supplier to IBM Credit
describing Products purchased by Borrower, including without limitation Open
Approvals.

"Product Financing Charge": as defined on Attachment A.

"Product Financing Period": for each Product Advance, a period of days equal to
that set forth in Attachment A from time to time, commencing on the invoice date
of such Product Advance.

"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured or
distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in the Borrower's business not to exceed the lesser of (1)
the purchase price or acquisition cost of such asset and (2) the fair market
value of such asset.

"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.

"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.

"Sales Agreements": shall mean collectively (i) the Agreement dated as of August
20, 2001 between IBM and the Borrower for Sales Force Services and (ii) the
Sales Force Agreement dated as of August 20, 2001 between the Borrower and
Global Marketing Services.

"Shortfall Amount": as defined in Section 2.5.

"Shortfall Transaction Fee": as defined in Attachment A.

"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.

"Supplier Credits": as defined in Section 2.2.

"Supporting Obligation": any Letter of Credit Right or secondary obligation that
supports the payment or performance of an Account, chattel paper, a document, a
General Intangible, an instrument, Investment Property, or any other Collateral.



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<PAGE>

"Termination Date": shall mean the first anniversary of the date of this
Agreement or such other date as IBM Credit and Loan Parties may agree to in
writing from time to time.

"Trademarks": (i) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, service marks, logos, words, terms,
names, symbols and devices and all combinations thereof, and all other source or
business identifiers, and all goodwill of the business connected with the use
thereof as symbolized thereby, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation those listed on Attachment B, and (ii) the right to obtain all
renewals and extensions thereof.

"Transaction Documents": shall mean collectively the IBM Agreement, the PFS
Agreement and the Sales Agreements.

"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).

1.2. OTHER DEFINED TERMS. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
on the date of this Agreement (the "U.C.C.") shall have the meanings assigned to
them therein.

1.3. ATTACHMENTS. All attachments, exhibits, schedules and other addenda hereto,
including, without limitation, Attachment A and Attachment B, are specifically
incorporated herein and made a part of this Agreement.

              SECTION 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES

2.1. CREDIT LINE. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10 and (y) the date on which IBM Credit terminates the Credit Line
pursuant to Section 9, IBM Credit agrees to extend to the Borrower a credit line
("Credit Line") in the amount set forth in Attachment A pursuant to which IBM
Credit will make to the Borrower, from time to time, Advances in an aggregate
amount at any one time outstanding not to exceed the Maximum Advance Amount.
Notwithstanding any other term or provision of this Agreement, IBM Credit may,
at any time and from time to time, in its sole discretion (x) temporarily
increase the amount of the Credit Line above the amount set forth in Attachment
A and decrease the amount of the Credit Line back to the amount of the Credit
Line set forth in Attachment A, in each case upon written notice to the Borrower
and (y) make Advances pursuant to this Agreement upon the request of Borrower in
an aggregate amount at any one time outstanding in excess of the Credit Line.

2.2. PRODUCT ADVANCES. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Borrower's
purchase of Products from Authorized Suppliers upon at least a two-day prior
written notice from Authorized Suppliers. Borrower hereby authorizes and directs
IBM Credit to pay the proceeds of Product Advances directly to the applicable
Authorized Supplier in respect of invoices delivered to IBM Credit for such
Products by such Authorized Supplier and acknowledges that (i) any delivery to
IBM Credit of an invoice by an Authorized Supplier shall be deemed as a request
for a Product Advance by Borrower, and (ii) each such Product Advance
constitutes a loan by IBM Credit to Borrower pursuant to this Agreement as if
the Borrower received the proceeds of the Product Advance directly from IBM
Credit. IBM Credit may, upon written notice to Borrower, cease to include a
supplier as an Authorized Supplier.

     (B) No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Each Product
Advance shall be due and payable on the Common Due Date for such Product
Advance. Borrower may at its option, repay each Product Advance by requesting
IBM Credit to apply all or any part of the principal amount of an PRO Advance to


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the Outstanding Product Advances. Borrower's request for such application shall
be made in accordance with Section 2.3. When so requested and subject to the
terms and conditions of this Agreement, IBM Credit shall apply the amount so
requested to the amounts due in respect of the Outstanding Product Advances.
Nothing contained herein shall relieve Borrower of its obligation to repay
Product Advances when due. Each Product Advance shall accrue a finance charge on
the Average Daily Balance thereof from and including the first (1st) day
following the end of the Free Financing Period, if any, for such Product
Advance, or if no such Free Financing Period shall be in effect, from and
including the date of invoice for such Product Advance, in each case, to and
including the date such Product Advance shall become due and payable in
accordance with the terms of this Agreement, at a per annum rate equal to the
lesser of (a) the finance charge set forth in Attachment A to this Agreement as
the "Product Financing Charge" and (b) the highest rate from time to time
permitted by applicable law.

In addition, for any Product Advance with respect to which a Free Financing
Period shall not be in effect, Borrower shall pay a Free Financing Period
Exclusion Fee. Such fee shall be due and payable on the Common Due Date for such
Product Advance. If it is determined that amounts received from Borrower were in
excess of the highest rate permitted by law, then the amount representing such
excess shall be considered reductions to principal of Advances.

     (C) Borrower acknowledges that IBM Credit does not warrant the Products.
Borrower shall be obligated to pay IBM Credit in full even if the Products are
defective or fail to conform to the warranties extended by the Authorized
Supplier. The Obligations of Borrower shall not be affected by any dispute
Borrower may have with any manufacturer, distributor or Authorized Supplier.
Borrower will not assert any claim or defense which it may have against any
manufacturer, distributor or Authorized Supplier against IBM Credit.

     (D) Borrower hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to Borrower ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding Advances.
Any Supplier Credits collected by IBM Credit shall in no way reduce Borrower's
debt to IBM Credit in respect of the Outstanding Advances until such Supplier
Credits are applied by IBM Credit; provided, however, that in the event any such
Supplier Credits must be returned or disgorged or are otherwise unavailable for
application, then Borrower's Obligations will be reinstated as of the date that
IBM Credit actually returns or repays such Supplier Credits. Upon the Borrower's
request, and provided there is no Event of Default or dispute with respect to
such Supplier Credits, IBM Credit shall remit the Supplier Credits directly to
Borrower within five (5) Business Days of IBM Credit's receipt of such Supplier
Credits.

     (E) IBM Credit may apply any payments and Supplier Credits received by IBM
Credit to reduce finance charges first and then to principal amounts of Advances
owed by Borrower. IBM Credit may apply principal payments to the oldest
(earliest) invoices (and related Product Advances) first, but, in any case, all
principal payments will be applied in respect of the Outstanding Product
Advances made for Products which have been sold, lost, stolen, destroyed,
damaged or otherwise disposed of prior to any other application thereof.

     (F) Borrower will indemnify and hold IBM Credit harmless from and against
any claims or demands asserted by any Person relating to or arising from the
Products for any reason whatsoever, including, without limitation, the condition
of the Products, any misrepresentation made about the Products by any
representative of Borrower, or any act or failure to act by Borrower except to
the extent such claims or demands are directly attributable to IBM Credit's
gross negligence or willful misconduct. Nothing contained in the foregoing shall
impair any rights or claims which the Borrower may have against any
manufacturer, distributor or Authorized Supplier.

2.3. PRO ADVANCES. (A) Whenever Borrower shall desire IBM Credit to provide a
PRO Advance, Borrower shall deliver to IBM Credit written notice of Borrower's
request for such an Advance ("Request for PRO Advance"). The Request for PRO
Advance shall specify (i) the amount of the PRO Advance the PRO Advance Term for
such PRO Advance; and (ii) for each PRO Advance, the month, day and year of the
Common Due Date, as set forth in Borrower's applicable billing statement from
IBM Credit, for the 


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Product Advance to which the PRO Advance is to be applied. Borrower may deliver
a Request for PRO Advance via facsimile. Any Request for PRO Advance delivered
to IBM Credit shall be irrevocable. Notwithstanding any other provision of this
Agreement, Borrower shall not (i) request more than one PRO Advance in respect
of any Product Advance; and (ii) request a PRO Advance for any Common Due Date
on which Borrower will take a discount offered by IBM Credit for invoice amounts
paid in full within fifteen days of the invoice date under IBM Credit's High
Turnover Option ("HTO") Program. All PRO Advances shall be applied to
Outstanding Product Advances.

     (B) Each PRO Advance shall accrue a finance charge on the Average Daily
Balance thereof, from and including the date of each PRO Advance to and
including the date such PRO Advance is due and payable in accordance with the
terms of this Agreement, at a per annum rate equal to the lesser of (a) the
finance charge set forth in Attachment A to this Agreement under the caption
"PRO Finance Charge", and (b) the highest rate from time to time permitted by
applicable law. If it is determined that amounts received from the Borrower were
in excess of such highest rate, then the amount representing such excess shall
be considered reductions to principal of Advances.

     (C) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each PRO Advance shall be due and payable on the applicable
Common Due Date.

2.4. FINANCE AND OTHER CHARGES. (A) Finance charges for an Advance for a
calendar month shall be equal to (i) one twelfth (1/12) of the applicable
Product Financing Charge or PRO Finance Charge multiplied by (ii) the Average
Daily Balance of such Advance for the period when such finance charge accrues
during such calendar month multiplied by (iii) the actual number of days during
such calendar month when such finance charge accrues divided by (iv) thirty
(30).

Late charges pursuant to subsection (D) of this Section 2.4 for an Advance for a
calendar month shall be equal to (i) one twelfth (1/12) of the Delinquency Fee
Rate multiplied by (ii) the Average Daily Balance of such Advance for the period
when such Advance is past due during such calendar month multiplied by (iii) the
actual number of days during such calendar month when such Advance is past due
divided by (iv) thirty (30).

     (B) The Borrower hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Borrower also agrees to pay IBM Credit
additional charges for any returned items of payment received by IBM Credit. The
Borrower hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.

     (C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, are payable monthly
on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the Borrower's
Outstanding Advances.

     (D) If any amount owed under this Agreement, including, without limitation,
any Advance, is not paid when due (whether at maturity, by acceleration or
otherwise), the unpaid amount thereof will bear a late charge from and including
the day after such Advance was due and payable to and including the date IBM
Credit receives payment thereof, at a per annum rate equal to the lesser of (a)
the amount set forth in Attachment A to this Agreement as the "Delinquency Fee
Rate" and (b) the highest rate from time to time permitted by applicable law. In
addition, if any Shortfall Amount shall not be paid when due pursuant to Section
2.5 hereof, Borrower shall pay IBM Credit a Shortfall Transaction Fee. If it is
determined that amounts received from Borrower were in excess of such highest
rate, then the amount representing such excess shall be considered reductions to
principal of Advances.

2.5. BORROWER ACCOUNT STATEMENTS. IBM Credit will send statements of each
transaction hereunder as well as monthly billing statements to Borrower with
respect to Advances and other charges due on Borrower's account with IBM Credit.
Each statement of transaction and monthly billing statement shall be deemed,
absent manifest error, to be correct and shall constitute an account stated with
respect to each transaction or amount described therein unless within seven (7)
Business Days after such statement of 


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transaction or billing statement is received by Borrower, Borrower provides IBM
Credit written notice objecting that such amount or transaction is incorrectly
described therein and specifying the error(s), if any, contained therein. IBM
Credit may at any time adjust such statements of transaction or billing
statements to comply with applicable law and this Agreement.

2.6. SHORTFALL. If, on any date, the Outstanding Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Borrower
shall on such date prepay the Outstanding Advances in an amount equal to such
Shortfall Amount. If Borrower does not pay the Shortfall Amount on such date,
PFS agrees unconditionally and irrevocably to pay the Shortfall Amount upon
written demand by IBM Credit.

2.7. APPLICATION OF PAYMENTS. Borrower hereby agrees that all checks and other
instruments delivered to IBM Credit on account of Borrower's Obligations shall
constitute conditional payment until such items are actually collected by IBM
Credit. Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by IBM Credit on account of the
Borrower's Obligations. Borrower agrees that IBM Credit shall have the
continuing exclusive right to apply and reapply any and all such payments to
Borrower's Obligations in such manner as IBM Credit may deem advisable
notwithstanding any entry by IBM Credit upon any of its books and records.

2.8. PREPAYMENT AND REBORROWING BY BORROWER. (A) Borrower may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply payments made to it (whether by the Borrower or
otherwise) to pay finance charges and other amounts owing under this Agreement
first and then to the principal amount owed by the Borrower.

     (B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be
reborrowed by Borrower in accordance with the provisions of this Agreement.

                  SECTION 3. CREDIT LINE ADDITIONAL PROVISIONS

3.1. AUTHORIZATION TO FILE; POWER OF ATTORNEY. The Borrower authorizes IBM
Credit to file with any filing office such financing statements, amendments,
addenda and other records showing IBM Credit as secured party, and Borrower as
debtor and identifying IBM Credit's security interest in the Collateral that IBM
Credit deems necessary to perfect and maintain perfected the security interest
of IBM Credit in the Collateral. Each of the Borrower and PFS (as applicable)
hereby irrevocably appoints IBM Credit, with full power of substitution, as its
true and lawful attorney-in-fact with full power, in good faith and in
compliance with commercially reasonable standards, in the discretion of IBM
Credit, to:

     (A) sign the name of Borrower on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Documents;

upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:

     (B) endorse the name of Borrower or PFS upon any of the items of payment of
proceeds of collateral and apply the same to the Obligations;

     (C) sign the name of Borrower or PFS on any document or instrument that IBM
Credit shall deem necessary or appropriate to enforce any and all remedies it
may have under this Agreement, at law or otherwise;

     (D) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse any Loan Party's name on any check, draft, instrument or
other item of payment of the proceeds of the Policies with respect to the
Collateral; and


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     (E) take control in any manner of any term of payment or proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to any such Loan Party to such address as IBM Credit may
designate.

The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any Loan Party's Obligations other than Borrower's
payment Obligations to the extent IBM Credit has received monies.

                        SECTION 4. SECURITY -- COLLATERAL

4.1. GRANT. To secure Borrower's full and punctual payment and performance of
the Obligations (including obligations under any leases Borrower may enter into,
now or in the future, with IBM Credit) when due (whether at the stated maturity,
by acceleration or otherwise), Borrower hereby grants IBM Credit a security
interest in all of Borrower's right, title and interest in and to the following
property, whether now owned or hereafter acquired or existing and wherever
located:

     (A) all goods, including, all inventory and equipment, and all parts
thereof, attachments, accessories and accessions thereto, products thereof and
documents therefor;

     (B) all accounts, contract rights (including without limitation, the
Transaction Documents), chattel paper, instruments, negotiable documents,
promissory notes, obligations of any kind owing to Borrower, whether or not
arising out of or in connection with the sale or lease of goods or the rendering
of services and all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing;

     (C) all General Intangibles;

     (D) all Deposit Accounts;

     (E) all Commercial Tort Claims;

     (F) all Intellectual Property;

     (G) all Investment Property;

     (H) all Letter of Credit Rights;

     (I) all Supporting Obligations;

     (J) all other obligations of any kind owing to Borrower, whether or not
arising out of or in connection with the sale or lease of goods or the rendering
of services;

     (K) all rights now or hereafter existing in and to all mortgages, security
agreements, leases, the Transaction Documents or other contracts securing or
otherwise relating to any of the foregoing; and

     (L) all substitutions and replacements for all of the foregoing, and all
products or proceeds of all of the foregoing and, to the extent not otherwise
included, all payments under insurance or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing.

All of the above assets shall be collectively defined herein as the
"Collateral". Borrower covenants and agrees with IBM Credit that: (a) the
security constituted to by this Agreement is in addition to any other security
from time to time held by IBM Credit and (b) the security hereby created is a
continuing security interest and will cover and secure the payment of all
Obligations both present and future of Borrower to IBM Credit and (c) any
transfer of assets between any Loan Party is subject to IBM Credit's continuing


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security interest in the Collateral of the transferor as well as IBM Credit's
continuing security interest in the Collateral of the transferee.

PFS consents to the Borrower assigning all of its right, title, and interest in
and to the Transaction Documents as Collateral to secure the payment of all
Obligations of Borrower to IBM Credit, including, without limitation, the right
to monies and funds of Borrower collected or otherwise held by PFS in connection
with the PFS Agreement and to collect and hold all such monies and funds in
trust and on behalf of Borrower and IBM Credit.

4.2. FURTHER ASSURANCES. Borrower and PFS shall, from time to time upon the
request of IBM Credit, execute and deliver to IBM Credit, or cause to be
executed and delivered, at such time or times as IBM Credit may request such
other and further documents, certificates and instruments that IBM Credit may
deem necessary to perfect and maintain perfected IBM Credit's security interests
in the Collateral and the Other Collateral and in order to fully consummate all
of the transactions contemplated under this Agreement and the Other Documents.
PFS and Borrower shall make appropriate entries on its books and records
disclosing IBM Credit's security interests in the Collateral.

                         SECTION 5. CONDITIONS PRECEDENT

5.1. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:

     (A) this Agreement executed and delivered by each Loan Party and IBM
Credit;

     (B) a favorable opinion of counsel for Loan Parties in substantially the
form of Attachment H;

     (C) a certificate of the secretary or an assistant secretary of each Loan
Party , substantially in the form and substance of Attachment I hereto,
certifying that, among other items, (i) each Loan Party is duly organized under
the laws of the State of its organization or incorporation and has its principal
place of business as stated therein, (ii) each Loan Party is registered to
conduct business in specified states and localities, (iii) true and complete
copies of the articles of incorporation, or corresponding organizational
documents, as applicable, and by-laws of each Loan Party are delivered
therewith, together with all amendments and addenda thereto as in effect on the
date thereof, (iv) the resolution as stated in the certificate is a true,
accurate and compared copy of the resolution adopted by each Loan Party's Board
of Directors or, if a Loan Party is a limited liability company, by such Loan
Party's authorized members, authorizing the execution, delivery and performance
of this Agreement and each Other Document executed and delivered in connection
herewith, and (v) the names and true signatures of the officers of each Loan
Party authorized to sign this Agreement and the Other Documents;

     (D) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of each Loan Party in
the jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;

     (E) Congress Intercreditor Agreement, in form and substance satisfactory to
IBM Credit, executed by IBM Credit, IBM Belgium Financial Services N.V., and
Congress and acknowledged by Borrower, Holdings, PFS and PFSweb;

     (F) the preliminary consolidating Financial Statements of Borrower,
Holdings and PFSweb for fiscal year ended December 31, 2001 in form and
substance satisfactory to IBM Credit in its sole discretion;

     (G) copies of all approvals and consents from any Person, in each case in
form and substance satisfactory to IBM Credit, which are required to enable each
Loan Party to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the 


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Other Documents, and (b) the legality, validity, binding effect or
enforceability of this Agreement and each of the Other Documents;

     (H) amended and restated notes payable subordination executed by PFS in
favor of IBM Credit in form and substance satisfactory to IBM Credit in its sole
discretion ("Amended and Restated Notes Payable Subordination Agreement");

     (I) Subordinated Demand Note in the amount of Six Million Five Hundred
Thousand Dollars ($6,500,000) executed by Borrower and endorsed payable to IBM
Credit;

     (J) amended and restated collateralized guaranties executed by each of
Holdings and PFS in favor of IBM Credit in form and substance satisfactory to
IBM Credit in its sole discretion;

     (K) amended and restated corporate guaranty executed by PFSweb in favor of
IBM Credit in form and substance satisfactory to IBM Credit in its sole
discretion.

     (L) the amended and restated pledge by Holdings of one hundred percent
(100%) of the stock of its Domestic Subsidiaries and sixty-five percent (65%) of
the stock of each of its Subsidiaries incorporated outside the USA (the
"Holdings Stock Pledge Agreement") along with undated stock powers and stock
certificates with respect to the shares of stock pledged in form and substance
satisfactory to IBM Credit in its sole discretion;

     (M) acknowledgment executed by PFS pursuant to Section 9-313(C) of the
U.C.C. which acknowledgment shall be in form and substance satisfactory to IBM
Credit in its sole discretion;

     (N) the Notice of Assignment as defined in Section 9.3(A)(ii) executed by
PFS in form and substance satisfactory to IBM Credit in its sole discretion;

     (O) the Collateral Assignment of Intercompany Note and Liens dated the date
hereof between the Borrower and IBM Credit;

     (P) IBM's consent to the Borrower assigning all of its right, title, and
interest in and to the IBM Agreement as Collateral to secure the payment of all
Obligations of Borrower to IBM Credit;

     (Q) absence of any material adverse change in any Loan Party's or any
Guarantor's condition (financial or otherwise), its operations, assets, income
and/or prospects;

     (R) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by each of Holdings, PFS and the Borrower as necessary to
perfect the security interests contemplated by Section 4.1 of this Agreement and
contemplated under the amended and restated collateralized guaranties referred
to above;

     (S) control or other agreements for all other deposit accounts,
letter-of-credit rights, electronic chattel paper, inventory in the possession
of third parties;

     (T) all securities and commodities accounts containing investment property
described in Attachment B;

     (U) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B;

     (V) a certified copy of the organization chart of Loan Parties;


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5.2. CONDITIONS PRECEDENT TO EACH ADVANCE. No Advance will be required to be
made or renewed by IBM Credit under this Agreement unless, on and as of the date
of such Advance, the following statements shall be true to the satisfaction of
IBM Credit:

     (A) The representations and warranties contained in this Agreement or in
any Other Document are true and correct in all material respects on and as of
the date of such Advance as though made on and as of such date (except for any
representations or warranties which are made as of any specified date which
shall be true and correct in all material respects as of such specified date);

     (B) No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result in or would
constitute a Default;

     (C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect; and

     (D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists.

Except as Borrower has otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.2 (A)) for
an Advance hereunder and the receipt (or deemed receipt) by the Borrower of the
proceeds of any Advance hereunder shall be deemed to be a representation and
warranty by Borrower and each Loan Party that, as of and on the date of such
Advance, the statements set forth in (A) through (D) above are true statements.
No such disclosures by Borrower to IBM Credit shall in any manner be deemed to
satisfy the conditions precedent to each Advance that are set forth in this
Section 5.2.

                    SECTION 6. REPRESENTATIONS AND WARRANTIES

To induce IBM Credit to enter into this Agreement, each Loan Party as to itself
and its Subsidiaries represents and warrants to IBM Credit as follows:

6.1. ORGANIZATION AND QUALIFICATIONS. The first paragraph of this Agreement
states the exact name of the Borrower, PFS, Holdings and each other Guarantor
who executes a collateralized guaranty as set forth in its charter or other
organizational record. In addition, Borrower's, PFS's and Holding's (and each
other Guarantor who executes a collateralized guaranty) organizational
identification number assigned by its State of organization is as set forth in
Attachment B. Each Loan Party and each of their Subsidiaries (i) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has the power and authority to own its
properties and assets and to transact the businesses in which it presently is
engaged and (iii) is duly qualified and is authorized to do business and is in
good standing in each jurisdiction where it presently is engaged in business and
is required to be so qualified. PFSweb directly owns one hundred percent (100%)
of the capital stock of PFS. Each of PFS and IFP directly owns Forty-nine
Percent (49%) and Fifty-one Percent (51%), respectively, of the membership
interests of Holdings and Holdings directly owns One Hundred Percent (100%) of
the capital stock of Borrower.

6.2. RIGHTS IN COLLATERAL; PRIORITY OF LIENS. Each of the Borrower and
Guarantors (other than PFSweb) owns the property granted by it respectively as
Collateral and Other Collateral to IBM Credit, free and clear of any and all
Liens in favor of third parties except for the Liens otherwise permitted
pursuant to Section 8.1. The Liens granted by each such Loan Party pursuant to
this Agreement, the Guaranties and the Other Documents in the Collateral and
Other Collateral constitute the valid and enforceable first, prior and perfected
Liens on the Collateral and Other Collateral, except to the extent any Liens
that are prior to IBM Credit's Liens are (i) the subject of an intercreditor
agreement (including the Congress Intercreditor Agreement) or (ii) Purchase
Money Security Interests in product of a brand that is not financed by IBM
Credit.


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6.3. NO CONFLICTS. The execution, delivery and performance by each Loan Party of
this Agreement and each of the Other Documents (i) are within its power under
its organizational documents; (ii) are duly authorized by all necessary
corporate or limited liability company actions; (iii) are not in contravention
in any respect of any Requirement of Law or any indenture, contract, lease,
agreement, instrument or other commitment to which it is a party or by which it
or any of its properties are bound; (iv) do not require the consent,
registration or approval of any Governmental Authority or any other Person
(except such as have been duly obtained, made or given, and are in full force
and effect); and (v) will not, except as contemplated herein, result in the
imposition of any Liens upon any of its properties.

6.4. ENFORCEABILITY. This Agreement and all of the other documents executed and
delivered by the each Loan Party in connection herewith are the legal, valid and
binding obligations of each Loan Party, and are enforceable in accordance with
their terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto. In addition, the accounts payable arising
from the sale of product from IBM to Borrower are legal, valid, binding
obligations of Borrower.

6.5. LOCATIONS OF OFFICES, RECORDS AND INVENTORY. The addresses of the principal
place of business and chief executive office of each Loan Party (other than IFP)
is as set forth on Attachment B or on any written notice provided by any Loan
Party to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and
records of each Loan Party (other than IFP), and all of its chattel paper (other
than the chattel paper delivered to IBM Credit pursuant to Section 7.14(E)), are
maintained exclusively at the locations set forth on Attachment B or on any
written notice provided by any Loan Party to IBM Credit pursuant to Section
7.7(C) of this Agreement .

There is no jurisdiction in which the Borrower or any Guarantor (other than
PFSweb) has any assets, equipment or inventory (except for vehicles and
inventory in transit for processing) other than those jurisdictions identified
on Attachment B or on any notice provided by any Loan Party to IBM Credit
pursuant to Section 7.7(C) of this Agreement. Attachment B, as amended from time
to time by any notice provided by any Loan Party to IBM Credit in accordance
with Section 7.7(C) of this Agreement, also contains a complete list of the
legal names and addresses of each warehouse at which Borrower's inventory is
stored. None of the receipts received by any Loan Party in respect of the
Collateral from any warehouseman states that the goods covered thereby are to be
delivered to bearer or to the order of a named person or to a named person and
such named person's assigns. PFS maintains the inventory and equipment included
within the Collateral segregated from other property of PFS and from property of
other clients of PFS and clearly identified as property of Borrower. PFS has not
issued any warehouse receipts or other documents covering the Collateral.

6.6. FICTITIOUS BUSINESS NAMES. Neither the Borrower nor any Guarantor (other
than PFSweb) has used any company or fictitious name during the five (5) years
preceding the date of this Agreement, other than those listed on Attachment B.
Supplies Distributors was a registered D.B.A. of the Borrower when the
Borrower's legal name was BSD Acquisition Corp.

6.7. ORGANIZATION. If any Borrower or Guarantor or any of their Subsidiaries is
a corporation, all of the outstanding capital stock of such Loan Party or any of
its Subsidiaries has been validly issued, is fully paid and nonassessable.

6.8. NO JUDGMENTS OR LITIGATION. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against the Borrower or any
Guarantor nor is there now pending or, to the best of such Loan Party's
knowledge after due inquiry, threatened, any litigation, contested claim,
investigation, arbitration, or governmental proceeding by or against any such
Loan Party.

6.9. NO DEFAULTS. None of the Borrower or any Guarantor is in default under any
term of any indenture, contract, lease, agreement, instrument or other
commitment to which it is a party or by which it, or any of its properties are
bound, which default could reasonably be expected to have a Material Adverse
Effect. None of the Borrower or any Guarantor has any knowledge of any dispute
regarding any such


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indenture, contract, lease, agreement, instrument or other commitment. No
Default or Event of Default has occurred and is continuing.

6.10. LABOR MATTERS. Except as set forth on any notice provided by the Borrower
or any Guarantor to IBM Credit pursuant to Section 7.1(L) of this Agreement, no
such Loan Party is a party to any labor dispute. There are no strikes or
walkouts or labor controversies pending or threatened against the Borrower or
any Guarantor which could reasonably be expected to have a Material Adverse
Effect.

6.11. COMPLIANCE WITH LAW. No Loan Party has violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization,
which violation or failure could reasonably be expected to have a Material
Adverse Effect.

6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which the Borrower or
any Guarantor has established, maintained, or to which it is required to
contribute (collectively, the "Plans") is in compliance with all applicable
provisions of ERISA and the Code and the rules and regulations thereunder as
well as the Plan's terms and conditions. There have been no "prohibited
transactions" and no "reportable event" has occurred within the last 60 months
with respect to any Plan. None of the Borrower or any Guarantor is a party to
any "multi-employer benefit plan".

As used in this Agreement the terms "employee benefit plan", "employee pension
benefit plan", "defined benefit plan", and "multi-employer benefit plan" have
the respective meanings assigned to them in Section 3 of ERISA and any
applicable rules and regulations thereunder. None of the Borrower or any
Guarantor has incurred any "accumulated funding deficiency" within the meaning
of ERISA or incurred any liability to the Pension Benefit Guaranty Corporation
(the "PBGC") in connection with a Plan (other than for premiums due in the
ordinary course).

6.13. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as otherwise disclosed in
Attachment B:

     (A) Each of the Borrower and Guarantors has obtained all government
approvals required with respect to the operation of their businesses under any
Environmental Law.

     (B) (i) None of the Borrower or Guarantors has generated, transported or
disposed of any Hazardous Substances; (ii) None of the Borrower or Guarantors is
currently generating, transporting or disposing of any Hazardous Substances;
(iii) None of the Borrower or Guarantors has any knowledge that (a) any of its
real property (whether owned, leased, or otherwise directly or indirectly
controlled) has been used for the disposal of or has been contaminated by any
Hazardous Substances, or (b) any of its business operations have contaminated
lands or waters of others with any Hazardous Substances; (iv) None of the
Borrower or any Guarantor and its respective assets are subject to any
Environmental Liability and, to the best of their knowledge, any threatened
Environmental Liability; (v) None of the Borrower or any Guarantor has received
any notice of or otherwise learned of any governmental investigation evaluating
whether any remedial action is necessary to respond to a release or threatened
release of any Hazardous Substances for which they may be liable; (vi) None of
the Borrower or any Guarantor is in violation of any Environmental Law; (vii)
there are no proceedings or investigations pending against any such Loan Party
with respect to any violation or alleged violation of any Environmental Law;
provided however, that the parties acknowledge that any generation,
transportation, use, storage and disposal of certain such Hazardous Substances
in any such Loan Party's or its Subsidiaries' business shall be excluded from
representations (i) and (ii) above, provided, further, that each such Loan Party
is at all times generating, transporting, utilizing, storing and disposing such
Hazardous Substances in accordance with all applicable Environmental Laws and in
a manner designed to minimize the risk of any spill, contamination, release or
discharge of Hazardous Substances other than as authorized by Environmental
Laws.

6.14. INTELLECTUAL PROPERTY. Each of the Borrower and each Guarantor (other than
PFSweb) possesses such assets, licenses, Patents, patent applications,
Copyrights, service marks, Trademarks, trade names and trade secrets and all
rights, priorities and privileges and other property relating thereto or 


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arising therefrom ("Intellectual Property") as are necessary or advisable to
continue to conduct its present and proposed business activities. No material
claim has been asserted and is pending by any Person challenging or questioning
the use of any Intellectual Property or the validity or effectiveness of any
Intellectual Property, nor does Borrower or any such Guarantor know of any valid
basis for any such claim. All Intellectual Property is valid, subsisting,
unexpired and enforceable, and the use of Intellectual Property by Borrower and
each Guarantor (other than PFSweb) and each of their Subsidiaries does not
infringe on the rights of any Person in any material respect.

6.15. LICENSES AND PERMITS. Each Loan Party has obtained and holds in full force
and effect all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary for the operation of its businesses as presently
conducted, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect. None of the Borrower or any Guarantor is in
violation of the terms of any such franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval.

6.16. INVESTMENT COMPANY. No Loan Party is (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holdings Company Act
of 1935, as amended, or (iii) subject to any other law which purports to
regulate or restrict its ability to borrow money or to consummate the
transactions contemplated by this Agreement or the Other Documents or to perform
its obligations hereunder or thereunder.

6.17. TAXES AND TAX RETURNS. Each Loan Party has timely filed all federal,
state, and local tax returns and other reports which it is required by law to
file, and has either duly paid all taxes, fees and other governmental charges
indicated to be due on the basis of such reports and returns or pursuant to any
assessment received by each Loan Party, or made provision for the payment
thereof in accordance with GAAP. The charges and reserves on the books of each
Loan Party in respect of taxes or other governmental charges are in accordance
with GAAP. No tax liens have been filed against any Loan Party or any of its
property.

6.18. STATUS OF COLLATERAL. PFS acknowledges that it does not have title to any
of the Collateral, including inventory and Products owned by Borrower, or any
lien on the Collateral (including the Products) and has not pledged, encumbered
or granted any security interest in the Collateral (including the Products). PFS
acknowledges and agrees that in performing its services under the PFS Agreement
and IBM Agreement, PFS has not acquired title to any of the Products acquired by
Borrower.

6.19. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Loan Party is a party to or bound by
any agreement or arrangement (whether oral or written) to which any Affiliate or
Subsidiary of such Loan Party is a party except (i) in the ordinary course of
and pursuant to the reasonable requirements of such Loan Party's business and
(ii) upon fair and reasonable terms no less favorable to such Loan Party than it
could obtain in a comparable arm's-length transaction with an unaffiliated
Person. Except as disclosed to IBM Credit by Borrower in writing from time to
time after the Closing Date, Attachment B sets forth with respect to each
Subsidiary of Borrower and Holdings (i) its name; (ii) if a registered
organization, the State of its formation; (iii) if a non-registered
organization, the State of its principal place of business and chief executive
offices; (iv) if a proprietorship, proprietor's principal place of residence;
and as to each Subsidiary the percentage of ownership by Borrower or Holdings,
as appropriate.

6.20. ACCURACY AND COMPLETENESS OF INFORMATION. All factual information
furnished by or on behalf of any Loan Party to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any Other Document, or any
transaction contemplated hereby or thereby is or will be true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information not misleading at such time.

6.21. RECORDING TAXES. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Loan Parties


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or arrangements for the payment of such amounts by Loan Parties have been made
to the satisfaction of IBM Credit.

6.22. INDEBTEDNESS. Neither Borrower nor Holdings (i) has any Indebtedness,
other than Permitted Indebtedness; and (ii) has guaranteed the obligations of
any other Person (except for Permitted Indebtedness or as permitted by Section
8.5).

6.23 NOT CONSUMER TRANSACTION. None of the Advances are consumer-goods
transactions or consumer transactions and none of the Collateral constitutes
consumer goods (as defined in the UCC).

                        SECTION 7. AFFIRMATIVE COVENANTS

Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:

7.1. FINANCIAL AND OTHER INFORMATION.

     (A) Borrower and Holdings shall deliver as soon as available and in any
event within ninety (90) days after the end of each fiscal year of Holdings (i)
audited Financial Statements of Holdings (provided that, to the extent not
otherwise audited by the Auditors, the consolidating Financial Statements may be
unaudited) as of the close of the fiscal year and for the fiscal year, together
with a comparison to the Financial Statements for the prior year, in each case
accompanied by (a) either an opinion of the Auditors without a "going concern"
or like qualification or exception, or qualification arising out of the scope of
the audit or, if so qualified, an opinion which shall be in scope and substance
reasonably satisfactory to IBM Credit, (b) such Auditors' "Management Letter" to
Holdings, if any, (c) a written statement signed by the Auditors stating that in
the course of the regular audit of the business of Holdings and its consolidated
Subsidiaries, which audit was conducted by the Auditors in accordance with
generally accepted auditing standards, nothing has come to the attention of the
Auditors that has caused them to believe that Holdings has failed to comply with
the financial covenants set forth in Attachment A insofar as they relate to
accounting matters , it being understood that such audit was not directed
primarily toward obtaining knowledge of such non-compliance and such Auditors
shall have no liability, directly or indirectly, to anyone for failure to obtain
such knowledge; and (ii) a Compliance Certificate along with a schedule, in
substantially the form of Attachment C-1 hereto, of the calculations used in
determining, as of the end of such fiscal year, whether Holdings and Borrower
are in compliance with the financial covenants set forth in Attachment A;

     (B) PFSweb shall deliver as soon as available and in any event within
ninety (90) days after the end of each fiscal year of PFSweb (i) the Form 10-K
Annual Report filed with the Securities and Exchange Commission for that fiscal
year just ended and (ii) a Compliance Certificate along with a schedule, in
substantially the form of Attachment C-2 hereto, of the calculations used in
determining, as of the end of such fiscal year, whether PFSweb is in compliance
with the financial covenants set forth in Attachment A (in the event PFSweb is
no longer a public company, PFSweb shall be required to deliver Financial
Statements and such other documentation as required by Holdings and Borrower in
(A) above);

     (C) Borrower and Holdings shall deliver as soon as available and in any
event within forty-five (45) days after the end of each fiscal quarter of
Holdings (i) consolidating Financial Statements of Holdings and Borrower as of
the end of such period and for the fiscal year to date, together with a
comparison to the Financial Statements for the same periods in the prior year,
all in reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer, chief financial officer, or Controller of Holdings and Borrower as
having been prepared in accordance with GAAP (except for the absence of all
required footnotes); and (ii) a Compliance Certificate along with a schedule, in
substantially the form of Attachment C-1 hereto, of the calculations used in
determining, as of the end of such fiscal quarter, whether each of Holdings and
Borrower are in compliance with the financial covenants set forth in Attachment
A;

     (D) PFSweb shall deliver as soon as available and in any event within
forty-five (45) days after the end of each fiscal quarter of PFSweb (i) the Form
10-Q Quarterly Report filed with the Securities 


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and Exchange Commission for that quarter just ended and (ii) a Compliance
Certificate along with a schedule, in substantially the form of Attachment C-2
hereto, of the calculations used in determining, as of the end of such fiscal
quarter, whether PFSweb is in compliance with the financial covenants set forth
in Attachment A (in the event PFSweb is no longer a public company, PFSweb shall
be required to deliver Financial Statements and such other documentation as
required by Holdings and Borrower in (C) above);

     (E) Holdings, Borrower and PFSweb (as applicable) shall deliver as soon as
available and in any event within thirty-five (35) days after the end of each
fiscal month of Holdings, Borrower and PFSweb (i) consolidating Financial
Statements of Holdings and consolidated Financial Statements of PFSweb as of the
end of such period and for the fiscal year to date, together with a comparison
to the Financial Statements for the same periods in the prior year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of such Loan Party as having been prepared in
accordance with GAAP; and (ii) a Compliance Certificate along with a schedule,
in substantially the form of Attachment C-1 and C-2 hereto, of the calculations
used in determining, as of the end of such fiscal month, whether Holdings, the
Borrower and PFSweb are in compliance with the financial covenants set forth in
Attachment A;

     (F) Holdings shall deliver as soon as available and in any event within
sixty (60) days after the end of each fiscal year of Holdings (i) projected
Financial Statements, broken down by quarter, for the current and following
fiscal year; and (ii) if composed, a narrative discussion relating to such
projected Financial Statements;

     (G) Holdings shall deliver if requested by IBM Credit, as soon as available
and in any event within thirty (30) days after the end of each fiscal quarter of
Holdings, revised projected Financial Statements, broken down by quarter, for
(i) the current fiscal year from the beginning of such fiscal quarter to the
fiscal year end and (ii) the following fiscal year;

     (H) Each Loan Party shall deliver as soon as available and in any event
within forty-five (45) days after the end of each fiscal quarter of each Loan
Party quarterly compliance certificates of such Loan Party and all of its
affiliates evidencing compliance under any credit agreements to which they are a
party;

     (I) Each Loan Party shall deliver promptly after any Loan Party obtains
knowledge of (i) the occurrence of a Default or Event of Default, or (ii) the
existence of any condition or event which would result in any such Loan Party's
failure to satisfy the conditions precedent to Advances set forth in Section 5,
a certificate of the chief executive officer or chief financial officer or other
Authorized Officer of such Loan Party specifying the nature thereof and such
Loan Party's proposed response thereto, each in reasonable detail;

     (J) Each Loan Party shall deliver promptly after any such Loan Party
obtains knowledge of (i) any proceeding(s) being instituted or threatened to be
instituted by or against the Borrower or any Guarantor in any federal, state,
local or foreign court or before any commission or other regulatory body
(federal, state, local or foreign), or (ii) any actual or prospective change,
development or event which, in any such case, has had or could reasonably be
expected to have a Material Adverse Effect, a certificate of the chief executive
officer or chief financial officer or other Authorized Officer of such Loan
Party specifying the nature thereof and such Loan Party's proposed response
thereto, each in reasonable detail;

     (K) Each Loan Party shall deliver promptly after any such Loan Party
obtains knowledge that (i) any order, judgment or decree in excess of $1,000,000
shall have been entered against the Borrower or any Guarantor or any of its
properties or assets, or (ii) it has received any notification of a material
violation of any Requirement of Law from any Governmental Authority, a
certificate of the chief executive officer or chief financial officer or other
Authorized Officer of such Loan Party specifying the nature thereof and such
Loan Party's proposed response thereto, each in reasonable detail;

     (L) Each Loan Party shall deliver promptly after any such Loan Party learns
of any material labor dispute to which the Borrower or any Guarantor may become
a party, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which any such Loan
Party


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is a party or by which it is bound, a certificate of the chief executive officer
or chief financial officer or other Authorized Officer of such Loan Party
specifying the nature thereof and such Loan Party's proposed response thereto,
each in reasonable detail;

     (M) Each Loan Party shall deliver within five (5) Business Days after
request by IBM Credit, any written certificates, schedules and reports together
with all supporting documents as IBM Credit may reasonably request relating to
the Collateral or the Borrower or any Guarantor or any Guarantor's business
affairs and financial condition;

     (N) Borrower shall deliver prior to 5:00 p.m. (Pacific Standard Time) on
Tuesday of each week (or if such Tuesday is not a Business Day, the first
Business Day following such Tuesday), or as otherwise agreed in writing, a
Collateral Management Report as of the immediately preceding Friday (or if such
Friday is not a Business Day, as of the last Business Day of such preceding
week);

     (O) Borrower shall deliver by the tenth (10th) Business Day of each month,
or as otherwise agreed in writing, a Collateral Management Report as of a date
no earlier than the last day of the immediately preceding month;

     (P) as soon as available and in any event within forty-five (45) days after
the end of each fiscal quarter (including the last fiscal quarter) of Borrower
and Holdings, quarterly Compliance Certificates of Borrower and Holdings
evidencing compliance under the Congress Credit Agreement and (ii) as soon as
available and in any event within ninety (90) days of the last fiscal quarter, a
Compliance Certificate of Borrower and Holdings evidencing compliance under the
Congress Credit Agreement (based on audited financial statements); and

     (Q) PFSweb shall deliver within five (5) days after the same are sent,
copies of all Financial Statements and reports which PFSweb sends to its
stockholders, and within five (5) days after the same are filed, copies of all
Financial Statements and reports which PFSweb may make to, or file with, the
Securities and Exchange Commission or any successor or analogous governmental
authority.

Each certificate, schedule and report provided by any Loan Party to IBM Credit
shall be signed by an Authorized Officer of such Loan Party, and which signature
shall be deemed a representation and warranty that the information contained in
such certificate, schedule or report is true and accurate in all material
respects on the date as of which such certificate, schedule or report is made
and does not omit to state a material fact necessary in order to make the
statements contained therein not misleading at such time. Each Financial
Statement delivered pursuant to this Section 7.1 shall be prepared in accordance
with GAAP (except as otherwise permitted hereunder) applied consistently
throughout the periods reflected therein and with prior periods. Holdings shall
cause the audited Financial Statements and accompanying documents set forth in
Section 7.1(A)(i) to be delivered directly by the Auditors to IBM Credit only
via first class mail or overnight delivery.

7.2. LOCATION OF BORROWER AND COLLATERAL. If it is a registered organization,
the organizational document creating Borrower, Holdings and each other Guarantor
has been filed in the appropriate office of the State referred to in the first
paragraph of this Agreement. The inventory, equipment and other tangible
Collateral or other Collateral shall be kept or sold at the addresses as set
forth on Attachment B or on any notice provided by any Loan Party to IBM Credit
in accordance with Section 7.7(C). Such locations shall be certified quarterly
to IBM Credit substantially in the form of Attachment G.

7.3. CHANGES IN LOAN PARTIES. Each Loan Party shall provide thirty (30) days
prior written notice to IBM Credit of any change in such Loan Party's name,
chief executive office and principal place of business, organization, state of
organization, form of ownership or structure; provided, however, that such Loan
Party's compliance with this covenant shall not relieve it of any of its other
obligations or any other provisions under this Agreement or any Other Document
limiting actions of the type described in this Section.


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7.4. LEGAL ENTITY EXISTENCE. Each Loan Party shall (A) maintain its legal entity
existence, maintain in full force and effect all licenses, bonds, franchises,
leases and qualifications to do business, and all contracts and other rights
necessary to the profitable conduct of its business, (B) continue in, and limit
its operations to, the same general lines of business as presently conducted by
it unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.

7.5. ERISA. Each of the Borrower and Guarantors shall promptly notify IBM Credit
in writing after it learns of the occurrence of any event which would constitute
a "reportable event" under ERISA or any regulations thereunder with respect to
any Plan, or that the PBGC has instituted or will institute proceedings to
terminate any Plan. Notwithstanding the foregoing, none of the Borrower or any
Guarantor shall have any obligation to notify IBM Credit as to any "reportable
event" as to which the 30-day notice requirement of Section 4043(b) has been
waived by the PBGC, until such time as such Loan Party is required to notify the
PBGC of such reportable event.

Such notification shall include a certificate of the chief financial officer of
such Loan Party setting forth details as to such "reportable event" and the
action which such Loan Party proposes to take with respect thereto, together
with a copy of any notice of such "reportable event" which may be required to be
filed with the PBGC, or any notice delivered by the PBGC evidencing its intent
to institute such proceedings. Upon request of IBM Credit, each of the Borrower
and Guarantors shall furnish, or cause the plan administrator to furnish, to IBM
Credit the most recently filed annual report for each Plan.

7.6. ENVIRONMENTAL MATTERS. (A) Each of the Borrower and Guarantors and any
other Person under such Loan Party's control (including, without limitation,
agents and Affiliates under such control) shall (i) comply with all
Environmental Laws in all material respects, and (ii) undertake to use
commercially reasonable efforts to prevent any unlawful release of any Hazardous
Substance by such Loan Party or such Person into, upon, over or under any
property now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by such Loan Party.

     (B) Each of the Borrower and Guarantors shall notify IBM Credit, promptly
upon its obtaining knowledge of (i) any non-routine proceeding or investigation
by any Governmental Authority with respect to the presence of any Hazardous
Substances on or in any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by such Loan Party, (ii) all claims made or
threatened by any Person or Governmental Authority against such Loan Party or
any of such Loan Party's assets relating to any loss or injury resulting from
any Hazardous Substance, (iii) such Loan Party's discovery of evidence of
unlawful disposal of or environmental contamination by any Hazardous Substance
on any property now or hereinafter owned, leased or otherwise controlled
(directly or indirectly) by such Loan Party, and (iv) any occurrence or
condition which could constitute a violation of any Environmental Law.

7.7. COLLATERAL BOOKS AND RECORDS/COLLATERAL AUDIT. (A) Each of the Borrower and
Guarantors (other than PFSweb) agrees to maintain its books and records,
pertaining to the Collateral and Other Collateral in such detail, form and scope
as is consistent with good business practice, and agrees that such books and
records will reflect IBM Credit's interest in the accounts of the Borrower and
accounts of the Guarantors (other than PFSweb). PFS further agrees that the
books and records pertaining to the Collateral shall be kept separately from
PFS's other books and records and PFS agrees to note on the books and records
pertaining to the Collateral that such books and records are the property of
Borrower.

     (B) Each of the Borrower and Guarantors (other than PFSweb) agrees that IBM
Credit or its agents may enter upon the premises of any such Loan Party at any
time and from time to time, during normal business hours and upon reasonable
notice under the circumstances, and at any time at all on and after the
occurrence and during the continuance of an Event of Default for the purposes of
(i) inspecting the Collateral and Other Collateral, (ii) inspecting and/or
copying (at Borrower's or Guarantor's expense) any and all records pertaining
thereto, (iii) discussing the affairs, finances and business of each such Loan
Party with any officers, employees and directors of such Loan Party or with the
Auditors and (iv) verifying the Collateral and Other Collateral. Upon reasonable
prior notice, each such Loan Party also agrees to provide IBM Credit with such
reasonable information and documentation that IBM Credit deems necessary 


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to conduct the foregoing activities, including, without limitation, reasonably
requested samplings of purchase orders, invoices and evidences of delivery or
other performance.

Upon the occurrence and during the continuance of an Event of Default which has
not been waived by IBM Credit in writing, IBM Credit may conduct any of the
foregoing activities in any manner that IBM Credit deems reasonably necessary.

     (C) Borrower and each Guarantor shall give IBM Credit thirty (30) days
prior written notice of any change in the location of any Collateral or Other
Collateral, the location of its books and records or in the location of its
chief executive office or place of business from the locations specified in
Attachment B, and will execute in advance of such change and cause to be filed
and/or delivered to IBM Credit any financing statements, landlord or other lien
waivers, or other documents reasonably required by IBM Credit, all in form and
substance reasonably satisfactory to IBM Credit.

     (D) Borrower and PFS, on behalf of the Borrower and each Guarantor (other
than PFSweb), agrees to advise IBM Credit promptly, in reasonably sufficient
detail, of any event or substantial change in the Collateral or Other Collateral
which could reasonably be expected to have a Material Adverse Effect on the
Collateral or on the security interests granted to IBM Credit therein.

7.8. INSURANCE; CASUALTY LOSS. (A) Each Loan Party agrees to maintain with
financially sound and reputable insurance companies: (i) insurance on its
properties, (ii) public liability insurance against claims for personal injury
or death as a result of the use of any products sold by it and (iii) insurance
coverage against other business risks, in each case, in at least such amounts
and against at least such risks as are usually and prudently insured against in
the same general geographical area by companies of established repute engaged in
the same or a similar business. Each Loan Party will furnish to IBM Credit, upon
its written request, the insurance certificates with respect to such insurance.
In addition, all Policies so maintained are to name IBM Credit as an additional
insured as its interest may appear.

     (B) Without limiting the generality of the foregoing, Borrower shall keep
and maintain, at its sole expense, the Collateral insured for an amount not less
than the amount set forth on Attachment A from time to time opposite the caption
"Collateral Insurance Amount" against all loss or damage under an "all risk"
Policy with companies mutually acceptable to IBM Credit and Borrower, with a
lender's loss payable endorsement or mortgagee clause in form and substance
reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit, as
its interest may appear. Upon receipt of proceeds by IBM Credit the same shall
be applied on account of the Borrower's Outstanding Product Advance first, then
to the Outstanding PRO Advances. Borrower agrees to instruct each insurer to
give IBM Credit, by endorsement upon the Policy issued by it or by independent
instruments furnished to IBM Credit, at least ten (10) days written notice
before any Policy shall be altered or cancelled and that no act or default of
any Loan Party or any other person shall affect the right of IBM Credit to
recover under the Policies. Borrower hereby agrees to direct all insurers under
the Policies to pay all proceeds with respect to the Collateral directly to IBM
Credit to be applied as set forth herein.

If any Borrower fails to pay any cost, charges or premiums, or if Borrower fails
to insure the Collateral, IBM Credit may pay such costs, charges or premiums.
Any amounts paid by IBM Credit hereunder shall be considered an additional debt
owed by Borrower to IBM Credit and are due and payable immediately upon receipt
of an invoice by IBM Credit.

7.9. TAXES. Each of the Borrower and Guarantors agrees to pay, when due, all
taxes lawfully levied or assessed against such Loan Party or any of the
Collateral before any penalty or interest accrues thereon unless such taxes are
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted and an adequate reserve or other appropriate provisions
have been made therefor as required in order to be in conformity with GAAP and
an adverse determination in such proceedings could not reasonably be expected to
have a Material Adverse Effect.


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7.10. COMPLIANCE WITH LAWS. Each Loan Party agrees to comply with all
Requirements of Law applicable to the Collateral or any part thereof, or to the
operation of its business.

7.11. FISCAL YEAR. Each of Holdings, Borrower and PFSweb agrees to maintain its
fiscal year as a year ending December 31 unless either Holdings, Borrower or
PFSweb provides IBM Credit at least thirty (30) days prior written notice of any
change thereof.

7.12. INTELLECTUAL PROPERTY. Each of the Borrower and Guarantors shall do and
cause to be done all things necessary to preserve and keep in full force and
effect all registrations of Intellectual Property which the failure to do or
cause to be done could reasonably be expected to have a Material Adverse Effect.

7.13. MAINTENANCE OF PROPERTY. Each Loan Party shall maintain all of its
material properties (business and otherwise) in good condition and repair
(ordinary wear and tear excepted) and pay and discharge all costs of repair and
maintenance thereof and all rental and mortgage payments and related charges
pertaining thereto and not commit or permit any waste with respect to any of its
material properties. PFS, on behalf of Borrower, shall maintain all of
Borrower's material properties in PFS's possession (business and otherwise) in
good condition in accordance with good business practice.

7.14. COLLATERAL. To the extent applicable to it, each Loan Party will:

     (A) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by the Borrower or any Guarantor in conspicuous type to show
that the same are subject to IBM Credit's security interest and immediately
thereafter deliver or cause such chattel paper and instruments to be delivered
to IBM Credit or any agent designated by IBM Credit with appropriate
endorsements and assignments to vest title and possession in IBM Credit;

     (B) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral or Other Collateral in an amount in excess of
Two Million Five Hundred Thousand Dollars ($2,500,000). Each Borrower and each
Guarantor shall diligently file and prosecute its claim for any award or payment
in connection with any such loss, theft, destruction of or damage to Collateral.
Each such Loan Party shall, upon demand of IBM Credit, make, execute and deliver
any assignments and other instruments sufficient for the purpose of assigning
any such award or payment for inventory collateral to IBM Credit, free of any
encumbrances of any kind whatsoever;

     (C) consistent with reasonable commercial practice, observe and perform all
matters and things necessary or expedient to be observed or performed under or
by virtue of any lease, license, concession or franchise forming part of the
Collateral and Other Collateral in order to preserve, protect and maintain all
the rights of IBM Credit thereunder;

     (D) promptly notify IBM Credit if Borrower is a beneficiary under a letter
of credit now or hereafter issued in favor of Borrower;

     (E) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and Other Collateral and carry on and conduct its
business in a proper and efficient manner so as to preserve and protect the
Collateral and Other Collateral and the earnings, incomes, rents, issues and
profits thereof; and

     (F) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Loan Parties, each Loan Party will promptly and duly
execute and deliver such further instruments and documents and take such further
action as IBM Credit may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests granted herein and the
payment of any and all recording taxes and filing fees in connection therewith.


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7.15 ADDITIONAL COLLATERAL, ETC. If Borrower shall at any time hold or acquire a
Commercial Tort Claim, then Borrower shall immediately notify IBM Credit in
writing signed by Borrower of the details thereof and grant to IBM Credit in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
satisfactory to IBM Credit.

7.16. SUBSIDIARIES. IBM Credit may require that any Domestic Subsidiaries of any
Loan Party, except for direct Subsidiaries of PFS other than Holdings ("Excluded
Subsidiaries"), become parties to this Agreement or any other agreement executed
in connection with this Agreement as guarantors or sureties. Each Loan Party
will comply, and cause all Subsidiaries, other than Excluded Subsidiaries, of
such Loan Party to comply with Sections 7 and 8 of this Agreement, as if such
sections applied directly to such Subsidiaries. Each of Borrower and Holdings
hereby agrees that, promptly after it acquires any Subsidiary after the Closing
Date, it shall execute a supplement to the Amended and Restated Holdings Stock
Pledge Agreement or Amended and Restated Borrower Stock Pledge Agreement (as
applicable) for the purpose of pledging to IBM Credit (i) all shares of stock of
the Subsidiary owned by Holdings or Borrower (as applicable), if the new
Subsidiary is a Domestic Subsidiary or (ii) all shares of stock of the new
Subsidiary owned by Holdings or Borrower (as applicable), up to sixty-five
percent (65%) of the total outstanding shares of stock of the Subsidiary, if the
new Subsidiary is not a Domestic Subsidiary. For the purpose of this Section
7.16, each of Borrower and Holdings agrees to notify the IBM Credit 10 days
before it acquires a new Subsidiary.

7.17. FINANCIAL COVENANTS; ADDITIONAL COVENANTS. Each of Borrower, Holdings and
PFSweb acknowledges and agrees that such party shall maintain the financial
covenants and other covenants set forth in the attachments, exhibits and other
addenda incorporated in this Agreement.

7.18. TRANSACTION DOCUMENTS. PFS and Borrower agree to comply with the terms of
the Transaction Documents in accordance with the terms set forth therein.

                          SECTION 8. NEGATIVE COVENANTS

Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations hereunder:

8.1. LIENS. Neither Borrower nor any Guarantor (other than PFSweb) will,
directly or indirectly mortgage, assign, pledge, transfer, create, incur,
assume, permit to exist or otherwise permit any Lien or judgment to exist on any
of its property, assets, revenues or goods, whether real, personal or mixed,
whether now owned or hereafter acquired, except for Permitted Liens and Liens
created under collateralized guaranties. PFS shall not pledge, encumber or grant
a security interest in the Collateral (including the Products) or acquire title
or any security interest to any of the Collateral (including the Products). In
performing its services under the PFS Agreement and IBM Agreement, PFS agrees
that it shall not acquire title to any of the Products acquired by the Borrower.

8.2. DISPOSITION OF ASSETS. Neither Borrower nor any Guarantor will, directly or
indirectly, sell, lease, assign, transfer or otherwise dispose of any assets
other than (i) sales of inventory in the ordinary course of business and short
term rental of inventory as demonstrations in amounts not material to it, and
(ii) voluntary dispositions of individual assets and obsolete or worn out
property in the ordinary course of business, provided, that the aggregate book
value of all such assets and property so sold or disposed of under this section
8.2 (ii) in any fiscal year shall not exceed 5% of the consolidated assets of
such Loan Party as of the beginning of such fiscal year.

8.3 TRANSACTION DOCUMENTS. No Loan Party will (i) modify, amend or agree to any
amendment, waiver, supplement or modification of any of the Transaction
Documents, the results of which could reasonably be expected to have a Material
Adverse Effect or (ii) cancel or terminate or agree to cancel or terminate any
of the Transaction Documents without the prior written consent of IBM Credit
which will not be unreasonably withheld provided that such cancellation or
termination could not reasonably be expected to have a Material Adverse Effect.


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8.4. CHANGES IN BORROWER AND GUARANTOR. (A) Neither the Borrower nor any
Guarantor will change its name, location (as defined in Article 9 of the UCC),
State of organization, chief executive office, or principal place of business
without thirty (30) days prior written notice to IBM Credit; (B) Neither the
Borrower nor any Guarantor will, without the prior written consent of IBM
Credit, change its organization, form of ownership or structure; (C) no Loan
Party will, without the prior written consent of IBM Credit, directly or
indirectly, merge, consolidate, liquidate, dissolve or enter into or engage in
any operation or activity materially different from that presently being
conducted by such Loan Party.

8.5. GUARANTIES. Neither the Borrower nor Holdings will, directly or indirectly,
assume, guaranty, endorse, or otherwise become liable upon the obligations of
any other Person, except (i) by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, (ii) by the giving of indemnities in connection with the sale of
inventory or other asset dispositions permitted hereunder, (iii) for guaranties
in favor of IBM Credit, and (iv) the guaranties referred to in paragraphs 2 and
10 of the definition of Permitted Indebtedness and (v) for obligations which, if
incurred directly by any such Loan Party, would be permitted hereunder as
Permitted Indebtedness.

8.6. RESTRICTED PAYMENTS. Borrower will not, directly or indirectly make any of
the following payments ("Restricted Payments") if after giving effect to such
payment, the aggregate amount of all such Restricted Payments exceeds Six
Hundred Thousand Dollars ($600,000) during any fiscal year: (i) declare or pay
any dividend (other than dividends payable solely in common stock of Borrower)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of capital stock of Borrower or
any warrants, options or rights to purchase any such capital stock or Equity
Interests, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of Borrower; or (ii) make any optional payment or prepayment
on or redemption (including, without limitation, by making payments to a sinking
or analogous fund) or repurchase of any Indebtedness (other than the Obligations
or payments of the revolving loans made by Congress made in the ordinary course
administration thereof pursuant to the Congress Credit Agreement)), except as
permitted by the Amended and Restated Notes Payable Subordination Agreement.

8.7. INVESTMENTS. Neither the Borrower nor Holdings will, directly or
indirectly, make, maintain or acquire any Investment in any Person (other than a
Loan Party) other than:

     (A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;

     (B) direct obligations of the government of the United States of America or
any agency or instrumentality thereof or obligations guaranteed as to principal
and interest by the United States of America or any agency thereof;

     (C) stock or obligations issued to any Loan Party in settlement of claims
against others by reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of any Loan Party;

     (D) commercial paper of any company organized under the laws of any State
of the United States or any bank organized or licensed to conduct a banking
business under the laws of the United States or any State thereof having the
short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation;

     (E) the outstanding loan made by the Borrower to Supplies Distributors of
Canada, Inc. in amount not to exceed $5,000,000;


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     (F) the Guaranty executed by Borrower in favor of Fortis Commercial Finance
N.V. guaranteeing the obligations of Supplies Distributors S.A. in an amount not
to exceed 200,000Euros;

     (G) the outstanding loan made by the Borrower to Supplies Distributors
Europe S.A. in an amount not to exceed $8,500,000US; and

     (H) the outstanding loan made by the Borrower to Supplies Distributors
Europe B.V. in an amount not to exceed $1,500,000US.

8.8. AFFILIATE/SUBSIDIARY TRANSACTIONS. No Loan Party will, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of any Loan Party except
in the ordinary course of business and pursuant to the reasonable requirements
of such Loan Party's business upon fair and reasonable terms no less favorable
to such Loan Party than could be obtained in a comparable arm's-length
transaction with an unaffiliated Person.

8.9. ERISA. None of the Borrower or any Guarantor will (A) terminate any Plan so
as to incur a material liability to the PBGC, (B) permit any "prohibited
transaction" involving any Plan (other than a "multi-employer benefit plan")
which would subject such Loan Party to a material tax or penalty on "prohibited
transactions" under the Code or ERISA, (C) fail to pay to any Plan any
contribution which they are obligated to pay under the terms of such Plan, if
such failure would result in a material "accumulated funding deficiency",
whether or not waived, (D) allow or suffer to exist any occurrence of a
"reportable event" or any other event or condition, which presents a material
risk of termination by the PBGC of any Plan (other than a "multi-employer
benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As
used in this Agreement, the terms "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
the Code and ERISA. For purposes of this Section 8.9, the terms "material
liability", "tax", "penalty", "accumulated funding deficiency" and "risk of
termination" shall mean a liability, tax, penalty, accumulated funding
deficiency or risk of termination which could reasonably be expected to have a
Material Adverse Effect.

8.10. ADDITIONAL NEGATIVE PLEDGES. No Loan Party will, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or Other Collateral or any part thereof
after the occurrence and during the continuance of an Event of Default, except
for any restrictions set forth in the Congress Credit Agreement.

8.11. STORAGE OF COLLATERAL . (A) Collateral shall not be stored with a bailee,
warehouseman or similar party without the prior written consent of IBM Credit
unless any Loan Party will, concurrently with the delivery of such Collateral to
such party, cause such party to (i) enter into an agreement acknowledging that
such party holds possession of Collateral (other than certificated securities
and goods covered by a document) for the benefit of IBM Credit, or (ii) issue
and deliver to IBM Credit warehouse receipts in the name of IBM Credit
evidencing the storage of such Collateral.

     (B) PFS shall not permit any of its (or its customers') inventory (other
than Borrower) to be commingled with the Collateral. PFS also agrees to keep all
goods rejected or returned by any account debtor and all goods repossessed or
stopped in transit by PFS (or Borrower, if applicable) for any account debtor
segregated from the other property of Borrower or PFS.

8.12. USE OF PROCEEDS. Borrower shall not use any portion of the proceeds of any
Advances other than to acquire Products from IBM Credit Authorized Suppliers.
Proceeds of Advances may not be used for working capital purposes.

8.13. INDEBTEDNESS. Neither the Borrower nor Holdings will create, incur, assume
or permit to exist any Indebtedness, except for Permitted Indebtedness.


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8.14. LOANS. No Loan Party will make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent company or to
any officer, director or stockholder of such Loan Party or of any such company
(except for compensation for personal services actually rendered), except for
transactions which comply with the terms of this Agreement.

8.15 TITLE TO COLLATERAL. PFS disclaims and waives any right to assert any lien,
pledge or claim of title to the Collateral.

                               SECTION 9. DEFAULT

9.1. EVENT OF DEFAULT. Any one or more of the following events shall constitute
an Event of Default under this Agreement and the Other Documents:

     (A) The failure to make timely payment of the Obligations or any part
thereof when due and payable;

     (B) Any Loan Party fails to comply with the financial covenants set forth
on Attachment A, Section 7.4(A), Section 7.4(B) or Section 8 hereof;

     (C) Any Loan Party or any of their Affiliates fail to comply with or
observe any term, covenant or agreement contained in this Agreement, any Other
Documents (not covered by (A) or (B) above) to which it is a party, if such
failure shall remain unremedied for five (5) days after the earlier of (i) such
Loan Party obtains actual knowledge thereof and (ii) written notice thereof
shall have been given to such Loan Party by IBM Credit;

     (D) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of any Loan Party or any of its officers, employees or
agents or by or on behalf of any Guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;

     (E) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;

     (F) The Borrower or any Guarantor shall generally not pay its debts as such
debts become due, become or otherwise declare itself insolvent, file a voluntary
petition for bankruptcy protection, have filed against it any involuntary
bankruptcy petition, cease to do business as a going concern, make any
assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
any such Loan Party or any Guarantor or any of its respective properties or have
any of its respective properties seized or attached, or take any action to
authorize, or for the purpose of effectuating, the foregoing, provided, however,
that any such Loan Party or any Guarantor shall have a period of forty-five (45)
days within which to discharge any involuntary petition for bankruptcy or
similar proceeding;

     (G) The use of any funds borrowed from IBM Credit under this Agreement for
any purpose other than as provided in this Agreement;

     (H) The entry of any judgment against the Borrower or any Guarantor in an
amount in excess of $5,000,000 and such judgment is not satisfied, dismissed,
stayed or superseded by bond within thirty (30) days after the day of entry
thereof (and in the event of a stay or supersedeas bond, such judgment is not
discharged within thirty (30) days after termination of any such stay or bond)
or such judgment is not fully covered by insurance as to which the insurance
company has acknowledged its obligation to pay such judgment in full;

     (I) The dissolution or liquidation of any Loan Party, or any Guarantor, or
any Loan Party or any Guarantor or its directors or stockholders shall take any
action to dissolve or liquidate any Loan Party or any Guarantor;


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     (J) Any "going concern" or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of its opinion
relative to any Financial Statement delivered to IBM Credit under this
Agreement;

     (K) The issuance of a warrant of distress for any rent or taxes with
respect to any premises occupied by any Loan Party in or upon which the
Collateral, or any part thereof, may at any time be situated and such warrant
shall continue for a period of ten (10) Business Days from the date such warrant
is issued and shall not be rescinded, revoked or otherwise terminated within
such ten (10) day period;

     (L) Any Loan Party or any Guarantor suspends business;

     (M) The occurrence of any event or condition that permits the holder of any
Indebtedness of any Loan Party, Guarantor, or any Loan Party's Subsidiary
(including Supplies Distributors, S.A. and Business Supplies Distributors Europe
B.V.) in a principal amount in excess of $100,000 arising in one or more related
or unrelated transactions to accelerate the maturity thereof or the failure of
any Loan Party or any of the foregoing to pay when due any such Indebtedness;

     (N) Any guaranty of any or all of Borrower's Obligations executed by any
Guarantor in favor of IBM Credit, shall at any time for any reason cease to be
in full force and effect or shall be declared to be null and void by a court of
competent jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such Guarantor, or any such Guarantor shall deny that
it has any further liability or obligation thereunder or any such Guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;

     (O) Any Loan Party is in default under the material terms of any of the
Other Documents after the expiration of any applicable cure periods;

     (P) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of any Loan Party to the PBGC which in the reasonable
opinion of IBM Credit will have a Material Adverse Effect;

     (Q) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of any Loan Party;

     (R) (a) PFSweb ceases to directly own One Hundred Percent (100%) of the
capital stock of PFS, (b) PFS and IFP cease to directly own One Hundred Percent
(100%) of the membership interest of Holdings or (c) Holdings ceases to directly
own One Hundred Percent (100%) of the capital stock of Borrower;

     (S) IBM ceases to be an Authorized Supplier;

     (T) Any Transaction Document expires or is terminated;

     (U) The Congress Intercreditor Agreement is terminated;

     (V) A Default occurs and is continuing under the Congress Credit Agreement;
and

     (W) Any event or condition that could be reasonably be expected to have a
Material Adverse Effect shall have occurred and be continuing.


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9.2. ACCELERATION. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
its sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against any Loan Party: (a) declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in Section
9.1(F) hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice or other demand)
without presentment, demand, protest or any other action or obligation of IBM
Credit; and (b) immediately terminate the Credit Line hereunder.

9.3. REMEDIES. (A) Upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files and
records (including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Collateral, or IBM Credit may use (at
the expense of Loan Parties) such of the supplies or space of such Loan Party at
such Loan Party's place of business or otherwise, as may be necessary to
properly administer and control the Collateral or the handling of collections
and realizations thereon; ; and (ii) foreclose the security interests created
pursuant to this Agreement by any available judicial procedure, or to take
possession of any or all of the Collateral without judicial process and to enter
any premises where any Collateral may be located for the purpose of taking
possession of or removing the same.

     (B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of any Loan Party or IBM Credit, or in the name of such other party as IBM
Credit may designate, either at public or private sale or at any broker's board,
in lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale.

If IBM Credit, in its sole discretion determines that any of the Collateral
requires rebuilding, repairing, maintenance or preparation, IBM Credit shall
have the right, at its option, to do such of the aforesaid as it deems necessary
for the purpose of putting such Collateral in such saleable form as IBM Credit
shall deem appropriate. The Borrower hereby agrees that any disposition by IBM
Credit of any Collateral pursuant to and in accordance with the terms of a
repurchase agreement between IBM Credit and the manufacturer or any supplier
(including any Authorized Supplier) of such Collateral constitutes a
commercially reasonable sale. Each Loan Party agrees, at the request of IBM
Credit, to assemble the Collateral or Other Collateral and to make it available
to IBM Credit at places which IBM Credit shall select, whether at the premises
of any Loan Party or elsewhere, and to make available to IBM Credit the premises
and facilities of any Loan Party for the purpose of IBM Credit's taking
possession of, removing or putting such Collateral or Other Collateral in
saleable form. If notice of intended disposition of any Collateral is required
by law, it is agreed that ten (10) Business Days notice shall constitute
reasonable notification.

     (C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit
is hereby granted, upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, an irrevocable,
non-exclusive license to use, assign, license or sublicense all computer
software programs, data bases, processes and materials used by any Loan Party in
its businesses or in connection with any of the Collateral.

     (D) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of any
Loan Party's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Each Loan Party shall remain liable to
IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to each
Loan Party or its successors or assigns, any surplus resulting therefrom.


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     (E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.

9.4. WAIVER. If IBM Credit seeks to take possession of any of the Collateral by
any court process, each Loan Party hereby irrevocably waives to the extent
permitted by applicable law any bonds, surety and security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession and any demand for possession of the Collateral prior to the
commencement of any suit or action to recover possession thereof. In addition,
each Loan Party waives to the extent permitted by applicable law all rights of
set-off it may have against IBM Credit. Each Loan Party further waives to the
extent permitted by applicable law presentment, demand and protest, and notices
of non-payment, non-performance, any right of contribution, dishonor, and any
other demands, and notices required by law.

                            SECTION 10. MISCELLANEOUS

10.1. TERM; TERMINATION. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by Borrower that it intends to terminate this Agreement which date shall be no
less than ninety (90) days following the receipt by IBM Credit of such written
notice, and (iii) termination by IBM Credit after the occurrence and during the
continuance of an Event of Default. Upon the date that this Agreement is
terminated, all of Obligations shall be immediately due and payable in their
entirety, even if they are not yet due under their terms.

     (B) Until the indefeasible payment in full of all of each Loan Party's
Obligations, no termination of this Agreement or any of the Other Documents
shall in any way affect or impair (i) each Loan Party's Obligations to IBM
Credit including, without limitation, any transaction or event occurring prior
to and after such termination, or (ii) IBM Credit's rights hereunder, including,
without limitation IBM Credit's security interest in the Collateral. On and
after a Termination Date IBM Credit may, but shall not be obligated to, upon the
request of Borrower, continue to provide Advances hereunder.

10.2. INDEMNIFICATION. Each of the Borrower and the Guarantors hereby jointly
and severally agrees to indemnify and hold harmless IBM Credit and each of its
officers, directors, agents and assigns (collectively, the "Indemnified
Persons") against all losses, claims, damages, liabilities or other expenses
(including reasonable attorneys' fees and court costs now or hereinafter arising
from the enforcement of this Agreement, the "Losses") to which any of them may
become subject insofar as such Losses arise out of or are based upon any event,
circumstance or condition (a) occurring or existing on or before the date of
this Agreement relating to any financing arrangements IBM Credit may from time
to time have with (i) each Loan Party, (ii) any Person that shall be acquired by
any Loan Party or (iii) any Person that any Loan Party may acquire all or
substantially all of the assets of, or (b) directly or indirectly, relating to
the execution, delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby or thereby or to any of the Collateral or
to any act or omission of any Loan Party in connection therewith.
Notwithstanding the foregoing, none of the Borrower or any of the Guarantors
shall be obligated to indemnify IBM Credit for any Losses incurred by IBM Credit
which are a result of IBM Credit's gross negligence or willful misconduct. The
indemnity provided herein shall survive the termination of this Agreement.

10.3. ADDITIONAL OBLIGATIONS. IBM Credit, without waiving or releasing any
Obligation or Default of any Loan Party, may perform any Obligations of the any
Loan Party that any Loan Party shall fail or refuse to perform and IBM Credit
may, at any time or times hereafter, but shall be under no obligation to do so,
pay, acquire or accept any assignment of any security interest, lien,
encumbrance or claim against the Collateral asserted by any person. All sums
paid by IBM Credit in performing in satisfaction or on account of the foregoing
and any expenses, including reasonable attorney's fees, court costs, and other
charges relating thereto, shall be a part of the Obligations, payable on demand
and secured by the Collateral.

10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY ANY LOAN PARTY IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER AGREEMENT, ANY 


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<PAGE>

DELAY, OMISSION OR ERROR IN THE ELECTRONIC TRANSMISSION OR RECEIPT OF ANY
E-DOCUMENT, OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM CREDIT OR
ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO ANY LOAN PARTY OR ANY OTHER
PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER,
EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IN THE EVENT
BORROWER REQUESTS IBM CREDIT TO EFFECT A WITHDRAWAL OR DEBIT OF FUNDS FROM AN
ACCOUNT OF BORROWER, THEN IN NO EVENT SHALL IBM CREDIT BE LIABLE FOR ANY AMOUNT
IN EXCESS OF ANY AMOUNT INCORRECTLY DEBITED, EXCEPT IN THE EVENT OF IBM CREDIT'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. NO PARTY SHALL BE LIABLE FOR ANY FAILURE
TO PERFORM ITS OBLIGATIONS IN CONNECTION WITH ANY E-DOCUMENT, WHERE SUCH FAILURE
RESULTS FROM ANY ACT OF GOD OR OTHER CAUSE BEYOND SUCH PARTY'S REASONABLE
CONTROL (INCLUDING, WITHOUT LIMITATION, ANY MECHANICAL, ELECTRONIC OR
COMMUNICATIONS FAILURE) WHICH PREVENTS SUCH PARTY FROM TRANSMITTING OR RECEIVING
E-DOCUMENTS.

10.5. ALTERATION/WAIVER. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by each Loan Party
signatory to such agreement and by IBM Credit. No delay or omission of IBM
Credit to exercise any right or remedy hereunder, whether before or after the
occurrence of any Event of Default, shall impair any such right or remedy or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
In the event that IBM Credit at any time or from time to time dispenses with any
one or more of the requirements specified in this Agreement or any of the Other
Documents, such dispensation may be revoked by IBM Credit at any time and shall
not be deemed to constitute a waiver of any such requirement subsequent thereto.
IBM Credit's failure at any time or times to require strict compliance and
performance by each Loan Party of any undertakings, agreements, covenants,
warranties and representations of this Agreement or any Other Document shall not
waive, affect or diminish any right of IBM Credit thereafter to demand strict
compliance and performance thereof. Any waiver by IBM Credit of any Default by
any Loan Party under this Agreement or any of the Other Documents shall not
waive or affect any other Default by any Loan Party under this Agreement or any
of the Other Documents, whether such Default is prior or subsequent to such
other Default and whether of the same or a different type. None of the
undertakings, agreements, warranties, covenants, and representations of any Loan
Party contained in this Agreement or the Other Documents and no Default by any
Loan Party shall be deemed waived by IBM Credit unless such waiver is in writing
signed by an authorized representative of IBM Credit.

10.6. SEVERABILITY. If any provision of this Agreement or the Other Documents or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Documents being
severable in any such instance.

10.7. ONE LOAN. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Borrower under this Agreement or the Other Documents
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by any Loan Party to IBM
Credit or any assignor of IBM Credit.

10.8. ADDITIONAL COLLATERAL. All monies, reserves and proceeds received or
collected by IBM Credit with respect other property of any Loan Party in
possession of IBM Credit at any time or times hereafter are hereby pledged by
such Loan Party to IBM Credit as security for the payment of each Borrower's
Obligations and shall be applied promptly by IBM Credit on account of Borrower's
Obligations; provided, however, IBM Credit may release to the Borrower such
portions of such monies, reserves and proceeds as IBM Credit may from time to
time determine, in its sole discretion.

10.9. NO MERGER OR NOVATIONS. (A) Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by each any Loan Party and
IBM Credit that the claims of IBM Credit arising hereunder and existing as of
the date hereof constitute continuing claims arising out of the Obligations of
each Loan Party under the Existing Financing Agreement and any Other Document.
Each Loan Party acknowledges and agrees that such Obligations outstanding as of
the date hereof have not 


                                    36 of 40

<PAGE>

been satisfied or discharged and that this Agreement is not intended to effect a
novation of any Loan Party's Obligations under the Existing Financing Agreement
and any Other Document.

     (B) Neither the obtaining of any judgment nor the exercise of any power of
seizure or sale shall operate to extinguish the Obligations of any Loan Party to
IBM Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.

10.10. PARAGRAPH TITLES. The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.

10.11. BINDING EFFECT; ASSIGNMENT. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the each Loan Party
and their respective successors and assigns; provided, that no Loan Party shall
have the right to assign this Agreement or any of the Other Documents without
the prior written consent of IBM Credit.

10.12. OBLIGATIONS. Subject to Section 10.5 above, the Obligations and any terms
and provisions herein may be modified or amended only by a document signed by
IBM Credit and the other parties hereto.

10.13. NOTICES; E-BUSINESS ACKNOWLEDGMENT. (A) Except as otherwise expressly
provided in this Agreement, any notice required or desired to be served, given
or delivered hereunder shall be in writing, and shall be deemed to have been
validly served, given or delivered (i) upon receipt if deposited in the United
States mails, first class mail, with proper postage prepaid, (ii) upon receipt
of confirmation or answerback if sent by telecopy, or other similar facsimile
transmission, (iii) one Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (iv) when delivered, if hand-delivered by
messenger, all of which shall be properly addressed to the party to be notified
and sent to the address or number indicated as follows:


<Table>
<S>                                                 <C>
(i) If to IBM Credit at:                            (ii) If to Borrower at:

      IBM Credit Corporation                             Supplies Distributors, Inc.
      4000 Executive Parkway, Third Floor                500 North Central Expressway
      San Ramon, CA  94583                               Plano, TX  75074
      Attention:  Region Manager, West                   Attention: Mr. Joe Farrell
      Facsimile: (925) 277-5675                                     President
                                                         Facsimile: (888) 330-5504

(iii) If to Holdings at:                            (iv) If to PFS:

      Business Supplies Distributors Holdings, LLC       Priority Fulfillment Services, Inc.
      500 North Central Expressway                       500 North Central Expressway
      Plano, TX  75075                                   Plano, TX  75074      
      Attention: Mr. Joe Farrell, Manager                Attention: Mr. Thomas J. Madden
      Facsimile: (888) 330-5504                                     Executive Vice President,
                                                                    Chief Financial Officer
                                                         Facsimile: (888) 330-5504

(v)   If to IFP at:                                 (vi) If to PFSweb at:

      Inventory Financing Partners, LLC                  PFSweb, Inc.
      500 North Central Expressway                       500 North Central Expressway
      Plano, TX  75074                                   Plano, TX  75074
      Attention: Mr. Joe Farrell, Manager                Attention: Mr. Thomas J. Madden
      Facsimile: (888)330-5504                                      Executive Vice President,
                                                                    Chief Financial Officer
                                                         Facsimile: (888) 330-5504
</Table>



                                    37 of 40

<PAGE>

or to such other address or number as each party designates to the other in the
manner prescribed herein.

     (B) (i) Each party may electronically transmit to or receive from the other
party certain documents set forth in Attachment J ("E-Documents") via the
Internet or electronic data interchange ("EDI"). Any transmission of data which
is not an E-Document shall have no force or effect between the parties. EDI
transmissions may be sent directly or through any third party service provider
("Provider") with which either party may contract. Each party shall be liable
for the acts or omissions of its Provider while handling E-Documents for such
party, provided, that if both parties use the same Provider, the originating
party shall be liable for the acts or omissions of such Provider as to such
E-Document. Some information to be made available to each Loan Party will be
specific to such Loan Party and will require such Borrower's or Loan Parties'
registration with IBM Credit before access is provided. After IBM Credit has
approved the registration submitted by such Loan Party, IBM Credit shall provide
an ID and password(s) to an individual designated by such Loan Party
("Recipient"). Each Loan Party accepts responsibility for the designated
individual's distribution of the ID and password(s) within its organization and
each Loan Party will take reasonable measures to ensure that passwords are not
shared or disclosed to unauthorized individuals. Each Loan Party will conduct an
annual review of all IDs and passwords to ensure they are accurate and properly
authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR PASSWORD AT ITS
DISCRETION AT ANY TIME. E-Documents shall not be deemed to have been properly
received, and no E-Document shall give rise to any obligation, until accessible
to the receiving party at such party's receipt computer at the address specified
herein. Upon proper receipt of an E-Document, the receiving party shall promptly
transmit a functional acknowledgment in return. A functional acknowledgment
shall constitute conclusive evidence that an E-Document has been properly
received. If any transmitted E-Document is received in an unintelligible or
garbled form, the receiving party shall promptly notify the originating party in
a reasonable manner. In the absence of such a notice, the originating party's
records of the contents of such E-Document shall control.

(ii) Each party shall use those security procedures which are reasonably
sufficient to ensure that all transmissions of E-Documents are authorized and to
protect its business records and data from improper access. Any E-Document
received pursuant to this Section 10.13 shall have the same effect as if the
contents of the E-Document had been sent in paper rather than electronic form.
The conduct of the parties pursuant to this Section 10.13 shall, for all legal
purposes, evidence a course of dealing and a course of performance accepted by
the parties. The parties agree not to contest the validity or enforceability of
E-Documents under the provisions of any applicable law relating to whether
certain agreements are to be in writing or signed by the party to be bound
thereby. The parties agree, as to any E-Document accompanied by any Loan Party's
ID, that IBM Credit can reasonably rely on the fact that such E-Document is
properly authorized by such Loan Party. E-Documents, if introduced as evidence
on paper in any judicial, arbitration, mediation or administrative proceedings,
will be admissible as between the parties to the same extent and under the same
conditions as other business records originated and maintained in documentary
form. Neither party shall contest the admissibility of copies of E-Documents
under either the business records exception to the hearsay rule or the best
evidence rule on the basis that the E-Documents were not originated or
maintained in documentary form.

RECIPIENT INFORMATION for Internet transmissions:

Name of Borrower's, Holdings' and IFP's Designated Central Contact Authorized to
Receive IDs and Passwords:

                Joe Farrell
E-MAIL ADDRESS: jfarrell@pfsweb.com
PHONE NUMBER:


                                    38 of 40

<PAGE>

Name of PFS's and PFSweb's Designated Central Contact Authorized to Receive IDs
and Passwords:

                Thomas J. Madden
E-MAIL ADDRESS: tmadden@pfsweb.com
PHONE NUMBER:

10.14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.

10.15. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Financing
Period set forth in Attachment A from time to time if on at least two occasions
during any three-month period a Shortfall Amount has become due and payable and
may modify the Collateral Insurance Amount set forth in Attachment A from time
to time, in each case, by providing each Loan Party with a new Attachment A. Any
such new Attachment A shall be effective as of the date specified in the new
Attachment A.

10.16. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, EACH OF LOAN PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY:

     (A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.

     (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.

     (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS
SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL
HAVE BEEN NOTIFIED PURSUANT THERETO;

     (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.

     (E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.

10.17. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND EACH LOAN PARTY HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND ANY LOAN PARTY
ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.


               THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.


                                    39 of 40

<PAGE>

     IN WITNESS WHEREOF, each Loan Party has read this entire Agreement, and has
caused its authorized representatives to execute this Agreement and has caused
its corporate seal, if any, to be affixed hereto as of the date first written
above.


<Table>
<S>                                             <C>
IBM CREDIT CORPORATION                          SUPPLIES DISTRIBUTORS, INC.

By:                                             By:
   -----------------------------------------       ---------------------------------------
Print Name:                                     Print Name:                               
           ---------------------------------               -------------------------------
Title:                                          Title:                                    
      --------------------------------------          ------------------------------------

BUSINESS SUPPLIES DISTRIBUTORS HOLDINGS, LLC    PRIORITY FULFILLMENT SERVICES, INC.

By:                    as Managing Member
   -------------------
By:                                             By:
   -----------------------------------------       ---------------------------------------
Print Name:                                     Print Name:                               
           ---------------------------------               -------------------------------
Title:                                          Title:                                    
      --------------------------------------          ------------------------------------

INVENTORY FINANCING PARTNERS, LLC               PFSWEB, INC.

By:                    as Managing Member
   ------------------- 
By:                                             By:
   -----------------------------------------       ---------------------------------------
Print Name:                                     Print Name:                               
           ---------------------------------               -------------------------------
Title:                                          Title:                                    
      --------------------------------------          ------------------------------------
</Table>



                                    40 of 40


<PAGE>
                                                                    EXHIBIT 10.2

IBM CREDIT CORPORATION

                              AMENDED AND RESTATED
                             COLLATERALIZED GUARANTY


         Priority Fulfillment Services, Inc. ("Guarantor") and IBM Credit
Corporation having an office located at 4000 Executive Parkway, 3rd Floor, San
Ramon, CA 94583 ("IBM Credit") entered into a Collateralized Guaranty dated
September 27, 2001 (the "Prior Guaranty"). IBM Credit and Guarantor wish and
amend and restate the Prior Guaranty on the terms and conditions set forth
herein. In consideration of credit and financing accommodations granted or to be
granted by IBM Credit to Supplies Distributors, Inc. (formerly BSD Acquisition
Corp.) ("Borrower"), which is in the best interest of the Guarantor, and for
other good and valuable consideration received, Guarantor jointly and severally
guaranties to IBM Credit, from property held separately, jointly or in
community, the prompt and unconditional performance and payment by Borrower of
any and all obligations, liabilities, contracts, mortgages, notes, trust
receipts, secured transactions, inventory financing and security agreements, and
commercial paper on which Borrower is in any manner obligated, heretofore, now,
or hereafter owned, contracted or acquired by IBM Credit ("Liabilities"),

whether the Liabilities are individual, joint, several, primary, secondary,
direct, contingent or otherwise. Guarantor also agrees to indemnify IBM Credit
and hold IBM Credit harmless against any losses it may sustain and expenses it
may incur, suffer or be liable for as a result of or in any way arising out of,
following, or consequential to any transactions with or for the benefit of
Borrower. Capitalized terms used herein without definition shall have the
meaning described thereto in the Agreement for Inventory Financing dated March
29, 2002 among Borrower, Guarantor, Business Supplies Distributors Holdings,
LLC, Inventory Financing Partners, LLC, and PFSweb, Inc. (as amended, modified
and supplemented from time to time, the "Financing Agreement").

If Borrower fails to pay or perform any Liabilities to IBM Credit when due, all
Liabilities to IBM Credit shall then be deemed to have become immediately due
and payable, and Guarantor shall then pay upon demand the full amount of all
sums owed to IBM Credit by Borrower, together with all expenses, including
reasonable attorney's fees.

The liability of Guarantor is direct and unconditional and shall not be affected
by any extension, renewal or other change in the terms of payment of any
security agreement or any other agreement between IBM Credit and Borrower, or
any change in the manner, place or terms of payment or performance thereof, or
the release, settlement or compromise of or with any party liable for the
payment or performance thereof, or the waiver of any default or event of default
under any financing agreement between IBM Credit and Borrower, or the release or
non-perfection of any security thereunder, any change in Borrower's financial
condition, or the interruption of business relations between IBM Credit and
Borrower. This Amended and Restated Guaranty is and shall be deemed to be a
continuing guaranty and shall remain in full force and effect until the
indefeasible payment in full of the Liabilities and any other amounts payable
under this Amended and Restated Guaranty and the cessation of all obligations of
IBM Credit to extend credit to Borrower. Guarantor acknowledges that its
obligations hereunder are in addition to and independent of any agreement or
transaction between IBM Credit and Borrower or any other person creating or
reserving any lien, encumbrance or security interest in any property of Borrower
or any other person as security for any obligation of Borrower. IBM Credit need
not exhaust its rights or recourse against Borrower or any other person or any
security IBM Credit may have at any time before being entitled to payment from
Guarantor.

To secure payment of all of Guarantor's current and future debts and obligations
to IBM Credit, whether under this Amended and Restated Guaranty or any other
agreement between IBM Credit and Guarantor and to secure the Liabilities,
whether direct or contingent, Guarantor does assign, pledge and give to IBM
Credit a security interest in all of Guarantor's personal property, whether now
owned or hereafter acquired or existing and wherever located, including the
following: (a) all inventory and equipment manufactured or sold by or bearing
the trademark or tradename of International Business Machines Corporation
("IBM") or any other Authorized Supplier and all parts thereof, attachments,
additions, accessories and accessions thereto, all substitutions, repossessions,
exchanges, replacements and 



                                  Page 1 of 7

<PAGE>



returns thereof, all price protection credits, rebates, discounts and incentive
payments relating to the foregoing, products, insurance and proceeds thereof and
documents therefor ("IBM Credit Inventory"); (b) all accounts, chattel paper,
instruments, negotiable documents, promissory notes, general intangibles
(including contract rights, software and licenses), deposit accounts, commercial
tort claims, intellectual property, investment property, pledged notes, letter
of credit rights, supporting obligations, obligations of any kind owing to
Guarantor, whether or not arising out of or in connection with the sale or lease
of goods or the rendering of services and all books, invoices, documents and
other records in any form evidencing or relating to any of the foregoing; (c)
all substitutions and replacements for all of the foregoing; and (d) all
products or proceeds of all of the foregoing (all of the above assets are
defined pursuant to the provisions of Article 9 of the Uniform Commercial Code
as in effect in the State of New York and are hereinafter referred to as the
"Collateral"). Collateral shall not include inventory and equipment of the
Guarantor that is not IBM Credit Inventory (as defined above). In connection
with any working capital financing Guarantor receives from another financial
institution or commercial lender ("Lender"), Guarantor may request that IBM
Credit subordinate its interest in the Collateral (excluding the IBM Credit
Inventory) and IBM Credit will not unreasonably withhold its consent provided
that:

         (1) No default or event of default exists;

         (2) IBM Credit and Lender shall have entered into a subordination
         agreement in form and substance satisfactory to IBM Credit in all
         respects in its sole discretion;

         (3) IBM Credit shall be satisfied that the IBM Credit Inventory shall
         be segregated from the other property of Guarantor and its customers
         and IBM Credit shall have a first perfected priority security interest
         in the IBM Credit Inventory; and

         (4) The books and records maintained on behalf of the Borrower shall be
         kept separately from Guarantor's other books and records and Guarantor
         shall have conspicuously noted on the Borrower's books and records that
         such books and records are the property of Borrower.

IBM Credit shall have the right, but not the obligation, from time to time, as
IBM Credit in its sole discretion may determine, and all without any advance
notice to Guarantor, to: (a) examine the Collateral; (b) appraise it as
security; (c) verify its condition and nonuse; (d) verify that all Collateral
has been properly accounted for and this Agreement complied with, and (e)
assess, examine, check and make copies of any and all of Guarantor's books,
records and files.

If Guarantor does not comply with any of the terms of this Agreement or the
Financing Agreement, or Guarantor fails to fulfill any obligation to IBM Credit
or any of IBM Credit's affiliates under any other agreement between IBM Credit
and Guarantor or between Guarantor and any of IBM Credit's affiliates, or
Guarantor becomes insolvent or ceases to do business as a going concern, or a
bankruptcy, insolvency proceeding, arrangement or reorganization is filed by or
against Guarantor, or any of Guarantor's property is attached or seized, or a
receiver is appointed for Guarantor, or Guarantor commits any act which impairs
the prospect of full performance or satisfaction of Guarantor's obligations to
IBM Credit, or Guarantor shall lose any franchise, permission, license or right
to conduct its business, or Guarantor misrepresents its financial condition or
organizational structure, or whenever IBM Credit deems the debt or Collateral to
be insecure:

         a) IBM Credit may call all or any part of the amount Guarantor or
         Borrower owes IBM Credit due and payable immediately, if permitted by
         applicable law, together with court costs and all costs and expenses of
         IBM Credit's repossession and collection activity, including, but not
         limited to reasonable attorney's fees.

         b) Guarantor will hold and keep the Collateral in trust, in good order
         and repair, for IBM Credit's benefit and shall not exhibit or sell it.



                                  Page 2 of 7

<PAGE>



         c) Upon IBM Credit's demand, Guarantor will immediately deliver the
         Collateral to IBM Credit, in good order and repair, at a place
         reasonably convenient to IBM Credit, together with all related
         documents; or IBM Credit may, in IBM Credit's sole discretion and
         without demand, take immediate possession of the Collateral, together
         with all related documents.

         d) Guarantor waives and releases: (i) any and all claims and causes of
         action which Guarantor may now or ever have against IBM Credit as a
         result of any possession, repossession, collection or sale by IBM
         Credit of any of the Collateral, notwithstanding the effect of such
         possession, repossession, collection or sale upon Guarantor's business;
         (ii) all rights of redemption from any such sale; and (iii) the benefit
         of all valuation, appraisal and exemption laws. If IBM Credit seeks to
         take possession of any of the Collateral by replevin or other court
         process, Guarantor irrevocably waives any notice, bonds, surety and
         security relating thereto required by any statute, court rule or
         otherwise as an incident to such possession and any demand for
         possession of the Collateral prior to the commencement of any suit or
         action to recover possession thereof.

         e) Guarantor appoints IBM Credit or any person IBM Credit may delegate
         as its duly authorized Attorney-in-Fact (without notifying Guarantor)
         to do, in IBM Credit's sole discretion, any of the following: (i) sell,
         assign, transfer, negotiate or pledge any and all accounts, chattel
         paper, or contract rights; (ii) endorse Guarantor's name on any and all
         notes, checks, drafts, or other forms of exchange received as payment
         on any accounts, chattel paper and contract rights, for deposit in IBM
         Credit's account; (iii) grant any extension, rebate or renewal on any
         and all accounts, chattel paper or contract rights, or enter into any
         settlement thereof; (iv) demand, collect and receive any and all
         amounts due on accounts, chattel paper and contract rights; and (v)
         exercise any and all rights Guarantor has in the Collateral.

         f) In the event Guarantor brings any action or asserts any claim
         against IBM Credit which arises out of this Agreement, any other
         agreement or any of Guarantor's and IBM Credit's business dealings, in
         which Guarantor does not prevail, Guarantor agrees to pay IBM Credit
         all court costs and all costs and expenses of IBM Credit's defense of
         such action of claim including, but not limited to, reasonable
         attorney's fees.

IBM Credit may also declare a default under this Agreement and exercise any and
all rights and remedies available herein, if, in IBM Credit's sole discretion,
IBM Credit determines that the Collateral has decreased in value, and Guarantor
has been unable to either: (a) provide IBM Credit with additional Collateral in
a form and substance satisfactory to IBM Credit; or (b) pay the Shortfall Amount
as defined in the Financing Agreement.

IBM Credit has and will always possess all the rights and remedies of a secured
party under law, and IBM Credit's rights and remedies are and will always be
cumulative. Guarantor acknowledges and agrees that the Collateral is the subject
of widely distributed standard price quotations and is customarily sold in a
recognized market. Guarantor agrees that a private sale by IBM Credit of any of
the Collateral to a dealer in those types of Collateral is a commercially
reasonable sale. Further, Guarantor agrees that IBM Credit's delivery of any of
the Collateral to a distributor or manufacturer, with a request that it
repurchase Collateral, as provided in any repurchase agreement with IBM Credit,
is a commercially reasonable disposition or sale.

Guarantor promises that (a) the Collateral is and shall remain free from all
claims and liens except IBM Credit's and the lien of Congress Financial
Corporation (Southwest); (b) Guarantor shall defend the Collateral against all
other claims and demands; and (c) Guarantor will notify IBM Credit before it
signs, or authorizes the signing of any financing statement regardless of its
coverage. Guarantor authorizes IBM Credit to file with any filing office such
financing statements, amendments, addenda and other records showing IBM Credit
as secured party and Guarantor as the debtor and identifying IBM Credit's
security interest in the Collateral that IBM Credit deems necessary to perfect
and maintain IBM Credit's security 



                                  Page 3 of 7

<PAGE>



interest in the Collateral. Guarantor will execute any and all documents IBM
Credit may request to confirm or perfect IBM Credit's title or security interest
in the Collateral.

Guarantor represents and covenants that the first paragraph of this Amended and
Restated Guaranty states the exact name of Guarantor as set forth in its charter
or other organizational record. Guarantor represents that it is duly organized
under the laws of the State of Delaware and the organization document creating
Guarantor has been filed in the appropriate office of such State. In addition,
Guarantor's organizational identification number assigned by its State of
organization is as follows: 2606094. Guarantor's principal place of business is
located at 500 North Central Expressway, Plano, TX 75074 and Guarantor
represents that its business is conducted as a CORPORATION. Guarantor will not
change its name, location (as defined in Article 9 of the U.C.C.) or State of
organization. Guarantor shall provide IBM Credit at least thirty (30) days prior
written notice of any change in its form of ownership, management, and of any
change in its principal place of business, or any additions or discontinuances
of other business locations. The Collateral shall be kept at Guarantor's
principal place of business and at the following addresses:

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

until all sums owed IBM Credit are paid in full. Guarantor will immediately
notify IBM Credit if the Collateral is kept at any other address. This paragraph
is for IBM Credit's informational purposes only, and is not in any way or manner
intended to limit the extent of IBM Credit's security interest in the
Collateral. Guarantor and its predecessors have done and do business only under
the following names: Priority Fulfillment Services, Inc. and PFSweb, Inc.

Guarantor will pay all taxes, license fees, assessments and charges on the
Collateral when due. Guarantor will be responsible for any loss of Collateral
for any reason whatsoever. Guarantor will keep the Collateral insured for its
full insurable value against loss or damage by fire, wind, and theft and for
combined additional coverage, including vandalism and malicious mischief, and
for other risks as IBM Credit may require. Guarantor will obtain insurance under
such terms and in amounts as IBM Credit may specify, from time to time, in
companies acceptable to IBM Credit, with a loss-payee or mortgagee clause
payable to IBM Credit to the extent of any loss to the Collateral and containing
a waiver of all defenses against Guarantor that is acceptable to IBM Credit.
Guarantor further agrees to provide IBM Credit with written evidence of the
required insurance coverage and loss-payee or mortgagee clause. Guarantor
assigns to IBM Credit all sums not in excess of the unpaid debt owed IBM Credit,
and directs any insurance company to make payment directly to IBM Credit to be
applied to the unpaid debt owed IBM Credit. Guarantor further grants IBM Credit
an irrevocable power of attorney to endorse any draft and sign and file all of
the necessary papers, forms and documents to initiate and settle any and all
claims with respect to the Collateral. If Guarantor fails to pay any of the
above-referenced costs, charges or any insurance premiums, or if it fails to
insure the Collateral, IBM Credit may pay such costs, charges or any insurance
premiums, and the amounts paid shall be considered an additional debt owed by
Guarantor to IBM Credit. Guarantor will promptly notify IBM Credit of any loss,
theft or destruction of or damage to any of the Collateral.

Guarantor will not rent, lease, lend, demonstrate, pledge, create a security
interest in, transfer or secrete any of the Collateral, or use the Collateral
for any purpose other than exhibition, without IBM Credit's prior written
consent.

This Amended and Restated Guaranty is assignable by IBM Credit, shall be
construed liberally in IBM Credit's favor, and shall inure to the benefit of and
bind IBM Credit's and Guarantor's respective successors, personal
representatives and assigns. Guarantor shall not assign this Amended and
Restated Guaranty or its obligations hereunder without the prior written consent
of IBM Credit.

If Borrower hereafter is incorporated, acquired by a corporation, dissolved, or
otherwise undergoes any change in its management, ownership, identity, or
organizational structure, this Amended and Restated Guaranty shall continue to
extend to any Liabilities of the Borrower or such resulting corporation,
dissolved corporation, or new or changed legal entity, or identity to IBM
Credit.



                                  Page 4 of 7

<PAGE>



Guarantor waives: notice of the acceptance of this Amended and Restated
Guaranty, and of presentment, demand and protest; notices of nonpayment,
nonperformance and dishonor; notices of amount of indebtedness of Borrower
outstanding at any time; notices of the number and amount of advances made by
IBM Credit to Borrower in reliance on this Amended and Restated Guaranty; notice
of the financial condition of Borrower or any other guarantor or any change
therein; notice of the release of collateral for the Liabilities, of any other
guaranty, pledge or suretyship agreement or any collateral therefor; notices of
any legal proceedings or other efforts to collect against Borrower; notice of
any recoupment, setoff, administrative freeze on Borrower's credit or assets;
notice and any opportunity for a hearing as to any prejudgment remedies; and any
other demands and notices required by law. Guarantor further waives all rights
to assert against IBM Credit any right of recoupment, setoff, and all claims,
defenses, and counterclaims against IBM Credit or Borrower, including any
defense based on the lack of good faith. To the extent permitted by law,
Guarantor also waives any and all rights in and notices or demands relating to
any Collateral now or hereafter securing any of the Liabilities. All waivers by
Guarantor herein shall survive any termination or revocation of this Amended and
Restated Guaranty.

Guarantor authorizes IBM Credit to sell at public or private sale or otherwise
realize upon the Collateral now or hereafter securing any of the Liabilities, in
such manner and upon such terms and conditions as IBM Credit deems best, all
without advertisement or notice to Borrower, Guarantor, or any third parties.
Guarantor further authorizes IBM Credit to deal with the proceeds of such
Collateral as provided in IBM Credit's agreement with Borrower, without
prejudice to IBM Credit's claim for any deficiency and free from any right or
redemption on the part of Borrower, Guarantor or any third parties, which right
or redemption is hereby waived together with every formality prescribed by
custom or by law in relation to any such sale or other realization.

Guarantor further agrees that all of its right, title and interest in, to and
under any loans, notes, debts and all other liabilities and obligations
whatsoever owed by Borrower to Guarantor, whether heretofore or hereafter
created or incurred and for whatever amount, and all security therefor, shall be
now and hereafter at all times fully subordinated to all Liabilities. Guarantor
will not ask, demand or sue for, or take or receive payment of, all or any part
of such loans, notes, debts or any other liabilities or obligations whatsoever
or any security therefor, until and unless all of the Liabilities are paid,
performed and fully satisfied except as expressly permitted by the Financing
Agreement and provided no default or event of default exists. In addition, until
such time that the Liabilities are indefeasibly paid in full, Guarantor
irrevocably waives, for the benefit of IBM Credit, any and all rights which it
presently has, or may hereafter have, whether by virtue of any payment or
payments hereunder or otherwise, to be subrogated to the rights of IBM Credit
against the Borrower with respect to any such indebtedness of the Borrower to
IBM Credit.

Guarantor has made an independent investigation of the financial condition of
Borrower and gives this Amended and Restated Guaranty based on that
investigation and not upon any representations made by IBM Credit. Guarantor
acknowledges that it has access to current and future Borrower financial
information which will enable Guarantor to continuously remain informed of
Borrower's financial condition. Guarantor also consents to and agrees that the
obligations under this Amended and Restated Guaranty shall not be affected by
IBM Credit's subsequent increases or decreases in the credit line that IBM
Credit may grant to Borrower; substitutions, exchanges or releases of all or any
part of the Collateral now or hereafter securing any of the Liabilities; sales
or other dispositions of any or all of the Collateral now or hereafter securing
any of the Liabilities without demands, advertisement or notice of the time or
place of the sales or other dispositions; realizing on the Collateral to the
extent IBM Credit, in IBM Credit's sole discretion, deems proper; or purchases
of all or any part of the Collateral for IBM Credit's own account.

This Amended and Restated Guaranty and any and all obligations, liabilities,
terms and provisions herein shall survive any and all bankruptcy or insolvency
proceedings, actions and/or claims brought by or against Borrower, whether such
proceedings, actions and/or claims are federal and/or state.

This Amended and Restated Guaranty is submitted by Guarantor to IBM Credit (for
IBM Credit's acceptance or rejection thereof) at IBM Credit's above specified
office; as an offer by Guarantor to 



                                  Page 5 of 7

<PAGE>



guaranty the credit and financial accommodations provided by IBM Credit to
Borrower. If accepted, this Amended and Restated Guaranty shall be deemed to
have been made at IBM Credit's above-specified office. THIS AMENDED AND RESTATED
GUARANTY AND ALL OBLIGATIONS PURSUANT THERETO, SHALL BE GOVERNED AND CONTROLLED
AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT AND, IN ALL
OTHER RESPECTS BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAWS. GUARANTOR, TO INDUCE IBM CREDIT TO ACCEPT THIS
AMENDED AND RESTATED GUARANTY, AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING
DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS
AMENDED AND RESTATED GUARANTY MAY BE LITIGATED, AT IBM CREDIT'S SOLE DISCRETION
AND ELECTION, IN COURTS WITHIN THE STATE OF NEW YORK. GUARANTOR CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
THAT STATE. GUARANTOR WAIVES ANY RIGHT TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT AGAINST GUARANTOR BY IBM CREDIT IN ACCORDANCE WITH THIS
PARAGRAPH.

Any delay by IBM Credit, or IBM Credit's successors or assigns in exercising any
or all rights granted IBM Credit under this Amended and Restated Guaranty shall
not operate as a waiver of those rights. Furthermore, any failure by IBM Credit,
IBM Credit's successors or assigns, to exercise any or all rights granted IBM
Credit under this Amended and Restated Guaranty shall not operate as a waiver of
IBM Credit's right to exercise any or all of them later.

Notwithstanding anything contained in any document to the contrary, it is
understood and agreed that the rights and claims of IBM Credit under the Prior
Guaranty continue hereunder and the obligations of Guarantor under the Prior
Guaranty constitute Liabilities hereunder.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.



                                  Page 6 of 7

<PAGE>



This document contains the full agreement of the parties concerning the guaranty
of Borrower's Liabilities and can be varied only by a document signed by all of
the parties hereto.

THE PARTIES AGREE THAT ANY ACTION, SUIT OR PROCEEDING, RELATING DIRECTLY OR
INDIRECTLY TO THIS AMENDED AND RESTATED GUARANTY, OR THE RELATIONSHIP BETWEEN
IBM CREDIT AND GUARANTOR, WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY
A JUDGE WITHOUT A JURY. THUS, THE PARTIES HEREBY WAIVE ANY RIGHT TO A JURY TRIAL
IN ANY SUCH ACTION, SUIT OR PROCEEDING.



<Table>
<S>                                                  <C>
WITNESS                                              PRIORITY FULFILLMENT SERVICES, INC.
                                                     GUARANTOR

                                                     By:
-------------------------------------                   ----------------------------------------

Print Name:                                          Print Name: Thomas J. Madden
           --------------------------                           -----------------
                                                     Title: CFO
                                                           ----
                                                     Date:  3/29/02
              (SEAL)                                      ---------

                                                     Guarantor's Address:

                                                     500 North Central Exp. 
                                                     ----------------------
                                                     Suite 500   
                                                     ---------
                                                     Plano, TX 75074
                                                     ---------------
ATTEST:
       -------------------------------------
                  Secretary

Print Name:
           ---------------------------------

                                                     IBM CREDIT CORPORATION

                                                     By:
                                                        ----------------------------------------
                                                     Print Name: John M. White 
                                                                --------------
                                                     Title: Director of Global Credit Operations
                                                           -------------------------------------
</Table>





                                  Page 7 of 7


<PAGE>
                                                                   EXHIBIT 10.3


IBM CREDIT CORPORATION

                          AMENDED AND RESTATED GUARANTY
                                (BY CORPORATION)


     PFSweb, Inc. ("Guarantor") executed a Guaranty dated September 27, 2001
(the "Prior Guaranty") in favor of IBM Credit Corporation, having an office
located at 4000 Executive Parkway, Third Floor, San Ramon, CA 94583 ("IBM
Credit"). IBM Credit and Guarantor wish to amend and restate the Prior Guaranty
on the terms and conditions set forth herein. In consideration of credit and
financing accommodations granted or to be granted by IBM Credit to Supplies
Distributors, Inc. (formerly BSD Acquisition Corp.) ("Customer") under a
financing agreement between IBM Credit and Customer, which is in the best
interest of Guarantor, and for other good and valuable consideration received,
Guarantor guaranties to IBM Credit the prompt and unconditional performance and
payment by Customer of any and all obligations, liabilities, contracts,
mortgages, notes, trust receipts, secured transactions, inventory financing and
security agreements, and commercial paper on which Customer is in any manner
obligated, heretofore, now, or hereafter owned, contracted or acquired by IBM
Credit ("Liabilities"), whether the Liabilities are individual, joint, several,

primary, secondary, direct, contingent or otherwise. Guarantor also agrees to
indemnify IBM Credit and hold IBM Credit harmless against any losses IBM Credit
may sustain and expenses it may incur, suffer or be liable for as a result of or
in any way arising out of, following, or consequential to any transactions with
or for the benefit of Customer.

     If Customer fails to pay or perform any Liabilities to IBM Credit when due,
all Liabilities to IBM Credit shall then be deemed to have become immediately
due and payable, and Guarantor shall then pay upon demand the full amount of all
sums owed to IBM Credit by Customer, together with all expenses, including
reasonable attorney's fees.

     The liability of Guarantor is direct and unconditional and shall not be
affected by any extension, renewal or other change in the terms of payment of
any security agreement or any other agreement between IBM Credit and Customer,
or any change in the manner, place or terms of payment or performance thereof,
or the release, settlement or compromise of or with any party liable for the
payment or performance thereof, the release or non-perfection of any security
thereunder, any change in Customer's financial condition, or the interruption of
business relations between IBM Credit and Customer. This Amended and Restated
Guaranty is and shall be deemed to be a continuing guaranty and shall remain in
full force and effect until the indefeasible payment in full of the Liabilities
and any other amounts payable under this Amended and Restated Guaranty and the
cessation of all obligations of IBM Credit to extend credit to Customer.
Guarantor acknowledges that its obligations hereunder are in addition to and
independent of any agreement or transaction between IBM Credit and Customer or
any other person creating or reserving any lien, encumbrance or security
interest in any property of Customer or any other person as security for any
obligation of Customer. IBM Credit need not exhaust its rights or recourse
against Customer or any other person or any security it may have at any time
before being entitled to payment from Guarantor.

     This Amended and Restated Guaranty is assignable by IBM Credit, shall be
construed liberally in IBM Credit's favor, and shall inure to the benefit of and
bind IBM Credit's and Guarantor's respective successors, personal
representatives and assigns. Guarantor shall not assign this Amended and
Restated Guaranty or its obligations hereunder without the prior written consent
of IBM Credit.

     If Customer hereafter is incorporated, acquired by a corporation,
dissolved, or otherwise undergoes any change in its management, ownership,
identity or organizational structure, this Amended and Restated Guaranty shall
continue to extend to any Liabilities of the Customer or such resulting
corporation, dissolved corporation, or new or changed legal entity or identity
to IBM Credit.

     Guarantor waives: notice of the acceptance of this Amended and Restated
Guaranty, and of presentment, demand and protest; notices of nonpayment,
nonperformance, any right of contribution from other guarantors, and dishonor;
notices of amount of indebtedness of Customer outstanding at any time; notices
of the number and amount of advances made by IBM Credit to Customer in reliance
on this Amended and Restated Guaranty; notices of any legal proceedings against
Customer; notice and hearing as to any 


                                     1 of 4

<PAGE>

prejudgment remedies; and any other demands and notices required by law.
Guarantor further waives all rights of set-off and all counterclaims against IBM
Credit or Customer. Guarantor also waives any and all rights in and notices or
demands relating to any collateral now or hereafter securing any of the
Liabilities, including, but not limited to, all rights, notices or demands
relating, whether directly or indirectly, to the sale or other disposition of
any or all of such collateral or the manner of such sale or other disposition.
All waivers by Guarantor herein shall survive any termination or revocation of
this Amended and Restated Guaranty. Guarantor authorizes IBM Credit to sell at
public or private sale or otherwise realize upon the collateral now or hereafter
securing any of the Liabilities, in such manner and upon such terms and
conditions as IBM Credit deems best, all without advertisement or notice to
Customer, Guarantor, or any third parties. Guarantor further authorizes IBM
Credit to deal with the proceeds of such collateral as provided in IBM Credit's
agreement with Customer, without prejudice to IBM Credit's claim for any
deficiency and free from any right or redemption on the part of Customer,
Guarantor or any third parties, which right or redemption is hereby waived
together with every formality prescribed by custom or by law in relation to any
such sale or other realization.

     Guarantor further agrees that all of its right, title and interest in, to
and under any loans, notes, debts and all other liabilities and obligations
whatsoever owed by Customer to Guarantor, whether heretofore or hereafter
created or incurred and for whatever amount, and all security therefor, shall be
now and hereafter at all times fully subordinated to all Liabilities. Guarantor
will not ask, demand or sue for, or take or receive payment of, all or any part
of such loans, notes, debts or any other liabilities or obligations whatsoever
or any security therefor, until and unless all of the Liabilities are paid,
performed and fully satisfied.

     Until such time the Liabilities are indefeasibly paid in full, the
Guarantor hereby irrevocably waives for the benefit of IBM Credit, any and all
rights which it presently has, or may hereafter have, whether by virtue of any
payment or payments hereunder or otherwise, to be subrogated to the rights of
IBM Credit against the Customer with respect to any such indebtedness of the
Customer to IBM Credit.

     Guarantor has made an independent investigation of the financial condition
of Customer and gives this Amended and Restated Guaranty based on that
investigation and not upon any representations made by IBM Credit. Guarantor
acknowledges that it has access to current and future Customer financial
information which will enable Guarantor to continuously remain informed of
Customer's financial condition. Guarantor also consents to and agrees that the
obligations under this Amended and Restated Guaranty shall not be affected by
IBM Credit's: subsequent increases or decreases in the credit line that IBM
Credit may grant to Customer; substitutions, exchanges or releases of all or any
part of the collateral now or hereafter securing any of the Liabilities; sales
or other dispositions of any or all of the collateral now or hereafter securing
any of the Liabilities without demands, advertisement or notice of the time or
place of the sales or other dispositions; realizing on the collateral to the
extent IBM Credit, in its sole discretion, deems proper; or purchases of all or
any part of the collateral for IBM Credit's own account.

     This Amended and Restated Guaranty and any and all obligations,
liabilities, terms and provisions herein shall survive any and all bankruptcy or
insolvency proceedings, actions and/or claims brought by or against Customer,
whether such proceedings, actions and/or claims are federal and/or state.

     This Amended and Restated Guaranty is submitted by Guarantor to IBM Credit
(for IBM Credit's acceptance or rejection thereof) at IBM Credit's above
specified office; as an offer by Guarantor to guaranty the credit and financial
accommodations provided by IBM Credit to Customer. If accepted, this Amended and
Restated Guaranty shall be deemed to have been made at IBM Credit's above
specified office. This Amended and Restated Guaranty and all obligations
pursuant thereto, shall be governed and controlled as to interpretation,
enforcement, validity, construction, and effect and in all other respects by the
laws of the State of New York without giving effect to the principles of
conflicts of laws. Guarantor, to induce IBM Credit to accept this Amended and
Restated Guaranty, agrees that all actions or proceedings arising directly or
indirectly in connection with, out of, related to or from this Amended and
Restated Guaranty may be litigated, at IBM Credit's sole discretion and
election, in courts within the State of New York. Guarantor consents and submits
to the jurisdiction of any local, state or federal court located within that
state. GUARANTOR WAIVES ANY RIGHT TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT AGAINST GUARANTOR BY IBM CREDIT IN ACCORDANCE WITH THIS
PARAGRAPH.


                                     2 of 4

<PAGE>

     Any delay by IBM Credit, or its successors or assigns in exercising any or
all rights granted IBM Credit under this Amended and Restated Guaranty shall not
operate as a waiver of those rights. Furthermore, any failure by IBM Credit, its
successors or assigns, to exercise any or all rights granted IBM Credit under
this Amended and Restated Guaranty shall not operate as a waiver of IBM Credit's
right to exercise any or all of them later.

Notwithstanding anything contained in any document to the contrary, it is
understood and agreed that the rights and claims of IBM Credit under the Prior
Guaranty continue hereunder and the obligations of Guarantor under the Prior
Guaranty constitute Liabilities hereunder.

     This document contains the full agreement of the parties concerning the
guaranty of Customer's Liabilities and can be varied only by a document signed
by all the parties hereto.

     THE PARTIES AGREE THAT ANY ACTION, SUIT OR PROCEEDING RELATING DIRECTLY OR
INDIRECTLY TO THIS AMENDED AND RESTATED GUARANTY OR THE RELATIONSHIP BETWEEN IBM
CREDIT AND GUARANTOR, WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. THUS, THE PARTIES HEREBY WAIVE ANY RIGHT TO A JURY TRIAL
IN ANY SUCH ACTION, SUIT OR PROCEEDING.

WITNESS:                                  PFSWEB, INC.

---------------------------------------

(Print Name                            )  By:
            ---------------------------      ----------------------------------
                                          Name: Thomas J. Madden
                                               -----------------
                                          Title: CFO
                                                ----
(SEAL)                
                                          Date: March 29, 2002

                                          Guarantor's Address:

                                          500 North Central Exp.
                                          ----------------------
                                          Suite 500
                                          ---------
                                          Plano, TX 75074
                                          ---------------

ATTEST:

---------------------------------------
              (Secretary)

(Print Name                            )
            ---------------------------


                                     3 of 4

<PAGE>

                             SECRETARY'S CERTIFICATE

     I hereby certify that I am the Secretary of the following named corporation
and that execution of the above Guaranty was ratified, approved and confirmed by
the Shareholders at a meeting, if necessary, and pursuant to a resolution of the
Board of Directors of the corporation at a meeting of the Board of Directors
duly called, and which is currently in effect, which resolution was duly
presented, seconded and adopted and reads as follows:

     "BE IT RESOLVED that any officer of this corporation is hereby authorized
to execute a guaranty of the obligations of Supplies Distributors, Inc.
(formerly BSD Acquisition Corp.) ("Customer") to IBM Credit Corporation on
behalf of the corporation, which instrument may contain such terms as the above
named persons may see fit including, but not limited to a waiver of notice of
acceptance of this Amended and Restated Guaranty; presentment; demand; protest;
notices of nonpayment, nonperformance, dishonor, the amount of indebtedness of
Customer outstanding at any time, any legal proceedings against Customer, and
any other demands and notices required by law; any right of contribution from
other guarantors; and all set-offs and counterclaims."

     IN WITNESS WHEREOF and as Secretary of the named corporation I have
hereunto set my hand and affixed the corporate seal on this 29th day of March,
2002.

                                     PFSWEB, INC.


(SEAL)                               -------------------------------------------
                                                    (Secretary)


                                     4 of 4


<PAGE>
                                                                   EXHIBIT 10.4

IBM CREDIT CORPORATION

                              AMENDED AND RESTATED
                      NOTES PAYABLE SUBORDINATION AGREEMENT

IBM CREDIT CORPORATION
4000 Executive Parkway, Third Floor
San Ramon, CA  94583

Ladies and/or Gentlemen:

     Supplies Distributors, Inc. (formerly BSD Acquisition Corp.), with its
principal place of business at 500 North Central Expressway, Plano, TX 75074
("SDI"), is/may become further indebted to Priority Fulfillment Services, Inc.
("PFS"). PFS represents that no part of said indebtedness has been assigned to
or subordinated in favor of any other person, firm or corporation, other than
pursuant to the Notes Payable Subordination Agreement, dated as of March 29,
2002 by and between PFS and Congress Financial Corporation (Southwest)
("Congress") ("Notes Payable Subordination Agreement") and that PFS does not
hold any security therefor. Capitalized terms used herein without definition
shall have the meaning ascribed thereto in the Financing Agreement referred to
below.

     To induce IBM Credit to enter into a financing agreement with SDI (as
amended, modified, and supplemented from time to time, the "Financing
Agreement") and in consideration of any loans, advances, payments, extensions or
credit (including the extension or
 renewal, in whole or in part, of any
antecedent or other debt), benefits or financial accommodations heretofore or
hereafter made, granted or extended by IBM Credit or which IBM Credit has or
will become obligated to make, grant or extend to or for the account of SDI
whether under the Financing Agreement or otherwise, and in consideration of any
obligations heretofore or hereafter incurred by SDI to IBM Credit, whether under
the Financing Agreement or otherwise, PFS agrees to make the payment of the
indebtedness referred to in the first paragraph hereof and any and all other
present or future indebtedness of SDI to PFS together with any and all interest
accrued thereon (collectively the "Secondary Obligations") subject and
subordinate to the prior indefeasible payment in full of any and all debts,
obligations and liabilities of SDI to IBM Credit, whether absolute or
contingent, due or to become due, now existing or hereafter arising and whether
direct or acquired by IBM Credit by transfer, assignment or otherwise
(collectively the "Primary Obligations") and that SDI shall make no payments to
PFS until the Primary Obligations have been indefeasibly paid in full as
acknowledged in writing by IBM Credit. Notwithstanding the foregoing, SDI may
make payments in respect of the Secondary Obligations provided that (i) no
Default or Event of Default exists immediately prior to the payment of the
Secondary Obligations and that no Default or Event of Default will occur after
any payment in respect of the Secondary Obligations (ii) any such payment shall
not cause the total amount of the Secondary Obligations to be less than six
million five hundred thousand dollars ($6,500,000), and (iii) such payment would
be permitted under the Notes Payable Subordination Agreement. Except as provided
above, PFS agrees not to ask, demand, sue for, take or receive payment or
security for all or any part of the Secondary Obligations until and unless all
of the Primary Obligations shall have been fully paid and discharged.

     Upon any distribution of any assets of SDI whether by reason of sale,
reorganization, liquidation, dissolution, arrangement, bankruptcy, receivership,
assignment for the benefit of creditors, foreclosure or otherwise, IBM Credit
shall be entitled to receive payment in full of the Primary Obligations prior to
the payment of any part of the Secondary Obligations. To enable IBM Credit to
enforce its rights hereunder in any such proceeding or upon the happening of any
such event, IBM Credit or any person whom IBM Credit may from time to time
designate is hereby irrevocably appointed attorney-in-fact for PFS with full
power to act in the place and stead of PFS including the right to make, present,
file and vote proofs of claim against SDI on account of all or any part of said
Secondary Obligations as IBM Credit may deem advisable and to receive and
collect any and all payments made thereon and to apply the same on account of
the Primary Obligations. PFS will execute and deliver to such instruments as IBM
Credit may 


                                     1 of 3

<PAGE>
require to enforce each of the Secondary Obligations, to effectuate said power
of attorney and to effect collection of any and all dividends or other payments
which may be made at any time on account thereof.

     While this instrument remains in effect, PFS will not assign to or
subordinate in favor of any other person, firm or corporation, (except for
Congress subject to terms of the Intercreditor Agreement dated the date hereof
between Congress and IBM Credit) any right, claim or interest in or to the
Secondary Obligations or commence or join with any other creditor in commencing
any bankruptcy, reorganization or insolvency proceeding against SDI. IBM Credit
may at any time, in its discretion, renew or extend the time of payment of all
or any portion of the Primary Obligations or waive or release any collateral
which may be held therefor and IBM Credit may enter into such agreements with
SDI as IBM Credit may deem desirable without notice to or further assent from
PFS and without adversely affecting IBM Credit's rights hereunder in any manner
whatsoever.

     In furtherance of the foregoing and as collateral security for the payment
and discharge in full of any and all of the Primary Obligations, PFS hereby
transfers and assigns to IBM Credit the Secondary Obligations and all collateral
security therefor to which PFS now is or may at any time be entitled and all
rights under all guarantees thereof and agrees to deliver to IBM Credit endorsed
in blank all notes or other instruments now or hereafter evidencing said
Secondary Obligations. IBM Credit may file one or more financing statements
concerning any security interest hereby created without the signature of PFS
appearing thereon.

     The within instrument is and shall be deemed to be a continuing
subordination and shall be and remain in full force and effect until all Primary
Obligations have been performed and paid in full and IBM Credit's commitment, if
any, under the Financing Agreement has been terminated.

This Agreement amends and restates the Notes Payable Subordination Agreement
dated September 27, 2001 among the parties hereto.


Dated                      .
      ---------------------
                                    PRIORITY FULFILLMENT SERVICES, INC.

                                    By:
                                       ----------------------------------------
                                    Name:  Thomas J. Madden
                                           ----------------
                                    Title: CFO
                                           ---
                                           500 North Central Expressway
                                           Plano, TX 75074


                                     2 of 3

<PAGE>

To:  IBM Credit Corporation

     SDI hereby acknowledge notice of the within and foregoing subordination and
agree to be bound by all the terms, provisions and conditions thereof. SDI
further agrees not to repay all or any part of the Secondary Obligations, or to
issue any note or other instrument evidencing the same or to grant any
collateral security therefor without IBM Credit's prior written consent.

                                        SUPPLIES DISTRIBUTORS, INC.

                                        By:
                                           ------------------------------------
                                        Name:  Joseph Farrell
                                               --------------
                                        Title: President/CEO
                                               --------------

ACCEPTED:

IBM CREDIT CORPORATION

By:                                                  
   ----------------------------------------
Name:  John M. White
       -------------
Title: Director of Global Credit Operations
       ------------------------------------

ACKNOWLEDGMENT OF SUBORDINATION

--------------------------          )
                           )SS
--------------------------          )

     On the 29th day of March, 2002, appeared before me ______________________
to me known to be the individual described in and who executed the foregoing
instrument, and who acknowledged to me that the same was executed as his or her
free and voluntary act for the uses and purposes therein set forth.



                                           ------------------------------------
                                                      (Notary Public)
My Commission Expires:
             ,      
------------- -----


                                     3 of 3


<PAGE>
                                                                   EXHIBIT 10.5




                              IBM GLOBAL FINANCING






               --------------------------------------------------
                              AMENDED AND RESTATED
               PLATINUM PLAN AGREEMENT (WITH INVOICE DISCOUNTING)
               --------------------------------------------------






                       IBM BELGIUM FINANCIAL SERVICES S.A.
                                       and

                           SUPPLIES DISTRIBUTORS S.A.

                   BUSINESS SUPPLIES DISTRIBUTORS EUROPE B.V.

                                   PFSWEB B.V.






<PAGE>

                                    CONTENTS


<Table>
<S>     <C>                                                                             <C>
1.      DEFINITIONS......................................................................1

2.      CREDIT LIMIT.....................................................................8

3.      SUPPLIER PURCHASE FACILITY.......................................................8

4.      IBM REIMBURSABLES, IBM RECEIVABLES AND VAT RECEIVABLES DISCOUNTING FACILITY......9

5.      PREPAYMENTS.....................................................................11

6.      IBM REIMBURSABLES, IBM RECEIVABLES, VAT RECEIVABLES AND RECEIVABLES RIGHTS......11

7.      CREDIT CHARGES AND PAYMENTS.....................................................13

8.      REPRESENTATIONS, WARRANTIES AND COVENANTS.......................................15

9.      DEFAULTS AND REMEDIES...........................................................19

10.     TERMINATION.....................................................................20

11.     GENERAL.........................................................................20
</Table>



<PAGE>

                              IBM GLOBAL FINANCING

               PLATINUM PLAN AGREEMENT (WITH INVOICE DISCOUNTING)

THIS AGREEMENT is made on the date specified against the signature of IBM GF
below among Suppliers Distributors S.A. with a registered number of RC Liege
208795 with an address of Rue Louis Bleriot 5, B-4460 Grace-Hollogne, Belgium
("SDSA"), and Business Supplies Distributors Europe BV a Netherlands company
registered in Maastricht with a with a Netherlands trade registration number of
HR Maastricht 14062763 with an address of Dalderhaag 13, 6136 Sittard, The
Netherlands ("BSDE") (SDSA and BSDE
 collectively, "YOU"), PFS Web B.V a
Netherlands company registered in Maastricht under the number 17109541 with a
Belgian trade registration number of R.C. Liege 204162 ("PFS Web B.V.") (SDSA,
BSDE and PFS Web B.V. collectively, the "Loan Parties) and IBM Belgium Financial
Services N.V. with a registered number of R.C. Brussels 451.673 with an address
of Square Victoria Regina 1,BE-1210 Brussels VAT BE 424300467 ("IBM GF" or "US")
and it amends and restates that IBM Global Financing Platinum Plan Agreement
(with Receivables Discounting) executed among the same parties on 29 September
2001 (the "Prior Agreement") such that rights and obligations of both parties
under the Prior Agreement are rights and obligations under this Agreement. This
Agreement is effective as of the Effective Date (as defined herein).

WHEREAS IBM BF and the Loan Parties are parties to that certain Platinum Plan
Agreement (with Invoice Discounting) dated 29 September 2001 (as heretofore
amended, the ("Existing Financing Agreement");

WHEREAS the Loan Parties desire to enter into a factoring facility with Fortis
Commercial Finance N.V with a place of business at Steenweg Op Tielen 51
Turnhout Belgium 2300 ("Fortis") for the purpose of Fortis factoring all of the
Loan Parties Receivables (as defined herein) except Receivables from any IBM
entity and IBM GF is willing to amend and restate the Existing Financing
Agreement to discontinue factoring those Receivables which Fortis will factor,
all according to the terms and conditions set forth herein;

WHEREAS we agree to provide you with a Credit Limit in respect of our purchase
of Supplier Invoices, IBM Reimbursables, IBM Receivables and/or VAT Receivables
under the terms and conditions of this Agreement.

AGREEMENT

1.        DEFINITIONS

          1.1       In this Agreement the following terms shall (unless the
                    context otherwise requires) have the following meanings:-

                    "ADDITIONAL COLLATERAL": means that as specified in the
                    Schedule, it being understood that Additional Collateral is
                    not used when calculating the Shortfall Amount, if any, as
                    described in Clause 7.4;

                    "AFFILIATE": means with respect to any Person, any other
                    Person (the "Affiliate") meeting one of the following: (i)
                    at least 10% of the Affiliate's equity is owned, directly or
                    indirectly, by such Person; (ii) at least 10% of such
                    Person's equity is owned, directly or indirectly, by the
                    Affiliate; or (iii) at least 10% of such Person's equity and
                    at least 10% of the Affiliate's equity is owned, directly or
                    indirectly, by the same Person or Persons. All your
                    officers, directors, joint venturers, and partners shall
                    also be deemed to be Affiliates for purposes of this
                    Agreement. All of Loan Parties' officers, directors, joint
                    venturers, and partners shall also be deemed to be
                    Affiliates of such Loan Party for purposes of this
                    Agreement.


                                                                              1

<PAGE>

                    "AGREEMENT": means this Agreement and all its Schedules and
                    any supplements to this Agreement as the same may be
                    amended, supplemented or modified from time to time;

                    "AIF": means that certain Agreement for Inventory Financing
                    among IBM Credit Corporation and Holdings, IFP, SDI, PFS and
                    PFSweb, as amended and supplemented from time to time;

                    "AMENDED AND RESTATED NOTES PAYABLE SUBORDINATION AGREEMENT"
                    means the amended and restated notes payable subordination
                    executed by SDI in favour of IBM GF in form and substance
                    satisfactory to IBM GF in its sole discretion;

                    "APPROVED CURRENCY" means any currency other than euro
                    agreed from time to time by you and us to be an approved
                    currency for the purposes of this Agreement;

                    "AUDITORS": means a nationally recognised firm of
                    independent accountants acceptable to us;

                    "AUTHORISED OFFICER": means those individuals occupying the
                    positions listed in Attachment A to this Agreement and who
                    are authorised by you to provide the instructions,
                    authorisations, agreements, etc. as specified in such
                    Attachment A;

                    "AUTHORISED SUPPLIER": means any supplier, for the purposes
                    of this Agreement, from whom we have agreed to purchase the
                    Supplier Invoices generated by their sales of Products to
                    you;

                    "AVAILABLE CREDIT": means from time to time the Credit Limit
                    less the aggregate of:

                    (i)       the principal amount of Supplier Obligations due
                              and outstanding by you to us; and

                    (ii)      the aggregate amount of Prepayments made to you by
                              us on account of the purchase price of IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              which are outstanding; and

                    (iii)     any other sum due and payable by you to us under
                              the terms of this Agreement, including interest
                              due and payable and outstanding Credit Charges;

                    "BASE RATE": means the rate so referred to in the Schedule;

                    "BSD": means Business Supplies Distributors, Inc.

                    "BSD A": means BSD Acquisition Corp., Inc., a corporation
                    duly organized under the laws of the state of Delaware, with
                    its principal place of business at 500 North Central
                    Expressway, Plano, TX 75074, now known as Supplies
                    Distributors, Inc.;

                    "BSDE" means as defined in the caption;

                    "BSDE SUPPLIER INVOICES" means undisputed Supplier Invoices
                    which were issued to BSDE prior to the Merger and which we
                    will pay the applicable Authorised Supplier on your behalf;
                    "BUSINESS DAY": means (a) in relation to any payment or to a
                    rate fixing, any day (other than a Saturday or Sunday) which
                    is a TARGET DAY; (b) in relation to any other matter (e.g.
                    notices) any day (other than a Saturday or Sunday) on which
                    banks are open in Brussels;

                    "CLOSING DATE": MEANS __ MARCH 2002;

                    "COLLATERAL" means the aggregate value, in our assessment,
                    of outstanding IBM Reimbursables, IBM Receivables and VAT
                    Receivables we have purchased from you together with any
                    Receivables Rights and any other assets, including
                    stock-in-trade which are charged to us by way of a Lien and
                    which is not subject to retention of title by any party
                    other than us.

                    "COMMENCEMENT DATE": means the commencement date of this
                    Agreement as specified in the Schedule;


                                                                              2

<PAGE>

                    "CONGRESS": means Congress Financial Corporation
                    (Southwest), a lender to SDI;

                    "CREDIT CHARGES": means our charges to you (as set out in
                    the Schedule) for purchasing Supplier Invoices from an
                    Authorised Supplier as set out in Section 3 of this
                    Agreement and purchasing IBM Reimbursables, IBM Receivables
                    and VAT Receivables from you pursuant to Section 4 of this
                    Agreement;

                    "CREDIT LIMIT": means the sum specified in the Schedule
                    which is subject to change by us;

                    "DEBTOR": means a customer of yours pursuant to a Sales
                    Contract who is indebted to you in respect of a Receivable;

                    "DEFAULT RATE" means the percentage as detailed as such in
                    the Schedule;

                    "DISCOUNT CHARGE" means the charge to be calculated as
                    described in Clause 5.3 at a rate specified in the Schedule
                    or such other percentage as we may from time to time agree;

                    "DUE DATE" means the date that payment is due to us which
                    is, unless otherwise agreed by us in writing (1) for
                    Supplier Obligations, the last day of the No Charge Period
                    or the Extended Credit Period as applicable (2) for Credit
                    Charges, the date as specified on the billing statement (3)
                    for Shortfall Amounts, as specified in Clause 7.4 and (4)
                    for Discount Charges, the date specified on the billing
                    statement if there is insufficient Available Credit at the
                    time such Discount Charges are normally credited by us
                    against your account;

                    "ELIGIBLE RECEIVABLE": means an IBM Receivable or VAT
                    Receivable which is not (or does not become) an Ineligible
                    Receivable;

                    "EQUITY INTERESTS": means with respect to any Person, means
                    (a) all shares, interests, participations, rights or other
                    equivalents (however designated, whether voting or
                    non-voting) of or interests in corporate or capital stock,
                    including, without limitation, shares of preferred or
                    preference stock of such Person, (b) all partnership
                    interests (whether general or limited) of such Person, (c)
                    all membership interests or limited liability company
                    interests in such Person, (d) all other equity or ownership
                    interests in such Person of any other type and (e) all
                    warrants, rights or options to purchase any of the
                    foregoing.

                    "EFFECTIVE DATE": means that date on which Fortis, to IBM
                    GF's satisfaction pays IBM GF the full amount owed by you to
                    us for all Receivables except IBM Receivables. Such date
                    shall be confirmed in writing immediately after the event.

                    "EVENT OF DEFAULT": means any of the events set out in
                    Clause 9.1 of this Agreement;

                    "EXTENDED CREDIT CHARGE" means the charge (if any) as
                    specified in the Schedule incurred for outstanding Supplier
                    Obligations during an Extended Credit Period or such other
                    charge as we may from time to time agree;

                    "EXTENDED CREDIT PERIOD" means (if agreed by us) the period
                    specified in the Schedule following immediately after the No
                    Charge Period and extending the time for payment by you of
                    Supplier Obligations;

                    "FINANCIAL STATEMENTS": means your balance sheets,
                    statements of account including profit and loss accounts,
                    and statements of cash flows prepared in accordance with
                    generally accepted accounting principles;

                    "FORTIS" means as defined in the second "Whereas" clause
                    hereof;

                    "GAAP" means the generally accepted accounting principles in
                    the United States as in effect from time to time;

                    "GUARANTOR": means Holdings, PFS, PFSweb and SDI and any
                    other party that delivers a guaranty in favour of us;


                                                                              3

<PAGE>

                    "HOLDINGS": means Business Supplies Distributors Holdings,
                    LLC, a limited liability company duly organized under the
                    laws of the state of Delaware, with its principal place of
                    business at 500 North Central Expressway, Plano, TX 75074

                    "IBM": means International Business Machines Corporation;

                    "IBM CREDIT": means IBM Credit Corporation, a Delaware
                    corporation with a place of business at 4000 Executive
                    Parkway, Third Floor, San Ramon, CA 94583;

                    "IBM RECEIVABLE"; means a Receivable payable by IBM, an IBM
                    Subsidiary or an IBM Affiliate provided that we have
                    received evidence satisfactory to it that IBM has waived its
                    right to setoff such amounts owed to you with any amount you
                    may owe to IBM;

                    "IBM REIMBURSABLES": means amounts reimbursable from IBM, an
                    IBM Subsidiary or IBM Affiliate, arising from incentive
                    payments, rebates invoiced on a monthly basis, discounts,
                    credits, and refunds in each case owed by IBM to you
                    provided that (i) you obtain (and provide to IBM GF along
                    with the monthly collateral reports required under this
                    Agreement) from IBM written confirmation (a) acknowledging
                    the obligation of IBM to pay such amount, (b) stating the
                    date the amount is due to be paid and (c) IBM waiving its
                    right to setoff such amounts owed to you with any amount you
                    may owe to IBM; (ii) such IBM Reimbursables do not remain
                    unpaid for more than sixty (60) days from the date the
                    obligation of IBM occurred; and (iii) such IBM Reimbursables
                    delivered to us directly by IBM in the form of a Credit Note
                    or some other form acceptable to us.";

                    "IBM SINGAPORE": means IBM Singapore, Global Procurement
                    Services Group - Singapore Trading Center

                    "IBM US": means the Printing Systems Division of IBM
                    facilities located in the United States of America;

                    "IFP" means Inventory Financing partners, LLC, a US limited
                    liability corporation;

                    "INELIGIBLE RECEIVABLE": means any of the following: (i) any
                    IBM Receivable or VAT Receivable which remains unpaid for
                    more than 120 days after the date of the relevant Sales
                    Invoice or VAT Return Document; (ii) all IBM Receivables and
                    VAT Receivables of an individual Debtor where 50% or more of
                    the relevant Debtor's aggregate outstanding balance remains
                    unpaid for more than 120 days after the date of their
                    respective Sales Invoice or VAT Return Document; (iii) any
                    IBM Receivable or VAT Receivable in respect of which there
                    is a breach of any undertaking or warranty given to us, or
                    any other obligation of yours relating to it; (iv) any IBM
                    Receivable or VAT Receivable expressed in a currency other
                    than the EURO or another currency approved by us; (v) those
                    receivables, if any, listed in the Schedule as Ineligible
                    Receivables; (vi) any receivable which is not an IBM
                    Receivable or a VAT Receivable and (vii) any IBM Receivable
                    or VAT Receivable which we deem, in our discretion, to be
                    ineligible except that, in the event we determine in our
                    sole discretion to deem certain IBM Receivables and/or VAT
                    Receivables to be ineligible pursuant to this sub clause
                    (vii), we will provide written notification to you of our
                    determination of ineligibility of such IBM Receivables
                    and/or VAT Receivables and such ineligibility shall be
                    applied to such IBM Receivables and/or VAT Receivables
                    arising from invoices dated one Business Day after the date
                    of such notification.;

                    "INSOLVENCY": in relation to a company means the convening
                    of a meeting to pass a resolution for voluntary winding up
                    by reason of insolvency, or the making of a winding up
                    order, or the issue of an application for the appointment of
                    an administrator, or the appointment of a receiver (whether
                    in or out of court) or an administrative receiver of any of
                    the assets or income of the company; or entry by that
                    company into a voluntary arrangement, or any informal
                    arrangement generally for the benefit of creditors or that
                    company consulting with creditors generally; or any material
                    part of income or assets being subject to seizure, distress
                    or lien; or enforcement of security rights; or compounding
                    with creditors; or ceasing to carry on business (and
                    "INSOLVENT" shall be construed accordingly);


                                                                              4

<PAGE>

                    "LIEN(s)": means any mortgage, pledge, lien, charge,
                    assignment by way of security, hypothecation, security
                    interest and floating charge or any other security agreement
                    or arrangement relating to existing or future assets
                    (including, without limitation, the deposit of monies or
                    property with a person with the primary intention of
                    affording such person a right of set-off or lien) but
                    excluding any lien arising out of rights of consolidation,
                    combination, netting or set-off over any current and/or
                    deposit accounts with a bank or financial institution, where
                    it is necessary to agree to those rights in connection with
                    the opening or operation of any bank accounts or in
                    connection with a treasury management arrangement operated
                    by you, in each case, in the ordinary course of your
                    business or risk management provided the existence of such
                    lien has been notified to us;

                    "LOAN PARTIES": means as defined in the caption.

                    "MATERIAL ADVERSE EFFECT": means a significant adverse
                    effect on (1) any Loan Party, or your parent company's or
                    any of its subsidiaries' or any guarantor's business
                    operations, results of operations, assets, or financial
                    condition; or (2) the value of the Collateral or (3) our
                    rights and remedies under this Agreement or the Security
                    Documents or any Liens in our favour;

                    "MERGER" means the event documented in, and achieved as a
                    result of the execution of, the Merger Documents;

                    "MERGER DOCUMENTS": means the (i) Agreement and Plan of
                    Merger and Reorganization among SDI and BSD dated September
                    26, 2001 and (ii) the Certificate of Merger of BSD with and
                    into BSD A dated September 26, 2001;

                    "NO CHARGE PERIOD": means the period, if any, so described
                    in the Schedule, during which we will not charge you Credit
                    Charges in relation to each Supplier Obligation, which
                    period shall commence on the date of the Supplier Invoice
                    corresponding to each such Supplier Obligation;

                    "NOTIFICATION": means your confirmation to us, in such way
                    and with such evidence as we specify, of all IBM
                    Reimbursables, IBM Receivables and VAT Receivables which
                    have come into existence after the Commencement Date, but
                    which have not previously been Notified to us;

                    "NOTIFY"/"NOTIFIED"/"NOTIFYING": means inclusion of an IBM
                    Reimbursable, an IBM Receivable or VAT Receivable or a
                    credit in an Offer or Notification delivered to us;

                    "OBLIGATIONS": means all covenants, agreements, warranties,
                    duties, representations, loans, advances, interest
                    (including interest accruing on or after the filing of any
                    petition in bankruptcy, or the commencement of any
                    insolvency, reorganization or like proceeding, relating to
                    any Loan Party, whether or not a claim for post-filing or
                    post-petition interest is allowed in such proceeding), fees,
                    reasonable expenses, indemnities, liabilities and
                    Indebtedness of any kind and nature whatsoever now or
                    hereafter arising, owing, due or payable from any Loan Party
                    to IBM GF.

                    "OFFER": means an unconditional offer to sell an IBM
                    Reimbursable, IBM Receivable or VAT Receivable to us with
                    full title guarantee to be made in such way and with such
                    evidence of the performance of the IBM written confirmation,
                    the Sales Contract or the VAT Return Document, as the case
                    may be, as we may specify, and where more than one IBM
                    Reimbursable, IBM Receivable or VAT Receivable is at the
                    same time subject to an Offer it shall be treated as an
                    independent offer to sell us each IBM Reimbursable, IBM
                    Receivable or VAT Receivable so offered which may be
                    accepted or rejected by us entirely at our discretion;

                    "PERSON": means any individual, association, firm,
                    corporation, partnership, trust, unincorporated organization
                    or other entity whatsoever.

                    "PFS": means Priority Fulfillment Services, Inc., a US
                    corporation;


                                                                              5

<PAGE>

                    "PFSWEB": means PFSweb, Inc., a corporation duly organized
                    under the laws of the state of Delaware, with its principal
                    place of business at 500 North Central Expressway, Plano, TX
                    75074

                    "PFS WEB B.V." means as defined in the caption;

                    "PREPAYMENT": means any payment by us to you or made
                    available to you under this Agreement on account of the
                    purchase price of an IBM Reimbursable, IBM Receivable or VAT
                    Receivable;

                    "PREPAYMENT PERCENTAGE": means the amount specified as such
                    in the Schedule or such other percentage as we may from time
                    to time agree;

                    "PRODUCT RIGHTS" includes in relation to the Products
                    supplied to you by an Authorised Supplier any of the
                    following:

                    (i)       all the Authorised Supplier's rights as unpaid
                              vendor and all other rights of the Authorised
                              Supplier under or in relation to the relevant
                              Supplier Invoice (whether such rights arise from
                              or are created by statute, common law, contract or
                              otherwise howsoever);

                    (ii)      documentary evidence of the Supplier Invoice or
                              its performance or of any disputes arising;

                    (iii)     documents of title, warehouse keepers receipts,
                              bills of lading, shipping documents, airway bills
                              or similar documents;

                    (iv)      the benefit of all insurances;

                    (v)       all remittances, instruments, securities, bonds,
                              guarantees and indemnities and accounting records;

                    "PRODUCTS": as the context permits means either: (i)
                    hardware and software and associated products and services
                    agreed by us and acquired by you from an Authorised
                    Supplier; or (ii) hardware and software and associated
                    products and services supplied by you to Debtors;

                    "PURCHASE PRICE": means the amount payable by us to you (i)
                    in respect of the purchase of an IBM Reimbursable being the
                    amount reflected on IBM's written confirmation for such IBM
                    Reimbursable, (ii) in respect of the purchase of an IBM
                    Receivable being the Sales Invoice price in relation to such
                    IBM Receivable, or (iii) in the case of a VAT Receivable,
                    the amount stated in the relevant VAT Return Document for
                    such VAT Receivable, as the case may be, less any other sums
                    due to us in respect of the purchase of such IBM
                    Reimbursable, IBM Receivable or VAT Receivable;

                    "RECEIVABLE": means any payment obligation (present, future
                    or contingent) of a Debtor pursuant to a Sales Contract
                    (including the future right to recover sums due following
                    the determination, assessment or agreement of the amount of
                    such obligation), including any applicable value added
                    taxes, duties, charges and interest (whether arising by
                    contract or by law) together with its Receivables Rights;

                    "RECEIVABLES RIGHTS": includes in relation to any IBM
                    Reimbursable, IBM Receivable or VAT Receivable any of your
                    following rights: all remittances, instruments, securities,
                    bonds, guarantees and indemnities and accounting records;
                    any assets and any guarantee(s) which constitute security in
                    respect of your obligations to us with respect to the
                    purchase of IBM Reimbursables, IBM Receivables and VAT
                    Receivables by us pursuant to this Agreement as set out in
                    the Schedule);

                    "REPURCHASE": means the repurchase by you of an IBM
                    Reimbursable, IBM Receivable or VAT Receivable at its
                    Repurchase Price;

                    "REPURCHASE PRICE": means a sum equivalent to the Purchase
                    Price of an IBM Reimbursable, IBM Receivable or VAT
                    Receivable plus all sums (if any) then


                                                                              6

<PAGE>

                    outstanding and due to us in respect of any relevant Credit
                    Charges relating to that IBM Reimbursable, IBM Receivable or
                    VAT Receivable;

                    "SALES CONTRACT": means a contract under which you sell
                    Products to Debtors;

                    "SALES INVOICE": means a valid invoice issued by you to a
                    Debtor under a Sales Contract;

                    "SCHEDULE": means the Schedule to this Agreement as amended
                    from time to time by written agreement between the parties;

                    "SDI": means Supplies Distributors, Inc., (formally known as
                    BSD Acquisition Corp.) a corporation duly organized under
                    the laws of the state of Delaware, with its principal place
                    of business at 500 North Central Expressway, Plano, TX
                    75074;

                    "SDSA" means as defined in the caption;

                    "SHORTFALL AMOUNT": means the amount set out in Clause 7.4;

                    "SHORTFALL FEE" means the fee calculated as detailed in the
                    Schedule;

                    "SUBSIDIARY" means an entity of which a person has direct or
                    indirect control or owns directly or indirectly more than
                    50% of the share capital or similar right of ownership and
                    "control" for this purpose means the power to direct the
                    management and the policies of the entity whether through
                    the ownership of share capital, contract or otherwise;

                    "SUPPLIER INVOICE": means a valid invoice issued by an
                    Authorised Supplier in respect of your acquisition of
                    Products from such Authorised Supplier;

                    "SUPPLIER OBLIGATIONS": means the amount owing by you in
                    respect of a Supplier Invoice that we have purchased from an
                    Authorised Supplier and a BSDE Supplier Invoice (including
                    the future right to recover sums due following the
                    determination, assessment or agreement of the amount of such
                    obligation), including any applicable value added taxes,
                    duties, charges and interest (whether arising by contract or
                    by law).

                    "VAT" means value added tax levied by the appropriate
                    authorities in a country;

                    "VAT RECEIVABLES" means a payment obligation of the Country
                    of the Netherlands or Belgium pursuant to a VAT Return
                    Document, subject to the limitation specified in the
                    Schedule;

                    "VAT RETURN DOCUMENT" means a document raised by SDSA or
                    BSDE to the respective country for valid reimbursement of
                    VAT paid by BSDE or SDSA to the Country of the Netherlands
                    or Belgium (1) for products purchased from IBM or one of its
                    subsidiaries and which products were sold by BSDE to
                    customers outside the Country of the Netherlands or (2) for
                    products purchased from IBM or one of its subsidiaries and
                    which products were sold by SDSA to customers outside the
                    Belgium, (3) for products sold by BSDE to SDSA, (4) for
                    products supplied by IBM Singapore and IBM US to SDSA and
                    (5) for the operating and sales expenses paid by SDSA in the
                    Country of Belgium;

          1.2       INTERPRETATION

                    In this Agreement:

                    1.2.1     "YOU" and "US" shall where the context admits,
                              include our respective personal representatives,
                              successors in title or permitted assigns (whether
                              immediate or derivative);

                    1.2.2     any reference herein to any document, including to
                              this Agreement includes such document as amended,
                              novated, supplemented, substituted, extended,
                              assigned or replaced from time to time and
                              includes any document which is supplemental hereto
                              or thereto;


                                                                              7

<PAGE>

                    1.2.3     where a word or phrase has to be considered in
                              relation to a jurisdiction outside Belgium and
                              there is no exact equivalent or such work or
                              phrase then it shall have the meaning of the
                              closest equivalent in such jurisdiction; and

                    1.2.4     "INDEBTEDNESS" includes any obligation (whether
                              incurred as principal guarantor or surety) for the
                              payment or repayment of money, whether present or
                              future, actual or contingent.

                    The headings in this Agreement are inserted for convenience
                    only and shall not affect its construction or
                    interpretation.

2.        CREDIT LIMIT

          2.1       We will establish a Credit Limit for you up to the amount
                    specified in the Schedule which we may, at our discretion,
                    purchase Supplier Invoices from Authorised Suppliers IBM
                    Reimbursables, IBM Receivables and/or VAT Receivables from
                    you.

3.        SUPPLIER PURCHASE FACILITY

          3.1       SETTLEMENT OF SUPPLIER INVOICES

                    3.1.1     By entering into this Agreement you agree that you
                              will pay us, and not the Authorised Supplier, in
                              order to settle (i) Supplier Invoices which we
                              have purchased and (ii) BSDE Supplier Invoices.

                    3.1.2     We may, in our discretion and upon written notice
                              to you, cease to include a supplier as an
                              Authorised Supplier for the purposes of this
                              Agreement. Any such cessation will not affect our
                              purchase of Supplier Invoices then in existence or
                              our obligation to pay BSDE Supplier Invoices.

                    3.1.3     You authorise us to collect directly from any
                              Authorised Supplier any monies due for credits,
                              rebates, bonuses or discounts owed by such
                              Authorised Supplier to you. Once received we shall
                              either (in our discretion) apply such monies
                              against amounts you owe us or credit the relevant
                              amount to your ledger account with us and pay such
                              monies into the bank account referred to in Clause
                              6.7.1.

                    3.1.4     You shall pay us for a Supplier Obligation no
                              later than the Due Date. You agree to pay us the
                              full amount of such Supplier Obligation.

                    3.1.5     If an Extended Credit Period is provided (as
                              specified in the Schedule) payment of the relevant
                              Supplier Obligation may be deferred for such
                              further period as is specified in the Schedule
                              after the end of the No Charge Period but such
                              Supplier Obligation shall bear interest at the
                              rate specified in the Schedule during such period.

                    3.1.6     If you do not pay the Supplier Obligations before
                              the last day of the No Charge Period (or, if
                              clause 3.1.5 applies, at the end of the Extended
                              Credit Period), such sum shall bear interest at
                              the Default Rate from the expiry of the No Charge
                              Period (unless the Extended Credit Period is
                              applicable) until actual receipt of such payment
                              by us in cleared funds.

          3.2       TITLE TO PRODUCTS

                    3.2.1     You hereby acknowledge that by virtue of our
                              purchase from the relevant Authorised Supplier of
                              the Supplier Invoices or, as applicable, our
                              agreement to pay the BSDE Supplier Invoices on
                              your behalf, all Product Rights, including any
                              reservation of title rights, belong to us until
                              all amounts owing to us in connection with payment
                              of the relevant Supplier Obligations and any
                              outstanding Credit Charges are paid in full by
                              you.

                    3.2.2     You will not cause or permit any Debtor or other
                              third party to encumber our Product Rights in any
                              way. You agree to take such action as may be
                              required to implement this provision, including
                              your acknowledgement of, and agreement to the
                              insertion of written notice in Sales Invoices or,
                              as


                                                                              8

<PAGE>

                              applicable, separate notices to BSDE Debtors, to
                              the intent that IBM GF is the owner of the
                              relevant Product Rights.

4.        IBM REIMBURSABLES, IBM RECEIVABLES AND VAT RECEIVABLES DISCOUNTING
          FACILITY

          Under the terms of this Agreement, we may from time to time purchase
          IBM Reimbursables, IBM Receivables and VAT Receivables from you.

          4.1       PURCHASE AND PAYMENT OF IBM REIMBURSABLES, IBM RECEIVABLES
                    AND VAT RECEIVABLES

                    4.1.1     

                    4.1.2     You hereby agree to transfer ownership to us of
                              all IBM Reimbursables, IBM Receivables and VAT
                              Receivables (together with all Receivables Rights)
                              created until this Agreement ends, or we give you
                              notice under Clause 4.1.12 that no more IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              will be accepted from a date designated by us.
                              Such IBM Reimbursables, IBM Receivables and VAT
                              Receivables shall vest in us the moment the IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              are created and transfer of ownership of any such
                              IBM Reimbursables, IBM Receivables and VAT
                              Receivables to us shall take place automatically
                              and with immediate effect. On that day our receipt
                              of the relevant Notifications and our ownership of
                              such IBM Reimbursables, IBM Receivables and VAT
                              Receivables shall then be complete. We will credit
                              to your ledger account with us the Purchase Price
                              of all such IBM Reimbursables, IBM Receivables and
                              VAT Receivables upon such date.

                    4.1.3     You will pay any duties or similar charges
                              including any Stamp Duty arising in connection
                              with this Agreement and the transfer of the IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              to us.

                    4.1.4     After the Commencement Date, PFS Web B.V., BSDE
                              and/or SDSA will notify us in the manner agreed
                              with us, and at the frequency stated in the
                              Schedule of the invoice value of IBM
                              Reimbursables, IBM Receivables and VAT
                              Receivables. PFS Web B.V., BSDE and SDSA will
                              provide on request copies of the relevant
                              documentation, delivery notes, and other evidence
                              of the validity of the IBM Reimbursables, IBM
                              Receivables and VAT Receivables. There will be
                              either be a service fee for each Notification
                              subject to a minimum service fee payable in
                              accordance with Clause 7.2.1, or a monthly service
                              fee, as set out in the Schedule which you agree to
                              pay to us. The Loan Parties will promptly when
                              required by us complete any forms of assignment,
                              documents or other instruments necessary to ensure
                              the transfer of full ownership of the IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              to us or to enable us to collect the IBM
                              Reimbursables, IBM Receivables and VAT
                              Receivables.

                    4.1.5     If, for any reason, the sale or transfer of IBM
                              Reimbursables, IBM Receivables and VAT
                              Receivables, pursuant to the above provisions of
                              this Agreement, does not vest ownership of the IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              in us, the Loan Parties will hold any such IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              and any monies collected by them in respect of
                              such IBM Reimbursables, IBM Receivables and VAT
                              Receivables in trust for us, and pay any such
                              monies to us.

                    4.1.6     We may use the monies we receive in respect of
                              each IBM Reimbursable, IBM Receivable or VAT
                              Receivable to satisfy any monies then owing to us
                              by you. We will transfer any remaining amount to
                              your designated bank account (provided there is no
                              Event of Default) at the frequency agreed with you
                              subject to the banking charge specified in the
                              Schedule.

                    4.1.7     As the absolute owner we have the sole and
                              unfettered right to enforce payment of and collect
                              any IBM Reimbursable, IBM Receivable or VAT


                                                                              9

<PAGE>

                              Receivable purchased by us under this Agreement.
                              However until further notice from us the Loan
                              Parties will act diligently and promptly as our
                              undisclosed agent in administering and in
                              collecting and enforcing payment of IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              at the Loan Parties expense. However if (a) we
                              consider that your continued collection of any IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              would be prejudicial to us, and that such
                              collection would be better conducted by us or a
                              third party, rather than by the Loan Parties; or
                              (b) an Event of Default has occurred; or (c) this
                              Agreement has terminated for whatever reason; or
                              (d) there has occurred (in our reasonable opinion)
                              a Material Adverse Effect, we reserve the right
                              to, or designate a third party to, collect payment
                              directly including issuing demands or legal
                              proceedings either in our own name or in your name
                              if required. The Loan Parties agree to co-operate
                              in such collection or proceedings, including the
                              provision of witnesses or the production of
                              documents. We can defend or compromise such legal
                              proceedings in such manner and on such terms as we
                              may see fit and the Loan Parties will be bound by
                              the result. Any reasonable expenses incurred by us
                              in such proceedings, including the payment of
                              legal and other professional fees, costs and
                              expenses, will be paid by you, or charged to you
                              by debiting the relevant accounts. Whilst the Loan
                              Parties may ask us to cease collection activities
                              against any Debtor and we will do so upon
                              receiving payment of the relevant IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              or upon such terms as we shall agree with the
                              applicable Loan Party we have the right to refuse
                              or to accept such Loan Party's request.

                    4.1.8     The Loan Parties agree that without our prior
                              written consent they will not sell, pledge or
                              grant any Lien over any IBM Reimbursables, IBM
                              Receivables and VAT Receivables to any third
                              party, or agree to do so, or enter into any other
                              arrangement which might adversely affect our
                              interest in any IBM Reimbursables, IBM Receivables
                              and VAT Receivables.

                    4.1.9     After you Notify an IBM Reimbursable, IBM
                              Receivable or VAT Receivable to us you agree (save
                              where Clause 6.6 applies) not to cancel or vary
                              any relevant VAT Return Document or its relevant
                              payment terms or settlement discounts without our
                              prior written consent except where the change is
                              due to a manifest error in your invoice, in which
                              case you will notify us of the resulting change in
                              the IBM Reimbursable, IBM Receivable or VAT
                              Receivable but our written consent will not be
                              required.

                    4.1.10    You undertake that if Products associated with IBM
                              Receivables are returned to you and you provide a
                              credit in any form which has the effect of
                              reducing the amount of the relevant Receivable or
                              Acquired Receivable, you will promptly notify us.

                    4.1.11    For each IBM Reimbursable, IBM Receivable and VAT
                              Receivable you represent and warrant to us that:
                              (a) all particulars notified to us are correct and
                              complete; (b) the IBM Reimbursable, IBM Receivable
                              or VAT Receivable has not been previously Notified
                              to us; (c) any covenants or undertakings given to
                              us relating to such IBM Reimbursable, IBM
                              Receivable or VAT Receivable will be complied
                              with; (d) each IBM Reimbursable, IBM Receivable or
                              VAT Receivable is fully enforceable and is free
                              from any other charge, pledge, or Lien in favour
                              of a third party; and (e) such IBM Reimbursable,
                              IBM Receivable or VAT Receivable will be paid
                              without any claim for set off, counterclaims,
                              retention or abatement.

                    4.1.12    The sale or transfer of IBM Reimbursables, IBM
                              Receivables and VAT Receivables will continue
                              until we notify You in writing that we will accept
                              no more IBM Reimbursables, IBM Receivables and VAT
                              Receivables for purchase or until the termination
                              of this Agreement whichever is the sooner.


                                                                             10

<PAGE>

          4.2       CREDIT AND COLLECTION POLICY

                    The Loan Parties will comply in all material respects with
                    the Loan Parties' credit and collection practices agreed
                    with us in regard to each IBM Receivable VAT Receivable, any
                    Receivables Rights and the related Sales Invoice or VAT
                    Return Document.

5.        PREPAYMENTS

          5.1       We may, following your written or electronic request, make a
                    Prepayment available to you in a bank account maintained by
                    you, subject to any banking charge as set out in the
                    Schedule, in the amount you select up to the Available
                    Credit. We will endeavour to effect such Prepayment on the
                    day you make such request provided we receive such request
                    before 10.00 am on any Business Day.

          5.2       If we make a Prepayment on a day upon which any settlement
                    of a Supplier Obligation or Credit Charge is due or overdue
                    for payment, or you owe us any monies for the Repurchase
                    Price of IBM Reimbursables, IBM Receivables and VAT
                    Receivables then we may apply the proceeds of the Prepayment
                    to such payment in or towards the discharge of the monies so
                    due to us and only an amount equal to the difference, if
                    any, between the amount of the Prepayment and the amount
                    being paid or so discharged shall be made available to you.

          5.3       A Discount Charge will accrue from day to day during this
                    Agreement and be calculated on the outstanding daily balance
                    of all Prepayments .

          5.4       You may at any time pay us for Supplier Obligations and any
                    outstanding Credit Charges, by requesting us to apply all or
                    part of any Prepayment for that purpose. Prepayments may not
                    be used for the repayment of principal owing to us pursuant
                    to any agreement between yourself as borrower and ourselves
                    as lender unless expressly agreed by us in writing. In
                    addition to payment for Supplier Obligations, Prepayments
                    shall only be used for working capital purposes.

          5.5       The total amount of Prepayments at any point in time shall
                    not exceed the Collateral value attributed to the IBM
                    Reimbursables, IBM Receivables and VAT Receivables at such
                    time.

6.        IBM REIMBURSABLES, IBM RECEIVABLES, VAT RECEIVABLES AND RECEIVABLES
          RIGHTS

          6.1       You will provide us with your Receivables Rights and take
                    any necessary steps to make such Receivables Rights
                    effective and enforceable. If a Lien is to be provided to us
                    in relation to any IBM Reimbursable, IBM Receivable or VAT
                    Receivable and/or Receivable Right not effectively purchased
                    hereunder it shall be a valid first priority interest.

          6.2       The Loan Parties agree:-

                    6.2.1     to promptly execute and deliver such further
                              instruments and documents, and to take such
                              further action including any filing or payment of
                              registration fees at the Loan Parties' expense as
                              we may reasonably request for the purpose of
                              preserving or protecting all our rights and
                              interests in the IBM Reimbursables, IBM
                              Receivables and VAT Receivables (and the
                              Receivables Rights) and our ownership of the
                              former and our rights in the latter;

                    6.2.2     report to us with the reports and accounts
                              referred to in the Schedule at the intervals
                              specified therein and to provide us with such
                              other reports as may be agreed; and

                    6.2.3     to advise us promptly, in reasonably sufficient
                              detail, of any substantial change relating to the
                              value, quantity or quality of the IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              and the Receivables Rights, including any movement
                              in location of the IBM Reimbursables, IBM
                              Receivables and VAT Receivables and the
                              Receivables Rights, or any event which could
                              reasonably be expected to have a significant
                              adverse effect on the value,


                                                                             11

<PAGE>

                              quantity or quality of the IBM Reimbursables, IBM
                              Receivables and VAT Receivables and the
                              Receivables Rights; and

                    6.2.4     promptly advise us of any loss, destruction of or
                              damage to the IBM Reimbursables, IBM Receivables
                              and VAT Receivables or the Receivables Rights and
                              to pay us such amount (if any) as will reduce the
                              Credit Limit as specified by us in our absolute
                              discretion, or provide such additional Collateral
                              as we may require; and

                    6.2.5     to maintain books and records relating to the
                              Collateral in such detail, form and scope as is
                              consistent with good business practice and ensure,
                              where applicable, such books and records will
                              reflect our ownership of the IBM Reimbursables,
                              IBM Receivables and VAT Receivables and our
                              interest in the Receivables Rights.

          6.3       NOTICE OF TRANSFER OF OWNERSHIP OF RECEIVABLES

                    If required by us, for each IBM Reimbursable, IBM Receivable
                    and VAT Receivable, the Loan Parties will give written
                    notice to the respective Authorized Supplier, Debtor or
                    country government agency concerned that we are the owner of
                    the IBM Reimbursable, IBM Receivable or VAT Receivable, as
                    applicable, and that payment of IBM Reimbursables, IBM
                    Receivables and VAT Receivables must be made to us directly.
                    The wording of the notice and the manner in which it is
                    given will be as directed or approved by us. We may give
                    such written notice to the relevant Authorized Supplier,
                    Debtor or country government agency directly.

          6.4       RECEIVABLES RIGHTS

                    6.4.1     The Loan Parties hereby acknowledge that all
                              Receivables Rights belong to us until all amounts
                              owing to us in connection with IBM Reimbursables,
                              IBM Receivables and VAT Receivables and any
                              outstanding Credit Charges are paid in full.

                    6.4.2     You will not cause and you will use your best
                              endeavours not to permit any Debtor or other third
                              party to acquire title in any Products the subject
                              of Receivables or to encumber such title in any
                              way before you have delivered the relevant
                              Products and payment in full of the relevant
                              Receivable has been made by such Debtor. You agree
                              to take such action as may be required to
                              implement this provision, including the insertion
                              of appropriate clauses in Sales Contracts.

          6.5       REPURCHASE

                    6.5.1     We may require you to buy back any IBM
                              Reimbursable, IBM Receivable or VAT Receivable and
                              pay us the Repurchase Price of such IBM
                              Reimbursable, IBM Receivable or VAT Receivable as
                              follows in any of the following situations: (i) if
                              such IBM Reimbursable, IBM Receivable or VAT
                              Receivable is or becomes an Ineligible Receivable;
                              (ii) if it is the subject of a dispute; (iii) if
                              payment is withheld for any reason including a
                              dispute under the Sales Contract or, if
                              applicable, the VAT Return Document or any claim
                              to set-off or counterclaim; (iv) if the respective
                              country declares or effects a change in its laws,
                              or if there is a change in its financial
                              condition, which has the effect of making its
                              payment of the VAT Receivable delayed or uncertain
                              (v) at any time on or after any Event of Default;
                              or (vi) at any time after termination of this
                              Agreement. We will either debit your account with
                              the Repurchase Price if the account is
                              sufficiently in credit, or if not then we will
                              require the applicable Loan Party to make a cash
                              payment of the Repurchase Price in which case such
                              Loan Party will promptly make such payment to us.
                              On receipt of payment in full of the Repurchase
                              Price of each IBM Reimbursable, IBM Receivable and
                              VAT Receivable which we require a Loan Party buy
                              back together with all other sums due from it to
                              us, we will upon request assign or transfer that
                              IBM Reimbursable, IBM Receivable or VAT Receivable
                              to you and it will pay the reasonable costs
                              incurred by us 


                                                                             12

<PAGE>

                              including any duly documented and properly
                              incurred legal costs or other professional
                              expenses, stamp duties, VAT, and similar charges.
                              Any amounts such Loan Party collects before we
                              receive payment in full will be held in trust for
                              us and promptly delivered to us and set against
                              the amounts owed to us and any amounts we collect
                              after payment in full to us will be credited to
                              your account.

                    6.5.2     You will not cancel any notices of assignment
                              given to a Debtor or country, as applicable, owing
                              IBM Reimbursables, IBM Receivables and VAT
                              Receivables which we have required you to buy back
                              or attempt to collect such IBM Reimbursables, IBM
                              Receivables and VAT Receivables for your own
                              account until you have paid us, in cleared funds,
                              the Repurchase Price and all other amounts due to
                              us in respect of it.

          6.6       CREDITS AND CLAIMS

                    6.6.1     If any query or claim shall arise concerning or
                              affecting an IBM Reimbursable, IBM Receivable or
                              VAT Receivable or concerning a credit or set-off
                              by the respective Authorised Supplier, Debtor or
                              country against the Supplier Invoice, Sales
                              Invoice or VAT Return Document, the applicable
                              Loan Party will, after complying with Clause
                              4.1.10, (i) immediately give full details in the
                              form we require; (ii) use all reasonable efforts
                              to resolve the query or claim; and (iii) notify us
                              of any resulting credit note or other settlement.

                    6.6.2     If the query or claim affects the value to us of
                              the IBM Receivable or VAT Receivable, it may be
                              treated by us as being an Ineligible Receivable.

          6.7       BANK ACCOUNT

                    6.7.1     We will tell you the form of assignment to be
                              included on the Sales Invoice relating to an IBM
                              Receivable and/or VAT Return Document. You will
                              instruct the respective Authorised Supplier,
                              Debtor or country government agency to pay the
                              amounts of the credit, Sales Invoice or VAT Return
                              Document to a bank account controlled by us and
                              the Loan Parties must do nothing to prevent
                              payment to us.

                    6.7.2     If payments are to be made to a bank account in
                              your name but controlled by us you will enter into
                              agreements satisfactory to us, enabling the bank
                              account to be administered so that we have control
                              over all withdrawals from the bank account. Any
                              payments collected by the Loan Parties in relation
                              to IBM Reimbursables, IBM Receivables and VAT
                              Receivables shall be held in trust for us and
                              promptly deposited in the bank account without
                              being mixed with the Loan Parties' own funds or
                              negotiated except in our favour. You will pay all
                              costs and expenses of setting up and operating
                              bank accounts for this purpose, including all
                              charges relating to the collection or attempted
                              collection of cheques or other instruments of
                              payment.

7.        CREDIT CHARGES AND PAYMENTS

          7.1       INFORMATION ABOUT YOUR ACCOUNT

                    We will provide you with information concerning Supplier
                    Obligations and Prepayments, including amounts due to us and
                    on request the then amount of the Available Credit. Such
                    information shall be treated as being correct and binding
                    upon you in the absence of manifest error provided that such
                    manifest error is notified to us within a period of 15 days
                    from the date of the provision of such information to you.
                    We will keep such accounts as may be required to show the
                    amounts due to us and the amounts received from you and/or
                    your Debtors. In any proceedings or disputes a certificate
                    issued by our Company Secretary, or by one of our Directors
                    or authorised officers as to the correctness of any
                    financial statement or any amounts due to us shall be prima
                    facie evidence of the same.


                                                                             13

<PAGE>

          7.2       CREDIT CHARGES

                    7.2.1     The Credit Charges payable by you are set out in
                              the Schedule. They are set out exclusive of VAT
                              and any other taxes and duties which, if
                              applicable, will be additionally payable by you.
                              You will receive an invoice or relevant statement
                              for all Credit Charges including any applicable
                              VAT stamp or other duties and will either be
                              debited to your account on a monthly basis or paid
                              to us on demand. Any minimum amounts payable by
                              you will be debited to your account periodically
                              as set out in the Schedule. Some Credit Charges
                              will fluctuate up or down depending on changes to
                              the Base Rate as described in Clause 7.2.3.

                    7.2.2     If we purchase a Supplier Invoice that does not
                              include a "No Charge Period", any Supplier
                              Obligations thereunder will be subject to a set up
                              fee as specified in the Schedule (or as agreed
                              with you) and Credit Charges will be levied on you
                              from and including the date of issue of the
                              relevant Supplier Invoice. You agree to pay such
                              Credit Charges or set up fee on their due date
                              together with payment of the relevant Supplier
                              Obligations.

                    7.2.3     Where a Credit Charge is related to Base Rate and
                              the outside reference rate upon which Base Rate is
                              based at any time changes then, on the first
                              business day of the next following calendar month,
                              the Base Rate will be changed to the outside
                              reference rate existing on the last business day
                              of the previous calendar month. However, if the
                              outside reference rate changes by 25 basis points
                              or more at any time then the Base Rate will be
                              changed by the same amount on the day of such
                              change or the next following business day. When
                              the applicable Base Rate is determined by
                              reference to another published rate and that rate
                              ceases to be published for any reason, we will use
                              another appropriate rate as the reference rate so
                              that you and we remain in an equivalent financial
                              position.

          7.3       PAYMENT

                    7.3.1     The Loan parties agree to pay, or cause you to
                              pay, all sums due to us arising from the
                              settlement of Supplier Obligations and the
                              Repurchase Price of IBM Reimbursables, IBM
                              Receivables and VAT Receivables and all Credit
                              Charges owed to us and applicable VAT, stamp or
                              other duties by direct debit, wire transfer, or
                              such other method of payment that we agree, in
                              full, without any set off whatsoever. Payment
                              shall be deemed to be made when such payment is
                              received in cleared funds in the designated bank
                              account in our name or controlled by us. The Loan
                              Parties may at any time prepay, without notice or
                              penalty, in whole or in part, amounts owed to us
                              under this Agreement. We may apply payments made
                              to us (whether by you or otherwise) firstly to pay
                              any Credit Charges owing under this Agreement and
                              then the amount owing in respect of each Supplier
                              Obligation, and/or the Repurchase of IBM
                              Reimbursables, IBM Receivables and VAT
                              Receivables. Late payment will be subject to a
                              late payment charge on the sums unpaid at the
                              Default Rate from the date following the Due Date
                              until and including the date payment is received
                              by us in cleared funds in our account

                    7.3.2     Your obligations to pay sums due in respect of
                              Supplier Obligations to us or any Repurchase Price
                              of IBM Reimbursables, IBM Receivables and VAT
                              Receivables will not be affected by any dispute
                              you may have with any Authorised Supplier,
                              including defective, insufficient, late or partly
                              delivered Products. You waive all rights of
                              set-off or counterclaim against your liability to
                              pay Supplier Obligations. However, this does not
                              affect any claim or right or remedy you may have
                              against the Authorised Supplier. You will not
                              assert against us any claim or defence you may
                              have against the Authorised Supplier or any third
                              party. We have no obligation to you under the
                              Supplier Invoice. The Loan Parties will indemnify
                              and hold us harmless against any claims or
                              liabilities arising from the Products in any way
                              whatsoever.

                    7.3.3     When Products are returned by you to an Authorised
                              Supplier it will not affect the amounts due to us,
                              except for IBM Reimbursables, unless and until we


                                                                             14

<PAGE>

                              receive the amount of a credit note from the
                              applicable Authorised Supplier relative to the
                              returned Products and which we shall promptly upon
                              receipt apply it to your account. Such credit note
                              amount will be deducted from the amounts due by
                              you to us.

          7.4       SHORTFALL AMOUNT

                    If, on any day, (i) the aggregate of the amounts outstanding
                    from the Loan Parties to us in respect of Supplier
                    Obligations and the outstanding and unpaid Prepayments we
                    have made in respect of IBM Reimbursables, IBM Receivables
                    and VAT Receivables by the relevant Debtor exceed the lesser
                    of either the value of the Collateral or the Credit Limit,
                    or (ii) the outstanding Prepayments exceed the Collateral
                    value of the IBM Reimbursables, IBM Receivables and VAT
                    Receivables, then, unless otherwise agreed, the Loan Parties
                    will pay such "SHORTFALL AMOUNTS" on the day this becomes
                    known to you either by our advising you or from your own
                    enquiries. Until this is done, we shall be under no
                    obligation to purchase Supplier Invoices from Authorised
                    Suppliers or IBM Reimbursables, IBM Receivables and VAT
                    Receivables from you (whether or not previously agreed) and
                    you will pay a late payment charge at the Default Rate set
                    out in the Schedule on the shortfall amounts accruing from
                    day to day. In addition we may charge the Shortfall Fee if
                    the Shortfall Amounts are not paid when due.

          7.5       POWER OF ATTORNEY

                    As security for your obligation hereunder the Loan Parties
                    grant us, our directors and officers an irrevocable power of
                    attorney:-

                    (i)       to endorse or negotiate cheques, or bankers drafts
                              and negotiable instruments;

                    (ii)      to initiate and settle any claims (including the
                              conduct of legal proceedings); and

                    (iii)     to sign or execute any deeds, papers, forms or
                              documents and file the same as may be necessary to
                              perfect or preserve any of our rights or to secure
                              performance of your obligations to us or any
                              Debtor with respect to the Collateral and
                              ownership of the IBM Reimbursables, IBM
                              Receivables and VAT Receivables.

8.        REPRESENTATIONS, WARRANTIES AND COVENANTS

          8.1       REPRESENTATIONS AND WARRANTIES

                    By signing the Agreement and (in relation to Clauses 3 and
                    4) before each Supplier Invoice or IBM Reimbursable, IBM
                    Receivable or VAT Receivable is purchased or Prepayment is
                    made you represent and warrant (or are deemed to represent
                    and warrant) to us as follows:

                    8.1.1     VALIDITY

                              Each of the Loan Parties, your parent company, and
                              each of its subsidiaries is duly organised, is
                              validly existing and has the full power, authority
                              and legal right, including compliance with any
                              governmental and other consents, licenses and
                              authorisations, to conduct its business and to
                              enter into this Agreement. This Agreement and any
                              Liens or other documents provided in relation to
                              the IBM Reimbursables, IBM Receivables and VAT
                              Receivables and the Receivables Rights and the
                              Products and the Product Rights are legal, valid
                              and binding obligations upon you and do not
                              contravene any other agreement or obligation.

                    8.1.2     ACTIONS, PROCEEDINGS

                              No significant or material judgements, orders,
                              writs or decrees are outstanding against any Loan
                              Party nor is there pending nor, to the best of the
                              Loan Parties' knowledge after due inquiry,
                              threatened, any material litigation,


                                                                             15

<PAGE>

                              contested claim, investigation, arbitration, or
                              taxation or governmental proceeding by or against
                              a Loan Party, nor is any Loan Party in default of,
                              nor engaged in, any significant or material
                              dispute under any agreement or document. If any
                              dispute does arise such Loan Party undertakes to
                              inform us and promptly resolve it.

                    8.1.3     INFORMATION

                              Each Loan Party has disclosed to us every fact or
                              matter known or which should reasonably have been
                              known to it that might influence us whether or not
                              to enter into this Agreement, or purchase any
                              Supplier Invoice or IBM Reimbursable, IBM
                              Receivable or VAT Receivable or make any
                              Prepayment, or to accept any Product Rights and/or
                              Receivables Rights, or to accept any guarantee or
                              indemnity, and that all information furnished by
                              each Loan Party or on its behalf to us or by its
                              Auditors in connection with this Agreement and the
                              Products and Product Rights, IBM Reimbursables,
                              IBM Receivables and VAT Receivables and the
                              Receivables Rights is true and accurate in all
                              material respects and is neither misleading nor
                              incomplete by the omission of any material fact
                              and has not changed since being provided to us.

          8.2       COVENANTS AND UNDERTAKINGS
 
                    Until termination of this Agreement and the
                    complete payment and satisfaction of all
                    obligations under this Agreement, each Loan Party
                    agrees as follows: 

                    8.2.1     MERGER, CONSOLIDATION AND SALES

                              (a)       If any Loan Party plans to merge or
                                        consolidate with any other entity (other
                                        than the planned purchase of the assets
                                        of BSDE by SDSA and the dissolution of
                                        BSDE), or engage in any operation or
                                        activity materially different from that
                                        presently being conducted by it, or
                                        otherwise intend to dispose of any
                                        substantial part of its business, or the
                                        IBM Reimbursables, IBM Receivables and
                                        VAT Receivables or the Receivables
                                        Rights or the Products or the Product
                                        Rights or engage in a significant
                                        corporate restructuring in ownership,
                                        then such Loan Party will:

                                        (i)       disclose these facts to us as
                                                  early as possible (and if
                                                  subject to a confidentiality
                                                  undertaking in relation to
                                                  these matters, will use best
                                                  endeavours to obtain the
                                                  consent of the counterparty
                                                  thereto), and

                                        (ii)      reach agreement with us
                                                  concerning all remaining
                                                  payment obligations under this
                                                  Agreement or, failing such
                                                  agreement, and if so required
                                                  by us, immediately discharge
                                                  such payment obligations
                                                  (whether or not accrued due
                                                  and payable). For this purpose
                                                  (i) all Supplier Obligations
                                                  shall forthwith become
                                                  payable,(ii) all IBM
                                                  Reimbursables, IBM Receivables
                                                  and VAT Receivables shall be
                                                  treated as Ineligible
                                                  Receivables to be re-purchased
                                                  by such Loan Party and (iii)
                                                  all IBM Reimbursables will be
                                                  considered ineligible for
                                                  purchase by us, to be
                                                  re-purchased by such Loan
                                                  Party. No Loan Party will be
                                                  required to make such
                                                  disclosure if, and for so long
                                                  as, to do so would be a breach
                                                  of applicable laws or
                                                  regulatory requirements. Any
                                                  disclosure under this
                                                  sub-clause shall be treated in
                                                  confidence by us.

                    8.2.2     FINANCIAL STATEMENTS AND OTHER INFORMATION

                              SDSA will give us a copy of its audited Financial
                              Statements and management accounts prepared in
                              accordance with generally accepted accounting
                              principles, whether audited or not, as provided in
                              the Schedule. SDSA and BSDE will also provide such
                              other information as we may reasonably request
                              concerning VAT Return Documents. Each Loan Party
                              will


                                                                             16

<PAGE>

                              promptly advise us if any material action or
                              proceeding is outstanding or pending against or
                              if, to the best of its knowledge after due
                              enquiry, any such action or proceeding becomes
                              threatened.

                    8.2.3     AUTHORISATION

                              We can rely upon the signature or the act or
                              communication from Authorised Officers and
                              Directors in accordance with Attachment A to this
                              Agreement.

                    8.2.4     INSPECTION

                              Each of the Loan Parties will allow us or our
                              agents to enter upon its premises during normal
                              business hours on reasonable notice, and at any
                              time during the continuance of an Event of
                              Default, for the purposes of inspecting, taking
                              copies of and/or verifying the Supplier Invoices
                              and any Product Rights, the IBM Reimbursables, IBM
                              Receivables and VAT Receivables, any Receivables
                              Rights, Financial Statements, and its financial
                              status; each Loan Party will agree to provide us
                              with such information and documentation that we
                              consider reasonably necessary to conduct the
                              foregoing activities, including samplings of
                              purchase orders, invoices and evidences of
                              delivery or other performance, and that we may
                              contact such Loan Party's customers or the
                              respective country government agency directly or
                              through our agents to verify IBM Reimbursables,
                              IBM Receivables and VAT Receivables.

                    8.2.5     INSURANCE

                              8.2.5.1   Each Loan Party will maintain, or cause
                                        to be maintained, with financially sound
                                        and reputable insurance companies,
                                        insurance on its respective properties
                                        and assets (without being required to
                                        effect credit insurance on the IBM
                                        Reimbursables, IBM Receivables or VAT
                                        Receivables unless such obligation is
                                        specified in the Schedule) to their full
                                        insurable value; you will be required to
                                        maintain insurance against claims for
                                        personal injury or death as a result of
                                        the use of any Products sold by you;
                                        each Loan Party will be required to
                                        maintain insurance coverage against
                                        other business risks; each Loan Party
                                        will give us at least ten days written
                                        notice before any policy is altered or
                                        cancelled.

                              8.2.5.2   Each Loan Party will instruct each
                                        insurer to endorse and to assign the
                                        benefit of each insurance policy
                                        covering its properties and assets in
                                        respect of Supplier's Invoices or
                                        Receivables, and IBM Reimbursables, IBM
                                        Receivables and VAT Receivables which
                                        have been purchased by us hereunder so
                                        that (a) payment of proceeds with
                                        respect to claims thereon will be made
                                        directly to us and (b) no act or default
                                        of such Loan Party or any other person
                                        shall affect our right to recover under
                                        the policies.

                              8.2.5.3   If such Loan Party fails to pay any
                                        costs, charges or premiums, or if it
                                        fails to insure its properties and
                                        assets, we may pay such costs, charges
                                        or premiums on such Loan Party's behalf.
                                        Any such amounts paid by us shall be
                                        considered as an additional debt owed by
                                        such Loan Party's due and payable by it
                                        or you immediately upon receipt of our
                                        invoice.

                    8.2.6     RIGHT OF SET-OFF

                              At all times we can set-off amounts due from you
                              to us (including those prospectively due where
                              they are likely to become payable) and whether due
                              under this or any other agreement with us or
                              otherwise due against whatever we owe you. Where
                              the amount due by you cannot immediately be
                              ascertained we may make a reasonable estimate of
                              the amounts concerned.


                                                                             17

<PAGE>

                    8.2.7     FINANCIAL COVENANTS

                              You agree to comply with the Financial Covenants,
                              if any, set out in the relevant supplements or the
                              Schedule. You also agree that you will not,
                              without our consent, make any of the following
                              payments ("Restricted Payments") if you and
                              Holdings are not in compliance with the Financial
                              Covenants contained in this Agreement and after
                              giving effect of such payment, the aggregate
                              amount of such Restricted Payments under this
                              Agreement and the AIF does not cause you or
                              Holdings to violate such Financial Covenants or
                              exceed Six Hundred Thousand Dollars ($600,000),
                              without duplication, during any fiscal year (i)
                              declare or pay any dividend (other than dividends
                              payable solely in common stock of BSDE and/or
                              SDSA) on, or make any payment on account of, or
                              set apart assets for a sinking or other analogous
                              fund for, the purchase, redemption, defeasance,
                              retirement or other acquisition of, any shares of
                              any class of capital stock of BSDE and/or SDSA or
                              any warrants, options or rights to purchase any
                              such capital stock or Equity Interests, whether
                              now or hereafter outstanding, or make any other
                              distribution in respect thereof, either directly
                              or indirectly, whether in cash or property or in
                              obligations of BSDE and/or SDSA ; or (ii) make any
                              optional payment or prepayment on or redemption
                              (including, without limitation, by making payments
                              to a sinking or analogous fund) or repurchase of
                              any Indebtedness (other than the Obligations)),
                              except as permitted by the Amended and Restated
                              Notes Payable Subordination Agreement.

                    8.2.8     DESIGNATED PAYMENT/WARRANTY COMPANY

                              Upon the occurrence of a Shortfall Amount which is
                              not paid when due or if an Event of Default has
                              occurred and is continuing, you agree, upon demand
                              from us, to (i) send to your factoring bank, a
                              designated payment in the form of Attachment B to
                              this Agreement instructing such bank to pay us
                              directly in lieu of paying you and (ii) within 30
                              days of such request, turn over the control of
                              your stock to a licensed and warranty company
                              satisfactory to us.


                                                                             18

<PAGE>

9.        DEFAULTS AND REMEDIES

          9.1       DEFAULTS

                    Any one of the following events shall constitute an "EVENT
                    OF DEFAULT" under this Agreement:

                    9.1.1     A Loan Party's failure to make payment to us when
                              due of any amount, including without limitation
                              Credit Charges or the Shortfall Amount or part
                              thereof, under this Agreement or its failure to
                              comply with any other provision of this Agreement
                              including its failure to meet the dates by which
                              information or reports are due under this
                              Agreement;

                    9.1.2     Any representation, warranty, statement, report or
                              certificate made or delivered by a Loan Party or
                              on its behalf is false in any material respect at
                              the time when made or deemed made;

                    9.1.3     The occurrence of any event or circumstance,
                              including adverse comment in Auditors' reports for
                              any Loan Party, which, in our opinion, could
                              reasonably be expected by us to have a Material
                              Adverse Effect;

                    9.1.4     A Loan Party, your parent company, any Subsidiary
                              of a Loan Party or your parent company, or any of
                              your guarantors becomes subject to Insolvency, or
                              to a change of control due to change in
                              shareholders unless previously agreed to by us in
                              writing;

                    9.1.5     The use of any Prepayments or the incurring of any
                              Supplier Obligations for any purpose other than
                              your normal working capital requirements unless
                              disclosed to us and agreed in writing before the
                              Prepayment or Supplier Obligation is made;

                    9.1.6     Any default by any Loan Party in complying with
                              any judgement or any demand under a guarantee or
                              indemnity;

                    9.1.7     Any breach by any Loan Party, your parent company
                              or any of your guarantors of any other agreement
                              with us or with any other lender, including IBM
                              Credit Corporation, Congress, Fortis, and any
                              successors of Congress and/or Fortis or credit
                              providers or suppliers (including Authorised
                              Suppliers);

                    9.1.8     Any other actions materially adversely affecting
                              our ownership of IBM Reimbursables, IBM
                              Receivables and VAT Receivables or of Supplier
                              Obligations or reducing our rights relating to
                              Receivables Rights and/or Product Rights.

                    9.1.9     Any failure by PFSweb to meet the financial
                              covenant specified for it in the Schedule.

                    9.1.10    The dissolution or liquidation of any Loan Party,
                              your parent company, any of any Loan Party's or
                              your parent's subsidiaries or any of your
                              guarantors or the directors or stockholders of
                              such entities taking action to dissolve or
                              liquidate any such entity.

                    9.1.11    Any Loan Party, your parent company or any
                              guarantor suspends business.

                    9.1.12    a) PFSweb ceases to directly own one hundred
                              percent (100%) of the capital stock of PFS, and
                              (b) PFS and IFP cease to directly own One Hundred
                              Percent (100%) of the interest in members of
                              Holdings or (b) Holdings ceases to directly own
                              One Hundred Percent (100%) of the capital stock of
                              SDI;

                    9.1.13    SDI ceases to maintain the extent of its current
                              ownership of you.

          9.2       REMEDIES

                    9.2.1     In addition to any rights or remedies available at
                              law or under this Agreement, on or at any time
                              after an Event of Default that we have not waived
                              in writing, we may do any or all of the following:
                              (a) immediately terminate this 


                                                                             19

<PAGE>

                              Agreement; (b) immediately reduce the Credit Limit
                              to nil (c) require you forthwith to buy back from
                              us all outstanding IBM Reimbursables, IBM
                              Receivables and VAT Receivables but so that no
                              such IBM Reimbursable, IBM Receivable or VAT
                              Receivable shall revest in you until the
                              Repurchase Price of all such IBM Reimbursables,
                              IBM Receivables and VAT Receivables has been paid
                              to us together with all other sums then due to us;
                              (d) declare all payments of Supplier Obligations
                              and the Repurchase Price of IBM Reimbursables, IBM
                              Receivables and VAT Receivables together with any
                              Credit Charges to be immediately due and payable;
                              and (e) to take any action we deem necessary to
                              take possession of, realise or sell in a
                              commercially reasonable manner any IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              or Receivables Rights, and/or Products and/or
                              Product Rights and/or assets purchased with money
                              provided by us.

                    9.2.2     Except as otherwise required by law or provided in
                              any Lien which encumbers the relevant assets, all
                              amounts obtained from any actions above will be
                              applied promptly to reduce or settle the amounts
                              due from you under this Agreement or any other
                              deed or agreement between any of and all of the
                              Loan Parties and IBM GF after deducting all
                              charges, costs and expenses including reasonable
                              legal costs, disbursements and other fees incurred
                              in the collection of such amounts, and any excess
                              amounts will, to the extent permitted by law and
                              subject to the rights of any person having
                              priority, be paid to you.

                    9.2.3     With respect to any Event of Default which we
                              waive, we reserve the right to make a default
                              charge as compensation for such waiver.

10.       TERMINATION

          10.1      This Agreement will remain in force until not less than 60
                    days written notice by any party to the other but not before
                    twelve months has passed from the date of this Agreement.
                    However following the occurrence of an Event of Default that
                    we have not waived in writing we may by notice with
                    immediate effect terminate this Agreement. Upon any
                    termination of this Agreement we shall have all the rights
                    and remedies set out in Clause 9.2 until the complete
                    discharge of all the Loan Parties' obligations to us. Any
                    such termination shall not affect any right we have in
                    relation to the IBM Reimbursables, IBM Receivables and VAT
                    Receivables or the Receivables Rights and the Supplier
                    Obligations and the Product Rights.

          10.2      Following the termination of this Agreement and the
                    discharge of all the Loan Parties' obligations to us and
                    subject to the exercise of any rights under this Agreement
                    then any amounts we hold for you will be paid to you after
                    deduction of all or any sums then owed to us under this or
                    any other agreement between any of and all of the Loan
                    Parties and IBM GF.

          10.3      Notwithstanding the termination of this Agreement, the
                    provision of Clauses which should by their nature survive
                    termination (including without limitation payment
                    obligations and rights to IBM Reimbursables, IBM Receivables
                    and VAT Receivables and the Supplier Obligations and the
                    Product Rights and/or Receivables Rights) shall so survive
                    and shall remain in full force and effect until such time as
                    all rights and liabilities between the parties have been
                    satisfied.

11.       GENERAL

          11.1      ASSIGNMENT

                    We may assign the benefit of this Agreement in whole or in
                    part. The Loan Parties consent to us novating to any other
                    person all or any of our obligations, rights, benefits and
                    remedies under this Agreement. Following such novation this
                    Agreement (or the novated part) shall bind and enure to the
                    benefit of our successors and assigns. The Loan Parties may
                    not assign or change their rights and benefits under this
                    Agreement or sub-contract any of their obligations without
                    our prior written consent.


                                                                             20

<PAGE>

          11.2      LIMITATION OF LIABILITY

                    No party shall have any liability to any other party with
                    respect to any special, indirect or consequential damages
                    suffered in connection with this Agreement.

          11.3      GUARANTEE AND INDEMNIFICATION.

                    Each of BSDE, SDSA and the Guarantors (as a result of the
                    respective Guarantees) irrevocably and unconditionally,
                    jointly and severally:

                    11.3.1    guarantees to each of BSDE and SDSA the due and
                              punctual observance and performance of all the
                              terms, conditions and covenants on the part of
                              each of them contained in this Agreement and
                              agrees to pay from time to time on demand any and
                              every sum or sums of money which each of BSDE and
                              SDSA is at any time liable to pay to us under or
                              pursuant to the Agreement and which has become due
                              and payable but has not been paid at the time such
                              demand is made; and

                    11.3.2    agrees to indemnify and hold harmless IBM GF and
                              each of its officers, directors, agents and
                              assigns (collectively, the "Indemnified Persons")
                              against all losses, claims, damages, liabilities
                              or other expenses (including reasonable attorneys'
                              fees and court costs now or hereinafter arising
                              from the enforcement of this Agreement, the
                              "Losses") to which any of them may become subject
                              insofar as such Losses arise out of or are based
                              upon any event, circumstance or condition (a)
                              occurring or existing on or before the date of
                              this Agreement relating to any financing
                              arrangements IBM GF may from time to time have
                              with (i) each Loan Party, (ii) any Person that
                              shall be acquired by any Loan Party or (iii) any
                              Person that any Loan Party may acquire all or
                              substantially all of the assets of, or (b)
                              directly or indirectly, relating to the execution,
                              delivery or performance of this Agreement or the
                              consummation of the transactions contemplated
                              hereby or thereby or to any of the Collateral or
                              to any act or omission of any Loan Party in
                              connection therewith. Notwithstanding the
                              foregoing, none of the Borrower or any of the
                              Guarantors shall be obligated to indemnify IBM GF
                              for any Losses incurred by IBM GF which are a
                              result of IBM GF's gross negligence or wilful
                              misconduct. The indemnity provided herein shall
                              survive the termination of this Agreement.

          11.4      WAIVER

                    No delay or omission of ours to exercise any right or remedy
                    whether before or after the occurrence of any Event of
                    Default, shall impair any such right or remedy or shall
                    operate as a waiver thereof.

          11.5      CHANGE OF TERMS

                    11.5.1    We may change the terms and conditions of this
                              Agreement upon sixty days written notice to you,
                              but no such change shall apply to purchases of
                              Supplier Invoices or IBM Reimbursables, IBM
                              Receivables and VAT Receivables made before the
                              effective date of such change of terms.

                    11.5.2    We reserve the right to serve sixty days written
                              notice on you designating some or all IBM
                              Reimbursables, IBM Receivables and VAT Receivables
                              as Ineligible Receivables and on the expiry of
                              such notice you will promptly buy back the
                              relevant Ineligible Receivables together with
                              payment of any Credit Charges that apply.

                    11.5.3    In the case mentioned in paragraph 11.5.1 the Loan
                              Parties shall be entitled to terminate this
                              Agreement effective on the effective date of the
                              change of terms by written notice delivered to us
                              within thirty days of receipt of our notice of
                              change of terms.


                                                                             21

<PAGE>

          11.6      TRANSACTION CURRENCY

                    All payments and billings under this Agreement will be in
                    EURO or, if applicable, an Approved Currency

          11.7      CURRENCY INDEMNITY

                    11.7.1    Unless otherwise agreed by us where an IBM
                              Reimbursable, IBM Receivable or VAT Receivable is
                              payable otherwise than in EURO in Belgium, the
                              charges for both the collection and/or in the case
                              of IBM Reimbursables, IBM Receivables and VAT
                              Receivables not denominated in EURO, conversion
                              into EURO or into such other currency as we shall
                              from time to time determine, shall be deducted in
                              calculating the Purchase Price and such price
                              shall be computed by reference to the spot rate of
                              exchange ruling in London the date of collection
                              but at IBM GF's discretion, we may provisionally
                              apply the rate ruling on the date we receive
                              Notification of such IBM Reimbursable, IBM
                              Receivable or VAT Receivable making such
                              adjustments as shall thereafter be necessary

                    11.7.2    We hereby agree prior to the occurrence of an
                              event referred to in Clause 11.7.1 that we will
                              not convert any monies received hereunder in a
                              currency other than EURO into any other currency
                              without your prior agreement.

                    11.7.3    If at any time more than one currency or currency
                              unit are recognised by the central bank of
                              Belgium, or having jurisdiction in any country as
                              the lawful currency of that country.

                              11.7.3.1  for so long as the currency or currency
                                        unit in which the provisions of and
                                        obligations under this Agreement are
                                        expressed (the "express currency") shall
                                        remain so recognised, those provisions
                                        and obligations shall remain denominated
                                        and paid or satisfied in that currency
                                        or currency unit;

                              11.7.3.2  if the express currency ceases to be so
                                        recognised, any reference in this
                                        Agreement to that currency or currency
                                        unit shall be translated into and become
                                        payable in the currency or currency unit
                                        of that country designated by us; and

                              11.7.3.3  any translation from one currency or
                                        currency unit to another shall be at the
                                        official rate of exchange recognised by
                                        the central bank for the conversion of
                                        that currency or currency unit into the
                                        other, rounded up or down by us in the
                                        manner officially prescribed in relation
                                        to such official rate or, if to the
                                        extent not so recognised or prescribed,
                                        in such manner as we may reasonably
                                        determine.

                              11.7.3.4  If any change in any currency of a
                                        country occurs, this Agreement will be
                                        amended to the extent we after
                                        consultation with the Loan Parties,
                                        specify to be necessary in the light of
                                        the change in currency and to put the
                                        parties hereto as far as possible in the
                                        same position as they would have been
                                        but for such change in currency.

          11.8      VAT

                    All charges specified in this Agreement are quoted exclusive
                    of VAT

          11.9      ELECTRONIC COMMUNICATIONS

                    Any party may communicate with any other party, other than
                    notices referred to in Clause 11.10, by electronic means and
                    such communication is acceptable as a signed writing. An
                    identification code (called a "USER ID") contained in an
                    electronic document is sufficient to verify the sender's
                    identity and the document's authenticity.

          11.10     NOTICES

                    Any notice required or desired to be given under this
                    Agreement shall be in writing and shall be delivered by
                    facsimile transmission or registered mail, postage prepaid,


                                                                             22

<PAGE>

                    and addressed to the address of the respective party to this
                    Agreement listed in the Schedule or following the expiry of
                    a period of 30 Business Days from the delivery of written
                    notice to the other party, such other address or facsimile
                    number notified by that party to the other in accordance
                    with this clause:

          11.11     PARTIAL INVALIDITY

                    If any provision of this Agreement shall be held to be
                    invalid, illegal or unenforceable under any applicable
                    statute or rule of law, the validity, legality and
                    enforceability of the remaining provisions shall not in any
                    way be affected.

          11.12     COMPLETE AGREEMENT

                    This Agreement including the Schedule embodies the entire
                    agreement between the Loan Parties and us with respect to
                    the subject matter hereof, and any prior written or oral
                    statements relating thereto are not to be considered part of
                    this Agreement.

          11.13     MISCELLANEOUS

                    11.13.1   IBM GF's rights and benefits under this Agreement
                              shall not be affected by the granting of any time
                              or indulgence to any Loan Party or to any surety
                              or guarantor of your obligations to us hereunder
                              or to any Debtor or by any failure to exercise or
                              delay in exercising any right or option against
                              such person.

                    11.13.2   We shall be entitled to rely on any act done and
                              on any document signed and on any oral or written
                              communication (including any such communication
                              sent by facsimile) by any reason purportedly doing
                              or signing or communicating on behalf of you
                              notwithstanding any defect in or absence of any
                              authority in such person except as provided for in
                              Clause 8.2.3.

                    11.13.3   Without prejudice to the provisions of Clause 11.5
                              and except as otherwise provided in this Agreement
                              no variation of this Agreement shall be binding
                              upon the parties unless it is evidenced in writing
                              and signed by or on behalf of IBM GF by an
                              authorised signatory of IBM GF and on behalf of
                              each Loan Party by a director or the secretary or
                              officer thereof.

          11.14     APPLICABLE LAW AND JURISDICTION

                    This Agreement shall be construed in accordance with and
                    governed by the laws of Belgium. The parties hereby submit
                    to the jurisdiction of the Belgian courts.



BY SIGNING BELOW BOTH PARTIES ACCEPT THE TERMS OF THE AGREEMENT

SIGNED ON BEHALF OF                         SIGNED ON BEHALF OF

SUPPLIERS DISTRIBUTORS S.A.                 IBM BELGIUM FINANCIAL SERVICES S.A.


Signed:............................         Signed:............................
By Name:...........................         By Name:...........................
Title:.............................         Title:.............................
Signature:.........................         Signature:.........................
Date: .............................         Date: .............................


                                                                             23

<PAGE>


BUSINESS SUPPLIES DISTRIBUTORS EUROPE BV    PFS WEB B.V.


Signed:............................         Signed:............................
By Name:...........................         By Name:...........................
Title:.............................         Title:.............................
Signature:.........................         Signature:.........................
Date: .............................         Date: .............................


                                                                             24


<PAGE>
                                                                   EXHIBIT 10.6


IBM BELGIUM FINANCIAL SERVICES S.A.

                              AMENDED AND RESTATED
                             COLLATERALIZED GUARANTY


          Priority Fulfillment Services, Inc. ("GUARANTOR") and IBM Belgium
Financial Services S.A. a registered number of R.C., Brussels 451.673 with an
address of Square Victoria Regina 1,BE-1210 Brussels VAT BE 424300467 ("IBM GF")
entered into a Collateralized Guaranty dated September 27, 2001 (the "Prior
Guaranty"). IBM GF and Guarantor wish to amend and restate the Prior Guaranty on
the terms and conditions set forth herein. In consideration of credit and
financing accommodations granted or to be granted by IBM GF to Business Supplies
Distributors Europe B.V. and Supplies Distributors S.A. (collectively the
"Borrower"), which is in the best interest of Guarantor, and for other good and
valuable consideration received, Guarantor jointly and severally guaranties to
IBM GF and to IBM Credit Corporation as agent to IBM GF ("IBM Credit"), from
property held separately, jointly or in community, the prompt and unconditional
performance and payment by Borrower of any and all obligations, liabilities,
contracts, mortgages, notes, trust receipts, secured transactions, inventory
financing and security agreements, and commercial paper
 on which Borrower is in
any manner obligated, heretofore, now, or hereafter owned, contracted or
acquired by IBM GF("Liabilities"), whether the Liabilities are individual,
joint, several, primary, secondary, direct, contingent or otherwise. Guarantor
also agrees to indemnify IBM GF and IBM Credit and hold IBM GF and IBM Credit
harmless against any losses it may sustain and expenses it may incur, suffer or
be liable for as a result of or in any way arising out of, following, or
consequential to any transactions with or for the benefit of Borrower.
Capitalized terms used herein without definition shall have the meaning
described thereto in the IBM Global Financing Platinum Plan (with Invoice
Discounting) dated __ March 2002 between IBM GF and the Borrower (as amended,
modified and supplemented from time to time, the "Financing Agreement").

If Borrower fails to pay or perform any Liabilities to IBM GF when due, all
Liabilities to IBM GF shall then be deemed to have become immediately due and
payable, and Guarantor shall then pay upon demand the full amount of all sums
owed to IBM GF by Borrower, together with all expenses, including reasonable
attorney's fees.

The liability of Guarantor is direct and unconditional and shall not be affected
by any extension, renewal or other change in the terms of payment of any
security agreement or any other agreement between IBM GF and/or IBM Credit and
Borrower, or any change in the manner, place or terms of payment or performance
thereof, or the release, settlement or compromise of or with any party liable
for the payment or performance thereof, or the waiver of any default or event of
default under any financing agreement between IBM GF and/or IBM Credit and
Borrower, or the release or non-perfection of any security thereunder, any
change in Borrower's financial condition, or the interruption of business
relations between IBM GF and Borrower. This Amended and Restated Guaranty is and
shall be deemed to be a continuing guaranty and shall remain in full force and
effect until the indefeasible payment in full of the Liabilities and any other
amounts payable under this Amended and Restated Guaranty and the cessation of
all obligations of IBM GF to extend credit to Borrower. Guarantor acknowledges
that its obligations hereunder are in addition to and independent of any
agreement or transaction between IBM GF and/or IBM Credit and Borrower or any
other person creating or reserving any lien, encumbrance or security interest in
any property of Borrower or any other person as security for any obligation of
Borrower. IBM GF and IBM Credit need not exhaust its rights or recourse against
Borrower or any other person or any security IBM GF and IBM Credit may have at
any time before being entitled to payment from Guarantor.

To secure payment of all of Guarantor's current and future debts and obligations
to IBMGF, and to secure the Liabilities, whether under this Amended and Restated
Guaranty or any other agreement between IBM GF and/or IBM Credit and Guarantor,
whether direct or contingent, Guarantor does assign, pledge and give to IBM GF a
security interest in all of Guarantor's personal property, whether now owned or
hereafter acquired or existing and wherever located, including the following:
(a) all inventory and equipment manufactured or sold by or bearing the trademark
or tradename of International Business Machines 


                                  Page 1 of 7

<PAGE>

Corporation ("IBM") or any other Authorized Supplier and all parts thereof,
attachments, additions, accessories and accessions thereto, all substitutions,
repossessions, exchanges, replacements and returns thereof, all price protection
credits, rebates, discounts and incentive payments relating to the foregoing,
products, insurance and proceeds thereof and documents therefor ("IBM Credit
Inventory"); (b) all accounts, chattel paper, instruments, negotiable documents,
promissory notes, general intangibles (including contract rights, software and
licenses), deposit accounts, commercial tort claims, intellectual property,
investment property, pledged notes, letter of credit rights, supporting
obligations, obligations of any kind owing to Guarantor, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services and all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing; (c) all substitutions and
replacements for all of the foregoing; and (d) all products or proceeds of all
of the foregoing (all of the above assets are defined pursuant to the provisions
of Article 9 of the Uniform Commercial Code as in effect in the State of New
York and are hereinafter referred to as the "Collateral"). Collateral shall not
include inventory and equipment of the Guarantor that is not IBM Credit
Inventory (as defined above).

In connection with any working capital financing Guarantor receives from another
financial institution or commercial lender ("Lender"), Guarantor may request
that IBM GF and IBM Credit subordinate its interest in the Collateral (excluding
the IBM Credit Inventory) and IBM GF and IBM Credit will not unreasonably
withhold its consent provided that:

          (1) No default or event of default exists;

          (2) IBM GF, IBM Credit and Lender shall have entered into a
          subordination agreement in form and substance satisfactory to IBM GF
          and IBM Credit in all respects in its sole discretion;

          (3) IBM Credit shall be satisfied that the IBM Credit Inventory shall
          be segregated from the other property of Guarantor and its customers
          and IBM GF and IBM Credit shall have a first perfected priority
          security interest in the IBM Credit Inventory; and

          (4) The books and records maintained on behalf of the Borrower shall
          be kept separately from Guarantor's other books and records and
          Guarantor shall have conspicuously noted on the Borrower's books and
          records that such books and records are the property of Borrower.

IBM GF and IBM Credit shall have the right, but not the obligation, from time to
time, as IBM GF and/or IBM Credit in their sole discretion may determine, and
all without any advance notice to Guarantor, to: (a) examine the Collateral; (b)
appraise it as security; (c) verify its condition and nonuse; (d) verify that
all Collateral has been properly accounted for and this Agreement complied with,
and (e) assess, examine, check and make copies of any and all of Guarantor's
books, records and files.

If Guarantor does not comply with any of the terms of this Agreement, or
Guarantor fails to fulfill any obligation to IBM GF and/or IBM Credit or any of
IBM GF's and/or IBM Credit's affiliates under any other agreement between IBM GF
or IBM Credit and Guarantor or between Guarantor and any of IBM GF's or IBM
Credit's affiliates, or Guarantor becomes insolvent or ceases to do business as
a going concern, or a bankruptcy, insolvency proceeding, arrangement or
reorganization is filed by or against Guarantor, or any of Guarantor's property
is attached or seized, or a receiver is appointed for Guarantor, or Guarantor
commits any act which impairs the prospect of full performance or satisfaction
of Guarantor's obligations to IBM GF and/or IBM Credit, or Guarantor shall lose
any franchise, permission, license or right to conduct its business, or
Guarantor misrepresents its financial condition or organizational structure, or
whenever IBM GF deems the debt or Collateral to be insecure:

          a) IBM GF or IBM Credit may call all or any part of the amount
          Guarantor or Borrower owes IBM GF due and payable immediately, if
          permitted by applicable law, together with court costs and all costs
          and expenses of IBM GF and IBM Credit's repossession and collection
          activity, including, but not limited to reasonable attorney's fees.


                                  Page 2 of 7

<PAGE>

          b) Guarantor will hold and keep the Collateral in trust, in good order
          and repair, for IBM GF and IBM Credit's benefit and shall not exhibit
          or sell it.

          c) Upon IBM GF and/or IBM Credit's demand, Guarantor will immediately
          deliver the Collateral to IBM GF and/or IBM Credit, in good order and
          repair, at a place reasonably convenient to IBM GF and IBM Credit,
          together with all related documents; or IBM GF and/or IBM Credit may,
          in their sole discretion and without demand, take immediate possession
          of the Collateral, together with all related documents.

          d) Guarantor waives and releases: (i) any and all claims and causes of
          action which Guarantor may now or ever have against IBM GF and IBM
          Credit as a result of any possession, repossession, collection or sale
          by IBM GF and/or IBM Credit of any of the Collateral, notwithstanding
          the effect of such possession, repossession, collection or sale upon
          Guarantor's business; (ii) all rights of redemption from any such
          sale; and (iii) the benefit of all valuation, appraisal and exemption
          laws. If IBM GF or IBM Credit seeks to take possession of any of the
          Collateral by replevin or other court process, Guarantor irrevocably
          waives any notice, bonds, surety and security relating thereto
          required by any statute, court rule or otherwise as an incident to
          such possession and any demand for possession of the Collateral prior
          to the commencement of any suit or action to recover possession
          thereof.

          e) Guarantor appoints IBM GF and IBM Credit or any person IBM GF
          and/or IBM Credit may delegate as its duly authorized Attorney-in-Fact
          (without notifying Guarantor) to do, in IBM GF's and IBM Credit's sole
          discretion, any of the following: (i) sell, assign, transfer,
          negotiate or pledge any and all accounts, chattel paper, or contract
          rights; (ii) endorse Guarantor's name on any and all notes, checks,
          drafts, or other forms of exchange received as payment on any
          accounts, chattel paper and contract rights, for deposit in IBM GF's
          and/or IBM Credit's account; (iii) grant any extension, rebate or
          renewal on any and all accounts, chattel paper or contract rights, or
          enter into any settlement thereof; (iv) demand, collect and receive
          any and all amounts due on accounts, chattel paper and contract
          rights; and (v) exercise any and all rights Guarantor has in the
          Collateral.

          f) In the event Guarantor brings any action or asserts any claim
          against IBM GF and/or IBM Credit which arises out of this Agreement,
          any other agreement or any of Guarantor's and IBM GF and/or IBM
          Credit's business dealings, in which Guarantor does not prevail,
          Guarantor agrees to pay IBM GF and IBM Credit all court costs and all
          costs and expenses of IBM GF's and IBM Credit's defense of such action
          of claim including, but not limited to, reasonable attorney's fees.

IBM GF and/or IBM Credit may also declare a default under this Agreement and
exercise any and all rights and remedies available herein, if, in IBM GF's
and/or IBM Credit's sole discretion, IBM GF or IBM Credit determines that the
Collateral has decreased in value, and Guarantor has been unable to either: (a)
provide IBM GF with additional Collateral in a form and substance satisfactory
to IBMGF; or (b) pay the Shortfall Amount as defined in the Financing Agreement.

IBM GF and IBM Credit have and will always possess all the rights and remedies
of a secured party under law, and IBM GF's and IBM Credit's rights and remedies
are and will always be cumulative. Guarantor acknowledges and agrees that the
Collateral is the subject of widely distributed standard price quotations and is
customarily sold in a recognized market. Guarantor agrees that a private sale by
IBM GF or IBM Credit of any of the Collateral to a dealer in those types of
Collateral is a commercially reasonable sale. Further, Guarantor agrees that IBM
GF's and/or IBM Credit's delivery of any of the Collateral to a distributor or
manufacturer, with a request that it repurchase Collateral, as provided in any
repurchase agreement with IBMGF, is a commercially reasonable disposition or
sale.


                                  Page 3 of 7

<PAGE>

Guarantor promises that (a) the Collateral is and shall remain free from all
claims and liens except IBM GF's, IBM Credit's and the lien of Congress
Financial Corporation (Southwest); (b) Guarantor shall defend the Collateral
against all other claims and demands; and (c) Guarantor will notify IBM Credit
before it signs, or authorizes the signing of any financing statement regardless
of its coverage. Guarantor authorizes IBM Credit to file with any filing office
such financing statements, amendments, addenda and other records showing IBM GF
and IBM Credit as secured party and Guarantor as the debtor and identifying IBM
GF's and IBM Credit's security interest in the Collateral that IBM GF and IBM
Credit deems necessary to perfect and maintain IBM GF's and IBM Credit's
security interest in the Collateral. Guarantor will execute any and all
documents IBM GF and/or IBM Credit may request to confirm or perfect IBM GF's
and IBM Credit's title or security interest in the Collateral.

Guarantor represents and covenants that the first paragraph of this Amended and
Restated Guaranty states the exact name of Guarantor as set forth in its charter
or other organizational record. Guarantor represents that it is duly organized
under the laws of the State of Delaware and the organization document creating
Guarantor has been filed in the appropriate office of such State. In addition,
Guarantor's organizational identification number assigned by its State of
organization is as follows: 2606094. Guarantor's principal place of business is
located at 500 North Central Expressway, Plano, TX 75074 and Guarantor
represents that its business is conducted as a CORPORATION. Guarantor will not
change its name, location (as defined in Article 9 of the U.C.C.) or State of
organization. Guarantor shall provide IBM GF and IBM Credit at least thirty (30)
days prior written notice of any change in its form of ownership, management,
and of any change in its principal place of business, or any additions or
discontinuances of other business locations. The Collateral shall be kept at
Guarantor's principal place of business and at the following addresses:

                       PFS
               4550 Quality Drive
               Memphis, TN  38118

                      PFS
               4638 Shelby Drive
               Memphis, TN  38118

             American Eagle Systems
               30 Corporate Drive
           Holtsville, New York  11742

until all sums owed IBM GF and IBM Credit are paid in full. Guarantor will
immediately notify IBM GF and IBM Credit if the Collateral is kept at any other
address. This paragraph is for IBM GF's and IBM Credit's informational purposes
only, and is not in any way or manner intended to limit the extent of IBM GF's
and/or IBM Credit's security interest in the Collateral. Guarantor and its
predecessors have done and do business only under the following names: Priority
Fulfillment Services, Inc.; PFSweb, Inc..

Guarantor will pay all taxes, license fees, assessments and charges on the
Collateral when due. Guarantor will be responsible for any loss of Collateral
for any reason whatsoever. Guarantor will keep the Collateral insured for its
full insurable value against loss or damage by fire, wind, theft and for
combined additional coverage, including vandalism and malicious mischief, and
for other risks as IBM GF and/or IBM Credit may require. Guarantor will obtain
insurance under such terms and in amounts as IBM GF and/or IBM Credit may
specify, from time to time, in companies acceptable to IBM GF and/or IBM Credit,
with a loss-payee or mortgagee clause payable to IBM GF and IBM Credit to the
extent of any loss to the Collateral and containing a waiver of all defenses
against Guarantor that is acceptable to IBM GF and IBM Credit. Guarantor further
agrees to provide IBM GF and/or IBM Credit with written evidence of the required
insurance coverage and loss-payee or mortgagee clause. Guarantor assigns to IBM
GF and IBM Credit all sums not in excess of the unpaid debt owed IBM GF and IBM
Credit, and directs any insurance company to make payment directly to IBM Credit
to be applied to the unpaid debt owed IBM GF and/or IBM Credit. Guarantor
further grants IBM Credit an irrevocable power of attorney to endorse any draft
and sign and file all of the necessary papers, forms and documents to initiate
and settle any and all


                                  Page 4 of 7

<PAGE>

claims with respect to the Collateral. If Guarantor fails to pay any of the
above-referenced costs, charges or any insurance premiums, or if it fails to
insure the Collateral, IBM GF and/or IBM Credit may pay such costs, charges or
any insurance premiums, and the amounts paid shall be considered an additional
debt owed by Guarantor to IBM GF and/or IBM Credit. Guarantor will promptly
notify IBM Credit of any loss, theft or destruction of or damage to any of the
Collateral.

Guarantor will not rent, lease, lend, demonstrate, pledge, create a security
interest in, transfer or secrete any of the Collateral, or use the Collateral
for any purpose other than exhibition, without IBM Credit's prior written
consent.

This Amended and Restated Guaranty is assignable, shall be construed liberally
in IBM GF's and IBM Credit's favor, and shall inure to the benefit of and bind
IBM GF's, IBM Credit's and Guarantor's respective successors, personal
representatives and assigns. Guarantor shall not assign this Amended and
Restated Guaranty or its obligations hereunder without the prior written consent
of IBM GF or IBM Credit.

If Borrower hereafter is incorporated, acquired by a corporation, dissolved, or
otherwise undergoes any change in its management, ownership, identity, or
organizational structure, this Amended and Restated Guaranty shall continue to
extend to any Liabilities of the Borrower or such resulting corporation,
dissolved corporation, or new or changed legal entity, or identity to IBM GF and
IBM Credit.

Guarantor waives: notice of the acceptance of this Amended and Restated
Guaranty, and of presentment, demand and protest; notices of nonpayment,
nonperformance and dishonor; notices of amount of indebtedness of Borrower
outstanding at any time; notices of the number and amount of advances made by
IBM GF to Borrower in reliance on this Amended and Restated Guaranty; notice of
the financial condition of Borrower or any other guarantor or any change
therein; notice of the release of collateral for the Liabilities, of any other
guaranty, pledge or suretyship agreement or any collateral therefor; notices of
any legal proceedings or other efforts to collect against Borrower; notice of
any recoupment, setoff, administrative freeze on Borrower's credit or assets;
notice and any opportunity for a hearing as to any prejudgment remedies; and any
other demands and notices required by law. Guarantor further waives all rights
to assert against IBM GF and/or IBM Credit any right of recoupment, setoff, and
all claims, defenses, and counterclaims against IBM GF, IBM Credit or Borrower,
including any defense based on the lack of good faith. To the extent permitted
by law, Guarantor also waives any and all rights in and notices or demands
relating to any Collateral now or hereafter securing any of the Liabilities. All
waivers by Guarantor herein shall survive any termination or revocation of this
Amended and Restated Guaranty.

Guarantor authorizes IBM Credit to sell at public or private sale or otherwise
realize upon the Collateral now or hereafter securing any of the Liabilities, in
such manner and upon such terms and conditions as IBM GF and/or IBM Credit deems
best, all without advertisement or notice to Borrower, Guarantor, or any third
parties. Guarantor further authorizes IBM GF and IBM Credit to deal with the
proceeds of such Collateral as provided in IBM GF's agreement with Borrower,
without prejudice to IBM GF's claim for any deficiency and free from any right
or redemption on the part of Borrower, Guarantor or any third parties, which
right or redemption is hereby waived together with every formality prescribed by
custom or by law in relation to any such sale or other realization.

Guarantor further agrees that all of its right, title and interest in, to and
under any loans, notes, debts and all other liabilities and obligations
whatsoever owed by Borrower to Guarantor, whether heretofore or hereafter
created or incurred and for whatever amount, and all security therefor, shall be
now and hereafter at all times fully subordinated to all Liabilities. Guarantor
will not ask, demand or sue for, or take or receive payment of, all or any part
of such loans, notes, debts or any other liabilities or obligations whatsoever
or any security therefor, until and unless all of the Liabilities are paid,
performed and fully satisfied except as expressly permitted by the Financing
Agreement and provided no default or event of default exists. In addition, until
such time that the Liabilities are indefeasibly paid in full, Guarantor
irrevocably waives, for the benefit of IBM GF and IBM Credit, any and all rights
which it presently has, or may hereafter have, whether by virtue of any payment
or payments hereunder or otherwise, to be subrogated to the rights of IBM GF and
IBM Credit against the Borrower with respect to any such indebtedness of the
Borrower to IBMGF.


                                  Page 5 of 7

<PAGE>

Guarantor has made an independent investigation of the financial condition of
Borrower and gives this Amended and Restated Guaranty based on that
investigation and not upon any representations made by IBM GF and/or IBM Credit.
Guarantor acknowledges that it has access to current and future Borrower
financial information which will enable Guarantor to continuously remain
informed of Borrower's financial condition. Guarantor also consents to and
agrees that the obligations under this Amended and Restated Guaranty shall not
be affected by IBM GF's subsequent increases or decreases in the credit line
that IBM GF may grant to Borrower; substitutions, exchanges or releases of all
or any part of the Collateral now or hereafter securing any of the Liabilities;
sales or other dispositions of any or all of the Collateral now or hereafter
securing any of the Liabilities without demands, advertisement or notice of the
time or place of the sales or other dispositions; realizing on the Collateral to
the extent IBM Credit, in IBM Credit's sole discretion, deems proper; or
purchases of all or any part of the Collateral for IBM GF's and/or IBM Credit's
own account.

This Amended and Restated Guaranty and any and all obligations, liabilities,
terms and provisions herein shall survive any and all bankruptcy or insolvency
proceedings, actions and/or claims brought by or against Borrower, whether such
proceedings, actions and/or claims are federal and/or state.

This Amended and Restated Guaranty is submitted by Guarantor to IBM GF(for IBM
GF's acceptance or rejection thereof) at IBM GF's above specified office; as an
offer by Guarantor to guaranty the credit and financial accommodations provided
by IBM GF to Borrower. If accepted, this Amended and Restated Guaranty shall be
deemed to have been made at IBM GF's above-specified office. THIS AMENDED AND
RESTATED GUARANTY AND ALL OBLIGATIONS PURSUANT THERETO, SHALL BE GOVERNED AND
CONTROLLED AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT
AND, IN ALL OTHER RESPECTS BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS. GUARANTOR, TO INDUCE IBM GF TO
ACCEPT THIS AMENDED AND RESTATED GUARANTY, AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO OR FROM THIS AMENDED AND RESTATED GUARANTY MAY BE LITIGATED, AT IBM GF'S
AND/OR IBM CREDIT'S SOLE DISCRETION AND ELECTION, IN COURTS WITHIN THE STATE OF
NEW YORK. GUARANTOR CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
OR FEDERAL COURT LOCATED WITHIN THAT STATE. GUARANTOR WAIVES ANY RIGHT TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST GUARANTOR BY IBM
GF AND/OR IBM CREDIT IN ACCORDANCE WITH THIS PARAGRAPH.

Any delay by IBM GF and/or IBM Credit, or IBM GF's and/or IBM Credit's
successors or assigns in exercising any or all rights granted IBM GF and/or IBM
Credit under this Amended and Restated Guaranty shall not operate as a waiver of
those rights. Furthermore, any failure by IBM GF and/or IBM Credit, IBM GF's
and/or IBM Credit's successors or assigns, to exercise any or all rights granted
IBM GF and IBM Credit under this Amended and Restated Guaranty shall not operate
as a waiver of IBM GF's and/or IBM Credit's right to exercise any or all of them
later.

Notwithstanding anything contained in any document to the contrary, it is
understood and agreed that the rights and claims of IBM GF and IBM Credit under
the Prior Guaranty continue hereunder and the obligations of Guarantor under the
Prior Guaranty constitute Liabilities hereunder

This document contains the full agreement of the parties concerning the guaranty
of Borrower's Liabilities and can be varied only by a document signed by all of
the parties hereto.


                                  Page 6 of 7

<PAGE>

THE PARTIES AGREE THAT ANY ACTION, SUIT OR PROCEEDING, RELATING DIRECTLY OR
INDIRECTLY TO THIS AMENDED AND RESTATED GUARANTY, OR THE RELATIONSHIP BETWEEN
IBM CREDIT AND GUARANTOR, WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY
A JUDGE WITHOUT A JURY. THUS, THE PARTIES HEREBY WAIVE ANY RIGHT TO A JURY TRIAL
IN ANY SUCH ACTION, SUIT OR PROCEEDING.

WITNESS                                     PRIORITY FULFILLMENT SERVICES, INC.
                                               GUARANTOR

                                            By:
---------------------------------------        --------------------------------
Print Name:                                 Print Name:
           ----------------------------                ------------------------
                                            Title:
                                                  -----------------------------
                                            Date:
                                                 ------------------------------
                  (SEAL)

                                            Guarantor's Address:

                                            ------------------------

                                                       ,             
                                            -----------  ----  -----
ATTEST:

---------------------------------------
                 Secretary
Print Name:
           -----------------------------


                                            IBM BELGIUM FINANCIAL SERVICES S.A.

                                            By:                                
                                               --------------------------------
                                            Print Name:                        
                                                       ------------------------
                                            Title:                             
                                                  -----------------------------


                                  Page 7 of 7



<PAGE>
                                                                    EXHIBIT 10.7


IBM BELGIUM FINANCIAL SERVICES S.A.

                              AMENDED AND RESTATED
                                    GUARANTY
                                (BY CORPORATION)

         PFSweb, Inc. ("Guarantor") and IBM Belgium Financial Services S.A. with
a registered number of R.C. Brussels 451.673 with an address of Square Victoria
Regina 1,BE-1210 Brussels VAT BE 424300467 ("IBM GF") entered into a Guaranty
dated September 27, 2001 (the "Prior Guaranty"). IBM GF and Guarantor wish to
amend and restate the Prior Guaranty on the terms and conditions set forth
herein. In consideration of credit and financing accommodations granted or to be
granted by IBM GF to Business Supplies Distributors Europe B.V. and Supplies
Distributors S.A. (collectively the "Customer") under a financing agreement
between IBM GF and Customer, which is in the best interest of Guarantor, and for
other good and valuable consideration received, Guarantor guaranties to IBM GF
and IBM Credit Corporation as agent for IBM GF ("IBM Credit") the prompt and
unconditional performance and payment by Customer of any and all obligations,
liabilities, contracts, mortgages, notes, trust receipts, secured transactions,
inventory financing and security agreements, and commercial paper on which
Customer is in any manner obligated, heretofore, now,
 or hereafter owned,
contracted or acquired by IBM GF ("Liabilities"), whether the Liabilities are
individual, joint, several, primary, secondary, direct, contingent or otherwise.
Guarantor also agrees to indemnify IBM GF and IBM Credit and hold IBM GF and IBM
Credit harmless against any losses IBM GF and/or IBM Credit may sustain and
expenses they may incur, suffer or be liable for as a result of or in any way
arising out of, following, or consequential to any transactions with or for the
benefit of Customer.

         If Customer fails to pay or perform any Liabilities to IBM GF when due,
all Liabilities to IBM GF shall then be deemed to have become immediately due
and payable, and Guarantor shall then pay upon demand the full amount of all
sums owed to IBM GF by Customer, together with all expenses, including
reasonable attorney's fees.

         The liability of Guarantor is direct and unconditional and shall not be
affected by any extension, renewal or other change in the terms of payment of
any security agreement or any other agreement between IBM GF and/or IBM Credit
and Customer, or any change in the manner, place or terms of payment or
performance thereof, or the release, settlement or compromise of or with any
party liable for the payment or performance thereof, the release or
non-perfection of any security thereunder, any change in Customer's financial
condition, or the interruption of business relations between IBM GF and
Customer. This Amended and Restated Guaranty is and shall be deemed to be a
continuing guaranty and shall remain in full force and effect until the
indefeasible payment in full of the Liabilities and any other amounts payable
under this Amended and Restated Guaranty and the cessation of all obligations of
IBM GF to extend credit to Customer. Guarantor acknowledges that its obligations
hereunder are in addition to and independent of any agreement or transaction
between IBM GF and/or IBM Credit and Customer or any other person creating or
reserving any lien, encumbrance or security interest in any property of Customer
or any other person as security for any obligation of Customer. IBM GF and/or
IBM Credit need not exhaust their rights or recourse against Customer or any
other person or any security they may have at any time before being entitled to
payment from Guarantor.

         This Amended and Restated Guaranty is assignable, shall be construed
liberally in IBM GF's and IBM Credit's favor, and shall inure to the benefit of
and bind IBM GF's, IBM Credit's and Guarantor's respective successors, personal
representatives and assigns. Guarantor shall not assign this Amended and
Restated Guaranty or its obligations hereunder without the prior written consent
of IBM GF or IBM Credit.

         If Customer hereafter is incorporated, acquired by a corporation,
dissolved, or otherwise undergoes any change in its management, ownership,
identity or organizational structure, this Amended and Restated Guaranty shall
continue to extend to any Liabilities of the Customer or such resulting
corporation, dissolved corporation, or new or changed legal entity or identity
to IBM GF.



                                  Page 1 of 4

<PAGE>

         Guarantor waives: notice of the acceptance of this Amended and Restated
Guaranty, and of presentment, demand and protest; notices of nonpayment,
nonperformance, any right of contribution from other guarantors, and dishonor;
notices of amount of indebtedness of Customer outstanding at any time; notices
of the number and amount of advances made by IBM GF to Customer in reliance on
this Amended and Restated Guaranty; notices of any legal proceedings against
Customer; notice and hearing as to any prejudgment remedies; and any other
demands and notices required by law. Guarantor further waives all rights of
set-off and all counterclaims against IBM GF and IBM Credit or Customer.
Guarantor also waives any and all rights in and notices or demands relating to
any collateral now or hereafter securing any of the Liabilities, including, but
not limited to, all rights, notices or demands relating, whether directly or
indirectly, to the sale or other disposition of any or all of such collateral or
the manner of such sale or other disposition. All waivers by Guarantor herein
shall survive any termination or revocation of this Amended and Restated
Guaranty. Guarantor authorizes IBM GF and IBM Credit to sell at public or
private sale or otherwise realize upon the collateral now or hereafter securing
any of the Liabilities, in such manner and upon such terms and conditions as IBM
GF and or IBM Credit deems best, all without advertisement or notice to
Customer, Guarantor, or any third parties. Guarantor further authorizes IBM GF
and IBM Credit to deal with the proceeds of such collateral as provided in IBM
GF's agreement with Customer, without prejudice to IBM GF's and/or IBM Credit's
claim for any deficiency and free from any right or redemption on the part of
Customer, Guarantor or any third parties, which right or redemption is hereby
waived together with every formality prescribed by custom or by law in relation
to any such sale or other realization.

         Guarantor further agrees that all of its right, title and interest in,
to and under any loans, notes, debts and all other liabilities and obligations
whatsoever owed by Customer to Guarantor, whether heretofore or hereafter
created or incurred and for whatever amount, and all security therefor, shall be
now and hereafter at all times fully subordinated to all Liabilities. Guarantor
will not ask, demand or sue for, or take or receive payment of, all or any part
of such loans, notes, debts or any other liabilities or obligations whatsoever
or any security therefor, until and unless all of the Liabilities are paid,
performed and fully satisfied.

         Until such time the Liabilities are indefeasibly paid in full, the
Guarantor hereby irrevocably waives for the benefit of IBM GF and IBM Credit,
any and all rights which it presently has, or may hereafter have, whether by
virtue of any payment or payments hereunder or otherwise, to be subrogated to
the rights of IBM GF and IBM Credit against the Customer with respect to any
such indebtedness of the Customer to IBM GF.

         Guarantor has made an independent investigation of the financial
condition of Customer and gives this Amended and Restated Guaranty based on that
investigation and not upon any representations made by IBM GF and/or IBM Credit.
Guarantor acknowledges that it has access to current and future Customer
financial information which will enable Guarantor to continuously remain
informed of Customer's financial condition. Guarantor also consents to and
agrees that the obligations under this Amended and Restated Guaranty shall not
be affected by IBM GF's: subsequent increases or decreases in the credit line
that IBM GF may grant to Customer; substitutions, exchanges or releases of all
or any part of the collateral now or hereafter securing any of the Liabilities;
sales or other dispositions of any or all of the collateral now or hereafter
securing any of the Liabilities without demands, advertisement or notice of the
time or place of the sales or other dispositions; realizing on the collateral to
the extent IBM GF and/or IBM Credit, in their sole discretion, deem proper; or
purchases of all or any part of the collateral for IBM GF's and/or IBM Credit's
own account.

         This Amended and Restated Guaranty and any and all obligations,
liabilities, terms and provisions herein shall survive any and all bankruptcy or
insolvency proceedings, actions and/or claims brought by or against Customer,
whether such proceedings, actions and/or claims are federal and/or state.

         This Amended and Restated Guaranty is submitted by Guarantor to IBM GF
(for IBM GF's acceptance or rejection thereof) at IBM GF's above specified
office; as an offer by Guarantor to guaranty the credit and financial
accommodations provided by IBM GF to Customer. If accepted, this Amended and
Restated Guaranty shall be deemed to have been made at IBM GF's above specified
office. THIS AMENDED AND RESTATED GUARANTY AND ALL OBLIGATIONS PURSUANT THERETO,
SHALL BE GOVERNED AND CONTROLLED AS TO INTERPRETATION, ENFORCEMENT, VALIDITY,
CONSTRUCTION, EFFECT



                                  Page 2 of 4

<PAGE>

AND IN ALL OTHER RESPECTS BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS. GUARANTOR, TO INDUCE IBM GF TO
ACCEPT THIS AMENDED AND RESTATED GUARANTY, AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO OR FROM THIS AMENDED AND RESTATED GUARANTY MAY BE LITIGATED, AT IBM GF'S
AND/OR IBM CREDIT'S SOLE DISCRETION AND ELECTION, IN COURTS WITHIN THE STATE OF
NEW YORK. GUARANTOR CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
OR FEDERAL COURT LOCATED WITHIN THAT STATE. GUARANTOR WAIVES ANY RIGHT TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST GUARANTOR BY IBM
GF OR IBM CREDIT IN ACCORDANCE WITH THIS PARAGRAPH.

         Any delay by IBM GF or IBM Credit, or their successors or assigns in
exercising any or all rights granted IBM GF and IBM Credit under this Amended
and Restated Guaranty shall not operate as a waiver of those rights.
Furthermore, any failure by IBM GF or IBM Credit, their successors or assigns,
to exercise any or all rights granted IBM GF and/or IBM Credit under this
Amended and Restated Guaranty shall not operate as a waiver of IBM GF's and/or
IBM Credit's right to exercise any or all of them later.

         Notwithstanding anything contained in any document to the contrary, it
is understood and agreed that the rights and claims of IBM GF and IBM Credit
under the Prior Guaranty continue hereunder and the obligations of Guarantor
under the Prior Guaranty constitute Liabilities hereunder

This document contains the full agreement of the parties concerning the guaranty
of Customer's Liabilities and can be varied only by a document signed by all the
parties hereto.

         THE PARTIES AGREE THAT ANY ACTION, SUIT OR PROCEEDING RELATING DIRECTLY
OR INDIRECTLY TO THIS AMENDED AND RESTATED GUARANTY OR THE RELATIONSHIP BETWEEN
IBM GF, IBM CREDIT AND GUARANTOR, WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. THUS, THE PARTIES HEREBY WAIVE ANY RIGHT
TO A JURY TRIAL IN ANY SUCH ACTION, SUIT OR PROCEEDING.


WITNESS:                                  PFSWEB, INC.

-------------------------------------

(Print Name                          )    By: 
            -------------------------        -----------------------------------

                                          Name:
                                               ---------------------------------

                                          Title:
(SEAL)                                          --------------------------------

                                          Date:  March __, 2002

                                          Guarantor's Address:

                                          --------------------------------------

                                          --------------------------------------

ATTEST:

-------------------------------------
                  (Secretary)

(Print Name                          )
            -------------------------



                                  Page 3 of 4


<PAGE>



                             SECRETARY'S CERTIFICATE

         I hereby certify that I am the Secretary of the following named
corporation and that execution of the above Amended and Restated Guaranty was
ratified, approved and confirmed by the Shareholders at a meeting, if necessary,
and pursuant to a resolution of the Board of Directors of the corporation at a
meeting of the Board of Directors duly called, and which is currently in effect,
which resolution was duly presented, seconded and adopted and reads as follows:

         "BE IT RESOLVED that any officer of this corporation is hereby
authorized to execute a guaranty of the obligations of Business Supplies
Distributors Europe B.V. and Supplies Distributors S.A. (collectively, the
"Customer") to IBM Belgium Financial Services S.A. on behalf of the corporation,
which instrument may contain such terms as the above named persons may see fit
including, but not limited to a waiver of notice of acceptance of this Amended
and Restated Guaranty; presentment; demand; protest; notices of nonpayment,
nonperformance, dishonor, the amount of indebtedness of Customer outstanding at
any time, any legal proceedings against Customer, and any other demands and
notices required by law; any right of contribution from other guarantors; and
all set-offs and counterclaims."


         IN WITNESS WHEREOF and as Secretary of the named corporation I have
hereunto set my hand and affixed the corporate seal on this ____ day of March,
2002.

                                          PFSWEB, INC.


(SEAL)
                                          --------------------------------------
                                                       (Secretary)


                                  Page 4 of 4



<PAGE>
                                                                    EXHIBIT 10.8

                            SUBORDINATED DEMAND NOTE

$7,500,000                                                        March   , 2002

         FOR VALUE RECEIVED, SUPPLIES DISTRIBUTORS, INC., a Delaware corporation
("Borrower"), promises to pay to the order of PRIORITY FULFILLMENT SERVICES,
INC., a Delaware corporation (the "Lender"), on DEMAND (the "Maturity Date") the
principal amount set forth above, or so much thereof, or such other amount, as
shall, from time to time, be advanced by or on behalf of the Lender to, or for
the benefit of, the Borrower, and shall be outstanding, together with interest
thereon as herein provided. All sums hereunder are payable on demand to Lender
at its principal offices in lawful currency of the United States of America and
in immediately available funds. All payments and prepayments made hereunder
shall be made without setoff, counterclaim or deduction of any kind.

         The unpaid principal balance hereof shall accrue interest, commencing
on the date hereof and continuing until paid in full, as herein provided, at a
fluctuating rate per annum equal to the Lender's cost of funds for the
corresponding period as determined by the Lender; provided, however, that, for
so long as this Note shall be outstanding, as of the last day of each fiscal
year of the Borrower, all accrued and unpaid
 interest for such fiscal year shall
be capitalized and added to the principal balance of this Note and thereafter
interest shall accrue on such increased principal balance. Notwithstanding the
foregoing, however, the interest payable hereunder shall not exceed the highest
lawful rate permitted under the provisions of applicable law (the "Highest
Lawful Rate").

         THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED TO IBM
CREDIT CORPORATION AND CONGRESS FINANCIAL CORPORATION (SOUTHWEST) IN ACCORDANCE
WITH THE TERMS AND PROVISIONS OF THOSE CERTAIN NOTES PAYABLE SUBORDINATION
AGREEMENTS EXECUTED AND DELIVERED BY LENDER.

         Borrower, and each surety, endorser, guarantor and other party now or
hereafter liable for the payment of any sums of money payable on this Note,
hereby severally (a) waive demand, presentment for payment, notice of
nonpayment, protest, notice of protest, notice of intent to accelerate, notice
of acceleration and all other notices, filing of suit and diligence in
collecting this Note or enforcing any other security with respect to same, (b)
agree to any substitution, subordination, exchange or release of any such
security or the release of any parties primarily or secondarily liable hereon,
(c) agree that Lender shall not be required first to institute suit or exhaust
its remedies hereon against Borrower, or others liable or to become liable
hereon or to enforce its rights against them or any security with respect to
same, (d) consent to any and all renewals, extensions, indulgences, releases or
changes, regardless of the number of such renewals, extensions, indulgences,
releases or changes, without notice thereof, and (e) agree to the application of
any deposit balance with Lender as payment or part payment hereon or as an
offset hereto. No waiver by Lender of any of its rights or remedies hereunder or
under any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Lender; no delay
or omission in the exercise or endorsement by Lender of any rights or remedies
shall ever be construed as a waiver of the same or any other right or remedy of
Lender; and no exercise or enforcement of any such right or remedy shall ever be
held to exhaust any right or remedy of Lender.

         Failure to pay this Note or any installment of principal or payment of
interest when due shall constitute an Event of Default and shall entitle the
Lender to accelerate the principal amount hereof and all interest then accrued,
which shall at once become due and payable, and to exercise all other rights and
remedies available at law or in equity.

         If this Note is not paid at maturity and is placed in the hands of an
attorney for collection, or if it is collected through a bankruptcy or any other
court, then Lender shall be entitled to reasonable attorneys' fees and other
costs of collection.

         Borrower acknowledges and agrees that it is the intention of Borrower
and Lender to conform strictly to the usury laws in force that apply to this
Note. Accordingly, this Note is hereby limited so that in no contingency,
whether by reason of acceleration of the maturity of the Note or otherwise,
shall the interest (and all other sums that are deemed to be interest)
contracted for, charged or received by Lender with respect to this Note exceed
the Highest Lawful Rate. If, from any circumstance whatsoever, interest under
this Note would otherwise be payable in excess of the Highest Lawful Rate, and
if from any circumstance Lender shall ever receive anything of value deemed
interest by applicable Law in excess of the Highest Lawful Rate, then Lender's
receipt of such excess interest shall be deemed a mistake and

NOTE - Page 1


<PAGE>

the same shall, so long as no Event of Default shall be continuing, at the
option of Borrower, either be repaid to Borrower or credited to the unpaid
principal; provided, however, that if an Event of Default shall have occurred
and be continuing, and Lender shall receive excess interest during such period,
then Lender shall have the option of either crediting such excess amount to
principal or refunding such excess amount for Borrower. If the Note is prepaid
or the maturity of the Note is accelerated by reason of an election of Lender
following an Event of Default, then unearned interest, if any, shall be
cancelled and, if theretofore paid, shall either be refunded to Borrower or
credited on the Note, as Lender elects. All interest paid or agreed to be paid
to Lender shall, to the extent allowed by applicable law, be amortized,
prorated, allocated, and spread throughout the full period until payment in full
of the principal (including the period of any renewal or extension) so that the
interest for such full period shall not exceed the Highest Lawful Rate.

         THIS NOTE SHALL BE DEEMED AN INSTRUMENT MADE UNDER THE LAWS OF THE
STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF
AMERICA. PURSUANT TO SECTION 346.004 OF THE TEXAS FINANCE CODE, CHAPTER 346 OF
THE TEXAS FINANCE CODE SHALL NOT APPLY TO THIS NOTE, OR ANY ADVANCE OR LOAN
EVIDENCED BY THIS NOTE.

         THE OBLIGATIONS OF BORROWER HEREUNDER ARE PERFORMABLE IN COLLIN COUNTY,
TEXAS. ANY SUIT, ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT TO THIS NOTE
OR ANY OTHER LOAN DOCUMENT, OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
THEREOF, MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF COLLIN,
OR IN THE UNITED STATES COURTS LOCATED IN DALLAS, TEXAS AND BORROWER HEREBY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY
SUCH SUIT, ACTION OR PROCEEDING. BORROWER HEREBY IRREVOCABLY CONSENTS TO SERVICE
OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT BY THE MAILING
THEREOF BY AGENT BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER
AT THE ADDRESS FOR NOTICES AS PROVIDED IN THE AGREEMENT. BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE STATE
OF TEXAS, COUNTY OF COLLIN, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.

         BORROWER WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO A TRIAL BY JURY
ON ANY CLAIM, COUNTERCLAIM OR OTHER ACTION, OF ANY NATURE WHATSOEVER, RELATING
TO OR ARISING OUT OF THIS NOTE, ANY OF THE OTHER LOAN DOCUMENTS OR THE
OBLIGATIONS. BORROWER ACKNOWLEDGES THAT THE FOREGOING JURY TRIAL WAIVER IS A
MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THE AGREEMENT AND THAT LENDER IS
RELYING ON SUCH WAIVER IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS
AND REPRESENTS TO LENDER THAT BORROWER HAS REVIEWED THE FOREGOING JURY TRIAL
WAIVER WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THE FOREGOING JURY TRIAL WAIVER MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.

         BORROWER HEREBY WAIVES ALL OF ITS RIGHTS UNDER THE TEXAS DECEPTIVE
TRADE PRACTICES-CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE SECTION 17.01 ET
SEQ.), A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS, AND REPRESENTS
AND WARRANTS TO LENDER THAT BORROWER (A) HAS KNOWLEDGE AND EXPERIENCE IN
FINANCIAL AND BUSINESS MATTERS THAT ENABLE BORROWER TO EVALUATE THE MERITS AND
RISKS OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT AND THIS NOTE, (B) IS
NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (C)
HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH SUCH TRANSACTIONS.

         THIS NOTE REPRESENTS THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND

NOTE - Page 2


<PAGE>

SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THIS NOTE REPRESENTS THE FINAL AGREEMENT
AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES.

                                SUPPLIES DISTRIBUTORS, INC.
                                a Delaware corporation


                                By:
                                   ---------------------------------------------
                                Name: Joe Farrell
                                Title: President


         Pay to the order of IBM Credit Corporation and Congress Financial
Corporation (Southwest), as their interests may appear:

                                Priority Fulfillment Services, Inc.



                                By:  
                                   ---------------------------------------------
                                Name: Tom Madden
                                Title: Chief Financial Officer



NOTE - Page 3


<PAGE>
                                                                    EXHIBIT 10.9


                     NOTES PAYABLE SUBORDINATION AGREEMENT


March 29, 2002

Congress Financial Corporation (Southwest)
901 Main Street, Suite 1625
Dallas, Texas  75202

Ladies and/or Gentlemen:

         Supplies Distributors, Inc., a Delaware corporation with its principal
place of business at 500 North Central Expressway, Plano, TX 75074 ("Supplies"),
may become indebted to Priority Fulfillment Services, Inc., a Delaware
corporation ("PFS")(howsoever evidenced and whether now existing or hereafter
incurred, the "PFS Indebtedness"). PFS represents that no part of the PFS
Indebtedness has been assigned to or subordinated in favor of any other Person,
other than pursuant to that certain Amended and Restated Notes Payable
Subordination Agreement, dated as of March 29, 2002, by and between PFS and IBM
Credit Corporation, a Delaware corporation ("IBM Credit"), and that PFS does not
hold any security therefor. Capitalized terms used herein without definition
shall have the meaning ascribed thereto in the Loan Agreement referred to below.

         To induce Congress Financial Corporation (Southwest), a Texas
corporation ("Congress"), to enter into a loan agreement with Supplies (as
amended, modified, and supplemented from time to time, the "Loan Agreement")
 and
in consideration of any loans, advances, payments, extensions or credit
(including the extension or renewal, in whole or in part, of any antecedent or
other debt), benefits or financial accommodations heretofore or hereafter made,
granted or extended by Congress or which Congress has or will become obligated
to make, grant or extend to or for the account of Supplies whether under the
Loan Agreement, any of the other Financing Agreements or otherwise, and in
consideration of any obligations heretofore or hereafter incurred by Supplies to
Congress, whether under the Loan Agreement, any of the other Financing
Agreements or otherwise, PFS agrees to make the payment of the PFS Indebtedness
and any and all other present or future indebtedness of Supplies to PFS together
with any and all interest accrued thereon (collectively the "Secondary
Obligations") subject and subordinate to the prior indefeasible payment in full
of any and all debts, obligations and liabilities of Supplies to Congress,
whether absolute or contingent, due or to become due, now existing or hereafter
arising (including interest accrued subsequent to the filing of any petition
under any bankruptcy, insolvency or similar law, whether or not such interest is
allowed pursuant to claim under such law) and whether direct or acquired by
Congress by transfer, assignment or otherwise (collectively the "Primary
Obligations") and that Supplies shall make no payments to PFS or to any
permitted assignee or holder of the PFS Indebtedness in respect of the Secondary
Obligations until the Primary Obligations have been indefeasibly paid in full as
acknowledged in writing by Congress. Notwithstanding the foregoing, Supplies may
make payments in respect of the Secondary Obligations provided, that, (i) no
Event of Default, or event which with notice or passage of time or both would
constitute an Event of Default, shall exist or have occurred and be continuing,
or would occur as a result of any such payment; (ii) any such payment shall not
cause the total principal amount of the Secondary Obligations to be less than
$6,500,000; and (iii) the



Notes Payable Subordination Agreement


<PAGE>

aggregate amount of the Revolving Loans at the time of such payment shall not
exceed the amounts available to Supplies in accordance with Section 2.1 of the
Loan Agreement. Except as provided above, PFS agrees not to ask, demand, sue
for, take or receive payment or security for all or any part of the Secondary
Obligations until and unless all of the Primary Obligations shall have been
fully paid and discharged.

         Upon any distribution of any assets of Supplies whether by reason of
sale, reorganization, liquidation, dissolution, arrangement, bankruptcy,
receivership, assignment for the benefit of creditors, foreclosure or otherwise,
Congress shall be entitled to receive payment in full of the Primary Obligations
prior to the payment of any part of the Secondary Obligations. To enable
Congress to enforce its rights hereunder in any such proceeding or upon the
happening of any such event, Congress or any person whom Congress may from time
to time designate is hereby irrevocably appointed attorney-in-fact for PFS with
full power to act in the place and stead of PFS including the right to make,
present, file and vote proofs of claim against Supplies on account of all or any
part of said Secondary Obligations as Congress may deem advisable and to receive
and collect any and all payments made thereon and to apply the same on account
of the Primary Obligations. PFS will execute and deliver to Congress such
instruments as Congress may require to enforce each of the Secondary
Obligations, to effectuate said power of attorney and to effect collection of
any and all dividends or other payments which may be made at any time on account
thereof.

         While this instrument remains in effect, PFS will not assign to or
subordinate in favor of any other person, firm or corporation, except IBM
Credit, any right, claim or interest in or to the Secondary Obligations or
commence or join with any other creditor in commencing any bankruptcy,
reorganization or insolvency proceeding against Supplies. Congress may at any
time, in its discretion, renew or extend the time of payment of all or any
portion of the Primary Obligations or waive or release any collateral which may
be held therefor and Congress may enter into such agreements with Supplies as
Congress may deem desirable without notice to or further assent from PFS and
without adversely affecting Congress's rights hereunder in any manner
whatsoever.

         In furtherance of the foregoing and as collateral security for the
payment and discharge in full of any and all of the Primary Obligations, PFS
hereby transfers and assigns to Congress the Secondary Obligations and all
collateral security therefor to which PFS now is or may at any time be entitled
and all rights under all guarantees thereof and agrees to deliver to Congress,
after the obligations owed by Supplies to IBM Credit pursuant to that certain
Agreement for Inventory Financing dated as of March 29, 2002 between Supplies,
IBM Credit and the other parties signatory thereto have been satisfied in full,
endorsed in blank all notes or other instruments now or hereafter evidencing
said Secondary Obligations which have not otherwise been delivered to IBM
Credit. Congress may file one or more financing statements concerning any
security interest hereby created without the signature of PFS appearing thereon.

         The within instrument is and shall be deemed to be a continuing
subordination and shall be and remain in full force and effect until all Primary
Obligations have been performed and paid in full and Congress's commitment, if
any, under the Loan Agreement has been terminated.


Notes Payable Subordination Agreement



<PAGE>




         IN WITNESS WHEREOF, each of the undersigned have executed this letter
agreement as of the day and year first written above.




                                 PRIORITY FULFILLMENT SERVICES, INC.


                                 By:
                                    --------------------------------------------
                                      Thomas J. Madden
                                      Chief Financial Officer and
                                      Executive Vice President

                                      500 North Central Expressway, 5th Floor
                                      Plano, Texas 75074




Supplies hereby acknowledges notice of the within and foregoing subordination
and agrees to be bound by all the terms, provisions and conditions thereof.
Except as expressly permitted hereby, Supplies further agrees not to repay all
or any part of the Secondary Obligations, or to issue any note or other
instrument evidencing the same or to grant any collateral security therefor
without Congress's prior written consent.


                                 SUPPLIES DISTRIBUTORS, INC.


                                 By:
                                    --------------------------------------------
                                      Joe Farrell
                                      President and
                                      Chief Executive Officer

                                      500 North Central Expressway, 5th Floor
                                      Plano, Texas  75074

ACCEPTED:

CONGRESS FINANCIAL CORPORATION (SOUTHWEST)

By:
    ----------------------------------------
      Mike Sheff
      Senior Vice President


Notes Payable Subordination Agreement



<PAGE>




ACKNOWLEDGMENT OF SUBORDINATION

STATE OF TEXAS                                    )
                                                  )  SS
COUNTY OF DALLAS                                  )

         On the 29th day of March, 2002, appeared before me Thomas J. Madden to
me known to be the individual described in and who executed the foregoing
instrument, and who acknowledged to me that the same was executed as his or her
free and voluntary act for the uses and purposes therein set forth.



                                          --------------------------------------
                                                     (Notary Public)

My Commission Expires:


-------------------------------------



Notes Payable Subordination Agreement



<PAGE>

                                                                   EXHIBIT 10.10

                                    GUARANTEE
                                    ---------



                                                                  March 29, 2002


Congress Financial Corporation (Southwest)
1201 Main Street, Suite 1625
Dallas, Texas 75202

         Re: Supplies Distributors, Inc., a Delaware corporation (herein
referred to as "Borrower")

Gentlemen:

         Congress Financial Corporation (Southwest) ("Lender") and Borrower have
entered into certain financing arrangements pursuant to which Lender may make
loans and advances and provide other financial accommodations to Borrower as set
forth in the Loan and Security Agreement, dated March 29, 2002 by and between
Borrower and Lender (as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement"), and other agreements, documents and instruments referred to therein
or at any time executed and/or delivered in connection therewith or related
thereto, including, but not limited to, this Guarantee (all of the foregoing,
together with the Loan Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, being
collectively referred to herein as the "Financing Agreements").

         Due to the close business and financial relationships between Borrower
and each
 and all of the undersigned (individually and collectively,
"Guarantors"), in consideration of the benefits which will accrue to Guarantors
and as an inducement for and in consideration of Lender making loans and
advances and providing other financial accommodations to Borrower pursuant to
the Loan Agreement and the other Financing Agreements, each of Guarantors hereby
jointly and severally agrees in favor of Lender as follows:

         1.       Guarantee.
                  ---------

                  (a) Each of Guarantors absolutely and unconditionally, jointly
and severally, guarantees and agrees to be liable for the full and indefeasible
payment and performance when due of the following (all of which are collectively
referred to herein as the "Guaranteed Obligations"): (i) all obligations,
liabilities and indebtedness of any kind, nature and description of Borrower to
Lender and/or its affiliates, including principal, interest, charges, fees,
costs and expenses, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether arising under the Loan Agreement, the other
Financing Agreements or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal term of the
Loan Agreement or after the commencement of any case with respect to Borrower
under the United States Bankruptcy Code or any similar statute (including,
without


Guarantee


<PAGE>


limitation, the payment of interest and other amounts, which would accrue and
become due but for the commencement of such case, whether or not such amounts
are allowed or allowable in whole or in part in any such case and including
loans, interest, fees, charges and expenses related thereto and all other
obligations of Borrower or its successors to Lender arising after the
commencement of such case), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, and however acquired by Lender and (ii) all
expenses (including, without limitation, attorneys' fees and legal expenses)
incurred by Lender in connection with the preparation, execution, delivery,
recording, administration, collection, liquidation, enforcement and defense of
Borrower's obligations, liabilities and indebtedness as aforesaid to Lender, the
rights of Lender in any collateral or under this Guarantee and all other
Financing Agreements or in any way involving claims by or against Lender
directly or indirectly arising out of or related to the relationships between
Borrower, any of Guarantors or any other Obligor (as hereinafter defined) and
Lender, whether such expenses are incurred before, during or after the initial
or any renewal term of the Loan Agreement and the other Financing Agreements or
after the commencement of any case with respect to Borrower or any of Guarantors
under the United States Bankruptcy Code or any similar statute.

                  (b) This Guarantee is a guaranty of payment and not of
collection. Each of Guarantors agrees that Lender need not attempt to collect
any Guaranteed Obligations from Borrower, any one of Guarantors or any other
Obligor or to realize upon any collateral, but may require any one of Guarantors
to make immediate payment of all of the Guaranteed Obligations to Lender when
due, whether by maturity, acceleration or otherwise, or at any time thereafter.
Lender may apply any amounts received in respect of the Guaranteed Obligations
to any of the Guaranteed Obligations, in whole or in part (including attorneys'
fees and legal expenses incurred by Lender with respect thereto or otherwise
chargeable to Borrower or Guarantors) and in such order as Lender may elect.

                  (c) Payment by Guarantors shall be made to Lender at the
office of Lender from time to time on demand as Guaranteed Obligations become
due. Guarantors shall make all payments to Lender on the Guaranteed Obligations
free and clear of, and without deduction or withholding for or on account of,
any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. One or more
successive or concurrent actions may be brought hereon against any of Guarantors
either in the same action in which Borrower or any of the other Guarantors or
any other Obligor is sued or in separate actions. In the event any claim or
action, or action on any judgment, based on this Guarantee is brought against
any of Guarantors, each of Guarantors agrees not to deduct, set-off, or seek any
counterclaim for or recoup any amounts which are or may be owed by Lender to any
of Guarantors.

         2.       Waivers and Consents.
                  --------------------

                  (a) Notice of acceptance of this Guarantee, the making of
loans and advances and providing other financial accommodations to Borrower and
presentment, demand, protest, notice of protest, notice of nonpayment or default
and all other notices to which Borrower or any


Guarantee
                                       2

<PAGE>

of Guarantors are entitled are hereby waived by each of Guarantors. Each of
Guarantors also waives notice of and hereby consents to, (i) any amendment,
modification, supplement, extension, renewal, or restatement of the Loan
Agreement and any of the other Financing Agreements, including, without
limitation, extensions of time of payment of or increase or decrease in the
amount of any of the Guaranteed Obligations, the interest rate, fees, other
charges, or any collateral, and the guarantee made herein shall apply to the
Loan Agreement and the other Financing Agreements and the Guaranteed Obligations
as so amended, modified, supplemented, renewed, restated or extended, increased
or decreased, (ii) the taking, exchange, surrender and releasing of collateral
or guarantees now or at any time held by or available to Lender for the
obligations of Borrower or any other party at any time liable on or in respect
of the Guaranteed Obligations or who is the owner of any property which is
security for the Guaranteed Obligations (individually, an "Obligor" and
collectively, the "Obligors"), including, without limitation, the surrender or
release by Lender of any one of Guarantors hereunder, (iii) the exercise of, or
refraining from the exercise of any rights against Borrower, any of Guarantors
or any other Obligor or any collateral, (iv) the settlement, compromise or
release of, or the waiver of any default with respect to, any of the Guaranteed
Obligations and (v) any financing by Lender of Borrower under Section 364 of the
United States Bankruptcy Code or consent to the use of cash collateral by Lender
under Section 363 of the United States Bankruptcy Code. Each of Guarantors
agrees that the amount of the Guaranteed Obligations shall not be diminished and
the liability of Guarantors hereunder shall not be otherwise impaired or
affected by any of the foregoing.

                  (b) No invalidity, irregularity or unenforceability of all or
any part of the Guaranteed Obligations shall affect, impair or be a defense to
this Guarantee, nor shall any other circumstance which might otherwise
constitute a defense available to or legal or equitable discharge of Borrower in
respect of any of the Guaranteed Obligations, or any one of Guarantors in
respect of this Guarantee, affect, impair or be a defense to this Guarantee.
Without limitation of the foregoing, the liability of Guarantors hereunder shall
not be discharged or impaired in any respect by reason of any failure by Lender
to perfect or continue perfection of any lien or security interest in any
collateral or any delay by Lender in perfecting any such lien or security
interest. As to interest, fees and expenses, whether arising before or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, Guarantors shall be liable therefor,
even if Borrower's liability for such amounts does not, or ceases to, exist by
operation of law. Each of Guarantors acknowledges that Lender has not made any
representations to any of Guarantors with respect to Borrower, any other Obligor
or otherwise in connection with the execution and delivery by Guarantors of this
Guarantee and Guarantors are not in any respect relying upon Lender or any
statements by Lender in connection with this Guarantee.

                  (c) Each of Guarantors hereby irrevocably and unconditionally
waives and relinquishes all statutory, contractual, common law, equitable and
all other claims against Borrower, any collateral for the Guaranteed Obligations
or other assets of Borrower or any other Obligor, for subrogation,
reimbursement, exoneration, contribution, indemnification, setoff or other
recourse in respect to sums paid or payable to Lender by each of Guarantors
hereunder and each of Guarantors hereby further irrevocably and unconditionally
waives and relinquishes any


Guarantee

                                       3

<PAGE>

and all other benefits which Guarantors might otherwise directly or indirectly
receive or be entitled to receive by reason of any amounts paid by or collected
or due from Guarantors, Borrower or any other Obligor upon the Guaranteed
Obligations or realized from their property.

         3. Subordination. Except as expressly set forth in that certain Notes
Payable Subordination Agreement dated as of the date hereof by Priority
Fulfillment Services, Inc. in favor of Lender, payment of all amounts now or
hereafter owed to Guarantors by Borrower or any other Obligor is hereby
subordinated in right of payment to the indefeasible payment in full to Lender
of the Guaranteed Obligations and all such amounts and any security and
guarantees therefor are hereby assigned to Lender as security for the Guaranteed
Obligations.

         4. Acceleration. Notwithstanding anything to the contrary contained
herein or any of the terms of any of the other Financing Agreements, the
liability of Guarantors for the entire Guaranteed Obligations shall mature and
become immediately due and payable, even if the liability of Borrower or any
other Obligor therefor does not, upon the occurrence of any act, condition or
event which constitutes an Event of Default as such term is defined in the Loan
Agreement.

         5. Account Stated. The books and records of Lender showing the account
between Lender and Borrower shall be admissible in evidence in any action or
proceeding against or involving Guarantors as prima facie proof of the items
therein set forth, and the monthly statements of Lender rendered to Borrower, to
the extent to which no written objection is made within thirty (30) days from
the date of sending thereof to Borrower, shall be deemed conclusively correct
and constitute an account stated between Lender and Borrower and be binding on
Guarantors.

         6. Termination. This Guarantee is continuing, unlimited, absolute and
unconditional. All Guaranteed Obligations shall be conclusively presumed to have
been created in reliance on this Guarantee. Each of Guarantors shall continue to
be liable hereunder until one of Lender's officers actually receives a written
termination notice from a Guarantor sent to Lender at its address set forth
above by certified mail, return receipt requested and thereafter as set forth
below. Such notice received by Lender from any one of Guarantors shall not
constitute a revocation or termination of this Guarantee as to any of the other
Guarantors. Revocation or termination hereof by any of Guarantors shall not
affect, in any manner, the rights of Lender or any obligations or duties of any
of Guarantors (including the Guarantor which may have sent such notice) under
this Guarantee with respect to (a) Guaranteed Obligations which have been
created, contracted, assumed or incurred prior to the receipt by Lender of such
written notice of revocation or termination as provided herein, including,
without limitation, (i) all amendments, extensions, renewals and modifications
of such Guaranteed Obligations (whether or not evidenced by new or additional
agreements, documents or instruments executed on or after such notice of
revocation or termination), (ii) all interest, fees and similar charges accruing
or due on and after revocation or termination, and (iii) all attorneys' fees and
legal expenses, costs and other expenses paid or incurred on or after such
notice of revocation or termination in attempting to collect or enforce any of
the Guaranteed Obligations against Borrower, Guarantors or any other Obligor
(whether or not suit be brought), or (b) Guaranteed Obligations which have been


Guarantee

                                       4

<PAGE>

created, contracted, assumed or incurred after the receipt by Lender of such
written notice of revocation or termination as provided herein pursuant to any
contract entered into by Lender prior to receipt of such notice. The sole effect
of such revocation or termination by any of Guarantors shall be to exclude from
this Guarantee the liability of such Guarantor for those Guaranteed Obligations
arising after the date of receipt by Lender of such written notice which are
unrelated to Guaranteed Obligations arising or transactions entered into prior
to such date. Without limiting the foregoing, this Guarantee may not be
terminated and shall continue so long as the Loan Agreement shall be in effect
(whether during its original term or any renewal, substitution or extension
thereof).

         7. Reinstatement. If after receipt of any payment of, or proceeds of
collateral applied to the payment of, any of the Guaranteed Obligations, Lender
is required to surrender or return such payment or proceeds to any Person for
any reason, then the Guaranteed Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this Guarantee shall
continue in full force and effect as if such payment or proceeds had not been
received by Lender. Each of Guarantors shall be liable to pay to Lender, and
does indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 7 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 7 shall survive the termination or
revocation of this Guarantee.

         8. Amendments and Waivers. Neither this Guarantee nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.

         9. Corporate Existence, Power and Authority. Each of Guarantors is a
corporation duly organized and in good standing under the laws of its state or
other jurisdiction of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary, except for those jurisdictions in which the
failure to so qualify would not have a material adverse effect on the financial
condition, results of operation or businesses of any of Guarantors or the rights
of Lender hereunder or under any of the other Financing Agreements. The
execution, delivery and performance of this Guarantee is within the corporate
powers of each of Guarantors, have been duly authorized and are not in
contravention of law or the terms of the certificates of incorporation, by-laws,
or other organizational documentation of each of Guarantors, or any indenture,
agreement or undertaking to which any of Guarantors is a party or by which any
of Guarantors or its property are bound. This Guarantee constitutes the legal,
valid and binding obligation of each of Guarantors enforceable in accordance
with its terms. Any one of Guarantors signing this Guarantee shall be


Guarantee

                                       5

<PAGE>

bound hereby whether or not any of the other Guarantors or any other person
signs this Guarantee at any time.

         10.      Governing Law; Choice of Forum; Service of Process; Jury Trial
                  Waiver.


                  (a) The validity, interpretation and enforcement of this
Guarantee and any dispute arising out of the relationship between any of
Guarantors and Lender, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of Texas (without giving effect to
principles of conflicts of law).

                  (b) Each of Guarantors hereby irrevocably consents and submits
to the non-exclusive jurisdiction of the State of Texas and the United States
District Court for the Northern District of Texas and waives any objection based
on venue or forum non conveniens with respect to any action instituted therein
arising under this Guarantee or any of the other Financing Agreements or in any
way connected with or related or incidental to the dealings of any of Guarantors
and Lender in respect of this Guarantee or any of the other Financing Agreements
or the transactions related hereto or thereto, in each case whether now existing
or hereafter arising and whether in contract, tort, equity or otherwise, and
agrees that any dispute arising out of the relationship between any of
Guarantors or Borrower and Lender or the conduct of any such persons in
connection with this Guarantee, the other Financing Agreements or otherwise
shall be heard only in the courts described above (except that Lender shall have
the right to bring any action or proceeding against any of Guarantors or its
property in the courts of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on collateral at any time granted by Borrower or
any of Guarantors to Lender or to otherwise enforce its rights against any of
Guarantors or its property).

                  (c) Each of Guarantors hereby waives personal service of any
and all process upon it and consents that all such service of process may be
made by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon any of Guarantors in any other
manner provided under the rules of any such courts. Within thirty (30) days
after such service, any of Guarantors so served shall appear in answer to such
process, failing which such Guarantors shall be deemed in default and judgment
may be entered by Lender against Guarantors for the amount of the claim and
other relief requested.

                  (d) EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND LENDER IN
RESPECT OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF
GUARANTORS HEREBY 


Guarantee

                                       6

<PAGE>

AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF GUARANTORS OR LENDER
MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF GUARANTORS AND LENDER TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

                  (e) Lender shall not have any liability to Guarantors (whether
in tort, contract, equity or otherwise) for losses suffered by Guarantors in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Guarantee, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of the Loan Agreement and
the other Financing Agreements.

         11. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth above and to each of
Guarantors at its chief executive office set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.

         12. Partial Invalidity. If any provision of this Guarantee is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

         13. Entire Agreement. This Guarantee represents the entire agreement
and understanding of this parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.

         14. Successors and Assigns. This Guarantee shall be binding upon
Guarantors and their respective successors and assigns and shall inure to the
benefit of Lender and its successors, endorsees, transferees and assigns. The
liquidation, dissolution or termination of any of Guarantors shall not terminate
this Guarantee as to such entity or as to any of the other Guarantors.


Guarantee

                                       7

<PAGE>

         15. Construction. All references to the term "Guarantors" wherever used
herein shall mean each and all of Guarantors and their respective successors and
assigns, individually and collectively, jointly and severally (including,
without limitation, any receiver, trustee or custodian for any of Guarantors or
any of their respective assets or any of Guarantors in its capacity as debtor or
debtor-in-possession under the United States Bankruptcy Code). All references to
the term "Lender" wherever used herein shall mean Lender and its successors and
assigns and all references to the term "Borrower" wherever used herein shall
mean Borrower and its successors and assigns (including, without limitation, any
receiver, trustee or custodian for Borrower or any of its assets or Borrower in
its capacity as debtor or debtor-in-possession under the United States
Bankruptcy Code). All references to the term "Person" or "person" wherever used
herein shall mean any individual, sole proprietorship, partnership, corporation
(including, without limitation, any corporation which elects subchapter S status
under the Internal Revenue Code of 1986, as amended), limited liability company,
limited liability partnership, business trust, unincorporated association, joint
stock corporation, trust, joint venture or other entity or any government or any
agency or instrumentality of political subdivision thereof. All references to
the plural shall also mean the singular and to the singular shall also mean the
plural.

        {REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE FOLLOWS.]


Guarantee

                                       8

<PAGE>



         IN WITNESS WHEREOF, each of Guarantors has executed and delivered this
Guarantee as of the day and year first above written.


ATTEST:                                 BUSINESS SUPPLIES DISTRIBUTORS 
                                        HOLDINGS, LLC

                                        By:
-------------------------------------      -------------------------------------
                                           Joe Farrell
                                           Manager
[CORPORATE SEAL]
                                        Chief Executive Office

                                        500 North Central Expressway, 5th Floor
                                        Plano, Texas  75074



ATTEST:                                 PRIORITY FULFILLMENT SERVICES, INC.

                                        By:
-------------------------------------      -------------------------------------

                                           Thomas J. Madden
                                           Chief Financial Officer and
                                           Executive Vice President
[CORPORATE SEAL]
                                        Chief Executive Office

                                        500 North Central Expressway, 5th Floor
                                        Plano, Texas  75074



ATTEST:                                 PFSWEB, INC.

                                        By:
-------------------------------------      -------------------------------------
                                           Thomas J. Madden
                                           Chief Financial Officer and
                                           Executive Vice President

[CORPORATE SEAL]
                                        Chief Executive Office

                                        500 North Central Expressway, 5th Floor
                                        Plano, Texas  75074


Guarantee



<PAGE>


STATE OF TEXAS                    )
                                  )        SS.:
COUNTY OF DALLAS                  ) 


         On this 29th day of March, 2002 before me personally came Joe Farrell,
to me known, who stated that he is the Manager of Business Supplies Distributors
Holders, LLC, the limited liability company described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said limited liability company.


                                          --------------------------------------
                                                       Notary Public

STATE OF TEXAS                    )
                                  )        SS.:
COUNTY OF DALLAS                  )


         On this 29th day of March, 2002 before me personally came Thomas J.
Madden, to me known, who stated that he is the Chief Financial Officer and
Executive Vice President of Priority Fulfillment Services, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said corporation.


                                          --------------------------------------
                                                       Notary Public

STATE OF TEXAS                    )
                                  )        SS.:
COUNTY OF DALLAS                  )


         On this 29th day of March, 2002 before me personally came Thomas J.
Madden to me known, who stated that he is the Chief Financial Officer and
Executive Vice President of PFSweb, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.


                                          --------------------------------------
                                                       Notary Public


Guarantee


<PAGE>
                                                                   EXHIBIT 10.11

                           GENERAL SECURITY AGREEMENT


         This General Security Agreement ("Agreement") dated March 29, 2002 is
by Priority Fulfillment Services, Inc., a Delaware corporation ("Guarantor"), in
favor of Congress Financial Corporation (Southwest), a Texas corporation
("Lender").


                                   WITNESSETH

         WHEREAS, Lender has entered or is about to enter into certain financing
arrangements with Supplies Distributors, Inc., a Delaware corporation (herein
referred to as "Borrower") pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and

         WHEREAS, Guarantor has executed and delivered or is about to execute
and deliver to Lender a guarantee in favor of Lender pursuant to which Guarantor
absolutely and unconditionally guarantees to Lender the payment and performance
of all now existing and hereafter arising obligations, liabilities and
indebtedness of Borrower to Lender; and

         NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

SECTION I. DEFINITIONS

         All terms used herein which are defined in Article
 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Guarantor, Borrower and Lender
pursuant to the definitions set forth in the recitals hereto, or to any other
person herein, shall include their respective successors and assigns. The words
"hereof," "herein," "hereunder," "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this Agreement now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced. The word "including" when used in this Agreement shall mean
"including, without limitation." An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in accordance with Section
7.3 or is cured in a manner satisfactory to Lender, if such Event of Default is
capable of being cured as determined by Lender. Any accounting term used herein
unless otherwise defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:

         1.1. "Event of Default" shall have the meaning set forth in Section 6.1
hereof.


Security Agreement

<PAGE>

         1.2. "Financing Agreements" shall mean, collectively, the Loan
Agreement, this Agreement and all notes, guarantees, security agreements and
other agreements, documents and instruments now or at any time hereafter
executed and/or delivered by Borrower, Guarantor or any Obligor in connection
with the Loan Agreement, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

         1.3. "Foreign Subsidiary" shall mean any wholly owned subsidiary of any
Guarantor that is organized under the laws of any jurisdiction other than the
United States, any state or territory thereof or the District of Columbia.

         1.4. "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 5.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.

         1.5. "IBM Inventory" shall have the meaning set forth in Section 2.1
hereof.

         1.6. "Information Certificate" shall mean the Information Certificate
(as defined in the Loan Agreement) of each Guarantor containing material
information with respect to Guarantor, its business and assets provided by or on
behalf of Guarantor to Lender in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.

         1.7. "Loan Agreement" shall mean the Loan and Security Agreement, dated
March 29, 2002, by and between Borrower and Lender, as the same now exists and
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

         1.8. "Obligations" shall mean any and all obligations, liabilities and
indebtedness of every kind, nature and description owing by Guarantor to Lender
and/or its affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Loan Agreement or after the commencement of
any case with respect to Borrower or Guarantor under the United States
Bankruptcy Code or any similar statute (including the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case, whether or not such amounts are allowed or allowable in whole or in part
in such case), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and however acquired by Lender.

         1.9. "Obligor" shall mean any other guarantor, endorser, acceptor,
surety or other person liable on or with respect to the Obligations or who is
the owner of any property which is security for the Obligations, other than
Borrower.


Security Agreement
                                        2


<PAGE>

         1.10. "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.

         1.11. "Receivables" shall mean all of the following now owned or
hereafter arising or acquired property of Guarantor: (a) all accounts; (b) all
interest, fees, late charges, penalties, collection fees and other amounts due
or to become due or otherwise payable in connection with any Account; (c) all
payment intangibles of Guarantor; (d) letters of credit, indemnities,
guarantees, security or other deposits and proceeds thereof issued payable to
Guarantor or otherwise in favor of or delivered to Guarantor in connection with
any Account; or (e) all other accounts, contract rights, chattel paper,
instruments, notes, general intangibles and other forms of obligations owing to
Guarantor, whether from the sale and lease of goods or other property, licensing
of any property (including intellectual property or other general intangibles),
rendition of services or from loans or advances by Guarantor or to or for the
benefit of any third person (including loans or advances to any affiliates or
subsidiaries of Guarantor) or otherwise associated with any accounts, inventory
or general intangibles of Guarantor (including, without limitation, choses in
action, causes of action, tax refunds, tax refund claims, any funds which may
become payable to Guarantor in connection with the termination of any employee
benefit plan and any other amounts payable to Guarantor from any employee
benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, casualty
or any similar types of insurance and any proceeds thereof and proceeds of
insurance covering the lives of employees on which Guarantor is a beneficiary).

         1.12. "Records" shall mean all of Guarantor's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Guarantor with
respect to the foregoing maintained with or by any other person).

SECTION II. GRANT AND PERFECTION OF SECURITY INTEREST

         2.1. Grant of Security Interest. To secure payment of all of
Guarantor's current and future debts and obligations to Lender, whether under
this Guaranty or any other agreement between Lender and Guarantor and to secure
the Obligations, whether direct or contingent, Guarantor does assign, pledge and
give to Lender a security interest in all of Guarantor's personal property,
whether now owned or hereafter acquired or existing and wherever located,
including the following: (a) all inventory and equipment manufactured or sold by
or bearing the trademark or tradename of International Business Machines
Corporation ("IBM") or any other authorized supplier and all parts thereof,
attachments, additions, accessories and accessions thereto, all substitutions,
repossessions, exchanges, replacements and returns thereof, all price protection
credits, rebates, discounts and incentive payments relating to the foregoing,
products, 


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<PAGE>

insurance and proceeds thereof and documents therefor ("IBM Inventory"); (b) all
accounts, chattel paper, instruments, negotiable documents, promissory notes,
general intangibles (including contract rights, software and licenses), deposit
accounts, commercial tort claims, intellectual property, investment property,
pledged notes, letter of credit rights, supporting obligations, obligations of
any kind owing to Guarantor, whether or not arising out of or in connection with
the sale or lease of goods or the rendering of services and all books, invoices,
documents and other records in any form evidencing or relating to any of the
foregoing; (c) all substitutions and replacements for all of the foregoing; and
(d) all products or proceeds of all of the foregoing (all of the above assets
are defined pursuant to the provisions of Article 9 of the Uniform Commercial
Code and are hereinafter referred to as the "Collateral"). Collateral shall not
include inventory and equipment of the Guarantor that is not IBM Inventory (as
defined above).

         2.2. Perfection of Security Interests.

                  (a) Guarantor irrevocably and unconditionally authorizes
         Lender (or its agent) to file at any time and from time to time such
         financing statements with respect to the Collateral naming Lender or
         its designee as the secured party and Guarantor as debtor, as Lender
         may require, and including any other information with respect to
         Guarantor or otherwise required by part 5 of Article 9 of the Uniform
         Commercial Code of such jurisdiction as Lender may determine, together
         with any amendment and continuations with respect thereto, which
         authorization shall apply to all financing statements filed on, prior
         to or after the date hereof. Guarantor hereby ratifies and approves all
         financing statements naming Lender or its designee as secured party and
         Guarantor, as debtor with respect to the Collateral (and any amendments
         with respect to such financing statements) filed by or on behalf of
         Lender prior to the date hereof and ratifies and confirms the
         authorization of Lender to file such financing statements (and
         amendments, if any). Guarantor hereby authorizes Lender to adopt on
         behalf of Guarantor any symbol required for authenticating any
         electronic filing. In the event that the description of the collateral
         in any financing statement naming Lender or its designee as the secured
         party and Guarantor as debtor includes assets and properties of
         Guarantor that do not at any time constitute Collateral, whether
         hereunder, under any of the other Financing Agreements or otherwise,
         the filing of such financing statement shall nonetheless be deemed
         authorized by such Guarantor to the extent of the Collateral included
         in such description and it shall not render the financing statement
         ineffective as to any of the Collateral or otherwise affect the
         financing statement as it applies to any of the Collateral. In no event
         shall Guarantor at any time file, or permit or cause to be filed, any
         correction statement or termination statement with respect to any
         financing statement (or amendment or continuation with respect thereto)
         naming Lender or its designee as secured party and Guarantor as debtor.

                  (b) Guarantor shall take any other actions reasonably
         requested by Lender from time to time to cause the attachment,
         perfection and first priority of, and the ability of Lender to enforce,
         the security interest of Lender in any and all of the Collateral,
         including, without limitation, (i) executing, delivering and, where
         appropriate, filing financing statements and amendments relating
         thereto under the UCC or other applicable law, to the extent, if any,
         that Guarantor's signature thereon is required therefor, 


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<PAGE>

         (ii) causing Lender's name to be noted as secured party on any
         certificate of title for a titled good if such notation is a condition
         to attachment, perfection or priority of, or ability of Lender to
         enforce, the security interest of Lender in such Collateral, (iii)
         complying with any provision of any statute, regulation or treaty of
         the United States as to any Collateral if compliance with such
         provision is a condition to attachment, perfection or priority of, or
         ability of Lender to enforce, the security interest of Lender in such
         Collateral, (iv) obtaining the consents and approvals of any
         governmental authority or third party, including, without limitation,
         any consent of any licensor, lessor or other person obligated on
         Collateral, and taking all actions required by any earlier versions of
         the UCC or by other law, as applicable in any relevant jurisdiction.

SECTION III. COLLATERAL COVENANTS

         3.1. Accounts Covenants. Lender may, at any time or times that an Event
of Default exists or has occurred and is continuing, (i) notify any or all
account debtors that the accounts have been assigned to Lender and that Lender
has a security interest therein and Lender may direct any or all accounts
debtors to make payment of accounts directly to Lender, (ii) extend the time of
payment of, compromise, settle or adjust for cash, credit, return of merchandise
or otherwise, and upon any terms or conditions, any and all accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Guarantor shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any accounts as Lender may require.

         3.2. Inventory Covenants. With respect to the inventory, Guarantor
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of inventory, Guarantor's cost therefor and daily
withdrawals therefrom and additions thereto.

         3.3. Equipment Covenants. With respect to the equipment which is
included as Collateral: (a) upon Lender's request, Guarantor shall, at its
expense, at any time or times as Lender may request on or after an Event of
Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the equipment in form, scope and methodology acceptable to
Lender and by appraiser acceptable to Lender; (b) Guarantor shall keep the
equipment in good order, repair, running and marketable condition (ordinary wear
and tear excepted); (c) Guarantor shall use the equipment with all reasonable
care and caution and in accordance with applicable standards of any insurance
and in conformity with all applicable laws; (d) the equipment is and shall be
used in Guarantor's business and not for personal, family, household or farming
use; 


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<PAGE>

(e) the equipment is now and shall remain personal property and Guarantor shall
not permit any of the equipment to be or become a part of or affixed to real
property; and (g) Guarantor assumes all responsibility and liability arising
from the use of the equipment.

         3.4. Power of Attorney. Guarantor hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Guarantor's true and
lawful attorney-in-fact, and authorizes Lender, in Guarantor's or Lender's name,
at any time an Event of Default or event which with notice or passage of time or
both would constitute an Event of Default exists or has occurred and is
continuing, to; (i) demand payment on Receivables or other proceeds of inventory
or other Collateral, (ii) enforce payment of Receivables by legal proceedings or
otherwise, (iii) exercise all of Guarantor's rights and remedies to collect any
Receivables or other Collateral, (iv) sell or assign any Receivables upon such
terms, for such amount and at such time or times as the Lender deems advisable,
(v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Receivables, (vii) prepare, file and sign Guarantor's name on any
proof of claim in bankruptcy or other similar document against an account debtor
or other Obligor in respect of any Receivables or other Collateral, (viii)
notify the post office authorities to change the address for delivery of
remittances from account debtors or other Obligors in respect of the Receivables
or other proceeds of Collateral to an address designated by Lender, and open and
dispose of all mail addressed to Guarantor and handle and store all mail
relating to the Collateral, (ix) do all acts and things which are necessary, in
Lender's determination, to fulfill Guarantor's obligations under this Agreement
and the other Financing Agreements, (x) take control in any manner of any item
of payment in respect of Receivables or constituting Collateral or otherwise
received in or for deposit in any blocked accounts or otherwise received by
Lender, (xi) have access to any lockbox or postal box into which remittances
from account debtors or other Obligors in respect of Receivables or other
proceeds of Collateral are sent or received are deposited, (xii) endorse
Guarantor's name upon any items of payment in respect of Receivables
constituting Collateral or otherwise received by Lender and deposit the same in
the Lender's account for application to the Obligations, (xiii) endorse
Guarantor's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Receivable or any goods pertaining
thereto or any other Collateral including any warehouse or other receipts, or
bills of lading and other negotiable or non-negotiable documents, and (xiv) sign
Guarantor's name on any verification of Receivables and notices thereof to
account debtors and/or any secondary obligors or other obligors in respect
thereof. Guarantor hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or willful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.

         3.5. Right to Cure. Lender may, at its option, (a) cure any default by
Guarantor under any agreement with a third party that affects the Collateral,
its value or the ability of Lender to collect, sell or otherwise dispose of the
Collateral or the rights and remedies of Lender therein or the ability of
Guarantor or any Obligor to perform it obligations hereunder or under any of the
Financing Agreements, (b) pay or bond on appeal any judgment entered against
Guarantor, (c) discharge taxes, liens, security interests or other encumbrances
at any time levied on or existing with respect to the Collateral and (d) pay any
amount, incur any expense or perform any act which, in Lender's judgment, is
necessary or appropriate to preserve, protect, insure or 


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<PAGE>

maintain the Collateral and the rights of Lender with respect thereto. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Guarantor or any Obligor. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.

         3.6. Access to Premises. From time to time as requested by Lender, at
the cost and expense of Guarantor, (a) Lender or its designee shall have
complete access to all of Guarantor's premises during normal business hours and
after notice to Guarantor, or at any time and without notice to Guarantor if an
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Guarantor's books
and records, including the Records, and (b) Guarantor shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Guarantor's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Receivables and realization of other Collateral.

SECTION IV. REPRESENTATIONS AND WARRANTIES

         Guarantor hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement):

         4.1. Corporate Existence, Power and Authority; Subsidiaries. Guarantor
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Guarantor's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Guarantor's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Guarantor's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Guarantor is a party or by which Guarantor or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Guarantor enforceable in
accordance with their respective terms. Guarantor does not have any subsidiaries
except as set forth on the Information Certificate.

         4.2. Name; State of Organization; Chief Executive Office; Collateral
Locations.

                  (a) The exact legal name of Guarantor is as set forth on the
         signature page of this Agreement and in the Information Certificate.
         Guarantor has not, during the past five years, been known by or used
         any other corporate or fictitious name or been a party to any merger or
         consolidation, or acquired all or substantially all of the assets of
         any Person, or acquired any of its property or assets out of the
         ordinary course of business, except as set forth in the Information
         Certificate.


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<PAGE>

                  (b) Guarantor is an organization of the type and organized in
         the jurisdiction set forth in the Information Certificate. The
         Information Certificate accurately sets forth the organizational
         identification number of Guarantor or accurately states that Guarantor
         has none and accurately sets forth the federal employer identification
         number of Guarantor.

                  (c) The chief executive office and mailing address of
         Guarantor and Guarantor's Records concerning accounts are currently
         located and for the past five years have only been located at the
         address set forth below and its only other places of business and the
         only other locations of Collateral, if any, during such time periods
         are the addresses set forth in the Information Certificate, subject to
         the rights of Guarantor to establish new locations in accordance with
         Section 5.2 below. The Information Certificate correctly identifies any
         of such locations which are not owned by Guarantor and sets forth the
         owners and/or operators thereof.

         4.3. Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 4.4
hereto and the other liens permitted under Section 5.8 hereof. Guarantor has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 4.4 hereto or permitted under Section 5.8 hereof.

         4.4. Tax Returns. Guarantor has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Guarantor has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Guarantor and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.

         4.5. Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Guarantor's knowledge threatened, against or affecting Guarantor, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Guarantor's knowledge threatened, against
Guarantor or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Guarantor
would result in any material adverse change in the assets, business or prospects
of Guarantor or which would impair the ability of Guarantor to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce the Obligations or realize upon any
Collateral.


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<PAGE>

         4.6. Compliance with Other Agreements and Applicable Laws. Guarantor is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Guarantor is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.

         4.7. Intellectual Property. Guarantor owns or licenses or otherwise has
the right to use all intellectual property necessary for the operation of its
business as presently conducted or proposed to be conducted. As of the date
hereof, Guarantor does not have any intellectual property registered, or subject
to pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States, any State thereof, any political
subdivision thereof or in any other country, other than those described in
Schedule 4.9 hereto and has not granted any licenses with respect thereto other
than as set forth in Schedule 4.9 hereto. No event has occurred which permits or
would permit after notice or passage of time or both, the revocation, suspension
or termination of such rights. To the best of Guarantor's knowledge, no slogan
or other advertising device, product, process, method, substance or other
intellectual property or goods bearing or using any intellectual property
presently contemplated to be sold by or employed by Guarantor infringes any
patent, trademark, servicemark, tradename, copyright, license or other
intellectual property owned by any other Person presently and no claim or
litigation is pending or threatened against or affecting Guarantor contesting
its right to sell or use any such intellectual property. Schedule 4.9 hereto
sets forth all of the agreements or other arrangements of Guarantor pursuant to
which Guarantor has a license or other right to use any trademarks, logos,
designs, representations or other intellectual property owned by another person
as in effect on the date hereof and the dates of the expiration of such
agreements or other arrangements of Guarantor as in effect on the date hereof.

         4.8. Accuracy and Completeness of Information. All information
furnished by or on behalf of Guarantor in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Guarantor,
which has not been fully and accurately disclosed to Lender in writing.

         4.9. Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation under the Loan Agreement and shall be conclusively
presumed to have been relied on by Lender regardless of any investigation made
or information possessed by Lender. The representations and warranties set forth
herein shall be cumulative and in addition to any other representations or
warranties which Guarantor shall now or hereafter give, or cause to be given, to
Lender.


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<PAGE>

SECTION V. AFFIRMATIVE AND NEGATIVE COVENANTS

         5.1. Maintenance of Existence.

                  (a) Guarantor shall at all times preserve, renew and keep in
         full, force and effect its corporate existence and rights and
         franchises with respect thereto and maintain in full force and effect
         all permits, licenses, trademarks, tradenames, approvals,
         authorizations, leases and contracts necessary to carry on the business
         as presently or proposed to be conducted.

                  (b) Guarantor shall not change its name unless each of the
         following conditions is satisfied: (i) Lender shall have received not
         less than thirty (30) days' prior written notice from Guarantor of such
         proposed change in its corporate name, which notice shall accurately
         set forth the new name; and (ii) Lender shall have received a copy of
         the amendment to the Certificate of Incorporation of Guarantor
         providing for the name change certified by the Secretary of State of
         the jurisdiction of incorporation of Guarantor as soon as it is
         available.

                  (c) Guarantor shall not change its chief executive office or
         its mailing address or organizational identification number (or if it
         does not have one, shall not acquire one) unless Lender shall have
         received not less than thirty (30) days' prior written notice from
         Guarantor of such proposed change, which notice shall set forth such
         information with respect thereto as Lender may require and Lender shall
         have received such agreements as Lender may reasonably require in
         connection therewith. Guarantor shall not change its type of
         organization, jurisdiction of organization or other legal structure.

         5.2. New Collateral Locations. Guarantor may only open any new location
within the continental United States provided Guarantor (a) gives Lender thirty
(30) days' prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including UCC financing statements.

         5.3. Compliance with Laws, Regulations, Etc. Guarantor shall, at all
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals and orders of any Federal, State or local
governmental authority applicable to it.

         5.4. Payment of Taxes and Claims. Guarantor shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Guarantor and with respect to which adequate reserves have been
set aside on its books. Guarantor shall be liable for any tax or penalties
imposed on Lender as a result of the financing arrangements provided for herein
and Guarantor agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Guarantor such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Guarantor to pay
any income or franchise taxes attributable to the income of Lender from 


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                                       10

<PAGE>

any amounts charged or paid hereunder to Lender. The foregoing indemnity shall
survive the payment of the Obligations, the termination of this Agreement and
the termination or non-renewal of the Loan Agreement.

         5.5. Insurance. Guarantor shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Guarantor shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Guarantor fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Guarantor. All policies shall provide for at
least thirty (30) days' prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Guarantor in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance.
Guarantor shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) under such insurance
policies and Guarantor shall obtain non-contributory lender's loss payable
endorsements to all insurance policies in form and substance satisfactory to
Lender. Such lender's loss payable endorsements shall specify that the proceeds
of such insurance shall be payable to Lender as its interests may appear and
further specify that Lender shall be paid regardless of any act or omission by
Guarantor or any of its affiliates. At its option, Lender may apply any
insurance proceeds received by Lender at any time to the cost of repairs or
replacement of Collateral and/or to payment of the Obligations, whether or not
then due, in any order and in such manner as Lender may determine or hold such
proceeds as cash collateral for the Obligations.

         5.6. Encumbrances. Guarantor shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and available to Guarantor and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Guarantor's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Guarantor, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of Guarantor as presently conducted thereon or materially impair the value of
the real property which may be subject thereto; (e) purchase money security
interests in equipment and purchase money mortgages on real estate (including
capital leases) not to exceed $500,000 in the aggregate at any time outstanding
so long as such security interests and mortgages do not apply to any property of
Guarantor other than the equipment or real estate so acquired, and the
indebtedness secured thereby does not exceed the cost of the equipment or 


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                                       11

<PAGE>

real estate so acquired, as the case may be; (f) liens on cash not to exceed
$5,000,000 in the aggregate at any time to secure Guarantor's obligations under
capital leases; (g) liens and security interests of IBM Credit Corporation; and
(h) the security interests and liens set forth on Schedule 4.4 hereto.

         5.7. Transactions with Affiliates. Guarantor shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Guarantor, except in the ordinary course of and pursuant to the
reasonable requirements of Guarantor's business and upon fair and reasonable
terms no less favorable to Guarantor than Guarantor would obtain in a comparable
arm's length transaction with an unaffiliated person or (b) make any payments of
management, consulting or other fees for management or similar services, or of
any indebtedness owing to any officer, employee, shareholder, director or other
person affiliated with Guarantor except reasonable compensation to officers,
employees and directors for services rendered to Guarantor in the ordinary
course of business.

         5.8. Costs and Expenses. Guarantor shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) insurance premiums,
appraisal fees and search fees; (c) costs and expenses of preserving and
protecting the Collateral; (d) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising out
of the transactions contemplated hereby and thereby (including preparations for
and consultations concerning any such matters); and (e) the fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.

         5.9. Further Assurances. At the request of Lender at any time and from
time to time, Guarantor shall, at its expense, at any time or times duly execute
and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Where permitted by law, Guarantor hereby authorizes
Lender to execute and file one or more UCC financing statements signed only by
Lender.


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                                       12

<PAGE>

SECTION VI. EVENTS OF DEFAULT AND REMEDIES

         6.1. Events of Default. The occurrence or existence of any Event of
Default under the Loan Agreement is referred to herein individually as an "Event
of Default," and collectively as "Events of Default."

         6.2. Remedies.

                  (a) At any time an Event of Default exists or has occurred and
         is continuing, Lender shall have all rights and remedies provided in
         this Agreement, the other Financing Agreements, the Uniform Commercial
         Code and other applicable law, all of which rights and remedies may be
         exercised without notice to or consent by Guarantor or any Obligor,
         except as such notice or consent is expressly provided for hereunder or
         required by applicable law. All rights, remedies and powers granted to
         Lender hereunder, under any of the other Financing Agreements, the
         Uniform Commercial Code or other applicable law, are cumulative, not
         exclusive and enforceable, in Lender's discretion, alternatively,
         successively, or concurrently on any one or more occasions, and shall
         include, without limitation, the right to apply to a court of equity
         for an injunction to restrain a breach or threatened breach by
         Guarantor of this Agreement or any of the other Financing Agreements.
         Lender may, at any time or times, proceed directly against Guarantor or
         any Obligor to collect the Obligations without prior recourse to the
         Collateral.

                  (b) Without limiting the foregoing, at any time an Event of
         Default exists or has occurred and is continuing, Lender may, in its
         discretion and without limitation, (i) accelerate the payment of all
         Obligations and demand immediate payment thereof to Lender (provided,
         that, upon the occurrence of any Event of Default described in Sections
         10.1(g) and 10.1(h) of the Loan Agreement, all Obligations shall
         automatically become immediately due and payable), (ii) with or without
         judicial process or the aid or assistance of others, enter upon any
         premises on or in which any of the Collateral may be located and take
         possession of the Collateral or complete processing, manufacturing and
         repair of all or any portion of the Collateral, (iii) require
         Guarantor, at Guarantor's expense, to assemble and make available to
         Lender any part or all of the Collateral at any place and time
         designated by Lender, (iv) collect, foreclose, receive, appropriate,
         setoff and realize upon any and all Collateral, (v) remove any or all
         of the Collateral from any premises on or in which the same may be
         located for the purpose of effecting the sale, foreclosure or other
         disposition thereof or for any other purpose, (vi) sell, lease,
         transfer, assign, deliver or otherwise dispose of any and all
         Collateral (including entering into contracts with respect thereto,
         public or private sales at any exchange, broker's board, at any office
         of Lender or elsewhere) at such prices or terms as Lender may deem
         reasonable, for cash, upon credit or for future delivery, with the
         Lender having the right to purchase the whole or any part of the
         Collateral at any such public sale, all of the foregoing being free
         from any right or equity of redemption of Guarantor, which right or
         equity of redemption is hereby expressly waived and released by
         Guarantor. If any of the Collateral is sold or leased by Lender upon
         credit terms or for future delivery, the Obligations shall not be
         reduced as a result thereof until payment therefor is finally collected
         by Lender. If notice of disposition of Collateral is required by law,
         five (5) days' prior notice by Lender to Guarantor designating the time
         and place of any public 


Security Agreement
                                       13

<PAGE>

         sale or the time after which any private sale or other intended
         disposition of Collateral is to be made, shall be deemed to be
         reasonable notice thereof and Guarantor waives any other notice. In the
         event Lender institutes an action to recover any Collateral or seeks
         recovery of any Collateral by way of prejudgment remedy, Guarantor
         waives the posting of any bond which might otherwise be required.

                  (c) Lender may apply the cash proceeds of Collateral actually
         received by Lender from any sale, lease, foreclosure or other
         disposition of the Collateral to payment of the Obligations, in whole
         or in part and in such order as Lender may elect, whether or not then
         due. Guarantor shall remain liable to Lender for the payment of any
         deficiency with interest at the highest rate provided for in the Loan
         Agreement and all costs and expenses of collection or enforcement,
         including attorneys' fees and legal expenses.

SECTION VII. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

         7.1. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.

                  (a) The validity, interpretation and enforcement of this
         Agreement and the other Financing Agreements and any dispute arising
         out of the relationship between the parties hereto, whether in
         contract, tort, equity or otherwise, shall be governed by the internal
         laws of the State of Texas (without giving effect to principles of
         conflicts of law).

                  (b) Guarantor irrevocably consents and submits to the
         non-exclusive jurisdiction of the State of Texas and the United States
         District Court for the Northern District of Texas and waives any
         objection based on venue or forum non conveniens with respect to any
         action instituted therein arising under this Agreement or any of the
         other Financing Agreements or in any way connected or related or
         incidental to the dealings of Guarantor and Lender in respect of this
         Agreement or the other Financing Agreements or the transactions related
         hereto or thereto, in each case whether now existing or hereafter
         arising, and whether in contract, tort, equity or otherwise, and agrees
         that any dispute with respect to any such matters shall be heard only
         in the courts described above (except that Lender shall have the right
         to bring any action or proceeding against Guarantor or its property in
         the courts of any other jurisdiction which Lender deems necessary or
         appropriate in order to realize on the Collateral or to otherwise
         enforce its rights against Guarantor or its property).

                  (c) Guarantor hereby waives personal service of any and all
         process upon it and consents that all such service of process may be
         made by certified mail (return receipt requested) directed to its
         address set forth on the signature pages hereof and service so made
         shall be deemed to be completed five (5) days after the same shall have
         been so deposited in the U.S. mails, or, at Lender's option, by service
         upon Guarantor in any other manner provided under the rules of any such
         courts. Within thirty (30) days after such service, Guarantor shall
         appear in answer to such process, failing which Guarantor shall be
         deemed in default and judgment may be entered by Lender against
         Guarantor for the amount of the claim and other relief requested.


Security Agreement
                                       14

<PAGE>

                  (d) GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
         CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
         AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
         CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF GUARANTOR
         AND LENDER IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING
         AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE
         WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
         TORT, EQUITY OR OTHERWISE. GUARANTOR HEREBY AGREES AND CONSENTS THAT
         ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY
         COURT TRIAL WITHOUT A JURY AND THAT GUARANTOR OR LENDER MAY FILE AN
         ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS
         WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR AND LENDER TO THE WAIVER
         OF THEIR RIGHT TO TRIAL BY JURY.

                  (e) Lender shall not have any liability to Guarantor (whether
         in tort, contract, equity or otherwise) for losses suffered by
         Guarantor in connection with, arising out of, or in any way related to
         the transactions or relationships contemplated by this Agreement, or
         any act, omission or event occurring in connection herewith, unless it
         is determined by a final and non-appealable judgment or court order
         binding on Lender that the losses were the result of acts or omissions
         constituting gross negligence or willful misconduct. In any such
         litigation, Lender shall be entitled to the benefit of the rebuttable
         presumption that it acted in good faith and with the exercise of
         ordinary care in the performance by it of the terms of this Agreement
         and the other Financing Agreements.

         7.2. Waiver of Notices. Guarantor hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Guarantor which Lender may elect to give shall entitle Guarantor
to any other or further notice or demand in the same, similar or other
circumstances.

         7.3. Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Guarantor. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.

         7.4. Waiver of Counterclaims. Guarantor waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any 


Security Agreement
                                       15

<PAGE>

action or proceeding with respect to this Agreement, the Obligations, the
Collateral or any matter arising therefrom or relating hereto or thereto.

         7.5. Indemnification. Guarantor shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any and
all losses, claims, damages, liabilities, costs or expenses imposed on, incurred
by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in this Section may be unenforceable because it violates any law or
public policy, Guarantor shall pay the maximum portion which it is permitted to
pay under applicable law to Lender in satisfaction of indemnified matters under
this Section. The foregoing indemnity shall survive the payment of the
Obligations, the termination of this Agreement and the termination or
non-renewal of the Loan Agreement.

SECTION VIII. MISCELLANEOUS

         8.1. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at 1201 Main Street, Suite 1625, Dallas, Texas
75202 and to Guarantor at its chief executive office set forth below, or to such
other address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.

         8.2. Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

         8.3. Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon Guarantor and
its successors and assigns and inure to the benefit of and be enforceable by
Lender and its successors and assigns, except that Guarantor may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Lender.

         8.4. Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning 


Security Agreement
                                       16

<PAGE>

the subject matter hereof and thereof between the parties hereto, and supersede
all other prior agreements, understandings, negotiations and discussions,
representations, warranties, commitments, proposals, offers and contracts
concerning the subject matter hereof, whether oral or written. In the event of
any inconsistency between the terms of this Agreement and any schedule or
exhibit hereto, the terms of this Agreement shall govern.

         8.5. Additional Financings. In connection with any working capital
financing Guarantor receives from another financial institution or commercial
lender ("New Lender"), Guarantor may request that Lender subordinate its
interest in the Collateral (excluding the IBM Inventory) and Lender will not
unreasonably withhold its consent provided that:

                  (a) No Event of Default shall have occurred or be continuing;

                  (b) Lender and New Lender shall have entered into a
         subordination agreement in form and substance satisfactory to Lender in
         all respects in its sole discretion;

                  (c) Lender shall be satisfied that the IBM Inventory shall be
         segregated from the other property of Guarantor and its customers and
         Lender shall have a perfected priority security interest in the IBM
         Inventory; and

                  (d) The books and records maintained on behalf of Borrower
         shall be kept separately from Guarantor's other books and records and
         Guarantor shall have conspicuously noted on the Borrower's books and
         records that such books and records are the property of Borrower.


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                                       17

<PAGE>


         IN WITNESS WHEREOF, Guarantor has caused these presents to be duly
executed as of the day and year first above written.



                                        GUARANTOR:

                                        PRIORITY FULFILLMENT SERVICES, INC.


                                        By:
                                               ---------------------------------
                                               Thomas J. Madden
                                               Executive Vice President and
                                               Chief Financial Officer



                                        CHIEF EXECUTIVE OFFICE:

                                        500 North Central Expressway, 5th Floor
                                        Plano, Texas  75074


Security Agreement


<PAGE>

                                                                   EXHIBIT 10.12

Dated as of March 29, 2002

To:      Congress Financial Corporation (Southwest) ("Lender")

Re:      Inducement Letter

Gentlemen:

         Each of the undersigned, Priority Fulfillment Services, Inc., a
Delaware corporation ("PFS"), and PFSweb, Inc., a Delaware corporation
("PFSweb"), directly or indirectly manages certain business operations and other
affairs of Supplies Distributors, Inc. ("Borrower"). Capitalized terms used but
not otherwise defined in this letter agreement, are defined in that certain Loan
and Security Agreement, dated as of March 29, 2002, by and between Lender and
Borrower (as amended from time to time, the "Loan Agreement").

         PFS and PFSweb will each derive substantial direct or indirect benefit
from the extension of credit to Borrower pursuant to the Loan Agreement.

         In order to induce the Lender to enter into the Loan Agreement and the
Financing Agreements and to consummate the transactions contemplated thereby,
and in consideration therefor, the parties hereto agree as follows:

         1. If at any time the aggregate amount of Revolving Loans shall exceed
the amounts available to Borrower in accordance with Section 2.1 of the Loan
Agreement (the amount of any such excess, the "Overadvance Amount") then PFS
agrees
 that within two (2) Business Days from such time, PFS shall make an
infusion of capital into Borrower, in an amount not less than the Overadvance
Amount, in the form of equity or indebtedness that shall be, in either case,
subject to and subordinate in right of payment to the right of Lender to receive
the prior final payment and satisfaction in full of the Obligations in
accordance with the terms of that certain Notes Payable Subordination Agreement
dated as of the date hereof by PFS in favor of Lender or on such other terms and
conditions as may be satisfactory to Lender in its sole discretion.

         2. PFSweb shall deliver to Lender as soon as available and in any event
(i) within ninety (90) days after the end of each fiscal year of PFSweb the Form
10-K filed with the Securities and Exchange Commission for such fiscal year;
(ii) within forty-five (45) days after the end of each fiscal quarter of PFSweb,
the Form 10-Q Quarterly Report filed with the Securities and Exchange Commission
for such quarter; (iii) within five (5) days after the same are sent, copies of
all financial statements and reports which PFSweb sends to its stockholders, and
(iv) within five (5) days after the same are filed, copies of all financial
statements and reports which PFSweb may make to, or file with, the Securities
and Exchange Commission or any successor or analogous governmental authority. In
the event PFSweb is no longer a public company, PFSweb shall deliver to Lender
the same financial statements, notices and such other documentation relating to
PFSweb as are required to be delivered or reported by Borrower to Lender
pursuant to Section 9.6 of the Loan Agreement.



Inducement Letter

                                       1

<PAGE>


         In the event of a breach of this letter agreement by PFS or PFSweb,
Lender may proceed to protect and enforce its rights by an action at law, a suit
in equity or other appropriate proceeding whether for the specific performance
of this agreement or for an injunction against a violation of any of the terms
and conditions of this letter agreement. The provisions of this letter agreement
shall continue in full force and effect notwithstanding the commencement of any
case under Title 11 of the United States Code by or against Borrower or any of
its property.

         This letter agreement has been executed, delivered and accepted at and
shall be deemed to have been made in Dallas, Texas, and shall be interpreted and
the rights and obligations of the parties under this letter agreement shall be
governed by, and construed and interpreted in accordance with, the internal laws
of the State of Texas. This letter agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, transferees
and assigns. Neither this letter agreement nor any of the terms hereof may be
amended, waived, discharged or terminated unless such amendment, waiver,
discharge or termination is in writing signed by each of the parties hereto.
This letter agreement may be executed by one or more of the parties hereto in
any number of separate counterparts, each of which shall be an original, but all
of which shall constitute but one agreement.

         [REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE FOLLOWS]


Inducement Letter

                                       2

<PAGE>




         IN WITNESS WHEREOF, each of the undersigned have executed this
Inducement Letter as of the day and year first written above.

                                  PRIORITY FULFILLMENT SERVICES, INC.
                                  a Delaware corporation

                                  By:
                                     -------------------------------------------
                                     Thomas J. Madden
                                     Chief Financial Officer and
                                     Executive Vice President

                                  PFSWEB, INC.
                                  a Delaware corporation

                                  By:   
                                     -------------------------------------------
                                     Thomas J. Madden
                                     Chief Financial Officer and
                                     Executive Vice President




ACKNOWLEDGED AND AGREED TO BY:

CONGRESS FINANCIAL CORPORATION (SOUTHWEST)


By:
   ----------------------------------
   Mike Sheff
   Senior Vice President



Inducement Letter