any representation made in connection with Daisytek's request for the IRS
private letter ruling. The Company has also agreed to take any reasonable
actions necessary for the Contribution and the spin-off to qualify as a D
Cooperation on Tax Matters. Daisytek and the Company have agreed to various
procedures with respect to the tax-related covenants described above, and the
Company is required to notify Daisytek if it desires to take any action
prohibited by these covenants. Upon such notification, if Daisytek determines
that such action might jeopardize the tax-free status of the spin-off or the
qualification of the Contribution as a D Reorganization, Daisytek will either
use all commercially reasonable efforts to obtain a private letter ruling from
the IRS or a tax opinion that would permit the Company to take the desired
action or provide all reasonable cooperation to the Company in connection with
the Company obtaining such an IRS ruling or tax opinion. In either case,
Daisytek has agreed to bear the reasonable costs and expenses of obtaining the
IRS ruling or tax opinion, unless it is determined that the Company's proposed
action will jeopardize the tax-free status of the spin-off or the qualification
of the Contribution as a D Reorganization, in which event the Company will be
responsible for such costs and expenses.
Indemnification for Tax Liabilities. The Company has generally agreed to
indemnify Daisytek and its affiliates against any and all tax-related losses
incurred by Daisytek in connection with any proposed tax assessment or tax
controversy with respect to the spin-off or the Contribution to the extent
caused by any breach by it of any of its representations, warranties or
covenants. If the Company causes the spin-off to not qualify as a tax-free
distribution, Daisytek would incur federal income tax (which currently would be
imposed at a 35% rate), and possibly state income taxes on the gain inherent in
the shares distributed, which would be based upon the market value of the shares
of the Company at the time of the spin-off. This indemnification does not apply
to actions that Daisytek permits the Company to take as a result of a
determination under the tax-related covenants as described above. Similarly,
Daisytek has agreed to indemnify the Company and its affiliates against any and
all tax-related losses incurred by it in connection with any proposed tax
assessment or tax controversy with respect to the spin-off or the Contribution
to the extent caused by any breach by Daisytek of any of its representations,
warranties or covenants.
Other Indemnification. The Company has generally agreed to indemnify
Daisytek and its affiliates against all liabilities arising out of any material
untrue statements and omissions in the Company's prospectus and the registration
statement of which it is a part and in any and all registration statements,
information statements and/or other documents filed with the SEC in connection
with the spin-off or otherwise. However, the Company's indemnification of
Daisytek does not apply to information relating to Daisytek. Daisytek has agreed
to indemnify the Company for this information.
Expenses. In general, the Company agreed to pay substantially all costs and
expenses relating to its initial public offering, including the underwriting
discounts and commissions, and Daisytek has agreed to pay substantially all
costs and expenses relating to the spin-off.
The Company and Daisytek have entered into a tax indemnification and
allocation agreement to govern the allocation of tax liabilities and to set
forth agreements with respect to certain other tax matters.
Generally, under the Code, the Company ceased to be a member of Daisytek's
consolidated group upon the completion of the spin-off.
Daisytek generally will pay all taxes attributable to the Company and its
subsidiaries for tax periods or portions thereof ending on or before the
effective date of the Company's initial public offering, except to the extent of
any accruals therefor on the books and records of the Company or its
subsidiaries for such taxes under generally accepted accounting principles.
Thereafter, for tax periods or portions thereof during which the Company is a
member of the consolidated, combined or unitary group of Daisytek, the Company
will be apportioned its share of the group's income tax liability based on its
taxable income determined separately from Daisytek's taxable income, and the
Company will pay its calculated taxes to Daisytek, which will then file a
consolidated, combined or unitary return with the appropriate tax authorities.
There may be certain