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Generally, under the Code, we will cease to be a member of the Daisytek
consolidated group upon the completion of the spin-off or if Daisytek owns less
than 80% of our outstanding capital stock.
Daisytek generally will pay all taxes attributable to PFSweb and its
subsidiaries for tax periods or portions thereof ending on or before the
effective date of this offering, except to the extent of any accruals therefor
on the books and records of PFSweb or its subsidiaries for such taxes under
generally accepted accounting principles. Thereafter, for tax periods or
portions thereof during which we are a member of the Daisytek consolidated,
combined or unitary group, we will be apportioned our share of the group's
income tax liability based on our taxable income determined separately from
Daisytek's taxable income, and we will pay our calculated taxes to Daisytek,
which will then file a consolidated, combined or unitary return with the
appropriate tax authorities. There may be certain U.S. state or local
jurisdictions in which we will file separate income tax returns, not combined or
consolidated with Daisytek, for such tax periods. In that circumstance, we would
file a tax return with the appropriate tax authorities, and pay all taxes
directly to the tax authority. We will be compensated for tax benefits generated
by our company before tax deconsolidation and used by the Daisytek consolidated
group. We will prepare and file all tax returns, and pay all income taxes due
with respect to all tax returns required to be filed by us for all tax periods
after we cease to be a member of the Daisytek consolidated, combined or unitary
group.
Daisytek is responsible for most U.S. tax adjustments related to PFSweb for
all periods or portions thereof ending on or before the effective date of the
offering. In addition, we and Daisytek have agreed to cooperate in any tax
audits, litigation or appeals that involve, directly or indirectly, periods
prior to the time that we cease to be a member of the Daisytek consolidated
group. We and Daisytek have agreed to indemnify each other for tax liabilities
resulting from the failure to cooperate in such audits, litigation or appeals,
and for any tax liability resulting from the failure to maintain adequate
records.
Notwithstanding the tax allocation agreement, for all periods in which
Daisytek owns or owned 80% or more of our capital stock, we are included in
Daisytek's consolidated group for federal income tax purposes. If Daisytek or
other members of the consolidated group fail to make any federal income tax
payments, we would be liable for the shortfall since each member of a
consolidated group is liable for the group's entire tax obligation.
Under the tax indemnification and allocation agreement, Daisytek has agreed
to indemnify us against any taxes resulting from the failure of the spin-off to
qualify for tax-free treatment, except that we will be liable for, and will
indemnify Daisytek against, any taxes resulting from the failure of the spin-off
to qualify for tax-free treatment if it is the result of our engaging in a
"Prohibited Action" or the occurrence of a "Disqualifying Event."
A "Prohibited Action" is defined as:
- if we take any action which is inconsistent with the tax treatment
of the spin-off as contemplated in the IRS Ruling or the Tax Option;
or
- if, prior to the spin-off, we issue shares of stock or take any
other action that would result in our not being controlled by
Daisytek within the meaning of Section 368(c) of the Code.
A "Disqualifying Event" includes any event involving the direct or
indirect acquisition of the shares of our capital stock after the spin-off
which has the effect of disqualifying the spin-off from tax-free treatment,
whether or not the event is the result of our direct action or within our
control.
TRANSACTION MANAGEMENT SERVICES AGREEMENT
We will enter into a transaction management services agreement with
Daisytek which will set forth the transaction management services that we will
provide for Daisytek in connection with its
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