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Section 355 of the Code) of our company as we conducted it immediately
prior to the completion of the spin-off. During such time, we have agreed
not to:
- liquidate, dispose of or otherwise discontinue the conduct of any
substantial portion of our active trade or business; or
- dispose of any business or assets that would cause our company to be
operated in a manner inconsistent in any material respect with the
business purposes for the spin-off as described in our
representations made in connection with Daisytek's request for the
IRS Ruling or Tax Opinion.
- Continuity of Business. Until two years after the completion of the
spin-off, we have agreed that we will not voluntarily dissolve or
liquidate; and, except in the ordinary course of business, neither we nor
any of our direct or indirect subsidiaries will sell, transfer, or
otherwise dispose of or agree to dispose of assets (including any shares
of capital stock of our subsidiaries) that, in the aggregate, constitute
more than 60% of our assets.
- Discharge of Intracompany Debt. Prior to the first date on which Daisytek
distributes any PFSweb common stock in connection with the spin-off, we
have agreed to fully discharge and satisfy all debt that we owe Daisytek
(for such purpose, debt does not include payables arising in the ordinary
course of business). Until two years after the completion of the spin-
off, we will not be able to have any such indebtedness with Daisytek.
These covenants will not prohibit us from implementing or complying with
any transaction permitted by an IRS ruling or a tax opinion. In the event that
Daisytek notifies us that it no longer intends to proceed with or complete the
spin-off and Daisytek has not yet distributed any of its PFSweb common stock,
these covenants to preserve the tax-free status of the spin-off will terminate.
Other Covenants Regarding Tax Treatment of the Transactions. Daisytek
intends the transfer of assets and liabilities from Daisytek to our company as
provided by the master separation agreement (the "Contribution") to qualify as a
reorganization under Section 368(a)(1)(D) of the Code (a "D Reorganization").
Until two years after the completion of the spin-off, we have agreed not to
take, or permit any of our subsidiaries to take, any actions or enter into any
transaction or series of transactions that would be reasonably likely to
jeopardize the tax-free status of the spin-off or the qualification of the
Contribution as a D Reorganization, including any action or transaction that
would be reasonably likely to be inconsistent with any representation made in
connection with Daisytek's request for the IRS Ruling or Tax Opinion. We have
also agreed to take any reasonable actions necessary for the Contribution and
the spin-off to qualify as a D Reorganization. We may take any action that would
otherwise violate this covenant only if Daisytek determines, in its sole and
absolute discretion, that such action or transaction would not jeopardize the
tax-free status of the spin-off or the qualification of the Contribution as a D
Reorganization.
Cooperation on Tax Matters. We and Daisytek have agreed to various
procedures with respect to the tax-related covenants described above, and we are
required to notify Daisytek if we desire 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 us to take the desired action or provide all
reasonable cooperation to us in connection with our 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 our 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 we
will be responsible for such costs and expenses.
Indemnification for Tax Liabilities. We have generally agreed to indemnify
Daisytek and its affiliates against any and all tax-related losses incurred by
Daisytek in connection with any proposed
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