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PFSweb, along with several other Daisytek subsidiaries, has guaranteed one
of Daisytek's unsecured revolving line of credit in the maximum principal amount
of $105 million ($55 million outstanding as of September 30, 1999). This
guaranty will be released upon completion of this offering and the repayment of
our intercompany payable to Daisytek.
YEAR 2000 ISSUE
We utilize a significant number of computer software programs and
information systems in our operations ("IT systems"). The mission-critical IT
systems include our operating, Web hosting, accounting and telecommunications
systems, such as IT software applications that allow us to maintain inventory
and customer information and to communicate with our suppliers, clients and
customers. We also make use of a variety of machinery and equipment in our
business which are operated by or reliant upon non-information technology
systems ("non-IT systems"), such as equipment or mechanical systems which
contain embedded technology such as micro-controllers. To the extent that the
source code of the software applications of these IT systems or the embedded
technologies of these non-IT systems are unable to appropriately interpret and
process the upcoming calendar year 2000, some level of modification, or possible
replacement of such applications, would be necessary for the proper continuous
performance of these systems. Without such modification or replacement, the
normal course of our business could be disrupted or otherwise adversely
impacted. This potential problem is commonly referred to as the year 2000
compliance issue ("Y2K").
In fiscal 1997, Daisytek began to address Y2K. Daisytek has formed a Y2K
task force under its Chief Information Officer to coordinate and implement
measures designed to prevent disruption in its business operations, including
PFSweb, related to Y2K. Daisytek and PFSweb have successfully completed the
remediation of their mission-critical IT applications software and are scheduled
to complete remediation of their non-mission critical applications software
during November 1999. Daisytek and PFSweb are assessing the effect of Y2K on
their non-IT systems and intend to modify or replace non-IT systems as necessary
to insure Y2K readiness during November 1999. We believe that we have completed
approximately 95% of the initiatives that we believe are necessary to fully
address potential Y2K issues relating to our systems and operations. The
projects comprising the remaining 5% of the initiatives are in process and
expected to be completed by December 15, 1999. We believe that other IT projects
not related to the Y2K issue have not been delayed or negatively affected by the
initiatives addressing the Y2K issue. The following table represents our
schedule and status of our Y2K initiatives based upon our current estimates and
information provided to us by third parties:
YEAR 2000 INITIATIVE TIME FRAME % COMPLETE
-------------------- ---------- ----------
Initial IT systems identification and assessment............ 4/97 - 6/97 100%
Remediation and testing regarding core distribution
systems................................................... 7/97 - 11/98 100%
Remediation and testing regarding purchased software
systems................................................... 7/97 - 10/99 100%
Upgrades to telecommunications systems...................... 9/97 - 4/99 100%
Desktop systems identification and remediation.............. 7/97 - 11/99 95%
Remediation and testing for automated warehouse equipment
systems................................................... 7/99 - 12/99 80%
Service provider assessment................................. 1/99 - 8/99 100%
We have initiated communications with our clients to determine the extent
to which our revenues may be vulnerable due to our clients' failure to
re-mediate Y2K and not be able to conduct business with us. We are satisfied
that our major clients are either appropriately prepared for the Y2K issue or
our engagement with them will not be adversely affected by the Y2K issue.
However, there can be no guarantee that the systems of our clients, will be
timely or properly converted, or that a failure to convert by another company,
or a conversion that is incompatible with our systems, would not have a material
adverse effect on our business.
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