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EXHIBIT 2.2
INITIAL PUBLIC OFFERING AND DISTRIBUTION AGREEMENT
dated as of _________ __, 1999
by and among
DAISYTEK INTERNATIONAL CORPORATION,
DAISYTEK, INCORPORATED
and
PFSWEB, INC.
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INITIAL PUBLIC OFFERING AND DISTRIBUTION AGREEMENT
This INITIAL PUBLIC OFFERING AND DISTRIBUTION AGREEMENT (the
"Agreement") is made and entered into as of _________ __, 1999, by and among
Daisytek International Corporation, a Delaware corporation ("Daisytek
International"), Daisytek, Incorporated, a Delaware corporation and a
wholly-owned subsidiary of Daisytek International ("Daisytek"), and PFSweb,
Inc., a Delaware corporation and a wholly-owned subsidiary of Daisytek
("PFSweb"). Certain capitalized terms used herein are defined in Section 1 of
this Agreement.
RECITALS
WHEREAS, the Boards of Directors of Daisytek International and
Daisytek have determined that it would be appropriate and desirable to
completely separate the PFS Business from Daisytek;
WHEREAS, Daisytek has caused PFSweb to be incorporated in order to
effect such separation;
WHEREAS, Daisytek and PFSweb are parties to the Separation Agreement
pursuant to which Daisytek will contribute and transfer to PFSweb, and PFSweb
will receive and assume, the assets and liabilities then associated with the
PFS Business as described therein;
WHEREAS, Daisytek and PFSweb intend that the Contribution qualify as a
tax-free reorganization under Section 368(a)(1)(D) of the Code;
WHEREAS, Daisytek currently owns all of the issued and outstanding
PFSweb Common Stock;
WHEREAS, the parties currently contemplate that PFSweb shall
consummate the Initial Public Offering;
WHEREAS, immediately following the consummation of the Initial Public
Offering, Daisytek shall own not less than 80% of the outstanding shares of
PFSweb Common Stock;
WHEREAS, Daisytek intends to divest itself of its entire ownership of
PFSweb by distributing all of its shares of PFSweb Common Stock to Daisytek
International, which, in turn, will distribute in the Distribution all of such
shares of PFSweb Common Stock to the holders of Daisytek Common Stock;
WHEREAS, Daisytek International, Daisytek and PFSweb intend that the
Distribution will be tax-free to Daisytek, Daisytek International and its
stockholders under Section 355 of the Code;
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WHEREAS, the parties intend in this Agreement to set forth the
principal arrangements between them regarding the Initial Public Offering and
the Distribution; and
WHEREAS, the parties hereto have determined that in order to
accomplish the objectives of the Initial Public Offering and the Distribution
and to facilitate the consummation thereof, it is necessary and desirable to
enter into the agreements and understandings set forth herein;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereby agree as follows:
1. DEFINITIONS.
"Active Trade or Business" means the active conduct of the trade or
business (as defined in Section 355(b)(2) of the Code) conducted by PFSweb
immediately prior to the Distribution Date.
"Affiliate" means a PFSweb Affiliate or a Daisytek Affiliate, as the
case may be.
"Ancillary Agreements" has the meaning ascribed to such term in the
Separation Agreement.
"Annual Financial Statements" has the meaning set forth in Section 5.1
(a)(vi).
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions located in the State of New York are authorized
or obligated by law or executive order to close.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, together with the rules and regulations promulgated thereunder.
"Consent" means any consent of, waiver or approval from, or
notification to, any Person.
"Contribution" means the transfer of certain assets by Daisytek to
PFSweb (and the assumption by PFSweb of certain liabilities) as contemplated by
the Separation Agreement.
"Control" means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"CPR Rules" means the Rules for Non-Administered Arbitration of
Business Disputes promulgated by the Center for Public Resources, as in effect
on the date hereof.
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"D Reorganization" means a transaction qualifying as a reorganization
under Section 368(a)(1)(D) of the Code.
"Daisytek Affiliate" means a Person, other than PFSweb or a PFSweb
Affiliate, that, after giving effect to the Distribution, directly or
indirectly through one or more intermediaries, is Controlled by Daisytek
International.
"Daisytek Annual Statements" has the meaning set forth in Section
5.1(b)(ii).
"Daisytek's Auditors" has the meaning set forth in Section 5.1(b)(ii).
"Daisytek Business" means any business or operations of Daisytek or
any Daisytek Affiliates other than the PFS Business.
"Daisytek Common Stock" means the Common Stock, par value $.01 per
share, of Daisytek International.
"Daisytek Disclosure Portions" means all material set forth in, or
incorporated by reference into, either the IPO Registration Statement or the
Distribution Registration Statement, as applicable, to the extent relating
exclusively to (i) Daisytek and the Daisytek Affiliates (excluding PFSweb and
the PFSweb Affiliates), (ii) the Daisytek Business, (iii) Daisytek's intentions
with respect to the Distribution or (iv) the terms of the Distribution,
including, without limitation, the form, structure and terms of any
transaction(s) and/or offering(s) to effect the Distribution and the timing of
and conditions to the consummation of the Distribution.
"Daisytek Option" means an option to purchase shares of Daisytek
Common Stock issued under any stock option plan of Daisytek International.
"Daisytek Public Filings" has the meaning set forth in Section
5.1(a)(xiii).
"Daisytek Transfer Agent" means ChaseMellon Shareholder Services LLC,
in its capacity as the transfer agent and registrar for the Daisytek Common
Stock.
"Dispute Notice" means written notice of any dispute between Daisytek
and PFSweb arising out of or relating to this Agreement, which shall set forth,
in reasonable detail, the nature of the dispute.
"Distribution" means the distribution of PFSweb Common Stock by
Daisytek to Daisytek International and thereafter by Daisytek International in
one or more transactions occurring after the Initial Public Offering that
collectively have the effect that all shares of PFSweb Common Stock held by
Daisytek are distributed to Daisytek International stockholders, whenever such
transaction(s) shall occur.
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"Distribution Date" means any date or dates, as the case may be,
determined by Daisytek, in its sole and absolute discretion, to be a date on
which shares of PFSweb Common Stock held by Daisytek are distributed in
connection with the Distribution.
"Distribution Registration Statement" means any and all registration
statements, information statements or other documents, if any, filed by any
party with the SEC in connection with any transaction constituting part of the
Distribution, in each case as supplemented or amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, together with the rules and regulations promulgated
thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Indemnifying Party" means a Person that is obligated to provide
indemnification under this Agreement.
"Indemnitee" means a Person that is entitled to seek indemnification
under this Agreement.
"Indemnity Payment" means an amount that an Indemnifying Party is
required to pay to an Indemnitee under this Agreement.
"Initial Public Offering" or "IPO" means the initial public offering
by PFSweb of shares of PFSweb Common Stock as contemplated by the IPO
Registration Statement.
"Insurance Proceeds" means the payment received by an insured from an
insurance carrier or paid by an insurance carrier on behalf of the insured, net
of any applicable premium adjustment and tax effect.
"IPO Registration Statement" means the Registration Statement on Form
S-1, Registration No. 333-____, of PFSweb, as supplemented and amended from
time to time.
"IRS" means Internal Revenue Service of the U.S. Department of
Treasury or any successor agency.
"Losses" means all losses, liabilities, claims, obligations, demands,
judgments, damages, dues, penalties, assessments, fines (civil or criminal),
costs, liens, expenses, forfeitures, settlements, or fees, reasonable
attorneys' fees and court costs, of any nature or kind, whether or not the same
would properly be reflected on a balance sheet, and "Loss" means any of these.
"Negotiation Period" means the period of 20 Business Days following
the initial meeting of the representatives of Daisytek and PFSweb following the
receipt of a Dispute Notice.
"Notice" means any notice, request, claim, demand, or other
communication under this Agreement.
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"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PFS Business" has the meaning ascribed to such term in the Separation
Agreement.
"PFSweb Affiliate" means a Person, other than Daisytek International
or a Daisytek Affiliate, that, after giving effect to the Distribution,
directly or indirectly through one or more intermediaries, is Controlled by, or
is under common Control with PFSweb.
"PFSweb Capital Stock" means all classes or series of capital stock of
PFSweb.
"PFSweb Common Stock" means the Common Stock of PFSweb.
"PFSweb Employee" means an individual employed by Daisytek or any
Daisytek Affiliate who becomes employed by PFSweb or any PFS Affiliate in
connection with the Distribution.
"PFSweb Option" means an option to purchase shares of PFSweb Common
Stock issued under a stock option plan of PFSweb.
"PFSweb Public Documents" has the meaning set forth in Section
5.1(a)(ix).
"PFSweb Transfer Agent" means ChaseMellon Shareholder Services LLC, in
its capacity as the transfer agent and registrar for the PFSweb Common Stock.
"PFSweb's Auditors" has the meaning set forth in Section 5.1(b)(i).
"Pre-Distribution Period" means the period of time from the date
hereof until the completion of the Distribution.
"Proposed Acquisition Transaction" means a transaction or series of
transactions as a result of which any Person or any group of related Persons
would (directly or indirectly) acquire, or have the right to acquire, from
PFSweb or one or more holders of outstanding shares of PFSweb Capital Stock, a
number of shares of PFSweb Capital Stock that would comprise 50% or more of (i)
the value of all outstanding shares of PFSweb Capital Stock as of the date of
such transaction, or in the case of a series of transactions, the date of the
last transaction of such series, or (ii) the total combined voting power of all
outstanding shares of Voting Stock of PFSweb as of the date of such
transaction, or in the case of a series of transactions, the date of the last
transaction of such series.
"Quarterly Financial Statements" has the meaning set forth in Section
5.1(a)(v).
"Ratio" means the amount determined by dividing (i) the average of the
daily high and low per share prices of the Daisytek Common Stock, as reported
in The Wall Street Journal, during
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the three trading days ending on the Record Date, by (ii) the average of the
daily high and low per share prices of the PFSweb Common Stock, as reported in
The Wall Street Journal, for the three trading days commencing on the first
trading day following the Record Date.
"Record Date" means the close of business on the date(s) to be
determined by the Board of Directors of Daisytek International as the record
date(s) for determining stockholders of Daisytek International entitled to
receive shares of PFSweb Common Stock in the Distribution.
"Regulation S-K" means Regulation S-K of the General Rules and
Regulations promulgated by the SEC.
"Regulation S-X" means Regulation S-X of the General Rules and
Regulations promulgated by the SEC.
"Representation Date" means any date on which PFSweb makes any
representation (i) to the IRS or to counsel selected by Daisytek for the
purpose of obtaining a Subsequent Tax Opinion/Ruling, or (ii) to Daisytek for
the purpose of any determination required to be made by Daisytek pursuant to
Section 4.2.
"Representation Letters" means the representation letters and any
other materials (including, without limitation, the ruling request and the
related supplemental submissions to the IRS) delivered or deliverable by
Daisytek and others in connection with the rendering by Tax Counsel and the
issuance by the IRS of the Tax Opinions/Rulings, which to the extent related to
PFSweb shall be in form and substance reasonably satisfactory to PFSweb.
"Representative" means, with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants or attorneys.
"Request" has the meaning set forth in Section 6.7.
"SEC" means the United States Securities and Exchange Commission or
any successor agency.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, together with the rules and regulations promulgated thereunder.
"Separation Agreement" means the Master Separation Agreement by and
among Daisytek International, Daisytek, Priority Fulfillment Services, Inc. and
PFSweb, as amended from time to time.
"Subsequent Tax Opinion/Ruling" means either (i) an opinion of Tax
Counsel selected by Daisytek, in its sole and absolute discretion, confirming,
in form and substance reasonably satisfactory to Daisytek, that, as a
consequence of the consummation of a subsequent transaction, no income, gain or
loss for U.S. federal income tax purposes will be recognized by Daisytek,
Daisytek International, the stockholders or former stockholders of Daisytek
International, or any
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Daisytek Affiliate with respect to the Distribution, or (ii) an IRS private
letter ruling to the same effect.
"Subsidiary" means with respect to any specified Person, any
corporation or other legal entity of which such Person or any of its
Subsidiaries Controls or owns, directly or indirectly, more than 50% of the
stock or other equity interest entitled to vote with respect to the election of
members to the board of directors or similar governing body; provided, however,
that for the purposes of this Agreement, neither PFSweb nor any of the
Subsidiaries of PFSweb shall be deemed to be Subsidiaries of Daisytek or of any
of the Subsidiaries of Daisytek.
"Tax" means (i) any income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A of the Code), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on, minimum, estimated,
or other tax, assessment, or governmental charge of any kind whatsoever imposed
by any governmental authority, including any interest, penalty, or addition
thereto, whether disputed or not; (ii) any liability for the payment of any
amounts of the type described in clause (i) above arising as a result of being
(or having been) a member of any group or being (or having been) included or
required to be included in any Tax Return related thereto; and (iii) any
liability for the payment of any amounts of the type described in clause (i)
above as a result of any express or implied obligation to indemnify or
otherwise assume or succeed to the liability of any other Person.
"Tax Agreement" means the Tax Sharing Agreement between Daisytek and
PFSweb, as amended from time to time.
"Tax Control" means, with respect to PFSweb, ownership of PFSweb
Capital Stock which constitutes at least 80% of both (i) the total combined
voting power of all outstanding shares of Voting Stock of PFSweb and (ii) each
class and series of PFSweb Capital Stock other than Voting Stock of PFSweb.
"Tax Counsel" means the professional accounting or law firm designated
by Daisytek as its Tax Counsel.
"Tax-Free Status of the Distribution" means the nonrecognition of
taxable gain or loss for U.S. federal income tax purposes to Daisytek
International, Daisytek, Daisytek Affiliates and Daisytek International's
stockholders in connection with the Distribution.
"Tax Opinions/Rulings" means the opinions of Tax Counsel and/or the
rulings by the IRS deliverable to Daisytek in connection with the Contribution
and the Distribution.
"Tax-Related Losses" means (i) all federal, state and local Taxes
(including interest and penalties thereon) imposed pursuant to any settlement,
final determination, judgment or otherwise; (ii) all accounting, legal and
other professional fees, and court costs incurred in connection with such
taxes; and (iii) all costs and expenses that may result from adverse tax
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consequences to Daisytek, Daisytek International or its stockholders (including
all costs, expenses and damages associated with stockholder litigation or
controversies) payable by Daisytek or Daisytek Affiliates.
"Third-Party Claim" means any claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, governmental or other
regulatory or administrative agency or commission or any arbitration tribunal
asserted by a Person other than Daisytek or any Daisytek Affiliate or PFSweb or
any PFSweb Affiliate which gives rise to a right of indemnification hereunder.
"Underwriters" means the managing underwriters for the IPO.
"Underwriting Agreement" means the Underwriting Agreement between
PFSweb and the Underwriters relating to the Initial Public Offering, as amended
from time to time.
"Value" means with respect to any trade or business (or portion
thereof), the fair market value of the assets constituting such trade or
business, less the current liabilities associated with such trade or business,
in each case determined as of the Distribution Date.
"Voting Stock" means with respect to any Person, all classes and
series of the capital stock of such Person entitled to vote generally in the
election of directors.
2. THE INITIAL PUBLIC OFFERING AND THE DISTRIBUTION.
2.1. Transactions Prior To The IPO. Subject to the conditions hereof,
Daisytek International and PFSweb shall use their reasonable best efforts to
consummate the IPO. Such actions shall include those specified in this Section
2.1.
(a) PFSweb shall file the IPO Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to cause the
same to become and remain effective as required by law or by the Underwriters,
including, but not limited to, filing such amendments to the IPO Registration
Statement as may be required by the Underwriting Agreement, the SEC or federal,
state or foreign securities laws. Daisytek International and PFSweb shall also
cooperate in preparing, filing with the SEC and causing to become effective a
registration statement registering the PFSweb Common Stock under the Exchange
Act, and any registration statements or amendments thereof which are required
to reflect the establishment of, or amendments to, any employee benefit and
other plans necessary or appropriate in connection with the IPO, the
Distribution or the other transactions contemplated by this Agreement and the
Ancillary Agreements.
(b) PFSweb and Daisytek International shall enter into the
Underwriting Agreement, in form and substance reasonably satisfactory to them
and each shall comply with its respective obligations thereunder.
(c) Daisytek International and PFSweb shall consult with each
other and the Underwriters regarding the timing, pricing and other material
matters with respect to the IPO.
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(d) PFSweb shall use its reasonable best efforts to take all such
action as may be necessary or appropriate under state securities and blue sky
laws of the United States (and any comparable laws under any foreign
jurisdictions) in connection with the IPO.
(e) PFSweb shall prepare, file and use reasonable best efforts to
seek to make effective, an application for listing of the PFSweb Common Stock
issued in the IPO on the NASDAQ National Market, subject to official notice of
issuance.
(f) PFSweb shall participate in the preparation of materials and
presentations as the Underwriters shall deem necessary or desirable.
2.2. Proceeds of the IPO. The IPO will be a primary offering of PFSweb
Common Stock and the net proceeds of the IPO will be retained by PFSweb,
subject to the payments to be made under the Separation Agreement.
2.3. Conditions Precedent to Consummation of the IPO. The obligations
of the parties to consummate the IPO shall be conditioned on such conditions as
Daisytek International shall determine in its sole and absolute discretion,
which conditions, or any of them, may be waived by Daisytek International in
its sole and absolute discretion, including without limitation, the following
conditions, which shall be for the sole benefit of Daisytek International and
shall not give rise to or create any duty on the part of Daisytek International
or any Daisytek Affiliate or their Board of Directors to waive or not waive any
such condition:
(a) The IPO Registration Statement shall have been filed and
declared effective by the SEC, and there shall be no stop order in effect with
respect thereto.
(b) The actions and filings with regard to state securities and
blue sky laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 2.1 shall have been taken and, where
applicable, have become effective or been accepted.
(c) The PFSweb Common Stock to be issued in the IPO shall have
been accepted for listing on the NASDAQ National Market, on official notice of
issuance.
(d) PFSweb shall have entered into the Underwriting Agreement and
all conditions to the obligations of PFSweb and the Underwriters shall have
been satisfied or waived.
(e) Daisytek International shall be satisfied in its sole
discretion that Daisytek will own at least 80% of the voting rights attached to
the then outstanding PFSweb Common Stock immediately following the IPO, and, to
the extent deemed necessary or desirable by Daisytek International in its sole
discretion, all other matters regarding the Tax-Free Status of the Distribution
shall, to the extent applicable as of the time of the IPO, be satisfied or can
reasonably be anticipated to be satisfied and there shall be no event or
condition that is likely to cause any of such conditions not to be satisfied as
of the time of the Distribution or thereafter.
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(f) No order, injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the IPO or any of the other transactions contemplated by
this Agreement or any Ancillary Agreement shall be in effect.
(g) Such other actions as the parties hereto may, based upon the
advice of counsel, reasonably request to be taken prior to the IPO in order to
assure the successful completion of the IPO and the other transactions
contemplated by this Agreement shall have been taken.
2.4. The Distribution. Daisytek and Daisytek International intend,
within 12 months following the consummation of the Initial Public Offering, to
complete the Distribution. PFSweb shall cooperate with Daisytek in all respects
to accomplish the Distribution and shall, at Daisytek International's
direction, promptly take any and all actions necessary or desirable to effect
the Distribution, including, without limitation, to the extent necessary under
then applicable law, the registration under the Securities Act of PFSweb Common
Stock on an appropriate registration form or forms to be designated by Daisytek
International. Daisytek International shall select any investment banker(s) and
manager(s) in connection with the Distribution, as well as any financial
printer, solicitation and/or exchange agent and outside counsel for Daisytek
International; provided that nothing herein shall prohibit PFSweb from engaging
(at its own expense) its own financial, legal, accounting and other advisors in
connection with the Distribution.
2.5. Certain Stockholder Matters. From and after the distribution of
PFSweb Common Stock in connection with any transaction(s) included as part of
the Distribution and until such PFSweb Common Stock is duly transferred in
accordance with applicable law, PFSweb shall regard the Persons receiving
PFSweb Common Stock in such transaction(s) as record holders of PFSweb Common
Stock in accordance with the terms of such transaction(s) without requiring any
action on the part of such Persons. PFSweb agrees that, subject to any
transfers of such stock, (a) each such holder shall be entitled to receive all
dividends payable on, and exercise voting rights and all other rights and
privileges with respect to, the shares of PFSweb Common Stock then held by such
holder and (b) each such holder shall be entitled, without any action on the
part of such holder, to receive one or more certificates representing, or other
evidence of ownership of, the shares of PFSweb Common Stock then held by such
holder. Daisytek International and Daisytek shall cooperate, and shall instruct
the Daisytek Transfer Agent to cooperate, with PFSweb and the PFSweb Transfer
Agent, and PFSweb shall cooperate, and shall instruct the PFSweb Transfer Agent
to cooperate, with Daisytek International, Daisytek and the Daisytek Transfer
Agent, in connection with all aspects of the Distribution and all other matters
relating to the issuance and delivery of certificates representing, or other
evidence of ownership of, the shares of PFSweb Common Stock distributed to the
holders of Daisytek Common Stock in connection with any transaction(s) included
as part of the Distribution. Following the Distribution, Daisytek International
shall instruct the Daisytek Transfer Agent to deliver to the PFSweb Transfer
Agent true, correct and complete copies of the stock and transfer records
reflecting the holders of Daisytek Common Stock receiving shares of PFSweb
Common Stock in connection with any transaction(s) included as part of the
Distribution.
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2.6. Means of Distribution. (a) Subject to Section 2.4 hereof, on or
prior to the Distribution Date, Daisytek will distribute and deliver to
Daisytek International who, in turn, will deliver to the Daisytek Transfer
Agent for the benefit of holders of record of Daisytek Common Stock on the
Record Date, a single stock certificate, endorsed in blank, representing all of
the outstanding shares of PFSweb Common Stock then owned by it, which
certificate shall be reissued in sufficient manner so that the Daisytek
Transfer Agent may, and shall be instructed to, distribute on the Distribution
Date the appropriate number of such shares of PFSweb Common Stock to each such
holder of record of Daisytek Common Stock on the Record Date or designated
transferee or transferees of such holder.
(b) Subject to Section 2.4, each holder of Daisytek Common Stock
on the Record Date (or such holder's designated transferee or transferees) will
be entitled to receive in the Distribution a number of shares of PFSweb Common
Stock equal to the number of shares of Daisytek Common Stock held by such
holder on the Record Date multiplied by a fraction, the numerator of which is
the number of shares of PFSweb Common Stock beneficially owned by Daisytek
International on the Record Date and the denominator of which is the number of
shares of Daisytek Common Stock issued and outstanding on the Record Date.
2.7. Actions Prior to the Distribution. (a) Daisytek International and
PFSweb shall prepare and mail, prior to the Distribution Date, to the holders
of Daisytek Common Stock, such information concerning PFSweb, its business,
operations and management, the Distribution and such other matters as Daisytek
International shall reasonably determine and as may be required by law.
Daisytek International and PFSweb will prepare, and PFSweb will, to the extent
required under applicable law, file with the SEC any such documentation which
Daisytek International determines are necessary or desirable to effectuate the
Distribution, and Daisytek International and PFSweb shall each use its
reasonable best efforts to obtain all necessary approvals from the SEC with
respect thereto as soon as practicable.
(b) Daisytek International and PFSweb shall take all such action
as may be necessary or appropriate under the securities or blue sky laws of the
United States (and any comparable laws under any foreign jurisdiction) in
connection with the Distribution.
(c) PFSweb shall prepare and file, and shall use its reasonable
best efforts to have approved, an application for the listing on the NASDAQ
National Market, subject to official notice of distribution of the PFSweb
Common Stock to be distributed in the Distribution, and the shares of PFSweb
Common Stock covered by PFSweb Options to be granted under Section 3.6 below.
2.8. Conditions To Distribution. The consummation of the Distribution
is subject to such conditions as Daisytek shall determine in its sole and
absolute discretion, which conditions, or any of them, may be waived by
Daisytek in its sole and absolute discretion, and shall include, without
limitation, the following:
(a) The receipt by Daisytek International of either, at its
option and in its sole and absolute discretion (i) a ruling by the IRS that,
among certain other Tax consequences of the
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transaction, the Distribution will qualify as a tax-free Distribution for
federal income tax purposes and will not result in the recognition of taxable
gain or loss for federal income tax purposes to Daisytek, Daisytek
International or the holders of Daisytek Common Stock or (ii) an opinion from
its Tax Counsel regarding the Tax-Free Status of the Distribution and such
other matters, in form and substance satisfactory to it, as it shall determine
to be necessary or advisable in its sole and absolute discretion;
(b) The receipt of any material Consents necessary to consummate
the Distribution, which Consents shall be in full force and effect;
(c) No order, injunction, decree or regulation issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect;
and
(d) No events or developments shall have occurred subsequent to
the IPO Closing Date that, in the sole judgment of Daisytek, would result in
the Distribution having a material adverse effect on Daisytek, any Daisytek
Affiliate any holder of Daisytek Common Stock, PFSweb, any PFSweb Affiliate or
any holder of PFSweb Common Stock.
The foregoing conditions are for the sole benefit of Daisytek
International and shall not give rise to or create any duty on the part of
Daisytek International or any Daisytek Affiliate or their Board of Directors to
waive or not waive any such condition.
2.9. Fractional Shares. As soon as practicable after the Distribution
Date, Daisytek International shall direct the Daisytek Transfer Agent to
determine the number of whole shares and fractional shares of PFSweb Common
Stock allocable to each holder of record or beneficial owner of Daisytek Common
Stock as of the Record Date, to aggregate all such fractional shares and sell
the whole shares obtained thereby, at the direction of Daisytek International,
to Daisytek International, PFSweb, in open market transactions or otherwise, in
each case at then prevailing trading prices, and to cause to be distributed to
each such holder or for the benefit of each such beneficial owner to which a
fractional share shall be allocable such holder's or owner's ratable share of
the proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes
attributed to such sale. Daisytek International and the Daisytek Transfer Agent
may aggregate the shares of Daisytek Common Stock that may be held by any
beneficial owner thereof through more than one account in determining the
fractional share allocable to such beneficial owner.
2.10. Replacement of Daisytek Options. As of the Distribution Date,
each outstanding Daisytek Option held by a PFSweb Employee shall be replaced
with a PFSweb Option having substantially the same terms and conditions as the
Daisytek Option to be replaced thereby, including any and all vesting
requirements and conditions of exercise; provided, however, that (i) the PFS
Employee shall be credited, for vesting purposes, with the period of employment
in which the PFS Employee was employed by Daisytek or a Daisytek Affiliate,
(ii) the number of shares of PFSweb Common Stock subject to such PFSweb Options
shall be equal to the number of shares
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of Daisytek Common Stock subject to the Daisytek Option multiplied by the Ratio
and (iii) the per share exercise price of the PFSweb Common Stock subject to
such PFSweb Option shall be equal to the per share exercise price of the
Daisytek Common Stock subject to the Daisytek Option divided by the Ratio.
PFSweb shall take all corporate action and make all required filings under
applicable state Blue Sky laws and the Securities Act to register or qualify
the PFSweb Options and/or the underlying shares of PFSweb Common Stock so that
the shares of PFSweb Common Stock acquired upon exercise of each PFSweb Option
are freely tradable under the Securities Act (except for shares acquired by
affiliates (as defined in the Securities Act) of PFSweb) and each applicable
state's Blue Sky laws.
2.11. Further Assurances Regarding the Distribution. In addition to
the actions specifically provided for elsewhere in this Agreement, PFSweb
shall, at Daisytek International's direction, use all commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things commercially reasonably necessary, proper or expeditious under
applicable laws, regulations and agreements in order to consummate and make
effective the Distribution as promptly as reasonably practicable. Without
limiting the generality of the foregoing, PFSweb shall, at Daisytek
International's direction, cooperate with Daisytek International, and execute
and deliver, or use all commercially reasonable efforts to cause to have
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any domestic or foreign governmental
or regulatory authority requested by Daisytek International in order to
consummate and make effective the Distribution.
2.12. Abandonment of the Distribution. The parties expressly
acknowledge and agree that neither Daisytek nor Daisytek International is
obligated in any respect to proceed with or complete the Distribution, and that
Daisytek International may, in its sole and absolute discretion, at any time
abandon its plans to proceed with or complete the Distribution. In the event
that Daisytek International so determines that it no longer intends to proceed
with or complete the Distribution, Daisytek International shall provide to
PFSweb a written notification of such determination (an "Abandonment Notice").
Effective as of the date of the Abandonment Notice, (a) provided that no
Distribution Date has yet occurred, Sections 4.2 and 4.3 of this Agreement
shall terminate, become null and void and have no further force and effect and
(b) Daisytek International's rights, and PFSweb's obligations, set forth in the
Registration Rights Agreement shall immediately become effective.
3. EXPENSES.
3.1. General. Except as otherwise provided in this Agreement, the
Separation Agreement, any of the other Ancillary Agreements or any other
agreement between the parties relating to the Contribution, the Initial Public
Offering or the Distribution, all costs and expenses of either party hereto in
connection with the Contribution, the Initial Public Offering and the
Distribution shall be paid by the party that incurs such costs and expenses.
3.2. Expenses Relating to the Initial Public Offering. PFSweb shall be
responsible for the payment of all costs, fees and expenses relating to the
Initial Public Offering.
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3.3. Expenses Relating To The Distribution. Daisytek shall be
responsible for the payment of all costs, fees and expenses relating to the
Distribution.
4. COVENANTS TO PRESERVE TAX-FREE STATUS OF THE DISTRIBUTION AND
THE QUALIFICATION OF THE CONTRIBUTION AS A D REORGANIZATION.
PFSweb and Daisytek International hereby represent and warrant to, and
covenant and agree with, each other as follows:
4.1. Representations and Warranties.
(a) PFSweb hereby represents and warrants that (i) it has
examined the Tax Opinions/Rulings and the Representation Letters, and (ii) the
facts presented and the representations made therein, to the extent descriptive
of PFSweb or the PFS Business (including, without limitation, the business
purposes for the Distribution, the representations in the Representation
Letters and Tax Opinions/Rulings to the extent that they relate to PFSweb or
the PFS Business, and the plans, proposals, intentions and policies of PFSweb),
are true, correct and complete in all material respects.
(b) Daisytek International hereby represents and warrants that
(i) it has examined the Tax Opinions/Rulings and the Representation Letters,
and (ii) the facts presented and the representations made therein, to the
extent descriptive of Daisytek or the Daisytek Business (including, without
limitation, the business purposes for the Distribution, the representations in
the Representation Letters and Tax Opinions/Rulings to the extent that they
relate to Daisytek or the Daisytek Business, and the plans, proposals,
intentions and policies of Daisytek), are true, correct and complete in all
material respects.
4.2. Restrictions on PFSweb.
(a) PFSweb shall not take any action (such action to include, if
relevant, the issuance of PFSweb Capital Stock upon the exercise by the holders
thereof of all options or convertible securities issued by PFSweb) during the
Pre-Distribution Period if, as a result of taking such action, PFSweb would
issue a number of shares of PFSweb Capital Stock (including by way of the
exercise of stock options or the issuance of restricted stock) that would cause
Daisytek to cease to have Tax Control of PFSweb, unless prior to the
consummation of such transaction Daisytek has determined, in its sole and
absolute discretion, which discretion shall be exercised in good faith solely
to preserve the Tax-Free Status of the Distribution, that such transaction
would not jeopardize the Tax-Free Status of the Distribution. Notwithstanding
the foregoing provisions of this Section 4.2(a), PFSweb shall be permitted to
issue stock options and restricted stock awards to its employees so long as
(i)(A) such options or restricted stock awards will not be exercisable or vest,
by their terms, prior to the Distribution Date or (B) PFSweb repurchases
sufficient shares of issued and outstanding PFSweb Capital Stock on or prior to
the date such options are exercisable or restricted stock is vested (or deemed
vested) to insure that, assuming the exercise of all exercisable options and
vesting of such restricted stock, Daisytek
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would not cease to have Tax Control of PFSweb and (ii) PFSweb provides Daisytek
with prior written notification of the procedures by which PFSweb intends to
comply with its obligation described in clause (B) above and Daisytek approves
of such procedures (which approval shall not be unreasonably withheld). All of
the restrictions on PFSweb contained in this Section 4.2 shall apply to PFSweb
during the Pre-Distribution Period as well as the other periods specified in
this Section 4.2.
(b) Until the first day after the two-year anniversary of the
latest Distribution Date, PFSweb shall not enter into any Proposed Acquisition
Transaction or, to the extent PFSweb has the right to prohibit any Proposed
Acquisition Transaction, permit any Proposed Acquisition Transaction to occur
unless prior to the consummation of such Proposed Acquisition Transaction
Daisytek has determined, in its sole and absolute discretion, which discretion
shall be exercised in good faith solely to preserve the Tax-Free Status of the
Distribution, that such Proposed Acquisition Transaction would not jeopardize
the Tax-Free Status of the Distribution. The foregoing shall not prohibit
PFSweb from entering into a contract or agreement to consummate any Proposed
Acquisition Transaction if such contract or agreement requires satisfaction of
the above-described requirement prior to the consummation of such Proposed
Acquisition Transaction, such requirement to be satisfied through the
cooperation of the parties as described in Section 4.3(b)(ii).
(c) Until the first day after the two-year anniversary of the
latest Distribution Date, (i) PFSweb shall continue to conduct the Active Trade
or Business, (ii) subject to clause (iii) below, PFSweb shall not (A)
liquidate, dispose of, or otherwise discontinue the conduct of any substantial
portion of the Active Trade or Business or (B) dispose of any business or
assets that would cause PFSweb to be operated in a manner inconsistent in any
material respect with the business purposes for the Distribution as set forth
in the Representation Letters and Tax Opinions/Rulings, in each case unless
Daisytek has determined, in its sole and absolute discretion, which discretion
shall be exercised in good faith solely to preserve the Tax-Free Status of the
Distribution, that such liquidation, disposition, or discontinuance would not
jeopardize the Tax-Free Status of the Distribution, (iii) PFSweb shall not
under any circumstances liquidate, dispose of, or otherwise discontinue the
conduct of any portion of the Active Trade or Business if such liquidation,
disposition or discontinuance would breach Section 4.2(d). PFSweb shall
continue the active conduct of the Active Trade or Business primarily through
officers and employees of PFSweb or its Subsidiaries (and not primarily through
independent contractors). Notwithstanding the foregoing, (A) except with
respect to any corporation or other entity the status of which as the direct
owner of an active trade or business is material to the Tax-Free Status of the
Distribution, liquidations of any of PFSweb's Subsidiaries (including PFS -
Texas LLC) into PFSweb or one or more Subsidiaries directly or indirectly
controlled by PFSweb shall not be deemed to breach this Section 4.2(c) and (B)
PFSweb shall not be prohibited from liquidating, disposing of or otherwise
discontinuing the conduct of one or more trades or businesses that constituted
an immaterial part of the Active Trade or Business, or any portion thereof. For
purposes of the preceding sentence and clause (c)(ii) above, asset retirements,
sale-leaseback arrangements and discontinuances of product lines within a trade
or business the active conduct of which is continued shall not be deemed a
liquidation, disposition or discontinuance of a trade or business or portion
thereof, and (iv) solely for purposes of this Section 4.2(c), PFSweb shall not
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be treated as directly or indirectly controlling a Subsidiary unless PFSweb
owns, directly or indirectly, shares of capital stock of such Subsidiary
constituting (A) 80% or more of the total combined voting power of all
outstanding shares of Voting Stock of such Subsidiary and (B) 80% or more of
the total number of outstanding shares of each class or series of capital stock
of such Subsidiary other than Voting Stock.
(d) Until the first day after the two-year anniversary of the
latest Distribution Date, (A) PFSweb shall not voluntarily dissolve or
liquidate, and (B) except in the ordinary course of business, neither PFSweb
nor any Subsidiaries directly or indirectly controlled by PFSweb shall sell,
transfer, or otherwise dispose of or agree to dispose of assets (including, for
such purpose, any shares of capital stock of such Subsidiaries) that, in the
aggregate, constitute more than (x) 60% of the gross assets of PFSweb or (y)
60% of the consolidated gross assets of PFSweb (including PFS - Texas LLC) and
such Subsidiaries, unless prior to the consummation of such transaction
Daisytek has determined, in its sole and absolute discretion, which discretion
shall be exercised in good faith solely to preserve the Tax-Free Status of the
Distribution, that such transaction would not jeopardize the Tax-Free Status of
the Distribution. The amount of gross assets of PFSweb and such Subsidiaries
shall be based on the fair market value of each such asset as of the applicable
Distribution Date. Sales, transfers or other dispositions by PFSweb or any of
its Subsidiaries to PFSweb or one or more Subsidiaries directly or indirectly
controlled by PFSweb shall not be included in any determinations under this
Section 4.2(d) of whether such 60% or more of the gross assets of PFSweb or 60%
of the consolidated gross assets of PFSweb and such Subsidiaries have been
sold, transferred or otherwise disposed of. Solely for purposes of this Section
4.2(d), PFSweb shall not be treated as directly or indirectly controlling a
Subsidiary unless PFSweb owns, directly or indirectly, shares of capital stock
of such Subsidiary constituting (A) 80% or more of the total combined voting
power of all outstanding shares of Voting Stock of such Subsidiary and (B) 80%
or more of the total number of outstanding shares of each class or series of
capital stock of such Subsidiary other than Voting Stock.
(e) Prior to the first Distribution Date, PFSweb shall fully
discharge and satisfy all of the then existing indebtedness owed by it or its
Subsidiaries to Daisytek or any Daisytek Affiliate (other than payables
incurred in the ordinary course of the business). From such date until the
first day after the two-year anniversary of the latest Distribution Date,
PFSweb shall not, and shall not permit any of its Subsidiaries to, create,
incur, assume or allow to exist any such indebtedness (other than payables
incurred in the ordinary course of the business) with Daisytek or any Daisytek
Affiliate.
(f) Until the first day after the two-year anniversary of the
latest Distribution Date, PFSweb shall not take, or permit any of its
Subsidiaries to take, any other actions or enter into any transaction or series
of transactions or agree to enter into any other transactions that would be
reasonably likely to jeopardize the Tax-Free Status of the Distribution 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 the Representation Letters, unless prior to the
consummation of such action or transaction Daisytek has determined, in its sole
and absolute discretion, which discretion shall be exercised in good faith
solely to preserve the Tax-Free Status of the Distribution and the
qualification of the Contribution as a D
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Reorganization, that such action or transaction would not jeopardize the
Tax-Free Status of the Distribution or the qualification of the Contribution as
a D Reorganization. Notwithstanding the foregoing, if and to the extent that
any action or transaction is described in and permitted pursuant to Sections
4.2(a), (b), (c), (d) or (e), such action or transaction shall not be
prohibited by this Section 4.2(f).
(g) Notwithstanding the foregoing, the provisions of Section 4.2
shall not prohibit PFSweb from implementing any transaction upon which the IRS
has granted a favorable ruling in, or which is described in reasonable detail
in, any Tax Opinions/Rulings.
4.3. Cooperation and Other Covenants.
(a) Each of PFSweb and Daisytek International shall furnish the
other with a copy of any ruling requests or other documents delivered to the
IRS that relates to the Distribution or that could otherwise be reasonably
expected to have an impact on the Tax-Free Status of the Distribution or the
qualification of the Contribution as a D Reorganization.
(b) (i) Each of PFSweb and Daisytek International shall cooperate
with the other and shall take (or refrain from taking) all such actions as the
other may reasonably request in connection with obtaining any Daisytek
determination referred to in Section 4.2. Such cooperation shall include,
without limitation, providing any information and/or representations reasonably
requested by the other to enable either party (or counsel for such party) to
obtain and maintain any Subsequent Tax Opinion/Ruling that would permit any
action described in Section 4.2 to be taken by PFSweb or a PFSweb Affiliate.
From and after any Representation Date in connection with obtaining any such
determination or the receipt of a Subsequent Tax Opinion/Ruling and until the
first day after the two-year anniversary of the date of such determination or
receipt, neither party shall take (nor shall it refrain from taking) any action
that would have caused such representation to be untrue unless the other party
has determined, in its sole and absolute discretion, which discretion shall be
exercised in good faith solely to preserve the Tax-Free Status of the
Distribution and the qualification of the Contribution as a D Reorganization,
that such action would not jeopardize the Tax-Free Status of the Distribution
or the qualification of the Contribution as a D Reorganization.
(ii) In the event that PFSweb notifies Daisytek that it
desires to take one of the actions described in Section 4.2 and Daisytek
concludes that such action might jeopardize the Tax-Free Status of the
Distribution or the qualification of the Contribution as a D Reorganization,
Daisytek shall, at the request of PFSweb, elect either to (A) use all
commercially reasonable efforts to obtain a Subsequent Tax Opinion/Ruling that
would permit PFSweb to take the specified action, and PFSweb shall cooperate in
connection with such efforts, or (B) provide all reasonable cooperation to
PFSweb in connection with PFSweb obtaining such a Subsequent Tax Opinion/Ruling
in form and substance reasonably satisfactory to Daisytek; provided, however,
that the reasonable costs and expenses of obtaining any such Subsequent Tax
Opinion/Ruling shall be borne by Daisytek, unless such Subsequent Tax
Opinion/Ruling shall not be obtained as the result of a determination that the
proposed action shall jeopardize the Tax-Free Status of the Distribution or the
qualification of the Contribution as a D Reorganization, in which
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case the costs and expenses of attempting to obtain such Subsequent Tax
Opinion/Ruling shall be borne by PFSweb.
(c) (i) Until all restrictions set forth in Section 4.2 have
expired, PFSweb shall give Daisytek written notice of any intention to effect
or permit an action or transaction described in Section 4.2 and which is
prohibited thereunder at such time within a period of time reasonably
sufficient to enable Daisytek (A) to make the determination referred to in
Section 4.2 or (B) to prepare and seek any Subsequent Tax Opinion/ Ruling in
connection with such proposed action or transaction. Each such notice by PFSweb
shall set forth the terms and conditions of the proposed action or transaction,
including, without limitation, as applicable, the nature of any related action
proposed to be taken by the Board of Directors of PFSweb, the approximate
number of shares of PFSweb Capital Stock proposed to be transferred or issued,
the approximate Value of PFSweb's assets (or assets of any of PFSweb's
Subsidiaries) proposed to be transferred, the proposed timetable for such
action or transaction, and the number of shares of PFSweb Capital Stock
otherwise then owned by the other party to the proposed action or transaction,
all with sufficient particularity to enable Daisytek to make any such required
determination, including information required to prepare and seek a Subsequent
Tax Opinion/Ruling in connection with such proposed action or transaction. All
information provided by PFSweb to Daisytek pursuant to this Section 4.3 shall
be deemed subject to the confidentiality obligations of the Separation
Agreement.
(ii) Promptly, but in any event within 15 Business Days, after
Daisytek receives such written notice from PFSweb, Daisytek shall evaluate such
information and notify PFSweb in writing of (A) such determination or (B)
Daisytek's intent to seek a Subsequent Tax Opinion/Ruling and the proposed date
for submission of the request therefor, which date shall not be more than 45
days after the date Daisytek so notifies PFSweb of Daisytek's intent to seek a
Subsequent Tax Opinion/Ruling, provided that such 45-day period shall be
appropriately extended for any period of noncompliance by PFSweb with Section
4.3(b). If Daisytek makes a determination that an action or transaction
described in Section 4.2 would jeopardize the Tax-Free Status of the
Distribution or the qualification of the Contribution as a D Reorganization,
such notice to PFSweb shall set forth, in reasonable detail, the reasons
therefor. Daisytek shall notify PFSweb promptly, but in any event within two
Business Days, after the receipt of a Subsequent Tax Opinion/Ruling.
4.4. Indemnification For Tax Liabilities.
(a) Notwithstanding any other provision of this Agreement to the
contrary, (i) subject to Section 4.4(b), PFSweb shall indemnify, defend and
hold harmless Daisytek International and each Daisytek Affiliate (or any
successor to any of them) against any and all Tax-Related Losses incurred by
Daisytek International or any of them in connection with any proposed tax
assessment or tax controversy with respect to the Distribution or the
Contribution to the extent caused by any breach by PFSweb of any of its
representations, warranties or covenants made pursuant to this Agreement and
(ii) Daisytek International shall indemnify, defend and hold harmless PFSweb
and each PFSweb Affiliate (or any successor to any of them) against any and all
Tax-Related Losses incurred by PFSweb or any of them in connection with any
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proposed tax assessment or tax controversy with respect to the Distribution or
the Contribution to the extent caused by any breach by Daisytek International
or Daisytek of any of its representations, warranties or covenants made
pursuant to this Agreement. All interest or penalties incurred in connection
with such Tax-Related Losses shall be computed for the time period up to and
including the date that the Indemnifying Party pays its indemnification
obligation in full.
(b) If Daisytek (i) makes a determination pursuant to any clause
of Section 4.2, on the basis of a Subsequent Tax Opinion/Ruling or otherwise,
and (ii) delivers to PFSweb written notice of such determination pursuant to
Section 4.3(c), PFSweb shall have no obligation pursuant to Section 4.4(a),
except to the extent that any Tax-Related Losses so incurred resulted from the
inaccuracy, incorrectness or incompleteness of any representation provided by
PFSweb upon which such Subsequent Tax Opinion/Ruling and/or determination was
based.
(c) The Indemnifying Party shall pay any amount due and payable
to the Indemnitee pursuant to this Section 4.4 on or before the 90th day
following the earlier of agreement or determination that such amount is due and
payable to he Indemnitee. All payments pursuant to this Section 4.4 shall be
made by wire transfer to the bank account designated by the Indemnitee for such
purpose, and on the date of such wire transfer the Indemnifying Party shall
give the Indemnitee notice of the transfer.
4.5. Procedure For Indemnification For Tax Liabilities.
(a) If an Indemnitee receives notice of the assertion of any
Third-Party Claim with respect to which an Indemnifying Party may be obligated
under Section 4.4 to provide indemnification, the Indemnitee shall give the
Indemnifying Party notice thereof (together with a copy of such Third- Party
Claim, process or other legal pleading) promptly after becoming aware of such
Third-Party Claim; provided, however, that the failure of the Indemnitee to
give notice as provided in this Section shall not relieve the Indemnifying
Party of its obligations under Section 4.4, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third-Party Claim in reasonable detail.
(b) (i) Daisytek and PFSweb shall jointly control the defense of,
and cooperate with each other with respect to defending, any Third-Party Claim
with respect to which either party is obligated under Section 4.4 to provide
indemnification, provided that either party shall forfeit such joint control
right with respect to a particular Third-Party Claim if such party or any
Affiliate of such party makes any public statement or filing, or takes any
action (including, but not limited to, the filing of any submission or
pleading, or the giving of a deposition or production of documents, in any
administrative or court proceeding) in connection with such Third-Party Claim
that is inconsistent in a material respect with any representation or warranty
made by such party in this Agreement, the Tax Opinions/Rulings, or the
Representation Letters.
(ii) PFSweb and Daisytek shall exercise their rights to
jointly control the defense of any such Third-Party Claim solely for the
purpose of defeating such Third-Party Claim and, unless required by applicable
law, neither PFSweb nor Daisytek shall make any
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statements or take any actions that could reasonably result in the shifting of
liability for any Losses arising out of such Third-Party Claim from the party
making such statement or taking such action (or any of its Affiliates) to the
other party (or any of its Affiliates).
(iii) Statements made or actions taken by either PFSweb or
Daisytek in connection with the defense of any such Third-Party Claim shall not
prejudice the rights of such party in any subsequent action or proceeding
between the parties.
(iv) If either Daisytek or PFSweb fails to jointly defend any
such Third-Party Claim, the other party shall solely defend such Third-Party
Claim and the party failing to jointly defend shall use commercially reasonable
efforts to cooperate with the other party in its defense of such Third-Party
Claim; provided, however, that an Indemnitee may not compromise or settle any
such Third-Party Claim without the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed. All costs
and expenses of either party in connection with, and during the course of, the
joint control of the defense of any such Third-Party Claim shall be initially
paid by the party that incurs such costs and expenses. Such costs and expenses
shall be reallocated and reimbursed in accordance with the respective
indemnification obligations of the parties at the conclusion of the defense of
such Third-Party Claim.
4.6. Arbitration. Any dispute between the parties arising out of or
relating to this Section 4, including the interpretation of this Section 4, or
any actual or purported breach of this Section 4, shall be resolved only in
accordance with the following provisions:
(a) Daisytek and PFSweb shall attempt in good faith to resolve
any such dispute promptly through negotiations of the parties. In the event of
any such dispute, either party may deliver a Dispute Notice to the other party,
and within 20 Business Days after the receipt of such Dispute Notice, the
appropriate representatives of Daisytek and PFSweb shall meet to attempt to
resolve such dispute. If such dispute has not been resolved within the
Negotiation Period, or if one of the parties fails or refuses to negotiate such
dispute, the issue shall be settled by arbitration pursuant to Section 4.6(b).
The results of such arbitration shall be final and binding on the parties.
(b) Either party may initiate arbitration with regard to such
dispute by giving the other party written notice either (i) at any time
following the end of the Negotiation Period, or (ii) if the parties do not meet
within 20 Business Days of the receipt of the Dispute Notice, at any time
thereafter. The arbitration shall be conducted by three arbitrators in
accordance with the CPR Rules, except as otherwise provided in this Section
4.6. Within 20 days following receipt of the written notice of arbitration,
Daisytek and PFSweb shall each appoint one arbitrator. The two arbitrators so
appointed shall appoint the third arbitrator. If either Daisytek or PFSweb
shall fail to appoint an arbitrator within such 20-day period, the arbitration
shall be by the sole arbitrator appointed by the other party. Whether selected
by Daisytek and PFSweb or otherwise, each arbitrator selected to resolve such
dispute shall be a tax attorney or tax accountant who is generally recognized
in the tax community as a qualified and competent tax practitioner with
experience in the tax area involved in the issue or issues to be resolved. Such
arbitrators shall be
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empowered to determine whether one party is required to indemnify the other
pursuant to Section 4.4 and to determine the amount of the related
indemnification payment. Each of Daisytek and PFSweb shall bear 50% of the
aggregate expenses of the arbitrators, unless the arbitrators otherwise
determine that a different allocation of responsibility for expenses is
appropriate under the circumstances. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss.ss.1-14. The place of arbitration
shall be Dallas, Texas. The final decision of the arbitrators shall be rendered
no later than one year from the date of the written notice of arbitration.
4.7. Exclusive Remedies. Except for the right to pursue equitable
remedies or as otherwise set forth in an Ancillary Agreement, the remedies
provided in this Section 4 shall be deemed the sole and exclusive remedies of
the parties with respect to the subject matters of the indemnification
provisions of Section 4.4.
5. CERTAIN OTHER COVENANTS.
5.1. Financial And Other Information.
(a) PFSweb agrees that, for so long as Daisytek International is
required to consolidate PFSweb's results of operations and financial position
or to account for its investment in PFSweb under the equity method of
accounting (determined in accordance with generally accepted accounting
principles consistently applied):
(i) PFSweb shall, and shall cause each of its Subsidiaries
to, maintain a system of internal accounting controls that will provide
reasonable assurance that: (A) PFSweb's and such Subsidiaries' books, records
and accounts fairly reflect all transactions and dispositions of assets and (B)
the specific objectives of accounting control are achieved.
(ii) PFSweb shall, and shall cause each of its Subsidiaries
to, maintain a fiscal year which commences on April 1 and ends on March 31 of
each calendar year.
(iii) PFSweb shall deliver to Daisytek International a trial
balance submission, which shall include amounts relating to each of its
Subsidiaries, in such format and detail as Daisytek International may request,
as promptly as practicable following the last day of each month.
(iv) As soon as practicable, after the end of each of the
first three fiscal quarters in each fiscal year of PFSweb and after the end of
each such fiscal year, PFSweb shall deliver to Daisytek International a
consolidated income statement and balance sheet for PFSweb and its Subsidiaries
for such fiscal quarter or year, as the case may be.
(v) As soon as practicable, and in any event no later than
three days before PFSweb intends to file its Quarterly Financial Statements (as
defined below) with the SEC, PFSweb shall deliver to Daisytek International as
final as possible drafts of (A) the consolidated financial statements of PFSweb
and its Subsidiaries (and notes thereto) for such periods and for
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the period from the beginning of the current fiscal year to the end of such
quarter, setting forth in each case in comparative form for each such fiscal
quarter of PFSweb the consolidated figures (and notes thereto) for the
corresponding quarter and periods of the previous fiscal year and all in
reasonable detail and prepared in accordance with Article 10 of Regulation S-X,
and (B) a discussion and analysis by management of PFSweb's and its
Subsidiaries' financial condition and results of operations for such fiscal
period, including, without limitation, an explanation of any material adverse
change, all in reasonable detail and prepared in accordance with Item 303(b) of
Regulation S-K. The information set forth in (A) and (B) above is herein
referred to as the "Quarterly Financial Statements." If requested by Daisytek
International, together with the delivery of the Quarterly Financial
Statements, PFSweb shall deliver to Daisytek International a certificate of the
chief financial officer of PFSweb to the effect that the Quarterly Financial
Statements present fairly, in all material respects, the financial condition
and results of operations of PFSweb and its Subsidiaries as of and for the
periods presented therein; provided that PFSweb may continue to revise such
Quarterly Financial Statements prior to the filing thereof in order to make
corrections and changes which corrections and changes shall be delivered by
PFSweb to Daisytek International as soon as practicable thereafter; and,
provided, further, that Daisytek International and PFSweb financial
representatives shall actively consult with each other regarding any changes
(whether or not substantive) which PFSweb may consider making to its Quarterly
Financial Statements and related disclosures during the period prior to any
anticipated filing with the SEC, and PFSweb shall obtain Daisytek
International's consent prior to making any change to PFSweb's Quarterly
Financial Statements or related disclosures which would have an effect upon
Daisytek International's financial statements or related disclosures. In
addition to the foregoing, no Quarterly Financial Statement or any other
document which refers, or contains information with respect, to the ownership
of PFSweb by Daisytek, the separation of PFSweb from Daisytek International or
the Distribution shall be filed with the SEC or otherwise made public by PFSweb
or any of its Subsidiaries without the prior written consent of Daisytek
International.
(vi) As soon as practicable, and in any event no later than
five days before PFSweb intends to file its Annual Financial Statements (as
defined below) with the SEC, PFSweb shall deliver to Daisytek International as
final as possible drafts of (A) the consolidated financial statements of PFSweb
and its Subsidiaries (and notes thereto) for such periods and for the period
from the beginning of the current fiscal year to the end of such fiscal year,
setting forth in each case in comparative form for each such fiscal year of
PFSweb the consolidated figures (and notes thereto) for the corresponding
period of the previous fiscal year and all in reasonable detail and prepared in
accordance with Article 10 of Regulation S-X, and (B) a discussion and analysis
by management of PFSweb's and its Subsidiaries' financial condition and results
of operations for such fiscal year, including, without limitation, an
explanation of any material adverse change, all in reasonable detail and
prepared in accordance with Item 303(b) of Regulation S-K. The information set
forth in (A) and (B) above is herein referred to as the "Annual Financial
Statements." If requested by Daisytek International, together with the delivery
of the Annual Financial Statements, PFSweb shall deliver to Daisytek
International a certificate of the chief financial officer of PFSweb to the
effect that the Annual Financial Statements present fairly, in all material
respects, the financial condition and results of operations of PFSweb and its
Subsidiaries as of and for the periods presented therein; provided that PFSweb
may continue to revise such Annual Financial Statements prior to the filing
thereof in order to make corrections
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and changes which corrections and changes shall be delivered by PFSweb to
Daisytek International as soon as practicable thereafter; and, provided,
further, that Daisytek International and PFSweb financial representatives shall
actively consult with each other regarding any changes (whether or not
substantive) which PFSweb may consider making to its Annual Financial
Statements and related disclosures during the period prior to any anticipated
filing with the SEC, and PFSweb shall obtain Daisytek International's consent
prior to making any change to PFSweb's Annual Financial Statements or related
disclosures which would have an effect upon Daisytek International's financial
statements or related disclosures. In addition to the foregoing, no Annual
Financial Statement or any other document which refers, or contains information
with respect, to the ownership of PFSweb by Daisytek, the separation of PFSweb
from Daisytek International or the Distribution shall be filed with the SEC or
otherwise made public by PFSweb or any of its Subsidiaries without the prior
written consent of Daisytek International. In any event, PFSweb shall deliver
to Daisytek International, no later than 80 days after the end of each fiscal
year of PFSweb, the final form of the Annual Financial Statements accompanied
by an opinion thereon by PFSweb's independent certified public accountants.
(vii) PFSweb shall deliver to Daisytek International all
Quarterly and Annual Financial Statements of each Subsidiary of PFSweb which is
itself required to file financial statements with the SEC or otherwise make
such financial statements publicly available, with such financial statements to
be provided in the same manner and detail and on the same time schedule as
those financial statements of PFSweb required to be delivered to Daisytek
International pursuant to this Section 5.1.
(viii) PFSweb and each of its Subsidiaries which files
information with the SEC shall deliver to Daisytek International: (A) as soon
as the same are prepared, substantially final drafts of: (x) all reports,
notices and proxy and information statements to be sent or made available by
PFSweb or any of its Subsidiaries to their security holders, (y) all regular,
periodic and other reports to be filed under Sections 13, 14 and 15 of the
Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K and Annual Reports
to Shareholders), and (z) all registration statements and prospectuses to be
filed by PFSweb or any of its Subsidiaries with the SEC or any securities
exchange pursuant to the listed company manual (or similar requirements) of
such exchange (collectively, the documents identified in clauses (x), (y) and
(z) are referred to herein as "PFSweb Public Documents"), and (B) as soon as
practicable, but in no event later than four Business Days prior to the date
the same are printed, sent or filed, whichever is earliest, final copies of all
such PFSweb Public Documents; provided that PFSweb may continue to revise such
PFSweb Public Documents prior to the filing thereof in order to make
corrections and changes which corrections and changes shall be delivered by
PFSweb to Daisytek International as soon as practicable thereafter; and,
provided, further, that Daisytek International and PFSweb financial
representatives shall actively consult with each other regarding any changes
(whether or not substantive) which PFSweb may consider making to any of its
PFSweb Public Documents and related disclosures prior to any anticipated filing
with the SEC, and PFSweb shall obtain Daisytek International's consent prior to
making any change to its PFSweb Public Documents or related disclosures which
would have an effect upon Daisytek International's financial statements or
related disclosures. In addition to the foregoing, no PFSweb Public Document or
any other document which refers, or contains information with respect, to the
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ownership of PFSweb by Daisytek, the separation of PFSweb from Daisytek
International or the Distribution shall be filed with the SEC or otherwise made
public by PFSweb or any of its Subsidiaries without the prior written consent
of Daisytek International.
(ix) PFSweb shall, as promptly as practicable, deliver to
Daisytek International copies of all annual and other budgets and financial
projections relating to PFSweb or any of its Subsidiaries and shall provide
Daisytek International an opportunity to meet with management of PFSweb to
discuss such budgets and projections.
(x) With reasonable promptness, PFSweb shall deliver to
Daisytek International such additional financial and other information and data
with respect to PFSweb and its Subsidiaries and their business, properties,
financial positions, results of operations and prospects as from time to time
may be reasonably requested by Daisytek International.
(xi) Prior to issuance, PFSweb shall deliver to Daisytek
International copies of substantially final drafts of all press releases and
other statements to be made available by PFSweb or any of its Subsidiaries to
the public concerning material developments in the business, properties,
earnings, results of operations, financial condition or prospects of PFSweb or
any of its Subsidiaries or the relationship between (A) PFSweb or any of its
Subsidiaries and (B) Daisytek International or any of its Affiliates. In
addition, prior to the issuance of any such press release or public statement,
PFSweb shall consult with Daisytek International regarding any changes (other
than typographical or other similar minor changes) to such substantially final
drafts. Immediately following the issuance thereof, PFSweb shall deliver to
Daisytek International copies of final drafts of all press releases and other
public statements. PFSweb and Daisytek will consult with each other as to the
timing of their annual and quarterly earnings releases and will give each other
an opportunity to review the information therein relating to PFSweb and its
Subsidiaries and to comment thereon.
(xii) PFSweb shall cooperate fully, and cause its accountants
to cooperate fully, with Daisytek International to the extent requested by
Daisytek in the preparation of Daisytek International's public earnings
releases, quarterly reports on Form 10-Q, Annual Reports to Shareholders,
Annual Reports on Form 10-K, any Current Reports on Form 8-K and any other
proxy, information and registration statements, reports, notices, prospectuses
and any other filings made by Daisytek International with the SEC, any national
securities exchange or otherwise made publicly available (collectively,
"Daisytek Public Filings"). PFSweb agrees to provide to Daisytek International
all information that it reasonably requests in connection with any Daisytek
Public Filings or that, in the judgment of Daisytek International's legal
counsel, is required to be disclosed or incorporated by reference therein under
any law, rule or regulation. Such information shall be provided by PFSweb in a
timely manner on the dates requested by Daisytek International (which may be
earlier than the dates on which PFSweb otherwise would be required hereunder to
have such information available) to enable Daisytek International to prepare,
print and release all Daisytek Public Filings on such dates as Daisytek
International shall determine. PFSweb shall use commercially reasonable efforts
to cause its accountants to consent to any reference to them as experts in any
Daisytek Public Filings required under any law, rule or regulation. If and to
the extent requested by Daisytek International, PFSweb shall diligently and
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promptly review all drafts of such Daisytek Public Filings and prepare in a
diligent and timely fashion any portion of such Daisytek Public Filing
pertaining to PFSweb. Prior to any printing or public release of any Daisytek
Public Filing, an appropriate executive officer of PFSweb shall, if requested
by Daisytek international, certify that the information relating to PFSweb, any
PFSweb Affiliate or the PFSweb Business in such Daisytek Public Filing is
accurate, true and correct in all material respects. Unless required by law,
rule or regulation, PFSweb shall not publicly release any financial or other
information which conflicts with the information with respect to PFSweb, any
PFSweb Affiliate or the PFSweb Business that is included in any Daisytek Public
Filing without Daisytek International's prior written consent. Prior to the
release or filing thereof, Daisytek International shall provide PFSweb with a
draft of any portion of a Daisytek Public Filing containing information
relating to PFSweb and its Subsidiaries and shall give PFSweb an opportunity to
review such information and comment thereon; provided that Daisytek
International shall determine in its sole discretion the final form and content
of all Daisytek Public Filings.
(b) PFSweb agrees that, for so long as Daisytek International is
required to consolidate PFSweb's results of operations and financial position
or to account for its investment in PFSweb under the equity method of
accounting (in accordance with generally accepted accounting principles):
(i) PFSweb shall not select a different accounting firm to
serve as its (and its Subsidiaries') independent certified public accountants
("PFSweb's Auditors") without Daisytek International's prior written consent
(which shall not be unreasonably withheld).
(ii) PFSweb shall use its best efforts to enable the PFSweb
Auditors to complete their audit such that they will date their opinion on
PFSweb's audited annual financial statements on the same date that Daisytek
International's independent certified public accountants ("Daisytek's
Auditors") date their opinion on Daisytek International's audited annual
financial statements (the "Daisytek Annual Statements"), and to enable Daisytek
International to meet its timetable for the printing, filing and public
dissemination of the Daisytek Annual Statements.
(iii) PFSweb shall provide to Daisytek International on a
timely basis all information that Daisytek International reasonably requires to
meet its schedule for the preparation, printing, filing, and public
dissemination of the Daisytek Annual Statements. Without limiting the
generality of the foregoing, PFSweb will provide all required financial
information with respect to PFSweb and its Subsidiaries to PFSweb's Auditors in
a sufficient and reasonable time and in sufficient detail to permit PFSweb's
Auditors to take all steps and perform all reviews necessary to provide
sufficient assistance to Daisytek's Auditors with respect to information to be
included or contained in the Daisytek Annual Statements.
(iv) PFSweb shall authorize PFSweb's Auditors to make
available to Daisytek's Auditors both the personnel who performed or are
performing the annual audit of PFSweb and work papers related to the annual
audit of PFSweb, in all cases within a reasonable time prior to PFSweb's
Auditors' opinion date, so that Daisytek's Auditors are able to perform the
procedures they consider necessary to take responsibility for the work of
PFSweb's Auditors as it
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relates to Daisytek's Auditors' report on Daisytek International's statements,
all within sufficient time to enable Daisytek International to meet its
timetable for the printing, filing and public dissemination of the Daisytek
Annual Statements.
(v) PFSweb shall provide Daisytek International's internal
auditors access to PFSweb's and its Subsidiaries, books and records so that
Daisytek International may conduct reasonable audits relating to the financial
statements provided by PFSweb pursuant hereto as well as to the internal
accounting controls and operations of PFSweb and its Subsidiaries.
(vi) PFSweb shall give Daisytek International as much prior
notice as reasonably practical of any proposed determination of, or any
significant changes in, its accounting estimates or accounting principles from
those in effect on the date hereof. PFSweb will consult with Daisytek
International and, if requested, PFSweb will consult with Daisytek
International's independent public accountants with respect thereto. PFSweb
will not make any such determination or changes without Daisytek
International's prior written consent if such a determination or a change would
be sufficiently material to be required to be disclosed in PFSweb's financial
statements as filed with the SEC or otherwise publicly disclosed therein.
(vii) Notwithstanding clause (vi) above, PFSweb shall make
any changes in its accounting estimates or accounting principles that are
requested by Daisytek International in order for PFSweb's accounting estimates
and principles to be consistent with those of Daisytek International.
Nothing in this Section 5.1 shall require PFSweb to violate any
agreement with any of its customers regarding the confidentiality of
commercially sensitive information relating to that customer or its business;
provided that in the event that PFSweb is required under this Section 5.1 to
disclose any such information, PFSweb shall use all commercially reasonable
efforts to seek to obtain such customer's consent to the disclosure of such
information.
5.2. Other Covenants. PFSweb hereby covenants and agrees that, for so
long as Daisytek beneficially owns at least 50% of the outstanding shares of
PFSweb Common Stock:
(a) PFSweb shall not, without the prior written consent of
Daisytek International (which it may withhold in its sole and absolute
discretion), take, or cause to be taken, directly or indirectly, any action,
including making or failing to make any election under the law of any state,
which has the effect, directly or indirectly, of restricting or limiting the
ability of Daisytek to freely sell, transfer, assign, pledge or otherwise
dispose of shares of PFSweb Common Stock or would restrict or limit the rights
of any transferee of Daisytek as a holder of PFSweb Common Stock. Without
limiting the generality of the foregoing, PFSweb shall not, without the prior
written consent of Daisytek International (which it may withhold in its sole
and absolute discretion), take any action, or recommend to its stockholders any
action, which would among other things, limit the legal rights of, or deny any
benefit to, Daisytek as a PFSweb stockholder in a manner not applicable to
PFSweb stockholders generally.
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(b) PFSweb shall not, without the prior written consent of
Daisytek International (which it may withhold in its sole and absolute
discretion), issue any shares of PFSweb Capital Stock or any rights, warrants
or options to acquire PFSweb Capital Stock (including, without limitation,
securities convertible or exchangeable for PFSweb Capital Stock), if after
giving effect to such issuances and considering all of the shares of PFSweb
Capital Stock acquirable pursuant to such rights, warrants and options to be
outstanding on the date of such issuance (whether or not then exercisable),
Daisytek would own less than 50% of the then outstanding shares of PFSweb
Common Stock; provided, however, the foregoing shall not restrict the issuance
of any rights, warrants or options to acquire PFSweb Capital Stock which, by
its terms, will not vest or be exercisable prior to the final Distribution Date
and the completion of the Distribution .
(c) To the extent that Daisytek or Daisytek International is a
party to any contracts or agreements that provide that certain actions of its
Subsidiaries may result in Daisytek or Daisytek International being in breach
of or in default under such agreements and Daisytek or Daisytek International
has advised PFSweb of the existence, and has furnished PFSweb with copies, of
such contracts or agreements (or the relevant portions thereof), PFSweb shall
not take any actions that reasonably could result in Daisytek or Daisytek
International being in breach of or in default under any such contract or
agreement. The parties acknowledge and agree that, after the date hereof,
Daisytek and Daisytek International may in good faith (and not solely with the
intention of imposing restrictions on PFSweb pursuant to this covenant) enter
into additional contracts or agreements that provide that certain actions of
its Subsidiaries may result in Daisytek or Daisytek International being in
breach of or in default under such agreements. PFSweb agrees to keep
confidential and not to disclose any information provided to it pursuant to
this Section 5.2(c).
6. INDEMNIFICATION.
6.1. Indemnification by PFSweb. Subject to Section 6.3, PFSweb shall
indemnify, defend and hold harmless Daisytek International, all Daisytek
Affiliates and each of their respective directors, officers and employees (in
their capacities as such), from and against:
(a) all Losses relating to, arising out of, or due to, directly
or indirectly, any breach by PFSweb or any PFSweb Affiliate of any of the
provisions of this Agreement;
(b) all Losses relating to, arising out of, or due to, directly
or indirectly, any incorrect, inaccurate or incomplete financial and other
information provided by PFSweb or any PFSweb Affiliate to Daisytek
International pursuant to Section 5.1 of this Agreement;
(c) all Losses relating to, arising out of, or due to any untrue
statement or alleged untrue statement of a material fact contained in, or
incorporated by reference into, the IPO Registration Statement or the omission
or alleged omission to state (whether pursuant to direct statement or
incorporation by reference) in the IPO Registration Statement a material fact
required to be stated therein or necessary to make the statements therein not
misleading other than with respect to the Daisytek Disclosure Portions; and
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(d) all Losses relating to, arising out of, or due to any untrue
statement or alleged untrue statement of a material fact contained in, or
incorporated by reference into, the Distribution Registration Statement or the
omission or alleged omission to state (whether pursuant to direct statement or
incorporation by reference) in the Distribution Registration Statement a
material fact required to be stated therein or necessary to make the statements
therein not misleading other than with respect to the Daisytek Disclosure
Portions.
6.2. Indemnification by Daisytek International. Subject to Section
6.3, Daisytek International shall indemnify, defend, and hold harmless PFSweb,
all PFSweb Affiliates, and each of their respective directors, officers and
employees (in their capacities as such), from and against:
(a) all Losses relating to, arising out of, or due to, directly
or indirectly, any breach by Daisytek International or any Daisytek Affiliate
of any of the provisions of this Agreement;
(b) all Losses relating to, arising out of, or due to any untrue
statement or alleged untrue statement of a material fact contained in, or
incorporated by reference into, the Daisytek Disclosure Portions of the IPO
Registration Statement or the omission or alleged omission to state (whether
pursuant to direct statement or incorporation by reference) in the Daisytek
Disclosure Portions of the IPO Registration Statement a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and
(c) all Losses relating to, arising out of, or due to any untrue
statement or alleged untrue statement of a material fact contained in, or
incorporated by reference into, the Daisytek Disclosure Portions of the
Distribution Registration Statement or the omission or alleged omission to
state (whether pursuant to direct statement or incorporation by reference) in
the Daisytek Disclosure Portions of the Distribution Registration Statement a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
6.3. Other Liabilities.
(a) Except as provided in Section 6.4, this Section 6 shall not
be applicable to any Tax-Related Losses, which shall be governed by Section 4
of this Agreement.
(b) This Section 6 shall not be applicable to any Losses relating
to, arising out of, or due to any breach of the provisions of any other
contract, agreement or understanding between Daisytek International or any
Daisytek Affiliate and PFSweb or any PFSweb Affiliate, including, without
limitation, the Separation Agreement and any of the other Ancillary Agreements,
which Losses shall be governed by the terms of such contract, agreement or
understanding.
6.4. Tax Effects of Indemnification.
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(a) Any indemnification payment made under this Agreement shall
be characterized for tax purposes as if such payment were made immediately
prior to the latest Distribution Date, and shall therefore be treated, to the
extent permitted by law, as either (i) a distribution from PFSweb to Daisytek
or (ii) a capital contribution from Daisytek to PFSweb.
(b) The amount of any Loss or Tax-Related Losses for which
indemnification is provided under this Agreement shall be (i) increased to take
account of net Tax cost, if any, incurred by the Indemnitee arising from the
receipt or accrual of an Indemnity Payment hereunder (grossed up for such
increase) and (ii) reduced to take account of net Tax benefit, if any, realized
by the Indemnitee arising from incurring or paying such Loss or Tax-Related
Losses. In computing the amount of any such Tax cost or Tax benefit, the
Indemnitee shall be deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt or
accrual of any Indemnity Payment hereunder or incurring or paying any
indemnified Loss or Tax-Related Losses. Any Indemnity Payment hereunder shall
initially be made without regard to this Section 6.4 and shall be increased or
reduced to reflect any such net Tax cost (including gross-up) or net Tax
benefit only after the Indemnitee has actually realized such cost or benefit.
For purposes of this Agreement, an Indemnitee shall be deemed to have "actually
realized" a net Tax cost or a net Tax benefit to the extent that, and at such
time as, the amount of Taxes payable by such Indemnitee is increased above or
reduced below, as the case may be, the amount of Taxes that such Indemnitee
would be required to pay but for the receipt or accrual of the Indemnity
Payment or the incurrence or payment of such Loss or Tax-Related Losses, as the
case may be. The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall include the execution
of Form 870-AD or successor form) with respect to the Indemnitee's liability
for Taxes, and payments between Daisytek and PFSweb to reflect such adjustment
shall be made if necessary.
6.5. Effect Of Insurance upon Indemnification. The amount which an
Indemnifying Party is required to pay to any Indemnitee pursuant to this
Section 6 shall be reduced (including retroactively) by any Insurance Proceeds
and other amounts actually recovered by such Indemnitee in reduction of the
related Loss, it being understood and agreed that each of PFSweb and Daisytek
International shall use commercially reasonable efforts to collect any such
proceeds or other amounts to which it or any of its Affiliates is entitled,
without regard to whether it is the Indemnifying Party hereunder. No Indemnitee
shall be required, however, to collect any such proceeds or other amounts prior
to being entitled to indemnification from an Indemnifying Party hereunder. If
an Indemnitee receives an Indemnity Payment in respect of a Loss and
subsequently receives Insurance Proceeds or other amounts in respect of such
Loss, then such Indemnitee shall pay to such Indemnifying Party an amount equal
to the difference between (a) the sum of the amount of such Indemnity Payment
and the amount of such Insurance Proceeds or other amounts actually received
and (b) the amount of such Loss, in each case adjusted (at such time as
appropriate adjustment can be determined) to reflect any premium adjustment
attributable to such claim.
6.6. Procedure for Indemnification Involving Third-Party Claims.
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(a) If any Indemnitee receives notice of the assertion of any
Third-Party Claim with respect to which an Indemnifying Party is obligated
under this Agreement to provide indemnification (other than pursuant to Section
4), such Indemnitee shall give such Indemnifying Party notice thereof (together
with a copy of such Third-Party Claim, process or other legal pleading)
promptly after becoming aware of such Third-Party Claim; provided, however,
that the failure of any Indemnitee to give notice as provided in this Section
shall not relieve any Indemnifying Party of its obligations under this Section
6, except to the extent that such Indemnifying Party is actually prejudiced by
such failure to give notice. Such notice shall describe such Third-Party Claim
in reasonable detail.
(b) An Indemnifying Party, at such Indemnifying Party's own
expense and through counsel chosen by such Indemnifying Party (which counsel
shall be reasonably acceptable to the Indemnitee), may elect to defend any
Third-Party Claim. If an Indemnifying Party elects to defend a Third-Party
Claim, then, within ten Business Days after receiving notice of such
Third-Party Claim (or sooner, if the nature of such Third-Party Claim so
requires), such Indemnifying Party shall notify the Indemnitee of its intent to
do so, and such Indemnitee shall cooperate in the defense of such Third-Party
Claim. Such Indemnifying Party shall pay such Indemnitee's reasonable
out-of-pocket expenses incurred in connection with such cooperation. Such
Indemnifying Party shall keep the Indemnitee reasonably informed as to the
status of the defense of such Third-Party Claim. After notice from an
Indemnifying Party to an Indemnitee of its election to assume the defense of a
Third-Party Claim, such Indemnifying Party shall not be liable to such
Indemnitee under this Section 6 for any legal or other expenses subsequently
incurred by such Indemnitee in connection with the defense thereof other than
those expenses referred to in the preceding sentence; provided, however, that
such Indemnitee shall have the right to employ one law firm as counsel
("Separate Counsel"), to represent such Indemnitee in any action or group of
related actions (which firm or firms shall be reasonably acceptable to the
Indemnifying Party) if, in such Indemnitee's reasonable judgment at any time,
either a conflict of interest between such Indemnitee and such Indemnifying
Party exists in respect of such claim, or there may be defenses available to
such Indemnitee which are different from or in addition to those available to
such Indemnifying Party and the representation of both parties by the same
counsel would be inappropriate, and in that event (i) the reasonable fees and
expenses of such Separate Counsel shall be paid by such Indemnifying Party (it
being understood, however, that the Indemnifying Party shall not be liable for
the expenses of more than one Separate Counsel (excluding local counsel) with
respect to any Third-Party Claim (even if against multiple Indemnitees)) and
(ii) each of such Indemnifying Party and such Indemnitee shall have the right
to conduct its own defense in respect of such claim. If an Indemnifying Party
elects not to defend against a Third-Party Claim, or fails to notify an
Indemnitee of its election as provided in this Section 6 within the period of
ten Business Days described above, the Indemnitee may defend, compromise, and
settle such Third-Party Claim and shall be entitled to indemnification
hereunder (to the extent permitted hereunder); provided, however, that no such
Indemnitee may compromise or settle any such Third-Party Claim without the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, the
Indemnifying Party shall not, without the prior written consent of the
Indemnitee, (i) settle or compromise any Third-Party Claim or consent to the
entry of any judgment which does not include as an unconditional term thereof
the delivery by the claimant or plaintiff to the Indemnitee
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of a written release from all liability in respect of such Third-Party Claim or
(ii) settle or compromise any Third-Party Claim in any manner that would be
reasonably likely to have a material adverse effect on the Indemnitee.
(c) Notwithstanding the provisions of Section 6.6(b), Daisytek
International and PFSweb shall jointly control the defense of, and cooperate
with each other with respect to defending, any Third-Party Claim with respect
to which each party is claiming that it is entitled to indemnification under
Section 6.1 or 6.2. If either Daisytek International or PFSweb fails to defend
jointly any such Third-Party Claim, the other party shall solely defend such
Third-Party Claim and the party failing to defend jointly shall use all
commercially reasonable efforts to cooperate with the other party in its
defense of such Third-Party Claim; provided, however, that neither party may
compromise or settle any such Third-Party Claim without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed. All costs and expenses of either party in connection with, and during
the course of, the joint control of the defense of any such Third-Party Claim
shall be initially paid by the party that incurs such costs and expenses. Such
costs and expenses shall be reallocated and reimbursed in accordance with the
respective indemnification obligations of the parties at the conclusion of the
defense of such Third-Party Claim.
6.7. Procedure For Indemnification Not Involving Third-Party Claims.
If any Indemnitee desires to assert against an Indemnifying Party any claim for
indemnification under this Section 6 other than a Third-Party Claim (a
"Claim"), the Indemnitee shall deliver to the Indemnifying Party notice of its
demand for satisfaction of such Claim (a "Request"), specifying in reasonable
detail the amount of such Claim and the basis for asserting such Claim. Within
30 days after the Indemnifying Party has been given a Request, the Indemnifying
Party shall either (i) satisfy the Claim requested to be satisfied in such
Request by delivering to the Indemnitee payment by wire transfer or a certified
or bank cashier's check payable to the Indemnified Party in immediately
available funds in an amount equal to the amount of such Claim, or (ii) notify
the Indemnitee that the Indemnifying Party contests such Claim by delivering to
the Indemnitee a Dispute Notice, stating that the Indemnifying Party objects to
such Claim and specifying in reasonable detail the basis for contesting such
Claim. Any dispute described in clause (ii) of this Section 6.7 shall be
subject to the provisions of Section 7.1.
6.8. Exclusive Remedies. Except for the right to pursue equitable
remedies, the remedies provided in this Section 6 shall be deemed the sole and
exclusive remedies of the parties with respect to the subject matters of the
indemnification provisions of this Section 6.
7. MISCELLANEOUS
7.1. Dispute Resolution. The parties shall attempt in good faith to
resolve any dispute between the parties arising out of or relating to this
Agreement promptly through negotiations of the parties prior to seeking any
other legal or equitable remedy.
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7.2. Survival. The representations and warranties contained in this
Agreement shall survive the execution and delivery hereof and the Distribution
Date until the expiration of all applicable statutes of limitations.
7.3. Complete Agreement. Except as otherwise set forth in this
Agreement, this Agreement and the exhibits hereto shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and shall supersede all prior agreements and understandings, whether written or
oral, between the parties with respect to such subject matter.
7.4. Authority. Each of the parties hereto represents to the other
that (a) it has the corporate power and authority to execute, deliver and
perform this Agreement, (b) the execution, delivery and performance of this
Agreement by it has been duly authorized by all necessary corporate action, (c)
it has duly and validly executed and delivered this Agreement, and (d) this
Agreement is a legal, valid and binding obligation, enforceable against it in
accordance with its terms subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and general equity principles.
7.5. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (other than the laws
regarding conflicts of laws) as to all matters, including matters of validity,
construction, effect, performance and remedies.
7.6. Notices. All Notices shall be in writing and shall be given and
deemed received in accordance with the provisions of the Separation Agreement.
7.7. Amendment and Modification. This Agreement may not be amended or
modified in any respect except by a written agreement signed by both of the
parties hereto.
7.8. Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon the parties hereto and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Except with respect to a merger of either party with another Person,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either party hereto without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed.
7.9. Third Party Beneficiaries. The Indemnitees and their respective
successors shall be third party beneficiaries of the indemnification provisions
of Sections 4 and 6, as applicable, and shall be entitled to enforce those
provisions and in connection with such enforcement shall be subject to Section
7.6, in each such case as fully and to the same extent as if they were parties
to this Agreement. Except as provided in the previous sentence, nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
any legal or equitable right, benefit or remedy of any nature whatsoever under
or by reason of this Agreement, and no Person (other than as provided in the
previous sentence) shall be deemed a third party beneficiary under or by reason
of this Agreement.
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7.10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The Agreement may be
executed by facsimile signature.
7.11. Waiver. The observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce such term, but such waiver
shall be effective only if it is in writing signed by the party against which
such waiver is to be asserted. Unless otherwise expressly provided in this
Agreement, no delay or omission on the part of any party in exercising any
right or privilege under this Agreement shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any right or privilege under this
Agreement operate as a waiver of any other right or privilege under this
Agreement nor shall any single or partial exercise of any right or privilege
preclude any other or further exercise thereof or the exercise of any other
right or privilege under this Agreement. No failure by either party to take any
action or assert any right or privilege hereunder shall be deemed to be a
waiver of such right or privilege in the event of the continuation or
repetition of the circumstances giving rise to such right unless expressly
waived in writing by the party against whom the existence of such waiver is
asserted.
7.12. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.13. Remedies. Each party shall be entitled to enforce its rights
under this Agreement specifically, to recover damages and costs (including
reasonable attorneys' fees) caused by any breach of any provision of this
Agreement and to exercise all other rights existing in its favor. Each party
acknowledges and agrees that under certain circumstances the breach by Daisytek
or any of its Affiliates or PFSweb or any of its Affiliates of a term or
provision of this Agreement will materially and irreparably harm the other
party, that money damages will accordingly not be an adequate remedy for such
breach and that the non-defaulting party, in its sole discretion and in
addition to its rights under this Agreement and any other remedies it may have
at law or in equity, may apply to any court of law or equity of competent
jurisdiction (without posting any bond or deposit) for specific performance
and/or other injunctive relief in order to enforce or prevent any breach of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date and year first written above.
DAISYTEK INTERNATIONAL CORPORATION
By:
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DAISYTEK, INCORPORATED
By:
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PFSWEB, INC.
By:
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