Sample Business Contracts


Tax Indemnification and Allocation Agreement - Daisytek International Corp. and PFSweb Inc.


                  TAX INDEMNIFICATION AND ALLOCATION AGREEMENT


         THIS TAX INDEMNIFICATION AND ALLOCATION AGREEMENT ("Agreement") is
entered into as of December 7, 1999 by and between Daisytek International
Corporation, a Delaware corporation ("Distributing") and PFSweb, Inc., a
Delaware corporation("Controlled") (Distributing and Controlled are sometimes
collectively referred to herein as the "Companies"). Capitalized terms used in
this Agreement are defined in Section 1 below. Unless otherwise indicated, all
"Section" references in this Agreement are to sections of this Agreement.

                             PRELIMINARY STATEMENTS

         A. As of the date hereof, Distributing is the common parent of an
affiliated group of corporations, including Controlled, which has elected to
file consolidated Federal income tax returns.

         B. Incident to an initial public offering ("IPO") of common stock of
Controlled in connection with the separation and distribution of Controlled from
Distributing pursuant to one overall integrated plan, the Companies have entered
into a Master Separation Agreement and an Initial Public Offering and
Distribution Agreement (the "Distribution Agreement").

         C. After the IPO, and before the distribution of all of Distributing's
stock of Controlled to Distributing's shareholders, Controlled and its
subsidiaries (as constituted immediately after the consummation of the IPO) will
continue to be members of the affiliated group of which Distributing is the
common parent.

         D. After the stock of Controlled is distributed to Distributing's
shareholders, Controlled will no longer be a member of the affiliated group of
which Distributing is the common parent.

         E. The Companies desire to provide for and agree upon the allocation
between the parties of liabilities for Taxes arising prior to, as a result of,
and subsequent to the actions contemplated by the Distribution Agreement, and to
provide for and agree upon other matters relating to Taxes.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

         Section 1. DEFINITION OF TERMS. For purposes of this Agreement
(including the recitals hereof), the following terms have the following
meanings:

         "Accounting Firm" shall have the meaning provided in Section 15.




<PAGE>   2

         "Accrued Taxes" means the sum of any liabilities for current tax
expense required to be accrued as of the IPO Date under generally accepted
accounting principles on the books of Controlled or any member of the Controlled
Group for Taxes attributable to Tax Periods or portions thereof ending on or
before the IPO Date.

         "Adjustment Request" means any formal or informal claim or request
filed with any Tax Authority, or with any administrative agency or court, for
the adjustment, refund, or credit of Taxes, including (a) any amended Tax return
claiming adjustment to the Taxes as reported on the Tax Return or, if
applicable, as previously adjusted, or (b) any claim for refund or credit of
Taxes previously paid.

         "Affiliate" means any entity that directly or indirectly is
"controlled" by the person or entity in question. "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through ownership
of voting securities, by contract or otherwise. Except as otherwise provided
herein, the term Affiliate shall refer to Affiliates of a person as determined
immediately after the Distribution. The term "Affiliate" includes a Subsidiary
of an entity.

         "Agreement" shall mean this Tax Indemnification and Allocation
Agreement.

         "Allocated Federal Tax Liability" shall have the meaning provided in
Section 5.1(b)(i).

         "Carryback" means any net operating loss, net capital loss, excess tax
credit, or other similar Tax item, which may or must be carried, from one Tax
Period to an earlier Tax Period under the Code or other applicable Tax Law.

         "Code" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.

         "Companies" means Distributing and Controlled, collectively, and
"Company" means any one of Distributing and Controlled

         "Consolidated or Combined Income Tax" means any Income Tax computed by
reference to the assets or activities of members of more than one Group.

         "Consolidated or Combined State Income Tax" means any State Income Tax
computed by reference to the assets or activities of members of more than one
Group.

         "Consolidated Tax Liability" means, with respect to any Distributing
Federal Consolidated Return, the tax liability of the group as that term is used
in Treasury Regulation Section 1.1552-1(a)(1) (including applicable interest,
additions to the tax, additional amounts. and penalties as provided in the
Code), provided that such tax liability be treated as including any alternative
minimum tax liability under Code Section 55.

         "Controlled Adjustment" means any proposed adjustment by a Tax
Authority or claim for refund asserted in a Tax Contest to the extent Controlled
would be exclusively liable for any





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resulting Tax under this Agreement or exclusively entitled to receive any
resulting Tax Benefit under this Agreement.

         "Controlled Group" means Controlled and its Subsidiaries and
wholly-owned limited liability companies as determined immediately after the IPO
Date.

         "Controlled Group Disqualifying Event" means any event involving the
direct or indirect acquisition of shares of the capital stock of any member of
the Controlled Group after the Distribution which has the effect of
disqualifying the Distribution or any part thereof from tax-free treatment under
Code section 355, whether or not such event is the result of direct actions of,
or within the control of, the Controlled or its Subsidiaries, or which otherwise
is inconsistent with representations relating to Controlled and the ownership of
its capital stock, as set forth in the Ruling Request and the Tax Opinion.

         "Controlled Group Prior Federal Tax Liability" shall have the meaning
provided in Section 2.2(b)(ii).

         "Controlled Group Prior State Tax Liability" shall have the meaning
provided in Section 2.3(b)(ii)(B).

         "Controlled Group Recomputed Federal Tax Liability" shall have the
meaning provided in Section 2.2(b)(i).

         "Controlled Group Recomputed State Tax Liability" shall have the
meaning provided in Section 2.3(b)(ii)(A).

         "Cumulative Federal Tax Payment" shall have the meaning provided in
Section 5.1 (b)(ii).

         "Distributing Adjustment" means any proposed adjustment by a Tax
Authority or claim for refund asserted in a Tax Contest to the extent
Distributing would be exclusively liable for any resulting Tax under this
Agreement or exclusively entitled to receive any resulting Tax Benefit under
this Agreement.

         "Distributing Federal Consolidated Return" means any United States
Federal Tax Return for the affiliated group (as that term is defined in Code
Section 1504) that includes Distributing as the common parent and any member of
the Controlled Group.

         "Distributing Group" means Distributing and its Subsidiaries and wholly
owned limited liability companies, excluding any entity that is a member of the
Controlled Group.

         "Distribution" means the distribution to Distributing shareholders on
the Distribution Date of all of the outstanding capital stock of Controlled
owned by Distributing

         "Distribution Agreement" means the Initial Public Offering and
Distribution Agreement dated as of the date of this Agreement between
Distributing and Controlled.



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         "Distribution Date" means the Distribution Date as that term is defined
in the Distribution Agreement.

         "Distribution Tax" means the Taxes described in Section 2.5(a)(ii).

         "Federal Income Tax" means any Tax imposed by Subtitle A or F of the
Code.

         "Federal Tax Adjustment" shall have the meaning provided in Section
2.2(b).

         "Final Determination" means the final resolution of liability for any
Tax for a taxable period, including any related interest or penalties, (i) by
IRS Form 870-AD (or any successor form thereto), on the date of acceptance by or
on behalf of the IRS, or by a comparable agreement form under state, local or
foreign law, except that a Form 870-AD or comparable form that reserves the
right of the taxpayer to file a claim for refund and/or the right of the taxing
authority to assert a further deficiency shall not constitute a Final
Determination with respect to the item or items so reserved; (ii) by a decision,
judgment, decree, or other order by a court of competent jurisdiction, which has
become final and unappealable; (iii) by a closing agreement or offer in
compromise under section 7121 or 7122 of the Code, or comparable agreements
under the any state, local or foreign law; (iv) by any allowance of a refund or
credit in respect of an overpayment of Tax, Including any related interest or
penalties, but only after the expiration of all periods during which such refund
may be recovered (including by way of offset) by the jurisdiction imposing the
Tax; or (v) by any other final disposition, including by reason of the
expiration of the applicable statute of limitations or pursuant to Code sections
1311 through 1313, or comparable provision of state, local, or foreign law.

         "Foreign Income Tax" means any Tax imposed by any foreign country or
any possession of the United States, or by any political subdivision of any
foreign country or United States possession, which is an income tax as defined
in Treasury Regulation Section 1.901-2.

         "Group" means the Distributing Group or the Controlled Group, as the
context requires.

         "Income Tax" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.

         "IPO Date" means the closing date of the IPO.

         "Joint Adjustment" means any proposed adjustment resulting from a Tax
Contest that is not a (i) Controlled Adjustment, (ii) a Distributing Adjustment,
or (iii) any other type of adjustment that give rise to an indemnification
payment by one Company to the other Company pursuant to this Agreement.

         "Payment Date" means (i) with respect to any Distributing Federal
Consolidated Return, the due date for any required installment of estimated
taxes determined under Code Section 6655, the due date (determined without
regard to extensions) for filing the return determined under Code Section 6072,
and the date the return is filed, and (ii) with respect to any Tax Return






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for any Consolidated or Combined State Income Tax, the corresponding dates
determined under the applicable Tax Law.

         "Post-IPO Period" means any Tax Period beginning after the IPO Date.

         "Post-Distribution Period" means any Tax Period beginning after the
Distribution Date.

         "Pre-Distribution Period" means any Tax Period beginning on or before
the Distribution Date.

         "Pre-IPO Period" means any Tax Period ending on or before the IPO Date.

         "Prime Rate" means the base rate on corporate loans charged by Chase
Bank of Texas, N.A., from time to time, compounded daily on the basis of a year
of 365 or 366 (as applicable) days and actual days elapsed.

         "Prohibited Action" shall have the meaning provided in Section 11.

         "Responsible Company" means, with respect to any Tax Return, the
Company having responsibility for preparing and filing such Tax Return under
this Agreement.

         "Ruling Request" means the letter to be filed by Distributing with the
Internal Revenue Service requesting a ruling from the Internal Revenue Service
regarding certain tax consequences of the Distribution (including all
attachments, exhibits, and other materials submitted with such ruling request
letter) and any amendment or supplement to such ruling request letter.

         "Separate Company Tax" means any Tax computed by reference to the
assets and activities of a member or members of a single Group.

         "State Income Tax" means any Tax imposed by any State of the United
States or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.

         "Subsidiary" shall have the meaning set forth in Treasury Regulations
section 1.1502-1(c).

         "Tax" or "Taxes" means any income, gross income, gross receipts,
profits, capital stock, franchise, withholding, payroll, social security,
workers compensation, unemployment, disability, property, ad valorem, stamp,
excise, severance, occupation, service, sales, use, license, lease, transfer,
import, export, value added, alternative minimum, estimated or other tax of any
kind (including any fee, assessment, or other charge in the nature of or in lieu
of any tax) imposed by any governmental entity or political subdivision thereof,
and any interest, penalties, additions to tax, or additional amounts in respect
of the foregoing.




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         "Tax Authority" means, with respect to any Tax, the governmental
entity, or political subdivision thereof that imposes such Tax, and the agency
(if any) charged with the collection of such Tax for such entity or subdivision.

         "Tax Benefit" means any refund, credit, or other reduction in otherwise
required Tax payments (including any reduction in estimated tax payments).

         "Tax Contest" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes of any of the Companies or their Affiliates (including any
administrative or judicial review of any claim for refund) for any
Pre-Distribution Period.

         "Tax Contest Committee" shall have the meaning provided in Section 9.2.

         "Tax Item," means, with respect to any Income Tax, any item of income,
gain, loss, deduction, and credit.

         "Tax Law" means the law of any governmental entity or political
subdivision thereof relating to any Tax.

         "Tax Opinion" means a tax opinion received from Arthur Andersen LLP on
the tax consequences of the Distribution and related events.

         "Tax Period" means, with respect to any Tax, the period for which the
Tax is reported as provided under the Code or other applicable Tax Law.

         "Tax Records" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records required
to be maintained under the Code or other applicable Tax Laws or under any record
retention agreement with any Tax Authority.

         "Tax Return" means any report of Taxes due, any claims for refund of
Taxes paid, any information return with respect to Taxes, or any other similar
report, statement, declaration, or document required to be filed under the Code
or other Tax Law, including any attachments, exhibits, or other materials
submitted with any of the foregoing, and including any amendments or supplements
to any of the foregoing.

         "Treasury Regulations" means the regulations promulgated from time to
time under the Code as in effect for the relevant Tax Period.

         Section 2. ALLOCATION OF TAX LIABILITIES. The provisions of this
Section 2 are intended to determine each Company's liability for Taxes for
Pre-Distribution and Post-Distribution Periods. The provisions of Section
2.5(a)(ii) and (b) are intended to determine each Company's liability for
Distribution Taxes, if any, under this Agreement, even though such Taxes may
arise on or after the Distribution Date. Once the liability has been determined
under





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this Section 2, Section 5 determines the time when payment of the liability is
to be made, and whether the payment is to be made to the Tax Authority directly
or to the other Company.

         2.1 General Rule

             (a) Distributing Liability. Distributing shall be liable for Taxes
not specifically allocated to the Controlled under this Section 2. Distributing
shall indemnify and hold harmless the Controlled Group from and against any
liability for Taxes for which Distributing is liable under this Section 2.1 (a).

             (b) Controlled Liability. Controlled shall be liable for, and shall
indemnify and hold harmless the Distributing Group from and against any
liability for, Taxes that are allocated to Controlled under this Agreement.

         2.2 Allocation of United States Federal Income Tax.

         Except as provided in Section 2.5:

             (a) Allocation of Tax Relating to Federal Consolidated Returns.

                 (i) Pre-IPO Period. Distributing shall be liable for, and shall
hold Controlled Group harmless for, any Federal Income Tax relating to Federal
Consolidated Returns for all Tax Periods or portions thereof ending on or before
the IPO Date. Except as provided in Section 4.7(c), Distributing is entitled to
any refunds of Federal Income Tax for Tax Periods or portions thereof ending on
or before the IPO Date. Notwithstanding the foregoing, Controlled shall be
liable for, and shall hold the Distributing Group harmless against, the amount
of Federal Income Tax for all Tax Periods or portions thereof ending on the IPO
Date equal to the Accrued Taxes in respect of such taxes of the Controlled Group
as of the IPO Date.

                 (ii) Tax Periods Ending After the IPO Date. Except as provided
in clause (i) above, for all Tax Periods ending after the IPO Date (other than
Tax Periods beginning after the Distribution Date), the Consolidated Tax
Liability shall be allocated between the Groups in accordance with the method
prescribed in Treasury Regulation Section 1.1552-1(a)(1) (as in effect on the
date hereof) determined by aggregating the amounts allocable to the members of
each respective Group into a single amount for each Group. For purposes of such
allocation, the excess, if any, of (i) Consolidated Tax Liability over (ii)
Consolidated Tax Liability determined without regard to any alternative minimum
tax liability under Code Section 55, shall be allocated among the Groups in
accordance with their respective amounts of alternative minimum taxable income,
and any corresponding alternative minimum tax credit shall be allocated in
accordance with the allocation of such alternative minimum tax liability. In
addition, in order to avoid duplication of the allocation of Consolidated Tax
Liability set forth in clause (i) above, for purposes of this clause (ii), Tax
Items of the Controlled Group for the portion of any Tax Period ending on the
IPO Date shall be treated as Tax Items of the Distributing Group. Any amount so
allocated to the Controlled Group shall be a liability of Controlled to
Distributing under this Section 2. Amounts described in Code Section 1561
(relating to limitations on certain





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multiple benefits) shall be divided equally among the Distributing Group and
Controlled Group to the extent permitted by the Code.

                 (iii) Tax Periods Beginning After the Distribution Date. The
Distributing Group and the Controlled Group shall each be liable for, and shall
indemnify the other against, its respective liability for Federal Income Taxes
for all Post-Distribution Periods.

         (b) Allocation of Federal Consolidated Return Tax Adjustments. If there
is any adjustment to the reported Tax liability with respect to any Distributing
Federal Consolidated Return, or to such Tax liability as previously adjusted,
Controlled shall be liable to Distributing for the excess (if any) of--

                 (i) the share of the Consolidated Tax Liability allocated to
the Controlled Group computed in accordance with paragraph (a) based on the Tax
Items of members of the Controlled Group as so adjusted (the "Controlled Group
Recomputed Federal Tax Liability"); minus

                 (ii) the share of the Consolidated Tax Liability allocated to
the Controlled Group computed in accordance with paragraph (a) based on the Tax
Items of such members as reported (or if applicable, as previously adjusted)
(the "Controlled Group Prior Federal Tax Liability").

         If the Controlled Group Prior Federal Tax Liability exceeds the
Controlled Group Recomputed Federal Tax Liability, Distributing shall be liable
to Controlled for such excess. For purposes of the preceding sentence, if the
Controlled Group has a net operating loss or net capital loss after taking into
account the adjustments allocable to such group, the Controlled Group Recomputed
Federal Tax Liability shall be less than zero to the extent such net operating
loss or net capital loss produces a Tax Benefit for the applicable taxable year,
and the amount that Distributing shall be liable to Controlled pursuant to the
preceding sentence shall be equal to the sum of the Controlled Group Prior
Federal Tax Liability and the amount of such Tax Benefit.

         (c) Compensation for Use of Tax Attributes. If, for any
Pre-Distribution Period, the Tax liability of the Distributing Group under
Section 2.2(a) is reduced by virtue of any Tax Item attributable to the
Controlled Group for Tax Periods or portions thereof beginning after the IPO
Date, Distributing will compensate Controlled for the Tax Benefit so received.
If, for any Tax Period or portion thereof beginning after the IPO Date, the Tax
liability of the Controlled Group under Section 2.2(a) is reduced by virtue of
any Tax Item attributable to the Distributing Group, Controlled will compensate
Distributing for the Tax Benefit so received. For example, the Controlled Group
will be compensated for any net operating losses generated by a member of the
Controlled Group in a Tax Period or portion thereof beginning after the IPO Date
that reduces the Consolidated Tax Liability of the Distributing Group for a Tax
Period or portion thereof beginning on or before the Distribution Date. For this
purpose, any such Tax Benefit shall be determined under the principles of Treas.
Reg. Section 1.1502-33(d)(3), using 100% as the applicable percentage.



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         2.3 Allocation of State Income Taxes. Except as provided in Section
2.5, State Income Taxes shall be allocated as follows:

             (a) Separate Company Taxes. In the case of any State Income Tax
which is a Separate Company Tax:

                 (i) Tax Periods or Portions Ending on or Before the IPO Date.
Distributing shall be liable for, and shall indemnify the Controlled Group
against, any Separate Company Tax for all Tax Periods or portions thereof ending
on or before the IPO Date. Notwithstanding the foregoing, Controlled shall be
liable for, and shall hold the Distributing Group harmless against, the amount
of Separate Company Taxes for all Tax Periods or portions thereof ending on the
IPO Date equal to the Accrued Taxes in respect of such taxes of the Controlled
Group as of the IPO Date.

                 (ii) Tax Periods or Portions Beginning After the IPO Date.
Controlled shall be liable for, and shall hold the Distributing Group harmless
against, any Separate Company Taxes imposed on any member of the Controlled
Group for any Tax Period or portion thereof beginning after the IPO Date.
Distributing shall be liable for, and shall hold the Controlled Group harmless
against, any Separate Company Taxes of any member of the Distributing Group for
any Tax Period or portion thereof beginning after the IPO Date.

             (b) Allocation of Consolidated or Combined State Income Taxes. In
the case of any State Income Tax which is a Consolidated or Combined State
Income Tax:

                 (i) Pre-IPO Period. Distributing shall be liable for, and shall
hold Controlled Group harmless for, any State Income Tax, relating to State
Consolidated or Combined Returns, for all Tax Periods or portions thereof ending
on or before the IPO Date. Distributing is entitled to any refunds of Tax
attributable to Tax Periods or portions thereof ending on or before the IPO
Date. Notwithstanding the foregoing, Controlled shall be liable for, and shall
hold the Distributing Group harmless against, the amount of Consolidated or
Combined State Income Tax for all Tax Periods or Portions thereof ending on the
IPO Date equal to the Accrued Taxes in respect of such taxes of the Controlled
Group as of the IPO Date.

                 (ii) Tax Periods Ending After the IPO Date. Except as provided
in clause (i) above, for all Tax Periods ending after the IPO Date (other than
Tax Periods beginning after the Distribution Date), the Consolidated or Combined
State Tax Liability shall be allocated between the Groups in accordance with the
method prescribed in Treasury Regulation Section 1.1552-1(a)(1) (as in effect on
the date hereof) determined by aggregating the amounts allocable to the members
of each respective Group into a single amount for each Group, appropriately
reflecting income, apportionment, and other items of members. In addition, in
order to avoid duplication of the allocation of Consolidated Tax Liability set
forth in clause (i) above, for purposes of this clause (ii), Tax Items of the
Controlled Group for the portion of any Tax Period or portion thereof ending on
or before the IPO Date shall be treated as Tax Items of the Distributing Group.
Any amount so allocated to the Controlled Group shall be a liability of
Controlled to Distributing under this Section 2.



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                 (iii) Tax Periods Beginning After the Distribution Date. The
Distributing Group and the Controlled Group shall each be liable for, and shall
indemnify the other against, its respective liability for Consolidated or
Combined State Income Taxes for all Post-Distribution Periods.

             (c) Allocation of State Consolidated or Combined Return Tax
Adjustments. If there is any adjustment to the amount of Consolidated or
Combined State Income Tax reported on any Tax Return (or as previously
adjusted), the liability of the Controlled Group shall be recomputed as provided
in this subparagraph. Controlled shall be liable to Distributing for the excess
(if any) of-

                 (i) the State Income Tax liability computed in accordance with
paragraph (b) based on the income, apportionment factors, and other items of
such members as reported (or, if applicable, as previously adjusted) (the
"Controlled Group Recomputed State Tax Liability"); minus

                 (ii) the State Income Tax liability computed in accordance with
paragraph (b) based on the income, apportionment factors, and other items of
such members as reported (or, if applicable, as previously adjusted) (the
"Controlled Group Prior State Tax Liability").

             If the Controlled Group Prior State Tax Liability exceeds the
Controlled Group Recomputed State Tax Liability, Distributing shall be liable to
Controlled for such excess. For purposes of the preceding sentence, if the
Controlled Group has a net operating loss after taking into account the
adjustments allocable to such group, the Controlled Group Recomputed State Tax
Liability shall be less than zero to the extent such net operating loss produces
a Tax Benefit in consolidation for the applicable taxable year, and the amount
that Distributing shall be liable to Controlled pursuant to the preceding
sentence shall be equal to the sum of the Controlled Group Prior State Tax
Liability and the amount of such Tax Benefit.

             (d) Compensation for Use of Tax Attributes. If, for any Tax Period
beginning on or before the Distribution Date, the Tax liability of the
Distributing Group under Section 2.3(b) is reduced by virtue of any Tax Item
attributable to the Controlled Group for Tax Periods or portions thereof
beginning after the IPO Date and ending on or before the Distribution Date,
Distributing will compensate Controlled for the Tax Benefit so received. If, for
any Tax Period or portion thereof beginning after the IPO Date, the Tax
liability of the Controlled Group under Section 2.3(b) is reduced by virtue of
any Tax Item attributable to the Distributing Group, Controlled will compensate
Distributing for the Tax Benefit so received. For example, the Controlled Group
will be compensated for any net operating losses generated by a member of the
Controlled Group in a Tax Period or portion thereof beginning after the IPO Date
that reduces the Consolidated or State Combined Tax Liability of the
Distributing Group for any Pre-Distribution Period. For this purpose, any such
Tax Benefit shall be determined under the principles of Treas. Reg. Section
1.1502-33(d)(3), using 100% as the applicable percentage.

         2.4 Allocation of Other Taxes. Except as provided in Section 2.5, all
Taxes other than those specifically allocated pursuant to Section 2.3 shall be
allocated based on the legal








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entity on which the legal incidence of the Tax is imposed. As between the
parties to this Agreement, Controlled shall be liable for all Taxes imposed on
any member of the Controlled Group. The Companies believe that there is no Tax
not specifically allocated pursuant to Section 2.3 which is legally imposed on
more than one legal entity (e.g., joint and several liability); however, if
there is any such Tax, it shall be allocated in accordance with past practices
as reasonably determined by the affected Companies, or in the absence of such
practices, in accordance with any allocation method agreed upon by the affected
Companies.

         2.5 Distribution and Other Taxes

             (a) Distributing Liability. Except as otherwise provided in this
Section 2.5, Distributing shall be liable for, and shall indemnify and hold
harmless the Controlled Group from and against any liability for, all Taxes
resulting from the Distribution, including:

                 (i) Any sales and use, gross receipts, or other similar
transfer Taxes imposed on the transfers occurring pursuant to the Distribution;
and

                 (ii) any Federal Income Tax or State Income Tax resulting from
any income or gain recognized by any member of the Distributing Group as a
result of transferring assets to Controlled in connection with the Distribution,
or distributing the shares of Controlled and failing to qualify for tax-free
treatment pursuant to Section 355 of the Code and related provisions;

             (b) Indemnity for Certain Acts. Controlled shall be liable for, and
shall indemnify and hold harmless the Distributing Group from and against any
liability for, any Distribution Tax (described in subparagraph (ii) above) to
the extent arising as a result after the Distribution Date of Controlled's
engaging in any Prohibited Action or the occurrence of a Controlled Group
Disqualifying Event. Notwithstanding anything in this paragraph (b) to the
contrary, to the extent, if any, that this paragraph (b) allocates liability
between the Companies in a manner contrary to the allocation of liability
provided in Section 4 of the Distribution Agreement, Section 4 of the
Distribution Agreement shall control.

         Section 3. PRORATION OF TAXES FOR STRADDLE PERIODS

         3.1 Tax Periods Straddling the IPO Date. In the case of any Tax Period
beginning on or before the IPO Date and ending after the IPO Date, Tax Items
shall be apportioned between the portion ending on the IPO Date and the portion
beginning after the IPO Date in accordance with the principles in Treas. Reg.
Section 1.1502-76(b) using a closing-of-the-books method. However, Tax Items
(other than extraordinary items within the meaning of Treas. Reg. Section
1.1502-76(b)(2)(ii)(C)) for the month including the IPO Date will be allocated
to the portion ending on the IPO Date and the portion beginning after the IPO
Date using the principles of the ratable allocation method of Treas. Reg.
Section 1.1502-76(b)(2)(iii).

         3.2 Tax Periods Straddling the Distribution Date. In the case of any
Tax Period beginning on or before the Distribution Date and ending after the
Distribution Date (or between the Pre-Distribution Period ending on the
Distribution Date and the Post-Distribution Period






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beginning on the day after the Distribution Date), Tax Items shall be
apportioned between the portion ending on the Distribution Date and the portion
beginning after the Distribution Date (or between such Pre-Distribution Period
and such Post-Distribution Period) in accordance with the principles in Treas.
Reg. Section 1.1502-76(b) using a closing-of-the-books method. However, Tax
Items (other than extraordinary items within the meaning of Treas. Reg. Section
1.1502-76(b)(2)(ii)(C)) for the month including the Distribution Date will be
allocated to the portion ending on the Distribution Date and the portion
beginning after the Distribution Date using the principles of the ratable
allocation method of Treas. Reg. Section 1.1502-76(b)(2)(iii). In determining
the apportionment of Tax Items between the portion ending on the Distribution
Date and the portion beginning after the Distribution Date (or between such
Pre-Distribution Period and such Post-Distribution Period), any Tax Items
arising on the Distribution shall be treated as extraordinary items described in
Treas. Reg. Section 1.1502-76(b)(2)(ii)(C) and shall be allocated to the
pre-Distribution portion (or the Pre-Distribution Period).

         Section 4. PREPARATION AND FILING OF TAX RETURNS

         4.1 General. Except as otherwise provided in this Section 4, Tax
Returns shall be prepared and filed when due (including extensions) by the
person obligated to file such Tax Returns under the Code or applicable Tax Law.
The Companies shall provide, and shall cause their Affiliates to provide,
assistance and cooperate with one another in accordance with Section 7 with
respect to the preparation and filing of Tax Returns, including providing
information required to be provided in Section 7.

         4.2 Distributing's Responsibility. Distributing has the exclusive
obligation and right to prepare and file, or to cause to be prepared and filed:

             (a) Distributing Federal Consolidated Returns for all Tax Periods;

             (b) Consolidated or Combined State Income Tax Returns for all Tax
Periods; and

             (c) Tax Returns for State Income Taxes (including Tax Returns with
respect to State Income Taxes that are Separate Company Taxes) for members of
the Distributing Group.

         4.3 Controlled's Responsibility. Controlled shall prepare and file, or
shall cause to be prepared and filed, all Tax Returns required to be filed by or
with respect to the Controlled or members of the Controlled Group other than
those Tax Returns which Distributing is required to prepare and file under
Section 4.2.

         4.4 Tax Accounting Practices.

             (a) General. Except as otherwise provided in this Section 4.4, any
Tax Return for any Pre-Distribution Period, and any Tax Return for any
Post-Distribution Period to the extent Tax Items reported on such Tax Return
might reasonably affect Tax Items reported on and Tax Return for any
Pre-Distribution Period, shall be prepared in accordance with past Tax
accounting practices used with respect to the Tax Returns in question (unless
such past practices





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<PAGE>   13


are no longer permissible under the Code or other applicable Tax Law). To the
extent any Tax Items are not covered by past practices (or in the event such
past practices are no longer permissible under the Code or other applicable Tax
Law), such Tax Items shall be reported in accordance with reasonable Tax
accounting practices selected by the Distributing or Controlled depending on
whose Tax Liability under Section 2 is affected thereby. If the Tax liability of
both Distributing or Controlled under Section 2 would be affected by the
reporting of the Tax Item, the parties shall negotiate in good faith to
determine the reporting of the Tax Item. Any dispute regarding the proper tax
treatment of the Tax Item shall be referred for resolution pursuant to Section
15, sufficiently in advance of the filing date of such Tax Return (including
extensions) to permit timely filing of the return.

             (b) Reporting of Distribution Tax Items. The tax treatment reported
on any Tax Return of Tax Items relating to the Distribution shall be consistent
with the treatment of such item in the Ruling Request (unless such treatment is
not permissible under the Code) or Tax Opinion. To the extent there is a Tax
Item relating to the Distribution which is not covered by the Ruling Request or
the Tax Opinion, the Companies shall agree on the tax treatment of any such Tax
Item reported on any Tax Return. For this purpose, the tax treatment of such Tax
Items on a Tax Return shall be determined by the Responsible Company with
respect to such Tax Return and shall be agreed to by the other Company unless
either (i) there is no reasonable basis as defined under Section 6662 of the
Code for such tax treatment, or (ii) such tax treatment would have a material
impact on the other Company or the Ruling Request. Such Tax Return shall be
submitted for review pursuant to Section 4.6(a), and any dispute regarding such
proper tax treatment shall be referred for resolution pursuant to Section 15,
sufficiently in advance of the filing date of such Tax Return (including
extensions) to permit timely filing of the return.

         4.5 Consolidated or Combined Returns. The Companies will elect and
join, and will cause their respective Affiliates to elect and join, in filing
consolidated, unitary, combined, or other similar joint Tax Return, to the
extent each entity is eligible to join in such Tax Returns, if the Companies
reasonably determine that the filing of such Tax Returns is consistent with past
reporting practices, or in the absence of applicable past practices, will result
in the minimization of the net present value of the aggregate Tax to the
entities eligible to join in such Tax Returns.

         4.6 Right to Review Tax Returns

             (a) General. The Responsible Company with respect to any Tax Return
shall make such Tax Return and related workpapers available for review by the
other Companies, if requested, to the extent (i) such Tax Return relates to
Taxes for which the requesting party may be liable, (ii) such Tax Return relates
to Taxes for which the requesting party may be liable in whole or in part or for
any additional Taxes owing as a result of adjustments to the amount of Taxes
reported on such Tax Return, (iii) such Tax Return relates to Taxes for which
the requesting party may have a claim for Tax Benefits under this Agreement, or
(iv) the requesting party reasonably determines that it must inspect such Tax
Return to confirm compliance with the terms of this Agreement. The Responsible
Company shall use its reasonable best efforts to make such Tax Return available
for review as required under this paragraph sufficiently in advance of the due
date for filing such Tax Returns to provide the requesting party with a
meaningful opportunity to analyze and comment on such Tax Returns and have such
Tax Returns modified




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<PAGE>   14

before filing, taking into account the person responsible for payment of the tax
(if any) reported on such Tax Return and the materiality of the amount of Tax
liability with respect to such Tax Return. The Companies shall attempt in good
faith to resolve any issues arising out of the review of such Tax Returns.
Issues that cannot be resolved in the Companies shall be resolved in the manner
set forth in Section 15.

             (b) Execution of Returns Prepared by Other Party. In the case of
any Tax Return which is required to be prepared and filed by one Company under
this Agreement and which is required by law to be signed by another Company (or
by its authorized representative), the Company which is legally required to sign
such Tax Return shall not be required to sign such Tax Return under this
Agreement if there is no reasonable basis for the tax treatment of any material
items reported on the Tax Return.

         4.7 Claims for Refund, Carrybacks, and Self-Audit Adjustments
("Adjustment Requests")

             (a) Consent Required for Adjustment Requests Related to Certain
Taxes. Except as provided in paragraph (b) below, unless the other Company
consents in writing, which consent shall not be unreasonably withheld, no
Adjustment Request with respect to any Tax for any Pre-Distribution Period shall
be filed by Distributing or Controlled if such Adjustment Request would result
in any increase of the Tax liability of the other Company under Section 2. Any
Adjustment Request which the Companies consent to make under this Section 4.7
shall be prepared and filed by the Responsible Company under Section 4.2 for the
Tax Return to be adjusted. The Company requesting the Adjustment Request shall
provide to the Responsible Company all information required for the preparation
and filing of such Adjustment Request in such form and detail as reasonably
requested by the Responsible Company. Notwithstanding anything to the contrary
in this paragraph (a), the consent of the Controlled shall not be necessary for
any Carryback by Distributing or any member of the Distributing Group provided
such Carryback constitutes a Distributing Adjustment in the year (or years) such
Carryback is absorbed.

             (b) Exception for Adjustment Requests Related to Audit Adjustments.
Notwithstanding paragraph (b) above, Distributing or Controlled may, without the
consent of the other Company, make any Adjustment Request necessary to conform
the treatment of a Tax Item in a subsequent Tax Period to the treatment of such
Tax Item in a prior Tax Period that has been determined pursuant to a Final
Determination. Distributing or Controlled must, if requested by the other
Company, make any such Adjustment Request if they effect thereof is reduce such
other Company's liability for Taxes under Section 2.

             (c) Carrybacks. Controlled shall be entitled, without the consent
of Distributing, to require Distributing to file an Adjustment Request for any
Pre-Distribution Period to take into account any permissible carryback of any
net operating loss, net capital loss, or credit for any Post-Distribution Period
that is attributable to any member of the Controlled Group.




                                       14
<PAGE>   15

             (d) Other Adjustment Requests Permitted. Nothing in this Section
4.7 shall prevent any Company or member of its Group from filing any Adjustment
Request with respect to matters for such Company or member of its Group is
liable under Section 2. Any refund or credit obtained as a result of any such
Adjustment Request (or otherwise) shall be for the account of the person liable
for the Tax under Section 2.

             (d) Payment of Refunds. Any refunds or other Tax Benefits received
by any Company (or any of its Affiliates) as a result of any Adjustment Request
which are for the account of another Company (or member of such other Company's
Group) shall be paid by the Company receiving (or whose Affiliate received) such
refund or Tax Benefit to such other Company in accordance with Section 6.

         Section 5. TAX PAYMENTS AND INTERCOMPANY BILLINGS

         5.1 Payment of Taxes With Respect to Distributing Federal Consolidation
Returns Filed After the IPO Date. In the case of any Distributing Federal
Consolidated Return the due date for which (including extensions) is after the
IPO Date:

             (a) Computation and Payment of Tax Due. At least three business
days prior to any Payment Date, Distributing shall compute the amount of Tax
required to be paid to the Internal Revenue Service (taking into account the
requirements of Section 4.4 relating to consistent accounting practices) with
respect to such Tax Return on such Payment Date and shall pay such amount to the
Internal Revenue Service on or before such Payment Date.

             (b) Computation and Payment of Controlled Liability With Respect to
Tax Due. Within 90 days following any Payment Date, Controlled will pay to
Distributing the excess (if any) of --

                 (i) the Consolidated Tax Liability determined as of such
Payment Date with respect to the applicable Tax Period allocable to the members
of the Controlled Group as determined by Distributing in a manner consistent
with the Section 2.2(a) and Section 3, over

                 (ii) the cumulative net payment with respect to such Tax Return
prior to such Payment Date by the members of the Controlled Group (the
"Cumulative Federal Tax Payment").

             If the Controlled Group Cumulative Federal Tax Payment is greater
than the Controlled Group Allocated Federal Tax Liability as of any Payment
Date, then Distributing shall pay such excess to Controlled within 90 days of
Distributing's receipt of the corresponding Tax Benefit (i.e. through either a
reduction in Distributing's otherwise required Tax payment or a credit or refund
of prior tax payments).

             (c) Interest on Intergroup Tax Allocation Payments. In the case of
any payments to Distributing required under paragraph (b) of this subsection
5.1, Controlled shall also pay to Distributing an amount of interest computed at
the Prime Rate on the amount of the payment required based on the number of days
from the applicable Payment Date to the date of







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<PAGE>   16


payment. In the case of any payments by Distributing required under paragraph
(b) of this subsection 5.1, Distributing shall also pay to Controlled an amount
of interest computed at the Prime Rate on the amount of the payment required
based on the number of days from the date of receipt of the Tax Benefit to the
date of payment of such amount to Controlled

         5.2 Payment of Federal Income Tax Related to Adjustments

             (a) Adjustments Resulting in Underpayments. Distributing shall pay
to the Internal Revenue Service when due any additional Federal Income Tax
required to be paid as a result of adjustment to the Tax liability with respect
to any Distributing Federal Consolidated Return. Distributing shall compute the
amount attributable to the Controlled Group in accordance with Section 2.2(b)
and Controlled shall pay to Distributing any amount due Distributing under
Section 2.2(b) within ninety (90) days from the later of (i) the date the
additional Tax was paid by Distributing or (ii) the date of receipt by
Controlled of a written notice and demand from Distributing for payment of the
amount due, accompanied by evidence of payment and a statement detailing the
Taxes paid and describing in reasonable detail the particulars relating thereto.
Any payments required under this Section 5.2(a) shall include interest computed
at the Prime Rate based on the number of days from the date the additional Tax
was paid by Distributing to the date of the payment under this Section 5.2(a).

             (b) Adjustments Resulting in Overpayments. Within ninety (90) days
of receipt by Distributing of any Tax Benefit resulting from any adjustment to
the Consolidated Tax Liability with respect to any Distributing Federal
Consolidated Return, Distributing shall pay to Controlled, or Controlled shall
pay to Distributing (as the case may be), their respective amounts due from or
to Distributing as determined by the Responsible Company in accordance with
Section 2.2(b). Any payments required under this Section 5.2(b) shall include
interest computed at the Prime Rate based on the number of days from the date
the Tax Benefit was received by Distributing to the date of payment to
Controlled under this Section 5.2(b),

         5.3 Payment of State Income Tax With Respect to Returns Filed After the
Distribution Date.

             (a) Computation and Payment of Tax Due. At least three business
days prior to any Payment Date for any Tax Return with respect to any State
Income Tax, the Responsible Company shall compute the amount of Tax required to
be paid to the applicable Tax Authority (taking into account the requirements of
Section 4.4 relating to consistent accounting practices) with respect to such
Tax Return on such Payment Date and -

                 (i) If such Tax Return is with respect to a Consolidated or
Combined State Income Tax, the Responsible Company shall, if Distributing is not
the Responsible Company with respect to such Tax Return, notify Distributing in
writing of the amount of Tax required to be paid on such Payment Date.
Distributing will pay such amount to such Tax Authority on or before such
Payment Date.

                 (ii) If such Tax Return is with respect to a Separate Company
Tax, the Responsible Company shall, if it is not the Company liable for the Tax
reported on such Tax






                                       16
<PAGE>   17


Return under Section 2, notify the Company liable for such Tax in writing of the
amount of Tax required to be paid on such Payment Date. The Company liable for
such Tax will pay such amount to such Tax Authority on or before such Payment
Date.

             (b) Computation and Payment of Controlled Liability With Respect To
Tax Due. Within ninety (90) days following the due date (including extensions)
for filing any Tax Return for any Consolidated or Combined State Income Tax
(excluding any Tax Return with respect to payment of estimated Taxes or Taxes
due with a request for extension of time to file), (i) Controlled shall pay to
Distributing the tax liability allocable to the Controlled Group as determined
by the Responsible Company under the provisions of Section 2.3(b), plus interest
computed at the Prime Rate on the amount of the payment based on the number of
days from the due date (including extensions) to the date of payment by
Controlled to Distributing, and (ii) the Responsible Company shall notify
Distributing (if Distributing is not the Responsible Company with respect to
such Tax Return).

         5.4 Payment of State Income Taxes Related to Adjustments.

             (a) Adjustments Resulting in Underpayments. Distributing shall pay
to the applicable Tax Authority when due any additional State Income Tax
required to be paid as a result of any adjustment to the tax liability with
respect to any Tax Return for (i) any Consolidated or Combined State Income Tax
for any Pre-Distribution Period, and (ii) any Separate Company Tax for any
Pre-Distribution Period or portion thereof ending on or before the IPO Date.
Controlled shall pay to Distributing its respective share of any such additional
Tax payment determined by the Responsible Company in accordance with Section
2.3(c) within ninety (90) days from the later of (i) the date the additional Tax
was paid by Distributing or (ii) the date of receipt by Controlled of a written
notice and demand from Distributing for payment of the amount due, accompanied
by evidence of payment and a statement detailing the Taxes paid and describing
in reasonable detail the particulars relating thereto. Controlled shall also pay
to Distributing interest on its respective share of such Tax computed at the
Prime Rate based on the number of days from the date the additional Tax was paid
by Distributing to the date of its payment to Distributing under this Section
5.4(a).

             (b) Adjustments Resulting in Overpayments. Within ninety (90) days
of receipt by the Distributing Group of any Tax Benefit resulting from any
adjustment to the tax liability with respect to any Tax Return for any
Consolidated or Combined State Income Tax for any Pre-Distribution Period,
Distributing shall pay to Controlled its respective share of any such Tax
Benefit determined by the Responsible Company in accordance with Section 2.3(c).
Distributing shall also pay to Controlled interest on its respective share of
such Tax Benefit computed at the Prime Rate based on the number of days from the
date the Tax Benefit was received by the Distributing Group to the date of
payment to Controlled under this Section 5.4(b). Similar rules shall apply with
respect to the receipt by the Controlled Group of any Tax Benefit resulting from
any adjustment to the tax liability with respect to any Tax Return for any Tax
Period or portion thereof ending on or before the IPO Date (except any
adjustment made pursuant to any Adjustment Request under Section 4.7(c)).



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<PAGE>   18


         5.5 Indemnification Payments. If any Company (the "payor") is required
to pay to a Tax Authority a Tax that is properly allocated to another Company
(the "responsible party") under this Agreement, the responsible party shall
reimburse the payor within ninety (90) days of delivery by the payor to the
responsible party of an invoice for the amount due, accompanied by evidence of
payment and a statement detailing the Taxes paid and describing in reasonable
detail the particulars relating thereto. The reimbursement shall include
interest on the Tax payment computed at the Prime Rate based on the number of
days from the date of the payment to the Tax Authority to the date of
reimbursement under this Section 5.6.

         Section 6. TAX BENEFITS. If a member of one Group receives any Tax
Benefit with respect to any Taxes for which a member of another Group is liable
hereunder, the Company receiving such Tax Benefit shall make a payment to the
Company who is liable for such Taxes hereunder within ninety (90) days following
receipt of the Tax Benefit in an amount equal to the Tax Benefit (including any
Tax Benefit realized as a result of the payment), plus interest on such amount
computed at the Prime Rate based on the number of days from the date of receipt
of the Tax Benefit to the date of payment of such amount under this Section 6.

         Section 7. ASSISTANCE AND COOPERATION

         7.1 General. After the IPO Date, each of the Companies shall cooperate
(and cause their respective Affiliates to cooperate) with each other and with
each others agents, including accounting firms and legal counsel, in connection
with Tax matters relating to the Companies and their Affiliates including (i)
preparation and filing of Tax Returns, (ii) determining the liability for and
amount of any Taxes due (including estimated Taxes) or the right to and amount
of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any
administrative or judicial proceeding in respect of Taxes assessed or proposed
to be assessed. Such cooperation shall include making all information and
documents in their possession relating to the other Company and their Affiliates
available to such other Company as provided in Section 8. Each of the Companies
shall also make available to each other, as reasonably requested and available,
personnel (including officers, directors, employees and agents of the Companies
or their respective Affiliates) responsible for preparing, maintaining, and
interpreting information and documents relevant to Taxes, and personnel
reasonably required as witnesses or for purposes of providing information or
documents in connection with any administrative or judicial proceedings relating
to Taxes. Any information or documents provided under this Section 7 shall be
kept confidential by the Company receiving the information or documents, except
as may otherwise be necessary in connection with the filing of Tax Returns or in
connection with any administrative or judicial proceedings relating to Taxes.

         7.2 Income Tax Return Information. Each Company will provide to the
other Company information and documents relating to their respective Groups
required by the other Company to prepare Tax Returns. The Responsible Company
shall determine a reasonable compliance schedule for such purpose in accordance
with Distributing's past practices. Any additional information or documents the
Responsible Company requires to prepare such Tax Returns will be provided in
accordance with past practices, if any, or as the Responsible Company reasonably
requests and in sufficient time for the Responsible Company to file such Tax
Returns on a timely basis.



                                       18
<PAGE>   19

         Section 8. TAX RECORDS

         8.1 Retention of Tax Records. Except as provided in Section 8.2, each
Company shall preserve and keep all Tax Records exclusively relating to the
assets and activities of its respective Group for Pre-Distribution Periods, and
Distributing shall preserve and keep all other Tax Records relating to Taxes of
the Groups for Pre-Distribution Periods, for so long as the contents thereof may
become material in the administration of any matter under the Code or other
applicable Tax Law, but in any event until the later of (i) the expiration of
any applicable statutes of limitation, and (ii) seven years after the
Distribution Date. If, prior to the expiration of the applicable statute of
limitation and such seven-year period, a Company reasonably determines that any
Tax Records which it is required to preserve and keep under this Section 8 are
no longer material in the administration of any matter under the Code or other
applicable Tax Law, such Company may dispose of such records upon 90 days prior
notice to the other Company. Such notice shall include a list of the records to
be disposed of describing in reasonable detail each file, book, or other records
being disposed. The notified Company shall have the opportunity, at its cost and
expense, to copy or remove, within such 90-day period, all or any part of such
Tax Records.

         8.2 State Income Tax Returns. Tax Returns with respect to State Income
Taxes and workpapers prepared in connection with preparing such Tax Returns
shall be preserved and kept in accordance with the terms of Section 8.1, by the
Company having liability for the Tax.

         8.3 Access to Tax Records. The Companies and their respective
Affiliates shall make available to each other for inspection and copying during
normal business hours upon reasonable notice all Tax Records in their possession
to the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items under
this Agreement.

         Section 9. TAX CONTESTS

         9.1 Notice. Each of the Companies shall provide prompt notice to the
other Company of any pending or threatened Tax audit, assessment or proceeding
or other Tax Contest of which it becomes aware related to Taxes for Tax Periods
for which it is indemnified by the other Company hereunder. Such notice shall
contain factual information (to the extent known) describing any asserted Tax
liability in reasonable detail and shall be accompanied by copies of any notice
and other documents received from any Tax Authority in respect of any such
matters. If an indemnified party has knowledge of an asserted Tax liability with
respect to a matter for which it is to be indemnified hereunder and such party
fails to give the indemnifying party prompt notice of such asserted Tax
liability, then (i) if the indemnifying party is precluded from contesting the
asserted Tax liability in any forum as a result of the failure to give prompt
notice, the indemnifying party shall have no obligation to indemnify the
indemnified party for any Taxes arising out of such asserted Tax liability, and
(ii) if the indemnifying party is not precluded from contesting the asserted Tax
liability in any forum, but such failure to give prompt notice results in a
monetary detriment to the indemnifying party, then any amount which the
indemnifying




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<PAGE>   20

party is otherwise required to pay the indemnified party pursuant to this
Agreement shall be reduced by the amount of such detriment.

         9.2 Control of Tax Contests. Distributing shall control the defense or
prosecution of the portion of the Tax Contest directly and exclusively related
to any Distributing Adjustment, including settlement of any such Distributing
Adjustment. Controlled shall control the defense or prosecution of the portion
of the Tax Contest directly and exclusively related to any Controlled
Adjustment, including settlement of any such Controlled Adjustment. The Tax
Contest Committee shall control the defense or prosecution of Joint Adjustments,
including settlement of any such Joint Adjustment, and any and all
administrative matters not directly and exclusively related to any Distributing
Adjustment or Controlled Adjustment. The Tax Contest Committee shall be
comprised of two persons, one person selected by Distributing (as designated in
writing to Controlled) and one person selected by Controlled (as designated in
writing to Distributing). Each person serving on the Tax Contest Committee shall
continue to serve unless and until he or she is replaced by the party
designating such person. Any and all matters to be decided by the Tax Contest
Committee shall require the approval of both persons serving on the committee.
In the event the Tax Contest Committee shall be deadlocked on any matter. the
provisions of Section 15 of this Agreement shall apply. A Company shall not
agree to any Tax liability for which another Company may be liable under this
Agreement, or compromise any claim for any Tax Benefit which another Company may
be entitled under this Agreement, without such other Company's written consent
(which consent may be given or withheld at the sole discretion of the Company
from which the consent would be required). Distributing, in the case of any
examination or audit of a Distributing Federal Consolidation Return, and the
Responsible Company in the case of any examination or audit of a Consolidated or
Combined State Income Tax Return, shall be the only parties representing the
members of the Group before any Federal or State Tax Authority in connection
with the examination or audit. Notwithstanding the representation by the
Distributing or Responsible Company before such Tax Authority, the Distributing
or Responsible Company shall (a) provide the Controlled with all information
reasonably requested relating to any Controlled Adjustment or Joint Adjustment;
(b) submit to such Tax Authority any facts, legal arguments or other matters
deemed advisable by Controlled and provided by it to Distributing or the
Responsible Company; (c) not have the authority to settle or otherwise
compromise a Controlled Adjustment; and (d) not have the authority to settle or
otherwise compromise a Joint Adjustment other than through the Tax Contest
Committee procedures set forth in this Section 9.2.

         Section 10. EFFECTIVE DATE. This Agreement shall be effective on the
IPO Date.

         Section 11. NO INCONSISTENT ACTIONS.

         11.1 Action Inconsistent with Ruling Request or Tax Opinion. Each of
the Companies covenants and agrees that it will not take any Prohibited Action,
and it will cause its Affiliates to refrain from taking any Prohibited Action
(within the meaning of Section 11.2), unless the person acting has obtained the
prior written consent of each of the other parties (which consent shall not be
unreasonably withheld). With respect to any Prohibited Action proposed by a
Company (the "Requesting Party"), the other party (the "Requested Party") shall
grant its consent to such Prohibited Action if the Requesting Party obtains a
ruling with respect to the





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<PAGE>   21


Prohibited Action from the Internal Revenue Service or other applicable Tax
Authority that is reasonably satisfactory to the Requested Party.

         11.2 Definition of Prohibited Action. The term "Prohibited Action"
shall mean any action prohibited under this Section 11.2.

             (a) Neither Distributing, Controlled, nor any of their Affiliates
shall engage in any action which is inconsistent (or shall fail to take any
action to comply) with the Tax treatment of the Distribution as contemplated in
the Ruling Request or Tax Opinion, including but not limited to, any action that
is inconsistent with (or any failure to take any action necessary to comply
with) any representation made in connection with the Ruling request or Tax
Opinion.

             (b) Prior to completion of the Distribution, Controlled will not
issue shares of its stock, and neither Distributing nor Controlled will
otherwise take or permit their Affiliates to take any action, that would result
in Distributing (or a wholly-owned subsidiary thereof) not being in control of
Controlled within the meaning of section 368(c) of the Code.

         14.3 Interest Under This Agreement. Anything herein to the contrary
notwithstanding, to the extent one Company ("indemnitor") makes a payment of
interest to another Company ("Indemnitee") under this Agreement with respect to
the period from the date that the indemnitee made a payment of Tax to a Tax
Authority to the date that the indemnitor reimbursed the indemnitee for such Tax
payment, or with respect to the period from the date that the indemnitor
received a Tax Benefit to the date indemnitor paid the Tax Benefit to the
indemnitee, the interest payment shall be treated as interest expense to the
indemnitor (deductible to the extent provided by law) and as interest income by
the indemnitee (includable in income to the extent provided by law). The amount
of the payment shall not be adjusted under Section 14.2 to take into account any
associated Tax Benefit to the indemnitor or increase in Tax to the indemnitee.

         Section 15. DISAGREEMENTS. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the matter
will be referred to a nationally recognized accounting firm acceptable to each
of the parties (the "Accounting Firm"). If such dispute relates to a position to
be taken on any Tax Return or in any Tax Contest that may affect the interests
of both Distributing and Controlled, the Accounting Firm shall resolve such
dispute on the basis of the result that a reasonable person owning both
Companies would reach. The Accounting Firm shall furnish written notice to the
parties of its resolution of any such disagreement as soon as practical, but in
any event no later than 45 days after its acceptance of the matter for
resolution. Any such resolution by the Accounting Firm will be conclusive and
binding on all parties to this Agreement. In accordance with Section 17, each
party shall pay its own fees and expenses (including the fees and expenses of
its representatives) incurred in connection with the referral of the matter to
the Accounting Firm. All fees and expenses of the Accounting Firm in connection
with such referral shall be shared equally by the parties affected by the
matter.

         Section 16. LATE PAYMENTS. Any amount owed by one party to another
party under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the






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extent interest required to be paid under this Section 16 duplicates interest
required to be paid under any other provision of this Agreement, interest shall
be computed at the higher of the interest rate provided under this Section 16 or
the interest rate provided under such other provision.

         Section 17. EXPENSES. Except as provided in Section 15, each party and
its Affiliates shall bear their own expenses incurred in connection with
preparation of Tax Returns, Tax Contests, and other matters related to Taxes
under the provisions of this Agreement.

         Section 18. GENERAL PROVISIONS

         18.1 Addresses and Notices. Any notice, demand, request or report
required or permitted to be given or made to any party under this Agreement
shall be in writing and shall be deemed given or made when delivered in party or
when sent by first class mail or by other commercially reasonable means of
written communication (including delivery by an internationally recognized
courier service or by facsimile transmission) to the party at the party's
principal business address. A party may change the address for receiving notices
under this Agreement by providing written notice of the change of address to the
other parties.

         18.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns.

         18.3 Waiver. No failure by any party to insist upon the strict
performance of any obligation under this Agreement or to exercise any right or
remedy under this Agreement shall constitute waiver of any such obligation,
right, or remedy or any other obligation, rights, or remedies under this
Agreement.

         18.4 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein shall
not be affected thereby.

         18.5 Further Action. The parties shall execute and deliver all
documents, provide all information, and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement,
including the execution and delivery to the other parties and their Affiliates
and representatives of such powers of attorney or other authorizing
documentation as is reasonably necessary or appropriate in connection with Tax
Contests (or portions thereof) under the control of such other parties in
accordance with Section 9.

         18.6 Integration. This Agreement and the other agreements, including
the Distribution Agreement, being entered into concurrently herewith, constitute
the entire agreement among the parties pertaining to the subject matter hereof
and thereof and supersedes all prior agreements and understandings pertaining
thereto.

         18.7 Construction. The language in all parts of this Agreement shall in
all cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.



                                       22
<PAGE>   23

         18.8 No Double Recovery Subrogation. No provision of this Agreement
shall be construed to provide an indemnity or other recovery for any costs.
damages. or other amounts for which the damaged party has been fully compensated
under any other provision of this Agreement or under any other agreement or
action at law or equity. Unless expressly required in this Agreement. a party
shall not be required to exhaust all remedies available under other agreements
or at law or equity before recovering under the remedies provided in this
Agreement. Subject to any limitations provided in this Agreement (for example.
the limitation on filing claims for refund in Section 4.7), the indemnifying
party shall be subrogated to all rights of the indemnified party for recovery
from any third party.

         18.9 Counterparts. This Agreement may be executed in two or more
counterparts. each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.

         18.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed in that State.

         IN WITNESS WHEREOF. the parties have caused this Agreement to be
executed by their respective officers as of the date first written above.


                                          Daisytek International Corporation


                                          By:
                                             -----------------------------------
                                             Name:
                                             Title:


                                          PFSweb, Inc.


                                          By:
                                             -----------------------------------
                                             Name:
                                             Title:


                                       23

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