Exhibit 10.1
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OPERATING AGREEMENT
OF
MZ PUT JV, LLC
ORGANIZED UNDER THE OHIO LIMITED
LIABILITY COMPANY ACT
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TABLE OF CONTENTS
PAGE
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ARTICLE I ORGANIZATIONAL MATTERS; DEFINITIONS............................................................1
1.1.....................................................................................Name 1
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1.2.....................................................................Effective Date; Term 1
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1.3.........................................................Office; Place of Business; Agent 2
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1.4..............................................................................Definitions 2
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ARTICLE II PURPOSE; MAZEL PUT RIGHT; ACQUISITION OF EXCESS GOODS.........................................2
2.1..................................................................................Purpose 2
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2.2.............................................................................Excess Goods 2
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2.3..............................................................Acquisition of Excess Goods 3
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ARTICLE III MEMBERS; RIGHTS OF AND LIMITATIONS ON MEMBERS................................................4
3.1..................................................................................Members 4
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3.2.......................................................................Additional Members 4
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3.3...................................................................Limitations On Members 5
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3.4....................................................Actions Requiring Approval of Members 5
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ARTICLE IV MANAGING MEMBERS; RIGHTS AND POWERS OF MANAGING...............................................6
MEMBERS..................................................................................................6
4.1.........................................................................Managing Members 6
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4.2........................................................................Rights and Powers 6
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4.3..............................Duties of Managing Member; Not Required to Devote Full Time 7
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4.4................................................Limitations On Actions of Managing Member 9
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4.5................................................Exculpation of Managing Member; Indemnity 9
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4.6................................Reliance of Third Parties On Authority of Managing Member 10
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4.7........................................................Tax Elections; Tax Matters Member 11
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4.8..............................................................Managing Member May Compete 11
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............................................................ARTICLE V COMPANY CAPITAL; ADVANCES BY MEMBERS
12
5.1....................................................................Capital Contributions 12
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5.2........................................................No Return of Contributions; Loans 12
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ARTICLE VI FISCAL YEAR; ACCOUNTING; ALLOCATION OF PROFITS AND...........................................12
LOSSES; DISTRIBUTIONS...................................................................................12
6.1..............................................................................Fiscal Year 12
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6.2.....................................................................Method of Accounting 12
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6.3..........................................................Maintenance of Capital Accounts 12
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6.4.........................................................Allocation of Profits and Losses 13
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6.5............................................................................Distributions
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6.6...........................................Liability of Member for Return of Distribution 14
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ARTICLE VII TRANSFER OF COMPANY INTERESTS...............................................................15
7.1..........................................................No Transfer of Company Interest 15
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7.2...................................................Compliance With Securities Act of 1933 15
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7.3........................................................Sale of Interest to Other Members 15
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7.4....................................................Transfer Permitted If Members Consent 15
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7.5...........................................Admission of Transferee as Substituted Members 15
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7.6......................Allocations and Distributions With Respect to Transferred Interests 16
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ARTICLE VIII WITHDRAWAL, DEATH, INCOMPETENCY OR DISSOLUTION OF MEMBERS AND MANAGING MEMBERS.............16
8.1.....................................................................Withdrawal of Member 16
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8.2...................................................................Resignation as Manager 16
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8.3........................................Death, Bankruptcy, Liquidation, Etc., of a Member 16
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8.4...............................Death, Bankruptcy, Liquidation, Etc. of a Managing Member. 16
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8.5...................Continuation of Company by Members; Designation of New Managing Member 16
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8.6............................................................Death or Bankruptcy of Member 17
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ARTICLE IX TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY......................................17
9.1....................................................................Events of Dissolution 17
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9.2..............................................................................Liquidation 17
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9.3..........................................................Election of Liquidating Trustee 18
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9.4...............................................................................Statements 18
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ARTICLE X AMENDMENTS....................................................................................18
10.1..............................................................................Amendments 18
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ARTICLE XI DEFINITIONS, TAX PROVISIONS..................................................................19
11.1.............................................................................Definitions 19
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11.2..........................................................................Tax Provisions 20
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ARTICLE XII MISCELLANEOUS...............................................................................24
12.1.................................................................................Notices 24
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12.2........................................................No Partition of Company Property 24
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12.3...........................................................................Governing Law 24
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12.4............................................................................Counterparts 24
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12.5..........................................................Language Conventions; Captions 25
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12.6........................................................................Entire Agreement 25
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12.7....................................................................Provisions Severable 25
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12.8.......................................................................Binding Agreement 25
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SIGNATURE PAGE
SCHEDULE A
SCHEDULE B
OPERATING AGREEMENT
This Operating Agreement (the "AGREEMENT") is entered into as of this
day of 11 February, 2002, by and between MZ WHOLESALE ACQUISITION, LLC, an Ohio
limited liability company ("MZAC") and MAZEL STORES, INC., an Ohio corporation
("MAZEL"). MZAC and Mazel are hereinafter referred to individually as a "MEMBER"
and collectively with any other individuals or entities who hereinafter become
parties hereto by purchasing membership interests of this company as the
"MEMBERS."
RECITALS:
WHEREAS, MZAC and Mazel have entered into that certain Asset Purchase
Agreement, dated as of February 11, 2002, for the purchase by MZAC of Mazel's
wholesale business (the "ASSET PURCHASE
AGREEMENT");
WHEREAS, pursuant to Section 6.7 ("Covenant Not-To-Compete") of the
Asset Purchase Agreement, and as more specifically described therein, Mazel has
agreed not to compete with MZAC's wholesale business, subject to certain
exceptions provided therein, and MZAC and Mazel have agreed to form this limited
liability company to purchase from time to time the Excess Goods (defined below)
from Mazel upon such terms and conditions as are more fully described below; and
WHEREAS, this Agreement evidences the mutual agreement of the Members
in consideration of their contributions and promises each to the others, for the
purpose of forming a limited liability company pursuant to the Ohio Limited
Liability Company Act, Chapter 1705 of the Ohio Revised Code, as the same may be
amended from time to time (the "ACT").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, the Members agree as follows:
ARTICLE I
ORGANIZATIONAL MATTERS; DEFINITIONS
1.1 NAME. The name of the limited liability company formed hereunder
(the "COMPANY") is the name stated on the cover page of this Agreement. The
Managing Member may change the name of the Company at any time and from time to
time and may also operate the business at the same time under one or more
fictitious names.
1.2 EFFECTIVE DATE; TERM. This Agreement shall become effective on the
later to occur of (i) the date that an executed copy of the Articles of
Organization required by Section 1705.04 of the Act ("ARTICLES") shall have been
filed in the office of the Secretary of State of Ohio, or (ii) the date hereof,
and shall continue until terminated in accordance with Article IX upon the
earlier of (i) the acquisition of a majority of the stock or assets of Mazel by
a third party or (ii) February , 2005 (subsections (i) and (ii) hereof being
"TERMINATION EVENTS").
1.3 OFFICE; PLACE OF BUSINESS; AGENT. The location of the principal
office of the Company ("OFFICE") shall be as indicated on Schedule A attached
hereto, which Office may but need not be located in Ohio. The Managing Member
may change the location of the Office, establish additional offices or places of
business of the Company or enter into such contracts or hire such agents in such
other locations, inside and outside of the State of Ohio, as it deems necessary
or desirable in the conduct of the business of the Company. The agent of the
Company for service of process, as required by Section 1705.06 of the Act, shall
be as indicated on Schedule A.
1.4 DEFINITIONS. Capitalized terms used in this Agreement shall have
the meanings as defined throughout the text of this Agreement, except as
otherwise identified herein. A list of such definitions is contained in Section
11.1.
ARTICLE II
PURPOSE; MAZEL PUT RIGHT; ACQUISITION OF EXCESS GOODS
2.1 PURPOSE. The nature of the business and of the purposes to be
conducted and promoted by the Company is to engage solely in the following
activities: (i) to own, hold, sell, assign, transfer, finance, pledge and
otherwise deal with the Excess Goods in accordance with the provisions of this
Article II; (ii) to engage in such other lawful activities as permitted by the
applicable laws and statutes of the State of Ohio as are incidental, necessary
or appropriate to the foregoing; and (iii) to exercise all powers enumerated in
the Act necessary, advisable or convenient to the conduct, promotion or
attainment of the business or purposes otherwise set forth herein.
Notwithstanding anything contained herein to the contrary, (i) the Company shall
not engage in any business, and it shall have no purpose, unrelated to the
acquisition
and sale, assignment or transfer of the Excess Goods and shall
not acquire any real property or own assets other than those
related to the Excess Goods and/or otherwise in furtherance of
the purposes of the Company, and (ii) all property owned by
the Company shall be owned by the Company as an entity and,
insofar as permitted by applicable law, no Member or Manager
shall have any ownership interest in any Company property in
its individual name or right and each membership or other
ownership interest in the Company shall be personal property
for all purposes. While it is understood that not all
transactions may make a profit, the Members agree that the
purpose of this Company is for the profitable sale of Excess
Goods.
2.2 EXCESS GOODS For purposes hereof, Excess Goods shall mean the
excess quantity of any close-out goods of a category regularly carried by MZAC
in its business intended to be purchased by Mazel in a quantity greater than
Mazel anticipates needing for its retail purposes; provided, however, that under
no circumstances shall Excess Goods include any goods the cost of which would
require the Company to expend more than $3.5 million in any calendar year for
the acquisition of Excess Goods, unless consented to by all of the Members in
their sole discretion which consent may be unreasonably withheld.
2.3 ACQUISITION OF EXCESS GOODS At Mazel's election, until the
occurrence of a Termination Event, Mazel may "put" any Excess Goods to the
Company, in which event Mazel may either (i) complete the purchase of such
Excess Goods and, within three (3) business days, sell them to the Company at
the same price at which such Excess Goods were acquired by Mazel plus directly
related costs or (ii) require that the Company directly purchase the Excess
Goods. In either event, Mazel shall execute a Purchase Order for the Excess
Goods and shall send a copy of such Purchase Order to the Managing Member by
Federal Express or other recognized overnight delivery service, next day
delivery. Within three (3) business days after Mazel sends said Purchase Order
to the Managing Member, the Members shall deposit with the Company such amount
as is necessary to acquire the Excess Goods in an amount proportionate to such
Member's Percentage Interest in the Company. Each Party shall provide proof of
such funding to the other Party. All such deposits by the Members shall
constitute contributions of additional capital to the Company and the Managing
Member shall reflect such contributions on the books and records of the Company.
(a) The Excess Goods shall be stored and processed in MZAC's
warehouse, the actual costs and expenses of which shall be charged to
the Company; provided, however, that such costs shall not exceed twenty
percent (20%) of the sales proceeds of the Excess Goods ("Processing
Charges"). The items of expense comprising the Processing Charges and
the method of calculating and allocating the Processing Charges are set
forth in Schedule B hereto.
(b) Notwithstanding the provisions of subsection (a) above,
either Member may elect upon written direction to the other Member to
warehouse and process the Excess Goods in a public warehouse upon such
terms as are commercially reasonable. The Company shall pay the costs
of warehousing and processing the Excess Goods and in such event, MZAC
shall not be entitled to any Processing Charges with respect to said
Excess Goods. Within three (3) business days after notice from such
electing Member of such election, each of the Members shall deposit
with the Company their respective proportionate share, based on such
Member's Percentage Interest in the Company, of any expenses to be
incurred by or charged to the Company in connection with the public
warehousing and processing of the Excess Goods. All such deposits by
the Members shall constitute contributions of additional capital to the
Company and the Managing Member shall reflect such contributions on the
books and records of the Company.
(c) Notwithstanding anything in this Agreement to the
contrary, this Section 2.3 is intended solely for the benefit of the
Company and the Members, and no the third party (including creditors of
the Company or any individual or entity asserting any claim against the
Company or any of the Members), shall have any right to enforce the
provisions of this Section 2.3, to require the Members to contribute
additional capital to the Company, to require either Member to demand
that the other Member contribute additional capital to the Company or
to purchase or sell an interest in the Company.
2.4 DEFAULT.
(a) Subject to Section 2.4(b) below, in the event either
Member shall fail to deposit its proportionate share of the acquisition costs of
any Excess Goods within the three (3) business days provided for in Section 2.3
above, and such default shall continue for a period of five (5) days after
written notice of such default by the non-defaulting Member to the defaulting
Member, the non-defaulting Member shall be immediately and permanently relieved
of its obligations not to compete under Section 6.7 of the Asset Purchase
Agreement. In addition, if MZAC is the non-defaulting Member, MAZEL shall
forfeit its "put" rights herein with respect to any future Purchase Orders.
(b) In the event that MZAC shall fail to deposit its
proportionate share of the acquisition costs of any Excess Goods in accordance
with Section 2.3 hereof because MZAC considers such goods to be nonconforming
thus causing them not to constitute Excess Goods, MZAC shall give notice to
Mazel within five (5) days after delivery by Mazel to MZAC of notice of default
as provided in (a) above, that it desires a determination on whether such goods
constitute Excess Goods to be settled by arbitration conducted in accordance
with Section 10.9 of the Asset Purchase Agreement. In such event, the Parties
shall cause such arbitration to take place within thirty (30) days of the date
of such notice from MZAC (or as soon thereafter as practicable), and if it shall
be finally and conclusively determined in such arbitration proceeding that the
goods constitute Excess Goods, then Mazel shall be immediately and permanently
relieved of its obligations not to compete under Section 6.7 of the Asset
Purchase Agreement. In the event that it shall be finally and conclusively
determined in such arbitration proceeding that the goods do not constitute
Excess Goods, then MZAC shall be deemed to have been within its rights not to
fund the requested Purchase Order, and Mazel shall forfeit its "put" rights
herein with respect to any future Purchase Orders.
(c) The remedies provided for in this Section 2.4 shall be cumulative
and shall be in addition to every other right, power and remedy specifically
given in this Agreement or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically given
in this Agreement or otherwise existing may be exercised from time to time and
as often and in such order as is determined by the non-defaulting Member or the
Company, as the case may be, and the exercise or the beginning of the exercise
of any power or remedy shall not be construed to be a waiver of the right to
exercise at the same time or thereafter any right, power or remedy. Without
limiting the foregoing, MZAC agrees that in the event that MZAC wrongfully fails
to fund its obligations hereunder, MAZEL shall be entitled to damages for lost
anticipated profits with respect to the goods which MAZEL would otherwise have
purchased.
ARTICLE III
MEMBERS; RIGHTS OF AND LIMITATIONS ON MEMBERS
3.1 MEMBERS. The Members of the Company shall be those persons or
entities identified as such on Schedule A, as such Schedule shall be amended
from time to time. The names and addresses of the Members, the amount of their
contribution to the capital of the Company, the number of Units credited to each
Member and their Percentage Interests are set forth in Schedule A.
3.2 ADDITIONAL MEMBERS. Additional Members may be admitted to the
Company only as provided in this Agreement. The transferee of the interest in
the Company of an existing Member shall not become a Member until admitted as a
substituted Member pursuant to Section 7.5.
3.3 LIMITATIONS ON MEMBERS. No Member shall have the right:
(a) To take part in the control of the Company business or to
sign for or to bind the Company, except for any Member who is also a
Managing Member;
(b) To have his capital contribution repaid except to the
extent provided in this Agreement;
(c) To withdraw from the Company;
(d) To require partition of Company property or to compel any
sale or appraisement of Company assets or sale of a deceased Member's
interest therein; or
(e) To sell or assign his interest in the Company or to
constitute the vendee or assignee thereunder a substituted Member,
except as provided in Article VII hereof.
3.4 ACTIONS REQUIRING APPROVAL OF MEMBERS. The Managing Member shall
not take the following actions on behalf of the Company unless such actions are
approved by Members owning one hundred percent (100%) of the total Units
allocated to all the Members:
(a) sell, transfer, exchange or otherwise dispose of, or
lease, mortgage, pledge or merge, any of the Company's properties,
other than the Excess Goods;
(b) change the primary character of the business of the
Company;
(c) assign the property of the Company in trust for creditors
or on the assignee's promise to pay the debts of the Company;
(d) dispose of the good will of the business of the Company;
(e) do any other act that would make it impossible to carry on
the ordinary business of the Company;
(f) borrow money or otherwise cause the Company to incur debt,
or pledge or mortgage Company assets to secure the repayment of
borrowed sums;
(g) hire employees or obtain the services of independent
contractors or consultants, including the selection of a firm of
independent certified public accountants to perform an annual audit and
issue an opinion letter with respect to the financial statements of the
Company or the selection of a firm of attorneys;
(h) enter into transactions of any kind with any Member or any
Affiliate of any Member;
(i) compromise, arbitrate or otherwise settle or adjust claims
in favor of or against the Company and commence or defend litigation
with respect to the Company or any assets of the Company, all or any of
the above matters being at the expense of the Company;
(j) confess a judgment;
(k) submit a claim or liability of the Company to arbitration
or reference;
(l) admit additional or substitute Members;
(m) decide on the amount and timing of all distributions to
Members;
(n) make any capital expenditures, including any related
series of transactions, other than those made in the ordinary course of
business;
(o) make any loans or extend any credit, except to customers
in the ordinary course of business;
(p) enter into or amend any management contract, license
agreement, lease or other
material contract other than in the ordinary course of the acquisition,
management and disposition of Excess Goods;
(q) sell Excess Goods at a loss subject, however, to the terms
and conditions of Section 4.4(b); and
(r) establish reserves in excess of the amount contemplated in
Section 6.5.
ARTICLE IV
MANAGING MEMBER; RIGHTS AND POWERS OF MANAGING
MEMBERS
4.1 MANAGING MEMBER. The Managing Member ("MANAGING MEMBER") of the
Company shall be that Member identified as such on Schedule A, as such Schedule
shall be amended from time to time. The Managing Member shall have full,
exclusive and complete authority and control in the management of the Company
business with all rights and powers generally conferred by law or necessary or
advisable and consistent therewith and with the provisions of this Agreement.
4.2 RIGHTS AND POWERS. Subject to the limitations, if any, contained in
Section 4.4, the rights and powers of the Managing Member, by way of
illustration but not by way of limitation, shall include the right and power to:
(a) acquire Excess Goods in accordance with Article II;
(b) take any and all actions with respect to the acquisition,
management or disposition of Excess Goods, including, without
limitation, selling and otherwise disposing of Excess Goods, and
negotiation and execution of contracts in connection therewith;
(c) execute any and all other instruments and perform any acts
determined to be necessary or advisable to carry out the intentions and
purposes of the Company;
(d) invest Company funds in bank savings accounts, savings and
loan associations, commercial paper, government securities,
certificates of deposit, bankers' acceptances and other
interest-bearing obligations, and deposit, withdraw, pay, retain and
distribute Company funds in any manner consistent with the provisions
of this Agreement;
(e) perform any and all acts necessary to pay any and all
organizational expense incurred in the creation of the Company and in
raising additional capital, including without limitation broker's
commissions, legal and accounting fees (it being understood that all
expenses incurred in the creation of the Company and the commencement
of the Company business shall be borne by the Company); and , and
execute, acknowledge and deliver any and all instruments to effect any
and all of the foregoing;
(f) establish Company offices at such places as may be
appropriate, and otherwise arrange for the facilities necessary to
carry out the purposes and business of the Company, the cost and
expense thereof and incidental thereto to be borne by the Company;
(g) arrange for a facsimile signature for itself for the
purpose of executing such checks or other writings or legal instruments
as may be necessary or desirable in the Company business; and
(h) maintain any insurance coverage deemed necessary or
appropriate by the Managing Member, in such amounts and of such types
as shall be determined by the Managing Member, including without
limitation public liability insurance coverage and insurance covering
the indemnification by the Company provided in Section 4.5.
4.3 DUTIES OF MANAGING MEMBER; NOT REQUIRED TO DEVOTE FULL TIME. The
Managing Member shall manage or cause to be managed the affairs of the Company
and shall devote such time to the Company affairs as it shall in its discretion
exercised in good faith determine is reasonably necessary for the conduct of
such affairs, including, without limitation, utilizing its best efforts to
expeditiously dispose of the Excess Goods on commercially reasonable terms;
provided, however, that it is expressly understood and agreed that the Managing
Member shall not be required to devote its entire time or attention to the
business of the Company. In carrying out its obligations, the Managing Member
shall:
(a) Obtain and maintain such public liability, hazard and
other insurance as may be deemed necessary or appropriate by the
Managing Member;
(b) Deposit all funds of the Company in one or more separate
bank accounts with such banks or trust companies as the Managing Member
may designate (withdrawals from such bank accounts to be made upon such
signature or signatures as the Managing Member may designate);
(c) Maintain at the Office of the Company all of the
following:
(i) a current list of the full name and last known
business or residence address of each Member, separately
listing and identifying the Managing Member, set forth in
alphabetical order;
(ii) a copy of the Articles and all certificates of
amendment to it, together with executed copies of any powers
of attorney pursuant to which the Articles or any certificate
has been executed;
(iii) a copy of this Agreement, all amendments to
this Agreement, and executed copies of any written powers of
attorney pursuant to which the Agreement or amendments thereto
have been executed;
(iv) copies of the Company's federal, state and local
income tax returns and reports for the three most recent
years; and
(v) copies of any financial statements of the Company
for the three most recent years.
The records listed in this subsection shall be subject to
inspection and copying at the reasonable request and expense
of any Member (or his duly authorized representative) during
ordinary business hours;
(d) Maintain at the Office of the Company complete and
accurate records of all properties owned or leased by the Company and
complete and accurate books of account (containing such information as
shall be necessary to compute allocations and distributions), and make
such records and books of account available for inspection and copying
at the reasonable request and expense of any Member (or his duly
authorized representative) during ordinary business hours;
(e)(1) Cause to be prepared and distributed to all Members
within ten (10) days after the end of each month during the term a
statement of the preceding month's income (the final form of which
statement shall require the approval of Members owning one hundred
percent (100%) of the total Units allocated to all the Members); and
(2) Cause to be prepared and distributed to all
Members within ninety (90) days after the end of each fiscal
year the following:
(i) A statement of cash receipts and disbursements in
such fiscal year (the final form of which shall require the
approval of Members owning one hundred percent
(100%) of the total Units allocated to all the Members);
(ii) A statement of income for such year (the final
form of which shall require the approval of Members owning one
hundred percent (100%) of the total Units allocated to all the
Members);
(iii) A balance sheet as of year end (the final form
of which shall require the approval of Members owning one
hundred percent (100%) of the total Units allocated to all the
Members); and
(iv) A statement showing all information required by
the Members for preparation of their income tax returns (the
final form of which shall require the approval of Members
owning one hundred percent (100%) of the total Units allocated
to all the Members);
(f) Cause to be filed the Articles and such other certificates
and do such other acts as may be required by law to qualify and
maintain the Company as a limited liability company under the Act; and
(g) Cause Schedule A to be amended from time to time as
required by this Agreement, and upon each such amendment designate at
the top of such Schedule that it is an "Amended Schedule A" and
indicate immediately under such designation the effective date of such
amendment.
4.4 LIMITATIONS ON ACTIONS OF MANAGING MEMBER.
(a) Notwithstanding the general authority conferred on the Managing
Member pursuant to Sections 4.1 and 4.2, those actions requiring the vote of all
or some of the Members pursuant to Section 3.4 shall be taken by the Managing
Member only as authorized by that Section.
(b) In the event any Excess Goods shall not have been finally disposed
of by the Company within: (i) six (6) months after the date of acquisition of
such goods by the Company in the case of seasonal goods or (ii) one (1) year
after the date of acquisition of such goods by the Company in the case of
non-seasonal goods, then the non-Managing Member shall have the right, but not
the obligation, to direct the Managing Member to lower the price at which such
Excess Goods are being offered to a price that would allow the Company to
realize aggregate sales proceeds from the sale of such Excess Goods in an amount
no less than the acquisition costs of such Excess Goods plus the Processing
Charges incurred in connection with such Excess Goods. If, in each case, such
Excess Goods shall not have been finally disposed of within an additional six
(6) months despite lowering the price as aforesaid, then the non-Managing Member
shall have the right, but not the obligation, to direct the Managing Member to
lower the price at which such Excess Goods are being offered to a price chosen
by the non-Managing Member in its sole discretion.
4.5 EXCULPATION OF MANAGING MEMBER; INDEMNITY. In carrying out its
duties hereunder, the Managing Member shall not be liable to the Company or to
any Member for its good faith actions, or failure to act, or for any errors of
judgment, or for any act or omission believed in good faith to be within the
scope of authority conferred by this Agreement, but only for its own gross
negligence or willful misconduct in the performance of its obligations under
this Agreement. Actions or omissions taken in reliance upon the advice of legal
counsel as being within the scope of authority conferred by this Agreement shall
be conclusive evidence of such good faith; however, good faith may be determined
without obtaining such advice.
The Company does hereby indemnify and hold harmless the Managing
Member, its Affiliates and their agents, officers, employees, partners, members
and directors against and from any and all losses, claims, damages, liabilities,
expenses (including legal fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative (together,
"CLAIMS"), in which the indemnified person may be involved, or
threatened to be involved, as a party or otherwise by reason of its status as
the Managing Member or an Affiliate thereof, an agent, officer, employee,
partner, member or director of the Managing Member or an Affiliate thereof, or a
person serving at the request of the Company in another entity in a similar
capacity, which relates to or arises out of the Company, its property, business
or affairs, regardless of whether the indemnified person continues to be the
Managing Member or an Affiliate thereof or their agent, officer, employee,
partner, member or director at the time any such liability or expense is paid or
incurred, if (i) the indemnified person acted in good faith and in a manner it
believed to be in or not opposed to the best interests of the Company, (ii) the
indemnified person's conduct did not constitute gross negligence or willful
misconduct, (iii) in connection with any criminal action or proceeding, the
indemnified person had no reasonable cause to believe its conduct was unlawful,
(iv) with respect to Claims by or in the right of the Company, the indemnified
person is not adjudged to be negligent or liable for misconduct, unless a court
determines pursuant to Section 1705.32(B) of the Act that indemnification is
nonetheless appropriate, and (v) the standards set forth in clauses (i) and
(ii), and, if applicable, (iii) and (iv), are met as determined in each case by
(w) a majority vote of a quorum of Managing Member who are not parties to or
threatened to be made parties to the Claims in issue, (x) by independent legal
counsel as described in Sectopm 1705.32(D)(1)(b) of the Act, (y) by all the
Members, or (z) by an appropriate court as provided in Section 1705.32(D)(1)(d)
of the Act. Notwithstanding clauses (iii) and (iv), an indemnified person shall
be eligible for indemnification hereunder to the extent it has been successful
on the merits with respect to any Claim. In no event shall any Member be
required to make an additional capital contribution to carry out this
indemnification provision.
An Affiliate of any person ("AFFILIATE") means (i) any person directly
or indirectly owning, controlling or holding the power to vote ten percent or
more of the outstanding voting securities of the specified person; (ii) any
person ten percent or more of whose outstanding voting securities is directly or
indirectly owned, controlled or held with power to vote by the specified person;
(iii) any person directly or indirectly controlling, controlled by, or under
control with a specified person; (iv) any officer, partner, member or director
of the specified person; and (v) any person of which the specified person is an
officer, director or partner.
4.6 RELIANCE OF THIRD PARTIES ON AUTHORITY OF MANAGING MEMBER. No
financial institution or any other person, firm or corporation dealing with any
Managing Member shall be required to ascertain whether such Managing Member is
acting in accordance with this Agreement, but such financial institution or such
other person, firm or corporation shall be protected in relying solely upon the
acts and assurances of and the execution of any instruments by such Managing
Member.
4.7 TAX ELECTIONS; TAX MATTERS MEMBER. The Members, acting jointly,
shall make and determine all options and elections with respect to the Internal
Revenue Code of 1986, as amended from time to time (the "CODE") and Treasury
Regulations ("TREASURY REGULATIONS" or "TREAS. REG.") issued thereunder. As an
example of, but not in limitation of, the general authority conferred by the
preceding sentence, the Members, acting jointly, shall determine whether and
when to make or revoke the election under Code Section 754. The Members, acting
jointly, shall be the "tax matters partner" (as defined in Code Section 6231)
and are authorized and required to represent the Company (at the Company's
expense) in connection with all examinations of the Company's affairs by tax
authorities, and to expend Company funds for professional services and costs
associated therewith. The tax matters partner shall provide all notices and
perform all acts required of a tax matters partner under Subchapter C of Chapter
63 of the Code. The Members shall take any action that they determine to be
necessary to comply with the requirements of Code Sections 1441, 1442, 1445 or
1446 with respect to withholding certain amounts with respect to payments or
distributions to a Member who is not a U.S. person (as defined in Code Section
7701) or withholding of certain amounts with respect to the sale of a "United
States real property interest" (as defined in Code Section 897).
4.8 MANAGING MEMBER MAY COMPETE. The Members hereby acknowledge that
the Managing Member may from time to time engage in business enterprises similar
to the business of the Company and competitive with the business of the Company
without restriction and with no obligation to account to the Company or to the
Members for such activities. The Managing Member is not obligated to offer
business opportunities to the Company.
ARTICLE V
COMPANY CAPITAL; ADVANCES BY MEMBERS
5.1 CAPITAL CONTRIBUTIONS. Upon execution of this Agreement, the
Members have contributed to the capital of the Company the money or property
listed in Schedule A. The capital contributions listed on Schedule A (together
with any additional contributions to the capital of the Company permitted or
required under this Agreement, the "CAPITAL CONTRIBUTIONS") shall be credited to
the Members' Capital Accounts maintained by the Company in accordance with
Section 6.3. The Members shall have no obligation to make additional Capital
Contributions to the Company except as set forth in Section 2.3. No interest
shall be paid on Capital Contributions.
5.2 NO RETURN OF CONTRIBUTIONS; LOANS. Anything in this Agreement to
the contrary notwithstanding, no Member shall be personally liable for the
return of the capital contribution of any other Member, or any portion thereof,
it being expressly understood that any such return shall be made solely from
Company assets. A Member shall not have the right to demand or receive property
other than cash in return for his contribution, unless he so requests and the
Managing Member approves such request. If the Managing Member or any Member
shall advance any monies to the Company in excess of his contribution to the
capital of the Company, the amount of any such advance shall not be deemed to be
an additional capital contribution unless specifically so characterized, but
instead shall be treated as a loan and shall bear interest at the minimum rate
required to avoid the imputation of interest under Code Section 7872 (whether or
not such Section applies to the loan) and shall be an obligation of the Company
to such Member payable in accordance with the other terms of such advance prior
to payment of any cash distribution pursuant to Article VI and, in the case of
liquidation, in accordance with the provisions of Section 9.2.
ARTICLE VI
FISCAL YEAR; ACCOUNTING; ALLOCATION OF PROFITS AND
LOSSES; DISTRIBUTIONS
6.1 FISCAL YEAR. The fiscal year of the Company shall be the calendar
year.
6.2 METHOD OF ACCOUNTING. The Company books shall be kept in accordance
with generally accepted accounting principles applied in a manner consistent
with the past practices of the Members.
6.3 MAINTENANCE OF CAPITAL ACCOUNTS. A capital account ("CAPITAL
ACCOUNT") shall be maintained by the Company for each Member in accordance with
Treas. Reg. Section 1.704-1(b)(2)(iv). The initial amount credited to the
Capital Account of each Member shall be the amount of such Member's Capital
Contribution. The Capital Account of each Member shall also be (i) credited with
the amount of any additional Capital Contributions made by such Member and any
deemed contributions, (ii) credited with the amount of any Profits and any other
items of income or gain allocated to such Member, (iii) debited by the amount of
any Losses and any other items of loss or deduction allocated to such Member,
and (iv) debited with the amount of all actual and deemed distributions made to
such Member. Any contribution or distribution of property in kind shall be
credited or debited, respectively, in an amount equal to the Carrying Value of
such property, net of liabilities secured by such property that the Company or a
Member, respectively, is considered to assume or take subject to under Code
Section 752. Upon adjustment to the adjusted tax basis of Company property
pursuant to Code Sections 732, 734 or 743, the Capital Accounts of the Members
shall be adjusted as provided in Treas. Reg. Section 1.704-1(b)(2)(iv)(m).
6.4 ALLOCATION OF PROFITS AND LOSSES.
(a) Profits shall be allocated to the Members as follows:
(i) FIRST, to those Members who have deficit balances
in their Capital Accounts, pro rata in proportion to such
deficit balances, until such deficit balances have been
eliminated and the balances in their Capital Accounts have
been restored to zero;
and
(ii) THEREAFTER, in accordance with the Members'
Percentage Interests. The term "PERCENTAGE INTERESTS" shall
mean the percentage interest of any Member in the Company
determined by dividing the number of Units held by such Member
by all outstanding Units of Company interest. "UNITS" is a
term used in this Agreement for purposes of making allocations
and determining certain votes; the Units allocated to each
Member is indicated on Schedule A. Units shall not represent a
Member's interest in the capital of the Company, which is
determined solely by a Member's Capital Account.
(iii) Losses shall be allocated to the Members in
accordance with their Percentage Interests.
(iv) The special allocations set forth in Section
11.2 shall be made prior to the allocations under this
Section.
(v) "PROFITS" and "LOSSES" shall mean an amount equal
to the Company's taxable income or loss, respectively, for any
period from all sources, determined in accordance with Code
Section 703(a), adjusted in the following manner: (i) the
income of the Company that is exempt from federal income tax
or not otherwise taken into account in computing Profits and
Losses pursuant to this definition shall be added to such
taxable income or loss; (ii) any expenditures of the Company
described in Code Section 705(a)(2)(B) or treated as described
in such Section pursuant to Treas. Reg. Section
1.704-1(b)(2)(iv)(i) or not otherwise taken into account in
computing Profits or Losses pursuant to this definition shall
be subtracted from such taxable income or loss; (iii) in the
event the Carrying Value of any Company asset is adjusted
pursuant to Section 11.2(c)(ii), (iii) or (iv) hereof, the
amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of
computing Profits and Losses; (iv) gain or loss resulting from
the disposition of an asset shall be computed by reference to
the Carrying Value of such asset; (v) a deduction for
Depreciation shall be taken in lieu of a deduction for
depreciation, amortization or cost recovery allowable for
federal income tax purposes for such fiscal year; (vi) to the
extent an adjustment under Code Section 734(b) is required by
Treas. Reg. Section 1.704-1(b)(2)(iv)(m)(4) to be taken into
account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's interest,
the amount of such item shall be treated as an item of gain or
loss from the disposition of the asset and shall be taken into
account for purposes of computing Profits or Losses; and (vii)
any items that are specially allocated pursuant to Section
11.2 shall not be taken into account in computing Profits and
Losses. "DEPRECIATION" shall mean, for each fiscal year, an
amount equal to the depreciation, amortization or cost
recovery deduction allowable for federal income tax purposes
for such fiscal year, unless the Carrying Value for an asset
differs from the adjusted basis of such asset for federal
income tax purposes, in which case Depreciation shall mean an
amount that bears the same ratio to the beginning Carrying
Value as the depreciation, amortization or cost recovery
deduction bears to the beginning adjusted tax basis, provided,
however that if the adjusted basis of an asset is zero at the
beginning of a fiscal year, Depreciation shall be determined
by the Managing Member by using any reasonable method.
6.5 DISTRIBUTIONS. Except in connection with the liquidation of the
Company, in which case all distributions shall be made in accordance with
Article IX, distributions shall be made to the Members no less than monthly in
accordance with the Members' Percentage Interests in the Company as follows: by
no later than the tenth (10th) day of the month following the receipt of sales
proceeds, the Managing Member shall cause the Company to distribute to the
Members an amount equal to the sales proceeds for the prior month less an amount
equal to the sum of (i) Processing Charges ( to the extent not already paid),
and (ii) Reasonable Reserves (defined as reserves needed for the operations of
the Company as reasonably determined by the Managing Member), provided in no
event shall Reasonable Reserves exceed at any point
in time 10% of the then most recent six months' gross revenue without the
approval of the Members. Unless otherwise agreed to by both Members, and except
as set forth in this Section 6.5 or in connection with the liquidation of the
Company, no Member has the right to demand or receive distributions.
6.6 LIABILITY OF MEMBER FOR RETURN OF DISTRIBUTION. Each Member
understands that if it receives cash or other property in violation of Section
1705.23 of the Act, it may be liable to the Company for two years for the return
of such amount pursuant to such Section.
ARTICLE VII
TRANSFER OF COMPANY INTERESTS
7.1 NO TRANSFER OF COMPANY INTEREST. Except as specifically provided in
this Agreement, no Member may sell, assign, or in any manner transfer all or any
part of its interest in the Company.
7.2 COMPLIANCE WITH SECURITIES ACT OF 1933. No Member's interest in the
Company has been registered under the Securities Act of 1933 in reliance upon
the exemption provided in Section 4(2) of such act. Notwithstanding any other
provisions in this Agreement, no interest in the Company of a Member may be
offered for sale, sold, transferred or otherwise disposed of unless, at the
expense of the transferring Member, the Company has received an opinion of
counsel for the Company or counsel acceptable to its counsel, to the effect that
such transfer is exempt from registration under the Securities Act of 1933 and
is in compliance with all applicable federal and state securities laws and
regulations. The Managing Member may, in its sole discretion, waive the
requirements of this Section with respect to the transfer of any interest, but
any such waiver shall not constitute a waiver of any subsequent transfer of such
interest or the transfer of any other interest.
7.3 SALE OF INTEREST TO OTHER MEMBERS. Any Member may sell, assign or
otherwise transfer all or any part of its interest in the Company to another
Member, at such price and on such other terms as the parties may agree.
7.4 TRANSFER PERMITTED IF MEMBERS CONSENT. A Member may transfer its
interest in the Company to any person with the approval of the Members owning
100 percent of the total Units allocated to all the Members, which approval may
be arbitrarily withheld. Such approval of the transfer of any interest by the
Members shall not constitute approval of any subsequent transfer of such
interest or the transfer of any other interest or approval of admission of the
transferee as a Member in the Company.
7.5 ADMISSION OF TRANSFEREE AS SUBSTITUTED MEMBERS. An assignee of a
Member's interest in the Company shall not become a substituted Member unless
and until the Members owning 100 percent of the total Units allocated to all the
Members consent in writing to such substitution, which consent may be
arbitrarily withheld. If the Members do not consent to the substitution of an
assignee of a Member's interest in the Company, the transferor Member shall not
retain any rights of a member under the Act. An assignee of a Member's interest
in the Company who is not admitted as a substituted Member under this Section
shall not be entitled to: (i) require any accounting of the Company's
transactions; (ii) inspect the Company's books and records; (iii) require any
information from the Company; or (iv) exercise any privilege or right of a
Member which is not specifically granted to a non-substituted transferee of a
limited liability company interest under the Act.
7.6 ALLOCATIONS AND DISTRIBUTIONS WITH RESPECT TO TRANSFERRED
INTERESTS. If any transfer of an interest in the Company permitted by this
Agreement occurs during a fiscal year (whether or not the assignee is admitted
as a substituted Member), then all allocations of Profits and Losses
attributable to the transferred interest for such year shall be divided and
allocated between the transferor and the transferee by taking into account their
varying interests during such fiscal period, using any convention or method of
allocation selected by the Managing Member which is then permitted under Code
Section 706 and the regulations promulgated thereunder. All distributions of Net
Cash Flow made prior to the effective date of any such transfer shall be made to
the transferor and any such distributions made after the effective date of such
transfer shall be made to the transferee.
ARTICLE VIII
WITHDRAWAL, DEATH, INCOMPETENCY OR DISSOLUTION OF MEMBERS AND
MANAGING MEMBER
8.1 WITHDRAWAL OF MEMBER. A Member may not withdraw from the Company.
8.2 RESIGNATION AS MANAGER. The Managing Member may not resign as
manager of the Company.
8.3 DEATH, BANKRUPTCY, LIQUIDATION, ETC., OF A MEMBER. A Member shall
not cease to be a Member by reason of the items listed in Section 1705.15(C)
through (J) of the Act. The happening of any such event shall not operate to
cause the dissolution of the Company.
8.4 DEATH, BANKRUPTCY, LIQUIDATION, ETC. OF A MANAGING MEMBER. On the
death, bankruptcy, liquidation, dissolution, adjudication of insanity or
incompetency, or other cessation of existence of a Managing Member, the Company
shall be dissolved unless all the remaining Members pursuant to Section 8.6
elect to continue the Company.
8.5 CONTINUATION OF COMPANY BY MEMBERS; DESIGNATION OF NEW MANAGING
MEMBER. In the event that the death, bankruptcy, liquidation, dissolution,
adjudication of insanity or incompetency or other cessation of existence of a
Managing Member, the remaining Members may, by a unanimous vote, within ninety
(90) days after the date of any such event, elect to continue the Company and
designate a Managing Member or Managing Member who or which consent to and
accept designation as such. If the new Managing Member is not a Member, then
such new Managing Member shall receive Units of Company interest in exchange for
such capital contribution as the Members may designate, and the interests of all
other Members in the Company shall be proportionately reduced.
8.6 DEATH OR BANKRUPTCY OF MEMBER. Upon the death or bankruptcy of an
individual Member or the bankruptcy, dissolution or other cessation to exist as
a legal entity of a Member not an individual, and after such time as the Company
shall have received written notice thereof, the authorized representative of
such individual or entity shall have all of the rights of a Member for the
purposes of effecting the orderly winding up and disposition of the affairs of
such individual or entity.
ARTICLE IX
TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY
9.1 EVENTS OF DISSOLUTION. Upon the expiration of the term of the
Company set forth in Section 1.2 or any event described herein which causes
dissolution and the failure of the Members to elect to continue the Company, the
Company shall be dissolved and liquidated in accordance with the provisions of
this Article.
9.2 LIQUIDATION.
(a) Upon the dissolution of the Company, the then Managing
Member, or, if there be none, the Liquidating Trustee appointed
pursuant to Section 9.3, shall proceed with the liquidation of the
Company, and the liquidation proceeds shall be applied in the following
order:
(i) To creditors in order of priority as provided by
law, except for any indebtedness owing to any Member.
(ii) To the establishment of any reserves that may be
deemed by both Members or other persons having control of the
liquidation proceedings to be reasonably necessary for any
contingent or unforeseen liabilities or obligations of the
Company;
(iii) To the Members in satisfaction of any
indebtedness owing to them; and
(iv) To the Members in accordance with their positive
Capital Account balances.
(b) Upon liquidation of the Company, no Member shall be
required to contribute any amount to the Company solely because of a
deficit balance in his Capital Account and any such deficit balance
shall not for any purpose be considered an asset of the Company.
(c) For purposes of the liquidation of the Company assets, the
discharge of its liabilities and the distributions of the remaining
funds among the Members as above described, the Members jointly, or the
Liquidating Trustee, shall have the authority on behalf of the Company
to sell, convey, exchange or otherwise transfer the assets of the
Company for such consideration and upon such terms and conditions as it
deems appropriate. The Members jointly, or the Liquidating Trustee in
its sole discretion, may make distributions in kind to Members. Neither
Member shall shall have the authority to purchase any Company assets at
the appraised fair market value without the consent of both Members. A
reasonable time shall be allowed for the orderly liquidation of the
assets of the Company and the discharge of liabilities of the Company
to creditors to enable the Company to minimize normal losses during a
liquidation period. Any return of all or any portion of the
contributions made by a Member to the capital of the Company shall be
made solely from Company assets, and the Managing Member shall not be
personally liable for any such return, except to the extent provided in
the preceding subsection.
9.3 ELECTION OF LIQUIDATING TRUSTEE. In the event there is no Managing
Member at the time of dissolution, the Members shall elect, by a vote of
majority in interest of all Units, one of their members or any other person,
firm or corporation of their choice to act as liquidating trustee ("LIQUIDATING
TRUSTEE") in the liquidation of the business in accordance with the provisions
of this Article.
9.4 STATEMENTS. Each of the Members shall be furnished with a statement
prepared by the Company's accountants, which shall set forth the assets and
liabilities of the Company as of the date of complete liquidation. When the then
Managing Member, or if there be none, the Liquidating Trustee, have complied
with the distribution plan set forth in this Article, the Managing Member or the
Liquidating Trustee, as the case may be, shall execute and cause to be filed a
certificate of dissolution of the Company.
ARTICLE X
AMENDMENTS
10.1 AMENDMENTS. All amendments to this Agreement shall require the
approval of Members owning 100 percent of the total Units allocated to all
Members.
ARTICLE XI
DEFINITIONS, TAX PROVISIONS
11.1 DEFINITIONS. The capitalized terms used in this Agreement shall
have the meanings as defined in the provision referenced below, where such term
appears in boldface print. Defined terms used in only one Section of this
Agreement may not be listed below.
(a) "ACT" is defined in the recitals.
(b) "ADJUSTED CAPITAL ACCOUNT BALANCE" is defined in Section
11.2(a)(ii).
(c) "AFFILIATE" is defined in Section 4.5.
(d) "AGREEMENT" is defined in the preamble.
(e) "ARTICLES" is defined in Section 1.2.
(f) "ASSET PURCHASE AGREEMENT" is defined in the recitals.
(g) "CAPITAL ACCOUNT" is defined in Section 6.3.
(h) "CAPITAL CONTRIBUTIONS" is defined in Section 5.1.
(i) "CARRYING VALUE" is defined in Section 11.2(c)(i).
(j) "CODE" is defined in Section 4.7.
(k) "COMPANY" is defined in Section 1.1.
(l) "EXCESS GOODS" is defined in Section 2.2.
(m) "LIQUIDATING TRUSTEE" is defined in Section 9.3.
(n) "LOSSES" is defined in Section 6.4(d).
(o) "MANAGING MEMBER" is defined in Section 4.1.
(p) "MAZEL" is defined in the preamble.
(q) "MEMBER" and "MEMBERS" are defined in the preamble.
(r) "MINIMUM GAIN" is defined in Section 11.2(a)(i)(A).
(s) "MZAC" is defined in the preamble.
(t) "OFFICE" is defined in Section 1.3.
(u) "PERCENTAGE INTERESTS" is defined in Section 6.4(a)(ii).
(v) "PROFITS" is defined in Section 6.4(d).
(w) "TERMINATION EVENT" is defined in Section 1.2.
(x) "TREASURY REGULATIONS" and "TREAS. REG." are defined in
Section 4.7.
(y) "UNITS" is defined in Section 6.4(a)(ii).
11.2 TAX PROVISIONS. The following provisions apply for all purposes of
this Agreement.
(a) ALLOCATIONS REQUIRED BY TREASURY REGULATIONS.
(i) Subject to the exceptions set forth in Treas.
Reg. Sections 1.704-2(f)(2)--(5), if there is a net decrease
in Minimum Gain during any fiscal year, each Member shall be
specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal
to such Member's share of the net decrease in Minimum Gain,
determined in accordance with Treas. Reg. Section
1.704-2(g)(2). "MINIMUM GAIN" shall have the meaning set forth
in Treas. Reg. Sections 1.704-2(b)(2) and 1.704-2(d). This
paragraph is intended to comply with the minimum gain
chargeback requirement in Treas. Reg. Section 1.704-2(b)(2)
and (f) and shall be interpreted consistently therewith.
(ii) Subject to the exceptions set forth in Treas.
Reg. Section 1.704-2(i)(4), if there is a net decrease in
Member Nonrecourse Debt Minimum Gain during any fiscal year of
the Company, each Member who has a share of the Member
Nonrecourse Debt Minimum Gain, determined in accordance with
Treas. Reg. Section 1.704-2(i)(3), shall be specially
allocated items of Company income and gain for such year (and,
if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Nonrecourse Debt
Minimum Gain, determined in accordance with Treas. Reg.
Section 1.704-2(i)(5). This paragraph is intended to comply
with the minimum gain chargeback requirement in Treas. Reg.
Section 1.704-2(i)(4) and shall be interpreted consistently
therewith. "MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an
amount, with respect to each Member Nonrecourse Debt,
determined in accordance with Treas. Reg. Section 1.704-2(i)
with respect to "partner nonrecourse debt minimum gain."
"MEMBER NONRECOURSE DEBT" shall have the meaning set forth in
Treas. Reg. Section 1.704-2(b)(4) for "partner nonrecourse
debt."
(iii) In the event any Member unexpectedly receives
any adjustments, allocations or distributions described in
Treas. Reg. Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items
of Company income and gain shall be specially allocated to
such Member in an amount and manner sufficient to eliminate
the deficits in its Adjusted Capital Account Balance created
by such adjustments, allocations or distributions as quickly
as possible. This paragraph is intended to constitute a
"qualified income offset" within the meaning of Treas. Reg.
Section 1.704-1(b)(2)(ii)(d), and shall be interpreted
consistently therewith. "ADJUSTED CAPITAL ACCOUNT BALANCE"
means the balance in the Capital Account of a Member as of the
end of the relevant fiscal year of the Company, after giving
effect to the following: (a) credit to such Capital Account
any amounts the Member is obligated to restore, pursuant to
the terms of this Agreement or otherwise, or is deemed
obligated to restore pursuant to the penultimate sentences of
Treas. Reg. Sections 1.704-2(g)(1) and 1.704-2(i)(5), and (b)
debit to such capital account the items described in Treas.
Reg. Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(iv) Nonrecourse Deductions for any fiscal year or
other period shall be specially allocated to the Members in
accordance with their Percentage Interests. "NONRECOURSE
DEDUCTIONS" shall have the meaning set forth in Treas. Reg.
Section 1.704-2(b)(1). The amount of Nonrecourse Deductions
for a fiscal year of the Company equals the excess, if any, of
the net increase, if any, in the amount of Minimum Gain during
that fiscal year over the aggregate amount of any
distributions during that fiscal year of proceeds of a
Nonrecourse Liability that are allocable to an increase in
Minimum Gain, determined according to the provisions of Treas.
Reg. Section 1.704-2(c). "NONRECOURSE LIABILITY" shall have
the meaning set forth in Treas. Reg. Section 1.704-2(b)(3).
(v) Member Nonrecourse Deductions for any fiscal year
or other period shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions
are attributable in accordance with Treas. Reg. Section
1.704-2(i). "MEMBER NONRECOURSE DEDUCTIONS" shall have the
meaning set forth in Treas. Reg. Section 1.704-2(i)(2) for
"partner nonrecourse deductions." For any Company taxable
year, the amount of Member Nonrecourse Deductions with respect
to a Member Nonrecourse Debt equals the net increase during
the year, if any, in the amount of Member Nonrecourse Debt
Minimum Gain reduced (but not below zero) by proceeds of the
liability that are both attributable to the liability and
allocable to an increase in the Member Nonrecourse Debt
Minimum Gain.
(vi) The allocations set forth in Section 11.2(a) are
intended to comply with certain requirements of Treasury
Regulations promulgated under Code Section 704. Such
allocations shall be taken into account in allocating other
Profits, Losses, and items of income, gain, loss, and
deduction to each Member so that, to the extent possible, and
to the extent permitted by Treasury Regulations, the net
amount of such allocations of other Profits, Losses, and other
items and such allocations to each Member shall be equal
to the net amount that would have been allocated to each
Member if such allocations had not been made.
(b) RULES OF APPLICATION.
(i) Profits and Losses and other items of income,
gain, loss and deduction shall be allocated to the Members in
accordance with the portion of the year during which the
Members have held their respective interests. All items of
income, loss and deduction shall be considered to have been
earned ratably over the period of the fiscal year of the
Company, except that (A) gains and losses arising from the
disposition of assets shall be taken into account as of the
date thereof, and (B) with the consent of the Managing Member
and all affected parties, the preceding items may be allocated
by using an "interim closing of the books" method.
(ii) In the event the Company is entitled to a
deduction for interest imputed under any provision of the Code
on any loan or advance from a Member (whether such interest is
currently deducted, capitalized or amortized), such deduction
shall be allocated solely to such Member.
(iii) To the extent any payments in the nature of
fees paid to a Member are finally determined to be
distributions to a Member for federal income tax purposes,
there will be a gross income allocation to such Member in the
amount of such distribution.
(iv) Losses shall not be allocated to any Member to
the extent that such allocation would result in a deficit in
its Adjusted Capital Account Balance while any other Member
continues to have a positive Adjusted Capital Account Balance;
in such event Losses shall first be allocated to Members with
positive Adjusted Capital Account Balances in proportion to
such balances, until their positive Adjusted Capital Account
Balances have been reduced to zero. To the extent that any
Losses are allocated pursuant to this paragraph, Profits shall
thereafter be allocated in reverse order of such allocations
of Losses to the extent of such Losses.
(v) The allocation of Profits and Losses to any
Member shall be deemed to be an allocation to that Member of
the same proportionate part of each separate item of taxable
income, gain, loss, deduction or credit that comprises such
Profits and Losses.
(c) RULES CONCERNING CALCULATIONS OF PROFITS AND LOSSES
AND CODE SECTION 704(C) TAX ALLOCATIONS.
(i) For purposes of computing Profits and Losses
"CARRYING VALUE" shall mean (a) with respect to contributed
property, the agreed value of such property reduced (but not
below zero) by Depreciation, (b) with respect to property the
book value of which is adjusted pursuant to Treas. Reg.
Sections 1.704-1(b)(2)(iv)(d), (e) or (f), the amount
determined pursuant to Sections 11.2(c)(iii) or (iv), and (c)
with respect to any other property, the adjusted basis of such
property for federal income tax purposes as of the time of
determination.
(ii) Upon the occurrence of any of the following
events, the Carrying Value of Company property shall be
adjusted to its fair market value, as determined by the
Managing Member:
(A) The acquisition of an interest in the Company by a new or existing
Member in exchange for more than a de minimis
contribution of money or property;
(B) The distribution by the Company to a continuing or retiring Member of
more than a de minimis amount of property or money
in consideration for an interest in the Company; or
(C) The "liquidation" of the Company within the meaning of Treas. Reg.
Section 1.704-1(b)(2)(ii)(g).
The revaluation of the Company property referred to in the immediately preceding
sentence shall be made in accordance with Treas. Reg. Section
1.704-1(b)(2)(iv)(f).
(iii) Upon an issuance of additional interests in the
Company for cash or contributed property, the Carrying Value
of all Company properties shall, immediately prior to
issuance, be adjusted (consistent with the provisions hereof)
upward or downward to reflect any unrealized gain or
unrealized loss attributable to each Company property (as if
such unrealized gain or unrealized loss had been recognized
upon an actual sale of such property at the fair market value
thereof immediately prior to such issuance, and had been
allocated to the Members, at such time, pursuant to Section
6.4 of the Agreement). In determining such unrealized gain or
unrealized loss attributable to the properties, the fair
market value of Company properties shall be determined by the
Managing Member using such reasonable methods of valuation as
it may adopt.
(iv) Immediately prior to the distribution of any
Company property in liquidation of the Company or in
redemption of all or part of any Member's interest in the
Company, the Carrying Values of all Company properties shall
be adjusted (consistent with the provisions hereof) upward or
downward to reflect any unrealized gain or unrealized loss
attributable to each Company property (as if such unrealized
gain or unrealized loss had been recognized upon an actual
sale of each such property, immediately prior to such
distribution, and had been allocated to the Members, at such
time, pursuant to Section 6.4 of the Agreement). In
determining such unrealized gain or unrealized loss
attributable to the properties, the fair market value of
Company properties shall be determined by the Managing Member
using such reasonable methods of valuation as it may adopt.
(v) In accordance with Code Section 704(c) and the
regulations thereunder, income, gain, loss and deduction with
respect to any contributed property shall, solely for tax
purposes, be allocated among the Members so as to take account
of any variation between the adjusted basis of such property
to the Company for federal income tax purposes and its agreed
value, pursuant to any method permitted by the regulations and
chosen by the Managing Member.
(vi) In the event the Carrying Value of any Company
asset is adjusted as described in paragraph (iii) or (iv)
above, subsequent allocations of income, gain, loss and
deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal
income tax purposes and its Carrying Value in the same manner
as under Code Section 704(c) and the regulations thereunder.
(vii) A transferee of a Company interest will succeed
to the Capital Account relating to the Company interest
transferred.
ARTICLE XII
MISCELLANEOUS
12.1 NOTICES. Any and all notices or other communications which may be
sent to any Member shall be sent to the address listed in Schedule A, unless the
Company is notified in writing of any change of address. Notices or other
communications shall be deemed to have been given only when hand delivered or
deposited with the United States Post Office by registered or certified mail
addressed as set forth above.
12.2 NO PARTITION OF COMPANY PROPERTY. Each of the Members hereby
irrevocably waives any and all rights, duties, obligations and benefits with
respect to any action for partition of Company property
or to compel any sale thereof. Further, all rights, duties, benefits and
obligations, including inventory and appraisement of the Company assets or sale
of a deceased Member's interest therein, provision for which is made in the Act,
or on account of the operation of any other rule or law of any other
jurisdiction to compel any sale or appraisement of Company assets or sale of a
deceased Member's interest therein, are hereby waived and dispensed with and the
interest in the Company of a deceased Member shall be subject to the provisions
of this Agreement.
12.3 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
12.4 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement, notwithstanding that all of the parties are not
signatories to the original or the same counterpart, or that signature pages
from different counterparts are combined, and the signature of any party to any
counterpart shall be deemed to be a signature to and may be appended to any
other counterpart.
12.5 LANGUAGE CONVENTIONS; CAPTIONS. Words of any gender used in this
Agreement shall be held to include any other gender, and words of the singular
number shall be held to include the plural (and vice-versa), when the sense
requires. The captions to each Article and Section are inserted only as a matter
of convenience and for reference only and in no way define, limit or describe
the scope or intent of this Agreement or in any way affect it.
12.6 ENTIRE AGREEMENT. This Agreement and the Asset Purchase Agreement
(the "Asset Purchase Agreement"), of even date herewith, between Mazel Stores,
Inc. and MZ Wholesale Acquisition, LLC, contain the entire understanding between
the parties and supersedes any prior understanding and agreements between them
respecting the subject matter hereof. There are no representations, agreements,
arrangements or understandings, oral or written, between and among the parties
hereto relating to the subject matter of this Agreement which are not described
herein or in the Asset Purchase Agreement. In the event of any conflict between
the provisions of this Agreement and those contained in the Asset Purchase
Agreement, the Asset Purchase Agreement shall govern.
12.7 PROVISIONS SEVERABLE. This Agreement is intended to be performed
in accordance with and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations of the jurisdictions in which the Company does
business. If any provision of this Agreement, or the application thereof to any
person or circumstance, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
12.8 BINDING AGREEMENT. This Agreement shall be binding upon and shall
inure to the benefit of all Members and their respective legal representatives,
heirs, permitted successors and permitted assigns.
12.9 ARBITRATION. Any controversy, claim or dispute between the
Parties, directly or indirectly, concerning this Agreement or the breach hereof
shall be finally settled by arbitration conducted in accordance with Section
10.9 of the Asset Purchase Agreement.
IN WITNESS WHEREOF, the parties have entered into this Agreement and
have hereunto set their hands to multiple copies hereof to be effective as
provided in Section 1.2.
MEMBERS:
MZ WHOLESALE ACQUISITION, LLC
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------------
Name: Xxxxxx X. Xxxxxxx
------------------------------
Title: Vice President
-----------------------------
MAZEL STORES, INC.
By: /s/ Xxxxx X. Xxxxx
--------------------------------------
Name: Xxxxx X. Xxxxx
------------------------------------
Title: CEO
-----------------------------------
SCHEDULE A
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MZ PUT JV, LLC
--------------
Address of Principal Office of the Company Name and Address of Agent of the
Company for Service of Process[Address][Xxxxxx Service Corporation 0000 Xxx
Xxxxx, 000 Xxxxxx Xxxxxx Xxxxxxxxx, Xxxx 00000-0000] Name and Business Address
of MANAGING MEMBER(S) Capital CONTRIBUTION Percentage INTEREST NO. OF UNITSMZ
Wholesale Acquisition, LLC [address]$50%50 Name and Address OF OTHER MEMBER(S)
Capital CONTRIBUTION Percentage INTEREST NO. OF UNITSMazel Stores, Inc. 000
Xxxxx Xxxxxx Xxxxx Xxxxxxxxxx, XX 00000 $50%50
SCHEDULE B
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PROCESSING CHARGES
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The Processing Charges consist of:
Storage and Warehousing expenses
Administrative expenses
Order entry expenses
Customer Service expenses
Commissions
Freight
Insurance
All other costs and expenses in connection with the Company other than
accounting and legal fees and other items to the extent agreed upon by
all Members.
