EXHIBIT 10.2
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OPERATING AGREEMENT
OF
SLJ RETAIL LLC
APRIL 14, 1997
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions................................................. 1
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1.2 Rules of Construction....................................... 11
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ARTICLE II ORGANIZATIONAL MATTERS
2.1 Formation................................................. 11
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2.2 Name...................................................... 12
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2.3 Registered Agent and Office............................... 12
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2.4 Principal Place of Business............................... 12
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2.5 Term...................................................... 12
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2.6 Ownership................................................. 12
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2.7 Relationship Among Members................................ 12
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2.8 Independent Activities of Members......................... 12
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2.9 No Individual Authority................................... 12
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2.10 Qualification in Other Jurisdictions...................... 12
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ARTICLE III PURPOSE
3.1 Purposes and Scope.......................................... 13
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3.2 Powers of the Company....................................... 13
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ARTICLE IV CAPITAL CONTRIBUTIONS AND LOANS
4.1 Initial Capital Contributions.............................. 13
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4.2 Member Interests; Member Units; Percentage Interests....... 14
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4.3 Additional Capital Contributions........................... 15
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4.4 Limitations on Capital Contributions and Loans............. 15
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ARTICLE V CAPITAL ACCOUNTS AND ALLOCATIONS
5.1 Capital Accounts........................................... 15
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5.2 Interest................................................... 16
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5.3 Allocation of Profits and Losses........................... 16
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5.4 Special Allocations........................................ 18
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5.5 Curative Allocations....................................... 19
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5.6 Other Allocation Rules..................................... 19
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ARTICLE VI DISTRIBUTIONS
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6.1 Distributions.............................................. 20
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6.2 Amounts Withheld........................................... 21
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6.3 Tax Distributions.......................................... 21
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ARTICLE VII MANAGEMENT OF THE COMPANY
7.1 Appointment of Manager.................................... 21
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7.2 Management Services....................................... 22
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7.3 Rights, Obligations and Duties of the Manager............. 22
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7.4 Officers.................................................. 22
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7.5 Significant Operating Decisions........................... 23
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7.6 Budgets................................................... 26
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7.7 Reliance by Third Parties................................. 27
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7.8 Compensation of Manager................................... 27
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7.9 Company Funds............................................. 27
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7.10 Duties and Responsibilities............................... 27
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7.11 Indemnification........................................... 27
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7.12 Liability of the Manager and the Members.................. 29
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7.13 Right of the ▇▇▇▇▇▇ Member or the Advisory Board
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to Remove Manager......................................... 30
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7.14 Advisory Board............................................ 30
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ARTICLE VIII RIGHTS AND OBLIGATIONS OF MEMBERS
8.1 Management of Business..................................... 32
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8.2 Return of Capital.......................................... 32
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8.3 Partition.................................................. 32
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8.4 Resignation................................................ 32
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8.5 Proxies.................................................... 32
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ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS
9.1 Records and Accounting..................................... 33
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9.2 Reports.................................................... 33
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9.3 Notices from Senior Lender................................. 33
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ARTICLE X TAX MATTERS
10.1 Preparation of Tax Returns................................ 34
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10.2 Tax Status; Elections..................................... 34
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10.3 Tax Controversies......................................... 34
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10.4 Organizational Expenses................................... 35
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ARTICLE XI PLEDGE AND TRANSFER RESTRICTIONS;CERTAIN RIGHTS;
ADMISSION OF SUCCESSOR MEMBERS
11.1 Pledge and Transfer Restrictions......................... 35
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11.2 Transfers by ▇▇▇▇▇▇▇ Retail.............................. 35
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11.3 Transfers by ▇▇▇▇▇▇...................................... 35
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11.4 First Refusal Rights..................................... 35
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11.5 Tag Along Rights......................................... 36
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11.6 Take Along Rights........................................ 37
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11.7 Closing of Permitted Transfers........................... 38
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11.8 Rights of Assignee....................................... 39
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11.9 Admission as a Successor Member.......................... 39
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11.10 Distributions and Allocations in Respect of
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Transferred Member Interests............................. 40
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ARTICLE XII DISSOLUTION AND LIQUIDATION
12.1 No Dissolution............................................ 40
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12.2 Events Causing Dissolution................................ 40
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12.3 Continuation of the Company............................... 41
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12.4 Liquidation............................................... 41
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12.5 Reserves.................................................. 42
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12.6 Distributions in Kind..................................... 42
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12.7 Filing of Certificate of Cancellation..................... 43
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12.8 Return of Capital......................................... 43
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ARTICLE XIII GENERAL PROVISIONS
13.1 Amendment................................................ 43
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13.2 Further Action........................................... 43
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13.3 Invalidity of Provisions................................. 43
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13.4 Notices.................................................. 43
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13.5 Binding Effect........................................... 45
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13.6 Integration.............................................. 45
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13.7 No Third Party Beneficiary............................... 45
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13.8 Waiver................................................... 45
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13.9 Counterparts............................................. 45
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13.10 Entire Agreement......................................... 45
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13.11 Governing Law............................................ 45
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OPERATING AGREEMENT
OF
SLJ RETAIL LLC
THIS OPERATING AGREEMENT OF SLJ RETAIL LLC is made and entered into as of
April 14, 1997 by and between THE ▇▇▇▇▇▇ GROUP INC., a Delaware corporation, and
▇▇▇▇▇▇▇ RETAIL INC., a Delaware corporation, as Members, together with any other
Person who becomes a Member as provided herein.
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
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1.1 Definitions. The following definitions will apply to the capitalized
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terms used in this Agreement for all purposes, unless otherwise clearly
indicated to the contrary:
"Advisory Board" has the meaning set forth in Section 7.14(a).
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"Affiliate" has the meaning set forth in the Contribution Agreement.
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"Agreement" means this Operating Agreement, as it may be amended, modified,
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supplemented or restated from time to time.
"Available Cash" of the Company means, at any time, all cash funds of the
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Company on hand or available for borrowing under the Senior Revolving Loan
after: (i) payment of all expenses of the Company that are due and payable as of
such time; (ii) provision for payment of all expenses of the Company that are
anticipated to become due and payable within thirty days following such time;
and (iii) provision for adequate reserves (working capital and/or capital), as
determined by the Manager.
"Book Value" means, for any asset, the asset's adjusted basis for federal
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income tax purposes, except as follows:
(a) The initial Book Value of any asset contributed by a Member to the
Company will be the gross fair market value of such asset on the date of
contribution, as reasonably determined by the Manager (with the consent of the
Required Members).
(b) The Book Values of all Company assets will be adjusted to equal their
respective gross fair market values, as determined by the Manager (with the
consent of the Required Members), as of the following times: (i) the acquisition
of an additional interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution if the Manager (with
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the consent of the Required Members) reasonably determines that such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Members in the Company; (ii) the distribution by the Company to
a Member of more than a de minimis amount of Company property as consideration
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for an interest in the Company if the Manager (with the consent of the Required
Members) reasonably determines that such adjustment is necessary or appropriate
to reflect the relative economic interests of the Members in the Company; and
(iii) the liquidation of the Company within the meaning of Tax Regulations
Section 1.704-1(b)(2)(ii)(g). Notwithstanding the foregoing, absent the consent
of the Required Members (which consent may be given or withheld for any reason
or no reason) the Book Values of Company assets shall not be adjusted upon the
exercise of the ▇▇▇▇▇▇ Exchange Rights or the ▇▇▇▇▇▇▇ Option Rights.
(c) The Book Value of any Company asset distributed to any Member will be
adjusted to equal the gross fair market value of such asset on the date of
distribution, as reasonably determined by the Manager (with the consent of the
Required Members).
(d) The Book Value of Company assets will be increased (or decreased) to
reflect any adjustment to the adjusted basis of such assets pursuant to Code
Section 734(b) or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Tax Regulations Section 1.704-1(b)(2)(iv)(m), paragraph (f) of the definition of
Profits and Losses and Section 5.4(d); provided that Book Value will not be
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adjusted pursuant to this paragraph (d) to the extent the Manager (with the
consent of the Required Members) determines that an adjustment pursuant to
paragraph (b) is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this paragraph (d).
"Budget" has the meaning set forth in Section 7.6(a).
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"Business Day" means any day that is not a Saturday or Sunday or a day on
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which banks are required or permitted to be closed in the States of New York or
Massachusetts.
"▇▇▇▇▇▇" means The ▇▇▇▇▇▇ Group Inc., a Delaware corporation, and its
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successors and assigns pursuant to any Transfer permitted hereunder.
"▇▇▇▇▇▇ Cashout Event" means the later to occur of (a) the release by the
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Senior Agent of the GE Capital Guaranty; and (b) either (i) the payment in full
of the Subordinated Notes; or (ii) the closing of the first exercise by ▇▇▇▇▇▇
of its rights under Section 2.2 of the Option Agreement.
"▇▇▇▇▇▇ Exchange Rights" means the right of ▇▇▇▇▇▇ to exchange the 4,500
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Class A Member Units initially issued to it hereunder, together with the entire
principal amount of the Subordinated Loan, for 4,500 Class B Member Units
pursuant to Section 2.1 of the Option Agreement.
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"▇▇▇▇▇▇ Member" means, at any time, (a) ▇▇▇▇▇▇, if ▇▇▇▇▇▇ is a Member at
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such time, and (b) if ▇▇▇▇▇▇ is not a Member at such time, any transferee
pursuant to any Transfer permitted hereunder of all of the Member Units
originally held by ▇▇▇▇▇▇ hereunder or issued upon the exercise of the ▇▇▇▇▇▇
Exchange Rights.
"Capital Account" means, with respect to any Member, the capital account
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maintained for such Member in accordance with the following provisions:
(a) Such Capital Account will be increased by such Member's Capital
Contributions, such Member's allocable share of Profits and any items in the
nature of income or gain that are specifically allocated to such Member pursuant
to Sections 5.4 and 5.5, and the amount of any Company liabilities assumed by
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such Member or which are secured by any property distributed to such Member.
(b) Such Capital Account will be decreased by the cash amount or Book Value
of any property distributed to such Member pursuant to this Agreement, such
Member's allocable share of Losses and any items in the nature of deductions or
losses that are specially allocated to such Member pursuant to Sections 5.4 and
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5.5, and the amount of any liabilities of the Member assumed by the Company or
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for the satisfaction of which recourse may be made to any property contributed
by such Member to the Company.
(c) In the event all or a portion of a Member Interest is Transferred in
accordance with the terms of this Agreement, the transferee will succeed to the
Capital Account of the transferor to the extent it relates to the Transferred
Member Interest; provided that if the Transfer causes a termination of the
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Company under Code Section 708(b)(1)(B), the assets of the Company will be
deemed to have been distributed in liquidation of the Company to the Members
(including the transferee of the Member Interest) pursuant to Sections 12.4 and
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12.6 of this Agreement and recontributed by such Members and transferees in
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reconstitution of the Company, or the assets of the Company will be deemed to
have been transferred to a new partnership the interests in which will be deemed
to have been distributed to the Members (including the transferee of the Member
Interest) pursuant to Sections 12.4 and 12.6, in either case as required by then
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applicable Tax Regulations. Such deemed liquidation and reconstitution will not
cause the Company to be dissolved or reconstituted for purposes other than
maintenance of the Capital Accounts and federal income tax purposes, unless
otherwise provided in Article XII.
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The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are generally intended to comply
with Tax Regulations Section 1.704-1(b) and will be interpreted and applied in a
manner consistent with such Tax Regulations. If the Manager (with the consent
of the Required Members) determines that it is prudent to modify the manner in
which the Capital Accounts, or any increases or decreases to the Capital
Accounts, are computed in order to comply with such Tax Regulations, the Manager
may authorize such modifications, provided that it is not likely to have a
material effect on the
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amounts distributable to any Person pursuant to Section 12.4 upon the
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dissolution of the Company, nor a material effect on the amounts of taxable
income, gain, deduction, or loss allocable to the Members. The Manager may also
(with the consent of the Required Members) (i) many any adjustments that are
necessary or approopriate to maintain equality between the Capital Accounts of
the Members and the amount of capital reflected on the Company's balance sheet,
as computed for book purposes, in accordance with Tax Regulations Section
1.704-1(b)(2)(iv)(q), and (ii) ▇▇▇▇▇ any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with Tax
Regulations Section 1.704-1(b).
"Capital Contribution" means, with respect to any Member, the amount of
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money and the initial Book Value of any property (other than money) contributed
to the Company with respect to the Member Interest held by such Member,
including the principal amount of the Subordinated Notes delivered by ▇▇▇▇▇▇ to
the Company upon the exercise of the ▇▇▇▇▇▇ Exchange Rights pursuant to Section
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2.1 of the Option Agreement and the Capital Contribution made by ▇▇▇▇▇▇▇ Retail
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upon the exercise of the ▇▇▇▇▇▇▇ Option Rights pursuant to Section 3.1 of the
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Option Agreement.
"Certificate of Formation" means the Certificate of Formation filed with
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the Office of the Secretary of State of Delaware pursuant to Section 2.1 of the
Contribution Agreement, as it may be amended or restated from time to time.
"Change of Control" means, as to ▇▇▇▇▇▇▇, that any Person other than
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇, any other Affiliate of ▇▇▇▇▇▇▇ as of the date of this Agreement
or any member or members of the Immediate Family of any of the foregoing
acquires (i) 50% or more of the common stock of all classes of ▇▇▇▇▇▇▇ or (ii)
common stock of any class or classes of ▇▇▇▇▇▇▇ having the voting power
necessary to elect a majority of the members of the board of directors of
▇▇▇▇▇▇▇.
"Class A Member Interests" has the meaning set forth in Section 4.2(a).
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"Class A Member Unit Equalization Amount" means the amount at any time from
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and after the exercise of the ▇▇▇▇▇▇ Exchange Rights equal to (a) the product of
(i) $12,500,000, multiplied by (ii) that fraction the numerator of which is the
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number of outstanding Class B Member Units and the denominator of which is
4,500, multiplied by (iii) that fraction the numerator of which is the number of
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outstanding Class A Member Units and the denominator of which is the number of
outstanding Class B Member Units, minus (b) the amount of any distributions
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previously made in respect of the Class A Member Units pursuant to Section
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6.1(a)(ii).
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"Class A Member Units" has the meaning set forth in Section 4.2(a).
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"Class B Member Interests" has the meaning set forth in Section 4.2(a).
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"Class B Member Unit Preferred Amount" means the amount at any time from
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and after the exercise of the ▇▇▇▇▇▇ Exchange Rights equal to (a) the product of
(i) $12,500,000, multiplied by (ii) that fraction the numerator of which is the
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number of outstanding Class B Member Units and the denominator of which is
4,500, minus (b) the amount of any distributions previously made in respect of
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the Class B Member Units pursuant to Section 6.1(a)(i).
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"Class B Member Units" has the meaning set forth in Section 4.2(a).
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"Closing Date" has the meaning set forth in the Contribution Agreement.
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"Code" means the Internal Revenue Code of 1986, as amended and in effect
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from time to time. All references herein to the Code will include any
corresponding provision or provisions of succeeding law.
"Company" means SLJ Retail LLC, the limited liability company formed by the
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filing of the Certificate of Formation.
"Company Minimum Gain" has the meaning set forth in Tax Regulations Section
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1.704-2(b)(2) with respect to "partnership minimum gain."
"Company Nonrecourse Deductions" has the meaning set forth in Tax
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Regulations Section 1.704-2(b)(1) with respect to "nonrecourse deductions."
"Contribution Agreement" means the Contribution Agreement dated of even
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date herewith among ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ Retail, as it may be amended,
modified, supplemented or restated from time to time.
"Cumulative Net Profits" means, with respect to any Member for any period,
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the excess (if any) of the cumulative Profits allocated to such Member during
such period pursuant to Sections 5.3(a)(iv)-(v) over the cumulative Losses
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allocated to such Member during such period pursuant to Section 5.3(b), in each
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case taking into account only those items necessary to compute the regular
federal taxable income or loss of such Member for such period.
"Delaware Act" means the Delaware Limited Liability Company Act, 6 Del. C.
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(S) 18-101, et seq., as amended from time to time.
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"Depreciation" means, for each Tax Year, an amount equal to the
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depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Tax Year, except that if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such Tax Year, Depreciation shall be an amount which bears the same ratio to
such beginning Book Value as the federal income tax depreciation, amortization,
or other cost recovery deduction for such Tax Year bears to such beginning
adjusted tax basis; provided, however, that if the adjusted basis for federal
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income tax purposes of an asset at the beginning of such Tax Year is zero,
Depreciation shall be determined with reference to such
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beginning Book Value using any reasonable method selected by the Manager (with
the consent of the Required Members).
"Employment Agreement" has the meaning set forth in the Contribution
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Agreement.
"Federal Tax Rate" means, as of any relevant date, the highest marginal
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federal income tax rate applicable to corporations on such date.
"First Refusal Offer" has the meaning set forth in Section 11.4(a).
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"First Refusal/Tag Along Notice" has the meaning set forth in Section
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11.4(a).
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"Fiscal Year" means the twelve-month accounting period of the Company for
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financial accounting purposes ending on the last Saturday in January of each
year; provided that the initial Fiscal Year of the Company will be the period
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beginning on the Closing Date and ending on January 31, 1998, and the last
Fiscal Year of the Company (if not a full Fiscal Year) will be the period
beginning on the day following the end of the penultimate Fiscal Year of the
Company and ending on the date the final liquidation of the Company is
completed.
"GAAP" means generally accepted accounting principles in the United States
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of America as from time to time in effect, applied on a consistent basis with
those accounting principles applied at prior dates or for prior periods.
"GE Capital" means General Electric Capital Corporation, a New York
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corporation.
"GE Capital Guaranty" has the meaning set forth in the Contribution
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Agreement.
"GE Capital Reimbursement and Security Agreement" has the meaning set forth
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in the Contribution Agreement.
"GE Integrity Policies" means the policies set forth in the booklet
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entitled "Integrity -- the Spirit & the Letter of Our Commitment" (CI-18 REV.
6195) and any superseding policy statements from time to time furnished to the
Manager by GE Capital with respect to policies on key integrity issues adopted
by General Electric Company and having application to its subsidiaries and
Affiliates.
"Governmental Body" means any governmental or quasi-governmental agency,
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authority, commission, board or other body.
"Immediate Family" has the meaning set forth in the Contribution Agreement.
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"Indemnitee" has the meaning set forth in Section 7.11.
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"Lien" has the meaning set forth in the Contribution Agreement.
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"Liquidator" has the meaning set forth in Section 12.4.
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"Losses" has the meaning set forth in the definition of "Profits" and
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"Losses."
"Mall Specialty Footwear Stores" has the meaning set forth in the
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Contribution Agreement.
"Manager" has the meaning set forth in Section 7.1.
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"▇▇▇▇▇▇▇" means ▇▇▇▇▇▇▇ Shoe Company Inc., a Delaware corporation.
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"▇▇▇▇▇▇▇/Company Documents" has the meaning set forth in the Contribution
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Agreement.
"▇▇▇▇▇▇▇ Default" means (i) the Bankruptcy or dissolution of ▇▇▇▇▇▇▇ or
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▇▇▇▇▇▇▇ Retail, (ii) a breach or default on the part of ▇▇▇▇▇▇▇ Retail in any
material respect in the performance of any of its material covenants,
agreements, duties or responsibilities as Manager under this Agreement, or (iii)
a breach or default on the part of ▇▇▇▇▇▇▇ or any of its Affiliates in any
material respect in any of their respective material representations or
warranties set forth in, or in the performance of any of their respective
material covenants, agreements, duties or responsibilities under, any of the
▇▇▇▇▇▇▇ Documents. For the purposes hereof, "Bankruptcy" means (i) the
inability of ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail generally to pay its debts as such debts
become due, or an admission in writing by ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail of its
inability to pay its debts generally or a general assignment by ▇▇▇▇▇▇▇ or
▇▇▇▇▇▇▇ Retail for the benefit of creditors; (ii) the filing of any petition or
answer by ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail seeking to adjudicate itself as bankrupt or
insolvent, or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇
Retail or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking, consenting to, or acquiescing
in the entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail or for any
substantial part of its property; (iii) the taking of any corporate action by
▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail to authorize any of the actions set forth in clauses
(i) or (ii) above; (iv) without the consent or acquiescence of ▇▇▇▇▇▇▇ or
▇▇▇▇▇▇▇ Retail, the entering of an order for relief or approving a petition for
relief or reorganization or any other petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or other
similar relief under any present or future bankruptcy, insolvency or similar
statute, law or regulation, or the filing of any such petition against ▇▇▇▇▇▇▇
or ▇▇▇▇▇▇▇ Retail, or (v) without the consent or acquiescence of ▇▇▇▇▇▇▇ or
▇▇▇▇▇▇▇ Retail, the entering of an order appointing a trustee, custodian,
receiver or liquidator of ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail or of all or any substantial
part of the property of ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail.
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"▇▇▇▇▇▇▇ Member" means, at any time, (a) ▇▇▇▇▇▇▇ Retail, if ▇▇▇▇▇▇▇ Retail
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is a Member at such time, and (b) if ▇▇▇▇▇▇▇ Retail is not a Member at such
time, any transferee pursuant to any Transfer permitted hereunder of all of the
Member Units originally held by ▇▇▇▇▇▇▇ Retail hereunder or issued upon the
exercise of the ▇▇▇▇▇▇▇ Option Rights.
"▇▇▇▇▇▇▇ Option Rights" has the meaning set forth in the Option Agreement.
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"▇▇▇▇▇▇▇ Retail" means ▇▇▇▇▇▇▇ Retail Inc., a Delaware corporation, and its
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successors and assigns pursuant to any Transfer permitted hereunder.
"Member Interest" means the interest of a Member in the Company including,
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without limitation, such Member's right (a) to a distributive share of the
Profits, Losses and other items of income, gain, loss, deduction and credit of
the Company, (b) to a distributive share of the assets of the Company, and (c)
to vote on or to consent or withhold consent on certain matters as described in
this Agreement, each in accordance with its Percentage Interest.
"Member Nonrecourse Deductions" has the meaning set forth in Tax
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Regulations Section 1.704-2(i)(1) and (2) with respect to "partner nonrecourse
deductions."
"Member Units" means mathematical units of ownership evidencing the Member
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Interests in the Company. As of the Closing Date, 8,825 Member Units shall be
held by the Members and an additional 1,175 Member Units shall be issuable upon
the exercise of the ▇▇▇▇▇▇▇ Option Rights, all as more fully set forth in
Section 4.2.
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"Members" means ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Retail, and each other Person who has been
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admitted as a Member in the Company in accordance with Section 11.9 of this
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Agreement and whose admission has been reflected on the books and records of the
Company.
"Non-Compete Agreement" has the meaning set forth in the Contribution
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Agreement.
"Notice of Acceptance" has the meaning set forth in Section 11.4(b).
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"Notified Member" has the meaning set forth in Section 11.4(a).
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"Offer Price" has the meaning set forth in Section 11.4(a).
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"Officers" has the meaning set forth in Section 7.4(a).
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"Option Agreement" has the meaning set forth in the Contribution Agreement.
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"Percentage Interest" means, at any time, that percentage interest in the
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Company from time to time represented by any Member's Member Interest,
determined by dividing the number of Member Units held by such Member at such
time by the total number of Member Units held by all Members at such time. The
Percentage Interest of a Member shall be adjusted from time
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to time to reflect any change in the number of Member Units held by such Member
or in the total number of Member Units held by all Members. After any such
adjustment, the Percentage Interest of such Member, as adjusted, shall
constitute the Percentage Interest of such Member for all purposes under this
Agreement.
"Person" means an individual, corporation, partnership, limited liability
------
company, joint venture, trust, estate, unincorporated organization, association,
Governmental Body or other entity.
"Pledge" means, with respect to all or any aspect of a Member Interest, a
------
pledge, encumbrance, hypothecation or similar disposition in connection with the
granting of a Lien to secure an obligation of the pledgor, an Affiliate of the
pledgor or a member of the Immediate Family of an Affiliate of the pledgor
(other than a Transfer).
"Profits" and "Losses" mean, for each Tax Year or other period, an amount
------- ------
equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) will be included in taxable income or loss), with the
following adjustments (without duplication):
(a) Income of the Company that is exempt from federal income tax and not
otherwise taken into account in computing Profits and Losses pursuant to this
definition will be added to such taxable income or loss.
(b) Any expenditures of the Company described in Code Section 705(a)(2)(B),
or treated as Code Section 705(a)(2)(B) expenditures pursuant to Tax Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits and Losses pursuant to this definition will be subtracted from such
taxable income or loss.
(c) If the Book Value of any Company asset is adjusted pursuant to
paragraphs (b) or (c) of the definition thereof, the amount of such adjustment
will be taken into account as gain or loss from the disposition of such asset
for purposes of computing Profits and Losses.
(d) Gain or loss resulting from any disposition of property with respect to
which gain or loss is recognized for federal income tax purposes will be
computed by reference to the Book Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Book Value.
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Tax Year, computed in
accordance with the definition of Depreciation.
9
(f) To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) is required, pursuant to Tax Regulations
Section 1.704-(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
Member Interest in the Company, the amount of such adjustment shall be treated
as an item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases such basis) from the disposition of such asset and
shall be taken into account for purposes of computing Profits or Losses.
(g) Notwithstanding any other provision of this definition, any items that
are specially allocated pursuant to Sections 5.4 or 5.5 will not be taken into
------------ ---
account in computing Profits and Losses.
"Purchase Price" has the meaning set forth in Section 11.7.
-------------- ------------
"Required Members" means those Members that include both (a) Members
----------------
collectively holding 75% or more of the Percentage Interests, and (b) unless and
until a ▇▇▇▇▇▇ Cashout Event shall have occurred, the ▇▇▇▇▇▇ Member.
"Retail Outlet Footwear Stores" has the meaning set forth in the
-----------------------------
Contribution Agreement.
"Retail Opportunity Agreement" has the meaning set forth in the
----------------------------
Contribution Agreement.
"Senior Credit Agreement" has the meaning set forth in the Contribution
-----------------------
Agreement.
"Senior Lenders" has the meaning set forth in the Contribution Agreement.
--------------
"Senior Revolving Loan" means the $16,500,000 revolving loan facility to be
---------------------
made available by the Senior Lenders to the Company pursuant to the Senior
Credit Agreement.
"Senior Term Loan" means the $16,000,000 term loan to be made by the Senior
----------------
Lenders to the Company pursuant to the Senior Credit Agreement.
"Services Agreement" has the meaning set forth in the Contribution
------------------
Agreement.
"Settlement Notice" has the meaning set forth in Section 7.11(c).
----------------- ---------------
"Store Transfer Closing Date" has the meaning set forth in the Contribution
---------------------------
Agreement.
"Subordinated Loan" means the purchase by ▇▇▇▇▇▇ of the Subordinated Notes.
-----------------
"Subordinated Note Purchase Agreement" has the meaning set forth in the
------------------------------------
Contribution Agreement.
10
"Subordinated Notes" means the $12,500,000 in principal amount of the
------------------
Company's 8% Subordinated Notes purchased by ▇▇▇▇▇▇ pursuant to the Subordinated
Note Purchase Agreement.
"Tag Along Offer" has the meaning set forth in Section 11.5(a).
--------------- ---------------
"Take Along Notice" has the meaning set forth in Section 11.6(a).
----------------- ---------------
"Take Along Right" has the meaning set forth in Section 11.6(a).
---------------- ---------------
"Tax Regulations" means the Income Tax Regulations (including Temporary
---------------
Regulations) promulgated under the Code, as amended and in effect (including
corresponding provisions of any succeeding Tax Regulations).
"Tax Regulatory Allocations" has the meaning set forth in Section 5.5.
-------------------------- -----------
"Tax Year" means the twelve-month accounting period of the Company for
--------
federal and state income tax purposes ending on December 31 of each year or such
other accounting period as the Company is required to use under Section 706(b)
of the Code; provided that the initial Tax Year of the Company will be the
--------
period beginning on the Closing Date and ending on December 31, 1997, and the
last Tax Year of the Company (if not a full twelve-month accounting period) will
be the period beginning on the day following the end of the penultimate Tax Year
of the Company and ending on the date the final liquidation of the Company is
completed.
"Third Party" means any Person other than (i) the Company, (ii) a Member,
-----------
(iii) the Manager, (iv) any Affiliate of any of the foregoing, (v) any member of
the Immediate Family of any of the foregoing or (vi) any officer, director,
shareholder, partner or member of any of the foregoing.
"Third Party Offer" means a bona fide offer made in writing by any Third
----------------- ---- ----
Party to ▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail to purchase Member Units from such Member on
an arm's length basis for cash.
"Transfer" means, with respect to all or any aspect of a Member Interest, a
--------
sale, assignment, gift, contribution, exchange or any other disposition (other
than a Pledge).
"Transferring Member" has the meaning set forth in Section 11.4(a).
------------------- ---------------
"Transitional Services Agreement" has the meaning set forth in the
-------------------------------
Contribution Agreement.
1.2 Rules of Construction.
---------------------
11
(a) All article, section and paragraph titles and captions in this
Agreement are for convenience only, will not be deemed part of this Agreement,
and in no way define, limit, extend, or describe the scope or intent of any
provisions of this Agreement. Except as specifically provided otherwise,
references to "Articles," "Sections" and "Exhibits" are to Articles, Sections
-------- -------- --------
and Exhibits of or to this Agreement.
(b) Whenever the context may require, any pronoun used in this Agreement
includes the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs includes the plural and vice versa. The
---- -----
locative adverbs "hereof," "herein," "hereafter," etc. refer to this Agreement
as a whole.
ARTICLE II
ORGANIZATIONAL MATTERS
----------------------
2.1 Formation. The Members have formed the Company as a limited liability
---------
company pursuant to the provisions of the Delaware Act. The Members are
entering into this Agreement in order to set forth the rights and obligations of
the Members with respect to the Company and certain related matters. Except as
expressly provided herein or in the Contribution Agreement to the contrary, the
rights and obligations of the Members and the administration and dissolution of
the Company will be governed by the Delaware Act.
2.2 Name. The name of the Company is "SLJ Retail LLC."
----
2.3 Registered Agent and Office. The registered agent and office of the
---------------------------
Company in the State of Delaware shall be Corporation Service Company, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Manager may change the registered
office or registered agent from time to time.
2.4 Principal Place of Business. The principal place of business of the
---------------------------
Company shall be at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, or at
such other place in the United States as the Manager may from time to time
designate.
2.5 Term. The Company commenced its existence on March 7, 1997, the date
----
of the filing of the Certificate of Formation with the Office of the Secretary
of State of the State of Delaware, and will continue in existence until the
close of business on January 31, 2047, or until the earlier dissolution of the
Company in accordance with the provisions of Article XII.
-----------
2.6 Ownership. The interest of each Member in the Company will be
---------
personal property for all purposes. All property and interests in property,
real or personal, owned by the Company will be deemed owned by the Company as an
entity, and no Member (as such) will have any ownership of such property or
interest therein except by having an ownership interest in the Company as a
Member.
12
2.7 Relationship Among Members. The relationship among the Members
--------------------------
provided for in this Agreement is limited to the conduct of the business of the
Company as a limited liability company in accordance with the terms of the
Delaware Act and this Agreement. Nothing contained in this Agreement will be
construed to create a partnership (other than for tax purposes) between or among
the Members or, except as otherwise expressly provided in this Agreement, to
authorize any Member to act as agent for another Member.
2.8 Independent Activities of Members. Except as otherwise provided in
---------------------------------
the Non-Compete Agreement and the Retail Opportunity Agreement with respect to
▇▇▇▇▇▇▇ and certain of its Affiliates, each Member and its Affiliates may have
business interests and engage in business activities in addition to those
relating to the Company, and no other provision of this Agreement will be deemed
to prohibit a Member or any of its Affiliates from conducting such other
businesses and activities.
2.9 No Individual Authority. No Member, acting alone, will have any
-----------------------
authority to act for, or to undertake or assume any obligation or liability on
behalf of, any other Member or the Company, except as otherwise expressly
provided in this Agreement.
2.10 Qualification in Other Jurisdictions. The Manager shall cause the
------------------------------------
Company to be qualified or registered as a foreign limited liability company
authorized to transact business in all jurisdictions in which such qualification
or registration is necessary or advisable, and shall cause the Company to
register all trade names or fictitious names in or under which it conducts
business (including, without limitation, the names "▇▇▇ & ▇▇▇▇▇" and "▇▇▇▇▇ New
York") in all jurisdictions in which the Company conducts business under such
names and in which such registration is necessary or advisable. The Manager, as
an "authorized person" within the meaning of the Delaware Act, may execute,
deliver and file any certificates, affidavits and registrations (and any
amendments and/or restatements thereof) necessary for the Company so to do.
ARTICLE III
PURPOSE
-------
3.1 Purposes and Scope. Subject to the provisions of this Agreement, the
------------------
purposes of the Company are: (a) to engage in the business of selling women's
footwear and accessories in Mall Specialty Footwear Stores and Retail Outlet
Footwear Stores; (b) to borrow money and issue evidences of indebtedness in
furtherance of any or all of the objectives of the Company's business, and to
secure the same by mortgage, pledge or other Liens; and (c) to do any and all
other acts or things which may be desirable, expedient, convenient, incidental
or necessary to carry on the business of the Company as herein contemplated.
13
3.2 Powers of the Company. The Company shall have the power and authority
---------------------
to take any and all actions necessary, proper, advisable, incidental or
convenient to or for the furtherance of the purposes set forth in Section 3.1,
-----------
as determined by the Manager in accordance with the terms and conditions of this
Agreement
ARTICLE IV
CAPITAL CONTRIBUTIONS AND LOANS
-------------------------------
4.1 Initial Capital Contributions. Pursuant to the Contribution
-----------------------------
Agreement:
(a) ▇▇▇▇▇▇▇ Retail has contributed the property described in Section
2.2(b)(i) of the Contribution Agreement on the date of this Agreement; and
(b) ▇▇▇▇▇▇ has contributed the property described in Section 2.2(c)(v) of
the Contribution Agreement on the date of this Agreement and has agreed to
contribute the property described in Section 2.3(a)(i) of the Contribution
Agreement on each Store Transfer Closing Date and to contribute the property
described in Section 2.4(a)(i) of the Contribution Agreement on the third Store
Transfer Closing Date; provided, however, that ▇▇▇▇▇▇'▇ agreement to contribute
-------- -------
the property described in Sections 2.3(a)(i) and 2.4(a)(i) of the Contribution
Agreement is subject to the fulfillment of the conditions precedent set forth in
Section 6.2 of the Contribution Agreement.
Such contributions of property and agreements to contribute property shall
constitute Capital Contributions made as of the Closing Date by ▇▇▇▇▇▇▇ Retail
and ▇▇▇▇▇▇, respectively, and no adjustment to such Capital Contributions shall
be made in the event that ▇▇▇▇▇▇ does not contribute any of the property
contemplated by Sections 2.3(a)(i) and 2.4(a)(i) of the Contribution Agreement
by virtue of the failure to occur of any of the conditions precedent set forth
in Section 6.2 of the Contribution Agreement.
4.2 Member Interests; Member Units; Percentage Interests.
----------------------------------------------------
(a) The Member Interests shall be divided into Class A Member Interests
("Class A Member Interests") and Class B Member Interests ("Class B Member
-------------------------- --------------
Interests"), which shall be evidenced by Member Units designated as Class A
---------
Member Units ("Class A Member Units") and Class B Member Units ("Class B Member
-------------------- --------------
Units"), respectively. Class A Member Interests and Class B Member Interests
-----
shall be identical in all respects as to rights, powers and duties of a Member
hereunder or under the Delaware Act (including, without limitation, the right to
receive distributions pursuant to Article VI hereof and to exercise any right to
----------
vote or to consent or withhold consent as to any matter provided herein), except
that the Class B Member Units shall be entitled to the priority in allocation of
Profits provided in Section 5.3(a) hereof and the priority in respect of
--------------
distributions provided in Section 6.1 hereof.
-----------
14
(b) In consideration of the Capital Contributions referred to in Section
-------
4.1, on the Closing Date the Members will be deemed to hold the number of Class
---
A Member Units set forth below, respectively evidencing the following Percentage
Interests as of the Closing Date:
Name of No. of Class A Percentage
Member Member Units Issued Interest
------- ------------------- -----------
▇▇▇▇▇▇ 4,500 50.9915%
▇▇▇▇▇▇▇ Retail 4,325 49.0085%
----- --------
Totals: 8,825 100.0000%
No adjustment to the number of Class A Member Units held by ▇▇▇▇▇▇ shall be made
in the event that ▇▇▇▇▇▇ does not contribute any of the property contemplated by
Sections 2.3(a)(i) and 2.4(a)(i) of the Contribution Agreement by virtue of the
failure to occur of any of the conditions precedent set forth in Section 6.2 of
the Contribution Agreement.
(c) The 4,500 Class A Member Units of ▇▇▇▇▇▇ are exchangeable for 4,500
Class B Member Units upon the exercise of the ▇▇▇▇▇▇ Exchange Rights, and an
additional 1,175 Class A Member Units are issuable to ▇▇▇▇▇▇▇ Retail upon the
exercise of the ▇▇▇▇▇▇▇ Option Rights. Thus, assuming the exercise of the
▇▇▇▇▇▇ Exchange Rights and the ▇▇▇▇▇▇▇ Option Rights (and assuming that no
Transfers or further issuances of Member Units occur), the following Member
Units would be held by ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ Retail as of the date of the second
such exercise, respectively evidencing the following Percentage Interests as of
such date:
Name of Class of No. of Member Percentage
Member Member Units Units Issued Interest
------- ------------ ------------- -----------
▇▇▇▇▇▇ Class B 4,500 45.00%
▇▇▇▇▇▇▇ Retail Class A 5,500 55.00%
----- ------
Totals: 10,000 100.00%
(d) Except as provided in paragraphs (b) and (c) above, no additional
Member Interests or Member Units, or options to purchase or acquire Member
Interests or Member Units, or securities convertible into or exchangeable for
Member Interests or Member Units, will be offered, issued or sold by the Company
without the express written consent of each Member.
4.3 Additional Capital Contributions. Except as required by the Option
--------------------------------
Agreement and the Contribution Agreement, no Member shall be required to make
any additional Capital Contribution to the Company.
15
4.4 Limitations on Capital Contributions and Loans. Except with the
----------------------------------------------
consent of all Members and except for the exercise by ▇▇▇▇▇▇ of the ▇▇▇▇▇▇
Exchange Rights and the exercise by ▇▇▇▇▇▇▇ Retail of the ▇▇▇▇▇▇▇ Option Rights,
the Company will not accept any additional Capital Contribution. Except for the
Subordinated Loan, no Member (nor any Affiliate thereof) may make a loan to the
Company unless each other Member is afforded the opportunity (pro rata, in
--- ----
accordance with its Percentage Interest) to participate in making such loan on
the same terms as the other Members. Loans by a Member to the Company shall not
be considered Capital Contributions.
ARTICLE V
CAPITAL ACCOUNTS AND ALLOCATIONS
--------------------------------
5.1 Capital Accounts. For purposes of maintaining Capital Accounts in
----------------
accordance with Code Section 704(b) and the Tax Regulations thereunder:
(a) Maintenance of Capital Accounts. The Company will maintain for each
-------------------------------
Member a separate Capital Account in accordance with this Agreement, which will
control the division of assets upon liquidation of the Company as provided in
Section 12.4(d).
---------------
(b) Negative Capital Accounts. If any Member has a deficit balance in its
-------------------------
Capital Account, such Member shall have no obligation to restore such negative
balance or to make any Capital Contribution to the Company by reason thereof,
and such negative balance shall not be considered an asset of the Company or of
any Member.
(c) Initial Capital Accounts. The Members agree that the initial Capital
------------------------
Account of each Member after giving effect to the initial Capital Contributions
provided for in Section 4.1 shall be as follows:
-----------
Member Capital Account
------ ---------------
▇▇▇▇▇▇ $3,600,000
▇▇▇▇▇▇▇ Retail $3,460,000
==========
Total: $7,060,000
(d) Allocation of Initial Capital Contributions Among Contributed Property.
----------------------------------------------------------------------
The Members agree that (i) the aggregate net value of the property contributed
to the Company by each Member pursuant to Section 4.1 hereof is equal to the
-----------
initial Capital Account of such Member after giving effect to such Capital
Contribution, as set forth in paragraph (c) above, and (ii) such aggregate net
value shall be allocated among the property contributed to the Company by each
Member as set forth on the schedule attached as Exhibit A hereto.
---------
16
(e) Effect of Exercise of ▇▇▇▇▇▇▇ Option Rights. The increase in ▇▇▇▇▇▇▇
-------------------------------------------
Retail's Capital Account upon the exercise of the ▇▇▇▇▇▇▇ Option Rights shall be
limited to the cash contributed by ▇▇▇▇▇▇▇ Retail upon the exercise of such
rights.
5.2 Interest. No interest will be paid by the Company on Capital
--------
Contributions or on balances in Capital Accounts.
5.3 Allocation of Profits and Losses.
--------------------------------
(a) Allocation of Profits Generally. After giving effect to the
-------------------------------
allocations set forth in Sections 5.4 and 5.5, and after giving effect to any
------------ ---
distributions of cash or property, Profits for any Tax Year (or other period)
will be allocated to the Members in the following order of priority:
(i) First, to all of the Members in proportion to and to the extent
of the excess, if any, of (i) the cumulative Losses allocated to each such
Member pursuant to Section 5.3(b)(ii) hereof for all prior Tax Years (or
------------------
other periods), over (ii) the cumulative Profits allocated to such Member
pursuant to this Section 5.3(a)(i) for all prior Tax Years (or other
-----------------
periods);
(ii) Second, to all of the Members in proportion to and to the extent
of the excess, if any, of (i) the cumulative Losses allocated to each such
Member pursuant to Section 5.3(b)(i) hereof for all prior Tax Years (or
-----------------
other periods), over (ii) the cumulative Profits allocated to such Member
pursuant to this Section 5.3(a)(ii) for all prior Tax Years (or other
------------------
periods), such amounts to be allocated in a manner that first offsets the
Losses allocated in clauses (C), (B) and (A) of Section 5.3(b)(i), in that
-----------------
order;
(iii) Third, if Class B Member Units are then outstanding, to the
Members holding Class B Member Units in proportion to their respective
holdings of Class B Member Units until the Capital Accounts of such Members
are equal to the Class B Member Unit Preferred Amount;
(iv) Fourth, if Class B Member Units are then outstanding, to the
Members holding Class A Member Units in proportion to their respective
holdings of Class A Member Units until the Capital Accounts of such Members
are equal to the Class A Member Unit Equalization Amount; and
(v) The balance, if any, to all of the Members in proportion to their
respective Percentage Interests.
(b) Allocation of Losses Generally.
------------------------------
17
(i) After giving effect to the allocations set forth in Sections 5.4
------------
and 5.5, and subject to the limitation set forth in Sections 5.3(b)(ii),
--- -------------------
Losses for any Tax Year shall be allocated to the Members in the following
order of priority:
(A) First, to the Members in proportion to and to the extent of
the excess, if any, of (1) the cumulative Profits allocated to each
such Member pursuant to Section 5.3(a)(v) hereof for all prior Tax
-----------------
Years, over (2) the cumulative Losses allocated to such Member
pursuant to this Section 5.3(b)(i)(A) for all prior Tax Years;
--------------------
(B) Second, to the Members in proportion to and to the extent of
the excess, if any, of (1) the cumulative Profits allocated to each
such Member pursuant to Section 5.3(a)(iv) hereof for all prior Tax
------------------
Years, over (2) the cumulative Losses allocated to such Member
pursuant to this Section 5.3(b)(i)(B) for all prior Tax Years; and
--------------------
(C) The balance, if any, to all of the Members in proportion to
their respective Percentage Interests.
(ii) The Losses allocated pursuant to Section 5.3(b)(i) to any Member
-----------------
for any Tax Year will not exceed the maximum amount of Losses that may be
allocated to such Member without exceeding the amount prescribed by
applicable Tax Regulations. If no other Member may receive an additional
allocation of Losses pursuant to the preceding sentence of this Section
-------
5.3(b)(ii), such additional Losses not allocated pursuant to Section
---------- -------
5.3(b)(i) or the preceding sentence will be allocated to the Members in
---------
proportion to their Percentage Interests.
5.4 Special Allocations. Notwithstanding any provision of Section 5.3(a)
------------------- --------------
or (b), the following special allocations shall be made in the following order:
---
(a) Minimum Gain Chargeback - Company Nonrecourse Liabilities. If there is
---------------------------------------------------------
a net decrease in Company Minimum Gain during any Tax Year, certain items of
income and gain will be allocated (on a gross basis) to the Members in
accordance with the rules described in Tax Regulations Section 1.704-2(f) and -
2(j)(1)(i) and (iii), subject to the exemptions set forth in Tax Regulations
Section 1.704-2(f)(2), (3), (4) and (5). This Section 5.4(a) is intended to
--------------
comply with the minimum gain chargeback requirement set forth in Tax Regulations
Section 1.704-2(f) relating to Company nonrecourse liabilities (as defined in
Tax Regulations Section 1.704-2(b)(3)) and will be so interpreted.
(b) Minimum Gain Chargeback -- Member Nonrecourse Debt. If there is a net
--------------------------------------------------
decrease in Company Minimum Gain during any Tax Year, certain items of income
and gain will be allocated (on a gross basis) as quickly as possible to those
Members who had a share of the Company Minimum Gain (determined pursuant to
Section 1.704-2(i)(5) of the Tax Regulations)
18
in accordance with the rules described in Tax Regulations Section 1.704-2(i)(4),
(j)(2)(ii) and (iii). This Section 5.4(b) is intended to comply with the minimum
-----------
gain chargeback requirement set forth in Tax Regulations Section 1.704-2(i)(4)
relating to partner nonrecourse debt (as defined in Tax Regulations Section
1.704-2(b)(4) and will be so interpreted.
(c) Qualified Income Offset. If, after applying Sections 5.4(a) and (b),
----------------------- --------------- ---
any Member has an Adjusted Capital Account Deficit, items of Company income and
gain will be specifically allocated (on a gross basis) to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the Tax
Regulations, the Adjusted Capital Account Deficit of such Member as quickly as
possible. This Section 5.4(c) is intended to comply with the "qualified income
--------------
offset" requirement set forth in Tax Regulations Section 1.704-1(b)(2)(ii)(d)
and will be so interpreted.
(d) Optional Basis Adjustments. To the extent an adjustment to the
--------------------------
adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or
743(b) is required pursuant to Tax Regulations Section 1.704-1(b)(2)(iv)(m) to
be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts will be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss will be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Tax Regulations.
(e) Company Nonrecourse Deduction. Company Nonrecourse Deductions for any
-----------------------------
Tax Year will be specially allocated among the Members in proportion to their
Percentage Interests.
(f) Member Nonrecourse Deduction. Member Nonrecourse Deductions will be
----------------------------
allocated pursuant to Tax Regulations Section 1.704-2(b)(4) and (i)(l) to the
Member who bears the economic risk of loss with respect to the deductions.
(g) Tax Allocations; Code Section 704(c). In accordance with Code Section
------------------------------------
704(c) and the Tax Regulations thereunder, income, gain, loss and deductions
with respect to any property contributed to the capital of the Company will,
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 Book Value.
5.5 Curative Allocations. The allocations set forth in Sections
-------------------- --------
5.3(b)(ii) and 5.4(a) through (f) the "Tax Regulatory Allocations") are intended
---------- ------ --- --------------------------
to comply with certain requirements of the Tax Regulations. It is the intent of
the Members that, to the extent possible, all Tax Regulatory Allocations will be
offset either with other Tax Regulatory Allocations or with special allocations
of other items of Company income, gain, loss, or deduction pursuant to this
Section 5.5. Therefore, notwithstanding any other provisions of this Article V
----------- ---------
(other than the Tax Regulatory Allocations), the Manager will make such
offsetting special allocations of
19
Company income, gain, loss, or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each Member's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Member would have had if the Tax Regulatory Allocations were not
part of this Agreement and all Company items were allocated pursuant to Sections
--------
5.3(a) and 5.3(b)(i). In making allocations under this Section 5.5, the Manager
------ --------- -----------
will take into account future Tax Regulatory Allocation under Section 5.4(a) and
--------------
5.4(b) that, although not yet made, are likely to offset other Tax Regulatory
------
Allocations previously made under Sections 5.4(e) and 5.4(f). Any income, gain,
--------------- ------
loss or deduction realized by the Company as a direct or indirect result of the
issuance of an interest in the Company to a Member ("Issuance Items") shall be
--------------
allocated among the Members so that, to the maximum extent possible, the net
amount of such Issuance Items, together with all other allocations under this
Agreement and the income, gain, loss or deduction realized by such Member as a
result of such issuance and any corresponding adjustments, shall equal the net
amount that would have been realized by and/or allocated to such Member if the
Issuance Items had not been realized.
5.6 Other Allocation Rules.
----------------------
(a) For purposes of determining the Profits, Losses, or any other item
allocable to any period, Profits, Losses, and any such other item will be
determined on a daily, monthly, or other basis, as determined by the Manager
(with the consent of the Required Members) using any permissible method under
Code Section 706 and the Tax Regulations thereunder.
(b) For federal income tax purposes, every item of income, gain, loss, and
deduction will be allocated among the Members in accordance with the allocations
under Sections 5.3, 5.4, 5.5 and 5.6.
------------------------------
(c) The Members are aware of the income tax consequences of the allocations
made by this Article V and agree to be bound by the provisions of this Article V
--------- ---------
in reporting their shares of the Company income and loss for income tax
purposes.
(d) It is intended that the allocations in Sections 5.3, 5.4 and 5.5 effect
-------------------------
an allocation for federal income tax purposes consistent with Code Section 704
and comply with any limitations or restrictions therein. The Manager (with the
consent of the Required Members) may alter the allocations pursuant to this
Article V in any manner consistent with Code Section 704 and to amend the
---------
provisions of this Agreement as appropriate to comply with the Tax Regulations
promulgated under Code Section 704, if, in the opinion of counsel, such an
amendment is advisable to reflect allocations among the Members consistent with
those Tax Regulations, and any such allocation will not have a material effect
on the distributions which would otherwise be made pursuant to Sections 6.1,
------------
6.3, 12.4 or 12.6.
--- ---- ----
(e) The Members agree that their Percentage Interests represent their
respective interests in Company profits for purposes of allocating excess
nonrecourse liabilities (as defined in Tax Regulations Section 1.752-3(a)(3))
pursuant to Tax Regulations Section 1.752-3(a)(3).
20
ARTICLE VI
DISTRIBUTIONS
-------------
6.1 Distributions.
-------------
(a) The Manager shall review the Company's accounts at the end of each
fiscal quarter to determine whether distributions are appropriate. Subject to
Section 6.1(b), Section 6.3 and (S)18-607(a) of the Delaware Act, the Manager
-------------- -----------
(with the consent of the Required Members) shall make such distributions of
Available Cash to the Members as it may determine (with the consent of the
Required Members) or as may be requested by the Required Members, in the
following order of priority:
(i) First, if Class B Member Units are then outstanding, to the Members
holding Class B Member Units in proportion to their respective holdings of Class
B Member Units until the Class B Member Unit Preferred Amount is reduced to
zero;
(ii) Second, if Class B Member Units are then outstanding, to the Members
holding Class A Member Units in proportion to their respective holdings of Class
A Member Units until the Class A Member Unit Equalization Amount is reduced to
zero; and
(iii) Finally, to all of the Members in proportion to their respective
Percentage Interests.
(b) Notwithstanding any provision of Section 6.1(a) to the contrary, (i)
--------------
Available Cash that is derived from a transaction that occurs in connection with
the dissolution, termination and liquidation of the Company shall be distributed
to the Members in accordance with Article XII; and (ii) no distribution shall be
-----------
made pursuant to Section 6.1(a) to the extent that (A) such distribution is
--------------
prohibited by the Senior Credit Agreement, unless such distribution is approved
by the Senior Agent, or (B) such distribution is prohibited by the Subordinated
Note Purchase Agreement, unless such distribution is approved by the ▇▇▇▇▇▇
Member.
6.2 Amounts Withheld. Each Member authorizes the Company to withhold and
----------------
pay any withholding or other taxes payable by the Company with respect to such
Member as a result of such Member's participation in the Company. If the
Company is required to withhold or pay any such taxes, such Member will be
deemed for all purposes of this Agreement to have received a payment from the
Company at the time of such withholding or payment, which will be deemed to be a
distribution with respect to such Member's Member Interest. To the extent a
Member receiving a deemed distribution under this Section 6.2 would not
-----------
otherwise be entitled to such distribution during the Tax Year, such Member
shall contribute to the Company in cash the amount of such deemed distribution
which is in excess of the distribution the Member would have otherwise been
entitled to for such Tax Year (but shall receive no credit for such
21
contribution in circumstances in which Percentage Interests are redetermined.)
Any withholding authorized by this Section 6.2 will be made at the maximum
-----------
applicable statutory rate under the applicable tax law unless the Manager has
received an opinion of counsel or other evidence satisfactory to the Manager to
the effect that a lower rate is applicable or that no withholding is applicable.
6.3 Tax Distributions.
-----------------
(a) Subject to Section 6.3(b), the Manager shall cause the Company to
--------------
distribute to each Member with respect to each Tax Year an amount equal to the
product of (i) the excess of (A) the Cumulative Net Profits allocated to such
Member for the period consisting of all Tax Years from and after the inception
of the Company (including such Tax Year), over (B) the Cumulative Net Profits
allocated to such Member for the period consisting of all Tax Years from and
after the inception of the Company (excluding such Tax Year), multiplied by (ii)
---------- --
the Federal Tax Rate in effect during the Tax Year to which such distribution
relates. The Manager shall make such distributions on an annual basis, promptly
following the filing of the Company's federal income tax return.
(b) Notwithstanding any provision of Section 6.3(a) to the contrary, no
--------------
distribution shall be made pursuant to Section 6.3(a) to the extent that there
--------------
is not sufficient Available Cash to make such distribution, unless such
distribution is approved by the Required Members.
ARTICLE VII
-----------
MANAGEMENT OF THE COMPANY
-------------------------
7.1 Appointment of Manager. The Members hereby designate and appoint
----------------------
▇▇▇▇▇▇▇ Retail as the limited liability company manager of the Company (the
"Manager"). ▇▇▇▇▇▇▇ Retail (and any successor thereto) shall continue to serve
--------
as the Manager until the earliest of (a) such Person resigning as Manager, (b)
such Person no longer being a Member, (c) the removal of such Person as Manager
upon the unanimous vote of the Members (with or without cause), or (d) the
removal of such Person as Manager pursuant to Section 7.13 hereof. Upon removal
------------
or resignation of a Person as Manager (other than pursuant to Section 7.13
------------
hereof), the Required Members shall appoint another Manager.
7.2 Management Services. Concurrently with the execution and delivery of
-------------------
this Agreement, the Company has entered into a Services Agreement with ▇▇▇▇▇▇▇
pursuant to which ▇▇▇▇▇▇▇ will provide certain management services to the
Company and the Manager as more fully set forth therein.
7.3 Rights, Obligations and Duties of the Manager. Subject to Sections
--------------------------------------------- --------
7.5 and 7.6 and the other provisions of this Agreement requiring the consent in
--- ---
certain instances of the Required Members or all of the Members, the Manager
will conduct, direct and exercise control
22
over all activities of the Company, and all management powers over the business
and affairs of the Company will be exclusively vested in the Manager. In
addition to the powers now or hereafter granted to a manager of a limited
liability company under the Delaware Act or that are granted to the Manager
under any provision of this Agreement, but subject to Sections 7.5 and 7.6 and
------------ ---
the other provisions of this Agreement requiring the consent in certain
instances of the ▇▇▇▇▇▇ Member, the Required Members or all of the Members, the
Manager will have full power and authority to do all things reasonably deemed
necessary or desirable by it to conduct the business of the Company. Without
limiting the generality of the foregoing, the Manager shall have the right to
direct the sourcing of S&L/JNY Products (either pursuant to the Services
Agreement or directly by the Company), and to select counsel and independent
accountants to be engaged by the Company.
7.4 Officers.
--------
(a) The officers of the Company shall consist of a Chairman, President,
Vice President-Finance and Chief Financial Officer and Secretary, and any other
officer as determined by the Manager (the "Officers"). The Officers shall be
--------
appointed by, and shall exercise such powers and perform such duties as are
prescribed by, the Manager, including powers and duties set forth in this
Agreement which are to be performed by the Manager in its capacity as such. The
Officers need not be employees of the Company and, in the case of any Officer
who is an employee of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ or any of their respective Affiliates,
shall not be an employee of the Company or compensated in any respect by the
Company. Any number of offices may be held by the same individual, as the
Manager may determine, except that no individual may simultaneously hold the
offices of President and Secretary. The Officers shall hold office for the term
for which they were appointed and until their successors are appointed and
qualified; provided, however, that any Officer may be removed with or without
-------- -------
cause at any time by the Manager.
(b) Notwithstanding any provision of this Agreement to the contrary, (i) as
between or among the Members, any act or omission by an Officer shall be
attributed to, and be considered as an act or omission by, the Manager, (ii) no
Officer may take any action which the Manager cannot take, and (iii) the Manager
cannot assign or delegate to an Officer any rights or obligations it has under
this Agreement which are not held by it in its capacity as Manager, but are held
by it in its capacity as a Member (including, without limitation, rights and
obligations under Article XI).
----------
(c) The initial officers of the Company shall be as follows:
Name Title
---- -----
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Chairman
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President-Finance and
Chief Financial Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇ Secretary
23
The office of President shall be vacant until the Employment Agreement has been
executed and the Manager has appointed such Officer to such position.
7.5 Significant Operating Decisions. Notwithstanding any provision
-------------------------------
of this Agreement to the contrary, in addition to the making of any other
decision or the taking of any other action under this Agreement that
specifically requires the approval of the Required Members or that is to be made
by the Required Members or by another Member or Members other than the Manager,
neither the Manager nor any Officer will have the authority to cause the Company
to approve, act on or effect:
(a) the sale of all or substantially all of the business or assets of
the Company, whether by merger, consolidation, sale of assets or otherwise
(other than pursuant to a sale of Member Interests on the basis contemplated by
Article XI hereof or by Section 2.2 of the Option Agreement), or the acquisition
----------
of any other Person or an operating business unit of any other Person, whether
by merger, consolidation, purchase of equity interests or the acquisition of all
or substantially all of the business or assets of such Person or operating
business unit, unless any such matter is approved by the Required Members;
(b) any matter with respect to a Budget, unless such matter is
approved pursuant to the procedures set forth in Section 7.6; or
-----------
(c) Any matter described in clauses (i)-(xix) below, inclusive, at any
time before the occurrence of a ▇▇▇▇▇▇ Cashout Event, unless such matter is
approved by the ▇▇▇▇▇▇ Member:
(i) the sale of (A) inventory of the Company, other than sales at
retail in the ordinary course of the Company's business through Mall
Specialty Footwear Stores or Retail Outlet Footwear Stores and sales of
close-out merchandise to Third Parties in the ordinary course of the
Company's business; or (B) any other asset of the Company if the fair
value, purchase price or consideration therefor is in excess of $250,000;
(ii) the granting of a security interest, mortgage or Lien on any
assets of the Company (other than (A) to secure the Senior Revolving Loan
and the Senior Term Loan; (B) to secure the GE Capital Guaranty; or (C) to
secure the deferred purchase price of furniture, fixtures or equipment the
acquisition of which is in the ordinary course of the Company's business,
is provided for in the Budget for the Fiscal Year in question and is
permitted by the terms of the Senior Credit Agreement, the GE Capital
Reimbursement and Security Agreement and the Subordinated Note Purchase
Agreement);
(iii) the making of any distribution by the Company to the Members
(other than to the extent permitted by Section 6.3);
-----------
24
(iv) the incurrence by the Company of total store and administrative
expenses in any fiscal quarter in excess of 125% of the amount provided in
the Budget for such fiscal quarter;
(v) the making by the Company of any capital expenditure that would
cause the Company's total capital expenditures for any Fiscal Year to
exceed 120% of the capital expenditures provided in the Budget for such
Fiscal Year;
(vi) the entering into by the Company of any contract or agreement,
or any modification thereof or amendment thereto, if the obligations of the
Company incurred pursuant to such contract or agreement (or the increase in
such obligations pursuant to such modification or amendment) could
reasonably be expected to exceed $250,000, other than (A) purchase orders
for inventory in the ordinary course of business, (B) leases for Mall
Specialty Footwear Stores or Retail Outlet Footwear Stores provided for in
the Company's Budget; or (C) contracts or agreements for other capital
expenditures provided for in the Budget or otherwise permitted by clause
(v) above;
(vii) the incurrence by the Company of any loan (other than the
Senior Revolving Loan, the Senior Term Loan and the Subordinated Loan), or
the entering into by the Company of any material modification, amendment,
supplement, extension or replacement of the Senior Revolving Loan, the
Senior Term Loan or the Senior Credit Agreement;
(viii) the taking by the Company of any action in violation of this
Agreement or any of the ▇▇▇▇▇▇▇/Company Documents (including any action
under this Agreement which requires the consent of other Members), or the
failure of the Company to take any material action required by this
Agreement or any of the ▇▇▇▇▇▇▇/Company Documents;
(ix) the termination by the Company of, or the amending, modifying or
waiving by the Company of any provision of, any of the ▇▇▇▇▇▇▇/Company
Documents or the consenting to by the Company of any non-performance on the
part of ▇▇▇▇▇▇▇ or any of its Affiliates party to any of the
▇▇▇▇▇▇▇/Company Documents;
(x) (A) the entering into by the Company of any contract or agreement
(other than the ▇▇▇▇▇▇▇/Company Documents) with ▇▇▇▇▇▇▇, any Affiliate of
▇▇▇▇▇▇▇ or any member of the Immediate Family of any Affiliate of ▇▇▇▇▇▇▇;
(B) the termination of, or the amending, modifying or waiving of any
provision of, any such contract or agreement approved pursuant to this
Section 7.5(c)(x); or (C) the entering into or implementation of any
-----------------
transaction (other than a transaction that is specifically contemplated by
the ▇▇▇▇▇▇▇/Company Documents) between the Company and ▇▇▇▇▇▇▇, any
Affiliate of ▇▇▇▇▇▇▇ or any member of the Immediate Family of any Affiliate
of ▇▇▇▇▇▇▇ (whether or not evidenced by a contract or agreement),
including, without limitation, (x) the selling through the Company's Retail
Outlet Footwear Stores of any inventory owned by
25
▇▇▇▇▇▇▇, any Affiliate of ▇▇▇▇▇▇▇ (other than the Company) or any member of
the Immediate Family of any Affiliate of ▇▇▇▇▇▇▇, or (y) the sourcing of
any S&L/JNY Products from Factories or through Buying Agents in which
▇▇▇▇▇▇▇, any Affiliate of ▇▇▇▇▇▇▇ or any member of the Immediate Family of
any Affiliate of ▇▇▇▇▇▇▇ owns any interest or has any investment; provided,
--------
however, that ▇▇▇▇▇▇▇ may, without the consent of the ▇▇▇▇▇▇ Member, sell
-------
S&L/JNY Products to the Company at an aggregate purchase price not to
exceed $1,500,000 during any Fiscal Year for resale in Mall Specialty
Footwear Stores and at an aggregate purchase price not to exceed $500,000
during any Fiscal Year for resale through Retail Outlet Footwear Stores, at
a purchase price in each such transaction not to exceed ▇▇▇▇▇▇▇'▇ landed
cost for such S&L/JNY Products plus a fair and reasonable warehousing
charge (not to exceed fifty cents per pair) consented to by the ▇▇▇▇▇▇
Member, and with the consent in each instance (including as to purchase
price) of the president, chief financial officer and general merchandising
manager of the Company;
(xi) the contribution of any of the Company's assets to a
partnership, corporation or other entity in return for an interest in such
partnership, corporation or entity;
(xii) the taking of any action which would make it impossible to
carry on the ordinary business of the Company;
(xii) the execution or delivery of any assignment for the benefit of
creditors of the Company;
(xiv) the filing of any voluntary petition, or the acquiescence in
any involuntary petition, in bankruptcy or receivership with respect to the
Company or its property;
(xv) the employment of any employee of the Company having
compensation in excess of $150,000 annually, or the entering into of any
employment agreement with any employee of the Company (other than any
Employment Agreement approved by ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ in accordance with
Section 5.12(a) of the Contribution Agreement);
(xvi) the failure of the Company to make any payment required to be
made pursuant to the Subordinated Note Purchase Agreement unless the terms
of the subordination agreement entered into between ▇▇▇▇▇▇ and the Senior
Lender prohibit the Company from making such payment;
(xvii) the Company's engaging in any business or activity that is not
consistent with the purposes of the Company set forth in Section 3.2 hereof
-----------
or the making of any material change in the nature of the Company's
business;
26
(xviii) the changing of the accounting principles utilized by the
Company or the application thereof in any manner not mandated by GAAP; or
(xix) the acquisition of any real property, or the leasing of any
real property (other than Mall Specialty Footwear Stores or Retail Outlet
Footwear Stores) that constitutes 40% or more of the square footage of any
standalone facility, without performing environmental due diligence
(including obtaining a "Phase I" environmental report) reasonably
satisfactory to ▇▇▇▇▇▇.
7.6 Budgets.
-------
(a) The Manager shall prepare a budget for the Company for each Fiscal
Year, which shall include the projected sales, cost of goods sold, gross
profits, store expenses, administrative expenses, marketing expenses, operating
EBITDA, non-recurring expenses, depreciation, amortization, interest expense and
net income for such Fiscal Year, together with a projected balance sheet, cash
flow statement, statement of Capital Accounts and such other statements or
information for such Fiscal Year as shall reasonably be requested by any Member,
in each case on an annual, quarterly and monthly basis (a "Budget"). The
------
Members have adopted and approved the initial Budget for the period beginning on
the Closing Date and ending on January 31, 1998, which Budget is attached hereto
as Exhibit B. For each Fiscal Year thereafter, not later than the June 1 prior
---------
to the beginning of such Fiscal Year, the Manager shall prepare or cause to be
prepared and delivered to each other Member a proposed Budget recommended by the
Manager. Before the occurrence of a ▇▇▇▇▇▇ Cashout Event, (i) no Budget (other
than the initial Budget attached hereto as Exhibit B) shall be effective until
---------
such Budget has been approved by the ▇▇▇▇▇▇ Member; and (ii) if, by the August 1
prior to the beginning of any Fiscal Year, the Budget proposed for such Fiscal
Year has not been approved by the ▇▇▇▇▇▇ Member, then the Manager shall not
expend any funds in respect of such Fiscal Year in excess of the amounts set
forth in the Budget for the immediately preceding Fiscal Year unless such
expenditure has been approved by the ▇▇▇▇▇▇ Member; provided, however, that the
-------- -------
Manager shall be permitted to pay any amounts due in respect of the Senior
Revolving Loan, the Senior Term Loan, the Subordinated Loan, fees due under the
Services Agreement and the Transitional Services Agreement, rent and other
charges due under leases, taxes, utilities, insurance premiums and other
obligations necessary to the continued operations of the Company without having
to obtain the consent of the ▇▇▇▇▇▇ Member, even if they exceed the amounts
otherwise permitted above.
(b) The Manager shall have the right from time to time during each Fiscal
Year to submit to the Members proposed modifications to the Budget for that
Fiscal Year. The Members shall promptly consider such proposed modifications
and, before the occurrence of a ▇▇▇▇▇▇ Cashout Event, (i) the ▇▇▇▇▇▇ Member
shall have the right to reject or approve the same or to propose such revisions
thereto as the ▇▇▇▇▇▇ Member may deem reasonably necessary or proper; and (ii)
if a modification in the Budget is approved by the ▇▇▇▇▇▇ Member, then,
thereafter, the Budget as modified shall constitute the Budget for the remaining
portion of the Fiscal Year.
27
7.7 Reliance by Third Parties. Notwithstanding any other provision of
-------------------------
this Agreement to the contrary, no Person, including any lender to the Company,
any purchaser of property from the Company or any other Person dealing with the
Company, will be required to verify any representation made by the Manager as to
its authority to encumber, sell or otherwise use any assets or properties of the
Company, and any such lender, purchaser or other Person will be entitled to rely
exclusively on any such representation and will be entitled to deal with the
Manager as if it were the sole party in interest therein, both legally and
beneficially.
7.8 Compensation of Manager. The Manager will not be compensated by the
-----------------------
Company for the performance of its duties and obligations as Manager hereunder.
7.9 Company Funds. The funds of the Company will be deposited in such
-------------
account or accounts maintained in the name of the Company with such bank or
banks as are designated by the Manager. All withdrawals from or charges against
such accounts will be made by the Manager or any Officer. Funds of the Company
may be invested as determined by the Manager in accordance with the terms and
provisions of this Agreement; provided, however, that at all times the Manager
-------- -------
shall maintain books of account that show the amount of funds of the Company on
deposit in each such account and interest accrued with respect to such funds as
are credited to the Company.
7.10 Duties and Responsibilities. The Manager will manage the Company and
---------------------------
its business and affairs in accordance with the terms of this Agreement to the
best of its ability, and will use its good faith efforts to carry out the
business of the Company. In performing its duties and responsibilities under
this Agreement, the Manager will act honestly, in good faith and in the best
interests of the Company and will comply (and will cause the Company to comply)
with all applicable requirements of law. For so long as any Member having a
Percentage Interest of 10% or more is an Affiliate of GE Capital, the Manager
will comply (and will cause the Company to comply and use its best efforts to
cause each of the Officers and employees of the Company to comply) in all
respects with the GE Integrity Policies and, at all times thereafter, the
Manager will comply (and will cause the Company to comply and use its best
efforts to cause each of the Officers and employees of the Company to comply)
with a code of conduct established by the Company substantially similar to the
GE Integrity Policies.
7.11 Indemnification. Without duplication as to any matter indemnified
---------------
against by the Company pursuant to Section 7.3 of the Contribution Agreement,
and except as to any matter for which the Company is entitled to be indemnified
pursuant to Sections 7.1 or 7.3 of the Contribution Agreement, the Company shall
indemnify and hold harmless (i) the Manager, (ii) each of the Members, (iii) the
officers, directors and employees of the Manager, each of the Members and the
Company, and (iv) each member of the Advisory Board (individually, an
"Indemnitee"), as follows:
-----------
(a) In any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative, or investigative, and to
which an Indemnitee was or is a
28
party or is threatened to be made a party by reason of any act performed or
omitted to be performed in the name of or on behalf of the Company in connection
with the Company's business, the Company will indemnify such Indemnitee against
reasonable attorneys' fees, judgments, fines, penalties, including excise and
similar taxes, statements, and reasonable expenses actually incurred by such
Indemnitee in connection with the defense and/or settlement of such action,
suit, or proceeding, if such Indemnitee acted in good faith, within such
Indemnitee's scope of authority, without gross negligence or willful misconduct,
and in a manner reasonably believed by such Indemnitee to be in the best
interests of the Company, and in the case of a criminal action or proceeding, if
such Indemnitee had no reason to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the Indemnitee did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that the
Indemnitee had reasonable cause to believe that his conduct was unlawful. In no
event, however, will indemnification ever be made in relation to a proceeding
between the Members, in relation to a proceeding in which the Indemnitee has
been found liable for or convicted of fraud or a criminal act or for grossly
negligent, willful, or intentional misconduct in the Indemnitee's performance of
its duty to the Company or in relation to a proceeding which arises out of a
material violation by the Indemnitee of the terms and provisions of this
Agreement.
(b) If a claim or assertion of liability is made or asserted by a Third
Party against an Indemnitee, which, if prevailed upon by any such Third Party,
would result in such Indemnitee being entitled to indemnification pursuant to
this Section 7.11, the Indemnitee will forthwith give to the Company written
------------
notice of the claims or assertion of liability and request the Company to defend
the same. Failure to so notify the Company will not relieve the Company of any
liability which the Company might have to the Indemnitee except to the extent
that such failure actually prejudices the Company's position. The Company will
have the obligation to defend against such claim or assertion (only if the
Indemnitee is entitled to indemnification pursuant to this Section 7.11), and
------------
the Company will give written notice of the Indemnitee of acceptance of the
defense of such claim and the name of the counsel selected by the Company in
such defense and also will be entitled at its option (and at its own expense) to
employ separate counsel for such defense.
(c) No Indemnitee will be entitled to indemnification under this Section
-------
7.11 if it has entered into any settlement or compromise of any claim giving
----
rise to any indemnifiable loss without the written consent of the Company and
the Required Members. If a bona fide settlement offer is made with respect to a
---- ----
claim and the Company (with the consent of the Required Members) desires to
accept and agree to such offer, the Company will give notice to the Indemnitee
to that effect (a "Settlement Notice"). If the Indemnitee fails to consent to
-----------------
the settlement offer within ten (10) calendar days after receipt of the
Settlement Notice, then the Indemnitee will be deemed to have rejected such
settlement offer and will be responsible for continuing the defense of such
claim and, in such event, the maximum liability of the Company
29
as to such claim will not exceed the amount of such settlement offer plus any
and all reasonable costs and expenses paid or incurred by the Indemnitee up to
the date of the Settlement Notice and which are otherwise the responsibility of
the Company pursuant to this Section 7.11.
------------
(d) Any Indemnification permitted under this Section 7.11 will be made only
------------
out of the assets of the Company and no Member will be obligated to contribute
to the capital of, or lend funds to, the Company to enable the Company to
provide such indemnification.
(e) The indemnification provided by this Section 7.11 will be in addition
------------
to any other rights to which each Indemnitee may be entitled under any agreement
or vote of the Required Members, as a matter of law or otherwise, as to action
in the Indemnitee's capacity as the Manager, Officer, Member, director, officer
or employee of the Manager and/or the Members, or as a member of the Advisory
Board, and will continue as to an Indemnitee who has ceased to serve in such
capacity, and will inure to the benefit of the heirs, successors, assigns,
administrators and personal representatives of the Indemnitee.
(f) The Company shall purchase and maintain insurance on behalf of the
Indemnitees unless the failure to purchase such insurance has been approved by
the Required Members.
(g) In no event may an Indemnitee subject a Member to personal liability by
reason of the indemnification provisions of this Agreement. In addition, the
Members acknowledge and agree that the Members, the Officers, the officers,
directors and employees of the Members, and the members of the Advisory Board
are listed as Indemnitees pursuant to this Section 7.11 because of the
------------
possibility that such Persons, in their capacity as Members (or officers,
directors, or employees thereof), Officers or members of the Advisory Board may
be named as a defendant in any suit involving the Company or its activities.
(h) The provisions of this Section 7.11 are for the benefit of the
------------
Indemnitees and the heirs, successors, assigns, administrators, and personal
representatives of the Indemnitees and will not be deemed to create any rights
for the benefit of any other Persons.
7.12 Liability of the Manager and the Members.
----------------------------------------
(a) Subject to the provisions of this Agreement, neither the Manager, the
Members nor the respective stockholders, directors, officers, employees or
agents of the Manager or the Members will be liable to the Company or to the
other Members for errors in judgment or for any acts or omissions that do not
constitute: (i) gross negligence; (ii) fraud; (iii) willful or wanton
misconduct; or (iv) material violations of this Agreement.
(b) Each Member may exercise any of the powers granted to it by this
Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its directors, officers, employees, agents or
representatives.
30
7.13 Right of the ▇▇▇▇▇▇ Member or the Advisory Board to Remove Manager.
------------------------------------------------------------------
In the event of a ▇▇▇▇▇▇▇ Default or a Change of Control of ▇▇▇▇▇▇▇ at any time
prior to the occurrence of a ▇▇▇▇▇▇ Cashout Event, the ▇▇▇▇▇▇ Member shall have
the right to remove the Manager and, upon such removal, to appoint another
Person (which may be the ▇▇▇▇▇▇ Member or any Affiliate thereof) to serve as the
Manager of the Company subject to all of the terms and conditions of this
Agreement. In the event of the occurrence of an "Event of Default" under the
Senior Credit Agreement (i.e., a default that continues uncured after any
----
applicable notice and cure periods), the Advisory Board shall have the right,
upon the request of the ▇▇▇▇▇▇ Member made at any time on or after the third
anniversary of the Closing Date, to remove the Manager and, upon such removal,
to appoint another Person (which may be the ▇▇▇▇▇▇ Member or any Affiliate
thereof or as the Advisory Board may otherwise determine) to serve as the
Manager of the Company subject to all of the terms and conditions of this
Agreement.
7.14 Advisory Board.
--------------
(a) The Company shall have an advisory board (the "Advisory Board")
--------------
comprised of seven members, the purpose of which shall be to provide a forum for
(i) the exchange of information and ideas relating to the Company's business,
(ii) the review of the Company's Budget, the Company's financial and operating
performance and the conformity of such performance to the Budget, (iii) the
providing of advice to the Manager and the Members concerning the Company's
strategic planning and corporate finance alternatives, and (iv) the providing of
input to the Manager in connection with the exercise of its duties and
responsibilities hereunder. Additionally, the Advisory Board, by the vote of
not less than a majority of its members, shall have the power and authority to
exercise the right to remove and replace the Manager provided under Section 7.13
------------
above.
(b) The ▇▇▇▇▇▇▇ Member shall be entitled to designate two individuals to
serve as members of the Advisory Board (the "▇▇▇▇▇▇▇ Advisory Board Members"),
------------------------------
the ▇▇▇▇▇▇ Member shall be entitled to designate two individuals to serve as
members of the Advisory Board (the "▇▇▇▇▇▇ Advisory Board Members") and the
-----------------------------
▇▇▇▇▇▇▇ Advisory Board Members and the ▇▇▇▇▇▇ Advisory Board Members shall be
entitled by unanimous action to designate three individuals to serve as members
of the Advisory Board (the "Independent Advisory Board Members").
----------------------------------
(c) The ▇▇▇▇▇▇▇ Advisory Board Members shall be officers or directors of
the ▇▇▇▇▇▇▇ Member or of an Affiliate of the ▇▇▇▇▇▇▇ Member, and the ▇▇▇▇▇▇
Advisory Board Members shall be officers or directors of the ▇▇▇▇▇▇ Member or of
an Affiliate of the ▇▇▇▇▇▇ Member. The Independent Advisory Board Members shall
not be officers or directors of the ▇▇▇▇▇▇ Member, the ▇▇▇▇▇▇▇ Member or their
respective Affiliates, and it is anticipated that such members would be highly
respected individuals active in (or retired from) the retail or fashion
industries or otherwise having financial or operating experience that would
benefit the Company.
(d) Each member of the Advisory Board shall be elected for a one-year term,
which term shall automatically be extended for successive one-year terms,
subject in each case to earlier
31
resignation or removal as set forth below. Any member of the Advisory Board may
resign as a member thereof at any time. The ▇▇▇▇▇▇▇ Member shall have the right
at any time to remove from the Advisory Board any ▇▇▇▇▇▇▇ Advisory Board Member
and, upon any such member's resignation or removal, to designate a new ▇▇▇▇▇▇▇
Advisory Board Member to serve in such member's place on the Advisory Board. The
▇▇▇▇▇▇ Member shall have the right at any time to remove from the Advisory Board
any ▇▇▇▇▇▇ Advisory Board Member and, upon any such member's resignation or
removal, to designate a new ▇▇▇▇▇▇ Advisory Board Member to serve in such
member's place on the Advisory Board. The Independent Advisory Board Members may
be removed from the Advisory Board only by the unanimous action of the ▇▇▇▇▇▇▇
Advisory Board Members and the ▇▇▇▇▇▇ Advisory Board Members and, upon any such
Independent Advisory Board Member's resignation or removal, the designation of
any new member to serve as an Independent Advisory Board Member in such member's
place shall be made in accordance with paragraph (b) above. Each such new member
shall serve for the balance of the removed or resigned member's term, and
thereafter for successive renewal terms, subject to this paragraph (d).
(e) To the extent that any member of the Advisory Board is compensated for,
or is reimbursed for expenses incurred in connection with, his or her service on
the Advisory Board, such member shall be paid by the party (i.e., the ▇▇▇▇▇▇▇
----
Member or the ▇▇▇▇▇▇ Member) that designated such member and, in the case of the
Independent Advisory Board Members, shall be paid by the Company.
(f) Meetings of the Advisory Board shall be held at the principal office of
the Company or as is otherwise agreed to by a majority of the members of the
Advisory Board. Unless otherwise agreed by the Required Members, the Advisory
Board shall have regular meetings on not less than a monthly basis for the first
twelve months after the date of this Agreement, and on not less than a quarterly
basis thereafter, and may have such special meetings as from time to time may be
called by either the Maxwell Member, the ▇▇▇▇▇▇ Member or by any four members of
the Advisory Board. Notice of the time and place of such meetings shall be given
to each member of the Advisory Board by telephone, telecopy, mail or courier
delivery at least five days before each regular meeting and at least two days
before each special meeting. Any member of the Advisory Board may waive such
notice (either before or after any meeting), and shall be deemed to have waived
such notice if such member is present at such meeting (without objecting to the
lack of any required notice). Members of the Advisory Board may participate in
a meeting of the Advisory Board in person or by means of telephone conference,
video conference or similar communications equipment. A majority of the members
of the Advisory Board shall constitute a quorum at any such meeting provided
that such a majority includes at least one member designated by the ▇▇▇▇▇▇
Member and one member designated by the ▇▇▇▇▇▇▇ Member. Notwithstanding the
foregoing, in the case of a meeting called for the purpose contemplated by the
second sentence of Section 7.14(a), if a member designated by the ▇▇▇▇▇▇▇ Member
---------------
fails to attend three consecutive meetings called for such purpose, then a
majority of the members of the Advisory Board shall constitute a quorum at any
such meeting
32
called for such purpose irrespective of whether a member designated by the
▇▇▇▇▇▇▇ Member is in attendance.
(g) Except as specifically set forth in this Section 7.14, the Advisory
------------
Board shall conduct its affairs in such manner and by such procedures as a
majority of its members deems appropriate.
(h) The Advisory Board shall take no part in the control or management of
the Company's affairs except as specifically set forth in Section 7.13, nor
------------
shall the Advisory Board have any power or authority to act for or on behalf of
the Company, all of which power and authority shall be vested solely in the
Manager, the Required Members and the Members, as more fully set forth in this
Agreement. The members of the Advisory Board shall be entitled to the benefits
of the indemnification provisions of Sections 7.11 and 13.2 hereof.
------------- ----
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF MEMBERS
---------------------------------
8.1 Management of Business. No Member (in its capacity as a Member) will
----------------------
take part in the control of the Company's business, transact any business in the
Company's name or have the power to sign documents for or otherwise bind the
Company other than as specifically set forth in this Agreement.
8.2 Return of Capital. No Member will be entitled to the withdrawal or
-----------------
return of its Capital Contribution except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination of the Company
may be considered as such by law and then only to the extent provided for in
this Agreement.
8.3 Partition. Each Member waives any and all rights that it may have to
---------
maintain an action for partition of the Company's property.
8.4 Resignation. A Member may not resign from the Company prior to the
-----------
dissolution and winding up of the Company except upon the assignment of its
Member Interest in accordance with the provisions of Article XI of this
Agreement. A resigning Member shall not be entitled to receive any distribution
and shall not otherwise be entitled to receive the fair value of its Member
Interest, except as otherwise expressly provided in this Agreement.
8.5 Proxies. Each Member shall have the right to grant proxies to any
-------
other Person, pursuant to which such Member may constitute and appoint such
Person as its true and lawful attorney, for it and in its name, place and stead,
with full power of substitution to vote as its proxy all Member Interests of
such Member in the Company at any and all meetings, regular or special, of the
Members, or any adjournments thereof, which may be held during the term of such
proxy, and to exercise any and all rights accruing to such Member as the owner
or holder of
33
such Member Interests in the Company pursuant to this Agreement or by virtue of
the laws of the State of Delaware, giving and granting to its said attorneys all
the powers the undersigned would possess if personally present at such meeting
or exercising any such right. Without limiting the generality of the foregoing,
each Member may grant to any Person through a proxy the power to execute written
consents in lieu of any such meeting, to participate in any such meeting held by
telephone or video conference, to grant or withhold any consent or approval
contemplated by this Agreement or to exercise or decline to exercise any and all
other rights to grant or withhold any consent or approval (including, without
limitation, any and all rights to grant or withhold any consent or approval
contemplated by Article XI of this Agreement).
----------
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
--------------------------------------
9.1 Records and Accounting. The Manager will keep or cause to be kept
----------------------
appropriate books and records with respect to the Company's business, which will
at all times be kept at the principal office of the Company. Each Member will
have access to such books and records at all reasonable times. The books of the
Company will be maintained for financial reporting purposes on the accrual basis
in accordance with GAAP.
9.2 Reports.
-------
(a) The Manager will prepare and deliver to each Member, at the Company's
expense, not later than 120 days following the end of each Fiscal Year, a
balance sheet, statement of income, statement of Members' Capital Accounts and
statement of source and application of funds of the Company, as at the end of
such Fiscal Year and for the Fiscal Year then ended, in each case (commencing
with the second such Fiscal Year) setting forth in comparative form the figures
for the preceding Fiscal Year and certified without qualification by the
Company's independent accountants, along with the Manager's discussion and
analysis of variances, all in reasonable detail.
(b) Not later than thirty days after the last day of each fiscal month, the
Manager will prepare and deliver to each Member, at the Company's expense, a
balance sheet, statement of income, a statement of Members' Capital Accounts and
statement of source and application of funds of the Company for such month and
for the Fiscal Year to date, in each case with comparisons to the Budget for
such month and Fiscal Year to date period and (commencing with the second such
Fiscal Year) with comparative statements for the corresponding periods of the
prior Fiscal Year.
(c) At the request of any Member and at the Company's expense, the Manager
will additionally cause to be provided to the Members (i) an annual analysis
detailing the components, and changes therein, of each Member's Capital Account,
and (ii) an annual analysis
34
detailing all allocations of Profit, Loss and other items of income, gain, loss
and deduction, and (iii) such other reports, information or analysis that any
Member may reasonably request.
9.3 Notices from Senior Lender. Within one Business Day after receiving
--------------------------
any material notice, document or other correspondence from the Senior Lender
with respect to the Senior Revolver Loan or the Senior Term Loan, the Manager
shall deliver a copy of such notice, document or correspondence to each Member.
ARTICLE X
TAX MATTERS
-----------
10.1 Preparation of Tax Returns. The Manager will arrange for the
--------------------------
preparation and timely filing of all returns necessary for federal, state and
local income tax purposes. The Manager shall submit the returns to each Member
for review and approval no later than fifteen days prior to the due date of the
returns, after giving effect to any extensions of time. If any Member objects
to any item on a return, resolution of the items objected to shall be made by
the Required Members. The classification, realization and recognition of
income, gains, losses, deductions and other items will be based on the method of
accounting for federal income tax purposes determined by the Manager.
10.2 Tax Status; Elections. As provided in Tax Regulations Section
---------------------
301.7701-3, the Company will elect to be classified as a partnership for federal
income tax purposes and, where permitted, will elect to be classified as a
partnership for state and local tax purposes. The Manager (with the consent of
the Required Members) will determine whether to make any other election
available to the Company under the Code.
10.3 Tax Controversies.
-----------------
(a) Subject to the provisions hereof (including Section 10.3(b) below), the
---------------
Manager is designated as the "tax matters partner" (as defined in Section 6231
of the Code) and is 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, including resulting administrative and judicial proceedings,
and to expend Company funds for professional services and costs associated
therewith. Each Member agrees to cooperate with the Manager in connection with
such proceedings. The Manager will give all Members prompt notice of any
communications from the Internal Revenue Service, or other taxing authorities,
or any actions it proposes to take as "tax matters partner."
(b) Notwithstanding anything to the contrary in this Agreement, the tax
matters partner will have no authority without first obtaining the approval of
the Required Members to:
35
(i) enter into a settlement agreement with the Internal Revenue
Service that purports to bind Members other than the tax matters partner;
(ii) file a petition as contemplated in Code Section 6226(a) or 6228;
(iii) intervene in any action as contemplated in Code Section
6226(b)(5);
(iv) file any request contemplated in Code Section 6227(b); or
(v) enter into an agreement extending the period of limitations as
contemplated in Code Section 6229(b)(1)(B).
Notwithstanding the withdrawal of a Member from the Company or the dissolution
of the Company, the provisions of this Section 10.3 will survive and remain
------------
binding upon each Member until the statute of limitations has run for the
assessment of federal, state and local taxes with respect to the last taxable
year in which such Member held an interest in the Company.
10.4 Organizational Expenses. The Company will elect to deduct expenses
-----------------------
incurred in organizing the Company ratably over a sixty-month period as provided
in Section 709 of the Code.
ARTICLE XI
PLEDGE AND TRANSFER RESTRICTIONS;
CERTAIN RIGHTS; ADMISSION OF SUCCESSOR MEMBERS
----------------------------------------------
11.1 Pledge and Transfer Restrictions. No Member Interest (including the
--------------------------------
economic attributes associated therewith) shall be Pledged or Transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article XI. Any Pledge, Transfer, or purported Pledge or Transfer of
----------
any Member Interest not made in accordance with this Article XI shall be null
----------
and void.
11.2 Transfers by ▇▇▇▇▇▇▇ Retail. Except as set forth in Sections 11.4,
--------------------------- -------------
11.5 and 11.6, ▇▇▇▇▇▇▇ Retail may not Pledge or Transfer its Member Interest, in
---- ----
whole or in part, without the consent of the ▇▇▇▇▇▇ Member, which consent may be
withheld in the sole and unreasonable discretion of the ▇▇▇▇▇▇ Member; provided,
--------
however, that ▇▇▇▇▇▇▇ Retail may Transfer all (but not less than all) of its
-------
Member Interest to ▇▇▇▇▇▇▇, to any wholly-owned subsidiary of ▇▇▇▇▇▇▇ or to any
other Person all of the equity interests in which are owned, directly or
indirectly, by ▇▇▇▇▇▇▇.
11.3 Transfers by ▇▇▇▇▇▇. Except as set forth in the proviso below, in
-------------------
Sections 11.4, 11.5 and 11.6 of this Agreement and in Section 2.1 of the Option
------------- ---- ----
Agreement, and except in an
36
underwritten public offering pursuant to the Company Registration Rights
Agreement, ▇▇▇▇▇▇ may not Pledge or Transfer its Member Interest, in whole or in
part, without the consent of the ▇▇▇▇▇▇▇ Member, which consent may be withheld
in the sole and unreasonable discretion of the ▇▇▇▇▇▇▇ Member; provided,
--------
however, that ▇▇▇▇▇▇ may Transfer all (but not less than all) of its Member
-------
Interest to GE Capital, to any wholly-owned subsidiary of GE Capital or to any
other Person all of the equity interests in which are owned, directly or
indirectly, by GE Capital.
11.4 First Refusal Rights.
--------------------
(a) If any Member (in either case, a "Transferring Member") proposes to
-------------------
Transfer all (but not less than all) of the Member Interests then owned by it to
a Third Party pursuant to a Third Party Offer, then such Transferring Member
shall first give a written notice (a "First Refusal/Tag Along Notice") to the
------------------------------
▇▇▇▇▇▇▇ Member, in the case of a notice given by the ▇▇▇▇▇▇ Member, or to the
▇▇▇▇▇▇ Member, in the case of a notice given by the ▇▇▇▇▇▇▇ Member (the
recipient of such notice in either case, the "Notified Member"), specifying (i)
---------------
the identity of the Third Party making such Third Party Offer, (ii) the price
per Member Unit offered to such Transferring Member pursuant to such Third Party
Offer (the "Offer Price"), and (iii) any other terms and conditions of such
-----------
Third Party Offer, and containing (in addition to the Tag Along Offer referred
to in Section 11.5(a) hereof) an irrevocable offer (a "First Refusal Offer"),
--------------- -------------------
open to acceptance for a period of thirty days after the date such First
Refusal/Tag Along Notice is given, to sell to the Notified Member all (but not
less than all) of its Member Interests at the Offer Price and on the other terms
and conditions of the Third Party Offer. The First Refusal/Tag Along Notice
shall be accompanied by copies of all letters of intent, term sheets or other
documents setting forth the proposed terms and conditions of such Third Party
Offer.
(b) The Notified Member may accept such First Refusal Offer by giving a
written notice of such acceptance (a "Notice of Acceptance") to the
--------------------
Transferring Member within thirty days after the date the First Refusal/Tag
Along Notice is given. If such a Notice of Acceptance is given, the closing of
the Transfer of the Transferring Member's Member Interests to such Notified
Member pursuant to the First Refusal Offer shall take place in accordance with
the provisions of Section 11.7 hereof.
------------
(c) If, at the end of the thirtieth day after the First Refusal/Tag Along
Notice is given, the Notified Member has not delivered a Notice of Acceptance of
the First Refusal Offer contained in such notice, then the First Refusal Rights
shall terminate with respect to the Transferring Member's Member Interests,
subject to the provisions of Section 11.5 hereof.
------------
(d) Transfers of Member Interests for property, services or other non-cash
consideration are not permitted pursuant to this Section 11.4. In no event
------------
shall ▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail solicit or accept any Third Party Offer that does
not provide for the rights set forth in this Section 11.4.
------------
11.5 Tag Along Rights.
----------------
37
(a) Any First Refusal/Tag Along Notice given pursuant to Section 11.4(a)
---------------
hereof shall also contain (in addition to the First Refusal Offer), an
irrevocable offer (a "Tag Along Offer"), open to acceptance for a period of
---------------
thirty days after the date such First Refusal/Tag Along Notice is given, to
permit the Notified Member, in lieu of accepting the First Refusal Offer
pursuant to Section 11.4(b), to sell to the Third Party pursuant to the Third
---------------
Party Offer all (but not less than all) of the Member Interests then held by the
Notified Member, at the Offer Price and on the other terms and conditions of the
Third Party Offer.
(b) The Notified Member may accept such Tag Along Offer by giving a Notice
of Acceptance to the Transferring Member within thirty days after the date the
First Refusal/Tag Along Notice is given. If such a Notice of Acceptance is
given, the closing of the purchase by the Third Party of the Member Interests of
the Transferring Member and the Notified Member pursuant to the Third Party
Offer shall take place in accordance with the provisions of Section 11.7 hereof.
------------
(c) If, at the end of the thirtieth day after the First Refusal/Tag Along
Notice is given, the Notified Member has not delivered a Notice of Acceptance of
either the First Refusal Offer or the Tag Along Offer contained in such First
Refusal/Tag Along Notice, then the Transferring Member shall have ninety days in
which to Transfer all (but not less than all) of the Transferring Member's
Member Interests to the Third Party at a price not greater than the Offer Price
and on terms no more favorable to the Transferring Member than those contained
in the Third Party Offer to which the First Refusal/Tag Along Notice relates.
(d) Promptly after any Transfer of a Transferring Member's Member Interests
to a Third Party pursuant to paragraph (c) above, the Transferring Member shall
notify the Notified Member thereof and shall furnish such evidence of the
completion of such Transfer, the time of completion of such Transfer and the
terms and conditions thereof as the Notified Member may request. If, at the end
of the ninety-day period provided for in paragraph (c) above, the Transferring
Member has not completed the Transfer of all of its Member Interests to such
Third Party, the Transferring Member shall no longer be permitted to Transfer
such Member Interests without again complying with Section 11.4 and this Section
------------ -------
11.5 in their entirety. If the Transferring Member determines at any time
----
within such ninety-day period that it cannot complete within such period the
Transfer of its Member Interests on the terms and conditions (including the
Offer Price) of the Third Party Offer, the Transferring Member may recommence
the procedures set forth in Section 11.4 and this Section 11.5 in their entirety
------------ ------------
with respect to any revised Third Party Offer, without waiting for the
expiration of such ninety-day period, by delivering a new First Refusal/Tag
Along Notice to the Notified Member.
(e) Transfers of Member Interests for property, services or other non-cash
consideration are not permitted pursuant to this Section 11.5. In no event
------------
shall ▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail solicit or accept any Third Party Offer that does
not provide for the rights set forth in this Section 11.5.
------------
38
11.6 Take Along Rights.
-----------------
(a) If (i) a Transferring Member has given a First Refusal/Tag Along Notice
with respect to all of the Member Interests owned by it and has complied with
Sections 11.4 and 11.5 hereof, and (ii) the Notified Member has not given a
------------- ----
Notice of Acceptance with respect to the First Refusal Offer or the Tag Along
Offer, then the Transferring Member shall have the right (the "Take Along
----------
Right"), at its option, to require the Notified Member to sell all (but not less
than all) of the Member Interests held by the Notified Member to the Third Party
at the Offer Price and on the other terms and conditions of the Third Party
Offer, by giving a written notice of such election (a "Take Along Notice") to
-----------------
the Notified Member within thirty days after the last date for delivery of a
Notice of Acceptance pursuant to Sections 11.4(b) and 11.5(b) hereof.
---------------- -------
(b) If such a Take Along Notice is given, the closing of the purchase by
the Third Party of the Member Interests of the Transferring Member and the
Notified Member pursuant to the Third Party Offer shall take place in accordance
with the provisions of Section 11.7 hereof.
------------
(c) Transfers of Member Interests for property, services or other non-cash
consideration are not permitted pursuant to this Section 11.6. In no event
------------
shall ▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ Retail solicit or accept any Third Party Offer that does
not provide for the rights set forth in this Section 11.6.
------------
11.7 Closing of Permitted Transfers.
------------------------------
(a) As soon as is reasonably practical following the Transferring Member's
receipt of a Notice of Acceptance of a Tag Along Offer pursuant to Section
-------
11.5(b) hereof or the Transferring Member's giving of a Take Along Notice
-------
pursuant to Section 11.6(a) hereof, the Transferring Member shall deliver to the
---------------
Notified Member drafts of all definitive documents reasonably required to be
executed in connection with such proposed Transfer and the Notified Member shall
have the right to participate in good faith in the negotiation of such
documents. The obligation of the Notified Member to consummate the transactions
contemplated by the Third Party Offer shall be conditioned only upon (i) the
negotiation and execution of such definitive documents, having terms and
conditions consistent with the Third Party Offer and otherwise reasonably
acceptable to each of the parties thereto, and (ii) the consummation of such
transaction by the Transferring Member. The Notified Member shall cause a
representative that is duly authorized to execute documents and to act on behalf
of the Notified Member to attend the closing of such Transfer and to take such
actions as are reasonably requested by the Transferring Member or the Third
Party in connection therewith.
(b) The closing of the Transfers provided for in Sections 11.4(b), 11.5(b)
---------------- -------
and 11.6(b) hereof shall take place on the date (not later than ninety days
-------
following the date on which either the Notice of Acceptance referred to in
Sections 11.4(b) or 11.5(b) or the Take Along Notice referred to in Section
---------------- ------- -------
11.6(b) is given) agreed upon by the Transferring Member, the Notified
39
Member and, except for the purposes of Section 11.4(b), the Third Party (or if
---------------
such day is not a Business Day, on the next succeeding Business Day), at the
principal office of the Company (or at such other place as the Transferring
Member, the Notified Member and, except for the purposes of Section 11.4(b), the
---------------
Third Party shall agree).
(c) On the date of closing of any Transfer of Member Interests by a
Transferring Member to the Notified Member pursuant to Section 11.4(b), the
---------------
Transferring Member shall assign to the Notified Member the Member Interests
being Transferred pursuant to such Section and, on the date of closing of any
Transfer of Member Interests by a Transferring Member and the Notified Member to
a Third Party pursuant to Sections 11.5(b) and 11.6(b), the Transferring Member
---------------- -------
and the Notified Member shall assign to the Third Party the Member Interests
being Transferred pursuant to such Sections, in each case against delivery of
the aggregate Offer Price for such Member Interests (the "Purchase Price"),
--------------
either by (i) wire transfer of the Purchase Price to an account in a bank
located in the United States designated by the transferring Member for such
purpose, or (ii) delivery to the transferring Member of an official bank check
drawn on a member of the New York Clearing House, payable to the order of the
transferring Member in the amount of the Purchase Price. Such Transfer shall,
in the case of a Transfer pursuant to Section 11.4, be made without any
------------
representation or warranty whatsoever (other than to the effect that the
transferring Member has good title to such Member Interests, free and clear of
Liens, and has all requisite power and authority to assign such Member Interests
to the transferee pursuant to Section 11.4 hereof); and, in the case of a
------------
Transfer pursuant to Sections 11.5 or 11.6, shall be made upon reasonable and
------------- ----
customary representations, warranties and indemnities for a transaction of such
type.
11.8 Rights of Assignee.
------------------
(a) Except as provided in this Article XI and as required by operation of
----------
law, the Company will not be obligated for any purpose whatsoever to recognize
the Transfer by any Member of a Member Interest unless such Transfer is made in
accordance with the terms of this Agreement. A transferee or assignee of a
Member's Member Interest or a Person acquiring a Member Interest pursuant to any
foreclosure made upon any permitted Pledge of such Member Interest, will be
entitled only to receive the distributive share of the Company's Profits, Losses
and other items of income, gain, losses, deductions and credit and the
distributions of cash and/or property attributable to such transferred Member
Interest.
(b) Any Transfer of a Member Interest must be in writing, may not
contravene any of the provisions of this Agreement, and must be executed by the
transferor and delivered to the Company and recorded on the books of the
Company. Any Transfer which contravenes any of the provisions of this Agreement
will be of no force and effect and will not be recognized by the Company.
(c) A transferee of a Member Interest who is not admitted as a Member
pursuant to Section 11.9 will have no right to require any information or
------------
account of the Company's
40
transactions or to inspect the Company books or to vote, but will only be
entitled to receive the allocations and distributions to which its transferor
would otherwise be entitled under this Agreement.
(d) Any transferee who does not become a Member and desires to make a
further transfer of such Member Interest will be subject to all of the
provisions of this Article XI to the same extent and in the same manner as any
----------
Member desiring to transfer its Member Interest.
11.9 Admission as a Successor Member.
-------------------------------
(a) Conditions of Admission. Subject to the other provisions of this
-----------------------
Article XI, a transferee of a Member Interest will be admitted as a Member only
----------
if the following conditions are satisfied:
(i) The transferee accepts and agrees to be bound by the terms and
provisions of this Agreement as a Member with respect to the Member
Interest so transferred;
(ii) A counterpart of this Agreement and such other documents or
instruments as the Manager may reasonably require is executed by the
transferee to evidence such acceptance and agreement;
(iii) The transferee pays or reimburses the Company for all
reasonable legal fees, filing and publication costs incurred by the
Company in connection with the admission of the transferee as a Member
with respect to the Member Interest so transferred; and
(iv) If the transferee is not an individual, the transferee provides
the Company with evidence satisfactory to counsel for the Company of the
authority of such transferee to become a Member under the terms and
provisions of this Agreement.
(b) Filings. The Manager will make all official filings and publications
-------
as promptly as practicable after the satisfaction by the transferee of the
conditions contained in this Article XI to the admission of such transferee as a
----------
Member.
11.10 Distributions and Allocations in Respect of Transferred Member
--------------------------------------------------------------
Interests. If any Member Interest is Transferred during any Tax Year in
---------
compliance with the provisions of this Article XI, Profits, Losses and all other
----------
items attributable to the transferred (or adjusted) interest for such period
will be divided and allocated between the affected Persons by taking into
account their varying interests during the period in accordance with Code
Section 706(d), using any conventions permitted by law and selected by the
Manager (with the consent of the Required Members). All distributions on or
before the date of such Transfer will be made to the transferor. Solely for
purposes of making such allocations and distributions in the case of a Transfer,
the Company will recognize such Transfer not later than the end of the calendar
month during which
41
it is given notice of such Transfer. Neither the Company nor the Manager will
incur any liability for making allocations and distributions in accordance with
the provisions of this Section 11.10, whether or not the Manager or the Company
-------------
has knowledge of any Transfer of any interest.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
---------------------------
12.1 No Dissolution. The Company shall not be dissolved by the admission
--------------
of Members in accordance with the terms of this Agreement or, except as provided
in Section 12.2, by any event which terminates the continued membership of a
------------
Member in the Company, so long as the Company at all times has at least one
Member. Upon the occurrence of any such event, the business of the Company
shall be continued without dissolution.
12.2 Events Causing Dissolution. The Company shall be dissolved and its
--------------------------
affairs shall be wound up upon the occurrence of any of the following events:
(a) the expiration of the term of the Company, as provided in Section 2.5;
-----------
(b) the bankruptcy or dissolution of a Member, or the occurrence of any
other event under the Delaware Act that terminates the continued membership of a
Member;
(c) the entry of a decree of judicial dissolution under Section 18-802 of
the Delaware Act;
(d) the completion of the sale of all or substantially all of the assets of
the Company;
(e) the termination of the Contribution Agreement pursuant to Section
8.1(a) thereof at any time prior to the Closing Date; or
(f) the unanimous written consent of the Members to dissolve the Company.
12.3 Continuation of the Company. Upon the occurrence of an event
---------------------------
described in Section 12.2(a), (b) or (e) only, the Company may be reconstituted
--------------- --- ---
if (i) in the case of an event described in Section 12.2(a) or (e), all of the
--------------- ---
Members unanimously elect to continue the Company within ninety days after such
event, or (ii) in the case of an event described in Section 12.2(b), the
---------------
remaining Members at the time of such event unanimously elect to continue the
Company within ninety days after such event. If no election to continue the
Company is made within ninety days after such event, the Company will conduct
only those activities necessary to wind up its affairs. If such an election to
continue the Company is made, then:
(a) the Company will be deemed to be reconstituted and will continue unless
and until dissolved in accordance with this Article XII; and
-----------
42
(b) all necessary steps will be taken to amend or restate this Agreement
and, if the Certificate of Formation has been canceled, then a new certificate
of formation (or similar certificate) shall be filed in accordance with the
Delaware Act.
12.4 Liquidation.
-----------
(a) Upon dissolution of the Company, the Manager will be the liquidating
trustee (the "Liquidator") of the Company, unless the Manager is otherwise
----------
unable to serve in such capacity, in which case a Liquidator will be selected by
the Required Members.
(b) The Liquidator will agree not to resign at any time without fifteen
days' prior written notice. A Liquidator other than the Manager may be removed
at any time, with or without cause, by notice of removal approved by the
Required Members. Upon dissolution, removal or resignation of a Liquidator, a
successor and substitute Liquidator (who will succeed to all rights, powers and
duties of the original Liquidator) will, within thirty days thereafter, be
approved by the Required Members. The right to appoint a successor or substitute
Liquidator in the manner provided herein will be recurring and continuing for so
long as the functions and services of the Liquidator are authorized to continue
under the provisions hereof, and every reference herein to a Liquidator will be
deemed to refer also to any such successor or substitute Liquidator appointed in
the manner herein provided.
(c) Except as expressly provided in this Article XII, the Liquidator will
-----------
have and may exercise, without further authorization or consent of any of the
Members, all of the powers conferred upon the Manager and the Required Members
under the terms of this Agreement to the extent necessary or desirable in the
good faith judgment of the Liquidator to complete the winding up and liquidation
of the Company as provided for herein.
(d) Except as provided in Section 12.6 below and in Section 8.1(b) of the
------------
Contribution Agreement, the Liquidator will liquidate the assets of the Company,
and, after making all allocations and distributions otherwise required by this
Agreement, will apply and distribute the proceeds of such liquidation in the
following order of priority, unless otherwise required by mandatory provisions
of applicable law:
(i) First, to creditors of the Company (including Members) in the
order of priority provided by law, including the escrowing of a reserve of
cash or other assets of the Company for contingent liabilities in an amount
determined by the Liquidator to be appropriate for such purposes; and
(ii) Second, to the Members in accordance with the positive balances
in their respective Capital Accounts.
43
12.5 Reserves. After all the assets of the Company have been distributed,
--------
the Company will terminate; provided that, if at any time thereafter any funds
in any reserve referred to in Section 12.4(d)(i) are released because the need
------------------
for such reserve has ended, such funds will be distributed to the Members in the
same manner as if such distribution had been made pursuant to Section
-------
12.4(d)(ii).
-----------
12.6 Distributions in Kind. Notwithstanding the provisions of Section
-------
12.4 that require liquidation of the Company's assets, but subject to the order
----
of priorities set forth therein, if on dissolution of the Company the Liquidator
determines that an immediate sale of part or all of the Company's assets would
be impractical or would cause undue loss to the Members, the Liquidator may
defer for a reasonable time the liquidation of any assets except those necessary
to satisfy liabilities of the Company (other than those to Members). The
Liquidator may distribute to the Members, in lieu of cash, such Company assets
as the Liquidator deems not suitable for liquidation. Any distributions in kind
will be subject to such conditions relating to the disposition and management
thereof as the Liquidator deems reasonable and equitable. The Liquidator will
value any property distributed in kind based upon such property's fair market
value as determined using such reasonable method of valuation as it may adopt.
The fair market value of such property will be the gross fair market value of
such property for purposes of making the adjustments required by paragraph (b)
of the definition of "Book Value" and paragraph (c) of the definition of
"Profits and Losses."
12.7 Filing of Certificate of Cancellation. Upon the completion of the
-------------------------------------
distribution of the Company's property as provided in Sections 12.4, 12.5 and
------------- ----
12.6, the Liquidator (or the Members if necessary) will cause the Certificate of
----
Formation to be canceled and will take such other actions as may be necessary to
terminate the existence of the Company.
12.8 Return of Capital. No Member will be personally liable for the
-----------------
return of the Capital Contributions of the Members, or any portion thereof, it
being expressly understood that any such return will be made solely from the
Company's assets.
ARTICLE XIII
GENERAL PROVISIONS
------------------
13.1 Amendment. An amendment to this Agreement may be adopted only if
---------
unanimously approved in writing by all Members. Notwithstanding the foregoing,
the Manager shall have the authority, acting alone, to amend this Agreement
solely to reflect the admission of successor Members provided that the
conditions of Section 11.9 have been met.
------------
13.2 Further Action. The parties will 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.
44
13.3 Invalidity of Provisions. If any provision of this Agreement is
------------------------
declared or found to be illegal, unenforceable or void, in whole or in part,
then the parties will be relieved of all obligations arising under such
provision, but only to the extent that it is illegal, unenforceable or void, it
being the intent and agreement of the parties that this Agreement be deemed
amended by modifying such provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
13.4 Notices. All notices that are required or may be given pursuant to
-------
this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy or by
registered or certified mail, postage prepaid, to the parties at the following
addresses (or to the attention of such other person or such other address as any
party may provide to the other parties by notice in accordance with this Section
-------
13.4):
----
If to ▇▇▇▇▇▇:
------------
c/o GE Capital Equity Capital Group, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
--------------
General Electric Capital Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Counsel -- Equity Capital Group
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and
King & Spalding
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to ▇▇▇▇▇▇▇ Retail:
--------------------
▇▇▇▇▇▇▇ Retail Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
45
(or, if by mail, ▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇)
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
--------------
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Manager:
-----------------
To ▇▇▇▇▇▇▇ Retail, as provided above, or
as shall be specified by any successor
Manager hereunder by notice give in
accordance with this Section 13.4.
------------
Any such notice or other communication will be deemed to have been given and
received (whether actually received or not) on the day it is personally
delivered or delivered by courier or overnight delivery service or sent by
telecopy or, if mailed, when actually received.
13.5 Binding Effect. This Agreement will be binding upon and inure to the
--------------
benefit of the parties hereto and their successors, legal representatives and
permitted assigns.
13.6 Integration. This Agreement constitutes the entire agreement among
-----------
the parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
13.7 No Third Party Beneficiary. This Agreement is made solely and
--------------------------
specifically between and for the benefit of the parties hereto, and their
respective successors and assigns subject to the express provisions hereof
relating to successors and assigns, and (except as specifically set forth in
Sections 7.11 and 13.2) no other Person whatsoever will have any rights,
------------- ----
interest or claims hereunder or be entitled to any benefits under or on account
of this Agreement as a third party beneficiary or otherwise.
13.8 Waiver. No failure by any party to insist upon the strict
------
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof will constitute
waiver of any such breach or any other covenant, duty, agreement, or condition.
46
13.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which together will constitute one agreement binding on all
the parties hereto, notwithstanding that all such parties are not signatories to
the original or the same counterpart.
13.10 Entire Agreement. This Agreement contains the entire understanding
----------------
of the parties relating to the subject matter hereof and supersedes all prior
written or oral and all contemporaneous oral agreements and understandings
relating to the subject matter hereof. This Agreement cannot be modified or
amended except in writing signed by the party against whom enforcement is
sought.
13.11 Governing Law. This Agreement will be construed and interpreted in
-------------
accordance with and governed by the Delaware Act with respect to all matters
subject thereto, and otherwise will be governed by and construed and interpreted
in accordance with the laws of the State of New York applicable to contracts
made and to be performed in that State.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this Agreement as of the date first above written.
THE ▇▇▇▇▇▇ GROUP INC.
By: /s/ ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇
__________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Executive Vice President
▇▇▇▇▇▇▇ RETAIL INC., individually
and in its capacity as Manager
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
__________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman
47
Exhibit A
---------
Schedule of Net Values of Contributed Property
----------------------------------------------
Property Net Value
----------- ---------
▇. ▇▇▇▇▇▇▇ Retail Inc.
-------------------
1. The ▇▇▇ & ▇▇▇▇▇ Trademark License $3,460,000
=========
Total: $3,460,000
B. The ▇▇▇▇▇▇ Group Inc.
---------------------
1. The Headquarters Assets $ 0
2. The Store FF&E $3,600,000
3. The Store Leases $ 0
4. All other Store Assets $ 0
==========
Total: $3,600,000
48
Exhibit B
---------
Approved Budget for First Fiscal Year
-------------------------------------
49