Exhibit 3.7
OPERATING AGREEMENT
OF
ELDER-BEERMAN OPERATIONS, LLC
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TABLE OF CONTENTS
PAGE
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ARTICLE I ORGANIZATION................................................... 1
SECTION 1.1 - NAME.................................................... 1
SECTION 1.2 - PURPOSES OF BUSINESS.................................... 1
SECTION 1.3 - PLACE OF BUSINESS....................................... 1
SECTION 1.4 - REGISTERED OFFICE OF THE COMPANY........................ 1
SECTION 1.5 - EFFECTIVE DATE AND TERM................................. 2
SECTION 1.6 - NAME, ADDRESS AND INTERESTS OF MEMBERS.................. 2
SECTION 1.7 - NAME AND ADDRESS OF REGISTERED AGENT.................... 2
SECTION 1.8 - DEFINITIONS............................................. 2
ARTICLE II CAPITAL CONTRIBUTIONS......................................... 4
SECTION 2.1 - REQUIRED CAPITAL CONTRIBUTIONS.......................... 4
SECTION 2.2 - CAPITAL ACCOUNTS........................................ 7
SECTION 2.3 - RETURN OF CONTRIBUTIONS; DISSOLUTION OF THE COMPANY..... 8
ARTICLE III ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS.............. 8
SECTION 3.1 - CASH DISTRIBUTIONS...................................... 8
SECTION 3.2 - ALLOCATION OF PROFITS AND LOSSES........................ 8
SECTION 3.3 - ACCOUNTING.............................................. 8
ARTICLE IV MANAGEMENT OF COMPANY......................................... 9
SECTION 4.1 - MANAGEMENT OF COMPANY................................... 9
SECTION 4.2 - OFFICERS AND OTHER MATTERS.............................. 9
SECTION 4.3 - MEETINGS OF MEMBERS..................................... 10
SECTION 4.4 - VOTING RIGHTS AND DECISIONS OF MEMBERS.................. 10
SECTION 4.5 - CHECKING OR SAVINGS ACCOUNTS............................ 10
SECTION 4.6 - APPOINTMENT OF TAX MATTERS MEMBER....................... 10
SECTION 4.7 - DISPUTE RESOLUTION...................................... 11
ARTICLE V DUTIES LIABILITIES COMPENSATION AND LIMITATIONS ON DECISIONS OF
THE MANAGING MEMBERS.................................................. 12
SECTION 5.1 - DUTIES OF MANAGING MEMBER............................... 12
SECTION 5.2 - LIABILITIES AND INDEMNIFICATION OF THE MANAGING
MEMBERS.............................................. 13
SECTION 5.3 - RELIANCE ON ACTS OF MANAGING MEMBER..................... 13
SECTION 5.4 - COMPENSATION OF THE MANAGING MEMBERS AND AFFILIATES..... 14
ARTICLE VI TRANSFER OF INTEREST AND WITHDRAWAL OF A MEMBER............... 14
SECTION 6.1 - TRANSFER BY MEMBER...................................... 14
SECTION 6.2 - VOLUNTARY WITHDRAWAL OF MEMBERS......................... 15
SECTION 6.3 - PROHIBITED TRANSFERS.................................... 15
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SECTION 6.4 - BANKRUPTCY OR DISSOLUTION OF A MEMBER................... 15
SECTION 6.5 - WITHDRAWAL OF MANAGING MEMBER........................... 15
SECTION 6.6 - INTERIM MANAGING MEMBER................................. 16
ARTICLE VII AMENDMENTS................................................... 16
SECTION 7.1 - AUTHORITY TO AMEND...................................... 16
ARTICLE VIII POWER OF ATTORNEY........................................... 17
SECTION 8.1 - POWER OF ATTORNEY....................................... 17
SECTION 8.2 - SURVIVAL OF POWER....................................... 17
ARTICLE IX TERMINATION OF THE COMPANY.................................... 18
SECTION 9.1 - ELECTION TO TERMINATE AND DISSOLVE...................... 18
SECTION 9.2 - PROCEEDS OF LIQUIDATION................................. 18
SECTION 9.3 - FAIR MARKET VALUE DISTRIBUTIONS......................... 19
SECTION 9.4 - FINAL ACCOUNTING........................................ 19
ARTICLE X MISCELLANEOUS.................................................. 19
SECTION 10.1 - GOVERNING LAW.......................................... 19
SECTION 10.2 - COUNTERPARTS........................................... 19
SECTION 10.3 - AGREEMENT FOR FURTHER EXECUTION........................ 20
SECTION 10.4 - ENTIRE AGREEMENT....................................... 20
SECTION 10.5 - SEVERABILITY........................................... 20
SECTION 10.6 - NOTICE................................................. 20
SECTION 10.7 - CAPTION................................................ 21
SECTION 10.8 - NUMBER AND GENDER...................................... 21
SECTION 10.9 - BINDING EFFECT......................................... 21
SECTION 10.10 - INCORPORATION BY REFERENCE............................ 21
SECTION 10.11 - NO STATE LAW PARTNERSHIP.............................. 21
SECTION 10.12 - NO LIABILITY TO THIRD PARTIES......................... 21
SECTION 10.13 - RIGHTS OF CREDITORS AND THIRD PARTIES UNDER
AGREEMENT.......................................... 21
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OPERATING AGREEMENT OF
ELDER-BEERMAN OPERATIONS, LLC
THIS OPERATING AGREEMENT ("Agreement") of ELDER-BEERMAN OPERATIONS, LLC, an
Ohio limited liability company (the "Company") formed pursuant to Chapter 1705
of the Ohio Revised Code (the "Act") is entered into as of December 15,1999, by
and among those parties listed on Exhibit A (collectively referred to as the
"Members" and individually as a "Member"), such execution to evidence the mutual
agreement of the Members to implement an Operating Agreement under the
provisions of the Act, for the purposes and upon the terms and conditions
hereinafter set forth. Reference to an Article, Section, or paragraph means an
Article, Section or paragraph of this Agreement, unless otherwise specified.
ARTICLE I
ORGANIZATION
SECTION 1.1 - NAME.
The name of the Company is ELDER-BEERMAN OPERATIONS, LLC
SECTION 1.2 - PURPOSES OF BUSINESS.
The purposes for which the Company has been formed and the powers that it
may exercise, all being in furtherance, and not in limitation, of the general
powers conferred upon limited liability companies by the State of Ohio, are (i)
to purchase, acquire, invest in, own, hold, develop, operate, lease, manage
and/or otherwise deal in and with real estate, personal property, securities,
and interests therein, (ii) to enter into partnerships, joint ventures, or other
joint enterprises (including, without limitation, by way of purchase of
corporate stock) with others to conduct any business operation, and (iii) to do
any and all things incidental to the accomplishment of the foregoing purposes,
or incidental to the protection and benefit of the Company (collectively, the
"Business"), including, but not limited to, hiring and terminating employees,
agents, independent contractors, attorneys, accountants, and other personnel.
SECTION 1.3 - PLACE OF BUSINESS.
The location of the principal place of business of the Company shall be
3155 El-Bee Road, Dayton, Ohio, 45439, or at such other substituted or
additional places of business as may be designated by the Managing Member.
SECTION 1.4 - REGISTERED OFFICE OF THE COMPANY.
The address of the Company's Registered Office in the State of Ohio is 3155
El-Bee Road, Dayton, Ohio, 45439. All interested persons may direct requests for
copies of this Operating Agreement and any Bylaws of the Company to the Managing
Member at the Company's Registered Office.
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SECTION 1.5 - EFFECTIVE DATE AND TERM.
This Agreement shall be effective as of the date hereof, continuing for a
perpetual term unless earlier dissolved and terminated pursuant to the Act or
any other provisions of this Agreement. The Managing Member shall cause the
Company to file such documents as may be required to permit the Company to carry
on its business in the State of Ohio and any other jurisdiction in which the
Company desires to conduct business.
SECTION 1.6 - NAME, ADDRESS AND INTERESTS OF MEMBERS.
The names, addresses, Capital Contributions, and Interests of the Members
shall be as set forth on Exhibit A attached hereto and made a part hereof, and
Exhibit A shall be amended as may be necessary or appropriate by the Managing
Member. A Member's Membership Interest in the Company shall mean a Member's
Capital Account and share of Profits, Losses, cash distributions, and other
economic rights in the Company.
SECTION 1.7 - NAME AND ADDRESS OF REGISTERED AGENT.
The Company's Agent for service of process, as required under Section
1705.06 of the Act, shall be Steven D. Lipton. His address is 3155 El-Bee Road,
Dayton, Ohio, 45439.
SECTION 1.8 - DEFINITIONS.
For purposes of this Agreement and the Appendix, the terms and phrases
listed below shall be defined as follows:
(a) Affiliate. "Affiliate" or "Affiliated Person" means, when used with
reference to a specified Person, (i) any Person who directly or indirectly,
controls or is controlled by, or is under common control with the specified
Person; (ii) any Person who is an officer, director, employee, trustee or
partner of, or serves in a similar capacity with respect to the specified
Person, or of which the specified Person is an officer, director, employee,
trustee or partner, or with respect to which the specified Person servers in a
similar capacity; (iii) any Person who, directly or indirectly, is the
beneficial owner of ten percent (10%) or more of any class of equity securities
or partnership or limited liability company interests of, or otherwise has a
substantial beneficial interest in, the specified Person as of the date of this
Agreement or of which the specified Person is directly or indirectly the owner
of ten percent (10%) or more of any class of equity securities or partnership or
limited liability company interests or in which the specified Person has a
substantial beneficial interest; and (iv) any relative of the specified Person
(and for this purpose, a relative means a Person's spouse, lineal descendants,
ancestors, siblings, sons-in-law or daughters-in-law).
(b) Agreement. "Agreement" means this Operating Agreement as amended,
modified, supplemented, or restated from time to time, and includes all
Appendices and Exhibits attached hereto.
(c) Capital Account. "Capital Account" means an individual account
maintained by the Company for each Member, which shall be established and
maintained by the Company in accordance with the Regulations under Code Section
704(b). No interest shall be paid on or
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charged against the balance in such account. A Member's Capital Account shall
initially be equal to the amount of such Member's Capital Contribution.
(d) Capital Contribution. "Capital Contribution" means the total amount of
cash and the net fair market value of property actually contributed to the
Company by a Member (and the predecessor holder of the Interests of such
Member). For purposes of this Agreement, the phrase "net fair market value of
property" means the gross fair market value of property, reduced by liabilities
assumed by the Company or to which such property is subject.
(e) Cash Flow. "Cash Flow" of the Company with respect to any period means
all cash receipts of the Company from any source (including cash from
operations, compensation, or fees but excluding Capital Contributions of
Members) less the portion thereof (i) used to pay cash disbursements in
connection with the Company's activities (including, but not limited to, debt
service, operating expenses, compensation, fees and reimbursements paid to the
Members or their Affiliates in accordance with Articles IV and V and the
repayment of loans made by a Member to the Company, plus accrued interest); and
(ii) used to establish such reserves for capital improvements, working capital,
or otherwise, as the Managing Members shall deem to be reasonably necessary or
appropriate in their absolute discretion in the efficient conduct of the
business of the Company; except, however, that Cash Flow shall not include any
Liquidation Proceeds.
(f) Code. "Code" means the United States Internal Revenue Code of 1986, as
amended.
(g) Event of Withdrawal. An "Event of Withdrawal" means an event described
in Section 1705.15 of the Act (or if such Act is amended, then the successor
provision of the Act) which includes death, insanity, bankruptcy, retirement,
resignation or expulsion of a Member.
(h) Interest. A Member's "Interest" is the percentage set forth opposite
the respective Member's name on Exhibit A.
(i) Liquidation. "Liquidation" means (a) when used with reference to the
Company, the event and/or act which occurs the earlier of (i) the date upon
which the Company is terminated under Code Section 708(b)(1)(A), or (ii) the
date upon which the Company ceases to be a going concern, and (b) when used with
reference to any Member, the earlier of (i) the date upon which there is a
Liquidation of the Member, or (ii) the date upon which such Member's entire
Interest in the Company is terminated other than by transfer, assignment, or
other disposition.
(j) Liquidation Proceeds. "Liquidation Proceeds" means the proceeds and
assets available for distribution to creditors and Members upon or pursuant to
the termination and Liquidation of the Company, including the proceeds available
from the sale of all or substantially all of the Company's assets.
(k) Majority in Interest. "Majority in Interest" or "majority of the
Membership Interests" shall mean those Members owning Membership interests
equaling at least fifty-one percent (51%) of the outstanding Membership
Interests in profits and capital of the Company owned by those Members entitled
to vote on such matter.
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(l) Managing Member. The "Managing Member" is the Member who is designated
a Managing Member in Article IV, and who is responsible for managing, or
participating in the management, of, the Company, and any successor of a
Managing Member who is appointed as a Managing Member in accordance with the
provisions of this Agreement. If there is more than one Managing Member, the
term shall mean, collectively, all such Members.
(m) Member. A "Member" means a Person who is named in this Agreement as a
Member owning a Membership Interest, and any Person who later becomes a Member
pursuant to the provisions of this Agreement.
(n) Membership Interest. A Member's "Membership Interest" or "Interest"
shall mean a Member's Capital Account and share of Profits, Losses, cash
distributions, and other economic rights in the Company.
(o) Non-Managing Member. A "Non-Managing Member" is a Member who does not
participate in the management of the Company.
(p) Person. "Person" means any individual, partnership, limited liability
company, corporation, trust, estate, or other entity, as the context may
require, and as more fully set forth in Section 1705.01(k) of the Act.
(q) Regulations. "Regulations" means the Income Tax Regulations issued by
The United States Treasury Department, as the same may be amended from time to
time.
(r) Stipulated Rate. The "Stipulated Rate" means the rate of interest
publicly announced as the "base rate" of interest by Firstar Bank ("Bank") (or
its successor) and will float on a daily basis.
(s) Trustee-in-Liquidation. The "Trustee-in-Liquidation" means the Person
who is appointed under Section 9.1 (c) to wind up the affairs of the Company in
the absence of Managing Members.
(t) Withdrawing Managing Member. A "Withdrawing Managing Member" means a
Managing Member who withdraws from the Company pursuant to Section 6.5 of this
Agreement.
ARTICLE II
CAPITAL CONTRIBUTIONS
SECTION 2.1 - REQUIRED CAPITAL CONTRIBUTIONS.
(a) Capital Contributions. The Members' initial Capital Contributions to
the Company are set forth on Exhibit A hereto. Except as specified in this
Agreement, no Member will be obligated to make an additional Capital
Contribution to the Company to restore a deficit Capital Account balance or
otherwise, and no Member will be personally liable for the debts and liabilities
of the Company, except such debts as may be specifically agreed to by such
Members.
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(b) Limited Assumption Agreements.
(i) Each or any Member may elect or refuse to elect, at such Member's
sole and absolute discretion, if requested by the Managing Member, to personally
guarantee, or assume, all or a portion of any Company debt or obligation. Unless
otherwise specifically agreed to by the Member and the Company with respect to a
particular obligation and except as provided in Section 2.1(b)(iii), each Member
who guarantees or assumes such a debt (the "Guarantying Member") hereby waives
such Guarantying Member's right of subrogation, indemnification or reimbursement
which such Guarantying Member may have against any other Member for repayment of
any principal or interest on a Company debt or other obligation paid by a
Member, and as between the Guarantying Members, they shall be ultimately
obligated to pay and shall bear the "economic risk of loss" (within the meaning
of Regulations Section 1.752-2), with respect to the principal and interest on
the debt or other obligations in proportion to their respective guarantee or
assumption of the debt, or obligation thereof.
(ii) If a Member becomes obligated to pay any creditor of the Company
any amounts pursuant to a guaranty agreement or assumption agreement for which
such Member bears the economic risk of loss within the meaning of Regulations
Section 1.752-2, then to the extent that such liability is not already reflected
in such Member's Capital Account, such Member's payment of such liability shall
be treated for all purposes under this Agreement as a loan to the Company,
followed by the Company's payment of such proceeds to the Company's creditor in
full or partial satisfaction of the debt. Furthermore, a Member's guarantee or
debt assumption shall, to the extent not otherwise reflected in such Member's
Capital Account, be treated as an unconditional obligation to restore a deficit
Capital Amount pursuant to Regulations Section 1.704-1(bx2)(ii)(c), provided
that such obligation is required to be satisfied at a time no later than the end
of the Company's taxable year in which such Member's Interest is liquidated (or,
if later, within 90 days after the date of such Liquidation).
(iii) Each Guarantying Member who guarantees or assumes a Company
obligation under Section 2.1(b)(i) shall be ultimately liable with respect to
such Guarantying Member's guaranty of the Company obligations in the proportion
such Guarantying Member's Interest bears to the Interests of all Guarantying
Members (such Guarantying Member's "Pro Rata Share"). Notwithstanding the
provisions of Section 2.1(b)(i), the Guarantying Members hereby indemnify and
hold each other (and the Managing Member) harmless against and from any loss,
cost, liability or expense (including attorneys' fees), together with interest
thereon at the Stipulated Rate stemming from amounts paid by any Guarantying
Member on or with respect to the Company obligations that are in excess of such
Guarantying Member's respective Pro Rata Share thereof, and each Guarantying
Member agrees to pay the Guarantying Members (and/or the Managing Member)
whatever amounts are necessary so that the Guarantying Members shall share such
liability in the same ratio as their respective Interests. If any Guarantying
Member (a "Defaulting Member") fails to pay such Defaulting Member's Pro Rata
Share of any obligation under this Section 2.1(b)(iii), or fails to pay the
creditor such Defaulting Member's Pro Rata Share of the guaranty, the remaining
Guarantying Members shall be responsible for paying to the creditors whatever
amounts are necessary to make up for the failure of the Defaulting Member to pay
such Defaulting Member's Pro Rata Share. The remaining Guarantying Members (the
"Nondefaulting Members") shall share such liability in the ratio of their
respective Interests. If pursuant to this Section 2.1(b)(iii), a Guarantying
Member fails to indemnify and hold harmless
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another Guarantying Member pursuant to the terms and conditions hereof, then the
Managing Member shall adjust distributions of cash and liquidation proceeds
among the Members to facilitate the indemnification and hold harmless
requirements hereunder. A Guarantying Member's indemnification and hold harmless
obligation under this Section 2.1(b)(iii) shall be a personal, demand, recourse
obligation which may be enforced by a Guarantying Member entitled to
reimbursement and indemnification; and a Guarantying Member's right to
reimbursement plus interest may be satisfied by any legal means, in addition to
or in substitution of the adjustment of cash distributions as provided above.
(c) Additional Funds. If in addition to the initial Capital Contributions
of the Members, the Managing Member determines that additional Capital
Contributions are required to acquire, own, develop, operate, or manage the
Business, the Members shall be required to make additional Capital
Contributions. In such a case, the Managing Member will send written notice to
each Member stating the amount of additional Capital Contributions required to
be received from all Members, and stating the Capital Contribution to be made by
each such Member, which shall be made in the same proportion as such Member's
respective Interest in the Company. However, if one or more Members fails to
make such a requested additional Capital Contribution within the time limit
prescribed by the Managing Member, then to the extent the contributing Members
do not advance such capital pursuant to Section 2.1(d), the contributing
Members' collective Interests shall be increased, so that each Member's Interest
equals the percentage of that Member's aggregate Capital Contributions to the
Company (including the amount treated as the Member's initial Capital
Contribution under Section 2.1(a)) to the aggregate Capital Contributions of all
Members to the Company. No creditor of the Company shall be entitled to request
the Members to make additional Capital Contributions, and a Member's failure to
make any requested additional Capital Contributions shall not confer any rights
on arty creditor to require any Member to make a Capital Contribution.
(d) Failure to Contribute Additional Funds. If a Member fails to contribute
said additional funds to the Company as required, any one or more of the other
Members may advance the same in proportion to each such advancing Member's
respective Interest, and to treat such advance as a recourse loan, payable on
demand, to the non-paying Member with interest thereon at the Stipulated Rate
during the pendency of the loan, and such lending Member(s) shall have a lien
upon the Membership Interest of the non-paying Member as security for the loan
and interest accrued thereon. The non-paying Member hereby directs the Company
to pay the non-paying Member's share of any Company distributions to the lending
Member(s) for application upon the loan until the loan has been paid in full.
This direction is non-revocable unless the revocation is consented to in writing
by the lending Member(s). Notwithstanding the lien which the lending Member(s)
has upon the non-paying Member's Membership Interest as security for the loan,
the non-paying Member is and agrees to liable itself to the lending Member(s)
for the full amount of the loan and all interest accrued thereon, and the
lending Member(s) may collect the amount loaned and interest by whatever legal
remedies deemed appropriate without the suit being deemed a Company accounting
or a suit by the lending Member against the non-paying Member on a Company
account or a suit seeking dissolution of the Company. As long as a portion of
the advance and interest remains unpaid by the non-paying Member, the non-paying
Member shall have no right to vote on Company matters, and, accordingly, during
such time for purposes of determining whether any matter requiring the consent
of the Members has received
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the requisite percentage of votes or unanimous approval, such non-paying
Member's Interest shall be excluded as if not outstanding.
(e) Payment by Members of Ohio Withholding/Entity Tax.
Notwithstanding any other provision of this Section 2.1, ten (10) days
after written demand from the Company, each Member agrees to pay to the Company
an amount equal to the portion of any State of Ohio withholding/entity tax
(including any required estimated withholding/entity tax payments) owed by the
Company under Ohio Revised Code Chapters 5733 or 5747 on account of such
Member's Interest in the Company, plus any interest and penalties imposed on the
withholding entity tax liability of the Company resulting from the Company not
paying to the State of Ohio the portion of the withholding/entity taxes owed on
account of such Member's Interest until the date on which the Company receives
payment from the Member of such amount. Any amount a Member fails to pay as
required by this Section 2.1(e) shall be treated as a recourse loan, payable on
demand, to the Company with interest thereon at the Stipulated Rate during the
pendency of the loan, and the Company shall have a lien upon the Membership
Interest of the non-paying Member as security for the loan and interest accrued
thereon. The non-paying Member hereby directs the Company to pay the non-paying
Member's share of any Company distributions to the Company for application upon
the loan until the loan has been paid in full. This direction is non-revocable
unless the revocation is consented to in writing by all of the Members of the
Company. Notwithstanding the lien that the Company has upon the non-paying
Member's Membership Interest as security for the loan, the non-paying Member is
and agrees to liable itself to the Company for the full amount of the loan and
all interest accrued thereon, and the Company may collect the amount loaned and
interest by whatever legal remedies deemed appropriate without the suit being
deemed a Company accounting or a suit seeking dissolution of the Company.
SECTION 2.2 - CAPITAL ACCOUNTS.
(a) Maintenance of Capital Accounts. An individual Capital Account will be
maintained by the Company for each Member, and no interest will be paid on or
charged against the balance in such account. The Capital Accounts of the Members
shall be maintained in accordance with the Regulations issued pursuant to
Section 704(b) of the Code.
(b) Increases. Each Member's Capital Account shall be increased by (i) such
Member's Capital Contributions; (ii) such Member's share of Profits or items
thereof that are allocated to such Member pursuant to this Agreement; and (iii)
all other amounts that are required pursuant to the Regulations under Code
Section 704(b). For purposes of this Agreement, a Member's Capital Contribution
shall be equal to the amount of cash, plus the fair market value of property
contributed to the Company, net of any liabilities which the Company assumes or
to which such property is subject.
(c) Decreases. Each Member's Capital Account shall be decreased by (i) any
distributions to such Member of cash or property to the extent of the net fair
market value thereof (net of any liabilities that the Member assumes to which
such property is subject); (ii) such Member's distributive share of Company
Losses or items thereof that are allocated to such Member pursuant to this
Agreement; (iii) such Member's distributive share of any expenditures
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described in Section 705(a)(2)(B) of the Code; and (iv) such other items as are
required pursuant to the Regulations under Code Section 704(b).
(d) Transfer of Interest. If a Member transfers all or any portion of such
Member's Membership Interest to another Person pursuant to Article VI of this
Agreement, the Capital Account (or ratable portion thereof) that is attributable
to the transferred Interest shall be transferred to the transferee.
SECTION 2.3 - RETURN OF CONTRIBUTIONS; DISSOLUTION OF THE COMPANY.
No Member shall be entitled to a return of any portion of any Capital
Contribution or Capital Account balance except as specifically provided in this
Agreement. Except as provided herein, no Member shall, in such Member's capacity
as a Member, have the right or authority to cause the dissolution of the
Company.
ARTICLE III
ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS
SECTION 3.1 - CASH DISTRIBUTIONS.
(a) Distributions of Cash Flow. After repaying all loans made by the
Members to the Company, the Cash Flow held by the Company and not required in
the operation of the Company's business (including the establishment of
reasonable reserves) will be distributed to the Members, from time to time, at
the discretion of the Managing Member. No Member shall be entitled to make
withdrawals from such Member's Capital Account or from the Company's capital,
except to the extent of distributions made pursuant to this Section 3.1. Except
as provided in this Agreement or as agreed to by the Members, no Member shall
receive compensation for services rendered to the Company. All distributions of
the Cash Flow shall be made among the Members pro rata in proportion to their
respective Interests, as identified on Exhibit A, unless the Managing Member
elects to make non-proportionate distributions.
(b) Distribution of Liquidation Proceeds. Liquidation Proceeds shall be
distributed in accordance with Section 9.2.
SECTION 3.2 - ALLOCATION OF PROFITS AND LOSSES.
Profits and Losses shall be allocated among the Members in accordance with
the provisions of the Appendix attached hereto and incorporated herein.
SECTION 3.3 - ACCOUNTING.
The Company books and accounting for all purposes shall be kept on either
the cash or accrual basis as the Managing Member shall determine. The taxable
and fiscal year of the Company shall be a fiscal year ending on the Saturday
closest to January 31. On or before the sixtieth (60th) day following the end of
the Company's taxable year, the Managing Member shall use its reasonable efforts
to provide the Members: (a) such information as is necessary for the preparation
by the Members of their federal income tax return and State income or other tax
returns; and (b) annual financial statements and such other information as, in
the judgment of the
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Managing Member, is reasonably necessary to advise the Members of the results of
the operation of the Company.
ARTICLE IV
MANAGEMENT OF COMPANY
SECTION 4.1 - MANAGEMENT OF COMPANY.
(a) Designation and Powers of Managing Members. The initial Managing Member
shall be The Elder-Beerman Stores Corp. The Managing Member may be removed and a
new Managing Member chosen upon the vote of Members owning a
Majority-in-Interest of the Interests in the Company. Except as otherwise
specifically provided in this Agreement or as required by the Act, the Managing
Member is vested with the power to manage, control, and make all decisions
affecting the business and assets of the Company.
Any Managing Member may singularly execute, acknowledge and deliver any and
all instruments to effectuate the Company's Business, provided that such actions
have been duly approved and authorized pursuant to this Agreement.
(b) Multi Managing Members. Decisions of the Managing Members, if more than
one, shall be based on their majority vote, and each Managing Member shall have
an equal vote in all Company matters before the Managing Members. It shall not
be necessary for the Managing Members or the Members to conduct a meeting for
the purpose of making Company decisions. If a Managing Member dies or, in the
case of a corporation, partnership, limited liability company or other entity,
its existence is terminated, or such Managing Member is adjudicated as bankrupt
or otherwise withdrawals as a Managing Member, the remaining Managing Members,
if any, shall serve as the sole Managing Members, and, except as provided in
Section 6.5, the Company shall not terminate upon the occurrence of such event.
SECTION 4.2 - OFFICERS AND OTHER MATTERS.
(a) Election and Designation of Officers. The Managing Member may, but
shall not be required to, elect such officers as the Managing Member deems
necessary. Any two or more offices may be held by the same person, but no
officer shall execute, acknowledge, or verify any instrument in more than one
capacity if the instrument is required to be executed, acknowledged, or verified
by two or more officers.
(b) Term of Office; Vacancies. Any elected officer of the Company shall
hold office until the officer's successor is elected or until the officer's
earlier resignation, removal from office, or death. The Managing Member may
remove any officer at any time with or without cause. Any vacancy in any office
may be filled by the Managing Member.
(c) Delegation of Authority and Duties. The Managing Member is authorized
to delegate the authority and duties of any officer to any other officer and
generally to control the action of the officers and to require the performance
of duties in addition to those mentioned herein.
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SECTION 4.3 - MEETINGS OF MEMBERS.
The Managing Member may from time to time call meetings of the Members. The
Managing Member shall send written notice to each Member of each such meeting at
least fifteen (15) days, but not longer than forty-five (45) days, prior to such
meeting. All such meetings shall be held within the continental United States.
The Members shall be entitled to attend and discuss issues on the agenda for
such meetings. The Managing Member shall endeavor to provide an agenda for each
such meeting, and such agenda may include a review of the financial results of
the Company.
SECTION 4.4 - VOTING RIGHTS AND DECISIONS OF MEMBERS.
Except as otherwise specifically provided in this Agreement, (i) each
Member shall have the right to vote in Company matters that are subject to vote
by Members in the same percentage as such Member's Interest set forth on Exhibit
A as amended, and (ii) decisions and consents of the Members shall require the
affirmative vote of Members owning two-thirds (2/3) of the Interests of the
Company.
SECTION 4.5 - CHECKING OR SAVINGS ACCOUNTS.
The funds of the Company shall be deposited in its name in such checking
accounts, savings accounts, or money market funds as shall be designated by the
Managing Member. All withdrawals from such accounts or investments shall be made
upon checks, drafts, or withdrawal forms signed by the Managing Member or any
agent of the Company who is designated by the Managing Member to sign checks,
drafts, or other such instruments, provided that the expense has been approved
in accordance with Article IV.
SECTION 4.6 - APPOINTMENT OF TAX MATTERS MEMBER.
(a) The Elder-Beerman Stores Corp. is hereby designated, pursuant to Code
Section 6231(a)(7), as the Company's Tax Matters Member ("TMM"), and is
responsible for acting as the liaison between the Company and the Internal
Revenue Service ("Service") and as the coordinator of the Company's actions
pursuant to a Service tax audit of the Company. The TMM shall continue to serve
as TMM until the earliest to occur of the following events:
(i) The TMM is no longer willing or able to serve; or
(ii) The TMM no longer owns a Membership Interest in the Company.
Upon the occurrence of (i) or (ii) above, the Members shall select a new TMM.
(b) The TMM shall have the authority to take the following actions:
(i) Furnish to the Service, when properly requested pursuant to the
Code, the names, addresses, profits, interest and taxpayer identification number
of each Person who or which was a Member in the Company at any time during the
Company's taxable year;
10
(ii) Keep each Member informed of all administrative and judicial
proceedings for the adjustment, at the Company level, of Company items;
(iii) Extend the period of limitations for making assessments against
the Company;
(iv) After receipt from the Service of a notice of a final Company
administrative adjustment:
(A) File a petition for a readjustment of Company items for such
taxable year with the Tax Court, the U. S. District Court of the United States
for the district in which the Company's principal place of business is located,
or the Claims Court as determined by the TMM; and
(B) Enter into binding settlement agreements with the Service
with regard to Company items as provided in Code Section 6224(c)(3).
(c) In furtherance of the duties of the TMM described in this Agreement,
the TMM shall be reimbursed by the Company for all expenses, costs and
liabilities expended or incurred by the TMM.
(d) The Company shall indemnify and reimburse the TMM for all expenses,
including legal and accounting fees, claims, liabilities, losses and damages
incurred in connection with any administrative or judicial proceeding with
respect to the tax liability of the Members. The payment of all such expenses
shall be made before any distributions are made by the Company. No Member shall
have any obligation to provide funds for such purpose. The taking of any action
and the incurring of any expense by the TMM in connection with any such
proceeding, except to the extent required by law, is a matter in the sole
discretion of the TMM and the provisions on limitations of liability of Members
and indemnification set forth in this Agreement shall be fully applicable to the
TMM in its capacity as such.
SECTION 4.7 - DISPUTE RESOLUTION.
Any dispute arising between the parties hereto shall be resolved by
arbitration in Dayton, Ohio according to the Rules of the American Arbitration
Association, and the award of the arbitrators) shall be final and binding upon
the parties. In the event a demand for arbitration is filed pursuant hereto, the
parties shall have the same rights to discovery under the Ohio Rules of Civil
Procedure as if the dispute had been filed as an original action in an Ohio
Court of original jurisdiction. Any Court located in Dayton, Ohio, shall have
jurisdiction and shall be authorized to enforce said rights as if the entire
dispute were pending before said Court.
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ARTICLE V
DUTIES LIABILITIES COMPENSATION
AND LIMITATIONS ON DECISIONS OF THE MANAGING MEMBERS
SECTION 5.1 - DUTIES OF MANAGING MEMBER.
(a) The Managing Member shall manage or cause to be managed the affairs of
the Company in a prudent and businesslike manner and shall devote such part of
its time to Company affairs as is reasonably necessary for the conduct of such
affairs; provided, however, that it is expressly understood and agreed that no
Managing Member shall be required to devote such Managing Member's entire time
or attention to the business of the Company. No Member (including a Managing
Member) nor an Affiliate shall be restricted in participating in other
businesses or activities that are competitive with the business of the Company.
(b) In carrying out their obligations, the Managing Member shall:
(i) Maintain complete and accurate records of all property (real and
personal) owned or leased by the Company and complete and accurate books of
account (containing such information as shall be necessary to record allocations
and distributions);
(ii) Cause to be prepared and filed the tax returns of the Company;
(iii) Cause to be filed such other documents and take such other acts
as may be required by law to qualify and maintain the Company as a limited
liability company under the laws of the State of Ohio;
(iv) Maintain at the principal office of the Company all of the
following:
(A) A current list of the name and last business or residence
address of each Member;
(B) A copy of the Articles of Organization and all Amendments to
it, together with executed copies of any powers of attorney pursuant to which
the Articles or Amendments thereto have been executed;
(C) A copy of this Operating Agreement, all Amendments to it, and
executed copies of any written powers of attorney pursuant to which this
Operating Agreement and any Amendments thereto have been executed;
(D) Copies of the Company's federal, state and local income tax
returns and reports, if any, for the three (3) most recent years; and
(E) Copies of any financial statements of the Company for the
three (3) most recent years.
(c) All records required to be kept pursuant to Section 5.1(b) shall be
subject to audit, inspection, and copying by any Member or such Member's duly
authorized representative, at the reasonable request and expense of any such
Member during ordinary business hours.
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SECTION 5.2 - LIABILITIES AND INDEMNIFICATION OF THE MANAGING MEMBERS.
(a) In carrying out their duties hereunder, no Managing Member shall be
liable to the Company or any other Member for any actions taken in good faith
and reasonably believed to be in the best interests of the Company, or for
errors of judgment, but shall be liable to the Company only if such Managing
Member shall be adjudicated by a court of competent jurisdiction that such
Managing Member's action or failure to act involved fraud, willful misconduct,
gross negligence or material breach of that Managing Member's obligations under
this Agreement or other material breach of that Managing Member's fiduciary
duties.
(b) Except as provided in Section 5.2(a) hereof, no Managing Member shall
be liable for the return of the Capital Contributions of any Member, nor for a
loss of investment or loss from the operation of the Company.
(c) The Company shall and does hereby agree, to the fullest extent
permitted by law, to defend, indemnify, and hold harmless the Company's officers
and Members and their respective shareholders, directors, officers, employees
and agents (the "Indemnified Persons"), from and against any and all liability,
cost, expense, or damage incurred or sustained by reason of any act or omission
in the conduct of the business of the Company, regardless of whether acting
pursuant to their discretionary or explicit authority hereunder; provided,
however, the Company shall not indemnify an Indemnified Person or hold such
Indemnified Person harmless with respect to any of the foregoing incurred in
connection with such an Indemnified Person's fraud, willful misconduct, gross
negligence or material breach of such Indemnified Person's obligations under
this Agreement or other material breach of such Indemnified Person's fiduciary
duties. In particular, and without limitation of the foregoing, an Indemnified
Person shall be entitled to indemnification by the Company against the
reasonable expenses, including attorneys' fees and costs through any and all
trial and appellate levels, actually and necessarily incurred in connection with
the defense of any suit or action to which such Indemnified Person is a party by
reason of the Indemnified Person's position as a Member (or a shareholder,
director, officer, employee or agent thereof), to the fullest extent permitted
under law. Any expenses or other amounts incurred or to be incurred by an
Indemnified Person in connection with a proceeding as to which indemnification
is, or may be, applicable under this Section 5.2(c) may be paid by the Company
in advance of the final disposition of the proceedings upon receipt of a binding
written agreement to repay said expenses or other amounts in the event it is
finally adjudicated that such indemnification is not proper. If repayment is
required, then all such sums advanced and to be repaid shall bear interest at
the Stipulated Rate from the date of disbursement, and the paying party shall
pay all collection costs of the Company, if any, including attorneys' fees and
costs.
SECTION 5.3 - RELIANCE ON ACTS OF MANAGING MEMBER.
No financial institutions or any other person, firm or corporation dealing
with the Managing Member shall be required to ascertain whether it is acting in
accordance with this Agreement, and such financial institution or such other
person, firm or corporation shall be protected in relying solely upon the deed,
transfer or assurance of, and the execution of such instrument or instruments by
such Managing Member.
13
SECTION 5.4 - COMPENSATION OF THE MANAGING MEMBERS AND AFFILIATES.
Unless the Members shall otherwise agree, Managing Member shall not be
entitled to any compensation from the Company. However, the Managing Member
shall be entitled to reimbursement for all expenses incurred by it in connection
with the Company's business.
ARTICLE VI
TRANSFER OF INTEREST AND WITHDRAWAL
OF A MEMBER
SECTION 6.1 - TRANSFER BY MEMBER.
(a) Restriction on Transfer or Assignment. Except as otherwise specifically
provided in this Article VI, the Membership Interest owned by a Member shall not
be transferable or assignable to any person, without the consent of the Managing
Member, and any attempted transfer or assignment shall be ineffective to
transfer or assign any such Interest. Except as provided in this Article VI, the
transferee of a Membership Interest shall not become a Member, without the
consent of the Managing Member.
(b) Authority of Institutional Lenders. Upon the occurrence and during the
continuation of an Event of Default (as defined under that Amended and Restated
Credit Agreement, dated as of July 27,1998, among the Managing Member, its
institutional lenders, Citibank, N.A., as issuer, and Citicorp USA, Inc. as
agent, or in any future credit facility of the Managing Member (the "Credit
Facility")), the Agent on behalf of the Lenders shall be entitled to exercise
all of the rights of any Grantor (as defined in the Credit Facility) under this
Operating Agreement. Further, such Agent shall have the right to effectuate a
transfer of the Grantor's Membership Interest and any transferee or assignee of
such Membership Interest shall become a Member (including, if applicable, the
Managing Member) entitled to participate in the management of the Company to the
extent permitted herein. If a Grantor's entire interest in the Company is
transferred, such Grantor shall cease to be a member.
(c) Restriction on Amendment. Notwithstanding the provisions of Section
7.1, no amendment to this Operating Agreement may occur, if the effect of such
amendment would, in any way, adversely affect the perfection of any security
interest in a Membership Interest held by any Member as provided in any security
agreement relating to the Credit Facility, including electing to treat the
Membership Interest held by such Member as a security under Section 8-103 of the
UCC or to otherwise adversely affect the Secured Parties (as defined in the
Credit Facility).
(d) Status of Transferee. A transferee who has not been admitted to the
Company as a Member shall have only the right to receive the share of Profits,
Losses, cash distributions, Capital Account, and Liquidation Proceeds
attributable to the transferred Membership Interests, but shall not have the
right to vote on any matter, bind the Company to any agreement, participate in
management, review the Company's books and records, or have any other right.
14
SECTION 6.2 - VOLUNTARY WITHDRAWAL OF MEMBERS.
No Member shall be entitled to receive any payment or distribution from the
Company in connection with such Member's voluntary or involuntary withdrawal
from the Company, except as specifically set forth in this Agreement.
SECTION 6.3 - PROHIBITED TRANSFERS.
Notwithstanding any other provision of this Agreement, no Member's Interest
or any portion thereof shall be transferable or assignable to the extent that
any such transfer or assignment: (a) would result in the termination of the
Company for federal income tax purposes (except with the consent of the
Members), (b) would violate any federal or state securities laws, (c) is made to
a Person who does not agree to be subject to the terms of this Agreement, and in
the case of a Person that is an entity, such owners of the entity do not agree
to be subject to the terms of this Agreement, (d) is made to a Person who does
not agree to execute such documents as the Managing Member may reasonably
require to reflect the Person agreeing to be subject to the terms of this
Agreement, or (e) is made to a minor or to a Person who is incompetent or
insane; and any attempted assignment in violation hereof shall be ineffective to
transfer any such Interest. Any transfer, sale, assignment, pledge, encumbrance,
mortgage or disposition of a Member's Interest in the Company in contravention
of this Agreement (a "Prohibited Transfer") shall be null and void and if a
Member attempts to make a Prohibited Transfer, then the Company shall be
entitled to take any and all action which maybe necessary or appropriate to
defeat or prevent the Prohibited Transfer.
SECTION 6.4 - BANKRUPTCY OR DISSOLUTION OF A MEMBER.
Notwithstanding Section 6.1(a), upon the bankruptcy, dissolution, or
occurrence of an Event of Withdrawal (except a voluntary withdrawal) of a
Member, the Interest owned by the bankrupt, dissolved, or withdrawing Member
(the "Withdrawn Member") shall be transferred to or devolve upon the successors
or assigns of the Withdrawn Member (as may be appropriate). Any Person
succeeding to the Interest of a Withdrawn Member shall promptly notify the
Managing Members of such Person's name, mailing address, federal tax
identification number, and the date of acquisition or transfer of the applicable
Membership Interest. Any Person succeeding to the Interest of a Member upon the
events specified in this Section 6.4 shall become a Member upon such Person
complying with the provisions of Section 6.3. An Event of Withdrawal of a
Managing Member that is not the last remaining Managing Member shall not
terminate the Company, but the Company shall continue in existence until it is
dissolved, terminated, and liquidated under Article IX or as required by law.
SECTION 6.5 - WITHDRAWAL OF MANAGING MEMBER.
(a) Election to Terminate. Upon the occurrence of an Event of Withdrawal of
a Managing Member, the membership Interest of the Withdrawing Managing Member
shall be converted to a Non-Managing Membership Interest. Unless the Members
otherwise agree pursuant to Section 6.5(b), after the occurrence of an Event of
Withdrawal of the last remaining Managing Member (the "Withdrawing Managing
Member"), the Company shall be dissolved, terminated and liquidated pursuant to
the provisions of Article IX.
15
(b) Election to Continue Company. Upon the occurrence of an Event of
Withdrawal of the last remaining Managing Member, a Majority in Interest of the
remaining Members within ninety (90) days after the occurrence of such Event of
Withdrawal, may elect to continue the Company and designate a new Managing
Member(s) ("Substituted Managing Member") who consents to and accepts such
designation as of the date of such event. If a Substituted Managing Member is
appointed, such Substituted Managing Member's Interest shall be owned on the
terms and conditions set forth herein with respect to a Managing Member. Should
at least a Majority in Interest of the remaining Members not elect to appoint a
Substituted Managing Member and continue the Company, then the Company's
business shall be wound up and the Company shall be liquidated pursuant to the
provisions of Article IX.
SECTION 6.6 - INTERIM MANAGING MEMBER.
From the date of the Event of Withdrawal of the last remaining Managing
Member, and, if applicable, until a Substituted Managing Member has been
appointed, approved and succeeds to the Managing Members position of the last
remaining Withdrawing Managing Member, the Members shall by the affirmative vote
of those Members owning a Majority in Interest designate an interim Managing
Member to operate the Company, and the Interim Managing Member shall be one of
the Members.
ARTICLE VII
AMENDMENTS
SECTION 7.1 - AUTHORITY TO AMEND.
(a) Generally. Except as otherwise specifically provided elsewhere in this
Agreement or by law, amendments to this Agreement shall require the consent of
the Members owing a Majority-in-Interest of the Membership Interests. All
amendments approved by the Members shall be distributed to them in writing and
shall be attached to this Operating Agreement.
(b) Clarifying Amendments. Notwithstanding the provisions set forth in
Section 7.1(a), the Managing Members may amend this Agreement without the
consent of the Members:
(i) if such amendment is solely for the purpose of clarification and
does not change the substance hereof, or
(ii) if such amendment is, in the reasonable judgment of the Managing
Members, necessary or appropriate to satisfy requirements of the Code or
Regulations with respect to the Company or of any federal or state securities
laws or regulations. In this respect, and notwithstanding any other provision of
this Agreement, the Managing Members may allocate Profits and/or Losses, or
items thereof, among the Members in any manner which may be necessary or
appropriate to satisfy the requirements of the Code and the Regulations
thereunder.
16
ARTICLE VIII
POWER OF ATTORNEY
SECTION 8.1 - POWER OF ATTORNEY.
Each of the Members irrevocably constitutes and appoints the Managing
Member, or any of them, such Member's true and lawful attorney in such Member's
name, place and stead to make, execute, aver, acknowledge, deliver and file:
(a) Any certificates or other instruments that may be required to be filed
by the Company under the laws of the State of Ohio, or in any jurisdiction in
which the Managing Member shall deem it advisable to file;
(b) Any documents, certificates or other instruments, including, without
limiting the generality of the foregoing, any and all amendments and
modifications of this Agreement that have been approved pursuant to the terms of
this Agreement, and by way of extension, and not in limitation, to do all such
other things as shall be necessary to continue and to carry one the business of
the Company, including, to the extent permitted by law, the power to ratify the
execution and delivery of notes or instruments authorizing the confession of
judgment against the Company; and
(c) All documents, certificates or other instruments which may be required
to effectuate the dissolution and termination of the Company or the organization
of any new limited liability company occasioned by the withdrawal of a Member as
hereinbefore provided.
The power of attorney hereby granted shall not constitute a waiver of, or
be used to avoid, the rights of the Members to approve certain amendments to
this Agreement pursuant to Article VII hereof or be used in any other manner
inconsistent with the status of the Company as a limited liability company.
SECTION 8.2 - SURVIVAL OF POWER.
It is expressly intended by the Members, that the foregoing power of
attorney is coupled with an interest, is irrevocable, and shall survive the
death, bankruptcy or dissolution of a Member. The foregoing power of attorney
shall survive the delivery of an assignment by any Member of such Member's
entire Interest in the Company, except that where an assignee of such entire
Interest has become a Member, then the foregoing power of attorney of the
assignor Member shall survive the delivery of such assignment for the sole
purpose of enabling those persons designated in Section 8.1 hereof to execute,
acknowledge and file any and all instruments necessary to effectuate such
substitution.
17
ARTICLE IX
TERMINATION OF THE COMPANY
SECTION 9.1 - ELECTION TO TERMINATE AND DISSOLVE.
(a) Events Causing Dissolution The Company shall be dissolved, terminated,
and liquidated, and its affairs wound-up, upon the first to occur of the
following events:
(i) The sale of all, or substantially all, of the assets of the
Company;
(ii) The decision the Members to dissolve, terminate, and liquidate
the Company as herein specified; and
(iii) The occurrence of an Event of Withdrawal of the last Managing
Member where the remaining Members do not elect to continue the Company pursuant
to Section 6.5.
(b) Sale of Assets. Upon the occurrence of an event that causes the
dissolution, termination and Liquidation of the Company under Section 9.1(a),
the Managing Member shall proceed with the winding up and Liquidation of the
Company. The Managing Member shall liquidate the Company's assets and distribute
them in the manner and in accordance with the priorities set forth in Section
9.2. If the Managing Member determines that an immediate sale would cause undue
loss to the Company (because the sale price is too low or the terms of sale are
inadequate or for any other reason), then in order to avoid such loss, the
Managing Member may, to the extent not prohibited by the Act and after giving
notice to all Members, either defer Liquidation of and withhold from
distribution any assets of the Company except those necessary to satisfy the
Company's debts, obligations and operating expenses or distribute the assets to
the Members in kind. The Company shall not terminate until the Company assets
have been distributed in the manner set forth in Section 9.2 and the Certificate
of Dissolution has been filed with the Secretary of State, as provided in
Section 1705.43(B) of the Act. Prior to the termination of the Company, its
business and the rights, duties, and interests of the Company shall continue to
be governed by this Agreement. If the Company is to be dissolved, terminated,
and liquidated because of the occurrence of an Event of Withdrawal of a Member,
the Withdrawing Member shall have no vote with respect to any Company matter,
and shall not participate in any management decisions arising after the
occurrence of an Event of Withdrawal. Rather, the power to render such decisions
and govern the Company shall be vested in the Trustee-in-Liquidation, pursuant
to Section 9.1(c).
(c) Absence of Managing Member. If for any reason there is no Managing
Member, or it refuses to serve, or are incapable of or prevented by this
Agreement from serving, a Majority in Interest of the Members may appoint a
Trustee-in-Liquidation who shall serve to wind up the affairs of and liquidate
the Company.
SECTION 9.2 - PROCEEDS OF LIQUIDATION.
Upon the dissolution, termination, and Liquidation of the Company, the
Liquidation Proceeds shall be applied and distributed in the following order of
priority:
18
(a) Debts. To the payment of the debts and liabilities of the Company
(including any and all fees and loans payable to one or more Members) in the
order of priority as provided by law, and the expense of Liquidation;
(b) Reserves. To establish reserves that the Managing Member (or the
Trustee-in-Liquidation) may deem reasonably necessary for any contingent,
foreseen or unforeseen liabilities or obligations of the Company; and
(c) Capital Accounts. The remaining balance, if any, shall then be
distributed to the Members in, an amount equal to and in satisfaction of the
positive balance of each Member's Capital Account on the date of the Company's
termination, after giving effect to all Capital Contributions, distributions,
allocations, and all other adjustments to all Members' Capital Account balances
for all periods.
SECTION 9.3 - FAIR MARKET VALUE DISTRIBUTIONS.
If the assets are to be distributed in kind to the Members, the value of
such assets shall be adjusted pursuant to the Regulations under Code Section
704(b) and such assets shall be distributed at their respective fair market
values. Furthermore, each Members Capital Account shall be adjusted to reflect
what such Member's Capital Account would be if the Company were to sell all of
such assets at their respective fair market values and allocated the Profits or
Losses among the Members in accordance with the provisions of the Appendix.
SECTION 9.4 - FINAL ACCOUNTING.
Each Member shall be furnished with a statement reviewed by the Company's
accountants, which shall set forth the Profits and/or Losses generated upon the
sale or exchange of the Company's properties; the allocation of such Profits and
Losses among the Members; the Company's proceeds received from the sale or
exchange of its properties; any revaluations of Company property; the assets and
liabilities of the Company; and the amount distributed or distributable to each
Member, as of the date of the Liquidation. Upon compliance with the foregoing
distribution plan, the Members shall cease to be such, and the President and/or
the Trustee-in-Liquidation if no Managing Member serves, shall execute and cause
to be filed a Certificate of Dissolution of the Company and any and all other
documents necessary with respect to the termination and cancellation of the
Company.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 - GOVERNING LAW.
The Company and this Agreement shall be governed by, and construed in
accordance with, the laws of the State of Ohio.
SECTION 10.2 - COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one agreement, and
the signature of any
19
party to any counterpart shall be deemed to be a signature to, and may be
appended to, any other counterpart.
SECTION 10.3 - AGREEMENT FOR FURTHER EXECUTION.
At any time or times upon the request of the Managing Member, the Members
agree to sign, acknowledge the Articles of Organization, this Operating
Agreement, and/or amendments thereto or hereto, whenever such amendment or
cancellation is required by law, to sign or acknowledge similar certificates or
affidavits or certificates of fictitious firm name, trade name or the like (and
any amendments or cancellations thereof) required by the laws of Ohio or any
other jurisdiction in which the Company does, or proposes to do, business, and
cause the filing of any of the same for record wherever such filing shall be
required by law. This Section 10.3 shall not prejudice or affect the rights of
Members to approve certain amendments to the Agreement pursuant to Article VII
hereof.
SECTION 10.4 - ENTIRE AGREEMENT.
This Agreement contains the entire understanding among the parties and
supersedes any prior understanding and agreements between them respecting the
within subject matter. There are no representations, agreements, arrangements or
understandings, oral or written, between or among the parties hereto relating to
the subject matter of this Agreement which are not fully expressed herein or in
the Articles of Organization.
SECTION 10.5 - SEVERABILITY.
This Agreement is intended to be performed in accordance with, and only to
the extent permitted by, all applicable laws, ordinances, rules and regulations
of the jurisdictions in which the Company does business. If any provisions of
this Agreement or the application thereto to any person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable the remainder of
this Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby, but rather shall be enforced to the
greatest extent permitted by law.
SECTION 10.6 - NOTICE.
Notices to Members or to the Company shall be deemed to have been given
when mailed, by prepaid certified mail or any overnight delivery service,
addressed as set forth in this Agreement, or as set forth in any notice of
change of address previously given in writing by the addressee to the addressor:
To the Members: See Exhibit A
To the Company: THE ELDER-BEERMAN STORES CORP.
3155 El-Bee Road
Dayton, Ohio 45439
20
To the Agent: Steven D. Lipton
THE ELDER-BEERMAN STORES CORP.
3155 El-Bee Road
Dayton, Ohio 45439
SECTION 10.7 - CAPTION.
Any paragraph titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the context of this Agreement.
SECTION 10.8 - NUMBER AND GENDER.
All of the terms and words used in this Agreement regardless of the number
and gender in which they are used, shall be deemed and construed to include any
other number, singular or plural; and any other gender, masculine, feminine or
neuter, as the context or sense of this Agreement or any paragraph or clause
herein may require, the same as if such words had been fully and properly
written in such number and gender.
SECTION 10.9 - BINDING EFFECT.
The parties hereto hereby agree that the obligations entered into herein
shall be valid and binding upon their respective representatives, successors and
assigns (where permitted).
SECTION 10.10 - INCORPORATION BY REFERENCE.
The recitals and all exhibits to this Agreement are hereby incorporated as
if rewritten in their entirety.
SECTION 10.11 - NO STATE LAW PARTNERSHIP.
The Members intend that the Company not be a partnership (including,
without limitation, a limited partnership) or joint venture, and that no Member
be a partner or joint venturer of any other Member, for any purposes other than
federal and state tax purposes, and that this Agreement not be construed to
suggest otherwise.
SECTION 10.12 - NO LIABILITY TO THIRD PARTIES.
No Member shall be liable as such for the liabilities of the Company. The
failure of the Company to observe any formalities or requirements relating to
the exercise of its powers or management of its business or affairs under this
Agreement or the Act shall not be grounds for imposing personal liability on the
Members for liabilities of the Company.
SECTION 10.13 - RIGHTS OF CREDITORS AND THIRD PARTIES UNDER AGREEMENT.
This Agreement is entered into among the Company and the Members for the
exclusive benefit of the Company, its Members, and their successors and
assignees. The Agreement is expressly not intended for the benefit of any
creditor of the Company or any other person.
21
Except and only to the extent provided by applicable statute, no creditor or
third party shall have any rights under this Agreement or any agreement between
the Company and any Member with respect to any capital contribution or
otherwise.
22
IN WITNESS WHEREOF, each of the parties hereto has executed and sworn to
this Agreement.
MANAGING MEMBER:
THE ELDER-BEERMAN STORES, INC.
By: /s/ Steven D. Lipton
------------------------------------
Steven D. Lipton, Vice President
and Controller
OTHER MEMBERS:
ELDER-BEERMAN HOLDINGS, INC.
By: /s/ Steven D. Lipton
------------------------------------
Steven D. Lipton, Vice President
and Controller
This document prepared by:
Michael A. Ellis, Esq.
Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
1301 East Ninth Street
Cleveland, Ohio 44114-1824
(216) 696-3311
23
EXHIBIT "A"
Profits Initial
Member Name and Address Interest Contribution
- ----------------------- -------- ------------
The Elder-Beerman Stores Corp.
3155 El-Bee Road
Dayton, Ohio 45439 99.0% $99,000
Elder-Beerman Holdings, Inc.
3155 El-Bee Road
Dayton, Ohio 45439 1.0% $ 1,000
TAX APPENDIX TO OPERATING AGREEMENT
ALLOCATION OF PROFITS AND LOSSES
SECTION 1 - DEFINITIONS.
Pursuant to Regulation Section 301.7701-3, the Company shall be treated as
a partnership for federal income tax purposes, and the tax treatment of the
Company shall be governed by Subchapter K of the Internal Revenue Code. Certain
definitions contained in this Appendix refer to sections of the Code or
Regulations involving partnerships, and some of the definitions contained herein
substitute the words "Member" for "Partner", "Company" for "Partnership", and
"Membership Interest" for "Partnership Interest". However, the intention is to
utilize the concepts and requirements of the Code and Regulations involving
partnerships, and the definitions contained herein should be read consistently
with each provision of the Code and Regulations. For purposes of this Appendix
and this Agreement, the terms and phrases listed below shall be defined as
follows:
(a) Book Value. "Book Value" means the value of Company property maintained
on the Company's books for purposes of determining the Members' Capital
Accounts. With respect to any asset of the Company, such asset's adjusted basis
for federal income tax purposes shall be its Book Value, except as follows:
(i) The initial Book Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such asset.
(ii) The Book Value of all Company assets shall be adjusted to equal
their respective gross fair market values, as determined by the Managing Members
in accordance with Code Section 7701(g), as of the following times: (a) 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; (b) the
distribution by the Company to a retiring or continuing Member as consideration
for an Interest in the Company of more than a de minimis amount of money or
other Company property; and (c) the Liquidation of the Company.
(iii) If the Book Value of an asset has been determined or adjusted
pursuant to paragraph (i) or (ii) above of this Section 1(a), such Book Value
shall thereafter be adjusted for the Depreciation taken into account with
respect to such asset for purposes of computing Profits and Losses.
(b) Company Minimum Gain. "Company Minimum Gain" shall be defined as set
forth in Section 1.704-2(d)(1) of the Regulations. Each Member's share of the
Company's Minimum Gain shall be defined as set forth in Section 1.704-2(g) of
the Regulations.
(c) Depreciation. "Depreciation" means, for each taxable year or other
period, an amount equal to the depreciation, amortization or other cost recovery
deduction, as computed for federal income tax purposes, allowable with respect
to an asset of the Company for such year or other period, except that if the
Book Value of a Company asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such beginning Book Value as the
federal income tax
1
depreciation, amortization or other cost recovery deduction for such year or
other period bears to such beginning adjusted tax basis.
(d) Excess Capital Account Deficit. "Excess Capital Account Deficit" means,
with respect to a Member, the deficit balance, if any, in such Member's Capital
Account as of the end of the relevant taxable year, after giving effect to the
following adjustments:
(i) Increase such Capital Account by any amounts which such Member is
obligated by this Agreement to restore to the Company, or is deemed obligated to
restore to the Company pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Decrease such Capital Account by the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5), and (6) of the Regulations, and for this purpose,
the Managing Members shall make the determination of the items described in such
Sections of the Regulations.
Any Loans to the Company or to the Partnership for which a Member has or is
deemed to have the economic risk of loss under the Regulations shall constitute
an obligation to restore to the Company.
(e) Member Minimum Gain. "Member Minimum Gain" means a Member's share of
minimum gain attributable to a Member Nonrecourse Debt within the meaning of
Regulations Section 1.704-2(i)(4) and (5) (pertaining to partnerships).
(f) Member Nonrecourse Debt. "Member Nonrecourse Debt" means any
Nonrecourse Debt of the Company for which a Member bears the economic risk of
loss within the meaning of Regulations Section 1.704-2(b)(4) (pertaining to
partnerships).
(g) Member Nonrecourse Deduction. "Member Nonrecourse Deduction" means any
item of Company Loss, deduction, or expenditure that is attributable to a Member
Nonrecourse Debt within the meaning of Regulations Section 1.704-2(iX2)
(pertaining to partnerships).
(h) Nonrecourse Deductions. "Nonrecourse Deductions" shall be defined as
set forth in Section 1.704-2(b) and (c) of the Regulations (pertaining to
partnerships).
(i) Nonrecourse Liability, Debt or Lean. "Nonrecourse Liability" or
"Nonrecourse Debt" or "Nonrecourse Loan" shall have the meanings defined-, in
Regulations Section 1.704-2(b)(3) (pertaining to partnerships).
(j) Profits and Losses. "Profits" and "Losses" means for each taxable 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(x) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) any income of the company that is exempt from federal income tax
shall be added to such taxable income or loss;
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(ii) any expenditures of the Company not deductible in computing its
taxable income and not properly chargeable to capital account (as described in
and within the meaning of Code Section 705(a)(2)(B)) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i)
shall be subtracted from such taxable income or loss;
(iii) if Company property is reflected on the Company's books at other
than its adjusted tax basis, then in lieu of depreciation, amortization and
other cost recovery deductions taken into account for federal income tax
purposes, there shall be taken into account Depreciation for such year or other
period, computed in accordance with the Regulations issued pursuant to Code
Section 704(b);
(iv) any items that are specially allocated to a Member pursuant to
this Appendix shall not be taken into account in determining Profits and Losses;
and
(v) for purposes of determining Profit or Loss upon the sale or other
disposition of Company property, then in accordance with the Regulations under
Code Section 704(b), the value of an asset properly reflected on the Company's
books at the time of sale or other disposition shall be substituted for the
property's adjusted tax basis if at the time of sale or disposition there is a
variance in such value and adjusted tax basis.
Except as may be otherwise provided in this Agreement, all items that are
components of Profits and Losses shall be divided among the Members in the same
ratio as they share Profits and Losses.
(k) Regulations. "Regulations" means the Income Tax Regulations issued by
the United States Treasury Department as the same may be amended from time to
time.
SECTION 2 - ALLOCATION OF PROFITS AND LOSSES.
Profits and Losses of the Company shall be allocated in accordance with
Sections 2.1 and 2.2.
SECTION 2.1 - PROFITS AND LOSSES.
After accounting for the special allocations of Section 2.2, Profits and
Losses shall be allocated among the Members as follows:
(a) Profits. Profits shall be allocated in the following order and
priority:
(i) First, Profits shall be allocated 100% to the Members until the
aggregate Profits allocated to the Members pursuant to this Section 2.1(a)(i)
for such taxable year and all previous taxable years is equal to and offsets the
aggregate Losses allocated to the Members pursuant to Section 2.1(b)(iv) hereof
for all previous taxable years.
(ii) Second, to the extent that Losses have been allocated pursuant to
Sections 2.1(b)(iii) and/or 2.1(b)(ii), Profits shall be allocated among the
Members to offset the Losses allocated pursuant to Section 2.1(b)(iii) until the
cumulative Profits allocated pursuant to this Section 2.1(a)(ii;) equal
cumulative Losses allocated pursuant to Section 2.1(b)(iii) for all
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periods (and allocated among the Members pro rata in proportion to their shares
of Losses being offset); and then Profits shall be allocated pursuant to this
Section 2.1(a)(ii) to offset Losses allocated pursuant to Section 2.1(b)(ii),
until the cumulative Profits allocated pursuant hereto equal cumulative Losses
allocated pursuant to Section 2.1(b)(ii) for all periods (and allocated among
the Members pro rata in proportion to their shares of Losses being offset).
(iii) The balance, if any, shall be allocated to the Members pro rata
in proportion to their respective Interests.
(b) Losses. Losses shall be allocated in the following order and priority:
(i) First, to the extent Profits have been allocated pursuant to
Section 2.1(a)(iii) for any prior taxable year, Losses shall be allocated first
to offset any Profits allocated pursuant to Section. 2.1(a)(iii), pro rata among
the Members in proportion to their shares of Profits being offset.
(ii)Second, Losses shall be allocated among the Members pro rata in
proportion to their respective Interests; provided, however, that no Losses (or
items thereof) shall be allocated to a Member under any provision of this
Agreement to the extent that such allocation would result in or cause a further
increase in such Member's Excess Capital Account Deficit (defined in this Tax
Appendix) as of the end of the taxable year. In such event, such Losses (or
portion thereof) shall be allocated among the Members pursuant to Sections
2.1(b)(iii) and (iv).
(iii) Third, the Losses which are unable to be allocated to a Member
under Sections 2.1(b)(i) or (ii) shall be allocated among the other Members
(pro-rata in proportion to their respective Interests), except to the extent
prohibited by Section 2.1(b)(i) and/or (ii).
(iv) The balance, if any, shall be allocated 100% to the Members, pro
rata in proportion to their respective Interests.
SECTION 2.2 - SPECIAL ALLOCATIONS.
The following special allocations shall be made in the following order:
(a) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for
any fiscal year or other period shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Nonrecourse Debt to
which such Member Nonrecourse Deductions are attributable in accordance with
Regulations 1.704-2(i)(1).
(b) Nonrecourse Deductions. Nonrecourse Deductions for any taxable year or
other period shall be specially allocated among the Members pro rata in
proportion to their ratio for sharing Profits or Losses for the taxable year.
The "excess nonrecourse liabilities" (as defined in Regulations Section
1.752-3(a)) shall be allocated to the Members pro rata in proportion to their
respective Interests.
(c) Minimum Gain Chargeback. Notwithstanding any other provision of the
Company Agreement, or of this Section 2, if there is a net decrease in Company
Minimum Gain
4
during any Company taxable year, each Member shall be allocated items of Company
income and gain for that year equal to that Member's share of the net decrease
in Company Minimum Gain, as determined pursuant to Regulations Section
1.704-2(g)(2). Notwithstanding the foregoing, if the minimum gain chargeback
would cause a distortion of the economic agreement of the Members as set forth
in Article III of the Operating Agreement, and it is not expected that the
Company will have sufficient other income to correct the distortion, the
Managing Member shall be authorized to request the Internal Revenue Service for
a waiver of the minimum gain chargeback requirement, as provided in Regulations
Section 1.704-2(f)(4). This Section 2.2(c) is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-2(f) and (g)
and shall be interpreted consistently therewith. To the extent permitted by such
Section of the Regulations and for purposes of this Section 2.2(c) only, each
Member's Excess Capital Account Deficit shall be determined prior to any other
allocations pursuant to this Section 2.2 with respect to such taxable year and
without regard to any net decrease in Member Minimum Gain during such taxable
year.
(d) Member Minimum Gain Chargeback. Notwithstanding any other provision of
this Agreement, or of this Section 2.2 except Section 2.2(c), if there is a net
decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during
any Company taxable year, each Person who, has a share of the Member Minimum
Gain attributable to such Member Nonrecourse Debt, determined in accordance with
Regulations Section 1:704-2(i)(5), shall be specially allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to that Member's share of the net decrease in Member Minimum Gain. The
items to be so allocated shall be determined in accordance with Section
1.704-2(i)(4) and (f)(5) of the Regulations. This Section 2.2(d) is intended to
comply with the Member Minimum Gain chargeback requirement in such Section of
the Regulations and shall be interpreted consistently therewith. Solely for
purposes of this Section 2.2(d), each Member's Excess Capital Account Deficit
shall be determined prior to any other allocations pursuant to this Section 2.2
with respect to such taxable year, other than allocations pursuant to Section
2.2(c) hereof.
(e) Qualified Income Offset. If any Member unexpectedly receives any
adjustments, allocations, or distributions described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6),
items of Company income and gain shall be specially allocated to such Member in
an amount and mariner sufficient to eliminate, to the extent required by the
Regulations, the Excess Capital Account Deficits created by such adjustments,
allocations, or distributions as quickly as possible, provided that an
allocation pursuant to this Section 2.2(e) shall be made only if and to the
extent that a Member would have Excess Capital Account Deficit after all other
allocations provided for in Sections 2.1 (a) and (b) of this Tax Appendix have
been tentatively made as if this Section 2.2(e) were not in this Tax Appendix.
(f) Gross Income Allocation. If any Member has a deficit Capital Account at
the end of any Company taxable year which is in excess of the sum of (i) the
amount such Member is obligated to restore pursuant to any provision of this
Agreement, and (ii) the amount such Member is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.7042(g)(1) and
1.704-2(i)(5), each such Member shall be specially allocated items of Company
income and gain in the amount of such excess as quickly as
5
possible, provided that an allocation pursuant to this Section 2.2(f) shall be
made only if and to the extent that such Member would have a deficit Capital
Account in excess of such sum after all other allocations provided for in this
Section 2.2 have been made as if this Section 2.2(f) and Section 2.2(e) hereof
were not in this Appendix.
(g) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to the Regulations to be taken into account
in determining Capital Accounts, the amount of such adjustment tai the Capital
Accounts 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), and such
gain or loss shall 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 Regulations.
SECTION 3 - CURATIVE ALLOCATIONS.
The allocations set forth in Section 2.2 of this Tax Appendix (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Partnership income,
gain, loss, or deduction pursuant to this Section 3. Therefore, notwithstanding
Section 2 of the Appendix, (other than the Regulatory Allocations), the Managing
Members shall make such offsetting special allocations in whatever manner they
determine 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 Regulatory Allocations
were not part of the Agreement and all Company items were allocated pursuant to
Section 2.1 of this Appendix. In exercising their discretion under this Section
3, the Managing Members shall take into account future Regulatory Allocations
under Section 2.
SECTION 4 - SPECIAL RULES.
(a) Restatement of Book Value. In accordance with Regulation Section
1.704-1(b)(2)(iv)(f), the Managing Members may, upon the occurrence of the
events specified in such Section of the Regulations, revalue the Company's
property and assets (including intangible assets such as goodwill) as well as
the Members' Capital Accounts.
(b) Prorations. For purposes of determining the Profits, Losses, or any
other items allocable to any period, Profits, Losses and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
Managing Members using any permissible method under Section 706 of the Code and
the Regulations thereunder.
(c) Allocations Among Classes. Except as otherwise provided in this
Agreement, all Profits and Losses allocated to the Members as a group, or among
a class of Members as a group, shall be allocated among them in proportion to
their respective Membership Units (or class of Units, as may be appropriate).
6
SECTION 5 - TAX ALLOCATIONS: CODE SECTION 704(c).
(a) In General. In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its initial Book Value (computed in accordance with Section 1(a) of this
Appendix).
(b) Revaluation. If the Book Value of any Company asset is adjusted
pursuant to Section 1(a) of this Appendix, subsequent allocations of income,
gain, loss, and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Book Value in the same manner as under Code Section 704(c) and
the Regulations thereunder.
(c) Elections. Any elections or other decisions relating to such
allocations shall be made by the Managing Members is any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations pursuant to
this Section 5 are solely for purposes of federal, state, and local taxes and
shall not affect, or in anyway be taken-into account in computing, any Member's
Capital Account or share of Profits, Losses, other items, or distributions
pursuant to any provision of this Agreement.
SECTION 6 - TAX ELECTION.
In the event of a transfer of all or part of an Interest of a Member, or
upon the distribution of cash or other property to a Member, the Company may,
but shall not be obligated to, elect pursuant to Section 754 of the Internal
Revenue Code to adjust the basis of the Company's assets. The determination to
make such election shall be within the absolute discretion of the Managing
Members, and the Managing Members may, in their discretion, require one or more
Persons likely to benefit from such election to pay the additional accounting
and other expenses associated with making such election.
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