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Business Supplies Distributors LLC Agreement 07-02-2001

OPERATING AGREEMENT

 

OF

 

BUSINESS SUPPLIES DISTRIBUTORS HOLDINGS, LLC

 

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THIS OPERATING AGREEMENT is made as of the 2nd day of July,

2001 by and between PRIORITY FULFILLMENT SERVICES, INC., a Delaware corporation

("PFS"), and INVENTORY FINANCING PARTNERS, LLC, a Delaware limited liability

company ("IFP"). PFS and IFP are individually and collectively referred to

herein as a "Member" and "Members," respectively.

 

WITNESSETH:

 

WHEREAS, the Members have authorized the formation of BUSINESS

SUPPLIES DISTRIBUTORS HOLDINGS, LLC (the "Company") as a limited liability

company pursuant to the provisions of the Delaware Limited Liability Company Act

(the "Act"); and

 

WHEREAS, the Members wish to set forth herein the terms and

provisions governing the operations and management of the Company.

 

NOW, THEREFORE, in consideration of the foregoing and the

mutual covenants and premises contained herein, and intending to be legally

bound hereby, the parties agree as follows:

 

ARTICLE 1. Formation; Term.

 

(a) Pursuant to Chapter 18, Title 6 of the Act, the Members

have authorized and caused to be filed in the Office of the Delaware Secretary

of State a Certificate of Formation (the "Certificate") thereby establishing the

Company as a Delaware limited liability company. A true and correct copy of the

Certificate is attached hereto as Exhibit A. The Company shall file an amendment

to the Certificate if, and to the extent, required by the Act to reflect the

provisions set forth herein.

 

(b) The Company shall be operated and shall conduct its

business in accordance with the Act, except to the extent modified by the terms

of this Agreement.

 

(c) Unless (i) the Company is sooner dissolved in accordance

with Article 14 of this Agreement or the provisions of the Act or (ii) the term

is extended pursuant to Article 14 of this Agreement, the term of existence of

the Company shall expire on December 31, 2050 (the "Term").

 

ARTICLE 2. Name; Principal Office; Registered Office and

Agent.

 

(a) The business and affairs of the Company shall be conducted

under the name of BUSINESS SUPPLIES DISTRIBUTORS HOLDINGS, LLC.

 

(b) The address of the Company's initial registered office in

the State of Delaware shall be 1013 Centre Road, Wilmington, Delaware, and the

registered agent at such office shall be Corporation Service Company. The

Company shall maintain its principal office in such location as the Manager (as

hereinafter defined) shall determine to be necessary and appropriate for the

proper conduct of the business of the Company.

 

 

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(c) The following documents shall be maintained at the

principal office of the Company:

 

(i) a current list of the full name and last known

business address of each Member set forth in alphabetical order and the date on

which each person or entity became a Member;

 

(ii) information regarding the amount of cash and a

description and statement of the agreed value of any other property contributed

by each Member;

 

(iii) a copy of the Certificate and all amendments

thereto;

 

(iv) a copy of this Agreement and all amendments hereto;

 

(v) copies of the Company's Federal and state income tax

returns and annual financial statements; and

 

(vi) Minutes of every annual meeting, special meeting and

court-ordered meeting and all written consents obtained from Members for actions

taken by Members without a meeting.

 

(d) Such documents shall be available for inspection and

copying by any Member or its authorized representatives during ordinary business

hours upon reasonable notice from, and at the expense of, such Member.

 

(e) The foregoing shall not restrict the power and authority

of the Manager to change the name, registered office, registered agent or

principal office of the Company from time to time.

 

ARTICLE 3. Limited Purpose; Operations; Title to Company

Property.

 

(a) The sole purpose of the Company shall be to purchase, sell

and distribute IBM products, and to engage in any and all businesses, activities

and enterprises related or incidental thereto, including without limitation, to

purchase, own, operate, manage, lease, sublease, possess, occupy, finance,

borrow, mortgage, pledge, encumber, sell, transfer, assign, grant options with

respect to, construct, expand, renovate, repair, maintain and otherwise deal

with and in respect of real or personal property, or any kind or description,

and otherwise engage in all such activities as are necessary, incidental or

appropriate in connection with the proper and lawful operation of the foregoing;

provided, however, in pursuing the foregoing, the Company shall not take any

action or step, or omit or fail to take any action or step, which shall

constitute a breach, violation or default under any law, rule, regulation,

ordinance, order, decree, license, permit, franchise, authorization, contract,

note, bond, indenture, instrument or agreement to which the Company or any of

its property may be subject or bound. For the avoidance of doubt, the Company

shall be the parent corporation of BSD Acquisition Corp., a Delaware

corporation, which shall conduct the foregoing activities.

 

 

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(b) The Company shall conduct its business and operations in

accordance with the following provisions and shall:

 

(i) maintain books and records and bank accounts separate

from those of any other person;

 

(ii) maintain its bank accounts and all its other assets

separate from those of any other person or entity;

 

(iii) hold regular Company meetings, as appropriate, to

conduct the business of the Company and observe all other limited liability

company formalities;

 

(iv) hold itself out to creditors and the public as a

legal entity separate and distinct from any other entity;

 

(v) prepare separate tax returns and financial statements;

 

(vi) conduct business in its own name and use separate

stationery, invoices and checks;

 

(vii) not commingle its assets or funds with those of any

other person;

 

(viii) not assume, guarantee or pay the debts or

obligations of any other person;

 

(ix) pay its own liabilities and expenses only out of its

own funds;

 

(x) pay salaries of its own employees from its own funds;

 

(xi) correct any known misunderstanding regarding its

separate identity;

 

(xii) not identify itself as a division of any other

person or entity; and

 

(xiii) maintain adequate capital in light of its

contemplated business operations.

 

(c) All property owned by the Company shall be owned by the

Company as an entity and, to the extent permitted by applicable law, no Member

shall have any ownership interest in any Company property in its individual name

or right, and each Member's interest in the Company shall be personal property

for all purposes.

 

ARTICLE 4. Members.

 

(a) As of the date hereof, the Members are PFS and IFP. Except

as provided in this Agreement, no other person, corporation, partnership,

limited liability company or other entity shall become a Member of the Company.

The Members shall have the rights, duties and

 

 

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obligations granted to and imposed upon them under the Act, except as and to the

extent modified by the terms of this Agreement.

 

(b) No Member may resign from the Company prior to the

dissolution and winding up of the Company's business and affairs. If a Member

attempts to resign in violation of the provisions of this Article 4(b), such act

shall, as to the Company and the other Members, be void and of no force and

effect, nor shall such attempted resignation entitle any Member to receive the

fair value of its interest in the Company prior to the dissolution and winding

up of the Company's business and affairs.

 

(c) Subject to the terms set forth herein, the interests of

the Members in the Company (each an "LLC Interest") are as follows: IFP - 51%;

and PFS - 49%.

 

(d) Except where specifically indicated otherwise, an LLC

Interest shall be deemed to refer to and include both an Economic Interest (as

hereinafter defined) and a Voting Interest (as hereinafter defined). As used

herein, the term "Economic Interest" means the economic rights and interests

associated with a Member's LLC Interest, including the economic rights and

interests described in the Act and in this Agreement. As used herein, the term

"Voting Interest" means all rights, interests and responsibilities, other than

the Economic Interest, associated with a Member's LLC Interest, including,

without limitation, the right to receive notice of, attend Members' meetings

regarding, and to vote on or consent to matters for which the approval or

consent of the Members is required or permitted hereunder. The Voting Interest

(rather than the Economic Interest) associated with a Member's LLC Interest

shall be counted for purposes of determining the presence of a quorum at

meetings of Members, whether Members holding the requisite percentage of LLC

Interests have voted in favor of any matter presented to the Members for their

approval and whether Members holding the requisite percentage of LLC Interests

have consented to any action taken without a meeting (collectively, the "Voting

Purposes").

 

ARTICLE 5. Capital Contributions; Capital Accounts.

 

(a) The Members agree to contribute to the capital of the

Company the cash and other property set forth on Exhibit B attached hereto and

incorporated herein (hereinafter, each Member's "Capital Contribution").

 

(b) Except as otherwise set forth herein, no Member shall,

solely by reason of being a Member, have any obligation to make any additional

capital contribution or loan to the Company or guaranty any indebtedness or

obligation of the Company.

 

(c) Contributions of capital to the Company by the Members

shall not bear interest.

 

(d) No Member shall have the right to withdraw or reduce its

capital contribution to the Company or receive the return of such capital

contribution, except as otherwise provided in this Agreement.

 

 

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(e) A separate capital account (each a "Capital Account")

shall be maintained for each Member in accordance with Treasury Regulations

Section 1.704-1(b)(2)(iv) of the Internal Revenue Code (the "Code"). Consistent

therewith, each Member's Capital Account shall be credited with (i) the amount

of cash and the fair market value of any other property (net of liabilities to

which the contributed property is subject) or services contributed by such

Member and (ii) the amount of any net profit or items thereof, allocated to that

Member pursuant to Article 7 hereof. Each Member's Capital Account shall be

charged with (iii) the amount of cash and the fair market value of any other

property (net of liabilities assumed by such Member and liabilities to which

such property is subject) paid or distributed to such Member, and (iv) the

Member's share of losses or items thereof, allocated to that Member pursuant to

Article 7 hereof. The Capital Accounts shall be adjusted by any other

adjustments required by Treasury Regulation Section 1.704-1(b)(2)(iv).

 

(f) The maintenance of the Capital Accounts shall in all cases

be as required by the Code, and the regulations thereunder (the "Regulations"),

and any inconsistencies between the terms of this Agreement and the Code and the

Regulations shall be resolved in favor of the Code and the Regulations. In the

event that there shall be any change to the provisions of the Code or any

Regulations and the application of such change under this Agreement shall result

in material economic harm to any Member, the Members shall use reasonable good

faith efforts to negotiate amendments to this Agreement to compensate such

Member for such harm; provided, however, that such amendments shall not

materially affect a Member's rights to distributions hereunder.

 

ARTICLE 6. Distributions.

 

(a) Subject to the restrictions, if any, of any loan

agreement, credit agreement, note, bond or other instrument or agreement to

which the Company is or may be subject or bound at any time, for each fiscal

year of the Company (or portion thereof on a pro rated basis), all Cash Flow (as

defined in Article 6(d) hereof) shall be distributed to the Members in the

following order of priority: first, to IFP until it has received a one-time

amount equal to its Capital Contribution; second, to IFP until it has received

an amount equal to a 35% cumulative annual return on its Capital Contribution;

third, to PFS until it has received a one-time amount equal to its Capital

Contribution; fourth, to PFS until it has received an amount equal to a 35%

cumulative annual return on its Capital Contribution; and fifth, to the Members,

pro rata, in accordance with their respective Capital Accounts. Notwithstanding

the foregoing, no distribution shall be made if, after giving effect thereto,

the net worth of the Company shall be less than the aggregate initial Capital

Contributions of the Members.

 

(b) The aforesaid distributions set forth in the preceding

paragraph shall be determined, annually, in accordance with the Company's annual

financial statements, and payment thereof shall be made within 30 days following

the completion of such financial statements, but, in any event, not later than

April 1 following each fiscal year.

 

(c) For purposes of this Agreement, "Cash Flow" means for each

fiscal year of the Company, gross revenues of the Company from operations, minus

all operating expenses, as determined, on an accrual basis, in accordance with

generally accepted accounting principles consistently applied, except that the

following rules shall apply:

 

 

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(i) Capital contributions and loans to the Company shall

not be included in Cash Flow;

 

(ii) Depreciation of any kind shall not be a deduction

from Cash Flow;

 

(iii) Reserves that the Manager may reasonably establish

from time to time shall be a deduction from Cash Flow, such reserves to include,

without limitation, (A) working capital reserves to reflect the difference

between accounts payable and accounts receivable and (B) reserves deemed

necessary or appropriate by the Manager to fund the Company's operations,

satisfy liabilities, repay indebtedness, capital expenditures, acquisitions or

other transactions;

 

(iv) Capital expenditures shall be a deduction from Cash

Flow to the extent such capital expenditures are in excess of reserves

previously established for such expenditures and are not paid with proceeds from

insurance;

 

(v) Insurance proceeds received on account of rental or

business interruption shall be included in Cash Flow;

 

(vi) Amounts released from reserves for distribution shall

be an increase in Cash Flow; and

 

(vii) Amortization of any indebtedness of the Company or

any part thereof, shall be a deduction from Cash Flow.

 

(d) No Member who is entitled to a distribution pursuant to

this Agreement shall be entitled to demand and receive such distribution in any

form other than cash.

 

(e) No Member having a negative balance in its Capital Account

shall be required to contribute funds to the Company in order to restore its

Capital Account to zero.

 

(f) Notwithstanding the foregoing, not later than April 1 of

each year, the Company shall make distributions (the "Tax Distributions") to

each Member in an amount equal to the estimated federal and state income tax

liability arising from such Member's membership interest in the Company during

the immediately prior year (based upon a tax rate reflecting the highest

applicable federal and state rates for such Member for such year).

 

ARTICLE 7. Allocation of Profits and Losses.

 

(a) All Profits as determined in accordance with Section 7(d)

herein shall be allocated among the Members as follows:

 

(i) First, Profits shall be allocated to all of the

Members in the amount of and in proportion to the excess, if any, of (A) the

aggregate distributions which have been paid, or are payable, to such Member as

of the last day of the current year; less (B) the aggregate amount of Profits

previously allocated to such Member pursuant to this Section 7(a)(i) for all

prior years; and

 

 

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(ii) Second, all remaining Profits shall be allocated to

all of the Members in proportion to their respective LLC Interests.

 

(b) All Losses as determined in accordance with Section 7(d)

hereof shall be allocated among the Members in proportion to their respective

Capital Accounts.

 

(c) Notwithstanding Articles 7(a) and (b) hereof:

 

(i) Profits and Losses shall be specifically allocated

(the "Regulatory Allocations") if and to the extent necessary to comply with the

Regulations under Code Section 704(b) (the "704(b) Regulations"), all as

determined by the Tax Matters Partner (as defined in Section 8(e) below).

 

(ii) If Regulatory Allocations have been made, then

subsequent allocations of Profits and Losses (the "Curative Allocations") shall

be made, so that the net result of all allocations of Profits and Losses

pursuant to Sections 7(a) and (b) and this Sections 7(c) in the aggregate shall,

as quickly as possible and to the extent possible without violating the

constraints prescribed by the 704(b) Regulations, be the same as if no

allocations had been made pursuant to this Article 7(c), all as determined by

the Tax Matter Partner.

 

(iii) In furtherance of this Section 7(c), all items of

Losses attributable to a liability of the Company shall be specifically

allocated to the Member that bears the economic risk of loss for such liability

and such Member shall be allocated items of Profits to the extent that there is

a net decrease in the minimum gain attributable to such portion of such

liability, all in accordance with the 704(b) Regulations as determined by the

Tax Matters Partner.

 

(d) "Profits" and "Losses" shall mean, for each fiscal year,

an amount equal to the Company's taxable income or loss for such year,

determined in accordance with Code Section 703(a), provided that all items of

income, gain, loss or deduction required to be separately stated pursuant to

Code Section 703(a)(1) shall be included in taxable income and loss, except

that:

 

(i) any income that is exempt from federal income tax

shall be added to such taxable income or loss;

 

(ii) any expenditure of the Company described in Code

Section 705(a)(2)(B) or treated as such pursuant to the 704(b) Regulations shall

be subtracted from taxable income or loss;

 

(iii) income, gain, losses and deductions, as determined

for federal income tax purposes, with respect to any property contributed to the

capital of the Company or owned by the Company if and when the Members' Capital

Accounts are revalued in accordance with the 704(b) Regulations shall be

determined with respect to such asset's fair market value in accordance with the

704(b) Regulations (the "Gross Asset Value") as determined by the Tax Matters

Partner;

 

 

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(iv) in the event that any of the Company's assets is

adjusted to reflect its Gross Asset Value in accordance with the 704(b)

Regulations, the amount of such adjustment shall be taken into account as gain

or loss from the disposition of such asset for purposes of computing Profits or

Losses; and

 

(v) to the extent an adjustment to the adjusted tax basis

of any of the Company's assets pursuant to Code Section 734(b) or Code Section

743(b) is required pursuant to the 704(b) Regulations to be taken into account

in determining Capital Accounts as a result of a distribution other than in

liquidation of a Member's LLC Interest, 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 the basis of the asset) from the

disposition of the asset and shall be taken into account for purposes of

computing Profits or Losses.

 

(e) Income, gain, losses and deductions, as determined for

federal income tax purposes, shall be allocated in accordance with the

allocation of the corresponding items of Profits and Losses except that income,

gain, losses and deductions as determined for federal income tax purposes with

respect to any property with a Gross Asset Value that differs from its adjusted

basis for federal income tax purposes shall be allocated so as to reconcile the

difference between such adjusted basis and such Gross Asset Value, in any manner

permitted under Code Section 704(c) and the Regulations thereunder as determined

by the Tax Matters Partner. Tax credits shall be allocated to the Members in

proportion to their respective LLC Interests. Allocations pursuant to this

Section 7(e) are solely for purposes of federal, state and local taxes and shall

not affect, or in any way be taken into account in computing, any Member's

Capital Account or share of Profits, Losses, or distributions pursuant to any

provision of this Agreement.

 

(f) In the event that any Member's LLC Interest changes during

the year, then allocations of Profit and Losses shall be made in any manner

permitted under Code Section 706 and the Regulations thereunder as determined by

the Tax Matters Partner to take into account such varying interests.

 

ARTICLE 8. Management.

 

(a) The management and control of the business and affairs of

the Company shall be vested in its manager (the "Manager"). The sole Manager

shall be an individual who shall not then be a current officer, director or

employee of PFS or any subsidiary thereof. The initial Manager shall be Joe

Farrell. The Manager shall prepare, and submit to the Members for approval, an

annual budget (as the same may be modified or revised from time to time, the

"Budget") setting forth projected revenue and expenses of the Company and its

subsidiaries for each upcoming fiscal year, together with such additional

information as any Member may reasonably request. The Manager shall have the

complete power and authority to manage and control the operations of the Company

and is authorized to take any and all actions and steps, and execute and deliver

on behalf of the Company, any and all documents, instruments and agreements, as

the Manager may deem necessary or appropriate from time to time; provided,

however, without the prior approval of the Members, the Manager shall not incur

any liability or obligation on behalf of the Company or any subsidiary thereof

or take any other action binding upon the Company or any subsidiary thereof in

an amount which exceeds the corresponding amount therefor set forth in the

applicable approved

 

 

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Budget by more than 15%. Subject to the prior written consent of the Members,

the Manager may appoint one or more officers or representatives of the Company

and may authorize such officers or representatives to act on behalf of, and to

enter into contracts, understandings and agreements in the name of, the Company.

 

(b) The Manager is hereby designated to serve as and exercise

all rights, powers and duties as "Tax Matters Partner," as such term is defined

and used in Section 6231(a)(7) of the Code and the Regulations. In its capacity

as Tax Matters Partner, the Manager shall cause the preparation and filing of

all Company tax returns and shall, on behalf of the Company, make such tax

elections as he shall determine to be in the best interests of the Members. The

Tax Matters Partner may consent to extensions relating to such returns and

revoke such tax elections as it believes may be in the best interests of the

Members. In addition, the Tax Matters Partner shall file all other tax forms,

documents or other writings with respect to the business and operations of the

Company as shall be required by any governmental agency or authority having

jurisdiction to require such forms, documents or other writings. The Tax Matters

Partner shall provide the Members with prompt notice of any communications

received from the Internal Revenue Service, together with copies of such

communications.

 

(c) The Manager shall be entitled to reasonable compensation

and benefits as shall be mutually agreed, from time to time, by the Manager and

the Members. The Manager and any officers or representatives of the Company

appointed by the Manager shall perform their respective duties hereunder in good

faith, in a manner they reasonably believe to be in the best interests of the

Company and with such care as an ordinarily prudent person in a like position

would use under similar circumstances. The Manager and such officers and

representatives (in performing their obligations hereunder) shall be fully

protected, and shall not be liable to the Company or to any Member, for acts

performed or omitted by them or their agents or representatives for and on

behalf of the Company in furtherance of its interests, including, without

limitation, acts or omissions made in good faith based upon the records of the

Company or the opinions of professionals employed by the Company.

 

(d) Upon not less than 30 days' prior written notice to all

Members, the Members, or any of them, shall have the right to remove the Manager

for Cause. As used herein "Cause" shall mean (i) the willful failure of the

Manager to substantially perform his duties to the Company and its subsidiaries

(after reasonable prior notice); (ii) misappropriation by the Manager of funds

or property of the Company or any attempt by the Manager to secure any personal

profit related to the business of the Company and not fairly disclosed to and

approved by all of the Members; (iii) fraud, dishonesty, disloyalty, gross

negligence or willful misconduct on the part of the Manager in the performance

of his duties for the Company and its subsidiaries; (iv) the Manager's engaging

in activities which are prohibited by state and/or federal laws prohibiting

discrimination based on age, sex, race, religion or national origin or engaging

in conduct constituting sexual harassment; or (v) a felony conviction of the

Manager.

 

(e) In the event of the death, disability or voluntary

resignation or retirement of the Manager or in the event the Manager is removed

for Cause, the Members shall appoint a new Manager, provided, however, such new

Manager shall not be a then current officer, director or employee of PFS.

 

 

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(f) Except as otherwise set forth herein, any action to be

taken by the Members, or any approval or consent required hereunder, shall be

deemed taken, granted or given hereunder (i) without any requirement of notice

or meeting, upon the unanimous action, approval or consent of the Members or

(ii) upon the affirmative vote of Members holding a majority of the outstanding

LLC Interests at a meeting of Members duly called by any Member upon not less

than 30 days prior written notice (specifying the action to be taken or approval

or consent to be granted or given) to all Members.

 

ARTICLE 9. Activities of Members. The Members may have and

engage in any other activities, business, enterprises or investments without any

liability to the Company arising therefrom, except that IFP covenants and agrees

that for so long as it is a Member herein and for a two year period thereafter,

IFP will not (i) directly or indirectly, own (except for minor holdings in

publicly listed or traded companies), manage, operate, join, control or

otherwise participate in, whether as a partner, director, shareholder or

otherwise, any business competitive with the business of the Company, PFS or any

of their respective subsidiaries; (ii) attempt in any manner to persuade any of

the suppliers or customers of the Company, PFS or any of their respective

subsidiaries to cease doing business or reduce the amount of business which any

of such suppliers or customers has done or may contemplate doing with the

Company, PFS or any of their respective subsidiaries; and (iii) whether directly

or indirectly, and whether on its own behalf or as a consultant, advisor, agent,

representative, shareholder, partner, independent contractor or in any capacity

on behalf of any sole proprietorship, corporation, partnership, joint venture,

person or other entity, employ any person who at any time during such period is

or was an employee of the Company, PFS or any of their subsidiaries. IFP

acknowledges that (i) the restrictive covenants set forth herein are necessary

in order to protect and maintain the legitimate business interests of the

Company and PFS and it is reasonable that the restrictive covenants set forth

above are not limited by any specific geographic area; (ii) the remedy at law

for any breach of this covenant by it will be inadequate and that, accordingly,

the Company and PFS shall, in addition to all other available remedies

(including without limitation seeking damages and an accounting for lost

profits), be entitled to injunctive relief; (iii) if any of the covenants

contained in this Section, or any part hereof, is hereinafter construed to be

invalid or unenforceable, the same shall not affect the remainder of the

covenant or covenants, which shall be given full effect, without regard to the

invalid portions; (iv) if any of the covenants contained in this Section, or any

part hereof, is held to be unenforceable because of the duration of such

provision or the area covered thereby, the court making such determination shall

have the power to reduce the duration and/or geographic area of such provision

and, in its reduced form, said provision shall then be enforceable; and (v) in

the event that the courts of any one or more of any state having jurisdiction

shall hold the above covenants wholly unenforceable by reason of the breadth of

scope or otherwise, it is the intention of the parties hereto that such

determination not bar or in any way affect the right of the Company or PFS to

the relief provided above in the courts of any other states within the

geographical scope of such covenants, as to breaches of such covenants in such

other respective jurisdictions, the above covenants as they relate to each state

being, for this purpose, severable into diverse and independent covenants.

 

ARTICLE 10. Limitation of Liability. Except as otherwise

provided by the Act, the debts, obligations and liabilities of the Company,

whether arising in contract, tort or otherwise, shall be solely the debts,

obligations and liabilities of the Company; and no Member, Manager,

 

 

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employee, agent or representative of the Company shall be obligated personally

for any such debt, obligation or liability of the Company, or for any debt,

obligation or liability of any other Member, Manager, employee, agent or

representative of the Company, by reason of being a Member, or acting as a

Manager, employee, agent or representative of the Company.

 

ARTICLE 11. Transfer of Interests in the Company.

 

(a) Except as otherwise provided in this Article 11, a Member

may not sell, assign, transfer, make gifts of or otherwise dispose of, or

pledge, hypothecate or otherwise encumber, its LLC Interest or any part thereof

in any manner whatsoever (such events being hereinafter sometimes collectively

referred to as a "Transfer"), without the prior written consent of all of the

Members (which consent shall not be unreasonably withheld), and any act in

violation hereof shall be null and void as against the Company and the other

Members.

 

(b) If an Insolvency Event (as herein defined) should occur

with respect to a Member, or if a Member is subject to a court order which

provides for the transfer of such Member's interest in the Company, the trustee

in bankruptcy or other person succeeding to such Member's interest in the

Company shall succeed only to such Member's economic rights and interests as

described in the Act and in this Agreement and shall not be admitted as a Member

of the Company or have the right to exercise any Voting Interests or consent

rights of such Member unless (i) the other Members grant their unanimous written

approval, which may be withheld in their sole and absolute discretion and (ii)

such successor agrees in writing to be bound by and comply with all of the

terms, provisions and conditions of this Agreement. As used herein, an

"Insolvency Event" shall mean any of the events set forth in Section 18-304 of

the Act with respect to a person or the occurrence of any of the events set

forth (and upon the dates specified) in such Section with respect to a person.

 

ARTICLE 12. Additional Members.

 

(a) Any person or entity may become a Member of the Company

upon (i) the written consent of all of the then Members and (ii) such person or

entity agreeing in writing to be bound by and comply with all of the terms,

provisions and conditions of this Agreement applicable to Members.

 

(b) A new Member may be entitled to any retroactive allocation

of losses, income or expense deductions incurred by the Company as the Manager

shall determine. The Manager may, in its sole discretion, at the time a new

Member is admitted, close the Company's books (as though the Company's tax year

had ended) or make pro rata allocations of losses, income and expense deductions

to a new Member for that portion of the Company's tax year in which a new Member

was admitted in accordance with the provisions of Section 706(d) of the Code and

the Regulations promulgated thereunder.

 

(c) Each Member agrees to execute and deliver such amendments

to, and modifications of, this Agreement as the Manager may deem necessary or

appropriate in connection with or in respect of the admission of any additional

Member as herein provided.

 

 

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<PAGE>

 

 

ARTICLE 13. Additional Capital. In the event the Members shall

unanimously determine in good faith that, in addition to the Capital

Contributions of the Members hereunder, further funds are required for the

proper operations of the Company (including without limitation, any funds needed

for working capital, any operating deficit or the purchase, lease, acquisition,

expansion or construction of additional Company property), such additional

capital shall be obtained from the Members in proportion to their LLC Interests

or in such other proportion, and upon such terms and conditions, as they shall

otherwise agree.

 

ARTICLE 14. Property Sale Events; Dissolution and Liquidation.

 

(a) As used herein, a "Property Sale" shall mean (i) the

merger or consolidation of any entity owned by the Company with or into any

other entity (other than a transaction in which the Company continues to own a

controlling interest in the surviving entity of such transaction), (ii) the sale

or transfer by the Company of all or substantially all of its assets and

properties to an unrelated third party in a bona fide transaction or (iii) the

sale or transfer by the Company of all or substantially all of its interest in

any entity owned by it to an unrelated third party in a bona fide transaction.

 

(b) All of the terms and provisions of any and each Property

Sale, including the consideration thereof and all matters relating thereto

(including the form, terms and provisions of all Property Sale documents,

agreements and instruments (the "Property Sale Documents")), shall be made by

the Manager, subject to the unanimous prior written consent of the Members

(which shall not be unreasonably withheld). Each Member agrees to execute and

deliver any and all Property Sale Documents, and, to the extent required

thereunder, to be jointly and severally liable with the other Members

thereunder, as shall be requested by the Manager, provided that such request

shall be made of all Members and provided further, however, that,

notwithstanding the terms of any Property Sale Document (or the failure of any

Member to execute and deliver the same), as among the Members, any liability or

obligation arising under or in respect of such Property Sale Document shall be

allocated among the Members in the proportion of their respective LLC Interests.

 

(c) All amounts paid or payable to the Company in connection

with any Property Sale (the "Sale Proceeds") shall be applied and allocated as

follows:

 

(i) first, to the payment of all costs and expenses

incurred by the Company in connection with the Property Sale;

 

(ii) second, to the payment of all indebtedness and

liabilities of the Company (including the establishment of such reserves as the

Manager shall deem necessary or appropriate in respect of any anticipated or

contingent liabilities arising from or relating to the Property Sale);

 

(iii) third, to the Members in proportion to their

respective Capital Accounts; and

 

 

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<PAGE>

 

 

(iv) fourth, the remaining balance shall be paid to the

Members in proportion to their respective LLC Interests.

 

(d) In the event the Sale Proceeds shall be payable over time

or shall be payable in securities, notes or property other than cash ("Non-cash

Proceeds"), then, to the extent practicable, the provisions of the preceding

paragraph (c) above shall apply to such Non-cash Proceeds, as and when received,

with the same force and effect as if paid in cash as of the effective date of

the Property Sale.

 

(e) The Company shall be dissolved and its assets liquidated

upon the earliest of (i) as promptly as practicable following the effective date

of a Property Sale, if following such Property Sale, the Company has no material

assets other than the Non-cash Proceeds arising therefrom, (ii) December 31,

2050, unless Members holding a majority of the LLC Interests held by the Members

agree in writing, within one year prior to the expiration of the Term, to extend

the Term; (iii) the unanimous determination of the Members to dissolve and

liquidate the Company and terminate this Agreement; or (iv) the entry of a court

order or judgment of dissolution.

 

(f) In the event of a dissolution of the Company for any

reason, the Manager shall immediately commence to wind up the Company's affairs

and shall liquidate the assets of the Company as promptly as possible, but in an

orderly and businesslike manner.

 

(g) In the event of any liquidation and dissolution of the

Company, after all indebtedness, liabilities and obligations of the Company,

including all expenses of liquidation (and including the establishment of such

reserves as the Manager shall deem necessary or appropriate in respect of any

anticipated or contingent liabilities of the Company), shall have been paid or

provided for, and all items of profit, loss, income, gain, loss, deduction and

credit shall have been allocated in accordance with Article 7 hereof, any

proceeds from the liquidation shall be applied and distributed in the order of

priority set forth in paragraph (c) above.

 

ARTICLE 15. Books, Records and Reports. The Manager shall

select the accountants for the Company. The Company shall keep proper and

complete books of account in accordance with generally accepted accounting

principles, consistently applied, at all times during its continuance, which

books and records shall be maintained at the principal office of the Company and

shall be available for inspection and copying upon reasonable notice. Except as

otherwise provided herein, the Tax Matters Partner shall select the cash or

accrual basis of accounting, as required by the Code, and shall make such

decisions as required and as are necessary with respect to capitalization or

expensing of items and the method of depreciation for both the books of account

and for Federal income tax purposes. The Company shall provide to the Members an

annual financial report, a copy of the Company tax return for each year by April

1st of the following calendar year and Form K-l or such other form necessary for

filing with the Members' income tax returns. The financial reports shall include

a copy of the balance sheet, the statement covering the profits and losses of

the Company, and with respect to the annual report, a statement showing the

distribution made to such Member pursuant to Article 6 hereof and the amounts

allocated to such Member pursuant to Article 7 hereof during or in respect of

such year and the amount thereof reportable for state and Federal income tax

purposes. Accountant's fees incurred by the Company

 

 

13

<PAGE>

 

 

for accounting services necessary to comply with the terms of this Article are

deemed to be a Company expense, payable out of Cash Flow.

 

ARTICLE 16. Fiscal Year. The fiscal year and the federal

income tax year of the Company shall end on December 31 of each year.

 

ARTICLE 17. Modifications; Waivers. No amendment or

modification of this Agreement shall be valid or effective unless in writing and

signed by the Members holding not less than 66-2/3% of the LLC Interests held by

the Members; provided that no modification or waiver of any breach or condition

of this Agreement shall be effective against any party unless in writing and

signed by the party or parties sought to be charged therewith. A waiver in one

instance shall not be deemed to be a waiver of any other or subsequent breach or

condition, whether of like or different nature.

 

ARTICLE 18. Notices and Addresses. All notices or other

communications given or made under this Agreement shall be in writing and shall

be (a) personally delivered, (b) sent by certified mail, return receipt

requested, postage prepaid or by reputable overnight courier providing a receipt

against delivery or (c) sent by telecopy or facsimile transmission, provided

that a copy thereof is concurrently delivered or sent in accordance with clause

(a) or (b) above. Such notices or other communications shall be delivered or

sent to the Members at their respective addresses set forth in the Company's

records or such other address as any Member may specify in a notice to the other

Members, and to the Company at its principal office specified in Article 2 of

this Agreement. All notices shall be effective upon receipt.

 

ARTICLE 19. Applicable Law. This Agreement shall be governed

by and construed in accordance with the laws of the State of Delaware.

 

ARTICLE 20. Gender. As used herein, each of the masculine,

feminine or neuter genders shall include the other genders, the singular shall

include the plural and the plural shall include the singular, whenever

appropriate to the context.

 

ARTICLE 21. Captions. Article titles or captions contained in

this Agreement are inserted only as a matter of convenience and as reference and

in no way define, limit, extend or describe the scope of this Agreement or the

intent of any of the provisions hereof.

 

ARTICLE 22. Counterparts. This Agreement may be executed in

one or more counterparts and each of such counterparts shall, for all purposes,

be deemed to be an original, but all of the counterparts shall constitute one

and the same instrument, and this Agreement shall be deemed effective on the

date it is executed by the parties hereto.

 

ARTICLE 23. Covenant to Sign Documents. Each Member shall

execute, with acknowledgment or affidavit if required, all documents and

writings reasonably necessary or expedient in order to effectuate the terms and

provisions hereof and the achievement of its purpose and as otherwise

contemplated herein.

 

 

14

<PAGE>

 

 

ARTICLE 24. No Waiver. The failure of a Member to insist on

the strict performance of any covenant or duty required by this Agreement, or to

pursue any remedy under the Agreement, shall not constitute a waiver of the

breach or the remedy.

 

ARTICLE 25. Successors and Assigns. Subject to the

restrictions on transferability contained in this Agreement, this Agreement and

all of its provisions shall be binding on and inure to the benefit of the

successors and assigns of the Members.

 

ARTICLE 26. Entire Agreement. This Agreement constitutes the

entire understanding of the parties, and supersedes all prior or contemporaneous

agreements among them, with respect to the subject matter hereof.

 

ARTICLE 27. Right of Partition. Each of the Members, for

itself, its successors and assigns, hereby waives any and all rights of

partition it may have under any and all applicable laws.

 

ARTICLE 28. Power of Attorney. Each Member hereby appoints the

Manager as its true and lawful representative and attorney-in-fact in his name,

place and stead to make, execute, sign and file any amendments to the

Certificate now or hereafter required by law and any amendments necessary to

reflect the admission of one or more new Members or any other amendment or

modification hereof provided for herein and such instruments, documents and

certificates which, from time to time, may be required by the laws of the United

States of America, the State of Delaware or any other state in which the Company

shall determine to do business, or any political subdivision or agency thereof,

to execute, implement and continue the valid and subsisting existence of the

Company. Such power of attorney is coupled with an interest and shall continue

in full force and effect notwithstanding the subsequent death or incapacity of

such party.

 

ARTICLE 29. Counsel. Each Member acknowledges that it has

reviewed, or has had the opportunity to review, this Agreement with its own

separate and independent counsel, and each Member has participated in the

negotiation and drafting of this Agreement. Each Member further acknowledges

that counsel to the Company may also serve as counsel to any or all of the

Members, and counsel to any or all of the Members may also serve as counsel to

the Company, in each case, in any related or unrelated matter and any and all

conflicts of interest arising therefrom are hereby waived.

 

 

15

<PAGE>

 

 

IN WITNESS WHEREOF, the undersigned have hereunto executed

this Agreement as of the day and year first aforesaid.

 

 

PRIORITY FULFILLMENT SERVICES, INC.

 

 

By:

------------------------------------

Name:

Title:

 

 

INVENTORY FINANCING PARTNERS, LLC

 

 

By:

------------------------------------

Name:

Title:

 

 

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<PAGE>

 

 

EXHIBIT A

 

CERTIFICATE OF FORMATION

 

OF

 

BUSINESS SUPPLIES DISTRIBUTORS HOLDINGS, LLC

 

 

The undersigned, an authorized natural person, in order to form a

limited liability company pursuant to the provisions and subject to the

requirements of the State of Delaware (particularly Chapter 18, Title 6 of the

Delaware Code and the acts amendatory thereof and supplemental thereto, and

known, identified and referred to as the "Delaware Limited Liability Company

Act"), does hereby certify:

 

FIRST: The name of the limited liability company is BUSINESS SUPPLIES

DISTRIBUTORS HOLDINGS, LLC.

 

SECOND: The address of the limited liability company's initial

registered office and the name of the limited liability company's initial

registered agent as required to be maintained by Section 18-104 of the Delaware

Limited Liability Company Act are Corporation Service Company, 1013 Centre Road,

Wilmington, Delaware 19805.

 

IN WITNESS WHEREOF, the undersigned has set his hand this 2nd day of

July, 2001.

 

/s/ Morris Bienenfeld

-----------------------------------

Morris Bienenfeld

Authorized Representative

 

 

 

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<PAGE>

 

 

EXHIBIT B

 

CAPITAL CONTRIBUTIONS

 

 

<Table>

<Caption>

Name Capital Contribution

---- --------------------

<S> <C>

Priority Fulfillment Services, Inc. $750,000

Inventory Financing Partners LLC $250,000

</Table>

 

 

18