Conditional Operating Agreement - Prime Member

ARTICLE I
FORMATION OF LIMITED LIABILITY COMPANY

Section 1.1   Formation.    The Company was formed as a limited liability company under the laws of the Commonwealth of Pennsylvania on September 11, 2002 by the filing of the Company’s Certificate of Organization with the Department of State of the Commonwealth of Pennsylvania.

Section 1.2   Name.    The name of the Company shall be Graphic Arts Alliance, LLC, and all business of the Company shall be conducted in such name.

Section 1.3   Purpose.    The purpose of the Company will be to obtain for its Prime Members and Advantage Members, all of whom are engaged in the business of providing printed materials or graphic arts services (collectively, the “Business”), by negotiating agreements with group vendors on more advantageous terms than would be available to the Prime Members and/or the Advantage Members individually.

Section 1.4   Offices.    The principal place of business of the Company shall be at 420 West Deer Pointe Road, West Chester, Pennsylvania 19382, or at such other principal place of business as the Managers may from time to time determine. The Company may have, in addition to such office, such other offices and places of business at such locations, both within and without the Commonwealth of Pennsylvania as the Managers may from time to time determine or the business and affairs of the Company may require.


ARTICLE II
CLASSES OF MEMBERSHIP INTERESTS, PROFIT, LOSS AND DISTRIBUTIONS

Section 2.1   Prime Members and Advantage Members, Contributions and Membership Interests.    The Prime Members and the Advantage Members, their initial capital contributions, if any, and their respective Prime Membership Interest, if any, are set forth on Exhibit A attached hereto. The Managers shall, from time to time, make such amendments to Exhibit A as necessary to reflect transfers of Prime Membership Interest and the admission of additional Prime Members and Advantage Members.

Section 2.2   Classes.    The Company shall be comprised of Prime Membership Interests and Advantage Membership Interests.

  1. Prime Membership Interests. A Prime Membership Interest is the entire interest of a Prime Member in the Company, including, without limitation, interests in items of income, gain, loss, deduction and credit, and confers voting and other rights to participate in the management of the Company, the right to receive Distributions (in liquidation or otherwise) from the Company, the right to receive or inspect financial or other information of the Company, and the other rights of a Prime Member or Member specified herein. For purposes of this Agreement, a Prime Member may sometimes be referred to as a Prime Member or a Member.
  2. Advantage Membership Interests. An Advantage Membership Interest is the entire interest of an Advantage Member in the Company, and confers no voting or other rights to participate in the management of the Company, no right to receive Distributions (in liquidation or otherwise) from the Company, no right to receive or inspect financial or other information of the Company, and no other rights in the Company except as otherwise specified herein. An Advantage Member is only entitled to benefit from such agreements the Company has negotiated with group vendors for the Advantage Members on more advantageous terms than would be available to Advantage Members individually. The Managers shall have the right to modify the benefits provided by the Company to Advantage Members.

Section 2.3   Admission of Additional Prime Members and Advantage Members.

  1. Prime Members. Any individual or entity may be admitted as a Prime Member by the Managers provided that:
    1. It has annual sales from its Business of no less than $7,000,000 and no more than $1,000,000,000;
    2. In the judgment of the Managers, it is financially sound and has a reputation for ethical business dealings and is not subject to any judgment or order of any court or governmental body, nor to any contractual obligation, that would prevent it from participating effectively in the Company’s programs;
    3. It has agreed that, if admitted as a Prime Member, it will execute an instrument reasonably satisfactory to the Managers accepting and adopting the provisions of this Agreement, and will forthwith make an initial capital contribution to the Company in the amount then required of all new Prime Members by the Managers;
    4. The Prime Members have been requested to express any objection they may have to such Prime Membership, and no more than two Prime Members have expressed any objection. The request to the Prime Members to state any objection they may have shall be transmitted to them by a Ballot, as defined in Section 3.6.b, and the Prime Members’ responses must be made by valid votes as provided in Section 3.6.b. However, the return of three valid votes in opposition to the proposed membership shall be conclusive without regard to the total number of Prime Members voting; and
    5. It is not a member of the following purchasing cooperatives: Graphic Source, Independent Printers Worldwide (IPW), PAGE Cooperative, and The Independent Carton Group or any other new or current group that the Managers determine is an equivalent purchasing cooperative. In order to maintain a Prime Membership Interest, a current Prime Member cannot be an active member in one or more of these groups.
  2. Advantage Members. Any individual or entity may be admitted as an Advantage Member by the Managers provided that:
    1. It has annual sales from its Business of no less than $3,000,000.
    2. In the judgment of the Managers, it is financially sound and has a reputation for ethical business dealings and is not subject to any judgment or order of any court or governmental body, nor to any contractual obligation, that would prevent it from participating effectively in the Company’s programs;
    3. It has agreed that, if admitted to as an Advantage Member, it will execute an instrument reasonably satisfactory to the Managers accepting and adopting the provisions of this Agreement, and will forthwith pay annual membership fees to the Company in the amount then required of all Advantage Members by the Managers; and
    4. It was not denied admission as a Prime Member.

Section 2.4   Additional Capital Contributions.    No Prime Member and no Advantage Member may be required to make any additional contribution to the capital of the Company except as expressly provided herein.

Section 2.5   Allocation of Profit and Loss.    Net profit, net loss, income, gain, credit, cost and deduction in each calendar year shall be allocated among the Prime Members in proportion to the amounts of their respective cash Distributions from the Company in such year.

Section 2.6   Distributions.    Only Prime Members shall be entitled to receive Distributions. No Advantage Member shall be entitled to any Distributions. After repayment or provision for all debts and obligations of the Company, including the repayment of any loans from a Prime Member or its affiliate, unless otherwise determined by the Managers and only as permitted by the provisions of §8845 of the Act or other applicable law except that the prohibition stated in §8845(a) of the Act requires only that the Company’s total assets not be less than its total liabilities, the Managers shall make Distributions in the amount of all remaining funds less reasonable reserves of the Company to the Prime Members at such times as the Managers, in their sole discretion, determine to be appropriate, except that all such Distributions with respect to a calendar year must be paid no later than March 31 of the next calendar year. Unless prohibited by law, the amount available for Distribution with respect to each calendar year will equal the amount of patronage refunds received by the Company with respect to that year. All Distributions shall be made in accordance with the rules set out on Exhibit B attached hereto. The Company may offset against any amount payable as a Distribution to a Prime Member any amount owed by that Prime Member to the Company. For purposes of this Agreement, the term “Distribution” shall be given the meaning ascribed to that term in the Pennsylvania Uniform Limited Liability Company Act of 2016, 15 Pa. C.S.A. §8811 et seq., and any successor statute, as amended from time to time (the “Act”).

Section 2.7   Membership Fee; Limited Liability.    Each Prime Member shall pay to the Company an annual membership fee, which shall be deemed to be a contribution to capital, in an amount determined from time to time by the Prime Members, and each Advantage Member shall pay to the Company an annual membership fee, which shall not be deemed to be a contribution to capital, in an amount determined from time to time by the Managers. No Prime Member and no Advantage Member shall be liable for the debts, liabilities, contracts or other obligations of the Company except to the extent of any unpaid capital contributions the Prime Member has agreed to make to the Company. No Prime Member and no Advantage Member shall be required to make any loans to the Company, except as may be agreed between a Prime Member or an Advantage Member and the Company, with approval of the Managers. The Company shall indemnify and hold harmless a Prime Member or an Advantage Member in the event such Prime Member or Advantage Member (a) becomes liable, notwithstanding the preceding sentence, for any debt liability, contract or other obligation of the Company except to the extent expressly provided in this Section 2.7 or (b) is directly or indirectly required to make any payments with respect thereto.

Section 2.8   Withdrawal.

  1. Prime Members    A Prime Member may withdraw at any time by written notice to the Secretary-Treasurer. A Prime Member shall be deemed to have withdrawn when the Managers give such Prime Member notice that they request its withdrawal because its annual sales from the Business have fallen below $5,000,000. Within thirty (30) days after withdrawal, the Company shall pay to the withdrawn Prime Member a fraction of that Prime Member’s annual membership fee equal to the fraction of the year during which such withdrawn Prime Member is not a Prime Member, provided the withdrawn Prime Member has no undischarged obligation to the Company, except that if the withdrawal occurs at any time prior to the first anniversary of such withdrawn Prime Member’s admission as a Prime Member, the Company shall pay to such withdrawn Prime Member the entire amount of such withdrawn Prime Member’s initial annual membership fee within thirty (30) days after withdrawal, provided the withdrawn Prime Member has no undischarged obligation to the Company.
  2. Advantage Members    An Advantage Member may withdraw at any time by written notice to the Secretary-Treasurer. An Advantage Member shall be deemed to have withdrawn when the Managers give such Advantage Member notice that they request its withdrawal because its annual sales from the Business have fallen below $1,500,000.00. Within thirty (30) days after withdrawal, the Company shall pay to the withdrawn Advantage Member a fraction of that Advantage Member’s annual membership fee equal to the fraction of the year during which such withdrawn Advantage Member is not an Advantage Member, provided the withdrawn Advantage Member has no undischarged obligation to the Company, except that if the withdrawal occurs at any time prior to the first anniversary of such withdrawn Advantage Member’s admission as an Advantage Member, the Company shall pay to such withdrawn Advantage Member the entire amount of such withdrawn Advantage Member’s initial annual membership fee within thirty (30) days after withdrawal, provided the withdrawn Advantage Member has no undischarged obligation to the Company.

Section 2.9   Expulsion.

  1. Prime Members    A Prime Member may be expelled for cause by a majority vote of the Prime Members at an annual or special meeting held, provided that the notice of such meeting states that the question of the expulsion of such Prime Member will be considered at that meeting. Cause for expulsion may include failure to comply with the requirements of this Agreement or with any decision of the Prime Members or the Managers, dishonesty in the conduct of the Prime Member’s business affairs or any action, which materially interferes with the conduct of the Company’s business. An expelled Prime Member shall not be entitled to a refund of any portion of its annual membership fee.
  2. Advantage Members    An Advantage Member may be expelled for cause by a majority vote of the Managers at any time. Cause for expulsion may include failure to comply with the requirements of this Agreement or with any decision of the Prime Members or the Managers, dishonesty in the conduct of the Advantage Member’s business affairs or any action, which materially interferes with the conduct of the Company’s business. An expelled Advantage Member shall not be entitled to a refund of any portion of its annual membership fee.

Section 2.10   Rights of Withdrawn and Expelled Prime Members to Patronage Refunds.    A Prime Member who withdraws or is expelled during a year shall be entitled to receive patronage rebates with respect to its purchases during the year of withdrawal, based on the amount of its purchases in the portion of the year during which it was a Prime Member. The amount of the patronage refund to which it is entitled with respect to the year of withdrawal or expulsion shall be equal to the distribution to which it would have been entitled under Section 2.6 by reason of the purchases it made in that year prior to its withdrawal or expulsion. The withdrawn or expelled Prime Member shall have no right to a patronage refund with respect to purchases made by it in the portion of the year of withdrawal or expulsion during which it was not a Prime Member, even if the Company received payments from group vendors with respect to those purchases.


ARTICLE VIII
TRANSFERS

Section 8.1   Assignment.    Prime Membership Interests and Advantage Membership Interests shall not be assignable, in whole or in part, except that a Prime Member’s right to Distributions with respect to that Prime Membership Interest may be assigned, with consent of the Prime Members, to a transferee of substantially all of the Prime Member’s assets. Such an assignment shall not constitute the admission of the assignee as a Prime Member. Such an assignee, if not already a Prime Member, may become a Prime Member only in accordance with the provisions of Section 2.3.a.

Section 8.2   Involuntary Transfer Deemed a Put.    If there is a transfer of all or any part of a Prime Membership Interest or Advantage Membership Interest by operation of law, including, without limitation, a transfer to a judgment creditor, a trustee (including a debtor-in-possession), a receiver under federal or state law or a transfer pursuant to an order of court, the Prime Member or Advantage Member (who owned the Prime Membership Interest or Advantage Membership Interest, as applicable, which is transferred) shall be deemed to have withdrawn as of the date of such transfer, and such transfer shall be deemed to be an offer by the transferee to sell the transferred Prime Membership Interest or Advantage Membership Interest, as applicable, to the Company, as of the date of the involuntary transfer, at a price equal to (i) in the case of a Prime Membership Interests, the greater of the aggregate unpaid patronage refund that is or will become payable with respect to purchases made by the transferor prior to the involuntary transfer, calculated in accordance with the provisions of Section 2.10 or (ii) in the case of an Advantage Membership Interest, One Dollar ($1.00). The Company shall be deemed to have accepted the offer forthwith.

Section 8.3   Payment of Purchase Price to Involuntary Transferee.    The purchase price of the interest of the involuntary transferee that is required under Section 8.2 shall be paid no later than the date on which Distributions are paid to the Prime Members with respect to the applicable time period. If payment of such patronage refund to the Prime Members is made in installments, payment to the involuntary transferee may be made in proportional installments.

ARTICLE X
NO OBLIGATION TO PURCHASE FROM PARTICULAR GROUP VENDORS

Section 10.1   No Purchase Obligation.    No Prime Member nor Advantage Member shall be obliged to make any purchases from group vendors with which the Company has relationships. However, Prime Members and Advantage Members are encouraged, under a code of ethics, to solicit pricing or proposals from group vendors before they renew contracts or purchase new equipment.


ARTICLE XI
CONFIDENTIALITY AND RESTRICTIVE COVENANT

Section 11.1   Confidentiality.    Each Prime Member and each Advantage Member hereby agrees that the terms of all agreements between the Company and the group vendors are confidential business information of the Company. Each Prime Member and each Advantage Member also agrees not to disclose such information either while he or she is a Prime Member or an Advantage Member or thereafter, to any person except as authorized by the Company. Each Prime Member and each Advantage Member further agrees to take all reasonable precautions to keep documents and computer files containing confidential information of the Company that come into its possession (including, without limitation, information relating to the terms of agreements between the Company and group vendors and any other information designated as confidential by the Prime Members) safe from examination or copying by unauthorized persons, and to return to the Company or destroy, at the termination of its Group A Membership or Advantage Membership all such documents and computer files in his or her possession or control.



Exhibit A
Rebate Distribution

All amounts distributable to Members pursuant to Section 2.5 with respect to their purchases in a given period of time shall be allocated among the Members based on their purchases of goods or services with respect to which the Company received payments pursuant to its contracts with vendors, in accordance with the following rules:

First, there shall be allocated to the Members (as a group) who purchased goods or services of a given category from a given vendor within the time period with respect to which the distribution is to be made a fraction of the total amount available for distribution whose numerator is the amount of revenue received by the Company from that vendor with respect to that category of goods or services in that time period, and whose denominator is the total amount received by the Company from all vendors with respect to purchases by Members in that time period.

Second, the amounts so allocated to each such group of Members shall be allocated among the Members of that group as follows:

80% to the Members that purchased goods or services in that category from that vendor, in amounts proportional to the respective amounts of their purchases;

20% to just the Members who are Major Purchasers of goods or services in that category from that vendor, in amounts proportional to the respective amounts of their purchases The Major Purchasers of goods or services in a particular category from a particular vendor are to be identified as follows:

First, rank all Members who purchased goods or services in that category, according to the dollar volume of those purchases in the relevant period, and note, for each such Member, the percentage of total Member purchases of goods or services in that category in that period from that vendor that were purchased by that Member.

Second, identify the smallest group of Members, beginning with the largest single purchaser and continuing down the ranking by volume of purchases, who in the aggregate, purchased at least 50% of the total Members’ purchases of goods or services in that category from that vendor. The Members so identified are the Major Purchasers of goods or services in that category from that vendor in that time period.

Third, any member’s rebate that is less than $50.00 will not be paid to that member. These rebate dollars will be allocated to the other members whose rebate is $50.00 or more.