Exhibit 10.1

 

 

 

 

OPERATING AGREEMENT

OF

NOVAS ENERGY NORTH AMERICA, LLC

October 22, 2015

 

 

 

 

   

 

 

 

TABLE OF CONTENTS

 

    Page Section 1 DEFINITIONS 1 1.1 Specific Definitions 1 1.2 General Usage 6
Section 2 FORMATION 7 2.1 Formation 7 2.2 Effective Date 7 2.3 Name 7 2.4 Term 7
2.5 Purpose and Scope 7 2.6 Principal Office 7 2.7 Delaware Office and Agent 7
2.8 Names, Contact and Other Information of the Members 7 Section 3
CAPITALIZATION 8 3.1 Initial Capital Contributions 8 3.2 Additional Capital
Contributions 8 3.3 Performance-Based Adjustment to Membership Interests 9 3.4
Withdrawal and Return of Capital 9 3.5 Loans to the Company 9 3.6 Interest on
Capital 9 3.7 Negative Capital Accounts 9 Section 4 MEMBERS 10 4.1 Admission of
New Members 10 4.2 Limitation of Liability; Return/Withholding of Certain
Distributions 10 4.3 Succession Upon Transfer 10 4.4 Action by Members 10 4.5
Member Expenses 10 Section 5 ALLOCATIONS 11 5.1 Allocations of Company Profits
and Losses 11 5.2 Allocation Adjustments Required to Comply With Section 704(b)
of the Code 11 5.3 Tax Allocations 12 5.4 Allocations in Event of Transfer 12
Section 6 DISTRIBUTIONS 12 6.1 Distributions 12 6.2 Tax Distributions 13 6.3
Withholding Taxes 13 Section 7 ADMINISTRATION 13 7.1 Management of the Company
13 7.2 Resignations and Vacancies 14 7.3 Meetings 14

 

  -i- 

 

 

TABLE OF CONTENTS
(Continued)

 

    Page 7.4 Notice of Meetings 14 7.5 Quorum 14 7.6 Board Action by Written
Consent Without a Meeting 14 7.7 Officers 15 7.8 Authority of Officers to Bind
the Company 15 7.9 Actions Requiring Approval of the Board of Directors 16 7.10
Actions Requiring Approval of the Members 16 7.11 Sale Transactions 17 7.12
Budget 17 7.13 Additional Capital Contributions in Excess of $3,000,000 18 7.14
Termination of License Agreements. 18 7.15 Member Owned Wells 18 7.16 Business
Opportunities 18 Section 8 EXCULPATION AND INDEMNIFICATION 19 8.1 Exculpation of
Covered Persons 19 8.2 Liabilities and Duties of Covered Persons 19 8.3
Indemnification 20 Section 9 TRANSFERS AND WITHDRAWALS 20 9.1 Transfers of
Interests 20 9.2 Permitted Transfers 21 9.3 No Withdrawal or Removal 21
Section 10 ACCOUNTING; TAX MATTERS 21 10.1 Records and Financial Statements 21
10.2 Income Tax Status 22 10.3 Tax Matters Member 22 10.4 Tax Returns 22 10.5
Company Funds 22 Section 11 DISSOLUTION AND LIQUIDATION 23 11.1 Triggering
Events 23 11.2 Additional Triggering Events 23 11.3 Covenants upon Dissolution
23 11.4 Effectiveness of Dissolution 24 11.5 Liquidation 24 11.6 Termination of
Agreement and Cancellation of Certificate 25 11.7 Recourse for Claims 25
Section 12 GENERAL PROVISIONS 25 12.1 Amendments 25 12.2 Counterparts; Binding
upon Members 25 12.3 No Third Party Beneficiaries 25 12.4 Notices, Consents,
Elections, Etc 25 12.5 Severability 25

 

  -ii- 

 

 

TABLE OF CONTENTS
(Continued)

 

    Page 12.6 Successors and Assigns 25 12.7 Governing Law 25 12.8 Currency 26
12.9 Partnership for Tax Purposes Only 26

 

SCHEDULE A – Member Information

SCHEDULE B – Membership Interest Adjustment Formula

SCHEDULE C – Initial Business Plan and Budget

SCHEDULE D – Exempt Employees

 

  -iii- 

 

 

OPERATING AGREEMENT

 

OF

 

NOVAS ENERGY NORTH AMERICA, LLC

 

 

 

THIS OPERATING AGREEMENT of Novas Energy North America, LLC, a Delaware limited
liability company (the “Company”), is entered into as of October 22, 2015, by
and among Novas Energy USA, Inc. (“Novas USA”) and Technovita Technologies USA,
Inc. ( “Technovita”).

 

WHEREAS, the Members of the Company wish to enter into this Agreement setting
forth their respective ownership interests in the Company and the principles by
which it will be operated and governed; and

 

NOW, THEREFORE, in consideration of mutual covenants and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:

 

Section 1
DEFINITIONS

 

1.1 Specific Definitions.  As used in this Agreement:

 

“Adjusted Capital Account Deficit” shall mean, with respect to any Member, the
deficit balance, if any, in such Member’s Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:

 

(a) The Capital Account shall be increased by any amounts that such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the penultimate sentences of each of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

 

(b) The Capital Account shall be decreased by the items described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6).

 

The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.

 

“Affiliate” shall mean a Person that directly or indirectly controls, is
controlled by, or is under common control with another Person.

 

“Agreement” shall mean this Operating Agreement of Novas Energy North America,
LLC, a Delaware limited liability company, including all schedules, appendices,
and exhibits hereto, as amended in accordance with the terms hereof.

 

“Capital Account” shall mean, for each Member, a separate account established
and maintained on the books and records of the Company that is:

 

   

 

 

(a) Increased by: (i) the amount of such Member’s Capital Contributions
(including such Member’s initial Capital Contribution and any Additional Capital
Contributions), (ii) allocations of Profits to such Member pursuant to Article
5, and (iii) the amount of any liabilities of the Company that are assumed by
such Member or secured by any property distributed to such Member;

 

(b) Decreased by: (i) the amount of cash distributed to such Member by the
Company; (ii) the Fair Market Value of any other property distributed to such
Member by the Company (determined as of the time of distribution and net of
liabilities secured by such property that the Member assumes or to which the
Member’s ownership of the property is subject); (iii) allocations of Losses to
such Member pursuant to Article 5, or (iv) the amount of any liabilities of such
Member assumed by the Company or that are secured by any property contributed by
such Member to the Company;

 

(c) Otherwise adjusted in accordance with the provisions of this Agreement; and

 

(d) Revalued in connection with any event described in paragraph (a) of the
definition of “Gross Asset Value” to the extent the Board of Directors
determines that a revaluation is necessary to preserve the economic arrangement
of the Members. In determining the amount of any liability for purposes of
subparagraphs (a) and (b) above, there shall be taken into account Section
752(c) of the Code and any other applicable provisions of the Code and Treasury
Regulations.

 

Capital Accounts shall be maintained in accordance with Treasury Regulations
Section 1.704-1(b) and specifically in a manner consistent with the Member’s
interest in the Company and the provisions of this Agreement shall be
interpreted and applied in a manner consistent with such regulations and intent.

 

“Capital Contribution” shall mean, for any Member, the sum of the net amount of
cash and the Fair Market Value of any other property (determined as of the time
of contribution and net of liabilities secured by such property that the Company
assumes or to which the Company’s ownership of the property is subject)
contributed by such Member to the capital of the Company.

 

“Cause” shall mean: (i) a material failure to perform stated duties, and
continued failure to cure such failure to the reasonable satisfaction of the
Board of Directors; (ii) material violation of a Company policy or any written
agreement or covenant with the Company; (iii) conviction of, or entry of a plea
of guilty or nolo contendere to, a felony; (iv) a willful act that constitutes
gross misconduct and which is injurious to the Company; or (v) the commission of
any act of fraud, embezzlement, dishonesty or any other willful misconduct.

 

“Coal Bed Methane Technology” means the technology owned, controlled and
patented by Georesonance Ltd. involving the use of metallic plasma-generated,
directed, non-linear, wideband, and elastic oscillations at resonance
frequencies for the purposes of degasification and extraction of methane in coal
seams.

 

“Code” shall mean the United States Internal Revenue Code of 1986, as amended.

 

“Company Percentage” shall mean, for each Member, the percentage set forth on
Schedule A.

 

“Delaware Act” means the Delaware Limited Liability Company Act, Title 6,
Chapter 18, §§ 18-101, et seq, and any successor statute, as it may be amended
from time to time.

 

“Deploy”, “Deployed” or “Deployment” means the use, treatment, development,
marketing and commercialization of the Vertical Technology.

 

  -2- 

 

 

“Depreciation” means, for each Fiscal Year or other period, an amount equal to
the depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year or other period; provided, however,
that if the Gross Asset Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction with respect to such asset for such Fiscal Year
or other period bears to such beginning adjusted tax basis; and provided
further, that if the federal income tax depreciation, amortization or other cost
recovery deduction for such Fiscal Year or other period is zero, Depreciation
shall be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board of Directors.

 

“EBITDA” means earnings before interest, taxes, depreciation and amortization.

 

“Estimated Tax Amount” of a Member for a Fiscal Year (or portion thereof) means
the product of (1) the federal taxable income allocated by the Company to the
Member in accordance with Article 5 (as adjusted by any final determination in
connection with any tax audit or other proceeding) for such Fiscal Year (or
portion thereof), and (2) the marginal blended tax rate applicable to such
income for the Member, as estimated in good faith from time to time by the Board
of Directors. In making such estimate, the Board of Directors shall take into
account amounts shown on IRS Form 1065 filed by the Company and similar state or
local forms filed by the Company for the preceding taxable year and such other
adjustments as in the reasonable business judgment of the Board of Directors are
necessary or appropriate to reflect the estimated operations of the Company for
the Fiscal Year.

 

“Fair Market Value” as of any date means the purchase price that a willing buyer
having all relevant knowledge would pay a willing seller for such asset in an
arm’s length transaction, as determined by the Board of Directors.

 

“Fiscal Period” shall mean the Fiscal Year or such shorter period as necessary
to take into account the Members’ varying interests in the Company.

 

“Fiscal Year” shall mean the period from January 1 through December 31 of each
year (unless otherwise required by law).

 

“GAAP” shall mean United States generally accepted accounting principles,
consistently applied.

 

“Gross Asset Value” means, with respect to any asset, such asset’s adjusted
basis for federal income tax purposes, except as follows:

 

(a) The Gross Asset Value of all Company assets shall be adjusted to equal their
respective Fair Market Values, immediately prior to the following times: (i) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (ii) the
distribution by the Company to a Member of more than a de minimis amount of
Company assets as consideration for an interest in the Company; (iii) the grant
of an interest in the Company (other than a de minimis interest) as
consideration for the provision of services to or for the benefit of the Company
by an existing Member acting in a Member capacity, or by a new Member acting in
a Member capacity or in anticipation of becoming a member; and (iv) the
liquidation of the Company within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
clause (i), (ii) and (iii) of this sentence shall be made only if the Board of
Directors reasonably determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members in the
Company; and

 

  -3- 

 

 

(b) The Gross Asset Value of any Company asset distributed to any Member shall
be the Fair Market Value of such asset on the date of distribution.

 

If the Gross Asset Value of an asset has been determined or adjusted pursuant to
paragraph (a) or paragraph (b) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.

 

“Horizontal Technology” means the technology owned, controlled, and patented by
Novas Sk Ltd., involving the use of metallic plasma-generated, directed,
non-linear, wideband, and elastic oscillations at resonance frequencies in wells
with drift angle of hole from 56 degrees in the inclined parts of the wellbore
and up to 110 degrees in the inversion parts of the wellbore for the purposes of
enhanced recovery of hydrocarbons.

 

“Majority-In-Interest of the Members” shall mean Members whose aggregate
Membership Interests at the time of determination exceed fifty percent (50%).

 

“Member” shall mean those Persons admitted as members under this agreement as
shown on Schedule A as such schedule may be updated from time to time. Except
where the context requires otherwise, a reference in this Agreement to “the
Members” shall mean all of the Members. The Members shall constitute the
“members” (as that term is defined in the Delaware Act) of the Company.

 

“Membership Interest” means an interest in the Company owned by a Member,
including such Member’s right (a) to its distributive share of Profits and
Losses and other items of income, gain, loss and deduction of the Company; (b)
to its distributive share of the assets of the Company; (c) to vote on, consent
to or otherwise participate in any decision of the Members as provided in this
Agreement; and (d) to any and all other benefits to which such Member may be
entitled as provided in this Agreement or the Delaware Act. The Membership
Interest of each Member shall be expressed as a percentage interest and shall
initially be the same proportion that such Member’s total Capital Contribution
bears to the total Capital Contributions of all Members/as set forth on Schedule
A.

 

“Member Minimum Gain” means an amount, with respect to each Member Nonrecourse
Debt, equal to the Company Minimum Gain that would result if such Member
Nonrecourse Debt were treated as a nonrecourse liability, determined in
accordance with Treasury Regulations Section 1.704-2(i)(3).

 

“Member Nonrecourse Debt” has the same meaning as the term “partner nonrecourse
debt” in Treasury Regulations Section 1.704-2(b)(4).

 

“Member Nonrecourse Deduction” shall mean an item of loss, expense or deduction
attributable to a nonrecourse liability of the Company for which a Member bears
the economic risk of loss within the meaning of Treasury Regulations
Section 1.704-2(i).

 

“Minimum Gain” of the Company or “Company Minimum Gain” shall have the same
meaning as the term “partnership minimum gain” as defined in Treasury
Regulations Section 1.704-2(b)(2).

 

“Nonrecourse Deduction” shall have the meaning set forth in Treasury Regulations
Section 1.704-2(b).

 

“Person” shall mean an individual, partnership, corporation, limited liability
company, unincorporated organization, trust, joint venture, governmental agency,
or other entity, whether domestic or foreign.

 

  -4- 

 

 

“Profits and Losses” shall mean, for each Fiscal Year or other Fiscal Period, an
amount equal to the Company’s taxable income or loss for such Fiscal Year or
other Fiscal Period, as applicable, determined in accordance with Section 703(a)
of the Code (but including in taxable income or loss, for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Section 703(a)(1) of the Code), with the following adjustments:

 

(a) Any income of the Company exempt from federal income tax and not otherwise
taken into account in computing Profits or Losses pursuant to this definition
shall be added to such taxable income or loss;

 

(b) Any expenditures of the Company described in Section 705(a)(2)(B) of the
Code (or treated as expenditures described in Section 705(a)(2)(B) of the Code
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i)) and not otherwise
taken into account in computing Profits or Losses pursuant to this definition
shall be subtracted from such taxable income or loss;

 

(c) In the event that the Gross Asset Value of any Company asset is adjusted in
accordance with paragraphs (a) or (b) of the definition of “Gross Asset Value,”
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;

 

(d) Gain or loss resulting from any disposition of any asset of the Company with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the asset disposed
of, notwithstanding that the adjusted tax basis of such asset differs from its
Gross Asset Value;

 

(e) In lieu of the depreciation, amortization and other cost recovery deductions
taken into account in computing such taxable income or loss, there shall be
taken into account Depreciation for such Fiscal Year or other Fiscal Period,
computed in accordance with the definition of “Depreciation” above; and

 

(f) Notwithstanding any other provision of this definition, any items that are
specially allocated pursuant to Sections 5.2 or 5.3 shall not be taken into
account in computing Profits or Losses.

 

“Quarterly Estimated Tax Amount” of a Member for any calendar quarter of a
Fiscal Year means the excess, if any of (a) the product of (i) a quarter (¼) in
the case of the first calendar quarter of the Fiscal Year, half (½) in the case
of the second calendar quarter of the Fiscal Year, three-quarters (¾) in the
case of the third calendar quarter of the Fiscal Year, and one (1) in the case
of the fourth calendar quarter of the Fiscal Year and (ii) the Member’s
Estimated Tax Amount for such Fiscal Year over (b) all distributions previously
made during such Fiscal Year to such Member

 

“Related Party Agreement” means any agreement, arrangement or understanding
between the Company and any Member or any Affiliate of a Member or any officer
or employee of the Company.

 

“Sublicense Agreements” means (i) the Sublicense Agreement to be entered into
between the Company and Technovita Technologies Corporation providing the
Company with the exclusive and requisite authority to Deploy the Vertical
Technology in Canada (except for the right of Technovita Technologies
Corporation to Deploy the Vertical Technology in wells owned by it or its
Affiliates in Canada), and (ii) the Sublicense Agreement to be entered into
between the Company and Novas USA providing the Company with the exclusive and
requisite authority to Deploy the Vertical Technology in the United States of
America (except for the right of Novas USA to Deploy the Vertical Technology in
wells owned by it or its Affiliates in the United States).

 

  -5- 

 

 

“Technovita Technologies Corporation” shall mean the exclusive licensee of
Vertical Technology in Canada and the parent company and sole stockholder of
Technovita Technologies USA, Inc.

 

“Transfer” shall mean any sale, exchange, transfer, gift, encumbrance,
assignment, pledge, mortgage, hypothecation or other disposition, whether
voluntary or involuntary.

 

“Treasury Regulations” shall mean the regulations issued by the United States
Treasury Department.

 

“Vertical Technology” means the technology owned, controlled, and patented by
Novas Energy Group Limited involving the use of metallic, plasma-generated,
directed, nonlinear, wideband, and elastic oscillations at resonance frequencies
in wells with drift angle of hole between 0 and 55 degrees in the inclined parts
of the wellbore for the purpose of enhanced recovery of hydrocarbons.

 

“Year 1 Key Performance Indicators” means during a continuous twelve (12) month
period commencing upon September 1, 2015, unless the Board of Directors
otherwise approves a later date due to the Company having insufficient equipment
or technicians available to Deploy the Vertical Technology as of September 1,
2015, each of: (1) sales from activities in the United States of America of
greater than or equal to $2,829,000, (2) sales from activities in Canada of
greater than or equal to $2,829,000, (3) EBITDA from activities in the United
States of America of greater than or equal to $524,000, and (4) EBITDA from
activities in Canada of greater than or equal to $524,000.

 

“Year 2 Key Performance Indicators” means, during a continuous twelve (12) month
period commencing the day immediately following the conclusion of the period in
which the Year 1 Key Performance Indicators were measured, each of: (1) sales
from activities in the United States of America of greater than or equal to
$19,310,000, (2) sales from activities in Canada of greater than or equal to
$19,310,000, (3) EBITDA from activities in the United States of America of
greater than or equal to $6,590,000, and (4) EBITDA from activities in Canada of
greater than or equal to $6,590,000.

 

1.2 General Usage.  For purposes of this Agreement: (a) the words “include,”
“includes” and “including” shall be deemed to be followed by the words “without
limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,”
“hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole.
The definitions given for any defined terms in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. Unless the context otherwise requires, references
herein: (x) to Articles, Sections, and Exhibits mean the Articles and Sections
of, and Exhibits attached to, this Agreement; (y) to an agreement, instrument or
other document means such agreement, instrument or other document as amended,
supplemented and modified from time to time to the extent permitted by the
provisions thereof; and (z) to a statute means such statute as amended from time
to time and includes any successor legislation thereto and any regulations
promulgated thereunder. This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting an instrument or causing any instrument to be drafted. The Exhibits
referred to herein shall be construed with, and as an integral part of, this
Agreement to the same extent as if they were set forth verbatim herein.

 

 

  -6- 

 

 

Section 2
FORMATION

 

2.1 Formation.

 

(a) The Company was formed on June 5, 2015, pursuant to the provisions of the
Delaware Act, upon the filing of the Certificate of Formation of the Company
with the Secretary of State of the State of Delaware.

 

(b) This Agreement shall constitute the “limited liability company agreement”
(as that term is used in the Delaware Act) of the Company. The rights, powers,
duties, obligations and liabilities of the Members shall be determined pursuant
to the Delaware Act and this Agreement. To the extent that the rights, powers,
duties, obligations and liabilities of any Member are different by reason of any
provision of this Agreement than they would be under the Delaware Act in the
absence of such provision, this Agreement shall, to the extent permitted by the
Delaware Act, control.

 

2.2 Effective Date. This Agreement shall take effect on the date hereof (the
“Effective Date”).

 

2.3 Name. The name of the Company is “Novas Energy North America, LLC”.

 

2.4 Term.  The term of the Company commenced on the date the Certificate of
Formation was filed with the Secretary of State of the State of Delaware and
shall continue in existence perpetually until the Company is dissolved in
accordance with the provisions of this Agreement.

 

2.5 Purpose and Scope.  The purpose and scope of the Company shall include any
lawful action or activity permitted to a limited liability company under the
Act; provided, however, that the Company’s principal purpose shall be the
Deployment of the Vertical Technology and the provision of incidental services.
The Members hereby expressly acknowledge that the purpose and scope of the
Company shall not include the Deployment of the Horizontal Technology or the use
of the Coal Bed Methane Technology.

 

2.6 Principal Office.  The Company shall have a single “Principal Office” which
shall initially be located at Suite 350, 1122 4th Street SW, Calgary, Alberta,
Canada, and may thereafter be changed from time to time upon the approval of the
Board of Directors.

 

2.7 Delaware Office and Agent.  The registered office of the Company shall be
the office of the initial registered agent named in the Certificate of Formation
or such other office (which need not be a place of business of the Company) as
the Company may designate from time to time in the manner provided by the
Delaware Act. The registered agent for service of process on the Company in the
State of Delaware shall be the initial registered agent named in the Certificate
of Formation or such other Person or Persons as the Company may designate from
time to time in the manner provided by the Delaware Act.

 

2.8 Names, Contact and Other Information of the Members.  Set forth below the
name of each Member on Schedule A shall be appropriate contact information for
such Member (including such Member’s mailing address, telephone number, and
facsimile number as well as, in the case of a Member that is an entity, the name
or title of an individual to whom notices and other correspondence should be
directed). Each Member shall promptly provide the Company with the information
required to be set forth for such Member on Schedule A and shall thereafter
promptly notify the Company of any change to such information.

 

  -7- 

 

 

Section 3
CAPITALIZATION

 

3.1 Initial Capital Contributions.  On the Effective Date, each Member shall
make an initial Capital Contribution and shall be deemed to own Membership
Interests in the amounts set forth opposite such Member’s name on Schedule A
attached hereto. Notwithstanding the foregoing, it is hereby acknowledged that
each Member’s initial Capital Contribution shall be delivered to the Company on
the following schedule: (i) $600,000 shall be delivered by Novas USA and
$400,000 shall be delivered by Technovita on the Effective Date, and (ii)
$300,000 shall be delivered by Novas USA and $200,000 shall be delivered by
Technovita on November 1, 2015. The Members hereby agree that an additional
Capital Contribution of $300,000 by Novas USA and $200,000 by Technovita will be
made on the two month anniversary of the Effective Date, but only in the event
such additional Capital Contribution is needed by the Company and requested in
writing. The Company shall update Schedule A upon the issuance or Transfer of
any Membership Interests to any new or existing Member in accordance with this
Agreement.

 

3.2 Additional Capital Contributions.

 

(a) The Members shall make additional Capital Contributions in cash (unless
otherwise determined by the Board of Directors), in proportion to their
respective Membership Interests, in such amounts and at such times as set forth
in the Budget, as it may be amended from time to time (such additional Capital
Contributions, the “Additional Capital Contributions”). Notwithstanding the
foregoing, the Board of Directors shall be authorized to call for Additional
Capital Contributions in an amount up to 20% in excess of the corresponding
amounts set forth in the Budget, which amounts shall also constitute Additional
Capital Contributions.

 

(b) If any Member shall fail to timely make, or notifies the other Member that
it shall not make, all or any portion of any Additional Capital Contribution
which such Member is obligated to make under Section 3.2(a), then such Member
shall be deemed to be a “Non-Contributing Member”. The non-defaulting Member
(the “Contributing Member”) shall be entitled, but not obligated, to loan to the
Non-Contributing Member, by contributing to the Company on its behalf, all or
any part of the amount (the “Default Amount”) that the Non-Contributing Member
failed to contribute to the Company (each such loan, a “Default Loan”),
provided, that such Contributing Member shall have contributed to the Company
its pro rata share of the applicable Additional Capital Contribution. Such
Default Loan shall be treated as an Additional Capital Contribution by the
Non-Contributing Member. Each Default Loan shall bear interest (compounded
monthly on the first day of each calendar month) on the unpaid principal amount
thereof from time to time remaining from the date advanced until repaid, at the
lesser of (i) 15% per annum or (ii) the maximum rate permitted at law (the
“Default Rate”). Each Default Loan shall be recourse solely to the
Non-Contributing Member’s Membership Interest. Default Loans shall be repaid out
of the distributions that would otherwise be made to the Non-Contributing Member
under Article 6, as more fully provided for in Section 3.2(c). So long as a
Default Loan is outstanding, the Non-Contributing Member shall have the right to
repay the Default Loan (and interest then due and owing) in whole or in part.
Upon the repayment in full of all Default Loans made in respect of a
Non-Contributing Member, such Non-Contributing Member shall cease to be a
Non-Contributing Member.

 

(c) Notwithstanding any other provisions of this Agreement, any amount that
otherwise would be paid or distributed to a Non-Contributing Member pursuant to
Article 6 shall not be paid to the Non-Contributing Member but shall be deemed
paid and applied on behalf of such Non-Contributing Member (i) first, to accrued
and unpaid interest on all Default Loans (in the order of their original
maturity date), (ii) second to the principal amount of such Default Loans (in
the order of their original maturity date) and (iii) third, to any Additional
Capital Contribution of such Non-Contributing Member that has not been paid and
is not deemed to have been paid.

 

  -8- 

 

 

(d) In the event a Default Loan has been outstanding for more than six (6)
months, the Contributing Member may elect to convert the principal and accrued
and unpaid interest under the Default Loan into additional Membership Interests
by written notice to the Company and the Non-Contributing Members. Upon receipt
of written notice of such election by the Contributing Member: (i) the Default
Loan shall be converted into an Additional Capital Contribution by the
Contributing Member in an amount equal to the principal and unpaid interest on
the Default Loan, (ii) the Non-Contributing Member will be deemed to have
received a distribution pursuant to Article 6 of an amount equal to the
principal and unpaid interest on the Default Loan, (iii) such distribution will
be deemed paid to the Contributing Member in repayment of the Default Loan, and
(iv) the amount will be deemed contributed by the Contributing Member as an
Additional Capital Contribution, the Contributing Member’s Capital Account will
be increased by, and the Non-Contributing Member’s Capital Account will be
decreased by, an amount equal to the principal and unpaid interest on the
Default Loan. The Company shall revise Schedule A to reflect the increase in the
Membership Interest of the Contributing Member accordingly.

 

3.3 Performance-Based Adjustment to Membership Interests.  (a) In the event the
Company fails to satisfy any Year 2 Key Performance Indicator by an amount
greater than five percent (5%) but less than or equal to twenty five percent
(25%), (i) Technovita’s Membership Interest shall be decreased by adjusting it
in accordance with the formula set out on Schedule B, and (ii) Novas USA’s
Membership Interest shall be increased by an equivalent amount. (b) In the event
the Company fails to satisfy any Year 2 Key Performance Indicator by an amount
greater than twenty five percent (25%), (i) Technovita’s Membership Interest
shall be decreased to fifteen percent (15%), and (ii) Novas USA’s Membership
Interest shall be increased to eighty five percent (85%). Notwithstanding
anything herein to the contrary, upon the occurrence of any event described in
this Section 3.3, the Company shall update Schedule A to reflect the adjusted
Membership Interests. The Members intend the adjustments contemplated by this
Section 3.3 to be treated as an adjustment to the initial Capital Contribution
in exchange for issuance of Membership Interests, and neither the Company nor
any Member shall take any tax reporting position inconsistent with the foregoing
except to the extent required by a taxing authority.

 

3.4 Withdrawal and Return of Capital.  Except as provided in Section 6 and
Section 11 or as otherwise agreed to by the Members, no Member shall be entitled
to the return of such Member’s Capital Contribution, a distribution in respect
of such Member’s Capital Account balance, or any other distribution in respect
of such Member’s Interest except as otherwise provided in this Agreement.

 

3.5 Loans to the Company.  No Member shall be required to lend any money to the
Company or to guaranty any Company indebtedness. Loans by any Member to the
Company shall not be considered Capital Contributions and shall not affect the
maintenance of such Member’s Capital Account except as otherwise provided in
this Agreement.

 

3.6 Interest on Capital.  No Member shall be entitled to interest on such
Member’s Capital Contribution, Capital Account balance or share of unallocated
Profits.

 

3.7 Negative Capital Accounts. In the event that any Member shall have a deficit
balance in its Capital Account, such Member shall have no obligation, during the
term of the Company or upon dissolution or liquidation thereof, to restore such
negative balance or make any Capital Contributions to the Company by reason
thereof, except as may be required by Applicable Law or in respect of any
negative balance resulting from a withdrawal of capital or dissolution in
contravention of this Agreement.

 

  -9- 

 

 

Section 4
MEMBERS

 

4.1 Admission of New Members.

 

(a) New Members may be admitted from time to time (i) in connection with the
issuance of Membership Interests by the Company, subject to compliance with the
provisions of Section 4.1(b), and (ii) in connection with a Transfer of
Membership Interests, subject to compliance with the provisions of Article 9,
and in either case, following compliance with the provisions of Section 4.1(b).

 

(b) In order for any Person not already a Member of the Company to be admitted
as a Member, whether pursuant to an issuance or Transfer of Membership
Interests, such Person shall have executed and delivered to the Company a
written undertaking to be bound by the terms and conditions of this Agreement.
Upon the amendment of Schedule A of the Agreement by the Company and the
satisfaction of any other applicable conditions, including the receipt by the
Company of payment for the issuance of Membership Interests, such Person shall
be admitted as a Member and deemed listed as such on the books and records of
the Company. If additional Membership Interests are issued or granted in the
future to Persons, such grants or issuances shall dilute the Company Percentages
of existing Members on a pro rata basis in proportion to such Members’ Company
Percentages.

 

4.2 Limitation of Liability; Return/Withholding of Certain Distributions.

 

(a) Except as otherwise required by applicable law or expressly in this
Agreement, a Member shall have no personal liability for the debts, obligations
or liabilities of the Company or other Members solely by reason of being a
Member.

 

(b) A Member that receives a distribution (i) in violation of this Agreement or
(ii) that is required to be returned to the Company under applicable law shall
return such distribution within thirty (30) days after demand therefor by any
Member. The Company may elect to withhold from any distributions otherwise
payable to a Member amounts due to the Company from such Member.

 

Nothing in this Section 4.2 shall be applied to release any Member from (i) its
obligation to make Capital Contributions or other payments specifically required
under this Agreement or (ii) its obligations pursuant to any relationship
between the Company and such Member acting in a capacity other than as a Member
(including, for example, as a borrower, employee or independent contractor).

 

4.3 Succession Upon Transfer.In the event that any Membership Interests are
Transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
Transferred Membership Interests and shall receive allocations and distributions
pursuant to the terms of this Agreement in respect of such Membership Interests

 

4.4 Action by Members.  To the extent that any act or matter requires the vote
of the Members, and except as may be otherwise specifically provided herein,
such vote shall be by Majority-In-Interest of the Members.

 

4.5 Member Expenses.  Except as otherwise provided in this Agreement, no Member
shall be reimbursed for expenses incurred on behalf of, or otherwise in
connection with, the Company. Any reimbursement paid by a third party for
expenses actually reimbursed by the Company shall be retained by (or paid over
by the recipient thereof to) the Company.

 

  -10- 

 

 

Section 5
ALLOCATIONS

 

5.1 Allocations of Company Profits and Losses. Except as otherwise provided in
this Agreement, Profits and Losses and, to the extent necessary, individual
items of income, gain, loss or deduction of the Company shall be allocated among
the Members, after taking into account amounts specially allocated pursuant to
Section 5.2, pro rata in accordance with their Membership Interests.

 

5.2 Allocation Adjustments Required to Comply With Section 704(b) of the Code.

 

(a) In the event any Member unexpectedly receives any adjustments, allocations
or distributions described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be
specially allocated to each such Member in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the Adjusted
Capital Account Deficit of such Member created by such adjustments, allocations
or distributions as quickly as possible. This Section 5.2(a) is intended to
comply with the qualified income offset requirement in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(b) In accordance with the provisions of Treasury Regulations
Section 1.704-2(i), each item of Nonrecourse Deduction shall be allocated among
the Members in accordance with their Membership Interests.

 

(c) Member Nonrecourse Deductions shall be allocated in the manner required by
Treasury Regulations Section 1.704-2(i). Except as otherwise provided in
Treasury Regulations Section 1.704-2(i)(4), if there is a net decrease in Member
Minimum Gain during any Fiscal Year, each Member that has a share of such Member
Minimum Gain shall be specially allocated Profits for such Fiscal Year (and, if
necessary, subsequent Fiscal Years) in an amount equal to that Member’s share of
the net decrease in Member Minimum Gain. Items to be allocated pursuant to this
paragraph shall be determined in accordance with Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.2(c) is intended to comply with
the “minimum gain chargeback” requirements in Treasury Regulations Section
1.704-2(i)(4) and shall be interpreted consistently therewith.

 

(d) If there is a net decrease in Company Minimum Gain (determined according to
Treasury Regulations Section 1.704-2(d)(1)) during any Fiscal Year, each Member
shall be specially allocated Profits for such Fiscal Year (and, if necessary,
subsequent Fiscal Years) in an amount equal to such Member’s share of the net
decrease in Company Minimum Gain, determined in accordance with Treasury
Regulations Section 1.704-2(g). The items to be so allocated shall be determined
in accordance with Treasury Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Section 5.2(d) is intended to comply with the “minimum gain
chargeback” requirement in Treasury Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.

 

(e) The allocations set forth in Sections 5.2(a) through 5.2(d) (the “Regulatory
Allocations”) are intended to comply with certain requirements of the Treasury
Regulations under Code Section 704. Notwithstanding any other provisions of this
Article 5 (other than the Regulatory Allocations), the Regulatory Allocations
shall be taken into account in allocating Profits and Losses among Members so
that, to the extent possible, the net amount of such allocations of Profits and
Losses and other items and the Regulatory Allocations to each Member shall be
equal to the net amount that would have been allocated to such Member if the
Regulatory Allocations had not occurred.

 

  -11- 

 

 

5.3 Tax Allocations.

 

(a) Subject to Sections 5.3(b) and (c), all income, gains, losses and deductions
of the Company shall be allocated, for federal, state and local income tax
purposes, among the Members in accordance with the allocation of such income,
gains, losses and deductions pursuant to Section 5.1 and Section 5.2, except
that if any such allocation for tax purposes is not permitted by the Code or
other applicable law, the Company’s subsequent income, gains, losses and
deductions shall be allocated among the Members for tax purposes, to the extent
permitted by the Code and other applicable law, so as to reflect as nearly as
possible the allocation set forth in Section 5.1 and Section 5.2.

 

(b) Items of Company taxable income, gain, loss and deduction with respect to
any property contributed to the capital of the Company shall be allocated among
the Members in accordance with Code Section 704(c) and the traditional method
with curative allocations of Treasury Regulations Section 1.704-3(c), 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 Gross Asset Value. If the Gross
Asset Value of any Company asset is adjusted pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(f), subsequent allocations of items of taxable 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 Gross Asset Value in the same manner as under Code Section
704(c).

 

(c) Any tax credits or similar items shall be allocated to the Members according
to their interests in such items as determined by the Board of Directors taking
into account the principles of Treasury Regulations Section 1.704-1(b)(4)(ii).

 

(d) Allocations pursuant to this Section 5.3 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,
distributions or other items pursuant to any provisions of this Agreement.

 

5.4 Allocations in Event of Transfer. If an Interest in the Company is
Transferred in accordance with this Agreement, allocations of Profits and Losses
as between the transferor and transferee shall be determined using the interim
closing of the books method.

 

Section 6
DISTRIBUTIONS

 

6.1 Distributions.  Except as otherwise provided in this Agreement,
distributions prior to the Dissolution of the Company shall be made in
accordance with this Section 6.1 and each Member actually receiving amounts
pursuant to a specific distribution by the Company shall receive a pro rata
share based on such Member’s Membership Interest of each item of cash or
property of which such distribution is constituted. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not
make any distribution to Members if such distribution would violate §18-607 of
the Delaware Act or other applicable law.

 

(a) The Board of Directors at least once annually shall determine in the Board
of Director’s reasonable judgment to what extent the Company has cash and any
property available for distribution taking into account current and anticipated
needs (including without limitation operating expenses, debt service, guaranteed
payments and a reserve for future operating costs). To the extent such cash is
available, the Board of Directors may cause the Company to distribute such
excess cash and any property available for distributions among the Members’ in
accordance with their respective Membership Interests.

 

  -12- 

 

 

(b) If a Member has (i) an unpaid Additional Capital Contribution that is
overdue and/or (ii) an outstanding Default Loan due to another Member, any
amount that otherwise would be distributed to such Member (up to the amount of
such Additional Capital Contribution or outstanding Default Loan, together with
interest accrued thereon) shall not be paid to such Member but shall be deemed
distributed to such Member and applied on behalf of such Member pursuant to
Section 3.2(c).

 

6.2 Tax Distributions.  Subject to restrictions imposed by applicable law or any
restrictions in any debt-financing arrangements to which the Company is a party,
and subject to the discretion of the Board of Directors to retain any other
amounts necessary to satisfy the Company’s obligations, at least five (5) days
before each date prescribed by the Code for a calendar-year corporation to pay
quarterly installments of estimated tax, the Company shall use commercially
reasonable efforts to distribute cash to each Member in proportion to and to the
extent of such Member’s Quarterly Estimated Tax Amount for the applicable
calendar quarter (each such distribution, a “Tax Distribution”). The provisions
of this Section 6.2 will be deemed to be satisfied if the Budget provides for
quarterly distributions sufficient to satisfy each Member’s Quarterly Estimated
Tax Amount. For the avoidance of doubt, all Tax Distributions shall be made pro
rata in accordance with their Membership Interests.

 

6.3 Withholding Taxes.

 

(a) The Company shall withhold taxes from distributions to, and allocations
among, the Members to the extent required by law (as determined by the Board of
Directors in its reasonable discretion). Except as otherwise provided in this
Section 6.3, any amount so withheld by the Company with regard to a Member shall
be treated for purposes of this Agreement as an amount actually distributed to
such Member pursuant to Section 6.1. An amount shall be considered withheld by
the Company if, and at the time, remitted to a governmental agency without
regard to whether such remittance occurs at the same time as the distribution or
allocation to which it relates; provided, however, that an amount actually
withheld from a specific distribution or designated by the Company as withheld
from a specific allocation shall be treated as if distributed at the time such
distribution or allocation occurs.

 

(b) If, pursuant to Section 6.3(a), an amount withheld with regard to a Member
is treated for purposes of this Agreement as an amount distributed to such
Member pursuant to Section 6.1, subsequent actual distributions to such Member
pursuant to Section 6.1 shall be reduced as necessary to, as quickly as
possible, cause the aggregate distributions to such Member over the term of the
Company (including actual distributions and distributions deemed to have
occurred pursuant to Section 6.3(a)) to equal the actual distributions that
would have been made to such Member if Section 6.3(a) were not part of this
Agreement.

 

(c) Each Member hereby agrees to indemnify the Company and the other Members for
any liability they may incur for failure to properly withhold taxes in respect
of such Member; moreover, each Member hereby agrees that neither the Company nor
any other Member shall be liable for any excess taxes withheld in respect of
such Member’s Membership Interest and that, in the event of overwithholding, a
Member’s sole recourse shall be to apply for a refund from the appropriate
governmental authority.

 

Section 7
ADMINISTRATION

 

7.1 Management of the Company.  The business and affairs of the Company shall be
managed by or under the direction of the Board of Directors, and the Board of
Directors shall have, and is hereby granted, the full and complete power,
authority and discretion for, on behalf of and in the name of the Company, to
take such actions as it may in its sole discretion deem necessary or advisable
to carry out any and all of the objectives and purposes of the Company, subject
only to the terms of this Agreement. The Board of Directors shall consist of
five (5) members, each of whom shall be a natural person, and one of whom shall
be the then acting Chief Executive Officer of Propell Technologies Group, Inc.,
the parent company of Novas USA. Two (2) members of the Board of Directors shall
be appointed by Technovita (the “Technovita Directors”), and three (3) members
of the Board of Directors shall be appointed by Novas USA (the “Novas
Directors”). The Technovita Directors shall initially be Ken Stankievech and
vacant, and the Novas Directors shall initially be Ivan Persiyanov, John
Huemoeller (as the current CEO of Propell Technologies Group, Inc.) and vacant.
Any Technovita Director may be removed at any time, with or without cause, by
Technovita, and any Novas Director may be removed at any time, with or without
cause, by Novas USA. Each director shall have one (1) vote on all matters
brought before the Board of Directors.

 

  -13- 

 

 

7.2 Resignations and Vacancies. Any director may resign at any time upon notice
given in writing or by electronic transmission to the Company. A resignation is
effective when the resignation is delivered unless the resignation specifies a
later effective date or an effective date determined upon the happening of an
event or events, and such resignation need not be accepted by the Board of
Directors to make it effective. Vacancies created by the resignation, death,
removal or other cause of a director shall be filled by the Member that
appointed such director in accordance with Section 7.1.

 

7.3 Meetings.  The Board of Directors shall meet at such time and at such place
as the Board of Directors may designate (either within or outside the State of
Delaware). Members of the Board of Directors may participate in a meeting by
means of conference telephone or other communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Notwithstanding the foregoing, the Board of Directors shall meet at least once
quarterly. At such meetings, management shall provide to the Board of Directors
a presentation of the Company’s performance during the relevant quarter and
year-to-date against the Budget for the applicable periods, as well as an update
on the Company’s business and prospects.

 

7.4 Notice of Meetings. Notice of each meeting of the Board of Directors shall
be given to each member of the Board of Directors at least 48 hours prior to
each such meeting. Attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.

 

7.5 Quorum. At all meetings of the Board of Directors, a majority of the total
number of directors shall constitute a quorum for the transaction of business.
If a quorum is not present at any meeting of the Board of Directors, then the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting. The vote of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board, except as may be otherwise specifically provided
by statute, the certificate of incorporation or these bylaws.

 

7.6 Board Action by Written Consent Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing or by electronic transmission and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the
Board of Directors. Such filing shall be in paper form if the minutes are
maintained in paper form and shall be in electronic form if the minutes are
maintained in electronic form. Any person (whether or not then a director) may
provide, whether through instruction to an agent or otherwise, that a consent to
action will be effective at a future time (including a time determined upon the
happening of an event), no later than 60 days after such instruction is given or
such provision is made and such consent shall be deemed to have been given for
purposes of this Section 7.6 at such effective time so long as such person is
then a director and did not revoke the consent prior to such time. Any such
consent shall be revocable prior to its becoming effective.

 

  -14- 

 

 

7.7 Officers. The officers of the Company shall include a Chief Executive
Officer, who shall be initially selected by Technovita (who shall initially be
Ken Stankievech, President and Chief Executive Officer), a Deputy Chief
Executive Officer or other key manager, who shall be initially selected by Novas
USA (who shall initially be James McGowin, Executive Vice President, Sales and
Marketing), and a Chief Technology Officer, who shall be selected by the
unanimous written consent of the Members (initially vacant). In the event the
initial Chief Executive Officer or Deputy Chief Executive Officer (or other key
manager selected by Novas USA pursuant to this Section 7.7) are no longer
employed in such capacity with the Company, the replacement Chief Executive
Officer or Deputy Chief Executive Officer (or other key manager selected by
Novas USA pursuant to this Section 7.7), as applicable, shall be selected by the
Board of Directors, however Technovita or Novas USA, as applicable, shall have
the right to nominate a candidate for consideration by the Board of Directors to
serve as the replacement Chief Executive Officer or Deputy Chief Executive
Officer (or other key manager selected by Novas USA pursuant to this Section
7.7), as applicable. The officers of the Company shall also initially consist of
Alexander Poustovoit, Executive Vice President, Operations, and Tommy Andrews,
Executive Vice President, Finance and Administration. The Board of Directors may
appoint additional individuals as officers of the Company as it deems necessary
or desirable to carry on the business of the Company, and the Board of Directors
may delegate to such officers such power and authority as the Board of Directors
deems advisable. Each officer shall hold office until his or her successor is
appointed or until his or her earlier death, resignation or removal. Any officer
may resign at any time upon written notice to the Board of Directors. Any
officer may be removed with or without cause at any time by the Member or
Members entitled to select such officer with respect to the Chief Executive
Officer, Deputy Chief Executive Officer (or other key manager selected by Novas
USA pursuant to this Section 7.7) or Chief Technology Officer, or by the Board
of Directors acting by majority vote with respect to any officers other than the
Chief Executive Officer, Deputy Chief Executive Officer (or other key manager
selected by Novas USA pursuant to this Section 7.7) or Chief Technology Officer.
Notwithstanding anything herein to the contrary, the Board of Directors shall
have the power to remove any officer of the Company for Cause. The determination
as to whether such officer is being terminated for Cause will be made in good
faith by the Board of Directors and will be final and binding.

 

7.8 Authority of Officers to Bind the Company. Subject to Section 7.9 and 7.10,
any contract, agreement, deed, lease, note or other document or instrument
executed on behalf of the Company by the Chief Executive Officer, Deputy Chief
Executive Officer (or other key manager selected by Novas USA pursuant to
Section 7.7) of Chief Technology Officer shall be deemed to have been duly
executed by the Company; no other signature (including, for avoidance of doubt,
the signature of any Member) shall be required in connection with the foregoing
and third parties shall be entitled to rely upon the power of the Chief
Executive Officer, Deputy Chief Executive Officer (or other key manager selected
by Novas USA pursuant to Section 7.7) or Chief Technology Officer to bind the
Company without otherwise ascertaining that the requirements of this Agreement
have been satisfied. Notwithstanding the foregoing, the Members hereby
acknowledge and agree that the Chief Executive Officer shall have the primary
responsibility and authority with respect to implementing the strategy and
overseeing the day to day operations of the Company. Neither the Deputy Chief
Executive Officer (or other key manager selected by Novas USA pursuant to
Section 7.7), the Chief Technology Officer or any other officer of the Company
shall take any action to bind the Company in a manner contrary to the
instructions of the Chief Executive Officer.

 

  -15- 

 

 

7.9 Actions Requiring Approval of the Board of Directors. Without the written
approval of the Board of Directors, the Company shall not, and the officers of
the Company shall not cause the Company to, enter into any commitment to:

 

(a) Incur any indebtedness, pledge or grant liens on any assets or guarantee,
assume, endorse or otherwise become responsible for the obligations of any other
Person, except to the extent approved or authorized in the Budget;

 

(b) Make any loan, advance or capital contribution in any Person, except to the
extent approved or authorized in the Budget;

 

(c) Transfer any equipment necessary in the Deployment of the Vertical
Technology to any third party;

 

(d) Enter into or effect any transaction or series of related transactions
involving the sale of the Company or the sale, lease, license, exchange or other
disposition (including by merger, consolidation, sale of assets or similar
business transaction) by the Company of any assets in excess of $300,000;

 

(e) Appoint or remove the Company’s auditors or make any changes in the
accounting methods or policies of the Company (other than as required by GAAP);
or

 

(f) Enter into or effect any transaction or series of related transactions
involving the purchase, lease, license, exchange or other acquisition (including
by merger, consolidation, acquisition of stock or acquisition of assets) by the
Company of any equity interests of any Person and/or assets in excess of
$300,000; or

 

(g) Enter into or effect any commercial transaction or series of related
commercial transactions involving anticipated liabilities or revenues to the
Company in excess of $500,000, or that materially vary from the Company’s
existing strategy or business plan; provided, however, that if the Board of
Directors has not approved or denied such transaction(s) within two Business
Days of management’s written notice to the Board of Directors presenting such
transaction(s), then such transaction(s) shall be deemed to not require the
approval of the Board of Directors pursuant to this Section 7.9(g) and such
transaction(s) may proceed on the recommendation of management.

 

7.10 Actions Requiring Approval of the Members.  Without the unanimous written
approval of the Members, the Company shall not, and the officers of the Company
shall not cause the Company to, enter into any commitment to:

 

(a) Amend, modify or waive the Certificate of Formation or this Agreement,
except to amend Schedule A as permitted in accordance with the terms of this
Agreement;

 

(b) Make any material change to the nature of the business conducted by the
Company;

 

(c) Modify the Membership Interests of any Member (except as expressly
contemplated pursuant to the terms of this Agreement) or admit additional
Members to the Company;

 

(d) Enter into, amend in any material respect, waive or terminate any Sublicense
Agreement (except as otherwise provided herein) or any other Related Party
Agreement, other than service contracts on the same terms as the Company offers
to customers generally; or

 

  -16- 

 

 

(e) Make any material change in the compensation of the officers.

 

7.11 Sale Transactions. In the event the Board of Directors, pursuant to Section
7.9, approves a transaction or series of related transactions involving the sale
of the Company or the sale, lease, license, exchange or other disposition
(including by merger, consolidation, sale of assets or similar business
transaction) by the Company of any assets in excess of $5,000,000 (a “Sale
Transaction”), the Board of Directors shall then submit such proposed Sale
Transaction to the Members for their approval. Without the written approval of
the Members, the Company shall not, and the officers of the Company shall not
cause the Company to, enter into any Sale Transaction except in accordance with
this Section 7.11. In the event the Members do not agree on proceeding with the
Sale Transaction, they shall negotiate in good faith to resolve any differences
regarding such determination. If the disagreement cannot be resolved within
fifteen (15) days after approval by the Board of Directors, the Company shall
retain KPMG LLP, or if KPMG LLP is unavailable, another independent nationally
recognized accounting firm or valuation expert as agreed to by the Members
(which agreement shall not be unreasonably withheld) (the “Third Party
Valuator”). The Third Party Valuator will conduct a valuation analysis of the
Company or the assets proposed to be sold in the Sale Transaction. If the Third
Party Valuator determines the value of the Company or the assets proposed to be
sold in the Sale Transaction to be less than or equal to the price offered by
the acquiror in the Sale Transaction, then the Member objecting to the Sale
Transaction shall be deemed to approve of the Sale Transaction, and will be
required to vote in favor of the Sale Transaction if a vote is held, and the
Sale Transaction will be deemed to have been approved by both Members. If the
Third Party Valuator determines the value of the Company or the assets proposed
to be sold in the Sales Transaction to be greater than the price offered by the
acquiror in the Sale Transaction, then the Member proposing the Sale Transaction
shall be deemed to reject the Sales Transaction, and will be required to vote
against the Sales Transaction if a vote is held, and the Sale Transaction will
be deemed to have been rejected by both Members. The Third Party Valuator’s
decision will be final, conclusive and binding, and shall be deemed to have been
accepted by all of the parties to this Agreement. The Members will share equally
the Third Party Valuator’s fees and expenses. All determinations in accordance
with this Section 7.11 will be in writing and will be delivered to each party.
If the parties cannot agree on appointing the Third Party Valuator, each of the
parties will select an independent nationally recognized accounting firm or
valuation expert and those two independent nationally recognized accounting
firms or valuation experts, as applicable, will appoint the Third Party
Valuator.

 

7.12 Budget. Subject to the provisions set forth below, at least sixty (60) days
before the beginning of each Fiscal Year, management (led by the Chief Executive
Officer) shall prepare and submit to the Members and the Board of Directors an
annual budget for the Company for such upcoming Fiscal Year (each, a “Budget”).
The Budget shall include detailed capital and operating expense budgets, cash
flow projections (which shall include amounts and due dates of all projected
calls for Additional Capital Contributions) and profit and loss projections, and
shall expressly contemplate and provide for quarterly royalty payments in
accordance with the terms and conditions of the Sublicense Agreements. Not later
than thirty (30) days following its receipt of the proposed Budget, the Board of
Directors must approve or disapprove the proposed Budget. If the Board of
Directors disapproves of the proposed Budget, then management shall use good
faith efforts to prepare a revised proposed Budget addressing the concerns of
the Board of Directors. If, after thirty (30) days of the Board of Directors’
disapproval of the proposed Budget management has not prepared a revised
proposed Budget that is acceptable to the Board of Directors, then the previous
year’s Budget shall be applied in the event the dispute is with respect to the
Fiscal Year ended December 31, 2017 or December 31, 2018. If the dispute is with
respect to a Fiscal Year ending after December 31, 2018, then the Budget shall
be prepared by the Members holding a Majority-in-Interest of the Members.
Management shall operate the Company in accordance with the Budget (subject to
the right of the Board of Directors to call for Additional Capital Contributions
in an amount up to 20% in excess of the corresponding amounts set forth in the
Budget in accordance with Section 3.2(a)). The initial business plan and Budget
for the Company for the period from September 1, 2015 to August 31, 2016 (the
“Initial Budget”), which has previously been approved by the Members, is
attached hereto as Schedule C. Notwithstanding the foregoing, the first Budget
following the Initial Budget shall be prepared for the period from September 1,
2016 to December 31, 2017, and shall be submitted to the Board of Directors and
the Members no later than June 30, 2016.

 

  -17- 

 

 

7.13 Additional Capital Contributions in Excess of $3,000,000. Notwithstanding
the provisions of Section 7.12, in the event any Budget calls for Additional
Capital Contributions in excess of $3 million, then such Additional Capital
Contributions must be approved by at least four members of the Board of
Directors, or if there are less than five Directors in office, the unanimous
consent of the Board of Directors. This supermajority or unanimous approval
requirement, as applicable, will not apply in the event one of the Members has a
Membership Interest of fifteen percent (15%) or less at the time the Additional
Capital Contribution is submitted for approval by the Board of Directors. For
greater certainty, in the event any Additional Capital Contributions are
approved in accordance with this Section 7.13, and any Member fails to timely
make, or notifies the other Member that it shall not make, all or any portion of
any such Additional Capital Contribution, such Member will be deemed a
Non-Contributing Member and the provisions of Section 3.2 shall apply.

 

7.14 Termination of License Agreements.

 

In the event of a termination of the License Agreement (as defined in the
Sublicense Agreement between, inter alia, the Company and Technovita
Technologies Corporation), one hundred percent (100%) of Technovita’s Membership
Interest in the Company and all of Technovita’s rights under this Agreement
shall be transferred and assigned to Novas USA, and Technovita shall no longer
be a party to this Agreement or Member of the Company. In the event of a
termination of the License Agreement (as defined in the Sublicense Agreement
between, inter alia, the Company and Novas USA), one hundred percent (100%) of
Novas USA’s Membership Interest in the Company and all of Novas USA’s rights
under this Agreement shall be transferred and assigned to Technovita, and Novas
USA shall no longer be a party to this Agreement or Member of the Company. The
Members intend the adjustments contemplated by this Section 7.14 to be treated
as an adjustment to the initial Capital Contribution in exchange for issuance of
Membership Interests, and neither the Company nor any Member shall take any tax
reporting position inconsistent with the foregoing except to the extent required
by a taxing authority.

 

7.15 Member Owned Wells. Upon request by a Member, the Company shall Deploy the
Vertical Technology in wells owned by a Member or its Affiliates in accordance
with a master service agreement approved by the Member or its Affiliate and the
Company. Members and their Affiliates shall pay market price for the Deployment
of Vertical Technology in their owned wells, and the Company shall prioritize
the treatment schedule of all Deployments of Vertical Technology made pursuant
to this Section 7.15 relative to third-party customers. Notwithstanding the
foregoing, and for greater certainty, Technovita Technologies Corporation shall
have the right to Deploy the Vertical Technology in wells owned by it or its
Affiliates in Canada, and Novas USA shall have the right to Deploy the Vertical
Technology in wells owned by it or its Affiliates in the United States.

 

7.16 Business Opportunities. The Company shall be the exclusive service provider
of Vertical Technology in the United States of America and Canada pursuant to
the terms and conditions of the Sublicense Agreements. Notwithstanding the
foregoing, Novas USA shall retain the right to Deploy the Vertical Technology on
wells in the United States of America which are owned by Novas USA or its
Affiliates, Technovita Technologies Corporation shall retain the right to Deploy
the Vertical Technology on wells in Canada which are owned by Technovita
Technologies Corporation or its Affiliates, and nothing contained in this
Agreement shall prevent any Member or any of its Affiliates from engaging in any
other activities or businesses, regardless of whether those activities or
businesses are similar to or competitive with the business of the Company. None
of the Members nor any of their Affiliates shall be obligated to account to the
Company or to the other Member for any profits or income earned or derived from
other such activities or businesses (except in the event that the Company
Deploys the Vertical Technology on behalf of a Member or one of its Affiliates
on wells owned by a Member or one of its Affiliates, in which case such Member
will pay market prices to the Company for the provision of such services).

 

  -18- 

 

 

Section 8
EXCULPATION AND INDEMNIFICATION

 

8.1 Exculpation of Covered Persons.

 

(a) As used herein, the term “Covered Person” shall mean (i) each Member; (ii)
each officer, director, stockholder, partner, member, Affiliate, employee, agent
or representative of each Member, and each of their Affiliates; and (iii) each
director, officer, employee, agent or representative of the Company.

 

(b) No Covered Person shall be liable to the Company or any other Covered Person
for any loss, damage or claim incurred by reason of any action taken or omitted
to be taken by such Covered Person in good faith reliance on the provisions of
this Agreement, so long as such action or omission does not constitute fraud,
gross negligence, willful misconduct or a material breach of this Agreement by
such Covered Person or is not made in knowing violation of the provisions of
this Agreement.

 

(c) A Covered Person shall be fully protected in relying in good faith upon the
records of the Company and upon such information, opinions, reports or
statements (including financial statements and information, opinions, reports or
statements as to the value or amount of the assets, liabilities, Profits or
Losses of the Company or any facts pertinent to the existence and amount of
assets from which distributions might properly be paid) of the following Persons
or groups: (i) another Member; (ii) one or more directors, officers or employees
of the Company; (iii) any attorney, independent accountant, appraiser or other
expert or professional employed or engaged by or on behalf of the Company; or
(iv) any other Person selected in good faith by or on behalf of the Company, in
each case as to matters that such relying Person reasonably believes to be
within such other Person’s professional or expert competence. The preceding
sentence shall in no way limit any Person’s right to rely on information to the
extent provided in § 18-406 of the Delaware Act.

 

8.2 Liabilities and Duties of Covered Persons.

 

(a) This Agreement is not intended to, and does not, create or impose any
fiduciary duty on any Covered Person. Furthermore, each of the Members and the
Company hereby waives any and all fiduciary duties that, absent such waiver, may
be implied by applicable law, and in doing so, acknowledges and agrees that the
duties and obligation of each Covered Person to each other and to the Company
are only as expressly set forth in this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties and liabilities of a
Covered Person otherwise existing at law or in equity, are agreed by the Members
to replace such other duties and liabilities of such Covered Person.

 

(b) Whenever in this Agreement a Covered Person is permitted or required to make
a decision (including a decision that is in such Covered Person’s “discretion”
or under a grant of similar authority or latitude), the Covered Person shall be
entitled to consider only such interests and factors as such Covered Person
desires, including its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting the Company or
any other Person. Whenever in this Agreement a Covered Person is permitted or
required to make a decision in such Covered Person’s “good faith,” the Covered
Person shall act under such express standard and shall not be subject to any
other or different standard imposed by this Agreement or any other applicable
law.

 

  -19- 

 

 

8.3 Indemnification.

 

(a) To the fullest extent permitted by the Delaware Act, as the same now exists
or may hereafter be amended, substituted or replaced (but, in the case of any
such amendment, substitution or replacement, only to the extent that such
amendment, substitution or replacement permits the Company to provide broader
indemnification rights than the Delaware Act permitted the Company to provide
prior to such amendment, substitution or replacement), the Company shall
indemnify, hold harmless, defend, pay and reimburse any Covered Person against
any and all losses, claims, damages, judgments, fines or liabilities, including
reasonable legal fees or other expenses incurred in investigating or defending
against such losses, claims, damages, judgments, fines or liabilities, and any
amounts expended in settlement of any claims (collectively, “Losses”) to which
such Covered Person may become subject by reason of:

 

(i) any act or omission or alleged act or omission performed or omitted to be
performed on behalf of the Company, any Member or any direct or indirect
Subsidiary of the foregoing in connection with the Business of the Company; or

 

(ii) such Covered Person being or acting in connection with the Business of the
Company as a member, stockholder, Affiliate, manager, director, officer,
employee or agent of the Company, any Member, or any of their respective
Affiliates, or that such Covered Person is or was serving at the request of the
Company as a member, manager, director, officer, employee or agent of any Person
including the Company;

 

provided, that (x) such Covered Person acted in good faith and in a manner
believed by such Covered Person to be in, or not opposed to, the best interests
of the Company and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful, and (y) such Covered Person’s conduct
did not constitute fraud, gross negligence, willful misconduct or a material
breach of this Agreement by such Covered Person or a knowing violation of the
provisions of this Agreement. In connection with the foregoing, the termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Covered Person did not act in good faith or, with respect
to any criminal proceeding, had reasonable cause to believe that such Covered
Person’s conduct was unlawful, or that the Covered Person’s conduct constituted
fraud, gross negligence, willful misconduct or a knowing violation or material
breach of this Agreement.

 

(b) Notwithstanding anything contained herein to the contrary, any indemnity by
the Company relating to the matters covered in this Section 8.3 shall be
provided out of and to the extent of Company assets only, and no Member (unless
such Member otherwise agrees in writing) shall have personal liability on
account thereof or shall be required to make additional Capital Contributions to
help satisfy such indemnity by the Company.

 

Section 9
TRANSFERS AND WITHDRAWALS

 

9.1 Transfers of Interests.  A Member shall not Transfer all or any portion of
its Membership Interest, except (i) with the unanimous consent of the Members;
or (ii) as permitted under this Article 9 or Section 4.1. Any Transfer or
attempted Transfer of any Membership Interest in violation of this Agreement
shall be null and void, no such Transfer shall be recorded on the Company’s
books and the purported transferee in any such Transfer shall not be treated
(and the purported transferor shall continue be treated) as the owner of such
Membership Interest for all purposes of this Agreement.

 

  -20- 

 

 

9.2 Permitted Transfers. The provisions of Section 9.1 shall not apply to any
Transfer by any Member of all or any portion of its Membership Interest to its
Affiliate; provided such Transfer would not reasonably be expected to cause (a)
a “technical termination” of the Company for purposes of Section 708 of the
Code, or (b) the Company to become a “publicly traded partnership” for purposes
of Section 7704(b) of the Code.

 

9.3 No Withdrawal or Removal.  The Members shall not withdraw from the Company
or otherwise cease to be a Member, except in connection with the dissolution of
the Company.

 

Section 10
ACCOUNTING; TAX MATTERS

 

10.1 Records and Financial Statements.

 

(a) The Company shall maintain true and proper books, records, reports, and
accounts in which shall be entered all transactions of the Company. The books,
records, reports, accounts and schedules of the Company shall segregate the
Company’s Canadian and U.S. revenues and activities in a manner appropriate to
permit the calculation of the Year 1 Key Performance Indicators and the Year 2
Key Performance Indicators, and to allocate the royalty payments made by the
Company under the Sublicense Agreements between Canada and the United States in
order to permit the Members to confirm the satisfaction of their or their
Affiliates’, as applicable, minimum royalty obligations under their or their
Affiliates’, as applicable, respective license agreements with Novas Energy
Group Limited. The Company shall also maintain all schedules to this Agreement
and shall update such schedules promptly upon receipt of new information
relating thereto. Copies of such books, records, reports, accounts and schedules
shall be located at the office in which the principal financial or accounting
officer of the Company resides and shall be available to any Member for
inspection and copying, upon at least two business days’ notice, during
reasonable business hours; provided, however, that confidential communications
between the Company and its legal counsel relating to an actual or potential
controversy or claim between the Company and a Member may be withheld from such
Member as determined by the Board of Directors in its sole discretion.

 

(b) As soon as available, and in any event within forty five (45) days after the
end of each Fiscal Year, the Company shall provide to each Member audited
balance sheets of the Company as at the end of each such Fiscal Year and audited
statements of income, cash flows and Members’ equity for such Fiscal Year, in
each case setting forth in comparative form the figures for the previous Fiscal
Year, accompanied by the certification of independent certified public
accountants of recognized national standing selected by the Board of Directors,
certifying to the effect that, except as set forth therein, such financial
statements have been prepared in accordance with GAAP, applied on a basis
consistent with prior years, and fairly present in all material respects the
financial condition of the Company as of the dates thereof and the results of
their operations and changes in their cash flows and Members’ equity for the
periods covered thereby.

 

(c) As soon as available, and in any event within twenty (20) days after the end
of each quarterly accounting period in each Fiscal Year (other than the last
fiscal quarter of the Fiscal Year), the Company shall provide to each Member
unaudited balance sheets of the Company as at the end of each such fiscal
quarter and for the current Fiscal Year to date and consolidated statements of
income, cash flows and Members’ equity for such fiscal quarter and for the
current Fiscal Year to date, in each case setting forth in comparative form the
figures for the corresponding periods of the previous fiscal quarter, all in
reasonable detail and all prepared in accordance with GAAP, consistently applied
(subject to normal year-end audit adjustments and the absence of notes thereto),
and certified by the principal financial or accounting officer of the Company.

 

  -21- 

 

 

10.2 Income Tax Status. It is the intent of this Company and the Members that
this Company shall be treated as a partnership for U.S., federal, state and
local income tax purposes. Neither the Company nor any Member shall make an
election for the Company to be classified as other than a partnership pursuant
to Treasury Regulations Section 301.7701-3.

 

10.3 Tax Matters Member.

 

(a) The Members hereby appoint Novas USA as the “Tax Matters Member” who shall
serve as the “tax matters partner” (as such term is defined in Code Section
6231) for the Company. For any year that the Company meets the definition of a
small partnership in Code Section 6231(a)(1)(B)(i), the Tax Matters Member shall
elect to apply the TEFRA audit rules of Code Sections 6221 through 6234.

 

(b) The Tax Matters Member is authorized and required to represent the Company
(at the Company’s expense) in connection with all examinations of the Company’s
affairs by Taxing Authorities, including resulting administrative and judicial
proceedings, and to expend Company funds for professional services and costs
associated therewith. The Tax Matters Member shall promptly notify the Members
if any tax return of the Company is audited or if any adjustments are proposed
by any Taxing Authority, and shall take such action as is necessary to cause
each other Member to become a notice partner within the meaning of Section
6231(a)(8) of the Code. Without the consent of the other Members, the Tax
Matters Member shall not extend the statute of limitations, file a request for
administrative adjustment, file suit relating to any Company tax refund or
deficiency or enter into any settlement agreement relating to items of income,
gain, loss or deduction of the Company with any taxing authority.

 

(c) The Tax Matters Member will make an election under Section 754 of the Code,
if requested in writing by the Board of Directors. Except as otherwise provided
herein, all determinations as to tax elections and accounting principles shall
be made solely by the Tax Matters Member; provided, that any determination that
would benefit the Tax Matters Member to the detriment of another Member shall
require the consent of the other Member.

 

(d) Each Member agrees that such Member shall not treat any Company item
inconsistently on such Member’s federal, state, foreign or other income tax
return with the treatment of the item on the Company’s return.

 

(e) The Tax Matters Member may resign at any time if there is another Member to
act as the Tax Matters Member.

 

10.4 Tax Returns. At the expense of the Company, the officers of the Company
shall endeavor to cause the preparation and timely filing (including extensions)
of all tax returns required to be filed by the Company pursuant to the Code as
well as all other required tax returns in each jurisdiction in which the Company
own property or do business.

 

10.5 Company Funds. All funds of the Company shall be deposited in its name in
such checking, savings or other accounts, or held in its name in the form of
such other investments as shall be designated by the Board of Directors. The
funds of the Company shall not be commingled with the funds of any other Person.
All withdrawals of such deposits or liquidations of such investments by the
Company shall be made exclusively upon the signature or signatures of such
officer or officers as the Board of Directors may designate.

 

  -22- 

 

 

Section 11
DISSOLUTION AND LIQUIDATION

 

11.1 Triggering Events.  Upon the occurrence of any of the following events, the
Sublicense Agreements shall be terminated (however, the Company may continue to
perform its obligations under agreements previously entered into, but shall not
enter into any new agreements, with respect to the Deployment of the Vertical
Technology), and, unless the Members otherwise agree, all remaining assets shall
be liquidated and used to satisfy obligations of the Company and make
distributions to the Members in accordance with Sections 11.3 to 11.7:

 

(a) Upon the election of a Member in the event of a permanent cessation of the
Company’s business;

 

(b) Upon the election of Novas USA in the event the Company fails to satisfy any
Year 1 Key Performance Indicator or Year 2 Key Performance Indicator by an
amount greater than five percent (5%) of the applicable metric; or

 

(c) The consent of Technovita and Novas USA to dissolve the Company.

 

11.2 Additional Triggering Events.  Upon the occurrence of any of the following
events, the Company shall be dissolved and its affairs wound up in accordance
with Sections 11.3 to 11.7:

 

(a) The sale, exchange, involuntary conversion, or other disposition or Transfer
of all or substantially all the assets of the Company; or

 

(b) The entry of a decree of judicial dissolution under § 18-802 of the Delaware
Act.

 

To the maximum extent permitted by the Delaware Act, the Members hereby waive
their rights to seek a judicial dissolution of the Company for reasons other
than those listed in Section 11.1 or this Section 11.2.

 

11.3 Covenants upon Dissolution.  Upon the effectiveness of the dissolution of
the Company pursuant to Section 11.4, the parties hereby agree as follows:

 

(a) For a period of one year beginning on the date of the effectiveness of the
dissolution of the Company (the “Non-Solicitation Period”), Technovita shall not
directly or indirectly through one or more of any of its Affiliates, hire or
solicit, or encourage any other Person to hire or solicit, any individual who
has been employed by the Company and worked on the Deployment of the Vertical
Technology in the United States, other than those individuals set forth on
Schedule D, or encourage any such individual to leave such employment.

 

(b) During the Non-Solicitation Period, Novas USA shall not directly or
indirectly through one or more of any of its Affiliates, hire or solicit, or
encourage any other Person to hire or solicit, any individual who has been
employed by the Company and worked on the Deployment of the Vertical Technology
in Canada, other than those individuals set forth on Schedule D, or encourage
any such individual to leave such employment.

 

(c) This Section 11.3 shall not prevent a Member from hiring or soliciting any
employee or former employee of the Company who responds to a general
solicitation that is a public solicitation of prospective employees and not
directed specifically to any Company employee.

 

  -23- 

 

 

(d) Novas USA or its parent Propell Technologies Group, Inc. shall have the
option to retain (i) Trent Hunter, and (ii) the key manager nominated by Propell
Technologies Group, Inc. then employed by the Company, and Technovita shall not
directly or indirectly through one or more of its Affiliates, make any offer of
employment to such individuals unless Novas USA declines to exercise such
option.

 

(e) All data, documentation and records of the Company relating to the
Deployment of the Vertical Technology in Canada shall be transferred to
Technovita, and all data, documentation and records of the Company relating to
the Deployment of the Vertical Technology in the United States shall be
transferred to Novas USA.

 

11.4 Effectiveness of Dissolution. Dissolution of the Company shall be effective
on the day on which the event described in Section 11.1 or 11.2 occurs, but the
Company shall not terminate until the winding up of the Company has been
completed, the assets of the Company have been distributed as provided in
Section 11.5 and the Certificate of Formation shall have been cancelled as
provided in Section 11.6.

 

11.5 Liquidation. If the Company is dissolved pursuant to Section 11.1 or 11.2,
the Company shall be liquidated and its business and affairs wound up in
accordance with the Delaware Act and the following provisions:

 

(a) The Board of Directors shall act as liquidator to wind up the Company (the
“Liquidator”). The Liquidator shall have full power and authority to sell,
assign, and encumber any or all of the Company’s assets and to wind up and
liquidate the affairs of the Company in an orderly and business-like manner.

 

(b) As promptly as possible after dissolution and again after final liquidation,
the Liquidator shall cause a proper accounting to be made by a recognized firm
of certified public accountants of the Company’s assets, liabilities and
operations through the last day of the calendar month in which the dissolution
occurs or the final liquidation is completed, as applicable.

 

(c) The Liquidator shall liquidate the assets of the Company and distribute the
proceeds of such liquidation in the following order of priority, unless
otherwise required by mandatory provisions of applicable law: First, to the
payment of all of the Company’s debts and liabilities to its creditors
(including Members, if applicable) and the expenses of liquidation (including
sales commissions incident to any sales of assets of the Company); Second, to
the establishment of and additions to reserves that are determined by the
Liquidator to be reasonably necessary for any contingent unforeseen liabilities
or obligations of the Company; and Third, to the Members in accordance with the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments for the taxable year of the
Company during which the liquidation of the Company occurs.

 

(d) Notwithstanding the foregoing, the intellectual property assets of the
Company, including Sublicensee Improvements (as defined in the Sublicense
Agreements), shall be distributed (i) to Technovita Technologies Corporation for
use solely in Canada and its territories and possessions, and (ii) to Novas USA
for use solely in the United States of America, its territories and possessions,
and Mexico.

 

11.6 Termination of Agreement and Cancellation of Certificate. Upon completion
of the distribution of the assets of the Company as provided in Section 11.5(c)
hereof, the Company shall be terminated and the Liquidator shall cause the
cancellation of the Certificate of Formation in the State of Delaware and of all
qualifications and registrations of the Company as a foreign limited liability
company in jurisdictions other than the State of Delaware and shall take such
other actions as may be necessary to terminate the Company.

 

  -24- 

 

 

11.7 Recourse for Claims. Each Member shall look solely to the assets of the
Company for all distributions with respect to the Company, such Member’s Capital
Account, and such Member’s share of Profits, Losses and other items of income,
gain, loss and deduction, and shall have no recourse therefor (upon dissolution
or otherwise) against the Liquidator or any other Member.

 

Section 12
GENERAL PROVISIONS

 

12.1 Amendments.  No provision of this Agreement may be amended or modified
except by an instrument in writing executed by both of the Members. Any such
written amendment or modification will be binding upon the Company and each
Member. Notwithstanding the foregoing, amendments to Schedule A following any
new issuance, redemption, repurchase or Transfer of Membership Interests in
accordance with this Agreement may be made without the consent of or execution
by the Members.

 

12.2 Counterparts; Binding upon Members.  This Agreement may be executed in any
number of counterparts and, when so executed, all of such counterparts shall
constitute a single instrument binding upon all parties notwithstanding the fact
that all parties are not signatory to the original or to the same counterpart.

 

12.3 No Third Party Beneficiaries.  Except as provided in Article 8, which shall
be for the benefit of and enforceable by Covered Persons as described therein,
this Agreement is for the sole benefit of the parties hereto (and their
respective heirs, executors, administrators, successors and assigns) and nothing
herein, express or implied, is intended to or shall confer upon any other
Person, including any creditor of the Company, any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

12.4 Notices, Consents, Elections, Etc.  All notices, consents, agreements,
elections, amendments, demands and approvals provided for or permitted by this
Agreement or otherwise relating to the Company shall be in writing and signed
copies thereof shall be retained with the books of the Company. For purposes of
the following provisions of this Section 12.4, the term “notice” shall be deemed
to include any notice, statement, report, consent or similar item required or
permitted to be provided to one or more Persons under this Agreement or
applicable law.

 

12.5 Severability.  In the event that any provision of this Agreement is
determined to be invalid or unenforceable, such provision shall be deemed
severed from the remainder of this Agreement and replaced with a valid and
enforceable provision as similar in intent as reasonably possible to the
provision so severed, and shall not cause the invalidity or unenforceability of
the remainder of this Agreement.

 

12.6 Successors and Assigns. Subject to the restrictions on Transfers set forth
herein, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

 

12.7 Governing Law.  The interpretation and enforceability of this Agreement and
the rights and liabilities of the Members as such shall be governed by the laws
of the State of Delaware as such laws are applied in connection with limited
liability company operating agreements entered into and wholly performed upon in
Delaware by residents of Delaware. To the extent permitted by the Delaware Act
and other applicable law, the provisions of this Agreement shall supersede any
contrary provisions of the Delaware Act or other applicable law.

 

  -25- 

 

 

12.8 Currency.  The functional currency of the Company shall be United States
dollars. All cash Capital Contributions shall be made in United States dollars
and, to the extent reasonably practicable, the books, records, reports and
accounts of the Company shall be stated in United States dollars. No Member
shall be entitled to receive cash distributions from the Company other than in
United States dollars. In the event that it is necessary or convenient for
Company purposes to apply an exchange rate between different currencies, the
exchange rate shall be determined using publicly available indices.

 

12.9 Partnership for Tax Purposes Only.  As set forth in Section 2.1, the
Members hereby form the Company as a limited liability company under the Act.
The Members expressly do not intend hereby to form a partnership except insofar
as the Company may be treated as a partnership solely for tax purposes.

 

[Signature Page Follows]

 

  -26- 

 

 

IN WITNESS WHEREOF, the parties have first executed this Operating Agreement of
Novas Energy North America, LLC as of the date first above written.

 

 

  NOVAS ENERGY USA, INC.           By: /s/ John W. Huemoller II     Name: John
W. Huemoller II     Title: President      

 

 

  TECHNOVITA TECHNOLOGIES USA, INC.           By: /s/ Kenneth Stankievech    
Name: Kenneth Stankievech     Title: President      

 

 

 

   

 

 

NOVAS ENERGY NORTH AMERICA, LLC

 

 

 

OPERATING AGREEMENT

 

SCHEDULE A

 

MEMBER INFORMATION

 

As of: October 22, 2015.

 

 

 

Name and Contact Information

 

 

Capital Contribution

 

 

Membership Interest

 

Technovita Technologies USA, Inc.        

7750 E. McDonald Drive, Suite K

Scottsdale, AZ 85250

 

  $600,000   40%           Novas Energy USA, Inc.        

1701 Commerce Street, 2nd Floor

Houston, TX 77002

 

  $900,000   60%

 

 

 

 

   

 

 

SCHEDULE B

 

MEMBERSHIP INTEREST ADJUSTMENT FORMULA

 

 

 

 

 

   

 

 

SCHEDULE C

 

INITIAL BUSINESS PLAN AND BUDGET

 

 

 

 

   

 

 

SCHEDULE D

 

EXEMPT EMPLOYEES

 

 

 

Section 11.3(a):

Ken Stankievech

Alexander Poustovoit

Tommy Andrews

Tom Lagerhausen

Casey Walters

Lorne Heppner

 

Section 11.3(b):

Trent Hunter

James McGowin