EXHIBIT 10.1

 

[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

MERCED BLACK RIDGE, LLC

 

This LIMITED LIABILITY COMPANY AGREEMENT OF MERCED BLACK RIDGE, LLC, a Delaware
limited liability company (the “Company”) (this “Agreement”) is made effective
as of July 21, 2015, by and among Merced Oil & Gas, LLC, a Delaware limited
liability company (“Merced”) and Black Ridge Oil & Gas Inc., a Nevada
corporation (“Black Ridge”) (Merced and Black Ridge are collectively referred to
herein as the “Parties” and individually as a “Party”). All capitalized terms
used without definition will have the meanings given to them in Article I.

 

RECITALS

 

Company was formed as a limited liability company under the laws of the State of
Delaware on June 17, 2015. The Parties now wish to enter into this written
agreement, in accordance with the provisions of the Delaware Limited Liability
Company Act and any successor statute, as amended from time to time (the “Act”),
governing the affairs of the Company and the conduct of its business.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:

 

ARTICLE I

DEFINITIONS

 

1.1          General Interpretive Principles. Except as otherwise expressly
provided in this Agreement or unless the context otherwise requires, (i) the
terms defined in this Article will have the meanings assigned to them in this
Article and will include the plural as well as the singular, (ii) the use of any
gender in this Agreement will be deemed to include the other gender and (iii)
the word “including” means “including, but not limited to.”

 

1.2          Defined Terms. As used in this Agreement, the following terms will
have the following respective meanings:

 

“Act” means the Delaware Limited Liability Company Act, as codified in Title 6
of the Delaware Code, §§ 18-101 et seq., as the same may be amended from time to
time.

 

“AFE” means an Authorization for Expenditure.

 

“Affiliate” means any Person directly or indirectly Controlling, Controlled by,
or under Common Control of such other Person.

 

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“Agreement” means this Limited Liability Company Agreement, as originally
executed or as the same may be amended from time to time.

 

“Black Ridge” is defined in the introductory paragraph of this Agreement.

 

“Book Value” means, with respect to any asset of the Company, the adjusted basis
of such asset for federal income tax purposes; provided, however, that (i) if
any asset is contributed to the Company, the initial Book Value of such asset
will equal its fair market value on the date of contribution (as determined by
the Managing Member and set forth on Exhibit A hereto), and (ii) if the Capital
Accounts of the Members are adjusted pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(g) to reflect the fair market value of any asset of the
Company, the Book Value of such asset will be adjusted to equal its respective
fair market value as of the time of such adjustment (as determined by the
Managing Member), in accordance with such Treasury Regulation.

 

“Business Day” means any day other than a Saturday, Sunday or day on which
commercial banks in New York City are authorized or required by law to close.

 

“Capital Account” is defined in Section 10.1 as adjusted under Treasury
Regulation Section 1.704-1(b).

 

“Capital Contribution” means the aggregate contributions made by a Member to the
Company in cash or property whenever made. The Capital Contributions of the
Members are reflected in the books and records of the Company and the Company
will maintain such books and records as are necessary and appropriate to reflect
the Capital Contributions of its Members.

 

“Certificate” means the Certificate of Formation for the Company, filed with the
Secretary of State of the State of Delaware on June 17, 2015, as the same may be
amended from time to time.

 

“Code” means the Internal Revenue Code of 1986, as the same may be amended from
time to time.

 

“Company” is defined in the introductory paragraph of this Agreement.

 

“Control” including the correlative terms “Controlling”, “Controlled by” and
“Under Common Control with” means possession, directly or indirectly, of the
power to direct or cause the direction of management or policies (whether
through ownership of securities or any partnership or other ownership interest,
by contract or otherwise) of a Person. Without limiting the effect of the
preceding sentence, control will be deemed to exist (but will not be limited to)
when a Person possesses, directly or indirectly, through one or more
intermediaries (i) in the case of a corporation, 50 percent or more of the
outstanding voting securities thereof; (ii) in the case of a limited liability
company, partnership, limited partnership or venture, the right to 50 percent or
more of the distributions therefrom (including liquidating distributions); or
(iii) in the case of any other Person, 50 percent or more of the economic or
beneficial interest therein.

 

“Covered Person” is defined in Section 5.7.

 

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“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 Company property for such Fiscal Year or other period for federal
income tax purposes as determined by the Managing Member; provided, however,
that if the Book Value of Company property differs from its adjusted basis for
federal income tax purposes at the beginning of such Fiscal Year or other
period, Depreciation shall be determined by the Managing Member in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv)(g).

 

“Effective Date” means July 20, 2015.

 

“Fiscal Year” means the Company’s fiscal year, which will be the calendar year.

 

“Loss” is defined under the definition of “Profit” in this Article.

 

“Management Participation Interest” means the interest in partnership profits
issued to Black Ridge contemporaneously with the initial Capital Contributions
of Merced in connection with the performance of services for the Company
pursuant to Rev. Proc. 93-27, 1993-2 CB 343 and Rev. Proc. 2001-43, 2001-2 CB
191, representing the right to receive a percentage of the profits of the
Company pursuant to Section 7.1(c) of this Agreement.

 

“Management Services Agreement” means that certain Management Services Agreement
dated the date hereof between Black Ridge and the Company.

 

“Managing Member” means Merced with such responsibilities as described in
Article V and elsewhere in this Agreement.

 

“Members” means, collectively, Merced and Black Ridge and any other Person
admitted as a member in accordance with the terms of this Agreement.

 

“Membership Interest” means each Member’s entire interest in the capital and
profits of the Company and, if applicable, the right to vote on or participate
in, and the right to receive information concerning, the business and affairs of
the Company, including such Member’s Percentage Interest, Management
Participation Interest and Voting Interest, if any, as reflected on Exhibit A
hereto and as provided in this Agreement. Initially, the Membership Interests
will not be represented by certificates. If the Managing Member determines that
it is in the interest of the Company to issue certificates representing
Membership Interests, certificates will be issued. A Transfer by a Member of
less than 100% of its Membership Interest pursuant to this Agreement will
constitute a division of such Member’s Membership Interest and a Transfer of a
portion of the Member’s Membership Interest in proportion to the Membership
Interest transferred.

 

“Merced” is defined in the introductory paragraph of this Agreement.

 

“Net Cash Flow” means Operating Cash Flow (i) less (x) capital investments,
interest on financings, principal on financings, management fees, and any other
similar uses of cash in the operation of the Company, and (y) such reserves as
are determined by the Managing Member to be reasonably necessary for the conduct
of the Company’s business (including broker commissions, expenses related to the
ownership and protection of properties owned by the Company and servicing fees
paid to Black Ridge pursuant to the Management Services Agreement); and (ii)
plus proceeds of sales of capital assets, interest earned on cash, proceeds of
financings, and any other similar sources of cash.

 

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“Non-Voting Member” means any Person admitted as a Member of the Company and not
allocated any Voting Interest, as reflected on Exhibit A hereto.

 

“Officer” is defined in Section 5.4.

 

“Operating Cash Flow” means, for any period, the sum of all operating revenues
of the Company (including fees earned by the Company and its subsidiaries and
revenue from hedging activities), reduced by all operating and hedging expenses
of the Company and its subsidiaries, in each case determined on an accrual
basis. The calculation of Operating Cash Flow will not include depreciation or
amortization, interest paid or accrued, debt principal payments or fundings,
capital investments or management fees.

 

“Percentage Interest” means, with respect to a Member, the “Percentage Interest”
of such Member as reflected on Exhibit A attached hereto. The Percentage
Interests will be recalculated by the Managing Member and promptly communicated
to all Members upon (i) the admission of additional Members, (ii) the
reallocation of Percentage Interests among existing Members, (iii) the
forfeiture of Percentage Interests allocated to Black Ridge pursuant to Section
6.2 or (iv) the Transfer, repurchase or cancellation of any outstanding
Percentage Interests. The Percentage Interests will be recalculated as of the
effective date of such admission, issuance, reallocation, Transfer, repurchase
or cancellation and the Company will reflect any such change on its books and
records.

 

“Person” means a natural person, partnership (whether general or limited),
limited liability company, trust, estate, association, corporation, custodian,
nominee or any other individual or entity in its own or any representative
capacity.

 

“Pool” means a set of one or more investments in Projects, identified by the
Managing Member in its reasonable discretion, where such assets have an
aggregate value of acquisition costs and approved AFEs for drilling of
approximately $50 million.

 

“Preferred Return” means an amount equal to *** 1

 

“Profit” or “Loss” means, for any Fiscal Year or other period, an amount equal
to the Company’s taxable income, gain or loss for such Fiscal Year or other
period, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be separately
stated pursuant to Section 703(a)(1) of the Code shall be included in taxable
income or loss), with the following adjustments:

 

 

_____________

1 *** Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission. Confidential treatment has been requested
with respect to this omitted information.

 

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(a) Any income of the Company that is exempt from federal income tax or
otherwise described in Section 705(a)(1)(B) of the Code and not otherwise taken
into account shall be added to such taxable income or loss;

 

(b) Any expenditure of the Company described in Section 705(a)(2)(B) of the Code
and nondeductible syndication costs described in Section 709 of the Code and not
otherwise taken into account shall be subtracted from such taxable income or
loss;

 

(c) If the Book Value of any asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Fiscal Year or other period, in
lieu of depreciation, amortization and other cost recovery deduction, there
shall be taken into account Depreciation for such Fiscal Year or other period,
and in lieu of a gain or loss resulting from disposition of Company property and
taken into account in computing taxable income or loss, there shall be taken
into account gain or loss computed by reference to the Book Value of such
Company property rather than its adjusted basis for federal income tax purposes;
and

 

(d) Items of income, gain, loss or deduction that are specifically allocated
pursuant to Section 8.3 shall not be taken into account in calculating Profits
and Losses.

 

“Project” means a minority, non-operator interest in a parcel of land intended
for oil or gas well drilling or containing oil or gas well drilling operations
in the Williston Basin.

 

“Regulatory Allocations” is defined in Section 8.3(f).

 

“Securities Act” is defined in Section 12.2.

 

“Transfer” means transfer, sale, assignment, pledge, hypothecation, exchange,
gifting, or bequeathment.

 

“Treasury Regulations” means regulations issued by the Department of the
Treasury under the Code. Any reference to a specific section or sections of the
Treasury Regulations will be deemed to include a reference to any corresponding
provision of future regulations under the Code.

 

“Unreturned Capital Contributions” means as to a Member, at any time, the
aggregate Capital Contributions made with respect to such Member, reduced (but
not below zero) by the aggregate amounts distributed pursuant to Section 7.1(b)
with respect to such Member (whenever made and regardless of the source or
character thereof). In the event any Member transfers its Membership Interest in
accordance with the terms of this Agreement, such Member’s transferee will
succeed to the Unreturned Capital Contribution Balance that relates to such
Membership Interest.

 

“Unsatisfied Preferred Return” means, with respect to a Member, at any time, the
amount (if any) that the Preferred Return on such Member’s Capital Contribution
exceeds the aggregate amount of all distributions made to such Member (whenever
made and regardless of the source or character thereof) pursuant to Section
7.1(a).

 

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“Voting Interest” means, with respect to a Member, the “Voting Interest” of such
Member as reflected on Exhibit A attached hereto. The Voting Interests will be
recalculated by the Managing Member and promptly communicated to all Members
upon (i) the admission of additional Voting Members, (ii) the reallocation of
Voting Interests among existing Voting Members, or (iii) the Transfer,
repurchase or cancellation of any outstanding Voting Interests. The Voting
Interests will be recalculated as of the effective date of such admission,
issuance, reallocation, Transfer, repurchase or cancellation and the Company
will reflect any such change on its books and records.

 

“Voting Member” means any Member that holds a Voting Interest.

 

ARTICLE II

ORGANIZATIONAL MATTERS

 

2.1          Formation. The Company was organized as a Delaware limited
liability company pursuant to the Act. Thomas G. Rock, as an authorized person
within the meaning of the Act, executed, delivered and filed the Certificate
with the Secretary of State of the State of Delaware. Upon the execution of this
Agreement, Mr. Rock’s powers as an authorized person ceased.

 

2.2          Rights and Obligations of the Members. The rights and obligations
of the Members will be determined pursuant to the Act and this Agreement. To the
extent that the rights or obligations of the Members are different by reason of
any provision of this Agreement than they would be in the absence of such
provision, this Agreement will, to the extent permitted by the Act, control.
Each Member will be entitled to rely on the provisions of this Agreement, and no
Member will be liable to the Company or to any other Member for any action or
refusal to act taken in good faith reliance on this Agreement.

 

2.3          Name. The name of the Company will be “MERCED BLACK RIDGE, LLC” and
such name will be used at all times in connection with the conduct of the
Company’s business. Each Member acknowledges and agrees that the Company will
have the exclusive right to use the name set forth in this Section or any other
names under which the Company operates, subject to customary use and reference
by Members in connection with providing services to the Company and reporting on
their interest in the Company. In the event the Management Services Agreement is
terminated, the Company shall amend its name to remove the reference to “Black
Ridge” within ninety (90) days of such termination.

 

2.4          Term. Unless otherwise agreed to in writing amending this
Agreement, the Company’s existence will be perpetual.

 

2.5          Registered Agent and Office. The Company’s registered agent for
service of process and registered office in the State of Delaware will be The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The Company will continuously
maintain a registered office and a registered agent in the State of Delaware, as
required by the Act. The Delaware registered office and registered agent may be
changed from time to time by the Managing Member, in accordance with the Act.

 

2.6          Principal Place of Business. The Company’s principal place of
business will be located at 601 Carlson Parkway, Suite 200, Minnetonka, MN
55305. The Managing Member may change the location of the Company’s principal
place of business. The Managing Member will cause to be made any filing and
cause to be taken any other action required by applicable law in connection with
any such change and will give notice to all Members of the new location of the
Company’s principal place of business promptly after any such change becomes
effective. The Company also may have such other offices as the Managing Member
from time to time may determine.

 

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2.7          Maintenance. The Managing Member will cause to be filed promptly
all certificates, amendments, or other instruments as required by law to
maintain the Company in good standing as a limited liability company in the
State of Delaware and any other jurisdiction in which the Company conducts
business, including as required to comply with any fictitious name statutes.

 

2.8          Business and Purpose. The purpose of the Company will be to engage
in any lawful activity for which a limited liability company may be organized
under the Act, including the acquisition, ownership and disposition of one or
more Projects.

 

2.9          Powers. The Company will have all powers of a limited liability
company under the Act and the power to do all things necessary or convenient to
operate its business and accomplish its purpose as described in Section 2.8.

 

2.10          Existence, Properties, Etc. The Managing Member will maintain,
preserve, and keep in full force and effect (i) all rights, franchises, licenses
and permits necessary to the proper conduct of the Company’s business and (ii)
ownership, leasing or operation of the Company’s properties which, if not so
maintained, could reasonably be expected to have a material adverse effect on
the Company. The Managing Member also will take all action that may be
reasonably required to obtain, preserve, renew and extend all material licenses,
permits, authorizations, trade names, trademarks, service names, service marks,
copyrights and patents which are necessary for the continuance of the operation
of any such properties and the business by the Company.

 

2.11          Effective Date. This Agreement became effective on the Effective
Date.

 

2.12          Title to Company Property. All property owned by the Company will
be owned by the Company as an entity and, insofar as permitted by applicable
law, no Member will have any ownership interest in any Company property in its
individual name or right, and each Member’s interest in the Company will be
personal property for all purposes.

 

2.13          No Partnership. The Company will not be a partnership or joint
venture under any state or federal law, and no Member will be a partner or joint
venturer of any other Member for any purpose, other than the Code and other
applicable tax laws, and this Agreement will not be construed otherwise.

 

2.14          Financial Statements. All of the Company’s financial records will
be maintained pursuant to generally accepted accounting principles (except for
the absence of footnotes and subject to changes resulting from normal year-end
audit adjustments for recurring accruals of the types included in the financial
statements of the Company in prior fiscal years), and its other records will be
maintained to the extent necessary to record the activities and business
operations of the Company. The Company will provide complete financial reports,
including a balance sheet, income statement and statement of cash flows to all
Members within 120 days after the end of each fiscal year. The expense of
preparing such financial reports will be borne by the Company.

 

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ARTICLE III

MEMBERS

 

3.1          Members. The Members of the Company will be as set forth on Exhibit
A hereto, as amended from time to time in accordance with this Agreement. Except
as required under the Act or as expressly set forth in this Agreement, no
Member, in its capacity as a Member, (i) will take part in the control,
management, direction or operation of the affairs of the Company or have power
or authority to bind the Company or (ii) will be personally liable for any debt,
obligation or liability of the Company, whether such debt, obligation or
liability arises in contract, tort or otherwise.

 

3.2          Additional Members. Additional Members will not be admitted to the
Company without the approval of the Managing Member. The Membership Interests
allocated to any additional Member will be determined by the Managing Member.
The Managing Member will amend the books and records of the Company to reflect
any revised Membership Interests. An additional Member that intends to become a
party to this Agreement pursuant to this Section will not have any rights under
this Agreement or with respect to the Company, and will not be admitted as a
Member of the Company, unless and until such additional Member executes a
counterpart of this Agreement and satisfactorily completes, executes and
delivers such additional documentation and certifications as the Managing Member
may require.

 

3.3          Managing Member. Except as expressly otherwise provided in this
Agreement, actions of the Company may be taken only at the direction and consent
of the Managing Member in accordance with Section 5.2, without the requirement
of any vote or consent of any other Member.

 

3.4          Meetings. Meetings of the Members for any purpose consistent with
this Agreement may be called by the Managing Member. Non-Voting Members have the
right to receive notice of and attend any meetings of Members, but may not
otherwise participate in such meetings, except as the Managing Member may
otherwise direct from time to time or as otherwise expressly provided in this
Agreement. Written notice of each meeting of the Members will be delivered,
pursuant to Section 13.1 or as otherwise required by the Act, by or at the
direction of the Person calling such meeting, to each such Member. Each notice
delivered pursuant to this Section will state the place, day and hour of the
meeting and the purpose for which such meeting is being called. A quorum
necessary for the transaction of any business is present if the Managing Member
is present and more than fifty percent (50%) of the Voting Interest of all
Voting Members is present. Any action that can be taken at a meeting can be
taken by a written action, provided that such written action is signed by the
Managing Member and such other Members as are necessary to represent more than
fifty percent (50%) of the Voting Interest of all Voting Members. A copy of such
written action will promptly be transmitted to the Members not signing such
written action. Meetings of the Members may be made by video or audio
conferencing or similar communications equipment provided that a quorum exists
and if all Members participating in the meeting can hear each other.

 

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ARTICLE IV

TRANSFERS; OPTION TO BID

 

4.1          Transfer Restrictions.

 

(a)          Except for Merced, which may Transfer all or any portion of its
Membership Interest to any party without restriction (subject to the provisions
of Section 4.1(b)), no Member may Transfer all or any part of its Membership
Interest without receiving express, prior written consent from the Managing
Member, which consent may be withheld in the Managing Member’s sole and absolute
discretion, provided that Black Ridge may Transfer all or a part of its
Membership Interest to an Affiliate. Any consent granted by the Managing Member
will only apply to such Transfer as specifically described in such written
consent (including the name(s) of the buyer, assignee or transferee, and the
terms and conditions of such Transfer), and will terminate automatically in the
event such Transfer is not consummated by the deadline specified in such written
consent. All Persons to whom Membership Interests are transferred pursuant to
this Section will also be subject to the transfer restrictions contained in this
Section.

 

(b)          In the event Merced Transfers its entire Membership Interest (other
than to an Affiliate of Merced) or Merced Transfers part of its Membership
Interest (other than to an Affiliate of Merced) and will no longer serve as the
Managing Member as a result of such Transfer, Black Ridge shall have the right
to include in the sale its entire Membership Interest in the Company. The amount
to be received by Black Ridge in connection with a sale under this Section
4.1(b) shall be equal to the amount Black Ridge would have received with respect
to the transferred Membership Interest if the sale proceeds had been paid to the
Company, and the Company had then liquidated on the date of the sale and
distributed the proceeds of such liquidation to the holders of the transferred
Membership Interests in accordance with the provisions of Article 11 relating to
distributions to be made in connection with the winding up of the Company.

 

4.2          Direct and Indirect Transfers. For purposes of this Agreement,
restrictions upon the Transfer of a Membership Interest will extend to any
direct or indirect Transfer and any involuntary transfer of such Membership
Interest (such as a transfer pursuant to a foreclosure sale or a transfer
resulting by operation of law).

 

4.3          Substitution of a Member.

 

(a)           Other than an assignee, legatee, or transferee of Merced (as
provided in Section 4.1 above), no assignee, legatee, or transferee (by
conveyance, operation of law or otherwise) of the whole or any portion of a
Membership Interest will have the right to become a substituted Member without
the written approval of the Managing Member, which approval may be withheld in
the Managing Member’s sole discretion. The granting or denial of a request for
approval will be within the absolute discretion of the Managing Member;
provided, however, that the Managing Member will not unreasonably withhold or
delay consent regarding any Transfer of a Membership Interest by a Member to an
Affiliate of such Member. Any purported Transfer in violation of this Article IV
will be null and void and the purported transferee will become neither a Member
nor a holder of any interest in the Company whatsoever. A substituted Member
that is admitted as a Member in accordance with Section 4.6 will succeed to all
the Membership Interest of its assignor.

 

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(b)          If a Member will be dissolved, merged or consolidated, its
successor-in- interest will have the same rights and obligations that such
Member would have had if it had not been dissolved, merged or consolidated,
except that the successor will not become a substituted Member without the prior
approval of the Managing Member pursuant to (a) above.

 

(c)          As conditions to its substitution as a Member pursuant to this
Section, a Person will (i) execute and deliver such instruments, in form and
substance satisfactory to the Managing Member, as the Managing Member deem
necessary in its sole discretion and (ii) pay all reasonable expenses of the
Company in connection with its admission as a substituted Member.

 

4.4          Conditions to Transfer. No Transfer of any Membership Interest in
the Company otherwise permitted under this Agreement will be effective for any
purpose whatsoever until the transferee will have assumed the transferor’s
obligations to the extent of the Membership Interest transferred and will have
agreed to be bound by all the terms and conditions hereof, by written
instrument, duly acknowledged, in form and substance reasonably satisfactory to
the Managing Member in its sole discretion.

 

4.5          Adjustment of Membership Interests. Upon a Transfer, redemption or
other change in any Membership Interest, including a Member substitution,
pursuant to this Article, the Managing Member will amend Exhibit A hereto to
reflect such Transfer, redemption or other change.

 

4.6          New Member as a Party to this Agreement. A Person that (a) has been
approved as an additional or substitute Member pursuant to Section 3.2 or
Section 4.3, as applicable, and (b) intends to become a party to this Agreement
pursuant to this Article, will not have any rights under this Agreement or with
respect to the Company, and will not be admitted as a Member of the Company,
unless and until such Person executes a counterpart of this Agreement. An
assignee, legatee or transferee that is not admitted as a Member will be
entitled only to the allocations and distributions to which its assignor would
otherwise be entitled.

 

4.7          Black Ridge Option to Bid. In the event that the Managing Member
determines to sell one or more Projects or its Membership Interest related
thereto by means of an auction or similar sales process (the “Auction”), the
Managing Member will send written notice (the “Auction Notice”) of such intent
to Black Ridge. Black Ridge will have the option to deliver to the Managing
Member, in accordance with the applicable Auction terms, a bid to purchase the
Project(s) or Membership Interest being offered for sale and setting forth the
gross purchase price and other significant terms on which Black Ridge is willing
to purchase the Company’s assets. The Managing Member will determine whether to
accept the Offer or reject it in the course of the Auction and will have the
sole discretion whether to accept the Offer or any other bid, or to decide not
to consummate such sale. The option set forth in this section will not apply to,
and the Managing Member will not be obligated to deliver an Auction Notice with
respect to, any endeavor by the Managing Member to sell all or a portion of the
Projects or its Membership Interest through a private sale process; e.g.,
pursuant to bilateral discussions with a third party.

 

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ARTICLE V

MANAGEMENT

 

5.1          Management.

 

(a)          The management and control of the business and affairs of the
Company will be exclusively vested in the Managing Member, without the
requirement of any vote or consent of any other Member.

 

(b)          The Company will indemnify the Managing Member and its Affiliates,
officers, directors, equity holders, partners, employees and agents to the
fullest extent permitted by Delaware law, against any liability or cost arising
out of its service to the Company. The Company will advance funds to cover
expenses, including attorneys’ fees, incurred by the Managing Member in
connection with the defense of any civil, criminal, administrative or
investigative action, suit or proceeding arising out of such member’s service to
the fullest extent permitted by Delaware law.

 

(c)          The Company will indemnify the Members and their Affiliates,
officers, directors, equity holders, partners, employees and agents to the
fullest extent permitted by Delaware law, against any liability or cost arising
out of their Membership Interests in the Company. The Company will advance funds
to cover expenses, including attorneys’ fees, incurred by a Member in connection
with the defense of any civil, criminal, administrative or investigative action,
suit or proceeding arising out of such Member’s Membership Interest to the
fullest extent permitted by Delaware law. For the avoidance of doubt, the
indemnification and advance of funds provided under this Section 5.1(c) will not
cover or apply to Black Ridge with respect to its performance of, or any
liability under, the Management Services Agreement, including any manner of tax
liability arising thereunder.

 

5.2          Action by Managing Member. Any action, decision or determination by
the Managing Member will constitute an action, decision or determination of the
Company. Except as expressly otherwise provided in this Agreement, actions of
the Company may be taken only at the direction and consent of the Managing
Member in accordance with this Section 5.2, without the requirement of any vote
or consent of any other Member.

 

5.3          Independent Activities; Transactions with Affiliates.

 

(a)          The Managing Member will devote such time to the affairs of the
Company as it, in its sole discretion, deem necessary to manage and operate the
Company.

 

(b)          To the extent permitted by applicable law, and except as
specifically provided in this Section 5.3, neither this Agreement nor any
activity undertaken pursuant to this Agreement will prevent a Member or any of
its respective Affiliates from engaging in whatever activities they choose,
whether the same are competitive with the Company or otherwise and any such
activities may be undertaken without having or incurring any obligation to offer
any interest in such activities to the Company or any other Member, or requiring
the Company or any other Member (or such Member’s Affiliates) to participate in
any such activities.

 

11

 

 

(c)          To the extent permitted by applicable law and subject to the
provisions of this Agreement, the Managing Member is authorized to cause the
Company to purchase property from, sell property to, or otherwise deal with any
other Member, acting on its own behalf, or any Affiliate of any Member; provided
that any such purchase, sale or other transaction is either (i) made on terms
and conditions which are no less favorable to the Company than if the sale,
purchase or other transaction had been made with an independent third party or
(ii) consented to by a majority of the disinterested Members.

 

(d)          The Managing Member is authorized to have the Company enter into
the Management Services Agreement with Black Ridge.

 

5.4          Officers. The Company is not required to have officers, but may
have such officers or other authorized persons as deemed necessary or
appropriate by the Managing Member in its sole discretion (each, an “Officer”).
All Officers shall be selected by the Managing Member and shall serve at the
pleasure of the Managing Member. Any individual may hold any number of offices.
Each Officer shall have the powers and duties of management usually vested in
such Officer’s office by a corporation existing under Delaware law, and shall
have such other powers and duties as may be prescribed by the Managing Member.

 

5.5          Reliance by Third Parties. No third party dealing with the Company
will be required to ascertain whether the Managing Member or any Officer is or
are acting in accordance with the provisions of this Agreement. All third
parties may rely on a document executed by the Managing Member (or an Officer
duly authorized by the Managing Member to execute such document) as binding the
Company. If any Member acts without authority, such Person will be liable to the
Members for any damages arising out of such unauthorized actions.

 

5.6          Insurance. The Managing Member will cause the Company to maintain,
at the cost of the Company and for the protection of the Company and all of its
Members, officers’ insurance and such other insurance as the Managing Member
deems necessary for the operations being conducted.

 

5.7          Fiduciary Duties. This Agreement is not intended to, and does not,
create or impose any duty (including any fiduciary duty) on the Managing Member,
any other Member, or agent of the Company, or an Officer, director, equity
holder, partner, employee, agent or Affiliate of such Person (each, a “Covered
Person”). Further, notwithstanding any other provision of this Agreement or any
duty otherwise existing at law or in equity, the parties hereto agree that no
Member or Managing Member shall, to the fullest extent permitted by law, have
duties (including fiduciary duties) to any other Member or to the Company, and
in doing so, recognize, acknowledge and agree that their duties and obligations
to one another and to the Company are only as expressly set forth in this
Agreement; provided, however, that each Member shall have the duty to act in
accordance with the implied contractual covenant of good faith and fair dealing.
To the extent that, at law or in equity, any Covered Person has duties
(including fiduciary duties) and liabilities relating thereto to the Company or
to any other Covered Person, a Covered Person acting under this Agreement will
not be liable to the Company, to any Member or to any other Covered Person for
its good faith reliance on the provisions of 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.

 

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ARTICLE VI

CAPITAL CONTRIBUTIONS; INTERESTS; ADDITIONAL PROJECTS

 

6.1          Initial Capital Contributions; Interests. Merced has made an
initial Capital Contribution to the Company in the amount set forth on Exhibit
A, which is an amount deemed sufficient by the Managing Member for the initial
capital needs of the Company (including costs and expenses association with
forming the Company). Each Member is deemed to have the Percentage Interest and
Voting Interest, if any, set forth on Exhibit A hereto.

 

6.2           Forfeiture of Management Participation Interest. If the Management
Services Agreement is terminated by the Company for * * * or by Black Ridge
pursuant to Section 7.1 of such agreement (Termination for Convenience), then
the Management Participation Interest will be immediately forfeited and declared
null and void and of no further effect, and neither the Company nor the Managing
Member will have any further liability with respect to the Management
Participation Interest. For the avoidance of doubt, if the Management Services
Agreement is terminated by the Company pursuant to * * *, by the Company
pursuant to * * *, or by Black Ridge pursuant to Section 7.2 of such agreement
(Termination for Cause), Black Ridge will retain its Management Participation
Interest and maintain its status as a Member hereunder until such time as this
Agreement is terminated and the Company is dissolved pursuant to the terms and
conditions of this Agreement. Nothing set forth in this Section 6.2 will affect
Black Ridge’s rights to compensation under the Management Services Agreement.

 

6.3          Additional Capital Contributions.

 

(a)          Merced will from time to time and in its sole discretion make
additional Capital Contributions to the Company for Project acquisitions, to
fund approved AFEs for Projects and as needed for the operations of the Company,
in each case based on Merced’s evaluation of each Project, AFE and potential
Project, and of additional criteria (including satisfactory progress of existing
Project(s) and a continuing favorable market outlook). Unless otherwise agreed
by all Members or as set forth in Section 6.3(b) below, all additional Capital
Contributions will be made 100% by Merced. For purposes of clarity, nothing in
this Agreement shall obligate Merced to acquire any number of Projects or to
make a minimum investment in Project acquisitions.

 

(b)          Subject to Section 6.3(d), if, from time to time in the reasonable
judgment of the Managing Member, the Company requires additional capital for any
purpose and Merced does not wish to make such additional Capital Contribution,
the Managing Member is authorized to cause the Company to issue additional
Membership Interests of any class, on terms and conditions and with repayment
priorities as determined by the Managing Member in its sole discretion.

 

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(c)          Subject to Section 6.3(d), if, from time to time, the Managing
Member determines that it is in the best interest of the Company to issue
additional Membership Interests to one or more Persons performing services for
the Company, the Managing Member will have the right to cause the Company to
issue such Membership Interests of any class. The Percentage Interest, Voting
Interest and the cost of each will be determined by the Managing Member in its
sole discretion. The Managing Member may elect, in connection with the issuance
of a Membership Interest in connection with the performance of services, to
revalue the Company’s property pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(f)(5) and adjust the Capital Accounts of Members pursuant to
such regulation. The Company and each Member acknowledge that the Internal
Revenue Service (“Service”) has issued Rev. Proc. 93-27, 1993-2 CB 343 and Rev.
Proc. 2001-43, 2001-2 CB 191, which set forth criteria which the Service is
bound to apply to the issuance by a partnership of vested or unvested profits
interests in connection with the performance of services. The Service
subsequently issued proposed regulations in 2005 which when made final would,
among other things, revoke these revenue procedures and subject the issuance of
any partnership interest, whether a capital or a profits interest, to the
provisions of Section 83 of the Code; there is no assurance that these
regulations will be finalized, and, if finalized, whether they will contain
provisions identical to those in the proposed regulations. The proposed
regulations if finalized in their present form would affect the tax consequences
to both the service partner and the Company of an issuance of a profits or
capital interest in connection with the performance of services including
adjustments which may be required to be made to the Capital Accounts of the
Members. Accordingly, in addition to any other power and authority vested in the
Managing Member, and notwithstanding any other provision of this Agreement, the
Managing Member may:

 

(i)          cause such adjustments to the Capital Accounts of Members as the
Managing Member determines to be necessary or appropriate to reflect the
economic rights and obligations that the Managing Member agrees to embody in
Membership Interests that are issued in connection with the performance of
services;

 

(ii)         make any special allocation of taxable income or items thereof that
is consistent with the provisions of current or future law relating to issuance
of partnership interests in connection with the performance of services;

 

(iii)        cause the Company to elect, maintain and comply with the safe
harbor provisions described in proposed Treasury Regulation Section 1.83-3(1),
when finalized, and to take any action on behalf of each Member as may be
necessary or appropriate to legally bind the Company and all Members, including
transferees, to elect, maintain and comply with the requirements of such safe
harbor, and each Member will execute such documentation as may be reasonably
requested by the Company to assurance such election, compliance and maintenance;
and

 

(iv)        amend this Agreement without Member approval to the extent the
Managing Member considers necessary or appropriate to implement the foregoing
provisions of this Section 6.3(c).

 

(d)          So long as no default has occurred and is continuing under the
Management Services Agreement, and notwithstanding anything to the contrary in
this Agreement, Black Ridge’s prior written consent will be required in order to
issue additional Membership Interests or reallocate the Membership Interests of
the Members pursuant to an issuance of Membership Interests to one or more
Persons performing services for the Company, if such issuance or reallocation
has the effect of diluting the economic interests of Black Ridge. Additional
Capital Contributions by a Member, and the right to distributions of Unreturned
Capital Contributions, and Unsatisfied Preferred Returns pertaining thereto,
will not be treated as diluting the economic interests of the other Members.

 

14

 

 

(e)          Upon the acceptance of additional Capital Contributions and
issuance of additional Membership Interests or reallocation of Membership
Interests pursuant to this Section, the Managing Member will update the books
and records of the Company to reflect such additional Capital Contributions and
issuance, which books and records will be definitive evidence of the amount of
each Member’s Capital Contributions and ownership of Membership Interests of the
Company, absent manifest error.

 

6.4          Return of Capital Contributions. Capital Contributions will be
expended in furtherance of the business of the Company. All costs and expenses
of the Company will be paid from its funds. No interest will be paid on Capital
Contributions. The Company will not have any personal liability for the
repayment of any Capital Contribution to a Member.

 

6.5          Acquisition of Additional Projects; Black Ridge Option to
Co-Invest. Prior to the Company’s acquisition of a new Project, Black Ridge will
have the option to participate as a co-investor with the Company in such Project
(each, a “Co-Invest Project”), up to a maximum co-investment of twenty-five
percent (25%) of the total Co-Invest Project capital. If Black Ridge elects to
participate in a Co-Invest Project, Black Ridge will deliver to the Managing
Member no more than five (5) business days after notice to the Company of a new
Project or at the time of the Company’s approval of the Project acquisition, if
such approval is made earlier, a written notice of Black Ridge’s intent to
co-invest and its co-investment commitment amount (the “Co-Invest Percentage”).
Each Co-Invest Project will be owned severally (and not jointly) by Black Ridge
and the Company, with Black Ridge holding a portion equal to the Co-Invest
Percentage and the Company owning the remaining portion.

 

ARTICLE VII

DISTRIBUTIONS

 

7.1          Distributions. On a quarterly basis, and more often as the Managing
Member may determine in its sole discretion, the Company: (i) will distribute to
the Members Net Cash Flow of the Company; and (ii) may distribute other assets
of the Company as determined by the Managing Member in its sole discretion, such
distribution not to be unreasonably withheld (the amount of any such
distribution of Net Cash Flow or other assets of the Company, the “Distributable
Amount”). The Company will not distribute Net Cash Flow unless the Managing
Member determines in its reasonable discretion that (x) such Net Cash Flow or
portion thereof proposed to be distributed is held by the Company in the form of
cash and (y) such cash is not needed by the Company for the payment of expenses.
Unless otherwise unanimously agreed by the Members, Net Cash Flow and Operating
Cash Flow of the Company will be calculated and distributed separately for each
Pool, and will be distributed to the Members in the following order of
priorities:

 

15

 

 

(a)          First, 100 percent of such Distributable Amount will be distributed
to the Members, in proportion to and to the extent of their respective then
outstanding Unsatisfied Preferred Returns;

 

(b)          Next, 100 percent of any remaining Distributable Amount will be
distributed to the Members in proportion to and to the extent of their
respective then outstanding Unreturned Capital Contributions; and

 

(c)          Thereafter, the balance of any remaining Distributable Amount will
be distributed * * * % to the Members in proportion to their Percentage
Interests and * * * % to Black Ridge in respect of its Management Participation
Interest.

 

The Members intend that nonliquidating distributions to the Members under
Section 7.1 be separately calculated with respect to each Pool. For the
avoidance of doubt, the Members intend that distributions under Section 7.1(a)
and 7.1(b) be calculated by allocating to each Pool its proper share of the
Unsatisfied Preferred Returns and Unreturned Capital Contributions of a Member,
and that distributions may accordingly be made to the Members pursuant to
Section 7.1(c) with respect to a given Pool even though there remain Unsatisfied
Preferred Returns and Unreturned Capital Contributions with respect to other
Pools.

 

The Management Participation Interest has been structured to satisfy the
requirements of Rev. Proc. 93-27 to be treated as a profits interest thereunder,
and for avoidance of doubt, the Members intend the provisions of Section 7.1(a),
(b) and (c) to satisfy the requirement of such revenue procedure that, if the
Company were liquidated immediately following the issuance of the Management
Participation Agreement, its debts repaid and the net remaining proceeds
distributed to Merced pursuant to Section 7.1(a) and (b), there would be no
remaining proceeds available for distribution to Black Ridge under Section
7.1(c).

 

7.2          Amounts Withheld. Any amounts withheld from a distribution by the
Company to a Member pursuant to any federal, state, local or foreign tax law
shall be treated as if the same had been distributed to that Member pursuant to
Section 7.1. Any other amount required to be paid by the Company to a taxing
authority with respect to a Member pursuant to any federal, state, local or
foreign tax law in connection with any payment to or tax liability (estimated or
otherwise) of the Member shall be treated as a loan from the Company to that
Member. If such loan is not repaid within thirty (30) days from the date the
Managing Member notifies that Member of the withholding, the loan shall bear
interest at an annual rate equal to the lesser of (a) ten percent (10%) per
annum or (b) the highest nonusurious rate permitted by applicable law under such
circumstances from the date of the applicable notice to the date of repayment.
In addition to all other remedies the Company may have, the Company may withhold
distributions that would otherwise be payable to that Member and apply those
distributions instead to the repayment of the loan and accrued interest.

 

16

 

 

ARTICLE VIII

ALLOCATIONS OF PROFIT AND LOSS

 

8.1          Determination of Profit and Loss. Profit or Loss will be determined
by the Managing Member in accordance with this Agreement on an annual basis and
for such other periods as may be required by this Agreement or otherwise.

 

8.2          Allocations of Profit and Loss. Except as otherwise provided in
this Agreement, and after giving effect to Section 8.3, Profit or Loss for any
Fiscal Year will be allocated among the Members such that the Capital Account of
each Member, immediately after giving effect to such allocations, will equal
(proportionately), as nearly as possible, (A) the amount of the distributions
that would be made to such Member during such Fiscal Year if (i) the Company
were dissolved and terminated, (ii) its affairs were wound up and each asset
were sold for its Book Value (except that any asset which was the subject of a
disposition in such Fiscal Year will be treated as if it were sold for cash
equal to the sum of the amount received by the Company in any such disposition
and the fair market value of any other property received by the Company in such
disposition), (iii) all liabilities of the Company were satisfied; and (iv) the
net assets of the Company were distributed to the Members in accordance with
Section 7.1, minus (B) such Member’s share of partnership minimum gain and
partner nonrecourse debt minimum gain determined pursuant to Treasury Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5), computed immediately prior to the
hypothetical sale of assets. The Managing Member will make such other
assumptions as it deems necessary or appropriate in its good faith and
reasonable judgment in order to effectuate the intended beneficial entitlements
of the Members.

 

8.3          Regulatory Allocations and Curative Provision.

 

(a)          The “partnership minimum gain” and “partner nonrecourse debt
minimum gain” provisions of Treasury Regulation Section 1.704-2 are incorporated
herein by reference and will apply notwithstanding the allocation of Profit and
Loss provided for under Section 8.2 to the extent provided in that regulation.

 

(b)          The “qualified income offset” provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) are incorporated herein by reference and will apply
notwithstanding the allocation of Profit and Loss otherwise provided for under
Section 8.2 to the extent provided in that regulation.

 

(c)          Company deductions that are characterized as “nonrecourse
deductions” under Treasury Regulation Sections 1.704-2(b)(1) and 1.704-2(c) for
any taxable year, or portion thereof, will be allocated to the Members in
proportion to their respective Percentage Interests.

 

(d)          Company deductions that are characterized as “partner nonrecourse
deductions” under Treasury Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2)
for any taxable year, or portion thereof, will be allocated to the Members as
provided in Treasury Regulation Section 1.704-2(i)(1).

 

17

 

 

(e)          Notwithstanding the provisions of Section 8.2, if during any Fiscal
Year the allocation of any loss or deduction, net of any income or gain, to a
Member would cause or increase a negative balance in a Member’s Capital Account
as of the end of that Fiscal Year, only the amount of such loss or deduction
that reduces the balance to zero will be allocated to the Member and the
remaining amount will be allocated to the other Members. For the purpose of the
preceding sentence, a Capital Account will be reduced by the adjustments,
allocations and distributions described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6), and increased by the amount, if any, that
the Member is obligated to restore to the Member’s Capital Account within the
meaning of Treasury Regulation Section 1.704-1 (b )(2)(ii)(c) as of that time or
is deemed obligated to restore under Treasury Regulation Section 1.704-2(g)(1)
or Section 1.704-2(i)(5).

 

(f)          All allocations pursuant to the foregoing provisions of this
Section (the “Regulatory Allocations”) will be taken into account in computing
allocations of other items under Section 8.2, including, if necessary,
allocations in subsequent Fiscal Years, so that the net amounts reflected in the
Members’ Capital Accounts and the character for income tax purposes of the
taxable income recognized (e.g., as capital or ordinary) will, to the extent
possible, be the same as if no Regulatory Allocations had been given effect. In
exercising its discretion under this Section 8.3(f), the Company shall take into
account future Regulatory Allocations under Section 8.3(a) that, although not
yet made, are likely to offset other Regulatory Allocations previously made
under Sections 8.3(c) and (d).

 

ARTICLE IX

ALLOCATION OF TAXABLE INCOME AND LOSS

 

9.1          General. Except as provided in Section 9.2, each item of income,
gain, loss and deduction of the Company for federal income tax purposes will be
allocated among the Members in the same manner as such item is allocated under
Article VIII.

 

9.2          Allocation of Section 704(c) Items. The Members recognize that with
respect to property contributed to the Company by a Member and with respect to
property revalued in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), there may be a difference between the fair market value of
such property at the time of contribution or revaluation and the adjusted tax
basis of such property at that time, which will result under Treasury Regulation
Section 1.704(b) in a difference between the Book Value of such property and its
adjusted tax basis. All items of tax depreciation, cost recovery, amortization,
amount realized and gain or loss with respect to such assets will be allocated
among the Members to take into account such book-tax disparities in accordance
with the provisions of Section 704(c) of the Code and the Treasury Regulations
thereunder using a reasonable method selected by the Managing Member.

 

9.3          Recapture Items. In the event that the Company has taxable income
that is characterized as ordinary income under the recapture provisions of the
Code, then Sections 1.1245-1(e) and 1.1250-1(f) of the Treasury Regulations
shall apply, and in the event that the Company has taxable income that is
characterized as “unrecaptured Section 1250 gain” under Section 1(h)(6) of the
Code, then the principles of such Treasury Regulations shall apply.

 

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ARTICLE X

ACCOUNTING, REPORTING AND TAX MATTERS

 

10.1          Capital Accounts. The Managing Member will establish and maintain
a separate capital account (“Capital Account”) for each Member in accordance
with the Treasury Regulations under Section 704(b) of the Code and such other
accounts as may be necessary or desirable to comply with the requirements of
applicable laws and regulations. No Member will be required to make up a
negative balance in its Capital Account or to pay to any Member the amount of
any such negative balance.

 

10.2          Transfers During Year. In order to avoid an interim closing of the
Company’s books, the share of Profits or Losses under Article VIII of a Member
who transfers part or all of its interest in the Company during the Company’s
accounting year may be determined by taking such Member’s pro rata share of the
amount of such Profits or Losses for the year. The proration will be based on
the portion of the Company’s accounting year that has elapsed prior to the
transfer or may be determined under any other reasonable method; provided,
however, that any gain or loss from the sale of Company assets will be allocated
to the owner of the Membership Interest at the time of such sale. The balance of
the Profits or Losses attributable to the Membership Interest transferred will
be allocated to the transferee of such Membership Interest.

 

10.3           Tax Filings. The Managing Member will cause the income tax
returns for the Company to be prepared and filed in a timely manner with the
appropriate authorities. Prior to March 15 of each year, the Members will be
provided with a copy of the Company federal income tax return (Form 1065), as
filed or to be filed for the preceding year.

 

10.4          Election to be Taxed as Partnership. The Company will be treated
as a partnership for federal income tax purposes. Neither the Managing Member
nor any Member will take any action that would cause the Company to be treated
as a corporation for federal income tax purposes.

 

10.5          Section 754 Election. Upon the request of any Member, the Managing
Member may, at its discretion, cause the Company to make the election provided
for under Section 754 of the Code.

 

10.6          Tax Matters Partner. Merced will represent the Company as “tax
matters partner” (as defined in Section 6231 of the Code) in connection with all
examinations of the Company’s affairs by tax authorities, including resulting
judicial and administrative proceedings, and will expend the Company’s funds for
professional services and costs associated therewith.

 

ARTICLE XI

DISSOLUTION AND WINDING UP

 

11.1          Dissolution. The Company will be dissolved, its assets disposed
of, and its affairs wound up upon the occurrence of any of the following events:

 

(a)          a written election by the Managing Member to dissolve the Company;

 

19

 

 

(b)          the merger of the Company (where the Company is not the surviving
entity) or sale of all or substantially all of the assets of the Company; or

 

(c)          entry of a decree of judicial dissolution pursuant to Section
18-802 of the Act.

 

11.2          Winding Up. If the Company is dissolved pursuant to Section 11.1,
the Company will continue solely for the purpose of winding up its affairs in an
orderly manner, liquidating its assets, and satisfying the claims of its
creditors. The Managing Member, or, if the Managing Member is unable to act,
another Person selected by the Managing Member, will be responsible for
overseeing the winding up and liquidation of the Company, will take full account
of the liabilities and assets of the Company and will cause the Company’s assets
to be sold (as promptly as is consistent with obtaining the fair market value
thereof) prior to distributing any such assets, and will cause the proceeds
therefrom, to the extent sufficient therefor, to be applied and distributed as
provided in Section 11.3. The Managing Member (or such other Person selected in
accordance with this Section) will give written notice of the commencement of
winding up to each Member and to all known creditors and claimants whose
addresses appear on the records of the Company.

 

11.3          Payment of Liabilities and Distribution of Assets upon
Dissolution.

 

(a)          After determining that all reasonably foreseeable debts and
liabilities of the Company, including debts and liabilities to any of the
Members as creditors of the Company, have been paid or adequately provided for,
the remaining assets will be distributed to the Members in accordance with
Section 7.1. Such distribution will be made by the later of (i) the end of the
Company’s taxable year in which the Company is liquidated or (ii) 90 days after
the date of such liquidation.

 

(b)          The payment of a debt or liability, whether the whereabouts of the
creditor is known or unknown, may be adequately provided for by either of the
following means (provided, however, that the following means will not prescribe
the exclusive means of making adequate provision for the payment of debts and
liabilities):

 

Payment thereof has been assumed or guaranteed in good faith by one or more
financially responsible Persons or by the United States government or any agency
thereof, and the provision, including the financial responsibility of the
Person, was determined in good faith and with reasonable care by the Managing
Member (or other Person selected by the Managing Member) to be adequate at the
time of any distribution of the assets pursuant to this Section; or

 

The amount of the debt or liability has been provided for in accordance with
Section 18-804(b) of the Act.

 

11.4          Distributions In Kind. Any non-cash asset distributed to one or
more Members will first be valued at its fair market value as of a date
reasonably close to the date of liquidation. Any unrealized appreciation or
depreciation with respect to such asset will be allocated among the Members (in
accordance with the provisions of Article VIII assuming that the asset was sold
for appraised value and the proceeds where distributed in accordance to Section
7.1) and taken into consideration in determining the balance in the Members’
Capital Accounts as of the date of liquidation. Distribution of any such asset
in kind to a Member will be considered a distribution of an amount equal to the
asset's fair market value for purposes of Section 7.1. The Managing Member (or
such other Person selected in accordance with Section 11.2), in its sole
discretion, may distribute any percentage of any asset in kind to a Member even
if such percentage exceeds the percentage in which the Member shares in
distributions as long as the sum of the cash and fair market value of all the
assets distributed to each Member equals the amount of the distribution to which
such Member is entitled pursuant to this Agreement. The fair market value of any
non-cash asset will be determined by the Members and, if the Members are unable
to agree within 30 days of the date or event requiring such determination, by an
independent appraisal. The cost of such appraisal shall be borne by the Company.

 

20

 

 

11.5          Certificate of Cancellation. As soon as possible following the
dissolution and the completion of winding up of the Company pursuant to this
Article, or as otherwise required under the Act, the Managing Member (or such
other Person selected in accordance with Section 11.2) will execute a
certificate of cancellation and will cause such certificate of cancellation to
be filed with the Secretary of State of the State of Delaware and will take such
other actions as may be necessary to terminate the Company.

 

ARTICLE XII

INVESTMENT REPRESENTATIONS

 

12.1          Investment Purpose. In acquiring a Membership Interest in the
Company, each Member represents and warrants to the Company that it is acquiring
such Membership Interest for its own account for investment and not with a view
to its sale or distribution. Each Member recognizes that investments such as
those contemplated by the Company are speculative and involve substantial risk
and are suitable only for investors of substantial means who have no immediate
need for liquidity of the amount invested, and that such investments involve a
risk of loss of all or a substantial part of such investments. Each Member
further represents and warrants that none of the Company, Merced, Black Ridge,
or any Affiliate, officer, director, equity holders, partner, employee or agent
of the Company or any such Member, has made any guaranty or representation upon
which said Member has relied concerning the possibility or probability of profit
or loss as a result of its acquisition of an Membership Interest in the Company.

 

12.2          Restrictions on Transfer. Each Member recognizes that: (i) its
Membership Interest has not been registered under the Securities Act of 1933, as
amended (the “Securities Act”), in reliance upon an exemption from such
registration, (ii) a Member may not Transfer or offer to Transfer all or any
part of Membership Interest in the Company in the absence of an effective
registration statement covering such interest under the Securities Act, unless
such Transfer or offer of Transfer is exempt from registration under the
Securities Act (and is otherwise in compliance with any additional restrictions
on transfer set forth elsewhere in this Agreement), (iii) the Company will not
have any obligation to register any Member’s interest for sale or to assist in
establishing an exemption from registration for any proposed Transfer and (iv)
these restrictions on Transfer, together with the additional restrictions on
Transfer set forth in this Agreement, may severely affect the liquidity of a
Member’s investment.

 

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12.3          Accredited Investors. In acquiring a Membership Interest in the
Company, each Member represents and warrants to the Company that:

 

(a)          it is an “accredited investor” within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act;

 

(b)          such Member has such knowledge and experience in financial, tax and
business matters so as to enable it to evaluate the merits and risks of an
investment in the Company and to make an informed investment with respect
thereto;

 

(c)          such Member is not relying on the Company with respect to the tax
or other economic considerations of an investment in the Company and has
obtained, or had the opportunity to obtain, the advice of its own legal, tax and
other advisors;

 

(d)          such Member, if executing this Agreement in a representative or
fiduciary capacity, has full power and authority to execute and deliver this
Agreement in such capacity and on behalf of the Person for whom such Member is
executing this Agreement, and such Person has full right and power to perform
pursuant to this Agreement and make an investment in the Company;

 

(e)          such Member, if a natural person, has reached the age of majority
in the state in which such Member resides; and

 

(f)          such Member or its adviser has had a reasonable opportunity to ask
questions of and receive answers from one or more Persons on behalf of the
Company concerning the offering of the Membership Interests and all such
questions have been answered to the full satisfaction of such Member.

 

12.4          Indemnification. Each Member agrees to indemnify and hold harmless
the Company, the Managing Member, other Members, Officers, employees, agents and
Affiliates against any and all loss, liability, claim, damage and expense
whatsoever (including any and all expenses reasonably incurred in investigating,
preparing or defending against any litigation commenced or threatened or any
claim whatsoever) arising out of or based upon any false representation or
warranty or breach or failure by such Member to comply with any covenant or
agreement made by such Member pursuant to this Article.

 

ARTICLE XIII

MISCELLANEOUS PROVISIONS

 

13.1          Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement will be
delivered to the appropriate parties at the respective addresses for such
parties set forth on Exhibit B hereto, unless another address is specified in
writing by any such party and notice thereof is delivered to the Company and
each of the other parties in accordance with this Section. Such notices, demands
and other communications will be in writing and will be deemed to have been
given (i) when personally delivered, (ii) when mailed by certified mail, return
receipt requested, (iii) when sent by telecopy or electronic mail with
confirmation of receipt received, or (iv) when delivered by overnight courier
with executed receipt.

 

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13.2          Captions. The captions used in this Agreement are for convenience
of reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement will be enforced and construed
as if no captions had been used in this Agreement.

 

13.3          Complete Agreement: Exhibits. Each exhibit delivered pursuant to
this Agreement will be in writing and will constitute a part of this Agreement.
This Agreement, together with such exhibits, and the Certificate constitute the
complete statement of agreement with respect to the subject matter herein and
therein and will supersede any prior understandings, agreements or
representations, written or oral, which may have related to the subject matter
hereof in any way.

 

13.4          Governing Law and Jurisdiction. The laws of the State of Delaware,
without regard to conflict of law doctrines, will govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement. In any action
brought to enforce a right provided hereunder, the Parties agree to submit to
the exclusive jurisdiction of a federal or state court located in Hennepin
County, Minnesota.

 

13.5          Waiver of Jury Trial. Each Member hereby unconditionally waives
any right to a jury trial with respect to and in any action, proceeding, claim,
counterclaim, demand or other matter whatsoever arising out of this Agreement.

 

13.6          Third Party Beneficiaries. Nothing in this Agreement is intended
or will be construed to entitle any Person, other than the Company, the Members
and their respective successors and assigns, to any claim, cause of action,
remedy or right of any kind.

 

13.7          Severability. If any provision of this Agreement is declared
illegal, invalid or unenforceable it will be severed if the remaining provisions
of this Agreement can reasonably and fairly be given effect without affecting
the legal and economic substance of the transactions contemplated by this
Agreement in a manner adverse to the Company or any Member. To the full extent,
however, that the provisions of such applicable law may be waived, they are
hereby waived to the end that this Agreement will be deemed to be a valid and
binding agreement enforceable in accordance with its terms.

 

13.8          Binding Effect. This Agreement will be binding upon and inure to
the benefit of the Company, the Members and their respective successors and
assigns.

 

13.9          Amendments: Waiver. This Agreement may not be amended and no
provision hereof may be waived except by a written instrument signed by all of
the Members. Notwithstanding the foregoing, Exhibit A and Exhibit B hereto may
be amended by the Managing Member without such signatures, if such amendment is
made pursuant to this Agreement.

 

13.10          Costs and Attorneys Fees. A prevailing party will be awarded
attorneys’ fees and costs in any proceeding brought after the Effective Date of
this Agreement to enforce or to interpret this Agreement. For purposes of this
Agreement, the term “prevailing party” will be the party who is determined by a
trial court judge or, if the matter is appealed, an appellate court judge, to be
adjudicated to recover costs of suit, whether or not the proceeding is brought
to final judgment or award. A party not entitled to recover costs will not
recover attorneys’ fees. No sum of attorneys’ fees will be included in any
computation of the amount of judgment or award for purposes of determining
whether a party is entitled to recover costs or attorneys’ fees.

 

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13.11          Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

 

13.12          Confidential Information.

 

(a)          Each Member covenants and agrees that it will not at any time while
it is a Member, or for a period of two (2) years thereafter, directly or
indirectly use, sell or otherwise disclose Confidential Information (as defined
herein) except in furtherance of the Company’s business. “Confidential
Information” means the terms and conditions of this Agreement and the Management
Agreement, financial models, market analysis, the relative or absolute rights or
interests of any of the Members or other proprietary information of or regarding
the Company that has not been publicly disclosed by the Managing Member. The
Confidential Information will be maintained in confidence by Members using the
same degree of care with which such Member employs with respect to its own
confidential information, but in no event maintained with less than a reasonable
standard of care. This provision does not apply to information that is presently
a matter of public knowledge, which is or becomes available on a
non-confidential basis from a source which is not known to be prohibited from
disclosing such information or which was legally in the possession of the
parties bound by this provision without obligation of confidentiality prior to
disclosure by the Company or its direct and indirect subsidiaries. In the event
that a Member bound by this provision is requested or required by legal or
regulatory authority to disclose any Confidential Information, the affected
party will promptly notify the Company of such request or requirement prior to
disclosure so that the Company or other Members may seek an appropriate
protective order and/or waive compliance with the terms of this Agreement. If,
in the absence of a protective order or other remedy or the receipt of a waiver
by such other party, the party requested or required to make the disclosure or
any of its Affiliates is nonetheless, under the advice of counsel, legally
required to disclose Confidential Information, the disclosing party may, without
liability hereunder, disclose only that portion of the Confidential Information
that such party’s counsel advises is legally required to be disclosed.

 

(b)          Each Member agrees that upon Transfer or redemption of all of its
Membership Interests, such Member will immediately return to the Company all
Company property, including records reflecting Confidential Information, and
such Member will not take or retain (1) any records reflecting Confidential
Information, or copies thereof, whether or not originated by the Company, or (2)
any other Company property, including tapes or other materials. Notwithstanding
the foregoing, a Member may retain copies of the Confidential Information in
accordance with policies and procedures of such Member solely in order to comply
with law, regulation or archival purposes; provided, however, that any
Confidential Information so retained will continue to be Confidential
Information pursuant to the terms of this Agreement and the retaining Member
will continue to be bound by the terms of this Agreement with respect to such
Confidential Information.

 

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(c)          Each Member agrees that, so long as it remains a Member and
thereafter, it will not make any disparaging, uncomplimentary or negative
communication, whether oral or written, about the Company to any Person,
including any communication with respect to the Company’s (or its subsidiaries’
or affiliates’) products, services, business affairs or employees.

 

(d)          Each Member agrees that it would be difficult or impossible to
measure the damage to the Company from any breach by it of the covenants set
forth in this Section 13.12, and that damages to the Company for any such injury
would therefore be an inadequate remedy for any such breach. Accordingly, each
Member agrees that if it breaches any term of this Section 13.12, the Company
will be entitled, in addition to and without limitation upon all other remedies
the Company may have, to obtain injunctive or other appropriate equitable relief
to restrain any such breach without showing or proving any actual damage to the
Company.

 

(e)          No Member shall issue or publish any press release or other public
communication about the formation, existence or operations of the Company
without the approval of Merced and Black Ridge, which consent shall not be
unreasonably withheld and shall be provided promptly following submission of the
proposed press release or other public communication. Notwithstanding the
foregoing, Black Ridge may make all required regulatory filings regarding this
Agreement and the Management Services Agreement, without the consent of Merced;
provided, that Black Ridge will use commercially reasonable efforts to provide
Merced with an opportunity to review any Company-related disclosures contained
in such filings prior to filing. The foregoing provisions shall not be deemed to
prohibit any Member from disclosing summary information related to the amount of
capital invested by the Company, the performance of its investment in the
Company or general information about the performance of the Company or its
Projects to any of its investors, prospective investors or lenders. In no event
may Black Ridge disclose the dollar or percentage values of the Preferred
Return, the Management Participation Interest or the compensation payable under
the Management Services Agreement in any press release or other public
communication and, if under the advice of counsel Black Ridge is legally
required to disclose such values in a regulatory filing, Black Ridge shall use
commercially reasonable efforts to seek confidential treatment thereof and shall
disclose only such values that Black Ridge’s counsel advises is legally required
to be disclosed.

 

[Remainder of page intentionally left blank.]

 

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IN WITNESS WHEREOF, the undersigned have signed this Agreement as of the day and
year first above written.

 

MERCED OIL & GAS, LLC,

a Delaware limited liability company

 

 

By: /s/ Thomas G. Rock

       Name: Thomas G. Rock

       Its: Authorized Signatory

 

 

BLACK RIDGE OIL & GAS INC.,

a Nevada corporation

 

By: /s/ Ken DeCubellis

       Name: Ken DeCubellis

       Its: Chief Executive Officer

 

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Exhibit A

 

MEMBERS, CAPITAL CONTRIBUTIONS AND INTERESTS

 

As of the Effective Date

 

 

Member Capital Contribution Percentage Interest and Voting Interest Management
Participation Interest   Merced Oil & Gas, LLC * * * 100%   Black Ridge Oil &
Gas Inc. $-0- 0%  * * *

 

 

 

 

 

 

 

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Exhibit B

 

NOTICES

 

Company and Merced:

 

c/o Merced Capital, L.P.

601 Carlson Parkway, Suite 200

Minnetonka, Minnesota 55305

Attn: General Counsel

Phone: (952) 476-7200

Fax: (952) 476-7201

Email: tom.rock@mercedcapital.com

 

 

Black Ridge:

 

c/o Black Ridge Oil & Gas Inc.

10275 Wayzata Boulevard, Suite 100

Minnetonka, MN 55305

Attn: Ken DeCubellis

Phone: (952) 426-1821

Fax: ___________________

Email: ken.decubellis@blackridgeoil.com

 

 

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