Exhibit
10.1


 


OPERATING
AGREEMENT


 


SugarRush
5058, LLC


 


THE
MEMBERSHIP INTERESTS REFERRED TO IN THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT ARE SUBJECT TO THE PROVISIONS OF SUCH AGREEMENT.
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE MEMBERSHIP INTERESTS REFERRED TO IN THIS LIMITED LIABILITY
COMPANY OPERATING AGREEMENT MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH AGREEMENT.


 


THE
MEMBERSHIP INTERESTS REFERRED TO IN THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT EFFECTIVE UNDER SUCH ACT AND LAWS, OR (B) AN EXEMPTION FROM REGISTRATION
THEREUNDER.


 




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TABLE
OF CONTENTS


 


	ARTICLE
    I Definitions	3
	ARTICLE
    II Organization	14
	ARTICLE
    III Capital Contributions; Capital Accounts	15
	ARTICLE
    IV Members	18
	ARTICLE
    V Allocations	21
	ARTICLE
    VI Distributions	23
	ARTICLE
    VII Management	26
	ARTICLE
    VIII Pre-Emptive Rights	28
	ARTICLE
    IX Transfer	30
	ARTICLE
    X Irrevocable Option to Purchase	33
	ARTICLE
    XI Indemnification	34
	ARTICLE
    XII Accounting: Tax Matters	37
	ARTICLE
    XIII Dissolution and Liquidation	40
	ARTICLE
    XIV Miscellaneous	42
	 	 
	EXHIBIT
    A Member Schedule	52
	 	 
	EXHIBIT
    B Incentive Payment Schedule	53
	 	 
	EXHIBIT
    C Spousal Consent	54
	 	 
	EXHIBIT
    D Form of Joinder Agreement	55


 




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OPERATING
AGREEMENT


 


This
Operating Agreement (the “Agreement”) of SugarRush 5058, a California limited liability company (the “Company”),
is entered into as of August 26, 2021 (“Effective Date”) by and among the Company, the Initial Members executing this
Agreement as of the date hereof and each other Person who after the date hereof becomes a Member of the Company and becomes a party to
this Agreement by executing a Joinder Agreement.


 


RECITALS


 


WHEREAS,
the Company was formed as a limited liability company under the laws of the State of California, for the purposes set forth in Section
2.05 of this Agreement, when the Company’s articles of organization (the “Articles of Organization”) were filed
by the California Secretary of State on August 24, 2021; and


 


WHEREAS,
the parties wish to enter into this Agreement setting forth the terms and conditions governing the operation and management of the Company
and the other matters set forth herein.


 


NOW,
THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


 


ARTICLE
I


Definitions


 


Section
1.01 Definitions. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in this
Section 1.01 and when not otherwise defined shall have the meanings set forth in RULLCA:


 


“Acceptance
Notice” has the meaning set forth in Section 8.01(c).


 


“Additional
Capital Contribution” has the meaning set forth in Section 3.02.


 


“Adjusted
Capital Account Deficit” means, 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)
crediting to such Capital Account any amount that such Member is obligated to restore or is deemed to be obligated to restore under Treasury
Regulations Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1), and 1.704-2(i); and


 


(b)
debiting to such Capital Account the items described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4)-(6).


 




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“Adjusted
Taxable Income” of a Member for a Fiscal Year (or portion thereof) with respect to the Membership Interest held by such Member
means the federal taxable income allocated by the Company to the Member with respect to its Membership Interest (as adjusted by any final
determination in connection with any tax audit or other proceeding) for such Fiscal Year (or portion thereof); provided, that such taxable
income shall be computed (a) minus any excess taxable loss or excess taxable credits of the Company for any prior period allocable to
such Member with respect to its Membership Interest that were not previously taken into account for purposes of determining such Member’s
Adjusted Taxable Income in a prior Fiscal Year to the extent such loss or credit would be available under the Code to offset income of
the Member (or, as appropriate, the direct or indirect owners of the Member) determined as if the income, loss, and credits from the
Company were the only income, loss, and credits of the Member (or, as appropriate, the direct or indirect owners of the Member) in such
Fiscal Year and all prior Fiscal Years, and (b) taking into account any special basis adjustment with respect to such Member resulting
from an election by the Company under Code Section 754.


 


“Affiliate”
means, with respect to any Person, any other Person who, directly or indirectly (including through one or more intermediaries), controls,
is controlled by, or is under common control with, such Person. For purposes of this definition, “control,” when used with
respect to any specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the management and policies
of such Person, whether through ownership of voting securities or partnership or other ownership interests, by contract or otherwise;
and the terms “controlling” and “controlled” shall have correlative meanings.


 


“Agreement”
means this Operating Agreement, as executed and as it may be amended, modified, supplemented, or restated from time to time, as provided
herein.


 


“Applicable
Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree,
other requirement or rule of law of any Governmental Authority, including, without limitation, RULLCA, the California Compassionate Use
Act, the California Medical Cannabis Regulation and Safety Act, the Adult Use of Marijuana Act, SB 94 and the Medicinal and Adult Use
Cannabis Regulation and Safety Act (collectively “MAUCRSA”), and any additional, amended, supplemental or replacement
laws or regulations promulgated or enacted by the State of California or any applicable municipal jurisdiction pertaining to cannabis
retail delivery sales, cultivation, dispensing, storage, manufacturing, distribution, transportation, testing or other commercial cannabis
activities within its jurisdiction; provided, however, that the term “Applicable Laws” shall not include any federal statute,
law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, or other requirement or rule of law
that prohibits any commercial cannabis activity that is permitted under California law.


 


“Articles
of Organization” has the meaning set forth in the Recitals.


 


“BBA”
has the meaning set forth in Section 11.04(a).


 


“BBA
Procedures” has the meaning set forth in Section 11.04(c).


 




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“Book
Depreciation” means, with respect to any Company asset for each Fiscal Year, the Company’s depreciation, amortization,
or other cost recovery deductions determined for federal income tax purposes, except that if the Book Value of an asset differs from
its adjusted tax basis at the beginning of such Fiscal Year, Book Depreciation shall be an amount which bears the same ratio to such
beginning Book Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears
to such beginning adjusted tax basis; provided, that if the adjusted basis for federal income tax purposes of an asset at the beginning
of such Fiscal Year is zero and the Book Value of the asset is positive, Book Depreciation shall be determined with reference to such
beginning Book Value using any permitted method selected by the Manager in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3).


 


“Book
Value” means, with respect to any Company asset, the adjusted basis of such asset for federal income tax purposes, except as
follows:


 


(a)
the initial Book Value of any Company asset contributed by a Member to the Company shall be the gross Fair Market Value of such Company
asset as of the date of such contribution;


 


(b)
immediately before the distribution by the Company of any Company asset to a Member, the Book Value of such asset shall be adjusted to
its gross Fair Market Value as of the date of such distribution;


 


(c)
the Book Value of all Company assets may, in the sole discretion of the Manager, be adjusted to equal their respective gross Fair Market
Values, as reasonably determined by the Manager, as of the following times:


 


(i)
the acquisition of an additional Membership Interest in the Company by a new or existing Member in consideration 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 property (other than cash) as consideration for
all or a part of such Member’s Membership Interest in the Company; and


 


(iii)
the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g);


 


(d)
the Book Value of each Company asset shall be increased or decreased, as the case may be, to reflect any adjustments to the adjusted
tax basis of such Company asset pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Account balances pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m); provided,
that Book Values shall not be adjusted pursuant to this paragraph (d) to the extent that an adjustment pursuant to paragraph (c) above
is made in conjunction with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d); and


 




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(e)
if the Book Value of a Company asset has been determined pursuant to paragraph (a) or adjusted pursuant to paragraphs (c) or (d) above,
such Book Value shall thereafter be adjusted to reflect the Book Depreciation taken into account with respect to such Company asset for
purposes of computing Net Income and Net Losses.


 


“Business
Day” means a day other than a Saturday, Sunday, or other day on which commercial banks in the state of California are authorized
or required to close.


 


“Capital
Account” has the meaning set forth in Section 3.03.


 


“Capital
Contribution” means any Member’s contribution to the capital of the Company in cash and cash equivalents and the Book
Value of any property contributed to the Company by such Member.


 


“Change
of Control” means (a) the sale of all or substantially all of the assets of the Company to an Independent Third Party, (b)
a sale resulting in more than 50% of the Membership Interests of the Company being held by an Independent Third Party, or (c) a merger,
consolidation, recapitalization, or reorganization of the Company with or into an Independent Third Party that results in the inability
of the Members to designate or elect a majority of the managers (or the board of directors (or its equivalent) of the resulting entity
or its parent company).


 


“Code”
means the Internal Revenue Code of 1986, as amended.


 


“Company”
has the meaning set forth in the Preamble.


 


“Company
Minimum Gain” means “partnership minimum gain” as defined in Treasury Regulations Section 1.704-2(b)(2), substituting
the term “Company” for the term “partnership” as the context requires.


 


“Confidential
Information” has the meaning set forth in Section 13.03(a).


 


“Covered
Person” has the meaning set forth in Section 10.01(a).


 


“Divorce”
means any legal proceeding to terminate, dissolve, or separate the Marital Relationship of a Member, and includes an action for annulment,
legal separation, or similar proceeding that involves a judicial division of community or quasi-community property of the Member and
the Member’s Spouse.


 


“Effective
Date” has the meaning set forth in the Preamble.


 




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“Electronic
Transmission” means (a) facsimile telecommunication, (b) email, (c) posting on an electronic message board or network that
the Company has designated for communications (together with a separate notice to the recipient of the posting when the transmission
is given by the Company), or (d) other means of electronic communication where the recipient has consented to the use of the means of
transmission (or, if the transmission is to the Company, the Company has placed in effect reasonable measures to verify that the sender
is the member or manager purporting to send the transmission) and the communication creates a record that is capable of retention, retrieval,
and review and may be rendered into clearly legible tangible form.


 


“Equity
Securities” means any and all Membership Interests of the Company and any securities of the Company convertible into, or exchangeable
or exercisable for, such Membership Interests, and warrants or other rights to acquire such Membership Interests.


 


“Estimated
Tax Amount” of a Member for a Fiscal Year means the Member’s Tax Amount for such Fiscal Year as estimated in good faith
from time to time by the Manager. In making such estimate, the Manager shall take into account amounts shown on Internal Revenue Service
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 the Manager reasonably determines are necessary or appropriate to reflect the estimated operations of the Company for the Fiscal Year.


 


“Excess
Amount” has the meaning set forth in Section 6.02(c).


 


“Excluded
Securities” means Equity Securities issued in connection with (a) a grant to any existing or prospective consultants, employees,
or officers pursuant to any profits interest plan or similar equity-based plans or other compensation agreement, (b) the conversion or
exchange of any securities of the Company into Membership Interests, or the exercise of any warrants or other rights to acquire Membership
Interests, (c) any acquisition by the Company of any equity interests, assets, properties, or business of any Person, (d) any merger,
consolidation, or other business combination involving the Company, (e) the commencement of any Initial Public Offering or any transaction
or series of related transactions involving a Change of Control, (f) an equity split, payment of distributions, or any similar recapitalization,
or (g) any private placement of warrants to purchase Membership Interests to lenders or other institutional investors (excluding the
Members) in any arm’s length transaction providing debt financing to the Company (the “Financing Warrants”),
in each case, approved in accordance with the terms of this Agreement.


 


“Exercise
Period” has the meaning set forth in Section 8.01(c).


 


“Exercising
Member” has the meaning set forth in Section 8.01(d).


 


“Fair
Market Value” of any asset 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 in good faith by the Manager on such factors
as the Manager, in the exercise of its reasonable business judgment, considers relevant.


 




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“Financing
Warrant” has the meaning set forth in the term Excluded Securities.


 


“Fiscal
Year” means the calendar year, unless the Company is required to or elects to have a taxable year other than the calendar year,
in which case Fiscal Year shall be the period that conforms to its taxable year.


 


“GAAP”
means United States generally accepted accounting principles in effect from time to time.


 


“Governmental
Authority” means any federal, state, local, or foreign government or political subdivision thereof, or any agency or instrumentality
of such government or political subdivision, or any self-regulated organization or quasi-governmental authority (to the extent that the
rules, regulations, or orders of such organization or authority have the force of law), or any arbitrator, court, or tribunal of competent
jurisdiction.


 


“Independent
Third Party” means, with respect to any Member, any Person who is not an Affiliate of such Member.


 


“Initial
Member” has the meaning set forth in the term Member, and shall furthermore refer to the parties named on the Members Schedule
at Exhibit A.


 


“Initial
Public Offering” means any underwritten public offering of Membership Interests (or common stock of the Company or a successor
entity on conversion of such Membership Interests) pursuant to a registration statement filed in accordance with the Securities Act.


 


“Issuance
Notice” has the meaning set forth in Section 8.01(b).


 


“Joinder
Agreement” means the joinder agreement in form and substance attached hereto as Exhibit D.


 


“Licenses”
means all required licenses, permits, authorizations, clearances, consents for legal operations necessary to conduct licensed commercial
cannabis retail delivery, distribution, and manufacturing operations at the Company premises, including without limitation, the (i) the
Los Angeles Departments of Cannabis Regulations (“DCR”) temporary approval (“City License”); (ii)
Los Angeles Office of Finance (“Finance”) Business Tax Registration Certificate (“BTRC”) (iii)
City building, fire and other related City permits; (iv) Bureau of Cannabis Control (“BCC”) state retail nonstorefront
delivery and distribution license; (v) California Department of Public Health (“CDPH”) state manufacturing license;
(vi) Metrc credentials; (vii) ownership confirmations; (viii) any required modification requests processing; (ix) California Department
of Tax and Fee Administration (“CDTFA”) and (x) any other such licenses required by a Governmental Agency under Applicable
Laws. The BCC and CDPH are currently being consolidated into one agency, the Department of Cannabis Control (“DCC”),
with new regulations pending.


 




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“Lien”
means any mortgage, pledge, security interest, option, right of first offer, encumbrance, or other restriction or limitation of any
nature whatsoever.


 


“Liquidator”
has the meaning set forth in Section 12.03(a).


 


“Losses”
has the meaning set forth in Section 10.01(b).


 


“Majority
Interest(s)” means approval of the majority of the Membership Interests in the Company.


 


“Manager”
means, initially, Sugarmade, Inc., a California corporation, or such other Person as may be designated or become the Manager pursuant
to the terms of this Agreement. The Manager shall constitute a “manager” (as that term is defined in RULLCA) of the Company.


 


“Marital
Relationship” means a civil union, registered domestic partnership, marriage, or any other similar relationship that is legally
recognized in any jurisdiction.


 


“Member”
means (a) each Person identified on the Members Schedule as of the date hereof as a Member and who has executed this Agreement or
a counterpart thereof (each, an “Initial Member”) and (b) each Person who is hereafter admitted as a Member in accordance
with the terms of this Agreement and RULLCA, in each case so long as such Person is shown on the Company’s books and records as
the owner of Membership Interests. The Members shall constitute “members” (as that term is defined in RULLCA) of the Company.


 


“Member
Nonrecourse Debt” means “partner nonrecourse debt” as defined in Treasury Regulations Section 1.704-2(b)(4), substituting
the term “Company” for the term “partnership” and the term “Member” for the term “partner”
as the context requires.


 


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


 


“Member
Nonrecourse Deduction” means “partner nonrecourse deduction” as defined in Treasury Regulations Section 1.704-2(i),
substituting the term “Member” for the term “partner” as the context requires.


 


“Members
Schedule” has the meaning set forth in Section 3.01.


 


“Membership
Interest(s)” means any interest in the Company owned by a Member, including such Member’s right (a) to its distributive
share of Net Income, Net 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
or RULLCA, and (d) to any and all other benefits to which such Member may be entitled as provided in this Agreement or RULLCA. The Membership
Interest of each Member shall be expressed as a percentage interest and shall be as set forth in the Members Schedule.


 




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“Net
Income” and “Net Loss” mean, for each Fiscal Year or other period specified in this Agreement, an amount
equal to the Company’s taxable income or taxable loss, or particular items thereof, determined in accordance with Code Section
703(a) (where, for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section
703(a)(1) shall be included in taxable income or taxable loss), but with the following adjustments:


 


(a)
any income realized by the Company that is exempt from federal income taxation, as described in Code Section 705(a)(1)(B), shall be added
to such taxable income or taxable loss, notwithstanding that such income is not includable in gross income;


 


(b)
any expenditures of the Company described in Code Section 705(a)(2)(B), including any items treated under Treasury Regulations Section
1.704-1(b)(2)(iv)(I) as items described in Code Section 705(a)(2)(B), shall be subtracted from such taxable income or taxable loss, notwithstanding
that such expenditures are not deductible for federal income tax purposes;


 


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


 


(d)
any items of depreciation, amortization, and other cost recovery deductions with respect to Company property having a Book Value that
differs from its adjusted tax basis shall be computed by reference to the property’s Book Value (as adjusted for Book Depreciation)
in accordance with Treasury Regulations Section 1.704- 1(b)(2)(iv)(g);


 


(e)
if the Book Value of any Company property is adjusted as provided in the definition of Book Value, then the amount of such adjustment
shall be treated as an item of gain or loss and included in the computation of such taxable income or taxable loss; and


 


(f)
to the extent an adjustment to the adjusted tax basis of any Company property pursuant to Code Sections 732(d), 734(b), or 743(b) is
required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis).


 




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“New
Securities” has the meaning set forth in Section 8.01(a).


 


“Non-Exercising
Member” has the meaning set forth in Section 8.01(d).


 


“Nonrecourse
Deductions” has the meaning set forth in Treasury Regulations Section 1.704-2(b).


 


“Nonrecourse
Liability” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).


 


“Offered
Securities” has the meaning set forth in Section 9.03(a).


 


“Offering Member” has the meaning set forth in
Section 9.03(a). 


 


“Offering Member Notice” has the meaning set forth in Section 9.03(b). 


 


“Officers”
has the meaning set forth in Section 7.03.


 


“Over-Allotment
Exercise Period” has the meaning set forth in Section 8.01(d).


 


“Over-Allotment Notice” has the meaning set
forth in Section 8.01(d).


 


“Partnership Representative” has the meaning set forth in Section 11.04(a).


 


“Person”
means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization,
trust, association, or other entity.


 


“Pro
Rata Share” means:


 


(a)
for purposes of Section 3.02, with respect to any non-contributing Member in an Additional Capital Contribution, on any date that an
Additional Contribution is made, a fraction determined by dividing (i) such non-contributing Member’s Membership Interest immediately
before the Additional Capital Contribution by (ii) the sum of (x) such non-contributing Member’s Membership Interest immediately
before the Additional Capital Contribution and (y) the Membership Interest held by all other non-contributing Members immediately before
such Additional Capital Contribution.


 


(b)
for the purposes of Section 8.01, with respect to any Member, a percentage equal to such Member’s Membership Interest immediately
before such issuance of New Securities.


 




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(c)
for the purposes of Section 9.03, with respect to any Purchasing Member, a percentage equal to a fraction determined by dividing (i)
such Purchasing Member’s Membership Interest immediately before such Transfer by (ii) the sum of (x) such Purchasing Member’s
Membership Interest immediately before such Transfer and (y) the Membership Interests held by all other Purchasing Members immediately
before such Transfer.


 


“Prospective
Purchaser” has the meaning set forth in Section 8.01(b).


 


“Purchasing
Member” has the meaning set forth in Section 9.03(c).


 


“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 (1⁄4) in the case of the first calendar quarter of the Fiscal Year, half (1⁄2) in the case of the second calendar
quarter of the Fiscal Year, three-quarters (3⁄4) 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.


 


“Regulatory
Allocations” has the meaning set forth in Section 5.02(e).


 


“Related
Party Agreement” means any agreement, arrangement, or understanding between the Company and any Manager, Member, or Officer
of the Company or any Affiliate of a Manager, Member, or Officer of the Company; in each case, as such agreement may be amended, modified,
supplemented, or restated in accordance with the terms of this Agreement.


 


“Representative”
means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants,
and other agents of such Person.


 


“ROFR
Offer Notice” has the meaning set forth in Section 9.03(c).


 


“ROFR
Offer Notice Period” has the meaning set forth in Section 9.03(c).


 


“RULLCA”
means the California Revised Uniform Limited Liability Company Act, Section 17701.01 et seq. of the California Corporations Code.


 


“Securities
Act” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder,
which shall be in effect at the time.


 


“Shortfall
Amount” has the meaning set forth in Section 6.02(b).


 


“Shortfall
Amount Distribution Date” has the meaning set forth in Section 6.02(b).


 




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“Social
Equity Member” (“SEM”) has the meaning set forth in Los Angeles Municipal Code (“LAMC”) Sections 104.01(a)(45)
and 104.20.


 


“Social
Equity Licensee (“SEL”)” shall refer to the Company and have the meaning set forth in LAMC Sections 104.01(a)(44)
and 104.20.


 


“Spousal
Consent” has the meaning set forth in Section 13.18.


 


“Spouse”
means a spouse, a party to a civil union, a registered domestic partner, a same- sex spouse or partner, or any person in a Marital
Relationship with a Member.


 


“Subsidiary”
means, with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having
the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.


 


“Tax
Advance” has the meaning set forth in Section 6.02(a).


 


“Tax
Amount” of a Member for a Fiscal Year means the product of (a) the Tax Rate for such Fiscal Year and (b) the Adjusted Taxable
Income of the Member for such Fiscal Year with respect to its Membership Interest.


 


“Tax
Distribution Date” has the meaning set forth in Section 6.02(a).


 


“Tax
Matters Member” has the meaning set forth in Section 11.04(a).


 


“Tax
Rate” of a Member, for any period, means the highest effective marginal combined federal, state, and local tax rate applicable
to an individual residing in Los Angeles, California (or, if higher, a corporation doing business in Los Angeles, California), taking
into account (a) the character (for example, long-term or short-term capital gain, ordinary or exempt) of the applicable income and (b)
if applicable the deduction under IRC Section 199A.


 


“Taxing
Authority” has the meaning set forth in Section 6.03(b).


 


“Transfer”
means to, directly or indirectly, sell, transfer, assign, gift, pledge, encumber, hypothecate, or similarly dispose of, either voluntarily
or involuntarily, by operation of law or otherwise, or to enter into any contract, option, or other arrangement or understanding with
respect to the sale, transfer, assignment, gift, pledge, encumbrance, hypothecation, or similar disposition of, any Membership Interests
owned by a Person or any interest (including a beneficial interest or “transferable interest” as defined by Section 17701.02(aa)
of RULLCA) in any Membership Interests owned by a Person. “Transfer” when used as a noun, and “Transferred”
when used to refer to the past tense, shall have correlative meanings. “Transferor” and “Transferee”
mean a Person who makes or receives a Transfer, respectively.


 




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“Treasury
Regulations” means the final or temporary regulations issued by the United States Department of Treasury pursuant to its authority
under the Code, and any successor regulations.


 


“Waived
ROFR Transfer Period” has the meaning set forth in Section 9.03(d).


 


“Withholding
Advances” has the meaning set forth in Section 6.03(b).


 


Section
1.02 Interpretation. 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, Exhibits, and Schedules mean the
Articles and Sections of and Exhibits and Schedules attached to this Agreement, (y) to an agreement, instrument, or other document means
such agreement, instrument, or other document as amended, restated, supplemented, and modified from time to time to the extent permitted
by the provisions thereof, and (z) to a statute or Applicable Law means such statute or Applicable Law 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 and Schedules 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.


 


ARTICLE
II


Organization


 


Section
2.01 Formation.





 


(a)
The Company was formed on___________________, 2021 pursuant to the provisions of RULLCA, upon the filing of the Articles of Organization by the California
Secretary of State.


 


(b)
This Agreement shall constitute the “Operating Agreement” (as that term is used in RULLCA) of the Company. The rights,
powers, duties, obligations, and liabilities of the Members shall be determined pursuant to Applicable Law 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 Applicable Law in the absence of such provision, this Agreement shall, to the extent permitted by Applicable
Law, control.


 


Section
2.02 Name. The name of the Company is SugarRush 5058 LLC or such other name or names as may be designated by the Members pursuant
to Section 7.02(k); provided, that the name shall always contain the words “limited liability company” or the abbreviation
“L.L.C.” or “LLC.” The Manager shall give prompt notice to the Members of any change to the name of the Company.
The Company may conduct business under any assumed or fictitious name required by Applicable Law or otherwise deemed desirable by the
Manager.


 




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Section
2.03 Principal Office. The principal office of the Company is located at 5058 Valley Boulevard, Los Angeles, California, 90032, or
such other place as may from time to time be determined by the Manager. The Manager shall give prompt notice of any such change to each
of the Members.


 


Section
2.04 Office and Agent for Service of Process.


 


(a)
The office for service of process on the Company in the State of California shall be the office of the initial agent named in the Articles
of Organization or such other office (which need not be a place of business of the Company) as the Manager may designate from time to
time in the manner provided by RULLCA and Applicable Law.


 


(b)
The agent for service of process on the Company in the State of California shall be the initial agent named in the Articles of Organization
or such other Person or Persons as the Manager may designate from time to time in the manner provided by RULLCA and Applicable Law.


 


Section
2.05 Purpose; Powers.


 


(a)
The purpose of the Company is to engage in any lawful act or activity for which limited liability companies may be formed under RULLCA
and to engage in any and all activities necessary or incidental thereto, including without limitation obtaining Licenses to operate,
and then operating, a licensed commercial cannabis retail delivery, distribution and manufacturing business in the City under Applicable
Law.


 


(b)
The Company shall have all the powers necessary or convenient to carry out the purposes for which it is formed, including the powers
granted by Applicable Law.


 


Section
2.06 Term. The term of the Company commenced on the date the Articles of Organization were filed with the California Secretary of
State and shall continue in existence perpetually until the Company is dissolved in accordance with the provisions of this Agreement
or as provided by Applicable Law.


 


ARTICLE
III


Capital
Contributions; Capital Accounts


 


Section 3.01 Initial Capital Contributions.


 


(a)
Each Member shall make an initial Capital Contribution as described in Exhibit A attached hereto (“Members Schedule”)
and which the Members each acknowledge, accept and agree constitutes good and valuable consideration. Upon providing the required Capital
Contribution, each Member will be deemed to own a Membership Interest in the amount and as described opposite such Member’s name
on Exhibit A. The Members shall have voting and distribution rights equal to the Member’s Membership Interest in the Company.
The Manager shall update the Members Schedule upon the issuance or Transfer of any Membership Interests to any new or existing Member
in accordance with this Agreement.


 




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(b)
If a Member fails to comply with all or part of a commitment to make a Capital Contribution as set forth in Section 3.01(a) above or
as set forth in the Members Schedule (a “Defaulting Member”) within thirty (30) days after it is required to be made
(a “Capital Shortfall”), the Defaulting Member shall have an additional five (5) days (the “Cure Period”)
in which to contribute the Capital Shortfall. If the Defaulting Member fails to contribute the Capital Shortfall prior to the end of
the Cure Period, the Defaulting Member shall be deemed dissociated and its Membership Interest and Profit Interest shall be deemed to
be zero (0). A Defaulting Member shall not receive distributions, profits or payments pursuant to Article VI or Article XII. A Defaulting
Member shall have no rights to receive any interests, distributions, profits, or payments arising from or related to any cannabis licenses
or permits held by the Company upon dissolution, sale, merger, or reorganization of the Company, or sale of assets of the Company. Without
limiting the other remedies available to the Company and the non-Defaulting Members, a Defaulting Member will have no further right or
power to vote its Membership Interest until such default is cured to the reasonable satisfaction of the non- Defaulting Members holding
more than fifty percent (50%) of the Membership Interest (excluding the Membership Interest of the Defaulting Member), and the Manager
may further impose any or all of the following remedies in its discretion against a Defaulting Member: (i) charging an additional amount
on the unpaid balance of any such Capital Contribution or other payments at a rate equal to 12% per annum from the date such balance
was due and payable through the date full payment for such balance is actually made and/or (ii) imposing any other remedies available
at law.


 


Section
3.02 Additional Capital Contributions. No Member shall be required to make any additional Capital Contributions to the Company. However,
a Member may make an additional Capital Contribution (an “Additional Capital Contribution”) at any time with the written
consent of the Members holding a majority of the Membership Interest and in compliance with Section 8.01 and Section 9.01(b). To the
extent that a Member makes such an approved Additional Capital Contribution to the Company, the Manager shall revise the Members Schedule
to reflect an increase in the Membership Interest of the contributing Member, and the corresponding Pro Rata Share of the decrease in
the Membership Interest of each non- contributing Member, that fairly and equitably reflects the value of the contributing Member’s
Additional Capital Contribution in relation to the aggregate amount of all Capital Contributions made by the Members.


 


Section
3.03 Maintenance of Capital Accounts. The Company shall establish and maintain for each Member a separate capital account (a “Capital
Account”) on its books and records in accordance with this Section 3.03. Each Capital Account shall be established and maintained
in accordance with the following provisions:


 




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(a)
Each Member’s Capital Account shall be increased by the amount of:


 


(i)
such Member’s Capital Contributions, including such Member’s initial Capital Contribution and any Additional Capital Contributions;


 


(ii)
any Net Income or other item of income or gain allocated to such Member pursuant to ARTICLE V; and


 


(iii)
any liabilities of the Company that are assumed by such Member or secured by any property distributed to such Member.


 


(b)
Each Member’s Capital Account shall be decreased by:


 


(i)
the cash amount or Book Value of any property distributed to such Member pursuant to ARTICLE VI and Section 12.03(d);


 


(ii)
the amount of any Net Loss or other item of loss or deduction allocated to such Member pursuant to ARTICLE V; and


 


(iii)
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.


 


Section
3.04 Succession Upon Transfer. If 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, subject
to Section 5.04, shall receive allocations and distributions pursuant to ARTICLE V, ARTICLE VI, and ARTICLE XII in respect of such Membership
Interests.


 


Section
3.05 Negative Capital Accounts. If 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.


 


Section
3.06 No Withdrawals from Capital Accounts. No Member shall be entitled to withdraw any part of its Capital Account or to receive
any distribution from the Company, except as otherwise provided in this Agreement. No Member, including the Manager, shall receive any
interest, salary, or drawing with respect to its Capital Contributions or its Capital Account, except as otherwise provided in this Agreement.
The Capital Accounts are maintained for the sole purpose of allocating items of income, gain, loss, and deduction among the Members and
shall have no effect on the amount of any distributions to any Members, in liquidation or otherwise.


 




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Section
3.07 Treatment of Loans from Members. 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, other than to the extent provided in Section 3.03(a)(iii), if applicable.


 


Section
3.08 Modifications. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts
are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with
such Treasury Regulations. If the Manager determines that it is prudent to modify the manner in which the Capital Accounts, or any increases
or decreases to the Capital Accounts, are computed to comply with such Treasury Regulations, the Manager may authorize such modifications.


 


ARTICLE
IV


Members


 


Section
4.01 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 7.02(a), ARTICLE VIII, and Section 9.01(b), and (ii) in connection with a Transfer of Membership
Interests, subject to compliance with the provisions of ARTICLE IX, and in either case, following compliance with the provisions of Section
4.01(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 delivered to the Company (i) an executed written undertaking substantially in the form of
the Joinder Agreement and (ii) if such Person is a natural person who has a Spouse, an executed written undertaking substantially in
the form of the Spousal Consent. Upon the amendment of the Members Schedule by the Manager and the satisfaction of all other applicable
conditions, including, if a condition, 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. The Manager shall also adjust the Capital
Accounts of the Members as necessary in accordance with Section 3.03.


 


Section
4.02 No Personal Liability. Except as otherwise provided by RULLCA, by Applicable Law, or expressly in this Agreement, no Member
will be obligated personally for any debt, obligation, or liability of the Company or other Members, whether arising in contract, tort,
or otherwise, solely by reason of being or acting as a Member. Except as otherwise provided by RULLCA, by Applicable Law, or expressly
in this Agreement, no Manager will be obligated personally for any debt, obligation, or liability of the Company, whether arising in
contract, tort, or otherwise, solely by reason of being or acting as a Manager.


 




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Section
4.03 Dissociation. No Member shall have the ability to voluntarily dissociate or withdraw as a Member pursuant to Section 17706.01(a)
or Section 17706.02(a) of RULLCA, or otherwise, before the dissolution and winding up of the Company and any such dissociation or withdrawal
or attempted dissociation or withdrawal by a Member before the dissolution or winding up of the Company shall be null and void. As soon
as any Person who is a Member ceases to hold any Membership Interests, such Person shall no longer be a Member.


 


Section
4.04 No Interest in Company Property. No real or personal property of the Company shall be deemed to be owned by any Member individually,
but shall be owned by, and title shall be vested solely in, the Company.


 


Section
4.05 Certification of Membership Interests.


 


(a)
The Manager may, but shall not be required to, issue certificates to each Member representing the Membership Interests held by such Member.
The Manager shall record or cause to be recorded all issuances, exchanges, and other transactions in Membership Interests involving the
Members in a ledger maintained as part of the books and records of the Company.


 


(b)
If the Manager shall issue certificates representing Membership Interests in accordance with Section 4.05(a), then in addition to any
other legend required by Applicable Law, all certificates representing issued and outstanding Membership Interests shall bear a legend
substantially in the following form:


 


THE
MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPERATING AGREEMENT AMONG THE COMPANY AND ITS MEMBERS, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. NO TRANSFER, SALE, OFFER, ASSIGNMENT, GIFT, PLEDGE, ENCUMBRANCE, HYPOTHECATION,
OR OTHER DISPOSITION OF THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS
OF SUCH OPERATING AGREEMENT. THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, OFFERED, ASSIGNED, GIFTED, PLEDGED,
ENCUMBERED, HYPOTHECATED, OR OTHERWISE DISPOSED EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT EFFECTIVE UNDER SUCH ACT AND LAWS, OR
(B) AN EXEMPTION FROM REGISTRATION THEREUNDER.


 


Section
4.06 Meetings.


 


(a)
Meetings of the Members may be called by (i) the Manager or (ii) a Member or group of Members holding more than ten percent (10%) of
the Membership Interests.


 




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(b)
Written notice stating the place, date, and time of the meeting, the means of electronic video screen communication or Electronic Transmission
by and to the Company, if any, and the general nature of the business to be transacted at the meeting, shall be delivered not fewer than
ten (10) days and not more than sixty (60) days before the date of the meeting to each Member, by or at the direction of the Manager
or the Member(s) calling the meeting, as the case may be. The business to be conducted at such meeting shall be limited to the purposes
described in the notice. The Members may hold meetings at the Company’s principal office or at such other place, within or outside
the State of California, as the Manager or the Member(s) calling the meeting may designate in the notice for such meeting.


 


(c)
Any Member may participate in a meeting of the Members (i) using conference telephone or electronic video screen communication, if all
Persons participating in the meeting can talk to and hear each other or (ii) by Electronic Transmission by and to the Company if the
Company (1) implements reasonable measures to provide Members, in person or by proxy, a reasonable opportunity to participate and vote,
including an opportunity to read or hear the meeting’s proceedings substantially concurrently with the proceedings and (2) maintains
a record of votes or other action taken by the Members. Participation in a meeting by such means shall constitute presence in person
at such meeting.


 


(d)
On any matter that is to be voted on by the Members, a Member may vote in person or by proxy, and such proxy may be granted in writing
signed by such Member, using Electronic Transmission authorized by such Member, or as otherwise permitted by Applicable Law. Every proxy
shall be revocable in the discretion of the Member executing it unless otherwise provided in such proxy; provided, that such right to
revocation shall not invalidate or otherwise affect actions taken under such proxy before such revocation.


 


(e)
Attendance of a Member at any meeting in person or by proxy shall constitute a waiver of notice of such meeting. Attendance of a Member
at a meeting is not a waiver of the Member’s right to object to consideration of matters required to be described in the notice
for the meeting if the Member expressly objects to such consideration at the meeting.


 


(f)
A quorum of any meeting of the Members shall require the presence, whether in person or by proxy, of the Members holding a majority of
the Membership Interests. Subject to Section 4.07, no action may be taken by the Members unless the appropriate quorum is present at
a meeting.


 


(g)
Subject to Section 4.07, Section 7.02, Section 13.10, and any other provision of this Agreement, RULLCA or Applicable Law requiring the
vote, consent, or approval of a different percentage of the Membership Interests, no action may be taken by the Members at any meeting
at which a quorum is present without the affirmative vote of the Members holding a majority of the Membership Interests.


 


Section
4.07 Action Without a Meeting.


 


(a)
Notwithstanding the provisions of Section 4.06, any matter that is to be voted on, consented to, or approved by the Members may be taken
without a meeting if a written consent is signed and delivered (including by Electronic Transmission) to the Company within sixty (60)
days of the record date for that action by a Member or the Members having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all Members entitled to vote were present and voted. A record shall be maintained
by the Manager of each such action taken by written consent of a Member or the Members.


 




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(b)
Unless the consents of all Members entitled to vote have been solicited in writing, (i) the Manager shall give notice of any amendment
to the articles of organization or this Agreement or a dissolution or merger of the Company approved by the Members without a meeting
by less than unanimous written consent, at least ten (10) days before the consummation of such action, and (ii) the Manager shall give
prompt notice of the taking of any other action approved by the Members without a meeting by less than unanimous written consent, to
those Members entitled to vote who have not consented in writing.


 


ARTICLE
V


Allocations


 


Section
5.01 Allocation of Net Income and Net Loss. For each Fiscal Year (or portion thereof), after giving effect to the special allocations
set forth in Section 5.02, Net Income and Net Loss of the Company shall be allocated among the Members pro rata in accordance with their
Membership Interests.


 


Section
5.02 Regulatory and Special Allocations. Notwithstanding the provisions of Section 5.01:


 


(a)
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 Net Income 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 5.02 is intended to comply with the “minimum gain chargeback” requirement in Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.


 


(b)
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 Nonrecourse Debt Minimum Gain during any
Fiscal Year, each Member that has a share of such Member Nonrecourse Debt Minimum Gain shall be specially allocated Net Income 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
Nonrecourse Debt 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 5.02(b) 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.


 




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(c)
Nonrecourse Deductions shall be allocated to the Members in accordance with their Membership Interests.


 


(d)
In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5), or (6), Net Income shall be specially allocated to such Member in an amount and manner sufficient to eliminate
the Adjusted Capital Account Deficit created by such adjustments, allocations, or distributions as quickly as possible. This Section
5.02(d) 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.


 


(e)
The allocations set forth in paragraphs Section 5.02(a), Section 5.02(b), Section 5.02(c), and Section 5.02(d) above (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 V (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating Net Income and Net Losses among Members so that, to the extent possible, the net amount of such allocations of Net Income
and Net 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.


 


Section
5.03 Tax Allocations.


 


(a)
Subject to Section 5.03(b), Section 5.03(c), and Section 5.03(d), 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 5.01 and Section 5.02, 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 5.01 and Section 5.02.


 


(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 Book Value.


 


(c)
If the Book Value of any Company asset is adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) as provided in clause
(c) of the definition of Book Value, 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 Book Value
in the same manner as under Code Section 704(c).


 




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(d)
Allocations of tax credit, tax credit recapture, and any items related thereto shall be allocated to the Members according to their interests
in such items as determined by the Manager taking into account the principles of Treasury Regulations Section 1.704-1(b)(4)(ii).


 


(e)
Allocations pursuant to this Section 5.03 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 Net Income, Net Losses, distributions, or other
items pursuant to any provisions of this Agreement.


 


Section
5.04 Allocations in Respect of Transferred Membership Interests. In the event of a Transfer of Membership Interests during any Fiscal
Year made in compliance with the provisions of ARTICLE IX, Net Income, Net Losses, and other items of income, gain, loss, and deduction
of the Company attributable to such Membership Interests for such Fiscal Year shall be determined using the interim closing of the books
method.


 


ARTICLE
VI


Distributions


 


Section
6.01 General.


 


(a)
Subject to Section 6.02, distributions of available profits shall be made to the Members when and in such amounts as determined by the
Manager with the written consent of the Majority Interest; except that distributions made to the SEM pursuant to the Incentive Payment
Schedule (attached hereto as “Exhibit B”) shall be deducted from the SEM’s future profit distributions made hereunder.
Subject to the foregoing, after making all distributions required for a given Fiscal Year under Section 6.02, distributions determined
to be made by the Manager pursuant to this Section 6.01(a) shall be paid to the Members in accordance with their respective Membership
Interests.


 


(b)
Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any distribution to Members if
such distribution would violate Section 17704.05 of RULLCA or other Applicable Law.


 


Section
6.02 Tax Advances.


 


(a)
Subject to Section 6.01(b) and any restrictions in the Company’s then applicable debt-financing arrangements, and subject to the
Manager’s determination 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 entity to pay quarterly installments of estimated tax (a “Tax Distribution
Date”), 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
Advance”).


 




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(b)
If, at any time after the final Quarterly Estimated Tax Amount has been distributed pursuant to Section 6.02(a) with respect to any Fiscal
Year, the aggregate Tax Advances to any Member with respect to such Fiscal Year are less than such Member’s Tax Amount for such
Fiscal Year (a “Shortfall Amount”), then the Company shall use commercially reasonable efforts to distribute cash
in proportion to and to the extent of each Member’s Shortfall Amount. The Company shall use commercially reasonable efforts to
distribute Shortfall Amounts with respect to a Fiscal Year before the 75th day of the next succeeding Fiscal Year (the date of any such
distribution, a “Shortfall Amount Distribution Date”); provided, that if the Company has made distributions other
than pursuant to this Section 6.02, the Manager may apply such distributions to reduce any Shortfall Amount.


 


(c)
If the aggregate Tax Advances made to any Member pursuant to this Section 6.02 for any Fiscal Year exceed such Member’s Tax Amount
(an “Excess Amount”), such Excess Amount shall reduce subsequent Tax Advances that would be made to such Member pursuant
to this Section 6.02, except to the extent taken into account as an advance pursuant to Section 6.02(d).


 


(d)
Any distributions made pursuant to this Section 6.02 shall be treated for purposes of this Agreement as advances on distributions pursuant
to Section 6.01 and shall reduce, dollar-for-dollar, the amount otherwise distributable to such Member pursuant to Section 6.01.


 


Section
6.03 Tax Withholding; Withholding Advances.


 


(a)
Tax Withholding. Each Member agrees to furnish the Company with any representations and forms as shall be reasonably requested
by the Company to assist it in determining the extent of, and in fulfilling, any withholding obligations it may have.


 


(b)
Withholding Advances. The Company is hereby authorized at all times to make payments (“Withholding Advances”)
with respect to each Member in amounts required to discharge any obligation of the Company (as determined by the Tax Matters Member or
Partnership Representative) based on the advice of legal or tax counsel to the Company to withhold or make payments to any federal, state,
local, or foreign taxing authority (a “Taxing Authority”) with respect to any distribution or allocation by the Company
of income or gain to such Member and to withhold the same from distributions to such Member. Any funds withheld from a distribution by
reason of this Section 6.03(b) shall nonetheless be deemed distributed to the Member in question for all purposes under this Agreement.
If the Company makes any Withholding Advance in respect of a Member hereunder that is not immediately withheld from actual distributions
to the Member, then the Member shall promptly reimburse the Company for the amount of such payment, plus interest at a rate equal to
the prime rate published in the Wall Street Journal on the date of payment plus two percent (2%) per annum, compounded annually, on such
amount from the date of such payment until such amount is repaid (or deducted from a distribution) by the Member (any such payment shall
not constitute a Capital Contribution). Each Member’s reimbursement obligation under this Section 6.03(b) shall continue after
such Member transfers its Membership Interests.


 




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(c)
Indemnification. Each Member hereby agrees to indemnify and hold harmless the Company and the other Members from and against any
liability with respect to the taxes, interest, or penalties that may be asserted by reason of the Company’s failure to deduct and
withhold tax on amounts distributable or allocable to such Member. The provision of this Section 6.03(c) and the obligations of a Member
pursuant to Section 6.03(b) shall survive the termination, dissolution, liquidation, and winding up of the Company and the dissociation
or withdrawal of such Member from the Company or the Transfer of its Membership Interests. The Company may pursue and enforce all rights
and remedies it may have against each Member under this Section 6.03, including bringing a lawsuit to collect repayment with interest
of any Withholding Advances.


 


(d)
Over withholding. The Company shall not be liable for any excess taxes withheld in respect of any distribution or allocation of
income or gain to a Member. In the event of an over withholding, a Member’s sole recourse shall be to apply for a refund from the
appropriate Taxing Authority.


 


Section
6.04 Distributions in Kind.


 


(a)
Subject to Section 6.01(a), above, the Manager is hereby authorized, if approved in writing by the Majority Interest, to make distributions
to the Members in the form of securities or other property held by the Company; provided that Tax Advances shall only be made in cash.
In any non-cash distribution, the securities or property so distributed will be distributed among the Members in the same proportion
and priority as cash equal to the Fair Market Value of such securities or property would be distributed among the Members pursuant to
Section 6.01.


 


(b)
Any distribution of securities shall be subject to such conditions and restrictions as the Manager determines are required or advisable
to ensure compliance with Applicable Law. In furtherance of the foregoing, the Manager may require that the Members execute and deliver
such documents as the Manager may deem necessary or appropriate to ensure compliance with all federal and state securities laws that
apply to such distribution and any further Transfer of the distributed securities and may appropriately legend the certificates that
represent such securities to reflect any restriction on Transfer with respect to such laws.


 




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ARTICLE
VII


Management


 


Section
7.01 Management of the Company. The Company shall be manager-managed by the Manager. Subject to the provisions of Section 7.02 and
except as otherwise provided by RULLCA, Applicable Law or this Agreement, the Manager shall have full and complete discretion to manage
and control the routine business, compliance, property, activities, and affairs of the Company, to make all decisions affecting the business,
property, activities, and affairs of the Company, and to take all such actions as it deems necessary or appropriate to accomplish the
purposes of the Company set forth in Section 2.05. The actions of the Manager taken in accordance with the provisions of this Agreement
shall bind the Company. No other Person, including any Member of the Company, shall have any authority or right to act on behalf of or
bind the Company, unless otherwise provided herein or unless specifically authorized by the Manager pursuant to a resolution expressly
authorizing such action which resolution is duly adopted by the Manager.


 


Section
7.02 Actions Requiring Approval of Members. Without the written consent of the Majority Interest, the Company (or the Manager on
behalf of the Company) shall not take any of the following actions (and shall not enter into any commitment to take any of the following
actions):


 


(a)
make any distributions to Members under Article 6, above;


 


(b)
the sale of any issued and outstanding Membership Interests of the Company;


 


(c)
issue additional Membership Interests, Equity Securities, or other securities or, except in connection with a Transfer of Membership
Interests that complies with the applicable provisions of ARTICLE IX and Section 4.01(b), admit additional Members to the Company;


 


(d)
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 in excess of five thousand dollars ($5,000) in a single transaction or series of related transactions,
or in excess of ten thousand dollars ($10,000) in the aggregate at any time outstanding;


 


(e)
make any loan or advance to, investment or a Capital Contribution in, any Person, in excess of five thousand dollars ($5,000);


 


(f)
Appoint, remove and determine compensation for the Manager or any Officers;


 


(g)
appoint or remove the Company’s auditors or make any changes in the accounting methods or policies of the Company, including changing
the income tax election designations under Section 11.03, below (other than as required by GAAP);


 


(h)
enter into, amend, waive, or terminate any Related Party Agreement, other than those reasonably related to the Company’s ordinary
course of business or past practice, including supply, non-disclosure and intellectual property licensing agreements, all of which may
be ratified by an annual omnibus resolution of the Members;


 




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(i)
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 assets or equity interests
of any Person, other than in the ordinary course of business consistent with past practice;


 


(j)
enter into or effect any transaction or series of related transactions involving the sale, lease, license, exchange, or other disposition
(including by merger, consolidation, sale of stock, or sale of assets) by the Company of any assets or equity interests, other than sales
of inventory in the ordinary course of business consistent with past practice;


 


(k)
establish a Subsidiary or enter into any joint venture or similar business arrangement;


 


(l)
settle any lawsuit, action, dispute, or other proceeding or otherwise assume any liability with a value in excess of five thousand dollars
($5,000);


 


(m)
initiate or consummate an Initial Public Offering, Qualified Public Offering, or any other public offering and sale of the Membership
Interests, Equity Securities, or any other securities; or


 


(n)
change the Company’s name; provided that the name shall always contain the words “limited liability company” or the
abbreviation “L.L.C.” or “LLC.”


 


Section
7.03 Officers. The Majority Interests may appoint individuals as officers of the Company (the “Officers”) as the
Majority Interests deem necessary or desirable to carry on the business of the Company and may delegate to such Officers such power and
authority as the Majority Interests deem advisable. No Officer need be a Member of the Company. Any individual may hold two or more offices
of the Company. Each Officer shall hold office until his or her successor is designated by the Manager or Majority Interests or until
his or her earlier death, resignation, or removal. Any Officer may resign at any time on written notice to the Majority Interests. Any
Officer may be removed by the Majority Interests with or without cause at any time. A vacancy in any office occurring because of death,
resignation, removal, or otherwise, may, but need not, be filled by the Majority Interests.


 


Section
7.04 Compensation and Reimbursement of Manager. The Manager may be compensated for its services as the Manager upon written approval
of the Majority Interests and the Company shall reimburse the Manager for all ordinary, necessary, and direct expenses incurred by the
Manager on behalf of the Company in carrying out the Company’s business activities, including, without limitation, salaries of
Officers and employees of the Manager who are carrying out the Company’s business activities. All reimbursements for expenses shall
be reasonable in amount.


 




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Section
7.05 Removal of Manager. The Manager may be removed or replaced at any time, with or without cause, by the Majority Interest. Following
such removal or replacement, a successor Manager shall be elected by the Majority Interest. The removal of the Manager shall not affect
its rights as a Member, if applicable, and shall not constitute a dissociation of such Member, if applicable. The Membership Interest
of the Manager (if any) shall be counted to determine if the required majority vote is achieved.


 


Section
7.06 Resignation of Manager. The Manager may resign at any time by giving thirty (30) days’ written notice to the Company.
Any such resignation shall be effective on receipt thereof unless it is specified to be effective at some other time or on the occurrence
of some other event. The Company’s acceptance of a resignation shall not be necessary to make it effective. The resignation of
the Manager shall not affect its rights as a Member, if any, and shall not constitute a dissociation of such Member.


 


Section
7.07 No Personal Liability. Except as otherwise provided in RULLCA, by Applicable Law, or expressly in this Agreement, the Manager
will not be obligated personally for any debt, obligation, or liability of the Company, whether arising in contract, tort, or otherwise,
solely by reason of being or acting as a Manager.


 


ARTICLE
VIII


Pre-Emptive
Rights


 


Section 8.01 Pre-Emptive Rights.


 


(a)
Issuance of Additional Equity Securities. The Company hereby grants each Member the right to purchase its Pro Rata Share of any
new Equity Securities (other than any Excluded Securities) (the “New Securities”) that the Company may from time to
time propose to issue or sell to any party.


 


(b)
Additional Issuance Notices. The Company shall give written notice (an “Issuance Notice”) of any proposed issuance
or sale described in Section 8.01(a) to the Members within ten (10) days following approval of any such issuance or sale by the Members
in accordance with Section 7.02(a). The Issuance Notice shall, if applicable, be accompanied by a written offer from any prospective
purchaser seeking to purchase New Securities (a “Prospective Purchaser”) and shall set forth the material terms and
conditions of the proposed issuance, including:


 


(i)
the number and description of the New Securities proposed to be issued and the Membership Interest in the Company such issuance would
represent;


 


(ii)
the proposed issuance date, which shall be at least twenty (20) days from the date of the Issuance Notice;


 


(iii)
the proposed purchase price per unit of the New Securities; and


 




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(iv)
if the consideration to be paid by the Prospective Purchaser includes non-cash consideration, the Manager’s good-faith determination
of the Fair Market Value thereof.


 


The
Issuance Notice shall also be accompanied by a current copy of the Members Schedule indicating the Members’ Membership Interests
in a manner that enables each Member to calculate its Pro Rata Share of any New Securities.


 


(c) Exercise
of Pre-Emptive Rights. Each Member shall for a period of ten (10) days following the receipt of an Issuance Notice (the
“Exercise Period”) have the right to elect irrevocably to purchase its Pro Rata Share of the New Securities at
the purchase price determined in accordance with the Issuance Notice by delivering a written notice to the Company (an
“Acceptance Notice”). The delivery of an Acceptance Notice by a Member shall be a binding and irrevocable offer
by such Member to purchase the New Securities described therein. The failure of a Member to deliver an Acceptance Notice by the end
of the Exercise Period shall constitute a waiver of its rights under this Section 8.01 with respect to the purchase of such New
Securities but shall not affect its rights with respect to any future issuances or sales of New Securities.


 


(d)
Over-Allotment. No later than ten (10) days following the expiration of the Exercise Period, the Company shall notify each Member
in writing of the number of New Securities that each Member has agreed to purchase (including, for the avoidance of doubt, where such
number is zero) (the “Over-Allotment Notice”). Each Member exercising its right to purchase its Pro Rata Share of
the New Securities in full (an “Exercising Member”) shall have a right of over-allotment such that if any other Member
fails to exercise its rights under this Section 8.01 to purchase its Pro Rata Share of the New Securities (each, a “Non-Exercising
Member”), such Exercising Member may purchase its Pro Rata Share of such Non-Exercising Member’s allotment by giving
written notice to the Company within five (5) days of receipt of the Over-Allotment Notice (the “Over-Allotment Exercise Period”).


 


(e)
Sales to the Prospective Purchaser. Following the expiration of the Exercise Period and, if applicable, the Over-Allotment Exercise
Period, the Company shall be free to complete the proposed issuance or sale of New Securities described in the Issuance Notice with respect
to which Members declined to exercise the pre-emptive right set forth in this Section 8.01 on terms no less favorable to the Company
than those set forth in the Issuance Notice (except that the amount of New Securities to be issued or sold by the Company to the Prospective
Purchaser must be reduced by the amount of New Securities that Exercising Members exercised their right to purchase pursuant to this
Section 8.01); provided, that (i) such issuance or sale is closed within twenty (20) days after the expiration of the Over-Allotment
Exercise Period subject to the extension of such twenty (20) day period for a reasonable time not to exceed twenty (20) days to the extent
reasonably necessary to obtain any third-party approvals and (ii) for the avoidance of doubt, the price at which the New Securities are
sold to the Prospective Purchaser is at least equal to or higher than the purchase price described in the respective Issuance Notice.
In the event the Company has not sold such New Securities within such time, the Company shall not thereafter issue or sell any New Securities
without first again offering such securities to the Members in accordance with the procedures set forth in this Section 8.01.


 




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(f)
Closing of the Issuance. The closing of any purchase by any Exercising Member shall, if applicable, be consummated concurrently
with the consummation of the issuance or sale described in the Issuance Notice or, if all of the New Securities are being issued to Exercising
Members, as soon as is commercially reasonable following the expiration of the Over-Allotment Exercise Period. Upon the issuance or sale
of any New Securities in accordance with this Section 8.01, the Company shall deliver the New Securities free and clear of any Liens
(other than those arising hereunder, those that may arise under the Securities Act and other Applicable Laws, and those attributable
to the actions of the purchasers thereof), and the Company shall so represent and warrant to the purchasers thereof, and further represent
and warrant to such purchasers that such New Securities shall be, upon issuance thereof to the Exercising Members and after payment therefor,
duly authorized, validly issued, fully paid, and non-assessable. The Company, in the discretion of the Manager pursuant to Section 4.05(a),
may deliver to each Exercising Member certificates evidencing the New Securities. Each Exercising Member shall deliver to the Company
the purchase price for the New Securities purchased by it by certified or bank check or wire transfer of immediately available funds.
Each party to the purchase and sale of New Securities shall take all such other actions as may be reasonably necessary to consummate
the purchase and sale, including, without limitation, entering into such additional agreements as may be necessary or appropriate.


 


ARTICLE
IX


Transfer


 


Section
9.01 General Restrictions on Transfer.


 


(a)
Except as permitted pursuant to Section 9.02 or in accordance with the procedures set forth in Section 9.03, no Member shall Transfer
all or any portion of its Membership Interest in the Company except with the written consent of the Majority Interest. No Transfer of
Membership Interests to a Person not already a Member of the Company shall be deemed completed until the prospective Transferee is admitted
as a Member of the Company in accordance with Section 4.01(b) hereof.


 


(b)
Notwithstanding any other provision of this Agreement (including Section 9.02), each Member agrees that it will not Transfer all or any
portion of its Membership Interest in the Company, and the Company agrees that it shall not issue any Membership Interests:


 


(i)
except as permitted under the Securities Act and other applicable federal or state securities or blue sky laws, and then, with respect
to a Transfer of Membership Interests, only upon delivery to the Company of an opinion of counsel in form and substance satisfactory
to the Company to the effect that such Transfer may be effected without registration under the Securities Act;


 




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(ii)
if such Transfer or issuance would cause the Company to be considered a “publicly traded partnership” under Section 7704(b)
of the Code within the meaning of Treasury Regulations Section 1.7704-1(h)(1)(ii), including the look-through rule in Treasury Regulations
Section 1.7704-1(h)(3);


 


(iii)
if such Transfer or issuance would affect the Company’s existence or qualification as a limited liability company under RULLCA;


 


(iv)
if such Transfer or issuance would cause the Company to lose its status as a partnership for federal income tax purposes;


 


(v)
if such Transfer or issuance would cause the Company to be required to register as an investment company under the Investment Company
Act of 1940, as amended;


 


(vi)
if such Transfer or issuance would cause the Company to lose any of the Licenses, or would otherwise materially impair the Company’s
compliance with Applicable Law; or


 


(vii)
if such Transfer or issuance would cause the assets of the Company to be deemed “Plan Assets” as defined under the Employee
Retirement Income Security Act of 1974 or its accompanying regulations or result in any “prohibited transaction” thereunder
involving the Company.


 


(c)
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 to be treated) as the owner of such Membership Interest for all purposes of this Agreement.


 


(d)
For the avoidance of doubt, any Transfer of a Membership Interest permitted by this Agreement shall be deemed a sale, transfer, assignment,
or other disposal of such Membership Interest in its entirety as intended by the parties to such Transfer, and shall not be deemed a
sale, transfer, assignment, or other disposal of any less than all of the rights and benefits described in the definition of the term
“Membership Interest,” unless otherwise explicitly agreed to in writing by the Majority Interests.


 


Section
9.02 Right of First Refusal.


 


(a)
Right of First Refusal. At all times, and subject to the terms and conditions specified in these Sections 9.01 and 9.02, each
Member shall have a right of first refusal if any other Member (the “Offering Member”) receives a bona fide offer
from an Independent Third Party that (i) complies with Section 9.01, and (ii) that the Offering Member desires to accept to purchase
all or any portion of the Equity Securities owned by the Offering Member (the “Offered Securities”). Each time the
Offering Member receives an offer for any of its Equity Securities, the Offering Member shall first make an offering of the Offered Securities
to the other Members in accordance with the following provisions of this Section 9.03 before the Transfer of such Offered Securities
to the Independent Third Party.


 




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(b)
Offer Notice.


 


(i)
The Offering Member shall, within five (5) days of receipt of the offer from the Independent Third Party, give written notice (the “Offering
Member Notice”) to the Company and the other Members stating that it has received a bona fide offer from an Independent Third
Party and specifying (a) the number of Offered Securities to be sold by the Offering Member, (b) the name of the Person who has offered
to purchase such Offered Securities, (c) the purchase price and the other material terms and conditions of the Transfer, including a
description of any non-cash consideration in sufficient detail to permit the valuation thereof, and (d) the proposed date, time, and
location of the closing of the Transfer, which shall not be less than thirty (30) days from the date of the Offering Member Notice.


 


(ii)
The Offering Member Notice shall constitute the Offering Member’s offer to Transfer the Offered Securities to the other Members,
which offer shall be irrevocable until the end of the ROFR Offer Notice Period.


 


(iii)
By delivering the Offering Member Notice, the Offering Member represents and warrants to the Company and each other Member that (a)
the Offering Member has full right, title, and interest in and to the Offered Securities, (b) the Offering Member has all the
necessary power and authority and has taken all necessary action to sell such Offered Securities as contemplated by this Section
9.02, and (c) the Offered Securities are free and clear of any and all Liens (other than those arising hereunder, those that may
arise under the Securities Act and other applicable federal or state securities or blue sky laws, and those attributable to actions
of the purchasers thereof).


 


(c)
Exercise of the ROFR.


 


(i)
Upon receipt of the Offering Member Notice, each Member shall have ten (10) business days (the “ROFR Offer Notice Period”)
to elect to purchase all (but not less than all) of the Offered Securities by delivering a written notice (a “ROFR Offer Notice”)
to the Offering Member and the Company stating that it offers to purchase such Offered Securities on the terms specified in the Offering
Member Notice. Any ROFR Offer Notice shall be binding on delivery and irrevocable by the applicable Member. If more than one Member delivers
a ROFR Offer Notice, each such Member (the “Purchasing Member”) shall be allocated its Pro Rata Share of the Offered
Securities.


 




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(ii)
Each Member that does not deliver a ROFR Offer Notice during the ROFR Offer Notice Period shall be deemed to have waived all of such
Member’s rights to purchase the Offered Securities under this Section 9.02, and if no Member elects to purchase the Offered Securities
pursuant to this Section 9.02, the Offering Member shall thereafter be free to sell the Offered Securities to the Independent Third Party
named in the Offering Member Notice without any further obligation to the other Members pursuant to this Section 9.02.


 


(d)
Consummation of Sale. If no Member delivers a ROFR Offer Notice in accordance with Section 9.03(c), then the Offering Member may,
during the twenty (20) day period immediately following the expiration of the ROFR Offer Notice Period, which period may be extended
for a reasonable time not to exceed thirty (30) days to the extent reasonably necessary to obtain any required approvals or consents
from any Governmental Authority (the “Waived ROFR Transfer Period”), Transfer all of the Offered Securities to the
Independent Third Party on terms and conditions no more favorable to the Independent Third Party than those set forth in the Offering
Member Notice. If the Offering Member does not Transfer the Offered Securities within such period or, if such Transfer is not consummated
within the Waived ROFR Transfer Period, the rights provided hereunder shall be deemed to be revived and the Offered Securities shall
not be Transferred to the Independent Third Party unless the Offering Member sends a new Offering Member Notice in accordance with, and
otherwise complies with, this Section 9.02.


 


(e)
Cooperation. Each Member shall take all actions as may be reasonably necessary to consummate the sale contemplated by this Section
9.02 including, without limitation, entering into agreements and delivering certificates and instruments and consents as may be deemed
necessary or appropriate.


 


(f)
Closing. At the closing of any sale and purchase to any Purchasing Member pursuant to this Section 9.02, the Offering Member shall
deliver to the Purchasing Member(s) certificates (if any exist in accordance with Section 4.05) representing the Offered Securities to
be sold, accompanied by evidence of transfer and all necessary transfer taxes paid and stamps affixed, if necessary, against receipt
of the purchase price therefore from such Purchasing Member(s) by certified or official bank check or by wire transfer of immediately
available funds.


 


ARTICLE
X


Irrevocable
Option to Purchase


 


10.1
Option. At any time on or after January 2, 2025, the Members shall have an irrevocable option and right of first offer/refusal to
purchase the SEM’s Membership Interest (the “Option”) at a price to be determined at that time by the Manager
in accordance with the Company’s performance and any Incentive Payments already made to the SEM (the “Option Price”).


 




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10.2
Exercise of Option. The Member exercising the Option shall do so in writing as further provided herein, and the SEM Membership Interest
shall be transferred on the Company’s books by the Manager. Any documents reasonably required for the transfer or amendment of
the Licenses shall be filed with relevant authorities at that time. In consideration of the Option Price, the SEM shall execute and/or
notarize any further documents reasonably required to transfer or amend the Licenses, and/or hereby designates Manager as his attorney
in fact to do so.


 


10.3
Applicability. This Option shall apply to any SEM who is a Member of the Company on or after January 2, 2025.


 


ARTICLE
XI


Indemnification



 


Section
11.01 Covered Persons.


 


(a)
Covered Persons. As used herein, the term “Covered Person” shall mean (i) each Member, including the Manager,
(ii) each officer, director, shareholder, partner, member, manager, Affiliate, employee, agent, or Representative of each Member, and
each of their respective Affiliates, and (iii) each Manager, Officer, employee, agent, or Representative of the Company.


 


(b)
Indemnification. To the fullest extent permitted under RULLCA (after waiving all RULLCA restrictions on indemnification other
than those which cannot be eliminated or modified under RULLCA), 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 RULLCA permitted the Company to provide before 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, the Manager,
or any of their respective direct or indirect Subsidiaries 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, shareholder, partner, Affiliate, manager,
director, officer, employee, agent, or Representative of the Company, any Member, the Manager, or any of their respective Affiliates,
or such Covered Person serving or having served at the request of the Company as a member, manager, director, officer, employee, agent,
or Representative of any Person including the Company;


 




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provided,
that such Loss did not arise from (a) the Covered Person’s conduct involving bad faith, willful or intentional misconduct, or a
knowing violation of law, (b) a transaction from which such Covered Person derived an improper personal benefit, (c) a circumstance under
which the liability provisions for improper distributions of Section 17704.06 of RULLCA are applicable, or (d) a breach of such Covered
Person’s duties or obligations under Section 17704.09 of RULLCA (taking into account any restriction, expansion, or elimination
of such duties and obligations provided for in this Agreement).


 


(c)
Control of Defense. On a Covered Person’s discovery of any claim, lawsuit, or other proceeding relating to any Losses for
which such Covered Person may be indemnified pursuant to this Section 10.01, the Covered Person shall give prompt written notice to the
Company of such claim, lawsuit, or proceeding; provided, that the failure of the Covered Person to provide such notice shall not relieve
the Company of any indemnification obligation under this Section 10.01, unless the Company shall have been materially prejudiced thereby.
Subject to the approval of the Majority Interests, the Company shall be entitled to participate in or assume the defense of any such
claim, lawsuit, or proceeding at its own expense. After notice from the Company to the Covered Person of its election to assume the defense
of any such claim, lawsuit, or proceeding, the Company shall not be liable to the Covered Person under this Agreement or otherwise for
any legal or other expenses subsequently incurred by the Covered Person in connection with investigating, preparing to defend, or defending
any such claim, lawsuit, or other proceeding. If the Company does not elect (or fails to elect) to assume the defense of any such claim,
lawsuit, or proceeding, the Covered Person shall have the right to assume the defense of such claim, lawsuit, or proceeding as it deems
appropriate, but it shall not settle any such claim, lawsuit, or proceeding without the consent of the Majority Interest held by the
disinterested Members (which consent shall not be unreasonably withheld, conditioned, or delayed).


 


(d)
Reimbursement. The Company shall promptly reimburse (or advance to the extent reasonably required) each Covered Person for reasonable
legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend, or defending any
claim, lawsuit, or other proceeding relating to any Losses for which such Covered Person may be indemnified pursuant to this Section
10.01; provided, that if it is finally judicially determined that such Covered Person is not entitled to the indemnification provided
by this Section 10.01, then such Covered Person shall promptly reimburse the Company for any reimbursed or advanced expenses.


 


(e)
Entitlement to Indemnity. The indemnification provided by this Section 10.01 shall not be deemed exclusive of any other
rights to indemnification to which those seeking indemnification may be entitled under any agreement or otherwise without the requirement
to post any bond if applicable. The provisions of this Section 10.01 shall continue to afford protection to each Covered Person regardless
of whether such Covered Person remains in the position or capacity pursuant to which such Covered Person became entitled to indemnification
under this Section 10.01 and shall inure to the benefit of the executors, administrators, legatees, and distributees of such Covered
Person.


 




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(f)
Insurance. To the extent available on commercially reasonable terms, the Company may purchase, at its expense, insurance (i) to
cover Losses covered by the indemnification provisions contained in this ARTICLE X and (ii) to otherwise cover Losses for any breach
or alleged breach by any Covered Person of such Covered Person’s duties whether or not covered by the foregoing indemnifications,
in each case, in such amount and with such deductibles as the Manager may reasonably determine; provided, that the failure to obtain
such insurance shall not affect the right to indemnification of any Covered Person under the indemnification provisions contained in
this ARTICLE X, including the right to be reimbursed or advanced expenses or otherwise indemnified for Losses hereunder. If any Covered
Person recovers any amounts in respect of any Losses from any insurance coverage, then such Covered Person shall, to the extent that
such recovery is duplicative, reimburse the Company for any amounts previously paid to such Covered Person by the Company in respect
of such Losses.


 


(g)
Funding of Indemnification Obligation. Notwithstanding anything contained herein to the contrary, any indemnity by the Company
relating to the matters covered in this Section 10.01 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.


 


(h)
Savings Clause. If this Section 10.01 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction,
then the Company shall nevertheless indemnify and hold harmless each Covered Person pursuant to this Section 10.01 to the fullest extent
permitted by any applicable portion of this Section 10.01 that shall not have been invalidated and to the fullest extent permitted by
Applicable Law.


 


(i)
Amendment. The provisions of this Section 10.01 shall be a contract between the Company, on the one hand, and each Covered Person
who served in such capacity at any time while this Section 10.01 is in effect, on the other hand, pursuant to which the Company and each
such Covered Person intend to be legally bound. No amendment, modification, or repeal of this Section 10.01 that adversely affects the
rights of a Covered Person to indemnification for Losses incurred or relating to a state of facts existing before such amendment, modification,
or repeal shall apply in such a way as to eliminate or reduce such Covered Person’s entitlement to indemnification for such Losses
without the Covered Person’s prior written consent.


 


Section
11.02 Survival. The provisions of this ARTICLE X shall survive the dissolution, liquidation, winding up, and termination of the Company.


 




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ARTICLE
XII


Accounting:
Tax Matters


 


Section
12.01 Financial Statements. The Company shall furnish to each Member the following reports:


 


(a)
Annual Financial Statements. As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year,
audited consolidated balance sheets of the Company as of the end of each such Fiscal Year and audited consolidated 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 Manager, 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.


 


(b)
Quarterly Financial Statements. As soon as available, and in any event within forty-five (45) days after the end of each quarterly
accounting period in each Fiscal Year (other than the last fiscal quarter of the Fiscal Year), unaudited consolidated balance sheets
of the Company as of the end of each such fiscal quarter and for the current Fiscal Year to date and unaudited 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.


 


(c)
Monthly Financial Statements. As soon as available, and in any event within thirty (30) days after the end of each monthly accounting
period in each fiscal quarter (other than the last month of the fiscal quarter), unaudited consolidated balance sheets of the Company
as of the end of each such monthly period and for the current Fiscal Year to date and unaudited consolidated statements of income, cash
flows, and Members’ equity for each such monthly period and for the current Fiscal Year to date, 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).


 


Section
12.02 Inspection Rights. Upon reasonable notice from a Member, the Company shall afford the Member and each of its respective Representatives
access during normal business hours to (i) the Company’s properties, offices, plants, and other facilities, (ii) the corporate,
financial, and similar records, reports, and documents of the Company, including, without limitation, all books and records, minutes
of proceedings, internal management documents, reports of operations, reports of adverse developments, copies of any management letters,
and communications with Members, and permit the Member and each of its respective Representatives to examine such documents and make
copies thereof, and (iii) any Officers, senior employees, and public accountants of the Company, and afford the Member and each of its
respective Representatives the opportunity to discuss and advise on the affairs, finances, and accounts of the Company with such Officers,
senior employees, and public accountants (and the Company hereby authorizes said accountants and other Persons to discuss with such Member
and its Representatives such affairs, finances, and accounts); in each case, to the extent such information is for a purpose reasonably
related to the Member’s interest as a Member.


 




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Section
12.03 Income Tax Status. It is the intent of the Company and the Members that the Company shall be treated as a partnership for U.S.,
federal, state, and local income tax purposes. Neither the Company, the Manager, 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, unless agreed to otherwise in writing
by the Majority Interests.


 


Section
12.04 Tax Matters Member; Partnership Representative.


 


(a)
Appointment; Resignation. The Members hereby appoint Sugarmade as the “tax matters partner” (as defined in Code Section
671 prior to its amendment by the Bipartisan Budget Act of 2015 (“BBA”)) (the “Tax Matters Member”)
and, for tax years beginning on or after January 1, 2018, the “partnership representative” (the “Partnership Representative”)
as provided in Code Section 627(a) (as amended by the BBA). The Tax Matters Member or Partnership Representative may resign at any time
if there is another Member to act as the Tax Matters Member or Partnership Representative. The Tax Matters Member or Partnership Representative
can be removed at any time by a vote of a majority of the other Members and shall resign if it is no longer a Member. In the event of
the resignation or removal of the Tax Matters Member or Partnership Representative, a majority of the other Members shall select a replacement
Tax Matters Member or Partnership Representative. If the resignation or removal of the Partnership Representative occurs prior to the
effectiveness of the resignation or removal under applicable Treasury Regulations or other administrative guidance, the resignation or
removal shall be effective upon the earliest date provided for in such Treasury Regulations or administrative guidance.


 


(b)
Tax Examinations and Audits. The Tax Matters Member and Partnership Representative are each 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 and Partnership Representative shall each have sole authority to act on behalf of the Company in any
such examinations and any resulting administrative or judicial proceedings and shall have sole discretion to determine whether the Company
(either on its own behalf or on behalf of the Members) will contest or continue to contest any tax deficiencies assessed or proposed
to be assessed by any Taxing Authority.


 




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(c)
BBA Election. The Company shall not elect into the partnership audit procedures enacted under Section 1101 of the BBA (the “BBA
Procedures”) for any tax year beginning before January 1, 2018, and, to the extent permitted by Applicable Law, the Company
will annually elect out of the BBA Procedures for tax years beginning on or after January 1, 2018 pursuant to Code Section 6221(b) (as
amended by the BBA). For any year in which applicable law and regulations do not permit the Company to elect out of the BBA Procedures,
then within forty-five (45) days of any notice of final partnership adjustment, the Company will elect the alternative procedure under
Code Section 6226, as amended by the BBA, and furnish to the Internal Revenue Service and each Member during the year or years to which
the notice of final partnership adjustment relates a statement of the Member’s share of any adjustment set forth in the notice
of final partnership adjustment.


 


(d)
Tax Returns and Tax Deficiencies. 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. Any
deficiency for taxes imposed on any Member (including penalties, additions to tax, or interest imposed with respect to such taxes and
taxes imposed pursuant to Code Section 6226 as amended by the BBA) shall be paid by such Member and if required to be paid (and actually
paid) by the Company, will be recoverable from such Member as provided in Section 6.03(c).


 


(e)
Income Tax Elections. Except as otherwise provided herein, each of the Tax Matters Member and Partnership Representative shall
have sole discretion to make any determination regarding income tax elections it deems advisable on behalf of the Company; provided,
that the Tax Matters Member or Partnership Representative will make an election under Code Section 754, if requested in writing by another
Member.


 


Section
12.05 Tax Returns. At the expense of the Company, the Manager (or any Officer that it may designate pursuant to Section 7.03) 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 owns property or does business. No later
than ninety (90) days after the end of each Fiscal Year, the Manager or designated Officer will cause to be delivered to each Person
who was a Member at any time during such Fiscal Year, such written information as may be necessary for the preparation of such Person’s
federal, state and local income tax returns for such Fiscal Year. As soon as reasonably possible after the end of each Fiscal Year, the
Manager or designated Officer will cause to be delivered to each Person who was a Member at any time during such Fiscal Year, IRS Schedule
K-1 to Form 1065.


 


Section
12.06 Company Funds. All funds of the Company shall be deposited in its name, or in such name as may be designated by the Manager,
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
Manager. 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 on the signature or signatures of the Manager, Majority Interests, Officer
or Officers as the Majority Interests may designate.


 




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ARTICLE
XIII


Dissolution
and Liquidation





 


Section
13.01 Events of Dissolution. The Company shall be dissolved, and its affairs wound up only on the occurrence of any of the following
events:


 


(a)
An election to dissolve the Company made by the Majority Interests;


 


(b)
At the election and sole discretion of the non-defaulting Members, if a Member breaches any material covenant, duty, or obligation under
this Agreement, which breach remains uncured for thirty (30) days after written notice of such breach was received by the defaulting
Member;


 


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


 


(d)
Passage of ninety (90) consecutive days during which the Company has no Members; provided that the Membership Interest of a natural person
who is the sole Member may pass, by will or Applicable Law, to the Member’s heirs, successors, or assigns pursuant to Section 17707.01(c)
of RULLCA; or


 


(e)
The entry of a decree of judicial dissolution under Section 17707.03 of RULLCA.


 


Section
13.02 Effectiveness of Dissolution. Dissolution of the Company shall be effective on the day on which the event described in Section
12.01 occurs. On the occurrence of an event described in Section 12.01, the Liquidator (or, in the case of a dissolution pursuant to
Section 12.01(d), the persons conducting the winding up of the Company’s affairs pursuant to Section 17707.04 of RULLCA) shall
file a certificate of dissolution with the California Secretary of State pursuant to Section 17707.08 of RULLCA, unless such a filing
is not required by RULLCA, 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 12.03, and the Articles of Organization shall have been cancelled as provided
in Section 12.04.


 


Section
13.03 Liquidation. If the Company is dissolved pursuant to Section 12.01, the Company shall be liquidated and its business and affairs
wound up in accordance with RULLCA and the following provisions:


 


(a)
Liquidator. The Majority Interests shall appoint a Person to act as liquidator to wind up the Company (the “Liquidator”)
in the Majority Interests’ sole discretion, unless the Company is being dissolved pursuant to Section 12.01(b) based on the breach
of the Manager, in which case the Liquidator shall be a Person selected by the unanimous consent of the non-defaulting Members, in their
sole discretion. 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)
Notice of Liquidation. The Liquidator (or other persons winding up the affairs of the Company pursuant to Section 12.02) shall
give written notice of the commencement of winding up by mail to all known creditors and claimants whose addresses appear on the records
of the Company.


 




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(c)
Accounting. 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.


 


(d)
Distribution of Proceeds. 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:


 


(i)
First, to the payment of all of the Company’s known debts and liabilities (including debts and liabilities to Members who are creditors,
if applicable) and the expenses of liquidation (including sales commissions incident to any sales of assets of the Company);


 


(ii)
Second, to the establishment of and additions to reserves that are determined by the Liquidator to be reasonably necessary for any contingent
unknown liabilities or obligations of the Company; and


 


(iii)
Third, to the Members, on a pro rata basis, 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.


 


(e)
Discretion of Liquidator. Notwithstanding the provisions of Section 12.03(d) that require the liquidation of the assets of the
Company, but subject to the order of priorities set forth in Section 12.03(d), if on dissolution of the Company the Liquidator reasonably
determines that an immediate sale of part or all of the Company’s assets would be impractical or could cause undue loss to the
Members, the Liquidator may defer the liquidation of any assets except those necessary to satisfy Company liabilities and reserves, and
may distribute to the Members, in lieu of cash, as tenants in common and in accordance with the provisions of Section 12.03(d), undivided
interests in such Company assets as the Liquidator deems not suitable for liquidation. Any such distribution in kind shall be subject
to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and
to any agreements governing the operating of such properties at such time. For purposes of any such distribution, any property to be
distributed will be valued at its Fair Market Value.


 


Section
13.04 Certificate of Cancellation; Cancellation of Foreign Qualifications. On completion of the distribution of the assets of the
Company as provided in Section 12.03(d) hereof, the Liquidator shall file a certificate of cancellation with the California Secretary
of State and shall cause the cancellation of all qualifications and registrations of the Company as a foreign limited liability company
in jurisdictions other than the State of California and shall take such other actions as may be necessary to terminate the Company.


 




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Section
13.05 Survival of Rights, Duties, and Obligations. Dissolution, liquidation, winding up, or termination of the Company for any reason
shall not release any party from any Loss that at the time of such dissolution, liquidation, winding up, or termination already had accrued
to any other party or thereafter may accrue in respect of any act or omission before such dissolution, liquidation, winding up, or termination.
For the avoidance of doubt, none of the foregoing shall replace, diminish, or otherwise adversely affect any Member’s right to
indemnification pursuant to ARTICLE X.


 


Section
13.06 Recourse for Claims. In the event of dissolution hereunder, 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 Net Income, Net
Loss, 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
13.07 Continuation. After a certificate of dissolution has been filed but before a certificate of cancellation has been filed, a
majority of the Members may continue the Company by filing a certificate of continuation with the California Secretary of State if (a)
the remaining Members unanimously vote to continue the Company’s business, (b) the dissolution of the Company was by a vote of
the Members pursuant to Section 12.01(a) and each Member who voted in favor of dissolution agrees in writing to revoke that vote, or
(c) the Company was not actually dissolved.


 


ARTICLE
XIV


Miscellaneous


 


Section
14.01 Social Equity Restriction. To the extent that any provision of this agreement, or part thereof, is or may be construed to be
inconsistent with or in violation of the “Equity Share” requirements set forth in Los Angeles Municipal Code section 104.20,
such provision(s) shall be ineffective, unenforceable, and null and void.


 


Section
14.02 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel,
financial advisors, and accountants, incurred in connection with the preparation and execution of this Agreement, or any amendment or
waiver hereof, and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.


 


Section
14.03 Further Assurances. In connection with this Agreement and the transactions contemplated hereby, the Company and each Member
hereby agrees, at the request of the Company or any other Member, to execute and deliver such additional documents, instruments, conveyances,
and assurances and to take such further actions as may be required to carry out the provisions hereof and give effect to the transactions
contemplated hereby.


 




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Section
14.04 Confidentiality.


 


(a)
Each Member acknowledges that during the term of this Agreement, it will have access to and become acquainted with trade secrets, proprietary
information, and confidential information belonging to the Company and its Affiliates and the other Members and such other Members’
Affiliates (collectively, the “Confidential Parties”) that are not generally known to the public, including without
limitation, information concerning business plans, financial statements, and other information provided pursuant to this Agreement, operating
practices and methods, expansion plans, strategic plans, marketing plans, contracts, customer lists, or other business documents that
the Confidential Parties treats as confidential, in any format whatsoever (including oral, written, electronic, or any other form or
medium) (collectively, “Confidential Information”). In addition, each Member acknowledges that (i) the Confidential
Parties have invested, and continues to invest, substantial time, expense, and specialized knowledge in developing its Confidential Information,
(ii) the Confidential Information provides the Company with a competitive advantage over others in the marketplace, and (iii) the Confidential
Parties would be irreparably harmed if the Confidential Information were disclosed to competitors or made available to the public. Without
limiting the applicability of any other agreement to which any Member is subject, no Member shall, directly or indirectly, disclose or
use (other than solely for the purposes of such Member monitoring and analyzing its investment in the Company) at any time, including,
without limitation, use for personal, commercial, or proprietary advantage or profit, either during its association with the Company
or thereafter, any Confidential Information of which such Member is or becomes aware. Each Member in possession of Confidential Information
shall take all appropriate steps to safeguard such information and to protect it against disclosure, misuse, espionage, loss, and theft.


 


(b)
Nothing contained in Section 13.03(a) shall prevent any Confidential Party from disclosing Confidential Information (i) on the order
of any court or administrative agency, (ii) on the request or demand of any Government Authority having jurisdiction over such Confidential
Party, (iii) to the extent compelled by legal process or required or requested pursuant to subpoena, interrogatories, or other discovery
requests, (iv) to the extent necessary in connection with the exercise of any remedy hereunder, (v) to any other Confidential Party or
the Manager (provided the Manager signs a Nondisclosure Agreement with the Company), or (vi) to such Confidential Party’s Representatives
who, in the reasonable judgment of such Confidential Party, need to know such Confidential Information and agree to be bound by the provisions
of this Section 13.03 as if a Member; provided, that in the case of clause (i), (ii), or (iii), such Confidential Party shall notify
the Confidential Parties of the proposed disclosure in writing as far in advance of such disclosure as practicable (but in no event make
any such disclosure before notifying the Confidential Parties in writing) and use reasonable efforts to ensure that any Confidential
Information so disclosed is accorded confidential treatment satisfactory to the Company, when and if available.


 


(c)
The restrictions of Section 13.03(a) shall not apply to Confidential Information that (i) is or becomes generally available to the public
other than as a result of a disclosure by a Confidential Party in violation of this Agreement, or (ii) becomes available to such Confidential
Party or any of its Representatives on a non-confidential basis from a source other than the Company, the other Confidential Parties,
or any of their respective Representatives; provided, that such source is not known by the receiving Confidential Party to be bound by
a confidentiality agreement regarding the Confidential Parties.


 




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(d)
The obligations of each Confidential Party under this Section 13.03 shall survive (i) the termination, dissolution, liquidation, and
winding up of the Company, (ii) the dissociation of such Confidential Party from the Company, and (iii) any such Member’s Transfer
of its Membership Interests.


 


Section
14.05 Notices. All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing
and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee
if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by facsimile or email of a PDF document
(with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after
normal business hours of the recipient, or (d) on the third day after the date mailed, by certified or registered mail, return receipt
requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with this Section 13.04):


 


	If
    to the Company: 	SugarRush
    5058, LLC
	 	Attn:
    Sugarmade, Inc., Manager 
	 	Address:
    5058 Valley Boulevard 
	 	Los
    Angeles, CA 90032 
	 	Jimmy@sugarmade.com
	 	 
	With
    a copy to: 	D|R
    Welch Attorneys at Law
	 	Address:
    500 S. Grand Avenue, 18th Floor, 
	 	Los
    Angeles, California, 90071 (Attn: Molly Pitluck), 
	 	mpitluck@drwelchlaw.com
	 	 
	If
    to Manager: 	Sugarmade,
    Inc.,
	 	Manager,
    SugarRush 5058 LLC 
	 	Address:
    750 Royal Oaks Drive #108
	 	Monrovia,
    CA 91016
	 	 
	With
    a copy to:	 


 


 


If
to a non-managing Member, to such Member’s respective mailing address as set forth on the Members Schedule.


 




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Section
14.06 Headings; Capitalized Terms in Attachments. The headings in this Agreement are inserted for convenience or reference only and
are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision of this
Agreement. Capitalized terms in Exhibits, Schedules and other attachments to this Agreement shall have the definitions given to them
in this Agreement, unless otherwise defined in the applicable attachment.


 


Section
14.07 Severability. If any term or provision of this Agreement is held to be invalid, illegal, or unenforceable under Applicable
Law in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement
or invalidate or render unenforceable such term or provision in any other jurisdiction. Except as provided in Section 10.01(h), on such
determination that any term or other provision is invalid, illegal, or unenforceable, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. Federal laws
prohibiting licensed commercial cannabis shall not be considered a basis for invalidity, illegality or unenforceability of this Agreement.


 


Section
14.08 Entire Agreement. This Agreement, together with the Articles of Organization and all related Exhibits and Schedules, constitutes
the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersedes
all prior and contemporaneous understandings, agreements, records, representations, and warranties, both written and oral, whether express
or implied, with respect to such subject matter.


 


Section
14.09 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 permitted assigns.
This Agreement may not be assigned by any Member except as permitted by this Agreement and any assignment in violation of this Agreement
shall be null and void.


 


Section
14.10 No Third-Party Beneficiaries. Except as provided in ARTICLE X, 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 permitted 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.


 


Section
14.11 Amendment. Except as otherwise provided by this Agreement, no provision of this Agreement may be amended or modified except
by an instrument in writing executed by the Company and the number of Members required by Section 7.02. Any such written amendment or
modification will be binding upon the Company and each Member. Notwithstanding the foregoing, amendments to the Members Schedule following
any new issuance, redemption, repurchase, or Transfer of Membership Interests in accordance with this Agreement may be made by the Manager
without the consent of or execution by the Members.


 




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Section
14.12 Waiver. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and
signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach, or
default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or
after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Agreement
shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege
hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. For the avoidance
of doubt, nothing contained in this Section 13.11 shall diminish any of the explicit and implicit waivers described in this Agreement,
including in Section 8.01(c) and Section 9.03(c)(ii) hereof.


 


Section
14.13 Governing Law. All issues and questions concerning the application, construction, validity, interpretation, and enforcement
of this Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without giving
effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause
the application of laws of any jurisdiction other than those of the State of California.


 


Section
14.14 Dispute Resolution. Subject to Section 12, above, the following shall apply in the case of a dispute between the Parties:


 


	 	a)	Meeting
of the Parties. The Parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement, including
without limitation the determination of the scope or applicability of this Agreement to arbitrate (each, a “Dispute”), promptly
by negotiation between executives who have authority to settle the controversy. Each Party may give the other Party written notice of
any Dispute not resolved in the normal course of business. Within fifteen (15) days after delivery of the written notice, the receiving
Party shall submit to the other a written response. The notice and response shall include with reasonable particularity (i) a statement
of each Party’s position and a summary of arguments supporting that position, and (ii) the name and title of the executive who
will represent that Party and of any other person who will accompany the executive. Within thirty (30) days after delivery of the written
notice, the executives of both Parties shall meet at a mutually acceptable time and place. Unless otherwise agreed in writing by the
negotiating Parties, the above-described negotiation shall end at the close of the first meeting of executives described above (“First
Meeting”). Such closure shall not preclude continuing or later negotiations, if desired.


 




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	 	b)
    	Arbitration.
    If the Parties do not agree on a written resolution of a Dispute pursuant to the procedures set forth in Section 13(a) by the end
    of the First Meeting, then, except as otherwise provided in this Agreement, any Dispute shall be submitted to binding arbitration
    in Los Angeles, California in accordance with the rules of JAMS (formerly known as Judicial Arbitration and Mediation Services, Inc.)
    by a single arbitrator mutually chosen by the Parties in writing, who shall be a retired judge or litigator with ten (10) years or
    more of experience with claims similar to the Dispute (provided, that lack of experience with claims involving the cannabis industry
    shall not be a cause for disqualification). If the Parties cannot agree on an arbitrator, JAMS shall provide a list of six (6) candidates,
    and each Party shall take turns striking candidates (beginning with the Party who received the notice of arbitration) until there
    is a single arbitrator. The costs of the arbitration, including any JAMS administration fee, the arbitrator’s fee, and costs
    for the use of facilities during the hearings, shall be borne equally by the parties to the arbitration; provided that all costs
    and expenses of the dispute, including arbitrator fees and reasonable attorneys’ fees and costs incurred, shall be awarded
    to the prevailing or most prevailing party as determined by the arbitrator. The arbitrator shall not have any power to alter, amend,
    modify or change any of the terms of this Agreement nor to grant any remedy which is either prohibited by the terms of this Agreement,
    or not available in a court of law. The arbitrator shall render a written opinion not later than thirty (30) days after conclusion
    of the arbitration proceedings setting forth a determination of award, if any, and the basis for awarding (or not awarding) the relief
    sought by the Parties, including findings of fact and conclusions of law. If JAMS refuses to arbitrate a Dispute, the Parties shall
    cooperate in good faith to find an alternative arbitrator reasonably acceptable to the Parties in writing. An arbitrator exceeds
    his or her powers by voiding or refusing to enforce any contracts or arbitration agreements between Parties based solely on the cannabis-
    related nature of the contract.
	 	 	 
	 	c)	 Equitable
    Remedies. Notwithstanding anything to the contrary herein, each party hereto acknowledges that a breach or threatened breach
    by such party of any of its obligations under this Agreement would give rise to irreparable harm to the other parties, for which
    monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by such
    party of any such obligations, each of the other parties hereto shall, in addition to any and all other rights and remedies that
    may be available to them in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an
    injunction, specific performance, and any other relief that may be available from a court of competent jurisdiction (without any
    requirement to post bond).
	 	 	 
	 	d) 	Attorneys’
    Fees. If any party hereto institutes any legal suit, action, or proceeding, including arbitration, against another party in respect
    of a matter arising out of or relating to this Agreement, the prevailing party in the suit, action, or proceeding shall be entitled
    to receive, in addition to all other damages to which it may be entitled, the costs incurred by such party in conducting the suit,
    action, or proceeding, including reasonable attorneys’ fees and expenses and court costs.


 




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Section
14.15 Remedies Cumulative. The rights and remedies under this Agreement are cumulative and are in addition to and not in substitution
for any other rights and remedies available at law or in equity or otherwise, except to the extent expressly provided herein to the contrary.


 


Section
14.16 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together
shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, email, or other means of Electronic
Transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.


 


Section
14.17 Spousal Consent. Each Member who has a Spouse on the date of this Agreement shall cause such Member’s Spouse to execute
and deliver to the Company a spousal consent in the form of Exhibit C hereto (a “Spousal Consent”), pursuant
to which the Spouse acknowledges that he or she has read and understood the Agreement and agrees to be bound by its terms and conditions.
If any Member should marry or engage in a Marital Relationship following the date of this Agreement, such Member shall cause his or her
Spouse to execute and deliver to the Company a Spousal Consent within sixty (60) days thereof.


 


[SIGNATURE
PAGE FOLLOWS]


 




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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.


 


	Company:	 
	 	 	 
	By:		 
	 	Sugarmade,
Inc., Manager	 
	 	 	 
	Members:
    	 
	 	 
	SUGARMADE,
    INC.	 
	 	 	 
	By:		 
	Its:	Jimmy
    Chan, Chief Executive Officer	 
	 	 	 
	ZARIAN
    P. HADLEY	 
	 	 
	 	

    

     
	 


 




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EXHIBIT
A


MEMBERS
SCHEDULE


August
19, 2021


 


	Member
Name

And Contact Information
	 	Capital Contribution	 	Membership Interest
	Sugarmade, Inc., a California corporation (“Sugarmade”)	 	$1.00 + other valuable consideration*	 	66.66%
	Zarian Hadley, an individual (“Hadley”)	 	$1.00 + other valuable consideration**	 	33.34%
	 	 	 	 	100%




 


*Sugarmade
shall provide miscellaneous legal and other compliance services to obtain and maintain the Licenses, venture financing for the Licenses
and Company and related marketing, intellectual property and marketing support, including without limitation access to Sugarmade and
Affiliate proprietary and confidential vendor and customer data, technology, consulting, business development, distribution, sales, cultivation,
supply and procurement services.


 


**Zarian
Hadley shall provide services as requested by the Company, including without limitation, obtaining and maintaining the Licenses and SEL
status in good standing pursuant to Applicable Law, acting as SEM and maintaining his DCR Tier 2 social equity designation in good standing.


 




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EXHIBIT
B


Incentive
Payment Schedule


 


Member
Sugarmade shall make a series of payments to Member Hadley at different stages of the licensing and corporate structuring of the Company
pursuant to the following schedule (the “Incentive Payments”):


 


	 	1)	Upon
    execution of this Agreement and any related agreements or certifications required by the License applications, or any Related Party
    Agreements requested by Sugarmade, and submission of the License applications and modification to the DCR for retail delivery activities
    = $50,000
	 	 	 
	 	2)	Upon approval
    of a License application by the DCR authorizing retail delivery activities = $75,000
	 	 	 
	 	3)	Upon approval
    of a License application by the BCC or DCC authorizing retail delivery activities = $50,000
	 	 	 
	 	4)	Upon purchase
    of the SEM Membership Interest pursuant to Article X, herein, and the SEM’s transfer or amendment of the License = $25,000


 


For
a total possible payment of $200,000.


 


All
such Incentive Payments shall be made against Member Hadley’s equity share of future profit distributions pursuant to Sections
3.01(a), 3.03 and 6.01(a) and Exhibit A of this Operating Agreement, as determined at the sole discretion and responsibility of the Company
for such accounting and payment of future profit distributions.


 




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EXHIBIT
C


FORM
OF SPOUSAL CONSENT


 


I,______________,
spouse of _____________, a Member named in the foregoing Operating Agreement of____________LLC (“Agreement”), acknowledge
that I have read the foregoing Agreement, that I know its contents, and that I have been advised by counsel or have had ample opportunity
to receive the advice of counsel regarding the Agreement. I hereby agree to be bound by all of the terms of said Agreement and as the
same may be amended in the future. I will not bequeath my community property interest, or other interest, in the Company or Membership
Interest in the Company, by will, transfers in trust or any other testamentary disposition to any person other than my current spouse
or a trust for my current spouse if I predecease my spouse. I also agree not to pledge or otherwise encumber my community property interest,
or other interest, in the Company or Membership Interest in the Company, without the consent of all Members. I direct that the residuary
clause in my will shall not be deemed to apply to my community interest in the Company or Membership Interest in the Company. The interpretation
and enforceability of this consent shall be governed by the terms of the Agreement.


 


Dated
this________day of_______2021.


 


	 	 
	Signature
    of Spouse	 


 




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EXHIBIT
D


FORM
OF JOINDER AGREEMENT


 


Reference
is hereby made to the Operating Agreement, dated ______________, as amended from time to time (the “Operating Agreement”),
among ______________, and ______________. Pursuant to and in accordance with Section 4.01(b) of the Operating Agreement, the undersigned
hereby acknowledges that it has received and reviewed a complete copy of the Operating Agreement and agrees that upon execution of this
Joinder Agreement, such Person shall become a party to the Operating Agreement and shall be fully bound by, and subject to, all of the
covenants, terms and conditions of the Operating Agreement as though an original party thereto and shall be deemed, and is hereby admitted
as, a Member for all purposes thereof and entitled to all the rights incidental thereto.


 


Capitalized
terms used herein without definition shall have the meanings ascribed thereto in the Operating Agreement.


 


IN
WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of ______________, 2021.


 


	 	NAME	 
	 	 	 
	 	By:	 
	 	Title:	Member
	 	Date:	 


 




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